UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-K



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

For the Fiscal Year Ended September 30, ~~2017~~2018



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

For the Transition Period from _____ to _____

Commission File Number	Exact name of registrant as specified in its charter andaddress of principal executive offices and telephone number	State or Other Jurisdiction ofIncorporation	I.R.S.Employer Identification No.
1-16163	WGL Holdings, Inc.101 Constitution Ave., N.W.Washington, D.C. 20080(703) 750-2000	Virginia	52-2210912
0-55968	WGL Holdings, Inc.1000 Maine Ave., S.W.Washington, D.C. 20024(703) 750-2000	Virginia	52-2210912
0-49807	Washington Gas Light ~~Company101~~Company1000 ~~Constitution~~Maine Ave., NS.W.Washington, D.C. ~~20080~~20024(703) 750-4440	District ofColumbiaand Virginia	53-0162882

Securities registered pursuant to Section 12(b) of the Act:
Title of each class		Name of each exchange on which registered
WGL Holdings, Inc. common stock, no par value		New York Stock Exchange



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

Securities registered pursuant to Section 12(g) of the Act: Title of each class WGL Holdings, common stock, no par value Washington Gas Light Company preferred stock, cumulative, without par value: $4.25 Series $4.80 Series $5.00 Series

Indicate by check mark if each registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

WGL Holdings, Inc. Yes [ü ] No [ ü] Washington Gas Light Company Yes [ ] No [ü]

Indicate by check mark if each registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [ü]

Indicate by check mark whether each 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 registrants were required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes [ü] No [ ]

Indicate by check mark whether ~~the~~each registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ 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 and post such files). Yes [ü] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrants’ knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ü]

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.

WGL Holdings, Inc.:

Large Accelerated Filer ~~[ü]~~o Accelerated Filer o Non-Accelerated Filer o[ü] Smaller Reporting Company o (Do not check if a smaller reporting company) Emerging growth company o

Washington Gas Light Company:

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

The aggregate market value of the voting common equity held by non-affiliates of the registrant, WGL Holdings, Inc., amounted to $4,~~187~~250,~~038~~758,~~726~~369 as of March 31, ~~2017~~2018.

The aggregate market value of the voting common equity held by non-affiliates of the registrant, Washington Gas Light Company, amounted to $0 as of March 31, ~~2017~~2018.

WGL Holdings, Inc. common stock, no par value outstanding as of October 31, ~~2017~~2018: 51100 shares. All of the outstanding shares of common stock,~~352~~ no par value,~~540~~ ~~shares~~of WGL Holdings, Inc. are held by Wrangler 1 LLC, an indirect wholly owned subsidiary of AltaGas Ltd. as of October 31, 2018.

Washington Gas Light Company common stock, $1 par value, outstanding as of October 31, ~~2017~~2018: 46,479,536 shares. All of the outstanding shares of common stock, $1 par value, of Washington Gas Light Company are held by Wrangler SPE LLC (the SPE), a direct wholly owned subsidiary of WGL Holdings, Inc. as of October 31, 2018.

All of the outstanding shares of common stock ($1 par value) of Washington Gas Light Company were held by WGL Holdings, Inc. as of October 31, 2017.

WGL Holdings, Inc.

Washington Gas Light Company

For the Fiscal Year Ended September 30, ~~2017~~2018

Table of Contents

PART I
Introduction
	Filing Format	1
	Safe Harbor for Forward-Looking Statements	1
Glossary of Key Terms and Definitions		43
Item 1.	Business	78
	Corporate Overview	78
	Industry Segments	8
	Environmental Matters	17
	Other Information	18
Item 1A.	Risk Factors	19
Item 1B.	Unresolved Staff Comments	28
Item 2.	Properties	28
Item 3.	Legal Proceedings	28
Item 4.	Mine Safety Disclosures	29
Executive Officers of the Registrants		30
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	3031
Item 6.	Selected Financial Data	33
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	35
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	76
Item 8.	Financial Statements and Supplementary Data	77
	WGL Holdings, Inc.	77
	Washington Gas Light Company	84
	Notes to Consolidated Financial Statements	90
	Supplementary Financial Information—Quarterly Financial Data (Unaudited)	169
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	170
Item 9A.	Controls and Procedures	170
Item 9B.	Other Information	~~173~~172
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	~~174~~173
Item 11.	Executive Compensation	~~183~~181
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	~~222~~215
Item 13.	Certain Relationships and Related Transactions, and Director Independence	~~223~~215
Item 14.	Principal Accounting Fees and Services	~~224~~216
PART IV
Item 15.	Exhibits, Financial Statement Schedules	~~226~~218
Item 16.	Form 10-K Summary	~~232~~226
Signatures		~~233~~227

(i)

WGL Holdings, Inc.

Washington Gas Light Company

INTRODUCTION

FILING FORMAT

This annual report on Form 10-K is a combined report being filed by two separate registrants: WGL Holdings, Inc. (WGL) and Washington Gas Light Company (Washington Gas). Except where the content clearly indicates otherwise, any reference in the report to “WGL,” “we,” “us” or “our” is to the holding company or the consolidated entity of WGL Holdings and all of its subsidiaries, including Washington Gas which is a distinct registrant that is aan indirect wholly owned subsidiary of WGL. Washington Gas makes no representations as to the information contained in this report relating to WGL and its subsidiaries, other than Washington Gas.

The Management’s Discussion and Analysis of Financial Condition and Results of Operations (Management’s Discussion) included under Item 7 is divided into two major sections, one for WGL and one for Washington Gas. The Consolidated Financial Statements of WGL and the Financial Statements of Washington Gas are included under Item 8 as well as the Notes to Consolidated Financial Statements that are presented on a combined basis for both WGL and Washington Gas.

SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS

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, or strategies, financing plans, AltaGas Ltd.'s (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 ~~verbs~~terms such as “will,” “should,” “would” and “could.” ~~Although the registrants believe such forward-looking statements are based on reasonable assumptions, they cannot give assurance that every objective will be achieved.~~ Forward-looking statements speak only as of the filing date of this report, and the registrants assume 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 and may include, but are not limited to the following:

• the ~~occurrence~~inability ofto ~~any~~meet ~~event,~~commitments ~~change~~under orvarious ~~other~~orders ~~circumstances~~and ~~that~~agreements ~~could~~associated ~~give~~with ~~rise~~regulatory toapprovals ~~the~~for ~~termination of~~ the ~~Agreement~~merger ~~and~~could ~~Plan~~have ofa ~~Merger~~detrimental ~~(Merger~~impact ~~Agreement)~~on ~~among~~ WGL’s business, ~~AltaGas~~financial ~~Ltd.~~condition, ~~(AltaGas)~~operating results and ~~Wrangler, Inc.~~prospects;

• the inability ~~of WGL or AltaGas~~ to ~~satisfy~~successfully ~~conditions~~be tointegrated into the ~~closing~~operations of AltaGas following the merger with AltaGas and realize anticipated benefits;

• ~~the~~changes ~~required~~in ~~regulatory~~WGL's ~~approvals~~or ~~for~~AltaGas' ~~the~~credit ~~merger~~ratings ~~may~~and ~~not~~disruptions ~~be received, may not be received~~ in acredit ~~timely~~market ~~manner, or may be received subject to imposed~~ conditions or ~~restrictions~~other factors that ~~cause~~may aaffect ~~failure~~our ofaccess ~~a closing condition~~ to ~~the~~and ~~merger~~cost ~~or that could have a detrimental impact on the combined company following completion~~ of ~~the merger~~capital;


•	the effect of the consummation of the merger on the ability of WGL to retain customers and retain and hire key personnel;


•	the effect of the consummation of the merger on the ability of WGL to maintain relationships with its suppliers;


•	potential litigation in connection with the merger;

• the incurrence of significant costs for advisory services in connection with the merger;

• the impact of the terms and conditions of the Merger Agreement on WGL’s interim operations and its ability to make significant changes to its business or pursue otherwise attractive business opportunities without the consent of AltaGas;


•	the level and rate at which we incur costs and expenses, and the extent to which we are allowed to recover from customers, through the regulatory process, such costs and expenses relating to constructing, operating and maintaining Washington Gas’ distribution system;


•	the availability of natural gas and electricity supply, interstate pipeline transportation and storage capacity;


•	the outcome of new and existing matters before courts, regulators, government agencies or arbitrators, including those relating to our purchase of natural gas under the Antero gas supply contracts, and the August 2016 explosion and fire at an apartment complex in Silver Spring, Maryland;


•	factors beyond our control that affect the ability of natural gas producers, pipeline gatherers and natural gas processors to deliver natural gas into interstate pipelines for delivery to the entrance points of Washington Gas' distribution system;

WGL Holdings, Inc.

Washington Gas Light Company

• the availability of natural gas and electricity supply, interstate pipeline transportation and storage capacity;

• the outcome of new and existing matters before courts, regulators, government agencies or arbitrators, including those relating to efforts to overturn the denial of a permit necessary for construction of the Constitution Pipeline, disputes relating to our purchase of natural gas under the Antero gas supply contracts, and the August 2016 explosion and fire at an apartment complex in Silver Spring, Maryland.

• factors beyond our control that affect the ability of natural gas producers, pipeline gatherers and natural gas processors to deliver natural gas into interstate pipelines for delivery to the entrance points of Washington Gas’ distribution system;


•	security breaches of our information technology infrastructure, including cyber-attacks and cyber-terrorism;


•	the loss of certain services provided by AltaGas;


•	leaks, mechanical problems, incidents or other operational issues in our natural gas distribution system, including the effectiveness of our efforts to mitigate the effects of receiving low-HHC natural gas;

• factors affecting the timing of construction and the effective operation of pipelines in which we have invested;


•	changes and developments in economic, competitive, political and regulatory conditions;


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


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


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

• ~~changes~~factors inaffecting ~~our~~the ~~credit~~timing ~~ratings,~~of ~~disruptions~~construction ~~in credit market~~ and ~~equity~~the ~~capital~~effective ~~market~~operation ~~conditions~~of orpipelines ~~other~~in ~~factors~~which ~~that~~we ~~may~~have ~~affect our access to and cost of capital~~invested;

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

• changes in laws and regulations, including tax, environmental, pipeline integrity and employment laws and regulations, including the competitiveness of WGL Energy Systems, Inc. in securing future assets to continue its growth ~~following the extension of federal laws relating to investment tax credits and bonus depreciation~~;

• legislative, regulatory and judicial mandates or decisions affecting our business operations, including interpretations of the Tax Cuts and Jobs Act (Tax Act);


•	the timing and success of business and product development efforts and technological improvements;


•	the level of demand from government agencies and the private sector for commercial energy systems, and delays in federal government budget appropriations;


•	the pace of deregulation of energy markets and the availability of other competitive alternatives to our products and services;

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


•	our ability to manage the outsourcing of several business processes;


•	strikes or work stoppages by unionized employees;

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

• decisions made by management and co-investors in non-controlled investees.; and


•	changes in AltaGas’ strategy, relationship with us or performance.

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

WGL Holdings, Inc.

Washington Gas Light Company

WGL Holdings, Inc.

Washington Gas Light Company

Part I

GLOSSARY OF KEY TERMS AND DEFINITIONS

Accelerated Pipe Replacement Programs: Programs focused on replacement activities, targeting specific piping materials, installed years and/or locations which are undertaken on an expedited basis in an effort to improve safety, system reliability and to reduce potential greenhouse gas emissions.

Active Customer Meters: Natural gas meters that are physically connected to a building structure within the Washington Gas distribution system that are receiving natural gas distribution service.

AltaGas Ltd. (AltaGas): AltaGas is a Canadian corporation that became the parent company of WGL Holdings, Inc. upon consummation of the Merger on July 6, 2018.

Area-Wide Contract: A contract between Washington Gas and the General Services Administration for utility and energy-management services.

Asset Optimization Program: A program to optimize the value of Washington Gas’ long-term natural gas transportation and storage capacity resources during periods when these resources are not being used to physically serve customers.

Bundled Service: Service in which customers purchase both the natural gas commodity and the distribution or delivery of the commodity from the local regulated utility. When customers purchase bundled service from Washington Gas, no mark-up is applied to the cost of the natural gas commodity that is passed through to customers.

Business Process Outsourcing (BPO) Agreement: An agreement whereby a service provider performs certain ongoing support functions.

CARE Ratemaking Adjustment (CRA): A billing mechanism in the state of Virginia that is designed to minimize the effect of factors such as conservation on utility net revenues.

City Gate: A point or measuring station at which a gas distribution company such as Washington Gas receives natural gas from an unaffiliated pipeline or transmission system.

Competitive Service Provider (CSP): Also referred to as Third -Party Marketer (see definition below).

Commercial Energy Systems: Includes the operations of WGL Energy Systems, Inc. and WGSW, Inc. and the results of operations for affiliate owned commercial distributed energy projects.

Committee On Foreign Investment in the United States (CFIUS): An inter-agency committee authorized to review transactions that could result in control of a U.S. business by a foreign person/business.

Conservation and Ratemaking Efficiency (CARE Plan): Provides for the CRA as well as cost effective conservation and energy efficient programs.

Cooling Degree Day (CDD): A measure of the variation in weather based on the extent to which the daily average temperature is above 65 degrees Fahrenheit.

Delivery Service: The regulated distribution or delivery of natural gas to retail customers. Washington Gas provides delivery service to retail customers in Washington, D.C. and parts of Maryland and Virginia.

Design Day: Washington Gas’ design day represents the maximum anticipated demand on Washington Gas’ distribution system during a 24-hour period assuming a five-degree Fahrenheit average temperature and 17 miles per hour average wind, considered to be the coldest conditions expected to be experienced in the Washington, D.C. region.

Distributed Generation Assets: Assets that use renewable energy sources including Solar Photovoltaic (Solar PV) systems, combined heat and power plants, and natural gas fuel cells to generate electricity near the point of consumption.

Earnings Before Interest and Taxes (EBIT): A performance measure that includes operating income, other income (expense), earnings from unconsolidated affiliates and is reduced by amounts attributable to non-controlling ~~interests. EBIT is used in assessing the results of each segment's operations.~~

Federal Energy Regulatory Commission (FERC): An independent agency of the federal government that regulates the interstate transmission of electricity, natural gas, and oil. The FERC also reviews proposals to build liquefied natural gas terminals and interstate natural gas pipelines.3

Financial Contract: A contract in which no commodity is transferred between parties and only cash payments are exchanged in amounts equal to the financial benefit of holding the contract.

Firm Customers: Customers whose natural gas supply will not be disrupted by the regulated utility to meet the needs of other customers. Typically, this class of customer comprises residential customers and most commercial customers.

Generally Accepted Accounting Principles (GAAP): A standard framework of accounting rules used to prepare,

WGL Holdings, Inc.

Washington Gas Light Company

Part I

~~present~~interests. ~~and~~EBIT ~~report~~is ~~financial~~used ~~statements~~ in assessing the ~~United~~results ~~States~~ of ~~America~~each segment's operations.

Financial Contract: A contract in which no commodity is transferred between parties and only cash payments are exchanged in amounts equal to the financial benefit of holding the contract.

Generally Accepted Accounting Principles (GAAP): A standard framework of accounting rules used to prepare, present and report financial statements in the United States of America.

Gross Margin: A measure calculated as operating revenues, less the associated cost of energy and applicable revenue taxes. Gross margin is used to measure the success of the retail energy-marketing segment’s core strategy for the sale of natural gas and electricity.

Hampshire: Hampshire Gas Company provides regulated interstate natural gas storage services to Washington Gas under a FERC approved interstate storage service tariff.

Heating Degree Day (HDD): A measure of the variation in weather based on the extent to which the daily average temperature falls below 65 degrees Fahrenheit.

Heavy Hydrocarbons (HHCs): Compounds, such as hexane, that Washington Gas is injecting into its distribution system to treat vaporized liquefied natural gas or domestic sources of gas that have had such HHCs removed as a result of liquids processing.

Hypothetical Liquidation at Book Value (HLBV): A balance sheet-oriented approach to the equity method of accounting which provides a methodology for allocating pre-tax GAAP income or loss to the partners. This approach calculates the amount each partner would receive in the event the partnership was liquidated at book value at the end of each measurement period.

Interruptible Customers: Large commercial customers whose service can be temporarily interrupted in order for the regulated utility to meet the needs of firm customers. These customers pay a lower delivery rate than firm customers and they must be able to readily substitute an alternate fuel for natural gas.

Liquefied Natural Gas (LNG): The liquid form of natural gas.

Lower-of-Cost or ~~Market~~Net Realizable Value: The process of adjusting the value of inventory to reflect the lesser of its original cost or its ~~current~~net ~~market~~realizable value.

Mark-to-Market: The process of adjusting the carrying value of an asset or liability to reflect its current fair value.

~~Merger~~Megawatt ~~Agreement~~(MW): anA ~~agreement~~unit ~~and plan~~ of ~~merger~~power ~~for~~that ~~WGL~~is equivalent to ~~combine~~1 ~~with~~million ~~AltaGas, with WGL continuing as a surviving corporation in the merger and becoming an indirect wholly-owned subsidiary of AltaGas (the Merger)~~watts.

Megawatt hour (MWh): A unit of energy. A power source with a power rating of one MW that is turned on for 1 hour will use 1 MWh of energy.

Merger Agreement: an agreement for WGL to combine with AltaGas, with WGL continuing as a surviving corporation in the merger and becoming an indirect wholly owned subsidiary of AltaGas (the Merger).

Midstream Energy Services: The midstream energy services segment includes the operations of WGL Midstream, Inc.

New Customer Meters Added: Natural gas meters that are newly connected to a building structure within the Washington Gas distribution system. Service may or may not have been activated.

~~Washington Gas distribution system. Service may or may not have been activated.~~ 4

WGL Holdings, Inc.

Washington Gas Light Company

Part I

Non-Controlling Interest: The portion of equity (net assets) in a consolidated subsidiary that is not attributable directly or indirectly to WGL.

Normal Weather: A forecast of expected HDDs or CDDs based on historical HDD or CDD data.

Power Purchase Agreement (PPA): A power purchase agreement, or electricity power agreement, is a contract between two parties, one which generates the electricity and one which is looking to purchase electricity. The PPA defines all of the commercial terms for the sale of electricity between two parties.

PROJECTpipes: An accelerated pipe replacement program to replace bare and/or unprotected steel services, bare and targeted unprotected steel mains, and cast iron mains in the District of Columbia.

PSC of DC: The Public Service Commission of the District of Columbia is a three-member board that regulates Washington Gas’ distribution operations in the District of Columbia.

PSC of MD: The Maryland Public Service Commission is a five-member board that regulates Washington Gas’ distribution operations in Maryland.

Purchased Gas Charge (PGC): The purchased gas charge represents the cost of gas, gas transportation, gas storage services purchased and other gas related costs. The purchased gas charge is collected from customers through tariffs established by the regulatory commissions that have jurisdiction over Washington Gas.

Purchase of Receivables (POR): A program in Maryland, whereby Washington Gas purchases receivables from participating energy marketers at approved discount rates.

Regulated Utility Segment: Includes the operations of Washington Gas and the operations of Hampshire.

Renewable Energy Credits (RECs): A certificate representing the “green attributes” of one megawatt-hour (MWh) of electricity generated from renewable energy.

Retail Energy-Marketing Segment: Includes the operations of WGL Energy Services, Inc.

Return on Average Common Equity: Net income divided by average common shareholders’ equity.

Revenue Normalization Adjustment (RNA): A regulatory billing mechanism in the state of Maryland designed to stabilize the level of net revenues collected from customers by eliminating the effect of deviations in customer usage caused by variations in weather from normal levels, and other factors such as conservation.

SCC of VA: The Commonwealth of Virginia State Corporation Commission is a three-member board that regulates Washington Gas’ distribution operations in Virginia.

WGL Holdings, Inc.

Washington Gas Light Company

Part I

Sendout: The total amount of gas that flows into Washington Gas' distribution system within a certain interval of time.

Service Area: The region in which Washington Gas operates. The service area includes the District of Columbia, and the surrounding metropolitan areas in Maryland and Virginia.

SF ASD LLC (SF ASD): A wholly owned subsidiary of WGL Energy Systems.

SF Echo LLC (SF Echo): A wholly owned subsidiary of WGSW.

SFGF, LLC (SFGF): A tax equity partnership whose results of operation are consolidated into WGL's financial statements, as WGSW, Inc. is the primary beneficiary.

SFGF II, LLC (SFGF II): A tax equity partnership whose results of operation are consolidated into WGL's financial statements, as WGSW, Inc. is the primary beneficiary.

WGL Holdings, Inc.

Washington Gas Light Company

Part I

SFRC, LLC (SFRC): A tax equity partnership whose results of operation are consolidated into WGL's financial statements, as WGSW, Inc. is the primary beneficiary.

Steps to Advance Virginia’s Energy Plan (SAVE Plan): An accelerated pipe replacement plan that provides a recovery mechanism for costs of eligible infrastructure replacements in the state of Virginia.

Strategic Infrastructure Development and Enhancement Plan (STRIDE Plan): An accelerated pipe replacement plan that provides a recovery mechanism for reasonable and prudent costs associated with infrastructure replacements in the state of Maryland.

Tariffs: Documents approved by the regulatory commission in each jurisdiction that set the prices Washington Gas may charge and the practices it must follow when providing utility service to its customers.

Therm: A natural gas unit of measurement that includes a standard measure for heating value. We report our natural gas sales and deliveries in therms. A therm of gas contains 100,000 British thermal units of heat, or the energy equivalent of burning approximately 100 cubic feet of natural gas under normal conditions. Ten million therms equal approximately one billion cubic feet of natural gas. A dekatherm is 10 therms and is abbreviated Dth.

Third-party ~~Party~~ Marketer: Unregulated companies that sell natural gas and electricity directly to retail customers. WGL Energy Services, an affiliate of Washington Gas and a wholly owned subsidiary company of Washington Gas Resources Corporation, is a third-party marketer.

Tier 1 Renewable Resource: The renewable portfolio standard is divided into 2 tiers based on the electricity generation resource. Some examples of Tier 1 renewables are solar, wind, and fuel cells powered through renewables.

Unbundling: The separation of the delivery of natural gas or electricity from the sale of these commodities and related services that, in the past, were provided only by a regulated utility.

Utility Net Revenues: A measure used by the regulated utility segment which is calculated as operating revenues less the associated cost of gas and applicable revenue ~~taxes. For the regulated utility, the cost of gas associated with sales to customers and revenue taxes are generally pass through amounts.~~

taxes. For the regulated utility, the cost of gas associated with sales to customers and revenue taxes are generally pass through amounts.

Value-At-Risk: A risk measurement that estimates the largest expected loss over a specified period of time under normal market conditions within a specified probabilistic confidence interval.

Washington Gas: Washington Gas Light Company is aan indirect wholly owned subsidiary of WGL Holdings, Inc. that sells and delivers natural gas primarily to retail customers in accordance with tariffs approved by the PSC of DC, the PSC of MD and the SCC of VA. As of the close of the Merger, all Washington Gas' common stock is held by Wrangler SPE LLC.

Washington Gas Resources: Washington Gas Resources Corporation is a subsidiary of WGL Holdings, Inc. that owns the majority of the non-utility subsidiaries.

Weather Normalization Adjustment (WNA): A billing adjustment mechanism in Virginia that is designed to minimize the effect of variations from normal weather on utility net revenues.

WGL: WGL Holdings, Inc. is a holding company that is the parent company of Wrangler SPE LLC, Washington Gas Light Company and other subsidiaries. It is an indirect wholly owned subsidiary of AltaGas.

WGL Energy Services: WGL Energy Services, Inc. is a subsidiary of Washington Gas Resources Corporation that sells natural gas and electricity to retail customers on an unregulated basis.

WGL Energy Systems: WGL Energy Systems, Inc. is a subsidiary of Washington Gas Resources Corporation, which provides commercial energy efficient and sustainable solutions to government and commercial clients.

WGL Midstream: WGL Midstream, Inc. is a subsidiary of Washington Gas Resources that engages in acquiring and optimizing natural gas storage and transportation assets.

WGSW: WGSW, Inc. is a subsidiary of Washington Gas Resources Corporation that was formed to invest in certain renewable energy projects.

WGL Holdings, Inc.

Washington Gas Light Company

Part I

~~Item 1~~WGSW: WGSW, Inc. ~~Business~~is a subsidiary of Washington Gas Resources Corporation that was formed to invest in certain renewable energy projects.

~~ITEM~~ Wrangler 1 LLC: Wrangler 1 LLC is an indirect wholly owned subsidiary of AltaGas Ltd. ~~BUSINESS~~ Upon close of the Merger, Wrangler 1 LLC owns all the shares of common stock of WGL.

~~CORPORATE~~Wrangler ~~OVERVIEW~~SPE LLC (SPE): Wrangler SPE LLC is a bankruptcy remote special purpose entity which owns all the shares of the common stock of Washington Gas. It was established as a wholly owned subsidiary of WGL upon consummation of the Merger with AltaGas.

WGL HOLDINGS, INC.

WGL was established on November 1, 2000 as a Virginia corporation. Through our wholly owned subsidiaries, we sell and deliver natural gas and provide energy-related products and services to customers primarily in the District of Columbia and the surrounding metropolitan areas in Maryland and Virginia, although our non-utility segments provide various energy services across the United States. WGL promotes the efficient use of clean natural gas and renewable energy to improve the environment for the benefit of customers, investors, employees, and the communities it serves. WGL owns all of the shares of common stock of Washington Gas, Washington Gas Resources, and Hampshire. Washington Gas Resources owns four unregulated subsidiaries that include WGL Energy Services, WGL Energy Systems, WGL Midstream and WGSW. Additionally, several subsidiaries of WGL own interests in other entities.

WGL(1)

Washington GasRegulated Utility

Hampshire Regulated Utility

Washington Gas Resources(2)

WGL Energy Services Retail Energy-Marketing

WGL Energy SystemsCommercial Energy Systems

WGSWCommercial Energy Systems

WGL MidstreamMidstream Energy Services

(1)Crab Run Gas Company is an inactive, wholly owned subsidiary of WGL.

(2)Holding company whose stand alone results are reported in "other activities".

Planned Merger with AltaGas

On January 25, 2017, WGL entered into the Merger Agreement to combine with AltaGas in an all cash transaction valued at approximately $6.4 billion. The Boards of Directors of each of WGL and AltaGas have unanimously approved the Merger, which is expected to close in the second quarter of 2018. Subject to the conditions in the Merger Agreement, at the effective time of the Merger, WGL's shareholders will receive $88.25 in cash, without interest, for each share of WGL common stock issued and outstanding prior to the Effective Time (as defined in the Merger Agreement).

Consummation of the Merger is subject to the satisfaction or waiver of specified closing conditions, including, among others, the approval of the Merger by the holders of more than two-thirds of the outstanding shares of WGL common stock, which occurred on May 10, 2017 and approvals required from certain antitrust and other regulatory bodies. Should WGL terminate the Merger Agreement under specified circumstances, WGL may be obligated to pay AltaGas a termination fee of $136 million.

On April 24, 2017, joint applications for approval of the Merger were filed with the PSC of DC and with the PSC of MD. A joint petition for approval of the Merger was also filed with the SCC of VA, FERC, and CFIUS.

On July 6, 2017, the FERC issued an order authorizing the Merger, concluding that the proposed transaction is consistent with the public interest.

WGL Holdings, Inc.

Washington Gas Light Company

Part I

Item 1. Business ~~(continued)~~

On June 15, 2017, AltaGas and WGL submitted to the Federal Trade Commission and the Antitrust Division of the Department of Justice completed Premerger Notification and Report Forms with respect to the proposed acquisition by AltaGas LtdITEM 1. of certain voting securities of WGL Holdings, Inc. The waiting period expired on July 17, 2017. The expiration of the Clayton Act’s waiting period deems the Merger approved by the Federal Trade Commission and the Department of Justice. BUSINESS

OnCORPORATE ~~August 18, 2017, CFIUS approved the joint voluntary notice.~~ OVERVIEW

OnWGL ~~October 20~~HOLDINGS, ~~2017, the SCC of VA issued an order approving the merger, subject to accounting, financial, and safety related requirements to which joint applicants agree~~INC.

~~Maryland~~WGL ~~law~~was ~~requires~~established ~~the~~on ~~PSC~~November 1, of2000 MDas toa ~~approve~~Virginia acorporation. ~~merger~~Through ~~subject~~our towholly ~~its~~owned ~~review~~subsidiaries, ifwe itsell ~~finds~~and ~~that~~deliver ~~the~~natural ~~merger~~gas ~~agreement~~and isprovide ~~consistent~~energy-related ~~with~~products and services to customers primarily in the ~~public~~District ~~interest,~~of ~~convenience~~Columbia and ~~necessity,~~the ~~including~~surrounding ~~benefits~~metropolitan areas in Maryland and noVirginia, ~~harm~~although toour ~~consumers. The~~non-utility ~~Staff~~segments ofprovide various energy services across the ~~PSC~~United ofStates. ~~MD,~~WGL promotes the ~~Maryland~~efficient ~~Office~~use of ~~People’s~~clean ~~Counsel~~natural gas and ~~other~~renewable ~~intervenors~~energy ~~filed~~to ~~testimony~~improve ~~opposing~~ the ~~application~~environment onfor ~~August~~the ~~14,~~benefit ~~2017.~~of ~~The~~customers, ~~Applicants~~investors, ~~filed~~employees, ~~rebuttal~~and ~~testimony with~~ the ~~PSC~~communities ofit MDserves. onOn ~~September~~January 1125, 2017~~. Evidentiary~~, ~~hearings~~WGL ~~were~~entered ~~held~~into ~~before~~an ~~the~~Agreement ~~PSC~~and Plan of MDMerger on(Merger ~~October~~Agreement) 3,to ~~2017~~combine ~~through~~with ~~October~~AltaGas 16Ltd., ~~2017.~~a ~~Initial~~Canadian ~~Briefs~~Corporation ~~were~~(AltaGas). ~~due~~On ~~November~~July 6, ~~2017~~2018, ~~and~~the ~~Reply~~merger ~~Briefs~~was ~~were~~consummated ~~due~~between ~~November~~AltaGas, 16WGL, ~~2017~~and Wrangler Inc. (Merger Sub), a newly formed indirect wholly owned subsidiary of AltaGas. The ~~PSC~~Merger Agreement provided for the merger of MDthe isMerger ~~required~~Sub towith ~~issue~~and into WGL, with WGL surviving as an ~~order~~indirect ~~within~~wholly ~~180~~owned ~~days~~subsidiary of AltaGas (the ~~date~~Merger). In connection with the ~~application~~Merger, ~~was~~WGL ~~filed~~established Wrangler SPE LLC., ~~but~~a ~~may~~bankruptcy ~~extend~~remote ~~the~~special ~~date~~purpose byentity 45(the ~~days~~SPE) for ~~good~~the ~~cause~~purposes of owning the common stock of Washington Gas. The ~~PSC~~SPE is a wholly owned subsidiary of MDWGL. In ~~issued~~addition, anWGL ~~order~~owns ~~extending~~all of the ~~date~~shares ~~for~~of ~~review~~common stock of Washington Gas Resources Corporation (Washington Gas Resources) and Hampshire Gas Company (Hampshire). ~~Accordingly~~ Washington Gas Resources owns all of the shares of common stock of four non-utility subsidiaries that include WGL Energy Services, anInc. ~~order~~(WGL isEnergy ~~expected~~Services), byWGL ~~December~~Energy 5Systems, ~~2017~~Inc. (WGL Energy Systems), WGL Midstream, Inc. (WGL Midstream) and WGSW, Inc. (WGSW). Additionally, several subsidiaries of WGL own interests in other entities.

ToFor ~~approve~~further information on the Merger ~~Agreement~~, ~~the~~see ~~PSC~~“Safe ofHarbor DCand ~~must~~Forward ~~find~~Looking ~~that~~Statements” ~~the Merger taken as a whole is~~ in the ~~public~~Introduction, ~~interest~~Item I. ~~The~~ ~~law~~Business, ofItem ~~the District of Columbia does not impose any time limit on the PSC of DC’s review of the Merger~~1A. ~~The~~ ~~District~~Risk ~~of Columbia Office of the People’s Counsel~~Factors, ~~the District of Columbia Government~~ and ~~other~~Note ~~intervenors~~20 ~~filed~~“Merger ~~testimony~~ with ~~the~~AltaGas ~~PSC~~Ltd.” of ~~DC opposing~~ the ~~application~~Notes onto ~~September~~Consolidated ~~29,~~Financial ~~2017.~~Statements ~~The Applicants filed rebuttal testimony on October 27, 2017. Evidentiary hearings are scheduled before the PSC of DC~~ in ~~the~~this ~~first~~Form ~~half of December 2017~~10-K. ~~An order is expected by the second quarter of calendar year 2018.~~

For further information on the Merger, see "Safe Harbor and Forward Looking Statements" in the Introduction, Item I, Item 1A. Risk Factors, and Note 21 — Planned Merger with AltaGas Ltd. of the Notes to Consolidated Financial Statements in this Form 10-K.

WGL⁽¹⁾⁽³⁾

Wrangler SPE LLC

Washington Gas

Regulated Utility

Hampshire

Regulated Utility

Washington Gas Resources⁽²⁾

WGL Energy Services Retail

Energy-Marketing

WGL Energy Systems

Commercial Energy Systems

WGSW

Commercial Energy Systems

WGL Midstream

Midstream Energy Services

⁽¹⁾Crab Run Gas Company is an inactive, wholly owned subsidiary of WGL.

⁽²⁾Holding company whose stand-alone results are reported in "other activities".

⁽³⁾ WGL is an indirect wholly owned subsidiary of AltaGas.

~~Industry~~INDUSTRY ~~Segments~~SEGMENTS

Our segments include regulated utility, retail energy-marketing, commercial energy systems and midstream energy services. Transactions and activities not specifically identified in one of these four segments are reported as “Other Activities.” The four segments are described below.

REGULATED UTILITY SEGMENT

The regulated utility segment consists of Washington Gas and Hampshire and represents approximately 75% of WGL’s total assets. Operating revenues related to gas sales and deliveries to external customers were approximately $1.2 billion, $1.1 billion, and $1.3 billion in fiscal years ended September 30, 2017, 2016 and 2015, respectively.

Washington Gas Light Company

Washington Gas is a regulated public utility that sells and delivers natural gas to retail customers in accordance with tariffs approved by regulatory commissions in the District of Columbia and adjoining areas in Maryland, Virginia and several cities and towns in the northern Shenandoah Valley of Virginia. Washington Gas has been engaged in the natural gas distribution business since its incorporation by an Act of Congress in 1848. Washington Gas has been a Virginia corporation since 1953 and a corporation of the District of Columbia since 1957.

WGL Holdings, Inc.

Washington Gas Light Company

Part I

Item 1. Business (continued)

~~customers~~The inregulated ~~future~~utility ~~periods.~~segment ~~Therefore,~~consists ~~increases or decreases in the cost~~ of ~~gas associated with sales made to firm customers have no direct effect on~~ Washington Gas’ ~~net~~and ~~revenues~~Hampshire and ~~net~~represents ~~income.~~approximately ~~However,~~71% ~~to the extent Washington Gas does not have regulatory mechanisms in place to mitigate the indirect effects~~ of ~~higher~~WGL’s ~~gas~~total prices, such as: (i) lower natural gas consumption caused by customer conservation; (ii) increased short-term interest expense to finance a higher natural gas storage and accounts receivables balances and (iii) higher expenses for uncollectible accounts, its net income may decreaseassets.

Washington Gas Light Company

Washington Gas provides regulated distribution or delivery of natural gas to retail customers under tariff rates designed to provide for a return on and return of the investment used in providing that service. The rates are also designed to provide for recovery of operating expenses and federal and state income taxes incurred in providing that service. Washington Gas also sells natural gas to customers who have not elected to purchase natural gas from unregulated third-party marketers (refer to the section entitled “Natural Gas Unbundling”). Washington Gas recovers the cost of the natural gas purchased to serve firm customers through recovery mechanisms as approved in jurisdictional tariffs. Any difference between gas costs incurred on behalf of firm customers and the gas costs recovered from those customers is deferred on the balance sheet as an amount to be collected from or refunded to customers in future periods. Therefore, increases or decreases in the cost of gas associated with sales made to firm customers have no direct effect on Washington Gas’ net revenues and net income. However, to the extent Washington Gas does not have regulatory mechanisms in place to mitigate the indirect effects of higher gas prices, such as: (i) lower natural gas consumption caused by customer conservation; (ii) increased short-term interest expense to finance a higher natural gas storage and accounts receivables balances and (iii) higher expenses for uncollectible accounts, its net income may decrease.

Washington Gas, under its asset optimization program, makes use of storage and transportation capacity resources when those assets are not required to serve utility customers. The objective of this program is to derive a profit to be shared with its utility customers. These profits are earned by entering into commodity-related physical and financial contracts with third parties (refer to the section entitled “Asset Optimization Derivative Contracts” for further discussion of the asset optimization program). Unless otherwise noted, therm deliveries reported for the regulated utility segment do not include deliveries related to the asset optimization program.

At September 30, ~~2017~~2018, Washington Gas’ service area had a population estimated at 5.69 million and included approximately 2.2 million households and commercial structures. Washington Gas operations are such that the loss of any one customer or group of customers would not have a significant adverse effect on its business. The following table lists the number of active customer meters and therms delivered by jurisdiction as of and for the year ended September 30, ~~2017~~2018 and ~~2016~~2017, respectively.

Active Customer Meters and Therms Delivered by Jurisdiction
Jurisdiction	Active CustomerMeters as of September 30, ~~2017~~2018	Millions of ThermsDeliveredFiscal Year Ended September 30, ~~2017~~2018	Active CustomerMeters as of September 30, ~~2016~~2017	Millions of ThermsDeliveredFiscal Year Ended September 30, ~~2016~~2017
District of Columbia	~~161~~163,~~990~~516	~~270~~298.64	~~158~~161,~~170~~990	270.16
Maryland	~~478~~485,~~004~~619	~~742~~914.87	~~468~~478,~~793~~004	~~939~~742.48
Virginia	~~523~~528,~~661~~841	~~589~~673.18	~~517~~523,~~197~~661	~~583~~589.01
Total	1,~~163~~177,~~655~~976	1,~~602~~886.59	1,~~144~~163,~~160~~655	1,~~792~~602.5

For additional information about gas deliveries and meter statistics, refer to the section entitled “Results of Operations” in Management’s Discussion for Washington Gas.

Hampshire Gas Company

Hampshire 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. 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.

Regulatory Environment

Washington Gas is regulated by the PSC of DC, the PSC of MD and the SCC of VA which approve its terms of service and the billing rates that it charges to its customers. Hampshire is regulated by the FERC. The rates charged to utility customers are designed to recover Washington Gas’ operating expenses and natural gas commodity costs and to provide a return on its investment in the net assets used in its firm gas sales and delivery service. For a discussion of current rates and regulatory matters, refer to the section entitled “Rates and Regulatory Matters” in Management’s Discussion for Washington Gas.

District of Columbia Jurisdiction

The PSC of DC consists of three full-time members who are appointed by the Mayor with the advice and consent of the District of Columbia City Council. The term of each commissioner is four years with no limitations on the number of terms that can be served. The PSC of DC has no time limitation within which it must make decisions regarding modifications to base rates charged by Washington Gas to its customers; however, it targets resolving pending rate cases within three months of the close of record.

WGL Holdings, Inc.

Washington Gas Light Company

Part I

Item 1. Business (continued)

Regulatory Environment

District of Columbia Jurisdiction

Maryland Jurisdiction

The PSC of MD consists of five full-time members who are appointed by the Governor with the advice and consent of the Senate of Maryland. Each commissioner is appointed to a five-year term, with no limit on the number of terms that can be served.

When Washington Gas files for a rate increase, the PSC of MD may initially suspend the proposed increase for 180 days, and then has the option to extend the suspension for an additional 30 days. If action has not been taken after 210 days, the requested rates become effective subject to refund.

Virginia Jurisdiction

The SCC of VA consists of three full-time members who are elected by the General Assembly of Virginia. Each commissioner has a six-year term with no limitation on the number of terms that can be served.

Either of two methods may be used to request a modification of existing rates. Washington Gas may file an application for a general rate increase, in which it may propose new adjustments to the cost of service that are different from those previously approved for Washington Gas by the SCC of VA, as well as a revised return on equity. The proposed rates under this process may take effect 150 days after the filing, subject to refund pending the outcome of the SCC of VA’s action on the application.

Alternatively, an expedited rate case procedure allows proposed rate increases to be effective 30 days after the filing date, subject to refund. Under this procedure, Washington Gas may not propose new adjustments for issues not approved in its last general rate case, or request a change in its authorized return on common equity. Once filed, other parties may propose new adjustments or a change in the cost of capital from the level authorized in its last general rate case. The expedited rate case procedure may not be available if the SCC of VA decides that there has been a substantial change in circumstances since the last general rate case filed by Washington Gas.

Seasonality of Business Operations

Washington Gas’ business is weather-sensitive and seasonal because the majority of its business is derived from residential and small commercial customers who use natural gas for space heating. Excluding deliveries for electric generation, 74% and 73% of the total therms delivered in Washington Gas’ service area occurred during its first and second fiscal quarters for ~~both~~ fiscal years ~~2017~~2018 and ~~2016~~2017, respectively. Washington Gas’ earnings are typically generated during these two quarters, and Washington Gas typically incurs net losses in the third and fourth fiscal quarters. The seasonal nature of the business creates large variations in short-term cash requirements, primarily due to the season-to-season fluctuations in the level of customer accounts receivable, unbilled revenues and storage gas inventories. Washington Gas finances these seasonal requirements primarily through the sale of commercial paper and unsecured short-term bank loans. For information on our management of weather risk, refer to the section entitled “Weather Risk” in Management’s Discussion and Analysis. For information about management of cash requirements, refer to the section entitled “Liquidity and Capital Resources” in Management’s Discussion and Analysis.

Non-Weather Related Changes in Natural Gas Consumption Patterns

Natural gas supply requirements for the utility are affected by changes in the natural gas consumption patterns of our customers that are driven by factors other than weather. Natural gas usage per customer may decline as customers change their consumption patterns for various reasons, including: (i) more volatile and higher natural gas prices; (ii) customer upgrades to more energy efficient appliances and building structures and (iii) a decline in the economy in the region in which we operate.

For each jurisdiction in which Washington Gas operates, changes in customer usage profiles are reflected in rate case proceedings and rates are adjusted accordingly. Changes in customer usage by existing customers that occur subsequent to rate case proceedings in Maryland generally will not change revenues because the RNA mechanism stabilizes the level of delivery charge revenues received from customers.

In Virginia, decoupling rate mechanisms for residential, small commercial and industrial and group metered apartment customers permit Washington Gas to adjust revenues for non-weather related changes in customer usage. The WNA and the CRA are billing mechanisms that together eliminate the effects of both weather and other factors such as conservation.

In the District of Columbia, a decrease in customer usage that occurs subsequent to a rate case proceeding would have the effect of reducing revenues, which could be offset by additions of new customers.

Natural Gas Supply and Capacity

WGL Holdings, Inc.

Washington Gas Light Company

Part I

Item 1. Business (continued)

Natural Gas Supply and Capacity

Capacity and Supply Requirements

Washington Gas must contract for reliable and adequate natural gas supplies, interstate pipeline capacity and storage capacity to provide natural gas to its distribution system, while considering: (i) the dynamics of the commodity supply and interstate pipeline and storage capacity markets; (ii) its own on-system natural gas peaking facilities and (iii) the characteristics of its customer base. Energy-marketing companies that sell natural gas to customers located within Washington Gas’ service territory are responsible for acquiring natural gas for their customers; however, Washington Gas allocates certain storage and pipeline capacity related to these customers in accordance with regulatory requirements.

Washington Gas has adopted a diversified portfolio approach designed to address constraints on supply by using multiple supply receipt points, dependable interstate pipeline transportation and storage arrangements, and its own substantial storage and peak shaving capabilities. Washington Gas’ supply and pipeline capacity plan is based on forecasted system requirements, and takes into account estimated load growth, attrition, conservation, geographic location, interstate pipeline and storage capacity and contractual limitations and the forecasted movement of customers between bundled service and delivery service. Under reduced supply conditions, Washington Gas may implement contingency plans in order to maximize the number of customers served. Contingency plans include requests to the general population to conserve and target curtailments to specific sections of the system, consistent with curtailment tariffs approved by regulators in each of Washington Gas’ three jurisdictions.

Washington Gas obtains natural gas supplies that originate from multiple regions throughout the United States. At September 30, ~~2017~~2018 and ~~2016~~2017, Washington Gas had multiple service agreements with four pipeline companies that ~~provided~~provides firm transportation and/or storage services directly to Washington Gas’ city gates. These contracts have expiration dates ranging from fiscal years ~~2018~~2019 to ~~2034~~2045. Additionally, Washington Gas has contracted with various interstate pipeline and storage companies to add to its storage and transportation capacity ~~starting in fiscal year 2018~~ and continues to monitor other opportunities to acquire or participate in ~~obtaining~~ additional pipeline and storage capacity ~~that~~to ~~will~~ support customer growth and improve or maintain the high level of service expected by its customer base.

Asset Optimization Derivative Contracts

Under the asset optimization program, Washington Gas utilizes its storage and transportation capacity resources when they are not being used to serve its utility customers. Washington Gas executes commodity-related physical and financial contracts in the form of forwards, futures and options as part of an asset optimization program that is managed by its internal staff. These transactions are accounted for as derivatives. The objective of this program is to derive a profit to be shared with Washington Gas' utility customers. Washington Gas enters into these derivative transaction contracts to secure operating margins that will ultimately be shared between ~~Washington Gas~~ customers and ~~shareholders~~Washington Gas. Because these sharing mechanisms are approved by our regulators in all three jurisdictions, any changes in fair value of the derivatives are recorded either through earnings for margins that are retained by Washington Gas or as regulatory assets or liabilities if the ultimate realized gains and losses will be included in the rates charged to customers.

The derivatives used under this program are subject to fair value accounting treatment which may cause significant period-to-period volatility in earnings from unrealized gains and losses associated with changes in fair value for the portion of net profits attributed to shareholders. However, this earnings volatility does not change the realized margins that Washington Gas expects to earn from these transactions. All physically and financially settled contracts under our asset optimization program are reported on a net basis in the statements of income in “Utility cost of gas.” Total net margins including unrealized gains and losses recorded to “Utility cost of gas” after sharing and management fees associated with all asset optimization transactions for the years ended September 30, ~~2017~~2018, ~~2016~~2017 and ~~2015~~2016, respectively, were net gains of $8234.93 million, $4382.89 million, and $2743.98 million.

Refer to the sections entitled “Results of Operations — Regulated Utility Operating Results” and “Market Risk” in Management’s Discussion for further discussion of the asset optimization program and its effect on earnings.

Annual Sendout

As reflected in the table below, Washington Gas received natural gas from multiple sources in fiscal year 2017 and expects to use those same sources to satisfy customer demand in fiscal year 2018. Firm transportation denotes gas transported directly to the entry point of Washington Gas’ distribution system in contractual volumes. Transportation storage denotes volumes stored by a pipeline during the spring, summer and fall for withdrawal and delivery to the Washington Gas distribution system during the winter heating season to meet load requirements. Peak load requirements are met by: (i) underground natural gas storage at the Hampshire storage field; (ii) the local production of propane air plants located at Washington Gas-owned facilities in Rockville, Maryland (Rockville Station) and in Springfield, Virginia (Ravensworth Station) and (iii) other peak-

WGL Holdings, Inc.

Washington Gas Light Company

Part I

Item 1. Business (continued)

~~shaving~~Refer ~~resources.~~to ~~Unregulated third party marketers acquire interstate pipeline and storage capacity and~~ the ~~natural~~sections ~~gas~~entitled ~~commodity~~“Results ~~on behalf~~ of ~~Washington~~Operations — ~~Gas’~~Regulated ~~delivery~~Utility ~~service~~Operating ~~customers~~Results” ~~under customer choice programs. Washington Gas also provides transportation, storage~~ and ~~peaking resources to unregulated third party marketers (refer to the section entitled~~ “~~Natural~~Market ~~Gas Unbundling~~Risk”). ~~These~~in ~~retail marketers have natural gas delivered to the entry point of Washington Gas~~Management’s ~~distribution~~Discussion ~~system~~for onfurther ~~behalf~~discussion of ~~those~~the ~~utility~~asset ~~customers~~optimization ~~that~~program ~~have~~and ~~decided~~its toeffect ~~acquire their natural gas commodity~~ on ~~an unbundled basis, as discussed below~~earnings.

~~Excluding~~Annual the sendout of sales and deliveries of natural gas used for electric generation, the following table outlines total sendout of the system. The sources of delivery and related volumes that were used to satisfy the requirements of fiscal year 2017 and those projected for pipeline year 2018 are shown in the following table.Sendout

Sources of Delivery for Annual Sendout
(In millions of therms)	Fiscal Year
Sources of Delivery	Actual2016	Actual2017	Projected 2018(a)
Firm Transportation	509	513	582
Transportation Storage	312	398	323
Hampshire Storage, Company-Owned Propane-Air Plants, and other Peak-Shaving Resources	15	29	23
Unregulated Third Party Marketers	976	783	862
Total	1,812	1,723	1,790

As reflected in the table below, Washington Gas received natural gas from multiple sources in fiscal year 2018 and expects to use those same sources to satisfy customer demand in fiscal year 2019. Firm transportation denotes gas transported directly to the entry point of Washington Gas’ distribution system in contractual volumes. Transportation storage denotes volumes stored by a pipeline during the spring, summer and fall for withdrawal and delivery to the Washington Gas distribution system during the winter heating season to meet load requirements. Peak load requirements are met by: (i) underground natural gas storage at the Hampshire storage field; (ii) the local production of propane air plants located at Washington Gas-owned facilities in Rockville, Maryland (Rockville Station) and in Springfield, Virginia (Ravensworth Station) and (iii) other peak-shaving resources. Unregulated third-party marketers acquire interstate pipeline and storage capacity and the natural gas commodity on behalf of Washington Gas’ delivery service customers under customer choice programs. Washington Gas also provides transportation, storage and peaking resources to unregulated third-party marketers (refer to the section entitled “Natural Gas Unbundling”). These retail marketers have natural gas delivered to the entry point of Washington Gas’ distribution system on behalf of those utility customers that have decided to acquire their natural gas commodity on an unbundled basis, as discussed below.

Excluding the sendout of sales and deliveries of natural gas used for electric generation, the following table outlines total sendout of the system. The sources of delivery and related volumes that were used to satisfy the requirements of fiscal year 2018 and those projected for pipeline year 2019 are shown in the following table.



Sources of Delivery for Annual Sendout
(In millions of therms)	Fiscal Year
Sources of Delivery	Actual 2017	Actual 2018	Projected 2019^(a)
Firm Transportation	513	643	587
Transportation Storage	398	501	390
Hampshire Storage, Company-Owned Propane-Air Plants, and other Peak-Shaving Resources	29	45	29
Unregulated Third-Party Marketers	783	845	861
Total	1,723	2,034	1,867

^(a)Based on normal weather.

Design Day Sendout

The effectiveness of Washington Gas’ capacity resource plan is largely dependent on the sources used to satisfy forecasted and actual customer demand requirements for its design day. For planning purposes, Washington Gas assumes that all interruptible customers will be curtailed on the design day. Washington Gas’ forecasted design day demand for the ~~2017-~~2018-2019 winter season is 19.89 million therms and Washington Gas’ projected sources of delivery for design day sendout is 21.0 million therms. This provides a reserve margin of approximately 5.93%. Washington Gas plans for the optimal utilization of its storage and peaking capacity to reduce its dependency on firm transportation and to lower pipeline capacity costs. The following table reflects the sources of delivery that are projected to be used to satisfy the forecasted design day sendout estimate for fiscal year ~~2018~~2019.

Projected Sources of Delivery for Design Day Sendout
(In millions of therms)	Fiscal Year 2017
Sources of Delivery	Volumes	Percent
Firm Transportation	6.8	32	%
Transportation Storage	8.5	41	%
Hampshire Storage, Company-Owned Propane-Air Plants and other Peak-Shaving Resources	5.5	26	%
Unregulated Third Party Marketers	0.2	1	%
Total	21.0	100	%

Natural Gas Unbundling

At September 30, 2017, customer choice programs for natural gas customers were available to all of Washington Gas’ regulated utility customers in the District of Columbia, Maryland and Virginia. These programs allow customers to purchase their natural gas from unregulated third party marketers, rather than purchasing this commodity as part of a bundled service from the local utility. Of Washington Gas’ 1.2 million active customers at September 30, 2017, approximately 178,000 customers purchased their natural gas commodity from unregulated third party marketers.

The following table provides the percentage of customers participating in customer choice programs in Washington Gas’ jurisdictions at September 30, 2017.

WGL Holdings, Inc.

Washington Gas Light Company

Part I

Item 1. Business (continued)

Participation in Customer Choice Programs
Projected Sources of Delivery for Design Day Sendout
At September 30, 2017
(In millions of therms)	Fiscal Year 2019
Jurisdiction	Customer Class	Eligible Customers
Sources of Delivery	Volumes		Percent
		Total		% Participating
Firm Transportation	6.8		32	%
District of Columbia	Firm:
Transportation Storage	8.5		41	%
	Residential	148,945		9	%
Hampshire Storage, Company-Owned Propane-Air Plants and other Peak-Shaving Resources	5.5		26	%
	Commercial	12,894		34	%
Unregulated Third-Party Marketers	0.2		1	%
	Interruptible	151		94	%
Total	21.0		100	%
Maryland	Firm:
	Residential	446,990		20	%
	Commercial	30,830		44	%
	Interruptible	182		98	%
	Electric Generation	2		100	%
Virginia	Firm:
	Residential	493,835		9	%
	Commercial	29,655		32	%
	Interruptible	171		93	%
Total		1,163,655

~~When~~Natural ~~customers choose to purchase the natural gas commodity from unregulated third party marketers, Washington~~ Gas’ net income is not affected because Washington Gas charges its customers the cost of gas without any mark-up. When customers select an unregulated third party marketer as their gas supplier, Washington Gas continues to charge these customers to deliver natural gas through its distribution system at rates identical to the delivery portion of the bundled sales service customers.Unbundling

At September 30, 2018, customer choice programs for natural gas customers were available to all of Washington Gas’ regulated utility customers in the District of Columbia, Maryland and Virginia. These programs allow customers to purchase their natural gas from unregulated third-party marketers, rather than purchasing this commodity as part of a bundled service from the local utility. Of Washington Gas’ 1.2 million active customers at September 30, 2018, approximately 174,000 customers purchased their natural gas commodity from unregulated third-party marketers.

The following table provides the percentage of customers participating in customer choice programs in Washington Gas’ jurisdictions at September 30, 2018.



Participation in Customer Choice Programs
At September 30, 2018
Jurisdiction	Customer Class	Eligible Customers
		Total	% Participating
District of Columbia	Firm:
	Residential	150,417	9	%
	Commercial	12,954	34	%
	Interruptible	145	98	%
Maryland	Firm:
	Residential	454,121	19	%
	Commercial	31,316	42	%
	Interruptible	180	99	%
	Electric Generation	2	100	%
Virginia	Firm:
	Residential	498,790	9	%
	Commercial	29,886	31	%
	Interruptible	165	95	%
Total		1,177,976

When customers choose to purchase the natural gas commodity from unregulated third-party marketers, Washington Gas’ net income is not affected because Washington Gas charges its customers the cost of gas without any mark-up. When customers select an unregulated third-party marketer as their gas supplier, Washington Gas continues to charge these customers to deliver natural gas through its distribution system at rates identical to the delivery portion of the bundled sales service customers.

Safety and Reliability of the Natural Gas Distribution System

Maintaining and improving the public safety and reliability of Washington Gas’ distribution system is our highest priority, providing benefits to both customers and investors through improved customer service. Washington Gas continually monitors and reviews changes in requirements of the codes and regulations that govern the operation of the distribution system and refines its safety practices, with a particular focus on design, construction, maintenance, operation, replacement, inspection and monitoring practices to meet or exceed these requirements. Significant changes in regulations can impact the cost of operating and maintaining our distribution system.

Competition

The Natural Gas Delivery Function

The natural gas delivery function, the core business of Washington Gas, continues to be regulated by local and state regulatory commissions. In developing this core business, Washington Gas has invested $5.3 billion as of September 30, 2017, in safe and reliable distribution system assets. Because of the high fixed costs and significant safety and environmental considerations associated with building and operating a distribution system, Washington Gas expects to continue being the only owner and operator of a distribution system in its current franchise area for the foreseeable future. The nature of Washington Gas’ customer base and the distance of most customers from interstate pipelines mitigate the threat of bypass of its facilities by other potential delivery service providers.

Competition with Other Energy Products

Washington Gas faces competition based on customers’ preference for other energy products and the prices of those products compared to natural gas. In the residential market, which generates a significant portion of Washington Gas’ net income, the most significant product competition occurs between natural gas and electricity. Because the cost of electricity is affected by the cost of fuel used to generate electricity, such as natural gas, Washington Gas generally maintains a price advantage over competitive electricity supply in its service area for traditional residential uses of energy such as heating, water heating and cooking. Washington Gas continues to attract the majority of the new residential construction market in its service territory, and consumers’ continuing preference for natural gas allows Washington Gas to maintain a strong market presence. The following table lists the new customer meters added by jurisdiction and major rate class for the year ended September 30, 2017.

WGL Holdings, Inc.

Washington Gas Light Company

Part I

Item 1. Business (continued)

New Customer Meters by Area
	Residential	Commercial andInterruptible	Group MeteredApartments	Total
Maryland	5,471	300	2	5,773
Virginia	5,292	316	—	5,608
District of Columbia	955	135	17	1,107
Total	11,718	751	19	12,488

Competition

The Natural Gas Delivery Function

The natural gas delivery function, the core business of Washington Gas, continues to be regulated by local and state regulatory commissions. In developing this core business, Washington Gas has invested approximately $4 billion through September 30, 2018, to build, maintain and serve safe and reliable distribution system assets. Because of the high fixed costs and significant safety and environmental considerations associated with building and operating a distribution system, Washington Gas expects to continue being the only owner and operator of a distribution system in its current franchise areas for the foreseeable future. The nature of Washington Gas’ customer base and the distance of most customers from interstate pipelines mitigate the threat of bypass of its facilities by other potential delivery service providers.

Competition with Other Energy Products



New Customer Meters by Area
	Residential	Commercial and Interruptible	Group Metered Apartments	Total
Maryland	5,692	395	—	6,087
Virginia	5,209	344	1	5,554
District of Columbia	818	121	1	940
Total	11,719	860	2	12,581

In the interruptible market, fuel oil is the prevalent energy alternative to natural gas. Washington Gas’ success in this market depends largely on the relationship between natural gas and oil prices. The supply of natural gas primarily is derived from domestic sources, and the relationship between supply and demand generally has the greatest impact on natural gas prices. Since the source of a large portion of oil comes from foreign countries, political events and foreign currency conversion rates can influence oil supplies and prices to domestic consumers.

Critical Factors

Factors critical to the success of the regulated utility segment include: (i) operating a safe and reliable natural gas distribution system; (ii) having sufficient natural gas supplies to meet customer demands; (iii) being competitive with other sources of energy such as electricity, fuel oil and propane; (iv) having access to sources of liquidity; (v) recovering the costs and expenses of this business in the rates charged to customers and (vi) earning a just and reasonable rate of return on invested capital.

RETAIL ENERGY-MARKETING SEGMENT

The retail energy-marketing segment consists of the operations of WGL Energy Services, which competes with regulated utilities and other unregulated third -party marketers to sell natural gas and/or electricity directly to residential, commercial and industrial customers in Maryland, Virginia, Delaware, Pennsylvania and the District of Columbia. WGL Energy Services is subject to regulation by the public service regulatory commissions of the states in which the company is authorized as a competitive service provider. These regulatory commissions: (i) authorize WGL Energy Services to provide service, (ii) review certain terms and conditions of service, (iii) establish the regulatory rules for interactions between the utility and the competitive service provider and (iv) issue orders and promulgate rules that establish the broad structure and conduct of retail energy markets. Changes to the rules, rates and orders by the regulatory commissions may affect WGL Energy Services’ financial performance.

WGL Energy Services buys natural gas and electricity with the objective of earning a profit through competitively priced sales contracts with end-users. These commodities are delivered to retail customers through the distribution systems owned by regulated utilities. Washington Gas is one of several utilities that deliver gas to, and on behalf of, WGL Energy Services. Unaffiliated electric utilities deliver all of the electricity sold by WGL Energy Services. Additionally, WGL Energy Services bills its customers either independently or through the billing services of the regulated utilities that deliver its commodities. Refer to Note 18—Related Party Transactions of the Notes to Consolidated Financial Statements for further discussion of our purchase of receivables program.

WGL Energy Services also sells wind and other RECs and carbon offsets to retail customers. WGL Energy Services owns solar generating assets which are dedicated to five specific customers. The results of operations for these assets are reported within the Commercial Energy Systems segment. WGL Energy Services does not own or operate any other electric generation, transmission or distribution assets.

At September 30, 2017, WGL Energy Services served approximately 116,200 residential, commercial and industrial natural gas customer accounts and approximately 113,700 residential, commercial and industrial electricity customer accounts located in Maryland, Virginia, Delaware, Pennsylvania and the District of Columbia. Its customer concentration is such that the loss of any one customer or group of customers would not have a significant adverse effect on its business.

The retail energy-marketing segment’s total operating revenues were $1.1 billion for fiscal year 2017, $1.2 billion for fiscal year 2016, and $1.3 billion for fiscal year 2015.

WGL Holdings, Inc.

Washington Gas Light Company

Part I

Item 1. Business (continued)

Unaffiliated electric utilities deliver all of the electricity sold by WGL Energy Services. WGL Energy Services bills its customers either independently or through the billing services of the regulated utilities that deliver its commodities. Refer to Note 17—Related Party Transactions of the Notes to Consolidated Financial Statements for further discussion of our purchase of receivables program.

At September 30, 2018, WGL Energy Services served approximately 108,900 residential, commercial and industrial natural gas customer accounts and approximately 101,700 residential, commercial and industrial electricity customer accounts located in Maryland, Virginia, Delaware, Pennsylvania and the District of Columbia. Its customer concentration is such that the loss of any one customer or group of customers would not have a significant adverse effect on its business.

Seasonality of Business Operations

The operations of WGL Energy Services are seasonal, with larger amounts of electricity being sold in the summer and peak winter months and larger amounts of natural gas being sold in the winter months. Working capital requirements can vary significantly during the year and these variations are financed through internally generated funds and WGL’s issuance of commercial paper and unsecured short-term bank loans. WGL Energy Services accesses these funds through the WGL money pool. For a discussion of the WGL money pool, refer to the section entitled “Money Pool” in Management’s Discussion and Analysis.

Natural Gas and Electricity Supply

WGL Energy Services contracts for storage and pipeline capacity to meet its customers’ needs primarily through transportation releases and storage services allocated from the utility companies in the various service territories in which it provides retail energy commodity.

On February 20, 2013, WGL Energy Services entered into a five-year secured supply arrangement with Shell Energy North America (US), LP (Shell Energy). Under this arrangement, WGL Energy Services has the ability to purchase the majority of its power, natural gas and related products from Shell Energy in a structure that reduces WGL Energy Services’ cash flow risk from collateral posting requirements. While Shell is intended to be the majority provider of natural gas and electricity, WGL Energy Services retains the right to purchase supply from other providers. On November 7, 2016, the supply arrangement was extended for two years, expiring in 2020.

Natural gas supplies are delivered to WGL Energy Services’ market territories through several interstate natural gas pipelines. To supplement WGL Energy Services’ natural gas supplies during periods of high customer demand, WGL Energy Services maintains gas storage inventory in storage facilities that are assigned by natural gas utilities such as Washington Gas. This storage inventory enables WGL Energy Services to meet daily and monthly fluctuations in demand and to minimize the effect of market price volatility.

The PJM Interconnection (PJM) is a regional transmission organization that regulates and coordinates generation supply and the wholesale delivery of electricity in the states and jurisdictions where WGL Energy Services operates. WGL Energy Services buys wholesale and sells retail electricity in the PJM market territory, subject to its rules and regulations. ~~PJM requires that its market participants have sufficient load capacity to serve their customers’ load requirements.~~

Competition

Natural Gas. WGL Energy Services competes with regulated gas utilities and other third -party marketers to sell natural gas to customers both inside and outside of the Washington Gas service area.

Electricity. WGL Energy Services competes with regulated electric utilities and other third -party marketers to sell electricity to customers.

Marketers of natural gas and electric supply compete largely on price; therefore, gross margins are relatively small. To provide competitive pricing to its retail customers and in adherence to its risk management policies and procedures, WGL Energy Services manages its natural gas and electricity contract portfolios by attempting to closely match the commitments for gas and electricity deliveries from suppliers with requirements to serve sales customers.

WGL Energy Services’ residential and small commercial electric customer growth opportunities are significantly affected by the price for Standard Offer Service (SOS) offered by electric utilities. These rates are periodically reset for each customer class ~~based on the regulatory requirements in each jurisdiction. Customer growth opportunities either expand or contract due to the relationship of these SOS rates to current market prices.~~

For a discussion of WGL Energy Services’ exposure to and management of price risk, refer to the section entitled “Market Risk—Price Risk Related to the Non-Utility Segments” in Management’s Discussion.

Critical Factors

WGL Holdings, Inc.

Washington Gas Light Company

Part I

Item 1. Business (continued)

~~these~~based ~~commitments,~~on including PJM costs and costs to meet renewable portfolio standards; (ii) managing credit risks associated with customers and suppliers; (iii) having sufficient deliverability of natural gas and electric supplies and transportation to serve the ~~demand~~regulatory ofrequirements ~~its~~in ~~customers,~~each ~~which~~jurisdiction. ~~can~~Customer begrowth ~~affected~~opportunities byeither ~~the~~expand ~~ability~~or ofcontract ~~natural~~due ~~gas producers, pipeline gatherers, natural gas processors, interstate pipelines, electricity generators and regional electric transmission operators~~ to ~~deliver~~ the ~~respective~~relationship ~~commodities; (iv) access to sources~~ of ~~financial~~these ~~liquidity;~~SOS ~~(v)~~rates ~~controlling the level of selling, general and administrative expenses, including customer acquisition expenses and (iv) access~~ to ~~markets~~current ~~through~~market ~~customer choice programs or other forms of deregulation~~prices.

Critical Factors

Factors critical to managing the retail energy-marketing segment include: (i) managing the market risk of the difference between the price committed to customers under sales contracts and the cost of natural gas and electricity needed to satisfy these commitments, including PJM costs and costs to meet renewable portfolio standards; (ii) having sufficient deliverability of natural gas and electric supplies and transportation to serve the demand of its customers, which can be affected by the ability of natural gas producers, pipeline gatherers, natural gas processors, interstate pipelines, electricity generators and regional electric transmission operators to deliver the respective commodities; (iii) access to sources of financial liquidity; (iv) managing credit risks associated with customers and suppliers; (v) controlling the level of selling, general and administrative expenses, including customer acquisition expenses and (iv) access to markets through customer choice programs or other forms of deregulation.

COMMERCIAL ENERGY SYSTEMS SEGMENT

The commercial energy systems segment consists of the operations of WGL Energy Systems, WGSW and the results of operations of wholly owned subsidiaries, consolidated tax equity and other investments and affiliate owned commercial distributed energy projects.

This segment focuses on clean and energy efficient solutions for its customers, driving earnings through (i) investing in distributed generation assets such as Solar PV systems, combined heat and power plants, and natural gas fuel cells and (ii) operating as a general contractor to upgrade the mechanical, electrical, water and energy-related infrastructure of large governmental and commercial facilities by implementing both traditional and alternative energy technologies. This segment has assets and activities across the United States.

As of September 30, ~~2017~~2018, this segment owned $~~561~~577.01 million of operating distributed generation assets, generating a total of ~~290~~342,~~465~~306 megawatt hours in fiscal year ~~2017~~2018. Additionally, as of September 30, ~~2017~~2018, there was $4111.0 million of signed projects under construction. These distributed generation assets drive revenue through the sale of renewable power generation under long-term power purchase agreements and the sale of renewable energy credits. As of September 30, ~~2017~~2018, we have $~~150~~156.91 million in unamortized investment tax credits and grants related to these assets placed in service. These credits and grants are recognized as reductions in tax expense by amortizing them over the useful life of the underlying assets, typically 30 years.

Competition

There are many competitors in this business segment. In the renewable energy and distributed generation market, competitors primarily include other developers, tax equity investors, distributed generation asset owner firms and lending institutions. Within the government sector, competitors primarily include companies contracting with customers under Energy Savings Performance Contracting (ESPC) as well as utilities providing services under Utility Energy Saving Contracts (UESC). WGL Energy Systems competes on the basis of strong customer relationships developed over many years of implementing successful projects, developing and maintaining strong supplier relationships, and focusing in areas where it can bring relevant expertise.

Critical Factors

Factors critical to the success of the commercial energy systems segment include: (i) generating adequate sales commitments from distributed generation channel partners and customers; (ii) generating adequate sales commitments from the government and private sectors in the facility construction and retrofit markets; (iii) building a stable base of customer relationships; (iv) estimating and managing fixed-price contracts with contractors; (v) managing selling, general and administrative expenses; (vi) managing price and operational risk associated with distributed energy projects and (vii) successful operation and optimization of commercial assets.

MIDSTREAM ENERGY SERVICES SEGMENT

WGL Midstream specializes in the investment, management, development and optimization of natural gas storage and transportation assets. At September 30, ~~2017~~2018, WGL Midstream had infrastructure investments totaling $~~384~~770.60 million. For a discussion of WGL Midstream's infrastructure investments, refer to the section entitled "Liquidity and Capital Resources--Infrastructure Investments" in Management's Discussion.

Additionally, WGL Midstream provides natural gas related solutions to its customers and counterparties including producers, utilities, local distribution companies, power generators, wholesale energy suppliers, LNG exporters, pipelines and storage facilities. Moreover, WGL Midstream contracts for storage and pipeline capacity in its trading activities through both long term contracts and short term transportation releases. WGL Midstream also contracts for physical natural gas sales and purchases on both a long term and short term basis.

WGL Holdings, Inc.

Washington Gas Light Company

Part I

Item 1. Business (continued)

WGL Midstream enters into both physical and financial derivative transactions to mitigate risks while seeking to maximize potential profits from the optimization of the transportation and storage assets it has under contract. These derivatives may cause significant period-to-period volatility in earnings as recorded under GAAP; however, this earnings volatility will not change the realized margins that WGL Midstream expects to earn on the underlying physical transactions.

WGL Midstream seeks to manage price risk exposure under its risk management policy by matching its forward physical and financial positions with its asset base. For a discussion of WGL Midstream’s exposure to and management of price risk, refer to the section entitled “Market Risk-Price Risk Related to the Non-Utility Segments” in Management’s Discussion and Analysis.

Competition

WGL Midstream competes with other midstream infrastructure and energy services companies, wholesale energy suppliers, producers and other non-utility affiliates of regulated utilities for the acquisition of natural gas storage and transportation assets.

Price Volatility

WGL Midstream can be positively or negatively affected by significant volatility in the wholesale price of natural gas. WGL Midstream risk management policies and procedures are designed to minimize the risk that purchase commitments and the related sale commitments do not closely match. In general, profit opportunities for trading activities are increased for WGL Midstream with increased volatility in natural gas prices. These opportunities are primarily in short term transportation and storage spreads, seasonal storage spreads and long term supply or basis transactions.

Critical Factors

Factors critical to the success of WGL Midstream’s operations include: (i) pipeline investment projects are on time and on budget within set parameters; (ii) internal risk management policies; (iii) winning business in a competitive marketplace; (iv) managing counterparty credit risk; (v) managing contract risks associated with the purchase and sale of natural gas, including index pricing and changes in natural gas markets; (vi) maintaining and leveraging expertise in managing and optimizing natural gas related contracts; (vii) access to sources of financial liquidity and (viii) the level of general and administrative expenses.

OTHER ACTIVITIES

Activities and transactions that are not significant enough on a stand-alone basis to warrant treatment as an operating segment, and that do not fit into one of our other operating segments, are aggregated as “Other activities” in the Operating Segment Financial Information. Transaction ~~Administrative~~fees related to the merger with AltaGas as well as administrative and business development activity costs associated with WGL and Washington Gas Resources are included in this segment.

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 timeframe 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). Estimates of liabilities for environmental response costs are difficult to determine with precision because of the various factors that can affect their ultimate level. These factors include, but are not limited to, the following:


•	the complexity of the site;


•	changes in environmental laws and regulations at the federal, state and local levels;


•	the number of regulatory agencies or other parties involved;


•	new technology that renders previous technology obsolete or experience with existing technology that proves ineffective;


•	the level of remediation required and

• variation between the estimated and actual period of time required to respond to an environmentally-contaminated site.

WGL Holdings, Inc.

Washington Gas Light Company

Part I

Item 1. Business (concluded)

~~Washington~~• ~~Gas~~variation ~~has~~between ~~identified~~the upestimated ~~to ten sites where it or its predecessors may have operated MGPs. Washington Gas’ last use of an MGP was in 1984. In connection with these operations, we are aware that coal tar~~ and ~~certain~~actual ~~other~~period ~~by-products~~ of ~~the~~time ~~gas~~required ~~manufacturing process are present at or near some former sites, and may be present at others. Based on the information available~~ to ~~us,~~respond ~~we have concluded that none of the sites are likely~~ to ~~present~~ an ~~unacceptable~~environmentally ~~risk~~contaminated ~~to human health or the environment, and either the appropriate remediation is being undertaken, or Washington Gas believes no remediation is necessary~~site.

Washington Gas ishas ~~currently~~identified ~~conducting~~up ato ~~remedial~~ten ~~investigation~~sites ~~and~~where ~~feasibility~~it ~~study~~or ~~of potential contamination in the Anacostia River associated with and adjacent to one of~~ its ~~former~~predecessors ~~MGP~~may ~~sites~~have ~~under~~operated aMGPs. ~~2012~~Washington ~~consent~~Gas ~~decree~~last ~~with~~used ~~the~~any ~~District~~such ofplant ~~Columbia~~in ~~and federal governments~~1984. ~~During~~ ~~the~~In ~~fiscal~~connection ~~year~~with ~~ended~~these ~~2017~~operations, ~~Washington~~we ~~Gas~~are ~~began~~aware ~~working~~that oncoal ~~the~~tar ~~second~~and ~~phase~~certain ofother ~~this study, an in~~by-~~river~~products ~~investigation~~of ~~designed to evaluate~~ the ~~nature~~gas ~~and~~manufacturing ~~extent~~process ofare ~~contamination~~present inat ~~groundwater~~or ~~(beneath~~near ~~the~~some ~~river),~~former ~~surface~~sites ~~water,~~ and ~~sediments~~may ofbe ~~the~~present ~~Anacostia~~at ~~River~~others. ~~The study is ongoing.~~

Washington Gas ~~received~~is acurrently ~~letter~~remediating inits ~~February~~East ~~2016~~Station ~~from~~property, ~~the~~which ~~District~~is ofadjacent ~~Columbia~~to ~~and~~the ~~National~~Anacostia ~~Park~~River, ~~Service~~including ~~regarding~~ground ~~the~~water ~~Anacostia~~pump ~~River~~and ~~Sediment~~treat, ~~Project~~tar recovery, ~~indicating~~soil ~~that~~encapsulation ~~the~~and ~~District~~other oftreatment. ~~Columbia~~Washington Gas is conducting a ~~separate~~ remedial investigation and feasibility study ofunder ~~the~~a ~~river~~2012 toconsent ~~determine~~decree ifwith ~~and~~the ~~what~~District ~~cleanup~~of ~~measures~~Columbia ~~may~~and bethe ~~required~~federal government and toadditional ~~prepare~~remediation amay ~~natural~~be ~~resource damage assessment~~required. ~~The~~In ~~sediment~~addition, ~~project~~manufactured ~~draft~~gas ~~report~~waste ~~identifies~~was ~~one~~discovered ofat ~~Washington~~an ~~Gas’~~adjoining ~~former~~property, ~~MGP~~a ~~sites~~parcel ~~as one~~ of ~~seventeen~~land ~~potential~~adjacent ~~environmental~~to ~~cleanup~~East ~~sites~~Station. ~~During~~ ~~the fiscal year ended September 30, 2017,~~ Washington Gas ~~received~~has aagreed ~~request for information related~~ to ~~three~~work ~~Washington~~with ~~Gas properties:~~ the ~~previously~~owners ~~identified~~of ~~former~~the ~~MGP~~adjoining ~~site~~property ~~under~~to ~~the~~perform ~~2012~~a ~~consent~~site ~~decree~~investigation, ~~one~~ground ~~other~~water ~~former~~sampling, ~~MGP site~~ and ~~another~~report ~~Washington Gas location. We are not able to estimate the amount of potential damages or timing associated with the District of Columbia's environmental investigation~~ on the ~~Anacostia~~contamination ~~River~~ at ~~this~~the ~~time. While~~site anpursuant ~~allocation~~to ~~method~~oversight ~~has~~by ~~not~~Department ~~been~~of ~~established,~~Energy ~~Washington~~and ~~Gas~~Environment ~~has accrued an amount based on a potential range of estimates~~(DOEE).

~~The~~ ~~impact~~Washington Gas received a letter in February 2016 from the District of ~~these~~Columbia ~~matters~~and National Park Service regarding the Anacostia River Sediment Project, indicating that the District of Columbia is ~~not~~conducting ~~expected~~a separate remedial investigation and feasibility study of the river to ~~have~~determine if and what cleanup measures may be required and to prepare a ~~material~~natural ~~effect~~resource damage assessment. The sediment project draft remedial investigation report issued on March 30, 2018 identifies East Station as one of seventeen potential environmental cleanup sites. During the fiscal year ended September 30, 2017, Washington Gas’ ~~financial~~received ~~position,~~a ~~cash~~request ~~flows,~~for ~~capital~~information ~~expenditures,~~related ~~earnings~~to orthree ~~competitive~~Washington ~~position~~Gas properties. ~~See~~We ~~Note~~are ~~12—Environmental~~not ~~Matters~~able ofto estimate the ~~Notes~~total toamount ~~Consolidated~~of ~~Financial~~potential ~~Statements~~damages ~~for~~or ~~further~~timing ~~discussion~~associated with the District of Columbia's environmental ~~response~~investigation ~~costs~~on the Anacostia River at this time. While an allocation method has not been established, Washington Gas has accrued an amount based on a potential range of estimates.

See Note 11—Environmental Matters of the Notes to Consolidated Financial Statements for further discussion of environmental response costs.

OTHER INFORMATION

At September 30, ~~2017~~2018, we had 1,~~586~~648 employees comprising 1,~~461~~519 utility and ~~125~~129 non-utility employees.

WGL has determined that none of its entities, either separately or in the aggregate, will be classified as swap dealers or major swap participants under the Dodd-Frank Act.

~~Our~~The ~~code~~following ofdocumentation ~~conduct,~~is ~~corporate governance guidelines, and charters for the governance, audit and human resources committees of the WGL Board of Directors are~~ available on the ~~corporate~~ Web site for WGL (www.wglholdings.com) under ~~the~~ “Corporate Governance”: ~~link,~~our ~~and~~code ~~any~~of ~~changes~~conduct, orthe ~~amendments~~AltaGas toCode ~~these~~of ~~documents~~Business ~~will~~Ethics, which also beapplies ~~posted~~ to ~~this section of the~~ WGL ~~Web site. Charters for the governance~~, ~~audit~~ and ~~human resources committees of~~ the ~~Washington~~WGL ~~Gas~~Audit ~~Board~~Committee ~~of directors are available on the Corporate Web site www~~Charter.~~washingtongas.com~~ Any ~~under "About"/"Corporate Governance" and any~~ changes or amendments to these ~~charters~~documents will also be posted to this section of the ~~Washington Gas Web site. Copies of any of the aforementioned documents may be obtained by request to the Corporate Secretary at~~ WGL ~~Holdings, Inc., 101 Constitution Ave., N.W., Washington, D.C. 20080. Also on the WGL corporate~~ Web site is additional information about WGL Holdings and free access to our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments filed with or furnished to the Securities and Exchange Commission.

~~Our~~The ~~Chairman~~following ~~and~~documentation ~~Chief~~is ~~Executive~~available ~~Officer~~on ~~certified to~~ the ~~New~~Web ~~York~~site ~~Stock~~for ~~Exchange~~Washington Gas (~~NYSE~~www.washingtongas.com) onunder ~~February~~“Corporate ~~17,~~Information”/“Governance”: ~~2017~~our ~~that~~code of conduct, asthe AltaGas Code of ~~that~~Business ~~date~~Ethics, hewhich ~~was~~also ~~unaware~~applies to Washington Gas, the Washington Gas Corporate Governance Guidelines, and the Charters for the Governance & Environment, Health and Safety, Audit and Human Resources Committees of ~~any~~Washington ~~violation~~Gas. Any bychanges ~~WGL~~or amendments to these documents will also be posted to this section of the ~~NYSE’s~~Washington ~~corporate~~Gas ~~governance~~Web ~~listing standards~~site.

~~Our~~Copies ~~research~~of any of the aforementioned documents may be obtained by request to the Corporate Secretary at WGL Holdings, Inc., 1000 Maine Ave., S.W., Washington, D.C. 20024. Also on the WGL corporate Web site is additional information about WGL Holdings and ~~development~~free ~~costs~~access ~~during~~to ~~fiscal~~our ~~years~~annual ~~2017~~reports on Form 10-K, ~~2016~~quarterly reports on Form 10-Q, current reports on Form 8-K and ~~2015~~any ~~were~~amendments ~~not~~filed ~~material~~with or furnished to the Securities and Exchange Commission.

Our research and development costs during fiscal years 2018, 2017 and 2016 were not material.

WGL Holdings, Inc.

Washington Gas Light Company

Part I

Item 1A. Risk Factors

ITEM 1A. RISK FACTORS

The risk factors described below should be read in conjunction with other information included or incorporated by reference in this annual report on Form 10-K, including an in-depth discussion of these risks in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

The risk factors discussed below are separated into three sections. The first discusses those factors that affect the consolidated entity of WGL Holdings and all of its subsidiaries, including Washington Gas. The second section describes other risk factors affecting Washington Gas included under “Risks Affecting Washington Gas." The final section focuses on those factors affecting non-utility entities.

RISKS RELATING TO WGL AND ALL OF ITS SUBSIDIARIES

The ~~proposed~~ merger with AltaGas ismay ~~subject~~not achieve its anticipated results, and WGL may be unable to ~~regulatory~~integrate ~~approval.~~the operations of AltaGas in the manner expected.

~~On January 25, 2017,~~ WGL and AltaGas entered into athe Merger Agreement ~~for WGL to be combined~~ with ~~AltaGas in an all cash transaction valued at approximately $6.4 billion. Consummation of~~ the ~~Merger~~expectation isthat ~~subject to~~ the ~~satisfaction~~merger orwill ~~waiver~~result ofin ~~specified~~various ~~closing conditions~~benefits, including, ~~(i) the~~among ~~approval~~other ofthings, ~~the~~cost ~~Merger~~savings byand ~~the~~operating ~~holders~~efficiencies. ofAchieving ~~more than two-thirds of~~ the ~~outstanding~~anticipated ~~shares~~benefits of ~~WGL common stock, which was obtained on May 10, 2017, (ii)~~ the ~~receipt~~merger ofis ~~regulatory~~subject ~~approvals required~~ to ~~consummate~~a ~~the~~number ~~Merger, including approval from the Public Service Commission~~ of ~~the District of Columbia (PSC of DC)~~uncertainties, ~~the~~including ~~Public~~whether ~~Service Commission of Maryland (PSC of MD),~~ the ~~State~~businesses ~~Corporation Commission~~ of ~~Virginia~~WGL ~~(SCC of VA), the Federal Energy Regulatory Commission (FERC)~~ and ~~the~~AltaGas ~~Committee~~can Onbe ~~Foreign~~integrated ~~Investment~~ in ~~the~~an ~~United States (CFIUS) (FERC~~efficient, ~~CFIUS~~effective and ~~State~~timely ~~Corporation~~manner. ~~Commission~~The combination of ~~Virginia~~two ~~approvals~~independent ~~having~~businesses ~~been~~is ~~obtained on July 6~~complex, ~~2017,~~costly ~~August 18, 2017~~ and ~~October 20, 2017, respectively), (iii) the expiration or termination of the applicable waiting period under the Hart~~time-~~Scott-Rodino~~consuming ~~Antitrust Improvements Act of 1976 (HSR), which occurred on July 17, 2017, (iv) the absence of any order of any governmental authority~~ and ~~the~~may ~~absence~~divert ofsignificant ~~the~~management ~~enactment~~attention ~~of any law, in each case that enjoins, prohibits or makes illegal the consummation of the Merger,~~ and ~~(v) other~~resources ~~customary~~to ~~closing~~combining ~~conditions, including (a) the accuracy of each party~~WGL’s ~~representations~~ and ~~warranties (subject to customary materiality qualifiers), and (b) each party~~AltaGas’s ~~compliance~~business inpractices ~~all material respects with its obligations~~ and ~~covenants contained in the Merger Agreement. In addition~~operations, ~~the~~which ~~obligations~~could ofotherwise ~~AltaGas~~have ~~and~~been ~~its~~devoted ~~merger subsidiary~~ to ~~consummate~~WGL’s ~~the~~business ~~Merger~~opportunities. ~~are~~This ~~subject~~process tomay ~~(a) the~~disrupt ~~absence~~WGL’s ~~of a Company Material Adverse Effect (as defined in the Merger Agreement)~~ and ~~(b) the~~AltaGas’ ~~required~~respective regulatory approvals and any law not imposing or requiring any undertakings, terms, conditions, obligations, commitments, sanctions or remedial actions that constitute a Burdensome Condition (as defined in the Merger Agreement)businesses.

~~WGL~~In ~~may~~addition, ~~not~~it ~~receive~~is ~~the~~possible ~~remaining~~that ~~required~~the ~~statutory~~integration ~~approvals~~process ~~and~~could ~~other~~take ~~clearances~~longer ~~for~~than ~~the~~anticipated ~~Merger,~~and orcould ~~they~~result ~~may~~in ~~not~~the bedisruption ~~received~~of inWGL’s abusinesses, ~~timely~~processes ~~manner.~~and Ifsystems ~~such~~or ~~approvals~~inconsistencies ~~are~~in ~~received~~standards, ~~they~~controls, ~~may impose terms~~procedures, ~~conditions~~practices orand ~~restrictions~~policies, ~~(i)~~any ~~that~~of ~~cause~~which acould ~~failure~~adversely ofaffect the ~~closing~~combined ~~conditions~~company’s ~~set~~ability ~~forth~~to inachieve the ~~Merger~~anticipated ~~Agreement,~~benefits orof ~~(ii)~~the ~~that~~merger ~~could~~as ~~have~~and awhen ~~detrimental~~expected. ~~impact~~The onoverall ~~the~~combination ~~combined~~of ~~company~~WGL’s ~~following~~and ~~completion~~AltaGas’ ofbusinesses ~~the~~may ~~Merger.~~also Aresult ~~substantial delay~~ in ~~obtaining~~material ~~the~~unanticipated ~~required~~problems, ~~authorizations~~expenses, ~~approvals~~liabilities, orcompetitive ~~consents~~responses orand ~~the~~loss ~~imposition~~ of ~~unfavorable~~customer ~~terms,~~and ~~conditions~~other orbusiness ~~restrictions~~relationships. ~~could~~Failure ~~prevent~~to ~~the~~achieve ~~completion~~these ofanticipated ~~the~~benefits ~~Merger.~~or ~~Even~~the ~~though~~incurrence ~~the~~of ~~waiting~~unanticipated ~~period~~expenses ~~under~~and ~~HSR~~liabilities ~~has~~could ~~expired,~~materially ~~government~~adversely ~~authorities~~affect ~~could~~WGL’s ~~seek~~business, tofinancial ~~block~~condition, oroperating ~~challenge~~results ~~the~~and ~~Merger~~prospects, as ~~they~~well ~~deem~~as ~~necessary~~that orof ~~desirable in~~ the ~~public~~combined ~~interest~~company.

~~Failure~~Uncertainties toassociated ~~complete~~with the ~~Merger~~merger ~~could~~may ~~adversely~~cause ~~affect~~a ~~WGL’s~~loss ~~stock~~of ~~price~~management personnel and other key employees, which could adversely affect the future business and operations ~~and~~of ~~financial~~the ~~results.~~combined company.

If WGL isand ~~unable~~AltaGas toare ~~consummate~~dependent on the ~~Merger,~~experience ~~holders~~and ofindustry ~~WGL~~knowledge ~~common~~of ~~stock~~their ~~will~~officers ~~not~~and ~~receive~~other ~~any~~key ~~payment~~employees ~~for~~to execute their ~~shares~~respective ~~pursuant~~business plans. The combined company’s success will depend in part upon its ability to ~~the~~retain ~~Merger~~key ~~Agreement~~management personnel and other key employees of WGL and AltaGas. Current and prospective employees of WGL’s ~~ongoing~~and ~~business~~AltaGas may beexperience uncertainty about their future roles with the combined company, which may materially adversely ~~affected~~affect the ability of each of WGL and ~~would~~AltaGas to attract and retain key personnel going forward. WGL may also have difficulty addressing possible differences in corporate cultures and management philosophies. Accordingly, no assurance can be ~~subject~~given that the combined company will be able to aretain ~~number~~key management personnel and other key employees of ~~risks~~WGL and AltaGas, ~~including~~which ~~the~~could ~~following:~~materially adversely affect WGL’s business, financial condition, operating results and prospects.

• WGL ~~would~~may ~~have~~incur ~~paid~~unexpected ~~significant~~ transaction ~~costs,~~fees and ~~may~~merger-related costs in ~~certain~~connection ~~circumstances~~with bethe ~~obligated to pay a termination fee to AltaGas of $136 million;~~merger.

• WGL expects to incur a number of non-recurring expenses associated with consummating the ~~attention~~merger, as well as expenses related to combining the operations of ~~management~~the two companies. WGL may ~~have~~incur ~~been~~additional ~~diverted~~unanticipated tocosts in the ~~Merger~~integration ~~rather~~of ~~than~~the tobusinesses ~~operations~~of WGL and AltaGas. Although WGL expects that the ~~pursuit~~elimination of certain duplicative costs, as well as the realization of other ~~opportunities;~~efficiencies related to the integration of the two businesses, will offset the incremental transaction and merger-related costs over time, the combined company may not achieve this net benefit in the near term, or at all.

~~• though the merger terms contemplate management and employees remaining to operate~~ WGL, ~~there~~may isencounter ~~the~~unexpected ~~chance~~difficulties ofor ~~the~~costs ~~potential~~in ~~loss~~meeting ofcommitments ~~key~~made ~~personnel,~~under asvarious ~~personnel~~orders ~~may~~and ~~feel~~agreements ~~uncertain~~associated ~~about~~with ~~their~~regulatory ~~future~~approvals ~~with~~for the ~~combined company;~~merger.

As a result of the process to obtain regulatory approvals required for the merger, WGL is committed to various programs, contributions and investments in several agreements and regulatory approval orders. It is possible that WGL may encounter delays, unexpected difficulties or additional costs in meeting these commitments in compliance with the terms of the relevant agreements and orders. Failure to fulfill the commitments in accordance with their terms could result in increased costs or result in penalties or fines that could materially adversely affect WGL’s business, financial condition, operating results and prospects.

WGL Holdings, Inc.

Washington Gas Light Company

Part I

Item 1A. Risk Factors (continued)

• WGL ~~will~~and ~~have~~AltaGas ~~been~~may ~~subject~~become totargets ~~certain~~of ~~restrictions~~securities onclass ~~the~~action ~~conduct~~suits ofand ~~business~~derivative suits, which ~~may~~could ~~prevent~~result ~~the~~in ~~Company~~substantial ~~from~~costs ~~making~~and ~~certain~~divert ~~acquisitions~~management orattention ~~dispositions or pursuing other business opportunities;~~ and resources.

~~• the~~Securities ~~trading~~class ~~price~~action suits and derivative suits are often brought against companies who have entered into mergers and acquisition transactions. There can be no assurance that WGL or AltaGas will not be targets of such suits in the future, and no guarantee that WGL’s ~~stock~~or ~~may~~AltaGas ~~decline~~can successfully defend against any such actions. Defending against these claims, even if ~~the~~meritless, ~~market~~could ~~believes~~result ~~the~~in ~~Merger~~substantial ~~may~~costs ~~not~~to beWGL ~~completed~~and AltaGas and could divert the attention of management.

~~Failure~~A todowngrade ~~complete the Merger may result~~ in ~~negative publicity, additional litigation against~~ WGL’s or ~~its~~AltaGas’ ~~directors~~credit ~~and~~ratings ~~officers,~~could ~~and~~negatively aaffect ~~negative impression of~~ WGL’s incost ~~the investment community. The occurrence~~ of ~~these~~and ~~events,~~ability ~~individually~~to oraccess ~~in the aggregate, could have a material adverse effect on the results of operations or the price of WGL’s common stock~~capital.

~~The~~WGL’s ~~business~~ability to obtain adequate and cost-effective financing depends in part on its credit ratings. A negative change in its ratings outlook or any downgrade in its current investment-grade credit ratings by the rating agencies, particularly below investment grade, could adversely affect WGL’s costs of borrowing and/or access to sources of liquidity and capital. Further, a negative change in AltaGas’ ratings outlook or any downgrade in its credit ratings could negatively impact WGL’s ratings outlook or downgrade its credit ratings. Such downgrades could limit WGL’s access to the credit markets and ~~Washington~~increase ~~Gas~~the ~~will~~costs of borrowing under available credit lines. Should WGL’s credit ratings be downgraded, the interest rate on its borrowings under its existing credit facilities and commercial paper program, as well as on any future public or private debt issuances, would increase. An increase in borrowing costs without the ability to recover these higher costs in the rates charged to WGL’s customers, which would be impacted by the ~~terms~~merger-related ~~and~~commitment ~~conditions~~that ofprohibits ~~the~~Washington ~~Merger~~Gas ~~Agreement~~from recovering any incremental financing costs due to a credit downgrade, could adversely affect earnings or cash flows by limiting WGL’s ability to earn its allowed rate of return. And if WGL falls below investment grade, WGL may need to obtain additional credit support which may include obtaining a parent guarantee from AltaGas.

~~The Merger Agreement restricts~~ WGL, ~~without~~may ~~AltaGas’s consent (which will not~~ be ~~unreasonably~~unable ~~withheld),~~to ~~from~~access ~~undertaking~~capital ~~certain specified actions until the Merger occurs~~ or the ~~Merger~~cost ~~Agreement terminates. These restrictions may prevent WGL from pursuing otherwise attractive business opportunities and making other changes to its business prior to completion~~ of ~~the Merger or termination of the Merger Agreement. For example, the Merger Agreement prohibits WGL from raising common equity~~ capital~~. Given~~ ~~that~~may ~~Washington~~significantly Gas is solely dependent on WGL to raise new common equity capital and to contribute that common equity to Washington Gas, WGL’s inability to raise common equity could adversely affect both WGL's and Washington Gas’ credit ratings and coverage ratiosincrease.

WGL’s ~~will~~ability ~~incur~~to ~~significant~~obtain ~~costs~~adequate ~~associated~~and ~~with~~cost-effective financing is dependent upon the ~~Merger~~liquidity of the financial markets, in addition to its credit ratings. Disruptions in the capital and credit markets or waning investor sentiment could adversely affect WGL’s ability to access short-term and long-term capital. WGL’s access to funds under its commercial paper program is dependent on investor demand for its commercial paper. Disruptions and volatility in the global credit markets could limit the demand for WGL’s commercial paper or result in the need to offer higher interest rates to investors, which would result in higher expense and could adversely impact liquidity.

As a subsidiary of AltaGas, WGL ~~expects~~also may become a party to ~~incur~~AltaGas’ ~~significant~~existing ~~costs~~debt ~~associated~~arrangements ~~with~~or rely on access to short-term intercompany borrowings. The inability to access adequate capital or the ~~Merger~~increase ~~for~~in ~~financial~~cost ~~advisory~~of ~~services~~capital may require WGL to conserve cash, ~~legal~~prevent ~~services~~or delay WGL from making capital expenditures, ~~re-evaluation~~require ofWGL ~~share-based~~to ~~compensation~~reduce ~~and~~or ~~acceleration~~eliminate distributions to AltaGas or other discretionary uses of ~~executive~~cash ~~compensation~~or could negatively affect its future growth or earnings. ~~Some~~A ofsignificant ~~these~~reduction ~~costs~~in ~~have~~WGL’s ~~been~~liquidity ~~and~~could ~~will~~cause ~~continue~~a tonegative bechange ~~incurred~~in its ratings outlook or even ifa ~~the~~reduction ~~Merger~~in isits ~~not~~credit ~~completed~~ratings. This could in turn further limit WGL’s access to credit markets and increase its costs of borrowing.

~~WGL’s~~As ~~business~~an ~~will~~indirect, bewholly ~~subject~~owned tosubsidiary ~~uncertainties~~of ~~while~~AltaGas, ~~the~~WGL ~~Merger~~ is ~~pending.~~affected by AltaGas’ strategic decisions and performance.

~~Uncertainty~~As ~~about~~an ~~the~~indirect, ~~effect~~wholly ofowned ~~the~~subsidiary ~~Merger~~of ~~on employees~~AltaGas, ~~suppliers~~WGL’s business and ~~customers~~operating ~~may~~performance ~~have~~can anbe ~~adverse~~affected ~~effect~~by ona ~~WGL.~~wide ~~Although~~range ~~WGL~~of ~~intends~~strategic todecisions ~~take~~that ~~steps~~AltaGas tomay ~~reduce~~make ~~any~~from ~~adverse~~time ~~effects,~~to ~~these~~time. ~~uncertainties~~Significant ~~may~~changes ~~impair~~in ~~WGL~~AltaGas’s ~~abilities~~strategy, toits ~~attract~~relationship with WGL, ~~retain~~as ~~and~~well ~~motivate~~as ~~employees~~material ~~until~~adverse changes in the ~~Merger~~performance isof ~~completed~~AltaGas, ~~and~~could ~~for~~have a ~~period~~material ofadverse ~~time~~effect ~~thereafter~~on WGL’s business, financial condition, operating results and prospects.

~~Potential~~Changes ~~future~~to ~~actions~~government ~~against~~fiscal ~~WGL~~ and ~~its~~trade ~~directors~~policies and ~~officers~~state/local ~~challenging~~renewable ~~the~~energy ~~Merger~~mandates ~~may~~could ~~prevent~~adversely ~~the~~affect ~~Merger~~WGL’s ~~from~~strategic ~~being~~decisions ~~completed~~and ~~within~~operating ~~the anticipated time frame~~performance.

~~WGL~~Any ~~and/or~~changes ~~its~~in ~~directors~~the ~~and~~US ~~officers~~trade ~~may~~policy ~~potentially~~could betrigger ~~named~~retaliatory asactions ~~defendants~~by affected companies resulting in ~~class~~increased ~~action~~costs ~~lawsuits~~for ~~filed~~goods onused ~~behalf~~in our normal course of ~~public~~business, ~~shareholders~~such ~~challenging~~as ~~the~~solar ~~Merger~~panels and ~~potentially~~steel ~~seeking~~pipe. Additionally, tostate ~~enjoin~~and ~~the~~local ~~defendants~~initiatives ~~from~~adopting ~~consummating~~or ~~the~~increasing ~~Merger~~renewable onportfolio ~~the~~standards ~~agreed-upon~~could ~~terms~~result in lower demand of natural gas due to mandatory or voluntary efforts.

WGL is a holding company and we depend on the receipt of dividends and other payments from our subsidiaries to pay dividends onto our ~~common~~parent ~~stock~~company and to pay principal and interest on our outstanding debt.

WGL is a holding company whose assets consist primarily of investments in subsidiaries. Accordingly, we conduct all of our operations through our subsidiaries. Our ability to pay dividends onto our ~~common~~parent ~~stock~~company and to pay principal and accrued interest on our outstanding debt depends on the payment of dividends to us by certain of our subsidiaries or the repayment of funds to us by our subsidiaries. Our subsidiaries, in turn, may be restricted from paying dividends, making repayments or making other distributions to us for financial, regulatory, legal or other reasons. The extent to which our subsidiaries are not able to pay dividends or repay funds to us may adversely affect our ability to pay dividends to holders of our common stock and principal and interest to holders of our debt, which could negatively affect WGL’s stock price.dividen

If we are unable to access sources of liquidity or capital, or if the cost of funds increases significantly, our business, financial results and strategic growth plans may be adversely affected.

WGL and Washington Gas require access to sources of liquidity to fund our operations and to support our growth strategy. Our ability to obtain adequate and cost effective financing depends on the credit ratings of WGL and Washington Gas and the liquidity of financial markets. A material downgrade in WGL’s or Washington Gas’ credit ratings or disruptions in the capital or credit markets, including as a result of natural disasters and catastrophic events (including terrorist acts), could adversely affect our access to sources of liquidity and capital and increase our borrowing costs.

WGL Holdings, Inc.

Washington Gas Light Company

Part I

Item 1A. Risk Factors (continued)

ds or repay funds to us may adversely affect our ability to pay dividends to our parent company and principal and interest to holders of our debt.

If we are unable to access sources of liquidity or capital, or if the cost of funds increases significantly, our business, financial results and strategic growth plans may be adversely affected.

WGL and Washington Gas require access to sources of liquidity to fund our operations and to support our growth strategy. Our ability to obtain adequate and cost-effective financing depends on the credit ratings of WGL and Washington Gas and the liquidity of financial markets. A material downgrade in WGL’s or Washington Gas’ credit ratings or disruptions in the credit market, including as a result of natural disasters and catastrophic events (including terrorist acts), could adversely affect our access to sources of liquidity and increase our borrowing costs.

Our strategic growth plans assume that we will have continued access to liquidity and capital. In addition, the ability of our non-utility subsidiaries to purchase natural gas and electricity from their suppliers is partly dependent upon the creditworthiness of WGL, and upon access to cash collateral through the issuance of commercial paper and unsecured short-term bank loans by WGL. If WGL’s credit ratings are materially downgraded, we may be required to provide additional credit support. If we are required to provide significant additional credit support, or if there is significant disruption in the credit markets, our ability to implement our strategic plans and the ability of our non-utility subsidiaries to make commodity purchases at reasonable prices may be impaired.

In addition, as a wholly owned subsidiary of WGL, Washington Gas depends solely on WGL to raise new common equity capital and to contribute that common equity to Washington Gas. If WGL is unable to raise common equity capital, as is currently the case while the Merger is pending, this also could adversely affect Washington Gas’ credit ratings and its ability to earn its authorized rate of return. An increase in the interest rates Washington Gas pays without the recognition of the higher cost of debt in rates charged to its customers could materially affect future net income and cash flows.

Cyber-attacks, including cyber-terrorism or other information technology security breaches, or information technology failures may disrupt our business operations, increase our costs, lead to the disclosure of confidential information and damage our reputation.

Security breaches of our information technology infrastructure, including cyber-attacks and cyber-terrorism, or other failures of our information technology infrastructure could lead to disruptions of our natural gas distribution operations and otherwise adversely impact our ability to safely and effectively operate our pipeline and distributed generation systems and serve our customers. In addition, an attack on or failure of information technology systems could result in the unauthorized release of customer, employee or Company data that is crucial to our operational security or could adversely affect our ability to deliver and collect on customer bills. Such security breaches of our information technology infrastructure could adversely affect our business reputation, diminish customer confidence, subject us to financial liability or increased regulation, increase our costs and expose us to material legal claims and liability and adversely affect our operations and financial results. We have implemented preventive, detective and remediation measures to manage these risks, and we maintain cyber risk insurance to mitigate the effects of these events. Nevertheless, these may not effectively protect all of our systems all of the time. To the extent that the occurrence of any of these cyber -events is not fully covered by insurance, it could adversely affect WGL’s financial condition and results of operations.

As an indirect, wholly owned subsidiary of AltaGas, WGL is dependent on AltaGas for certain services under a services agreement. Loss of such services, if any, could have a material impact on WGL’s business, financial condition, results of operations and cash flows.

WGL receives general corporate services from AltaGas under a service agreement approved by SCC of VA. Under the agreement, WGL relies on AltaGas for certain administrative and management functions and services, including human resources, employee benefits, finance, legal, accounting, tax, information technology, and office services. Should AltaGas not be able to provide such services to WGL for any reason, WGL will need to utilize its own resources for such services or otherwise find a substitute provider for such services. WGL, however, may not have sufficient internal resources to effectively provide such services or may not be able to contract with a substitute service provider on similar terms or at all. Moreover, the costs of obtaining a substitute service provider, if found, may also be substantial and overly burdensome for WGL. WGL may also experience an interruption in the provision of such services to it. In addition, in light of AltaGas' familiarity with WGL, a substitute service provider, if any, may not be able to provide the same level of service due to lack of preexisting synergies. If WGL cannot support necessary services from its internal resources or otherwise locate providers that are able to provide it with substantially similar services, WGL’s business, financial condition, results of operations and cash flows could be adversely affected.

Our ability to meet our customers’ requirements may be impaired if contracted supply is not available, if supplies are not delivered in a timely manner, if we lose key suppliers or if we are not able to obtain additional supplies during significant spikes in demand.

Washington Gas must acquire adequate natural gas supply and pipeline and storage capacity to meet current and future customers’ annual and seasonal natural gas requirements. Similarly, WGL Energy Services requires adequate natural gas and electric supplies to serve the demands of its customers and WGL Midstream requires adequate natural gas supply and storage and pipeline capacity to meet its delivery obligations to its customers. We depend on the ability of natural gas producers, pipeline gatherers, natural gas processors, interstate pipelines, suppliers of electricity and regional electric transmission operators to meet these requirements. If we are unable to secure adequate supplies in a timely manner because of a failure of our suppliers to deliver the contracted commodity, capacity or storage, if we are unable to secure additional quantities during significant abnormal weather conditions, or if Washington Gas' or WGL Energy Services' interruptible customers fail to comply with requests to curtail their gas usage during periods of sustained cold weather, we may be unable to meet our customers’ requirements. Such inability could result in defaults under contracts with customers, penalties and financial damage payments, costs relating to procedures to recover from a disruption of service, the loss of key licenses and operating authorities, and the loss of customers, which could have a material adverse effect on our financial results.

Natural disasters and catastrophic events, including terrorist acts, may adversely affect our business.

Natural disasters and catastrophic events such as fires, earthquakes, explosions, floods, tornados, terrorist acts, and other similar occurrences, could damage our operational assets, including utility facilities, information technology infrastructure, distributed generation assets and pipeline assets owned by investees of our non-utility subsidiaries. Such events could likewise damage the operational assets of our suppliers or customers. These events could disrupt our ability to meet customer requirements, significantly increase our response costs, and significantly decrease our revenues. Unanticipated events or a combination of events, failure in resources needed to respond to events, or a slow or inadequate response to events may have an adverse impact

WGL Holdings, Inc.

Washington Gas Light Company

Part I

Item 1A. Risk Factors (continued)

electric supplies to serve the demands of its customers and WGL Midstream requires adequate natural gas supply and storage and pipeline capacity to meet its delivery obligations to its customers. We depend on ~~our~~the ~~operations~~ability of natural gas producers, ~~financial~~pipeline ~~condition~~gatherers, ~~and~~natural ~~results~~gas processors, interstate pipelines, suppliers of ~~operations~~electricity and regional electric transmission operators to meet these requirements. ~~The~~If ~~availability~~we are unable to secure adequate supplies in a timely manner because of ~~insurance~~a ~~covering~~failure ~~catastrophic~~of ~~events~~our suppliers to deliver the contracted commodity, ~~sabotage~~capacity ~~and~~or ~~terrorism~~storage, ~~may~~if bewe ~~limited~~are unable to secure additional quantities during significant abnormal weather conditions, or if Washington Gas' or WGL Energy Services' interruptible customers fail to comply with requests to curtail their gas usage during periods of sustained cold weather, we may be unable to meet our customers’ requirements. Such inability could result in ~~higher~~defaults ~~deductibles~~under contracts with customers, ~~higher~~penalties ~~premiums~~and financial damage payments, costs relating to procedures to recover from a disruption of service, the loss of key licenses and ~~more~~operating ~~restrictive~~authorities, ~~policy~~and ~~terms~~the loss of customers, which could have a material adverse effect on our financial results.

Natural disasters and catastrophic events, including terrorist acts, may adversely affect our business.

We are exposed to counterparty and contract-related risks that could adversely affect our results of operations, cash flows and financial condition.

We extend credit to counterparties, including other utilities, holding companies, banks, gas exploration and production companies, government-backed utilities and other participants in the energy industry. Although we believe we have prudent policies in place to manage our credit risk, including credit policies, netting arrangements and margining provisions incorporated in contractual agreements, we may not be able to collect amounts owed to us, which could adversely affect our liquidity and results of operations.

In addition, we enter into agreements with counterparties relating to the sale, purchase and delivery of commodity, transportation capacity, energy system design and construction, investment terms, and other matters. Our decisions to enter into these agreements are based on our expectations about the ongoing viability of our counterparties, assumptions and expectations underlying pricing terms and conditions, and commercial terms and other matters. These expectations may prove to be incorrect or our counterparties may dispute key terms of our agreements in ways that we do not anticipate. Such developments could result in our incurring losses or otherwise not achieving anticipated financial returns, which could have a material adverse effect on our results of operations. We are currently involved in legal proceedings with Antero Resources (Antero) relating to a dispute over the gas being delivered under natural gas purchase contracts. To date, WGL Midstream has incurred ~~approximately $15.2 million and $9.8 million in~~ losses associated with this dispute ~~for~~of ~~the~~approximately ~~years~~$29.6 ~~ended September 30, 2016 and 2017, respectively~~million. Separately, Antero has initiated suit against Washington Gas and WGL Midstream, claiming that they have failed to purchase specified daily quantities of gas and seeking alleged cover damages exceeding $80100 million as of ~~October~~April 244, ~~2017~~2018, ~~which amount continues to accumulate daily~~ according to Antero's complaint. Washington Gas and WGL Midstream oppose both the validity and amount of Antero’s claim. If we are not successful in these proceedings, our results of operations would be negatively affected.

Our risk management strategies and related hedging activities may not be effective in managing risks and may cause increased volatility in our earnings and, in our utility segment, may result in costs and losses for which rate recovery may be disallowed.

We are exposed to commodity price, weather and interest rate risks. In addition, WGL Energy Services is exposed to pricing of certain ancillary services provided by the power pool in which it operates.

For gas purchases to serve utility customers, Washington Gas attempts to manage its exposure to these risks, in part, through regulatory recovery mechanisms. Our other subsidiaries primarily seek to manage risks by matching natural gas and electricity purchase obligations with sales commitments in terms of volume and pricing. In addition, we attempt to mitigate risks by hedging, setting risk limits and employing other risk management tools and procedures. These risk management activities may not be effective, and cannot eliminate these risks in their entirety. If these tools and procedures are ineffective, we could incur significant losses, which could have a material adverse effect on our financial results and liquidity. In addition, although Washington Gas generally anticipates rate recovery of its costs or losses incurred in connection with these risk management activities, a regulator could subsequently disallow these costs or losses from the determination of revenues, which could adversely affect our financial results and increase the volatility of our earnings.

Rules implementing the derivatives transaction provisions of the Dodd-Frank Act could have an adverse impact on our ability to hedge risks associated with our business.

The Dodd-Frank Act regulates derivatives transactions, which include certain instruments, such as interest rate swaps, and commodity options, financial and other contracts, used in our risk management activities. The Dodd-Frank Act requires that most swaps be cleared through a registered clearing facility and that they be traded on a designated exchange or swap execution facility, with certain exceptions for entities that use swaps to hedge or mitigate commercial risk. The Dodd-Frank requirements relating to derivative transactions have not been fully implemented by the SEC and the Commodity Futures Trading Commission. When fully implemented, the law and any new regulations could increase the operational and transactional cost of derivatives contracts and affect the number and/or creditworthiness of available counterparties.

In addition, we may transact with counterparties based in the European Union, Canada or other jurisdictions which, like the U.S., are in the process of implementing regulations to regulate derivatives transactions, some of which are currently in effect and may impose costs on our derivatives activities.

WGL Holdings, Inc.

Washington Gas Light Company

Part I

Item 1A. Risk Factors (continued)

activities, a regulator could subsequently disallow these costs or losses from the determination of revenues, which could adversely affect our financial results and increase the volatility of our earnings.

Rules implementing the derivatives transaction provisions of the Dodd-Frank Act could have an adverse impact on our ability to hedge risks associated with our business.

Our business, earnings and cash requirements are highly weather sensitive and seasonal.

The earnings of Washington Gas can vary from year to year depending, in part, on weather conditions. Warmer-than-normal weather can reduce our utility margins as customer consumption declines. In Maryland and Virginia, we have in place regulatory mechanisms and rate designs intended to stabilize the level of net revenues that we collect from customers by eliminating the effect of deviations in customer usage caused by variations in weather from normal levels, and other factors such as conservation. If our rates and tariffs are modified to eliminate these provisions, then we would be exposed to significant risk associated with weather.

The operations of WGL Energy Services, our retail energy-marketing subsidiary, are weather sensitive and seasonal, with a significant portion of revenues derived from the sale of natural gas to retail customers for space heating during the winter months, and from the sale of electricity to retail customers for cooling during the summer months. Weather conditions directly influence the volume of natural gas and electricity delivered to customers. Weather conditions can also affect the short-term pricing of energy supplies that WGL Energy Services may need to procure to meet the needs of its customers. Similarly, the business of WGL Midstream is seasonal due to the tendency of storage and transportation spreads to increase during the winter. In addition, the distributed generation operations of WGL Energy Systems, which derive significant revenues from the sale of electricity to customers from solar generating assets, are weather sensitive because weather conditions directly influence the generation of electricity that is delivered to customers.

Deviations from normal weather conditions and the seasonal nature of these businesses can create large fluctuations in these subsidiaries’ short-term cash requirements and earnings.

Washington Gas and WGL Midstream may face regulatory and financial risks related to pipeline safety legislation.

A number of proposals to require increased oversight over pipeline operations and increased investment in and inspections of pipeline facilities are pending or have previously been proposed in the United States Congress. Additional operating expenses and capital expenditures may be necessary to remain in compliance with the increased federal oversight resulting from such proposals. While we cannot predict with certainty the extent of these expenses and expenditures or when they will become effective, the adoption of such proposals could result in significant additional costs to Washington Gas’ and WGL Midstream’s businesses. Washington Gas may be unable to recover from customers through the regulatory process all or some of these costs and may be unable to earn its authorized rate of return on these costs.

Failure of our service providers, ~~including in connection with the transition of certain outsourcing relationships to new vendors,~~ could negatively impact our business, results of operations and financial condition.

Certain of our information technology, customer service, supply chain, pipeline and infrastructure installation and maintenance, engineering, payroll and human resources functions that we rely on are provided by third -party vendors. Some of these services may be provided by vendors from centers located outside of the United States. Services provided pursuant to these agreements could be disrupted due to events and circumstances beyond our control. Our reliance on these service providers could have an adverse effect on our business, results of operations and financial condition.

~~RISKS~~The ~~RELATING~~Tax TOAct ~~WASHINGTON~~could ~~GAS~~adversely affect WGL.

~~Changes~~On inDecember ~~the~~22, ~~regulatory~~2017, ~~environment~~President orTrump ~~unfavorable~~signed ~~rate~~into ~~regulation~~law ~~may~~the ~~restrict~~Tax orAct, ~~delay~~which ~~Washington~~significantly ~~Gas’~~reforms ~~ability~~the toInternal ~~earn~~Revenue aCode ~~reasonable~~of ~~rate~~1986, ofas ~~return~~amended. onWhile ~~its~~WGL ~~capital~~has ~~invested~~made toan ~~provide~~initial ~~utility~~assessment ~~service~~of ~~and~~the toimpacts ~~recover~~of ~~fully~~the Tax Act on it and its ~~operating~~subsidiaries, ~~costs.~~it

WGL Holdings, Inc.

Washington Gas Light Company

Part I

Item 1A. Risk Factors (continued)

~~maintenance~~remains ~~and~~unknown ~~remediation~~at ofthis ~~our~~time ~~assets,~~how ~~changes~~the inTreasury ~~legal~~Department ~~and~~may ~~regulatory~~interpret ~~requirements,~~certain ~~natural~~provisions ~~disasters, terrorism, changes in interest rates~~ of ~~our~~the ~~indebtedness~~Tax ~~and other events~~Act. To ~~the~~These ~~extent~~interpretations ~~these~~could ~~costs~~have ~~are~~a ~~not included in approved rates or tariffs, we seek our recovery through rate cases; however, the regulatory process may be lengthy and costs may be disallowed, causing us to suffer the~~ negative ~~financial~~impact ~~effects~~on ~~of costs incurred without~~ the ~~benefit~~results of ~~rate relief. Additionally~~operations, ~~the~~cash ~~actions~~flows ofand ~~regulatory~~financial ~~commissions~~condition ~~may restrict or delay Washington Gas’ ability to earn a reasonable rate~~ of ~~return~~WGL onand ~~invested~~its ~~capital~~subsidiaries.

The Tax Act may impact WGL’s ability to use its net operating loss carryforwards.

The Tax Act includes a limitation on the utilization of net operating losses beginning October 1, 2018 to 80% of current year taxable income and eliminates any NOL carrybacks. Such net operating losses have an unlimited carryforward. These provisions may affect the timing of the utilization of net operating loss carryforwards and investment tax credit carryforwards.

RISKS RELATING TO WASHINGTON GAS

Changes in the regulatory environment or unfavorable rate regulation may restrict or delay Washington Gas’ ability to earn a reasonable rate of return on its capital invested to provide utility service and to recover fully its operating costs.

Washington Gas is regulated by several regulatory commissions and agencies. These regulatory commissions generally have authority over many of the activities of Washington Gas’ business including, but not limited to, the rates it charges to its customers, the amount and type of securities it can issue, the nature of investments it can make, the nature and quality of services it provides, safety standards, collection practices and other matters. These regulators also may modify Washington Gas’ rates to change the level, type and methods that it utilizes to recover its costs, including the costs to acquire, store, transport and deliver natural gas. In addition, the regulatory environment and rate regulation can be affected by new laws and political considerations. Most significantly, we incur both planned and unplanned costs to operate, improve, maintain and repair our operational assets. The amount of these costs may vary from our expectations due to significant unanticipated repairs, maintenance and remediation of our assets, changes in legal and regulatory requirements, natural disasters, terrorism, changes in interest rates of our indebtedness and other events. To the extent these costs are not included in approved rates or tariffs, we seek our recovery through rate cases; however, the regulatory process may be lengthy and costs may be disallowed, causing us to suffer the negative financial effects of costs incurred without the benefit of rate relief. Additionally, the actions of regulatory commissions may restrict or delay Washington Gas’ ability to earn a reasonable rate of return on invested capital.

Washington Gas must acquire additional capacity to deliver natural gas into growth areas and it may not be able to do so in a timely manner.

Washington Gas must acquire additional interstate pipeline transportation or storage capacity and construct transmission and distribution pipe to deliver additional capacity into growth areas on our system. The specific timing of any larger customer additions to our market may not be forecasted with sufficiently long lead time and the availability of these supply options to serve any of our customer additions may be limited by market supply and demand, the timing of Washington Gas’ participation in new interstate pipeline construction projects, local permitting requirements and the ability to acquire necessary rights of way. These limitations could result in an interruption in Washington Gas’ ability to satisfy the needs of some of its customers.

Leaks, mechanical problems, incidents or other operational issues could affect public safety and the reliability of Washington Gas’ distribution system, which could materially affect Washington Gas’ results of operations, financial condition and cash flows.

Washington Gas’ business is exposed to operational issues, hazards and risks inherent in storing and transporting natural gas that could affect the public safety and reliability of its distribution system. While Washington Gas, with support from each of its regulatory commissions, is accelerating the replacement of aging pipeline infrastructure prioritized on a risk-based approach, there are potential operating issues. These issues such as leaks, equipment problems and incidents, including explosions and fire, could result in legal liability, repair and remediation costs, increased operating costs, significant increased capital expenditures, regulatory fines and penalties and other costs and a loss of customer confidence. Any liabilities resulting from the occurrence of these events may not be fully covered by insurance, and Washington Gas may be unable to recover from customers through the regulatory process all of these repair, remediation and other costs and earn its authorized rate of return on these costs.

Washington Gas has implemented preventive and remedial measures to address increased leak rates in its distribution system caused by an increase in the volume of natural gas containing low concentration of HHCs received from its suppliers. These measures include the injection of hexane to increase the concentration of HHCs and the implementation of pipe replacement programs. If Washington Gas were unable to inject hexane into its natural gas supply due to limited availability of hexane, equipment or operational problems, or damage to our facilities at which hexane is injected, our leak rates could increase, which would exacerbate the risks discussed above. In addition, Washington Gas’ ability to continue to recover the cost of these preventive and remedial measures and to earn its authorized rate of return on these costs is subject to the regulatory process.

Current and future environmental regulations may adversely affect Washington Gas’ operations and financial results.

Washington Gas is subject to federal, state and local laws and regulations related to environmental matters. These evolving laws and regulations may require expenditures over a long timeframe. Failure to comply with these laws and regulations may expose Washington Gas to fines, penalties and operational interruptions that could adversely affect its financial results. Moreover, new environmental requirements, revisions and reinterpretations of existing environmental requirements and changes in environmental enforcement policies and practices may stretch Washington Gas’ operational resources and adversely affect its financial results.

In the past, the United States Congress has considered legislative proposals to limit greenhouse gas (GHG) emissions. Future proposals to limit GHG emissions could adversely affect our operating and service costs and demand for our product. Should future proposals become law, operating and service costs may increase and demand for our product could decrease, and utility costs and prices charged to utility customers may increase, which would adversely affect our financial results.

Changes in the relative prices of alternative forms of energy may weaken the competitive position of Washington Gas’ delivery service, which could reduce growth in natural gas customers, reduce the volume of natural gas delivered and negatively affect Washington Gas’ cash flows and earnings.

WGL Holdings, Inc.

Washington Gas Light Company

Part I

Item 1A. Risk Factors (continued)

~~competitive~~would ~~position~~exacerbate ofthe ~~our~~risks ~~natural~~discussed ~~gas~~above. In ~~delivery~~addition, ~~service~~Washington toGas’ ~~decline.~~ability Ato ~~decline~~continue into recover the ~~competitive~~cost ~~position~~ of ~~natural~~these ~~gas~~preventive ~~service~~and ~~may~~remedial ~~lead~~measures and to ~~fewer~~earn ~~natural~~its ~~gas~~authorized ~~customers,~~rate ~~lower volumes~~ of ~~natural~~return ~~gas~~on ~~delivered,~~these ~~lower~~costs ~~cash~~is ~~flows~~subject ~~and~~to ~~lower~~the ~~earnings~~regulatory process.

Current and future environmental regulations may adversely affect Washington Gas’ operations and financial results.

The price of natural gas delivery service that Washington Gas provides competes with the price of other forms of energy such as electricity, oil and propane. An increase in the price of natural gas compared to other sources of energy may cause the competitive position of our natural gas delivery service to decline. A decline in the competitive position of natural gas service may lead to fewer natural gas customers, lower volumes of natural gas delivered, lower cash flows and lower earnings.

A decline in the local economy in which Washington Gas operates may reduce net revenue growth and reduce future earnings and cash flows.

Approximately 75 71% of our assets are attributable to our regulated utility businesses, and the dividends paid by Washington Gas to WGL constituted approximately 8584% of the amount of WGL Holdings' dividends paid for fiscal year ~~2017~~2018. Further, substantially all of our natural gas utility customers are located in Virginia, Maryland and the District of Columbia. A decline in the economy of the region in which Washington Gas operates or a change in the usage patterns and financial condition of customers in the region might adversely affect Washington Gas’ ability to grow its customer base and collect revenues from existing customers, which may negatively affect net revenue growth and increase costs.

Washington Gas’ business and financial condition could be adversely impacted by strikes or work stoppages by its unionized employees.

Washington Gas’ business is dependent upon employees who are represented by unions and are covered by collective bargaining agreements. Disputes with the unions could result in work stoppages that could impact the delivery of natural gas and other services, which could affect our relationships with customers, vendors and regulators and adversely affect Washington Gas’ business and financial condition.

The availability of adequate interstate pipeline transportation capacity and natural gas supply may decrease.

We purchase almost all of our natural gas supply from interstate sources that must then be transported to our service territory. In particular, while the Marcellus Shale region is rapidly developing as a premier gas formation, the interstate pipeline transportation capacity may limit the availability of gas from the Marcellus Shale region in the near term. A significant disruption to or reduction in interstate pipeline capacity due to events such as operational failures or disruptions, hurricanes, tornadoes, floods, freeze off of natural gas wells, terrorist or cyber-attacks or other acts of war, or legislative or regulatory actions or requirements, including remediation related to integrity inspections, could reduce our normal interstate supply of gas, which may affect our ability to serve customer demand and may reduce our earnings.

The cost of providing retirement plan benefits to eligible current and former employees is subject to changes in the performance of investments, demographics, and other factors and assumptions. These changes may have a material adverse effect on us.

The cost of providing retirement plan benefits to eligible current and former employees is subject to changes in the market value of our retirement plan assets, changing bond yields, changing demographics and changing assumptions. Any sustained declines in equity markets, reductions in bond yields, increases in health care cost trends, or increases in life expectancy of beneficiaries may have an adverse effect on our retirement plan liabilities assets and benefit costs. Additionally, we may be ~~required to increase our contributions in future periods in order to preserve the current level of benefits under the plans and/or due to federal funding requirements.~~

RISKS RELATING TO THE NON-UTILITY SUBSIDIARIES OF WGL

The construction of WGL Midstream’s pipeline assets have experienced and may continue to experience legislative and regulatory obstacles, and the construction and operation of these assets are subject to hazards, equipment failures, supply chain disruptions, personnel issues and related risks, which could result in decreased values of these investments, including impairments, and/or delays their in-service dates, which would negatively affect our results of operations.

WGL Midstream’s business plan involves making substantial investments in pipeline construction projects, which are subject to FERC and state agency regulation and approval. These construction projects are also subject to environmental, political and legal uncertainties that are beyond our control. These factors may reduce some opportunities to grow our midstream business or impair our existing investments.

WGL Holdings, Inc.

Washington Gas Light Company

Part I

Item 1A. Risk Factors (continued)

~~and~~required ~~labor.~~to ~~Because~~increase ~~these~~our ~~assets~~contributions ~~are~~in ~~interconnected~~future ~~with~~periods ~~facilities~~in oforder ~~third~~to ~~parties,~~preserve the ~~operation~~current oflevel ~~these facilities could also be adversely affected by unexpected or uncontrollable events occurring on the systems~~ of ~~such~~benefits ~~third~~under ~~parties. These events could further delay~~ the ~~in-service~~plans ~~date of WGL Midstream’s projects~~ and/or ~~disrupt~~due ~~operations~~to onfederal ~~these~~funding ~~projects, which could have an adverse effect on its financial results~~requirements.

RISKS RELATING TO THE NON-UTILITY SUBSIDIARIES OF WGL

In addition, the construction and operation of WGL Midstream’s pipeline assets are subject to risks relating to breakdowns or failures of equipment or processes due to pipeline integrity, fuel supply or transportation disruptions, accidents, labor disputes or work stoppages, construction delays or cost overruns, and shortages of or delays in obtaining equipment, material and labor. Because these assets are interconnected with facilities of third parties, the operation of these facilities could also be adversely affected by unexpected or uncontrollable events occurring on the systems of such third parties. These events could further delay the in-service date of WGL Midstream’s projects or disrupt operations on these projects, which could have an adverse effect on its financial results.

Returns on our non-utility subsidiaries’ investments in renewable energy projects are dependent upon regulatory and tax incentives, which may expire or be reduced or modified.

WGL Energy Systems derives a significant portion of its revenues from the sale of ~~SRECs~~solar renewable energy credits (RECs), which are produced as a result of owning and operating commercial distributed energy systems. The value of these ~~SRECs~~RECs is determined by markets in the states where the distributed energy systems are installed, which are driven by state laws relating to renewable portfolio standards or alternative compliance payment requirements for renewable energy. Overbuilding of distributed energy systems in these states or legislative changes reducing renewable portfolio standards or alternative compliance payment requirements could negatively impact the price of ~~SRECs~~RECs that we sell and the value of the ~~SRECs~~RECs that we hold in our portfolio.

In addition, WGL Energy Systems and WGSW’s investment strategy of participating with counterparties in energy-related investments, or to directly own and operate energy assets and sell energy to customers, ishas ~~based~~historically onallowed ~~the~~us ~~investment~~to ~~tax~~benefit ~~credit~~from ~~(ITC)~~incentives ~~provision~~ in the federal tax code,. ~~which~~WGL’s ~~historically~~ability ~~has~~to ~~allowed~~continue ~~WGL~~ to ~~reduce~~benefit ~~its~~from ~~tax~~these ~~burden~~investments byis ~~investing~~based inon ~~renewable~~certain ~~and~~assumptions ~~alternative~~about ~~energy~~the ~~assets,~~level ~~such~~of asour ~~distributed~~income ~~energy,~~taxes ~~ductless~~and ~~heat~~our ~~pumps~~ability ~~and~~to ~~fuel~~utilize ~~cells. WGL’s~~tax ~~ability~~incentives to ~~continue~~reduce toour ~~benefit~~tax ~~from~~burden. ~~the~~Our ~~ITC~~ability isto ~~based~~continue onparticipating ~~certain~~in ~~assumptions~~these ~~about~~investments ~~the~~with ~~level~~counterparties ofdepends ~~our~~in ~~income~~part ~~taxes,~~on ~~which~~the ~~could~~effect beof ~~negatively~~the ~~impacted~~Tax byAct ~~future~~on ~~changes~~the inmarket ~~tax~~demand ~~laws~~for such investments.

WGL may be impacted by changes in federal income tax policy.

WGL is impacted by the United States federal income tax policy, including corporate income tax laws. ~~Both~~The ~~the~~Tax ~~new~~Cuts ~~federal administration~~ and ~~Congress~~Jobs ~~are~~Act ~~considering~~enacted comprehensive tax reform, including significant changes to the United States corporate income tax laws. ~~Management~~Some isprovisions ~~currently~~of ~~unable~~the toTax ~~predict~~Cuts ~~whether~~and ~~these~~Jobs ~~proposed~~Act ~~reforms~~require ~~will~~interpretive guidance. As a result, inmanagement ~~any~~is ~~significant~~currently ~~changes~~unable to ~~existing~~predict ~~tax~~whether ~~laws,~~these orreforms ifwill ~~any such proposed tax changes would~~ have a cumulative positive or negative impact on corporations, including WGL. AThese ~~reduction in the federal statutory tax rate could result in an accelerated return of deferred federal income taxes to customers. This and other~~ changes in the United States federal income tax laws could have an adverse effect on cash flow, financial condition, and liquidity.

~~Legislative~~WGL ~~and~~Energy ~~regulatory~~Systems’ ~~developments~~inability ~~and~~to ~~other~~find ~~uncertainties,~~counterparties ~~delays~~for ortax ~~cost~~equity ~~overruns~~partnerships ~~may~~could negatively ~~affect~~impact ~~WGL~~its ~~Energy Services or our other non-utility subsidiaries~~results.

~~Legislation~~WGL orEnergy ~~changes~~Systems has derived a significant portion of its revenues from alternative energy investments, including investments in tax equity partnerships. The Tax Act reduces the ~~regulations~~corporate tax rate from 35% to 21%. WGL anticipates that ~~govern~~this reduction in the ~~conduct~~corporate oftax ~~competitive~~rate ~~energy~~may ~~marketers~~have ~~could~~a ~~reduce~~negative ~~customer~~impact ~~growth~~on ~~opportunities~~its ~~for~~ability ~~WGL~~to ~~Energy~~continue ~~Services~~to ~~and~~engage ~~could~~counterparties ~~reduce~~in these transactions as such counterparties’ appetite for the ~~profit~~tax ~~opportunities~~benefits ~~associated~~of such partnerships will decrease with ~~existing~~the ~~customers~~lower overall corporate tax rate. In addition, ~~our~~a ~~non~~base erosion anti-~~utility~~abuse ~~subsidiaries~~tax, ~~hold~~enacted ~~investments~~as part of the Tax Act, may decrease the appetite for tax credits by counterparties who engage in ~~natural~~business ~~gas~~with ~~related~~foreign ~~businesses~~affiliates. ~~that~~Should ~~are~~WGL ~~subject~~be unable to ~~laws~~find ~~and~~sufficient ~~regulations~~or ~~that~~suitable ~~could~~counterparties ~~adversely~~for ~~affect~~these ~~their~~partnerships ~~performance~~going forward for any reason, including due to the enactment of the Tax Act, thus limiting its ability to enter into these transactions, WGL’s results of operations, cash flows and financial condition may be negatively impacted.

Competition may negatively affect our non-utility subsidiaries.

We face strong competition in our non-utility segments. WGL Energy Services competes with other non-regulated retail suppliers of natural gas and electricity, as well as with the commodity rate offerings of electric and gas utilities. Increases in competition, including utility commodity rate offers that are below prevailing market rates, may result in a loss of sales volumes or a reduction in growth opportunities. WGL Midstream competes with other midstream infrastructure and energy services companies, wholesale energy suppliers and other non-utility affiliates of regulated utilities to acquire natural gas storage and transportation assets. WGL Energy Systems faces many competitors in the commercial energy systems segment, including, for government customers, companies that contract with customers under ESPC and other utilities providing services under UESCs and, in the renewable energy and distributed generation market, other developers, tax equity investors, distributed generation asset owner firms and lending institutions. These competitors may have diversified energy platforms with multiple marketing approaches, broader geographic coverage, greater access to credit and other financial resources, or lower cost structures, and may make strategic acquisitions or establish alliances among themselves. There can be no assurances that we can compete successfully, and our failure to do so could have an adverse impact on our results of operations and cash flow.

WGL subsidiaries invest in non-controlling interests in investments, and may have limited ability to manage risks associated with these investments.

WGL Holdings, Inc.

Washington Gas Light Company

Part I

Item 1A. Risk Factors (continued)

Legislative and regulatory developments and other uncertainties, delays or cost overruns may negatively affect WGL Energy Services or our other non-utility subsidiaries.

Legislation or changes in the regulations that govern the conduct of competitive energy marketers could reduce customer growth opportunities for WGL Energy Services and could reduce the profit opportunities associated with existing customers. In addition, our non-utility subsidiaries hold investments in natural gas related businesses that are subject to laws and regulations that could adversely affect their performance.

Competition may negatively affect our non-utility subsidiaries.

WGL subsidiaries invest in non-controlling interests in investments and may have limited ability to manage risks associated with these investments.

We own, and may acquire additional, non-controlling interests in investments. We may not have the right or power to direct the management of these investments, and other investors may take action that is contrary to our interests. In addition, other participants may become bankrupt or have other economic or business objectives that could negatively impact the value and performance of our investments.

Reductions or delays in federal government budget appropriations may negatively impact WGL Energy Systems’ earnings.

The Energy Efficiency and Energy Management operations of WGL Energy Systems are sensitive to federal government agencies’ receipt of funding in a timely manner. A ~~significant~~ portion of WGL Energy Systems revenues is derived from implementing projects related to energy efficiency and energy conservation measures for federal government agencies in the Washington D.C. metropolitan area. A reduction or delay in funding for these federal agencies directly impacts completion of ongoing projects and may harm WGL Energy Systems’ ability to obtain new contracts, which may negatively impact earnings.

WGL Holdings, Inc.

Washington Gas Light Company

Part I

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

At September 30, ~~2017~~2018, Washington Gas provided services in various areas of the District of Columbia, Maryland and Virginia, and held certificates of convenience and necessity, licenses and permits necessary to maintain and operate its properties and businesses.

At September 30, ~~2017~~2018, Washington Gas had approximately ~~577~~576 miles of transmission mains, 13,~~103~~188 miles of distribution mains and 12,~~518~~449 miles of distribution services.

Washington Gas owns approximately 20 acres of land and two buildings (completed in 2012) at 6801 and 6803 Industrial Road in Springfield, Virginia. The Springfield site houses both operating and certain administrative functions of the utility. Washington Gas also holds title to land and buildings used as substations for its utility operations. Washington Gas holds title to land and buildings used for utility operational functions, such as gate stations or substations throughout its service territory in the District of Columbia, Maryland and Virginia.

Washington Gas also has peak shaving facilities in Springfield, Virginia (Ravensworth Plant) and Rockville, Maryland (Rockville Plant). At September 30, ~~2017~~2018, Hampshire owns full and partial interests in, and operates, underground natural gas storage facilities in Hampshire County, West Virginia. Hampshire owns certain exploration and development rights in West Virginia principally in the Oriskany Sandstone, the Marcellus Shale and other shale formations. These rights are predominately owned by lease and they are applicable to approximately 26,000 gross acres for the storage facilities. Hampshire also operates a compressor station utilized to increase line pressure for injection of gas into storage.

~~Washington~~In ~~Gas owns a 12 acre parcel of land located in Southeast Washington~~addition, ~~D.C.~~ ~~that~~WGL isEnergy ~~intended~~Systems toowns be252 amegawatts ~~mixed-use~~of ~~commercial~~installed ~~redevelopment~~solar ~~project~~capacity ~~developed~~across ~~in five phases. Washington Gas contracted with a national developer and completed~~ the ~~development~~United ofStates ~~the~~at ~~first two phases in 2002~~September 30, ~~with Washington Gas retaining a 99-year ground lease on each phase~~2018. ~~The remaining phases have not been completed and future development of those phases is under consideration.~~

In addition, WGL Energy Systems owns 221 megawatts of installed solar capacity across the United States at September 30, 2017.

Facilities utilized by our corporate headquarters, as well as by the retail energy-marketing and commercial energy systems segments, are located in the Washington, D.C. and Baltimore metropolitan area and are leased.

The Mortgage of Washington Gas dated January 1, 1933 (Mortgage), as supplemented and amended, securing any First Mortgage Bonds (FMBs) it issues, constitutes a direct lien on substantially all property and franchises owned by Washington Gas other than a small amount of property that is expressly excluded. At September 30, ~~2017~~2018 and ~~2016~~2017, there was no debt outstanding under the Mortgage.

ITEM 3. LEGAL PROCEEDINGS

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 1312-Commitments and Contingencies of the Notes to Consolidated Financial Statements.

Silver Spring, Maryland Incident

Washington Gas ~~continues~~has tocontinually ~~support~~worked with the ~~investigation~~NTSB byto ~~the~~support ~~NTSB~~its ~~into~~investigation of the August 10, 2016 explosion and fire at an apartment complex on Arliss Street in Silver Spring, Maryland, the cause of which has not been determined. Additional information will be made available by the NTSB at the appropriate time. On November 2, 2016, two civil actions were filed in the District of Columbia Superior Court against WGL and Washington Gas (as well as a property management company that is not affiliated with WGL or Washington Gas), by residents of the apartment complex. In one lawsuit, twenty-nine plaintiffs sought unspecified damages for, among others, wrongful death and personal injury. The other action was a class action suit seeking total damages stated to be less than $5 million for, among others, property damage and various counts relating to the loss of the use of the premises. Both actions alleged causes of action for negligence, product liability, and declaratory relief. These cases were dismissed on November 16, 2017. Thirty-five civil actions have been filed in the Circuit Court for Montgomery County, Maryland seeking unspecified damages for personal injury and property damage. We maintain excess liability insurance coverage from highly-rated insurers, subject to a nominal self-insured retention. We believe that this

WGL Holdings, Inc.

Washington Gas Light Company

Part I

~~Montgomery County, Maryland seeking unspecified damages for personal injury and property damage. We maintain excess liability insurance~~ coverage ~~from highly-rated insurers, subject to a nominal self-insured retention. We believe that this coverage~~ will be sufficient to cover any significant liability to it that may result from this incident. Management is unable to determine a range of potential losses that are reasonably possible of occurring and therefore we have not recorded a reserve associated with this incident. Washington Gas was invited by the NTSB to be a party to the investigation and in that capacity, ~~continues~~has continued to work closely with the NTSB to help determine the cause of this incident. Information about our obligations as a signed party to the investigation can be found in the form of the Certificate of Party Representation, which is available on the investigations page of the NTSB website ~~(http~~https://www.ntsb.gov/legal/Documents/NTSB_Investigation_Party_Form.pdf), and 49 CFR 831.13. On August 14, 2017, the NTSB opened the public docket related to its ongoing investigation.

ITEM 4. MINE SAFETY DISCLOSURES

Not Applicable.

WGL Holdings, Inc.

Washington Gas Light Company

Part II I

EXECUTIVE OFFICERS OF THE REGISTRANTS

~~Item~~The names, ages and positions of the executive officers of each of the registrants at October 531, 2018, are listed below along with their business experience during at least the past five years. ~~Market~~The ~~for~~age ~~Registrant’s~~of ~~Common~~each ~~Equity,~~officer ~~Related~~listed is as of the date of filing of this report. There is no family relationship among the officers.

~~Stockholder~~Unless ~~Matters~~otherwise indicated, all officers have served continuously since the dates indicated, and ~~Issuer~~all ~~Purchases~~positions ofare ~~Equity~~executive ~~Securities~~officers listed with Washington Gas Light Company.

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES



Executive Officers
Name, Age and Position with the registrants		Date Elected or Appointed

Adrian P. Chapman, Age 61⁽¹⁾
President and Chief Executive Officer		July 6, 2018
President and Chief Operating Officer		October 1, 2009

Vincent L. Ammann, Jr., Age 59⁽¹⁾
Executive Vice President and Chief Financial Officer		July 6, 2018
Senior Vice President and Chief Financial Officer		October 1, 2013
Vice President and Chief Financial Officer		September 30, 2006

Douglas I. Bonawitz, Age 56⁽¹⁾
Vice President and Treasurer		July 5, 2017
Assistant Treasurer		October 1, 2016

William R. Ford, Age 63⁽¹⁾
Vice President and Chief Accounting Officer		October 1, 2013
Controller		October 1, 2010

Marcellous P. Frye, Jr., Age 50⁽²⁾
Vice President—Business Services and Public Policy		March 21, 2008

Luanne S. Gutermuth, Age 56⁽¹⁾
Executive Vice President and Chief Administrative Officer		July 6, 2018
Senior Vice President—Shared Services and Chief Human Resource Officer		October 1, 2014
Vice President—Human Resources and Organization Development		October 1, 2010

Karen M. Hardwick, Age 55⁽¹⁾⁽³⁾
Senior Vice President and General Counsel		October 15, 2018

Mark A. Lowe, Age 55⁽²⁾
Vice President—Gas Supply and Engineering		October 1, 2014
Division Head—Gas Supply		March 10, 2008

Richard H. Moore, Age 50⁽¹⁾
Vice President—Corporate Development Officer		October 1, 2015
Division Head and Chief Operating Officer, Washington Gas Energy Services		May 25, 2014

At October 31, 2017, WGL had 8,718 common shareholders of record. During fiscal years 2017 and 2016, WGL’s common stock was listed for trading on the New York Stock Exchange and was traded under the ticker symbol “WGL.” We had no significant restrictions on dividends during fiscal years 2017 or 2016.

During the fiscal year ended 2016, WGL entered into an equity distribution agreement and filed a prospectus supplement relating to a continuous offering under which WGL may sell common stock through an at-the-market (ATM) program. During the fiscal year ended September 30, 2016, WGL issued 1,162,305 shares of common stock under the ATM program. There were no common shares issued under the ATM program during the fiscal year ended September 30, 2017 due to the Merger Agreement.

The table below shows quarterly price ranges and quarterly dividends paid for the fiscal years ended September 30, 2017 and 2016.

Common Stock Price Range and Dividends Paid
	High		Low		Dividends Paid Per Share		DividendPayment Date
Fiscal Year 2017
Fourth quarter	$	86.89	$	82.70	$	0.5100	8/1/2017
Third quarter	84.55		81.59		0.5100		5/1/2017
Second quarter	84.08		73.53		0.4875		2/1/2017
First quarter	79.97		58.66		0.4875		11/1/2016
Fiscal Year 2016
Fourth quarter	$	72.18	$	60.27	$	0.4875	8/1/2016
Third quarter	72.84		63.06		0.4875		5/1/2016
Second quarter	74.10		59.99		0.4625		2/1/2016
First quarter	65.55		56.90		0.4625		11/1/2015

WGL Holdings, Inc.

Washington Gas Light Company

Part II I

Item 5. Market for Registrant’s Common Equity, Related



Division Head—Strategy and Business Development		November 30, 2009

Anthony M. Nee, Age 62⁽⁴⁾
Vice President, Strategy, Business Development and Non-Utility Operations		July 5, 2017
Vice President and Treasurer		October 1, 2013
Treasurer		February 14, 2009

John O'Brien, Age 58⁽¹⁾⁽⁵⁾
Executive Vice President, Strategy & Public Affairs		July 6, 2018

Dorothy Ramsey, Age 63⁽¹⁾
Vice President—Human Resources		October 15, 2018
Assistant Vice President and Chief Talent Officer		September 29, 2016
Director Organization Effectiveness		March 13, 2006

Douglas A. Staebler, Age 58⁽²⁾
Senior Vice President—Utility Operations		October 1, 2014
Vice President—Operations, Engineering, Construction and Safety		October 31, 2006

Leslie T. Thornton, Age 60⁽¹⁾
Senior Vice President—General Counsel and Merger Transition Counsel		October 15, 2018
Senior Vice President—General Counsel and Corporate Secretary		October 1, 2014
Vice President and General Counsel		January 1, 2012
Counsel to the Chairman		November 28, 2011

Tracy L. Townsend, Age 52⁽²⁾
Vice President—Construction, Compliance and Safety		October 1, 2014
Division Head—Safety, Compliance, Construction Operations Support and Technology		October 1, 2010

~~Stockholder~~(1) ~~Matters~~At ~~and~~October 31, ~~Issuer~~2018, ~~Purchases~~Executive Officer of ~~Equity~~both ~~Securities~~WGL Holdings, Inc. and Washington Gas Light Company.

~~The~~(2) ~~graph~~At ~~below summarizes the cumulative return experienced by WGL's shareholders over the fiscal years ended September 30~~October 31, ~~2012 through 2017~~2018, ~~compared~~Executive toOfficer ~~the~~of ~~S&P~~only ~~500~~Washington ~~Index~~Gas ~~and~~Light ~~the Dow Jones Utility Average~~Company.

*Assumes(3) ~~daily~~Prior ~~reinvestment~~to her appointment as General Counsel of ~~dividends~~WGL Holdings, Inc. and Washington Gas Light Company, Ms. Hardwick served as General Counsel for the University of the District of Columbia from March 2016 to October 2018. Prior to that position, Ms. Hardwick served as General Counsel/City Attorney to Annapolis, Maryland from December 2009 to December 2013.

~~This~~(4) ~~calculation~~At isOctober 31, ~~based~~2018, onExecutive ~~$100~~Officer ~~invested~~of ononly ~~September~~WGL 30Holdings, ~~2012~~Inc.

Growth of $100 Investment
	FY 2012	FY 2013	FY 2014	FY 2015	FY 2016	FY 2017
WGL	$100.00	$110.19	$113.45	$160.62	$179.66	$247.62
S&P 500	$100.00	$119.34	$142.89	$142.02	$163.93	$194.44
DJUA	$100.00	$105.60	$125.37	$135.86	$162.99	$182.71

(5) Mr. O'Brien has had various roles within the AltaGas organization since joining in 2015, most recently as President and Chief Operating Officer of ASUS. He is currently also Executive Vice President, Government and Regulatory for ASUS and AUHUS, both of which are subsidiaries of AltaGas. Prior to this appointment, Mr. O'Brien was the President and Chief Operating Officer of AltaGas Services (U.S.) Inc. from April 2016 to July 2018, overseeing its operational and business development activities. Prior to AltaGas, Mr. O'Brien held management positions in Government Relations and Regulatory Affairs within the energy industry, including most recently in the position of Executive Vice President, Public Policy and External Affairs with Energy Future Holdings (Energy Future Holdings filed for bankruptcy in 2014).

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

On July 6, 2018, we consummated the Merger with AltaGas. The Merger Agreement provided for the Merger of the Merger Sub, a newly formed indirect wholly owned subsidiary of AltaGas with and into WGL, whereby WGL became an indirect wholly owned subsidiary of AltaGas. Upon consummation of the Merger, all then outstanding shares of WGL common stock were converted into the right to receive the merger consideration of $88.25 per share. Each share of the Merger Sub's issued and outstanding common stock at the time of the consummation of the Merger was converted into one share of no par value

WGL Holdings, Inc.

Washington Gas Light Company

Part II

Item 5. Market for Registrant’s Common Equity, Related

Stockholder Matters and Issuer Purchases of Equity Securities

(WGL common stock for a) ~~Calculated~~total of 100 WGL post-Merger shares owned by Wrangler 1 LLC, an indirect wholly owned subsidiary of AltaGas (Wrangler 1). As a result of the Merger, WGL's common stock was delisted from the New York Stock Exchange, and there is no longer a market for WGL’s common stock.

In connection with the Merger, WGL established Wrangler SPE LLC (bSPE), ~~Per~~the ~~Willis~~special ~~Towers~~purpose ~~Watson,~~bankruptcy ~~data~~remote entity formed for the purposes of owning the common stock of Washington Gas and providing ring-fencing protections to Washington Gas in the event of a bankruptcy of the larger AltaGas organization. The SPE is ~~provided~~a wholly owned subsidiary of WGL. Following the consummation of the Merger, all of Washington Gas’ outstanding shares of common stock previously held by ~~Morning~~WGL ~~Star~~were ~~and~~transferred ~~Factset~~to the SPE. The Merger had no effect on the Washington Gas preferred stock, which continues to be outstanding.

WGL Holdings, Inc.

Washington Gas Light Company

Part II

Item 6. Selected Financial Data

ITEM 6. SELECTED FINANCIAL DATA-WGL Holdings, Inc.

The following table presents selected financial data for WGL derived from our financial statements as of and for the last five fiscal years. The information should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the audited Consolidated Financial Statements and the Notes to the Consolidated Financial Statements.

(In thousands, except per share data)
(In thousands)
Years Ended September 30,	~~2017~~2018		~~2016~~2017			~~2015~~2016			~~2014~~2015			~~2013~~2014
SUMMARY OF EARNINGS
Operating Revenues
Utility	$	1,~~143~~229,~~337~~521	$	1,~~044~~143,~~117~~337		$	1,~~303,~~044,117		$	1,~~416~~303,~~951~~044		$	1,~~174~~416,~~724~~951
Non-utility	1,~~211~~112,~~387~~244		1,~~305~~211,~~442~~387			1,~~356~~305,~~786~~442			1,~~363~~356,~~996~~786			1,~~291~~363,~~414~~996
Total operating revenues	$	2,~~354~~341,~~724~~765	$	2,~~349~~354,~~559~~724		$	2,~~659~~349,~~830~~559		$	2,~~780~~659,~~947~~830		$	2,~~466~~780,~~138~~947
Net income applicable to common stock	$	~~192~~49,~~620~~343	$	~~167~~192,~~594~~620		$	~~131~~167,~~259~~594		$	~~105~~131,~~940~~259		$	80105,~~253~~940
COMMON STOCK DATA
Earnings per average share:
Basic	$	3.76	3.33			$	2.64		$	2.05		$	1.55
Diluted	$	3.74	3.31			$	2.62		$	2.05		$	1.55
Dividends declared per share	$	2.0175	1.9250			$	1.8275		$	1.7400		$	1.6600
Shares outstanding—year end (thousands)	51,219		51,081			49,729			50,657			51,774
CAPITALIZATION-YEAR END
WGL Holdings Common shareholders’ equity	$	1,~~502~~796,~~690~~478	1,~~375~~502,~~561~~690			$	1,~~243~~375,~~247~~561		$	1,~~246~~243,~~576~~247		$	1,~~274~~246,~~545~~576
Non-controlling interest	67,~~851~~732		~~409~~6,851			—409			—			—
Washington Gas Light Company preferred stock	28,173		28,173			28,173			28,173			28,173
Total equity	1,~~537~~832,~~714~~383		1,~~404~~537,~~143~~714			1,~~271~~404,~~420~~143			1,~~274~~271,~~749~~420			1,~~302~~274,~~718~~749
Long-term debt, excluding current maturities	1,~~430~~879,~~861~~875		1,~~435~~430,~~045~~861		~~(a)~~	~~937~~1,~~101~~435,045		(a)	~~675~~937,~~095~~101		(a)	~~521~~675,~~194~~095		(a)
Total capitalization	$	23,~~968~~712,~~575~~258	2,~~839~~968,~~188~~575		~~(a)~~	$	2,~~208~~839,~~521~~188	(a)	$	12,~~949~~208,~~844~~521	(a)	$	1,~~823~~949,~~912~~844	(a)
OTHER FINANCIAL DATA
Property, plant and equipment-net—year-end	$	4,~~630~~885,~~051~~429	$	4,~~127~~630,~~237~~051		$	34,~~672~~127,~~728~~237		$	3,~~314~~672,~~445~~728		$	23,~~907~~314,~~463~~445
Total assets—year-end	$	67,~~626~~248,~~009~~087	$	6,~~049~~629,~~450~~009	~~(a)~~	$	56,~~254~~049,~~259~~450	(a)	$	45,~~825~~254,~~702~~259	(a)	$	4,~~232~~825,~~666~~702	(a)

WGL Holdings, Inc.

Washington Gas Light Company

Part II

Item 6. Selected Financial Data

ITEM 6. SELECTED FINANCIAL DATA-Washington Gas Light Company

The following table presents selected financial data for Washington Gas derived from the financial statements as of and for the last five fiscal years. The information should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the audited Consolidated Financial Statements and the Notes to the Consolidated Financial Statements.

(In thousands, except per share data)

Years Ended September 30,

~~2017~~2018

~~2016~~2017

~~2015~~2016

~~2014~~2015

~~2013~~2014

SUMMARY OF EARNINGS

Operating Revenues

Total operating revenues

1,~~166~~248,~~968~~063

1,~~070~~166,~~904~~968

1,~~328~~070,~~191~~904

1,~~443~~328,~~800~~191

1,~~200~~443,~~357~~800

Net income applicable to common stock

~~130~~(27,~~472~~962

)

~~111~~130,~~794~~472

~~107~~111,~~358~~794

97107,~~004~~358

7197,~~002~~004

CAPITALIZATION-YEAR END

Common shareholder’s equity

1,~~164~~442,~~749~~764

1,~~113~~164,~~446~~749

1,~~081~~113,~~292~~446

1,~~050~~081,~~166~~292

1,~~024~~050,~~583~~166

Preferred stock

28,173

Long-term debt, excluding current maturities

1,~~134~~084,~~461~~933

~~939~~1,~~015~~134,461

~~(a)~~

~~691~~939,~~330~~015

(a)

~~675~~691,~~095~~330

(a)

~~521~~675,~~194~~095

(a)

Total capitalization

2,~~327~~555,~~383~~870

2,~~080~~327,~~634~~383

~~(a)~~

12,~~800~~080,~~795~~634

(a)

1,~~753~~800,~~434~~795

(a)

1,~~573~~753,~~950~~434

(a)

OTHER FINANCIAL DATA

Property, plant and equipment-net—year-end

34,~~887~~117,~~715~~454

3,~~526~~887,~~732~~715

3,~~243~~526,~~446~~732

3,~~022~~243,~~064~~446

23,~~724~~022,~~882~~064

Total assets—year-end

45,~~954~~150,~~714~~082

4,~~609~~954,~~555~~714

~~(a)~~

4,~~199~~609,~~577~~555

(a)

34,~~938~~199,~~029~~577

(a)

3,~~444~~938,~~517~~029

(a)

UTILITY GAS SALES AND DELIVERIES (thousands of therms)

Gas sold and delivered

Residential firm

~~600~~711,~~279~~726

~~590~~600,~~625~~279

~~734~~590,~~874~~625

~~738~~734,~~963~~874

~~660~~738,~~424~~963

Commercial and industrial

Firm

~~174~~205,~~436~~644

~~167~~174,~~832~~436

~~197~~167,~~543~~832

~~200~~197,~~153~~543

~~180~~200,~~942~~153

Interruptible

2,~~554~~520

2,~~771~~554

2,~~072~~771

2,~~193~~072

2,~~897~~193

Total gas sold and delivered

~~777~~919,~~269~~890

~~761~~777,~~228~~269

~~934~~761,~~489~~228

~~941~~934,~~309~~489

~~844~~941,~~263~~309

Gas delivered for others

Firm

~~495~~538,~~031~~266

~~501~~495,~~030~~031

~~558~~501,~~125~~030

~~535~~558,~~503~~125

~~488~~535,~~182~~503

Interruptible

~~242~~248,~~545~~151

~~239~~242,~~013~~545

~~260~~239,~~264~~013

~~267~~260,~~705~~264

~~270~~267,~~884~~705

Electric generation

87180,~~611~~626

~~291~~87,~~252~~611

~~179~~291,~~061~~252

~~144~~179,~~403~~061

~~177~~144,~~533~~403

Total gas delivered for others

~~825~~967,~~187~~043

1825,~~031,295~~187

~~997~~1,~~450~~031,295

~~947~~997,~~611~~450

~~936~~947,~~599~~611

Total utility gas sales and deliveries

1,~~602~~886,~~456~~933

1,~~792~~602,~~523~~456

1,~~931~~792,~~939~~523

1,~~888~~931,~~920~~939

1,~~780~~888,~~862~~920

OTHER STATISTICS

Active customer meters—year-end

1,~~163~~177,~~655~~976

1,~~144~~163,~~160~~655

1,~~129~~144,~~865~~160

1,~~117~~129,~~043~~865

1,~~105~~117,~~123~~043

New customer meters added

12,~~488~~581

12,~~221~~488

12,~~099~~221

1312,~~327~~099

1213,~~468~~327

Heating degree days—actual

3,~~127~~759

3,~~341~~127

3,~~929~~341

43,~~111~~929

34,~~769~~111

Weather percent colder (warmer) than normal

(154.97

(1015.49

4(10.64

94.6

(09.26

(a)In the first quarter of fiscal year 2017, Washington Gas retrospectively adopted ASU 2015-03 and ASU 2015-15, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Cost and Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements resulting in a balance sheet reclassification of Long-term debt, excluding current maturities, Total capitalization and Total

assets—year end. Accordingly, these amounts have been recast to conform to current presentation.

WGL Holdings, Inc.

Washington Gas Light Company

Part II

Item 7. Management’s Discussion and Analysis of

Financial Condition and Results of Operations

ITEM 7. 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) analyzes the financial condition, results of operations and cash flows of WGL and its subsidiaries. It also includes management’s analysis of 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, “WGL,” “we,” “us” or “our” refers to the holding company or the consolidated entity of WGL Holdings, Inc. and all of its subsidiaries.

Management’s Discussion is divided into the following two major sections:


•	WGL—This section describes the financial condition and results of operations of WGL Holdings, Inc. and its subsidiaries on a consolidated basis. It includes discussions of our regulated operations, including Washington Gas and Hampshire Gas Company (Hampshire), and our non-utility operations.


•	Washington Gas—This section describes the financial condition and results of operations of Washington Gas, a subsidiary of WGL, which comprises the majority of the regulated utility segment.

Both sections of Management’s Discussion—WGL and Washington Gas—are designed to provide an understanding of our operations and financial performance and should be read in conjunction with the respective company’s financial statements and the combined Notes to Consolidated Financial Statements in this annual report.

Unless otherwise noted, earnings per share amounts are presented on a diluted basis, and are based on weighted average common and common equivalent shares outstanding.

EXECUTIVE OVERVIEW

Introduction

WGL, through its subsidiaries, sells and delivers natural gas and provides a variety of energy-related products and services to customers primarily in the District of Columbia and the surrounding metropolitan areas in Maryland and Virginia. In addition to our primary markets, WGL’s non-utility subsidiaries provide customized energy solutions across a much wider footprint, with business activities across the United States.

WGL has four operating segments:


•	regulated utility;


•	retail energy-marketing;


•	commercial energy systems; and


•	midstream energy services.

Refer to the Business section under Item 1 of this report for further discussion of our regulated utility and non-utility business segments.

On July 6, 2018, WGL became an indirect wholly owned subsidiary of AltaGas. For further information on the merger, see "Safe Harbor and Forward Looking Statements" in the Introduction, Item I, Item 1A. Risk Factors, and Note 20 — Merger with AltaGas Ltd. of the Notes to Consolidated Financial Statements in this Form 10-K.

Regulated Utility Operating Segment

The regulated utility operating segment is composed of our core subsidiary, Washington Gas and Hampshire. Washington Gas engages in the delivery and sale of natural gas that is regulated by regulatory commissions in the District of Columbia, Maryland and Virginia. ~~Our~~During ~~EBIT~~fiscal ~~this~~ year ~~exceeded~~2018 ~~fiscal~~compared ~~year~~to ~~2016~~the byprevious ~~$38.1~~year, ~~million. Our~~this ~~utility~~segment ~~customer~~had ~~base~~reduced ~~continued~~earnings due to: ~~grow~~(i) ashigher ~~average~~operation ~~active~~and ~~customer~~maintenance ~~meters~~expenses ~~increased~~primarily byrelated ~~approximately~~to 13merger commitment and related expenses,~~200~~ ~~when~~(ii) ~~compared~~lower realized margins and unrealized mark-to-market ~~the~~valuations ~~prior~~associated ~~fiscal~~with ~~year.~~our Inasset ~~addition~~optimization program, ~~new~~and ~~base~~(iii) ~~rates~~higher depreciation and amortization expense associated with growth in ~~Virginia~~our ~~and~~utility plant. Partially offsetting these unfavorable variances were: (i) customer growth, (ii) higher revenues attributed to colder weather in the District of Columbia compared to fiscal year 2017, and ~~higher~~(iii) ~~unrealized~~new ~~mark-to-market~~base ~~valuations~~rates ~~associated~~in ~~with~~the ~~our~~District of Columbia and Virginia.

WGL Holdings, Inc.

Washington Gas Light Company

Part II

Item 7. Management’s Discussion and Analysis of

Financial Condition and Results of Operations

asset optimization program increased our results. Partially offsetting these favorable effects were higher depreciation and amortization expenses and operation and maintenance expenses.

Retail Energy-Marketing Operating Segment

We offer competitively priced natural gas, electricity and energy from renewable sources to customers through WGL Energy Services, our non-utility retail energy-marketing subsidiary. ~~This~~During fiscal year, ~~our~~2018 ~~EBIT~~compared ~~for~~to the previous year, this segment ~~decreased~~had ~~from~~reduced ~~fiscal~~earnings as a result of: (i) unrealized commodity margin losses in the current year ~~2016~~compared byto ~~$11.8~~gains ~~million~~in asthe aprior ~~result~~year, of(ii) lower realized ~~natural~~electric ~~gas~~ margins ~~primarily~~ due to lower average unit margins and lower sales volumes, and ~~margins~~(iii) ~~realized~~higher ~~from~~operating ~~portfolio~~expenses ~~optimization,~~due asto ~~well~~increased ascorporate ~~declining~~overhead ~~electricity~~allocations ~~sales~~and ~~volumes~~customer marketing expenses. Partially offsetting the reduced earnings was higher realized gas margins due to increased portfolio optimization.

Commercial Energy Systems Operating Segment

Through WGL Energy Systems and WGSW, we offer efficient and sustainable commercial energy solutions focused on owning and operating distributed generation assets such as Solar PV systems and upgrading energy related systems of large government and commercial facilities. During ~~the~~ fiscal year, ~~this~~2018 ~~segment~~compared ~~delivered~~to ~~improved results;~~ the ~~EBIT~~previous ~~for this segment exceeded~~ fiscal year, ~~2016~~this bysegment ~~$18.8~~had ~~million.~~reduced Weearnings ~~continue~~due to: ~~see~~(i) ~~earnings~~lower ~~growth~~solar ~~driven~~renewable byenergy ~~the~~credit ~~distributed~~sales ~~generation assets that we own across the country~~ and ~~higher~~rebate ~~earnings~~income ~~from alternative energy investments~~revenues, ~~including~~(ii) ~~investments~~higher incosts ~~tax~~primarily ~~equity~~relating ~~partnerships. Refer~~ to ~~Note~~increased 17corporate —overhead ~~Other~~allocation ~~Investments~~expenses, ~~for~~and ~~more~~(iii) ~~information~~increased onbad ~~our~~debt ~~investment projects~~expense. The ~~These~~reduced ~~improvements~~earnings were partially offset by ~~lower~~higher ~~revenues~~earnings from ~~the~~alternative energy~~-efficiency~~ ~~contracting~~investments, ~~business~~including ~~due~~investments ~~to a decrease~~ in ~~active~~tax ~~projects~~equity ~~when compared to the prior fiscal year~~partnerships.

Midstream Energy Services Operating Segment

WGL Midstream specializes in the investment, management, development and optimization of natural gas storage and transportation midstream infrastructure projects. ~~Our~~Lower ~~EBIT~~earnings for ~~this segment exceeded~~ fiscal year ~~2016~~2018 bycompared ~~$29.9~~to ~~million.~~the ~~This~~previous ~~increase~~year ~~was~~ primarily ~~driven~~reflect: by(i) ~~higher~~an ~~income~~impairment related to our ~~pipeline~~investment ~~investments~~in Constitution Pipeline Company, ~~higher~~LLC ~~valuations~~(Constitution), and ~~realized~~(ii) ~~margins~~a decrease related to ~~storage~~valuations ~~inventory~~on ~~and~~our ~~the~~derivative contracts associated ~~economic~~with ~~hedging~~our ~~transactions,~~commodity ~~and~~trading portfolio. Partially offsetting these unfavorable variances was an increase related to realized margins ~~for~~on both our transportation and storage strategies.

Other Activities

Activities and transactions that are not significant enough on a stand-alone basis to warrant treatment as an operating segment, and that do not fit into one of our four operating segments, are aggregated as “Other Activities” and are included as part of non-utility operations. Administrative and business development costs associated with WGL and Washington Gas Resources are also included in “Other Activities.” Higher ~~Results~~losses for ~~“Other~~fiscal ~~Activities”~~year ~~for~~2018 ~~fiscal~~compared to the previous year ~~2017~~primarily ~~include~~relates ~~external~~to ~~costs~~investment ~~associated~~banking ~~with~~and ~~the~~legal ~~planned~~fees due upon the merger closing with AltaGas.

Planned Merger with AltaGas

CRITICAL ACCOUNTING POLICIES

Preparation of financial statements and related disclosures in compliance with GAAP requires the selection and the application of appropriate technical accounting guidance to the relevant facts and circumstances of our operations, as well as our use of estimates to compile the consolidated financial statements. The application of these accounting policies involves judgment regarding estimates and projected outcomes of future events, including the likelihood of success of particular regulatory initiatives, the likelihood of realizing estimates for legal and environmental contingencies, and the probability of recovering costs and investments in both the regulated utility and non-regulated business segments.

We have identified the following critical accounting policies discussed below that require our judgment and estimation, where the resulting estimates have a material effect on the consolidated financial statements.

Accounting for Unbilled Revenue

For regulated deliveries of natural gas, Washington Gas reads meters and bills customers on a monthly cycle basis. The billing cycles for customers do not coincide with the accounting periods used for financial reporting purposes. Washington Gas accrues unbilled revenues for gas that has been delivered but not yet billed at the end of an accounting period by jurisdiction and customer class, including the estimated effects of billing adjustment mechanisms. WGL Energy Services also accrues unbilled revenues for both gas and electricity, which is billed on cycles that do not coincide with the accounting periods used for financial reporting purposes.

Accounting for Regulatory Operations—Regulatory Assets and Liabilities

WGL Holdings, Inc.

Washington Gas Light Company

Part II

Item 7. Management’s Discussion and Analysis of

Financial Condition and Results of Operations

~~judgment~~products ~~regarding estimates~~ and ~~projected~~services ~~outcomes~~could ofhave ~~future~~additional ~~events,~~long-term ~~including~~financial ~~the~~implications ~~likelihood of success of particular regulatory initiatives, the likelihood of realizing estimates~~ for ~~legal~~us. ~~and~~The ~~environmental~~carrying ~~contingencies,~~cost ~~and the probability~~ of ~~recovering~~Washington ~~costs~~Gas’ ~~and~~investment ~~investments~~ in ~~both~~fixed ~~the~~assets ~~regulated~~assumes ~~utility~~continued ~~and~~regulatory ~~non-regulated~~oversight ~~business~~of ~~segments~~our operations.

WeWashington ~~have~~Gas’ ~~identified~~jurisdictional tariffs contain mechanisms that provide for the ~~following~~recovery ~~critical~~of ~~accounting~~the ~~policies~~cost ~~discussed~~of ~~below~~gas ~~that~~consumed ~~require~~by ~~our~~firm ~~judgment~~customers. ~~and~~Under ~~estimation~~these mechanisms, ~~where~~Washington Gas periodically adjusts its firm customers’ rates to reflect fluctuations in the ~~resulting~~cost ~~estimates~~of ~~have~~gas. aAnnually, ~~material~~Washington ~~effect~~Gas onreconciles the ~~consolidated~~difference ~~financial~~between ~~statements~~the gas costs collected from firm customers and the cost of gas incurred, defers any difference and either recovers deficiencies from, or refunds excess recoveries to, customers over a period of time authorized by its regulators.

Accounting for Unbilled Revenue

Accounting for Regulatory Operations—Regulatory Assets and Liabilities

A significant portion of our business is subject to regulation by independent government entities. As the regulated utility industry continues to address competitive market issues, the cost-of-service regulation used to compensate Washington Gas for the cost of its regulated operations will continue to evolve. Non-traditional ratemaking initiatives and market-based pricing of products and services could have additional long-term financial implications for us. The carrying cost of Washington Gas’ investment in fixed assets assumes continued regulatory oversight of our operations.

Washington Gas’ jurisdictional tariffs contain mechanisms that provide for the recovery of the cost of gas applicable to firm customers. Under these mechanisms, Washington Gas periodically adjusts its firm customers’ rates to reflect increases and decreases in the cost of gas. Annually, Washington Gas reconciles the difference between the gas costs collected from firm customers and the cost of gas incurred, defers any difference and either recovers deficiencies from, or refunds excess recoveries to, customers over a period of time authorized by the regulator.

Washington Gas accounts for its regulated operations in accordance with FASB Accounting Standards Codification (ASC) Topic 980, Regulated Operations (ASC Topic 980), which results in differences in the application of GAAP between regulated and unregulated businesses. ASC Topic 980 requires recording regulatory assets or liabilities for certain transactions that would have been treated as expense or revenue in unregulated businesses. Washington Gas defers the recognition of an incurred cost and records a regulatory asset when it is probable that these costs will be recovered in future rates. Washington Gas defers the recognition of revenue and records a regulatory liability when it is probable that it will refund an amount previously collected from customers or refund a gain to customers. Additionally, Washington Gas records a regulatory liability when a regulator provides current rates intended to recover costs that will be incurred in the future. Future regulatory changes or changes in the competitive environment could result in WGL and Washington Gas discontinuing the application of ASC Topic 980 for some of its business and require the write-off of the portion of any regulatory asset or liability for which recovery or refund is no longer probable. If Washington Gas were required to discontinue the application of ASC Topic 980 for any of its operations, it would record a non-cash charge or credit to income for the net book value of its regulatory assets and liabilities. Other adjustments might also be required.

The current regulatory environment and Washington Gas’ specific facts and circumstances support both the continued application of ASC Topic 980 for our regulatory activities and the conclusion that all of our regulatory assets and liabilities as of September 30, ~~2017~~2018 are recoverable or refundable through rates charged to customers. See Note 2—Regulated Operations of the Notes to Consolidated Financial Statements for further discussion of our regulated operations.

Accounting for Income Taxes

We recognize deferred income tax assets and liabilities for all temporary differences between the financial statement basis and the tax basis of assets and liabilities, including those temporary differences that regulators exclude from current rates for ratemaking purposes of Washington Gas, in accordance with ASC Topic 740, Accounting for Income Taxes.

Regulatory assets or liabilities, corresponding to such additional deferred tax assets or liabilities, may be recorded to the extent recoverable from or payable to customers through the ratemaking process in future periods. These deferred income tax related regulatory assets and liabilities primarily represent differences between the financial statement basis and tax basis of net utility plant in service.

The company is earning investment tax credits on its renewable energy investments. We have elected to record investment tax credits as deferred credits and amortize the balances to income over the life of the related property.

See Note 8—Income Taxes of the Notes to Consolidated Financial Statements for further discussion of income taxes.

Accounting for 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. For a discussion of contingencies, see Note 12—Commitments and Contingencies of the Notes to Consolidated Financial Statements.

Accounting for Derivatives

We enter into both physical and financial contracts for the purchase and sale of natural gas and electricity and apply the fair value requirements of ASC Topic 815, Derivatives and Hedging. The financial contracts and the portion of the physical contracts that qualify as derivative instruments and are subject to the mark-to-market accounting requirements are recorded on the balance sheet at fair value. A portion of our physical contracts entered into for the purpose of serving our customers are designated as “normal purchases and normal sales” and therefore, not subject to the fair value accounting requirements of ASC Topic 815. Certain physical contracts do not qualify as derivative instruments due to the significance of their notional amounts

WGL Holdings, Inc.

Washington Gas Light Company

Part II

Item 7. Management’s Discussion and Analysis of

Financial Condition and Results of Operations

relative ~~Regulatory assets or liabilities, corresponding~~ to ~~such~~the ~~additional~~applicable ~~deferred~~liquid ~~tax~~markets. ~~assets~~Future orchanges ~~liabilities,~~related ~~may be recorded~~ to ~~the~~these ~~extent~~markets ~~recoverable~~may ~~from~~result ~~or payable to customers through the ratemaking process~~ in ~~future periods. Amounts applicable~~ mark-to-market ~~income~~accounting ~~taxes~~requirements ~~due~~for ~~from~~these ~~and due to customers primarily represent differences between the book and tax basis of net utility plant in service~~contracts.

See Note 9—Income Taxes of the Notes to Consolidated Financial Statements for further discussion of income taxes.

Accounting for 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. For a discussion of contingencies, see Note 13—Commitments and Contingencies of the Notes to Consolidated Financial Statements.

Accounting for Derivatives

We enter into both physical and financial contracts for the purchase and sale of natural gas and electricity and generally apply the fair value requirements of ASC Topic 815, Derivatives and Hedging. The financial contracts and the portion of the physical contracts that qualify as derivative instruments and are subject to the mark-to-market accounting requirements are recorded on the balance sheet at fair value. A portion of our physical contracts entered into for the purpose of serving our customers are designated as “normal purchases and normal sales” and therefore, not subject to the fair value accounting requirements of ASC Topic 815. Certain physical contracts do not qualify as derivative instruments due to the significance of their notional amounts relative to the applicable liquid markets. Future changes related to these markets may result in mark-to-market accounting requirements for these contracts.

WGL and Washington Gas also utilize derivative instruments to minimize the risk of interest-rate volatility associated with planned issuances of debt securities. Depending on the applicability of ASC Topic 980 or hedge accounting, the impact of the instruments may be offset on the balance sheet as regulatory assets or liabilities, in other comprehensive income or in earnings.

The gain or loss on a derivative that qualifies as a cash flow hedge of an exposure to variable cash flows of a forecasted transaction is initially recorded in accumulated other comprehensive income (AOCI) to the extent that the hedge is effective and is subsequently reclassified into earnings, in the same category as the item hedged, when the gain or loss from the forecasted transaction occurs. If a derivative that previously qualified for cash flow hedging no longer qualifies because the underlying forecasted transaction is no longer probable of occurring, then the treatment of the fair value must be assessed. If it is reasonably possible that the forecasted transaction will occur, then the fair value changes going forward will be charged to earnings and previous amounts recorded to AOCI will remain until the forecasted transaction is probable of not occurring, in which case, the deferred gain or loss in AOCI is immediately reclassified into earnings. Gains or losses related to any ineffective portion of the cash flow hedges are also recognized in earnings immediately.

Judgment is required in determining the appropriate accounting treatment for our derivative instruments, including our ability to: (i) evaluate contracts and other activities as derivative instruments subject to the accounting guidelines of ASC Topic 815; (ii) determine whether or not our derivative instruments are recoverable from or refundable to customers in future periods and (iii) derive the estimated fair value of our derivative instruments. See Note 1413— Derivative and Weather-Related Instruments of the Notes to Consolidated Financial Statements for a discussion of our derivatives.

Accounting for Fair Value Instruments

Fair value is based on actively quoted market prices when they are available. In the absence of actively quoted market prices, we seek indicative price information from external sources, including broker quotes and industry publications. If pricing information from external sources is not available, internal models are used to estimate prices based on available historical and near-term future price information and/or the use of statistical methods. These inputs are used with industry standard valuation methodologies. See Note 14— Fair Value Measurements of the Notes to Consolidated Financial Statements for a discussion of our valuation methodologies.

WGL Holdings, Inc.

Washington Gas Light Company

Part II

Item 7. Management’s Discussion and Analysis of

Financial Condition and Results of Operations

methodologies. See Note 15— Fair Value Measurements of the Notes to Consolidated Financial Statements for a discussion of our valuation methodologies.

Accounting for Investments

WGL evaluates its interests in other legal entities for consolidation under the variable interest entity (VIE) model or the voting interest model. A VIE is an entity where the total equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support or its equity investors, as a group, lack the characteristics of a controlling financial interest. WGL would consolidate a VIE when it is the primary beneficiary because it has both the power to direct the activities that have the most significant impact on economic performance and it has the obligation to absorb potentially significant losses or the right to receive potentially significant benefits. If an entity is not a VIE, it is evaluated under the voting interest method and would be consolidated if WGL has a controlling financial interest, which is typically evidenced by an ownership of a voting interest greater than 50% allowing for the control over the operations and policies of the investee.

WGL applies the equity method or cost method of accounting to its investments in which it does not have a controlling financial interest. WGL applies the equity method of accounting to its investments when it can exercise a significant influence over an investee. Under the equity method, WGL reports its interest in the entity and its share of the earnings from the entity as single line items in its financial statements, namely Investments in unconsolidated affiliates.

WGL uses the HLBV methodology for certain equity method investments as well as consolidating entities with non-controlling interests when the governing structuring agreement over the equity investment results in different liquidation rights and priorities than what is reflected by the underlying ownership percentage.

WGL uses the cost method of accounting for investments where it does not exercise significant influence. Under the cost method, WGL reports its investment at cost and recognizes income only to the extent it receives dividends or distributions.

Impairment of Long-lived Assets

Management regularly reviews property and equipment and other long-lived assets, including certain definite-lived intangible assets and our equity method investments for possible impairment. ~~For~~whenever ~~our~~events ~~equity~~or ~~method~~changes ~~investments,~~in ancircumstances ~~impairment~~indicate isthat ~~recorded when~~ the ~~investment~~carrying ~~has~~value ~~experienced~~of ~~decline~~such inassets ~~value~~may ~~that~~not isbe ~~other-than-temporary~~recoverable. ~~Additionally,~~For ~~if the projects in which we hold an investment recognize an impairment loss, we would record~~ our ~~proportionate~~properties ~~share of that impairment loss~~ and ~~evaluate the investment for decline in value that is other-than-temporary. This review occurs quarterly~~equipment, ~~or more frequently if events or changes in circumstances indicate~~ the ~~carrying~~indicators ~~amount~~ of ~~the~~potential ~~asset may not be recoverable.~~

~~Principles of Consolidation and Non-controlling Interests~~38

We consolidate an entity, after the elimination of intercompany transactions, when we have a controlling financial interest based on our evaluation of the entity under the voting interest model, or when we are the primary beneficiary based on our evaluation of the entity under the VIE model as discussed in the 'Accounting for Investments' section above. These evaluations require the use of judgment. The portion of equity interests attributable to other parties is reported as non-controlling interest.

We report the non-controlling interest in the consolidated balance sheet within the equity section, separately from WGL's common shareholders' equity. Non-controlling interest represents the non-controlling interest holder's proportionate share of consolidated total equity not attributable to WGL or its subsidiaries. Non-controlling interest is determined by the contributions from/distributions to the non-controlling interest holder, as adjusted for the non-controlling interest holder's proportionate share of the earnings or losses and other comprehensive income (loss), if any. The non-controlling interest holder continues to be allocated its share of losses even if it results in a deficit non-controlling interest balance.

Accounting for Pension and Other Post-Retirement Benefit Plans

WGL Holdings, Inc.

Washington Gas Light Company

Part II

Item 7. Management’s Discussion and Analysis of

Financial Condition and Results of Operations

~~benefits.~~impairment ~~Washington~~may ~~Gas~~include ~~also~~a ~~provides~~deteriorating ~~certain~~business ~~healthcare~~or ~~and~~legal ~~life~~climate, ~~insurance~~a ~~benefits~~significant ~~for~~adverse ~~retired~~change ~~employees~~in ~~(health~~asset ~~and~~condition, ~~life~~specific ~~benefit~~regulatory ~~plan).~~disallowance, ~~Washington~~advances ~~Gas~~in ~~accrues~~technology ~~the~~or ~~estimated~~plans ~~benefit~~to ~~obligation~~dispose ~~for~~of ~~all~~an ofasset ~~our~~significantly ~~defined~~before ~~benefit~~the ~~plans~~end asof ~~earned~~its byuseful ~~the~~life, ~~covered~~among ~~employees~~others. ~~The~~Management ~~qualified~~performs ~~pension~~the ~~plan~~recoverability ~~and~~test ~~health~~whenever ~~and~~the ~~life~~indicators ~~benefit~~show ~~plan~~a ~~benefits~~possible ~~are~~impairment. The ~~paid~~carrying ~~out~~amount of ~~the~~recoverability ~~respective~~is ~~trusts.~~determined ~~For~~based ~~the~~on ~~unfunded~~an DBestimate ~~SERP~~of ~~and~~undiscounted DBcash ~~Restoration~~flows, ~~Washington~~and ~~Gas~~measurement ~~pays,~~of ~~from~~an ~~internal~~impairment ~~funds,~~loss ~~the~~is ~~individual~~determined ~~benefits~~based ason ~~they~~the ~~are~~fair ~~due~~value of the assets. The ~~qualified~~determination ~~pension~~of ~~plan,~~fair DBvalue ~~SERP,~~requires DBmanagement ~~Restoration~~to ~~and~~make ~~health~~assumptions about future cash inflows and outflows over the life ~~benefit~~of ~~plans~~an ~~are~~asset. ~~collectively~~Any ~~referred~~changes to asthe assumptions used for the ~~“Plans~~future cash flow could result in revisions to the evaluation of the recoverability of the long-lived assets and the recognition of an impairment loss in the Consolidated Financial Statements.”

~~The~~ ~~measurement~~For ofour ~~the~~equity ~~Plans’~~method ~~obligations~~investments, ~~and~~an ~~costs~~impairment is ~~dependent~~recorded onwhen athe ~~variety~~investment ofhas ~~factors,~~experienced ~~such~~decline asin ~~employee~~value ~~demographics~~that is other-than-temporary. Additionally, if the ~~level~~projects ofin ~~contributions~~which ~~made~~we tohold ~~the~~an ~~Plans~~investment recognize an impairment loss, ~~earnings~~we onwould ~~the~~record ~~Plans’~~our ~~assets~~proportionate ~~and~~share ~~mortality~~of ~~rates.~~that ~~The~~impairment ~~following~~loss ~~assumptions~~and ~~are~~evaluate ~~also~~the ~~critical~~investment tofor ~~this~~decline ~~measurement~~in value that is other-than-temporary. ~~These~~This ~~assumptions~~review ~~are~~occurs ~~derived~~quarterly, onor anmore ~~annual~~frequently ~~basis~~if ~~with~~events or changes in circumstances indicate the ~~assistance~~carrying amount of athe ~~third~~asset ~~party~~may ~~actuarial~~not ~~firm:~~be recoverable.

Principles of Consolidation and Non-controlling Interests

Accounting for Pension and Other Post-Retirement Benefit Plans

Washington Gas maintains a qualified, trusteed, employee-non-contributory defined benefit pension plan (qualified pension plan) covering most active and vested former employees of Washington Gas and a separate non-qualified defined benefit supplemental retirement plan (DB SERP) covering certain executive officers. The qualified pension plan and DB SERP were closed to new entrants on January 1, 2010. As of January 1, 2010, all new employees were entitled to participate in our defined contribution plans, and certain management employees receive benefits under a non-funded defined benefit restoration plan (DB Restoration). The DB Restoration was established for the purpose of providing supplemental pension and pension related benefits. Washington Gas also provides certain health care and life insurance benefits for retired employees (health and life benefit plan). Washington Gas accrues the estimated benefit obligation for all of our defined benefit plans as earned by the covered employees. The qualified pension plan and health and life benefit plan benefits are paid out of the respective trusts. For the unfunded DB SERP and DB Restoration, Washington Gas pays, from internal funds, the individual benefits as they are due or from funds held in rabbi trusts formed to fully satisfy certain outstanding employee benefit obligations immediately prior to the merger close. The qualified pension plan, DB SERP, DB Restoration and health and life benefit plans are collectively referred to as the “Plans.”

The measurement of the Plans’ obligations and costs is dependent on a variety of factors, such as employee demographics, the level of contributions made to the Plans, earnings on the Plans’ assets and mortality rates. The following assumptions are also critical to this measurement. These assumptions are derived on an annual basis with the assistance of a third-party actuarial firm:


•	Discount rate,


•	Expected long-term return on plan assets,


•	Rate of compensation increase,


•	Healthcare cost trend rate and


•	Projected increases to the Health Reimbursement Account (HRA) plan stipend.

We determine the discount rate based on a portfolio of high quality fixed-income investments (AA- as assigned by Standard & Poor’s or Aa3 as assigned by Moody’s or better) whose cash flows would cover our expected benefit payments. We determine the expected long-term rate of return by averaging the expected earnings for the target asset portfolio. In developing the expected rate of return assumption, we evaluate an analysis of historical actual performance and long-term return projections, which gives consideration to the asset mix and anticipated length of obligation of the Plans. Historically, the expected long-term return on plan assets has been lower for the health and life benefit plan than for the qualified pension plan due to differences in the allocation of the assets in the plan trusts and the taxable status of one of the trusts. We calculate the rate of compensation increase based on salary expectations, expected inflation levels, union negotiated salary rates and promotional expectations. The healthcare cost trend rate is determined by working with insurance carriers, reviewing historical claims data for the health and life benefit plan, considering plan provisions and analyzing market expectations. Effective January 1, 2015, Medicare eligible retirees and dependents age 65 and older receive an annual subsidy of $3,300 as a benefit from the HRA plan and, therefore, the value of the benefits provided to these participants is not affected by the healthcare cost trend rate. While the HRA plan terms do not guarantee increases to the stipend, Washington Gas intends to review the stipend annually. Washington Gas assumed no increase to the annual subsidy in fiscal years 2017 and 2016 and a 3.0% increase beginning in 2020 in order to approximate possible future increases to the stipend. 39

WGL Holdings, Inc.

Washington Gas Light Company

Part II

Item 7. Management’s Discussion and Analysis of

Financial Condition and Results of Operations

We determine the discount rate based on a portfolio of high quality fixed-income investments (AA- as assigned by Standard & Poor’s or Aa3 as assigned by Moody’s or better) whose cash flows would cover our expected benefit payments. We determine the expected long-term rate of return by averaging the expected earnings for the target asset portfolio. In developing the expected rate of return assumption, we evaluate an analysis of historical actual performance and long-term return projections, which gives consideration to the asset mix and anticipated length of obligation of the Plans. Historically, the expected long-term return on plan assets has been lower for the health and life benefit plan than for the qualified pension plan due to differences in the allocation of the assets in the plan trusts and the taxable status of one of the trusts. We calculate the rate of compensation increase based on salary expectations, expected inflation levels, union negotiated salary rates and promotional expectations. The healthcare cost trend rate is determined by working with insurance carriers, reviewing historical claims data for the health and life benefit plan, considering plan provisions and analyzing market expectations. Effective January 1, 2015, Medicare eligible retirees and dependents age 65 and older receive an annual subsidy of $3,300 as a benefit from the HRA plan and, therefore, the value of the benefits provided to these participants is not affected by the healthcare cost trend rate. While the HRA plan terms do not guarantee increases to the stipend, Washington Gas intends to review the stipend annually. Washington Gas assumed no increase to the annual subsidy until 2020 when the stipend is expected to increase 3.0% each year in order to approximate possible future increases to the stipend.

The following table illustrates the effect of changing these actuarial assumptions, while holding all other assumptions constant:

Effect of Changing Critical Actuarial Assumptions
(In millions)		Pension Benefits		Health and Life Benefits
Actuarial Assumptions	Percentage-PointChange inAssumption	Increase(Decrease) inEndingObligation	Increase(Decrease) inAnnual Cost	Increase(Decrease) inEndingObligation	Increase (Decrease) inAnnual Cost
Expected long-term return on plan assets	+/- 1.00 pt.	n/a	$(7.24) / $7.24	n/a	$(4.69) / $4.69
Discount rate	+/- 0.25 pt.	$(3430.40) / $3631.36	$(2.98) / $3.10	$(108.29) / $109.85	$(0.80) / $0.90
Rate of compensation increase	+/- 0.25 pt.	$65.0 / $(54.8)	$1.21 / $(1.21)	n/a	n/a
Healthcare cost trend rate	+/- 1.00 pt.	n/a	n/a	$5.52 / $(4.96)	$10.16 / $(0.95)
Projected increases to the HRA plan stipend	+/- 1.00 pt.	n/a	n/a	$3632.72 / $(2926.83)	$63.16 / $(3.2.3)

We have historically utilized the Society of Actuaries’ (SOA) published mortality data in developing a best estimate of mortality as part of the calculation of the pension and other post-retirement benefit obligations. On October 27, 2014, the SOA published updated mortality tables for U.S. plans (RP-2014) and an updated improvement scale (MP-2014), which both reflect improved longevity. The MP-2014 improvement scale assumes that short-term rates of mortality improvement will converge to 1.00% per annum up to age 85 trending down to 0% between age 85 and age 115 with the ultimate long-term rate of improvement over a 20-year period from 2007 to 2027. Based upon an evaluation of the information provided by the SOA related to the RP-2014 tables and the MP-2014 improvement scale as well as recent additional studies of mortality improvement, we adopted the RP-2014 tables and adopted a modified improvement scale. We have modified the MP-2014 improvement scale to (a) adjust the ultimate long-term rate of mortality improvement from 1.00% to 0.75% per annum up to age 85 trending down to 0% between age 85 and age 115; and (b) shorten the convergence period from short term to ultimate rates of improvement from the 20-year period to a 15-year period. These mortality assumptions were used to determine the benefit obligations as of September 30, ~~2017~~2018 and ~~2016~~2017. Subsequently, the SOA published updated improvement scales (MP-2015, MP-2016, and MP-~~2016~~2017) which, compared to MP-2014, includes more recent mortality experience data and projects a lower rate of future mortality improvement. These updates are consistent with the adjustments we made to MP-2014 to develop our modified improvement scale.

Differences between actuarial assumptions and actual plan results are deferred and amortized into cost when the accumulated differences exceed ten percent of the greater of the projected benefit obligation or the market-related value of the plan assets. If necessary, the excess is amortized over the average remaining service period of active employees. At September 30, ~~2017~~2018, the discount rate for the pension, DB SERP and DB Restoration plans increased to 34.94%, 34.63% and 34.63%, from 3.79%, 3.46% and 3.46%, respectively, for the comparable period in the prior year. The health and post-retirement plans discount rate also increased to 3.9% from 3.7% during the same period. The higher discount rates reflect the change in long-term interest rates primarily due to current market conditions. The change in the discount rates resulted in actuarial gains decreasing our pension and other post-retirement obligations by $28.9 million and $8.6 million, respectively, for the year ended September 30, 2017. Refer to Note 10 —Pension and Other Post-Retirement Benefit Plans of the Notes to Consolidated Financial Statements for a listing of the actuarial assumptions used and for further discussion of the accounting for the Plans.

4140

WGL Holdings, Inc.

Washington Gas Light Company

Part II

Item 7. Management’s Discussion and Analysis of

Financial Condition and Results of Operations

to 4.4% from 3.9% during the same period. The higher discount rates reflect the change in long-term interest rates primarily due to current market conditions. The change in the discount rates resulted in actuarial gains decreasing our pension and other post-retirement obligations by $66.4 million and $19.5 million, respectively, for the year ended September 30, 2018. Refer to Note 9 —Pension and Other Post-Retirement Benefit Plans of the Notes to Consolidated Financial Statements for a listing of the actuarial assumptions used and for further discussion of the accounting for the Plans.

WGL HOLDINGS, INC.

RESULTS OF OPERATIONS

Our chief operating decision maker utilizes earnings before interest and tax (“EBIT”) as the primary measure of profit and loss in assessing the results of each segment’s operations. EBIT includes operating income, other income (expense), earnings from unconsolidated affiliates and is adjusted by amounts attributable to non-controlling interests. We believe that our use of EBIT enhances the ability to evaluate segment performance because it excludes interest and income tax expense, which are affected by corporate-wide strategies of AltaGas such as capital financing and tax sharing allocations.

EBIT should not be considered an alternative to, or a more meaningful indicator of our operating performance than, net income. Refer to summary results below for a reconciliation of EBIT to net income applicable to common stock.

Summary Results

WGL reported net income (loss) applicable to common stock of $~~192~~49.63 million, $~~167~~192.6 million and $~~131~~167.36 million for the fiscal years ended September 30, ~~2017~~2018, ~~2016~~2017 and ~~2015~~2016, respectively. Fiscal Weyear ~~earned~~2018 aresults ~~return~~reflect on$236.7 ~~average~~million ~~common equity~~ of ~~13.4%,~~expenses ~~12.8%~~incurred ~~and~~by ~~10.5%,~~the ~~respectively,~~Company ~~during~~in ~~each~~connection ofwith ~~these~~its ~~three~~merger ~~fiscal~~with ~~years~~AltaGas.

The following table summarizes our EBIT by operating segment for fiscal years ended September 30, ~~2017~~2018, ~~2016~~2017 and ~~2015~~2016.

Analysis of Consolidated Results
	Years Ended September 30,									Increase (Decrease)
(In millions)	~~2017~~2018			~~2016~~2017			~~2015~~2016			~~2017vs~~2018vs. ~~2016~~2017			~~2016vs~~2017vs. ~~2015~~2016
EBIT:
Regulated utility	$	~~266~~7.39		$	~~228~~266.23		$	~~224~~228.02		$	38(258.14	)	$	438.21
Retail energy-marketing	5331.25			6553.02			4665.60			(1121.87		)	18(11.48		)
Commercial energy systems	4034.89			2240.08			922.70			18(5.89		)	1218.38
Midstream energy services	3729.74			737.87			~~(2.~~7.8		)	29(8.93		)	1029.59
Other activities	(1940.90		)	(319.29		)	(93.72		)	(1620.71		)	6(16.57		)
Intersegment eliminations	1(4.04		)	(01.50		)	(1.0.5		)	1.(5.4		)	01.5
Total	$	~~379~~59.13		$	~~319~~379.31		$	~~266~~319.93		$	59(319.8	)	$	5259.48
Interest expense	7462.01			5274.30			5052.53			21(11.79		)	121.87
Income tax expense	111.2			98.1			83.8			13.1			14.3
Income tax expense (benefit)	(53.4		)	111.2			98.1			(164.6		)	13.1
Dividends on Washington Gas preferred stock	1.3			1.3			1.3			—			—
Net income applicable to common stock	$	~~192~~49.63		$	~~167~~192.6		$	~~131~~167.36		$	25(143.03	)	$	3625.30
EARNINGS PER AVERAGE COMMON SHARE
Basic	$	3.76		$	3.33		$	2.64		$	0.43		$	0.69
Diluted	$	3.74		$	3.31		$	2.62		$	0.43		$	0.69

42Regulated Utility Operating Results

The following table summarizes the regulated utility segment’s financial data for fiscal years ended September 30, 2018, 2017 and 2016.

WGL Holdings, Inc.

Washington Gas Light Company

Part II

Item 7. Management’s Discussion and Analysis of

Financial Condition and Results of Operations

Regulated Utility Operating Results



Regulated Utility Financial Data
	Years Ended September 30,									Increase (Decrease)
(In millions)	2018			2017			2016			2018 vs. 2017			2017 vs. 2016
Utility net revenues⁽¹⁾:
Operating revenues	$	1,248.1		$	1,167.0		$	1,070.9		$	81.1		$	96.1
Less: Cost of gas	407.0			297.9			272.0			109.1			25.9
Revenue taxes	82.5			75.1			73.0			7.4			2.1
Total utility net revenues	758.6			794.0			725.9			(35.4		)	68.1
Operation and maintenance	528.8			332.2			322.0			196.6			10.2
Depreciation and amortization	136.9			131.2			116.1			5.7			15.1
General taxes and other assessments	66.0			59.8			57.4			6.2			2.4
Other income (expenses)-net	(19.0		)	(4.5		)	(2.2		)	(14.5		)	(2.3		)
EBIT	$	7.9		$	266.3		$	228.2		$	(258.4	)	$	38.1

The following table summarizes the regulated utility segment’s financial data for fiscal years ended September 30, 2017, 2016 and 2015.

Regulated Utility Financial Data
	Years Ended September 30,									Increase (Decrease)
(In millions)	2017			2016			2015			2017vs. 2016			2016vs. 2015
Utility net revenues(1):
Operating revenues	$	1,167.0		$	1,070.9		$	1,328.2		$	96.1		$	(257.3	)
Less: Cost of gas	297.9			272.0			536.0			25.9			(264.0		)
Revenue taxes	75.1			73.0			83.5			2.1			(10.5		)
Total utility net revenues	794.0			725.9			708.7			68.1			17.2
Operation and maintenance	332.2			322.0			320.1			10.2			1.9
Depreciation and amortization	131.2			116.1			110.4			15.1			5.7
General taxes and other assessments	59.8			57.4			53.7			2.4			3.7
Other income (expenses)-net	(4.5		)	(2.2		)	(0.5		)	(2.3		)	(1.7		)
EBIT	$	266.3		$	228.2		$	224.0		$	38.1		$	4.2

⁽¹⁾We utilize utility net revenues, calculated as revenues less the associated cost of energy and applicable revenue taxes, to assist in the analysis of profitability for the regulated utility segment. The cost of the natural gas commodity (as adjusted for Asset Optimization sharing) 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. Utility net revenues should not be considered an alternative to, or a more meaningful indicator of our operating performance than, operating income. Additionally, utility net revenues may not be comparable to similarly titled measures of other companies.

Fiscal Year 2018 vs. Fiscal Year 2017

The EBIT comparisons for the current year compared to the prior year primarily reflect:


•	higher operation and maintenance expenses primarily related to merger commitments and related expenses;


•	lower realized margins and unrealized mark-to-market valuations associated with our asset optimization program;


•	lower billed and estimated utility rates associated with the pass-through of future tax savings from the Tax Act, however the decrease is offset by lower income tax expense; and


•	higher depreciation and amortization expenses associated with growth in our utility plant.

Included in the EBIT comparisons are the favorable effects of:


•	customer growth of approximately 18,000 average active customer meters;


•	higher revenues attributed to colder weather in the District of Columbia; and


•	new base rates in the District of Columbia and Virginia.

Fiscal Year 2017 vs. Fiscal Year 2016

The increase in EBIT primarily reflects the following:


•	new base rates in Virginia and the District of Columbia;

• higher utility net revenue related to growth of approximately 13,~~200~~000 average active customer meters; and


•	higher unrealized mark-to-market valuations associated with our asset optimization program.

Partially offsetting these favorable variances were:


•	higher depreciation and amortization expense; and


•	higher operation and maintenance expenses.

~~Fiscal~~Utility ~~Year~~Net ~~2016 vs~~Revenues. The ~~Fiscal~~following ~~Year~~table ~~2015~~provides the key factors contributing to the changes in the utility net revenues of the regulated utility segment between years.

~~The increase in EBIT primarily reflects the following:~~42

• higher utility net revenue related to growth of over 12,500 average active customer meters;

• higher unrealized mark-to-market valuations associated with our asset optimization program and

• higher rate recovery related to the accelerated pipeline replacement programs.

Partially offsetting these favorable variances were:

• lower revenues attributed to warmer weather and unfavorable effects of changes in natural gas consumption patterns in the District of Columbia;

• lower realized margins associated with our asset optimization program;

WGL Holdings, Inc.

Washington Gas Light Company

Part II

Item 7. Management’s Discussion and Analysis of

Financial Condition and Results of Operations

• a decrease in the recovery of carrying costs on lower average storage gas inventory balances;



Composition of Changes in Utility Net Revenues
	Increase (Decrease)
(In millions)	2018 vs. 2017			2017 vs. 2016
Asset optimization:
Realized margins	$	(9.7	)	$	1.8
Unrealized mark-to-market valuations	(38.9		)	37.4
Impact of lower tax rates per Tax Act	(27.8		)	—
Impact of rate cases	11.6			33.5
Customer growth	10.9			7.4
Estimated effects of weather and consumption patterns	8.5			(0.4		)
Late fees	6.1			(2.6		)
Accelerated pipe replacement programs	0.8			(5.8		)
Other	3.1			(3.2		)
Total	$	(35.4	)	$	68.1

•Asset ~~higher~~optimization ~~depreciation~~— We recorded unrealized mark-to-market gains associated with our energy-related derivatives of $10.4 million for the year ended September 30, 2018, compared to unrealized mark-to-market gains of $49.3 million and unrealized mark-to-market gains of $12.0 million for the fiscal years ended September 30, 2017 and 2016, respectively. When these derivatives settle, any unrealized amounts will ultimately reverse and Washington Gas expects to realize margins in combination with related transactions that these derivatives economically hedge. The large swings in the valuations are partially due to movements in unobservable inputs used in the ~~growth~~valuation of long-dated forward contracts. We believe that these values are not reflective of our ultimate cash flows as these purchases are utilized in the optimization of our ~~utility~~long-term ~~plant~~natural gas transportation and storage capacity resources, the value of which is not reflected at fair value. Refer to the section entitled “Market Risk—Price Risk Related to the Regulated Utility Segment” for further discussion of our asset optimization program.

•Impact ~~higher~~of ~~general~~lower ~~taxes~~tax rates per Tax Act — The decrease in revenue reflects the impact of the Tax Act on rates charged to customers, however the decrease is offset by lower income tax expense.

~~Utility~~Impact ~~Net~~of ~~Revenues.~~ rate cases — The ~~following~~increase ~~table~~in ~~provides~~revenue ~~the~~reflects ~~key~~new ~~factors~~base ~~contributing~~rates toin the ~~changes~~District of Columbia, effective March 24, 2017 and in ~~the~~Virginia, ~~utility~~effective ~~net~~November ~~revenues~~28, 2016, with modification made in November 2017, as a result of the ~~regulated~~final ~~utility~~approval. Refer ~~segment~~to ~~between~~"Rates ~~years.~~and Regulatory Matters" for further discussion of this matter.

Composition of Changes in Utility Net Revenues
	Increase (Decrease)
(In millions)	2017vs. 2016			2016vs. 2015
Customer growth	$	7.4		$	7.0
Estimated effects of weather and consumption patterns	(0.4		)	(15.6		)
Impact of rate cases	33.5			—
Accelerated pipe replacement programs	(5.8		)	12.9
Asset optimization:
Realized margins	1.8			(3.7		)
Unrealized mark-to-market valuations	37.4			18.3
Lower-of-cost or market adjustment	—			1.3
Storage carrying costs	(0.6		)	(2.6		)
Late fees	(2.6		)	(1.3		)
Refund of reconnection fees	(1.5		)	—
Other	(1.1		)	0.9
Total	$	68.1		$	17.2

Customer growth — Average active customer meters increased by approximately 18,000 from fiscal year 2017 to 2018. Average active customer meters increased by more than 13,000 from fiscal year 2016 to 2017.

~~Customer~~Estimated ~~growth~~effects —of ~~Average~~weather ~~active~~and ~~customer~~consumption ~~meters~~patterns— ~~increased~~Weather, bywhen ~~approximately~~measured 13by HDDs,~~200~~ ~~from~~was ~~fiscal~~4.7% warmer than normal during the year ~~2016~~ended September 30, 2018, compared to 15.9% warmer than normal and 10.4% warmer than normal during the years ended September 30, 2017 and 2016. ~~Average~~In ~~active~~the ~~customer~~District ~~meters~~of ~~increased~~Columbia, where Washington Gas does not have a billing mechanism or financial instruments to offset the effects of weather, the comparatively cooler weather, partially offset by ~~more~~unfavorable ~~than~~changes 12in natural gas consumption patterns,~~500~~ ~~from~~for ~~fiscal~~the year ~~2015~~ended September 30, 2018, resulted in a positive variance to ~~2016~~net revenues. Natural gas consumption patterns may be affected by shifts in weather patterns in which customer heating usage may not correlate highly with average historical levels of usage per heating degree days that occur. Natural gas consumption patterns may also be affected by non-weather related factors such as customer conservation. Refer to the section entitled "Weather Risk" for a discussion of billing mechanisms in Maryland and Virginia, which are designed to eliminate the net revenue effects of variations in customer usage caused by weather and other factors such as conservation.

~~Estimated~~Late ~~effects~~fees of- ~~weather~~In ~~and~~fiscal ~~consumption patterns— Weather, when measured by HDDs, was 15.9% warmer than normal during the~~ year ~~ended September 30,~~ 2017, ~~compared~~we totemporarily ~~10.4%~~suspended ~~warmer~~charging ~~than~~late ~~normal~~fees ~~and 4.6% colder than normal~~ during the ~~years~~stabilization ~~ended~~period ~~September 30, 2016 and 2015. In the District~~ of ~~Columbia,~~our ~~where~~new ~~Washington Gas does not have a~~ billing mechanism or financial instruments to offset the effects of weather, the warmer weather, partially offset by favorable changes in natural gas consumption patterns, for the year ended September 30, 2017, resulted in a negative variance to net revenuessystem. ~~Natural~~The gas consumption patterns may be affected by shifts in weather patterns in which customer heating usage may not correlate highly with average historical levels of usage per heating degree days that occur. Natural gas consumption patterns may also be affected by nonyear-~~weather~~over-year ~~related~~variances ~~factors~~reflect ~~such as customer conservation. Refer to~~ the ~~section~~resumption ~~entitled "Weather Risk" for a discussion~~ of ~~billing~~charging ~~mechanisms~~late infees ~~Maryland and Virginia, which are designed to eliminate the net revenue effects of variations~~ in ~~customer~~fiscal ~~usage~~year ~~caused by weather and other factors such as conservation~~2018.

~~Impact~~Accelerated ofpipe ~~rate~~replacement ~~cases~~programs — The ~~increase~~decrease in revenue for fiscal year 2017 compared to fiscal year 2016 primarily reflects the transfer of project costs that were being collected through accelerated pipeline replacement surcharge revenues to new base rates in ~~the~~ District of Columbia, effective March 24, 2017 as well as in Virginia, put into effect ~~subject to refund~~ in the December 2016 billing cycle. Refer to "Rates and Regulatory Matters" for further discussion of this matter. The increase in base rates reflects $16.9 million of revenue for plant expenditures that had previously been collected through the accelerated pipe replacement surcharge.

Accelerated pipe replacement programs — The decrease in revenue for fiscal year 2017 compared to fiscal year 2016 primarily reflects the transfer of project costs that were being collected through accelerated pipeline replacement surcharge revenues to new base rates in District of Columbia, effective March 24, 2017 as well as in Virginia, put into effect in the December 2016 billing cycle. The positive effect on revenues for fiscal year 2016 compared to fiscal year 2015 was primarily due to the continued growth of our accelerated pipe replacement programs in the District of Columbia, Maryland and Virginia.43

Asset optimization — We recorded unrealized mark-to-market gains associated with our energy-related derivatives of $49.3 million for the year ended September 30, 2017, compared to unrealized mark-to-market gains of $12.0 million and

WGL Holdings, Inc.

Washington Gas Light Company

Part II

Item 7. Management’s Discussion and Analysis of

Financial Condition and Results of Operations

unrealized mark-to-market losses of $6.3 million for the fiscal years ended September 30, 2016 and 2015, respectively. When these derivatives settle, any unrealized amounts will ultimately reverse and Washington Gas expects to realize margins in combination with related transactions that these derivatives economically hedge. The large swings in the valuations are partially due to movements in unobservable inputs used in the valuation of long-dated forward contracts. We believe that these values are not reflective of our ultimate cash flows as these purchases are utilized in the optimization of our long-term natural gas transportation and storage capacity resources, the value of which is not reflected at fair value. Refer to the section entitled “Market Risk—Price Risk Related to the Regulated Utility Segment” for further discussion of our asset optimization program.

Storage Carrying Costs — Each jurisdiction provides for the recovery of carrying costs based on the pre-tax cost of capital, multiplied by the average monthly investment balance of storage gas inventory. The decrease in both year-over-year comparisons reflects lower average storage gas inventory balances primarily due to significantly lower priced gas in inventory.

Late Fees - The decrease in revenue for the current period is due to the temporary suspension of late fees related to the stabilization period of our new billing system.

Refund of reconnection fees - As part of the PSC of MD’s investigation into service termination notices, we have recorded an accrual related to the refund of prior period reconnection fee. Refer to Rates and Regulatory Matters for a further discussion of this matter.

Operation and Maintenance Expenses. The following table provides the key factors contributing to the changes in operation and maintenance expenses of the regulated utility segment between years.

Composition of Changes in Operation and Maintenance Expenses
	Increase/(Decrease)
(In millions)	~~2017vs~~2018vs. ~~2016~~2017			~~2016vs~~2017vs. ~~2015~~2016
Employee incentives and direct labor costs	$	2.5		$	2.6
Merger commitments and related expenses	$	187.0		$	—
Employee benefits	(1.0		)	(2.0		)
Employee incentives and direct labor costs	2.9			2.5
Business development	(1.4		)	(3.9		)
Employee benefits	(10.7		)	(1.0		)
System safety and integrity	110.98			01.89
Environment costs, net	1.2			(1.7		)
Environmental costs, net	1.6			1.2
Support services	(15.61		)	5(1.96		)
Liability insurance	—			0.9
Uncollectible accounts	4.5			4.5
Uncollectible accounts	4.5			(1.3		)
Corporate Allocation	4.0			—
Other	4.1.6			02.67
Total	$	10196.26		$	110.92

~~Employee~~ ~~incentives~~Merger commitments and ~~direct~~related ~~labor~~expenses ~~costs~~ — ~~Washington~~ ~~Gas~~In ~~incurred~~fiscal ~~increased~~year ~~employee~~2018, ~~incentives~~we ~~and~~recorded ~~labor~~ costs, ~~net~~for accrued bill credits to customers, an accrual for ~~the~~our ~~year~~commitment ~~ended September 30,~~of ~~2017 over~~charitable ~~the~~contributions ~~previous~~and ~~fiscal~~community ~~year~~support, asemployee abenefits ~~result~~related severance, retention and acceleration of incentive plans, and an ~~increase~~impairment inthat ~~the~~was ~~number~~booked as part of ~~employees.~~the ~~The~~Merger ~~increase~~with inAltaGas. ~~expense~~See ~~for~~Note ~~fiscal~~20— ~~year~~Merger ~~2016~~with ~~compared~~AltaGas, Ltd. to ~~fiscal~~the ~~year~~Consolidated ~~2015~~Financial isStatements ~~primarily~~in ~~due~~this toForm an10-K ~~increase~~for infurther ~~employees~~information ~~and~~on ~~merit~~these ~~increases~~expenses.

Employee ~~benefits~~incentives —and ~~The~~direct ~~decrease~~labor incosts ~~employee~~— The ~~benefits~~year-over-year ~~expense~~variances infor both ~~the~~periods ~~current~~are ~~and prior period comparisons was~~ primarily due to ~~amendments~~an toincrease ~~the post-retirement benefit plans, which lowered expense~~ in ~~fiscal~~employees ~~year 2016~~ and ~~further~~higher ~~lowered expense in fiscal year 2017~~salaries.

~~Business~~Employee ~~development~~ benefits — The decrease in employee benefits expense in fiscal year~~-over-year~~ ~~variances~~2018 ~~for~~from ~~both~~the ~~periods~~previous fiscal year is primarily ~~relate~~due to alower pension and post-retirement benefit costs resulting from an increase in the discount rate. The decrease in ~~customer~~employee ~~growth~~benefits ~~initiative~~expense ~~costs~~in ~~for~~fiscal ~~Washington~~year ~~Gas~~2017 from the previous fiscal year was primarily due to amendments to the post-retirement benefit plans, which lowered expense in fiscal year 2017.

System safety and integrity — The year-over-year variances for both periods reflect increased safety and reliability activities including leak repair and mitigation.

~~Environment~~Environmental costs, net — The ~~increase in the fiscal~~ year-over-year ~~ended~~variances ~~September~~for ~~30,~~both ~~2017~~periods ~~from~~reflect ~~the previous fiscal year reflects~~ an ~~additional~~increase ~~estimate~~in ofthe ~~costs~~liability associated with ~~our~~sites ~~environmental~~previously ~~liabilities~~used ~~recorded~~to inoperate ~~the~~manufactured ~~current~~gas ~~fiscal period~~plants. ~~The decrease~~

45Support services — The decrease in expense for fiscal year 2018 from the previous fiscal year was due to lower project related costs. The decrease in expense for fiscal year 2017 from the previous fiscal year was due to lower business process outsourcing costs.

Uncollectible accounts — The year-over-year variances for both periods reflect a higher delinquency rate resulting from the suspension of dunning activities during the stabilization period of our new billing system. Refer to Rates and Regulatory Matters for a further discussion.

Corporate Allocation— The increase in fiscal year 2018 over the previous fiscal year is due to the initial allocation of corporate overhead expenses subsequent to the merger with AltaGas. Over time, such costs are expected to be offset by reductions in other functional areas.

Depreciation and Amortization. The following table provides the key factors contributing to the changes in depreciation and amortization of the regulated utility segment between years. The decrease in software amortization is due to certain capitalized software reaching the end of its amortizable life.

WGL Holdings, Inc.

Washington Gas Light Company

Part II

Item 7. Management’s Discussion and Analysis of

Financial Condition and Results of Operations

in the fiscal year ended September 30, 2016 from the previous fiscal year is primarily due to proceeds received from an environmental insurance policy.



Composition of Changes in Depreciation and Amortization
	Increase (Decrease)
(In millions)	2018 vs. 2017			2017 vs. 2016
Accelerated pipe replacement programs	$	2.4		$	2.7
Software	(1.4		)	6.7
Other capital expenditures, net	4.7			5.7
Total	$	5.7		$	15.1

Support services — The decrease in expense for the fiscal year ended September 30, 2017 from the previous fiscal year is due to lower business process outsourcing costs. The increase in expense for fiscal year 2016 compared to fiscal year 2015 was due to increased project related costs including the implementation of a new customer information system as well as infrastructure support costs.45

Uncollectible accounts — The increase in expense for the fiscal year ended September 30, 2017 from the previous fiscal year is due to a higher delinquency rate resulting from the suspension of dunning activities during the stabilization period of our new billing system. The decrease in expense for fiscal year 2016 compared to fiscal year 2015 reflects a refund to customers which was accrued in fiscal year 2015. The refund was a result of an order from the PSC of DC associated with a cash settlement to Competitive Service Providers (CSPs). Refer to Rates and Regulatory Matters for a further discussion.

Other — The increase in expense in the fiscal year ended September 30, 2017 over the previous fiscal year is primarily due to increased costs for administrative, transportation and telecommunication costs.

Depreciation and Amortization. The following table provides the key factors contributing to the changes in depreciation and amortization of the regulated utility segment between years.

Composition of Changes in Depreciation and Amortization
	Increase (Decrease)
(In millions)	2017vs. 2016		2016vs. 2015
Accelerated pipe replacement programs	$	2.7	$	2.2
Customer information system	6.7		-
Other capital expenditures, net	5.7		3.5
Total	$	15.1	$	5.7

WGL Holdings, Inc.

Washington Gas Light Company

Part II

Item 7. Management’s Discussion and Analysis of

Financial Condition and Results of Operations

Non-Utility Operating Results

Retail Energy-Marketing

The following table depicts the retail energy-marketing segment’s operating results along with selected statistical data.

Retail-Energy Marketing Financial and Statistical Data
	Years Ended September 30,								Increase (Decrease)
	2017			2016		2015			2017vs. 2016			2016vs. 2015
	2018			2017		2016			2018vs. 2017			2017vs. 2016
Operating Results (In millions)
Gross margins(1):
Operating revenues	$	1,~~107~~009.27		$	1,~~238~~107.52	$	1,~~306~~238.85		$	(~~131~~97.35	)	$	(68131.3	)
Less: Cost of energy	~~989~~904.05			~~1,110~~989.40		1,~~201~~110.14			(~~121~~84.45		)	(90121.74		)
Revenue taxes	11.48			11.04		911.30			0.4			10.74
Total gross margins	~~106~~93.84			~~117~~106.18		96117.41			(1013.34		)	20(10.73		)
Operation expenses	4755.25			4647.52		4446.75			08.73			10.87
Depreciation and amortization	1.1			1.21		01.72			~~(0.1~~—		)	(0.51		)
General taxes and other assessments—other	5.45			4.5.4		4.5			0.91			—0.9
Other income - net	0.12			0.1		0.1			—0.1			—
EBIT	$	5331.25		$	6553.02	$	4665.60		$	(1121.87	)	$	18(11.48	)
Analysis of gross margins (In millions)
Natural gas
Realized margins	$	4158.21		$	4941.12	$	6149.01		$	(716.9	)	$	(117.9	)
Unrealized mark-to-market valuations	3(1.67		)	83.16		~~(12~~8.71		)	(4.5.3		)	20(4.85		)
Other	—			—		(1.1		)	—			1.1
Total gross margins—natural gas	56.4			44.8		57.2			11.6			(12.4		)
Total gross margins—natural gas	44.8			57.2		47.2			(12.4		)	10.0
Electricity
Realized margins	$	5437.08		$	5754.20	$	57.2		$	(316.2	)	$	—(3.2	)
Unrealized mark-to-market gains valuations	8.0			2.7		(8.0		)	5.3			10.7
Unrealized mark-to-market valuations	(0.8		)	8.0		2.7			(8.8		)	5.3
Total gross margins—electricity	6237.0			5962.90		4959.29			2(25.10		)	102.71
Total gross margins	$	~~106~~93.84		$	~~117~~106.18	$	96117.41		$	(1013.34	)	$	20(10.73	)
Other Retail-Energy Marketing Statistics
Natural gas
Therm sales (millions of therms)	~~693~~654.38			~~750~~693.73		~~713~~750.07			(5738.45		)	37(57.74		)
Number of customers (end of period)	~~116~~108,~~200~~900			~~133~~116,~~000~~200		~~143~~133,~~800~~000			(167,~~800~~300		)	(1016,800		)
Electricity
Electricity sales (millions of kWhs)	1211,~~248~~666.41			1312,~~090~~248.74		1213,~~057~~090.07			(~~842~~582.3		)	~~1,033~~(842.73		)
Number of accounts (end of period)	~~113~~101,700			~~127~~113,~~400~~700		~~138~~127,~~000~~400			(1312,~~700~~000		)	(1013,~~600~~700		)

⁽¹⁾We utilize gross margins to assist with the analysis of profitability for the retail energy-marketing segment. Gross margins are calculated as revenues less the associated cost of energy and applicable revenue taxes. We consider gross margins to be a better reflection of performance than gross revenues or gross energy costs for our retail energy-marketing segment because gross margins are a direct measure of the success of our core strategy for the sale of natural gas and electricity. Gross margins should not be considered an alternative to, or a more meaningful indicator of our operating performance than operating income. Additionally, gross margins may not be comparable to similarly titled measures of other companies.

4746

WGL Holdings, Inc.

Washington Gas Light Company

Part II

Item 7. Management’s Discussion and Analysis of

Financial Condition and Results of Operations

Fiscal Year 2018 vs. Fiscal Year 2017. The decrease in EBIT reflects unrealized commodity margin losses in the current year compared to gains in the prior year and lower realized electric margins due to lower average unit margins and lower sales volumes this fiscal year compared to the prior fiscal year. Partially offsetting the decrease was higher realized gas margins due to increased portfolio optimization.

Operating expenses were higher due to increased corporate overhead allocation and customer marketing expenses.

Fiscal Year 2017 vs. Fiscal Year 2016. The decrease in EBIT reflects lower realized natural gas margins primarily due to lower volumes, lower portfolio optimization and less favorable prices when compared to the prior fiscal year. Realized margins from electricity were unfavorable due to lower volumes this fiscal year compared to the prior fiscal year. Capacity charges from the regional power grid operator (PJM) were relatively unchanged when compared to the prior fiscal year.

Operating expenses were higher due to increased commercial broker fees.

Fiscal Year 2016 vs. Fiscal Year 2015. The increase in EBIT primarily reflects higher unrealized mark-to-market valuations due to fluctuating market prices for derivatives related to natural gas and electricity in the current period.

The comparison of realized gross margins from natural gas sales reflects lower natural gas margins due to a decrease in portfolio optimization activity, partially offset by increased wholesale customer sales. Realized gross margins from electric sales were relatively unchanged when compared to the prior fiscal year.

Operating expenses were higher due to increased commercial broker fees.

Commercial Energy Systems

The tables below represent the financial results of the commercial energy systems segment for the fiscal years ended September 30, ~~2017~~2018, ~~2016~~2017, and ~~2015~~2016.

Commercial Energy Systems Segment Financial Information
	Years Ended September 30,									Increase (Decrease)
(In millions)	~~2017~~2018			~~2016~~2017			~~2015~~2016			~~2017vs~~2018vs. ~~2016~~2017			~~2016vs~~2017vs. ~~2015~~2016
Operating revenues	$	9579.28		$	8995.12		$	5189.81		$	6(15.14	)	$	376.31
Operating expenses:
Cost of sales	3616.84			4036.98			2140.59			(420.14		)	~~19.~~(4.1		)
Operations	2735.07			2527.10			1725.1			18.97			81.09
Depreciation and amortization	2124.75			1521.27			1015.72			62.58			46.5
General taxes and other assessments	01.52			0.5			0.45			—0.7			~~0.1~~—
Operating expenses	$	8677.08		$	8186.70		$	4981.7		$	4(8.32	)	$	324.03
Equity earnings	~~7.3~~—			7.63			27.26			(07.3		)	5(0.43		)
Other income	83.24			68.42			56.4			1(4.8		)	1.08
Less: Non-controlling interest	(1629.15		)	(016.61		)	—(0.6		)	(1513.54		)	(015.65		)
EBIT	$	4034.89		$	2240.08		$	922.70		$	18(5.89	)	$	1218.38
EBIT by division:
Energy-efficiency contracting	$	(0.1	)	$	6.6		$	(2.4	)	$	(6.7	)	$	9.0
Energy efficiency	$	(7.4	)	$	(0.1	)	$	6.6		$	(7.3	)	$	(6.7	)
Commercial distributed generation	177.6			1317.46			1013.04			4(10.20		)	3.4.2
Investment in distributed generation	23.3			2.0			2.1			21.3			(0.1		)
Investment distributed generation	34.7			23.3			2.0			11.4			21.3
Total	$	4034.89		$	2240.08		$	922.70		$	18(5.89	)	$	1218.38

Fiscal Year ~~2017~~2018 vs. Fiscal Year ~~2016~~2017. The ~~increase~~decrease in EBIT primarily reflects: ~~the~~(i) ~~growth~~lower ~~in distributed generation assets in service, including increased~~ solar renewable energy credit sales and rebate income ~~and~~revenues, (ii) higher ~~earnings~~costs ~~from~~primarily ~~alternative~~relating ~~energy~~to ~~investments,~~increased ~~including~~office ~~tax~~and ~~equity~~corporate ~~ventures~~overhead ~~accounted~~allocation ~~for under HLBV. Additionally~~expenses, ~~the~~and ~~increase~~(iii) ~~in EBIT reflects an increase in other income due to the accounting treatment of~~ a ~~business combination~~$2. ~~Refer~~7 tomillion ~~Note~~receivable 17 write-off ~~Other~~associated ~~Investments~~with ~~for~~one ~~more~~energy ~~information~~efficiency ~~on our investment projects~~account. ~~These~~ ~~improvements~~The ~~were~~decrease was partially offset by ~~lower~~higher ~~revenues~~earnings from ~~the~~alternative energy~~-efficiency~~ ~~contracting~~investments, ~~business~~including ~~and~~tax ~~higher~~equity ~~depreciation~~ventures ~~expenses~~accounted ~~due~~for tounder ~~the additional distributed generation assets placed in service in the current fiscal year~~HLBV.

Additionally, not reflected in EBIT is the amortization of investment tax credits related to our distributed generation assets which were $6.87 million and $56.38 million for the year ended September 30, ~~2017~~2018 and ~~2016~~2017, respectively.

48 Fiscal Year 2017 vs. Fiscal Year 2016. The increase in EBIT primarily reflects growth in distributed generation assets in service, including increased solar renewable energy credit sales and rebate income and higher earnings from alternative energy investments, including tax equity ventures accounted for under HLBV. Additionally, the increase in EBIT reflects an increase in other income due to the accounting treatment of a business combination. These improvements were partially offset by lower

WGL Holdings, Inc.

Washington Gas Light Company

Part II

Item 7. Management’s Discussion and Analysis of

Financial Condition and Results of Operations

~~Fiscal Year 2016 vs. Fiscal Year 2015. The increase in EBIT reflects: (i) higher~~ margins from the energy-efficiency contracting business, ~~(ii) growth in distributed generation assets in service, including higher income from solar renewable energy credit sales~~ and ~~(iii)~~ higher ~~equity~~depreciation ~~earnings~~expenses ~~from~~due ~~alternative~~to ~~energy investments. Additionally,~~ the ~~improvement~~additional indistributed ~~EBIT~~generation ~~reflects~~assets ~~prior~~placed ~~period~~in ~~losses~~service ~~associated with unrecovered government contracting costs of $3.0 million. These improvements~~ in ~~EBIT~~the ~~are~~current ~~partially offset by a $4.1 million impairment recorded during~~ fiscal year ~~2016, related to our investment in thermal solar projects and higher operating and depreciation expenses due to additional in-service distributed generation assets~~.

Additionally, not reflected in EBIT is the amortization of investment tax credits related to our distributed generation assets which were $56.38 million and $45.13 million for the fiscal year ended September 30, ~~2016~~2017 and ~~2015~~2016, respectively.

Midstream Energy Services

The table below represents the financial results of the midstream energy services segment for the year ended September 30, ~~2017~~2018, ~~2016~~2017 and ~~2015~~2016.

Midstream Energy Services Segment Financial Information
	Years Ended September 30,								Increase (Decrease)
(In millions)	~~2017~~2018			~~2016~~2017		~~2015~~2016			~~2017vs~~2018vs. ~~2016~~2017			~~2016vs~~2017vs. ~~2015~~2016
Operating revenues(a)	$	3140.36		$	631.63	$	36.26		$	249.73		$	324.47
Operating expenses:
Operations	65.30			46.83		74.78			(1.53		)	(21.95		)
Depreciation and amortization	—			~~0.1~~—		0.1			~~(0.1~~—		)	—(0.1		)
General taxes and other assessments	0.3			0.3		0.83			—			~~(0.5~~—		)
Operating expenses	$	65.63		$	56.26	$	85.62		$	(1.43	)	$	(31.4	)
Equity earnings	12(5.98		)	612.29		2.6.2			6(18.7		)	3.6.7
Other income	(0.1		)	0.21		0.12			(0.12		)	(0.1		)
EBIT	$	3729.74		$	737.87	$	~~(2.~~7.8	)	$	29(8.93	)	$	1029.59

^(a) The trading margins of Midstream Energy Services, including unrealized gains and losses on derivative instruments, are netted within operating revenues.

Fiscal Year ~~2017~~2018 vs. Fiscal Year ~~2016~~2017. The ~~increase~~decrease in EBIT for the year ended September 30, ~~2017~~2018 compared to ~~2016~~2017, primarily reflects: ~~(i)~~a $1634.60 million impairment related to our investment in ~~higher~~Constitution ~~valuations~~pipeline and ~~realized~~a ~~margins~~$40.7 million decrease related to ~~storage~~valuations ~~inventory~~on ~~and~~our ~~the~~derivative contracts associated ~~economic~~with ~~hedging~~our ~~transactions,~~commodity ~~(ii)~~trading ~~a $9~~portfolio.0 ~~million~~Mostly ~~increase~~offsetting ~~primarily~~these unfavorable variances was an increase related to realized margins ~~for~~associated with both our transportation ~~strategies~~ and ~~(iii)~~storage ~~higher~~strategies, ~~income~~including margins related to our ~~pipeline~~agreement ~~investments. Partially~~with ~~offsetting~~GAIL ~~these~~Global ~~favorable~~(USA) ~~variances~~LNG ~~was~~LLC, aas ~~$1.9~~well ~~million~~as ~~decrease~~increased ~~related~~equity toearnings ~~valuations~~from on our ~~derivative~~pipeline ~~contracts~~investments, ~~associated~~excluding ~~with~~the ~~our~~Constitution ~~long-term transportation strategies~~impairment.

~~Fiscal~~We ~~Year~~contracted ~~2016~~with ~~vs.~~GAIL ~~Fiscal~~Global ~~Year~~(USA) ~~2015.~~LNG ~~The increase in EBIT for the year ended September 30~~LLC, ~~2016 compared to 2015, primarily reflects: (i)~~ a ~~$26.5~~subsidiary ~~million~~of ~~increase~~GAIL ~~related to valuations on our derivative contracts associated with our long-term transportation strategies;~~ (iiIndia) ~~lower~~Limited, ~~development expenses related~~ to ~~our~~sell ~~pipeline~~natural ~~investments~~gas ~~and~~at ~~(iii)~~the ~~higher~~Cover ~~income~~Point ~~related~~LNG toexport ~~our pipeline investments~~facility. ~~Partially~~Under ~~offsetting~~this ~~these~~agreement, ~~favorable~~WGL ~~variances~~Midstream ~~are:~~will ~~(i)~~sell ~~$9.5 million in lower valuations~~ and ~~realized~~deliver ~~margins~~a ~~related~~minimum toof ~~storage~~340,000 ~~inventory~~dekatherms ~~and~~per ~~the~~day ~~associated economic hedging transactions~~ and ~~(ii)~~up ato ~~$13.6~~430,000 ~~million~~dekatherms ~~decrease~~per ~~primarily~~day ~~related~~of tonatural ~~realized~~gas, ~~margins~~ for ~~our transportation strategies, primarily as~~ a ~~result~~term of ~~losses~~20 ofyears ~~approximately~~starting ~~$15.2~~April ~~million~~1, ~~associated~~2018, ~~with~~ the ~~index~~in-service ~~price~~date ~~used~~of in the ~~gas~~Cove ~~purchase~~Point ~~contract~~LNG ~~with~~export ~~Antero~~facility.

~~Although~~Realized ~~realized~~ margins on our transportation strategies ~~have increased year-over-year, both years~~ reflect losses associated with certain gas purchases from Antero beginning in January 2016. The index price used to invoice these purchases had been the subject of an arbitration proceeding:; however, in February 2017, the arbitral tribunal ruled in favor of Antero. Losses realized during the fiscal year ended September 30, 2018, 2017 and 2016 were $4.6 million, $9.8 million and $15.2 million, respectively, associated with this purchase contract. ~~Accumulated losses from the inception of the contract are $25.0 million.~~ In March 2017, we filed suit in state court in Colorado related to the delivery point to which the gas is being delivered by Antero. The state court initially granted Antero's motion to dismiss the case and ~~the~~we ~~case~~subsequently isfiled ~~currently~~an on appeal. ~~Separately~~In October 2018, ~~Antero~~the ~~has~~Court ~~initiated~~of ~~suit~~Appeals reversed the state court's decision and should remand the lawsuit to the trial court within the next 30 to 60 days.

49Separately, Antero has initiated suit against Washington Gas and WGL Midstream claiming that they have failed to purchase specified daily quantities of gas and seeking alleged cover damages exceeding $100 million as of April 4, 2018, according to Antero's complaint. Washington Gas and WGL Midstream oppose both the validity and amount of Antero's claim. WGL believes the probability that Antero could succeed in collecting these penalties is remote and therefore, no accrual was made as of September 30, 2018. The jury trial has been tentatively scheduled for March 2019. In December 2017, WGL Midstream amended its purchase contract with Antero and, effective February 1, 2018, was no longer obligated to purchase gas at the delivery point that is the subject of these disputes. Refer to Note 12 — Commitments and Contingencies of the Notes to Consolidated Financial Statements for further discussion of this matter.

WGL Holdings, Inc.

Washington Gas Light Company

Part II

Item 7. Management’s Discussion and Analysis of

Financial Condition and Results of Operations

~~against~~Fiscal ~~Washington~~Year ~~Gas~~2017 ~~and~~vs. ~~WGL~~Fiscal ~~Midstream~~Year ~~claiming~~2016. ~~that~~The ~~they~~increase ~~have~~in ~~failed~~EBIT tofor ~~purchase~~the ~~specified~~year ~~daily~~ended ~~quantities~~September 30, of2017 ~~gas~~compared ~~and~~to ~~seeking~~2016, ~~alleged~~primarily ~~cover~~reflects: ~~damages~~(i) ~~exceeding~~ $8016.6 million asin ofhigher ~~October~~valuations ~~24,~~and ~~2017,~~realized ~~which~~margins ~~amount~~related ~~continues~~ to ~~accumulate~~storage ~~daily~~inventory ~~according to Antero's complaint. Washington Gas~~ and ~~WGL Midstream oppose both~~ the ~~validity~~associated ~~and~~economic ~~amount~~hedging oftransactions, ~~Antero's~~(ii) ~~claim~~a $9. ~~WGL~~0 ~~believes~~million ~~the~~increase ~~probability~~primarily ~~that~~related ~~Antero~~to ~~could~~realized ~~succeed~~margins infor ~~collecting~~our ~~these~~transportation ~~penalties~~strategies ~~is remote~~ and ~~therefore,~~(iii) nohigher ~~accrual~~income ~~was~~related ~~made~~to asour ofpipeline ~~September 30, 2017~~investments. ~~Refer~~ toPartially ~~Note~~offsetting 13these —favorable ~~Commitments~~variances ~~and~~was ~~Contingencies~~a of$1.9 ~~the~~million ~~Notes~~decrease related to ~~Consolidated~~valuations ~~Financial~~on ~~Statements~~our ~~for~~derivative ~~further~~contracts ~~discussion~~associated ofwith ~~this~~our ~~matter~~long-term transportation strategies.

Other Non-Utility Activities

Transactions that are not significant enough on a stand-alone basis to warrant treatment as an operating segment, and that do not fit into one of our four operating segments, are aggregated as “Other Activities” and included as part of non-utility operations. Our other non-utility activities reflect EBIT of $(1940.90) million, $(319.29) million and $(93.72) million for the year ended September 30, ~~2017~~2018, ~~2016~~2017 and ~~2015~~2016, respectively. The comparison of EBIT between fiscal year ~~2017~~2018 and fiscal year ~~2016~~2017 primarily relates to ~~external~~investment ~~costs~~banking ~~associated~~and ~~with~~legal fees due upon the ~~Merger~~merger closing with AltaGas. The comparison of EBIT ~~for~~between fiscal ~~years~~year ~~2016~~2017 and ~~2015~~fiscal ~~primarily~~year ~~reflects~~2016 aprimarily ~~$5.6~~relates ~~million~~to ~~impairment~~external ~~charge~~costs ofassociated ~~our~~with ~~investment~~the inmerger ~~American~~with ~~Solar Direct Holdings Inc~~AltaGas. ~~(ASDHI) in fiscal year 2015.~~

Intersegment Eliminations

Intersegment eliminations include ~~any~~ mark-to-market valuations associated with trading activities between WGL Midstream and WGL Energy Services and timing differences between Commercial Energy Systems’ recognition of revenue for the sale of REC's to Retail Energy-Marketing and Retail Energy-Marketing’s recognition of the associated expense. Our intersegment eliminations reflect EBIT of $(4.5) million, $1.0 million and $(0.5) million for the year ended September 30, 2018, 2017, and 2016, respectively. The year-over-year variances primarily relate to timing differences between Commercial Energy Systems' recognition of revenue for the sale of RECs to Retail Energy-Marketing and Retail Energy Marketing's recognition of the associated expense.

For further discussion of our financial performance by operating segment, refer to Note 1615 - Operating Segment Reporting of the Notes to Consolidated Financial Statements.

Consolidated Interest Expense

The following table shows the components of WGL’s consolidated interest expense for the years ended September 30, ~~2017~~2018, ~~2016~~2017 and ~~2015~~2016. The ~~increase~~decrease in interest expense for fiscal year ~~over~~2018 compared to fiscal year ~~primarily~~2017 ~~reflects~~is due to a gain on interest rate swap settlements, including a hedging gain reclassified from OCI, partially offset by higher interest expense due to the issuance of additional long-term debt by both WGL and Washington Gas. The increase in interest expense for fiscal ~~years~~year 2017 ~~and~~compared to fiscal year 2016 primarily reflects the issuance of additional long-term debt by both WGL and Washington Gas as well as interest expense associated with WGL's interest rate swap and an increase in short-term borrowings.

Composition of Consolidated Interest Expense
	Years Ended September 30,									Increase (Decrease)
(In millions)	~~2017~~2018			~~2016~~2017			~~2015~~2016			~~2017vs~~2018vs. ~~2016~~2017			~~2016vs~~2017vs. ~~2015~~2016
Interest on debt	$	73.6		$	52.5		$	51.2		$	21.1		$	1.3
Interest on long-term debt	$	81.4		$	64.9		$	52.5		$	16.5		$	12.4
Other net, including allowance for funds used during construction	0.4			(0.2		)	(0.7		)	0.6			0.5
Interest on short-term debt	10.6			5.6			1.9			5.0			3.7
Total	$	74.0		$	52.3		$	50.5		$	21.7		$	1.8
(Gain) loss on interest rate swap	(19.2		)	5.6			—			(24.8		)	5.6
Other net, including capitalized interest	(10.7		)	(2.1		)	(2.1		)	(8.6		)	—
Total	$	62.1		$	74.0		$	52.3		$	(11.9	)	$	21.7

Consolidated Income Taxes

The following table shows WGL’s consolidated income tax expense and effective income tax rate for the years ended September 30, ~~2017~~2018, ~~2016~~2017 and ~~2015~~2016.

Consolidated Income Taxes
	Years Ended September 30,									Increase (Decrease)
(In millions)	2017			2016			2015			2017vs. 2016			2016vs. 2015
Income before income taxes	$	289.0		$	266.4		$	216.4		$	22.6		$	50.0
Income tax expense	111.2			98.1			83.8			13.1			14.3
Effective income tax rate	38.5		%	36.8		%	38.7		%	1.7		%	(1.9		)%

WGL Holdings, Inc.

Washington Gas Light Company

Part II

Item 7. Management’s Discussion and Analysis of

Financial Condition and Results of Operations

The increase in the effective income tax rate for fiscal year 2017 compared to fiscal year 2016 is mainly due to certain merger related costs not being deductible for tax purposes. The decrease in the effective income tax rate for fiscal year 2016 compared to the prior fiscal year is mainly due to a $5.6 million impairment charge of our investment in ASDHI recorded in fiscal year 2015 (which is not deductible for income tax purposes). Refer to Note 9—Income Taxes of the Notes to the Consolidated Financial Statements for details.



Consolidated Income Taxes
	Years Ended September 30,									Increase (Decrease)
(In millions)	2018			2017			2016			2018 vs. 2017			2017 vs. 2016
Income before income taxes	$	(32.3	)	$	289.0		$	266.4		$	(321.3	)	$	22.6
Income tax expense	(53.4		)	111.2			98.1			(164.6		)	13.1
Effective income tax rate	165.3		%	38.5		%	36.8		%	126.8		%	1.7		%
Income tax expense (benefit)	(53.4		)	111.2			98.1			(164.6		)	13.1
Less re-measurement impact of Tax Act	(28.7		)	—			—			(28.7		)	—
Income tax expense excluding re-measurement impact	(24.7		)	111.2			98.1			(135.9		)	13.1
Effective income tax rate excluding re-measurement impact	76.5		%	38.5		%	36.8		%	38.0		%	1.7		%

The decrease in income tax expense for fiscal year 2018 compared to fiscal year 2017 is due to the enactment of the Tax Act resulting in a re-measurement of our accumulated deferred income taxes and the reduction of the corporate federal income tax rate for 2018 to 21%. The increase in the effective income tax rate for fiscal year 2017 compared to fiscal year 2016 is mainly due to certain merger related costs not being deductible for tax purposes. Refer to Note 8—Income Taxes of the Notes to the Consolidated Financial Statements for details.

LIQUIDITY AND CAPITAL RESOURCES

General Factors Affecting Liquidity

Access to short-term debt markets is necessary for funding our short-term liquidity requirements, the most significant of which include buying natural gas, electricity and pipeline capacity, and financing both accounts receivable and storage gas inventory. We have accessed long-term capital markets primarily to fund both capital expenditures, and investment activities and to retire long-term debt.

During the fiscal year ended September 30, ~~2017~~2018, WGL met its liquidity and capital needs through cash on hand, retained earnings, ~~reduced~~the ~~cash~~issuance ~~outflows~~of ~~resulting~~commercial ~~from~~paper ~~deferred~~and ~~income~~long-term ~~taxes~~debt, and ~~the~~equity ~~issuance~~infusions offrom ~~commercial paper~~AltaGas. Washington Gas met its liquidity and capital needs through cash on hand, ~~including~~retained ~~the~~earnings, ~~proceeds of long-term debt issued in~~ the ~~fourth~~issuance ~~calendar quarter~~ of ~~2017,~~commercial ~~retained earnings~~paper, ~~reduced~~and ~~cash~~equity ~~outflows~~infusions ~~resulting~~ from ~~deferred~~WGL ~~income taxes~~ and the ~~issuance of commercial paper~~SPE.

Our ability to access debt capital markets depends on our credit ratings, general market liquidity, and investor demand for our securities. ~~The~~On ~~Merger~~October ~~Agreement~~8th, ~~has~~2018, ~~placed certain restrictions on~~ WGL’s ~~ability~~filed ~~to access the capital markets. Our credit ratings depend largely on the financial performance of our subsidiaries, and~~ a ~~ratings~~Post-Effective ~~downgrade~~Amendment ~~could both increase our borrowing costs and trigger the need for us~~ to ~~post~~its ~~additional~~Registration ~~collateral~~Statement ~~with~~originally ~~our~~filed ~~wholesale~~September ~~counterparties or other creditors. In support of our credit ratings~~15, we2017 ~~have a goal~~ to ~~maintain our long~~de-~~term~~register ~~average common equity ratio in~~ the ~~50%~~debt ~~range~~securities ofcovered ~~total~~by ~~consolidated capital over~~ the ~~long~~Registration ~~term~~Statement. AsLooking ~~of September 30~~forward, ~~2017,~~WGL ~~total~~will ~~consolidated~~obtain ~~capitalization, including current maturities of~~ long-term ~~debt and notes payable and project~~ financing, ~~comprised~~from ~~39.9%~~AltaGas ~~common~~via ~~equity,~~capital ~~0.2%~~infusion ~~non-controlling interest, 0.7% preferred stock~~ and ~~59.2%~~inter-company ~~long~~borrowings and ~~short-term~~we ~~debt.~~do ~~This~~not ~~ratio~~intend ~~varies during the fiscal year primarily due~~ to ~~the~~offer ~~seasonal~~any ~~nature~~additional ofdebt ~~Washington~~securities ~~Gas'~~at ~~business~~WGL. ~~This seasonality also affects our short-term debt balances, which are typically higher in the fall and winter months and substantially lower in the spring when a significant portion of~~ Washington Gas' ~~current~~will ~~assets~~continue ~~are converted into cash at the end of the heating season. Our cash flow requirements and our ability~~ to ~~provide~~access ~~satisfactory resources to meet those requirements are primarily influenced by~~ the ~~activities~~capital ofmarkets ~~all~~through oflong-term ~~WGL’s~~debt ~~operating segments~~issuances.

~~Our~~In ~~plans provide for sufficient liquidity to satisfy our financial obligations. At September 30~~addition, ~~2017,~~rules weimposed ~~had~~by noregulatory ~~significant~~commissions ~~restrictions~~or onstate ~~our~~law ~~cash~~in ~~balances~~Washington orGas' ~~retained~~service ~~earnings~~territory ~~that~~restrict ~~would~~its ~~affect~~ability ~~the~~to ~~payment~~make ofadvances ~~common~~ or ~~preferred~~issue ~~stock~~loans ~~dividends~~to byits ~~either~~affiliates, including WGL. or Washington Gas. ~~Please~~may ~~see~~not ~~Note~~provide 21loans -to ~~Planned~~an ~~Merger~~affiliate ~~with~~or ~~AltaGas~~holding ~~Ltd.~~company, ~~for~~unless aWashington ~~discussion~~Gas ofreceives ~~the~~commission ~~proposed merger~~approval.

Our credit ratings depend largely on the financial performance of our subsidiaries and the ratings of our parent company, AltaGas. A ratings downgrade could both increase our borrowing costs and trigger the need for us to post additional collateral with our wholesale counterparties or other creditors. Further, a negative change in AltaGas’ ratings outlook or any downgrade in its credit ratings could negatively impact WGL’s ratings outlook or downgrade its credit ratings. Such downgrades could limit WGL’s access to the credit markets and increase the costs of borrowing under available credit lines. Following the merger with AltaGas in July 2018, the credit rating agencies downgraded the senior unsecured debt rating for WGL from A3 to Baa1 for Moody's, from A- to BBB- for S&P, and from A- to BBB for Fitch. At the same time Moody’s downgraded the senior unsecured debt rating for Washington Gas from A1 to A2, S&P from A to A-, and Fitch from A+ to A. All three credit agencies cited the merger and issuer ratings for AltaGas as the reason for the downgrades, but also pointed to the ring fencing measures put in place for our regulatory commissions following the merger as limiting the negative impact on the ratings for Washington

WGL Holdings, Inc.

Washington Gas Light Company

Part II

Item 7. Management’s Discussion and Analysis of

Financial Condition and Results of Operations

Gas. The purpose of the ring-fencing measures is to financially separate Washington Gas from WGL, AltaGas and its non-utility affiliates to protect consumers of regulated utility services from financial instability or bankruptcy in its parent or affiliates resulting from losses that may occur from open market activities.

As of September 30, 2018, total consolidated capitalization, including current maturities of long-term debt and notes payable and project financing, comprised 40.1% common equity, 0.2% non-controlling interest, 0.6% preferred stock and 59.1% long and short-term debt. This consolidated capitalization ratio varies during the fiscal year primarily due to the seasonal nature of Washington Gas' business. This seasonality also affects our short-term debt balances, which are typically higher in the fall and winter months and substantially lower in the spring when a significant portion of Washington Gas' current assets are converted into cash at the end of the heating season. Our cash flow requirements and our ability to provide satisfactory resources to meet those requirements are influenced by the activities of all of WGL’s operating segments.

Our plans provide for sufficient liquidity to satisfy our financial obligations. Generally, 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 after 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 September 30, 2018, we had no significant restrictions on our cash balances or retained earnings that would affect the payment of dividends by either WGL or Washington Gas.

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. At September 30, ~~2017~~2018 and ~~2016~~2017, Washington Gas had balances in gas storage of $92101.84 million and $8292.5 8 million, respectively. Washington Gas collects the cost of gas under cost recovery mechanisms approved by its regulators. Additionally, Washington Gas may be required to post cash collateral for certain purchases.

During the first six months of each fiscal 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. During the last six months of each fiscal 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, which Washington Gas generally uses to reduce and usually eliminate short-term debt and acquire storage gas for the next heating season.

Variations in the timing of customer collections under Washington Gas' gas cost recovery mechanisms can significantly affect its short-term cash requirements. At September 30, ~~2017~~2018 and ~~2016~~2017, Washington Gas had $2.03 million in net under-collections from customers and $32.3 0 million in net over-collections from customers, respectively, of gas costs reflected in current liabilities as gas costs due to customers. Amounts under-collected or over-collected ~~that~~from ~~are~~customers ~~generated~~ during the current gas cost recovery cycle are deferred as a regulatory asset or liability on the balance sheet until September 1 of each year, at which time the accumulated amount is transferred to gas costs due from/to customers as appropriate. At September 30, 2018 and 2017, Washington Gas had a net regulatory asset of $13.9 million and $5.6 million, respectively, related to under-collections from customers in the current gas recovery cycle.

WGL Energy Services and WGL Midstream have seasonal short-term cash requirements to fund the purchase of storage gas inventory in advance of the winter heating season. At September 30, 2018 and 2017, WGL Energy Services had balances in gas storage of $25.3 million and $33.1 million, respectively. WGL Energy Services collects revenues that are designed to reimburse commodity costs used to supply its retail customer contracts and wholesale counterparty contracts. At September 30, 2018 and 2017, WGL Midstream had balances in gas storage of $61.6 million and $118.2 million, respectively. As market opportunities arise, WGL Midstream may physically sell the inventory on the wholesale natural gas market, or economically hedge the inventory with financial derivative contracts. WGL Energy Services and WGL Midstream derive funding to finance these activities from short-term debt issued by WGL, which is made available through the money pool as discussed below. Additionally, WGL Energy Services and WGL Midstream may be required to post cash collateral for certain transactions or they may be required to provide parent guarantees for certain transactions.

In addition to storage gas, WGL Midstream also has cash requirements to fund the capital requirements of its various infrastructure investments. At September 30, 2018 and 2017, WGL Midstream incurred $770.0 million and $384.6 million related to these investments, respectively. WGL Midstream initially funds capital calls related to these investments from short-term debt issued by WGL.

WGL Holdings, Inc.

Washington Gas Light Company

Part II

Item 7. Management’s Discussion and Analysis of

Financial Condition and Results of Operations

balance sheet until September 1 of each year, at which time the accumulated amount is transferred to gas costs due from/to customers as appropriate. At September 30, 2017 and 2016, Washington Gas had a net regulatory asset of $5.6 million and $5.7 million, respectively, related to the current gas recovery cycle.

WGL Energy Services and WGL Midstream have seasonal short-term cash requirements to fund the purchase of storage gas inventory in advance of the winter heating season. At September 30, 2017 and 2016, WGL Energy Services had balances in gas storage of $33.1 million and $31.5 million, respectively. WGL Energy Services collects revenues that are designed to reimburse commodity costs used to supply their retail customer contracts and wholesale counterparty contracts. At September 30, 2017 and 2016, WGL Midstream had balances in gas storage of $118.2 million and $93.1 million, respectively. As market opportunities arise, WGL Midstream may physically sell the inventory on the wholesale natural gas market, or economically hedge the inventory with financial derivative contracts. WGL Energy Services and WGL Midstream derive funding to finance these activities from short-term debt issued by WGL, which is made available through the money pool as discussed below. Additionally, WGL Energy Services and WGL Midstream may be required to post cash collateral for certain transactions. WGL Energy Services and WGL Midstream may be required to provide parent guarantees from WGL for certain transactions.

In addition to storage gas, WGL Midstream also has cash requirements to fund the capital requirements of its various infrastructure investments. At September 30, 2017 and 2016, WGL Midstream had investments of $384.6 million and $237.4 million related to these investments, respectively. WGL Midstream initially funds capital calls related to these investments from short-term debt issued by WGL.

WGL Energy Systems has cash requirements to fund the construction and purchase of residential and commercial distributed generation systems. WGL Energy Systems initially finances these activities through short-term debt issued by WGL.

WGL and Washington Gas use 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.

WGL and Washington Gas each have credit facilities. The credit facility for WGL permits it to borrow up to $650.0 million. The credit facility for Washington Gas permits it to borrow up to $350.0 million, and further permits, with the banks’ approval, additional borrowings of $100.0 million for a maximum potential total of $450.0 million. The interest rate on loans made under each of the credit facilities is a fluctuating rate per annum that is set using certain parameters at the time each loan is made. WGL and Washington Gas incur credit facility fees, which in some cases are based on the long-term debt ratings of WGL and Washington Gas. In the event that the long-term debt ratings are downgraded below certain levels, WGL and Washington Gas would be required to pay higher fees. There are five different levels of fees. For WGL, under the terms of the credit facilities, the lowest level facility fee is 0.075% and the highest is 0.225%. For Washington Gas, under the terms of the credit facilities, the lowest level facility fee is 0.06% and the highest is 0.175%. The facilities have a maturity date of December 19, 2019, and the credit agreements each provide WGL or Washington Gas with the right, as applicable to request two additional one-year extensions, with the ~~banks~~lenders’ approval. Bank credit balances available to WGL and Washington Gas, net of commercial paper balances, were $~~268~~157.05 million and $~~227~~255.0 million at September 30, ~~2017~~2018, respectively, and $~~223~~268.0 million and $~~308~~227.0 million at September 30, ~~2016~~2017, respectively.

To manage credit risk, Washington Gas may require certain customers and suppliers to provide deposits, including collateral from wholesale counterparties, which are reported as current liabilities in “Customer deposits and advance payments,” in the accompanying balance sheets. At September 30, ~~2017~~2018 and ~~2016~~2017, “Customer deposits and advance payments” totaled $6483.27 million and $8064.92 million, respectively. For Washington Gas, deposits from customers may be refunded at various times throughout the year based on ~~the~~ customer’s payment habits. At the same time, other customers make new deposits that cause the balance of customer deposits to remain relatively steady. There are no restrictions on Washington Gas’ use of these customer deposits. Washington Gas pays interest to its customers on these deposits in accordance with the requirements of its regulatory commissions.

For WGL Energy Services and WGL Midstream, deposits typically represent collateral for transactions with wholesale counterparties. These deposits may be reduced, repaid or increased at any time based on the current value of WGL Energy Services’ or WGL Midstream’s net position with the counterparty. At September 30, 2018 and 2017, “Customer deposits and advance payments” totaled $0.4 million and $1.6 million, respectively, for WGL Midstream. There were no such deposits for WGL Energy Services at September 30, 2018 and 2017. Currently, there are no restrictions on the use of deposited funds and interest is paid to the counterparty on these deposits in accordance with ~~its~~our contractual obligations. Refer to the section entitled “Credit Risk” for further discussion of our management of credit risk.

Money Pool

WGL has money pool arrangements with and among its subsidiaries to coordinate and provide for certain short term cash and working capital requirements. This money pool may also accumulate cash from the periodic cash infusions from its parent company as well as the operations of certain subsidiaries. In return, the money pool provides short-term loans to its subsidiaries to meet various working capital needs. Washington Gas does not participate in the money pool.

Project Financing

Washington Gas previously obtained third-party project financing on behalf of the federal government to provide funds during the construction of certain energy management services projects entered into under Washington Gas' area-wide contract. In connection with work completed under the area-wide contract, the construction work is performed by WGL Energy Systems on behalf of Washington Gas and an inter-company payable is recorded for work provided by WGL Energy Systems. As work is performed, Washington Gas establishes a receivable representing the government's obligation to remit principal and interest. The payable and receivable are equal to each other at the end of the construction period, but there may be timing differences in the recognition of the project related payable and receivable during the construction period. When these projects are formally “accepted” by the government and deemed complete, Washington Gas assigns the ownership of the receivable to the third-party lender in satisfaction of the obligation and removes both the receivable and the obligation related to the financing from its financial statements. If project acceptance does not occur by a specified date the lender may require Washington Gas to make interim interest payments or repurchase the contract payments plus a termination fee. In March 2016, the SCC of VA denied W

WGL Holdings, Inc.

Washington Gas Light Company

Part II

Item 7. Management’s Discussion and Analysis of

Financial Condition and Results of Operations

~~Money~~ashington ~~Pool~~Gas' further participation in the third-party financing arrangement but allowed existing debt arrangements to remain intact until the related obligations were satisfied. At September 30, 2018, there were two financing contracts that have not been novated for which draws totaling $68.5 million on the Washington Gas balance sheet as a short-term obligation to third-party lenders in "Notes payable and project financing".

~~WGL~~In ~~has~~December ~~money~~2016, ~~pool~~WGL ~~arrangements~~Energy ~~with~~Systems ~~and~~entered ~~among~~into ~~its~~an ~~subsidiaries~~agreement to ~~coordinate~~obtain third-party financing and ~~provide~~receive ~~for~~funds ~~certain~~directly ~~short~~from ~~term~~the ~~cash~~third-party ~~and~~lender ~~working~~during ~~capital~~the ~~requirements~~construction period associated with the related energy management service projects. As ~~This~~a ~~money~~result, ~~pool~~Washington ~~may~~Gas ~~also~~will ~~accumulate~~no ~~cash~~longer ~~from~~be ~~the~~liable ~~periodic~~under ~~issuance~~future ofthird-party ~~WGL’s~~financing ~~common~~arrangements, ~~stock~~for ~~from~~projects entered into under the ~~company’s~~area-wide ~~ATM~~contract. ~~offering,~~The ~~dividend~~general ~~reinvestment~~terms ~~program~~of ~~and~~the ~~stock~~financing ~~based~~agreement ~~compensation~~are ~~programs~~the same as ~~well~~the asprior financing arrangements between Washington Gas and the ~~operations~~third-party oflender ~~certain~~mentioned ~~subsidiaries~~above. Washington InGas ~~return,~~will continue to record a receivable representing the ~~money~~government’s ~~pool~~obligation ~~provides~~and ~~short~~will record an inter-~~term~~company ~~loans~~payable to ~~its~~WGL ~~subsidiaries~~Energy toSystems ~~meet~~for ~~various~~the ~~working~~construction ~~capital~~work ~~needs~~performed for the same amount. ~~Washington~~At ~~Gas~~September 30, ~~does~~2018, ~~not~~there ~~participate~~were inthree contracts that are outstanding totaling $13.7 million on the ~~money~~WGL ~~pool~~Energy Systems' balance sheet as a short-term obligation to third-party lenders in "Notes payable and project financing".

~~Project~~As ~~Financing~~of September 30, 2018, WGL recorded $77.0 million in "Unbilled revenues" on the balance sheet, and WGL and Washington Gas recorded $82.2 million and $68.5 million, respectively, in a corresponding short-term obligation to third-party lenders in "Notes payable and project financing", for energy management services projects that were not complete. As of September 30, 2017, WGL recorded $85.6 million "Unbilled revenues" on the balance sheet and WGL and Washington Gas recorded $54.8 million and $43.8 million, respectively, in a corresponding short-term obligation to third-party lenders in "Notes payable and project financing" for energy management services projects that were not complete. For projects where WGL Energy Systems is the primary contractor and where these projects are financed for government agencies that have minimal credit risk, and with which we have previous collection experience, neither WGL nor Washington Gas recorded a corresponding reserve for bad debts related to these receivables at September 30, 2018 or September 30, 2017.

Washington Gas has obtained third-party project financing on behalf of the Federal government to provide funds during the construction of certain energy management services projects entered into under Washington Gas' area-wide contract. In connection with work completed under the area-wide contract, the construction work is performed by WGL Energy Systems on behalf of Washington Gas and an inter-company payable is recorded for work provided by WGL Energy Systems. As work is performed, Washington Gas establishes a receivable representing the government's obligation to remit principal and interest. The payable and receivable are equal to each other at the end of the construction period, but there may be timing differences in the recognition of the project related payable and receivable during the construction period. When these projects are formally “accepted” by the government and deemed complete, Washington Gas assigns the ownership of the receivable to the third party lender in satisfaction of the obligation and removes both the receivable and the obligation related to the financing from its financial statements.

In December 2016, WGL Energy Systems entered into an agreement to obtain third-party financing and receive funds directly from the third party lender during the construction period associated with the related energy management service projects. As a result, Washington Gas will no longer be liable under future third party financing arrangements, for projects entered into under the area-wide contract. The general terms of the financing agreement are the same as the prior financing arrangements between Washington Gas and the third party lender mentioned above. Washington Gas will continue to record a receivable representing the government’s obligation, and will record an inter-company payable to WGL Energy Systems for the construction work performed for the same amount.

As of September 30, 2017, WGL and Washington Gas recorded $85.6 million and $78.2 million, respectively, in "Unbilled revenues" on the balance sheet and $54.8 million and $43.8 million, respectively, in a corresponding short-term obligation to third party lenders in "Notes payable and project financing", for energy management services projects that were not complete. As of September 30, 2016, WGL and Washington Gas recorded $73.3 million in "Unbilled revenues" on the balance sheet and a $62.4 million corresponding short-term obligation to third party lenders in "Notes payable and project financing" for energy management services projects that were not complete. WGL Energy Systems did not obtain any third-party project financing on behalf of the Federal Government for the fiscal year ended September 30, 2016. Because these projects are financed for government agencies which have minimal credit risk, and with which we have previous collection experience, neither WGL nor Washington Gas recorded a corresponding reserve for bad debts related to these receivables at September 30, 2017 or September 30, 2016.

Long-Term Cash Requirements and Related Financing

The primary drivers of our long-term cash requirements include capital expenditures, non-utility investments and long-term debt maturities. For the regulated utility segment, our capital expenditures primarily relate to adding new utility customers and system supply as well as maintaining the safety and reliability of Washington Gas’ distribution system. For our non-utility segments, our long-term cash requirements primarily depend on the level of investments and capital expenditures. For WGL Midstream, our investments primarily relate to providing capital for construction of the infrastructure investments. For WGL Energy Systems and WGSW, our investments primarily relate to providing capital for construction of ~~new~~distributed ~~residential~~generation and commercial solar projects managed by WGL Energy Systems. The investments are mainly through tax equity partnerships that create project funding using the tax benefits associated with the projects. For more information, ~~distributed~~see ~~generation~~Note 16- Other investments of the Notes to Consolidated Financial Statements. In addition, on March 28, 2018, WGL Energy Systems entered into a new tax equity financing arrangement under which it can sell and lease back up to $75 million of commercial solar asset projects that it may develop and place into service. WGL Energy Systems will have 18 months to sell the commercial solar asset projects under the arrangement and then it would lease each project back over a period of up to 25 years. The facility will be collateralized by the leased projects.

OnSecurity February 18, 2016, WGL entered into a credit agreement providing for a term loan facility. On February 18, 2016 and January 26, 2017, WGL borrowed $250 million and $50 million, respectively, under the agreement. The credit agreement provides for maturity dates of February 18, 2018 and January 26, 2019, respectively, with a one year extension option with the lenders' approval. In addition to the initial borrowings, the credit agreement permits, with the lenders' approval, additional borrowings of up to $50 million, for maximum potential borrowings under the credit agreement of $350 million. The interest rate on loans made under the credit agreement will be a fluctuating rate that will be determined from time to time based on parameters set forth in the credit agreement. Ratings

The table below reflects the current credit ratings for the outstanding debt instruments of WGL and Washington Gas. Changes in credit ratings may affect WGL's and 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.




	WGL		Washington Gas
Rating Service	Senior Unsecured	Commercial Paper	Senior Unsecured	Commercial Paper
Fitch Ratings^(a)	BBB	F2	A	F2
Moody’s Investors Service^(b)	Baa1	P-2	A2	P-1
Standard & Poor’s Ratings Services^(c)	BBB-	A-2	A-	A-2

WGL Holdings, Inc.

Washington Gas Light Company

Part II

Item 7. Management’s Discussion and Analysis of

Financial Condition and Results of Operations

On September 16, 2016, Washington Gas issued $250 million of 3.796% medium-term notes due in 2046. The notes are subject to prepayment at Washington Gas' option at any time in whole or from time to time in part, at a redemption price equal to the greater of (ia) ~~100%~~The ofcredit ~~the~~ratings ~~principal~~by ~~amount~~Fitch ~~thereof~~Ratings ~~and~~for ~~(ii)~~WGL ~~the sum of the present values of the remaining scheduled payments of principal~~ and interest thereon, plus a make-whole call premium, plus, in either such case, accrued and unpaid interest on the principal of such notes to the date of redemption. At any time on and after March 15, 2046, Washington Gas ~~may~~were ~~redeem~~revised ~~the notes~~ on ~~any~~July ~~date or dates~~10, in2018 ~~whole or from time to time in part, at 100% of the principal of such notes, plus accrued~~ and ~~unpaid interest on~~ the ~~principal~~long-term ofdebt ~~such~~ratings ~~notes~~outlook towas ~~the~~adjusted ~~date of redemption. On September 18, 2017, Washington Gas issued an additional $200 million pursuant~~ to ~~the reopening of these notes for a total aggregate principle amount outstanding of $450 million~~stable.

On(b) ~~November~~The ~~24,~~credit ~~2015,~~ratings WGL entered into an equity distribution agreement relating to a continuous offering under which WGL may sell common stock with an aggregate sales price of up to $150 million through an ATM program. Sales of common stock can be made by ~~means~~Moody’s ofInvestors ~~privately~~Service ~~negotiated~~for ~~transactions, as transactions on the New York Stock Exchange at market prices or in such other transactions as agreed upon by~~ WGL and ~~the~~Washington ~~sales~~Gas ~~agents and in conformance with applicable securities laws. WGL began selling shares under this agreement in February 2016. There~~ were norevised ~~shares~~on ~~issued~~July ~~under this agreement in fiscal year ended September 30~~9, ~~2017~~2018 ~~due~~and to the ~~Merger~~long-term ~~Agreement.~~debt ~~During~~ratings ~~the~~outlook ~~fiscal~~remained ~~year ended September 30, 2016, WGL has issued 1~~negative.~~2 million shares of common stock for gross proceeds of $78.2 million.~~

In(c) The ~~connection~~credit ~~with~~ratings ~~entering~~by ~~into~~Standard & ~~the~~Poor’s ~~Merger~~Rating ~~Agreement,~~Services for WGL ~~Holdings,~~and ~~Inc.~~Washington ~~will~~Gas ~~not~~were ~~raise~~revised ~~capital~~on ~~using~~July ~~common~~9, ~~equity~~2018 ~~issuances~~and orthe ~~using~~long-term debt ~~longer~~ratings ~~than~~outlook ~~two~~remained ~~years in duration~~negative.

Security Ratings

	WGL		Washington Gas
Rating Service	Senior Unsecured	Commercial Paper	Senior Unsecured	Commercial Paper
Fitch Ratings(a)	A-	F2	A+	F1
Moody’s Investors Service(b)	A3	P-2	A1	P-1
Standard & Poor’s Ratings Services(c)	A-	A-1	A	A-1

(a) The long-term debt ratings outlook issued by Fitch Ratings for WGL and Washington Gas was adjusted to negative on October 13, 2016.

(b) The long-term debt ratings outlook issued by Moody’s Investors Service for WGL and Washington Gas was adjusted to negative on February 1, 2017.

(c) The long-term debt ratings outlook issued by Standard & Poor’s Rating Services for WGL and Washington Gas was adjusted to negative on January 26, 2017.

Ratings Triggers and Certain Debt Covenants

WGL and Washington Gas pay credit facility fees, which in some cases are based on the long-term debt ratings of Washington Gas. Under the terms of WGL’s and Washington Gas' revolving credit agreements, term loan facility and private placement notes, the ratio of consolidated financial indebtedness to consolidated total capitalization cannot exceed 0.65 to 1.0 (65.0%). As of September 30, ~~2017~~2018, WGL's and Washington Gas' ratios of consolidated financial indebtedness to consolidated total capitalization were 59.2% and ~~52.2~~47%, respectively. In addition, WGL and Washington Gas are required to inform lenders of changes in corporate existence, financial conditions, litigation and environmental warranties that might have a material effect on debt ratings. The failure to inform the lenders’ agent of material changes in these areas 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 a suspension of further loans and/or acceleration in which obligations become immediately due and payable. In addition, certain of the credit facilities of WGL and Washington contain cross-default provisions. At September 30, ~~2017~~2018, we were in compliance with all of the covenants under our revolving credit facilities.

For certain of Washington Gas’ natural gas purchase and pipeline capacity agreements, the counterparty may withhold service or deliveries or may require additional credit support if the long-term debt of Washington Gas is downgraded below the lower of a BBB- rating by Standard & Poor’s or a Baa3 rating by Moody’s Investors Service, or if Washington Gas is deemed by a counterparty not to be creditworthy. For certain other agreements, the counterparty may require additional credit support if the counterparty’s credit exposure to Washington Gas exceeds a contractually defined threshold amount, or if Washington Gas’ credit rating declines by a certain rating level. Based on its current credit ratings, Washington Gas would not be required to provide additional credit support to its counterparties for these agreements if its long-term credit rating was to be downgraded by one rating level.

54WGL guarantees payments for certain purchases of natural gas and electricity on behalf of WGL Energy Services and WGL Midstream. If the credit rating of WGL declines, WGL Energy Services and WGL Midstream may be required to provide additional credit support and credit enhancements for these purchase contracts. WGL Energy Services and WGL Midstream would provide the additional credit support required by obtaining a parent guarantee from AltaGas Ltd, an entity with an investment grade rating. Any additional credit support would be obtained from a letter of credit or providing cash collateral. Approximately $233 million of additional credit support may be required for these arrangements if WGL's credit ratings were to decline by one rating level. Beginning in October 2018, WGL began obtaining parent guarantees from AltaGas Ltd. As a result, as of November 9th, 2018, the total additional credit support that may be required is now approximately $98 million.

WGL Holdings, Inc.

Washington Gas Light Company

Part II

Item 7. Management’s Discussion and Analysis of

Financial Condition and Results of Operations

Service, or if Washington Gas is deemed by a counterparty not to be creditworthy, then the counterparty may withhold service or deliveries, or may require additional credit support. For certain other agreements, if the counterparty’s credit exposure to Washington Gas exceeds a contractually defined threshold amount, or if Washington Gas’ credit rating declines by a certain rating level, then the counterparty may require additional credit support. At September 30, 2017, Washington Gas would not be required to provide additional credit support for these arrangements if its long-term credit rating was to be downgraded by one rating level.

WGL guarantees payments for certain purchases of natural gas and electricity on behalf of WGL Energy Services and WGL Midstream (refer to “Contractual Obligations, Off-Balance Sheet Arrangements and Other Commercial Commitments” for further discussion of these guarantees). If the credit rating of WGL declines, WGL Energy Services and WGL Midstream may be required to provide additional credit support and credit enhancements for these purchase contracts. At September 30, 2017, WGL Energy Services would be required to provide additional credit support of $3,000 for these arrangements, if WGL's credit ratings were to decline by one rating level. At September 30, 2017, WGL Midstream would be required to provide $779,000 of additional credit support for these arrangements if WGL's credit ratings were to decline by one rating level.

Historical Cash Flows

The following table summarizes WGL’s net cash provided by (used in) operating, investing and financing activities for the fiscal years ended September 30, ~~2017~~2018, ~~2016~~2017 and ~~2015~~2016:

	Fiscal Years Ended September 30,									Increase / (Decrease)			Increase / (Decrease)
(In millions)	~~2017~~2018			~~2016~~2017			~~2015~~2016			~~2017~~2018 vs. ~~2016~~2017			~~2016~~2017 vs. ~~2015~~2016
Cash provided by (used in):										.
Operating activities	$	~~230~~322.68		$	~~227~~234.82		$	~~504~~231.10		$	288.86		$	~~(276.~~3.2	)
Financing activities	$	~~423~~715.06		$	~~436~~419.54		$	19433.03		$	~~(13~~296.52	)	$	~~417~~(13.59	)
Investing activities	$	(~~650~~924.70	)	$	(~~665~~650.57	)	$	(~~525~~665.15	)	$	14(273.83	)	$	~~(140~~14.48	)

Cash Flows Provided by Operating Activities

The regulated utility’s cash flows from operating activities principally reflect gas sales and deliveries and the cost of operations. The volume of gas sales and deliveries is dependent primarily on factors external to the utility, such as growth of customer demand, weather, market prices for energy, economic conditions and measures that promote energy efficiency. Under revenue and weather normalization, ratemaking adjustments and decoupling mechanisms in place, changes in delivery volumes from levels assumed when rates were approved may affect the timing of cash flows but not net income. The price at which the utility provides energy to customers is determined in accordance with regulatory-approved tariffs. In general, changes in the utility’s cost of gas may affect the timing of cash flows but not net income because the costs are recovered in accordance with rate agreements. In addition, the regulated utility’s cash flow is impacted by the timing of derivative settlements.54

The non-utility cash flows from operating activities primarily reflect: (i) the timing of receipts related to distributed generation and federal projects in the commercial energy systems segment; (ii) the timing of receipts related to electric and gas bills and the timing of payments for the cost of the commodity for WGL Energy Services and (iii) the timing of gas purchases and sales resulting from trading activities at WGL Midstream. Both WGL Energy Services' and WGL Midstream's cash flows are impacted by the timing of derivative settlements.

Net income is the result of cash and non-cash (or accrual) transactions. Only cash transactions affect WGL’s cash flows from operating activities. Principal non-cash charges include depreciation, accrued or deferred pension and other post-retirement benefit costs and deferred income tax expense. Non-cash charges or credits may also be accrued under the revenue decoupling and cost reconciliation mechanisms in the utilities’ rate plans.

Net cash flows provided by operating activities for the fiscal year ended September 30, 2017 was $230.6 million compared to net cash flows provided by operating activities of $227.8 million for the fiscal year ended September 30, 2016. The increase in net cash flows primarily reflects distributions received from our investment in the Stonewall Gas Gathering System. These distributions began in fiscal year 2017. The comparison of net cash provided by operating activities for fiscal year 2016 to fiscal year 2015 reflects decreased sales volumes to customers due to warmer than normal weather during the period and the associated timing of payments for, and recovery of, energy related costs.

Cash Flows Provided By Financing Activities

Cash flows provided by financing activities totaled $423.0 million in fiscal year ended September 30, 2017, a decrease of $13.5 million from the prior year. This decrease primarily reflects that, due to the Merger, there were no issuances of common stock under our ATM program in fiscal year 2017. Cash flows provided by financing activities increased $417.5 million in fiscal year 2016 as compared to fiscal year 2015. This comparison primarily reflects an increase in net funds received from long-term debt and issuance of common stock under our ATM program.

The following table reflects the issuances and retirements of long-term debt that occurred during the fiscal years 2017, 2016 and 2015 (also refer to Note 5 —Long Term Debt of Notes to Consolidated Financial Statements).

WGL Holdings, Inc.

Washington Gas Light Company

Part II

Item 7. Management’s Discussion and Analysis of

Financial Condition and Results of Operations

Long-Term Debt Activity
	2017			2016				2015
($ In millions)	Interest Rate	Face value		Interest Rate	Face value			Interest Rate	Face value
Long Term Debt(a)
Issued	1.57-3.80%	$	250.0	1.34-3.80%	$	500.0		2.25 – 4.60%	$	300.0
Retired				5.17%	(25.0		)	4.83%	(20.0		)
Other financing
Issued	n/a	—		n/a	—			n/a	—
Retired	n/a	—		n/a	—			2.52 – 4.10%	(8.3		)
Other activity
Total		$	250.0		$	475.0			$	271.7

The regulated utility’s cash flows from operating activities principally reflect gas sales and deliveries and the cost of operations. The volume of gas sales and deliveries is dependent primarily on factors external to the utility, such as growth of customer demand, weather, market prices for energy, economic conditions and measures that promote energy efficiency. Unbilled revenue and weather normalization, ratemaking adjustments and decoupling mechanisms in place, changes in delivery volumes from levels assumed when rates were approved may affect the timing of cash flows but not net income. The price at which the utility provides energy to customers is determined in accordance with regulatory-approved tariffs. In general, changes in the utility’s cost of gas may affect the timing of cash flows but not net income because the costs are recovered in accordance with rate agreements. In addition, the regulated utility’s cash flow is impacted by the timing of derivative settlements.

Net cash flows provided by operating activities for the fiscal year ended September 30, 2018 was $322.8 million compared to net cash flows provided by operating activities of $234.2 million for the fiscal year ended September 30, 2017. The increase in net cash flows primarily reflects higher realized margins for both storage and transportation strategies at WGL Midstream and higher cash collections due to colder weather at Washington Gas, offset by cash payment of merger commitments, financial and legal advisory costs, severance costs, retention and acceleration of incentive plans due to the Merger. The slight increase of net cash provided by operating activities for fiscal year 2017 compared to fiscal year 2016 primarily reflects distributions received from our investment in the Stonewall Gas Gathering System. The distribution began in fiscal year 2017.

Cash Flows Provided by Financing Activities

Cash flows provided by financing activities totaled $715.6 million in fiscal year ended September 30, 2018, an increase of $296.2 million from the prior year. The increase was mainly from equity infusion from AltaGas after the Merger. Cash flow provided by financing activities decreased $13.9 million in fiscal year 2017 as compared to fiscal year 2016 as there were no issuance of common stock under our at-the-market program (ATM) in fiscal year 2017 due to the Merger.

The following table reflects the issuances and retirements of long-term debt that occurred during the fiscal years 2018, 2017 and 2016 (also refer to Note 5 —Long Term Debt of Notes to Consolidated Financial Statements).



Long-Term Debt Activity
	2018				2017			2016
($ In millions)	Interest Rate	Face value			Interest Rate	Face value		Interest Rate	Face value
Long Term Debt^(a)
Issued	1.88-2.66%	$	550.0		1.57-3.80%	$	250.0	1.34-3.80%	$	500.0
Retired	2.45%	(250.0		)				5.17%	(25.0		)
Total		$	300.0			$	250.0		$	475.0

(a) Includes senior notes for WGL Holdings, MTN's and private placement debt for Washington Gas. Certain issuances for WGL Holdings contain make-whole call provisions.

Cash Flows Used in Investing Activities

Net cash flows used in investing activities totaled $~~650~~924.70 million, $~~665~~650.5 7 million and $~~525~~665.1 5 million during fiscal years ~~2017~~2018, ~~2016~~2017 and ~~2015~~2016, respectively, which primarily consists of utility capital expenditures made by Washington Gas and non-utility investments in pipeline and distributed generation.

Capital Investments

Total WGL expenditures for capital investments for the year ended September 30, ~~2017~~2018 are shown in the chart below:

5655

WGL Holdings, Inc.

Washington Gas Light Company

Part II

Item 7. Management’s Discussion and Analysis of

Financial Condition and Results of Operations

The following table depicts our actual capital investments for fiscal years ~~2015~~2016, ~~2016~~2017 and ~~2017~~2018. Our capital outlays include expenditures to extend service to new areas, and to ensure safe, reliable and improved service for our utility and to grow our non-utility investments.

Capital Expenditures
	Actual
(In millions)	~~2015~~2016			~~2016~~2017			~~2017~~2018
New business(a)	$	84106.86		$	~~106~~129.64		$	~~129~~141.43
Replacements:
Regulatory plans(b)	113.1			132.2			130.9
Accelerated Replacement plans(b)	132.2			130.9			111.7
Other	5674.08			7468.81			6870.15
Customer information system	2439.64			3928.41			~~28.1~~—
Other utility	4243.50			4344.0			4477.0
Cash basis-utility	6(2.45		)	(27.58		)	7(4.80		)
Total utility(c)	~~327~~393.45			~~393~~408.53			~~408~~396.35
Pipeline investments	42158.71			~~158~~140.18			~~140~~410.8
Distributed generation	~~158~~163.38			~~163~~85.85			85142.5
Other non-utility	08.23			87.30			7.0.4
Cash basis-non-utility	3(35.13		)	~~(35~~22.32		)	22(23.20		)
Total investments	$	~~531~~688.74		$	~~688~~663.48		$	~~663~~927.82

(a) Includes certain projects that support the existing distribution system.

(b) Represents capital expenditures (excluding cost of removal), both approved, and expected to be approved, under our Accelerated Pipeline

Replacement Programs in all jurisdictions. Refer to the section entitled "Accelerated Pipeline Replacement Programs" for a further discussion.

(c) Excludes Allowance for Funds Used During Construction and cost of removal. Includes capital expenditures accrued and capital expenditure

adjustments recorded in the fiscal year.

~~Accelerated~~New ~~Pipe Recovery Plans~~Business

~~Accelerated~~The ~~pipe~~Company’s ~~replacement~~utility ~~programs~~service ~~are~~areas inhave ~~place~~a inpopulation ~~all~~estimated ~~three~~at ~~of our jurisdictions~~5.9 ~~Washington~~million ~~Gas is accelerating pipe replacement in order to reduce risk~~ and ~~further~~include ~~enhance~~approximately ~~the safety and reliability of the pipeline system~~2.2 ~~Each~~million ~~regulatory~~households ~~commission~~and ~~having~~commercial ~~jurisdiction over~~ structures. Washington Gas’ ~~retail~~actively ~~rates~~markets ~~has~~and ~~approved~~adds ~~accelerated~~new ~~replacement~~customers ~~programs~~through ~~with~~both ~~an associated surcharge mechanism to recover the cost, including a return, on those~~ capital ~~investments.~~expenditures Inand ~~contrast~~different ~~to the traditional~~ rate~~-making~~ ~~approach~~mechanisms toaimed ~~capital~~at ~~investments,~~bringing ~~for~~ the ~~accelerated~~benefits ~~pipe~~of ~~replacement~~natural ~~programs~~gas, ~~Washington~~including ~~Gas~~lower isenergy ~~receiving~~bills ~~recovery~~and ~~for~~reduced ~~these~~carbon ~~investments~~emissions ~~through~~to ~~the~~more ~~approved~~residents ~~surcharges~~in ~~for~~its ~~each program~~territories. Washington ~~Once~~Gas ~~new~~added ~~rates~~12,581 ~~are~~new ~~put~~customers ~~into effect~~ in afiscal ~~given~~year ~~jurisdiction,~~2018 ~~then~~supported ~~costs~~by ~~previously~~additional ~~collected~~capital ~~through the accelerated pipe replacement surcharges will be collected through the new rates. Refer to Rates~~ and ~~Regulatory Matters for a further discussion on~~ rate ~~case decisions during the fiscal year~~base. ~~The~~Adding ~~following~~new ~~table~~customers ~~presents~~directly ~~the~~drives ~~expenditures~~earnings ~~made~~growth ~~and~~through ~~revenues~~additional ~~recognized~~distribution ~~for the accelerated pipe replacement programs in fiscal year 2017~~revenues.

Accelerated Pipe Replacement Programs Fiscal Year 2017 Activity
(in millions)	District of Columbia	Maryland	Virginia	Total
Capital expenditures, excluding cost of removal	$18.1	$48.6	$64.2	$130.9
Revenues recognized(a)	$5.5	$13.4	$6.6	$25.5

(a)New base rates were effective in the District of Columbia on March 24, 2017 and in Virginia, in the December 2016 billing cycle.

District of Columbia Jurisdiction. In the District of Columbia, pursuant to a settlement approved in 2009, construction activities began, related to an accelerated replacement and encapsulation program targeting vintage mechanically coupled pipe.

WGL Holdings, Inc.

Washington Gas Light Company

Part II

Item 7. Management’s Discussion and Analysis of

Financial Condition and Results of Operations

~~These~~ ~~targeted replacements were completed in January 2017~~Replacements, ~~with~~Regulatory ~~related~~Plans ~~restoration~~- ~~and~~Accelerated ~~paving~~Pipe ~~continuing~~Replacement into calendar year 2017. In 2013, Washington Gas filed PROJECTpipes in which Washington Gas proposed to replace bare and/or unprotected steel services, bare and targeted unprotected steel main, and cast iron main in its distribution system in the District of Columbia. On January 29, 2015, the PSC of DC issued an order approving the settlement agreement and approving recovery through the surcharge of annual project costs up to $25 million through fiscal year 2019. PROJECTpipes is in addition to the program which targets vintage mechanically coupled pipe. Cumulative plant additions through September 30, 2015 were included in rate base in the most recent rate cases and are now being recovered through base rates and not reflected in revenues shown in the table above.Plans

~~Maryland~~Accelerated ~~Jurisdiction.~~pipe Inreplacement ~~2014,~~programs ~~pursuant~~are toin ~~the~~place ~~Strategic~~in ~~Infrastructure~~all ~~Development~~three ~~and~~of ~~Enhancement~~our ~~(STRIDE)~~jurisdictions. ~~law~~Washington inGas ~~Maryland,~~is ~~the~~accelerating ~~PSC~~pipe ofreplacement MDin ~~approved~~order ~~Washington~~to ~~Gas’~~reduce ~~initial~~risk ~~STRIDE~~and ~~Plan~~further toenhance ~~recover~~ the ~~reasonable~~safety and ~~prudent~~reliability ~~costs~~of ~~associated~~the ~~with~~pipeline ~~qualifying~~system. ~~infrastructure~~Each ~~replacements~~regulatory ~~through~~commission ~~monthly~~having ~~surcharges.~~jurisdiction ~~The~~over ~~Commission~~Washington ~~approved~~Gas’ ~~replacement~~retail ofrates ~~bare~~has ~~and/or~~approved ~~unprotected~~accelerated ~~steel~~replacement ~~services~~programs ~~and~~with ~~targeted~~an ~~copper~~associated ~~and/or~~surcharge ~~pre-1975~~mechanism ~~plastic~~to ~~services,~~recover ~~bare~~the ~~and~~cost, ~~targeted~~including ~~unprotected~~a ~~steel main~~return, ~~mechanically~~on ~~coupled~~those ~~pipe~~capital ~~main~~investments. ~~and~~In ~~service,~~contrast ~~and~~to ~~cast~~the ~~iron~~traditional ~~main~~rate-making inapproach ~~Washington~~to ~~Gas'~~capital ~~Maryland~~investments, ~~distribution~~for ~~system~~the ataccelerated anpipe ~~estimated~~replacement ~~five-year~~programs, ~~cost~~Washington ofGas ~~$200~~is ~~million,~~receiving ~~including~~recovery ~~cost~~for ofthese ~~removal,~~investments through ~~calendar~~the ~~year~~approved ~~2018.~~surcharges Infor ~~2015,~~each ~~the~~program ~~PSC~~and ofis MDauthorized ~~approved~~to ~~one~~invest ~~additional~~in ~~program~~each ~~applicable~~of tothese ~~gas~~programs ~~distribution~~over ~~system~~a ~~replacements~~five ~~and~~year ~~three~~period. ofThe ~~the~~following ~~four~~table ~~requested~~presents ~~additional~~the ~~programs~~expenditures ~~applicable~~made toand ~~gas~~revenues ~~transmission~~recognized ~~system~~for ~~replacements~~the ataccelerated anpipe ~~incremental~~replacement ~~cost~~programs ofin ~~$18~~fiscal year 2018.5 ~~million,~~Refer ~~including~~to ~~cost~~Rates ofand ~~removal,~~Regulatory inMatters ~~eligible~~for ~~infrastructure~~a ~~replacements~~further ~~over~~discussion ~~the~~on ~~remaining~~rate ~~four~~case ~~years~~decisions ofduring the ~~initial~~fiscal ~~STRIDE Plan~~year.

Virginia Jurisdiction. On April 21, 2011, the SCC of VA, pursuant to a new law to advance Virginia’s Energy Plan (“SAVE Act”), Washington Gas’s initial SAVE Plan for accelerated replacement of infrastructure facilities and a SAVE Rider to recover eligible costs associated with those replacement programs. Subsequently, the Commission approved three amendments to the Company’s SAVE Plan, increasing the overall investment, the scope of approved programs and new facilities replacement programs. Washington Gas' current, approved SAVE Plan encompasses eight ongoing programs: (i) bare and/or unprotected steel service replacement program, (ii) bare and unprotected steel main replacement program, (iii) mechanically coupled pipe replacement, (iv) copper services replacement program, (v) black plastic services replacement program, (vi) cast iron mains replacement program, (vii) meter set and piping remediation/replacement program and (viii) transmission programs. Washington Gas is authorized to invest $256.3 million, including cost of removal, over the five-year calendar period through 2017. Cumulative expenditures through November 30, 2016 were included in rate base in the most recent rate cases and are now being recovered in base rates and are not reflected in the revenues shown in the table above. On July 25, 2017, the Company filed an Application with the Commission to amend and extend its SAVE Plan. Washington Gas proposes to invest approximately $543 million over a five-year period to continue work on previously approved distribution and transmission system accelerated replacement programs.



Accelerated Pipe Replacement Programs Fiscal Year 2018 Activity
(in millions)	District of Columbia		Maryland		Virginia		Total
Capital expenditures, excluding cost of removal	$	23.2	$	31.2	$	57.3	$	111.7
Revenues recognized	$	5.5	$	13.4	$	8.1	$	27.0
Fiscal Year 2017 Activity
Capital expenditures, excluding cost of removal	$	18.1	$	48.6	$	64.2	$	130.9
Revenues recognized	$	5.5	$	13.4	$	6.6	$	25.5

~~Pipeline~~District ~~Investments~~of Columbia Jurisdiction. In 2013, Washington Gas filed a Revised Accelerated Pipe Replacement Plan (PROJECTpipes) in which Washington Gas proposed to replace bare and/or unprotected steel services, bare and targeted unprotected steel main, and cast iron main in its distribution system in the District of Columbia. On January 29, 2015, the Public Service Commission of the District of Columbia issued an order approving the settlement agreement and approving recovery through the surcharge of total project costs up to $110 million through fiscal year 2019. Cumulative plant additions through September 30, 2015 were included in rate base in the most recent rate cases and are now being recovered in base rates.

~~Constitution~~Maryland ~~Pipeline~~Jurisdiction. In 2014, pursuant to the Strategic Infrastructure Development and Enhancement (STRIDE) law in Maryland, the PSC of MD approved Washington Gas’ initial STRIDE Plan to recover the reasonable and prudent costs associated with qualifying infrastructure replacements through monthly surcharges. The Commission approved replacement of bare and/or unprotected steel services and targeted copper and/or pre-1975 plastic services, bare and targeted unprotected steel main, mechanically coupled pipe main and service, and cast iron main in Washington Gas' Maryland distribution system at an estimated five-year cost of $200 million, including cost of removal, through calendar year 2018. In 2015, the PSC of MD approved one additional program applicable to gas distribution system replacements and three of the four requested additional programs applicable to gas transmission system replacements at an incremental cost of $18.5 million, including cost of removal, in eligible infrastructure replacements over the remaining four years of the initial STRIDE Plan. On June 15, 2018, the Company filed an Application with the Commission to amend and extend its STRIDE Plan. Washington Gas proposes to invest approximately $394 million over a five-year period to continue work on previously approved distribution and transmission system accelerated replacement programs.

Virginia InJurisdiction. ~~2013~~On April 21, ~~WGL~~2011, ~~Midstream~~the ~~invested~~Virginia inState ~~Constitution~~Corporation ~~Pipeline~~Commission ~~Company~~approved, ~~LLC~~pursuant ~~(Constitution). The~~to ~~pipeline~~a ~~project~~new islaw ~~designed~~ to ~~transport~~advance atVirginia’s ~~least~~Energy ~~650~~Plan (“SAVE Act”),~~000~~ ~~dekatherms~~Washington ofGas’s ~~natural~~initial ~~gas~~SAVE ~~per~~Plan ~~day~~for ~~from~~accelerated ~~the~~replacement ~~Marcellus~~of ~~region~~infrastructure infacilities ~~northern~~and ~~Pennsylvania~~a toSAVE ~~major~~Rider ~~northeastern~~to ~~markets.~~recover ~~Fully~~eligible ~~contracted~~costs associated with ~~long-term~~those ~~commitments~~replacement ~~from~~programs. ~~established~~Subsequently, ~~natural~~the ~~gas~~Commission ~~producers~~approved ~~currently~~three ~~operating~~amendments into ~~Pennsylvania~~the Company’s SAVE Plan, increasing the ~~pipeline~~overall isinvestment, ~~designed~~the toscope ~~originate~~of ~~from~~approved ~~the~~programs ~~Marcellus~~and ~~production~~new ~~areas~~facilities inreplacement ~~Susquehanna~~programs. ~~County,~~Washington ~~Pennsylvania~~Gas' current, approved SAVE Plan encompasses eight ongoing programs: (i) bare and/or ~~interconnect~~unprotected ~~with~~steel ~~the~~service ~~Iroquois~~replacement ~~Gas~~program, ~~Transmission~~(ii) bare and ~~Tennessee~~unprotected ~~Gas~~steel ~~Pipeline~~main ~~systems~~replacement inprogram, ~~Schoharie~~(iii) ~~County~~mechanically coupled pipe replacement, ~~New~~(iv) ~~York. At~~copper ~~September 30~~services replacement program, ~~2017~~(v) black plastic services replacement program, ~~WGL~~(vi) ~~Midstream's~~cast ~~total~~iron ~~share~~mains ofreplacement ~~the~~program, ~~cost~~(vii) ofmeter ~~Constitution~~set isand ~~estimated~~piping toremediation/replacement beprogram ~~$95.5~~and ~~million~~(viii) ~~over~~transmission ~~the~~programs. ~~term~~Cumulative ofexpenditures ~~the~~through ~~agreement~~November 30, ~~reflecting~~2016 awere ~~10%~~included ~~share~~in rate base in the ~~pipeline~~most ~~venture~~recent rate cases and are now being recovered in base rates. On ~~December~~November 221, ~~2014~~2017, the ~~Federal~~Commission ~~Energy~~approved ~~Regulatory~~the ~~Commission~~Company’s ~~(FERC)~~Application ~~issued~~to anamend ~~order~~and ~~granting~~extend aits ~~certificate~~SAVE Plan. Washington Gas is authorized to invest $500 million, including cost of ~~public~~removal ~~convenience~~over ~~and~~the ~~necessity~~five-year calendar period through 2022.

On April 22, 2016, the New York State Department of Environmental Conservation (NYSDEC) denied Constitution’s application for a Section 401 Certification for the pipeline, which is necessary for the construction and operation of the pipeline. Constitution has stated that it remains committed to pursuing the project and that it intends to pursue all available options to challenge the legality and appropriateness of NYSDEC’s decision. In May 2016, Constitution filed actions in both the U.S. Circuit Court of Appeals for the Second Circuit and the U.S. District Court for the Northern District of New York, appealing the decision and seeking declaratory judgment that the State of New York’s permitting authority is preempted by federal law. In May 2016, Constitution appealed the NYSDEC’s denial of the Section 401 certification to the United States Court of Appeals 57

WGL Holdings, Inc.

Washington Gas Light Company

Part II

Item 7. Management’s Discussion and Analysis of

Financial Condition and Results of Operations

~~for~~Pipeline the Second Circuit, and in August 2017 the court issued a decision denying in part and dismissing in part Constitution’s appeal. The court expressly declined to rule on Constitution’s argument that the NYSDEC’s decision on Constitution’s Section 401 application constitutes a waiver of the certification requirement. The court determined that it lacked jurisdiction to address that contention, and found that jurisdiction over the waiver issue lies exclusively with the United States Court of Appeals for the District of Columbia Circuit. As to the denial itself, the court determined that NYSDEC’s action was not arbitrary or capricious. Constitution has filed a petition for rehearing with the Second Circuit Court's decision, but in October the court denied our petition.Investments

We remain steadfastly committed to the project, and in October 2017 Constitution filed a petition for declaratory order requesting the FERC to find that, by operation of law, the Section 401 certification requirement for the New York State portion of Constitution’s pipeline project was waived due to the failure by the NYSDEC to act on Constitution’s Section 401 application within a reasonable period of time as required by the express terms of such statute. The petition is consistent with a recent decision by the District of Columbia Circuit Court in another proceeding, in which the court clarified that an applicant facing similar circumstances should present evidence of waiver to the FERC.

In light of the forgoing matters, Constitution has revised its target in-service date to as early as the first half of 2019, which assumes the timely receipt of a Notice to Proceed from the FERC. We can give no assurance, however, that Constitution's efforts to obtain the Section 401 Certification will be successful.

WGL Midstream held a $38.1 million equity method investment in Constitution at September 30, 2017. Refer to Note 17, Other Investments of the Notes to the Consolidated Financial Statements for further discussion of this matter.

Meade

In February 2014, WGL Midstream and certain venture partners formed, ~~and~~Meade ~~WGL~~Pipeline ~~Midstream~~Co ~~acquired~~LLC a(Meade) ~~55%~~of ~~interest~~which inWGL ~~Meade~~Midstream ~~Pipeline~~holds Coa ~~LLC~~55% ~~(Meade)~~interest. Meade was formed to develop and own, jointly with Transcontinental Gas Pipe Line Company, LLC (Transco), an approximately 185-mile pipeline originating in Susquehanna County, Pennsylvania and extending to Lancaster County, Pennsylvania (Central Penn) that will have the capacity to transport and deliver up to approximately 1.7 million dekatherms per day of natural gas. Additionally, WGL Midstream entered into an agreement with Cabot Oil & Gas Corporation (Cabot) whereby WGL Midstream will purchase 500,000 dekatherms per day of natural gas from Cabot over a 15- year term. As part of this agreement, Cabot has acquired 500,000 dekatherms per day of firm gas transportation capacity on Transco’s Atlantic Sunrise project ~~of which Central Penn is a part~~. This capacity will be released to WGL Midstream.

Central Penn ~~will~~is be an integral part of Transco’s “Atlantic Sunrise” project and ~~will~~is be fully integrated into Transco's system. WGL Midstream ~~will~~planned to invest an estimated $~~410.0~~450 million for its interest in Meade, and Meade ~~will~~planned to invest an estimated $~~746~~816 million in Central Penn for an approximate 39% interest in Central Penn. Transco ~~will~~holds ~~hold~~ the remaining ownership interests in Central Penn. Construction ~~Central~~began ~~Penn~~after ~~currently~~FERC ~~has~~issued athe ~~projected~~Notice ~~in-service~~to ~~date~~Proceed ofon ~~mid-2018~~September 15, 2017. On ~~February~~October 34, ~~2017~~2018, ~~the~~ FERC issued anits ~~order~~authorization ~~granting~~to ~~Transco's~~place ~~certificate~~the ofpipeline ~~public~~into ~~convenience~~service and ~~necessity,~~Central ~~subject~~Penn tobegan ~~certain~~operations ~~conditions. On~~on ~~February~~October 6, ~~2017~~2018. WGL ~~Transco~~Midstream ~~accepted~~held ~~the~~a ~~certificate~~$447.0 ofmillion ~~public convenience~~ and ~~necessity~~$146. On7 ~~September~~million ~~15,~~equity ~~2017,~~method ~~FERC~~investment ~~issued~~in ~~the~~Meade ~~Notice~~at toSeptember ~~Proceed~~30, 2018 and ~~construction~~September 30, on2017, ~~Central Penn has begun~~respectively.

In August 2018, Meade executed an agreement with Transco to participate in an expansion of the Central Penn Pipeline (Leidy South) with a capital investment of up to approximately $50 million by WGL Midstream. Leidy South is expected to add an estimated 580,000 dekatherms per day of natural gas to the capacity of Central Penn through the addition of compression at new and existing stations. Meade will own 40% of the expanded capacity and WGL Midstream will indirectly own 22% of the expanded capacity through its 55% ownership interest in Meade. Leidy South is anticipated to be in-service as early as the fourth quarter of 2021 assuming all necessary regulatory approvals are received in a timely manner.

Mountain Valley Pipeline

~~In March 2015,~~ WGL Midstream ~~acquired~~owns a 710% equity interest in Mountain Valley Pipeline, LLC (Mountain Valley). On ~~October~~The ~~24,~~proposed ~~2016,~~pipeline ~~WGL~~to ~~Midstream~~be ~~acquired~~developed, anconstructed, ~~additional~~owned 3%and ~~equity~~operated ~~interest~~by in Mountain Valley, bywill ~~assuming~~transport ~~all~~approximately ~~of Vega Midstream MVP LLC's (Vega Energy) interest in the joint venture for $10~~2.0 million~~. As~~ adekatherms ~~result~~ of ~~this~~natural ~~acquisition,~~gas ~~WGL's~~per ~~obligation~~day toand ~~fund~~connects ~~Mountain~~with ~~Valley~~EQT ~~capital~~Corporation's ~~contributions~~Equitrans onsystem ~~behalf of Vega Energy was terminated. WGL Midstream now owns a 10% interest~~ in ~~Mountain~~Wetzel ~~Valley. Mountain~~County, ~~Valley~~West ~~continues~~Virginia to ~~target~~Transco's anStation ~~in-service~~165 ~~date~~ in ~~late~~Pittsylvania ~~2018~~County, Virginia.

~~The~~On ~~proposed~~October ~~pipeline~~13, to2017, bethe ~~developed,~~FERC ~~constructed,~~issued ~~owned~~the ~~and~~Certificate ~~operated~~of byPublic ~~Mountain~~Convenience ~~Valley~~and ~~will~~Necessity ~~transport~~for ~~approximately~~the 2pipeline.0 ~~million~~In ~~dekatherms~~early of2018, ~~natural~~the ~~gas~~FERC ~~per~~granted ~~day~~several ~~from~~notices ~~two~~to ~~interconnects~~proceed with ~~EQT~~certain ~~Corporation's~~construction ~~Equitrans~~activities ~~system~~on inthe ~~Wetzel~~pipeline. ~~County,~~Mountain ~~West~~Valley ~~Virginia~~has submitted additional requests to ~~Transco's~~the ~~Station~~FERC ~~165~~for innotices ~~Pittsylvania~~to ~~County~~proceed. On June 21, ~~Virginia~~2018, the 4th U.S. ~~The~~Circuit ~~pipeline~~Court isof ~~scheduled~~Appeals togranted bea stay of permit for certain construction activities in ~~service~~West byVirginia, ~~December~~while ~~2018~~the court considered challenging a federal permit. On ~~October~~July 1327, ~~2017~~2018, ~~FERC~~the ~~issued~~Court anof ~~order~~Appeals set aside the U.S. Forest Service and Bureau of Land Management’s decisions granting a ~~certificate~~right-of-way for a 3.5-mile segment of ~~public~~the ~~convenience~~pipeline. On August 29, 2018 FERC and ~~necessity~~the Court of Appeals issued separate orders that allowed for full construction activities to ~~construct~~restart along the route with exception of areas located within proximity of the Weston Gauley Bridge Turnpike Trail and ~~operate~~the Jefferson National Forest. As a result of the legal and regulatory as well as weather delays, Mountain Valley ~~Pipeline~~has ~~Project~~modified ~~("Project"). Construction~~its onconstruction schedule and the ~~Project~~pipeline is ~~expected~~targeted to ~~begin~~be placed in-service ~~late~~during ~~2017~~the fourth quarter of 2019.

59On October 2, 2018, the 4th Circuit Court of Appeals vacated a Clean Water Act Section 404 stream and wetland crossing permit issued by the Huntington District of the U.S. Army Corps of Engineers (USACE). This decision affects stream and wetland crossings along approximately 160 miles of the route in West Virginia, and Mountain Valley is evaluating options to continue with construction activities that do not include stream and wetland crossings along this portion of the route. Mountain Valley intends to apply for a new permit with the USACE. Mountain Valley expects to secure a new Nationwide 12 permit from the USACE early in 2019. With ongoing evaluation of its construction plan, Mountain Valley has not changed its targeted in-service date.

WGL Midstream expects to invest approximately $352.0 million through the in-service date of the pipeline based on scheduled capital contributions and its pro rata share of project costs. In addition, WGL Midstream entered into a gas purchase commitment between 390,000 and 500,000 dekatherms of natural gas per day, at index-based prices, for a 20 year term, and will also be a shipper on the proposed pipeline. WGL Midstream held a $182.1 million and $63.0 million equity method investment in Mountain Valley at September 30, 2018 and September 30, 2017, respectively.

WGL Holdings, Inc.

Washington Gas Light Company

Part II

Item 7. Management’s Discussion and Analysis of

Financial Condition and Results of Operations

In April 2018, WGL Midstream ~~expects~~entered tointo ~~invest~~a inseparate ~~scheduled~~agreement ~~capital~~with ~~contributions~~Mountain ~~through~~Valley ~~the~~to acquire a 5% equity interest in~~-service~~ ~~date~~a oflateral ~~the~~project ~~pipeline,~~to ~~its~~build ~~pro~~an ~~rata~~interstate ~~share~~natural ~~(based~~gas onpipeline ~~its~~(the ~~10%~~MVP ~~equity~~Southgate ~~interest~~project). The ofproposed ~~project~~pipeline ~~costs,~~will ~~for~~receive angas ~~estimated~~from ~~aggregate~~the ~~amount~~Mountain ofValley ~~approximately $327.6~~Pipeline ~~million.~~mainline Inin ~~addition~~Pittsylvania County, ~~WGL~~Virginia ~~Midstream~~and ~~entered~~extend ~~into~~approximately a73 ~~gas~~miles ~~purchase~~south ~~commitment~~ to ~~buy~~new ~~500,000~~delivery ~~dekatherms~~points ofin ~~natural~~Rockingham ~~gas~~and ~~per~~Alamance ~~day~~counties, atNorth ~~index-based~~Carolina. ~~prices,~~The ~~for~~total acommitment 20by ~~year~~WGL ~~term,~~Midstream ~~and~~is ~~will~~expected ~~also~~to be aapproximately ~~shipper~~$17.0 onmillion and the ~~proposed~~lateral pipeline is expected to be placed into service in late 2020.

~~Stonewall System~~Constitution

~~In February 2016,~~ WGL Midstream ~~acquired~~owns a 3010% ~~equity~~ interest in anConstitution. ~~entity~~The ~~that owns~~pipeline ~~and~~project ~~operates~~is ~~certain~~designed ~~assets~~to ~~known~~transport asat ~~the~~least ~~Stonewall~~650,000 ~~System~~dekatherms ~~for~~of annatural ~~investment~~gas ofper ~~$89.4~~day ~~million.~~from ~~The~~the ~~Stonewall~~Marcellus ~~System~~region ~~has~~in ~~the~~northern ~~capacity~~Pennsylvania to ~~gather~~major upnortheastern ~~to 1~~markets.4 ~~billion~~Fully ~~cubic~~contracted ~~feet~~with oflong-term ~~natural~~commitments ~~gas~~from ~~per~~established ~~day~~natural ~~from~~gas ~~the~~producers ~~Marcellus~~currently ~~production~~operating ~~region~~ in ~~West Virginia~~Pennsylvania, ~~and~~the ~~connects with an interstate~~ pipeline ~~system~~is ~~that~~designed ~~serves~~to ~~markets~~originate infrom the ~~mid-Atlantic~~Marcellus ~~region.~~production ~~During~~areas ~~the~~in ~~fiscal~~Susquehanna ~~year ended September 30~~County, ~~2017~~Pennsylvania, ~~WGL~~and ~~Midstream~~interconnect ~~contributed~~with anthe ~~additional~~Iroquois ~~$45.5~~Gas ~~million~~Transmission ~~related~~and toTennessee ~~retiring~~Gas ~~debt~~Pipeline atsystems ~~the~~in ~~entity~~Schoharie ~~level~~County, New York.

In December 2014, Constitution received approval from the FERC to construct and operate the proposed pipeline. However, on April 22, 2016, the New York State Department of Environmental Conservation (NYSDEC) denied Constitution’s application for a Section 401 Certification for the pipeline, which is necessary for the construction and operation of the pipeline. In October 2017, Constitution filed a petition for declaratory order requesting FERC to find that, by operation of law, the Section 401 certification requirement for the New York State portion of Constitution’s pipeline project was waived due to the failure by the NYSDEC to act on Constitution’s Section 401 application within a reasonable period of time as required by the express terms of the statute. On January 11, 2018, the FERC denied the petition. On January 16, 2018, Constitution petitioned the U.S. Supreme Court to review the judgment of the Second Circuit Court, asserting that the Second Circuit Court’s decision conflicts with the decisions of the U.S. Supreme Court and federal Courts of Appeals on an important question of federal law. On February 12, 2018, Constitution filed a request for rehearing with FERC, which was denied on July 19, 2018. On April 30, 2018, the U.S. Supreme Court denied Constitution’s petition for writ of certiorari.

The project’s sponsors remain committed to the project, and as such, on June 25, 2018, Constitution requested FERC grant a 24-month extension of the completion date on construction of the pipeline until the fourth quarter of 2020. On September 14, 2018 Constitution filed a petition for review of prior FERC rulings with the DC Court of Appeals.

We continually evaluate our investment in Constitution for other than temporary impairment. Our impairment assessment uses income and market approaches in determining the fair value of our investment in Constitution. Refer to Note 14 - Fair Value Measurements. We recorded an other than temporary impairment charge of $34.0 million to “Equity in earnings of unconsolidated affiliates” and recorded a reversal to “Operation and maintenance” expense of a previously recognized expense of $3.0 million during the second quarter of fiscal year 2018 after the January 11, 2018 decision. We evaluated our remaining investment at September 30, 2018 and determined that there was no additional impairment. There could be additional losses in the value of the investment beyond the impairment charge already taken. However, we believe that recoveries from the sale of the inventories held by Constitution will mostly offset these losses. We also continue to incur legal fees associated with the project. At September 30, 2018 and September 30, 2017, WGL Midstream held a $3.8 million and $38.1 million equity method investment in Constitution, respectively.

Distributed Generation Investments

Through WGL Energy Systems, the company invests in distributed generation assets such as Solar PV systems, combined heat and power plants and natural gas fuel cells through direct asset ownership or through tax equity partnerships, and operates as a general contractor to upgrade the mechanical, electrical, water and energy related infrastructure of large governmental and commercial facility using traditional and alternative energy technologies.

Refer to Note 16 - Other Investments of the Notes to Consolidated Financial Statements for further discussion of this matter.

CONTRACTUAL OBLIGATIONS, OFF-BALANCE SHEET ARRANGEMENTS AND OTHER COMMERCIAL COMMITMENTS

Contractual Obligations

WGL and Washington Gas have certain contractual obligations incurred in the normal course of business that require fixed and determinable payments in the future. These commitments include long-term debt, lease obligations, unconditional purchase obligations for pipeline capacity, transportation and storage services, certain natural gas and electricity commodity commitments and our commitments related to the business process outsourcing program.

~~The total estimated purchase obligations for WGL as of September 30, 2017 for future fiscal years are shown below.~~59

Estimated Contractual Obligations and Commercial Commitments
	Years Ended September 30,
(In millions)	2018		2019		2020		2021		2022		Thereafter		Total
Pipeline and storage contracts(a)	$	252.7	$	308.1	$	310.3	$	300.5	$	293.6	$	2,081.2	$	3,546.4
Long-term debt(b)	250.0		100.0		150.0		—		—		1,196.0		1,696.0
Interest expense(c)	68.2		62.4		57.2		56.8		56.8		957.6		1,259.0
Gas purchase commitments(d)
—Washington Gas	451.0		378.3		361.4		363.7		367.0		2,701.6		4,623.0
—WGL Energy Services	143.8		78.5		30.0		7.3		0.4		—		260.0
—WGL Midstream(e)	712.9		1,385.2		1,450.1		1,359.0		1,307.0		20,130.0		26,344.2
Electric purchase commitments(f)	342.0		201.4		110.0		43.8		7.4		1.5		706.1
Operating leases	8.5		5.4		8.1		8.5		8.4		89.8		128.7
Business process outsourcing(g)	25.5		25.6		25.1		18.3		5.1		—		99.6
Other long-term commitments(h)	7.1		4.9		2.6		—		—		0.3		14.9
Total	$	2,261.7	$	2,549.8	$	2,504.8	$	2,157.9	$	2,045.7	$	27,158.0	$	38,677.9

(a) Represents minimum payments for natural gas transportation, storage and peaking contracts for Washington Gas, WGL Energy Services and WGL Midstream.

(b) Represents scheduled repayment of principal.

(d) Includes known and reasonably likely commitments to purchase fixed volumes of natural gas. Cost estimates are based on forward market prices as of September 30, 2017. Certain of our gas purchase agreements have optionality, which may cause increases in these commitments.

(e) Includes gas purchase commitments to be sold under a gas sale and purchase, and capacity agreement with GAIL Global (USA) LNG LLC, a subsidiary of GAIL (India) Limited, under which WGL Midstream has agreed to sell and deliver a minimum of 340,000 dekatherms per day and up to 430,000 dekatherms per day of natural gas, for a term of 20 years from the in-service date of the export facility. Also includes gas purchase commitments related to certain of our pipeline investments.

(f) Represents electric purchase commitments that are based on existing fixed price and fixed volume contracts. Includes $14.7 million related to renewable energy credits.

WGL Holdings, Inc.

Washington Gas Light Company

Part II

Item 7. Management’s Discussion and Analysis of

Financial Condition and Results of Operations

The total estimated purchase obligations for WGL as of September 30, 2018 for future fiscal years are shown below.



Estimated Contractual Obligations and Commercial Commitments
	Years Ended September 30,
(In millions)	2019		2020		2021		2022		2023		Thereafter		Total
Pipeline and storage contracts^(a)	$	702.2	$	594.6	$	575.2	$	566.6	$	557.9	$	3,367.3	$	6,363.8
Long-term debt^(b)	100.0		700.0		—		—		20.0		1,176.0		1,996.0
Interest expense^(c)	77.9		61.8		56.8		56.8		56.1		957.6		1,267.0
Gas purchase commitments^(d)
—Washington Gas	439.6		387.0		362.2		348.2		327.7		2,672.5		4,537.2
—WGL Energy Services	190.4		100.2		42.0		12.2		3.3		0.4		348.5
—WGL Midstream^(e)	1,203.2		1,279.9		1,156.9		1,111.3		1,113.2		17,740.2		23,604.7
Electric purchase commitments^(f)	328.8		213.8		97.0		32.9		1.9		0.3		674.7
Operating leases	5.6		9.2		10.1		9.6		9.7		86.6		130.8
Business process outsourcing^(g)	24.5		24.2		18.1		5.3		—		—		72.1
Other long-term commitments^(h)	4.6		5.1		2.0		0.3		0.3		2.7		15.0
Total	$	3,076.8	$	3,375.8	$	2,320.3	$	2,143.2	$	2,090.1	$	26,003.6	$	39,009.8


^(a)	Represents minimum payments for natural gas transportation, storage and peaking contracts for Washington Gas, WGL Energy Services and WGL Midstream.


^(b)	Represents scheduled repayment of principal.


^(c)	Represents the scheduled interest payments associated with long-term debt for WGL and Washington Gas.


^(d)	Includes known and reasonably likely commitments to purchase fixed volumes of natural gas. Cost estimates are based on forward market prices as of September 30, 2018. Certain of our gas purchase agreements have optionality, which may cause increases in these commitments.

^(e) Includes gas purchase commitments to be sold under a gas sale and purchase, and capacity agreement with GAIL, a subsidiary of GAIL (India) Limited, under which WGL Midstream has agreed to sell and deliver a minimum of 340,000 dekatherms per day and up to 430,000 dekatherms per day of natural gas, for a term of 20 years from the in-service date of the export facility. Also includes gas purchase commitments related to certain of our pipeline investments.

^(f) Represents electric purchase commitments that are based on existing fixed price and fixed volume contracts. Includes $31.6 million related to renewable energy credits.

^(g)Represents fixed costs to service providers related to various contracts for business process outsourcing.

(h) Includes secured supply agreements’ minimum program fees and committed payments related to certain environmental response costs ~~and excludes uncertain tax positions~~.

The table above reflects fixed and variable obligations. Certain of these estimates reflect likely purchases under various contracts, and may differ from minimum future contractual commitments disclosed in Note 1312 — Commitments and Contingencies of the Notes to Consolidated Financial Statements. ~~Refer~~ ~~to Note 21 — Planned Merger with AltaGas Ltd. for information regarding the Merger Agreement.~~

Washington Gas outsources certain of its business processes related to human resources, information technology, consumer services, construction, integrated supplier and finance operations. The continued management of service levels provided is critical to the success of these outsourcing arrangements. Washington Gas has divided its BPO governance among functional areas within the organization, each containing a comprehensive set of processes to monitor and control the cost effectiveness and quality of services provided through the BPO.

For commitments related to Washington Gas’ pension and post-retirement benefit plans, during fiscal year ~~2017~~2018, Washington Gas did not contribute to its qualified pension plan but did contribute and make payment of $41.48 million to its ~~non-funded~~ DB SERP. In addition, Washington Gas contributed $85.30 million to its health and life insurance benefit plans during fiscal year ~~2017~~2018. During fiscal year ~~2018~~2019, Washington Gas does not expect to make a contribution to its qualified pension plan but does expect to make a payment totaling $620.52 million to its ~~non-funded~~ DB SERP, which is expected to be funded by the rabbi trust. Washington Gas expects to make a contribution of $51.23 million to its health and life insurance benefit plans during fiscal year ~~2018~~2019. For a further discussion of our pension and post-retirement benefit plans, refer to Note 109—Pension and Other Post-Retirement Benefit Plans of the Notes to Consolidated Financial Statements.

~~Financial~~ Merger ~~Guarantees~~Commitments

~~WGL~~Approval ~~has guaranteed payments primarily for certain commitments on behalf~~ of ~~certain~~the ~~subsidiaries.~~merger Atwith ~~September 30,~~AltaGas ~~2017,~~across ~~these~~all ~~guarantees~~jurisdictions ~~totaled~~was ~~$30.7~~conditioned ~~million,~~upon ~~$167.8~~AltaGas ~~million, $124.3 million~~ and ~~$389.1 million for Washington Gas,~~ WGL ~~Energy~~agreeing Services, WGL Energy Systems and WGL Midstream, respectively. At September 30, 2017, WGL also had guarantees on behalf of other subsidiaries totaling $2.1 million. The amount of such guarantees is periodically adjusted to ~~reflect~~certain ~~changes in the level of WGL's~~ financial ~~exposure related to these~~ commitments. ~~For all of our financial guarantees~~including, ~~WGL may cancel any or all future obligations upon written notice to the counterparty,~~ but ~~WGL~~not ~~would~~limited ~~continue~~ to: becustomer ~~responsible~~bill ~~for the obligations created under the guarantees prior to the effective date of the cancellation. WGL has also guaranteed payments for certain of our external partners. At September 30~~credits, ~~2017,~~funding ~~the maximum potential amount of future payments under the guarantees~~ for ~~external~~low-income ~~parties~~weatherization ~~totaled~~and ~~$13.5~~energy ~~million.~~

~~Operating Issues Related To Changes in Natural Gas Supply~~60

In fiscal year 2005, Washington Gas began addressing a significant increase in the number of natural gas leaks on its distribution system in certain geographic areas. Natural gas containing a low concentration of HHCs caused the seals in certain mechanical couplings in Washington Gas’ distribution system to shrink, increasing the propensity for the coupling to leak. Independent laboratory tests performed on behalf of Washington Gas showed that the injection of HHCs offset the effect of the low HHC gas on the seals in couplings, reducing their propensity to leak.

Washington Gas constructed three facilities to inject HHCs into the gas stream entering the Washington Gas distribution system and replaced gas service lines and replaced or rehabilitated gas mains that contained the affected mechanical couplings in certain geographic areas. Additionally, Washington Gas continues to mitigate the impact of low HHC gas from whatever source through the operation of three HHC injection facilities and its accelerated pipeline replacement programs in all three of its jurisdictions. These accelerated pipeline replacement programs include the replacement of higher risk mains and services, including vintage mechanically coupled mains and services (refer to the section "Accelerated Pipeline Replacement Programs" for further discussion of these programs).

CREDIT RISK

Wholesale Credit Risk

WGL Holdings, Inc.

Washington Gas Light Company

Part II

Item 7. Management’s Discussion and Analysis of

Financial Condition and Results of Operations

efficiency initiatives, public safety programs, energy educational programs, gas expansion fund contributions, workplace development initiatives, charitable contributions, and other required commitments. The commitments are funded within various timeframes from 30 days to 10 years after the Merger closed on July 6, 2018. In addition, the commitments related to Maryland are subject to a Most Favored Nation (MFN) provision that may change the amount or nature of the commitments. We recognized $139.7 million expenses of merger commitments for fiscal year 2018 on our Consolidated Financial Statements. $80 million has been paid as of September 30, 2018, with $59.7 million remaining as a liability on our balance sheets.

The following additional commitments by Washington Gas will have an impact on our consolidated financial statements when the transactions are incurred in the future:

1)Hiring of three damage prevention trainers in each jurisdiction for a total of $2.4 million over 5 years;

2)Investment of $70.0 million over a 10-year period to further extend natural gas service to areas within Washington Gas's service territory, which will be incorporated into Washington Gas's ongoing capital plan;

3)Spending $8.0 million on leak mitigation and reducing leak backlogs within 3 years after the Merger close; and

4)Development of 15MW of either electric grid energy storage or Tier 1 renewable resources within 5 years.

In addition, 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.

For a discussion of merger related commitments, refer to Note 20 — Merger with AltaGas Ltd. of the Notes to Consolidated Financial Statements.

Financial Guarantees

WGL has guaranteed payments primarily for certain commitments on behalf of some of its subsidiaries. WGL has also guaranteed payments for certain of our external partners. At September 30, 2018, there were no guarantees to external parties.

CREDIT RISK

Wholesale Credit Risk

Certain wholesale suppliers that sell natural gas to any or all of Washington Gas, WGL Energy Services, and WGL Midstream and electricity to WGL Energy Services, may have relatively low credit ratings or may not be rated by major credit rating agencies.

Washington Gas enters into transactions with wholesale counterparties for the purpose of meeting firm ratepayer commitments, to optimize the value of its long-term capacity assets, and for hedging natural gas costs. In the event of a counterparty’s failure to deliver contracted volumes of gas or fulfill its payment obligations, Washington Gas may incur losses that would typically be passed through to its sales customers under the purchased gas cost adjustment mechanisms; however, Washington Gas may be at risk for financial loss to the extent these losses are not passed through to its customers.

For WGL Energy Services, any failure of wholesale counterparties to deliver natural gas or electricity under existing contracts could cause financial exposure for the difference between the price at which WGL Energy Services has contracted to buy these commodities and their replacement cost from another supplier. To the extent that WGL Energy Services sells natural gas to these wholesale counterparties, WGL Energy Services may be exposed to payment risk if WGL Energy Services is in a net receivable position. Additionally, WGL Energy Services enters into contracts with counterparties to hedge the costs of natural gas and electricity. Depending on the ability of the counterparties to fulfill their commitments, WGL Energy Services could be at risk for financial loss.

WGL Midstream enters into transactions with wholesale counterparties to economically hedge and optimize its portfolio of owned and managed natural gas assets. Any failure of wholesale counterparties to deliver natural gas under existing contracts could cause financial exposure for the difference between the price at which WGL Midstream has contracted to buy these commodities and their replacement cost. To the extent that WGL Midstream sells natural gas to these wholesale counterparties, WGL Midstream may be exposed to payment risk if it is in a net receivable position. In addition, WGL Midstream enters into ~~contracts with counterparties to hedge the costs of natural gas. Depending on the ability of the counterparties to fulfill their commitments, WGL Midstream could be at risk for financial loss.~~

Washington Gas, WGL Energy Services, and WGL Midstream operate under an existing wholesale counterparty credit policy that is designed to mitigate credit risks through requirements for credit enhancements including, but not limited to, letters of credit, parent guarantees and cash collateral when deemed necessary. In accordance with this policy, Washington Gas, WGL Energy Services, and WGL Midstream have each obtained credit enhancements from certain of their counterparties. If certain counterparties or their guarantors meet the policy’s creditworthiness criteria, Washington Gas, WGL Energy Services, and WGL Midstream may grant unsecured credit to those counterparties or their guarantors. The creditworthiness of all counterparties is continuously monitored.61

Washington Gas, WGL Energy Services and WGL Midstream are also subject to the collateral requirements of their counterparties. At September 30, 2017, Washington Gas, WGL Energy Services and WGL Midstream provided $3.7 million, $32.4 million and $44.6 million in cash collateral to counterparties, respectively.

The following table provides information on our credit exposure, net of collateral, to wholesale counterparties as of September 30, 2017 for Washington Gas, WGL Energy Services and WGL Midstream, separately.

Credit Exposure to Wholesale Counterparties (In millions)
Rating(a)	ExposureBefore CreditCollateral(b)		Offsetting CreditCollateral Held(c)		NetExposure		Number ofCounterpartiesGreater Than10%(d)	Net Exposure ofCounterpartiesGreater Than 10%
Washington Gas
Investment Grade	$	38.2	$	—	$	38.2	2	$	27.6
Non-Investment Grade	1.1		1.1		—		—	—
No External Ratings	8.9		3.6		5.3		—	—
WGL Energy Services
Investment Grade	$	1.2	$	—	$	1.2	2	$	1.1
Non-Investment Grade	—		—		—		—	—
No External Ratings	0.4		0.1		0.3		—	—
WGL Midstream
Investment Grade	$	52.9	$	1.7	$	51.2	2	$	26.1

WGL Holdings, Inc.

Washington Gas Light Company

Part II

Item 7. Management’s Discussion and Analysis of

Financial Condition and Results of Operations

Non-Investment Grade	1.6				1.6				—				—			—
No External Ratings	9.7				1.4				8.3				—			—

contracts with counterparties to hedge the costs of natural gas. Depending on the ability of the counterparties to fulfill their commitments, WGL Midstream could be at risk for financial loss.

Washington Gas, WGL Energy Services and WGL Midstream are also subject to the collateral requirements of their counterparties. At September 30, 2018, Washington Gas, WGL Energy Services and WGL Midstream provided $13.5 million, $32.3 million and $35.8 million in cash collateral to counterparties, respectively.

The following table provides information on our credit exposure, net of collateral, to wholesale counterparties as of September 30, 2018 for Washington Gas, WGL Energy Services and WGL Midstream, separately.



Credit Exposure to Wholesale Counterparties (In millions)
Rating^(a)	Exposure Before Credit Collateral^(b)		Offsetting Credit Collateral Held^(c)		Net Exposure		Number of Counterparties Greater Than 10%^(d)	Net Exposure of Counterparties Greater Than 10%
Washington Gas
Investment Grade	$	41.7	$	—	$	41.7	2	$	27.3
Non-Investment Grade	—		—		—		—	—
No External Ratings	16.1		11.0		5.0		1	1.9
WGL Energy Services
Investment Grade	$	0.9	$	0.2	$	0.7	3	$	0.6
Non-Investment Grade	—		—		—		—	—
No External Ratings	0.6		—		0.6

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