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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q



☑	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2020



☐	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number: 0-49807

WASHINGTON GAS LIGHT COMPANY

(Exact name of Registrant as Specified in Its Charter)

1000 Maine Ave., S.W.

Washington, D.C. 20024

(Address of Principal Executive Offices and Zip Code)

(703) 750-4440

(Registrant's telephone number, including area code)



Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Title of class

Common stock, $1.00 par value

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes [☑] No [ ☐ ]

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [☑] No [ ☐ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large Accelerated Filer	☐	Accelerated Filer	☐	Non-Accelerated Filer	☑	Smaller Reporting Company	☐

Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act): Yes [☐ ] No [☑]

Securities registered pursuant to Section 12(b) of the Act: None.

As of July 30, 2020, there were 46,479,536 shares of registrant common stock, $1 par value, outstanding. All of the outstanding shares of common stock are held by Wrangler SPE LLC, an indirect wholly owned subsidiary of AltaGas Ltd.

REDUCED DISCLOSURE FORMAT

Washington Gas Light Company, an indirect wholly owned subsidiary of AltaGas Ltd., meets the requirements set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this Form 10-Q with the reduced disclosure format.

Washington Gas Light Company

For the Quarter Ended June 30, 2020

Table of Contents



PART I

Safe Harbor for Forward-Looking Statements		4
Item 1.	Financial Statements (Unaudited)
	Condensed Balance Sheets	6
	Condensed Statements of Operations	7
	Condensed Statements of Comprehensive Income	8
	Condensed Statements of Cash Flows	9
	Notes to Condensed Financial Statements	10

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	33

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	39

Item 4.	Controls and Procedures	40


PART II. Other Information

Item 1.	Legal Proceedings	41

Item 1A.	Risk Factors	41

Item 4.	Mine Safety Disclosures	43

Item 6.	Exhibits	44

Signature		45

(i)

Washington Gas Light Company

Part I-Financial Information

SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS

Washington Gas Light Company (Washington Gas) is an indirect, wholly-owned subsidiary of, among other entities, AltaGas Ltd. (AltaGas) and WGL Holdings, Inc (WGL). WGL is an indirect wholly owned subsidiary of AltaGas. Except where the content clearly indicates otherwise, any reference in this report to “Washington Gas”,” “we,” “us”, “our” or “the Company” refers to Washington Gas Light Company. References to “WGL” refer to WGL Holdings, Inc. and all of its subsidiaries.

Certain matters discussed in this report, excluding historical information, include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to the outlook for earnings, dividends, revenues and other future financial business performance, strategies, financing plans, AltaGas' integration of us and other expectations. Forward-looking statements are typically identified by words such as, but not limited to, “estimates,” “expects,” “anticipates,” “intends,” “believes,” “plans” and similar expressions, or future or conditional terms such as “will,” “should,” “would” and “could.” Forward-looking statements speak only as of the filing date of this report, and the registrant assumes no duty to update them. Factors that could cause actual results to differ materially from forward-looking statements or historical performance include those discussed in Item 1A. Risk Factors in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, and may include, but are not limited to the following:


•	Impacts related to the COVID-19 global health pandemic, which poses challenges to the health and safety of the Company's personnel and the strength of communities it serves;


•	increasing levels of political insecurity and civil unrest that could threaten Company property and personnel;


•	hazards involved in the storage, transportation, and moving of marketing of hydrocarbon products;


•	leaks, mechanical problems, incidents, or other operational issues could affect public safety and the reliability of Washington Gas’ distribution system;


•	the availability of natural gas supply or an inability to obtain an adequate supply of gas to satisfy present and future demands;


•	challenges in securing the necessary transportation or storage capacity to deliver or acquire the volume of gas necessary to meet customer demands and future growth expectations;


•	cyberattacks, including cyberterrorism, or other information technology security breaches or failures;


•	the inability to meet commitments under various orders and agreements associated with regulatory approvals for the Merger;


•	the Merger may not achieve its expected results and Washington Gas may be unable to successfully integrate into the operations of AltaGas;


•	the occurrence of unexpected costs in connection with the Merger;


•	securities class action suits and derivative suits;


•	the loss of certain administrative and management functions and services provided by AltaGas;


•	changes in AltaGas' strategy or relationship with Washington Gas that could affect our performance or operations;


•	the ability to access capital and the costs at which Washington Gas is able to access capital and credit markets, including changes in the credit ratings of Washington Gas, WGL, and AltaGas;


•	disruptions or decline in the local economy in which Washington Gas operates;


•	the credit-worthiness of customers; suppliers and derivatives counterparties;


•	changes in the value of derivative contracts and the availability of suitable derivative counterparties;


•	rules implementing the derivatives transaction provisions of the Dodd-Frank Act may impose costs on our derivatives activities;

Washington Gas Light Company

Part I-Financial Information


•	failures of Washington Gas service providers that could negatively impact the Company’s business;


•	compliance with Section 404(a) of Sarbanes-Oxley Act;


•	acts of nature and catastrophic events, including terrorist acts;


•	an inability to attract and retain key management and sufficiently skilled operational personnel;


•	strikes or work stoppages by unionized employees;


•	changes in the costs of providing retirement plan benefits;


•	the extent to which we are allowed to recover from our customers, through the regulatory process, costs and expenses related to our operations and the ability of the Company to earn a reasonable rate of return on its invested capital;


•	concerns involving climate change and the movement for carbon neutral energy sources;


•	changes in energy commodity market conditions, including the relative prices of alternative forms of energy such as electricity, fuel oil and propane;


•	physical and financial risks associated with climate change;


•	unusual weather conditions and changes in natural gas consumption patterns;


•	costs associated with certain legacy operations of Washington Gas and environmental remediation efforts;


•	the outcome of new and existing matters before courts, regulators, government agencies or arbitrators;


•	changes to government fiscal and trade policies;


•	regulatory and financial risks related to pipeline safety legislation;


•	changes to the tax code and our ability to quantify such changes and seek recovery for the manner in which corporate taxes are shared with customers; and


•	changes in accounting principles and the effect of accounting pronouncements issued periodically by accounting standard-setting bodies.

All such factors are difficult to predict accurately and are generally beyond the direct control of the registrant. Readers are urged to use care and consider the risks, uncertainties and other factors that could affect the registrant’s business as described in this Quarterly Report on Form 10-Q.

Washington Gas Light Company

Condensed Balance Sheets (Unaudited)

Part I-Financial Information

Item 1-Financial Statements



(In thousands)	June 30, 2020			December 31, 2019
ASSETS
Property, Plant and Equipment
At original cost	$	6,137,099		$	5,962,866
Accumulated depreciation and amortization	(1,631,522		)	(1,579,718		)
Net property, plant and equipment	4,505,577			4,383,148
Current Assets
Cash and cash equivalents	1			17,069
Receivables (net of allowance for doubtful accounts of $23,176 and $18,708, respectively)	229,251			400,891
Gas costs and other regulatory assets	23,518			9,894
Materials and supplies—principally at average cost	20,187			20,184
Storage gas	52,003			87,977
Prepaid taxes	29,554			34,576
Other prepayments	26,082			33,867
Receivables from associated companies	10,292			12,421
Derivatives	4,511			6,553
Other	11,491			19,619
Total current assets	406,890			643,051
Deferred Charges and Other Assets
Regulatory assets
Gas costs	46,435			98,717
Pension and other post-retirement benefits	34,119			39,435
Other	94,072			84,886
Prepaid post-retirement benefits	370,199			366,508
Right of use asset	38,445			40,004
Derivatives	12,722			10,370
Other	34,861			30,620
Total deferred charges and other assets	630,853			670,540
Total Assets	$	5,543,320		$	5,696,739
CAPITALIZATION AND LIABILITIES
Capitalization
Common shareholder’s equity	$	1,757,501		$	1,572,196
Long-term debt	1,431,246			1,430,949
Total capitalization	3,188,747			3,003,145
Current Liabilities
Notes payable	34,882			299,483
Accounts payable and other accrued liabilities	236,181			267,408
Customer deposits and advance payments	30,747			40,052
Gas costs and other regulatory liabilities	36,983			105,399
Accrued taxes	31,610			23,781
Payables to associated companies	62,470			57,923
Operating lease liability	5,699			5,850
Derivatives	7,027			4,069
Other	29,789			30,032
Total current liabilities	475,388			833,997
Deferred Credits
Deferred income taxes	518,347			462,475
Accrued pensions and benefits	120,676			115,837
Asset retirement obligations	211,094			206,820
Regulatory liabilities
Accrued asset removal costs	250,870			254,429
Other post-retirement benefits	193,370			199,665
Excess deferred taxes and other	398,479			404,700
Operating lease liability	51,905			53,642
Derivatives	76,449			97,695
Other	57,995			64,334
Total deferred credits	1,879,185			1,859,597
Commitments and Contingencies (Note 11)
Total Capitalization and Liabilities	$	5,543,320		$	5,696,739

The accompanying notes are an integral part of these statements.

Washington Gas Light Company

Condensed Statements of Operations (Unaudited)

Part I-Financial Information

Item 1-Financial Statements (continued)



	Three Months Ended June 30,						Six Months Ended June 30,
(In thousands)	2020			2019			2020		2019

OPERATING REVENUES	$	211,166		$	198,484		$	712,901	$	792,137
OPERATING EXPENSES
Utility cost of gas	58,504			55,589			200,455		297,852
Operation and maintenance	95,032			88,236			197,710		199,238
Depreciation and amortization	36,317			37,051			72,187		72,240
General taxes and other assessments	31,945			27,746			82,014		80,365
Total Operating Expenses	221,798			208,622			552,366		649,695
OPERATING INCOME (LOSS)	(10,632		)	(10,138		)	160,535		142,442
Other income (expense) — net	4,754			(757		)	7,824		3,765
Interest expense	16,229			14,641			32,923		29,517
INCOME BEFORE INCOME TAXES	(22,107		)	(25,536		)	135,436		116,690
INCOME TAX EXPENSE (BENEFIT)	(5,832		)	(4,945		)	25,627		24,285
NET INCOME (LOSS)	$	(16,275	)	$	(20,591	)	$	109,809	$	92,405
Dividends on preferred stock	—			330			—		660
NET INCOME (LOSS) APPLICABLE TO COMMON STOCK	$	(16,275	)	$	(20,921	)	$	109,809	$	91,745

The accompanying notes are an integral part of these statements.

Washington Gas Light Company

Condensed Statements of Comprehensive Income (Unaudited)

Part I-Financial Information

Item 1-Financial Statements (continued)



	Three Months Ended June 30,						Six Months Ended June 30,
(In thousands)	2020			2019			2020			2019
NET INCOME (LOSS)	$	(16,275	)	$	(20,591	)	$	109,809		$	92,405
OTHER COMPREHENSIVE INCOME, BEFORE INCOME TAXES:
Pension and other post-retirement benefit plans
Change in prior service cost	(328		)	(161		)	(632		)	(323		)
Change in actuarial net gain	460			(2,848		)	3,386			2,056
Total pension and other post-retirement benefit plans	$	132		$	(3,009	)	$	2,754		$	1,733
INCOME TAX EXPENSE RELATED TO OTHER COMPREHENSIVE INCOME	34			770			715			1,247
OTHER COMPREHENSIVE INCOME (LOSS)	$	98		$	(3,779	)	$	2,039		$	486
COMPREHENSIVE INCOME (LOSS)	$	(16,177	)	$	(24,370	)	$	111,848		$	92,891

The accompanying notes are an integral part of these statements.

Washington Gas Light Company

Condensed Statements of Cash Flows (Unaudited)

Part I-Financial Information

Item 1-Financial Statements (continued)



	Six Months Ended June 30,
(In thousands)	2020			2019
OPERATING ACTIVITIES
Net income	$	109,809		$	92,405
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES
Depreciation and amortization	72,187			72,240
Amortization of:
Other regulatory assets and liabilities—net	3,511			3,558
Debt related costs	714			723
Deferred income taxes—net	25,927			24,614
Accrued/deferred pension and other post-retirement benefit cost	(1,095		)	1,356
Compensation expense related to stock-based awards	1,731			1,682
Provision for doubtful accounts	9,830			9,526
Unrealized (gain) loss on derivative contracts	(6,830		)	(6,635		)
Amortization of investment tax credits	(300		)	(329		)
Other non-cash charges (credits)—net	30			677
Changes in operating assets and liabilities (Note 16)	107,722			105,438
Net Cash Provided by Operating Activities	323,236			305,255
FINANCING ACTIVITIES
Capital contribution from parent	125,000			—
Debt issuance costs	—			(209		)
Notes payable issued (retired)—net	(264,601		)	(78,000		)
Dividends on common stock and preferred stock	(50,000		)	(49,897		)
Net Cash Used in Financing Activities	(189,601		)	(128,106		)
INVESTING ACTIVITIES
Capital expenditures	(155,962		)	(199,839		)
Net Cash Used in Investing Activities	(155,962		)	(199,839		)
INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH	(22,327		)	(22,690		)
Cash, Cash Equivalents, and Restricted Cash at Beginning of the Period	61,148			71,423
Cash, Cash equivalents and Restricted Cash at End of the Period	$	38,821		$	48,733
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION (Note 16)

The accompanying notes are an integral part of these statements.

Washington Gas Light Company

Part I-Financial Information

Item 1-Financial Statements (continued)

Notes to Condensed Financial Statements (Unaudited)

NOTE 1. ACCOUNTING POLICIES

Basis of Presentation

Following a 2018 merger agreement, Washington Gas became an indirect, majority owned subsidiary of, among other entities, AltaGas and WGL (the Merger). In connection with the Merger, WGL formed a wholly owned subsidiary, Wrangler SPE LLC (Wrangler SPE), a bankruptcy remote, special purpose entity to own the common stock of Washington Gas. In addition, WGL owns all of the shares of common stock of certain affiliated non-utility subsidiaries. On December 20, 2019, Washington Gas redeemed all the outstanding shares of its preferred stock, after which, Washington Gas became an indirect, wholly owned subsidiary of AltaGas and WGL.

The condensed financial statements of Washington Gas have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Therefore, certain financial information and note disclosures accompanying annual financial statements prepared in accordance with generally accepted accounting principles in the United States of America (GAAP) are omitted in this interim report. The interim condensed financial statements and accompanying notes should be read in conjunction with the Financial Statements on Form 10-K for the year ended December 31, 2019. Due to the seasonal nature of our business, the results of operations for the periods presented in this report are not necessarily indicative of actual results for the full years ending December 31, 2020 and 2019.

The information presented in this report on Form 10-Q are presented solely for the registrant Washington Gas on a stand-alone basis.

The accompanying unaudited condensed financial statements for Washington Gas reflect all normal recurring adjustments that are necessary, in our opinion, to present fairly the results of operations in accordance with GAAP.

For a complete description of our significant accounting policies, refer to Note 1-Accounting Policies of the Notes to Financial Statements on Form 10-K for year ended December 31, 2019. We include herein certain updates to those policies.

Washington Gas Light Company

Part I-Financial Information

Item 1-Financial Statements (continued)

Notes to Condensed Financial Statements (Unaudited)

Accounting Standards Adopted in the Calendar Year and Other Newly Issued Accounting Standards

The following tables represent accounting standards adopted by Washington Gas during the six months ended June 30, 2020, and other newly issued accounting standards that will be adopted by Washington Gas in the future.



ACCOUNTING STANDARDS ADOPTED IN CALENDAR YEAR 2020
Standard	Description	Date of adoption	Effect on the financial statements or other significant matters
ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, including other subsequent ASUs further amending and clarifying the guidance.	For credit losses on financial instruments measured at amortized cost, this standard changes the current incurred loss impairment methodology to an expected loss methodology and requires consideration of a broader range of reasonable and supportable information to determine credit loss estimates. In addition, entities may make a one-time irrevocable election on certain eligible financial instruments to elect fair value treatment on an instrument-by-instrument basis.	January 1, 2020	Cash equivalents, accounts receivable, unbilled revenue, and contract assets are within the scope of the new standard. Upon adoption, we recorded an increase to our allowance for doubtful accounts and a reduction to retained earnings of $1.5 million. See Note 2 - Credit Losses for further information and the new required disclosures.
ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement	This update modifies the disclosure requirements on fair value measurements.	January 1, 2020	The adoption of this standard did not have a material effect on our financial statements.
ASU 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606	Topic 808 does not provide comprehensive recognition or measurement guidance for collaborative arrangements. This update clarifies the interaction between Topic 606, Revenue from Contracts with Customers and Topic 808.	January 1, 2020	The adoption of this standard did not have a material effect on our financial statements.
ASU 2019-01, Leases (Topic 842) Codification Improvements	This update addresses the determination of the fair value of the underlying asset by lessors that are not manufacturers or dealers, provides guidance for the presentation of the statement of cash flows for sales-type and direct financing leases, and clarifies transition disclosures related to the adoption of ASC 842.	January 1, 2020	The adoption of this standard did not have a material effect on our financial statements.

Washington Gas Light Company

Part I-Financial Information

Item 1-Financial Statements (continued)

Notes to Condensed Financial Statements (Unaudited)



OTHER NEWLY ISSUED ACCOUNTING STANDARDS
Standard	Description	Required date of adoption	Effect on the financial statements or other significant matters
ASU 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans	This standard modifies the disclosure requirements related to defined benefit pension and other postretirement plans. Early adoption is permitted.	December 31, 2020	It is not expected that the adoption of this standard will have a material effect on our financial statements.
ASU 2019-12, Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes	As part of FASB's Simplification Initiative, this standard amends ASC Topic 740 by removing certain exceptions to the general principles and clarifying and amending other current guidance. Early adoption is permitted.	January 1, 2021	We are in the process of evaluating the impact the adoption of this standard will have on our financial statements.
ASU 2020-04, Reference Rate Reform (Topic 848) Facilitation of the Effects of Reference Rate Reform on Financial Reporting	This standard provides optional expedients and exceptions to ease the potential accounting burden associated with transitioning away from reference rates that are expected to be discontinued. The amendments may be elected prospectively to contract modifications made and to hedging relationships existing as of or entered into on or after the date of adoption and through December 31, 2022.	December 31, 2022	We have not yet elected to adopt this ASU as of June 30, 2020 and are assessing the impact the adoption of this standard will have on our financial statements.

Washington Gas Light Company

Part I-Financial Information

Item 1-Financial Statements (continued)

Notes to Condensed Financial Statements (Unaudited)

NOTE 2. CREDIT LOSSES

On January 1, 2020, the Company adopted ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (CECL) model. The measurement of expected credit losses under the CECL model is applicable to financial assets measured at amortized cost and off-balance sheet credit exposures. The CECL model requires the expected credit losses to consider past events, including historical experience, current conditions and reasonable and supportable forecasts. When measuring credit losses, financial assets with similar risk characteristics should be pooled, and credit losses should be recognized over the contractual term of the financial asset. In addition, entities may make a one-time irrevocable election on certain eligible financial instruments to elect fair-value treatment on an instrument-by-instrument basis.

Our assessment concluded that our cash equivalents, accounts receivables, unbilled revenue, contract assets, and a long term receivable from one of our trading partners that is part of a collaborative arrangement are within scope of the new standard. We adopted the standard using a modified-retrospective approach through a cumulative-effect adjustment to retained earnings at January 1, 2020. Prior periods presented for comparative purposes are not adjusted. Upon implementation of ASU 2016-13, we recorded a $1.5 million increase to the Company's allowance for doubtful accounts and a decrease to retained earnings. Washington Gas also elected to account for its cash equivalents at fair value.

Utility Customer Receivables: Washington Gas is exposed to customer credit risk resulting from the non-payment of utility bills. To manage this customer credit risk, Washington Gas customers are offered budget billing options or higher risk customers may be required to provide a cash deposit until the requirement for deposit refunds are met. Washington Gas can recover a portion of non-payments from customers in future periods through the rate-setting process. For accounts receivable and unbilled revenue generated by the utility business, an allowance for doubtful accounts is recognized using a historical loss-rate based on historical payment and collection experience. This rate may be adjusted based on management’s expectations of unusual macroeconomic conditions and other factors. Washington Gas regularly evaluates the reasonableness of the allowance based on a combination of factors, such as the length of time receivables are past due, historical expected payment, collection experience, financial condition of customers, and other circumstances that could impact customers' ability or desire to make payments. Upon implementation of the new standard, Washington Gas increased the allowance for doubtful accounts by $1.4 million.

Based on previous collection experience, Washington Gas did not record an allowance for doubtful accounts for its contract assets associated with our energy management services projects with the federal government. Refer to Note 14 - Related Party Transactions for further information.

Washington Gas Asset Optimization: The Utility operates under an existing wholesale counterparty credit policy that is designed to mitigate credit risk. Credit limits are established for each counterparty and credit enhancements such as letters of credits, parent guarantees and cash collateral maybe required. The creditworthiness of all counterparties is continuously monitored. The allowance for doubtful accounts is estimated by applying 30-year historical default rates for one-year receivables sourced from external credit rating agencies to the accounts receivable and unbilled revenue balances associated with counterparties the Utility has determined to be below investment grade. In the event that a counterparty no longer exhibits similar risk characteristics, the associated receivable is evaluated individually. Upon implementation of ASU 2016-13, Washington Gas did not record an amount to the allowance for doubtful accounts.

Washington Gas also has a long term receivable from a trading partner totaling $1.4 million in “Deferred charges and other assets-Other”, of which no portion of the balance is past due. The trading partner was evaluated and assigned an internal credit rating in accordance with our credit policy. An allowance for doubtful accounts is recorded based on historical default rates published by external credit rating agencies and a rate commensurate with the period in which the receivable is expected to be collected. With implementation of the new standard, Washington Gas recorded an estimated credit loss reserve of $0.1 million reported as a reduction to “Deferred charges and other assets-Other”.

The following table presents the activity of allowance for doubtful accounts by types for the reporting periods.

Washington Gas Light Company

Part I-Financial Information

Item 1-Financial Statements (continued)

Notes to Condensed Financial Statements (Unaudited)



	Three Months Ended June 30, 2020					Six Months Ended June 30, 2020
(In millions)	Account receivables and Unbilled Revenue			Asset Optimization		Account receivables and Unbilled Revenue			Asset Optimization
Balance, beginning of period	$	18.8		$	0.1	$	18.7		$	—
Provision	3.9			—		9.8			—
Recorded to regulatory asset due to COVID-19 ^(a)	3.0					3.0
Write offs charged against the allowance	(3.3		)	—		(10.8		)	—
Recoveries	0.8			—		1.1			—
Adjustment upon adoption of ASC 326	—			—		1.4			0.1
Balance, end of period	$	23.2		$	0.1	$	23.2		$	0.1

^(a) During the three months ended June 30, 2020, the Public Service Commission of the District of Columbia (PSC of DC), the Public Service Commission of Maryland (PSC of MD) and the Virginia State Corporation Commission (SCC of VA) each issued an Order authorizing Washington Gas to establish a regulatory asset to capture and track the incremental COVID-19 related costs. Washington Gas has recorded total $3.0 million in deferrals of incremental bad debt expense to COVID-19 regulatory assets across all three jurisdictions.

NOTE 3. REVENUE FROM CONTRACTS WITH CUSTOMERS

The Company recognizes revenue from contracts with customers to depict the transfer of goods or services to customers at an amount it expects to be entitled to in exchange for those goods or services. Washington Gas sells natural gas and distribution services to residential, commercial, industrial and governmental customers through regulated tariff rates approved by regulatory commissions in the jurisdictions where it operates. Customers are billed monthly based on regular meter readings. Customer billings are based on two main components: (i) a fixed service fee and (ii) a variable fee based on usage. For customers who choose to purchase their natural gas from Washington Gas, the bill will include a usage based charge for the cost of the commodity. Revenue is recognized over time as natural gas is delivered or as service is performed. Since meter readings are performed on a cycle basis, Washington Gas recognizes accrued revenue for any services rendered to its customers but not billed at month-end. The tariff sales are generally considered daily or “at-will” contracts as customers may cancel their service at any time (subject to notification requirements in the tariff), and revenue generally represents the amount Washington Gas is entitled to invoice. There are certain contracts that have terms of one year or longer. For these contracts, revenue is recognized based on the amount Washington Gas is entitled to bill the customer.

Customers have the choice to purchase natural gas from competitive service providers. Washington Gas charges the competitive service providers balancing fees to manage the natural gas transportation imbalances. Where regulations require, Washington Gas issues customers a consolidated bill to include the natural gas supplied by the competitive service providers and distribution of natural gas. Washington Gas recognizes revenue only for distribution services that it has provided to the customer, and the balancing fees for the services provided to the competitive service provider.

The following table disaggregates revenue by type of service for the periods:

Washington Gas Light Company

Part I-Financial Information

Item 1-Financial Statements (continued)

Notes to Condensed Financial Statements (Unaudited)



Disaggregated Revenue by Type of Service
	Three Months Ended June 30,					Six Months Ended June 30,
(In millions)	2020			2019		2020		2019
Revenue from contracts with customers
Gas and transportation sales
Gas sold and delivered	$	155.3		$	132.4	$	501.6	$	594.4
Gas delivered for others	49.4			43.9		147.0		153.3
Other	6.3			9.9		20.0		23.6
Other revenues	0.1			1.7		0.8		2.8
Total revenue from contracts with customers	$	211.1		$	187.9	$	669.4	$	774.1
Other sources of revenue
Revenue from alternative revenue programs ^(a)	$	(0.5	)	$	7.2	$	40.1	$	11.3
Leasing revenue	0.1			0.2		0.3		0.3
Other^(b)	0.5			3.2		3.1		6.4
Total revenue from other sources	$	0.1		$	10.6	$	43.5	$	18.0
Total Operating Revenue	$	211.2		$	198.5	$	712.9	$	792.1

^(a) Washington Gas has determined that its Revenue Normalization Adjustment (RNA), Weather Normalization Adjustment (WNA), and Conservation and Ratemaking Efficiency (CARE) Ratemaking Adjustment (CRA) billing adjustment mechanisms and accelerated pipe replacement programs are alternative revenue programs and accounted for under ASC Topic 980.

^(b)The amount includes late fees billed. The decreases from prior periods were primarily caused by not billing of late payment fees due to COVID-19 as required by regulatory orders.

Washington Gas accrues unbilled revenues for gas delivered, but not yet billed at the end of each accounting period due to our customer billing cycles. Unbilled revenues of $27.4 million and $116.3 million are included within "Receivables" on Washington Gas' balance sheets at June 30, 2020 and December 31, 2019, respectively. Unbilled revenues represent performance obligations that have been satisfied and to which Washington Gas has an unconditional right to payment, except for contract assets related to Washington Gas’ area-wide contract, which requires project acceptance by the federal government for the right to payment to occur. The Company does not have transaction price amounts allocated to future performance obligations. The Company applies the practical expedient available under ASC Topic 606 and does not disclose information about the remaining performance obligations for (i) contracts with an original expected length of one year or less, (ii) contracts for which revenue is recognized at the amount to which the Company has the right to invoice for performance completed, and (iii) contracts with variable consideration that is allocated entirely to a wholly unsatisfied performance obligation or to a wholly unsatisfied promise to transfer a distinct good or service that forms part of a single performance obligation.

The following table shows the opening and closing balances of contract assets from contracts with customers for the reporting periods, which were included within "Receivables" on Washington Gas' balance sheets.



(In millions)	2020		2019
Contract assets at January 1	$	44.2	$	85.3
Contract assets at June 30	$	50.2	$	38.0
Increase (decrease) in contract assets	$	6.0	$	(47.3	)

⁽^a)Decrease in contract asset in 2019 was due to the sale of the contract asset. Refer to "Project financing" in Note14—Related party transactions for detail discussion.

NOTE 4. LEASES

Washington Gas has operating leases as a lessee for our corporate headquarters and other offices, communication tower space, and certain office equipment.

The Company also has lessor leases for land, office space and communication tower space that are classified as operating leases. Washington Gas has elected not to separate the lease and non-lease components for its building leases. The leases generally have options to terminate the leases with notice prior to the end of the lease term based on the contract terms. The

Washington Gas Light Company

Part I-Financial Information

Item 1-Financial Statements (continued)

Notes to Condensed Financial Statements (Unaudited)

lease agreements do not contain material residual value guarantees. For information on the lease income recognized during the period, see the Disaggregated Revenue by Type of Service table in Note 3 — Revenue from Contracts with Customers.

NOTE 5. ACCOUNTS PAYABLE AND OTHER ACCRUED LIABILITIES

The table below provides details for the amounts included in “Accounts payable and other accrued liabilities” on the balance sheets.



(In millions)	June 30, 2020		December 31, 2019
Accounts payable—trade	$	137.2	$	154.3
Employee benefits and payroll accruals	24.8		39.3
Wages payable	24.2		22.2
Accrued interest	17.3		17.3
Other accrued liabilities ^(a)	32.7		34.4
Total	$	236.2	$	267.5

^(a) Amount includes $12.1 million and $11.7 million estimated liability associated with Antero judgment at June 30, 2020 and December 31, 2019, respectively. Refer to Note 11 -Commitments and Contingencies for further information.

NOTE 6. SHORT-TERM DEBT

Washington Gas satisfies the short-term financing requirements through the sale of commercial paper, or through bank borrowings. Due to the seasonal nature of our operations, short-term financing requirements can vary significantly during the year. Revolving credit agreements are maintained to support outstanding commercial paper and to permit short-term borrowing flexibility. The policy of Washington Gas is to maintain bank credit facilities in amounts equal to or greater than the expected maximum commercial paper position.

Credit Facility

The following is a summary of committed credit available at June 30, 2020 and December 31, 2019.




(In millions)	June 30, 2020	December 31, 2019
Committed credit agreements
Unsecured revolving credit facility, expires July 19, 2024^(a)	$450.0	$450.0
Less: Commercial Paper outstanding^(b)	(135.0)	(400.0)
Net committed credit available	$315.0	$50.0
Weighted average interest rate	1.01%	2.04%

^(a) Washington Gas has the right to request extensions with the bank group 's approval. Washington Gas’ revolving credit facility permits it to borrow an additional $100.0 million, with the bank groups' approval, for a total potential maximum borrowing of $550.0 million.

^(b)The amount represents principal amount of commercial paper.

At June 30, 2020 and December 31, 2019, there were no outstanding bank loans from Washington Gas’ revolving credit facilities.

Under the terms of the credit facility, the ratio of financial indebtedness to total capitalization may not exceed 0.65 to 1.0 (65.0%). At June 30, 2020 and December 31, 2019, Washington Gas' ratios of consolidated financial indebtedness to consolidated total capitalization was 45% and 52%, respectively. In addition, Washington Gas is required to inform lenders of changes that might have a material adverse effect. Failure to inform the lenders’ agent of these material changes might constitute default under the agreements. Should Washington Gas fail to pay principal or interest when due on any other indebtedness, such failure may be deemed to constitute a default. Such defaults, if no

Washington Gas Light Company

Part I-Financial Information

Item 1-Financial Statements (continued)

Notes to Condensed Financial Statements (Unaudited)

t remedied, could lead to suspension of further loans and/or acceleration in which obligations become immediately due and payable. At June 30, 2020 and December 31, 2019, Washington Gas was in compliance with all of the covenants under its credit facility.

Commercial Paper

The total commercial paper carrying value was $134.9 million and $399.5 million at June 30, 2020 and December 31, 2019, respectively. At both June 30, 2020 and December 31, 2019, Washington Gas classified $100.0 million of our commercial paper balance as "Long-term debt" on Washington Gas' balance sheets due to its ability and intent to refinance these balances on a long-term basis. Accordingly, $34.9 million and $299.5 million of commercial paper remained in “Notes payable” at June 30, 2020 and December 31, 2019, respectively.

NOTE 7. LONG-TERM DEBT

Washington Gas issues unsecured long-term debt in the form of medium-term notes (MTNs) and private placement notes with individual terms regarding interest rates, maturities and call or put options. In addition, Washington Gasclassifies certain commercial paper balance as "Long-term debt" due to its ability and intent to refinance these balances on a long-term basis.

The following table shows the long-term debt outstanding at June 30, 2020 and December 31, 2019.



Long Term Debt Outstanding
(In millions)	June 30, 2020			December 31, 2019
Washington Gas Unsecured Notes ^(a)	$	1,346.0		$	1,346.0
Commercial Paper	100.0			100.0
Total Long-Term Debt	$	1,446.0		$	1,446.0
Unamortized discount	(4.2		)	(4.3		)
Unamortized debt expense	(10.6		)	(10.8		)
Less—current maturities	—			—
Total Long-Term Debt	$	1,431.2		$	1,430.9
Weighted average interest rate^(b)	4.52		%	4.52		%

^(a)Includes MTNs and private placement notes. The amount represents face value of Washington Gas' unsecured notes.

^(b)Weighted average interest rate is for the Washington Gas unsecured notes.

There were no issuances or retirements of long term debt for the three and six months ended June 30, 2020 and 2019.

NOTE 8. COMPONENTS OF TOTAL EQUITY



	Common Stock			Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive Income/(Loss), Net of Taxes
(In thousands, except shares)	Shares	Amount		Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive Income/(Loss), Net of Taxes			Total
Three Months Ended June 30, 2020
Balance at March 31, 2020	46,479,536	$	46,479	$	1,104,273	$	641,076		$	6,850		$	1,798,678
Net income (loss)	—	—		—		(16,275		)	—			(16,275		)
Other comprehensive income	—	—		—		—			98			98
Dividends declared:
Common stock	—	—		—		(25,000		)	—			(25,000		)
Balance at June 30, 2020	46,479,536	$	46,479	$	1,104,273	$	599,801		$	6,948		$	1,757,501
Three Months Ended June 30, 2019
Balance at March 31, 2019	46,479,536	$	46,479	$	979,273	$	631,114		$	(2,362	)	$	1,654,504
Net income (loss)	—	—		—		(20,591		)	—			(20,591		)
Other comprehensive income (loss)	—	—		—		—			(3,779		)	(3,779		)
Dividends declared:									—
Common stock	—	—		—		(25,000		)	—			(25,000		)
Preferred stock	—	—		—		(330		)	—			(330		)
Balance at June 30, 2019	46,479,536	$	46,479	$	979,273	$	585,193		$	(6,141	)	$	1,604,804
Six Months Ended June 30, 2020
Balance at December 31, 2019	46,479,536	$	46,479	$	979,273	$	541,535		$	4,909		$	1,572,196
Net income	—	—		—		109,809			—			109,809
Other comprehensive income	—	—		—		—			2,039			2,039
Capital contribution from parent	—	—		125,000		—			—			125,000
ASU 2016-13 implementation ^(a)	—	—		—		(1,543		)	—			(1,543		)
Dividends declared:
Common stock	—	—		—		(50,000		)	—			(50,000		)
Balance at June 30, 2020	46,479,536	$	46,479	$	1,104,273	$	599,801		$	6,948		$	1,757,501
Six Months Ended June 30, 2019
Balance at December 31, 2018	46,479,536	$	46,479	$	979,273	$	543,448		$	(6,627	)	$	1,562,573
Net income	—	—		—		92,405			—			92,405
Other comprehensive income	—	—		—		—			486			486
Dividends declared:
Common stock	—	—		—		(50,000		)	—			(50,000		)
Preferred stock	—	—		—		(660		)	—			(660		)
Balance at June 30, 2019	46,479,536	$	46,479	$	979,273	$	585,193		$	(6,141	)	$	1,604,804

^(a) Due to implementation of ASU 2016-13 Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, see Note 2 — Credit Losses for further information.

Washington Gas Light Company

Part I-Financial Information

Item 1-Financial Statements (continued)

Notes to Condensed Financial Statements (Unaudited)

NOTE 9. INCOME TAXES

WGL and its wholly owned subsidiaries are included in the AltaGas Services (US) Inc. (ASUS) consolidated income tax returns. We have a tax sharing policy with ASUS, an indirect, wholly owned subsidiary of AltaGas, that allocates consolidated tax liabilities and benefits using a ratio determined by the separate taxable income for each member applied to the consolidated return tax liability of the group. State income tax returns are filed on a separate company basis in most states and on a unitary basis as required, where we or the consolidated ASUS group have operations and/or a requirement to file.

At June 30, 2020 and December 31, 2019, Washington Gas recorded a $5.5 million receivable in "Receivables from associated companies" and a $0.6 million payable in "Payables to associated companies" under the ASUS tax sharing policy on Washington Gas' balance sheets, respectively.

The Coronavirus Aid, Relief and Economic Security Act ("CARES Act") was signed into law on March 27, 2020. The CARES Act includes various income and payroll tax provisions. Washington Gas will benefit from certain provisions such as the deferral of payment of applicable payroll taxes. While we are still assessing the impact of the legislation, we do not expect there to be a material impact to our financial statements.

NOTE 10. PENSION AND OTHER POST-RETIREMENT BENEFIT PLANS

The following table shows the components of the net periodic benefit costs (income) recognized in our financial statements:

Washington Gas Light Company

Part I-Financial Information

Item 1-Financial Statements (continued)

Notes to Condensed Financial Statements (Unaudited)



Components of Net Periodic Benefit Costs (Income)
	Three Months Ended June 30,
	2020						2019
(In millions)	Pension Benefits			Health and Life Benefits			Pension Benefits			Health and Life Benefits
Service cost	$	3.0		$	1.4		$	3.1		$	1.2
Interest cost	8.9			2.3			10.3			3.0
Expected return on plan assets	(10.1		)	(5.6		)	(10.7		)	(6.1		)
Recognized prior service cost (credit)	0.1			(3.4		)	0.1			(3.9		)
Recognized actuarial loss (gain)	2.5			—			1.4			—
Net periodic benefit cost (income)	4.4			(5.3		)	4.2			(5.8		)
Allocation to affiliates	(0.5		)	0.7			(0.5		)	0.6
Adjusted net periodic benefit cost (income)	3.9			(4.6		)	3.7			(5.2		)
Amount allocated to construction projects	(0.7		)	(0.2		)	(0.4		)	(0.2		)
Amount charged (credited) to expense	$	3.2		$	(4.8	)	$	3.3		$	(5.4	)
	Six Months Ended June 30,
	2020						2019
(In millions)	Pension Benefits			Health and Life Benefits			Pension Benefits			Health and Life Benefits
Service cost	$	6.2		$	2.7		$	6.1		$	2.5
Interest cost	17.8			4.6			20.5			6.0
Expected return on plan assets	(20.2		)	(11.2		)	(21.4		)	(12.2		)
Recognized prior service cost (credit)	0.2			(6.8		)	0.2			(7.8		)
Recognized actuarial loss (gain)	5.8			(0.1		)	2.7			—
Settlement charge^(a)	1.1			—			4.3			—
Net periodic benefit cost (income)	10.9			(10.8		)	12.4			(11.5		)
Allocation to affiliates	(0.8		)	1.1			(0.9		)	1.3
Adjusted net periodic benefit cost (income)	10.1			(9.7		)	11.5			(10.2		)
Amount allocated to construction projects	(1.1		)	(0.4		)	(0.8		)	(0.4		)
Amount deferred as regulatory asset (liability)-net allocations ^(b)	—			—			0.7			—
Amount charged (credited) to expense	$	9.0		$	(10.1	)	$	11.4		$	(10.6	)

^(a)Amounts relate to partial settlement charges associated with lump sum payments from the Washington Gas’ defined benefit supplemental executive retirement plan (DB SERP) that were paid in the first quarter of 2020 and 2019.

^(b)Amount represents the amortization of previously unrecovered costs of the applicable pension benefits or the health and life benefits as approved in the District of Columbia through 2019.

At June 30, 2020 and December 31, 2019, the rabbi trust balance associated with the DB SERP and non-funded defined benefit restoration plan (DB restoration) plans were $34.8 million and $40.0 million, respectively. $11.3 million and $23.4 million were recorded in “Current Assets-Other” and “Deferred Charges and Other Assets - Other” on Washington Gas' balance sheets at June 30, 2020; $19.5 million and $20.5 million were recorded in “Current Assets-Other” and “Deferred Charges and Other Assets - Other” at December 31, 2019, respectively, along with other rabbi trust balances.

Washington Gas Light Company

Part I-Financial Information

Item 1-Financial Statements (continued)

Notes to Condensed Financial Statements (Unaudited)

NOTE 11. COMMITMENTS AND CONTINGENCIES

Commitments

Washington Gas has certain natural gas contracts incurred in the normal course of business that require fixed and determinable payments in the future, including unconditional purchase obligations for pipeline capacity, transportation and storage services. Refer to Note 13- Commitments and Contingencies to the Financial Statements in Form 10-K for the calendar year ended December 31, 2019 for future payments.

There were no significant changes to contractual obligations that are out of the normal course of business during the six months ended June 30, 2020.

Merger Commitments

In connection with the Merger, Washington Gas and AltaGas have made commitments related to the terms of settlement agreement with PSC of DC and the conditions of approval from PSC of MD and SCC of VA. As of June 30, 2020, the remaining unpaid liability for previously expensed merger commitments was $16.6 million. In addition, there are certain additional regulatory commitments that were and will be expensed as the costs are incurred, including the hiring of damage prevention trainers in each jurisdiction for a total of $2.4 million over 5 years; investing up to $70.0 million over a 10-year period to further extend natural gas service; and spending $8.0 million for leak mitigation within 3 years after the Merger close. Additionally, there are a number of operational commitments that will have an impact on the ongoing business of Washington Gas, including reductions of leak backlogs, conducting a root cause analysis related to customer service, increasing supplier diversity, achieving synergy savings benefits, developing protocols for moving meters from inside to outside customers’ premises, as well as reporting and tracking related to all the commitments.

Contingencies

We account for contingent liabilities utilizing ASC Topic 450, Contingencies. By their nature, the amount of the contingency and the timing of a contingent event and any resulting accounting recognition are subject to our judgment of such events and our estimates of the amounts. Actual results related to contingencies may be difficult to predict and could differ significantly from the estimates included in reported earnings.

Antero Contract

In June 2019, a jury trial was held in the County Court for Denver, Colorado to consider a contractual dispute relating to gas pricing between Washington Gas and its affiliate WGL Midstream and Antero Resources Corporation (Antero). Following the trial, the jury returned a verdict in favor of Antero for $95.9 million, of which $11.2 million was against Washington Gas, and $84.7 million against WGL Midstream. Following the official entry of the judgment, the Company filed an appeal on August 16, 2019.

As a result of this verdict, it was determined that a loss contingency is probable and Washington Gas recorded an estimated liability and recognized a loss in June 2019. In addition, Washington Gas recorded a receivable from our trading partner, and a receivable related to sharing with our customers as the contract relates to asset optimization. Washington Gas has been accruing interest expense on a monthly basis associated with the liability since June 2019. At June 30, 2020, the estimated liability with court fees and accrued interest was $12.1 million recorded in “Accounts payable and accrued liabilities” on Washington Gas' balance sheets. The net receivable from our trading partner was $1.3 million in “Deferred charges and other assets-Other”, and sharing with customers was $4.9 million in “Regulatory assets - Gas costs” on the balance sheets. For the three and six months ended June 30,2020, the interest expense associated with the legal liability was immaterial. For the three months and six months ending June 30, 2019, the net pre-tax loss recorded as a result of the verdict was $3.0 million, of which $2.8 million was recorded in “Utility cost of gas” and $0.2 million was recorded in “Operations and maintenance” on Washington Gas’ statements of operations.

Regulatory Contingencies

Certain legal and administrative proceedings incidental to our business, including regulatory contingencies, involve Washington Gas. In our opinion, we have recorded an adequate provision for probable losses or refunds to customers for regulatory contingencies related to these proceedings.

Washington Gas Light Company

Part I-Financial Information

Item 1-Financial Statements (continued)

Notes to Condensed Financial Statements (Unaudited)

Maryland Show-Cause Order. On April 23, 2019, the National Transportation and Safety Board (NTSB) held a hearing during which it found, among other things, that the probable cause of the August 10, 2016, explosion and fire at an apartment complex on Arliss Street in Silver Spring, Maryland “was the failure of an indoor mercury service regulator with an unconnected vent line that allowed natural gas into the meter room where it accumulated and ignited from an unknown ignition source. Contributing to the accident was the location of the mercury service regulators where leak detection by odor was not readily available.” Washington Gas disagrees with the NTSB’s probable cause findings. Following this hearing, on June 10, 2019, the NTSB issued an accident report.

Following the NTSB hearing, on September 5, 2019, the PSC of MD ordered the Company, within 30 days, to (i) provide a detailed response to the NTSB’s probable cause findings, and (ii) provide evidence regarding the status of a 2003 mercury regulator replacement program, and if the program was not completed, to show cause why the Commission should not impose a civil penalty on the Company.

The Company timely responded to the PSC of MD’s Show-Cause Order, providing a detailed response to the NTSB’s probable cause findings, providing evidence regarding the status of its 2003 mercury regulator replacement program and demonstrating cause why the PSC of MD should not impose a civil penalty on the Company. Following the Company’s response, certain intervenors filed written comments and a public hearing was held on the matter, with some intervenors and members of the public advocating for penalties against the Company. The Company filed its rejoinder comments and the Show-Cause Order is working its way through the regulatory proceeding process with the PSC of MD. An evidentiary hearing has been set for August 31 and September 1, 2020.

Management believes that the likelihood of a civil penalty is probable and has accrued $330,000 to reflect the minimum liability as a result of delinquent mercury regulator replacement status reporting. Though the Company is unable to estimate the maximum possible penalty, other parties recommended penalties ranging from $32.0 million (Apartment and Office Building Association of Metropolitan Washington argued the Company should absorb all costs of removal and relocation of mercury service regulators) to $123.3 million (Office of People's Counsel, which argued the Company should absorb all costs of removal and relocation of mercury service regulators and pay a fine of $25,000 per day for each day mercury service regulators remain on the Company’s system).

Environmental Matters

We are subject to federal, state and local laws and regulations related to environmental matters. These laws and regulations may require expenditures over a long time frame to control environmental effects. Almost all of the environmental liabilities we have recorded are for costs expected to be incurred to remediate sites where we or a predecessor affiliate operated manufactured gas plants (MGPs).

Washington Gas has identified up to ten sites where it or its predecessors may have operated MGPs. Washington Gas last used any such plant in 1984. In connection with these operations, we are aware that coal tar and certain other by-products of the gas manufacturing process are present at or near some former sites and may be present at others.

At June 30, 2020 and December 31, 2019, Washington Gas reported a liability of $10.9 million and $10.7 million, respectively, on an undiscounted basis related to future environmental response costs. These estimates principally include the minimum liabilities associated with a range of environmental response costs expected to be incurred. At both June 30, 2020 and December 31, 2019, Washington Gas estimated the maximum liability associated with all of its sites to be approximately $30.7 million. The estimates were determined by Washington Gas’ environmental experts, based on experience in remediating MGP sites and advice from legal counsel and environmental consultants. The variation between the recorded and estimated maximum liability primarily results from differences in the number of years that will be required to perform environmental response processes and the extent of remediation that may be required.

Washington Gas is currently remediating its East Station property, located adjacent to the Anacostia River in Washington D.C., including ground water pump and treat, tar recovery, soil encapsulation and other treatment. Under a 2012 consent decree with the District of Columbia and the federal government, Washington Gas is also conducting a remedial investigation and feasibility study on an adjacent property owned by the District of Columbia. The Draft Remedial Investigation Report was submitted to the National Park Service (NPS) and the Department of Energy and Environment (DOEE) on June 12, 2020. Additional remediation may be required at this property.

In addition, at another adjoining property known as the “Boat Club Property,” located to the east of the property owned by the District of Columbia, Washington Gas agreed to perform a site investigation and report the findings pursuant to oversight by the District of Columbia DOEE. This property was subject to a July 12, 2019, Administrative Order from the DOEE. This Administrative Order has been withdrawn and a consent order was negotiated and the Company is awaiting its issuance by the DOEE.

Washington Gas Light Company

Part I-Financial Information

Item 1-Financial Statements (continued)

Notes to Condensed Financial Statements (Unaudited)

Washington Gas received a letter in February 2016 from the DOEE and National Park Service regarding the Anacostia River Sediment Project, indicating that the District of Columbia is conducting a separate remedial investigation and feasibility study of the river to determine if and what cleanup measures may be required and to prepare a natural resource damage assessment. On December 27, 2019, DOEE issued an Anacostia River Sediment Project Proposed Plan, a River-wide Feasibility Study, and supporting documents for public comment. Although the Proposed Plan identifies East Station as one of fifteen potential environmental cleanup sites, DOEE is proposing to continue the remediation of East Station under Washington Gas’ existing Consent Decree rather than as part of the Anacostia River Sediment Project. DOEE is proposing to issue an Interim Record of Decision for remediation of “Early Action Areas” (that do not include East Station) in the Anacostia River by September 30, 2020. We are not able to estimate the total amount of potential costs or timing associated with the District of Columbia’s environmental investigation on the Anacostia River at this time. While an allocation method has not been established, Washington Gas has accrued an amount for estimated study costs based on a potential range of estimates.

Regulatory orders issued by the PSC of MD allow Washington Gas to recover the costs associated with the sites applicable to Maryland over the period ending in 2035. Regulatory orders issued by the PSC of DC allow Washington Gas a three-year recovery of prudently incurred environmental response costs and allow Washington Gas to defer additional costs incurred between rate cases. Regulatory orders from the SCC of VA have generally allowed the recovery of prudent environmental remediation costs to the extent they were included in the underlying financial data supporting an application for rate change.

At June 30, 2020 and December 31, 2019, Washington Gas reported a regulatory asset of $7.2 million and $7.0 million, respectively, for the portion of environmental response costs that are expected to be recoverable in future rates.

NOTE 12. DERIVATIVES

Washington Gas enters into contracts that qualify as derivative instruments and are accounted for under ASC Topic 815. These derivative instruments are recorded at fair value on our balance sheets and Washington Gas does not currently designate any derivatives as hedges under ASC Topic 815. Washington Gas’ derivative instruments relate to: (i) Washington Gas’ asset optimization program; (ii) managing price risk associated with the purchase of gas to serve utility customers and (iii) managing interest rate risk.

Asset Optimization. Washington Gas optimizes the value of its long-term natural gas transportation and storage capacity resources during periods when these resources are not being used to physically serve utility customers. Specifically, Washington Gas utilizes its transportation capacity assets to benefit from favorable natural gas prices between different geographic locations and utilizes its storage capacity assets to benefit from favorable natural gas prices between different time periods. As part of this asset optimization program, Washington Gas enters into physical and financial derivative transactions in the form of forward, futures and option contracts with the primary objective of securing operating margins that Washington Gas will ultimately realize. The derivative transactions entered into under this program are subject to mark-to-market accounting treatment under ASC Topic 820.

Regulatory sharing mechanisms provide for the annual realized profit from these transactions to be shared between Washington Gas’ shareholder and customers; therefore, changes in fair value are recorded through earnings, or as regulatory assets or liabilities to the extent that it is probable that realized gains and losses associated with these derivative transactions will be included in the rates charged to customers when they are realized. Unrealized gains and losses recorded to earnings may cause significant period-to-period volatility; this volatility does not change the operating margins that Washington Gas expects to ultimately realize from these transactions through the use of its storage and transportation capacity resources.

Washington Gas has a collaborative arrangement with a third party to facilitate the asset optimization program. The collaborative arrangement allocates a tiered percentage of profits or losses to the third party as compensation for its participation. The costs recorded by Washington Gas related to the collaborative arrangement totaled $2.4 million and $0.6 million for the three months ended June 30, 2020 and 2019, respectively, and $3.4 million and $1.3 million for the six months ended June 30, 2020 and 2019, respectively. These amounts were recorded in “Utility cost of gas” on Washington Gas’ statements of operations. Either party may terminate the collaborative arrangement through the delivery of a termination notice. In such an event, Washington Gas may make a payment upon termination.

All physically and financially settled contracts under our asset optimization program are reported on a net basis in the statements of operations in “Utility cost of gas”. Total net margins recorded to “Utility cost of gas” after sharing and management fees associated with all asset optimization transactions for the three months ended June 30, 2020 was a net gain of $6.2 million including an unrealized gain of $0.7 million. During the three months ended June 30, 2019, we recorded a net gain of $1.3 million including an unrealized loss of $0.5 million and the loss related to the Antero Contract of $2.8 million. During the

Washington Gas Light Company

Part I-Financial Information

Item 1-Financial Statements (continued)

Notes to Condensed Financial Statements (Unaudited)

six months ended June 30, 2020, we recorded a net gain of $14.6 million including an unrealized gain of $6.8 million. During the six months ended June 30, 2019, we recorded a net gain of $9.5 million including an unrealized gain of $6.6 million and the $2.8 million loss related to the Antero Contract.

Managing Price Risk. To manage price risk associated with acquiring natural gas supply for utility customers, Washington Gas enters into physical and financial derivative transactions in the form of forward, option and other contracts, as authorized by its regulators. Any gains and losses associated with these derivatives are recorded as regulatory liabilities or assets, respectively, to reflect the rate treatment for these economic hedging activities.

Notional Summary

The following table presents notional amounts of our outstanding derivatives June 30, 2020 and December 31, 2019.



Absolute Notional Amounts
of Open Positions on Derivative Instruments
	June 30, 2020	December 31, 2019
Natural Gas (In millions of therms)
Asset optimization & trading	11,301.0	11,671.0
Other risk-management activities	867.0	976.0

Location, Fair Value and Offsetting of Derivative Assets and Liabilities Recognized in the Balance Sheets

The following table presents the balance sheet line items where derivatives are recognized. Washington Gas has elected to offset the fair value of recognized derivative instruments against the right to reclaim or the obligation to return collateral for derivative instruments executed under the same master netting arrangement in accordance with ASC Topic 815. All recognized derivative contracts and associated financial collateral subject to a master netting arrangement or similar that is eligible for offset under ASC Topic 815 have been presented net in the balance sheets.



Balance Sheet Classification of Derivative Instruments
(In millions)	Gross amounts of recognized assets/(liabilities)			Gross amounts offset in balance sheet			Netting of collateral		Net amounts presented on balance sheet
June 30, 2020
Derivative assets ^(a)	$	18.2		$	(1.0	)	$	—	$	17.2
Derivative liabilities ^(b)	(84.4		)	1.0			—		$	(83.4	)
Net derivative assets (liabilities)	$	(66.2	)	$	—		$	—	$	(66.2	)
December 31, 2019
Derivative assets ^(a)	$	13.0		$	4.0		$	—	$	17.0
Derivative liabilities ^(b)	$	(104.0	)	$	(4.0	)	$	6.2	$	(101.8	)
Net derivative assets (liabilities)	$	(91.0	)	$	—		$	6.2	$	(84.8	)

^(a)Derivative assets at June 30, 2020 include $4.5 million recorded in "Current assets-Derivatives" and $12.7 million in" Deferred charges and other assets—Derivatives" on Washington Gas' balance sheets; Derivative assets at December 31, 2019 include $6.6 million recorded in "Current assets-Derivatives" and $10.4 million in" Deferred charges and other assets—Derivatives" on Washington Gas' balance sheets.

^(b)Derivative liabilities at June 30, 2020 include $7.0 million recorded in "Current liabilities-Derivatives " and $76.4 million recorded in " Deferred credits-Derivatives" on Washington Gas' balance sheets; Derivative liabilities at December 31, 2019 include $4.1 million recorded in "Current liabilities-Derivatives " and $97.7 million recorded in " Deferred credits-Derivatives" on Washington Gas' balance sheets.

Washington Gas Light Company

Part I-Financial Information

Item 1-Financial Statements (continued)

Notes to Condensed Financial Statements (Unaudited)

Gains and (Losses) on Derivatives

The following tables present all gains and losses associated with derivative instruments for the three and six months ended June 30, 2020 and 2019.



Gains and (Losses) on Derivative Instruments
(In millions)	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Recorded to income
Utility cost of gas	3.4		1.7		6.5		5.7
Recorded to regulatory assets
Gas costs	8.0		2.5		16.9		14.4
Total	$	11.4	$	4.2	$	23.4	$	20.1

Collateral

Washington Gas utilizes standardized master netting agreements, which facilitate the netting of cash flows into a single net exposure for a given counterparty. As part of these master netting agreements, cash, letters of credit and parent company guarantees may be required to be posted or obtained from counterparties in order to mitigate credit risk related to both derivatives and non-derivative positions. Under Washington Gas’ offsetting policy, collateral balances are offset against the related counterparties’ derivative positions to the extent the application would not result in the over-collateralization of those derivative positions on the balance sheets. Any collateral posted that is not offset against derivative assets and liabilities is included in “Other prepayments” on the balance sheets. Collateral received and not offset against derivative assets and liabilities is included in “Customer deposits and advance payments” on the accompanying balance sheets.

At June 30, 2020 and December 31, 2019, Washington Gas had $4.7 million and $5.2 million, respectively, in collateral deposits posted with counterparties that are not offset against derivative asset and liabilities. At June 30, 2020 and December 31, 2019, Washington Gas had $0.1 million and $0.1 million, respectively, cash collateral held representing an obligation, and are not offset against derivative asset and liabilities.

Certain derivative instruments of Washington Gas contain contract provisions that require collateral to be posted if the credit rating of Washington Gas falls below certain levels or if counterparty exposure to Washington Gas exceeds a certain level (credit-related contingent features). At June 30, 2020 and December 31, 2019, Washington Gas was not required to post collateral related to a derivative liability that contained a credit-related contingent feature.

The following table shows the aggregate fair value of all derivative instruments with credit-related contingent features that are in a liability position, as well as the maximum amount of collateral that would be required if the most intrusive credit-risk-related contingent features underlying these agreements were triggered on June 30, 2020 and December 31, 2019, respectively.



Potential Collateral Requirements for Derivative Liabilities with Credit-Risk-Contingent Features
(In millions)	June 30, 2020		December 31, 2019
Derivative liabilities with credit-risk-contingent features	$	0.1	$	0.4
Maximum potential collateral requirements	0.1		0.4

We do not enter into derivative contracts for speculative purposes.

Concentration of Credit Risk

We are exposed to credit risk from derivative instruments with wholesale counterparties, which is represented by the fair value of these instruments at the reporting date. We actively monitor and work to minimize counterparty concentration risk through various practices. At June 30, 2020, one counterparty represented over 10% of Washington Gas’ credit exposure to wholesale derivative counterparties for a total credit risk of $14.9 million.

Washington Gas Light Company

Part I-Financial Information

Item 1-Financial Statements (continued)

Notes to Condensed Financial Statements (Unaudited)

NOTE 13. FAIR VALUE MEASUREMENTS

We measure the fair value of our financial assets and liabilities using a combination of the income and market approaches in accordance with ASC Topic 820. These financial assets and liabilities primarily consist of derivatives recorded on our balance sheets under ASC Topic 815 and short-term investments, other long-term receivable, commercial paper and long-term debt outstanding required to be disclosed at fair value. Under ASC Topic 820, fair value is defined as the exit price, representing the amount that would be received in the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To value our financial instruments, we use market data or assumptions that market participants would use, including assumptions about credit risk (both our own credit risk and the counterparty’s credit risk) and the risks inherent in the inputs to valuation.

We enter into derivative contracts in the futures and over-the-counter (OTC) wholesale and retail markets. These markets are the principal markets for the respective wholesale and retail contracts. Our relevant market participants are our existing counterparties and others who have participated in energy transactions at our delivery points. These participants have access to the same market data as Washington Gas. Valuations are generally based on pricing service data or indicative broker quotes depending on the market location. We measure the net credit exposure at the counterparty level where the right to set-off exists. The net exposure is determined using the mark-to-market exposure adjusted for collateral, letters of credit and parent guarantees. We use published default rates from Standard & Poor’s Ratings Services and Moody’s Investors Service as inputs for determining credit adjustments.

ASC Topic 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three levels of the fair value hierarchy under ASC Topic 820 are described below:

Level 1. Level 1 of the fair value hierarchy consists of assets or liabilities that are valued using observable inputs based upon unadjusted quoted prices in active markets for identical assets or liabilities at the reporting date. Included in this category are cash equivalents and Rabbi trust investments in money market funds which are recorded on the balance sheets at fair value on a recurring basis.

Level 2. Level 2 of the fair value hierarchy consists of assets or liabilities that are valued using directly or indirectly observable inputs either corroborated with market data or based on exchange traded market data. Level 2 includes fair values based on industry-standard valuation techniques that consider various assumptions: (i) quoted forward prices, including the use of mid-market pricing within a bid/ask spread; (ii) discount rates; (iii) implied volatility and (iv) other economic factors. Substantially all of these assumptions are observable throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the relevant market. Level 2 financial assets and liabilities included energy-related physical and financial derivative transactions such as forward, option and other contracts for deliveries at active market locations.

Level 3. Level 3 of the fair value hierarchy consists of assets or liabilities that are valued using significant unobservable inputs at the reporting date. These unobservable assumptions reflect our assumptions about estimates that market participants would use in pricing the asset or liability, including natural gas basis prices and annualized volatilities of natural gas prices. A significant change to any one of these inputs in isolation could result in a significant upward or downward fluctuation in the fair value measurement. These inputs may be used with industry standard valuation methodologies that result in our best estimate of fair value for the assets or liabilities at the reporting date.

Level 3 derivative assets and liabilities included: (i) physical contracts valued at illiquid market locations with no observable market data; (ii) long-dated positions where observable pricing is not available over the majority of the life of the contract; (iii) contracts valued using historical spot price volatility assumptions and (iv) valuations using indicative broker quotes for inactive market locations.

Our level 2 and level 3 derivatives are recorded on the balance sheets at fair value on a recurring basis.

Other financial instruments including commercial paper, unsecured notes, and other long-term receivables are recorded on the balance sheets at amortized cost. The fair value of the long-term receivable from one of our trading partners related to the Antero contract approximates its carrying value using Level 2 input to estimate the credit loss associated with the receivable. The carrying cost of our commercial paper approximates fair value using Level 2 inputs. The fair value of Washington Gas unsecured notes was estimated based on valuation techniques using indirectly observable inputs corroborated with market data and therefore is classified as Level 2.

Washington Gas Light Company

Part I-Financial Information

Item 1-Financial Statements (continued)

Notes to Condensed Financial Statements (Unaudited)

Summary of Carrying Amounts and Fair value of Financial Instruments

The following table summarizes the carrying amounts and fair value of financial assets and liabilities. A financial instrument’s classification within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy.



Fair Value Under the Fair Value Hierarchy
(In millions)	Carrying Amount			Level 1		Level 2			Level 3			Total
At June 30, 2020
Financial assets
Fair value through net income
Cash equivalents ^(a)	1.1			1.1		—			—			1.1
Rabbi trust investments ^(b)	38.8			38.8		—			—			38.8
Derivative asset - current	1.8			—		0.3			1.5			1.8
Derivative asset - deferred	5.0			—		—			5.0			5.0
Fair value through regulatory assets/liabilities
Derivative asset - current	2.7			—		0.3			2.4			2.7
Derivative asset - deferred	7.7			—		—			7.7			7.7
Amortized cost
Other long-term receivables ^(c)	1.3			—		1.3			—			1.3
Total Assets	$	58.4		$	39.9	$	1.9		$	16.6		$	58.4
Financial Liabilities
Fair value through net income
Derivative liabilities - current	(2.0		)	—		(0.3		)	(1.7		)	(2.0		)
Derivative liabilities - deferred	(22.9		)	—		—			(22.9		)	(22.9		)
Fair value through regulatory assets/liabilities
Derivative liabilities - current	(5.0		)	—		(0.7		)	(4.3		)	(5.0		)
Derivative liabilities - deferred	(53.5		)	—		—			(53.5		)	(53.5		)
Amortized cost
Commercial paper ^(d)	(134.9		)	—		(134.9		)	—			(134.9		)
Unsecured notes^(e)	(1,331.2		)	—		$	(1,583.9	)	$	—		$	(1,583.9	)
Total Liabilities	$	(1,549.5	)	$	—	$	(1,719.8	)	$	(82.4	)	$	(1,802.2	)

(In millions)	Carrying Amount			Level 1		Level 2			Level 3			Total
At December 31, 2019
Financial assets
Fair value through net income
Cash equivalents ^(a)	$	11.0		$	11.0	$	—		$	—		$	11.0
Rabbi trust investments ^(b)	44.1			44.1		—			—			44.1
Derivative asset - current	2.6			—		0.1			2.5			2.6
Derivative asset - deferred	4.1			—		0.2			3.9			4.1
Fair value through regulatory assets/liabilities
Derivative asset - current	4.0			—		—			4.0			4.0
Derivative asset - deferred	6.3			—		0.3			6.0			6.3
Amortized cost
Other long-term receivables ^(c)	1.3			—		1.3			—			1.3
Total Assets	$	73.4		$	55.1	$	1.9		$	16.4		$	73.4
Financial Liabilities
Fair value through net income
Derivative liabilities - current	$	(0.7	)	$	—	$	—		$	(0.7	)	(0.7		)

Washington Gas Light Company

Part I-Financial Information

Item 1-Financial Statements (continued)

Notes to Condensed Financial Statements (Unaudited)



Derivative liabilities - deferred	(28.4		)	—		—			(28.4		)	(28.4		)
Fair value through regulatory assets/liabilities
Derivative liabilities - current	(3.4		)	—		(0.6		)	(2.8		)	(3.4		)
Derivative liabilities - deferred	(69.3		)	—		—			(69.3		)	(69.3		)
Amortized cost
Commercial paper ^(d)	(399.5		)	—		(399.5		)	—			(399.5		)
Unsecured notes ^(e)	(1,330.9		)	—		(1,480.8		)	—			(1,480.8		)
Total Liabilities	$	(1,832.2	)	$	—	$	(1,880.9	)	$	(101.2	)	$	(1,982.1	)

^(a) Cash equivalents represent the amounts invested in money market funds and were included in "Cash and cash equivalents" of the accompanying balance sheets.

^(b)Rabbi Trust investments are invested in money market funds. At June 30, 2020, carrying amount of $11.3 million and $27.5 million was included in "Current assets-Other" and "Deferred charges and other assets-Other" of the accompanying balance sheets, respectively; At December 31, 2019, carrying amount of $19.5 million and $24.6 million was included in "Current assets-Other" and "Deferred charges and other assets-Other", respectively.

^(c) Amount represents a long-term receivable from one of our trading partners related to Antero contract discussed in Note 11-Commitments and Contingencies.

^(d)The balance at June 30, 2020 includes $34.9 million located in "Notes payable", and $100.00 million located in “Long-term debt” on the accompanying balance sheets. The balance at December 31, 2019 includes $299.5 million located in "Notes payable", and $100.0 million located in “Long-term debt” on the accompanying balance sheets.

^(e)Includes adjustments for current maturities and unamortized discounts, as applicable. The amount was included in "Long-term debt" on the accompanying balance sheets.

Quantitative Information About Unobservable Inputs

The following table includes quantitative information about the significant unobservable inputs used in the fair value measurement of our Level 3 financial instruments and the respective fair values of the net derivative asset and liability positions.



Quantitative Information about Level 3 Fair Value Measurements
(In millions)	Net Fair Value	Valuation Techniques	Unobservable Inputs	Weighted Average ^(a)	Range
June 30, 2020	($65.8)	Discounted Cash Flow	Natural Gas Basis Price (per dekatherm)	($0.33)	($0.908)-$1.948
December 31, 2019	($84.8)	Discounted Cash Flow	Natural Gas Basis Price (per dekatherm)	n/a	($0.905)-$2.523

^(a) ASU 2018-13 has been applied prospectively, beginning with the interim period ending March 31, 2020. The average level 3 price was weighted by transaction volume.

Reconciliation of Level 3 Assets and Liabilities

The following table presents a reconciliation of changes in net fair value of Level 3 derivative instruments measured at fair value on a recurring basis:



Reconciliation of Fair Value Measurements Using Significant Level 3 Inputs
	Three Months Ended June 30,						Six Months Ended June 30,
(In millions)	2020			2019			2020			2019
Balance at beginning of period	$	(71.2	)	$	(86.1	)	$	(84.8	)	$	(106.6	)
Realized and unrealized gains (losses)
Recorded to income	2.3			1.2			5.4			4.8
Recorded to regulatory assets—Gas costs	6.3			1.9			15.4			14.4
Transfers into Level 3	—			—			—			(3.8		)
Transfers out of Level 3	—			—			—			5.0
Settlements	(3.2		)	(3.9		)	(1.8		)	(0.7		)
Balance at end of period	$	(65.8	)	$	(86.9	)	$	(65.8	)	$	(86.9	)

Washington Gas Light Company

Part I-Financial Information

Item 1-Financial Statements (continued)

Notes to Condensed Financial Statements (Unaudited)

Transfers between different levels of the fair value hierarchy may occur based on fluctuations in the valuation inputs and on the level of observable inputs used to value the instruments from period to period. Transfers out of Level 3 were due to valuations that experienced an increase in observable market inputs. Transfers into Level 3 were due to an increase in unobservable market inputs, primarily pricing points. All amounts recorded to income are from the utility cost of gas.

The following table presents the unrealized gains (losses) attributable to Level 3 derivative instruments measured at fair value on a recurring basis:



Unrealized Gains (Losses) Recorded for Level 3 Measurements
	Three Months Ended June 30,		Six Months Ended June 30,
(In millions)	2020	2019	2020	2019
Recorded to income
Utility cost of gas	$5.2	$4.4	$7.5	$8.1
Recorded to regulatory assets
Gas costs	11.0	6.5	18.4	19.1
Total	$16.2	$10.9	$25.9	$27.2

NOTE 14. RELATED PARTY TRANSACTIONS

Corporate Service Allocation

As a subsidiary of AltaGas, Washington Gas is charged a proportionate share of corporate governance and other shared services costs from AltaGas, primarily related to human resources, employee benefits, finance, legal, accounting, tax, information technology services, and office services. AltaGas charges Washington Gas for the total shared service costs and Washington Gas in turn allocates a portion of the costs to WGL’s other subsidiaries at the lower of cost or market. Washington Gas records a payable of the total shared service costs allocated to all of WGL's subsidiaries in "Payable to associated companies" and a receivable of the shared service costs allocated to WGL’s other subsidiaries in “Receivables from associated companies” on the balance sheets. Additionally, effective upon the approval by the SCC of Virginia in March 2020, Washington Gas began receiving certain corporate services from SEMCO Energy, Inc., (SEMCO), a subsidiary of AltaGas. Washington Gas records in "Payable to associated companies" on its balance sheets for the services provided by SEMCO. The expenses associated with services provided by AltaGas and SEMCO are recorded to “Operation and maintenance” on Washington Gas' statements of operations.

The net expenses of $5.1 million and $10.1 million were included in “Operation and maintenance” on the statements of operations for the three and six months ended June 30, 2020, respectively, reflecting the corporate service cost allocated to Washington Gas.

The net expenses of $3.0 million and $7.4 million were included in “Operation and maintenance” on the statements of operations for the three and six months ended June 30, 2019, respectively, reflecting the corporate service cost allocated to Washington Gas.

In addition, Washington Gas provides accounting, treasury, legal and other administrative and general support to WGL’s subsidiaries and various AltaGas U.S. entities, and files consolidated tax returns that include affiliated taxable transactions. Washington Gas bills affiliates to which it provides services in accordance with regulatory requirements for the actual cost of providing these services, which approximates their market value. To the extent such billings are outstanding, they are reflected in “Receivables from associated companies” on Washington Gas’ balance sheets. Washington Gas assigns or allocates these costs directly to its affiliates and, therefore, does not recognize revenues or expenses associated with providing these services. Washington Gas believes that allocations based on broad measures of business activity are appropriate for allocating expenses resulting from common services. Affiliate entities are allocated a portion of common services based on a formula driven by appropriate indicators of activity, as approved by management.

Washington Gas Light Company

Part I-Financial Information

Item 1-Financial Statements (continued)

Notes to Condensed Financial Statements (Unaudited)

Project Financing

WGL Energy Systems, Inc. (WGL Energy Systems), an indirect, wholly-owned subsidiary of WGL, obtains third-party project financing for energy management services projects with the federal government under Washington Gas’s area-wide contract. As work is performed, Washington Gas establishes a contract asset in “Receivables” representing the government’s obligation to remit principal and interest and records a “Payable to associated company” to WGL Energy Systems for the construction work performed for the same amount.

At June 30, 2020, Washington Gas recorded $50.2 million of contract assets in “Receivables” and a $50.2 million payable to WGL Energy Systems in “Payables to associated companies,” respectively, for energy management services projects financed by WGL Energy Systems that were not complete.

At December 31, 2019, Washington Gas recorded $44.2 million of contract assets in “Receivables” and a $44.2 million payable to WGL Energy Systems in “Payables to associated companies,” respectively, for energy management services projects financed by WGL Energy Systems that were not complete.

In October 2018, WGL Energy Systems repaid $53.0 million historically drawn by Washington Gas from a third-party lender for Washington Gas' area-wide contract that the lender demanded repayment for due to delays in achieving final acceptance from the federal government agency customer. The $53.0 million was included in "Payables to associated companies" on Washington Gas' balance sheets at December 31, 2018. In February 2019, WGL sold the contract asset, and accordingly, Washington Gas reversed the associated amount in “Payables to associated companies” and “Receivables” on its balance sheets during the three months ended March 31. 2019.

Related Party Transactions with Hampshire

Hampshire Gas Company (Hampshire), a wholly owned subsidiary of WGL, owns full and partial interests in underground natural gas storage facilities, including pipeline delivery facilities located in and around Hampshire County, West Virginia, and operates those facilities to serve Washington Gas, which purchases all of the storage services of Hampshire. Washington Gas includes the cost of these services in the bills sent to its customers and records the cost of the services in "Operation and maintenance" in its statements of operations. Hampshire operates under a “pass-through” cost of service-based tariff approved by the FERC and adjusts its billing rates to Washington Gas on a periodic basis to account for changes in its investment in utility plant and associated expenses. The arrangement between Hampshire and Washington Gas is classified as an operating lease. A right-of-use (ROU) asset and lease liability was not recognized upon the adoption of ASC 842 because all the costs associated with the arrangement are variable. Washington Gas recorded expenses related to the cost of services provided by Hampshire in "Operation and maintenance " on Washington Gas' statements of operations of $2.1 million and $4.1 million for three and six months ended June 30, 2020, and $1.9 million and $4.0 million for the three and six months ended June 30, 2019, respectively. The outstanding balance not cleared between Washington Gas and Hampshire at the end of the reporting period was recorded in "Payable to associated companies" of Washington Gas' balance sheets.

Other Related Party Transactions

In connection with billing for unregulated third-party marketers, including WGL Energy Services, Inc., (WGL Energy Services), an indirect, wholly-owned subsidiary of WGL, and with other miscellaneous billing processes, Washington Gas collects cash on behalf of affiliates and transfers the cash in a reasonable time period. Cash collected by Washington Gas on behalf of its affiliates but not yet transferred is recorded in “Payables to associated companies” on Washington Gas’ balance sheets.

Washington Gas provides gas balancing services related to storage, injections, withdrawals and deliveries to all energy marketers participating in the sale of natural gas on an unregulated basis through the customer choice programs that operate in its service territory, These balancing services include the sale of natural gas supply commodities related to various peaking arrangements contractually supplied to Washington Gas and then partially allocated and assigned by Washington Gas to the energy marketers, including WGL Energy Services. Washington Gas records revenues in " Operating revenue" of its statements of operations for these balancing services pursuant to tariffs approved by the appropriate regulatory bodies. The following table shows the amounts Washington Gas charged WGL Energy Services for balancing services.

Washington Gas Light Company

Part I-Financial Information

Item 1-Financial Statements (continued)

Notes to Condensed Financial Statements (Unaudited)



Washington Gas - Gas Balancing Service Charges
	Three Months Ended June 30,				Six Months Ended June 30,
(In millions)	2020		2019		2020		2019
Gas balancing service charge	$	3.1	$	3.1	$	9.7	$	12.0

As a result of these balancing services, an imbalance is created for volumes of natural gas received by Washington Gas that are not equal to the volumes of natural gas delivered to customers of the energy marketers. Washington Gas recorded $1.2 million and $2.1 million payable to WGL Energy Services at June 30, 2020 and December 31, 2019, respectively, related to an imbalance in gas volumes. The payables were recorded in "Accounts payable and other accrued liabilities" on Washington Gas' balance sheets.

Washington Gas participates in a purchase of receivables (POR) program as approved by the PSC of MD and separate program approved by the PSC of DC, whereby it purchases receivables from participating energy marketers at approved discount rates. WGL Energy Services is one of the energy marketers that participates in these POR programs whereby it sells its receivables to various utilities, including Washington Gas, at approved discount rates. The receivables purchased by Washington Gas are included in “Accounts receivable” in the accompanying balance sheets. At June 30, 2020 and December 31, 2019, Washington Gas had balances of $3.7 million and $7.9 million, respectively, of purchased receivables from WGL Energy Services.

NOTE 15. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following table shows the changes in accumulated other comprehensive income (loss) by component for the reporting periods:



Changes in Accumulated Other Comprehensive Income (Loss) by Component
	Three Months Ended June 30,						Six Months Ended June 30,
(In thousands)	2020			2019			2020			2019
Beginning Balance	$	6,850		$	(2,362	)	$	4,909		$	(6,627	)
Amortization of prior service credit ^(a)(b)	(328		)	(161		)	(632		)	(323		)
Amortization of actuarial loss ^(a)(b)	460			391			1,476			806
Actuarial gain (loss) arising during the period ^(a)	—			(3,239		)	1,910			1,250
Current-period other comprehensive income	132			(3,009		)	2,754			1,733
Income tax expense related to pension and other post-retirement benefit plans retained in AOCI	34			770			715			1,247
Ending Balance	$	6,948		$	(6,141	)	$	6,948		$	(6,141	)

^(a)The accumulated other comprehensive income (loss) components are included in the computation of net periodic benefit cost.

^(b)Amortization of prior service cost and amortization of actuarial gain (loss) represent the amounts reclassified out of AOCI to “Other income (expense)” of statements of operations for the reporting periods.

NOTE 16. SUPPLEMENTAL CASH FLOW INFORMATION

The following table details the changes in operating assets and liabilities from operating activities, cash payments that have been included in the determination of earnings and non-cash investing and financing activities:

Washington Gas Light Company

Part I-Financial Information

Item 1-Financial Statements (continued)

Notes to Condensed Financial Statements (Unaudited)



	Six Months Ended June 30,
(In thousands)	2020			2019
CHANGES IN OPERATING ASSETS AND LIABILITIES
Receivables	$	160,267		$	141,473
Receivables from associated companies	2,129			(1,078		)
Gas costs and other regulatory assets/liabilities—net	(82,040		)	(32,789		)
Storage gas	35,974			37,700
Prepaid taxes	5,022			2,972
Accounts payable and other accrued liabilities	(52,125		)	(86,061		)
Payables to associated companies	4,547			(1,384		)
Customer deposits and advance payments	(9,305		)	(17,868		)
Accrued taxes	7,829			(400		)
Other current assets	13,233			4,796
Other current liabilities	(243		)	(243		)
Deferred gas costs—net	34,328			68,477
Deferred assets—other	(12,624		)	9,989
Deferred liabilities—other	4,845			(6,900		)
Pension and other post-retirement benefits	(4,115		)	(13,246		)
Changes in operating assets and liabilities	$	107,722		$	105,438
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Income taxes paid (refunded)—net	(2,880		)	(1,682		)
Interest paid	32,594			28,890
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Extinguishment of project debt financing activities—net	—			(15,460		)
Capital expenditure accruals included in accounts payable and other accrued liabilities	$	54,810		$	42,161

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within Washington Gas’ balance sheets that sums to the total of such amounts shown on the statements of cash flows



(In thousands)	June 30, 2020		June 30, 2019
Cash and cash equivalents	$	1	$	—
Restricted cash included in Current assets-Other	11,332		4,225
Restricted cash included in Deferred charges and other assets-Other	27,488		44,508
Total cash, cash equivalents and restricted cash shown in the statements of cash flows	$	38,821	$	48,733

Restricted cash included in "Current assets—Other" and "Deferred charges and other assets—Other" on the balance sheets represents amount of investment in rabbi trusts to fund deferred compensation, pension and other post-retirement benefits for certain management personnel and directors. The funds in the rabbi trusts can only be used to pay for plan participant benefits and other plan expenses such as investment fees or trustee fees. The funds are invested in money market funds at the end of June 30, 2020 and 2019. Refer to Note 10 — Pension and Other Post-Retirement Benefit Plans for further discussion of rabbi trusts.

Washington Gas Light Company

Part I-Financial Information

Item 2. Management’s Discussion and Analysis of

Financial Condition and Results of Operations

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Introduction

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (Management’s Discussion and Analysis) analyzes the financial condition, results of operations and cash flows of Washington Gas. This discussion follows the format permitted in accordance with General Instruction H(2) of Form 10-Q, in light of Washington Gas’ status as a wholly owned subsidiary of AltaGas as permitted under General Instruction H(1) of Form 10-Q. It includes management’s narrative analysis of results of operations and reasons for material changes. This narrative discusses past financial results and potential factors that may affect future results, potential future risks and approaches that may be used to manage them. Except where the content clearly indicates otherwise, “Washington Gas,” “we,” “us,” “our” or the "Company" refers to Washington Gas Light Company.

Management’s Discussion and Analysis is designed to provide an understanding of our operations and financial performance and should be read in conjunction with the company’s financial statements and the Notes to Condensed Financial Statements.

COVID-19

On March 11, 2020, the World Health Organization declared the outbreak of a strain of novel coronavirus disease, COVID-19, a global pandemic. Governments in affected areas in which we operate have imposed a number of measures designed to contain the outbreak, including business closures, travel restrictions, quarantines and cancellations of gatherings and events. Washington Gas activated a pandemic response team to monitor COVID-19 developments closely. The pandemic response team has led Company efforts to mitigate the impacts to our business, and has implemented pandemic and business continuity plans to protect our employees, customers and communities. To date, Washington Gas has been able to respond to pandemic-related challenges with minimal disruption to its operations and business and it has not experienced unavailability of a significant portion of its personnel as a result of COVID-19.

As a result of regulatory orders, we have temporarily suspended customer disconnections for non-payment, suspended collection activities and temporarily waived assessing and billing late payment fees. This suspension of collection activities has caused our overall accounts receivable portfolio to age more than historical levels. However, we do not expect the increase in credit losses to have a significant impact on net income. The PSC of DC, PSC of MD, and SCC of VA each have issued an Order authorizing Washington Gas to establish a regulatory asset to capture and track the incremental COVID-19 related costs, including incremental credit losses, which allows for assessment of recovery of those costs in future base rate cases. As of June 30, 2020, we have recorded $3.0 million in deferrals of incremental bad debt expense to COVID-19 regulatory assets across all three jurisdictions.

No material impairments of our long lived assets were recorded through the date of this report, as no triggering events or changes in circumstances had occurred.

Unfavorable economic conditions due to COVID-19 have reduced demand for natural gas. Compared to prior period, the lower commercial usage in DC and VA, waived late fees, and lower service initiation fees have resulted in a decrease to net revenue. Based on the year to date results and our current estimates of COVID-19 impacts, and assuming normal weather for the remainder of the year, Washington Gas expects lower commercial usage due to COVID-19 that could negatively impact our financial results. However, due to significant uncertainty related to the pandemic and its economic impact, management's judgment and estimates regarding the situation could change in the future, and current expected outcomes and actual results may differ.

Refer to "Rates and Regulatory Matters" for updates on COVID-19 related orders.

Results of Operations

Washington Gas has one operating segment that engages in its core business of delivering and selling natural gas under tariffs approved by regulatory commissions in the District of Columbia, Maryland and Virginia.

Net loss was $16.3 million for the three months ended June 30, 2020 compared to net loss of $20.6 million for the three months ended June 30, 2019. The $4.3 million improvement in net loss was mainly from a higher net revenue driven by the impact of rate cases, accelerated pipe replacement programs and our asset optimization program, partially offset by a negative impact from the COVID-19 pandemic.

Net income was $109.8 million for the six months ended June 30, 2020 compared to net income of $92.4 million for the six months ended June 30, 2019. The $17.4 million increase in net income was mainly from an increase in net revenues driven by the impact of rate cases, accelerated pipe replacement programs and our asset optimization program, partially offset by a negative impact from the COVID-19 pandemic.

Our chief operating decision maker utilizes the non-GAAP measure, EBITDA, as the primary measure of profit and loss in assessing the results of operations. We believe that our use of EBITDA enhances the ability to evaluate Washington Gas' performance because it excludes interest and income tax expense, which are affected by corporate-wide strategies of AltaGas such as capital financing. It also excludes depreciation and amortization which do not affect cash flows.

EBITDA should not be considered an alternative to, or a more meaningful indicator of our operating performance than, net income.

The following table reconciles EBITDA to net income for the three months and six months ended June 30, 2020 and 2019.



	Three Months Ended June 30,									Six Months Ended June 30,
(In millions)	2020			2019			Increase/(Decrease)			2020		2019		Increase/(Decrease)
Net income (loss)	$	(16.3	)	$	(20.6	)	$	4.3		$	109.8	$	92.4	$	17.4
Interest expense	16.2			14.6			1.6			32.9		29.5		3.4
Income tax expense (benefit)	(5.8		)	(4.9		)	(0.9		)	25.6		24.3		1.3
Depreciation and amortization	36.3			37.1			(0.8		)	72.2		72.2		—
EBITDA	$	30.4		$	26.2		$	4.2		$	240.5	$	218.4	$	22.1

The following table summarizes the Company’s financial data for the three months and six months ended June 30, 2020 and 2019.



	Three Months Ended June 30,							Six Months Ended June 30,
(In millions)	2020		2019			Increase/(Decrease)		2020		2019		Increase/(Decrease)
Revenues:
Operating revenues	$	211.2	$	198.5		$	12.7	$	712.9	$	792.1	$	(79.2	)
Less: Cost of gas	58.5		55.6			2.9		200.5		297.9		(97.4		)
Less: Revenue taxes	15.1		13.4			1.7		42.1		46.1		(4.0		)
Total net revenues	137.6		129.5			8.1		470.3		448.1		22.2
Operation and maintenance	95.0		88.2			6.8		197.7		199.2		(1.5		)
General taxes and other assessments	16.9		14.3			2.6		39.9		34.3		5.6
Other income (expenses)-net	4.7		(0.8		)	5.5		7.8		3.8		4.0
EBITDA	$	30.4	$	26.2		$	4.2	$	240.5	$	218.4	$	22.1

Revenues

Operating revenues increased by $12.7 million in the three months ended June 30, 2020 compared to the three months ended June 30, 2019 mainly driven by the impact of rate cases, accelerated pipe replacement programs and our asset optimization program, partially offset by a negative impact from the COVID-19 pandemic.

Operating revenues decreased by $79.2 million in the six months ended June 30, 2020 compared to the six months ended June 30, 2019 mainly driven by the reduction in gas costs, effects of weather and consumption patterns and a negative impact from the COVID-19 pandemic.

We also utilize the non-GAAP measure of net revenues, calculated as revenues less the associated cost of energy and applicable revenue taxes, to assist in the analysis of profitability. The cost of the natural gas commodity and revenue taxes are included in the rates that Washington Gas charges to customers as reflected in operating revenues. Accordingly, changes in the cost of gas and revenue taxes associated with sales made to customers generally have no direct effect on utility net revenues, operating income or net income. Net revenues should not be considered an alternative to, or a more meaningful indicator of our operating performance than operating revenues. Additionally, net revenues may not be comparable to similarly titled measures of other companies.

The table above reconciles net revenues to operating revenues for the reporting periods as part of the reconciliation of operating revenues to EBITDA. Net revenues increased by $8.1 million and $22.2 million in the three months and six months ended June 30, 2020 compared to the three months and six months ended June 30, 2019.

The following explains the main drivers noted above for the change in operating revenues, as well as the additional drivers for the increase in net revenues.

Impact of rate cases

$5.4 million and $17.0 million increase for the three months and six months ended June 30, 2020 compared to the prior year periods due to new base rates in Maryland, effective October 2019. The six month variance is also impacted by a $7.5 million increase due to a true-up recorded in the first quarter of 2020 to the Virginia rate refund liability after incorporating final commission approved rates.

Accelerated replacement programs

$4.1 million and $5.8 million increase for the three months and six months ended June 30, 2020 compared to the prior year periods due to approved accelerated replacement programs that were in place with an associated surcharge mechanism to recover the cost, including a return, on those capital investments.

Asset optimization

We recorded $4.9 million and $5.1 million increase for the three months and six months ended June 30, 2020 compared to the prior year associated with our energy-related derivatives. Refer to Note 12-Derivative for detail discussion.

Estimated effects of weather and consumption patterns

Weather, when measured by Heating Degree Days, was 30.5% colder and 50.6% warmer than normal for the three months ended June 30, 2020 and 2019, respectively, driving higher firm net revenues. Heating Degree Days is a measure of the variation in weather based on the extent to which the daily average temperature falls below 65 degrees Fahrenheit. This is offset by a negative impact from lower commercial usage in DC and VA due to COVID-19, resulting in a total decrease in net revenue of $1.6 million.

Weather was 15.4% and 9.9% warmer than normal for the six months ended June 30, 2020 and 2019, respectively, with an additional negative impact from lower commercial usage in DC and VA due to COVID-19, driving lower firm net revenues of $9.9 million.

In the District of Columbia, where Washington Gas does not have a billing mechanism to offset the effects of weather on revenues, the comparatively colder weather for the three months ended June 30, 2020 and comparatively warmer weather for the six months ended June 30, 2020 primarily caused the variance to net revenues. Natural gas consumption patterns may be affected by shifts in weather patterns and non-weather related factors such as customer conservation.

Operation and Maintenance Expenses

Operating and maintenance expenses increased $6.8 million in the three months ended June 30, 2020 compared to the same period prior year. The increase was mainly driven by higher employee related costs and higher bad debt expense.

Operating and maintenance expenses decreased $1.5 million in the six months ended June 30, 2020 compared to the same period prior year. The decrease was mainly driven by lower general operating expenses.

General taxes and other assessments

The increase in general taxes and other assessments between the three months and six months ended June 30, 2020 and 2019 was associated with clean energy programs.

Other income (expense)

The increase in other income (expenses) between the three months and six months ended June 30, 2020 and 2019 was $5.5 million and $4.0 million due to lower pension costs.

Income Taxes

The effective income tax rate for the three months ended June 30, 2020 was 26.4% compared to 19.4% for the same period prior year. The change relates to amortization of investment tax credits and amortization of excess deferred taxes.

The effective income tax rate for the six months ended June 30, 2020 was 18.9% compared to 20.8% for the same period prior year.

The change relates to amortization of excess deferred taxes.

Statistical Information

Key gas volumes, weather and meter statistics are shown in the table below for the three and six months ended June 30, 2020 and 2019.



Gas Volumes, Weather and Meter Statistics
	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2020		2019		Increase/(Decrease)		2020		2019		Increase/(Decrease)
Base Gas Volumes (millions of therms)
Firm	200.3		163.0		37.3		746.3		840.8		(94.5	)
Interruptible	54.0		54.2		(0.2	)	130.7		148.6		(17.9	)
Other	15.0		28.0		(13.0	)	29.2		40.9		(11.7	)
Total gas volumes	269.3		245.2		24.1		906.2		1,030.3		(124.1	)
Degree Days
Actual	415		157		258		2,081		2,205		(124	)
Normal	318		318		—		2,459		2,447		12
Percent colder (warmer) than normal	30.5	%	(50.6	)%	n/a		(15.4	)%	(9.9	)%	n/a
Average active customer meters	1,200,000		1,189,000		11,000		1,198,000		1,188,000		10,000
Ending active customer meters	1,200,599		1,189,136		11,463		1,200,599		1,189,136		11,463
New customer meters added	2,886		2,623		263		5,813		5,290		523

Gas Service to Firm Customers

The volume of gas delivered to firm customers is highly sensitive to weather variability as a large portion of the natural gas delivered by Washington Gas is used for space heating. Washington Gas’ rates are based on an assumption of normal weather. The tariffs in the Maryland and Virginia jurisdictions include provisions that consider the effects of the RNA and the WNA/CRA mechanisms, respectively, that are designed to, among other things, mitigate the effect on net revenues of variations in

Washington Gas Light Company

Part I-Financial Information

Item 2. Management’s Discussion and Analysis of

Financial Condition and Results of Operations (continued)

weather from normal levels (refer to the section entitled “Weather Risk” in the Form 10-K for year ended December 31, 2019 for a further discussion).

Gas Service to Interruptible Customers

Customers whose service can be temporarily interrupted in order for the regulated utility to meet the needs of firm customers pay a lower delivery rate than firm customers and they must be able to readily substitute an alternate fuel for natural gas. Per approved tariffs, Washington Gas retains a majority of the margins earned on interruptible gas and delivery sales. Washington Gas has sharing mechanisms in the District of Columbia that shares most of these margins with firm customers.

Liquidity and Capital Resources

General Factors Affecting Liquidity

Washington Gas generally meets its liquidity and capital needs through cash on hand, retained earnings, the issuance of commercial paper and long-term debt, and equity contributions from its parent holding companies, routed through Wrangler SPE. Access to short-term debt markets provides funding to our short-term liquidity requirements, the most significant of which include buying natural gas and pipeline capacity, and financing both accounts receivable and storage gas inventory. We have accessed long-term capital markets primarily to fund capital expenditures and retire matured long-term debt. Under the Merger commitments agreed to by AltaGas and Washington Gas, including other rules imposed by regulatory commissions or laws in Washington Gas’ service territory, the Company is prohibited to make advances or issue loans to an affiliate or parent holding company without prior regulatory commission approval.

Generally, pursuant to its Merger commitments, Washington Gas can make dividend payments in the ordinary course of business unless any of the following regulatory limitations apply: (i) Washington Gas will not pay extraordinary dividends to its parent for three years from the date of the Merger close, (ii) Washington Gas will not pay dividends to its parent company if Washington Gas’ senior unsecured debt rating is below investment grade or (iii) Washington Gas will not make a dividend payment to its parent company if the payment would result in its equity level to drop below 48%. At June 30, 2020, we had no significant restrictions on our cash balances or retained earnings that would affect the payment of dividends.

On March 31, 2020, Washington Gas received a $125.0 million cash capital contribution from Wrangler SPE. The proceeds will be used to support the Company's construction program, to repay its short-term debt and for other corporate purposes.

As of June 30, 2020, we believe that our cash flows from operations and sources of funding will provide sufficient liquidity to satisfy our financial obligations. However, as the impact of the COVID-19 pandemic on the economy and operations evolves, we will continue to assess our liquidity needs, the ability to access capital markets for commercial paper or long-term debt financing, and potential impacts due to the ability of our customers to pay for services. Should the Company’s cash flow be materially impacted owing to virus-driven circumstances, the Company may find itself without adequate cash flow to fund its operations, and we may need additional liquidity.

Short-Term Cash Requirements and Related Financing

Washington Gas has seasonal short-term cash requirements to fund the purchase of storage gas inventory in advance of the winter heating season. The Company collects the cost of gas under cost recovery mechanisms approved by our regulators.

In the first and fourth quarters of each calendar year, Washington Gas’ large sales volumes cause its cash requirements to peak when combined storage inventory, accounts receivable, and unbilled revenues are at their highest levels. In the second and third quarters of each calendar year, after the heating season, Washington Gas typically experiences a seasonal net loss due to reduced demand for natural gas. During this period, large amounts of Washington Gas’ current assets are converted to cash.

Washington Gas uses short-term debt in the form of commercial paper or unsecured short-term bank loans to fund seasonal cash requirements. Our policy is to maintain back-up bank credit facilities in an amount equal to or greater than our expected maximum commercial paper position. Washington Gas classifies certain commercial paper balances as "Long-term debt" on the balance sheets based on its ability and intent to refinance these balances on a long-term basis. At June 30, 2020 and December 31, 2019, $100.0 million of our commercial paper balance was classified as long term debt on Washington Gas' balance sheets, respectively. Bank credit balances available to Washington Gas under the existing credit facility, net of commercial paper balances, were $315.0 million and $50.0 million at June 30, 2020 and December 31, 2019, respectively.

Washington Gas Light Company

Part I-Financial Information

Item 2. Management’s Discussion and Analysis of

Financial Condition and Results of Operations (continued)

Long-Term Cash Requirements and Related Financing

The primary drivers of our long-term cash requirements are capital expenditures and long-term debt maturities. Our capital expenditures primarily relate to adding new utility customers and system supply and maintaining the safety and reliability of Washington Gas’ distribution system.

Security Ratings

The table below reflects the current credit ratings for the outstanding debt instruments of Washington Gas. Changes in credit ratings may affect Washington Gas’ cost of short-term and long-term debt and our access to the capital markets. A security rating is not a recommendation to buy, sell or hold securities. Credit ratings are subject to revision or withdrawal at any time by the assigning rating organization and each rating should be evaluated independently of any other rating.



Rating Service	Senior Unsecured	Commercial Paper
Fitch Ratings^(a)	A	F2
Moody’s Investors Service^(b)	A3	P-2
Standard & Poor’s Ratings Services^(c)	A-	A-2

^(a) Fitch has affirmed Washington Gas' long-term debt ratings outlook as stable.

^(b)On January 30, 2020, Moody's downgraded Washington Gas' senior unsecured debt credit rating from A2 to A3, and its commercial paper rating from P-1 to P-2, and adjusted its long-term debt rating outlook from negative to stable.

^(c) On December 11, 2019, Standard & Poor raised Washington Gas' senior unsecured debt credit rating from BBB+ to A-, and adjusted its outlook from negative to stable. Its commercial paper rating remained A-2.

Ratings Triggers and Certain Debt Covenants

Under the terms of Washington Gas' revolving credit agreements and private placement notes, the ratio of consolidated financial indebtedness to consolidated total capitalization cannot exceed 0.65 to 1.0 (65.0%). At June 30, 2020 and December 31, 2019, Washington Gas' ratios of consolidated financial indebtedness to consolidated total capitalization were 45% and 52%, respectively. In addition, Washington Gas is required to inform lenders of changes that might have a material effect on debt ratings. The failure to inform the lenders’ agent of material changes might constitute default under the agreements. Additionally, failure to pay principal or interest on any other indebtedness may be deemed a default under our credit agreements. A default, if not remedied, may lead to obligations becoming immediately due and payable. In addition, certain of the credit facilities of Washington Gas contain cross-default provisions. At June 30, 2020 and December 31, 2019, we were in compliance with all of the covenants under our revolving credit facilities, term loan facility, and private placement notes.

Historical Cash Flows

Cash Flows Provided by Operating Activities

Washington Gas' cash flows from operating activities principally reflect gas sales and deliveries and the cost of operations. Cash flows provided by operating activities were $323.2 million for the six months ended June 30, 2020, compared to $305.3 million for the six months ended June 30, 2019. The increase was mainly driven by a $16.1 million lump-sum settlement payment in 2019 funded through the associated rabbi trust.

Cash Flows Used in Financing Activities

Net cash flows used in financing activities were $189.6 million and $128.1 million for the six months ended June 30, 2020 and 2019, respectively, which consists of net repayments of short term borrowings and dividend payments. The six months ended June 30, 2020 financing activities include a capital contribution from our parent company.

Cash Flows Used in Investing Activities

Cash flows used in investing activities totaled $156.0 million and $199.8 million for the six months ended June 30, 2020 and 2019, respectively, which consists of capital expenditures made by Washington Gas.

Accelerated Pipe Replacement Programs (APRPs)

APRPs are in place in all three of our jurisdictions with an associated surcharge mechanism to recover the cost, including a return, on those capital investments between base rate cases. The following table summarizes the current status of our accelerated pipe replacement programs in three of our jurisdictions.

Washington Gas Light Company

Part I-Financial Information

Item 2. Management’s Discussion and Analysis of

Financial Condition and Results of Operations (continued)



Jurisdiction	Estimated Cost	Expenditure to Date ^(a)	Status	Expected in-service date
District of Columbia	Estimated $374 million over the period from October 2020 to December 2025, plus additional expenditures in subsequent periods.	$nil	Washington Gas has submitted an application for the second phase of PROJECTpipes to the PSC of DC. In the interim, in March 2020, the PSC of DC approved an additional extension of the first phase of the plan for the six month period from April 1, 2020 to September 30, 2020 for an amount not to exceed $12.5 million. On April 23, 2020, the Commission established a procedural schedule for the case, with hearings scheduled for August 2020 and a decision expected in October 2020.	Individual assets are placed into service throughout the program.
Maryland	Estimated $350 million over the five-year period from January 2019 to December 2023, plus additional expenditures in subsequent periods.	$83.4 million	The second phase of the accelerated utility pipe replacement programs in Maryland (STRIDE 2.0) began in January 2019.	Individual assets are placed into service throughout the program.
Virginia	Estimated $500 million over the five-year period from January 2018 to December 2022, including cost of removal, plus additional expenditures in subsequent periods.	$211.6 million	The second phase of the accelerated pipe replacement programs in Virginia (SAVE 2.0) began in January 2018.	Individual assets are placed into service throughout the program.

⁽^a)The utility accelerated replacement programs are long-term projects with multiple phases for which expenditures are approved by the regulators and managed in five year increments. Expenditures to date only include amounts for the current programs described above, and exclude any expenditures made under prior increments of the programs. Actual regulatory filings may differ from reported amounts.

Refer to "Rates and Regulatory Matters" for a further discussion on rate case decisions during the periods including the transfer of costs from surcharge to base rate recovery.

Contractual Obligations, Off-Balance Sheet Arrangements and Other Commitments.

Contractual Obligations

Refer to the “Contractual Obligations, Off-Balance Sheet Arrangements and Other Commercial Commitments” section of “Management’s Discussion and Analysis” and Note 13- Commitments and Contingencies to the Financial Statements in Form 10-K for the year ended December 31, 2019 for contractual obligations.

There were no other significant changes to contractual obligations that are out of the normal course of business during the six months ended June 30, 2020.

Credit Risk

Retail Credit Risk

Washington Gas is at risk of non-payment of utility bills by customers. To manage this customer credit risk, Washington Gas may require cash deposits from high risk customers to cover payment of their bills until the requirements for the deposit refunds

Washington Gas Light Company

Part I-Financial Information

Item 2. Management’s Discussion and Analysis of

Financial Condition and Results of Operations (continued)

are met. Base rates include a provision for recovery of uncollectible accounts based on historical levels of charge offs of accounts receivable. Washington Gas also has a provision in its Gas Administrative Charge mechanism that includes an allowance for commodity amounts included in uncollectible accounts. In addition, Washington Gas has a POR program in Maryland and the District of Columbia, whereby it purchases receivables from participating energy marketers at approved discount rates, which incorporates the risk of non-payment by the retail customers for these receivables.

COVID-19 has created widespread challenges in the job market that have resulted in increased unemployment rates, which could impact the ability of the Company’s customers to pay for services. To assist the communities it serves, Washington Gas has temporarily suspended shut-off and collection activities for non-payment, which is compliant with orders issued by governing authorities in the jurisdictions it serves.

Rates and Regulatory Matters

Washington Gas makes its requests to modify existing rates based on its determination of the level of net investment in plant and equipment, operating expenses, and a level of return on invested capital that is just and reasonable. The following is an update of significant current regulatory matters in Washington Gas' jurisdictions.

District of Columbia Jurisdiction

PROJECTpipes 2 Plan. On December 7, 2018, Washington Gas filed a request with the PSC of DC for approval of the PROJECTpipes 2 Plan, the second phase of Washington Gas' APRP, to cover the period from October 1, 2019 through December 31, 2024. The PROJECTpipes 2 Plan seeks to address relatively higher risk pipe associated with an aging infrastructure by replacing pipe materials and components, as well as adding new features to enhance the safety of Washington Gas’ system, with an estimated total cost of $305.3 million. In September 2019, the PSC of DC issued an order extending the original PROJECTpipes an additional six months through March 31, 2020, in an amount not to exceed $12.5 million. On March 26, 2020, the PSC of DC approved an additional extension of the plan, through September 30, 2020, for an amount not to exceed $12.5 million. On April 23, 2020, the PSC of DC established a procedural schedule for the case, with hearings scheduled for August 18-19, 2020 and a decision expected in October 2020.

District of Columbia 2020 Rate Case. On January 13, 2020, Washington Gas filed an application for authority to increase charges for gas service in the District of Columbia. The requested rates are designed to collect approximately $35.2 million in total annual revenues. Of the requested revenue increase, $9.1 million represents costs collected through the PROJECTpipes surcharge; therefore, the incremental amount of the base rate increase is approximately $26.1 million. A procedural schedule has been established with hearings scheduled for October 2020. The Company expects new rates to be implemented in the first quarter of 2021.

Maryland Jurisdiction

Maryland Show-Cause Order. Following the NTSB hearing that examined the August 10, 2016, explosion and fire at an apartment complex in Silver Spring, Maryland, on September 5, 2019, the PSC of MD ordered the Company to (i) provide a detailed response to the NTSB’s probable cause findings, and (ii) provide evidence regarding the status of a 2003 mercury regulator replacement program, and if the program was not completed, to show cause why the Commission should not impose a civil penalty on the Company. The Company filed a response and rejoinder comments and the Show-Cause Order is working its way through the regulatory proceeding process with the PSC of MD. An evidentiary hearing on the Show-Cause Order has been set for August 31 and September 1, 2020. See Item 1 - Legal Proceedings and Note 11 - Commitments and Contingencies of the Notes to Financial Statements for additional information.

COVID-19 Related Orders

On March 16, 2020, the Council of the District of Columbia (DC Council) passed legislation prohibiting the disconnection of electric and gas services for non-payment of fees during a public health emergency. The Mayor of the District of Columbia’s

public health emergency declaration has been extended to October 9, 2020, and the prohibition on disconnection is effective for 15 days following the end of the public health emergency. On April 15, 2020, the PSC of DC issued an Order authorizing Washington Gas to establish a regulatory asset to capture and track the incremental costs related to COVID-19 that were prudently incurred beginning March 11, 2020.

On March 16, 2020, the Governor of MD issued an Executive Order which ordered regulated utilities to cease disconnections and billing of late fees for residential customers through May 1, 2020, which has been subsequently amended to extend the order through August 1, 2020. On April 9, 2020, the PSC of MD issued an order and authorized each utility company to establish a regulatory asset to record the effects of inc

Washington Gas Light Company

Part I-Financial Information

Item 2. Management’s Discussion and Analysis of

Financial Condition and Results of Operations (continued)

remental collection and other costs related to COVID-19 prudently incurred beginning on March 16, 2020. On July 8, 2020, the PSC of MD issued a notice to convene a Public Conference 53 to elicit information from Maryland utilities and stakeholders to better understand the impacts to date of the pandemic on utilities and the services they provide. In order to initiate such action, Maryland utilities are asked to respond to a number of questions from the PSC of MD by August 11, 2020. Comments to the response are due on August 21, 2020, followed by two days of hearing on August 27 and 28.

On March 16, 2020, the SCC of VA issued an order which prohibited disconnections of electricity, gas, water and sewer utility services during the coronavirus public health emergency. Originally to expire May 15, 2020, the SCC of VA has issued subsequent orders extending the prohibitions, with the latest order set to expire on August 31, 2020 to allow for the Virginia General Assembly to meet in a special session to comprehensively address the COVID-19 crisis. The SCC of VA further supplemented its March 16, 2020 order by directing that for customers whose payment arrearages are due to the coronavirus emergency, late payment fees shall not be assessed. The SCC of VA also urged utilities to waive reconnection fees for customers. On April 29, 2020, the SCC of VA issued an order approving a request from Washington Gas and other Virginia utilities to create a regulatory asset to record incremental prudently incurred costs and suspended late payment fees attributable to the COVID-19 pandemic.

Critical Accounting Policies

For a description of our critical accounting policies, refer to Management's Discussion and Analysis within our Form 10-K for the year ended December 31, 2019. We adopted ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments on January 1, 2020. Refer to Note 2 — Credit Losses for the accounting policy related to credit losses. There were no other new critical accounting policies or changes during the six months ended June 30, 2020.

Washington Gas Light Company

Part I-Financial Information

Item 3. Quantitative and Qualitative Disclosures about Market Risk

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Washington Gas meets the conditions set forth in General Instruction H(1) of Form 10-Q and has omitted the information called for by this Item pursuant to General Instruction H(2) of Form 10-Q.

Washington Gas Light Company

Part I-Financial Information

Item 4. Controls and Procedures

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Senior management, including the President and the Senior Vice President, Chief Financial Officer and Treasurer of Washington Gas, evaluated the effectiveness of Washington Gas’ disclosure controls and procedures as of June 30, 2020. Based on this evaluation, the President and the Senior Vice President, Chief Financial Officer and Treasurer have concluded that Washington Gas’ disclosure controls and procedures were effective as of June 30, 2020. There have been no changes in the internal control over financial reporting of Washington Gas during the quarter ended June 30, 2020 that have materially affected, or are reasonably likely to materially affect, the internal control over financial reporting of Washington Gas, including no changes resulting from COVID-19.

Washington Gas Light Company

Part II-Other Information

ITEM 1. LEGAL PROCEEDINGS

From time to time the Company is involved in various litigation matters arising out of the normal course of business. In particular, the nature of our business ordinarily results in periodic regulatory proceedings before various state and federal authorities. For information regarding pending federal and state regulatory matters, see Note 11 — Commitments and Contingencies of the Notes to Condensed Financial Statements.

Maryland Show-Cause Order

On April 23, 2019, the National Transportation and Safety Board (NTSB) held a hearing during which it found, among other things, that the probable cause of the August 10, 2016, explosion and fire at an apartment complex on Arliss Street in Silver Spring, Maryland “was the failure of an indoor mercury service regulator with an unconnected vent line that allowed natural gas into the meter room where it accumulated and ignited from an unknown ignition source. Contributing to the accident was the location of the mercury service regulators where leak detection by odor was not readily available.” Washington Gas disagrees with the NTSB’s probable cause findings. Following this hearing, on June 10, 2019, the NTSB issued an accident report.

On September 5, 2019, the PSC of MD ordered the Company to (i) provide a detailed response to the NTSB’s probable cause findings and (ii) provide evidence regarding the status of a 2003 mercury regulator replacement program and, if the program was not completed, to show cause why the PSC of MD should not impose a civil penalty on the Company. (Show-Cause Order).

ITEM 1A. RISK FACTORS

The COVID-19 global health pandemic poses challenges to the health and safety of the Company’s personnel and the strength of communities it serves. These challenges could negatively impact the Company’s cash flow and results of operations.

As the COVID-19 pandemic continues to unfold, governments in the jurisdictions in which Washington Gas operates have maintained measures designed to contain the outbreak, including business closures and restrictions, travel restrictions and border closings, quarantines and restrictions on gatherings and events. The magnitude, outcome and duration of the pandemic remains uncertain. As a result, it is not currently possible to accurately quantify the total potential impact of the pandemic on Washington Gas’ operations or financial results.

We have identified the following as potential direct or indirect impacts to our business and operations from the pandemic:

•

key employees and personnel: Although the Company has been designated an essential service provider and its essential employees and operations are exempt from government mandated closures and stay-at-home orders, our ability to keep essential operating personnel in place may be challenged as a result of COVID-19 outbreaks or quarantines. Employees who either contract or are exposed to the virus must isolate themselves from others, and combined with the health consequences of the virus, could be limited in their ability to perform key activities. Should there be a widespread inability of our workforce, or that of our contractors, to perform their duties, this would have an adverse impact on our ability to continue normal operations. In addition, unavailability of personnel could impact the Company’s ability to expand its business by decreasing construction activities and slowing the pace of the Company’s accelerated pipeline replacement programs. Also, we may face allegations of liability to the extent that we are unable to effectively protect our workforce against the transmission of the virus;

Washington Gas Light Company

Part II-Other Information

Item 1A. Risk Factors (continued)

•

adverse impacts on cash flows: COVID-19 could impact gas demand through business closures or other impacts. Additionally, widespread challenges to various businesses and to the job market as a result of the virus have resulted in increased business closures and unemployment rates, which could impact the ability of the Company’s customers to pay for services. Each jurisdiction in which Washington Gas serves issued regulatory mandates prohibiting suspension and collection activities for nonpayment of customer accounts, all of which remain in place. Should the Company’s cash flow be materially impacted owing to virus-driven circumstances, the Company may find itself without adequate cash flow to fund its operations;


•	counterparty and supplier risk: There is increased exposure that certain of our contract counterparties and suppliers could fail to meet their obligations to us. Such increased non-performance by a significant counterparty or supplier could adversely affect our operations and financial results.


•	privacy and cybersecurity: There has been an observed increase in volume and sophistication of targeted cyberattacks since the declaration of the global pandemic. Further, pandemic-adjusted operations, such as work from home arrangements and remote access to the company’s systems, may pose heightened risk of cybersecurity and privacy breaches.


•	access to capital: The uncertainty in the global financial markets could make capital increasingly hard to access.


•	IT infrastructure: Pandemic-adjusted operations, such as work from home arrangements, have put additional stress on the company’s IT infrastructure as a result of remote access demands and online meetings. A failure of such infrastructure could severely limit the ability of the company to conduct ordinary operations.

•

return to work: As Washington Gas reintegrates its personnel back into the workplace in response to the lifting of government stay-at-home orders, it may incur additional costs to adapt the workplace to meet applicable health and safety requirements. Shortages in PPE may require the corporation to revise or delay such reintegration plans. To the extent that it is unable to effectively protect its workforce against the transmission of the virus, Washington Gas may face allegations of liability. Additionally, the Company must maintain flexibility in the event of new stay-at-home orders that could occur in the event infection rates increase.

These risks may adversely impact the Company’s ability to carry out its business plans for 2020. Washington Gas is closely monitoring developments related to COVID-19, including the existing and potential impact on global and local economies in the jurisdictions where we operate.

Increasing levels of political uncertainty and civil unrest have arisen in recent weeks, which could pose threats to the Company’s personnel.

Recently there have been significant incidents of civil unrest across the country. As the Company’s operations are based in and around the nation’s capital, protests and demonstrations aimed at slowing business as usual pose risk to the Company’s operations and its ability to service its customers. Should any such protests turn violent or destructive Company personnel or property could be at risk. Furthermore, the impact of large protests during a global pandemic poses unknown public health risks that could increase the community spread of COVID-19.

Washington Gas Light Company

Part II-Other Information

ITEM 4. MINE SAFETY DISCLOSURES

Not Applicable.

Washington Gas Light Company

Part II-Other Information

ITEM 6. EXHIBITS

Exhibits:



Schedule/ Exhibit		Description

(a)(3)		Exhibits

		Exhibits Filed Herewith:

31.1		Certification of Donald M. Jenkins, President of Washington Gas Light Company, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Douglas I. Bonawitz, the Senior Vice President, Chief Financial Officer and Treasurer of Washington Gas Light Company, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32		Certification of Donald M. Jenkins, the President, and Douglas I. Bonawitz, the Senior Vice President, Chief Financial Officer and Treasurer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS		XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

District of Columbia and Virginia

(State or Other Jurisdiction of
Incorporation)

(I.R.S. Employer Identification No.)

WASHINGTON GAS LIGHT CO 10-Q