UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
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☑ | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended September 30, 20192020
OR
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☐ | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
Commission File Number:0-49807
WASHINGTON GAS LIGHT COMPANY
(Exact name of Registrant as Specified in Its Charter)
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| District of Columbia and Virginia | | | | | | 53-0162882 |
(State or Other Jurisdiction of
Incorporation)
| | | | | | (I.R.S. Employer Identification No.) |
1000 Maine Ave., S.W.
Washington, D.C. 20024
(Address of Principal Executive Offices and Zip Code)
(703) 750-4440
(Registrant’sRegistrant's telephone number, including area code)
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| Securities registered pursuant to Section 12(b) of the Act: None |
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| Securities registered pursuant to Section 12(g) of the Act: |
Title of class
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Common stock, $1.00 par value
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Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants wereregistrant was 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 registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [ü☑] No [ ☐]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging"emerging growth company”company" in Rule 12b-2 of the Exchange Act.
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Large Accelerated Filero | ☐ |
| Accelerated Filero | ☐ |
| Non-Accelerated Filer[ü] | ☑ |
| Smaller Reporting Companyo | ☐ |
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Emerging growth companyo | ☐ | | | | | | | | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act): Yes [☐ ] No[ü☑]
Securities registered pursuant to Section 12(b) of the Act: None.
As of October 30, 2019,2020, there were 46,479,536 shares of registrant common stock, $1 par value, outstanding.
All of the outstanding shares of common stock are held by Wrangler SPE LLC, an indirect wholly owned subsidiary of AltaGas Ltd.
REDUCED DISCLOSURE FORMAT
Washington Gas Light Company, an indirect wholly owned subsidiary of AltaGas Ltd., meets the requirements set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this Form 10-Q with the reduced disclosure format.
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Washington Gas Light Company
For the Quarter Ended September 30, 20192020
Table of Contents
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| PART I | |
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| Item 1. | Financial Statements (Unaudited) | |
| Condensed Balance Sheets | |
| Condensed Statements of Operations | |
| Condensed Statements of Comprehensive Income | |
| Condensed Statements of Cash Flows | |
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PART I. Financial Information | |
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Item 1. | Financial Statements (Unaudited) | |
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| Item 2. | | |
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| Item 3. | | |
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| Item 4. | | |
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| PART II. Other Information | |
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| Item 1. | | |
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| Item 1A. | | |
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| Item 4. | | |
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| Item 6. | | |
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Washington Gas Light Company
Part I-Financial Information
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS Washington Gas Light Company (Washington Gas) is an indirect, majority-ownedwholly-owned subsidiary of, among other entities, AltaGas Ltd. (AltaGas) and WGL Holdings, Inc (WGL). WGL is an indirect wholly owned subsidiary of AltaGas Ltd. (AltaGas).AltaGas. Except where the content clearly indicates otherwise, any reference in this report to “Washington Gas,Gas”,” “we,” “us,”“us”, “our” or “the Company,”Company” refers to Washington Gas Light Company. References to “WGL” refer to WGL Holdings, Inc. and all of its subsidiaries.
Certain matters discussed in this report, excluding historical information, include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to the outlook for earnings, dividends, revenues and other future financial business performance, strategies, financing plans, AltaGas’AltaGas' integration of us and other expectations. Forward-looking statements are typically identified by words such as, but not limited to, “estimates,��” “expects,” “anticipates,” “intends,” “believes,” “plans” and similar expressions, or future or conditional terms such as “will,” “should,” “would” and “could.” Forward-looking statements speak only as of the filing date of this report, and the registrant assumes no duty to update them. Factors that could cause actual results to differ materially from forward-looking statements or historical performance include those discussed in Item 1A. Risk Factors in the Company’s TransitionAnnual Report on Form 10-K for the three monthsfiscal year ended December 31, 2018 (Form 10-KT),2019, and may include, but are not limited to the following:
•Impacts related to the COVID-19 global health pandemic, which poses challenges to the health and safety of the Company's personnel and the strength of communities it serves;
•increasing levels of political insecurity and civil unrest that could threaten Company property and personnel;
•hazards involved in the storage, transportation, moving, and marketing of hydrocarbon products;
•leaks, mechanical problems, incidents, or other operational issues that could affect public safety and the reliability of Washington Gas’ distribution system;
•the availability of natural gas supply or an inability to successfully integrate intoobtain an adequate supply of gas to satisfy present and future demands;
•challenges in securing the operationsnecessary transportation or storage capacity to deliver or acquire the volume of AltaGasgas necessary to meet customer demands and a failure to realize anticipated benefits;future growth expectations;
the effect of the consummation of the merger (as defined below) on our ability to maintain supplier relationships, keep customers, and retain and hire key personnel;•cyberattacks, including cyberterrorism, or other information technology security breaches or failures;
unexpected costs incurred in connection with the merger;
•the inability to meet commitments under various orders and agreements associated with regulatory approvals for the 2018 merger which could have a detrimental impact on our business, financial condition, operatingbetween AltaGas and WGL (the Merger);
•the Merger may not achieve its expected results and prospects;Washington Gas may be unable to successfully integrate into the operations of AltaGas;
•the occurrence of unexpected costs in connection with the Merger;
•securities class action suits and derivative suits;
•the loss of certain administrative and management functions and services provided by AltaGas;
potential litigation in connection with the merger;
•changes in AltaGas’AltaGas' strategy or relationship with Washington Gas that could affect our performance or operations;
•the ability to access capital and the costs at which Washington Gas is able to access capital and credit markets, including changes in our credit rating, WGL’s, or AltaGas’the credit ratings of Washington Gas, WGL, and AltaGas;
•disruptions or decline in credit market conditionsthe local economy in which Washington Gas operates;
•the credit-worthiness of customers; suppliers and derivatives counterparties;
•changes in the value of derivative contracts and the availability of suitable derivative counterparties;
Washington Gas Light Company
Part I-Financial Information
•rules implementing the derivatives transaction provisions of the Dodd-Frank Act may impose costs on our derivatives activities;
•failures of Washington Gas service providers that could negatively impact the Company’s business;
•compliance with Section 404(a) of Sarbanes-Oxley Act;
•acts of nature and catastrophic events, including terrorist acts;
•an inability to attract and retain key management and sufficiently skilled operational personnel;
•strikes or other factors that may affect our access to and costwork stoppages by unionized employees;
•changes in the costs of capital;providing retirement plan benefits;
the level and rate at which we incur costs and expenses, and •the extent to which we are allowed to recover from our customers, through the regulatory process, such costs and expenses relatingrelated to constructing, operatingour operations and maintaining our distribution system;
the availability of natural gas supply, interstate pipeline transportation and storage capacity;
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;
changes in laws and regulations affecting our business, including in the areasability of the environment, pipeline integrity,Company to earn a reasonable rate of return on its invested capital;
•concerns involving climate change and employment;the movement for carbon neutral energy sources;
•changes in energy commodity market conditions, including the relative prices of alternative forms of energy such as electricity, fuel oil and propane;
disruptions or decline in the local economy in which Washington Gas operates;•physical and financial risks associated with climate change;
strikes or work stoppages by unionized employees;
adjustment to the cost of providing retirement plan benefits;
changes to government fiscal and trade policies;
security breaches of our information technology infrastructure, including cyber-attacks and cyber-terrorism;
Washington Gas Light Company
Part I-Financial Information
acts of nature and catastrophic events, including terrorist acts;
the credit-worthiness of customers; suppliers and derivatives counterparties;
changes in the value of derivative contracts and the availability of suitable derivative counterparties;
rules implementing the derivatives transaction provisions of the Dodd-Frank Act may impose costs on our derivatives activities;
•unusual weather conditions and changes in natural gas consumption patterns;
legislative, regulatory,•costs associated with certain legacy operations of Washington Gas and judicial mandates or decisions affecting our operations, including interpretations of the Tax Cuts and Jobs Act of 2017 (Tax Act);environmental remediation efforts;
our ability to manage the outsourcing of several business processes;
•the outcome of new and existing matters before courts, regulators, government agencies or arbitrators, including that relatingarbitrators;
•changes to government fiscal and trade policies;
•regulatory and financial risks related to pipeline safety legislation;
•changes to the August 2016 explosiontax code and fire at an apartment complexour ability to quantify such changes and seek recovery for the manner in Silver Spring, Maryland;which corporate taxes are shared with customers; and
•changes in accounting principles and the effect of accounting pronouncements issued periodically by accounting standard-setting bodies.
All such factors are difficult to predict accurately and are generally beyond the direct control of the registrant. Readers are urged to use care and consider the risks, uncertainties and other factors that could affect the registrant’s business as described in this Quarterly Report on Form 10-Q.
Washington Gas Light Company
Condensed Balance Sheets (Unaudited)
Part I-Financial Information
Item 1-Financial Statements |
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| | September 30, | | December 31, |
| (In thousands) | 2019 | | 2018 |
| ASSETS | | | |
| Property, Plant and Equipment | | | |
| At original cost | $ | 5,997,026 |
| | $ | 5,702,927 |
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| Accumulated depreciation and amortization | (1,580,141 | ) | | (1,513,590 | ) |
| Net property, plant and equipment | 4,416,885 |
| | 4,189,337 |
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| Current Assets | | | |
| Cash and cash equivalents | 1 |
| | 6,082 |
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| Receivables | | | |
| Accounts receivable | 175,571 |
| | 292,871 |
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| Gas costs and other regulatory assets | 11,100 |
| | 6,020 |
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| Unbilled revenues | 66,230 |
| | 189,497 |
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| Allowance for doubtful accounts | (25,739 | ) | | (29,461 | ) |
| Net receivables | 227,162 |
| | 458,927 |
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| Materials and supplies—principally at average cost | 19,870 |
| | 19,727 |
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| Storage gas | 92,450 |
| | 103,929 |
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| Prepaid taxes | 30,984 |
| | 27,193 |
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| Other prepayments | 22,035 |
| | 28,232 |
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| Receivables from associated companies | 8,800 |
| | 4,819 |
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| Derivatives | 3,562 |
| | 19,488 |
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| Other | 4,378 |
| | 20,347 |
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| Total current assets | 409,242 |
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| 688,744 |
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| Deferred Charges and Other Assets | | | |
| Regulatory assets | | | |
| Gas costs | 91,913 |
| | 141,636 |
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| Pension and other post-retirement benefits | 77,200 |
| | 86,493 |
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| Other | 82,116 |
| | 99,105 |
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| Prepaid post-retirement benefits | 254,837 |
| | 249,462 |
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| Right of use asset | 40,966 |
| | — |
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| Derivatives | 8,462 |
| | 11,318 |
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| Other | 50,098 |
| | 50,490 |
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| Total deferred charges and other assets | 605,592 |
| | 638,504 |
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| Total Assets | $ | 5,431,719 |
| | $ | 5,516,585 |
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| CAPITALIZATION AND LIABILITIES | | | |
| Capitalization | | | |
| Common shareholder’s equity | $ | 1,539,947 |
| | $ | 1,562,573 |
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| Preferred stock | 28,173 |
| | 28,173 |
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| Long-term debt | 1,331,116 |
| | 1,035,033 |
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| Total capitalization | 2,899,236 |
| | 2,625,779 |
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| Current Liabilities | | | |
| Current maturities of long-term debt | 50,000 |
| | 50,000 |
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| Notes payable and project financing | 117,000 |
| | 311,460 |
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| Accounts payable and other accrued liabilities | 182,784 |
| | 288,376 |
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| Wages payable | 20,947 |
| | 22,629 |
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| Accrued interest | 4,193 |
| | 14,504 |
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| Dividends declared | — |
| | 24,567 |
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| Customer deposits and advance payments | 42,859 |
| | 54,370 |
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| Gas costs and other regulatory liabilities | 71,978 |
| | 75,151 |
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| Accrued taxes | 35,281 |
| | 28,451 |
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| Payables to associated companies | 68,066 |
| | 95,228 |
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| Operating lease liability | 5,632 |
| | — |
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| Derivatives | 12,775 |
| | 20,295 |
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| Other | 7,266 |
| | 7,507 |
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| Total current liabilities | 618,781 |
| | 992,538 |
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| Deferred Credits | | | |
| Unamortized investment tax credits | 2,739 |
| | 3,233 |
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| Deferred income taxes | 431,408 |
| | 454,248 |
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| Accrued pensions and benefits | 165,365 |
| | 156,210 |
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| Asset retirement obligations | 308,470 |
| | 300,769 |
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| Regulatory liabilities | | | |
| Accrued asset removal costs | 245,334 |
| | 264,556 |
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| Other post-retirement benefits | 109,934 |
| | 121,345 |
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Excess deferred taxes and other
| 400,248 |
| | 431,913 |
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| Operating lease liability | 54,686 |
| | — |
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| Derivatives | 105,101 |
| | 116,847 |
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| Other | 90,417 |
| | 49,147 |
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| Total deferred credits | 1,913,702 |
| | 1,898,268 |
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| Commitments and Contingencies (Note 10) |
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| Total Capitalization and Liabilities | $ | 5,431,719 |
| | $ | 5,516,585 |
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| September 30, 2020 | | December 31, 2019 |
| (In thousands) | | | As Adjusted |
| ASSETS | | | |
| Property, Plant and Equipment | | | |
| At original cost | $ | 6,237,537 | | | $ | 5,962,866 | |
| Accumulated depreciation and amortization | (1,656,788) | | | (1,579,718) | |
| Net property, plant and equipment | 4,580,749 | | | 4,383,148 | |
| Current Assets | | | |
| Cash and cash equivalents | 1,214 | | | 17,069 | |
| Receivables (net of allowance for doubtful accounts of $26,517 and $18,708, respectively) | 210,649 | | | 400,891 | |
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| Gas costs and other regulatory assets | 18,643 | | | 9,894 | |
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| Materials and supplies—principally at average cost | 20,682 | | | 20,184 | |
| Storage gas | 72,077 | | | 87,977 | |
| | | |
| Prepaid taxes | 30,479 | | | 34,576 | |
| Other prepayments | 18,176 | | | 33,867 | |
| Receivables from associated companies | 8,920 | | | 12,421 | |
| Derivatives | 4,665 | | | 6,553 | |
| | | |
| Other | 7,666 | | | 19,619 | |
| Total current assets | 393,171 | | | 643,051 | |
| Deferred Charges and Other Assets | | | |
| Regulatory assets | | | |
| Gas costs | 69,076 | | | 98,717 | |
| Pension and other post-retirement benefits | 39,966 | | | 44,078 | |
| Other | 99,267 | | | 84,886 | |
| Prepaid post-retirement benefits | 372,307 | | | 366,508 | |
| Right of use asset | 38,963 | | | 40,004 | |
| Derivatives | 9,113 | | | 10,370 | |
| Other | 27,805 | | | 30,620 | |
| Total deferred charges and other assets | 656,497 | | | 675,183 | |
| Total Assets | $ | 5,630,417 | | | $ | 5,701,382 | |
| CAPITALIZATION AND LIABILITIES | | | |
| Capitalization | | | |
| Common shareholder’s equity | $ | 1,756,332 | | | $ | 1,578,592 | |
| | | |
| Long-term debt | 1,431,390 | | | 1,430,949 | |
| Total capitalization | 3,187,722 | | | 3,009,541 | |
| Current Liabilities | | | |
| | | |
| Notes payable | 169,959 | | | 299,483 | |
| Accounts payable and other accrued liabilities | 216,958 | | | 267,408 | |
| | | |
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| | | |
| Customer deposits and advance payments | 38,267 | | | 40,052 | |
| Gas costs and other regulatory liabilities | 31,761 | | | 105,399 | |
| Accrued taxes | 28,281 | | | 23,781 | |
| Payables to associated companies | 63,176 | | | 57,923 | |
| Operating lease liability | 5,846 | | | 5,850 | |
| Derivatives | 9,622 | | | 4,069 | |
| | | |
| Other | 34,196 | | | 30,032 | |
| Total current liabilities | 598,066 | | | 833,997 | |
| Deferred Credits | | | |
| | | |
| Deferred income taxes | 518,208 | | | 464,717 | |
| Accrued pensions and benefits | 116,299 | | | 115,837 | |
| Asset retirement obligations | 213,265 | | | 206,820 | |
| Regulatory liabilities | | | |
| Accrued asset removal costs | 242,921 | | | 254,429 | |
| Other post-retirement benefits | 184,370 | | | 195,670 | |
Excess deferred taxes and other
| 389,972 | | | 404,700 | |
| Operating lease liability | 52,087 | | | 53,642 | |
| Derivatives | 76,407 | | | 97,695 | |
| Other | 51,100 | | | 64,334 | |
| Total deferred credits | 1,844,629 | | | 1,857,844 | |
| Commitments and Contingencies (Note 11) | | | |
| Total Capitalization and Liabilities | $ | 5,630,417 | | | $ | 5,701,382 | |
The accompanying notes are an integral part of these statements.
Washington Gas Light Company
Condensed Statements of Operations (Unaudited)
Part I-Financial Information
Item 1. Financial1-Financial Statements (continued)
| | | | | | | | | | | | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | Three Months Ended September 30, | | Nine Months Ended September 30, | | 2020 | | 2019 | | 2020 | | 2019 |
| (In thousands) | 2019 | | 2018 | | 2019 | | 2018 | (In thousands) | | As Adjusted | | As Adjusted |
| | | | | | | | | |
| OPERATING REVENUES | $ | 122,305 |
| | $ | 139,041 |
| | $ | 914,442 |
| | $ | 870,593 |
| OPERATING REVENUES | $ | 143,383 | | | $ | 122,305 | | | $ | 856,284 | | | $ | 914,442 | |
| OPERATING EXPENSES | | | | | | | | OPERATING EXPENSES | |
| Utility cost of gas | $ | 33,433 |
| | 20,939 |
| | 331,285 |
| | 282,298 |
| Utility cost of gas | 20,846 | | | 33,433 | | | 221,301 | | | 331,285 | |
| Operation and maintenance | 101,195 |
| | 282,793 |
| | 300,433 |
| | 461,808 |
| Operation and maintenance | 94,175 | | | 101,195 | | | 291,885 | | | 300,433 | |
| Depreciation and amortization | 34,383 |
| | 33,914 |
| | 106,623 |
| | 101,425 |
| Depreciation and amortization | 36,298 | | | 34,383 | | | 108,485 | | | 106,623 | |
| General taxes and other assessments | 26,344 |
| | 26,857 |
| | 106,709 |
| | 108,195 |
| General taxes and other assessments | 27,992 | | | 26,344 | | | 110,006 | | | 106,709 | |
| Total Operating Expenses | 195,355 |
| | 364,503 |
| | 845,050 |
| | 953,726 |
| Total Operating Expenses | 179,311 | | | 195,355 | | | 731,677 | | | 845,050 | |
| OPERATING INCOME (LOSS) | (73,050 | ) | | (225,462 | ) | | 69,392 |
| | (83,133 | ) | OPERATING INCOME (LOSS) | (35,928) | | | (73,050) | | | 124,607 | | | 69,392 | |
| Other income (expense) — net | 3,533 |
| | (10,408 | ) | | 7,298 |
| | (8,621 | ) | Other income (expense) — net | 4,070 | | | 2,619 | | | 16,419 | | | 4,556 | |
| Interest expense | 15,575 |
| | 14,404 |
| | 45,092 |
| | 43,531 |
| Interest expense | 16,088 | | | 15,575 | | | 49,011 | | | 45,092 | |
| INCOME (LOSS) BEFORE INCOME TAXES | (85,092 | ) | | (250,274 | ) | | 31,598 |
| | (135,285 | ) | INCOME (LOSS) BEFORE INCOME TAXES | (47,946) | | | (86,006) | | | 92,015 | | | 28,856 | |
| INCOME TAX EXPENSE (BENEFIT) | (19,293 | ) | | (69,121 | ) | | 4,992 |
| | (50,717 | ) | INCOME TAX EXPENSE (BENEFIT) | (11,324) | | | (19,530) | | | 15,477 | | | 4,280 | |
| NET INCOME (LOSS) | $ | (65,799 | ) | | $ | (181,153 | ) | | $ | 26,606 |
| | $ | (84,568 | ) | NET INCOME (LOSS) | $ | (36,622) | | | $ | (66,476) | | | $ | 76,538 | | | $ | 24,576 | |
| | Dividends on preferred stock | — |
| | 330 |
| | 660 |
| | 990 |
| Dividends on preferred stock | 0 | | | 0 | | | 0 | | | 660 | |
| NET INCOME (LOSS) APPLICABLE TO COMMON STOCK | $ | (65,799 | ) | | $ | (181,483 | ) | | $ | 25,946 |
| | $ | (85,558 | ) | NET INCOME (LOSS) APPLICABLE TO COMMON STOCK | $ | (36,622) | | | $ | (66,476) | | | $ | 76,538 | | | $ | 23,916 | |
The accompanying notes are an integral part of these statements.
Washington Gas Light Company
Condensed Statements of Comprehensive Income (Loss) (Unaudited)
Part I-Financial Information
Item 1-Financial Statements (continued)
| | | | | | | | | | | | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| Three Months Ended September 30, | | Nine Months Ended September 30, | | 2020 | | 2019 | | 2020 | | 2019 |
| (In thousands) | 2019 | | 2018 | | 2019 | | 2018 | (In thousands) | | As Adjusted | | As Adjusted |
| NET INCOME (LOSS) | $ | (65,799 | ) | | $ | (181,153 | ) | | $ | 26,606 |
| | $ | (84,568 | ) | NET INCOME (LOSS) | $ | (36,622) | | | $ | (66,476) | | | $ | 76,538 | | | $ | 24,576 | |
| OTHER COMPREHENSIVE INCOME BEFORE INCOME TAXES: | | | | | | | | |
| OTHER COMPREHENSIVE INCOME, BEFORE INCOME TAXES | | OTHER COMPREHENSIVE INCOME, BEFORE INCOME TAXES | |
| Pension and other post-retirement benefit plans | | | | | | | | Pension and other post-retirement benefit plans | |
| Change in prior service cost | (163 | ) | | 145 |
| | (486 | ) | | (401 | ) | Change in prior service cost | (292) | | | (163) | | | (924) | | | (486) | |
| Change in actuarial net gain (loss) | 392 |
| | 4,737 |
| | 2,448 |
| | 5,797 |
| |
| Change in actuarial net gain | | Change in actuarial net gain | 1,713 | | | 442 | | | 4,628 | | | 2,596 | |
| | Total pension and other post-retirement benefit plans | $ | 229 |
|
| $ | 4,882 |
| | $ | 1,962 |
| | $ | 5,396 |
| Total pension and other post-retirement benefit plans | $ | 1,421 | | | $ | 279 | | | $ | 3,704 | | | $ | 2,110 | |
| INCOME TAX EXPENSE (BENEFIT) RELATED TO OTHER COMPREHENSIVE INCOME | (713 | ) | | 2,753 |
| | 534 |
| | 2,896 |
| INCOME TAX EXPENSE (BENEFIT) RELATED TO OTHER COMPREHENSIVE INCOME | 366 | | | (700) | | | 959 | | | 572 | |
| OTHER COMPREHENSIVE INCOME (LOSS) | $ | 942 |
|
| $ | 2,129 |
| | $ | 1,428 |
| | $ | 2,500 |
| |
| OTHER COMPREHENSIVE INCOME | | OTHER COMPREHENSIVE INCOME | $ | 1,055 | | | $ | 979 | | | $ | 2,745 | | | $ | 1,538 | |
| COMPREHENSIVE INCOME (LOSS) | $ | (64,857 | ) |
| $ | (179,024 | ) | | $ | 28,034 |
| | $ | (82,068 | ) | COMPREHENSIVE INCOME (LOSS) | $ | (35,567) | | | $ | (65,497) | | | $ | 79,283 | | | $ | 26,114 | |
The accompanying notes are an integral part of these statements.
Washington Gas Light Company
Condensed Statements of Cash Flows (Unaudited)
Part I-Financial Information
Item 1. Financial1-Financial Statements (continued)
| | | | | | | | | | Nine Months Ended September 30, |
| | Nine Months Ended September 30, | Nine Months Ended September 30, | | 2020 | 2019 |
| (In thousands) | 2019 | 2018 | (In thousands) | | As Adjusted |
| OPERATING ACTIVITIES | | OPERATING ACTIVITIES | |
| Net income | $ | 26,606 |
| $ | (84,568 | ) | Net income | $ | 76,538 | | $ | 24,576 | |
| ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES | | ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES | |
| Depreciation and amortization | 106,623 |
| 101,425 |
| Depreciation and amortization | 108,485 | | 106,623 | |
| Amortization of: | | Amortization of: | |
| Other regulatory assets and liabilities—net | 5,583 |
| 5,283 |
| |
| Other regulatory assets and liabilities — net | | Other regulatory assets and liabilities — net | 6,044 | | 5,583 | |
| Debt related costs | 1,128 |
| 1,179 |
| Debt related costs | 1,072 | | 1,128 | |
| Deferred income taxes—net | 7,087 |
| (33,821 | ) | |
| Accrued/deferred pension and other post-retirement benefit cost | (949 | ) | 8,729 |
| |
| Deferred income taxes — net | | Deferred income taxes — net | 15,908 | | 6,375 | |
| Accrued/deferred pension and other post-retirement benefit cost (benefit) | | Accrued/deferred pension and other post-retirement benefit cost (benefit) | (6,758) | | 1,793 | |
| Compensation expense related to stock-based awards | 2,275 |
| 14,549 |
| Compensation expense related to stock-based awards | 2,156 | | 2,275 | |
| Provision for doubtful accounts | 10,615 |
| 16,296 |
| Provision for doubtful accounts | 11,101 | | 10,615 | |
| Impairment loss | — |
| 37,969 |
| |
| | Unrealized (gain) loss on derivative contracts | (128 | ) | (11,825 | ) | Unrealized (gain) loss on derivative contracts | (5,501) | | (128) | |
| Amortization of investment tax credits | (494 | ) | (523 | ) | Amortization of investment tax credits | (431) | | (494) | |
| Other non-cash charges (credits)—net | 1,226 |
| (2,253 | ) | |
| Changes in operating assets and liabilities (Note 15) | 94,572 |
| 98,314 |
| |
| Other non-cash charges (credits) — net | | Other non-cash charges (credits) — net | 364 | | 1,226 | |
| Changes in operating assets and liabilities (Note 16) | | Changes in operating assets and liabilities (Note 16) | 53,708 | | 94,572 | |
| Net Cash Provided by Operating Activities | 254,144 |
| 150,754 |
| Net Cash Provided by Operating Activities | 262,686 | | 254,144 | |
| FINANCING ACTIVITIES | | FINANCING ACTIVITIES | |
| Capital contributions from parent | — |
| 302,728 |
| |
| Capital contribution from parent | | Capital contribution from parent | 175,000 | | 0 | |
| Long-term debt issued | 298,482 |
| — |
| Long-term debt issued | 0 | | 298,482 | |
| | Debt issuance costs | (2,756 | ) | (130 | ) | Debt issuance costs | (10) | | (2,756) | |
| Notes payable issued (retired)—net | (179,000 | ) | (66,998 | ) | |
| Project financing | — |
| 53,018 |
| |
| | Notes payable issued (retired) — net | | Notes payable issued (retired) — net | (129,524) | | (179,000) | |
| | Dividends on common stock and preferred stock | (75,227 | ) | (66,742 | ) | Dividends on common stock and preferred stock | (75,000) | | (75,227) | |
| Net Cash Provided by Financing Activities | 41,499 |
| 221,876 |
| |
| | Net Cash Provided by (Used in) Financing Activities | | Net Cash Provided by (Used in) Financing Activities | (29,534) | | 41,499 | |
| INVESTING ACTIVITIES | | INVESTING ACTIVITIES | |
| Capital expenditures (excluding AFUDC) | (318,895 | ) | (317,537 | ) | |
| Insurance proceeds related to investing properties | — |
| 3,238 |
| |
| | Capital expenditures | | Capital expenditures | (265,060) | | (318,895) | |
| | Net Cash Used in Investing Activities | (318,895 | ) | (314,299 | ) | Net Cash Used in Investing Activities | (265,060) | | (318,895) | |
| INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH | (23,252 | ) | 58,331 |
| INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH | (31,908) | | (23,252) | |
| Cash, Cash Equivalents, and Restricted Cash at Beginning of the Period | 71,423 |
| 6,652 |
| Cash, Cash Equivalents, and Restricted Cash at Beginning of the Period | 61,148 | | 71,423 | |
| Cash, Cash equivalents and Restricted Cash at End of the Period | $ | 48,171 |
| $ | 64,983 |
| Cash, Cash equivalents and Restricted Cash at End of the Period | $ | 29,240 | | $ | 48,171 | |
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION (Note 15) | | |
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION (Note 16) | | SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION (Note 16) | |
The accompanying notes are an integral part of these statements.
Washington Gas Light Company
Part I-Financial Information
Item 1-Financial Statements (continued)
Notes to Condensed Financial Statements (Unaudited)
NOTE 1. ACCOUNTING POLICIES Basis of Presentation
Following a 2018 merger agreement, Washington Gas isbecame an indirect, majority owned subsidiary of, among other entities, AltaGas and WGL. On July 6, 2018, a merger of WGL into AltaGas was consummated (the Merger). In connection with the Merger, WGL the former parent entity of Washington Gas, formed a wholly owned subsidiary, Wrangler SPE LLC (Wrangler)(Wrangler SPE), a bankruptcy remote, special purpose entity to own the common stock of Washington Gas, which survived the Merger as an indirect, wholly owned subsidiary of AltaGas.Gas. In addition, WGL owns all of the shares of common stock of certain affiliated non-utility subsidiaries. On December 20, 2019, Washington Gas Resources Corporation (Washington Gas Resources) and Hampshire Gas Company (Hampshire).redeemed all the outstanding shares of its preferred stock, after which, Washington Gas Resources owns allbecame an indirect, wholly owned subsidiary of the shares of common stock of four non-utility subsidiaries that include WGL Energy Services, Inc. (WGL Energy Services), WGL Energy Systems, Inc. (WGL Energy Systems), WGL Midstream, Inc. (WGL Midstream)AltaGas and WGSW, Inc. (WGSW). Additionally, several subsidiaries of WGL own interests in other entities. Except where the content clearly indicates otherwise, any reference in this report to “Washington Gas,” “we,” “our”, or the “Company,” refers to Washington Gas Light Company. References to “WGL” refer to WGL Holdings, Inc. and all of its subsidiaries.WGL.
The condensed financial statements of Washington Gas have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Therefore, certain financial information and note disclosures accompanying annual financial statements prepared in accordance with generally accepted accounting principles in the United States of America (GAAP) are omitted in this interim report. The interim condensed financial statements and accompanying notes should be read in conjunction with the Financial Statements on Form 10-KT.10-K for the year ended December 31, 2019. Due to the seasonal nature of our business, the results of operations for the periods presented in this report are not necessarily indicative of actual results for the full years ending December 31, 20192020 and 2018.2019.
The information presented in this report on Form 10-Q are presented solely for the registrant Washington Gas on a stand-alone basis.
The accompanying unaudited condensed financial statements for Washington Gas reflect all normal recurring adjustments that are necessary, in our opinion, to present fairly the results of operations in accordance with GAAP.
For a complete description of our significant accounting policies, refer to Note 1-1 — Accounting Policies of the Notes to Consolidated Financial Statements on Form 10-KT.10-K for the year ended December 31, 2019. We include herein certain updates to those policies.
Change in Accounting Principle
Leases
Lessee
We determine if an arrangementIn the third quarter of 2020, Washington Gas made a voluntary change in accounting principle for calculating the market-related value of assets (MRVA) used in the determination of net periodic pension and other post-retirement benefit plan costs. The change uses the fair value approach for the fixed income investments and related derivatives, which represent a separate asset class of the plan assets, compared to the prior method that utilized a calculated value for all investments where gains and losses arising from changes in fair value were deferred and amortized into the calculation of the MRVA over a period of five years. The MRVA is a leaseused in the calculation of the expected return on assets and the lease classificationrecognized actuarial gain or loss components of net periodic benefit cost. The gains and losses for other plan assets will continue to be deferred and amortized into the MRVA over a five-year period.
We believe that using the fair value approach for the fixed income investments and related derivatives in our plan assets is preferable because the Company will immediately recognize the gains and losses of the fixed income investments and derivatives in MRVA rather than deferring them over a five-year period, which results in a better matching of the change in fixed income investments and the related pension obligations.
We have retrospectively applied this change in accounting principle to all applicable prior period financial information presented herein as required. The change in accounting principle increased retained earnings $9.4 million and decreased accumulated other comprehensive income (loss), net of taxes, $0.4 million, with a net increase of $9.0 million in common shareholder’s equity at inception. ForJanuary 1, 2019. The following tables summarize the operating leaseseffect of the change in which we are the lessee, a right-of-use (ROU) asset and a lease liability is recognized at the commencement date basedaccounting principle on the present valueprimary financial statement line items on our condensed balance sheets, condensed statements of lease payments overoperations, condensed statements of comprehensive income, and condensed statements of cash flows. The following Notes have been impacted by the lease term. We use the rate implicitchange: Note 8 —Components of Total Equity, Note 10 — Pension and Other Post — Retirement Benefit Plans, and Note 15 — Accumulated Other Comprehensive Income (Loss).
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2020 | | December 31, 2019 |
| (In thousands) | | Without Change | Adjustment | As Reported (with change) | | As Previously Reported | Adjustment | As Adjusted |
| Condensed Balance Sheets | | | | | | | | |
| Regulatory assets — Pension and other post-retirement benefits | | $ | 31,337 | | $ | 8,629 | | $ | 39,966 | | | $ | 39,435 | | $ | 4,643 | | $ | 44,078 | |
| Common shareholder’s equity | | $ | 1,745,434 | | $ | 10,898 | | $ | 1,756,332 | | | $ | 1,572,196 | | $ | 6,396 | | $ | 1,578,592 | |
| Regulatory liabilities — Other post-retirement benefits | | $ | 190,460 | | $ | (6,090) | | $ | 184,370 | | | $ | 199,665 | | $ | (3,995) | | $ | 195,670 | |
| Deferred income taxes | | $ | 514,387 | | $ | 3,821 | | $ | 518,208 | | | $ | 462,475 | | $ | 2,242 | | $ | 464,717 | |
Components of Total Equity
| | | | | | | | |
Retained earnings (a) | | $ | 536,505 | | $ | 11,754 | | $ | 548,259 | | | $ | 541,535 | | $ | 6,729 | | $ | 548,264 | |
Accumulated other comprehensive income (loss), net of taxes (a) | | $ | 8,177 | | $ | (856) | | $ | 7,321 | | | $ | 4,909 | | $ | (333) | | $ | 4,576 | |
(a)Retained earnings and Accumulated other comprehensive income (loss), net of taxes, are reported in the lease to determine the present valueNote 8 — Components of the lease payments when the rate is readily determinable or we use our incremental borrowing rate. Our ROU assets are adjusted for lease incentives, any lease payments made in advance, and initial direct costs incurred. Lease expenses are recognized on a straight-line basis over the lease term. The estimated lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. For our lessee building and certain equipment leases, we do not separate the lease and non-lease components. Variable lease payments are recognized as lease expense when the related facts and circumstances occur, and are dependent on various external factors, including real estate taxes, common area maintenance and usage charges. Total Equity.
For our multiple office location leases classified as operating leases, the lease term begins on the date when construction of the leasehold improvements can start and the lessor has allowed us to occupy the respective locations. Leasehold improvement costs are classified as “Property, Plant, and Equipment” on the balance sheet, and are being amortized to “Depreciation and amortization” expense on a straight-line basis over the non-cancelable period of the leases.
Lessor | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, 2020 | | Nine Months Ended
September 30, 2020 |
(In thousands) | | Without Change | Adjustment | As Reported (with change) | | Without Change | Adjustment | As Reported (with change) |
| Condensed Statements of Operations | | | | | | | | |
| Other income (expense) — net | | $ | 1,808 | | $ | 2,262 | | $ | 4,070 | | | $ | 9,632 | | $ | 6,787 | | $ | 16,419 | |
| Income tax expense (benefit) | | $ | (11,911) | | $ | 587 | | $ | (11,324) | | | $ | 13,715 | | $ | 1,762 | | $ | 15,477 | |
| Net income (loss) | | $ | (38,297) | | $ | 1,675 | | $ | (36,622) | | | $ | 71,513 | | $ | 5,025 | | $ | 76,538 | |
| Condensed Statements of Comprehensive Income | | | | | | | | |
| Other comprehensive income (loss), net of taxes | | $ | 1,229 | | $ | (174) | | $ | 1,055 | | | $ | 3,268 | | $ | (523) | | $ | 2,745 | |
| Comprehensive income (loss) | | $ | (37,068) | | $ | 1,501 | | $ | (35,567) | | | $ | 74,781 | | $ | 4,502 | | $ | 79,283 | |
We determine if an arrangement is a lease and the lease classification at inception. Lease payments under operating leases are recognized on a straight-line basis over the lease term. For our building leases, we do not separate the lease and non-lease components.
Washington Gas Light Company | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, 2019 | | Nine Months Ended
September 30, 2019 |
(In thousands) | | As Previously Reported | Adjustment | As Adjusted | | As Previously Reported | Adjustment | As Adjusted |
| Condensed Statements of Operations | | | | | | | | |
| Other income (expense) — net | | $ | 3,533 | | $ | (914) | | $ | 2,619 | | | $ | 7,298 | | $ | (2,742) | | $ | 4,556 | |
| Income tax expense (benefit) | | $ | (19,293) | | $ | (237) | | $ | (19,530) | | | $ | 4,992 | | $ | (712) | | $ | 4,280 | |
| Net income (loss) | | $ | (65,799) | | $ | (677) | | $ | (66,476) | | | $ | 26,606 | | $ | (2,030) | | $ | 24,576 | |
| Condensed Statements of Comprehensive Income | | | | | | | | |
| Other comprehensive income (loss), net of taxes | | $ | 942 | | $ | 37 | | $ | 979 | | | $ | 1,428 | | $ | 110 | | $ | 1,538 | |
| Comprehensive income (loss) | | $ | (64,857) | | $ | (640) | | $ | (65,497) | | | $ | 28,034 | | $ | (1,920) | | $ | 26,114 | |
Part I-Financial Information
Item 1-Financial Statements (continued) | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended
September 30, 2020 | | Nine Months Ended
September 30, 2019 |
(In thousands) | | Without Change | Adjustment | As Reported (with change) | | As Previously Reported | Adjustment | As Adjusted |
| Condensed Statements of Cash Flows | | | | | | | | |
| Net income | | $ | 71,513 | | $ | 5,025 | | $ | 76,538 | | | $ | 26,606 | | $ | (2,030) | | $ | 24,576 | |
| ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES | | | | | | | | |
| Accrued/deferred pension and other post-retirement benefit cost (benefit) | | $ | 29 | | $ | (6,787) | | $ | (6,758) | | | $ | (949) | | $ | 2,742 | | $ | 1,793 | |
| Deferred income taxes — net | | $ | 14,146 | | $ | 1,762 | | $ | 15,908 | | | $ | 7,087 | | $ | (712) | | $ | 6,375 | |
Notes to Condensed Financial Statements (Unaudited)
Accounting Standards Adopted duringin the PeriodCalendar Year and Other Newly Issued Accounting Standards
The following tables summarize the Accounting Standards Updates (ASUs)represent accounting standards adopted by Washington Gas during the nine months ended September 30, 20192020, and other newly issued accounting standards that will be adopted by Washington Gas in the future.
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ACCOUNTING STANDARDS ADOPTED IN CALENDAR YEAR 2019 2020 |
| Standard | | Description | | Date of adoption | | Effect on the financial statements or other significant matters |
ASU 2016-02, Leases (Topic 842), ASU 2018-01, Land Easement Practical Expedient for Transition to Topic 842, ASU 2018-11, Targeted Improvements, and ASU 2018-20, Narrow-Scope Improvements for Lessors, including other subsequent ASUs clarifying the guidance.
| | ASU 2016-02 requires recognition of a right-to-use asset and lease liability by lessees on the statement of financial position and disclosure of key information about leasing arrangements. Lessor accounting remains substantially unchanged but the standard modifies what qualifies as a sales-type and direct financing lease and eliminated real-estate specific provisions. The standard requires application using a modified retrospective approach.
ASU 2018-01 provides an optional election not to evaluate existing and expired land easements not previously accounted for as a lease.
ASU 2018-11 allows entities to elect to report comparative periods presented after adoption under the old lease standard (ASC Topic 840, Leases) and recognize a cumulative effect adjustment to the opening balance at the date of adoption. The update also provides lessors a practical expedient not requiring the separation of lease and non-lease components provided that certain conditions are met.
ASU 2018-20 allows lessors to include and exclude certain costs from variable payments. The ASU also requires lessors to allocate certain variable payments to the lease and non-lease components when the changes in facts and circumstances on which the variable payments are based occur.
| | January 1, 2019 | | Leases, with terms longer than 12 months, for which Washington Gas is the lessee have been reflected on the balance sheet by recording an increase to non- current assets and an increase to deferred credits net of the current portion that is recorded in current liabilities. Upon adoption, Washington Gas recorded lease liabilities of $58.9 million and a right-of-use asset of $43.2 million, net of lease incentives and prepaid or deferred rent balances of $15.7 million. Washington Gas utilized the transition practical expedients which allow entities to not have to reassess whether an arrangement contains a lease and the lease classification under the provisions of ASC Topic 842, land easements, and not separating out the lease and non-lease components for certain classes of assets. As a result of the transition practical expedients, Washington Gas’ operating leases on transition are consistent with its conclusions under ASC 840. Washington Gas has also elected to present prior comparative information under ASC 840. See Note 3 - Leases for further information and the new required lease disclosures.
|
Washington Gas Light Company
Part I-Financial Information
Item 1-Financial Statements (continued)
Notes to Condensed Financial Statements (Unaudited)
|
| | | | | | |
ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted improvements to Accounting for Hedging Activities and ASU 2018-16, Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes | | ASU 2017-12 amends the hedge accounting and recognition requirements by expanding an entity’s ability to hedge non-financial and financial risk components and reduce the complexity in fair value hedges of interest rate risk. Additionally, this standard eliminates the requirement to separately measure and disclose the ineffective portion of the hedge with the entire change in the fair value of a hedging instrument to be presented in the same statement of operations line as the hedged item. Early adoption is permitted.
ASU 2018-16 adds the OIS rate based on SOFR as a fifth U.S. benchmark interest rate for hedge accounting purposes. This standard should be adopted in conjunction with ASU 2017-12 if not early adopted.
| | January 1, 2019 | | The guidance will only have an impact on new transactions that are entered into and where hedge accounting is elected. |
ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force) | | The update aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements to capitalize implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). Capitalized implementation costs should be presented in the statement of financial position as a prepaid expense and amortized over the term of the hosting arrangement, presented in the statements of operations in the same line items as prepayment of fees associated with the hosting arrangement. The updates in this standard may be applied on a prospective or retrospective basis. Early adoption is permitted. | | January 1, 2019 | | We early adopted this standard on a prospective basis. The adoption of this ASU did not have a material effect on our financial statements.
|
Washington Gas Light Company
Part I-Financial Information
Item 1-Financial Statements (continued)
Notes to Condensed Financial Statements (Unaudited)
|
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OTHER NEWLY ISSUED ACCOUNTING STANDARDS
|
Standard | | Description | | Required date of adoption
| | Effect on the financial statements or other significant matters |
| ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, including other subsequent ASUs further amending and clarifying the guidance. | | For credit losses on financial instruments measured at amortized cost, this standard changes the current incurred loss impairment methodology to an expected loss methodology and requires consideration of a broader range of reasonable and supportable information to determine credit loss estimates. Early adoption is permitted.In addition, entities may make a one-time irrevocable election on certain eligible financial instruments to elect fair value treatment on an instrument-by-instrument basis. | | January 1, 2020 | | WeCash equivalents, accounts receivable, unbilled revenue, and contract assets are inwithin the processscope of evaluating the impactnew standard. Upon adoption, we recorded an increase to our allowance for doubtful accounts and a reduction to retained earnings of $1.5 million. See Note 2 - Credit Losses for further information and the adoption of this standard will have on our financial statements.new required disclosures. |
| ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement | | This update modifies the disclosure requirements on fair value measurements. Early adoption is permitted. | | January 1, 2020 | | It is not expected that theThe adoption of this standard will have a material effect on our financial statements.
|
ASU 2018-17, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities
| | This standard provides a private-company scope exception to the VIE guidance for certain entities under common control and clarify that indirect interest held through related parties under common control will be considered on a proportional basis when determining whether fees paid to decision makers and service providers are variable interests. Early adoption is permitted.
| | January 1, 2020
| | We are in the process of evaluating this new accounting standard but it is expected that the adoption of this standard willdid not have a material effect on our financial statements.
|
| ASU 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606 | | Topic 808 does not provide comprehensive recognition or measurement guidance for collaborative arrangements. This update clarifies the interaction between Topic 606, Revenue from Contracts with Customers and Topic 808. | | January 1, 2020 | | The adoption of this standard did not have a material effect on our financial statements.
|
| ASU 2019-01, Leases (Topic 842) Codification Improvements | | This update addresses the determination of the fair value of the underlying asset by lessors that are not manufacturers or dealers, provides guidance for the presentation of the statement of cash flows for sales-type and direct financing leases, and clarifies transition disclosures related to Topic 250.the adoption of ASC 842. | | January 1, 2020 | | We do not anticipate thatThe adoption of this standard willdid not have a material effect on our financial statements.
|
ASU 2019-04, Codification Improvements to Topic 326, Financial
Instruments—Credit Losses, Topic 815, Derivatives and
Hedging, and Topic 825, Financial Instruments | | The amendments in this ASU provide clarification and improve the codification in recently issued accounting standards. | | January 1, 2020 | | The adoption of this standard did not have a material effect on our financial statements.
|
| ASU 2020-03, Codification Improvements to Financial Instruments | | This Update makes technical corrections and minor improvements to the guidance on financial instruments.
| | January 1, 2020 | | The adoption of this standard did not have a material effect on our financial statements.
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| | | | | | |
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OTHER NEWLY ISSUED ACCOUNTING STANDARDS |
| Standard | | Description | | Required date of adoption | | Effect on the financial statements or other significant matters |
| ASU 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans | | This standard modifies the disclosure requirements related to defined benefit pension and other postretirement plans. Early adoption is permitted.
| | December 31, 2020 | | We doIt is not anticipateexpected that the adoption of this standard will have a material effect on our financial statements.
|
| ASU 2019-12, Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes | | As part of FASB's Simplification Initiative, this standard amends ASC Topic 740 by removing certain exceptions to the general principles and clarifying and amending other current guidance. Early adoption is permitted. | | January 1, 2021 | | We are in the process of evaluating the impact the adoption of this standard will have on our financial statements. |
ASU 2020-04, Reference Rate Reform (Topic 848) Facilitation of the Effects of Reference Rate Reform on Financial Reporting
| | This standard provides optional expedients and exceptions to ease the potential accounting burden associated with transitioning away from reference rates that are expected to be discontinued. The amendments may be elected prospectively to contract modifications made and to hedging relationships existing as of or entered into on or after the date of adoption and through December 31, 2022. | | December 31, 2022 | | We have not yet elected to adopt this ASU as of September 30, 2020 and are assessing the impact the adoption of this standard will have on our financial statements. |
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Washington Gas Light Company
Part I-Financial Information
Item 1-Financial Statements (continued)
Notes to Condensed Financial Statements (Unaudited)
NOTE 2. REVENUE FROM CONTRACTS WITH CUSTOMERS
TheOn January 1, 2020, the Company adopted ASU 2014-09, Revenue2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (CECL) model. The measurement of expected credit losses under the CECL model is applicable to financial assets measured at amortized cost and off-balance sheet credit exposures. The CECL model requires the expected credit losses to consider past events, including historical experience, current conditions and reasonable and supportable forecasts. When measuring credit losses, financial assets with similar risk characteristics should be pooled, and credit losses should be recognized over the contractual term of the financial asset. In addition, entities may make a one-time irrevocable election on certain eligible financial instruments to elect fair-value treatment on an instrument-by-instrument basis.
Our assessment concluded that our cash equivalents, accounts receivables, unbilled revenue, contract assets, and a long term receivable from Contracts with Customers (Accounting Standard Codification (ASC) 606) and subsequent ASUs clarifyingone of our trading partners that is part of a collaborative arrangement are within scope of the guidance on October 1, 2018,new standard. We adopted the standard using the modified retrospective method of adoption. Under thisa modified-retrospective approach prior year results are not required to be restated. Adoption of this standard did not change the timing or pattern of revenue recognition andthrough a cumulative-effect adjustment wasto retained earnings at January 1, 2020. Prior periods presented for comparative purposes are not adjusted. Upon implementation of ASU 2016-13, we recorded a $1.5 million increase to the Company's allowance for doubtful accounts and a decrease to retained earnings, including a $1.4 million increase to allowance for doubtful account associated with utility customer receivables and a $0.1 million reduction to “Deferred charges and other assets-Other” associated with a long-term receivable from a trading partner under Washington Gas' asset optimization programs. Washington Gas also elected to account for its cash equivalents at fair value.
Utility Customer Receivables: Washington Gas is exposed to customer credit risk resulting from the non-payment of utility bills. To manage this customer credit risk, Washington Gas customers are offered budget billing options or higher risk customers may be required to provide a cash deposit until the requirement for deposit refunds are met. Washington Gas can recover a portion of non-payments from customers in future periods through the rate-setting process. For accounts receivable and unbilled revenue generated by the utility business, an allowance for doubtful accounts is recognized using a historical loss-rate based on historical payment and collection experience. This rate may be adjusted based on management’s expectations of unusual macroeconomic conditions and other factors. Washington Gas regularly evaluates the reasonableness of the allowance based on a combination of factors, such as the length of time receivables are past due, historical expected payment, collection experience, financial condition of customers, and other circumstances that could impact customers' ability or desire to make payments.
Based on previous collection experience, Washington Gas has not recorded upon adoption.an allowance for doubtful accounts for its contract assets associated with our energy management services projects with the federal government. Refer to Note 14 —Related Party Transactions for further information.
Washington Gas Asset Optimization: The Utility operates under an existing wholesale counterparty credit policy that is designed to mitigate credit risk. Credit limits are established for each counterparty and credit enhancements such as letters of credits, parent guarantees and cash collateral maybe required. The creditworthiness of all counterparties is continuously monitored. The allowance for doubtful accounts is estimated by applying 30-year historical default rates for one-year receivables sourced from external credit rating agencies to the accounts receivable and unbilled revenue balances associated with counterparties the Utility has determined to be below investment grade. In the event that a counterparty no longer exhibits similar risk characteristics, the associated receivable is evaluated individually.
Washington Gas also has a long-term receivable from a trading partner totaling $1.4 million in “Deferred charges and other assets — Other”, of which no portion of the balance is past due. The trading partner was evaluated and assigned an internal credit rating in accordance with our credit policy. An allowance for doubtful accounts is recorded based on historical default rates published by external credit rating agencies and a rate commensurate with the period in which the receivable is expected to be collected. Estimated credit loss reserve was recorded as a reduction to “Deferred charges and other assets — Other”.
Washington Gas Light Company
Part I-Financial Information
Item 1-Financial Statements (continued)
Notes to Condensed Financial Statements (Unaudited)
COVID-19: On March 11, 2020, the World Health Organization declared the outbreak of a strain of novel coronavirus disease, COVID-19, a global pandemic. Governments in affected areas in which we operate have imposed a number of measures designed to contain the outbreak, including business closures, travel restrictions, quarantines and cancellations of gatherings and events. These measures have resulted in widespread challenges to businesses and the job market. The increased unemployment rates could impact the ability of the Company’s customers to pay for services. As a result comparative disclosuresof regulatory orders, we have temporarily suspended customer disconnections for operating results fornon-payment, temporarily suspended collection activities and temporarily waived assessing and billing late payment fees. We resumed assessing late payment fees in Maryland in October 2020 following a regulatory order. The suspension of collection activities has caused our overall accounts receivable portfolio to age more than historical levels. However, we do not expect the increase in credit losses to have a significant impact on net income. In addition, the Public Service Commission of the District of Columbia (PSC of DC), the Public Service Commission of Maryland (PSC of MD) and the Virginia State Corporation Commission (SCC of VA) each issued an Order authorizing Washington Gas to establish a regulatory asset to capture and track the incremental COVID-19 related costs. For the three and nine months ended September 30, 2019 are not applicable because implementing2020, Washington Gas has recorded total $4.7 million and $7.7 million in deferrals of incremental bad debt expense to COVID-19 regulatory assets across all three jurisdictions, respectively.
As of September 30, 2020, we have evaluated the new standard did not changeadequacy of our allowance for credit losses in light of the timing or patternsuspension of revenue recognition.shut-offs for nonpayment due to COVID-19 and the economic downturn. Our evaluation included an analysis of customer payment trends in 2020, economic conditions, receivables aging, and considerations of past economic downturns, the actions the company is taking to assist customers with past due balances, and the corresponding allowance for credit losses and customer account write-offs. Based on this evaluation, we have concluded that the allowance for credit losses as of September 30, 2020 adequately reflected the collection risk and net realizable value for our receivables. We will continue to monitor changing circumstances and will adjust our allowance for credit losses as additional information becomes available.
The following table presents the activity of allowance for doubtful accounts by types for the reporting periods.
| | | | | | | | | | | | | | | | |
| |
| Three Months Ended
September 30, 2020 | Nine Months Ended
September 30, 2020 |
| (In millions) | Account Receivables and Unbilled Revenue | | Asset Optimization | Account Receivables and Unbilled Revenue | | Asset Optimization |
| Balance, beginning of period | $ | 23.2 | | | $ | 0.1 | | $ | 18.7 | | | $ | 0 | |
| Provision | 1.3 | | | 0 | | 11.1 | | | 0 | |
| Recorded to regulatory asset due to COVID-19 | 4.7 | | | — | | 7.7 | | | — | |
| Write offs | (3.0) | | | 0 | | (13.8) | | | 0 | |
| Recoveries | 0.3 | | | 0 | | 1.4 | | | 0 | |
| Adjustment upon adoption of ASC 326 | 0 | | | 0 | | 1.4 | | | 0.1 | |
| Balance, end of period | $ | 26.5 | | | $ | 0.1 | | $ | 26.5 | | | $ | 0.1 | |
Washington Gas Light Company
Part I-Financial Information
Item 1-Financial Statements (continued)
Notes to Condensed Financial Statements (Unaudited)
NOTE 3. REVENUE FROM CONTRACTS WITH CUSTOMERS The Company recognizes revenue from contracts with customers to depict the transfer of goods or services to customers at an amount it expects to be entitled to in exchange for those goods or services. Washington Gas sells natural gas and distribution services to residential, commercial, industrial and governmental customers through regulated tariff rates approved by regulatory commissions in the jurisdictions where it operates (District of Columbia, Maryland, and Virginia).operates. Customers are billed monthly based on regular meter readings. Customer billings are based on two main components: (i) a fixed service fee and (ii) a variable fee based on usage. For customers who choose to purchase their natural gas from Washington Gas, the bill will include a usage based charge for the cost of the commodity. Revenue is recognized over time as the natural gas is delivered or as the service is performed. AsSince meter readings are performed on a cycle basis, Washington Gas recognizes accrued revenue for any services rendered to its customers but not billed at month-end. The tariff sales are generally considered daily or “at-will” contracts as customers may cancel their service at any time (subject to notification requirements in the tariff), and revenue generally represents the amount Washington Gas is entitled to invoice. There are certain contracts that have terms of one year or longer. For these contracts, revenue is recognized based on the amount Washington Gas is entitled to bill the customer.
Customers have the choice to purchase natural gas from competitive service providers. Washington Gas charges the competitive service providers balancing fees to manage the natural gas transportation imbalances. Where regulations require, Washington Gas issues customers a consolidated bill to include the natural gas supplied by the competitive service providers and distribution of natural gas. Washington Gas recognizes revenue only for distribution services that it has provided to the customer, and the balancing fees for the services provided to the competitive service provider.
We disaggregate revenue by type of service. The following table disaggregates revenue by type of service for the three and nine months ended September 30, 2019.periods.
| | | Disaggregated Revenue by Type of Service | Disaggregated Revenue by Type of Service | Disaggregated Revenue by Type of Service |
| | | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| (In millions) | Three Months Ended September 30, 2019 | Nine Months Ended September 30, 2019 | (In millions) | | 2020 | | 2019 | | 2020 | | 2019 |
| Revenue from contracts with customers | | Revenue from contracts with customers | |
| Gas and transportation sales | | Gas and transportation sales | |
| Gas sold and delivered | $ | 70.7 |
| $ | 665.1 |
| Gas sold and delivered | | $ | 91.2 | | | $ | 70.7 | | | $ | 592.8 | | | $ | 665.1 | |
| Gas delivered for others | 33.4 |
| 186.8 |
| Gas delivered for others | | 39.5 | | | 33.4 | | | 186.5 | | | 186.8 | |
| Other | 10.9 |
| 34.4 |
| Other | | 3.6 | | | 10.9 | | | 23.6 | | | 34.4 | |
| Other revenues | 1.4 |
| 4.2 |
| Other revenues | | 1.3 | | | 1.4 | | | 2.1 | | | 4.2 | |
| Total revenue from contracts with customers | $ | 116.4 |
| $ | 890.5 |
| Total revenue from contracts with customers | | $ | 135.6 | | | $ | 116.4 | | | $ | 805.0 | | | $ | 890.5 | |
| Other sources of revenue | | Other sources of revenue | |
Revenue from alternative revenue programs (a) | $ | 3.6 |
| $ | 14.9 |
| Revenue from alternative revenue programs (a) | | $ | 7.6 | | | $ | 3.6 | | | $ | 47.7 | | | $ | 14.9 | |
Leasing revenue (b) | 0.2 |
| 0.5 |
| | 0.2 | | | 0.2 | | | 0.5 | | | 0.5 | |
Other | 2.1 |
| 8.5 |
| | 0 | | | 2.1 | | | 3.1 | | | 8.5 | |
| Total revenue from other sources | 5.9 |
| 23.9 |
| Total revenue from other sources | | $ | 7.8 | | | $ | 5.9 | | | $ | 51.3 | | | $ | 23.9 | |
| Total Operating Revenue | $ | 122.3 |
| $ | 914.4 |
| Total Operating Revenue | | $ | 143.4 | | | $ | 122.3 | | | $ | 856.3 | | | $ | 914.4 | |
(a)Washington Gas has determined that its Revenue Normalization Adjustment (RNA), Weather Normalization Adjustment (WNA), and Conservation and Ratemaking Efficiency (CARE) Ratemaking Adjustment (CRA) billing adjustment mechanisms and accelerated pipe replacement programs are alternative revenue programs and accounted for under ASC Topic 980.
(b) Revenue generatedThe amount includes late fees billed. The decreases from prior periods were primarily caused by not billing of late payment fees due to COVID-19as required by regulatory orders.
Washington Gas lessor operating leases accounted for under ASC Topic 842, Leases. See Note 3-Leases for further information on leases.Light Company
Part I-Financial Information
Item 1-Financial Statements (continued)
Notes to Condensed Financial Statements (Unaudited)
Washington Gas accrues unbilled revenues for gas delivered, but not yet billed at the end of each accounting period due to our customer billing cycles. “Unbilled revenues”Unbilled revenues of $28.5 million and $116.3 million are included within "Receivables" on Washington Gas' balance sheets at September 30, 2020 and December 31, 2019, respectively. Unbilled revenues represent performance obligations that have been satisfied and to which W
Washington Gas Light Company
Part I-Financial Information
Item 1-Financial Statements (continued)
Notes to Condensed Financial Statements (Unaudited)
ashington Gas has an unconditional right to payment, except for contract assets related to Washington Gas’ area-wide contract, which requires project acceptance by the federal government for the right to payment to occur. As of September 30, 2019, contract assets of $40.5 million have been recorded for financed projects within “Unbilled revenues” on the condensed balance sheets. Washington Gas did not have any contract liabilities at September 30, 2020 and 2019. The Company does not have transaction price amounts allocated to future performance obligations. The Company applies the practical expedient available under ASC Topic 606 and does not disclose information about the remaining performance obligations for (i) contracts with an original expected length of one year or less, (ii) contracts for which revenue is recognized at the amount to which the Company has the right to invoice for performance completed, and (iii) contracts with variable consideration that is allocated entirely to a wholly unsatisfied performance obligation or to a wholly unsatisfied promise to transfer a distinct good or service that forms part of a single performance obligation.
The following table shows the opening and closing balances of contract assets from contracts with customers for the reporting periods, which were included within "Receivables" on Washington Gas' balance sheets. | | | | | | | | | | | |
| (In millions) | 2020 | | 2019 (a) |
| Contract assets at January 1 | $ | 44.2 | | | $ | 85.3 | |
| Contract assets at September 30 | $ | 51.8 | | | $ | 40.5 | |
| Increase (decrease) in contract assets | $ | 7.6 | | | $ | (44.8) | |
On January 1,(a) Decrease in contract asset in 2019 was due to the Company adopted ASU 2016-02, Leases (ASC 842) and the following subsequent ASUs which amended the guidance: ASU 2018-01, Land Easement Practical Expedient for Transition to Topic 842, ASU 2018-10, Codification Improvements, and ASU 2018-11, Leases Targeted Improvements, and ASU 2018-20, Narrow-Scope Improvements for Lessors. The new leasing standard requires lessees to recognize a ROU asset and lease liability for leases classified as an operating lease. The significant effects of adopting this standard and the qualitative and quantitative disclosures required to enable userssale of the financial statementscontract asset. Refer to assess the amount, timing, and uncertainty of cash flows arising from leases are included"Project financing" in Note 1-Accounting Policies and below.14 — Related party transactions for detail discussion.
Adoption of the new standard had a material impact to our balance sheet but did not have a material impact to our statement of operations. On January 1, 2019, the Company recorded ROU assets of $43.2 million (net of lease incentives and prepaid or deferred rent of $15.7 million), current lease liability of $2.8 million and non-current lease liability of $56.1 million related to our operating leases. The Company currently does not have finance leases. We elected to implement the new leasing standard retrospectively at the beginning of the period of adoption through a cumulative-effect adjustment. Under this approach, prior year results are not required to be restated and disclosures associated with prior periods are reported under ASC 840.Lessee Leases
The Company elected to use the transition practical expedient which allows an entity not to reassess whether any expired or existing contracts are, or contain, leases; the lease classification for any expired or existing leases; and the initial direct costs for any existing leases. The practical expedient also allows an entity not to reassess whether existing or expired land easements that were not previously accounted for as a lease under Topic 840 was also elected. The Company elected not to separate lease and non-lease components for its building leases and has elected not to record a ROU asset and lease liability for short-term leases. Short-term leases are defined as leases with a term of 12 months or less at the commencement date, including extension options that are reasonably certain of being exercised, and do not include an option to purchase the underlying asset. Short-term lease costs for the period were not material.
Washington Gas has operating leases for our corporate headquarters and other corporate offices, communication tower space, and certain office equipment. Our leases have remaining lease terms from 1 to 22 years. Some of the leases include options to extend the lease terms for 1 to 5 years with prior written notice or automatically renew if either party does not provide intent to terminate. The leases generally have options to terminate with notice prior to the end of the lease term based on the contract terms. Refer to Note 13-Related Party Transactions for discussion of leases with associated companies.
Washington Gas Light Company
Part I-Financial Information
Item 1-Financial Statements (continued)
Notes to Condensed Financial Statements (Unaudited)
The following table provides our expected operating lease payments as of September 30, 2019. |
| | | |
Maturity of Operating Lease Liabilities
|
| (In millions) | September 30, 2019 |
| 2019 | $ | 1.3 |
|
| 2020 | 5.9 |
|
| 2021 | 5.5 |
|
| 2022 | 5.5 |
|
| 2023 | 5.5 |
|
| Thereafter | 52.1 |
|
| Total lease payments | $ | 75.8 |
|
| Less: Interest | (15.5 | ) |
| Present Value of Lease Liabilities | $ | 60.3 |
|
The following table provides supplemental cash flow information related toWashington Gas has operating leases as a lessee for the threeour corporate headquarters and nine months ended September 30, 2019.other offices, communication tower space, and certain office equipment.
|
| | | | | | |
| Supplemental Cash Flow Information Related to Operating Leases |
| ($ in millions) | Three Months Ended September 30, 2019 | Nine Months Ended September 30, 2019 |
| Cash paid for amounts included in the lease liabilities in the operating cash flows | $ | 0.5 |
| $ | 1.5 |
|
| Operating lease cost (including variable lease costs of $0.5 million and $1.5 million for the three and nine months ended September 30, 2019, respectively) | $ | 1.8 |
| $ | 5.4 |
|
| Right-of-use assets obtained in exchange for new operating lease liabilities | $ | 0.4 |
| $ | 1.5 |
|
At September 30, 2019, the weighted average remaining lease term for operating leases was 13.5 years, and the weighted average discount rate was 3.32%.
Lessor Leases
The Company also has lessor leases for land, office space and communication tower space that are classified as operating leases. The accounting for these operating leases remained unchanged upon the adoption of ASC 842. Washington Gas has elected not to separate the lease and non-lease components for its building leases. Our leases have remaining lease terms ranging from less than a year to 82 years. Some of the leases include options to extend the lease terms for 1 to 5 years with prior written notice or automatically renew if the lessee does not provide intent not to renew. The leases generally have options to terminate the leases with notice prior to the end of the lease term based on the contract terms. The lease agreements do not contain material residual value guarantees.
The following table summarizes the future operating lease payments to be received associated with these leases. |
| | | |
Maturity of Operating Lease Payments(a)
|
(In millions) | September 30, 2019 |
| 2019 | $ | 0.2 |
|
| 2020 | 0.7 |
|
| 2021 | 0.6 |
|
| 2022 | 0.6 |
|
| 2023 | 0.6 |
|
| Thereafter | 58.3 |
|
| Total lease payments | $ | 61.0 |
|
(a) The payments are presented on an undiscounted basis
Washington Gas Light Company
Part I-Financial Information
Item 1-Financial Statements (continued)
Notes to Condensed Financial Statements (Unaudited)
The property, plant and equipment associated with these leases are not material. For information on the lease income recognized during the period, see the Disaggregated Revenue by Type of Service table in Note 2 - 3 — Revenue from Contracts with Customers.
During the three and nine months ended September 30, 2019,
Washington Gas did not record any impairments relatedLight Company
Part I-Financial Information
Item 1-Financial Statements (continued)
Notes to our leased assets.Condensed Financial Statements (Unaudited)
NOTE 4.5. ACCOUNTS PAYABLE AND OTHER ACCRUED LIABILITIES The table below provides details for the amounts included in “Accounts payable and other accrued liabilities” on the condensed balance sheets.
| | | | | | | | |
| (In millions) | September 30, 2020 | December 31, 2019 |
| Accounts payable—trade | $ | 135.3 | | $ | 154.3 | |
| Employee benefits and payroll accruals | 20.9 | | 39.3 | |
| Wages payable | 25.6 | | 22.2 | |
| Accrued interest | 3.2 | | 17.3 | |
Other accrued liabilities (a) | 32.0 | | 34.4 | |
| Total | $ | 217.0 | | $ | 267.5 | |
(a) Amount includes $12.3 million and $11.7 million estimated liability associated with the Antero judgment at September 30, 2020 and December 31, 2019, respectively. Refer to Note 11 — Commitments and Contingencies for further information.
Washington Gas Light Company
Part I-Financial Information
Item 1-Financial Statements (continued)
Notes to Condensed Financial Statements (Unaudited)
|
| | | | | | | |
| (In millions) | September 30, 2019 | | December 31, 2018 |
| Accounts payable—trade | $ | 139.4 |
| | $ | 228.9 |
|
| Employee benefits and payroll accruals | 16.5 |
| | 28.0 |
|
| Other accrued liabilities | 26.9 |
| | 31.5 |
|
| Total | $ | 182.8 |
| | $ | 288.4 |
|
NOTE 5.6. SHORT-TERM DEBT Washington Gas satisfies itsthe short-term financing requirements through the sale of commercial paper, financing arrangements with third-party lenders, or through bank borrowings. Due to the seasonal nature of our operations, short-term financing requirements can vary significantly during the year. Revolving credit agreements are maintained to support outstanding commercial paper and to permit short-term borrowing flexibility. The policy of Washington Gas is to maintain bank credit facilities in amounts equal to or greater than the expected maximum commercial paper position.
Credit Facility
The following is a summary of committed credit available at September 30, 20192020 and December 31, 2018.2019.
| | | | | | | | |
|
| (In millions) | September 30, 2020 | December 31, 2019 |
| Committed credit agreements | | |
Unsecured revolving credit facility, expires July 19, 2024(a) | $450.0 | $450.0 |
Less: Commercial Paper outstanding(b) | (270.0) | (400.0) |
| Net committed credit available | $180.0 | $50.0 |
| Weighted average interest rate | 0.27% | 2.04% |
|
| | | | | | | | |
| Committed Credit Available |
($ in millions)
| | September 30, 2019 | | December 31, 2018 |
| Committed credit agreements | | | | |
Unsecured revolving credit facility
| | $ | 450.0 |
| | $ | 350.0 |
|
| Less: Commercial paper outstanding | | (117.0 | ) | | (296.0 | ) |
| Net committed credit available | | $ | 333.0 |
| | $ | 54.0 |
|
| Weighted average interest rate | | 2.31 | % | | 2.93 | % |
(b) The amount represents principal amount of commercial paper.
At September 30, 20192020 and December 31, 2018,2019, there were no0 outstanding bank loans from Washington Gas’ revolving credit facilities.
On July 19,Commercial Paper
The total commercial paper carrying value was $270.0 million and $399.5 million at September 30, 2020 and December 31, 2019, respectively. At both September 30, 2020 and December 31, 2019, Washington Gas entered into an amendedclassified $100.0 million of our commercial paper balance as "Long-term debt" on Washington Gas' balance sheets due to its ability and restated senior unsecured revolving credit facility withintent to refinance these balances on a termlong-term basis. Accordingly, $170.0 million and $299.5 million of five years, plus two one-year extension options, available with the bank group’s approval (Credit Facility). The Credit Facility amended and restated Washington Gas’ prior $350 million credit facility and permits Washington Gas to borrow up to $450 million with an option to increase the facility by an additional $100 million, with the bank group’s approval, for a total potential maximum borrowing of $550 million. Washington Gas incurs credit facility fees, which in some cases are based on the long-term debt ratings of Washington Gas.In the event that the long-term debt ratings are downgraded below certain levels, Washington Gas would be required to pay higher fees. There are five different levels of fees. Under the terms of the credit facilities, the lowest level facility fee is 0.06% and the highest is 0.175%. The interest rate of loans made under the credit facilities will be a fluctuating rate per annum that will be set using certain parameters at the time each loan is made.
Project Financing
Washington Gas previously obtained third-party project financing on behalf of the federal government to provide funds for the construction of certain energy management services projects entered under Washington Gas’ area-wide contract. Washington Gas recorded a project financing obligationcommercial paper remained in “Notes payablepayable” at September 30, 2020 and project financing” on the balance sheet. As the construction work was performed by WGL Energy Systems, Washington Gas established a contract asset in “Unbilled revenue”December 31, 2019, respectively.
Washington Gas Light Company
Part I-Financial Information
Item 1-Financial Statements (continued)
Notes to Condensed Financial Statements (Unaudited)
representing the government’s obligation to remit principal and interest, and recorded a “Payable to associated company” to WGL Energy Systems for the construction work performed for the same amount. WGL Energy Systems now directly obtains third-party project financing for its energy management services projects. As work is performed, Washington Gas establishes a contract asset in “Unbilled revenue” representing the government’s obligation to remit principal and interest and records a “Payable to associated company” to WGL Energy Systems for the construction work performed for the same amount.
As of September 30, 2019, Washington Gas recorded $40.5 million of contract assets in “Unbilled revenues” and a $40.5 million payable to WGL Energy Systems in “Payables to associated companies,” respectively, for energy management services projects financed by WGL Energy Systems that were not complete. There was no project financing obligation on Washington Gas’ balance sheet as of September 30, 2019.
As of December 31, 2018, Washington Gas recorded $85.3 million of contract assets in “Unbilled revenues,” $15.5 million in a corresponding short-term financing to third-party lenders in “Notes payable and project financing,” and $69.7 million accounts payable to WGL Energy Systems in “Payables to associated companies” for energy management services projects that were not complete.
In October 2018, WGL Energy Systems repaid $53.0 million drawn by Washington Gas from a third-party lender for a specific project for which the lender demanded repayment due to delays in achieving final acceptance from the federal government agency customer. The $53.0 million was included in “Payables to associated companies” on Washington Gas’ balance sheet as of December 31, 2018. On January 16, 2019, the federal government agency customer provided notification of final acceptance as of December 14, 2018. In February 2019, WGL sold the receivables, and accordingly, Washington Gas reversed the associated amount in “Payables to associated companies” and “Unbilled revenue” on its balance sheet.
Washington Gas did not record a corresponding reserve for bad debts related to these contract assets at September 30, 2019 and December 31, 2018, based on our previous collection experience with receivables that have been financed for government agencies with minimal credit risk.
Unsecured Notes
Washington Gas issues unsecured long-term debt in the form of medium-term notes (MTNs), unsecured long-term notes and private placement notes all of which containwith individual terms regarding interest rates, maturities and call or put options. Each ofIn addition, Washington Gasclassifies certain commercial paper balance as "Long-term debt" due to its ability and intent to refinance these note types can have maturity dates of one or more years from the date of issuance. balances on a long-term basis.
The following table shows the long-term debt outstanding notes as ofat September 30, 20192020 and December 31, 2018.2019.
| | | Long-Term Debt Outstanding | |
| ($ in millions) | September 30, 2019 | December 31, 2018 | |
Total Long-Term Debt(a) | $ | 1,396.0 |
| $ | 1,096.0 |
| |
| Long Term Debt Outstanding | | Long Term Debt Outstanding |
| (In millions) | | (In millions) | September 30, 2020 | December 31, 2019 |
Washington Gas Unsecured Notes (a) | | Washington Gas Unsecured Notes (a) | $ | 1,346.0 | | $ | 1,346.0 | |
| Commercial Paper | | Commercial Paper | 100.0 | | 100.0 | |
| Total Principal Amounts of Long-Term Debt | | Total Principal Amounts of Long-Term Debt | $ | 1,446.0 | | $ | 1,446.0 | |
| Unamortized discount | (4.3 | ) | (2.9 | ) | Unamortized discount | (4.2) | | (4.3) | |
| Unamortized debt expense | (10.6 | ) | (8.1 | ) | Unamortized debt expense | (10.4) | | (10.8) | |
| Less—current maturities | 50.0 |
| 50.0 |
| Less—current maturities | 0 | | 0 | |
| Total Long-Term Debt | $ | 1,331.1 |
| $ | 1,035.0 |
| Total Long-Term Debt | $ | 1,431.4 | | $ | 1,430.9 | |
Weighted average interest rate(b) | 4.53 | % | 4.77 | % | Weighted average interest rate(b) | 4.52 | % | 4.52 | % |
(a) Includes MTNs and private placement notes. The amount represents face value of long-term debt including current maturities.Washington Gas' unsecured notes.
(b)Weighted average interest rate is for the long-term debt including current maturities.
On September 13, 2019, Washington Gas issued medium-termunsecured notes.
The following table shows the issuances of Washington Gas' unsecured notes with an aggregate principal amount of $300 million and 3.65% fixed interest rate that are due in September 2049. The interest will be paid semi-annually in March and September of each year. The notes have a make-whole call provision at a U.S. Treasury rate plus 25 basis points prior to March 15, 2049, and then are callable at par after March 15, 2049. There was no issuance of long-term debt for the nine months ended September 30, 2018. There were no retirements of long-term debt for the nine months ended September 30, 2019 or 2018.
NOTE 7. COMPONENTS OF TOTAL EQUITY
The tables below reflect the components of “Total equity” for the three and nine months ended September 30, 20192019. There was no retirement of long-term debt for the three and 2018.nine months ended September 30, 2019. There were no issuances or retirements of long-term debt for the three and nine months ended September 30, 2020.
| | | | | | | | | | | | | | | | | | | | | | | |
| Washington Gas' Unsecured Notes Issuances |
| (In millions) | Principal(a) | | Interest Rate(b) | | Effective Cost(b) | | Nominal Maturity Date |
| Three and Nine Months Ended September 30, 2019 | | | | | | | |
| Issuances: | | | | | | | |
| 09/13/2019 | $ | 300.00 | | | 3.65 | % | | 3.72 | % | | 9/15/2049 |
(a)Represents face amount of notes.
(b)Represents the interest rate and effective cost at the trade date of the debt.
NOTE 8. COMPONENTS OF TOTAL EQUITY | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | | Paid-In Capital | | Retained Earnings (b) | | Accumulated Other Comprehensive Income/(Loss), Net of Taxes (b) | | |
| (In thousands, except shares) | Shares | | Amount | | | | | Total (b) |
| | | | | | | | | | | |
| Three Months Ended September 30, 2020 |
| Balance at June 30, 2020 | 46,479,536 | | | $ | 46,479 | | | $ | 1,104,273 | | | $ | 609,881 | | | $ | 6,266 | | | $ | 1,766,899 | |
| Net income (loss) | — | | | — | | | — | | | (36,622) | | | — | | | (36,622) | |
| Other comprehensive income | — | | | — | | | — | | | — | | | 1,055 | | | 1,055 | |
| | | | | | | | | | | |
| Capital contribution from parent | — | | | — | | | 50,000 | | | — | | | — | | | 50,000 | |
| Dividends declared: | | | | | | | | | | | |
| Common stock | — | | | — | | | — | | | (25,000) | | | — | | | (25,000) | |
| | | | | | | | | | | |
| Balance at September 30, 2020 | 46,479,536 | | | $ | 46,479 | | | $ | 1,154,273 | | | $ | 548,259 | | | $ | 7,321 | | | $ | 1,756,332 | |
| Three Months Ended September 30, 2019 |
| Balance at June 30, 2019 | 46,479,536 | | | $ | 46,479 | | | $ | 979,273 | | | $ | 593,276 | | | $ | (6,547) | | | $ | 1,612,481 | |
| Net income (loss) | — | | | — | | | — | | | (66,476) | | | — | | | (66,476) | |
| Other comprehensive income | — | | | — | | | — | | | — | | | 979 | | | 979 | |
| Dividends declared: | | | | | | | | | — | | | |
| Common stock | — | | | — | | | — | | | — | | | — | | | 0 | |
| Preferred stock | — | | | — | | | — | | | — | | | — | | | 0 | |
| Balance at September 30, 2019 | 46,479,536 | | | $ | 46,479 | | | $ | 979,273 | | | $ | 526,800 | | | $ | (5,568) | | | $ | 1,546,984 | |
| Nine Months Ended September 30, 2020 |
| Balance at December 31, 2019 | 46,479,536 | | | $ | 46,479 | | | $ | 979,273 | | | $ | 548,264 | | | $ | 4,576 | | | 1,578,592 | |
| Net income | — | | | — | | | — | | | 76,538 | | | — | | | 76,538 | |
| Other comprehensive income | — | | | — | | | — | | | — | | | 2,745 | | | 2,745 | |
| | | | | | | | | | | |
| Capital contribution from parent | — | | | — | | | 175,000 | | | — | | | — | | | 175,000 | |
ASU 2016-13 implementation (a) | — | | | — | | | — | | | (1,543) | | | — | | | (1,543) | |
| | | | | | | | | | | |
| Dividends declared: | | | | | | | | | | | |
| Common stock | — | | | — | | | — | | | (75,000) | | | — | | | (75,000) | |
| | | | | | | | | | | |
| Balance at September 30, 2020 | 46,479,536 | | | $ | 46,479 | | | $ | 1,154,273 | | | $ | 548,259 | | | $ | 7,321 | | | $ | 1,756,332 | |
| Nine Months Ended September 30, 2019 |
| Balance at December 31, 2018 | 46,479,536 | | | $ | 46,479 | | | $ | 979,273 | | | $ | 552,884 | | | $ | (7,106) | | | $ | 1,571,530 | |
| Net income | — | | | — | | | — | | | 24,576 | | | — | | | 24,576 | |
| Other comprehensive income | — | | | — | | | — | | | — | | | 1,538 | | | 1,538 | |
| | | | | | | | | | | |
| Dividends declared: | | | | | | | | | | | |
| Common stock | — | | | — | | | — | | | (50,000) | | | — | | | (50,000) | |
| Preferred stock | — | | | — | | | — | | | (660) | | | — | | | (660) | |
| Balance at September 30, 2019 | 46,479,536 | | | $ | 46,479 | | | $ | 979,273 | | | $ | 526,800 | | | $ | (5,568) | | | $ | 1,546,984 | |
(a) Due to implementation of ASU 2016-13 Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, see Note 2 — Credit Losses for further information.
(b) In the third quarter of 2020, Washington Gas made a voluntary change in accounting principle for calculating the market-related value of assets used in the determination of net periodic pension and other post-retirement benefit plan costs. We have retrospectively applied this change in accounting principle to all applicable prior period financial information presented herein as required. Refer to Note 1 — Accounting Policies for further discussion.
Washington Gas Light Company
Part I-Financial Information
Item 1-Financial Statements (continued)
Notes to Condensed Financial Statements (Unaudited)
|
| | | | | | | | | | | | | | | | | | | |
| Components of Total Equity |
| (In thousands, except shares) | Common Stock | | Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss), Net of Taxes | | Total |
| Shares | Amount | | | | |
| Three Months Ended September 30, 2019 | | | | | | | | | |
| Balance at June 30, 2019 | 46,479,536 |
| 46,479 |
| | 979,273 |
| | 585,193 |
| | (6,141 | ) | | $ | 1,604,804 |
|
| Net loss | — |
| — |
| | — |
| | (65,799 | ) | | — |
| | $ | (65,799 | ) |
| Other comprehensive income (loss) | — |
| — |
| | — |
| | — |
| | 942 |
| | $ | 942 |
|
| Dividends declared: | | | | | | | | | |
|
|
| Common stock | — |
| — |
| | — |
| | — |
| | — |
| | $ | — |
|
| Preferred stock | — |
| — |
| | — |
| | — |
| | — |
| | $ | — |
|
| Balance at September 30, 2019 | 46,479,536 |
| 46,479 |
|
| 979,273 |
|
| 519,394 |
|
| (5,199 | ) |
| 1,539,947 |
|
| Three Months Ended September 30, 2018 | | | | | | | | | |
| Balance at June 30, 2018 | 46,479,536 |
| 46,479 |
| | 585,562 |
| | 723,749 |
| | (3,959 | ) | | 1,351,831 |
|
| Net loss | — |
| — |
| | — |
| | (181,153 | ) | | — |
| | $ | (181,153 | ) |
| Other comprehensive income (loss) | — |
| — |
| | — |
| | — |
| | 3,613 |
| | $ | 3,613 |
|
Stock-based compensation(a) | — |
| — |
| | (9,017 | ) | | — |
| | — |
| | $ | (9,017 | ) |
| Capital contribution from parent | | — |
| | 302,728 |
| | | | | | $ | 302,728 |
|
ASU 2018-02 adoption impact (b) | | | | | | 1,484 |
| | (1,484 | ) | | — |
|
| Dividends declared: | | | | | | | | | |
|
|
| Common stock | — |
| — |
| | — |
| | (24,908 | ) | | — |
| | $ | (24,908 | ) |
| Preferred stock | — |
| — |
| | — |
| | (330 | ) | | — |
| | $ | (330 | ) |
| Balance at September 30, 2018 | 46,479,536 |
| 46,479 |
|
| 879,273 |
|
| 518,842 |
|
| (1,830 | ) |
| 1,442,764 |
|
| Nine Months Ended September 30, 2019 | | | | | | | | | |
| Balance at December 31, 2018 | 46,479,536 |
| 46,479 |
|
| 979,273 |
|
| 543,448 |
|
| (6,627 | ) |
| 1,562,573 |
|
| Net income | — |
| — |
| | — |
| | 26,606 |
| | — |
| | 26,606 |
|
| Other comprehensive income (loss) | — |
| — |
| | — |
| | — |
| | 1,428 |
| | 1,428 |
|
| Dividends declared: | | | | | | | | | |
|
|
| Common stock | — |
| — |
| | — |
| | (50,000 | ) | | — |
| | (50,000 | ) |
| Preferred stock | — |
| — |
| | — |
| | (660 | ) | | — |
| | (660 | ) |
| Balance at September 30, 2019 | 46,479,536 |
| 46,479 |
|
| 979,273 |
|
| 519,394 |
|
| (5,199 | ) |
| 1,539,947 |
|
| Nine Months Ended September 30, 2018 | | | | | | | | | |
| Balance at December 31, 2017 | 46,479,536 |
| 46,479 |
| | 583,185 |
| | 670,580 |
| | (4,330 | ) | | $ | 1,295,914 |
|
| Net income | — |
| — |
| | — |
| | (84,568 | ) | | — |
| | $ | (84,568 | ) |
| Other comprehensive income (loss) | — |
| — |
| | — |
| | — |
| | 3,984 |
| | $ | 3,984 |
|
Stock-based compensation(a) | — |
| — |
| | (6,640 | ) | | — |
| | — |
| | $ | (6,640 | ) |
| Capital contribution from parent | — |
| — |
| | 302,728 |
| | — |
| | — |
| | $ | 302,728 |
|
ASU 2018-02 adoption impact (b) | | | | | | $ | 1,484 |
| | $ | (1,484 | ) | | — |
|
| Dividends declared: | | | | | | | | | |
|
|
| Common stock | — |
| — |
| | — |
| | (67,664 | ) | | — |
| | $ | (67,664 | ) |
| Preferred stock | — |
| — |
| | — |
| | (990 | ) | | — |
| | $ | (990 | ) |
| Balance at September 30, 2018 | 46,479,536 |
| 46,479 |
|
| 879,273 |
|
| 518,842 |
|
| (1,830 | ) |
| 1,442,764 |
|
(a) Stock-based compensation is based on the stock awards of WGL that are allocated toand its wholly owned subsidiaries, including Washington Gas, Light Companyare included in the AltaGas Services (US) Inc. (ASUS) consolidated income tax returns. We have a tax sharing policy with ASUS, an indirect, wholly owned subsidiary of AltaGas, that allocates consolidated tax liabilities and benefits using a ratio determined by the separate taxable income for its pro-rata share and includes implementation of ASU 2016-09.
(b) Amount relatedeach member applied to the adoptionconsolidated return tax liability of ASU 2018-02.the group. State income tax returns are filed on a separate company basis in most states and on a unitary basis as required, where we or the consolidated ASUS group have operations and/or a requirement to file.
At September 30, 2020 and December 31, 2019, Washington Gas reclassifiedrecorded a credit$5.5 million receivable in "Receivables from associated companies" and a $0.6 million payable in "Payables to associated companies" under the ASUS tax sharing policy on Washington Gas' balance sheets, respectively.
The Coronavirus Aid, Relief and Economic Security Act ("CARES Act") was signed into law on March 27, 2020. The CARES Act includes various income and payroll tax provisions. Washington Gas will benefit from certain provisions such as the deferral of $1.5 million from AOCI to retained earnings atpayment of applicable payroll taxes. As of September 30, 2018.2020, we have determined that there is no material impact to our financial statements. However, we continue to assess and quantify the impact of the legislation to our financial statements.
Washington Gas Light Company
Part I-Financial Information
Item 1-Financial Statements (continued)
Notes to Condensed Financial Statements (Unaudited)
Washington Gas is included in the ASUS consolidated income tax returns beginning with the period from July 7, 2018 to December 31, 2018. We have established a new tax sharing policy with ASUS. During the three and nine months ended September 30, 2019, Washington Gas did not make or receive any payments to or from its associated companies related to the legacy WGL tax sharing agreement or the new tax sharing agreement.
Amounts of Interest and Penalties Recognized
Washington Gas recognizes any accrued interest associated with uncertain tax positions in interest expense and recognizes any accrued penalties associated with uncertain tax positions in other expenses in the statements of operations. During the three and nine months ended September 30, 2019 and 2018, there were no accrued interest expenses or penalties associated with uncertain tax positions.
NOTE 9.10. PENSION AND OTHER POST-RETIREMENT BENEFIT PLANSThe following table shows the components of the net periodic benefit costs (income) recognized in our financial statements during the three and nine months ended September 30, 2019 and 2018:statements.
Washington Gas Light Company
Part I-Financial Information | | | | | | | | | | | | | | |
| Components of Net Periodic Benefit Costs (Income) |
| Three Months Ended September 30, |
| 2020 | 2019 (c) |
| (In millions) | Pension Benefits | Health and Life Benefits | Pension Benefits | Health and Life Benefits |
| Service cost | $ | 3.1 | | $ | 1.3 | | $ | 3.0 | | $ | 1.3 | |
| Interest cost | 8.9 | | 2.3 | | 10.2 | | 3.0 | |
| Expected return on plan assets | (10.6) | | (5.9) | | (10.5) | | (6.1) | |
| Recognized prior service cost (credit) | 0.1 | | (3.4) | | 0.1 | | (3.9) | |
| Recognized actuarial loss (gain) | 1.8 | | (0.5) | | 1.9 | | 0 | |
| Settlement charge | 2.4 | | 0 | | 0 | | 0 | |
| | | | |
| Net periodic benefit cost (income) | 5.7 | | (6.2) | | 4.7 | | (5.7) | |
| Allocation to affiliates | (0.4) | | 0.5 | | (0.4) | | 0.5 | |
| Adjusted net periodic benefit cost (income) | 5.3 | | (5.7) | | 4.3 | | (5.2) | |
| Amount allocated to construction projects | (0.5) | | (0.2) | | (0.4) | | (0.2) | |
| | | | |
| Amount charged (credited) to expense | $ | 4.8 | | $ | (5.9) | | $ | 3.9 | | $ | (5.4) | |
| Nine Months Ended September 30, |
| 2020 | 2019 (c) |
| (In millions) | Pension Benefits | Health and Life Benefits | Pension Benefits | Health and Life Benefits |
| Service cost | $ | 9.4 | | $ | 4.0 | | $ | 9.1 | | $ | 3.8 | |
| Interest cost | 26.6 | | 6.9 | | 30.7 | | 9.0 | |
| Expected return on plan assets | (31.9) | | (17.7) | | (31.4) | | (18.2) | |
| Recognized prior service cost (credit) | 0.2 | | (10.2) | | 0.3 | | (11.7) | |
| Recognized actuarial loss (gain) | 5.7 | | (1.5) | | 5.9 | | 0 | |
Settlement charge(a) | 3.6 | | 0 | | 4.3 | | 0 | |
| | | | |
| Net periodic benefit cost (income) | 13.6 | | (18.5) | | 18.9 | | (17.1) | |
| Allocation to affiliates | (1.2) | | 1.6 | | (1.3) | | 1.8 | |
| Adjusted net periodic benefit cost (income) | 12.4 | | (16.9) | | 17.6 | | (15.3) | |
| Amount allocated to construction projects | (1.6) | | (0.7) | | (1.2) | | (0.6) | |
Amount deferred as regulatory asset (liability)-net allocations (b) | 0 | | 0 | | 0.7 | | 0 | |
| Amount charged (credited) to expense | $ | 10.8 | | $ | (17.6) | | $ | 17.1 | | $ | (15.9) | |
Item 1-Financial Statements (continued)
Notes(a) Amounts relate to Condensed Financial Statements (Unaudited)
|
| | | | | | | | | | | | |
| Components of Net Periodic Benefit Costs (Income) |
| | Three Months Ended September 30, |
| | 2019 | 2018 |
| (In millions) | Pension Benefits | Health and Life Benefits | Pension Benefits | Health and Life Benefits |
| Service cost | $ | 3.0 |
| $ | 1.3 |
| $ | 3.7 |
| $ | 1.3 |
|
| Interest cost | 10.2 |
| 3.0 |
| 9.9 |
| 2.9 |
|
| Expected return on plan assets | (10.7 | ) | (6.1 | ) | (10.6 | ) | (5.9 | ) |
| Recognized prior service cost (credit) | 0.1 |
| (3.9 | ) | 0.1 |
| (4.4 | ) |
| Recognized actuarial loss | 1.3 |
| — |
| 3.9 |
| — |
|
| Net periodic benefit cost (income) | 3.9 |
| (5.7 | ) | 7.0 |
| (6.1 | ) |
| Allocation to affiliates | (0.4 | ) | 0.5 |
| (0.9 | ) | 0.7 |
|
| Adjusted net periodic benefit cost (income) | 3.5 |
| (5.2 | ) | 6.1 |
| (5.4 | ) |
Amount allocated to construction projects(b) | (0.4 | ) | (0.2 | ) | (1.0 | ) | 0.8 |
|
Amount deferred as regulatory asset (liability)-net allocations(c) | — |
| — |
| 1.7 |
| — |
|
| Amount charged (credited) to expense | $ | 3.1 |
| $ | (5.4 | ) | $ | 6.8 |
| $ | (4.6 | ) |
| | | | | |
| | Nine Months Ended September 30, |
| | 2019 | 2018 |
| (In millions) | Pension Benefits | Health and Life Benefits | Pension Benefits | Health and Life Benefits |
| Service cost | $ | 9.1 |
| $ | 3.8 |
| $ | 11.1 |
| $ | 3.9 |
|
| Interest cost | 30.7 |
| 9.0 |
| 29.7 |
| 8.7 |
|
| Expected return on plan assets | (32.1 | ) | (18.3 | ) | (31.7 | ) | (17.7 | ) |
| Recognized prior service cost (credit) | 0.3 |
| (11.7 | ) | 0.3 |
| (13.2 | ) |
| Recognized actuarial loss | 4.0 |
| — |
| 11.7 |
| — |
|
Settlement charge(a) | 4.3 |
| — |
| — |
| — |
|
| Net periodic benefit cost (income) | 16.3 |
| (17.2 | ) | 21.1 |
| (18.3 | ) |
| Allocation to affiliates | (1.3 | ) | 1.8 |
| (2.6 | ) | 2.1 |
|
| Adjusted net periodic benefit cost (income) | 15.0 |
| (15.4 | ) | 18.5 |
| (16.2 | ) |
Amount allocated to construction projects(b) | (1.2 | ) | (0.6 | ) | (3.6 | ) | 2.9 |
|
Amount deferred as regulatory asset (liability)-net allocations(c) | 0.7 |
| — |
| 4.7 |
| — |
|
| Amount charged (credited) to expense | $ | 14.5 |
| $ | (16.0 | ) | $ | 19.6 |
| $ | (13.3 | ) |
(a)Amount relates to a one-time partial settlement chargecharges associated with a lump sum payment topayments from the Washington Gas’ defined benefit supplemental executive retirement plan (DB SERP) that was paid in the first quarter of 2019..
(b)On October 1, 2018, Washington Gas adopted ASU 2017-07. As a result, only the service cost component of net periodic benefit costs (income) is eligible for capitalization.
(c)Amount represents the amortization of previously unrecovered costs of the applicable pension benefits or the health and life benefits as approved in the District of Columbia through 2019.
At September 30, 2019 and December 31, 2018,(c)In the rabbi trust balance associated with the DB SERP and non-funded defined benefit restoration plan (DB restoration) plans was $43.8 million and $60.8 million, respectively. $4.2 million and $20.2 million was recorded in “Current Assets-Other” and $39.6 million and $40.6 million was recorded in “Deferred Charges and Other Assets - Other” respectively, along with other rabbi trust balances.
On October 1, 2018,third quarter of 2020, Washington Gas adopted ASU 2017-07. This standard requires entities to reportmade a voluntary change in accounting principle for calculating the service cost componentmarket-related value of assets used in the same financial statement line item as other compensation costs arising from services rendered by the pertinent employees during the period. The other componentsdetermination of net periodic pension and other post-retirement benefit cost areplan costs. We have retrospectively applied this change in accounting principle to beall applicable prior period financial information presented separately from service cost and outside of operating income. In addition, only the service cost component of net benefit cost is eligibleherein as required. Refer to Note 1 — Accounting Policies for further discussion.
Washington Gas Light Company
Part I-Financial Information
Item 1-Financial Statements (continued)
Notes to Condensed Financial Statements (Unaudited)
capitalization. Changes toAt September 30, 2020 and December 31, 2019, the presentation of service costsrabbi trust balance associated with the DB SERP and other components of netnon-funded defined benefit costrestoration plan (DB restoration) plans were applied retrospectively. As a result of the retrospective adoption, we reclassified $2.8$24.8 million and $8.4$40.0 million, of net periodic benefit income from “Operationrespectively. $7.5 million and maintenance” expense to “Other income (expense)-net”$17.3 million were recorded in “Current Assets-Other” and “Deferred Charges and Other Assets - Other” on the statement of operations for the three and nine months endedWashington Gas' balance sheets at September 30, 2018. Changes2020; $19.5 million and $20.5 million were recorded in capitalization practices were implemented prospectively.“Current Assets-Other” and “Deferred Charges and Other Assets - Other” at December 31, 2019, respectively, along with other rabbi trust balances.
NOTE
10.11. COMMITMENTS AND CONTINGENCIES
Contractual ObligationsCommitments
Washington Gas has certain contractual obligationsnatural gas contracts incurred in the normal course of business that require fixed and determinable payments in the future. These commitments include long-term debt, lease obligations,future, including unconditional purchase obligations for pipeline capacity, transportation and storage services, and our commitments related to the business process outsourcing program.
For our contractual obligations, referservices. Refer to Note 12- 13- Commitments and Contingencies to the Financial Statements in Form 10-KT10-K for the Transition Period from October 1, 2018 tocalendar year ended December 31, 2018.
Refer to Note 6- Long-term Debt of the Notes to Condensed Financial Statements2019 for long term debt issued during the current period.future payments.
There were no other significant changes to contractual obligations that are out of the normal course of business during the nine months ended September 30, 2019.2020.
Silver Spring, Merger Commitments
In connection with the Merger, Washington Gas and AltaGas have made commitments related to the terms of settlement agreement with PSC of DC and the conditions of approval from PSC of MD and SCC of VA. As of September 30, 2020, the remaining unpaid liability for previously expensed merger commitments was $15.9 million. In addition, there are certain additional regulatory commitments that were and will be expensed as the costs are incurred, including the hiring of damage prevention trainers in each jurisdiction for a total of $2.4 million over 5 years; investing up to $70.0 million over a 10-year period to further extend natural gas service; and spending $8.0 million for leak mitigation within 3 years after the Merger close. Additionally, there are a number of operational commitments that have an impact on the ongoing business of Washington Gas, including reductions of leak backlogs, conducting a root cause analysis related to customer service, increasing supplier diversity, achieving synergy savings benefits, developing protocols for moving meters from inside to outside customers’ premises, as well as reporting and tracking related to all the commitments.
Contingencies
We account for contingent liabilities utilizing ASC Topic 450, Contingencies. By their nature, the amount of the contingency and the timing of a contingent event and any resulting accounting recognition are subject to our judgment of such events and our estimates of the amounts. Actual results related to contingencies may be difficult to predict and could differ significantly from the estimates included in reported earnings.
Antero Contract
In June 2019, a jury trial was held in the County Court for Denver, Colorado to consider a contractual dispute relating to gas pricing between Washington Gas and its affiliate WGL Midstream and Antero Resources Corporation (Antero). Following the trial, the jury returned a verdict in favor of Antero for $95.9 million, of which $11.2 million was against Washington Gas, and $84.7 million against WGL Midstream. Following the official entry of the judgment, the Company filed an appeal on August 16, 2019. Arguments on the appeal occurred on November 4, 2020.
As a result of this verdict, it was determined that a loss contingency is probable and Washington Gas recorded an estimated liability and recognized a loss in June 2019. In addition, Washington Gas recorded a receivable from our trading partner, and a receivable related to sharing with our customers as the contract relates to asset optimization. Washington Gas has been accruing interest expense on a monthly basis associated with the liability since June 2019. At September 30, 2020, the estimated liability with court fees and accrued interest was $12.3 million recorded in “Accounts payable and accrued liabilities” on Washington Gas' balance sheets. The net receivable from our trading partner was $1.3 million in “Deferred charges and other assets-Other”, and sharing with customers was $5.0 million in “Regulatory assets - Gas costs” on the balance sheets. For the nine months ended September 30, 2020 the interest expense associated with the legal liability was immaterial. For the nine months ending September 30, 2019, the net pre-tax loss recorded as a result of the verdict was $3.0 million in “Utility cost of gas” on Washington Gas’ statements of operations.
Washington Gas Light Company
Part I-Financial Information
Item 1-Financial Statements (continued)
Notes to Condensed Financial Statements (Unaudited)
Regulatory Contingencies
Certain legal and administrative proceedings incidental to our business, including regulatory contingencies, involve Washington Gas. In our opinion, we have recorded an adequate provision for probable losses or refunds to customers for regulatory contingencies related to these proceedings.
Maryland Incident
Show-Cause Order. On April 23, 2019, the National Transportation and Safety Board (NTSB) held a hearing during which it found, among other things, that the probable cause of the August 10, 2016, explosion and fire at an apartment complex on Arliss Street in Silver Spring, Maryland “was the failure of an indoor mercury service regulator with an unconnected vent line that allowed natural gas into the meter room where it accumulated and ignited from an unknown ignition source. Contributing to the accident was the location of the mercury service regulators where leak detection by odor was not readily available.” Washington Gas disagrees with the NTSB’s probable cause findings. Following this hearing, on June 10, 2019, the NTSB issued an accident report.
In connection withFollowing the incident, a total of 37 civil actions related to the incident have been filed and are pending against WGL and Washington Gas in the Circuit Court for Montgomery County, Maryland. All cases have been consolidated for discovery purposes. All of these suits seek unspecified damages for personal injury and/or property damage. A trial date for eight bellwether civil actions has been scheduled for December 2, 2019. In addition, two suits were recently filed related to the incident, one each in the Superior Court for the District of Columbia and one in the Circuit Court of Montgomery County, Maryland.
At this stage of the litigation, the outcome is not yet determinable and management is unable to make an estimate of any potential loss or range of potential losses that are reasonably possible of occurring. As a result, management has only recorded a reserve for a few of the actions for which a settlement offer was made. Washington Gas maintains excess liability insurance coverage from highly-rated insurers, subject to a nominal self-insured retention. Washington Gas believes that this coverage will be sufficient to cover any significant liability that may result from this incident.
Regulatory Contingencies
Certain legal and administrative proceedings incidental to our business, including regulatory contingencies, involve Washington Gas. In our opinion, we have recorded an adequate provision for probable losses or refunds to customers for regulatory contingencies related to these proceedings.
Merger Commitments
In connection with the Merger, AltaGas and WGL made commitments related to the terms of the Public Service Commission of the District of Columbia (PSC of DC) settlement agreement and the conditions of approval from the Public Service Commission of Maryland (PSC of MD) and the State Corporation Commission of Virginia (SCC of VA). Among other things, these commitments include rate credits distributable to both residential and non-residential customers, gas expansion and other programs, various public interest commitments, and safety programs. The cumulative amount expensed as of September 30, 2019 was $136.6 million, of which $118.7 million has been paid, including $1.1 million and $7.6 million paid in the three and nine months ended September 30, 2019, respectively. In March 2019, the PSC of MD directed that the $3.9 million Most Favored Nation adjustment, originally recorded as a commitment expense, should be used to offset future rates under Washington Gas’ natural gas expansion program in Maryland. As a result, Washington Gas reversed the commitment expense in the fi
Washington Gas Light Company
Part I-Financial Information
Item 1-Financial Statements (continued)
Notes to Condensed Financial Statements (Unaudited)
rst quarter of 2019. Further, there are additional regulatory commitments that will be recorded when the costs are incurred in the future, including the hiring of damage prevention trainers in each jurisdiction for a total amount of $2.4 million over 5 years; investing up to $70.0 million over a 10 year period to further extend natural gas service; and spending $7.5 million for leak mitigation within three years of the Merger close.
Application for Approval of Reduction of Distribution Rates
On January 12, 2018, Washington Gas filed applications to reduce customer rates in Maryland, Virginia, and the District of Columbia to reflect the impact of the Tax Act, including both the impact of the re-measurement of deferred tax assets and liabilities and reduction of the federal tax rate to 21%. Washington Gas began tracking the impact of the Tax ActNTSB hearing, on revenue requirements beginning January 1, 2018, recording all impacts to regulatory assets and liabilities. In Maryland and the District of Columbia, rates have been adjusted for the impact of the Tax Act. In Virginia, the SCC of VA dismissed the application on March 15, 2018. Washington Gas filed a new general rate case on July 31, 2018 incorporating the effects of the Tax Act. On September 16, 2019, the Hearing Examiner (HE) issued a report to the SCC of VA recommending the Company increase its liability balance for the Tax Act to $35.4 million and for it to be refunded to customers in a one-time sur-credit. Accordingly, at September 30, 2019, Washington Gas recorded an $18.9 million adjustment to the liability and will refund the credits after the SCC of VA’s final order is issued. See the discussion below for a further discussion of the HE’s report.
Virginia Jurisdiction
Virginia Rate Case. On July 31, 2018, Washington Gas filed an application with the SCC of VA to increase its base rates for natural gas service by $37.6 million, which includes $14.7 million of revenue associated with natural gas pipeline replacement initiatives previously approved by the SCC of VA and paid by customers through a monthly rider. Additionally, the requested revenue increase incorporated the effects of The Tax Act. Interim rates became effective, subject to refund, for usage in the January 2019 billing cycle. On April 12, 2019, Washington Gas filed rebuttal testimony and revised its original return on equity down from 10.6% to 10.3% and its overall rate of return down from 7.94% to 7.81%. Evidentiary hearings were held on April 30 and May 1, 2019. Post hearing briefs were filed on July 3, 2019. On September 16, 2019, the HE issued a report to the SCC of VA which recommended among other things: (i) no increase in base rate revenue; (ii) a return on equity of 9.2% compared to the current authorized return on equity rate of 9.5%; (iii) unprotected plant-related and non-plant-related excess deferred income tax should be amortized as a reduction in rates over 5 years compared to amortizing using Average Rate Assumption Method (ARAM) and over 15 years, respectively; (iv) refund $5.6 million to customers for tax savings related to the October 2017 to December 2017 period as part of the Tax Act savings owed to customer, and (v) write off a $7.1 million regulatory asset related to flowthrough income taxes that the company had recovered previously flowed through depreciation income tax deductions via the SAVE rider. For the nine months ended September 30, 2019, Washington Gas made the following pre-tax adjustments based on the HE’s recommendations: (i) reduced “Operating revenues-Utility” by $7.6 million to accrue additional amounts of liability subject to refund; (ii) reduced “Operating revenues-Utility” by $13.3 million associated with the revised amortization of the Tax Act liability; and (iii) wrote off $2.0 million in “Regulatory Assets - Other” and charged to “Operation and maintenance” expense. Additionally, the Company reduced income tax expense by $11.8 million related to the amortization of excess deferred income tax, and recorded a $5.5 million after-tax impairment of a tax regulatory asset related to flowthrough income taxes. Reply comments on the HE’s report were filed by Washington Gas on October 21, 2019. Washington Gas filed reply comments challenging eleven recommendations contained in the HE’s report, including some of the items highlighted above, where the bases for the findings either disregard or are contrary to the substantial evidentiary record.
Maryland Jurisdiction
Maryland Show-Cause Order. On September 5, 2019, the PSC of MD ordered the Company, within 30 days, to (i) provide a detailed response to the NTSB’s probable cause findings, and (ii) provide evidence regarding the status of a 2003 mercury regulator replacement program, and if the program was not completed, to show cause why the Commission should not impose a civil penalty on the Company. On September 16, 2019,
The Company timely responded to the PSC of MD granted the Company a 14-day extension to file its Response to theMD’s Show-Cause Order. On October 18, 2019, the Company filed its Response to the Show-Cause Order, (i) providing a detailed response to the NTSB’s probable cause findings, and (ii) providing evidence regarding the status of aits 2003 mercury regulator replacement program and demonstrating cause why the CommissionPSC of MD should not impose a civil penalty on the Company. Following the Company’s response, certain intervenors filed written comments and a public hearing was held on the matter, with some intervenors and members of the public advocating for penalties against the Company. The Company filed its rejoinder comments and the Show-Cause Order is working its way through the regulatory proceeding process with the PSC of MD has not adopted a procedural schedule with respect to this matter but has indicatedMD. An evidentiary hearing was conducted on September 24 – 25, 2020. Initial briefs were filed on October 28, 2020 and reply briefs will be filed on November 13, 2020.
Management believes that it will schedule one public hearing near the apartment complex at Arliss Street. Given the early stage of the Show-Cause proceeding, the outcome is not yet determinable and management is unable to predict the likelihood of a civil penalty or make an estimate of any potential civil penalty or range of potential civil penalty.
Financial Guarantees
At September 30, 2019 and December 31, 2018, there were no guarantees to external parties.
Washington Gas Light Company
Part I-Financial Information
Item 1-Financial Statements (continued)
Notes to Condensed Financial Statements (Unaudited)
Antero Contract
In June 2019, a jury trial was held in the County Court for Denver, Colorado to consider a contractual dispute relating to gas pricing between Washington Gas and WGL Midstream (together, the Companies) and Antero Resources Corporation (Antero). Following the trial, the jury returned a verdict in favor of Antero for $95.9 million, of which $11.2 million was against Washington Gas, and $84.7 million against WGL Midstream. Following the official entry of the judgment, the Company filed an appeal on August 16, 2019.
As a result of this verdict, it was determined that a loss contingency is probable and Washington Gas has recorded an estimatedaccrued $330,000 to reflect the minimum liability of $11.2 million in “Accounts payable and accrued liabilities” on the balance sheet as of September 30, 2019, of which $2.6 million had already been recorded in a prior period. Washington Gas has also recorded a receivable from our trading partner of $1.3 million net in “Accounts payable and accrued liabilities” and sharing with customers as the contract relates to asset optimization of $4.5 million in “Deferred charges and other assets - Gas costs”. In addition, Washington Gas has recorded an accrual for estimated court fees of $0.1 million, and an accrual of interest expense associated with the liability.
For the nine months ending September 30, 2019, the net pre-tax loss recorded as a result of delinquent mercury regulator replacement status reporting. Though the verdict was $3.0Company is unable to estimate the maximum possible penalty, other parties have recommended penalties ranging from $620,500 (PSC of MD Staff, which argued the Company should pay a minimum penalty for failing to provide annual reports detailing progress in replacing the mercury regulators) to $123.3 million in “Utility cost(Office of gas”People's Counsel, which argued the Company should absorb all costs of removal and relocation of mercury service regulators and pay a fine of $25,000 per day for each day mercury service regulators remain on Washington Gas’ statements of operations. the Company’s system).
Environmental Matters
We are subject to federal, state and local laws and regulations related to environmental matters. These laws and regulations may require expenditures over a long time frame to control environmental effects. Almost all of the environmental liabilities we have recorded are for costs expected to be incurred to remediate sites where we or a predecessor affiliate operated manufactured gas plants (MGPs).
Washington Gas has identified up to ten sites where it or its predecessors may have operated MGPs. Washington Gas last used any such plant in 1984. In connection with these operations, we are aware that coal tar and certain other by-products of the gas manufacturing process are present at or near some former sites and may be present at others.
At September 30, 20192020 and December 31, 2018,2019, Washington Gas reported a liability of $10.4 million and $10.7 million, and $11.3 millionrespectively, on an undiscounted basis related to future environmental response costs. These estimates principally include the minimum liabilities associated with a range of environmental response costs expected to be incurred. At both September 30, 20192020 and December 31, 2018,2019, Washington Gas estimated the maximum liability associated with all of its sites to be approximately $35.8 million and $29.4 million, respectively.$30.7 million. The estimates were determined by Washington Gas’ environmental experts, based on experience in remediating MGP sites and advice from legal counsel and environmental consultants. The variation between the recorded and estimated maximum liability primarily results from differences in the number of years that will be required to perform environmental response processes and the extent of remediation that may be required.
Washington Gas is currently remediating its East Station property, located in Washington D.C. adjacent to the Anacostia River in Washington D.C., including ground water pump and treat, tar recovery, soil encapsulation and other treatment. Under a 2012 consent decree with the District of Columbia and the federal government, Washington Gas is also conducting a remedial investigation and feasibility study on an adjacent property owned by the District of Columbia. The Draft Remedial Investigation Report was submitted to the National Park Service (NPS) and the Department of Energy and Environment (DOEE) on June 12, 2020. Additional remediation may be required at this property.
Washington Gas Light Company
Part I-Financial Information
Item 1-Financial Statements (continued)
Notes to Condensed Financial Statements (Unaudited)
In addition, at another adjoining property known as the “Boat Club Property,” located to the east of the property owned by the District of Columbia, Washington Gas agreed to perform a site investigation and report the findings pursuant to oversight by the District of Columbia Department of Energy and Environment (DOEE).DOEE. This property was subject to a July 12, 2019, Administrative Order from the DOEE. ThisThat Administrative Order has been withdrawn. A consent orderwas withdrawn and the Company entered into a negotiated Administrative Order on Consent with the DOEE that was effective on March 11, 2020. Under the terms of the Administrative Order on Consent, the Company is being negotiated. scheduled to submit a Remedial Investigative Report by December 29, 2020.
Washington Gas received a letter in February 2016 from the DOEE and National Park Service regarding the Anacostia River Sediment Project, indicating that the District of Columbia is conducting a separate remedial investigation and feasibility study of the river to determine if and what cleanup measures may be required and to prepare a natural resource damage assessment. The sediment project draft remedial investigation reportOn December 27, 2019, DOEE issued on March 30, 2018an Anacostia River Sediment Project Proposed Plan, a River-wide Feasibility Study, and supporting documents for public comment. Although the Proposed Plan identifies East Station as one of seventeenfifteen potential environmental cleanup sites.sites, DOEE is proposing to continue the remediation of East Station under Washington Gas’ existing Consent Decree rather than as part of the Anacostia River Sediment Project. DOEE issued an Interim Record of Decision for remediation of “Early Action Areas” (that do not include East Station) in the Anacostia River by September 30, 2020. We are not able to estimate the total amount of potential damagescosts or timing associated with the District of Columbia’s environmental investigation on the Anacostia River at this time. While an allocation method has not been established, Washington Gas has accrued an amount for estimated study costs based on a potential range of estimates.
Regulatory orders issued by the PSC of MD allow Washington Gas to recover the costs associated with the sites applicable to Maryland over the period ending in 2025. Rate2035. Regulatory orders issued by the PSC of DC allow Washington Gas a three-year recovery of prudently incurred environmental response costs and allow Washington Gas to defer additional costs incurred between rate
Washington Gas Light Company
Part I-Financial Information
Item 1-Financial Statements (continued)
Notes to Condensed Financial Statements (Unaudited)
cases. Regulatory orders from the SCC of VA have generally allowed the recovery of prudent environmental remediation costs to the extent they were included in the underlying financial data supporting an application for rate change.
At September 30, 20192020 and December 31, 2018,2019, Washington Gas reported a regulatory asset of $6.3$6.8 million and $5.8$7.0 million, respectively, for the portion of environmental response costs that are expected to be recoverable in future rates.
Washington Gas Light Company
Part I-Financial Information
Item 1-Financial Statements (continued)
Notes to Condensed Financial Statements (Unaudited)
Derivative Instruments
Washington Gas enters into contracts that qualify as derivative instruments and are accounted for under ASC Topic 815. These derivative instruments are recorded at fair value on our balance sheetsheets and Washington Gas does not currently designate any derivatives as hedges under ASC Topic 815. Washington Gas’ derivative instruments relate to: (i) Washington Gas’ asset optimization program; (ii) managing price risk associated with the purchase of gas to serve utility customers and (iii) managing interest rate risk.
Asset Optimization.Washington Gas optimizes the value of its long-term natural gas transportation and storage capacity resources during periods when these resources are not being used to physically serve utility customers. Specifically, Washington Gas utilizes its transportation capacity assets to benefit from favorable natural gas prices between different geographic locations and utilizes its storage capacity assets to benefit from favorable natural gas prices between different time periods. As part of this asset optimization program, Washington Gas enters into physical and financial derivative transactions in the form of forward, futures and option contracts with the primary objective of securing operating margins that Washington Gas will ultimately realize. The derivative transactions entered into under this program are subject to mark-to-market accounting treatment under ASC Topic 820.
Regulatory sharing mechanisms provide for the annual realized profit from these transactions to be shared between Washington Gas’ shareholdersshareholder and customers; therefore, changes in fair value are recorded through earnings, or as regulatory assets or liabilities to the extent that it is probable that realized gains and losses associated with these derivative transactions will be included in the rates charged to customers when they are realized. Unrealized gains and losses recorded to earnings may cause significant period-to-period volatility; this volatility does not change the operating margins that Washington Gas expects to ultimately realize from these transactions through the use of its storage and transportation capacity resources.
Washington Gas has a collaborative arrangement with a third party to facilitate the asset optimization program. The collaborative arrangement allocates a tiered percentage of profits or losses to the third party as compensation for its participation. The costs recorded by Washington Gas related to the collaborative arrangement totaled $2.4 million and $2.5 million for the three months ended September 30, 2020 and 2019, respectively, and $5.8 million and $3.8 millionfor the nine months ended September 30, 2020 and 2019, respectively. These amounts were recorded in “Utility cost of gas” on Washington Gas’ statements of operations. Either party may terminate the collaborative arrangement through the delivery of a termination notice. In such an event, Washington Gas may make a payment upon termination.
All physically and financially settled contracts under our asset optimization program are reported on a net basis in the statements of operations in “Utility cost of gas.”gas”. Total net margins recorded to “Utility cost of gas” after sharing and management fees associated with all asset optimization transactions for the three months ended September 30, 2020 was a net gain of $5.1 million including an unrealized loss of $1.3 million. During the three months ended September 30, 2019, waswe recorded a net loss of $1.2 million including an unrealized loss of $6.5 million.million . During the threenine months ended September 30, 2018,2020, we recorded a net gain of $7.7$19.7 million including an unrealized gain of $3.3$5.5 million. Total net margins recorded to “Utility cost of gas” after sharing and management fees associated with all asset optimization transactions forDuring the nine months ended September 30, 2019, waswe recorded a net gain of $8.3 million including an unrealized gain of $0.1 million and athe $3.0 million loss related to the Antero Contract. During the nine months ended September 30, 2018, we recorded a net gain of $28.5 million including an unrealized gain of $11.8 million. Refer to Note 10-11 - Commitments and Contingencies for further discussion of the Antero Contract.
Managing Price Risk.To manage price risk associated with acquiring natural gas supply for utility customers, Washington Gas enters into physical and financial derivative transactions in the form of forward, option and other contracts, as authorized by its regulators. Any gains and losses associated with these derivatives are recorded as regulatory liabilities or assets, respectively, to reflect the rate treatment for these economic hedging activities.
Managing Interest-Rate Risk. Washington Gas may utilize derivative instruments that are designed to minimize the risk of interest-rate volatility associated with planned issuances of debt securities. Any gains and losses associated with these types of derivatives are recorded as regulatory liabilities or assets, respectively, and amortized in accordance with regulatory requirements, typically over the life of the related debt. As of September 30, 2019 and December 31, 2018, Washington Gas does not have any interest rate swaps in derivatives.
Operations
The following table presents absolute notional amounts of our derivative instruments as of September 30, 2019 and December 31, 2018. 25
|
| | | | | |
| Absolute Notional Amounts |
| of Open Positions on Derivative Instruments |
| | | Notional Amounts |
| | | September 30, 2019 | December 31, 2018 |
| Natural Gas (In millions of therms) | | | |
| Asset optimization & trading | | 11,951.0 |
| 13,051.0 |
|
| Other risk-management activities | | 950.0 |
| 1,072.0 |
|
Washington Gas Light Company
Part I-Financial Information
Item 1-Financial Statements (continued)
Notes to Condensed Financial Statements (Unaudited)
Notional Summary
The following table presents notional amounts of our outstanding derivatives September 30, 2020 and December 31, 2019.
| | | | | | | | | | | |
| Absolute Notional Amounts |
| of Open Positions on Derivative Instruments |
| | September 30, 2020 | December 31, 2019 |
| Natural Gas (In millions of therms) | | | |
| Asset optimization & trading | | 10,726.0 | | 11,671.0 | |
| | | |
| Other risk-management activities | | 915.0 | | 976.0 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
Location, Fair Value and Offsetting of Derivative Assets and Liabilities Recognized in the Balance Sheets
The following table presents the balance sheet classification for all derivative instruments as of September 30, 2019 and December 31, 2018.
|
| | | | | | | | | | | |
Balance Sheet Classification of Derivative Instruments(b) |
| (in millions) | Gross
Derivative
Assets | | Gross
Derivative
Liabilities | | Total(a) |
| As of September 30, 2019 | | | | | |
| Current Assets—Derivatives | $ | 3.0 |
| | $ | 0.6 |
| | $ | 3.6 |
|
| Deferred Charges and Other Assets—Derivatives | 8.5 |
| | — |
| | 8.5 |
|
| Current Liabilities—Derivatives | 0.1 |
| | (12.9 | ) | | (12.8 | ) |
| Deferred Credits—Derivatives | — |
| | (105.1 | ) | | (105.1 | ) |
| Total | $ | 11.6 |
| | $ | (117.4 | ) | | $ | (105.8 | ) |
| As of December 31, 2018 | | | | | |
| Current Assets—Derivatives | $ | 25.7 |
| | $ | (6.2 | ) | | $ | 19.5 |
|
| Deferred Charges and Other Assets—Derivatives | 11.3 |
| | — |
| | 11.3 |
|
| Current Liabilities—Derivatives | 1.1 |
| | (21.4 | ) | | (20.3 | ) |
| Deferred Credits—Derivatives | — |
| | (116.8 | ) | | (116.8 | ) |
| Total | $ | 38.1 |
| | $ | (144.4 | ) | | $ | (106.3 | ) |
(a)line items where derivatives are recognized. Washington Gas has elected to offset the fair value of recognized derivative instruments against the right to reclaim or the obligation to return collateral for derivative instruments executed under the same master netting arrangement in accordance with ASC Topic 815. All recognized derivative contracts and associated financial collateral subject to a master netting arrangement or similar that is eligible for offset under ASC Topic 815 have been presented net in the balance sheet.sheets. | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| Balance Sheet Classification of Derivative Instruments |
| (In millions) | Gross amounts
of recognized assets/(liabilities) | | Gross amounts
offset in
balance sheet | | Netting of
collateral | | Net amounts
presented on balance sheet |
| September 30, 2020 | | | | | | | |
Derivative assets (a) | $ | 20.2 | | | $ | (6.4) | | | $ | 0 | | | $ | 13.8 | |
| | | | | | | |
| | | | | | | |
Derivative liabilities (b) | (92.4) | | | 6.4 | | | 0 | | | $ | (86.0) | |
| | | | | | | |
| | | | | | | |
| Net derivative assets (liabilities) | $ | (72.2) | | | $ | 0 | | | $ | 0 | | | $ | (72.2) | |
| December 31, 2019 | | | | | | | |
Derivative assets (a) | $ | 13.0 | | | $ | 4.0 | | | $ | 0 | | | $ | 17.0 | |
| | | | | | | |
| | | | | | | |
Derivative liabilities (b) | (104.0) | | | (4.0) | | | 6.2 | | | (101.8) | |
| | | | | | | |
| | | | | | | |
| Net derivative assets (liabilities) | $ | (91.0) | | | $ | 0 | | | $ | 6.2 | | | $ | (84.8) | |
(b) Washington Gas did not have derivative instruments outstanding that were designated as hedging instruments(a) Derivative assets at September 30, 2019 or2020 include $4.7 million recorded in "Current assets — Derivatives" and $9.1 million in" Deferred charges and other assets — Derivatives" on Washington Gas' balance sheets; Derivative assets at December 31, 2018.2019 include $6.6 million recorded in "Current assets —Derivatives" and $10.4 million in" Deferred charges and other assets — Derivatives" on Washington Gas' balance sheets.
(b)Derivative liabilities at September 30, 2020 include $9.6 million recorded in "Current liabilities — Derivatives " and $76.4 million recorded in " Deferred credits — Derivatives" on Washington Gas' balance sheets; Derivative liabilities at December 31, 2019 include $4.1 million recorded in "Current liabilities — Derivatives " and $97.7 million recorded in " Deferred credits — Derivatives" on Washington Gas' balance sheets.
Washington Gas Light Company
Part I-Financial Information
Item 1-Financial Statements (continued)
Notes to Condensed Financial Statements (Unaudited)
Gains and (Losses) on Derivatives
The following table presentstables present all gains and losses associated with derivative instruments for the three and nine months ended September 30, 20192020 and 2018.2019.
|
| | | | | | | | | | | | | | | |
| Gains and (Losses) on Derivative Instruments |
| (In millions) | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2019 | | 2018 | | 2019 | | 2018 |
| Recorded to income | | | | | | | |
| Utility cost of gas | (5.8 | ) | | 2.0 |
| | (0.1 | ) | | 0.5 |
|
| Recorded to regulatory assets | | | | | | | |
| Gas costs | (9.6 | ) | | 3.7 |
| | 4.8 |
| | (1.8 | ) |
| Total | $ | (15.4 | ) | | $ | 5.7 |
| | $ | 4.7 |
| | $ | (1.3 | ) |
| | | | | | | | | | | | | | | | | | | | | | | |
| Gains and (Losses) on Derivative Instruments |
| (In millions) | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
| | | | | | | |
| Recorded to income-Utility cost of gas | $ | (0.3) | | | $ | (5.8) | | | $ | 6.2 | | | $ | (0.1) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Recorded to regulatory assets-Gas costs | (7.1) | | | (9.6) | | | 9.8 | | | 4.8 | |
| | | | | | | |
| | | | | | | |
| Total | $ | (7.4) | | | $ | (15.4) | | | $ | 16.0 | | | $ | 4.7 | |
Collateral
Washington Gas utilizes standardized master netting agreements, which facilitate the netting of cash flows into a single net exposure for a given counterparty. As part of these master netting agreements, cash, letters of credit and parent company guarantees may be required to be posted or obtained from counterparties in order to mitigate credit risk related to both
Washington Gas Light Company
Part I-Financial Information
Item 1-Financial Statements (continued)
Notes to Condensed Financial Statements (Unaudited)
derivatives and non-derivative positions. Under Washington Gas’ offsetting policy, collateral balances are offset against the related counterparties’ derivative positions to the extent the application would not result in the over-collateralization of those derivative positions on the balance sheet.sheets. Any collateral posted that is not offset against derivative assets and liabilities is included in “Other prepayments” inon the condensed balance sheet.sheets. Collateral received and not offset against derivative assets and liabilities is included in “Customer deposits and advance payments” inon the accompanying condensed balance sheet.sheets.
At September 30, 20192020 and December 31, 2018,2019, Washington Gas had $3.3$1.0 million and $7.4$5.2 million, respectively, in collateral deposits posted with counterparties that are not offset against derivative asset and liabilities. At September 30, 20192020 and December 31, 2018,2019, Washington Gas had $0.1 million and $0.2$0.1 million, respectively, cash collateral held representing an obligation, and are not offset against derivative asset and liabilities.
Certain derivative instruments of Washington Gas contain contract provisions that require collateral to be posted if the credit rating of Washington Gas falls below certain levels or if counterparty exposure to Washington Gas exceeds a certain level (credit-related contingent features). At September 30, 20192020 and December 31, 2018,2019, Washington Gas was notrequired to post collateral related to a derivative liability that contained a credit-related contingent feature.
The following table shows the aggregate fair value of all derivative instruments with credit-related contingent features that are in a liability position, as well as the maximum amount of collateral that would be required if the most intrusive credit-risk-related contingent features underlying these agreements were triggered on September 30, 20192020 and December 31, 2018,2019, respectively. |
| | | | | | | |
Potential Collateral Requirements for Derivative Liabilities with Credit-Risk-Contingent Features |
| (In millions) | September 30, 2019 | | December 31, 2018 |
| Derivative liabilities with credit-risk-contingent features | $ | — |
| | $ | 1.1 |
|
| Maximum potential collateral requirements | — |
| | 1.0 |
|
| | | | | | | | | | | |
Potential Collateral Requirements for Derivative Liabilities
with Credit-Risk-Contingent Features |
| (In millions) | September 30, 2020 | | December 31, 2019 |
| Derivative liabilities with credit-risk-contingent features | $ | 0.2 | | | $ | 0.4 | |
| Maximum potential collateral requirements | $ | 0.2 | | | $ | 0.4 | |
We do not enter into derivative contracts for speculative purposes.
Concentration of Credit Risk
We are exposed to credit risk from derivative instruments with wholesale counterparties, which is represented by the fair value of these instruments at the reporting date. We actively monitor and work to minimize counterparty concentration risk through various practices. At September 30, 2019, two counterparties each2020,1 counterparty represented over 10% of Washington Gas’ credit exposure to wholesale derivative counterparties for a total credit risk of $14.6$15.1 million.
Washington Gas Light Company
Part I-Financial Information
Item 1-Financial Statements (continued)
Notes to Condensed Financial Statements (Unaudited)
NOTE 12.13. FAIR VALUE MEASUREMENTS
We measure the fair value of our financial assets and liabilities using a combination of the income and market approaches in accordance with ASC Topic 820. These financial assets and liabilities primarily consist of derivatives recorded on our balance sheetsheets under ASC Topic 815 and short-term investments, other long-term receivable, commercial paper and long-term debt outstanding required to be disclosed at fair value. Under ASC Topic 820, fair value is defined as the exit price, representing the amount that would be received in the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To value our financial instruments, we use market data or assumptions that market participants would use, including assumptions about credit risk (both our own credit risk and the counterparty’s credit risk) and the risks inherent in the inputs to valuation.
We enter into derivative contracts in the futures and over-the-counter (OTC) wholesale and retail markets. These markets are the principal markets for the respective wholesale and retail contracts. Our relevant market participants are our existing counterparties and others who have participated in energy transactions at our delivery points. These participants have access to the same market data as Washington Gas. Valuations are generally based on pricing service data or indicative broker quotes depending on the market location. We measure the net credit exposure at the counterparty level where the right to set-off exists. The net exposure is determined using the mark-to-market exposure adjusted for collateral, letters of credit and parent guarantees. We use published default rates from Standard & Poor’s Ratings Services and Moody’s Investors Service as inputs for determining credit adjustments.
ASC Topic 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three levels of the fair value hierarchy under ASC Topic 820 are described below:
Washington Gas Light Company
Part I-Financial Information
Item 1-Financial Statements (continued)
Notes to Condensed Financial Statements (Unaudited)
Level 1. Level 1 of the fair value hierarchy consists of assets or liabilities that are valued using observable inputs based upon unadjusted quoted prices in active markets for identical assets or liabilities at the reporting date. Washington Gas did not have any Level 1 derivativesIncluded in this category are cash equivalents and Rabbi trust investments in money market funds which are recorded on the balance sheets at September 30, 2019 or December 31, 2018.fair value on a recurring basis.
Level 2. Level 2 of the fair value hierarchy consists of assets or liabilities that are valued using directly or indirectly observable inputs either corroborated with market data or based on exchange traded market data. Level 2 includes fair values based on industry-standard valuation techniques that consider various assumptions: (i) quoted forward prices, including the use of mid-market pricing within a bid/ask spread; (ii) discount rates; (iii) implied volatility and (iv) other economic factors. Substantially all of these assumptions are observable throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the relevant market. At September 30, 2019 and December 31, 2018, Level 2 financial assets and liabilities included energy-related physical and financial derivative transactions such as forward, option and other contracts for deliveries at active market locations.
Level 3. Level 3 of the fair value hierarchy consists of assets or liabilities that are valued using significant unobservable inputs at the reporting date. These unobservable assumptions reflect our assumptions about estimates that market participants would use in pricing the asset or liability, including natural gas basis prices and annualized volatilities of natural gas prices. A significant change to any one of these inputs in isolation could result in a significant upward or downward fluctuation in the fair value measurement. These inputs may be used with industry standard valuation methodologies that result in our best estimate of fair value for the assets or liabilities at the reporting date.
Our Commodity and Market Risk (C&MR) Group determines the valuation policies and procedures. The C&MR Group reports to AltaGas’ Vice President of Commodity Risk. In accordance with Washington Gas valuation policy, we may utilize a variety of valuation methodologies to determine the fair value of Level 3 derivative contracts, including internally developed valuation inputs and pricing models. The prices used in our valuations are corroborated using multiple pricing sources, and we periodically conduct assessments to determine whether each valuation model is appropriate for its intended purpose. The C&MR Group also evaluates changes in fair value measurements on a daily basis.
At September 30, 2019 and December 31, 2018, Level 3 derivative assets and liabilities included: (i) physical contracts valued at illiquid market locations with no observable market data; (ii) long-dated positions where observable pricing is not available over the majority of the life of the contract; (iii) contracts valued using historical spot price volatility assumptions and (iv) valuations using indicative broker quotes for inactive market locations.
Our level 2 and level 3 derivatives are recorded on the balance sheets at fair value on a recurring basis.
Washington Gas Light Company
Part I-Financial Information
Item 1-Financial Statements (continued)
Notes to Condensed Financial Statements (Unaudited)
Other financial instruments including commercial paper, unsecured notes, and other long-term receivables are recorded on the balance sheets at amortized cost. The fair value of the long-term receivable from one of our trading partners related to the Antero contract approximates its carrying value using Level 2 input to estimate the credit loss associated with the receivable. The carrying cost of our commercial paper approximates fair value using Level 2 inputs. The fair value of Washington Gas unsecured notes was estimated based on valuation techniques using indirectly observable inputs corroborated with market data and therefore is classified as Level 2.
Summary of Carrying Amounts and Fair value of Financial Instruments
The following table sets forth financial instruments recorded atsummarizes the carrying amounts and fair value as of September 30, 2019financial assets and December 31, 2018, respectively.liabilities. A financial instrument’s classification within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Fair Value Under the Fair Value Hierarchy |
| (In millions) | Carrying Amount | | Level 1 | | Level 2 | | Level 3 | | Total |
| At September 30, 2020 | | | | | | | | | |
| Financial assets | | | | | | | | | |
| Fair value through net income | | | | | | | | | |
Cash equivalents (a) | $ | 0.8 | | | $ | 0.8 | | | $ | 0 | | | $ | 0 | | | $ | 0.8 | |
Rabbi trust investments (b) | 28.0 | | | 28.0 | | | 0 | | | 0 | | | 28.0 | |
| Derivative asset - current | 1.9 | | | 0 | | | 0.2 | | | 1.7 | | | 1.9 | |
| Derivative asset - deferred | 3.7 | | | 0 | | | 0 | | | 3.7 | | | 3.7 | |
| Fair value through regulatory assets/liabilities | | | | | | | | | |
| Derivative asset - current | 2.8 | | | 0 | | | 0.4 | | | 2.4 | | | 2.8 | |
| Derivative asset - deferred | 5.4 | | | 0 | | | 0 | | | 5.4 | | | 5.4 | |
| Amortized cost | | | | | | | | | |
Other long-term receivables (c) | 1.3 | | | 0 | | | 1.3 | | | 0 | | | 1.3 | |
| Total Assets | $ | 43.9 | | | $ | 28.8 | | | $ | 1.9 | | | $ | 13.2 | | | $ | 43.9 | |
| Financial Liabilities | | | | | | | | | |
| Fair value through net income | | | | | | | | | |
| Derivative liabilities - current | $ | (2.4) | | | $ | 0 | | | $ | (0.2) | | | $ | (2.2) | | | $ | (2.4) | |
| Derivative liabilities - deferred | (22.8) | | | 0 | | | 0 | | | (22.8) | | | (22.8) | |
| Fair value through regulatory assets/liabilities | | | | | | | | | |
| Derivative liabilities - current | (7.2) | | | 0 | | | (0.4) | | | (6.8) | | | (7.2) | |
| Derivative liabilities - deferred | (53.6) | | | 0 | | | 0 | | | (53.6) | | | (53.6) | |
| Amortized cost | | | | | | | | | |
Commercial paper (d) | (270.0) | | | 0 | | | (270.0) | | | 0 | | | (270.0) | |
Unsecured notes (e) | (1,331.4) | | | 0 | | | (1,605.0) | | | 0 | | | (1,605.0) | |
| Total Liabilities | $ | (1,687.4) | | | $ | 0 | | | $ | (1,875.6) | | | $ | (85.4) | | | $ | (1,961.0) | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| (In millions) | Carrying Amount | | Level 1 | | Level 2 | | Level 3 | | Total |
| At December 31, 2019 | | | | | | | | | |
| Financial assets | | | | | | | | | |
| Fair value through net income | | | | | | | | | |
Cash equivalents (a) | $ | 11.0 | | | $ | 11.0 | | | $ | 0 | | | $ | 0 | | | $ | 11.0 | |
Rabbi trust investments (b) | 44.1 | | | 44.1 | | | 0 | | | 0 | | | 44.1 | |
| Derivative asset - current | 2.6 | | | 0 | | | 0.1 | | | 2.5 | | | 2.6 | |
| Derivative asset - deferred | 4.1 | | | 0 | | | 0.2 | | | 3.9 | | | 4.1 | |
| Fair value through regulatory assets/liabilities | | | | | | | | | |
| Derivative asset - current | 4.0 | | | 0 | | | 0 | | | 4.0 | | | 4.0 | |
Washington Gas Light Company
Part I-Financial Information
Item 1-Financial Statements (continued)
Notes to Condensed Financial Statements (Unaudited)
|
| | | | | | | | | | | | | | | |
Fair Value Measurements Under the Fair Value Hierarchy |
| (In millions) | Level 1 | | Level 2 | | Level 3 | | Total |
| At September 30, 2019 | | | | | | | |
| Assets | | | | | | | |
| Natural gas related derivatives | $ | — |
| | $ | 1.6 |
|
| $ | 10.0 |
| | $ | 11.6 |
|
| Total Assets | $ | — |
| | $ | 1.6 |
| | $ | 10.0 |
| | $ | 11.6 |
|
| Liabilities | | | | | | | |
| Natural gas related derivatives | $ | — |
| | $ | (1.1 | ) | | $ | (116.3 | ) | | $ | (117.4 | ) |
| Total Liabilities | $ | — |
| | $ | (1.1 | ) | | $ | (116.3 | ) | | $ | (117.4 | ) |
| At December 31, 2018 | | | | | | | |
| Assets | | | | | | | |
| Natural gas related derivatives | $ | — |
| | $ | 9.8 |
| | $ | 28.3 |
| | $ | 38.1 |
|
| Total Assets | $ | — |
| | $ | 9.8 |
| | $ | 28.3 |
| | $ | 38.1 |
|
| Liabilities | | | | | | | |
| Natural gas related derivatives | $ | — |
| | $ | (9.5 | ) | | $ | (134.9 | ) | | $ | (144.4 | ) |
| Total Liabilities | $ | — |
| | $ | (9.5 | ) | | $ | (134.9 | ) | | $ | (144.4 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Derivative asset - deferred | 6.3 | | | 0 | | | 0.3 | | | 6.0 | | | 6.3 | |
| Amortized cost | | | | | | | | | |
Other long-term receivables (c) | 1.3 | | | 0 | | | 1.3 | | | 0 | | | 1.3 | |
| Total Assets | $ | 73.4 | | | $ | 55.1 | | | $ | 1.9 | | | $ | 16.4 | | | $ | 73.4 | |
| Financial Liabilities | | | | | | | | | |
| Fair value through net income | | | | | | | | | |
| Derivative liabilities - current | $ | (0.7) | | | $ | 0 | | | $ | 0 | | | $ | (0.7) | | | (0.7) | |
| Derivative liabilities - deferred | (28.4) | | | 0 | | | 0 | | | (28.4) | | | (28.4) | |
| Fair value through regulatory assets/liabilities | | | | | | | | | |
| Derivative liabilities - current | (3.4) | | | 0 | | | (0.6) | | | (2.8) | | | (3.4) | |
| Derivative liabilities - deferred | (69.3) | | | 0 | | | 0 | | | (69.3) | | | (69.3) | |
| Amortized cost | | | | | | | | | |
Commercial paper (d) | (399.5) | | | 0 | | | (399.5) | | | 0 | | | (399.5) | |
Unsecured notes (e) | (1,330.9) | | | 0 | | | (1,480.8) | | | 0 | | | (1,480.8) | |
| Total Liabilities | $ | (1,832.2) | | | $ | 0 | | | $ | (1,880.9) | | | $ | (101.2) | | | $ | (1,982.1) | |
(a) Cash equivalents represent the amounts invested in money market funds and were included in "Cash and cash equivalents" of the accompanying balance sheets.
(b) Rabbi Trust investments are invested in money market funds. At September 30, 2020, carrying amount of $7.5 million and $20.5 million was included in "Current assets — Other" and "Deferred charges and other assets — Other" of the accompanying balance sheets, respectively; At December 31, 2019, carrying amount of $19.5 million and $24.6 million was included in "Current assets — Other" and "Deferred charges and other assets — Other", respectively.
(c) Amount represents a long-term receivable from one of our trading partners related to the Antero contract discussed in Note 11 — Commitments and Contingencies. The carrying amount represents the long-term receivable net of allowance for doubtful accounts.
(d)The balance at September 30, 2020 includes $170.0 million located in "Notes payable", and $100.0 million located in “Long-term debt” on the accompanying balance sheets. The balance at December 31, 2019 includes $299.5 million located in "Notes payable", and $100.0 million located in “Long-term debt” on the accompanying balance sheets.
(e) Includes adjustments for current maturities and unamortized discounts, as applicable. The amount was included in "Long-term debt" on the accompanying balance sheets.
Quantitative Information About Unobservable Inputs
The following table includes quantitative information about the significant unobservable inputs used in the fair value measurement of our Level 3 financial instruments and the respective fair values of the net derivative asset and liability positions,positions.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Quantitative Information about Level 3 Fair Value Measurements |
| (In millions) | | Net Fair Value | | Valuation Techniques | | Unobservable Inputs | | Weighted Average (a) | | Range |
| September 30, 2020 | | ($72.2) | | Discounted Cash Flow | | Natural Gas Basis Price (per dekatherm) | | ($0.34) | | ($1.105)-$2.068 |
| December 31, 2019 | | ($84.8) | | Discounted Cash Flow | | Natural Gas Basis Price (per dekatherm) | | n/a | | ($0.905)-$2.523 |
(a) ASU 2018-13 has been applied prospectively, beginning with the interim period ending March 31, 2020. The average level 3 price was weighted by contract type, as of September transaction volume.
30 2019 and December 31, 2018.
Washington Gas Light Company
Part I-Financial Information
Item 1-Financial Statements (continued)
Notes to Condensed Financial Statements (Unaudited)
|
| | | | | | | | |
Quantitative Information about Level 3 Fair Value Measurements
|
(In millions) | | Net Fair Value
September 30, 2019 | | Valuation Techniques | | Unobservable Inputs | | Range |
| | | | | | | | |
| | | | | | | | |
Natural gas related derivatives | | ($106.3) | | Discounted Cash Flow | | Natural Gas Basis Price
(per dekatherm)
| | ($1.095) - $3.473 |
| | | | | | | | |
| | Net Fair Value
December 31, 2018 | | | | | | |
Natural gas related derivatives | | ($106.6) | | Discounted Cash Flow | | Natural Gas Basis Price
(per dekatherm) | | ($1.028)-$5.34 |
Reconciliation of Level 3 Assets and LiabilitiesThe following table presents a summaryreconciliation of the changes in thenet fair value of ourLevel 3 derivative instruments that are measured at net fair value on a recurring basis in accordance with ASC Topic 820 using significant Level 3 inputs during the three and nine months ended September 30, 2019 and 2018, respectively.basis.
Washington Gas Light Company
Part I-Financial Information
Item 1-Financial Statements (continued)
Notes to Condensed Financial Statements (Unaudited)
| | Reconciliation of Fair Value Measurements Using Significant Level 3 Inputs | | Reconciliation of Fair Value Measurements Using Significant Level 3 Inputs |
| | | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| (In millions) | | (In millions) | 2020 | 2019 | | 2020 | 2019 |
| Balance at beginning of period | | Balance at beginning of period | $ | (65.8) | | $ | (86.9) | | | $ | (84.8) | | $ | (106.6) | |
| Realized and unrealized gains (losses) | | Realized and unrealized gains (losses) | |
| Recorded to income | | Recorded to income | (0.2) | | (6.2) | | | 5.2 | | (1.4) | |
| Recorded to regulatory assets — Gas costs | | Recorded to regulatory assets — Gas costs | (6.4) | | (10.1) | | | 9.0 | | 4.3 | |
| Transfers into Level 3 | | Transfers into Level 3 | 0 | | (2.9) | | | 0 | | (6.7) | |
| Transfers out of Level 3 | | Transfers out of Level 3 | 0 | | 2.9 | | | 0 | | 7.9 | |
| | | Reconciliation of Fair Value Measurements Using Significant Level 3 Inputs | |
| (In millions) | Total - Natural Gas
Related
Derivatives | |
| Three Months Ended September 30, 2019 | | |
| Balance at July 1, 2019 | $ | (86.9 | ) | |
| Realized and unrealized gains (losses) | | |
| Recorded to income | (6.2 | ) | |
| Recorded to regulatory assets—gas costs | (10.1 | ) | |
| Transfers into Level 3 | (2.9 | ) | |
| Transfers out of Level 3 | 2.9 |
| |
| Purchases | — |
| |
| Sales | — |
| |
| Settlements | (3.1 | ) | Settlements | 0.2 | | (3.1) | | | (1.6) | | (3.8) | |
| Balance at September 30, 2019 | $ | (106.3 | ) | |
| Three Months Ended September 30, 2018 | | |
| Balance at July 1, 2018 | $ | (103.6 | ) | |
| Realized and unrealized gains (losses) | | |
| Recorded to income | 3.5 |
| |
| Recorded to regulatory assets—gas costs | 5.6 |
| |
| Transfers into Level 3 | (0.1 | ) | |
| Transfers out of Level 3 | (0.1 | ) | |
| Purchases | — |
| |
| Settlements | 0.6 |
| |
| Balance at September 30, 2018 | $ | (94.1 | ) | |
| Nine Months Ended September 30, 2019 | | |
| Balance at January 1, 2019 | $ | (106.6 | ) | |
| Realized and unrealized gains (losses) | | |
| Recorded to income | (1.4 | ) | |
| Recorded to regulatory assets—gas costs | 4.3 |
| |
| Transfers into Level 3 | (6.7 | ) | |
| Transfers out of Level 3 | 7.9 |
| |
| Purchases | — |
| |
| Settlements | (3.8 | ) | |
| Balance at September 30, 2019 | $ | (106.3 | ) | |
| Nine Months Ended September 30, 2018 | | |
| Balance at January 1, 2018 | $ | (125.4 | ) | |
| Realized and unrealized gains (losses) | | |
| Recorded to income | (0.7 | ) | |
| Recorded to regulatory assets—gas costs | (3.1 | ) | |
| Transfers into Level 3 | (7.1 | ) | |
| Transfers out of Level 3 | 8.9 |
| |
| Settlements | 33.3 |
| |
| Balance at September 30, 2018 | $ | (94.1 | ) | |
| Balance at end of period | | Balance at end of period | $ | (72.2) | | $ | (106.3) | | | $ | (72.2) | | $ | (106.3) | |
Transfers between different levels of the fair value hierarchy may occur based on fluctuations in the valuation inputs and on the level of observable inputs used to value the instruments from period to period. It is our policy to show both transfers into and out of the different levels of the fair value hierarchy at the fair value as of the beginning of the period. Transfers out of Level 3 during the three and nine months ended September 30, 2019 and 2018 were due to valuations that experienced an increase in observable market inputs. Transfers into Level 3 during the three and nine months ended September 30, 2019 and 2018 were due to an increase in unobservable market inputs, primarily pricing points. All amounts recorded to income are from the utility cost of gas.
The following table below sets forthpresents the line items on the statements of operationsunrealized gains (losses) attributable to which amounts are recorded for the three and nine months ended September 30, 2019 and 2018, respectively, related toLevel 3 derivative instruments measured at fair value measurements using significant Level 3 inputs.on a recurring basis.
| | | | | | | | | | | | | | | | | |
| Unrealized Gains (Losses) Recorded for Level 3 Measurements |
| Three Months Ended
September 30, | | Nine Months Ended
September 30, |
(In millions) | 2020 | 2019 | | 2020 | 2019 |
| Recorded to income — Utility cost of gas | $ | 0.2 | | $ | (5.9) | | | $ | 8.6 | | $ | 1.6 | |
| Recorded to regulatory assets — Gas costs | (4.4) | | (10.2) | | | 14.5 | | 7.9 | |
| Total | $ | (4.2) | | $ | (16.1) | | | $ | 23.1 | | $ | 9.5 | |
Washington Gas Light Company
Part I-Financial Information
Item 1-Financial Statements (continued)
Notes to Condensed Financial Statements (Unaudited)
|
| | | | | | | | |
| Realized and Unrealized Gains (Losses) Recorded to Income for Level 3 Measurements |
| (In millions) | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | | 2019 | | 2018 | | 2019 | | 2018 |
| Utility cost of gas | | $(6.2) | | $3.5 | | $(1.4) | | $(0.7) |
Unrealized gains (losses) attributable to derivative assets and liabilities measured using significant Level 3 inputs were recorded as follows for the three and nine months ended September 30, 2019 and 2018, respectively.
|
| | | | | | | | | | | | | | | | |
Unrealized Gains (Losses) Recorded for Level 3 Measurements
|
| (In millions) | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | | 2019 | | 2018 | | 2019 | | 2018 |
| Recorded to income | | | | | | | | |
| Utility cost of gas | | $ | (5.9 | ) | | $ | 3.1 |
| | $ | 1.6 |
| | $ | 6.9 |
|
| Recorded to regulatory assets—gas costs | | (10.2 | ) | | 4.8 |
| | 7.9 |
| | 7.7 |
|
| Total | | $ | (16.1 | ) |
| $ | 7.9 |
|
| $ | 9.5 |
|
| $ | 14.6 |
|
The following table presents the carrying amounts recorded at amortized cost and estimated fair values of our financial instruments at September 30, 2019 and December 31, 2018.
|
| | | | | | | | | | | | | | | |
| Fair Value of Financial Instruments |
| September 30, 2019 | | December 31, 2018 |
| (In millions) | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
Money market funds(a) | $ | 48.7 |
| | $ | 48.7 |
| | $ | 69.7 |
| | $ | 69.7 |
|
Commercial paper (b) | $ | 117.0 |
| | $ | 117.0 |
| | $ | 296.0 |
| | $ | 296.0 |
|
Project financing (b) | $ | — |
| | $ | — |
| | $ | 15.5 |
| | $ | 15.5 |
|
Current maturities of long-term debt
| $ | 50.0 |
| | $ | 50.0 |
| | $ | 50.0 |
| | $ | 50.0 |
|
Long-term debt(c) | $ | 1,331.1 |
| | $ | 1,501.5 |
| | $ | 1,035.0 |
| | $ | 1,096.3 |
|
(a) The balance as of September 30, 2019 includes $0.6 million money market funds located in “Cash and cash equivalents,” $4.2 million rabbi trust investment located in “Current Assets-Other,” and $43.9 million rabbi trust investments located in “Deferred Charges and Other Assets-Other” of the accompanying balance sheet; The balance as of December 31, 2018 includes $4.4 million money market funds located in “Cash and cash equivalents,” $20.2 million rabbi trust investment located in “Current Assets-Other” and $45.1 million rabbi trust investments located in “Deferred Charges and Other Assets-Other.” The amounts in cash and cash equivalent may be offset by outstanding checks.
(b) Balance is located in “Notes payable and project financing” in the accompanying balance sheet.
(c) Includes adjustments for current maturities and unamortized discounts, as applicable.
Our money market funds are Level 1 valuations and their carrying amount approximates fair value. The maturity of our commercial paper outstanding at both September 30, 2019 and December 31, 2018 is under 30 days. Due to the short term nature of these notes, the carrying cost of our commercial paper approximates fair value using Level 2 inputs. Due to the nature of our project financing arrangements, the carrying cost approximates fair value using Level 2 inputs. Due to the short term nature of current maturities of long-term debt, the carrying cost approximates fair value using Level 2 inputs, Washington Gas’ long-term debt is not actively traded. The fair value of long-term debt was estimated based on valuation techniques when observable market data is not available. Our long-term debt fair value measurement is classified as Level 3.
NOTE 13.14. RELATED PARTY TRANSACTIONS
Corporate Service Allocation
As a subsidiary of AltaGas, and effective with the close of the Merger on July 6, 2018, Washington Gas is charged a proportionate share of corporate governance and other shared services costs from AltaGas, primarily related to human resources, employee benefits, finance, legal, accounting, tax, information technology services, and office services. AltaGas
Washington Gas Light Company
Part I-Financial Information
Item 1-Financial Statements (continued)
Notes to Condensed Financial Statements (Unaudited)
charges Washington Gas for the total shared service costs attributable to WGL and its affiliatesat the lower of cost or market, and Washington Gas in turn allocates a portion of the costs to WGL’s other subsidiaries based on methodologies further described below.at the higher of cost or market. Washington Gas records a payable of the total shared service costs allocated to all WGL’sof WGL's subsidiaries in “Payable"Payable to associated companies”companies" and a receivable of the shared service costs allocated to WGL’s other subsidiaries in “Receivables from associated companies” on the balance sheet.sheets. Additionally, effective upon the approval by the SCC of Virginia in March 2020, Washington Gas began receiving certain corporate services from SEMCO Energy, Inc., (SEMCO), a subsidiary of AltaGas. Washington Gas records in "Payable to associated companies" on its balance sheets for the services provided by SEMCO. The expenses associated with services provided by AltaGas and SEMCO are recorded to “Operation and maintenance” on Washington Gas' statements of operations.
AsThe net expenses of $5.3 million and $15.4 million were included in “Operation and maintenance” on the statements of operations for the three and nine months ended September 30, 2019, Washington Gas recorded a $15.9 million liability to “Payables to associated companies,”2020, respectively, reflecting Washington Gas’ unpaid sharedthe corporate service cost payable to AltaGas, and a receivable of $3.4 million to “Receivables from associated companies” on the balance sheet related to the shared service costs allocated to WGL’s subsidiaries. Washington Gas.
The net expenses of $5.0 million and $12.5 million were included in “Operation and maintenance” on the statements of operations for the three and nine months ended September 30, 2019, respectively, reflecting the sharedcorporate service cost allocated to Washington Gas.
As of December 31, 2018, Washington Gas recorded a receivable of $0.6 million to “Receivables from associated companies” on the balance sheet related to the shared service costs allocated to WGL’s subsidiaries. There was no payable balance related to the shared service cost payable to AltaGas as of December 31, 2018.
In addition, Washington Gas provides accounting, treasury, legal and other administrative and general support to WGL’s subsidiaries and various AltaGas U.S. entities, and files consolidated tax returns that include affiliated taxable transactions. Effective upon the approvals by the SCC of Virginia and beginning in January 2019 and June 2019, respectively, Washington Gas also provides accounting, legal, tax and other administrative and general support to various AltaGas U.S. entities and AltaGas. Washington Gas bills affiliates to which it provides services in accordance with regulatory requirements for the actual cost of providing these services, which approximates their market value. To the extent such billings are outstanding, they are reflected in “Receivables from associated companies” on Washington Gas’ balance sheet.sheets. Washington Gas assigns or allocates these costs directly to its affiliates and, therefore, does not recognize revenues or expenses associated with providing these services. Washington Gas believes that allocations based on broad measures of business activity are appropriate for allocating expenses resulting from common services. Affiliate entities are allocated a portion of common services based on a formula driven by appropriate indicators of activity, as approved by management.
Project Financing
Washington Gas previously obtainedWGL Energy Systems, Inc. (WGL Energy Systems), an indirect, wholly-owned subsidiary of WGL, obtains third-party project financing on behalf of the federal government to provide funds during the construction of certainfor energy management services projects entered intowith the federal government under Washington Gas’Gas’s area-wide contract. As work is performed, Washington Gas recordedestablishes a contract asset in “Unbilled revenues”“Receivables” representing the government’s obligation to remit principal and an account payableinterest and records a “Payable to associated company” to WGL Energy Systems in “Payable to associated companies” for the construction work performed for the same amount. Refer
At September 30, 2020, Washington Gas recorded $51.8 million of contract assets in “Receivables” and a $51.8 million payable to Note 5- Short Term DebtWGL Energy Systems in “Payables to associated companies,” respectively, for energy management services projects financed by WGL Energy Systems that were not complete.
At December 31, 2019, Washington Gas recorded $44.2 million of contract assets in “Receivables” and a $44.2 million payable to WGL Energy Systems in “Payables to associated companies,” respectively, for energy management services projects financed by WGL Energy Systems that were not complete.
In October 2018, WGL Energy Systems repaid $53.0 million historically drawn by Washington Gas from a third-party lender for Washington Gas' area-wide contract that the lender demanded repayment for due to delays in achieving final acceptance from the federal government agency customer. The $53.0 million was included in "Payables to associated companies" on Washington Gas' balance sheets at December 31, 2018. In February 2019, WGL sold the contract asset, and accordingly, Washington Gas reversed the associated amount in “Payables to associated companies” and “Receivables” on its balance sheets during the three months ended March 31. 2019.
Washington Gas Light Company
Part I-Financial Information
Item 1-Financial Statements (continued)
Notes to Condensed Financial Statements for further discussions of the project financing.(Unaudited)
Related Party Transactions with Hampshire
Hampshire Gas Company (Hampshire), a wholly owned subsidiary of WGL, owns full and partial interests in underground natural gas storage facilities, including pipeline delivery facilities located in and around Hampshire County, West Virginia, and operates those facilities to serve Washington Gas, which purchases all of the storage services of Hampshire. Washington Gas includes the cost of these services in the bills sent to its customers and records the cost of the services in “Operation"Operation and maintenance”maintenance" in its statements of operations. Hampshire operates under a “pass-through” cost of service-based tariff approved by the Federal Energy Regulatory Commission (FERC)FERC and adjusts its billing rates to Washington Gas on a periodic basis to account for changes in its investment in utility plant and associated expenses. The arrangement between Hampshire and Washington Gas is classified as an operating lease. An ROUA right-of-use (ROU) asset and lease liability was not recognized upon the adoption of ASC 842 because all the costs associated with the arrangement are variable. Washington Gas recorded expenses related to the cost of services provided by Hampshire in "Operation and maintenance " on Washington Gas’Gas' statements of operations of $2.3 million and $6.4 million for three and nine months ended September 30, 2020, and $1.5 million and $5.5 million for the three and nine months ended in September 30, 2019, and $1.9 million and $5.3 million for the three and nine months ended in September 30, 2018, respectively. The outstanding balance not cleared between Washington Gas and Hampshire at the end of the reporting period was recorded in “Receivables from"Payable to associated companies” oncompanies" of Washington Gas’Gas' balance sheet. Refer to Note 3- Leases for further discussion of ASC 842.sheets.
Other Related Party Transactions
In connection with billing for unregulated third-party marketers, including WGL Energy Services, Inc., (WGL Energy Services), an indirect, wholly-owned subsidiary of WGL, and with other miscellaneous billing processes, Washington Gas collects cash on behalf of affiliates and transfers the cash in a reasonable time
Washington Gas Light Company
Part I-Financial Information
Item 1-Financial Statements (continued)
Notes to Condensed Financial Statements (Unaudited)
period. Cash collected by Washington Gas on behalf of its affiliates but not yet transferred is recorded in “Payables to associated companies” on Washington Gas’ balance sheet.sheets.
Washington Gas provides gas balancing services related to storage, injections, withdrawals and deliveries to all energy marketers participating in the sale of natural gas on an unregulated basis through the customer choice programs that operate in its service territory.territory, These balancing services include the sale of natural gas supply commodities related to various peaking arrangements contractually supplied to Washington Gas and then partially allocated and assigned by Washington Gas to the energy marketers, including WGL Energy Services. Washington Gas records revenues in " Operating revenue" of its statements of operations for these balancing services pursuant to tariffs approved by the appropriate regulatory bodies. The following table shows the amounts Washington Gas charged WGL Energy Services for balancing services.
| | | Gas Balancing Service Charges | |
| Washington Gas - Gas Balancing Service Charges | | Washington Gas - Gas Balancing Service Charges |
| | Three Months Ended
September 30, | Nine Months Ended
September 30, | | Three Months Ended
September 30, | Nine Months Ended
September 30, |
| (In millions) | 2019 | 2018 | 2019 | 2018 | (In millions) | 2020 | 2019 | 2020 | 2019 |
| Gas balancing service charge | $ | 2.9 |
| $ | 3.2 |
| $ | 14.9 |
| $ | 16.0 |
| Gas balancing service charge | $ | 2.7 | | $ | 2.9 | | $ | 12.4 | | $ | 14.9 | |
As a result of these balancing services, an imbalance is created for volumes of natural gas received by Washington Gas that are not equal to the volumes of natural gas delivered to customers of the energy marketers. Washington Gas recorded a$0.2 million and $2.1 million payable to WGL Energy Services at September 30, 20192020 and $0.7 million receivable from WGL Energy Services at December 31, 2018,2019, respectively, related to an imbalance in gas volumes. The receivable and payable arepayables were recorded in “Account receivable” and “Account"Accounts payable and other accrued liabilities”liabilities" on Washington Gas’Gas' balance sheet. Refer to Note 1- Accounting Policies of the Notes to Financial Statements on Form 10-KT for the three months ended December 31, 2018 for further discussion of these imbalance transactions.sheets.
Washington Gas participates in a purchase of receivables (POR) program as approved by the PSC of MD and separate program approved by the PSC of DC, whereby it purchases receivables from participating energy marketers including WGL Energy Services, at approved discount rates. WGL Energy Services is one of the energy marketers that participates in these POR programs whereby it sells its receivables to various utilities, including Washington Gas, implemented the POR program in the District of Columbia beginning in January 2019.at approved discount rates. The receivables purchased by Washington Gas are included in “Accounts receivable” in the accompanying balance sheet.sheets. At September 30, 20192020 and December 31, 2018,2019, Washington Gas had balances of $3.5$2.9 million and $6.4$7.9 million, respectively, of purchased receivables from WGL Energy Services.
Refer to Note 8-Income Taxes of the Notes to Condensed Financial Statements for discussion of related party income taxes.
NOTE 14. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following table shows the changes in accumulated other comprehensive income (loss) by component for three and nine months ended September 30, 2019 and 2018.
|
| | | | | | | | | | | | | | | |
| Changes in Accumulated Other Comprehensive Income (Loss) by Component |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| (In thousands) | 2019 | | 2018 | | 2019 | | 2018 |
| Beginning Balance | $ | (6,141 | ) | | $ | (3,959 | ) | | $ | (6,627 | ) | | $ | (4,330 | ) |
Amortization of prior service cost (a)(b) | (163 | ) | | 145 |
| | (486 | ) | | (401 | ) |
Amortization of actuarial gain (loss)(a)(b)
| 392 |
| | 112 |
| | 1,198 |
| | 1,172 |
|
Actuarial gain (loss) arising during the period (a) | — |
| | 4,625 |
| | 1,250 |
| | 4,625 |
|
| Current-period other comprehensive income (loss) | 229 |
|
| 4,882 |
|
| 1,962 |
|
| 5,396 |
|
Income tax expense (benefit) related to pension and other post-retirement benefit plans
| (713 | ) | | 2,753 |
| | 534 |
| | 2,896 |
|
| Ending Balance | $ | (5,199 | ) |
| $ | (1,830 | ) |
| $ | (5,199 | ) |
| $ | (1,830 | ) |
(a) These accumulated other comprehensive income (loss) components are included in the computation of net periodic benefit cost. Refer to Note 9—Pension and other post-retirement benefit plans for additional details.
Washington Gas Light Company
Part I-Financial Information
Item 1-Financial Statements (continued)
Notes to Condensed Financial Statements (Unaudited)
NOTE 15. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following table shows the changes in accumulated other comprehensive income (loss) (AOCI) by component for the reporting periods.
| | | | | | | | | | | | | | | | | | | | | | | |
| Changes in Accumulated Other Comprehensive Income (Loss) by Component |
| Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| (In thousands) | 2020 | | 2019 (c) | | 2020 | | 2019 (c) |
| Beginning Balance | $ | 6,266 | | | $ | (6,547) | | | $ | 4,576 | | | $ | (7,106) | |
Amortization of prior service credit (a)(b) | (292) | | | (163) | | | (924) | | | (486) | |
Amortization of actuarial loss (a)(b) | 427 | | | 442 | | | 1,432 | | | 1,346 | |
Actuarial gain (loss) arising during the period (a) | 1,286 | | | 0 | | | 3,196 | | | 1,250 | |
| Current-period other comprehensive income | 1,421 | | | 279 | | | 3,704 | | | 2,110 | |
| Income tax expense related to pension and other post-retirement benefit plans retained in AOCI | 366 | | | (700) | | | 959 | | | 572 | |
| Ending Balance | $ | 7,321 | | | $ | (5,568) | | | $ | 7,321 | | | $ | (5,568) | |
(a)The accumulated other comprehensive income (loss) components are included in the computation of net periodic benefit cost.(b) Amortization of prior service cost and amortization of actuarial gain (loss) represent the amounts reclassified out of AOCI to “Other income (expense)” of Statementsstatements of Operationsoperations for the reporting periods.
(c) In the third quarter of 2020, Washington Gas made a voluntary change in accounting principle for calculating the market-related value of assets used in the determination of net periodic pension and other post-retirement benefit plan costs. We have retrospectively applied this change in accounting principle to all applicable prior period financial information presented herein as required.. Refer to Note 1 — Accounting Policies for further discussion.
Washington Gas Light Company
Part I-Financial Information
Item 1-Financial Statements (continued)
Notes to Condensed Financial Statements (Unaudited)
NOTE 15.16. SUPPLEMENTAL CASH FLOW INFORMATION
The following table details the changes in operating assets and liabilities from operating activities, cash payments that have been included in the determination of earnings and non-cash investing and financing activities. |
| | | | | | |
| | Nine Months Ended September 30, | Nine Months Ended September 30, |
| (In thousands) | 2019 | 2018 |
| CHANGES IN OPERATING ASSETS AND LIABILITIES | | |
| Accounts receivable and unbilled revenues | $ | 174,986 |
| $ | 159,066 |
|
| Receivables from associated companies | (3,981 | ) | 24,783 |
|
| Gas costs and other regulatory assets/liabilities—net | (8,253 | ) | (10,509 | ) |
| Storage gas | 11,479 |
| (16,419 | ) |
| Prepaid taxes | (3,791 | ) | 14,167 |
|
| Accounts payable and other accrued liabilities | (109,287 | ) | 15,722 |
|
| Payables to associated companies | 10,383 |
| (86,049 | ) |
| Customer deposits and advance payments | (11,511 | ) | 28,947 |
|
| Accrued taxes | 6,830 |
| (19,527 | ) |
| Other current assets | 5,077 |
| (4,701 | ) |
| Other current liabilities | (240 | ) | 278 |
|
| Deferred gas costs—net | 49,379 |
| 17,717 |
|
| Deferred assets—other | 11,807 |
| 11,754 |
|
| Deferred liabilities—other | (26,879 | ) | (22,038 | ) |
| Pension and other post-retirement benefits | (11,427 | ) | (14,079 | ) |
| Other—net | — |
| (798 | ) |
| Changes in operating assets and liabilities | $ | 94,572 |
| $ | 98,314 |
|
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | | |
| Income taxes paid (refunded)—net | $ | 5,253 |
| $ | (2,025 | ) |
| Interest paid | $ | 54,238 |
| $ | 54,059 |
|
| SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES: | | |
| Extinguishment of project debt financing | $ | (15,460 | ) | $ | (28,312 | ) |
| Capital expenditure accruals included in accounts payable and other accrued liabilities | $ | 39,976 |
| $ | 53,367 |
|
| | | | | | | | |
| Nine Months Ended September 30, |
| (In thousands) | 2020 | 2019 |
| CHANGES IN OPERATING ASSETS AND LIABILITIES | | |
| Receivables | $ | 177,598 | | $ | 174,986 | |
| (Receivables from) Payables to associated companies — net | 8,754 | | 6,402 | |
| Gas costs and other regulatory assets/liabilities — net | (82,387) | | (8,253) | |
| Storage gas | 15,900 | | 11,479 | |
| Prepaid taxes | 4,097 | | (3,791) | |
| | |
| Accounts payable and other accrued liabilities | (67,114) | | (109,287) | |
| Customer deposits and advance payments | (1,785) | | (11,511) | |
| Accrued taxes | 4,500 | | 6,830 | |
| | |
| Other current assets | 20,226 | | 5,077 | |
| Other current liabilities | 4,163 | | (240) | |
| Deferred gas costs — net | 16,360 | | 49,379 | |
| Deferred assets — other | (19,523) | | 11,807 | |
| Deferred liabilities — other | (14,929) | | (26,879) | |
| | |
| Pension and other post-retirement benefits | (12,152) | | (11,427) | |
| | |
| Changes in operating assets and liabilities | $ | 53,708 | | $ | 94,572 | |
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | | |
| Income taxes paid (refunded) — net | (2,880) | | 5,253 | |
| Interest paid | 62,169 | | 54,238 | |
| SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES: | | |
| Extinguishment of project debt financing activities — net | 0 | | (15,460) | |
| Capital expenditure accruals included in accounts payable and other accrued liabilities | $ | 52,643 | | $ | 39,976 | |
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within Washington Gas’ balance sheetsheets that sums to the total of such amounts shown on the statements of cash flows.flows
| | | | | | | | |
| |
| (In thousands) | September 30, 2020 | September 30, 2019 |
| Cash and cash equivalents | $ | 1,214 | | $ | 1 | |
| Restricted cash included in Current assets-Other | 7,507 | | 4,225 | |
| Restricted cash included in Deferred charges and other assets-Other | 20,519 | | 43,945 | |
| Total cash, cash equivalents and restricted cash shown in the statements of cash flows | $ | 29,240 | | $ | 48,171 | |
Washington Gas Light Company
Part I-Financial Information
Item 1-Financial Statements (continued)
Notes to Condensed Financial Statements (Unaudited)
|
| | | | | | |
| (in thousands) | September 30, 2019 | September 30, 2018 |
| Cash and cash equivalents | $ | 1 |
| $ | 1 |
|
| Restricted cash included in Current Assets-Other | $ | 4,225 |
| $ | 20,207 |
|
| Restricted cash included in Deferred Charges and Other Assets-Other | $ | 43,945 |
| $ | 44,775 |
|
| Total cash, cash equivalents and restricted cash shown in the statement of cash flows | $ | 48,171 |
| $ | 64,983 |
|
Restricted cash included in “Current assets—Other”"Current assets — Other" and “Deferred"Deferred charges and other assets—Other”assets — Other" on the balance sheetsheets represents amount of investment in rabbi trusts to fund deferred compensation, pension and other post-retirement benefits for certain management personnel and directors. The rabbi trusts were funded pursuant to the agreement of merger with AltaGas. The funds in the rabbi trusts can only be used to pay for plan participant benefits and other plan expenses such as investment fees or trustee fees. The funds wereare invested in money market funds at the end of September 30, 20192020 and September 30, 2018.2019. Refer to Note 9-10 — Pension and Other Post-Retirement Benefit Plans for further discussion of rabbi trusts.
Washington Gas Light Company
Part II-Financial Information
Item 2-Management’s2. Management’s Discussion and Analysis of
Financial Condition and Results of Operations
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTIONIntroduction
This Management’s Discussion and Analysis of Financial Condition and Results of Operations (Management’s Discussion and Analysis) analyzes the financial condition, results of operations and cash flows of Washington Gas. This discussion follows the format permitted in accordance with General Instruction H(2) of Form 10-Q, in light of Washington Gas’ status as a wholly owned subsidiary of AltaGas as permitted under General Instruction H(1) of Form 10-Q. It also includes management’s narrative analysis of results of operations and reasons for material changes. This narrative discusses past financial results and potential factors that may affect future results, potential future risks and approaches that may be used to manage them. Except where the content clearly indicates otherwise, “Washington Gas,” “we,” “us,” “our” or the “Company,”"Company" refers to Washington Gas Light Company.
Management’s Discussion and Analysis is designed to provide an understanding of our operations and financial performance and should be read in conjunction with the Company’scompany’s financial statements and the Notes to Condensed Financial StatementsStatements.
COVID-19
On March 11, 2020, the World Health Organization declared the outbreak of a strain of novel coronavirus disease, COVID-19, a global pandemic. Governments in affected areas in which we operate have imposed a number of measures designed to contain the outbreak, including business closures, travel restrictions, quarantines and cancellations of gatherings and events. Washington Gas activated a pandemic response team to monitor COVID-19 developments closely. The pandemic response team has led Company efforts to mitigate the impacts to our business, and has implemented pandemic and business continuity plans to protect our employees, customers and communities. To date, Washington Gas has been able to respond to pandemic-related challenges with minimal disruption to its operations and business and it has not experienced unavailability of a significant portion of its personnel as a result of COVID-19.
As a result of regulatory orders, we have temporarily suspended customer disconnections for non-payment, temporarily suspended collection activities, and temporarily waived assessing and billing late payment fees. We resumed assessing late payment fees in Maryland in October 2020 following a regulatory order. The suspension of collection activities has caused our overall accounts receivable portfolio to age more than historical levels. However, we do not expect the increase in credit losses to have a significant impact on net income. The PSC of DC, PSC of MD, and SCC of VA each have issued an Order authorizing Washington Gas to establish a regulatory asset to capture and track the incremental COVID-19 related costs, including incremental credit losses, which allows for assessment of recovery of those costs in future base rate cases. As of September 30, 2020, we have recorded $9.0 million of incremental COVID-19 related costs to regulatory assets across all three jurisdictions, primarily bad debt expense, and services and supplies. Additionally, we waived late payment fees of $1.6 million and $4.4 million for the three and nine months ended September 30, 2020, respectively.
No material impairments of our long-lived assets were recorded through the date of this quarterly report, as well as Washington Gas’ Form 10-KTno triggering events or changes in circumstances had occurred.
Unfavorable economic conditions due to COVID-19 have reduced demand for natural gas. Compared to prior period, the lower commercial usage in DC and VA, waived late fees, and lower service initiation fees have resulted in a decrease to net revenue. Based on the year to date results and our current estimates of COVID-19 impacts, and assuming normal weather for the period ending December 31, 2018. Our operations are seasonal and, accordingly, our operating results for the periods presented are not indicativeremainder of the year, Washington Gas expects lower commercial usage due to COVID-19 that could negatively impact our financial results. However, due to significant uncertainty related to the pandemic and its economic impact, management's judgment and estimates regarding the situation could change in the future, and current expected outcomes and actual results may differ.
Refer to be expected"Rates and Regulatory Matters" for the full year.updates on COVID-19 related orders.
Results of Operations
Washington Gas has one operating segment that engages in the deliveryits core business of delivering and sale ofselling natural gas whose operations are regulatedunder tariffs approved by regulatory commissions in the District of Columbia, Maryland and Virginia.
RESULTS OF OPERATIONS—Three Months Ended September 30, 2019 vs. September 30, 2018
Summary Results
A netNet loss of $65.8was $36.6 million was reported for the three months ended September 30, 20192020 compared to a net loss of $181.2$66.5 million for the same periodthree months ended September 30, 2018.2019. The increase of $115.4$29.9 million improvement in net loss was mainly duefrom a higher expenses related to Merger commitments and related expenses recorded in the prior period, offsetnet revenue driven by lower net revenues associated with the impact of rate cases, including revised amortizationsaccelerated pipe replacement programs and our asset optimization program, partially offset by a negative impact from the COVID-19 pandemic.
Net income was $76.5 million for the nine months ended September 30, 2020 compared to net income of excess deferred taxes.
$24.6 million for the nine months ended September 30, 2019. The $51.9 million increase in net income was mainly from an increase in net revenues driven by the impact of rate cases, accelerated pipe replacement programs and our asset optimization program, partially offset by negative impacts from warmer weather and the COVID-19 pandemic.
Our chief operating decision maker utilizes earnings before interest, tax, depreciationthe non-GAAP measure, Earnings Before Interest, Taxes, Depreciation and amortizationAmortization (EBITDA), as the primary measure of profit and loss in assessing the results of operations. EBITDA includes operating income and other income (expense). We believe that our use of EBITDA enhances the ability to evaluate Washington Gas’Gas' 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.financing. It also excludes depreciation and amortization which do not affect cash flow.flows.
EBITDA should not be considered an alternative to, or a more meaningful indicator of our operating performance than, net income.
The following table reconciles EBITDA to net income for the three months and nine months ended September 30, 20192020 and 2018.2019.
| | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, | |
| (In millions) | 2020 | 2019 | Increase/(Decrease) | 2020 | 2019 | Increase/(Decrease) |
| Net income (loss) | $ | (36.6) | | $ | (66.5) | | $ | 29.9 | | $ | 76.5 | | $ | 24.6 | | $ | 51.9 | |
| Interest expense | 16.1 | | 15.6 | | 0.5 | | 49.0 | | 45.1 | | 3.9 | |
| Income tax expense (benefit) | (11.3) | | (19.5) | | 8.2 | | 15.5 | | 4.3 | | 11.2 | |
| Depreciation and amortization | 36.3 | | 34.4 | | 1.9 | | 108.5 | | 106.6 | | 1.9 | |
| EBITDA | $ | 4.5 | | $ | (36.0) | | $ | 40.5 | | $ | 249.5 | | $ | 180.6 | | $ | 68.9 | |
|
| | | | | | | | | | |
| Three Months Ended September 30, | | |
| (In millions) | 2019 | 2018 | | Increase/(Decrease) |
| Net income (loss) | $ | (65.8 | ) | $ | (181.2 | ) | | $ | 115.4 |
|
| Interest expense | 15.6 |
| 14.4 |
| | 1.2 |
|
| Income tax expense (benefit) | (19.3 | ) | (69.1 | ) | | 49.8 |
|
| Depreciation and amortization | 34.4 |
| 33.9 |
| | 0.5 |
|
| EBITDA | $ | (35.1 | ) | $ | (202.0 | ) | | $ | 166.9 |
|
Washington Gas Light Company
Part II
Item 2-Management’s Discussion and Analysis of
Financial Condition and Results of Operations (continued)
The higher EBITDA for the quarter ended September 30, 2019 compared to the quarter ended September 30, 2018 reflects higher expenses related to Merger commitments and related expenses recorded in the prior period, offset by lower net revenues associated with the impact of rate cases and lower unrealized mark-to-market valuations.
Summary Financial Results
The following table summarizes the Company’s financial data for the three months and nine months ended September 30, 20192020 and 2019.
| | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, | |
| (In millions) | 2020 | 2019 | Increase/(Decrease) | 2020 | 2019 | Increase/(Decrease) |
| Revenues: | | | | | | |
| Operating revenues | $ | 143.4 | | $ | 122.3 | | $ | 21.1 | | $ | 856.3 | | $ | 914.4 | | $ | (58.1) | |
| Less: Cost of gas | 20.8 | | 33.4 | | (12.6) | | 221.3 | | 331.3 | | (110.0) | |
| Less: Revenue taxes | 12.2 | | 11.6 | | 0.6 | | 54.3 | | 57.7 | | (3.4) | |
| Total net revenues | 110.4 | | 77.3 | | 33.1 | | 580.7 | | 525.4 | | 55.3 | |
| Operation and maintenance | 94.2 | | 101.2 | | (7.0) | | 291.9 | | 300.4 | | (8.5) | |
| General taxes and other assessments | 15.8 | | 14.7 | | 1.1 | | 55.7 | | 49.0 | | 6.7 | |
| Other income (expenses)-net | 4.1 | | 2.6 | | 1.5 | | 16.4 | | 4.6 | | 11.8 | |
| EBITDA | $ | 4.5 | | $ | (36.0) | | $ | 40.5 | | $ | 249.5 | | $ | 180.6 | | $ | 68.9 | |
Revenues
Operating revenues increased by $21.1 million in the three months ended September 30, 2018, reconciling operating revenues2020 compared to EBITDA for the three months ended September 30, 2019 mainly driven by the impact of rate cases, accelerated pipe replacement programs and 2018.our asset optimization program, partially offset by a negative impact from the COVID-19 pandemic.
|
| | | | | | | | | | |
| Three Months Ended September 30, | | |
| (In millions) | 2019 | 2018 | | Increase/(Decrease) |
| Net revenues | | | | |
| Operating revenues | $ | 122.3 |
| $ | 139.0 |
| | $ | (16.7 | ) |
| Less: Cost of gas | $ | 33.4 |
| 20.9 |
| | 12.5 |
|
| Revenue taxes | 11.6 |
| 11.7 |
| | (0.1 | ) |
| Total net revenues | 77.3 |
| 106.4 |
| | (29.1 | ) |
| Operation and maintenance | 101.2 |
| 282.8 |
| | (181.6 | ) |
| General taxes and other assessments | 14.7 |
| 15.2 |
| | (0.5 | ) |
| Other income (expense) | 3.5 |
| (10.4 | ) | | 13.9 |
|
| EBITDA | $ | (35.1 | ) | $ | (202.0 | ) | | $ | 166.9 |
|
Net RevenuesOperating revenues decreased by $58.1 million in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 mainly driven by the reduction in gas costs, effects of weather and consumption patterns and a negative impact from the COVID-19 pandemic, partially offset by the impact from rate cases.
We also utilize the non-GAAP measure of net revenues, calculated as revenues less the associated cost of energy and applicable revenue taxes, to assist in the analysis of profitability. The cost of the natural gas commodity (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. Net revenues should not be considered an alternative to, or a more meaningful indicator of our operating performance than operating revenues. Additionally, net revenues may not be comparable to similarly titled measures of other companies.
The table above reconciles net revenues to operating revenues for the three months ended September 30, 2019 and 2018reporting periods as part of the reconciliation of operating revenues to EBITDA.
EBITDA. Net revenues increased by $33.1 million and $55.3 million in the three months and nine months ended September 30, 2020 compared to the three months and nine months ended September 30, 2019.The following table providesexplains the key factors contributing tomain drivers noted above for the change in operating revenues, as well as the additional drivers for the increase in net revenues betweenrevenues.
Impact of rate cases
The $24.0 million increase for the three months ended September 30, 2020 compared to the same period of the prior year included an increase of $3.1 million impact of new base rates in Maryland, effective October 2019, and 2018.a $20.9 million reduction to operating revenues in the third quarter of 2019 due to the Hearing Examiner's report regarding the Company’s Virginia rate case.
The $48.5 million increase for the nine months ended September 30, 2020 compared to the same prior year period included an increase of $20.1 million impact of new base rates in Maryland, a $20.9 million adjustment related to the Virginia rate case discussed above, and a $7.5 million increase due to a true-up recorded in the first quarter of 2020 to the Virginia rate refund liability after incorporating final commission approved rates. |
| | | |
| Composition of Changes in Net Revenues |
| (In millions) | Increase/(Decrease) |
| Accelerated replacement programs | $ | 3.1 |
|
| Impact of rate cases |
|
| Tax Act refund adjustment | (13.3 | ) |
| Reserve for rate refund | (7.0 | ) |
| Other impact of rate cases | (3.6 | ) |
| Asset optimization: | |
| Realized margins | 0.8 |
|
| Unrealized mark-to-market valuations | (9.8 | ) |
| Other | 0.7 |
|
| Total | $ | (29.1 | ) |
Washington Gas Light Company
Part II
Item 2-Management’s Discussion and Analysis of
Financial Condition and Results of Operations (continued)
Accelerated replacement programs — Approved
The $3.0 million and $8.8 million increase for the three months and nine months ended September 30, 2020 compared to the same periods of the prior year were due to approved accelerated replacement programs arethat were in place with an associated surcharge mechanism to recover the cost, including a return, on those capital investments.
Impact of rate cases — The decrease in net revenues primarily reflects the impact of the HE’s report regarding the Company’s pending Virginia rate case. The report recommends a shorter amortization period of both excess deferred taxes and revenues collected based on the previous federal tax rate. The report also recommends no increase to base rates, and accordingly net revenues reflect a higher reserve recorded against new base rates put in effect January 1, 2019. Refer to “Rates and Regulatory Matters” for further discussion of these matters.
Asset optimization — We recorded a net loss of $1.3
$6.3 million including an unrealized loss of $6.5and $11.4 million increase for the three months and nine months ended September 30, 2020 compared to the same periods prior year associated with our energy-related derivativesderivatives. Refer to Note 12-Derivatives for detail discussion.
Estimated effects of weather and consumption patterns
In the District of Columbia, where Washington Gas does not have a billing mechanism to offset the effects of weather on revenues, the comparatively warmer weather primarily caused the variance to net revenues. Natural gas consumption patterns may be affected by shifts in weather patterns and non-weather-related factors such as customer conservation.
Net revenue for the quarterthree months ended September 30, 2019,2020 was negatively impacted by lower commercial usage in DC and VA due to COVID-19, resulting in a total decrease in net revenue of $2.0 million, compared to a net gain of $7.7 million including an unrealized gain of $3.3 millionthe same period 2019.
Weather was 14.7% and 10.5% warmer than normal for the quarternine months ended September 30, 2018. When these derivatives settle, any unrealized amounts will ultimately reverse2020 and Washington Gas expects to realize margins2019, respectively, with an additional negative impact from lower commercial usage in combination with related transactions that these derivatives economically hedge. The large swings in the valuations are partiallyDC and VA due to movements in unobservable inputs used in the valuationCOVID-19, driving lower net revenues 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” for further discussion of our asset optimization program.
$11.9 million.
Operation and Maintenance Expenses
The following table provides the key factors contributing to the changes in operationOperating and maintenance expenses between reporting periods.decreased $7.0 million and $8.5 million for the three and nine months ended September 30, 2020 compared to the same periods prior year. The decreases were mainly driven by lower general operating expenses.
General taxes and other assessments |
| | | |
| Composition of Changes in Operation and Maintenance Expenses |
| (In millions) | Increase/(Decrease) |
| Merger commitments and related expenses | $ | (190.4 | ) |
| Employee labor costs | 5.5 |
|
| Other | 3.3 |
|
| Total | $ | (181.6 | ) |
Merger commitmentsThe increase in general taxes and related expenses— Duringother assessments between the three months ended September 30, 2018, we recorded costs for accrued bill credits to customers, an accrual for our commitment of community support, employee benefits related severance, retention and acceleration of incentive plans, and an impairment that was booked as part of the Merger with AltaGas. SeeNote 20 - Merger with AltaGas, Ltd. to the Consolidated Financial Statements in our Form 10-K for the fiscal yearnine months ended September 30, 2018 for further information on these expenses.
Employee labor costs — The quarter-over-quarter variance is primarily due to an increase in employees2020 and higher salaries.
2019 was associated with clean energy programs.
Other income (expense)
The increase in other income (expense)(expenses) between periods reflects increased costs in the prior yearthree months and nine months ended September 30, 2020 and 2019 was $1.5 million and $11.8 million due to lower pension costs, including the commitmentimpact from the change in accounting principle. Refer to Note 1— Accounting Policies for charitable contributions.further discussion.
Income Taxes
The following table shows Washington Gas’ income tax expense and effective income tax rate for the three months ended September 30, 2019 and 2018.
|
| | | | | | | | |
| Income Taxes |
| Three Months Ended September 30, | | Increase/ |
| (In millions) | 2019 | 2018 | | (Decrease) |
| Income (loss) before income taxes | (85.1 | ) | (250.3 | ) | | $ | 165.2 |
|
| Income tax expense (benefit) | (19.3 | ) | (69.1 | ) | | 49.8 |
|
| Effective income tax rate | 22.7 | % | 27.6 | % | | (4.9 | ) |
Washington Gas Light Company
Part II
Item 2-Management’s Discussion and Analysis of
Financial Condition and Results of Operations (continued)
We use an estimated annual effective income tax rate for purposes of determining the income tax provision during interim reporting periods. Therefore, the effective income tax rate for the quarter may include forecasted information that is expected to occur later in the year. The current period effective income tax rate reflects the impact of the HE’s report regarding the Company’s pending Virginia rate case
. Refer to “Rates and Regulatory Matters” for further discussion of these matters.
RESULTS OF OPERATIONS—Nine Months Ended September 30, 2019 vs. September 30, 2018
Summary Results
Net income2020 was $26.6 million for the nine months ended September 30, 201923.6% compared to net loss of $84.6 million22.7% for the same period ended September 30, 2018. The increase of $111.2 million was mainly due to higher expenses related to Merger commitments and related expenses recorded in the prior year.
The following table reconciles EBITDA to net income for the nine months ended September 30, 2019 and 2018.
|
| | | | | | | | | | |
| Nine Months Ended September 30, | | |
| (In millions) | 2019 | 2018 | | Increase/(Decrease) |
| Net income (loss) | $ | 26.6 |
| $ | (84.6 | ) | | $ | 111.2 |
|
| Interest expense | 45.1 |
| 43.5 |
| | 1.6 |
|
| Income tax expense (benefit) | 5.0 |
| (50.7 | ) | | 55.7 |
|
| Depreciation and amortization | 106.6 |
| 101.4 |
| | 5.2 |
|
| EBITDA | $ | 183.3 |
| $ | 9.6 |
| | $ | 173.7 |
|
The higher EBITDA for the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018 primarily
reflects higher expenses related to Merger commitments and related expenses recorded in the prior period, offset by lower net revenues due to lower realized margins and lower unrealized mark-to-market gains associated with our asset optimization program.
Summary Financial Results
The following table summarizes the Company’s financial data for the nine months ended September 30, 2019 and nine months ended September 30, 2018, reconciling operating revenues to EBITDA for the nine months ended September 30, 2019 and 2018.
|
| | | | | | | | | | |
| Nine Months Ended September 30, | | |
| (In millions) | 2019 | 2018 | | Increase/(Decrease) |
| Net revenues | | | | |
| Operating revenues | $ | 914.4 |
| $ | 870.6 |
| | $ | 43.8 |
|
| Less: Cost of gas | 331.3 |
| 282.3 |
| | 49.0 |
|
| Revenue taxes | 57.7 |
| 58.6 |
| | (0.9 | ) |
| Total net revenues | 525.4 |
| 529.7 |
| | (4.3 | ) |
| Operation and maintenance | 300.4 |
| 461.8 |
| | (161.4 | ) |
| General taxes and other assessments | 49.0 |
| 49.7 |
| | (0.7 | ) |
| Other income (expenses) | 7.3 |
| (8.6 | ) | | 15.9 |
|
| EBITDA | $ | 183.3 |
| $ | 9.6 |
| | $ | 173.7 |
|
Net Revenues
The table above reconciles net revenues to operating revenues for the nine months ended September 30, 2019 and 2018 as part of the reconciliation of operating revenues to EBITDA.
Washington Gas Light Company
Part II
Item 2-Management’s Discussion and Analysis of
Financial Condition and Results of Operations (continued)
The following table provides the key factors contributing to the change in the net revenues between the nine months ended September 30, 2019 and 2018.
|
| | | |
| Composition of Changes in Net Revenues |
| (In millions) | Increase/(Decrease) |
| Accelerated replacement programs | $ | 6.4 |
|
| Customer growth | 4.9 |
|
| Interruptible revenue (net of sharing) | 2.3 |
|
| Asset optimization: | |
| Realized margins | (5.5 | ) |
| Unrealized mark-to-market valuations | (11.7 | ) |
| Loss related to Antero Contract | (3.0 | ) |
| Impact of rate cases | |
| Net Tax Act refund adjustment | (9.5 | ) |
| Maryland rate case | 6.8 |
|
Other impact of rate cases
| 0.7 |
|
| Other | 4.3 |
|
| Total | $ | (4.3 | ) |
Accelerated replacement programs — Approved accelerated replacement programs are in place with an associated surcharge mechanism to recover the cost, including a return, on those capital investments.
Customer growth — Average active customer meters increased by approximately 13,000 at the nine months ended September 30, 2019, over the number of average active customer meters at the end of the same period of 2018. Washington Gas added 8,290 and 8,759 new customers in the nine months ended September 30, 2019 and 2018, respectively, supported by additional capital and rate base. Adding new customers directly drives earnings growth through additional distribution revenues.
Interruptible revenue (net of sharing) — The increase in Interruptible revenue, net of sharing, is due to higher rates in Maryland and lower margin sharing in District of Columbia.
Asset optimization — We recorded a net gain of $8.3 million including an unrealized gain of $0.1 million associated with our energy-related derivatives for the nine months ended September 30, 2019, compared to a net gain of $28.5 million including an unrealized gain of $11.8 million for the nine months ended September 30, 2018.
Loss related to Antero Contractunder Asset optimization— We recorded the net pre-tax loss of $3.0 million in “Utility cost of gas” on the statements of operations for the nine months ended September 30, 2019 due to the litigation related to the Antero Contract. Refer to Note 10 - Commitments and Contingency for further discussion.
Impact of rate cases — The decrease in net revenues primarily reflects the impact of the HE’s report regarding the Company’s pending Virginia rate case. The report recommends a shorter amortization period of both excess deferred taxes and revenues collected based on the previous federal tax rate, as well as no incremental base revenues. Partially offsetting these adjustments are new base rates in Maryland, effective December 2018. Refer to “Rates and Regulatory Matters” for further discussion of these matters.
Operation and Maintenance Expenses
The following table provides the key factors contributing to the changes in operation and maintenance expenses between reporting periods.
Washington Gas Light Company
Part II
Item 2-Management’s Discussion and Analysis of
Financial Condition and Results of Operations (continued)
|
| | | |
| Composition of Changes in Operation and Maintenance Expenses |
| (In millions) | Increase/(Decrease) |
| Merger commitments and related expenses | $ | (185.6 | ) |
| Employee labor costs | 12.1 |
|
| Corporate allocated services | 8.5 |
|
| System safety and integrity | 6.4 |
|
| Other | (2.8 | ) |
| Total | $ | (161.4 | ) |
Merger commitments and related expenses— During the nine months ended September 30, 2018, we recorded costs for accrued bill credits to customers, an accrual for our commitment of community support, employee benefits related severance, retention and acceleration of incentive plans, and an impairment that was booked as part of the Merger with AltaGas.
Employee labor costs — The year-over-year variance is primarily due to an increase in employees and higher salaries.
Corporate allocated services— The increase in the current year over the prior year period is due to corporate shared services provided by AltaGas after the Merger close in July 2018. Over time, such costs are expected to be offset by reductions in other functional areas.
System safety and integrity — The increase in expense for the nine months ended September 30, 2019 over the same period of 2018 reflects increased safety and reliability activities including leak repair and mitigation.
Other income (expense)
The increase in other income (expenses) between periods reflects the commitment for charitable contributions in the prior year.
Depreciation and Amortization
The increase in depreciation and amortization between periods represents higher depreciation expense on capital additions.
Income Taxes
The following table shows Washington Gas’ income tax expense and effective income tax rate for the nine months ended September 30, 2019 and 2018.
|
| | | | | | | | |
| Income Taxes |
| Nine Months Ended September 30, | | Increase/ |
| (In millions) | 2019 | 2018 | | (Decrease) |
| Income (loss) before income taxes | 31.6 |
| (135.3 | ) | | $ | 166.9 |
|
| Income tax expense (benefit) | 5.0 |
| (50.7 | ) | | 55.7 |
|
| Effective income tax rate | 15.8 | % | 37.5 | % | | (21.7 | ) |
We use an estimated annual effective income tax rate for purposes of determining the income tax provision during interim reporting periods. Therefore, the effective income tax rate for the nine months ended September 30, 2019 may include forecasted information that is expected to occur later in the year. The current period effective income tax rate reflects the impact of the HE’s report regarding the Company’s pending Virginia rate case. Refer to “Rates and Regulatory Matters” for further discussion of these matters.
Key Operating StatisticsStatistical Information
Key gas delivery,volumes, weather and meter statistics are shown in the table below for the three and nine months ended September 30, 20192020 and 2018.2019.
| | | | | | | | | | | | | | | | | | | | |
| Gas Volumes, Weather and Meter Statistics |
| Three Months Ended | | Nine Months Ended | |
| | September 30, | | September 30, | |
| | 2020 | 2019 | Increase/(Decrease) | 2020 | 2019 | Increase/(Decrease) |
Base Gas Volumes (millions of therms) | | | | | | |
| Firm | 113.3 | | 114.1 | | (0.8) | | 859.7 | | 954.9 | | (95.2) | |
| Interruptible | 45.7 | | 40.8 | | 4.9 | | 176.3 | | 189.3 | | (13.0) | |
| Other | 47.5 | | 33.7 | | 13.8 | | 76.7 | | 74.7 | | 2.0 | |
| Total gas volumes | 206.5 | | 188.6 | | 17.9 | | 1,112.7 | | 1,218.9 | | (106.2) | |
| Degree Days | | | | | | |
| Actual | 30 | | — | | 30 | | 2,111 | | 2,205 | | (94) | |
| Normal | 16 | | 16 | | — | | 2,475 | | 2,463 | | 12 | |
| Percent colder (warmer) than normal | 87.5 | % | (100.0) | % | n/a | (14.7) | % | (10.5) | % | n/a |
| Average active customer meters | 1,203,000 | | 1,190,000 | | 13,000 | | 1,200,000 | | 1,189,000 | | 11,000 | |
| Ending active customer meters | 1,203,954 | | 1,188,909 | | 15,045 | | 1,203,954 | | 1,188,909 | | 15,045 | |
| New customer meters added | 3,372 | | 3,000 | | 372 | | 9,185 | | 8,290 | | 895 | |
Washington Gas Light Company
Part III-Financial Information
Item 2-Management’s2. Management’s Discussion and Analysis of
Financial Condition and Results of Operations (continued)
|
| | | | | | | | | | | | | | | | | |
| Gas Deliveries, Weather and Meter Statistics |
| | Three Months Ended September 30, | Increase/ | | Nine Months Ended September 30, | | Increase/ |
| | 2019 | | 2018 | | (Decrease) | | 2019 | | 2018 | | (Decrease) |
Gas Sales and Deliveries (millions of therms) | | | | | | | | | | | |
| Firm | 114.1 |
| | 113.6 |
| | 0.5 |
| | 954.9 |
| | 992.0 |
| | (37.1 | ) |
| Interruptible | 40.8 |
| | 46.3 |
| | (5.5 | ) | | 189.3 |
| | 178.3 |
| | 11.0 |
|
| Electric generation | 21.0 |
| | 40.2 |
| | (19.2 | ) | | 47.1 |
| | 148.5 |
| | (101.4 | ) |
Other
| 12.7 |
| | 13.8 |
| | (1.1 | ) | | 27.6 |
| | 30.3 |
| | (2.7 | ) |
| Total deliveries | 188.6 |
| | 213.9 |
| | (25.3 | ) | | 1,218.9 |
| | 1,349.1 |
| | (130.2 | ) |
| Degree Days | | | | | | | | | | | |
| Actual | — |
| | 1 |
| | (1 | ) | | 2,205 |
| | 2,422 |
| | (217 | ) |
| Normal | 16 |
| | 17 |
| | (1 | ) | | 2,463 |
| | 2,525 |
| | (62 | ) |
| Percent colder (warmer) than normal | (100.0 | ) | % | (94.1 | ) | % | n/a |
| | (10.5 | ) | % | (4.1 | ) | % | n/a |
|
| Average active customer meters | 1,190,000 |
| | 1,177,000 |
| | 13,000 |
| | 1,189,000 |
| | 1,176,000 |
| | 13,000 |
|
| Ending active customer meters | 1,188,909 |
| | 1,177,977 |
| | 10,932 |
| | 1,188,909 |
| | 1,177,977 |
| | 10,932 |
|
| New customer meters added | 3,000 |
| | 2,852 |
| | 148 |
| | 8,290 |
| | 8,759 |
| | (469 | ) |
Gas Service to Firm Customers
The volume of gas delivered to firm customers is highly sensitive to weather variability as a large portion of the natural gas delivered by Washington Gas is used for space heating. Washington Gas’ rates are established based on an assumption of normal weather. The tariffs in the Maryland and Virginia jurisdictions include provisions that consider the effects of the RNA and the WNA/CRA mechanisms, respectively, that are designed to, among other things, eliminatemitigate the effects of weather variationseffect on net revenues.revenues of variations in weather from normal levels (refer to the section entitled “Weather Risk”“Weather Risk” in the Form 10-K for year ended December 31, 2019 for a further discussion of these mechanisms and other weather-related instruments included in our weather protection strategy)discussion).
Gas Service to Interruptible Customers
Washington Gas may curtail or interruptCustomers whose service can be temporarily interrupted in order for the regulated utility to this classmeet the needs of customer when the demand by firm customers exceeds specified levels.pay a lower delivery rate than firm customers and they must be able to readily substitute an alternate fuel for natural gas. Per approved tariffs, Washington Gas retains a majority of the margins earned on interruptible gas and delivery sales. Washington Gas has sharing mechanisms in all three jurisdictions where itthe District of Columbia that shares a portionmost of interruptiblethese margins with firm customers.
Gas Service for Electric Generation
Washington Gas delivers natural gas for use at two electric generation facilities in Maryland that are each owned by independent companies. Washington Gas shares with firm customers a significant majority of the margins earned from natural gas deliveries to these customers. Therefore, changes in the volume of interruptible gas deliveries to these customers do not materially affect either net revenues or net income.
LIQUIDITY AND CAPITAL RESOURCESLiquidity and Capital Resources
General Factors Affecting Liquidity
Washington Gas generally meets its liquidity and capital needs through cash on hand, retained earnings, the issuance of commercial paper and long-term debt, and equity infusionscontributions from its parent holding companies, routed through Wrangler.Wrangler SPE. Access to short-term debt markets is necessary forprovides funding to our short-term liquidity requirements, the most significant of which include buying natural gas and pipeline capacity, and financing both accounts receivable and storage gas inventory. We have accessed long-term capital markets primarily to fund capital expenditures and retire matured long-term debt.
Our ability to access debt capital markets depends on our credit ratings, general market liquidity, and demand for our credit securities. In addition, under Under the Merger commitments agreed to by AltaGas and Washington Gas, during the Merger andincluding other rules imposed by regulatory commissions or state laws in Washington Gas’ service territory, the Company is prohibited and/or restricted in its ability to make advances or issue loans to an affiliate or parent holding company without prior regulatory commission approval.
Washington Gas Light Company
Part II
Item 2-Management’s Discussion and Analysis of
Financial Condition and Results of Operations (continued)
Our credit ratings depend largely on our financial performance and the ratings of our parent companies, WGL and 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 WGL’s or AltaGas’ ratings outlook or any downgrade in their credit ratings could negatively impact our ratings outlook or downgrade our credit ratings. Such downgrades could limit our access to the credit markets and increase the costs of borrowing under available credit lines. Washington Gas has ring fencing measures in place that were further expanded during the Merger regulatory approval process. The ring-fencing measures financially separate Washington Gas from WGL, AltaGas and its non-utility affiliates as a way to protect consumers of regulated utility services from financial instability or bankruptcy that may be experienced by its parent or affiliates.
On September 13, 2019, Washington Gas issued an aggregate principal amount of $300 million and 3.65% fixed interest rate, medium-term notes that are due in September 2049. The proceeds from these notes will be used for general corporate purposes, including the retirement of short-term debt and $50 million long-term debt due in November 2019, capital expenditures, acquisition of property and working capital needs.
As of September 30, 2019, total consolidated capitalization, including current maturities of long-term debt and notes payable and project financing, comprised 50.2% common equity, 0.9% preferred stock and 48.9% long and short-term debt. This capitalization ratio varies during the year primarily due to the seasonal nature of Washington Gas’ business. See discussion regarding seasonal impacts on working capital in Short-Term Cash Requirements and Related Financing below.
Our plans provide for sufficient liquidity to satisfy our financial obligations. Generally, pursuant to its Merger commitments, Washington Gas can make dividend payments in the ordinary course of business unless any of the following regulatory limitations apply: (i) Washington Gas will not pay extraordinary dividends to its parent for three years from the date of the Merger close, (ii) Washington Gas will not pay dividends to its parent company if Washington Gas’ senior unsecured debt rating is below investment grade or (iii) Washington Gas will not make a dividend payment to its parent company if the payment would result in its equity level to drop below 48%. At September 30, 2019,2020, we had no significant restrictions on our cash balances or retained earnings that would affect the payment of dividends.
During the first and third quarter of 2020, Washington Gas received a $125.0 million and $50.0 million cash capital contribution from Wrangler SPE, respectively. The proceeds are used to support the Company's construction program, to repay its short-term debt and for other corporate purposes.
As of September 30, 2020, we believe that our cash flows from operations and sources of funding will provide sufficient liquidity to satisfy our financial obligations. However, as the impact of the COVID-19 pandemic on the economy and operations evolves, we will continue to assess our liquidity needs, the ability to access capital markets for commercial paper or long-term debt financing, and potential impacts due to the ability of our customers to pay for services. Should the Company’s cash flow be materially impacted owing to virus-driven circumstances, the Company may find itself without adequate cash flow to fund its operations, and we may need additional liquidity.
Short-Term Cash Requirements and Related Financing
Washington Gas has seasonal short-term cash requirements to fund the purchase of storage gas inventory in advance of the winter heating season. At September 30, 2019 and December 31, 2018, Washington Gas had balances in gas storage of $92.5 million and $103.9 million, respectively. Washington GasThe Company collects the cost of gas under cost recovery mechanisms approved by itsour regulators. Additionally, Washington Gas may be required to post cash collateral for certain purchases. Washington Gas is also subject to the collateral requirements of its counterparties. At September 30, 2019, Washington Gas was not required to post any cash collateral to counterparties.
In the first and fourth quarters of each calendar year, Washington Gas’ large sales volumes cause its cash requirements to peak when combined storage inventory, accounts receivable, and unbilled revenues are at their highest levels. In the second and third quarters of each calendar year, after the heating season, Washington Gas typically experiences a seasonal net loss due to reduced demand for natural gas. During this period, large amounts of Washington Gas’ current assets are converted to cash, which cash.
Washington Gas generally uses to reduceLight Company
Part I-Financial Information
Item 2. Management’s Discussion and usually eliminate short-term debtAnalysis of
Financial Condition and acquire storage gas for the next heating season.Results of Operations (continued)
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, 2019 and December 31, 2018, Washington Gas had $5.0 million and $2.2 million in net under-collections from customers, respectively, reflected in current assets as gas costs due from customers. Amounts under-collected or over-collected from customers 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, 2019 and December 31, 2018, Washington Gas had a net regulatory asset of $12.4 million and $26.4 million, respectively, related to under-collections from customers related to each current gas recovery cycle.
Washington Gas uses short-term debt in the form of commercial paper or unsecured short-term bank loans to fund seasonal cash requirements. Our policy is to maintain back-up bank credit facilities in an amount equal to or greater than our expected maximum commercial paper position.
On July 19, 2019, Washington Gas entered into an amendedclassifies certain commercial paper balances as "Long-term debt" on the balance sheets based on its ability and restated senior unsecured revolving credit facility withintent to refinance these balances on a long-term basis. At September 30, 2020 and December 31, 2019, $100.0 million of our commercial paper balance was classified as long term of five years, plus two one-year extension options, available with the bank group’s approval. The Credit Facility amended and restateddebt on Washington Gas’ prior $350 million credit facility and permits Washington Gas to borrow up to $450 million with an option to increase the facility by an additional $100 million, with the bank group’s approval, for a total potential maximum borrowing of $550 million. The interest rate of loans made under the credit facilities will be a fluctuating rate per annum that will be set using certain parameters at the time each loan is made.Gas' balance sheets, respectively. Bank credit balance
Washington Gas Light Company
Part II
Item 2-Management’s Discussion and Analysis of
Financial Condition and Results of Operations (continued)
sbalances available to Washington Gas under the existing credit facility, net of commercial paper balances, were $333.0$180.0 million and $54.0$50.0 million at September 30, 20192020 and December 31, 2018,2019, respectively.
To manage credit risk, Washington Gas may require certain customers and suppliers to provide deposits, including collateral from wholesale counterparties. At September 30, 2019 and December 31, 2018, the total of these deposits and collateral reported as current liabilities in “Customer deposits and advance payments” were $42.9 million and $54.4 million, respectively. The majority of these balances are customer deposits and customer credit balances. Deposits from customers may be refunded at various times throughout the year based on customer 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. In addition, customers may have credit balances due to budget credits, over payments and Company provided credits. Budget credits, which is the most frequent type of credit, occurs only for customers on the budget bill program and happens normally in the warmer months when customers’ actual bill is less than the budget bill amount. Refer to the section entitled “Credit Risk” for further discussion of our management of credit risk.
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. The construction work is performed by WGL Energy Systems on behalf of Washington Gas. Washington Gas recorded a contract asset in “Unbilled revenues” representing the government’s obligation to remit principal and interest and financing obligation in “Notes payable and project financing”.
As of September 30, 2019, Washington Gas had no energy management services projects that were financed through Washington Gas and not yet complete. As of December 31, 2018, Washington Gas had $69.7 million in “Unbilled revenues” on the condensed balance sheet and$15.5 million in “Notes payable and project financing,” for energy management services projects that were financed through Washington Gas and not yet complete.
See Note 5-Short-Term Debt of the Notes to Condensed Financial Statements for a further discussion of project financing.
Long-Term Cash Requirements and Related Financing
The primary drivers of our long-term cash requirements are capital expenditures and long-term debt maturities. Our capital expenditures primarily relate to adding new utility customers and system supply and maintaining the safety and reliability of Washington Gas’ distribution system.
Security Ratings
The table below reflects the current credit ratings for the outstanding debt instruments of Washington Gas. Changes in credit ratings may affect Washington Gas’ cost of short-term and long-term debt and our access to the capital markets. A security rating is not a recommendation to buy, sell or hold securities. Credit ratings are subject to revision or withdrawal at any time by the assigning rating organization and each rating should be evaluated independently of any other rating.
| | | | | | | | | | | | | | |
| | | | |
| Rating Service | | Senior Unsecured | | Commercial Paper |
Fitch Ratings(a) | | Washington Gas |
Rating ServiceA | | Senior Unsecured | | Commercial PaperF2 |
Fitch Ratings(a)Moody’s Investors Service(b)
| | AA3 | | F2P-2 |
Moody’s Investors Service(b)
| | A2 | | P-1 |
Standard & Poor’s Ratings Services(c) | | BBB+A- | | A-2 |
(a) The credit ratings by Fitch Ratings foraffirmed Washington Gas were revised on July 10, 2018 and theGas' long-term debt ratings outlook wasas stable in April 2020.
(b)On January 30, 2020, Moody's downgraded Washington Gas' senior unsecured debt credit rating from A2 to A3, and its commercial paper rating from P-1 to P-2, and adjusted to stable.
(b) The credit ratings by Moody’s Investors Service for Washington Gas were revised on July 9, 2018 and theits long-term debt ratingsrating outlook remained negative.from negative to stable.
(c) The credit ratings by On December 11, 2019, Standard & Poor’s Rating Services forPoor raised Washington Gas were revised on December 19, 2018Gas' senior unsecured debt credit rating from BBB+ to A- and the long-term debt ratingsadjusted its outlook from negative to stable. Its commercial paper rating remained negative.A-2.
Ratings Triggers and Certain Debt Covenants
Under the terms of Washington Gas’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 ofAt September 30, 2020 and December 31, 2019, Washington Gas’ ratioGas' ratios of consolidated financial indebtedness to consolidated total capitalization was 49%.were 48% and 52%, respectively. In addition, Washington Gas is required to inform lenders of changes in corporate existence, financial conditions, litigation and
Washington Gas Light Company
Part II
Item 2-Management’s Discussion and Analysis of
Financial Condition and Results of Operations (continued)
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 becomebecoming immediately due and payable. In addition, certain of the credit facilities of Washington Gas contain cross-default provisions.provisions, that would declare Washington Gas in default on its credit facility if it were to default on certain of its other indebtedness. At September 30, 2020 and December 31, 2019, we were in compliance with all of the covenants under our revolving credit facilities, term loan facility, and private placement notes.
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.
Historical Cash Flows
The following table summarizes Washington Gas’ net cash from operating, investing and financing activities for the nine months ended September 30, 2019 and 2018.
|
| | | | | | | | | | |
| | Nine months ended September 30, | | Increase / (Decrease) |
| (In millions) | 2019 | 2018 | | 2019 vs. 2018 |
| Cash from: | | | | |
| Operating activities | $ | 254.1 |
| $ | 150.8 |
| | $ | 103.3 |
|
| Financing activities | $ | 41.5 |
| $ | 221.9 |
| | $ | (180.4 | ) |
| Investing activities | $ | (318.9 | ) | $ | (314.3 | ) | | $ | (4.6 | ) |
Cash Flows FromProvided by Operating Activities
Washington Gas’Gas' 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, Washington Gas’ cash flow is impacted by the timing of derivative settlements.
Net income is the result of cash and non-cash (or accrual) transactions. Only cash transactions affect Washington Gas’ 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 cashCash flows provided by operating activities for nine months ended September 30, 2019 was $254.1 million compared to net cash provided by operating activities of $150.8were $262.7 million for the nine months ended September 30, 2018. The increase in cash flows provided by operating activities was primarily driven by cash payment of merger commitments and related expenses in the prior period.
Cash Flows From Financing Activities
Cash flows provided by financing activities for the nine months ended September 30, 2019 totaled $41.5 million2020, compared to $221.9$254.1 million for the nine months ended September 30, 20182019. The increase was mainly due to increased payments of short-term debts.driven by decreased cash collateral posted with counterparties associated with our derivative asset and liabilities.
In September 2019, Washington Gas issued $300 million medium-term note to fund its general corporate needs. For the nine months ended September 30, 2018, Washington Gas received $303 million capital infusion from its parent company.
Washington Gas Light Company
Part III-Financial Information
Item 2-Management’s2. Management’s Discussion and Analysis of
Financial Condition and Results of Operations (continued)
Cash Flows From InvestingUsed in Financing Activities
Net cash flows used in investingfinancing activities totaled $318.9were $29.5 million and $314.3 million for nine months ended September 30, 2019 and 2018, respectively, which primarily consists of utility capital expenditures made by Washington Gas.
Capital Investments
New Business
The Company’s utility service areas have a population estimated at 5.9 million and include approximately 2.2 million households and commercial structures. Washington Gas actively markets and adds new customers through both capital expenditures and different rate mechanisms aimed at bringing the benefits of natural gas, including lower energy bills and reduced carbon emissions to more residents in its territories. Washington Gas added 8,290 and 8,759 new customers in the nine months ended September 30, 2020, compared to $41.5 million provided by financing activities for the nine months ended September 30, 2019. The nine months ended September 30, 2020 financing activities included $175.0 million capital contributions from our parent company, compared to $298.5 million cash proceeds from issuance of long-term debt in 2019. There are additional net repayments of short term borrowings and dividend payments in both periods.
Cash Flows Used in Investing Activities
Cash flows used in investing activities totaled $265.1 million and $318.9 million for the nine months ended September 30, 2020 and 2019, and 2018, respectively, supportedwhich consisted of capital expenditures made by additional capital and rate base. Adding new customers directly drives earnings growth through additional distribution revenues.Washington Gas.
Replacements, Regulatory Plans -
Accelerated Pipe Replacement PlansPrograms (APRPs)
Accelerated pipe replacement programsAPRPs are in place in all three of our jurisdictions. Washington Gas is accelerating pipe replacement in order to reduce risk and further enhance the safety and reliability of its pipeline system. Each regulatory commission with jurisdiction over Washington Gas’ retail rates has approved accelerated replacement programsjurisdictions with an associated surcharge mechanism to recover the cost, including a return, on those capital investments. Capital Expenditures excluding costinvestments between base rate cases. The following table summarizes the current status of removal for theour accelerated pipe replacement programs duringin three of our jurisdictions.
| | | | | | | | | | | | | | |
| Jurisdiction | Estimated Cost | Expenditure to Date (a) | Status | Expected
in-service date |
| District of Columbia | Estimated $374 million over the period from January 2021 to December 2025, plus additional expenditures in subsequent periods. | $nil | Washington Gas has submitted an application for the second phase of PROJECTpipes to the PSC of DC. In the interim, in March 2020, the PSC of DC approved an additional extension of the first phase of the plan for the six month period from April 1, 2020 to September 30, 2020 for an amount not to exceed $12.5 million. On August 11, 2020, the PSC of DC suspended the procedural schedule and on September 10, 2020, the first phase of PROJECTpipes was extended for an additional three month to December 2020, or until a decision is rendered in this case, for an amount not to exceed approximately $6 million. Total program expenditures may not exceed approximately $141 million. A decision is expected by the end of the year. | Individual assets are placed into service throughout the program.
|
| Maryland | Estimated $350 million over the five-year period from January 2019 to December 2023, plus additional expenditures in subsequent periods. | $102 million | The second phase of the accelerated utility pipe replacement programs in Maryland (STRIDE 2.0) began in January 2019.
| Individual assets are placed into service throughout the program.
|
| Virginia | Estimated $500 million over the five-year period from January 2018 to December 2022, including cost of removal, plus additional expenditures in subsequent periods. | $242 million | The second phase of the accelerated pipe replacement programs in Virginia (SAVE 2.0) began in January 2018.
| Individual assets are placed into service throughout the program.
|
(a) The utility accelerated replacement programs are long-term projects with multiple phases for which expenditures are approved by the nine months ended September 30, 2019regulators and 2018 was $119.6 millionmanaged in five year increments. Expenditures to date only include amounts for the current programs described above, and $92.2 million respectively. exclude any expenditures made under prior increments of the programs. Actual regulatory filings may differ from reported amounts.
Refer to Rates"Rates and Regulatory MattersMatters" for a further discussion on rate case decisions during the periods.periods including the transfer of costs from surcharge to base rate recovery.
District 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 PSC of DC issued an order approving the settlement agreement and approving recovery through the surcharge of total project costs up to $110 million through September 30, 2019. On December 7, 2018, Washington Gas filed a request with the PSC of DC for approval of a Project Pipes 2 (PIPES 2 Plan) for the period of October 1, 2019 through December 31, 2024. As of September 5, 2019, the PSC of DC had not made final ruling on PIPES 2 Plan, and issued an order extending PROJECT pipes an additional six months through March 31, 2020, in an amount not to exceed $12.5 million and directed the parties to schedule a settlement conference within 15 days of the order. The parties have until December 13, 2019 to submit a settlement conference report.40
Maryland Jurisdiction. In 2014, pursuant to the 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. In 2015, the PSC of MD approved one additional program applicable to gas distribution and transmission system replacements and three of the four requested additional programs applicable to gas transmission system replacements at an incremental cost of $218.5 million, including cost of removal, in eligible infrastructure replacements over the remaining four years of the initial STRIDE Plan. In December 2018, the Commission approved a 5-year extension of the Company’s STRIDE Plan. Washington Gas is authorized, under the extension, to invest $350.5 million, including cost of removal over the five-year calendar period through 2023. Minor adjustments were made to the STRIDE Plan in the second quarter of 2019.
Virginia Jurisdiction. On April 21, 2011, the SCC of VA approved, pursuant to the SAVE Act, Washington Gas’s initial plan under the SAVE Act for accelerated replacement of infrastructure facilities and a rider that would allow the Company to recover eligible costs associated with those replacement programs. On November 21, 2017, the Commission approved the Company’s application to amend and extend its SAVE Act plan. Washington Gas is authorized to invest $500 million, including cost of removal over the five-year calendar period through 2022.
CONTRACTUAL OBLIGATIONS, OFF-BALANCE SHEET ARRANGEMENTS AND OTHER COMMERCIAL COMMITMENTS
Contractual Obligations
Washington Gas has 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 our commitments related to the business process outsourcing program.
Washington Gas Light Company
Part III-Financial Information
Item 2-Management’s2. Management’s Discussion and Analysis of
Financial Condition and Results of Operations (continued)
Contractual Obligations, Off-Balance Sheet Arrangements and Other Commitments.
Contractual Obligations
Refer to the “Contractual Obligations, Off-Balance Sheet Arrangements and Other Commercial Commitments” section of “Management’s Discussion and Analysis” and Note 12- 13- Commitments and Contingencies to the Financial Statements in Form 10-KT10-K for the Transition Period from October 1, 2018 toyear ended December 31, 20182019 for contractual obligations.
Refer to Note 6- Long-term Debt of the Notes to Condensed Financial Statements for long term debt issued during the current period.
There were no other significant changes to contractual obligations that are out of the normal course of business during the nine months ended September 30, 2019.2020.
Merger Commitments41
In connection with the Merger, Washington Gas and AltaGas have made commitments related to the terms of the PSC of DC settlement agreement and the conditions of approval from the PSC of MD and the SCC of VA. Among other things, these commitments include rate credits distributable to both residential and non-residential customers, gas expansion and other programs, various public interest commitments, and safety programs. The cumulative amount expensed related to the Merger commitments as of September 30, 2019 was $136.6 million, of which $118.7 million has been paid, including $1.1 million and $7.6 million paid in the three months and nine months ended September 30, 2019, respectively. In March 2019, the PSC of MD directed that the $3.9 million Most Favored Nation adjustment, originally recorded as a commitment expense, should be used to offset future rates under Washington Gas’ natural gas expansion program in Maryland. As a result, Washington Gas reversed the commitment expense during the three months ended March 31, 2019. In addition, there are certain additional regulatory commitments that will be recorded when the costs are incurred in the future, including the hiring of damage prevention trainers in each jurisdiction for a total of $2.4 million over 5 years; investing up to $70.0 million over a 10 year period to further extend natural gas service; and spending $7.5 million for leak mitigation within 3 years after the Merger close.
Refer to the Note 18- Merger with AltaGas Ltd. of the Notes to Financial Statements of Washington Gas’ Form 10-KT for a detailed discussion of Merger related commitments.
Financial Guarantees
At September 30, 2019 and December 31, 2018, there were no guarantees to external parties.
Antero Contract
In June 2019, a jury trial was held in the County Court for Denver, Colorado to consider a contractual dispute relating to gas pricing between Washington Gas and WGL Midstream (together, the Companies) and Antero Resources Corporation (Antero). Following the trial, the jury returned a verdict in favor of Antero for $95.9 million, of which, $11.2 million was against Washington Gas, and $84.7 million against WGL Midstream. Following the official entry of the judgment, the Company filed an appeal on August 16, 2019.
For financial statement impact from Antero Contract, Refer to Note 10- Commitments and Contingencies of the Notes to Condensed Financial Statements.
CREDIT RISK
Wholesale Credit Risk
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. Certain wholesale suppliers that sell natural gas to Washington Gas may have relatively low credit ratings or may not be rated by major credit rating agencies. 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.
Washington Gas operates 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 has obtained credit enhancements from certain of its counterparties. If certain counterparties or their guarantors meet the policy’s creditworthiness criteria, Washington Gas may grant unsecured credit to those counterparties or their guarantors. The creditworthiness of all counterparties is continuously monitored.
The following table provides information on our credit exposure, net of collateral, to wholesale counterparties as of September 30, 2019.
Washington Gas Light Company
Part III-Financial Information
Item 2-Management’s2. Management’s Discussion and Analysis of
Financial Condition and Results of Operations (continued)
|
| | | | | | | | | | | | | | | | | | |
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% |
| | | | | | | | | | |
| Investment Grade | $ | 25.3 |
| | $ | — |
| | $ | 25.3 |
| | 1 |
| | $ | 13.4 |
|
| Non-Investment Grade | — |
| | — |
| | — |
| | — |
| | — |
|
| No External Ratings | 7.4 |
| | 4.0 |
| | 3.4 |
| | 1 |
| | 1.3 |
|
(a) Investment grade is primarily determined using publicly available credit ratings of the counterparty. If the counterparty has provided a guarantee by a higher-rated entity (e.g., its parent), it is determined based upon the rating of its guarantor. Included in “Investment grade” are counterparties with a minimum Standard & Poor’s or Moody’s Investor Service rating of BBB- or Baa3, respectively.
(b) Includes the net of all open positions on energy-related derivatives subject to mark-to-market accounting requirements and the net receivable/payable for the realized transactions. Amounts due from counterparties are offset by liabilities payable to those counterparties to the extent that contractual netting arrangements are in place.
(c) Represents cash deposits and letters of credit received from counterparties, not adjusted for probability of default.
(d) Using a percentage of the net exposure.Credit Risk
Retail Credit Risk
Washington Gas is at risk of non-payment of utility bills by customers. To manage this customer credit risk, Washington Gas may require cash deposits from high risk customers to cover payment of their bills until the requirements for the deposit refunds are met. In addition, Washington Gas has a POR program in Maryland and the District of Columbia, whereby it purchases receivables from participating energy marketers at approved discount rates. Under the program, Washington Gas is exposed to the risk of non-payment by the retail customers for these receivables. This risk is factored into the approved discount rate at which Washington Gas purchases the receivables. Base rates include a provision for recovery of uncollectible accounts based on historical levels of charge offs of accounts receivable. Washington Gas also has a provision in its Gas Administrative Charge mechanism that includes an allowance for commodity amounts included in uncollectible accounts.
MARKET RISK
We are exposed to various forms of market risk including commodity price risk, weather risk and interest-rate risk. The following discussion describes these risks and our management of them.
Price Risk
In addition, Washington Gas faces pricehas a POR program in Maryland and the District of Columbia, whereby it purchases receivables from participating energy marketers at approved discount rates, which incorporates the risk associated withof non-payment by the purchase and saleretail customers for these receivables.
COVID-19 has created widespread challenges in the job market that have resulted in increased unemployment rates, which could impact the ability of natural gas.the Company’s customers to pay for services. To assist the communities it serves, Washington Gas generally recovers the cost of the natural gas to serve customers through gas cost recovery mechanisms as approvedhas temporarily suspended customer disconnections for non-payment, temporarily suspended collection activities and temporarily waived assessing and billing late payment fees. We resumed assessing late payment fees in jurisdictional tariffs; therefore, a changeMaryland in the price of natural gas generally has no direct effect on Washington Gas’ net income. However, Washington Gas is responsible for following competitive and reasonable practices in purchasing natural gas for its customers.October 2020.
To manage price risk associated with its natural gas supply to its firm customers, Washington Gas: (i) actively manages its gas supply portfolio to balance sales and delivery obligations; (ii) injects natural gas into storage during the summer months when prices are generally lower, and withdraws that gas during the winter heating season when prices are generally higher and (iii) enters into hedging contracts and other contracts that may qualify as derivative instruments related to the sale and purchase of natural gas.
Washington Gas executes commodity-related physical and financial contracts in the form of forward, futures and option contracts as part of an asset optimization program that is managed by its internal staff. Under this program, Washington Gas realizes value from its long-term natural gas transportation and storage capacity resources when they are not being fully used to serve utility customers. Regulatory sharing mechanisms in all three jurisdictions allow the profit from these transactions to be shared between Washington Gas’ customers and shareholders.
The following two tables summarize the changes in the fair value of our net assets (liabilities) associated with the energy-related derivatives during the nine months ended September 30, 2019.
Washington Gas Light Company
Part III-Financial Information
Item 2-Management’s2. Management’s Discussion and Analysis of
Financial Condition and Results of Operations (continued)
|
| | | |
| Changes in Fair Value of Energy-Related Derivatives |
| (In millions) | |
| Net assets (liabilities) at January 1, 2019 | $ | (106.3 | ) |
| Net fair value of contracts entered into during the period | (0.6 | ) |
| Other changes in net fair value | 5.3 |
|
| Realized net settlement of derivatives | (4.2 | ) |
| Net assets (liabilities) at September 30, 2019 | $ | (105.8 | ) |
|
| | | |
Roll Forward of Energy-Related Derivatives |
| (In millions) | |
| Net assets (liabilities) at January 1, 2019 | $ | (106.3 | ) |
| Recorded to income | (0.1 | ) |
| Recorded to regulatory assets/liabilities | 4.8 |
|
| Realized net settlement of derivatives | (4.2 | ) |
| Net assets (liabilities) at September 30, 2019 | $ | (105.8 | ) |
The maturity dates in calendar years of our net assets (liabilities) associated with the energy-related derivatives recorded at fair value at September 30, 2019, is summarized in the following table based on the level of the fair value calculation under ASC Topic 820.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Maturity of Net Assets (Liabilities) Associated with our Energy-Related Derivatives | | |
| | | |
| (In millions) | 2019 | | 2020 | | 2021 | | 2022 | | 2023 | | Thereafter | | Total |
| Level 1 — Quoted prices in active markets | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
| Level 2 — Significant other observable inputs | 0.3 |
| | 0.2 |
| | — |
| | — |
| | — |
| | — |
| | 0.5 |
|
| Level 3 — Significant unobservable inputs | 0.2 |
| | (8.9 | ) | | 0.5 |
| | (1.6 | ) | | (1.5 | ) | | (95.0 | ) | | (106.3 | ) |
| Total net assets (liabilities) associated with our energy-related derivatives | $ | 0.5 |
|
| $ | (8.7 | ) |
| $ | 0.5 |
|
| $ | (1.6 | ) |
| $ | (1.5 | ) |
| $ | (95.0 | ) |
| $ | (105.8 | ) |
Refer to Note 11-Derivatives Rates and Note 12-Fair Value Measurements of the Notes to Condensed Financial Statements for a further discussion of our derivative activities and fair value measurements.
Weather Risk
We are exposed to various forms of weather risk. Washington Gas’ operations are seasonal, with a significant portion of its revenues derived from the delivery of natural gas to residential and commercial heating customers during the winter heating season. Weather conditions directly influence the volume of natural gas delivered by Washington Gas. Weather patterns tend to be more volatile during “shoulder” months within our calendar year in which Washington Gas is going into or coming out of the primary portion of its winter heating season. During the shoulder months within quarters ending June 30 (particularly in April and May) and December 31 (particularly in October and November), customer heating usage may not highly correlate with historical levels or with the level of heating degree days that occur, particularly when weather patterns experienced are not consistently cold or warm.
Washington Gas does not have a weather related instrument or billing adjustment mechanism in the District of Columbia and as a result, its revenues are volume driven and current rates are based upon an assumption of normal weather. Without weather protection strategies, variations from normal weather will cause our earnings to increase or decrease depending on the weather pattern.
Billing Adjustment Mechanisms. In Maryland, Washington Gas has an RNA billing mechanism that is designed to stabilize the level of net revenues collected from Maryland customers by eliminating the effect of deviations in customer usage caused by variations in weather from normal levels and other factors such as conservation. In Virginia, Washington Gas has a WNA billing adjustment mechanism that is designed to eliminate the effect of variations in weather from normal levels on utility net
Washington Gas Light Company
Part II
Item 2-Management’s Discussion and Analysis of
Financial Condition and Results of Operations (continued)
revenues for residential, commercial and industrial and group metered apartment customers. Additionally, in Virginia, as part of the CARE plan, Washington Gas has a CRA mechanism that eliminates the effect of conservation for residential customers.
For the RNA, WNA and CRA mechanisms, periods of colder-than-normal weather generally would cause Washington Gas to record a reduction to its revenues and establish a refund liability to customers, while the opposite would generally result during periods of warmer-than-normal weather. However, factors such as volatile weather patterns and customer conservation may cause the RNA and the CRA mechanisms to function conversely because they adjust billed revenues to provide a designed level of net revenue per meter.
Interest-Rate Risk
We are exposed to interest-rate risk associated with our short-term and long-term financing. Washington Gas has previously utilized derivative instruments in order to reduce its exposure to the risk of interest-rate volatility, with resulting gains and losses typically being recovered through each jurisdiction’s overall allowed rate of return.
Short-Term Debt. At September 30, 2019 and December 31, 2018, Washington Gas had outstanding notes payable, including commercial paper and project financing of $117.0 million, and $311.5 million, respectively. The carrying amount of our short-term debt approximates fair value. A change of 100 basis points in the underlying average interest rate for our commercial paper would have caused a change in interest expense of approximately $2.2 million.
Long-Term Debt. At September 30, 2019 and December 31, 2018, Washington Gas had outstanding fixed-rate MTNs and other long-term debt of $1,331.1 million and $1,035.0 million, respectively, excluding current maturities. As of September 30, 2019, the fair value of Washington Gas’ fixed-rate debt was $1,501.5 million. Our sensitivity analysis indicates that fair value would increase by approximately $77.4 million or decrease by approximately $71.8 million if interest rates were to decline or increase by 10%, respectively, from current market levels. In general, such an increase or decrease in fair value would impact earnings and cash flows only if Washington Gas were to reacquire some or all of these instruments in the open market prior to their maturity.
A total of $1,202.5 million, or approximately 89.3% of the face amount of Washington Gas’ outstanding long-term debt, excluding current maturities, have make-whole call options which would require us to pay a premium over the face amount if we were to exercise them.
Refer to Note 11-Derivatives of the Notes to Condensed Financial Statements for a further discussion of our interest-rate risk management activity.
RATES AND REGULATORY MATTERSRegulatory Matters
Washington Gas makes its requests to modify existing rates based on its determination of the level of net investment in plant and equipment, operating expenses, and a level of return on invested capital that is just and reasonable. The following is an update of significant current regulatory matters in Washington Gas’Gas' jurisdictions.
For a more detailed discussion of the matters below, refer to Washington Gas’ Form 10-KT for the three months ended December 31, 2018.
District of Columbia Jurisdiction
Project PipesPROJECTpipes 2 Plan - Plan. On December 7, 2018, Washington Gas filed a request with the PSC of DC for approval of the PIPESPROJECTpipes 2 Plan, extension plan forthe second phase of Washington Gas' APRP, to cover the period offrom October 1, 2019 through December 31, 2024. The PIPESPROJECTpipes 2 Plan seeks to address relatively higher risk pipe associated with an aging infrastructure by replacing pipe materials and components, as well as adding new features to enhance the safety of Washington Gas’sGas’ system, with an estimated total cost of $305.3 million. On March 22, 2019, comments were filed by OPC,In its supplemental direct case, the ApartmentCompany revised its plan and Office Building Associationestimated expenditures of Metropolitan Washington,$374.0 million over the District Department of Energy and Environment, and DC Climate Action. Washington Gas and OPC filed reply comments on April 8, 2019. Onnext five years.In September 5, 2019, the PSC of DC issued an order extending the original PROJECT pipespipes an additional six months through March 31, 2020, in an amount not to exceed $12.5 million. On September 13, 2019, Washington Gas submitted a revised year 5 final annual project list. Reply comments were due by October 15, 2019.
Maryland Jurisdiction
Maryland Rate Case 2019. On April 22, 2019, Washington Gas filed an application withMarch 26, 2020, the PSC of MDDC approved an additional extension of the plan, through September 30, 2020, for an amount not to increase its base ratesexceed $12.5 million. The PSC of DC further extended the program through December 30, 2020 or until a decision is rendered in this case, for natural gas service, generating $30.8 million in additional annual revenue. The revenue increase represents an increase in base rates of $35.9 million, of which approximately $5.0 million relatesamount not to costs being collected through the monthly STRIDE surcharges for system upgrades. The filing also requested an increase to the Company’s return on equity from 9.7% to 10.4%. The Company also is proposing a Safety Response Tracker to reconcile leak management expenses above or below the test year l
Washington Gas Light Company
Part II
Item 2-Management’s Discussion and Analysis of
Financial Condition and Results of Operations (continued)
evel on an annual basis outside of a base rate case.exceed $6.25 million. On August 30, 2019 Washington Gas, the Staff ofApril 23, 2020, the PSC of MD, the Maryland Office of People’s Counsel and the Apartment & Office Building Association of Metropolitan Washington submitted a Stipulation and Settlement designed to generate an additional $27.0 million in base rates. The Stipulation stated an overall rate of return of 7.42%,DC established a return on equity of 9.70%, and stated a common equity ratio of 53.5%procedural schedule for the Company’s hypothetical capital structure. The Stipulation and Settlement did not adopt the proposed Safety Response Tracker. On October 15, 2019case. After determining that there are no material issues of fact in dispute, the PSC of MD issued Final Order No. 89303 which acceptedDC decided that there will be no evidentiary hearings. Under the Stipulation and Settlement without change. Pursuant to Order No. 89303 Washington Gas’s revised base rates went into effect for service renderedprocedural schedule, briefs were filed on or after October 15, 2019.23, 2020. A decision is expected by the end of the year.
MarylandDistrict of Columbia 2020 Rate Case 2018. On May 15, 2018, Washington Gas filed an application with the PSC of MD to increase its base rates for natural gas service, generating $41.3 million in additional annual revenue. The PSC of MD granted the Company $28.6 million in new revenues and increased the Company’s return on equity to 9.7%.Case. On January 10, 2019,13, 2020, Washington Gas filed an application for rehearingauthority to increase charges for gas service in the District of Columbia. The requested rates are designed to collect approximately $35.2 million in total annual revenues. Of the requested revenue increase, $9.1 million represents costs currently collected through the PROJECTpipes surcharge; therefore, the incremental amount of the base rate increase is approximately $26.1 million. A procedural schedule was established with hearings scheduled for November 2020. The Company expects new rates to be implemented in the late first quarter or early second quarter of 2021.
Maryland Jurisdiction
Maryland 2020 Rate Case. On August 28, 2020, the company filed a rate increase application in Maryland. The requested rates are designed to collect approximately $28.4 million in total annual revenues requesting a 10.45% rate of return on equity. Of the requested revenue increase, $5.8 million represents costs currently collected through the STRIDE surcharge; therefore, the incremental amount of the base rate increase is approximately $22.6 million. On August 31, 2020 the PSC of MD alleging two errorsdocketed the application and assigned the case to the Public Utility Law Judge (PULJ) division. On September 28, 2020 the PULJ division held a prehearing conference and established a procedural schedule which anticipates a final decision on or about March 26, 2021. The Company expects new rates to be implemented in the agency’s final order. On June 25, 2019, the PSClate March of MD issued an order granting in part and denying in part Washington Gas’ application for a rehearing, resulting in an additional $0.5 million increase in annual distribution revenues.2021.
Maryland Show-Cause Order. OnOrder. Following the NTSB hearing that examined the August 10, 2016, explosion and fire at an apartment complex in Silver Spring, Maryland, on September 5, 2019, the PSC of MD ordered the Company within 30 days, to (i) provide a detailed response to the NTSB’s probable cause findings, and (ii) provide evidence regarding the status of a 2003 mercury regulator replacement program, and if the program was not completed, to show cause why the Commission should not impose a civil penalty on the Company. On September 16, 2019,The Company filed a response and rejoinder comments and the Show-Cause Order is working its way through the regulatory proceeding process with the PSC of MD granted the Company a 14-day extension to file its Response to the Show-Cause Order. On October 18, 2019, the Company filed its Response toMD. An evidentiary hearing on the Show-Cause Order (i) providing a detailed response to the NTSB’s probable cause findingswas conducted on September 24 – 25, 2020.The Commission will receive initial briefs on October 28 and (ii) providing evidence regarding the status of a 2003 mercury regulator replacement programNovember 13, 2020. See Item 1 - Legal Proceedings and why the Commission should not impose a civil penalty on the Company. The PSC of MD has not adopted a procedural schedule with respect to this matter but has indicated that it will schedule one public hearing near the apartment complex at Arliss Street. Given the early stageNote 11 - Commitments and Contingencies of the Show-Cause proceeding,Notes to Financial Statements for additional information.
COVID-19 Related Orders
District of Columbia. On March 16, 2020, the outcome is not yet determinable and management is unable to predict the likelihood of a civil penalty, or make an estimate of any potential civil penalty or range of potential civil penalty.
Virginia Jurisdiction
Application for the SAVE Act Plan Rider. On September 3, 2019, Washington Gas filed with the SCC of VA an application for approvalCouncil of the SAVE Plan RiderDistrict of Columbia (DC Council) passed legislation prohibiting the disconnection of electric and gas services for Calendar Yearnon-payment of fees during a public health emergency. The Mayor of the District of Columbia’s public health emergency declaration and all related orders have been further extended to December 31, 2020, of its annual adjustment of its Commission-approved SAVE Act under whichand the Company's 2020 SAVE Plan Riderprohibition on disconnection is reconciled and adjusted. Washington Gas proposes to invest approximately $132 million over calendar year 2020 to continue work on previously approved distribution and transmission system accelerated replacement programs.
Public comments are due by October 31, 2019. A decision is expected byeffective for 15 days following the end of the year.
Service Agreement with AltaGas Entities.public health emergency. On April 1, 2019,15, 2020, the PSC of DC issued an Order authorizing Washington Gas filed an application withto establish a regulatory asset to capture and track the SCC of VA, requesting approval of a revised service agreement between WGL and SEMCO Energy, Inc. (“SEMCO”), a U.S. affiliate of AltaGas and a new affiliate service agreement between WGL and AltaGas. In addition, WGL requested interim authority to provide specific services to SEMCO and AltaGas, pending Commission review of the application. On June 27, 2019 the SCC of VA issued a final order approving the revised service agreement and the new affiliate agreement (“service agreements”). The service agreements are limited to five years from the date of the order. Additionally, the service agreements are subject to certain administrative requirements which Washington Gas did not oppose. On September 25, 2019 as directed by the SCC of VA, Washington Gas submitted signed and executed copies of the agreements between SEMCO and AltaGas.
Virginia Rate Case - 2018. On July 31, 2018, Washington Gas filed an application with the SCC of VA to increase its base rates for natural gas service by $37.6 million, which includes $14.7 million of revenue associated with natural gas pipeline replacement initiatives previously approved by the SCC of VA and paid by customers through a monthly rider. Additionally, the requested revenue increase incorporated the effects of The Tax Act. Interim rates became effective, subject to refund, for usage in the January 2019 billing cycle. On April 12, 2019, Washington Gas filed rebuttal testimony and revised its original return on equity down from 10.6% to 10.3% and its overall rate of return down from 7.94% to 7.81%. Evidentiary hearings were held on April 30 and May 1, 2019. Post hearing briefs were filed on July 3, 2019. On September 16, 2019, the HE issued a report to the SCC of VA which recommended among other things: (i) no increase in base rate revenue; (ii) a return on equity of 9.2% compared to the current authorized return on equity rate of 9.5%; (iii) unprotected plant-related and non-plant-related excess deferred income tax should be amortized as a reduction in rates over 5 years compared to amortizing using Average Rate Assumption Method (ARAM) and over 15 years, respectively; (iv) refund $5.6 million to customers for tax savingsincremental costs related to the October 2017 to December 2017 period as part of the Tax Act savings owed to customer, and (v) write off $7.1 million reCOVID-19 that were prudently incurred beginning March 11, 2020.
Washington Gas Light Company
Part III-Financial Information
Item 2-Management’s2. Management’s Discussion and Analysis of
Financial Condition and Results of Operations (continued)
gulatoryMaryland. On March 16, 2020, the Governor of MD issued an Executive Order which ordered regulated utilities to cease disconnections and billing of late fees for residential customers through May 1, 2020, which was subsequently amended to extend the order through August 31, 2020. On September 22, 2020, the PSC of MD took an action that had the effect of extending the moratorium on service disconnections through November 15, 2020. Due to the winter moratorium on disconnections (November 1 to March 31), this has the effect of delaying residential terminations until April 1, 2021. On April 9, 2020, the PSC of MD issued an order and authorized each utility company to establish a regulatory asset to record the effects of incremental collection and other costs related to flowthrough income taxesCOVID-19 prudently incurred beginning on March 16, 2020. On August 27 and 28, 2020 the PSC of MD held Public Conference (PC) 53 to review the impact of the Executive Order on utilities and the service they provide. On August 31, 2020 the PSC of MD issued an order directing that (1) Utilities may not engage in service terminations and or charge late fees until October 1, 2020 and any notices of termination for residential accounts sent before October 1, 2020 are invalid; (2) a Public Service Company must give notice at least 45 days before terminating service on a residential account; (3) structured payment plans offered by Public Service Companies to residential customers in arrears or unable to pay must allow a minimum of 12 months to repay, with that period extending to 24 months for customers certified as low income; (4) prohibited any Public Service Company from collecting or requiring down payments or deposits as a condition of beginning a payment plan by any residential customer; and (5) prohibited any Public Service Company from refusing to negotiate or denying a payment plan to a residential customer receiving service because the company had recovered previously flowed through depreciation income tax deductions viacustomer failed to meet the SAVE rider. terms and conditions of an alternate payment plan during the past 18 months. On September 4, 2020 the PSC of MD issued a second notice in PC 53 requesting filings by Maryland’s investor-owned utilities proposing arrearage forgiveness and/or arrearage management programs. As requested by the PSC of MD, investor-owned utilities in Maryland filed a joint proposed Arrearage Management Program (AMP) plan on October 7, 2020, to be followed by a legislative-style hearing on November 9 - 10, 2020.
Virginia. On March 16, 2020, the SCC of VA issued an order which prohibited disconnections of electricity, gas, water and sewer utility services during the coronavirus public health emergency, and established certain consumer protection measures. While the SCC of VA order was extended, the disconnection order, but not the consumer protections expired on October 5, 2020. However, following the expiration of the disconnection order, the Virginia General assembly, on October 16, 2020, approved legislation that would extend the disconnection prohibition for residential customers for non-payment of bills or fees until the Governor determines the prohibition does not need to remain in place or until at least 60 days after the state of emergency declared March 12, 2020 expires, whichever is sooner. The legislation also codified the consumer protection plans, requiring utilities to offer customers in arrears fee-free repayment plans without deposit or eligibility requirements. Though not yet effective at the time of publication of this Form 10-Q, the legislation is expected to take effect following the Assembly’s consideration of any gubernatorial amendments in November. On April 29, 2020, the SCC of VA issued an order approving a request from Washington Gas and other Virginia utilities to create a regulatory asset to record incremental prudently incurred costs and suspended late payment fees attributable to the COVID-19 pandemic. The October 16, 2020 legislation approved by the general assembly established certain reporting requirements for utilities to report bad debt information and provides utilities with certain exemptions from such requirements based on utilities’ particular facts and circumstances.
Critical Accounting Policies
For a description of our critical accounting policies, refer to Management's Discussion and Analysis within our Form 10-K for the year ended December 31, 2019. We adopted ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments onJanuary 1, 2020. Refer to Note 2 — Credit Losses for the accounting policy related to credit losses. In the third quarter of 2020, Washington Gas made a voluntary change in accounting principle for calculating the market-related value of assets used in the determination of net periodic pension and other post-retirement benefit plan costs. Refer to Note 1— Accounting Policies for further discussion. There were no other new critical accounting policies or changes during the nine months ended September 30, 2019, Washington Gas made the following pre-tax adjustments based on the HE’s recommendations: (i) reduced “Operating revenues-Utility” by $7.6 million to accrue additional amounts of liability subject to refund; (ii) reduced “Operating revenues-Utility” by $13.3 million associated with the revised amortization of the Tax Act liability; and (iii) wrote off $2.0 million in “Regulatory Assets - Other” and charged to “Operation and maintenance” expense. Additionally, the Company reduced income tax expense by $11.8 million related to the amortization of excess deferred income tax, and recorded $5.5 million after-tax impairment of a tax regulatory asset related to flowthrough income taxes. Reply comments on the HE’s report were filed by Washington Gas on October 21, 2019.2020.
Washington Gas filed reply comments challenging eleven recommendations contained in the HE’s report, including some of the items highlighted above, where the bases for the findings either disregard or are contrary to the substantial evidentiary record.
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 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.
We have identified the following critical accounting policies that require our judgment and estimation, where the resulting estimates may have a material effect on the financial statements:
revenue from contracts with customers;
accounting for unbilled revenue;
accounting for regulatory operations — regulatory assets and liabilities;
accounting for income taxes;
accounting for contingencies;
accounting for derivatives;
accounting for fair value instruments;
impairment of long-lived assets; and
accounting for pension and other post-retirement benefit plans.
For a description of these critical accounting policies, refer to Management’s Discussion and Analysis within our Form 10-KT. There were no new critical accounting policies or changes to our critical accounting policies during the three month period ended September 30, 2019.
Washington Gas Light Company
Part I-Financial Information
Item 3. Quantitative and Qualitative Disclosures about Market Risk
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following issues relatedWashington Gas meets the conditions set forth in General Instruction H(1) of Form 10-Q and has omitted the information called for by this Item pursuant to our market risks are included under General Instruction H(2) of Form 10-Q.
Washington Gas Light Company
Part I-Financial Information
Item 2, Management’s Discussion4. Controls and Analysis of Financial Condition and Results of Operations, and are incorporated by reference into this discussion.Procedures
Price Risk
Weather Risk
Interest-Rate Risk
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Senior management, including the President and Chief Executive Officer and the Senior Vice President, Chief Financial Officer and Treasurer of Washington Gas, evaluated the effectiveness of Washington Gas’ disclosure controls and procedures as of September 30, 2019.2020. Based on this evaluation, the President and Chief Executive Officer and the Senior Vice President, Chief Financial Officer and Treasurer have concluded that Washington Gas’ disclosure controls and procedures were effective as of September 30, 2019. 2020.There have been no changes in the internal control over financial reporting of Washington Gas during the quarter ended September 30, 20192020 that have materially affected, or are reasonably likely to materially affect, the internal control over financial reporting of Washington Gas.Gas, including no changes resulting from COVID-19.
Washington Gas Light Company
Part II-Other Information
ITEM 1. LEGAL PROCEEDINGS
TheFrom time to time the Company is involved in various litigation matters arising out of the normal course of business. In particular, the nature of our business ordinarily results in periodic regulatory proceedings before various state and federal authorities. For information regarding pending federal and state regulatory matters, see Note 10-Commitments11 — Commitments and Contingencies of the Notes to Condensed Financial Statements.
Silver Spring, Maryland IncidentShow-Cause Order
On April 23, 2019, the National Transportation and Safety Board (NTSB) held a hearing during which it found, among other things, that the probable cause of the August 10, 2016, explosion and fire at an apartment complex on Arliss Street in Silver Spring, Maryland “was the failure of an indoor mercury service regulator with an unconnected vent line that allowed natural gas into the meter room where it accumulated and ignited from an unknown ignition source. Contributing to the accident was the location of the mercury service regulators where leak detection by odor was not readily available.” Washington Gas disagrees with the NTSB’s probable cause findings. Following this hearing, on June 10, 2019, the NTSB issued an accident report.
In connection with the incident, a total of 37 civil actions related to the incident have been filed and are pending against WGL and Washington Gas in the Circuit Court for Montgomery County, Maryland. All cases have been consolidated for discovery purposes. All of these suits seek unspecified damages for personal injury and/or property damage. A trial date for eight bellwether civil actions has been scheduled for December 2, 2019. In addition, two suits were recently filed related to the incident, one each in the Superior Court for the District of Columbia and one in the Circuit Court of Montgomery County, Maryland.
At this stage of the litigation, the outcome is not yet determinable and management is unable to make an estimate of any potential loss or range of potential losses that are reasonably possible of occurring. As a result, management has only recorded a reserve for a few of the actions for which a settlement offer was made. Washington Gas maintains excess liability insurance coverage from highly-rated insurers, subject to a nominal self-insured retention. Washington Gas believes that this coverage will be sufficient to cover any significant liability that may result from this incident.
In connection with the incident, onOn September 5, 2019, the PSC of MD ordered the Company within 30 days, to (i) provide a detailed response to the NTSB’s probable cause findings and (ii) provide evidence regarding the status of a 2003 mercury regulator replacement program and, if the program was not completed, to show cause why the PSC of MD should not impose a civil penalty on the Company. (Show-Cause Order).
On September 16, 2019,The Company timely responded to the PSC of MD granted the Company a 14-day extension to file its Response to theMD’s Show-Cause Order.
On October 18, 2019, the Company filed its Response to the Show-Cause Order, (i) providing a detailed response to the NTSB’s probable cause findings, and (ii) providing evidence regarding the status of aits 2003 mercury regulator replacement program and demonstrating cause why the PSC of MD should not impose a civil penalty on the Company. Following the Company’s response, certain intervenors filed written comments and a public hearing was held on the matter, with some intervenors and members of the public advocating for penalties against the Company. The Company filed its rejoinder comments and the Show-Cause Order is working its way through the regulatory proceeding process with the PSC of MD. An evidentiary hearing was conducted on September 24-25, 2020. Initial briefs were filed on October 28, 2020 and reply briefs will be filed on November 13, 2020.
Washington Gas Light Company
Part II-Other Information
Item 1A. Risk Factors
The PSC of MD has not adopted a procedural schedule with respectCOVID-19 global health pandemic poses challenges to this matter but has indicated that it will schedule one public hearing near the apartment complex at Arliss Street.
Given the early stagehealth and safety of the Show-Cause proceeding,Company’s personnel and the strength of communities it serves. These challenges could negatively impact the Company’s cash flow and results of operations.
As the COVID-19 pandemic continues to unfold, governments in the jurisdictions in which Washington Gas operates have maintained measures designed to contain the outbreak, including business closures and restrictions, travel restrictions and border closings, quarantines and restrictions on gatherings and events. The magnitude, outcome and duration of the pandemic remains uncertain. As a result, it is not yet determinablecurrently possible to accurately quantify the total potential impact of the pandemic on Washington Gas’ operations or financial results.
We have identified the following as potential direct or indirect impacts to our business and managementoperations from the pandemic:
•key employees and personnel: Although the Company has been designated an essential service provider and its essential employees and operations are exempt from government mandated closures and stay-at-home orders, our ability to keep essential operating personnel in place may be challenged as a result of COVID-19 outbreaks or quarantines. Employees who either contract or are exposed to the virus must isolate themselves from others, and combined with the health consequences of the virus, could be limited in their ability to perform key activities. Should there be a widespread inability of our workforce, or that of our contractors, to perform their duties, this would have an adverse impact on our ability to continue normal operations. In addition, unavailability of personnel could impact the Company’s ability to expand its business by decreasing construction activities and slowing the pace of the Company’s accelerated pipeline replacement programs. Also, we may face allegations of liability to the extent that we are unable to effectively protect our workforce against the transmission of the virus;
•return to work: As Washington Gas reintegrates its personnel back into the workplace in response to the lifting of government stay-at-home orders, it may incur additional costs to adapt the workplace to meet applicable health and safety requirements. Shortages in PPE may require the corporation to revise or delay such reintegration plans. To the extent that it is unable to predicteffectively protect its workforce against the likelihoodtransmission of the virus, Washington Gas may face allegations of liability. Additionally, the Company must maintain flexibility in the event of new stay-at-home orders that could occur in the event infection rates increase.
•adverse impacts on cash flows: COVID-19 could impact gas demand through business closures or other impacts. Additionally, widespread challenges to various businesses and to the job market as a civil penalty, result of the virus have resulted in increased business closures and unemployment rates, which could impact the ability of the Company’s customers to pay for services. Each jurisdiction in which Washington Gas serves issued mandates prohibiting suspension and/or collection activities for nonpayment of customer accounts, all of which remain in place to varying degrees. Should the Company’s cash flow be materially impacted owing to virus-driven circumstances, the Company may find itself without adequate cash flow to fund its operations;
•counterparty and supplier risk: There is increased exposure that certain of our contract counterparties and suppliers could fail to meet their obligations to us. Such increased non-performance by a significant counterparty or supplier could adversely affect our operations and financial results.
•privacy and cybersecurity: There has been an observed increase in volume and sophistication of targeted cyberattacks since the declaration of the global pandemic. Further, pandemic-adjusted operations, such as work from home arrangements and remote access to the company’s systems, may pose heightened risk of cybersecurity and privacy breaches.
•access to capital: The uncertainty in the global financial markets could make an estimatecapital increasingly hard to access.
•IT infrastructure: Pandemic-adjusted operations, such as work from home arrangements, have put additional stress on the company’s IT infrastructure as a result of anyremote access demands and online meetings. A failure of such infrastructure could severely limit the ability of the company to conduct ordinary operations.
These risks may adversely impact the Company’s ability to carry out its business plans for 2020. Washington Gas is closely monitoring developments related to COVID-19, including the existing and potential civil penalty or range of potential civil penalty.
ITEM 1A. RISK FACTORS
Not Applicable.
ITEM 4. MINE SAFETY DISCLOSURESimpact on global and local economies in the jurisdictions where we operate.
Washington Gas Light Company
Part II-Other Information
Item 1A. Risk Factors (continued)
Increasing levels of political uncertainty and civil unrest have arisen in recent weeks, which could pose threats to the Company’s personnel. Not Applicable.Recently there have been significant incidents of civil unrest across the country. As the Company’s operations are based in and around the nation’s capital, protests and demonstrations aimed at slowing business as usual pose risk to the Company’s operations and its ability to service its customers. Should any such protests turn violent or destructive Company personnel or property could be at risk. Furthermore, the impact of large protests during a global pandemic poses unknown public health risks that could increase the community spread of COVID-19.
Washington Gas Light Company
Part II-Other Information
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
Washington Gas Light Company
Part II-Other Information
ITEM 6. EXHIBITS
Exhibits:
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| Schedule/Exhibit | | Description |
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| (a)(3) | | Exhibits |
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| | Exhibits Filed Herewith: |
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Schedule/
| | DescriptionPreferability Letter of Independent Registered Public Accounting Firm |
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(a)(3) | | Exhibits |
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| | Exhibits Incorporated by Reference: |
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| | Terms Agreement, dated September 10, 2019, between Washington Gas Light Company, MUFG Securities Americas Inc. and TD Securities (USA) LLC, as representatives of the agents (incorporated by reference to Exhibit 1.2 to Washington Gas Light Company’s Form 8-K filed September 16, 2019). |
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| | Agent Accession Letter, dated September 10, 2019, between Washington Gas Light Company, MUFG Securities Americas Inc., TD Securities (USA) LLC, CIBC World Markets Corp., RBC Capital Markets, LLC, U.S. Bancorp Investments, Inc. and The Williams Capital Group, L.P. (incorporated by reference to Exhibit 1.1 to Washington Gas Light Company’s Form 8-K filed September 16, 2019). |
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| | Amended and Restated Credit Agreement, dated as of July 19, 2019 among Washington Gas Light Company, and the lenders parties thereto, Wells Fargo Bank, National Association, as administrative agent; Branch Banking and Trust Company, MUFG Bank, Ltd. and TD Bank, N.A., as co-syndication agents; and Wells Fargo Securities LLC, BB&T Capital Markets, MUFG Bank, Ltd. and TD Securities (USA) LLC, as joint lead arrangers and joint book runners (incorporated by reference to Exhibit 10.1 to Washington Gas Light Company’s Form 8-K filed July 25, 2019). |
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| | Exhibits Filed Herewith: |
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| | Certification of Adrian P. Chapman, theDonald M. Jenkins, President and Chief Executive Officer of Washington Gas Light Company, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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| | Certification of Douglas I. Bonawitz, the Senior Vice President, Chief Financial Officer and Treasurer of Washington Gas Light Company, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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| | Certification of Adrian P. Chapman,Donald M. Jenkins, the President, and Chief Executive Officer, and Douglas I. Bonawitz, the Senior Vice President, Chief Financial Officer and Treasurer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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| 101.INS | | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
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| 101.SCH | | Inline XBRL Taxonomy Extension Schema Document |
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| 101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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| 101.LAB | | Inline XBRL LabelsTaxonomy Extension Label Linkbase Document |
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| 101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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| 101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document |
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| 104 | | Cover Page Interactive Data File (embedded within the Inline XBRL document contained in Exhibit 101) |
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | |
| WASHINGTON GAS LIGHT COMPANY |
| (Registrant) |
|
WASHINGTON GAS LIGHT COMPANY/s/ Douglas I. Bonawitz |
(Registrant)Douglas I. Bonawitz |
| Senior Vice President, Chief Financial Officer and Treasurer |
/s/ Gunnar J. Gode |
Gunnar J. Gode |
Vice President and Controller |
| (signing on behalf of the Registrant and as |
| Principal Accounting Officer of the Registrant) |
Date: October 30, 2019November 6, 2020