UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Fiscal Year Ended September 30,
2009
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Commission
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Exact name of registrant as
specified in its charter and
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State of
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I.R.S.
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File Number
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principal office address and telephone number
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Incorporation
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Employer Identification No.
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1-16163
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WGL Holdings, Inc.
101 Constitution Ave., N.W.
Washington, D.C. 20080
(703) 750-2000
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Virginia
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52-2210912
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0-49807
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Washington Gas Light Company
101 Constitution Ave., N.W.
Washington, D.C. 20080
(703) 750-4440
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District of
Columbia
and Virginia
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53-0162882
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Securities registered pursuant to Section 12(b) of the
Act (as of September 30, 2009):
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Title of each class
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Name of each exchange on which registered
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WGL Holdings, Inc. common
stock, no par value
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New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the
Act (as of September 30, 2009):
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Title of each class
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Name of each exchange on which registered
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Washington Gas Light Company
preferred stock,
cumulative, without par value:
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$4.25 Series
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Over-the-Counter Bulletin Board
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$4.80 Series
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Over-the-Counter Bulletin Board
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$5.00 Series
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Over-the-Counter Bulletin Board
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Indicate by check mark if each
registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
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WGL Holdings, Inc.
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Yes [X] No [ ]
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Washington Gas Light Company
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Yes [ ] No [X]
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Indicate by check mark if each
registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the
Act. Yes [ ] No [X]
Indicate by check mark whether each
registrant: (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter
period that the registrants were required to file such reports)
and (2) has been subject to such filing requirements for
the past
90 days. Yes [X] No [ ]
Indicate by check mark whether the
registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of
Regulation S-T
during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such
files). Yes [ ] No [ ].
Indicate by check mark if
disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K
(§ 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of the registrants
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this
Form 10-K
or any amendment to this
Form 10-K. [ ]
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the
definitions of large accelerated filer,
accelerated filer and smaller reporting
company in Rule
12b-2 of the
Exchange Act. (Check one):
WGL Holdings, Inc.:
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Large
Accelerated Filer [X]
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Accelerated Filer [ ]
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Non-Accelerated Filer [ ]
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Smaller Reporting Company [ ]
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(Do not check if a smaller
reporting company)
Washington Gas Light Company:
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Large
Accelerated Filer [ ]
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Accelerated Filer [ ]
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Non-Accelerated Filer [X]
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Smaller Reporting Company [ ]
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(Do not check if a smaller reporting company)
Indicate by check mark whether each
registrant is a shell company (as defined in
Rule 12b-2
of the
Act): Yes [ ] No [X]
The aggregate market value of the
voting common equity held by non-affiliates of the registrant,
WGL Holdings, Inc., amounted to $1,633,538,203 as of
March 31, 2009.
WGL Holdings, Inc. common stock, no
par value outstanding as of October 31, 2009:
50,264,447 shares.
All of the outstanding shares of
common stock ($1 par value) of Washington Gas Light Company
were held by WGL Holdings, Inc. as of October 31, 2009.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of WGL Holdings,
Inc.s definitive Proxy Statement and Washington Gas
Light Companys definitive Information Statement in
connection with the 2010 Annual Meeting of Shareholders, to be
filed with the Securities and Exchange Commission pursuant to
Regulation 14A and 14C not later than 120 days after
September 30, 2009, are incorporated in Part III of
this report.
WGL
Holdings, Inc.
Washington Gas Light Company
For the Fiscal Year Ended September 30, 2009
Table of Contents
i
WGL
Holdings, Inc.
Washington Gas Light Company
INTRODUCTION
FILING
FORMAT
This annual report on
Form 10-K
is a combined report being filed by two separate registrants:
WGL Holdings, Inc. (WGL Holdings) and Washington Gas Light
Company (Washington Gas). Except where the content clearly
indicates otherwise, any reference in the report to WGL
Holdings, we, us or
our is to the holding company or the consolidated
entity of WGL Holdings and all of its subsidiaries, including
Washington Gas which is a distinct registrant that is a wholly
owned subsidiary of WGL Holdings.
The Managements Discussion and Analysis of Financial
Condition and Results of Operations (Managements
Discussion) included under Item 7 is divided into two major
sections for WGL Holdings and Washington Gas. Included under
Item 8 are the Consolidated Financial Statements of WGL
Holdings and the Financial Statements of Washington Gas. Also
included are the Notes to Consolidated Financial Statements that
are presented on a combined basis for both WGL Holdings and
Washington Gas.
SAFE HARBOR FOR
FORWARD-LOOKING STATEMENTS
Certain matters discussed in this report, excluding historical
information, include forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of
1995 with respect to the outlook for earnings, revenues and
other future financial business performance or strategies and
expectations. Forward-looking statements are typically
identified by words such as, but not limited to,
estimates, expects,
anticipates, intends,
believes, plans, and similar
expressions, or future or conditional verbs such as
will, should, would and
could. Although the registrants, WGL Holdings and
Washington Gas, believe such forward-looking statements are
based on reasonable assumptions, they cannot give assurance that
every objective will be achieved. Forward-looking statements
speak only as of today, and the registrants assume no duty to
update them. The following factors, among others, could cause
actual results to differ materially from forward-looking
statements or historical performance:
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the level and rate at which costs and expenses are incurred and
the extent to which they are allowed to be recovered from
customers through the regulatory process in connection with
constructing, operating and maintaining Washington Gass
natural gas distribution system;
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the ability to implement successful approaches to modify the
current or future composition of gas delivered to customers or
to remediate the effects of the current or future composition of
gas delivered to customers, as a result of the introduction of
gas from the Dominion Cove Point or Elba Island facility to
Washington Gass natural gas distribution system;
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the availability of natural gas supply and interstate pipeline
transportation and storage capacity;
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the ability of natural gas producers, pipeline gatherers and
natural gas processors to deliver natural gas into interstate
pipelines for delivery by those interstate pipelines to the
entrance points of Washington Gass natural gas
distribution system as a result of factors beyond our control;
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changes and developments in economic, competitive, political and
regulatory conditions;
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changes in capital and energy commodity market conditions;
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changes in credit ratings of debt securities of WGL Holdings or
Washington Gas that may affect access to capital or the cost of
debt;
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changes in credit market conditions and creditworthiness of
customers and suppliers;
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changes in relevant laws and regulations, including tax,
environmental and employment laws and regulations;
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legislative, regulatory and judicial mandates or decisions
affecting business operations or the timing of recovery of costs
and expenses;
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the timing and success of business and product development
efforts and technological improvements;
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the pace of deregulation efforts and the availability of other
competitive alternatives to our products and services;
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changes in accounting principles;
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new commodity purchase and sales contracts or financial
contracts and modifications in the terms of existing contracts
that may materially affect fair value calculations under
derivative accounting requirements;
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1
WGL
Holdings, Inc.
Washington Gas Light Company
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the ability to manage the outsourcing of several business
processes;
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acts of nature;
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terrorist activities and
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other uncertainties.
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The outcome of negotiations and discussions that the registrants
may hold with other parties from time to time regarding utility
and energy-related investments and strategic transactions that
are both recurring and non-recurring may also affect future
performance. All such factors are difficult to predict
accurately and are generally beyond the direct control of the
registrants. Accordingly, while they believe that the
assumptions are reasonable, the registrants cannot ensure that
all expectations and objectives will be realized. Readers are
urged to use care and consider the risks, uncertainties and
other factors that could affect the registrants business
as described in this annual report on
Form 10-K.
All forward-looking statements made in this report rely upon the
safe harbor protections provided under the Private Securities
Litigation Reform Act of 1995.
2
WGL
Holdings, Inc.
Washington Gas Light Company
GLOSSARY OF KEY
TERMS
Active Customer Meters: Natural gas meters
that are physically connected to a building structure within the
Washington Gas distribution system and that receive active
service.
Asset Optimization Program: A program to
optimize the value of Washington Gass long-term natural
gas transportation and storage capacity resources during periods
when these resources are not being used to physically serve
utility customers.
Book Value Per Share: Common
shareholders equity divided by the number of common shares
outstanding.
Bundled Service: Service in which customers
purchase both the natural gas commodity and the distribution or
delivery of the commodity from the local regulated utility. When
customers purchase bundled service from Washington Gas, no
mark-up is
applied to the cost of the natural gas commodity that is passed
through to customers.
Business Process Outsourcing (BPO)
Agreement: An agreement whereby a service provider
performs certain functions that have historically been performed
by Washington Gas.
City Gate: A point or measuring station at
which a gas distribution company such as Washington Gas receives
natural gas from an unaffiliated pipeline or transmission system.
Cooling Degree Day (CDD): A measure of the
variation in weather based on the extent to which the daily
average temperature is above 65 degrees Fahrenheit.
Delivery Service: The regulated distribution
or delivery of natural gas to retail customers. Washington Gas
provides delivery service to retail customers in
Washington, D.C. and parts of Maryland and Virginia.
Design Day: Washington Gass design day
represents the maximum anticipated demand on Washington
Gass natural gas distribution system during a
24-hour
period assuming a five-degree Fahrenheit average temperature and
17 miles per hour average wind, considered to be the
coldest conditions expected to be experienced in the
Washington, D.C. region.
Design-Build Energy Systems: Formerly known
as the heating, ventilating and air conditioning
(HVAC) segment, the design-build energy systems segment
includes the operations of Washington Gas Energy Systems, Inc.
which provides design-build energy efficient and sustainable
solutions to governmental and commercial clients.
Dividend Yield on Book Value: Dividends
declared per share divided by book value per share.
Earnings Sharing Mechanism (ESM): A rate
mechanism that enables Washington Gas to share with shareholders
and customers the earnings that exceed a target rate of return
on equity.
Federal Energy Regulatory Commission
(FERC): An independent agency of the
Federal government that regulates the interstate transmission of
electricity, natural gas, and oil. The FERC also reviews
proposals to build liquefied natural gas terminals and
interstate natural gas pipelines.
Financial Contract: A contract in which no
commodity is transferred between parties and only cash payments
are exchanged in amounts equal to the financial benefit of
holding the contract.
Firm Customers: Customers whose gas supply
will not be disrupted to meet the needs of other customers.
Typically, this class of customer comprises residential
customers and most commercial customers.
Gas Administrative Charge (GAC): A regulatory
mechanism designed to remove the cost of uncollectible accounts
expense related to gas costs from base rates and instead,
permits Washington Gas to collect an amount for this expense
through its Purchased Gas Charge provision.
Gross Margin: Operating revenues, less the
associated cost of natural gas or electricity and revenue taxes.
Used to measure the success of the retail energy-marketing
segments core strategy for the sale of natural gas and
electricity.
Heating Degree Day (HDD): A measure of the
variation in weather based on the extent to which the daily
average temperature falls below 65 degrees Fahrenheit.
Heavy Hydrocarbons (HHCs): Compounds, such as
hexane, which Washington Gas is injecting into its distribution
system to treat vaporized liquefied natural gas.
Interruptible Customers: Large commercial
customers whose service can be temporarily interrupted in order
for the regulated utility to meet the needs of firm customers.
These customers pay a lower delivery rate than firm customers
and they must be able to readily substitute an alternate fuel
for natural gas.
Liquefied Natural Gas (LNG): The liquid form
of natural gas.
Lower of Cost or Market: The process of
adjusting the value of inventory to reflect the lesser of its
original cost or its current market value.
Mark-to-Market: The
process of adjusting the carrying value of a position held in a
physical or financial derivative to reflect its current fair
value.
Market-to-Book
Ratio: Market price of a share of common stock
divided by its book value per share.
New Customer Meters Added: Natural gas meters
that are newly connected to a building structure within the
Washington Gas distribution system. Service may or may not have
been activated.
Normal Weather: A forecast of expected HDDs
or CDDs based on historical HDD or CDD data.
3
WGL
Holdings, Inc.
Washington Gas Light Company
Payout Ratio: Dividends declared per share
divided by basic earnings per share.
Performance-Based Rate (PBR) plan: A rate
design that includes performance measures for customer service
as well as an ESM.
Physical Contract: A contract in which the
actual physical commodity is transferred between parties to the
contract.
PSC of DC: The District of Columbia Public
Service Commission is a three-member board that regulates
Washington Gass distribution operations in the District of
Columbia.
PSC of MD: The Maryland Public Service
Commission is a five-member board that regulates Washington
Gass distribution operations in Maryland.
Purchased Gas Charge (PGC): The purchased gas
charge represents the cost of gas, gas transportation, gas
storage services purchased and other gas related costs. The
purchased gas charge is collected from customers through tariffs
established by the regulatory commissions that have jurisdiction
over Washington Gas.
Regulated Utility Segment: Includes the
operations of Washington Gas which are regulated by regulatory
commissions located in the District of Columbia, Maryland and
Virginia, and the operations of Hampshire Gas Company which are
regulated by the Federal Energy Regulatory Commission.
Retail Energy-Marketing Segment: Unregulated
sales of natural gas and electricity to end users by our
subsidiary, Washington Gas Energy Services, Inc.
Return on Average Common Equity: Net income
divided by average common shareholders equity.
Revenue Normalization Adjustment (RNA): A
regulatory billing mechanism designed to stabilize the level of
net revenues collected from customers by eliminating the effect
of deviations in customer usage caused by variations in weather
from normal levels, and other factors such as conservation.
SCC of VA: The Commonwealth of Virginia State
Corporation Commission is a three-member board that regulates
Washington Gass distribution operations in Virginia.
Service Area: The region in which Washington
Gas operates. The service area includes the District of
Columbia, and the surrounding metropolitan areas in Maryland and
Virginia.
Tariffs: Documents issued by the regulatory
commission in each jurisdiction that set the prices Washington
Gas may charge and the practices it must follow when providing
utility service to its customers.
Third Party Marketer: Unregulated companies
that sell natural gas and electricity directly to retail
customers. Washington Gas Energy Services, Inc., a subsidiary
company of Washington Gas Resources Corporation, is a third
party marketer.
Therm: A natural gas unit of measurement that
includes a standard measure for heating value. We report our
natural gas sales and deliveries in therms. A therm of gas
contains 100,000 British thermal units of heat, or the energy
equivalent of burning approximately 100 cubic feet of natural
gas under normal conditions. Ten million therms equal
approximately one billion cubic feet of natural gas.
Unbundling: The separation of the delivery of
natural gas or electricity from the sale of these commodities
and related services that, in the past, were provided only by a
regulated utility.
Utility Net Revenues: Operating revenues less
the associated cost of energy and applicable revenue taxes. Used
to analyze the profitability of the regulated utility segment,
as the cost of gas associated with sales to customers and
revenue taxes are generally pass through amounts.
Value-At-Risk: A
risk measurement that estimates the largest expected loss over a
specified period of time under normal market conditions within a
specified probabilistic confidence interval.
Washington Gas: Washington Gas Light Company
is a subsidiary of WGL Holdings, Inc. that sells and delivers
natural gas primarily to retail customers in accordance with
tariffs set by the PSC of DC, the PSC of MD and the SCC
of VA.
Washington Gas Resources: Washington Gas
Resources Corporation is a subsidiary of WGL Holdings, Inc. that
owns the majority of the non-utility subsidiaries.
WGEServices: Washington Gas Energy Services,
Inc. is a subsidiary of Washington Gas Resources Corporation
that sells natural gas and electricity to retail customers on an
unregulated basis.
WGESystems: Washington Gas Energy Systems,
Inc., is a subsidiary of Washington Gas Resources Corporation,
that provides design-build energy efficient and sustainable
solutions to government and commercial clients.
WGL Holdings: WGL Holdings, Inc. is a holding
company that became the parent company of Washington Gas Light
Company and its subsidiaries effective November 1, 2000.
Weather Derivative: A financial instrument
that provides protection from variations from normal weather.
Weather Insurance Policy: An insurance policy
that provides protection from the negative financial effects of
weather.
Weather Normalization Adjustment (WNA): A
billing adjustment mechanism that is designed to minimize the
effect of variations from normal weather on utility net revenues.
4
WGL
Holdings, Inc.
Washington Gas Light Company
Part I
Item 1. Business
CORPORATE
OVERVIEW
WGL HOLDINGS,
INC.
WGL Holdings is a holding company that was established on
November 1, 2000 as a Virginia corporation to own
subsidiaries that sell and deliver natural gas and provide a
variety of energy-related products and services to customers
primarily in the District of Columbia and the surrounding
metropolitan areas in Maryland and Virginia. WGL Holdings owns
all of the shares of common stock of Washington Gas, a regulated
natural gas utility, and all of the shares of common stock of
Washington Gas Resources Corporation (Washington Gas Resources),
Hampshire Gas Company (Hampshire) and Crab Run Gas Company (Crab
Run). Washington Gas Resources owns three unregulated
subsidiaries that include Washington Gas Energy Services, Inc.
(WGEServices), Washington Gas Energy Systems, Inc. (WGESystems)
and Washington Gas Credit Corporation (Credit Corp.).
WASHINGTON GAS
LIGHT COMPANY
Washington Gas is a regulated public utility that sells and
delivers natural gas to customers in the District of Columbia
and adjoining areas in Maryland, Virginia and several cities and
towns in the northern Shenandoah Valley of Virginia. Washington
Gas has been engaged in the natural gas distribution business
for 161 years, since its incorporation by an Act of
Congress in 1848. Washington Gas has been a Virginia corporation
since 1953 and a corporation of the District of Columbia since
1957.
INDUSTRY
SEGMENTS
We have three operating segments:
The regulated utility segment. The
regulated utility segment consists of Washington Gas and
Hampshire. Washington Gas, a wholly owned subsidiary of WGL
Holdings, is regulated by the Public Service Commission of the
District of Columbia (PSC of DC), the Public Service Commission
of Maryland (PSC of MD) and the State Corporation
Commission of Virginia (SCC of VA). Hampshire, a wholly owned
subsidiary of WGL Holdings, is regulated by the Federal Energy
Regulatory Commission (FERC). Hampshire operates and owns full
and partial interests in underground natural gas storage
facilities including pipeline delivery facilities located in and
around Hampshire County, West Virginia. Washington Gas purchases
all of the storage services of Hampshire and includes the cost
of these services in the bills sent to its customers. Hampshire
operates under a pass-through cost of service-based
tariff approved by the FERC, and adjusts its billing rates to
Washington Gas on a periodic basis to account for changes in its
investment in utility plant and expenses.
The retail energy-marketing
segment. The retail energy-marketing segment
consists of the operations of WGEServices which competes with
regulated utilities and other unregulated third party marketers
by selling the natural gas and electric commodity directly to
residential, commercial and industrial customers with the
objective of earning a profit through competitively priced
contracts.
The design-build energy systems
segment. The design-build energy systems
segment, which consists of the operations of WGESystems,
provides design-build energy efficient and sustainable solutions
to governmental and commercial clients.
Transactions not specifically identifiable in one of these three
segments are accumulated and reported in the category
Other Activities. These transactions primarily
consist of administrative costs associated with WGL Holdings and
Washington Gas Resources. Additionally, these activities include
the operations of Crab Run, a small exploration and production
company, and Credit Corp., which previously offered financing to
customers to purchase gas appliances and other energy-related
equipment, but no longer offers this financing.
Operating revenues, net income, and total assets for each of our
segments are presented in Note 15 of the Notes to
Consolidated Financial Statements.
5
WGL
Holdings, Inc.
Washington Gas Light Company
Part I
Item 1. Business (continued)
REGULATED
UTILITY SEGMENT
Description
The regulated utility segment consists of approximately 91% of
our consolidated total assets. Washington Gas, the core of the
regulated utility segment, delivers natural gas to retail
customers in accordance with tariffs approved by the regulatory
commissions that have jurisdiction over Washington Gass
rates and terms of service. These regulatory commissions set the
rates in their respective jurisdictions that Washington Gas can
charge customers for its rate-regulated services. Washington Gas
also sells natural gas to customers who have not elected to
purchase natural gas from unregulated third party marketers
(refer to the section entitled Natural Gas
Unbundling). Washington Gas recovers the cost of the
natural gas to serve firm customers through gas cost recovery
mechanisms as approved in jurisdictional tariffs. Any difference
between the firm customer gas costs incurred and the gas costs
recovered from those firm customers is deferred on the balance
sheet as an amount to be collected from or refunded to customers
in future periods. Therefore, increases or decreases in the cost
of gas associated with sales made to firm customers have no
direct effect on Washington Gass net revenues and net
income.
Washington Gas conducts an asset optimization program which
utilizes Washington Gass storage and transportation
capacity resources when not being used to physically serve
utility customers by entering into commodity-related physical
and financial contracts with third parties with the objective of
deriving a profit to be shared with its utility customers (refer
to the section entitled Asset Optimization
for a further discussion of our asset optimization program).
Unless otherwise noted, therm deliveries shown related to
Washington Gas or the regulated utility segment do not include
therms delivered related to our asset optimization program.
At September 30, 2009, Washington Gas had
1.064 million active customer meters in an area having a
population estimated at 5.3 million and over two million
households and commercial structures. Active customer meters
reflect all natural gas meters connected to the Washington Gas
distribution system, excluding those meters that are not
currently receiving service. Washington Gas is not dependent on
a single customer or group of customers such that the loss of
any one or more of such customers would have a significant
adverse effect on its business. The following table lists the
number of active customer meters and therms delivered by
jurisdiction as of and for the year ended September 30,
2009 and 2008, respectively.
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Active Customer Meters and Therms Delivered by
Jurisdiction
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Millions of Therms
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Millions of Therms
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Active Customer
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Delivered
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Active Customer
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Delivered
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Meters as of
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Fiscal Year Ended
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Meters as of
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Fiscal Year Ended
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Jurisdiction
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September 30,
2009
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September 30,
2009
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September 30, 2008
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September 30, 2008
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District of Columbia
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151,922
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321.4
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151,514
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306.4
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Maryland
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431,840
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791.8
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427,554
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732.1
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Virginia
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480,309
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621.8
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473,964
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577.7
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Total
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1,064,071
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1,735.0
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1,053,032
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1,616.2
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For additional information on our gas deliveries and meter
statistics, refer to the section entitled Results of
Operations in Managements Discussion for
Washington Gas.
Factors critical to the success of the regulated utility segment
include: (i) operating a safe and reliable natural
gas distribution system; (ii) having sufficient
natural gas supplies to serve the demand of its customers;
(iii) being competitive with other sources of energy
such as electricity, fuel oil and propane;
(iv) access to sources of liquidity;
(v) recovering the costs and expenses of this
business in the rates it charges to customers and
(vi) earning a just and reasonable rate of return on
invested capital. During fiscal years ended September 30,
2009, 2008, and 2007, the regulated utility segment reported
total operating revenues related to gas sales and deliveries to
external customers of approximately $1.5 billion,
$1.6 billion and $1.5 billion, respectively.
Rates and
Regulatory Matters
Washington Gas is regulated by the following state and local
government agencies which approve the terms of service and the
billing rates that it charges to its customers. The rates
charged to utility customers are designed to recover Washington
Gass operating expenses and natural gas commodity costs
and to provide a return on its investment in the net assets used
in its firm gas sales and
6
WGL
Holdings, Inc.
Washington Gas Light Company
Part I
Item 1. Business (continued)
delivery service. Refer to the section entitled Rates
and Regulatory Matters in Managements Discussion
for Washington Gas for a discussion of current rates and
regulatory matters.
District of
Columbia Jurisdiction
The PSC of DC consists of three full-time members who are
appointed by the Mayor with the advice and consent of the
District of Columbia City Council. The term of each commissioner
is four years. There are no limitations on the number of terms
that can be served. The PSC of DC has no time limitation in
which it must make decisions regarding modifications to base
rates charged by Washington Gas to its customers.
Maryland
Jurisdiction
The PSC of MD currently consists of five full-time members who
are appointed by the Governor with the advice and consent of the
Senate of Maryland. Each commissioner is appointed to a
five-year term, with no limit on the number of terms that can be
served.
Washington Gas is required to give 30 days notice
before filing for a rate increase. The PSC of MD may initially
suspend the proposed increase for 150 days following the
30-day
notice period, and then has the option to extend the suspension
for an additional 30 days. If action has not been taken
after 210 days, the requested rates become effective
subject to refund.
Virginia
Jurisdiction
The SCC of VA consists of three full-time members who are
elected by the General Assembly of Virginia. Each commissioner
has a six-year term with no limitation on the number of terms
that can be served.
Either of two methods may be used to request a modification of
existing rates. First, Washington Gas may file an application
for a general rate increase in which it may propose new
adjustments to the cost of service that are different from those
previously approved for Washington Gas by the SCC of VA, as well
as a revised return on equity. The proposed rates under this
process may take effect 150 days after the filing, subject
to refund pending the outcome of the SCC of VAs action on
the application.
Second, an expedited rate case procedure is available which
provides that proposed rate increases may be effective
30 days after the filing date, also subject to refund.
Under the expedited rate case procedure, Washington Gas may not
propose any new adjustments for issues not previously approved
in its last general rate case, or a change in its return on
common equity from the level authorized in its last general rate
case. Once filed, other parties may propose new adjustments or a
change in the cost of capital from the level authorized in its
last general rate case. The expedited rate case procedure may
not be available if the SCC of VA decides that there has been a
substantial change in circumstances since the last general rate
case filed by Washington Gas.
Seasonality of
Business Operations
Washington Gass business is weather-sensitive and seasonal
because the majority of its business is derived from residential
and small commercial customers who use natural gas for space
heating purposes. Excluding deliveries for electric generation,
in fiscal year 2009 and 2008, approximately 77% and 75%,
respectively, of the total therms delivered in Washington
Gass service area occurred during its first and second
fiscal quarters. Washington Gass earnings are typically
generated during these two quarters, and Washington Gas
historically incurs net losses in the third and fourth fiscal
quarters. The seasonal nature of Washington Gass business
creates large variations in short-term cash requirements,
primarily due to the fluctuations in the level of customer
accounts receivable, unbilled revenues and storage gas
inventories. Washington Gas finances these seasonal requirements
primarily through the sale of commercial paper and unsecured
short-term bank loans. For information on our management of
weather risk, refer to the section entitled Weather
Risk in Managements Discussion. For information
on our management of our cash requirements, refer to the section
entitled Liquidity and Capital Resources in
Managements Discussion.
Natural Gas
Supply and Capacity
Capacity and
Supply Requirements
Washington Gas is responsible for acquiring sufficient natural
gas supplies, interstate pipeline capacity and storage capacity
to meet customer demand. As such, Washington Gas has adopted a
diversified portfolio approach designed to satisfy the demand of
its customers and to address the constraints on supply, using
multiple supply receipt points, dependable interstate pipeline
transportation and storage arrangements, and its own substantial
storage and peaking capabilities to meet its customers
demands. Washington Gass supply and pipeline capacity plan
is based on forecasted system requirements, and takes into
7
WGL
Holdings, Inc.
Washington Gas Light Company
Part I
Item 1. Business (continued)
account estimated load growth by type of customer, attrition,
conservation, geographic location, interstate pipeline and
storage capacity and contractual limitations and the forecasted
movement of customers between bundled service and delivery
service. Under reduced supply conditions, Washington Gas may
implement contingency plans in order to maximize the number of
customers served. Contingency plans include requests to conserve
to the general population and targeted curtailments to specific
sections of the system, consistent with curtailment tariffs
approved by regulators in each of Washington Gass three
jurisdictions.
Washington Gas obtains natural gas supplies that originate from
the Gulf Coast Region, the Appalachian and Canadian regions, as
well as natural gas in the form of vaporized liquefied natural
gas (LNG) through the Cove Point LNG terminal owned by Dominion
Cove Point LNG, LP and Dominion Transmission, Inc. (collectively
Dominion) as discussed below. At September 30, 2009 and
2008, Washington Gas had service agreements with four pipeline
companies that provided firm transportation
and/or
storage services directly to Washington Gass city gate.
For fiscal years 2009 and 2008, respectively, these contracts
have expiration dates ranging from fiscal years 2010 to 2029 and
2009 to 2028.
Cove Point
Natural Gas Supply
In late fiscal year 2003, Dominion reactivated its Cove Point
LNG terminal. The composition of the vaporized LNG received from
the Cove Point LNG terminal resulted in increased leaks in
mechanical couplings on the portion of our distribution system
in Prince Georges County, Maryland that directly receives
the Cove Point gas. Through a pipeline replacement project and
the construction of a heavy hydrocarbon (HHC) injection facility
at the gate station that exclusively receives gas from the Cove
Point terminal, Washington Gas has reduced the occurrence of new
coupling leaks in this area of the distribution system. A recent
expansion of the physical capacity of the Cove Point terminal
could result in a substantial increase in the receipt of Cove
Point gas into additional portions of Washington Gass
distribution system as greater volumes of Cove Point gas are
introduced into other downstream pipelines that provide service
to Washington Gas. Based upon engineering and flow studies and
our experience, this increase in the receipt of Cove Point gas
is likely to result in a significantly greater number of leaks
in other parts of Washington Gass distribution system,
unless our efforts to mitigate these additional leaks are
successful. Washington Gas is attempting to mitigate this
anticipated increase in leaks through: (i) pipeline
replacement programs; (ii) the operation of three
HHC injection facilities; (iii) isolating its
interstate pipeline receipt points and limiting the amount of
gas received, where possible, from pipelines that transport Cove
Point gas; (iv) blending, where possible, the Cove
Point gas with other supplies of natural gas from within the
continental United States and (v) continued efforts
before the FERC to condition incremental increases in deliveries
from the Cove Point terminal on the appropriate resolution of
safety concerns consistent with the public interest. Refer to
the section entitled Operating Issues Related To Cove
Point Natural Gas Supply in Managements
Discussion for further information on this issue.
Projects for
Expanding Capacity
As the result of growing demand, Washington Gas anticipates
enhancing its peaking capacity by constructing an LNG peaking
facility that is currently expected to be completed and placed
in service by the
2013-2014
winter heating season, subject to favorable outcomes on certain
zoning and legal challenges. This peaking facility will provide
two million therms of deliverability and 10 million therms
of annual storage capacity. For information related to capital
expenditures for this peaking facility, refer to the section
entitled Liquidity and Capital ResourcesCapital
Expenditures in Managements Discussion.
Additionally, Washington Gas has contracted with various
interstate pipeline and storage companies to expand its
transportation and storage capacity. Recent projects completed
or in progress, to expand Washington Gass transportation
and/or
storage capacity, are outlined below:
|
|
|
|
|
|
|
|
|
|
|
Projects For Expanding Transportation and Storage
Capacity (In therms)
|
|
|
Daily Storage
|
|
|
|
|
|
|
|
|
Transportation
|
|
|
Annual Storage
|
|
|
In-Service Date
|
Pipeline Service Provider
|
|
Capacity
|
|
|
Capacity
|
|
|
(Fiscal Year)
|
|
|
Hardy Storage Company
LLC(a)
|
|
|
800,000
|
|
|
|
56 million
|
|
|
Three-year phase-in that began in 2007
|
Columbia Gas Transmission Corporation (Ohio Storage
Expansion)(a,b)
|
|
|
600,000
|
|
|
|
40 million
|
|
|
2010
|
Columbia Gas Transmission Corporation (Eastern Market Expansion
Storage)(a)
|
|
|
500,000
|
|
|
|
30 million
|
|
|
2010
|
Dominion Transmission Inc. Storage Factory
|
|
|
1 million
|
|
|
|
60 million
|
|
|
2015
|
|
|
|
|
|
(a) |
|
Supplier delivers the stored
natural gas directly to Washington Gass distribution
system using the capabilities of the Columbia Gas
Transmission system. |
(b) |
|
Washington Gas converted 600,000
therms of firm transportation capacity into firm storage
capacity in FY 2009. |
8
WGL
Holdings, Inc.
Washington Gas Light Company
Part I
Item 1. Business (continued)
Washington Gas will continue to monitor other opportunities to
acquire or participate in obtaining additional pipeline and
storage capacity that will support customer growth and improve
or maintain the high level of service expected by its customer
base.
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. Washington Gas utilizes its transportation
capacity assets to benefit from favorable natural gas price
differentials between different geographic locations and its
storage capacity assets to benefit from favorable natural gas
price differentials between different time periods. Washington
Gas enters into physical and financial derivative transactions
in the form of forwards, swaps and option contracts to lock-in
operating margins that Washington Gas will ultimately realize.
Regulatory sharing mechanisms in all three jurisdictions allow
the profit from these transactions to be shared between
Washington Gass shareholders and customers; therefore, any
changes in fair value are recorded through earnings, or as
regulatory assets or liabilities, to the extent that gains and
losses associated with these derivative instruments will be
included in the rates charged to customers.
The derivatives used under this program are subject to
mark-to-market
accounting treatment. This treatment may cause significant
period-to-period
volatility in earnings from unrealized gains and losses
associated with these valuation changes for the portion of net
profits to be retained for shareholders; however, this
volatility does not change the locked-in operating margins that
Washington Gas will ultimately realize from these transactions.
In accordance with Financial Accounting Standards Board ASC
Topic 815, Accounting for Derivative Contracts Held for
Trading Purposes and Involved in Energy Trading and Risk
Management Activities, (ASC Topic 815), all physically and
financially settled contracts under our asset optimization
program are reported on a net basis in the statements of income
in Utility cost of gas. Total net margins recorded
to Utility cost of gas after sharing and management
fees associated with all asset optimization transactions for the
fiscal year ended September 30, 2009 were
$12.2 million.
During fiscal year 2009 and 2008, respectively,
774.9 million and 520.6 million therms of natural gas
were purchased under our asset optimization program and
772.7 million and 520.1 million therms of natural gas
were delivered for contracts that were physically settled
related to our internally managed asset optimization program.
Refer to the sections entitled Results of
Operations Regulated Utility and Market
Risk in Managements Discussion for a further
discussion of this program and its effect on earnings.
Annual
Sendout
As reflected in the table below, there were six sources of
delivery through which Washington Gas received natural gas to
satisfy its customer demand requirements in fiscal year 2009.
These same six sources also are expected to be utilized to
satisfy customer demand requirements in fiscal year 2010. Firm
transportation denotes gas transported directly to the entry
point of Washington Gass distribution system in
contractually viable volumes. Transportation storage denotes
volumes stored by a pipeline during the spring, summer and fall
for withdrawal and delivery to the Washington Gas distribution
system during the winter heating season to meet load
requirements. Peak load requirements are met by:
(i) underground natural gas storage at the Hampshire
storage field in Hampshire County, West Virginia;
(ii) the local production of propane air plants
located at Washington Gas-owned facilities in Rockville,
Maryland (Rockville Station) and in Springfield, Virginia
(Ravensworth Station) and (iii) other peak-shaving
resources. Unregulated third party marketers acquire interstate
pipeline and storage capacity and the natural gas commodity on
behalf of Washington Gass delivery service customers under
customer choice programs, some of which may be provided through
transportation, storage and peaking resources that may be
provided by Washington Gas to the unregulated third party
marketers under tariffs approved by the three public service
commissions (refer to the section entitled Natural Gas
Unbundling). These retail marketers have natural gas
delivered to the entry point of Washington Gass
distribution system on behalf of those utility customers that
have decided to acquire their natural gas commodity on an
unbundled basis, as discussed below.
During fiscal year 2009, total sendout on the system was
1,716 million therms, compared to total sendout of
1,610 million therms during fiscal year 2008. This excludes
the sendout of sales and deliveries of natural gas used for
electric generation. The increase in 2009 was the result of
weather in fiscal year 2009 that was colder than fiscal year
2008. The sendout for fiscal year 2010 is estimated at
1,626 million therms (based on normal weather), excluding
the sendout for the sales and deliveries of natural gas used for
9
WGL
Holdings, Inc.
Washington Gas Light Company
Part I
Item 1. Business (continued)
electric generation. The sources of delivery and related volumes
that were used to satisfy the requirements of fiscal year 2009
and those projected for pipeline year 2010 are shown in the
following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
Sources of Delivery for Annual Sendout
|
|
|
|
(In millions of therms)
|
|
Fiscal Year
|
|
|
|
Sources of Delivery
|
|
Actual 2008
|
|
|
Actual 2009
|
|
|
Projected 2010
|
|
|
|
|
Firm Transportation
|
|
|
588
|
|
|
|
695
|
|
|
|
508
|
|
Transportation Storage
|
|
|
262
|
|
|
|
228
|
|
|
|
443
|
|
Hampshire Storage, Company-Owned Propane-Air Plants, and other
Peak-Shaving Resources
|
|
|
20
|
|
|
|
24
|
|
|
|
74
|
|
Unregulated Third Party Marketers
|
|
|
740
|
|
|
|
769
|
|
|
|
601
|
|
|
Total
|
|
|
1,610
|
|
|
|
1,716
|
|
|
|
1,626
|
|
|
Design Day
Sendout
The effectiveness of Washington Gass capacity resource
plan is largely dependent on the sources used to satisfy
forecasted and actual customer demand requirements for its
design day. For planning purposes, Washington Gas assumes that
all interruptible customers will be curtailed on the design day.
Washington Gass forecasted design day demand for the
2009-2010
winter season is 18.4 million therms and Washington
Gass projected sources of delivery for design day sendout
is 19.4 million therms. This provides a reserve margin of
approximately 5.3%. Washington Gas plans for the optimal
utilization of its storage and peaking capacity to reduce its
dependency on firm transportation and to lower pipeline capacity
costs. The following table reflects the sources of delivery that
are projected to be used to satisfy the forecasted design day
sendout estimate for fiscal year 2010.
|
|
|
|
|
|
|
|
|
Projected Sources of Delivery for Design Day Sendout
|
|
|
|
(In millions of therms)
|
|
Fiscal Year 2010
|
|
|
|
Sources of Delivery
|
|
Volumes
|
|
|
Percent
|
|
|
|
|
Firm Transportation
|
|
|
5.2
|
|
|
|
27
|
%
|
Transportation Storage
|
|
|
7.3
|
|
|
|
37
|
%
|
Hampshire Storage, Company-Owned Propane-Air Plants, and other
Peak- Shaving Resources
|
|
|
6.8
|
|
|
|
35
|
%
|
Unregulated Third Party Marketers
|
|
|
0.1
|
|
|
|
1
|
%
|
|
Total
|
|
|
19.4
|
|
|
|
100
|
%
|
|
Natural Gas
Unbundling
At September 30, 2009, customer choice programs for natural
gas customers were available to all of Washington Gass
regulated utility customers in the District of Columbia,
Maryland and Virginia. These programs allow customers to choose
to purchase their natural gas from unregulated third party
marketers, rather than purchasing this commodity as part of a
bundled service from the local utility. Of Washington Gass
1.064 million active customers at September 30, 2009,
approximately 149,000 customers purchased
10
WGL
Holdings, Inc.
Washington Gas Light Company
Part I
Item 1. Business (continued)
their natural gas commodity from unregulated third party
marketers. The following table provides the status of customer
choice programs in Washington Gass jurisdictions at
September 30, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
Status of Customer Choice Programs
|
|
At September 30, 2009
|
|
|
|
Jurisdiction
|
|
Customer Class
|
|
Eligible Customers
|
|
|
|
|
|
|
|
Total
|
|
|
% Participating
|
|
|
|
|
|
|
|
|
District of Columbia
|
|
|
Firm:
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
|
138,863
|
|
|
|
9
|
%
|
|
|
|
Commercial
|
|
|
|
12,838
|
|
|
|
36
|
%
|
|
|
|
Interruptible
|
|
|
|
221
|
|
|
|
91
|
%
|
Maryland
|
|
|
Firm:
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
|
402,227
|
|
|
|
16
|
%
|
|
|
|
Commercial
|
|
|
|
29,349
|
|
|
|
41
|
%
|
|
|
|
Interruptible
|
|
|
|
264
|
|
|
|
100
|
%
|
Virginia
|
|
|
Firm:
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
|
452,467
|
|
|
|
11
|
%
|
|
|
|
Commercial
|
|
|
|
27,633
|
|
|
|
31
|
%
|
|
|
|
Interruptible
|
|
|
|
209
|
|
|
|
97
|
%
|
|
Total
|
|
|
|
|
|
|
1,064,071
|
|
|
|
14
|
%
|
|
When customers choose to purchase the natural gas commodity from
unregulated third party marketers, Washington Gass net
income is not affected because Washington Gas charges its
customers the cost of gas without any
mark-up.
When customers select an unregulated third party marketer as
their gas supplier, Washington Gas continues to charge these
customers to deliver natural gas through its distribution system
at rates identical to the delivery portion of the bundled sales
service customers.
Competition
The Natural Gas
Delivery Function
The natural gas delivery function, the core business of
Washington Gas, continues to be regulated by local regulatory
commissions. In developing this core business, Washington Gas
has invested $3.2 billion as of September 30, 2009 to
construct and operate a safe and reliable natural gas
distribution system. Because of the high fixed costs and
significant safety and environmental considerations associated
with building and operating a distribution system, Washington
Gas expects to continue being the only owner and operator of a
natural gas distribution system in its current franchise area
for the foreseeable future. The nature of Washington Gass
customer base and the distance of most customers from interstate
pipelines mitigate the threat of bypass of its facilities by
other potential delivery service providers.
Competition with
Other Energy Products
Washington Gas faces competition based on customers
preference for natural gas compared to other energy products and
the comparative prices of those products. In the residential
market, which generates a significant portion of Washington
Gass net income, the most significant product competition
occurs between natural gas and electricity. Because the cost of
electricity is affected by the cost of fuel used to generate
electricity, such as natural gas, Washington Gas generally
maintains a price advantage over competitive electricity supply
in its service area for traditional residential uses of energy
such as heating, water heating and cooking. Washington Gas
continues to attract the majority of the new residential
construction market in its service territory, and
consumers continuing preference for natural gas allows
Washington Gas to maintain a strong market presence.
In the interruptible market, fuel oil is the prevalent energy
alternative to natural gas. Washington Gass success in
this market depends largely on the relationship between natural
gas and oil prices. The supply of natural gas primarily is
derived from domestic
11
WGL
Holdings, Inc.
Washington Gas Light Company
Part I
Item 1. Business (continued)
sources, and the relationship between supply and demand
generally has the greatest impact on natural gas prices. As a
large portion of oil comes from foreign sources, political
events can have significant influences on oil supplies and,
accordingly, oil prices.
RETAIL
ENERGY-MARKETING SEGMENT
Description
The retail energy-marketing segment consists of the operations
of WGEServices, which competes with regulated utilities and
other unregulated third party marketers to sell natural gas
and/or
electricity directly to residential, commercial and industrial
customers in Maryland, Virginia, Delaware and the District of
Columbia. WGEServices contracts for its supply needs and buys
and resells natural gas and electricity with the objective of
earning a profit through competitively priced contracts with
end-users. These commodities are delivered to retail customers
through the distribution systems owned by regulated utilities
such as Washington Gas or other unaffiliated natural gas or
electric utilities. Washington Gas delivers the majority of
natural gas sold by WGEServices, and unaffiliated electric
utilities deliver all of the electricity sold. Additionally,
WGEServices bills its customers through the billing services of
the regulated utilities that deliver its commodities as well as
directly through its own billing capabilities. WGEServices is
also expanding its renewable energy and energy conservation
product and service offerings. During the fiscal year ended
September 30, 2009, WGEServices contracted for and
completed the construction of one Solar Photovoltaic (Solar PV)
facility, which includes ownership of the operational asset, and
has contracted for two additional facilities that are expected
to be completed by December 31, 2009. Other than these
facilities, WGEServices does not own or operate any natural gas
or electric generation, production, transmission or distribution
assets. Continued expansion may include the ownership of other
renewable energy producing assets.
At September 30, 2009, WGEServices served approximately
151,000 residential, commercial and industrial natural gas
customers and approximately 113,000 residential, commercial and
industrial electricity customers located in Maryland, Virginia,
Delaware and the District of Columbia. WGEServices is not
dependent on a single customer or concentration of customers
such that the loss of any one or more of such customers would
have a significant adverse effect on its business.
Factors critical to the success of the retail energy-marketing
segment include: (i) managing the market risk of the
difference between the sales price committed to customers under
sales contracts and the cost of natural gas and electricity
needed to satisfy these sales commitments;
(ii) managing credit risks associated with customers
and suppliers; (iii) having sufficient
deliverability of natural gas and electric supplies and
transportation to serve the demand of its customers which can be
affected by the ability of natural gas producers, pipeline
gatherers, natural gas processors, interstate pipelines,
electricity generators and regional electric transmission
operators to deliver the respective commodities;
(iv) access to sources of liquidity;
(v) controlling the level of selling, general and
administrative expenses, including customer acquisition expenses
and (vi) the ability to access markets through
customer choice programs or other forms of deregulation. The
retail energy-marketing segments total operating revenues
from external customers for fiscal year 2009 was
$1.2 billion, and $1.1 billion for each fiscal year
ended 2008 and 2007.
Seasonality of
Business Operations
The operations of WGEServices are seasonal, with larger amounts
of electricity being sold in the summer months and larger
amounts of natural gas being sold in the winter months. Working
capital requirements vary significantly during the year, and
these variations are financed primarily through WGL
Holdings issuance of commercial paper and unsecured
short-term bank loans. WGEServices accesses these funds through
the WGL Holdings money pool. This money pool also accumulates
cash from the periodic issuance of WGL Holdings common stock and
the operations of certain unregulated subsidiaries, and provides
short-term loans to other unregulated subsidiaries to meet
various working capital needs.
Natural Gas
Supply
WGEServices purchases its natural gas from a number of wholesale
suppliers in order to minimize its supply costs and to avoid
relying on any single provider for its natural gas supply.
Natural gas supplies are delivered to WGEServices market
territories through several interstate natural gas pipelines. To
supplement WGEServices natural gas supplies during periods
of high customer demand, WGEServices maintains gas storage
inventory in storage facilities that are assigned by natural gas
utilities such as Washington Gas. This storage inventory enables
WGEServices to meet daily and monthly fluctuations in demand and
to minimize the effect of market price volatility.
12
WGL
Holdings, Inc.
Washington Gas Light Company
Part I
Item 1. Business (continued)
Electricity
Supply
The PJM Interconnection (PJM) is a regional transmission
organization that regulates and coordinates generation supply
and the wholesale delivery of electricity in the states and
jurisdictions where WGEServices operates. WGEServices buys
wholesale and sells retail electricity in the PJM market
territory and is subject to its rules and regulations. PJM
requires that its market participants have sufficient load
capacity to serve their customers load requirements. As
such, WGEServices has entered into contracts with multiple
electricity suppliers to purchase its electricity and electric
capacity needs. These contracts cover various periods ranging
from one month to several years into the future.
Competition
Natural
Gas
WGEServices competes with the commodity prices offered by
regulated gas utilities and other third party marketers to sell
natural gas to customers both inside and outside of the
Washington Gas service area. Marketers of natural gas compete
largely on price; therefore, gross margins are relatively small.
To determine competitive pricing and in adherence to its risk
management policies and procedures, WGEServices manages its
natural gas contract portfolio by closely matching the timing of
gas purchases from wholesale suppliers with retail sales
commitments to customers. For a discussion of WGEServices
exposure to and management of price risk, refer to the section
entitled Market RiskPrice Risk Related to the
Retail Energy-Marketing Segment in Managements
Discussion.
Electricity
WGEServices competes with regulated electric utilities and other
third party marketers to sell electricity to customers.
Marketers of electric supply compete largely on price;
therefore, gross margins are relatively small. To determine
competitive pricing and in adherence to its risk management
policies and procedures, WGEServices manages its electricity
contract portfolio by closely matching the timing of electricity
purchases from suppliers with sales commitments to customers.
For a discussion of WGEServices exposure to and management
of price risk, refer to the section entitled Market
RiskPrice Risk Related to the Retail Energy-Marketing
Segment in Managements Discussion.
WGEServices electric sales opportunities are significantly
affected by the price for Standard Offer Service (SOS) offered
by electric utilities. These rates are periodically reset based
on the regulatory requirements in each jurisdiction and customer
class. From
time-to-time,
significant sales opportunities may exist or sales opportunities
may be very limited due to the relationship of these SOS rates
to current market prices.
DESIGN-BUILD
ENERGY SYSTEMS SEGMENT
Description
The design-build energy systems segment, which consists of the
operations of WGESystems, provides design-build energy efficient
and sustainable solutions to governmental and commercial
clients. WGESystems focuses on upgrading the mechanical,
electrical, water and energy-related systems of large
governmental and commercial facilities by implementing both
traditional as well as alternative energy technologies,
primarily in the District of Columbia, Maryland and Virginia.
The design-build energy systems segment derived approximately
80% of its revenues from various agencies of the Federal
Government in fiscal year 2009.
As of September 30, 2009 and 2008, WGESystems had a backlog
of $42.0 million and $39.3 million, respectively. This
backlog only includes work associated with signed contracts. Of
the backlog as of September 30, 2009, the approximate value
of work to be completed beyond fiscal year 2010 was
$13.2 million.
Factors critical to the success of the design-build energy
systems segment include: (i) generating adequate
revenue from the government and private sectors in the facility
construction and retrofit markets; (ii) building a
stable base of customer relationships;
(iii) estimating and managing fixed-price contracts;
(iv) building and maintaining a stable base of
sub-contractor
relationships and (v) controlling selling, general
and administrative expenses.
13
WGL
Holdings, Inc.
Washington Gas Light Company
Part I
Item 1. Business (continued)
Competition
There are many competitors in this business segment. Within the
government sector, competitors primarily include companies
performing Energy Savings Performance Contracting (ESPC) as well
as utilities performing under Utility Energy Saving Contracts
(UESC). In the commercial markets, in addition to ESPCs and
UESCs, competitors include manufacturers of equipment and
control systems and consulting firms. WGESystems competes on the
basis of strong customer relationships developed over many years
of implementing successful projects, developing and maintaining
strong supplier relationships, and focusing in areas where it
can bring relative expertise.
ENVIRONMENTAL
MATTERS
We are subject to federal, state and local laws and regulations
related to environmental matters. These evolving laws and
regulations may require expenditures over a long timeframe to
control environmental effects. Almost all of the environmental
liabilities we have recorded are for costs expected to be
incurred to remediate sites where we or a predecessor affiliate
operated manufactured gas plants (MGPs). Estimates of
liabilities for environmental response costs are difficult to
determine with precision because of the various factors that can
affect their ultimate level. These factors include, but are not
limited, to the following:
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the complexity of the site;
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changes in environmental laws and regulations at the federal,
state and local levels;
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the number of regulatory agencies or other parties involved;
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new technology that renders previous technology obsolete or
experience with existing technology that proves ineffective;
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the level of remediation required and
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variations between the estimated and actual period of time that
must be dedicated to respond to an environmentally contaminated
site.
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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. Based on the information available
to us, we have concluded that none of the sites are likely to
present an unacceptable risk to human health or the environment.
At one of the former MGP sites, studies show the presence of
coal tar under the site and an adjoining property. Washington
Gas has taken steps to control the movement of contaminants into
an adjacent river by installing a water treatment system that
removes and treats contaminated groundwater at the site.
Washington Gas received approval from governmental authorities
for a comprehensive remediation plan for the majority of the
site that permits commercial development of Washington
Gass property. Washington Gas has entered into an
agreement with a national developer for the development of this
site in phases. The first two phases have been completed, with
Washington Gas retaining a ground lease on each phase. A Record
of Decision for that portion of the site not owned by Washington
Gas was issued in August, 2006. Negotiations on a consent
agreement regarding remediation of that property were postponed
when the site was transferred in late 2007 to a new governmental
owner and the governmental entities involved agreed to review
how the transfer impacts the Record of Decision. On
September 21, 2006, governmental authorities notified
Washington Gas of their desire to have the utility investigate
and remediate river sediments in the area directly in front of
the former MGP site. There has been no agreement among
Washington Gas and governmental authorities as to the type and
level of sediment investigation and remediation that should be
undertaken for this area of the river; accordingly, we cannot
estimate at this time the potential future costs of such
investigation and remediation.
At a second former MGP site and on an adjacent parcel of land,
Washington Gas developed a monitoring-only
remediation plan for the site. This remediation plan received
approval under a state voluntary closure program.
We do not expect that the ultimate impact of these matters will
have a material adverse effect on our capital expenditures,
earnings or competitive position. At the remaining eight sites,
either the appropriate remediation is being undertaken, or no
remediation should be necessary. See Note 12 of the Notes
to Consolidated Financial Statements for further discussion of
environmental response costs.
14
WGL
Holdings, Inc.
Washington Gas Light Company
Part I
Item 1. Business (concluded)
OTHER
INFORMATION
At September 30, 2009, we had 1,410 employees
comprising 1,316 utility and 94 non-utility employees. At
September 30, 2008, we had 1,448 employees comprising
1,359 utility and 89 non-utility employees.
Our code of conduct, corporate governance guidelines, and
charters for the governance, audit and human resources
committees of the Board of Directors are available on the
corporate Web site www.wglholdings.com under the
Corporate Governance link, and any changes or
amendments to these documents will also be posted to this
section of our Web site. Copies also may be obtained by request
to the Corporate Secretary at WGL Holdings, Inc., 101
Constitution Ave., N.W., Washington, D.C. 20080. We make
available free of charge on our corporate Web site, our annual
reports on
Form 10-K,
quarterly reports on
Form 10-Q
and current reports on
Form 8-K,
and any amendments, as soon as reasonably practicable after such
reports have been electronically filed with or furnished to the
Securities and Exchange Commission. Additional information about
WGL Holdings is also available on its Web site and at the
address listed above.
Our Chairman and Chief Executive Officer certified to the New
York Stock Exchange (NYSE) on March 18, 2009 that, as of
that date, he was unaware of any violation by WGL Holdings of
the NYSEs corporate governance listing standards.
Our research and development costs during fiscal years 2009,
2008 and 2007 were not material.
15
WGL
Holdings, Inc.
Washington Gas Light Company
Part I
Item 1A. Risk Factors
The risk factors described below should be read in conjunction
with other information included or incorporated by reference in
this annual report on
Form 10-K,
including an in-depth discussion of these risks in the section
entitled Managements Discussion and Analysis of
Financial Condition and Results of Operations. The
risks and uncertainties described below are not the only risks
and uncertainties facing us.
HOLDING
COMPANY
Our business may be adversely affected if we are unable to
pay dividends on our common stock and principal and interest on
our outstanding debt.
WGL Holdings is a holding company whose assets consist primarily
of investments in our subsidiaries. Accordingly, we conduct all
of our operations through our subsidiaries. Our ability to pay
dividends on our common stock and to pay principal and accrued
interest on our outstanding debt depends on the payment of
dividends to us by certain of our subsidiaries or the repayment
of funds to us by our principal subsidiaries. The extent to
which our subsidiaries do not pay dividends or repay funds to us
may adversely affect our ability to pay dividends to holders of
our common stock and principal and interest to holders of our
debt.
If we are unable to access sources of liquidity or capital,
or the cost of funds increases significantly, our
subsidiaries business may be adversely affected.
Our ability to obtain adequate and cost effective financing
depends on our credit ratings as well as the liquidity of
financial markets. Our credit ratings depend largely on the
financial performance of our subsidiaries, and a downgrade in
our current credit ratings could adversely affect our access to
sources of liquidity and capital, as well as our borrowing costs.
WASHINGTON GAS
LIGHT COMPANY
Changes in the regulatory environment or unfavorable rate
regulation, which can be affected by new laws or political
considerations, may restrict or delay Washington Gass
ability to earn a reasonable rate of return on its invested
capital to provide utility service and to recover fully its
operating costs.
Washington Gas is regulated by the PSC of DC, the PSC of MD and
the SCC of VA. These regulatory commissions generally have
authority over many of the activities of Washington Gass
business including, but not limited to, the rates it charges to
its customers, the amount and type of securities it can issue,
the nature of investments it can make, the nature and quality of
services it provides, safety standards, collection practices and
other matters. These regulators also may modify Washington
Gass rates to change the level, type and methods that it
utilizes to recover its costs, including the costs to acquire,
store, transport and deliver natural gas. The extent to which
the actions of regulatory commissions restrict or delay
Washington Gass ability to earn a reasonable rate of
return on invested capital
and/or fully
recover operating costs may adversely affect its results of
operations, financial condition and cash flows.
Washington Gass ability to meet customers natural
gas requirements may be impaired if its contracted gas supplies
and interstate pipeline and storage services are not available
or delivered in a timely manner.
Washington Gas is responsible for acquiring sufficient natural
gas supplies, interstate pipeline capacity and storage capacity
to meet current and future customers annual and seasonal
natural gas requirements. If Washington Gas is not able to
maintain a reliable and adequate natural gas supply and
sufficient pipeline capacity to deliver that supply, it may be
unable to meet its customers requirements. If Washington
Gas is unable to meet customers demand requirements, its
results of operations, financial condition and cash flows may be
adversely affected.
Washington Gas needs to acquire additional capacity to
deliver natural gas on the coldest days of the year and it may
not receive the necessary authorizations to do so in a timely
manner.
Washington Gas plans to construct a one billion cubic foot
liquefied natural gas (LNG) storage facility in Chillum,
Maryland, to meet its customers forecasted demand for
natural gas. The new storage facility is expected to be
completed and in service by the
2013-2014
winter heating season. If we are not permitted or are not able
to construct this planned facility on a timely basis for any
reason, the availability of the next best alternative (which is
to acquire additional interstate pipeline transportation or
storage capacity) may be limited by market supply and demand,
and the timing of Washington Gass participation in new
interstate pipeline
16
WGL
Holdings, Inc.
Washington Gas Light Company
Part I
Item 1A. Risk Factors (continued)
construction projects. This could cause an interruption in
Washington Gass ability to satisfy the needs of some of
its customers, which could adversely affect its results of
operations, financial condition and cash flows.
Operating issues could affect public safety and the
reliability of Washington Gass natural gas distribution
system, which could adversely affect Washington Gass
results of operations, financial condition and cash flows.
Washington Gass business is exposed to operating issues
that could affect the public safety and reliability of its
natural gas distribution system. Operating issues such as leaks,
mechanical problems and accidents could result in significant
costs to Washington Gass business and loss of customer
confidence. The occurrence of any such operating issues could
adversely affect Washington Gass results of operations,
financial condition and cash flows. If Washington Gas is unable
to recover from customers through the regulatory process all or
some of these costs and its authorized rate of return on these
costs, this also could adversely affect Washington Gass
results of operations, financial condition and cash flows.
The receipt of vaporized LNG into Washington Gass
natural gas distribution system may result in higher operating
expenses and capital expenditures which may have a material
adverse effect on its financial condition, results of operations
and cash flows, and may impact system safety.
An increase in the volume of vaporized LNG, which contains a low
concentration of heavy hydrocarbons (HHCs), is likely to result
in increased leaks in Washington Gass distribution system.
Additional operating expenses and capital expenditures may be
necessary to contend with the receipt of increased volumes of
vaporized LNG into Washington Gas distribution system if
the current preventative and remedial measures to mitigate any
possible increase in leaks in effected portions of Washington
Gass distribution system are unsuccessful. These
additional expenditures may not be recoverable or may not be
recoverable on a timely basis from customers. Additionally, such
operating expenses and capital expenditures may not be timely
enough to mitigate the challenges posed by increased volumes of
vaporized LNG and could result in leakage in couplings at a rate
that could compromise the safety of our distribution system.
Therefore, these conditions could have a material adverse effect
on Washington Gass results of operations, financial
condition and cash flows, and may impact system safety.
Changes in the relative prices of alternative forms of energy
may strengthen or weaken the competitive position of Washington
Gass natural gas delivery service. If the competitive
position of natural gas service weakens, it may reduce the
number of natural gas customers in the future and negatively
affect Washington Gass future cash flows and net
income.
The price of natural gas delivery service that Washington Gas
provides competes with the price of other forms of energy such
as electricity, oil and propane. Changing prices of natural gas
versus other sources of energy that Washington Gas competes
against can cause the competitive position of our natural gas
delivery service to improve or decline. A decline in the
competitive position of natural gas service in relation to
alternative energy sources can lead to fewer natural gas
customers, lower volumes of natural gas delivered, lower cash
flows and lower net income.
A decline in the economy may reduce net revenue growth and
reduce future net income and cash flows.
A decline in the economy of the region in which Washington Gas
operates might adversely affect Washington Gass ability to
grow its customer base and collect revenues from customers,
which may negatively affect net revenue growth and increase
costs. An increase in the interest rates Washington Gas pays
without the recognition of the higher cost of debt incurred by
it in the rates charged to its customers would adversely affect
future net income and cash flows.
If Washington Gas is unable to access sources of liquidity or
capital, or the cost of funds increases significantly,
Washington Gass business may be adversely affected.
Washington Gass ability to obtain adequate and cost
effective financing depends on its credit ratings as well as the
liquidity of financial markets. Washington Gass credit
ratings depend largely on its financial performance, and a
downgrade in Washington Gass current credit ratings could
adversely affect its access to sources of liquidity and capital,
as well its borrowing costs and ability to earn its authorized
rate of return.
As a wholly owned subsidiary of WGL Holdings, Washington Gas
depends solely on WGL Holdings to raise new common equity
capital and contribute that common equity to Washington Gas. If
WGL Holdings is unable to raise common equity capital, this also
could adversely affect Washington Gass credit ratings and
its ability to earn its authorized rate of return.
17
WGL
Holdings, Inc.
Washington Gas Light Company
Part I
Item 1A. Risk Factors (continued)
Washington Gass risk management strategies and related
hedging activities may not be effective in managing its risks,
and may result in additional liability for which rate recovery
may be disallowed and cause increased volatility in its
earnings.
Washington Gass business requirements expose it to
commodity price, weather, credit and interest-rate risks.
Washington Gas attempts to manage its exposure to these risks by
hedging, setting risk limits and employing other risk management
tools and procedures. Risk management activities may not be as
effective as planned, and cannot eliminate all of its risks.
Washington Gas also may be exposed to additional liability
should the anticipated revenue recovery of costs or losses
incurred with certain of these risk management activities be
subsequently excluded from the determination of revenues by a
regulator.
Washington Gass facilities and operations may be
impaired by acts of terrorism.
Washington Gass natural gas distribution, transmission and
storage facilities may be targets of terrorist activities that
could result in a disruption of its ability to meet customer
requirements. Terrorist attacks may also disrupt capital markets
and Washington Gass ability to raise capital. A terrorist
attack on Washington Gass facilities or those of its
natural gas suppliers or customers could result in a significant
decrease in revenues or a significant increase in repair costs,
which could adversely affect its results of operations,
financial condition and cash flows.
Washington Gas may face certain regulatory and financial
risks related to climate change legislation.
A number of proposals to limit greenhouse gas emissions,
measured in carbon dioxide equivalent units, are pending at the
regional, federal, and international level. These proposals
would require us to measure and potentially limit greenhouse gas
emissions from our utility operations and our customers or
purchase allowances for such emissions. While we cannot predict
with certainty the extent of these limitations or when they will
become effective, the adoption of such proposals could:
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increase utility costs related to operations, energy efficiency
activities and compliance;
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affect the demand for natural gas and
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increase the prices we charge our utility customers.
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The occurrence of any such legislation could adversely affect
Washington Gass results of operations, financial condition
and cash flows. If Washington Gas is unable to recover from
customers through the regulatory process all or some of these
costs and its authorized rate of return on these costs, this
also could adversely affect Washington Gass results of
operations, financial condition and cash flows.
WASHINGTON GAS
ENERGY SERVICES, INC.
WGEServices business, earnings and cash requirements
are highly weather sensitive and seasonal.
The operations of WGEServices, our retail energy-marketing
subsidiary, are weather sensitive and seasonal, with a
significant portion of revenues derived from the sale of natural
gas to retail customers for space heating during the winter
months, and from the sale of electricity to customers for
cooling during the summer months. Weather conditions directly
influence the volume of natural gas and electricity delivered to
customers. Weather conditions can also affect the short-term
pricing of energy supplies that WGEServices may need to procure
to meet the needs of its customers. Deviations in weather from
normal levels and the seasonal nature of WGEServices
business can create large variations in earnings and short-term
cash requirements.
The ability of WGEServices to meet customers natural
gas and electricity requirements may be impaired if contracted
supply is not available or delivered in a timely manner.
Sufficient capability to deliver natural gas and electric
supplies to serve the demand of WGEServices customers is
dependent upon the ability of natural gas producers, pipeline
gatherers, natural gas processors, interstate pipelines,
suppliers of electricity and regional electric transmission
operators to meet these requirements. If WGEServices is unable
to secure adequate supplies in a timely manner, either due to
the failure of its suppliers to deliver the contracted commodity
or the inability to secure additional quantities during
significant abnormal weather conditions, it may be unable to
meet its customer requirements. Such inability to meet its
delivery obligations to customers could result in WGEServices
experiencing defaults on contractual terms with its customers,
penalties and financial damage payments, the loss of certain
licenses and operating authorities,
and/or a
need to return customers to the regulated utility companies,
such as Washington Gas.
18
WGL
Holdings, Inc.
Washington Gas Light Company
Part I
Item 1A. Risk Factors (concluded)
The risk management strategies and related hedging activities
of WGEServices may not be effective in managing risks and may
cause increased volatility in its earnings.
WGEServices is exposed to commodity price risk to the extent its
natural gas and electricity purchases are not closely matched to
its sales commitments in terms of volume and pricing.
WGEServices attempts to manage its exposure to commodity price
risk, as well as its exposure to weather and credit risks by
hedging, setting risk limits, and employing other risk
management tools and procedures. These risk management
activities may not be as effective as planned, and cannot
eliminate all of WGEServices risks.
Significant increases in interest rates may increase
costs.
WGEServices depends on short-term debt to finance its accounts
receivable and storage gas inventories. Working capital
requirements vary significantly during the year and are financed
primarily through the issuance of commercial paper and unsecured
short-term bank loans by WGL Holdings. The results of operations
of WGEServices could be adversely affected if short-term
interest rates rose or if we were unable to access capital in a
cost-effective manner.
WGEServices is dependent on guarantees and access to cash
collateral from WGL Holdings.
The ability of WGEServices to purchase natural gas and
electricity from suppliers is dependent upon guarantees issued
on its behalf by WGL Holdings, and upon access to cash
collateral through the issuance of commercial paper and
unsecured short-term bank loans by WGL Holdings. Should WGL
Holdings not renew such guarantees, provide access to cash
collateral, or if WGL Holdings credit ratings are
downgraded, the ability of WGEServices to make commodity
purchases at reasonable prices may be impaired, adversely
affecting its results of operations, financial condition and
cash flows.
Regulatory developments may negatively affect WGEServices.
The regulations that govern the conduct of competitive energy
marketers are subject to change as the result of legislation or
regulatory proceedings. Changes in these regulatory rules could
reduce customer growth opportunities for WGEServices, or could
reduce the profit opportunities associated with certain groups
of existing or potential new customers and, thereby, adversely
affect its results of operations, financial condition and cash
flows.
Competition may negatively affect WGEServices.
WGEServices competes with other non-regulated retail suppliers
of natural gas and electricity, as well as with the commodity
rate offerings of electric and gas utilities. Increases in
competition including utility commodity rate offers that are
below prevailing market rates may result in a loss of sales
volumes or a reduction in growth opportunities that could
adversely affect results of operations, financial condition and
cash flows.
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ITEM 1B.
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UNRESOLVED
STAFF COMMENTS
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None.
19
WGL
Holdings, Inc.
Washington Gas Light Company
Part I
Item 2. Properties
At September 30, 2009, we provided services in various
areas of the District of Columbia, Maryland and Virginia, and
held certificates of convenience and necessity, licenses and
permits necessary to maintain and operate their respective
properties and businesses. The regulated utility segment is the
only segment where property, plant and equipment are significant
assets.
Property, plant and equipment is stated at original cost,
including labor, materials, taxes and overhead costs incurred
during the construction period. Washington Gas calculates
depreciation applicable to its utility gas plant in service
primarily using a straight-line method over the estimated
remaining life of the plant. The composite depreciation and
amortization rate of the regulated utility was 3.12%, 3.23% and
3.19% during fiscal years 2009, 2008 and 2007, respectively,
which included an allowance for estimated accrued non-legal
asset removal costs (see Note 1 of the Notes to
Consolidated Financial Statements).
At September 30, 2009, Washington Gas had approximately
659 miles of transmission mains, 12,353 miles of
distribution mains, and 13,497 miles of distribution
services. Washington Gas has the storage capacity for
approximately 15 million gallons of propane for
peak-shaving.
Washington Gas owns approximately 40 acres of land and a
building (built in 1970) at 6801 Industrial Road in
Springfield, Virginia. The Springfield site houses both
operating and certain administrative functions of the utility.
Washington Gas also holds title to land and buildings used as
substations for its utility operations.
Washington Gas also has peaking facilities to enhance
deliverability in periods of peak demand in the winter that
consist of propane air plants in Springfield, Virginia
(Ravensworth Station), and Rockville, Maryland (Rockville
Station). Hampshire owns full and partial interests in, and
operates underground natural gas storage facilities in Hampshire
County, West Virginia. Hampshire accesses the storage field
through 12 storage wells that are connected to an
18-mile
pipeline gathering system. Concurrent with acquiring and
protecting its storage rights, Hampshire has historically
acquired certain exploration and development rights in West
Virginia principally in the Marcellus Shale and other shale
formations. These rights are predominately owned by lease and
they are applicable to approximately 26,000 gross acres for
the storage facilities of which 13,000 acres of land
surrounding its storage facilities may be subject to exploration
in addition to its storage function. Hampshire also operates a
compressor station utilized to increase line pressure for
injection of gas into storage. For fiscal year 2010, we estimate
that the Hampshire storage facility has the capacity to supply
approximately 2.5 billion cubic feet of natural gas to
Washington Gass system for meeting winter season demands.
Washington Gas owns a
12-acre
parcel of land located in Southeast Washington, D.C.
Washington Gas entered into an agreement with a national
developer to develop this land in phases. Washington Gas
selected the developer to design, execute and manage the various
phases of the development. The development, Maritime Plaza, is
intended to be a mixed-use commercial project that will be
implemented in five phases. The first two phases have been
developed, with Washington Gas retaining a
99-year
ground lease on each phase. See the section entitled
Environmental Matters under Item 1 of
this report for additional information regarding this
development.
Facilities utilized by our corporate headquarters, as well as by
the retail energy-marketing and energy design-build systems
segments, are located in the Washington, D.C. metropolitan
area and are leased.
The Mortgage of Washington Gas dated January 1, 1933
(Mortgage), as supplemented and amended, securing any First
Mortgage Bonds (FMBs) it issues, constitutes a direct lien on
substantially all property and franchises owned by Washington
Gas other than a small amount of property that is expressly
excluded. At September 30, 2009 and 2008, there was no debt
outstanding under the Mortgage.
Washington Gas executed a supplemental indenture to its
unsecured Medium-Term Note (MTN) Indenture on September 1,
1993, providing that Washington Gas will not issue any FMBs
under its Mortgage without securing all MTNs with all other debt
secured by the Mortgage.
20
WGL
Holdings, Inc.
Washington Gas Light Company
Part I
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ITEM 3.
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LEGAL
PROCEEDINGS
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None.
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ITEM 4.
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SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
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None.
21
WGL
Holdings, Inc.
Washington Gas Light Company
Part I
EXECUTIVE
OFFICERS OF THE REGISTRANTS
The names, ages and positions of the executive officers of the
registrants at October 31, 2009, are listed below along
with their business experience during the past five years. The
age of each officer listed is as of the date of filing of this
report. There is no family relationship among the officers.
Unless otherwise indicated, all officers have served
continuously since the dates indicated, and all positions are
executive officers listed with Washington Gas Light Company.
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Executive Officers
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Date Elected or
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Name, Age and Position with the
registrants
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Appointed
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Vincent L. Ammann, Jr., Age 50 (1)
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Vice President and Chief Financial Officer
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September 30, 2006
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Vice President and Chief Financial Officer of WGL Holdings,
Inc.
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September 30, 2006
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Vice PresidentFinance
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October 1, 2005
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Vice PresidentFinance of WGL Holdings, Inc.
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October 1, 2005
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Assistant to the Chief Financial Officer
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March 29, 2004
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Beverly J. Burke, Age 58 (1)
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Vice President and General Counsel
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July 1, 2001
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Vice President and General Counsel of WGL Holdings, Inc.
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July 1, 2001
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Gautam Chandra, Age 43 (1)
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Vice PresidentBusiness Development, Strategy and Business
Process Outsourcing
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October 1, 2009
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Vice PresidentBusiness Development, Strategy, Business
Process Outsourcing and Non-Utility Operations of WGL Holdings,
Inc.
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October 1, 2009
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Vice PresidentBusiness Process Outsourcing
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July 2, 2007
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Vice PresidentBusiness Process Outsourcing and Non-Utility
Operations of WGL Holdings, Inc.
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July 2, 2007
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Vice PresidentPerformance Improvement
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October 1, 2005
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Vice PresidentPerformance Improvement and Non-Utility
Operations of WGL Holdings, Inc.
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October 1, 2005
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Division HeadFinance Support and Non-Utility
Businesses
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January 5, 2004
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Division HeadAchieving Operational Excellence
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December 12, 2002
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Adrian P. Chapman, Age 52 (1)
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President and Chief Operating Officer
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October 1, 2009
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President and Chief Operating Officer of WGL Holdings, Inc.
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October 1, 2009
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Vice PresidentOperations, Regulatory Affairs and Energy
Acquisition
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October 1, 2005
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Vice PresidentRegulatory Affairs and Energy Acquisition
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March 31, 1999
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Marcellous P. Frye, Jr., Age 42 (2)
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Vice PresidentSupport Services
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March 21, 2008
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Division HeadInformation Technology
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July 2, 2007
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DirectorDevelopment and ITS Engineering
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August 15, 2005
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Eric C. Grant, Age 52 (3)
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Vice PresidentCorporate Relations
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October 1, 2009
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DirectorCorporate Communications
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September 4, 2007
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Terry D. McCallister, Age 53 (1)
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Chairman of the Board and Chief Executive Officer
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October 1, 2009
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Chairman of the Board and Chief Executive Officer of WGL
Holdings, Inc.
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October 1, 2009
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President and Chief Operating Officer
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October 1, 2001
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President and Chief Operating Officer of WGL Holdings, Inc.
|
|
October 1, 2001
|
22
WGL
Holdings, Inc.
Washington Gas Light Company
Part I
|
|
|
Executive Officers
|
|
|
Date Elected or
|
Name, Age and Position with the
registrants
|
|
Appointed
|
|
|
|
|
|
Anthony M. Nee, Age 53 (1,4)
|
|
|
Treasurer
|
|
February 14, 2009
|
Treasurer of WGL Holdings, Inc.
|
|
February 14, 2009
|
Division HeadRisk Management
|
|
December 8, 2003
|
Department HeadRisk Management
|
|
February 10, 2003
|
|
|
|
Mark P. OFlynn, Age 59 (1)
|
|
|
Controller
|
|
February 18, 2002
|
Controller of WGL Holdings, Inc.
|
|
February 18, 2002
|
|
|
|
Douglas V. Pope, Age 64 (1)
|
|
|
Secretary of WGL Holdings, Inc.
|
|
January 13, 2000
|
Secretary
|
|
July 25, 1979
|
Roberta W. Sims, Age 55
|
|
|
Vice PresidentRegulatory Affairs and Energy Acquisition
|
|
October 1, 2009
|
Vice PresidentCorporate Relations and Communication
|
|
January 31, 1996
|
|
|
|
Douglas A. Staebler, Age 49 (5)
|
|
|
Vice PresidentEngineering and Construction
|
|
October 31, 2006
|
Division HeadEngineering
|
|
July 25, 2005
|
|
|
|
William Zeigler, Jr., Age 64
|
|
|
Vice PresidentHuman Resources and Organizational
Development
|
|
February 1, 2004
|
Division HeadOrganizational Development
|
|
February 10, 2003
|
|
|
|
|
(1)
|
Executive Officer of both WGL
Holdings, Inc. and Washington Gas Light Company.
|
|
(2)
|
Mr. Frye was previously
employed by Global eXchange Services (formerly known as GE
Global eXchange Services) based in Gaithersburg, Maryland, where
he served as Vice President for Global Application Development.
Mr. Frye also held various leadership positions for General
Electric Information Services in Rockville, Maryland.
|
|
(3)
|
Mr. Grant was previously
employed by The Washington Post newspaper where he served as the
Director of Communications, Public Relations and Corporate
Philanthropy and the newspapers primary
spokesperson.
|
|
(4)
|
Mr. Nee joined Washington
Gas in 2003, overseeing compliance with Sarbanes-Oxley
requirements and the energy risk management function. He has
over 20 years of experience in various finance positions in
the natural gas and electric power industries. Mr. Nee
started his career as a CPA, spending 10 years in public
accounting with the Pittsburgh office of Arthur Young.
|
|
(5)
|
Mr. Staebler was previously
employed by NUI CorporationElizabethtown Gas where he held
various positions in engineering, operations and construction
and maintenance.
|
23
WGL
Holdings, Inc.
Washington Gas Light Company
Part II
Item 6. Selected Financial Data
ITEM 6. SELECTED
FINANCIAL DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except per share data)
|
|
Years Ended September 30,
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
SUMMARY OF EARNINGS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Utility
|
|
$
|
1,481,089
|
|
|
$
|
1,536,443
|
|
|
$
|
1,497,274
|
|
|
$
|
1,622,510
|
|
|
$
|
1,379,390
|
|
Non-utility
|
|
|
1,225,767
|
|
|
|
1,091,751
|
|
|
|
1,148,734
|
|
|
|
1,015,373
|
|
|
|
783,953
|
|
|
Total operating revenues
|
|
$
|
2,706,856
|
|
|
$
|
2,628,194
|
|
|
$
|
2,646,008
|
|
|
$
|
2,637,883
|
|
|
$
|
2,163,343
|
|
|
Income from continuing operations
|
|
$
|
120,373
|
|
|
$
|
116,523
|
|
|
$
|
107,900
|
|
|
$
|
94,694
|
|
|
$
|
106,072
|
|
Net income applicable to common stock
|
|
$
|
120,373
|
|
|
$
|
116,523
|
|
|
$
|
107,900
|
|
|
$
|
87,578
|
|
|
$
|
103,493
|
|
Earnings per average common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
2.40
|
|
|
$
|
2.35
|
|
|
$
|
2.19
|
|
|
$
|
1.94
|
|
|
$
|
2.18
|
|
Net income applicable to common stock
|
|
$
|
2.40
|
|
|
$
|
2.35
|
|
|
$
|
2.19
|
|
|
$
|
1.80
|
|
|
$
|
2.13
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
2.39
|
|
|
$
|
2.33
|
|
|
$
|
2.19
|
|
|
$
|
1.94
|
|
|
$
|
2.16
|
|
Net income applicable to common stock
|
|
$
|
2.39
|
|
|
$
|
2.33
|
|
|
$
|
2.19
|
|
|
$
|
1.79
|
|
|
$
|
2.11
|
|
CAPITALIZATION-YEAR END
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shareholders equity
|
|
$
|
1,097,698
|
|
|
$
|
1,047,564
|
|
|
$
|
980,767
|
|
|
$
|
921,807
|
|
|
$
|
893,992
|
|
Washington Gas Light Company preferred stock
|
|
|
28,173
|
|
|
|
28,173
|
|
|
|
28,173
|
|
|
|
28,173
|
|
|
|
28,173
|
|
Long-term debt, excluding maturities
|
|
|
561,830
|
|
|
|
603,738
|
|
|
|
616,419
|
|
|
|
576,139
|
|
|
|
584,150
|
|
|
Total capitalization
|
|
$
|
1,687,701
|
|
|
$
|
1,679,475
|
|
|
$
|
1,625,359
|
|
|
$
|
1,526,119
|
|
|
$
|
1,506,315
|
|
|
OTHER FINANCIAL DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assetsyear-end
|
|
$
|
3,349,890
|
|
|
$
|
3,243,543
|
|
|
$
|
3,046,361
|
|
|
$
|
2,791,406
|
|
|
$
|
2,601,081
|
|
Property, plant and
equipment-netyear-end
|
|
$
|
2,269,141
|
|
|
$
|
2,208,302
|
|
|
$
|
2,150,441
|
|
|
$
|
2,067,895
|
|
|
$
|
1,969,016
|
|
Capital expenditures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrual basis
(a)
|
|
$
|
137,505
|
|
|
$
|
131,433
|
|
|
$
|
158,101
|
|
|
$
|
161,496
|
|
|
$
|
124,014
|
|
Cash basis adjustments
|
|
|
1,403
|
|
|
|
3,528
|
|
|
|
6,430
|
|
|
|
(1,739
|
)
|
|
|
(11,246
|
)
|
|
Cash basis
|
|
$
|
138,908
|
|
|
$
|
134,961
|
|
|
$
|
164,531
|
|
|
$
|
159,757
|
|
|
$
|
112,768
|
|
|
Long-term obligationsyear-end
|
|
$
|
561,830
|
|
|
$
|
603,738
|
|
|
$
|
616,419
|
|
|
$
|
576,139
|
|
|
$
|
584,150
|
|
COMMON STOCK DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annualized dividends per share
|
|
$
|
1.47
|
|
|
$
|
1.42
|
|
|
$
|
1.37
|
|
|
$
|
1.35
|
|
|
$
|
1.33
|
|
Dividends declared per share
|
|
$
|
1.4575
|
|
|
$
|
1.4075
|
|
|
$
|
1.3650
|
|
|
$
|
1.3450
|
|
|
$
|
1.3225
|
|
Closing price
|
|
$
|
33.14
|
|
|
$
|
32.45
|
|
|
$
|
33.89
|
|
|
$
|
31.34
|
|
|
$
|
32.13
|
|
Book value per shareyear-end
|
|
$
|
21.89
|
|
|
$
|
20.99
|
|
|
$
|
19.89
|
|
|
$
|
18.86
|
|
|
$
|
18.36
|
|
Return on average common equity
|
|
|
11.2
|
%
|
|
|
11.5
|
%
|
|
|
11.3
|
%
|
|
|
9.6
|
%
|
|
|
11.8
|
%
|
Dividend yield on book value
|
|
|
6.7
|
%
|
|
|
6.8
|
%
|
|
|
6.9
|
%
|
|
|
7.2
|
%
|
|
|
7.2
|
%
|
Dividend payout ratio
|
|
|
60.7
|
%
|
|
|
59.9
|
%
|
|
|
62.3
|
%
|
|
|
74.7
|
%
|
|
|
62.1
|
%
|
Shares outstandingyear-end (thousands)
|
|
|
50,143
|
|
|
|
49,917
|
|
|
|
49,316
|
|
|
|
48,878
|
|
|
|
48,704
|
|
UTILITY GAS SALES AND DELIVERIES (thousands of
therms)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gas sold and delivered
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential firm
|
|
|
689,986
|
|
|
|
627,527
|
|
|
|
648,701
|
|
|
|
593,594
|
|
|
|
625,251
|
|
Commercial and industrial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Firm
|
|
|
203,039
|
|
|
|
199,363
|
|
|
|
203,962
|
|
|
|
213,997
|
|
|
|
222,587
|
|
Interruptible
|
|
|
3,377
|
|
|
|
6,543
|
|
|
|
5,275
|
|
|
|
6,185
|
|
|
|
7,809
|
|
|
Total gas sold and delivered
|
|
|
896,402
|
|
|
|
833,433
|
|
|
|
857,938
|
|
|
|
813,776
|
|
|
|
855,647
|
|
|
Gas delivered for others
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Firm
|
|
|
462,051
|
|
|
|
433,991
|
|
|
|
433,420
|
|
|
|
403,812
|
|
|
|
434,099
|
|
Interruptible
|
|
|
273,820
|
|
|
|
256,626
|
|
|
|
267,305
|
|
|
|
251,003
|
|
|
|
279,924
|
|
Electric generation
|
|
|
102,759
|
|
|
|
92,176
|
|
|
|
111,950
|
|
|
|
108,315
|
|
|
|
73,874
|
|
|
Total gas delivered for others
|
|
|
838,630
|
|
|
|
782,793
|
|
|
|
812,675
|
|
|
|
763,130
|
|
|
|
787,897
|
|
|
Total utility gas sales and deliveries
|
|
|
1,735,032
|
|
|
|
1,616,226
|
|
|
|
1,670,613
|
|
|
|
1,576,906
|
|
|
|
1,643,544
|
|
|
OTHER STATISTICS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Active customer metersyear-end
|
|
|
1,064,071
|
|
|
|
1,053,032
|
|
|
|
1,046,201
|
|
|
|
1,031,916
|
|
|
|
1,012,105
|
|
New customer meters added
|
|
|
11,011
|
|
|
|
12,962
|
|
|
|
19,373
|
|
|
|
24,693
|
|
|
|
26,682
|
|
Heating degree daysactual
|
|
|
4,211
|
|
|
|
3,458
|
|
|
|
3,955
|
|
|
|
3,710
|
|
|
|
4,023
|
|
Weather percent colder (warmer) than normal
|
|
|
11.6
|
%
|
|
|
(8.7
|
)%
|
|
|
3.7
|
%
|
|
|
(2.5
|
)%
|
|
|
5.9
|
%
|
|
|
|
(a)
|
Excludes Allowance for Funds
Used During Construction and prepayments associated with capital
projects. Includes accruals for capital expenditures and other
non-cash additions.
|
25
WGL
Holdings, Inc.
Washington Gas Light Company
Part II
Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations
ITEM 7. MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
INTRODUCTION
This Managements Discussion and Analysis of Financial
Condition and Results of Operations (Managements
Discussion) analyzes the financial condition, results of
operations and cash flows of WGL Holdings, Inc. (WGL Holdings)
and its subsidiaries. It also includes managements
analysis of past financial results and potential factors that
may affect future results, potential future risks and approaches
that may be used to manage them. Except where the content
clearly indicates otherwise, WGL Holdings,
we, us or our refers to the
holding company or the consolidated entity of WGL Holdings and
all of its subsidiaries.
Managements Discussion is divided into the following two
major sections:
|
|
|
|
|
WGL HoldingsThis section describes the financial
condition and results of operations of WGL Holdings and its
subsidiaries on a consolidated basis. It includes discussions of
our regulated and unregulated operations. WGL Holdings
operations are derived from the results of Washington Gas Light
Company (Washington Gas) and Hampshire Gas Company and the
results of our non-utility operations.
|
|
|
|
Washington GasThis section describes the financial
condition and results of operations of Washington Gas, a wholly
owned subsidiary that comprises the majority of our regulated
utility segment.
|
Both of the major sections of Managements
DiscussionWGL Holdings and Washington Gasare
designed to provide an understanding of our operations and
financial performance and should be read in conjunction with the
respective companys financial statements and the combined
Notes to Consolidated Financial Statements in this annual report.
Unless otherwise noted, earnings per share amounts are presented
on a diluted basis, and are based on weighted average common and
common equivalent shares outstanding.
26
WGL
Holdings, Inc.
Washington Gas Light Company
Part II
Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations (continued)
Managements
Discussion Table of Contents
|
|
|
|
|
|
|
Page
|
|
|
|
|
27
|
|
|
|
|
28
|
|
|
|
|
33
|
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
37
|
|
|
|
|
45
|
|
|
|
|
51
|
|
|
|
|
56
|
|
|
|
|
57
|
|
|
|
|
|
|
|
|
|
63
|
|
|
|
|
65
|
|
|
|
|
65
|
|
EXECUTIVE
OVERVIEW
Introduction
WGL Holdings, through its wholly owned subsidiaries, sells and
delivers natural gas and provides a variety of energy-related
products and services to customers primarily in the District of
Columbia and the surrounding metropolitan areas in Maryland and
Virginia. Our core subsidiary, Washington Gas, engages in the
delivery and sale of natural gas that is regulated by regulatory
commissions in the District of Columbia, Maryland and Virginia.
Through the wholly owned unregulated subsidiaries of Washington
Gas Resources Corporation (Washington Gas Resources), we also
offer energy-related products and services. We offer
competitively priced natural gas and electricity to customers
through Washington Gas Energy Services (WGEServices), our
unregulated retail energy-marketing subsidiary. We also offer
design-build energy efficient and sustainable solutions focused
on upgrading energy related systems of large government and
commercial facilities through Washington Gas Energy Systems
(WGESystems).
WGL Holdings has three operating segments that are described
below:
|
|
|
|
|
regulated utility;
|
|
|
|
retail energy-marketing and
|
|
|
|
design-build energy systems.
|
Transactions that are not significant enough on a stand-alone
basis to warrant treatment as an operating segment, and that do
not fit into one of our three operating segments, are aggregated
as Other Activities and included as part of
non-utility operations.
Regulated Utility. With approximately
91% of our consolidated total assets, the regulated utility
segment consists of Washington Gas and Hampshire Gas Company
(Hampshire). Washington Gas, a wholly owned subsidiary of WGL
Holdings, delivers natural gas to retail customers in accordance
with tariffs approved by the regulatory commissions that have
jurisdiction over Washington Gass rates. Washington Gas
also sells natural gas to customers who have not elected to
purchase natural gas from unregulated third party marketers.
The rates charged to utility customers are designed to recover
Washington Gass operating expenses and natural gas
commodity costs and to provide a return on its investment in the
net assets used in its firm gas sales and delivery service.
Washington Gas recovers the cost of the natural gas to serve
firm customers through the gas cost recovery mechanisms as
approved in jurisdictional tariffs. Any difference between the
firm customer gas costs incurred and the gas costs recovered
from those firm customers is deferred on the balance sheet as an
amount to be collected from, or refunded to, customers in future
periods. Therefore, increases or decreases in the cost of gas
associated with sales made to firm customers have no direct
effect on Washington Gass net revenues and net income.
27
WGL
Holdings, Inc.
Washington Gas Light Company
Part II
Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations (continued)
Washington Gass asset optimization program utilizes
Washington Gass storage and transportation capacity
resources when not fully being used to physically serve utility
customers by entering into commodity-related physical and
financial contracts with third parties with the objective of
deriving a profit to be shared with its utility customers (refer
to the section entitled Market Risk for a
further discussion of our asset optimization program). Unless
otherwise noted, therm deliveries shown related to Washington
Gas or the regulated utility segment do not include therms
delivered related to our asset optimization program.
Hampshire, a wholly owned subsidiary of WGL Holdings, is
regulated by the Federal Energy Regulatory Commission (FERC).
Hampshire operates and owns full and partial interests in
underground natural gas storage facilities including pipeline
delivery facilities located in and around Hampshire County, West
Virginia. Washington Gas purchases all of the storage services
of Hampshire and includes the cost of these services in the
bills sent to its customers. Hampshire operates under a
pass-through cost of service-based tariff approved
by the FERC, and adjusts its billing rates to Washington Gas on
a periodic basis to account for changes in its investment in
utility plant and associated expenses.
Retail Energy-Marketing. The retail
energy-marketing segment consists of the operations of
WGEServices, a wholly owned subsidiary of Washington Gas
Resources. WGEServices competes with regulated utilities and
other unregulated third party marketers to sell natural gas
and/or
electricity directly to residential, commercial and industrial
customers in Maryland, Virginia, Delaware and the District of
Columbia. WGEServices contracts for its supply needs and buys
and resells natural gas and electricity with the objective of
earning a profit through competitively priced contracts with
end-users. These commodities are delivered to retail customers
through the distribution systems owned by regulated utilities
such as Washington Gas or other unaffiliated natural gas or
electric utilities. WGEServices is also expanding its renewable
energy and energy conservation product and service offerings.
During the fiscal year ended September 30, 2009,
WGEServices contracted for and completed the construction of one
Solar PV facility, which includes ownership of the operational
asset, and has contracted for two additional facilities that are
expected to be completed by December 31, 2009. Other than
these facilities, WGEServices does not own or operate any
natural gas or electric generation, production, transmission or
distribution assets. Continued expansion may include the
ownership of other renewable energy producing assets.
Design-Build Energy Systems. Our
design-build energy systems segment, which consists of the
operations of Washington Gas Energy Systems, Inc. (WGESystems),
provides design-build energy efficient and sustainable solutions
to government and commercial clients. WGESystems focuses on
upgrading the mechanical, electrical, water and energy-related
systems of large government and commercial facilities by
implementing both traditional as well as alternative energy
technologies, primarily in the District of Columbia, Maryland
and Virginia.
Refer to the Business section under Item 1 of this
report for further discussion of our regulated utility and
non-utility business segments. For further discussion of our
financial performance by operating segment, refer to
Note 15 of the Notes to Consolidated Financial Statements.
PRIMARY FACTORS
AFFECTING WGL HOLDINGS AND WASHINGTON GAS
The following is a summary discussion of the primary factors
that affect the operations
and/or
financial performance of our regulated and unregulated
businesses. Refer to the sections entitled
Business and Risk Factors
under Item 1 and Item 1A, respectively, of this
report for additional discussion of these and other factors that
affect the operations
and/or
financial performance of WGL Holdings and Washington Gas.
Weather
Conditions and Weather Patterns
Washington Gas. Washington Gass
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 fiscal 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 December 31
(particularly in October and November) and June 30 (particularly
in April and May), customer heating usage may not correlate
highly with historical levels or with the level of heating
degree days (HDDs) that occur, particularly when weather
patterns experienced are not consistently cold or warm.
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Washington Gas Light Company
Part II
Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations (continued)
Washington Gass rates are determined on the basis of
expected normal weather conditions. Washington Gas has a weather
protection strategy that is designed to neutralize the estimated
financial effects of variations from normal weather. Refer to
the section entitled Market RiskWeather
Risk for a further discussion of Washington Gass
weather protection strategies.
WGEServices. The financial results of
our retail energy-marketing subsidiary, WGEServices, are also
affected by deviations in weather from normal levels and
abnormal customer usage during the shoulder months described
above. Since WGEServices sells both natural gas and electricity,
WGEServices financial results may fluctuate due to
unpredictable deviations in weather during the winter heating
and summer cooling seasons. WGEServices purchases weather
derivatives to help manage this risk. Refer to the section
entitled Market RiskWeather Risk for
further discussion of WGEServices weather derivatives.
Regulatory
Environment and Regulatory Decisions
Washington Gas is regulated by the Public Service Commission of
the District of Columbia (PSC of DC), the Public Service
Commission of Maryland (PSC of MD) and the State
Corporation Commission of Virginia (SCC of VA). These regulatory
commissions approve the terms and conditions of service and the
rates that Washington Gas can charge customers for its
rate-regulated services in their respective jurisdictions.
Changes in these rates as ordered by regulatory commissions
affect Washington Gass financial performance.
Washington Gas expects that regulatory commissions will continue
to set the prices and terms for delivery service that give it an
opportunity to recover reasonable operating expenses and earn a
just and reasonable rate of return on the capital invested in
its distribution system.
Natural
Gas Supply and Pipeline Transportation and Storage
Capacity
Natural
Gas Supply and Capacity Requirements
Washington Gas. Washington Gas is
responsible for acquiring sufficient natural gas supplies,
interstate pipeline capacity and storage capacity to meet its
customer requirements. As such, Washington Gas must contract for
both reliable and adequate supplies and delivery capacity to its
distribution system, while considering: (i) the
dynamics of the commodity supply and interstate pipeline and
storage capacity markets; (ii) its own on-system
natural gas peaking facilities and (iii) the
characteristics of its customer base. Energy-marketing companies
that sell natural gas to customers located within Washington
Gas service territory are responsible for acquiring
natural gas for their customers; however, Washington Gas
allocates certain storage and pipeline capacity related to these
customers in accordance with regulatory requirements.
The increase in demand for pipeline and storage capacity
compared to the available capacity is a business issue for local
distribution companies, such as Washington Gas. Aside from the
past year or two when the economy and housing market was in a
recession, historically, Washington Gass customer base has
grown at an annual rate of approximately two percent. It is
expected to return to this historical growth rate over the next
few years as the new housing market recovers. To help maintain
the adequacy of pipeline and storage capacity for its growing
customer base, Washington Gas has contracted with various
interstate pipeline and storage companies to expand its
transportation and storage capacity services to Washington Gas.
These capacity expansion projects are expected to be placed into
service during fiscal years
2010-2015.
Additionally, Washington Gas anticipates enhancing its peaking
capacity by constructing a liquefied natural gas (LNG) peaking
facility that is expected to be completed and placed in service
by the
2013-2014
winter heating season (refer to the section entitled
Liquidity and Capital ResourcesCapital
Expenditures). Washington Gas will continue to monitor
other opportunities to acquire or participate in obtaining
additional pipeline and storage capacity that will support
customer growth and improve or maintain the high level of
service expected by its customer base.
WGEServices. WGEServices contracts for
storage and pipeline capacity to meet its customers needs
primarily through transportation releases and storage services
allocated from the utility companies in the various service
territories in which they are providing retail energy marketing.
Diversity
of Natural Gas Supply
Washington Gas. An objective of
Washington Gass supply sourcing strategy is to diversify
receipts from multiple production areas to meet all firm
customers natural gas supply requirements. This strategy
is designed to protect Washington Gass receipt of supply
from being curtailed by possible financial difficulties of a
single supplier, natural disasters and other unforeseen events.
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Washington Gas Light Company
Part II
Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations (continued)
WGEServices. WGEServices diversifies
its wholesale supplier base in order to minimize its supply
costs and avoid the negative impacts of relying on any single
provider for its natural gas supply. To supplement
WGEServices natural gas supplies during periods of high
customer demand, WGEServices maintains gas inventories in
storage facilities that are allocated by natural gas utilities
such as Washington Gas.
Volatility
of Natural Gas Prices
Volatility of natural gas prices does impact customer usage and
has different short-term and long-term effects on our business.
The impact is also different between the regulated utility
segment and the unregulated retail energy-marketing segment as
described below.
Washington Gas. Under its regulated gas
cost recovery mechanisms, Washington Gas records cost of gas
expense equal to the cost of gas that is recovered in revenues
from customers for each period reported. An increase in the cost
of gas due to an increase in the purchase price of the natural
gas commodity generally has no direct effect on Washington
Gass net income. However, to the extent Washington Gas
does not have regulatory mechanisms in place to mitigate the
indirect effects of higher gas prices, its net income may
decrease for factors such as: (i) lower natural gas
consumption caused by customer conservation;
(ii) increased short-term interest expense to
finance a higher accounts receivable balance and
(iii) higher expenses for uncollectible accounts. A
Revenue Normalization Adjustment (RNA) billing mechanism in
Maryland and other regulatory mechanisms in both Maryland and
Virginia help to mitigate these effects on Washington Gass
revenue and net income. Increases in the price of natural gas
can also affect our operating cash flows. Long term impacts of
volatile natural gas prices relate to the relative cost of
natural gas service versus the availability of substitute
products such as electricity, propane and fuel oil.
WGEServices. WGEServices may be
negatively affected by the indirect effects of significant
increases or decreases in the wholesale price of natural gas.
WGEServices risk management policies and procedures are
designed to minimize the risk that WGEServices purchase
commitments and the related sales commitments do not closely
match (refer to the section entitled Market
Risk for further discussion of WGEServices
mitigation of commodity price risk). Additionally, in the
short-term, higher natural gas prices may increase the costs
associated with uncollectible accounts, borrowing costs, certain
fees paid to public service commissions and other costs. To the
extent that these costs cannot be recovered from retail
customers due to competitive factors, WGEServices
operating results would be negatively affected. In the
long-term, natural gas sales for WGEServices are subject to the
same impacts of volatile natural gas prices as described above
for Washington Gas.
Non-Weather
Related Changes in Natural Gas Consumption Patterns
Natural gas supply requirements are affected by changes in the
natural gas consumption patterns of our customers that are
driven by factors other than weather. Natural gas usage per
customer may decline as customers change their consumption
patterns in response to: (i) more volatile and
higher natural gas prices, as discussed above;
(ii) customers replacement of older, less
efficient gas appliances with more efficient appliances and
(iii) a decline in the economy in the region in
which we operate. In each jurisdiction in which Washington Gas
operates, changes in customer usage profiles have been reflected
in recent rate case proceedings where rates have been adjusted
to reflect current customer usage. In the District of Columbia,
decreases in customer usage by existing customers that occur
subsequent to its most recent rate case proceeding will have the
effect of reducing revenues, which may be offset by the
favorable effect of adding new customers. Under the RNA
mechanism in Maryland, changes in customer usage by existing
customers that occur subsequent to recent rate case proceedings
in the Maryland jurisdiction generally will not reduce revenues
because the RNA mechanism stabilizes the level of delivery
charge revenues received from customers. In Virginia, a
declining block rate structure partially mitigates the income
statement effects of declines in consumption.
Maintaining
the Safety and Reliability of the Natural Gas Distribution
System
Maintaining and improving the public safety and reliability of
Washington Gass natural gas distribution system is our
highest priority which provides benefits to both customers and
investors through lower costs and improved customer service.
Washington Gas continually refines its safety practices, with a
particular focus on design, construction, maintenance,
operation, replacement, inspection and monitoring practices.
Operational issues affecting the public safety and reliability
of Washington Gass natural gas distribution system that
are not addressed within a timely and adequate manner could
significantly and adversely affect our future earnings and cash
flows, as well as result in a loss of customer confidence.
30
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Holdings, Inc.
Washington Gas Light Company
Part II
Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations (continued)
Washington Gas is experiencing operational issues associated
with the receipt of vaporized LNG from the Cove Point LNG
terminal owned by Dominion Cove Point LNG, LP and Dominion
Transmission Inc. (collectively Dominion), and a planned
expansion of this terminal. Refer to the section entitled
Operating Issues Related To Cove Point Natural Gas
Supply for a discussion of the specific operational
issues involved.
Competitive
Environment
Washington Gas. Washington Gas faces
competition based on customers preference for natural gas
compared to other energy products, and the comparative prices of
those products. The most significant product competition occurs
between natural gas and electricity in the residential market.
Changes in the competitive position of natural gas relative to
electricity and other energy products have the potential of
causing a decline in the number of future natural gas customers.
At present, Washington Gas has seen no significant evidence that
changes in the competitive position of natural gas has
contributed to such a decline.
The residential market generates a significant portion of
Washington Gass net income. In its service territory,
Washington Gas continues to attract the majority of the new
residential construction market. Consumers continuing
preference for natural gas allows Washington Gas to maintain a
strong market presence.
In each of the jurisdictions served by Washington Gas,
regulators and utilities have implemented customer choice
programs to purchase natural gas. These programs allow customers
the choice of purchasing their natural gas from unregulated
third party marketers, rather than from the local utility. There
is no effect on Washington Gass net income when customers
purchase their natural gas commodity from unregulated third
party marketers because Washington Gas charges its customers the
cost of gas without any
mark-up.
WGEServices. Our unregulated retail
energy-marketing subsidiary, WGEServices, competes with
regulated utilities and other unregulated third party marketers
to sell the natural gas and electric commodity to customers.
Marketers of these commodities compete largely on price;
therefore, gross margins (representing revenues less costs of
energy) are relatively small. WGEServices is exposed to credit
and market risks associated with both its natural gas and
electric supply (refer to the sections entitled Credit
Risk and Market Risk for further
discussion of these risk exposures and how WGEServices manages
them).
WGEServices electric sales opportunities are significantly
affected by the price for Standard Offer Service (SOS) offered
by electric utilities. These rates, often identified by customer
class, are periodically reset based on the regulatory
requirements in each jurisdiction. Future opportunities to add
new electric customers will be dependent on the competitiveness
of the relationship between WGEServices service rates, SOS
rates offered by local electric utilities and prices offered by
other energy marketers.
Environmental
Matters
We are subject to federal, state and local laws and regulations
related to environmental matters. These evolving laws and
regulations may require expenditures over a long timeframe. It
is our position that, at this time, the appropriate remediation
is being undertaken at all the relevant sites. Refer to
Note 12 of the Notes to Consolidated Financial Statements
for further discussion of these matters.
Industry
Consolidation
In recent years, the energy industry has seen a number of
consolidations, combinations, disaggregations and strategic
alliances. Consolidation will present combining entities with
the challenges of remaining focused on the customer and
integrating different organizations. Others in the energy
industry are discontinuing operations in certain portions of the
energy industry or divesting portions of their business and
facilities.
From time to time, we perform studies and, in some cases, hold
discussions regarding utility and energy-related investments and
strategic transactions with other companies. The ultimate effect
on us of any such investments and transactions that may occur
cannot be determined at this time.
Economic
Conditions and Interest Rates
We operate in one of the nations largest regional
economies, including several of the nations wealthiest
counties. Over time, the economic strength of our service
territory has allowed Washington Gas to expand its regulated
delivery service customer base at a
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Holdings, Inc.
Washington Gas Light Company
Part II
Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations (continued)
relatively stable rate. In addition, the region provides an
active market for our subsidiaries to market natural gas,
electricity and other energy-related products and services.
More recently, the economic downturn that began in 2007 and
carried through the first half of 2009 now shows tenuous signs
of ending. While Gross Domestic Product (GDP) growth turned
positive in the third calendar quarter of 2009, unemployment
remains a serious concern, both nationally and locally. Falling
energy prices helped mitigate increases in uncollectible
accounts expense in fiscal 2009, but our customer growth rate
continued to be lower than pre-recession levels.
If economic recovery has indeed begun, it could be sluggish in
the near term. The effects on both WGL Holdings and Washington
Gas may include the following: (i) continued levels
of customer conservation;
(ii) year-over-year
increases in uncollectible accounts expense; and
(iii) continued low growth rates in customers and
related capital expenditures. Refer to Non-Weather
Related Changes in Natural Gas Consumption Patterns,
above, for a discussion of regulatory mechanisms in place to
mitigate the effects of customer conservation at Washington Gas.
Consumer demand for goods, services, and energy may not pick up
until unemployment and tight consumer credit conditions ease,
leading to a flat or deflationary environment.
While capital market conditions have improved somewhat in 2009,
especially for high-credit-quality issuers, a lack of credit
availability for builders and homebuyers may keep new
construction growth at low rates, even as housing prices begin
to stabilize. Refer to Inflation/Deflation
below for a discussion of the regulatory impacts of
deflation and the section entitled General Factors
Affecting Liquidity for a discussion of our access to
capital markets. We expect that the effects of a sluggish
economy would be partially mitigated for us by continued
government spending in our region.
Improvements in the growth of the economy could affect the value
of our pension plan assets. Continued market improvements could
result in lower expenses and funding requirements for our
pension and other post-retirement benefit plans in future years.
We require short-term debt financing to effectively manage our
working capital needs and long-term debt financing to support
the capital expenditures of Washington Gas. A rise in interest
expense paid without the timely recognition of the higher cost
of debt in the utility rates charged by Washington Gas to its
customers could adversely affect future earnings. A rise in
short-term interest rates without the higher cost of debt being
reflected in the prices charged to customers could negatively
affect the results of operations of our retail energy-marketing
segment.
Inflation/Deflation
From time to time, Washington Gas seeks approval for rate
increases from regulatory commissions to help it manage the
effects of inflation on its operating costs, capital investment,
and returns. A significant impact of inflation is on Washington
Gass replacement cost of plant and equipment. While the
regulatory commissions having jurisdiction over Washington
Gass retail rates allow depreciation only on the basis of
historical cost to be recovered in rates, we anticipate that
Washington Gas should be allowed to recover the increased costs
of its investment and earn a return thereon after replacement of
the facilities occurs. Recovery of increased capital and
operating costs could be delayed in jurisdictions where
performance-based rate plans limit Washington Gass ability
to file for base rate increases.
To the extent Washington Gas experiences a sustained
deflationary economic environment, earned returns on invested
capital could rise and exceed the levels established in our
latest regulatory proceedings. If such circumstances occur
during a period or within a jurisdiction not covered by an
approved performance-based rate plan, Washington Gas could be
subject to a regulatory review to reduce future customer rates
in those jurisdictions.
Use
of Business Process Outsourcing
During fiscal year 2007, Washington Gas entered into a
10-year
business process outsourcing (BPO) agreement to outsource
certain of its business processes related to human resources,
information technology, consumer services and finance
operations. While Washington Gas expects the agreement to
benefit customers and shareholders during the term of the
contract, the continued management of service levels provided is
critical to the success of this outsource arrangement.
The majority of these selected business processes have already
been transitioned to Accenture PLC (Accenture). The remaining
transition items are expected to be completed by spring of 2010.
Washington Gas has implemented a BPO Governance organization and
a comprehensive set of processes to monitor and control the cost
effectiveness and quality of services provided through the BPO.
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Holdings, Inc.
Washington Gas Light Company
Part II
Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations (continued)
Labor
Contracts, Including Labor and Benefit Costs
Washington Gas has five labor contracts with bargaining units
represented by three labor unions. In May 2007, Washington Gas
entered into a five-year labor contract with the Teamsters Local
Union No. 96 (Local 96), an affiliate of the International
Brotherhood of Teamsters. The contract covers approximately
600 employees and is effective through May 31, 2012.
In August 2008, Washington Gas entered into a 30 month
labor contract with The Office and Professional Employees
International Union Local No. 2 (A.F.L.-C.I.O.). The
contract covers approximately 120 employees and is
effective beginning October 1, 2008 through March 31,
2011. Local 96, representing union-eligible employees in the
Shenandoah Gas division of Washington Gas, has a five-year labor
contract with Washington Gas that became effective on
June 14, 2007 and expires on July 31, 2012. This
contract covers 23 employees. Additionally, on
August 1, 2009, Washington Gas entered into two new
two-year labor contracts with the International Brotherhood of
Electrical Workers Local 1900 that together, cover approximately
30 employees. These two contracts expire on July 31,
2011. Washington Gas is subject to the terms of its labor
contracts with respect to operating practices and compensation
matters dealing with employees represented by the various
bargaining units described above.
Changes
in Accounting Principles
We cannot predict the nature or the effect of potential future
changes in accounting regulations or practices that have yet to
be issued on our operating results and financial condition. New
accounting standards could be issued by the Financial Accounting
Standards Board (FASB) or the U.S. Securities and Exchange
Commission (SEC) that could change the way we record and
recognize revenues, expenses, assets and liabilities.
CRITICAL
ACCOUNTING POLICIES
Preparation of financial statements and related disclosures in
compliance with Generally Accepted Accounting Principles in the
United States of America (GAAP) requires the selection and the
application of appropriate technical accounting guidance to the
relevant facts and circumstances of our operations, as well as
our use of estimates to compile the consolidated financial
statements. The application of these accounting policies
involves judgment regarding estimates and projected outcomes of
future events, including the likelihood of success of particular
regulatory initiatives, the likelihood of realizing estimates
for legal and environmental contingencies, and the probability
of recovering costs and investments in both the regulated
utility and non-regulated business segments.
We have identified the following critical accounting policies
discussed below that require our judgment and estimation, where
the resulting estimates have a material effect on the
consolidated financial statements.
Accounting
for Unbilled Revenue
For regulated deliveries of natural gas, Washington Gas reads
meters and bills customers on a monthly cycle basis. The billing
cycles for customers do not coincide with the accounting periods
used for financial reporting purposes. Washington Gas accrues
unbilled revenues for gas that has been delivered but not yet
billed at the end of an accounting period. In connection with
this accrual, Washington Gas must estimate the amount of gas
that has not been accounted for on its delivery system and must
estimate the amount of the unbilled revenue by jurisdiction and
customer class. A similar computation is made for WGEServices to
accrue unbilled revenues.
Accounting
for Regulatory OperationsRegulatory Assets and
Liabilities
A significant portion of our business is subject to regulation
by independent government regulators. As the regulated utility
industry continues to address competitive market issues, the
cost-of-service
regulation used to compensate Washington Gas for the cost of its
regulated operations will continue to evolve. Non-traditional
ratemaking initiatives and market-based pricing of products and
services could have additional long-term financial implications
for us. The carrying cost of Washington Gass investment in
fixed assets assumes continued regulatory oversight of our
operations.
Washington Gass jurisdictional tariffs contain mechanisms
that provide for the recovery of the cost of gas applicable to
firm customers. Under these mechanisms, Washington Gas
periodically adjusts its firm customers rates to reflect
increases and decreases in the cost of gas. Annually, Washington
Gas reconciles the difference between the gas costs collected
from firm customers and the cost of gas incurred. Washington Gas
defers any excess or deficiency and either recovers it from, or
refunds it to, customers over a subsequent twelve-month period.
33
WGL
Holdings, Inc.
Washington Gas Light Company
Part II
Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations (continued)
Washington Gas accounts for its regulated operations in
accordance with FASB Accounting Standards Codification (ASC)
Topic 980, Regulated Operations (ASC Topic 980), which
results in differences in the application of GAAP between
regulated and unregulated businesses. ASC Topic 980 requires
recording regulatory assets and liabilities for certain
transactions that would have been treated as expense or revenue
in unregulated businesses. Future regulatory changes or changes
in the competitive environment could result in WGL Holdings and
Washington Gas discontinuing the application of ASC Topic 980
for some of its business and require the write-off of the
portion of any regulatory asset or liability that would be no
longer probable of recovery or refund. If Washington Gas were
required to discontinue the application of ASC Topic 980 for any
of its operations, it would record a non-cash charge or credit
to income for the net book value of its regulatory assets and
liabilities. Other adjustments might also be required.
The current regulatory environment and Washington Gass
specific facts and circumstances support both the continued
application of FASB ASC Topic 980 for our regulatory activities
and the conclusion that all of our regulatory assets and
liabilities as of September 30, 2009 are recoverable or
refundable through rates charged to customers.
Accounting
for Income Taxes
We recognize deferred income tax assets and liabilities for all
temporary differences between the financial statement basis and
the tax basis of assets and liabilities, including those where
regulators prohibit deferred income tax treatment for ratemaking
purposes of Washington Gas. Regulatory assets or liabilities,
corresponding to such additional deferred tax assets or
liabilities, may be recorded to the extent recoverable from or
payable to customers through the ratemaking process. Amounts
applicable to income taxes due from and due to customers
primarily represent differences between the book and tax basis
of net utility plant in service.
Effective October 1, 2007, we adopted FASB
Interpretation No. 48, Accounting for Uncertainty in Income
Taxes, an interpretation of FASB Statement No. 109 (ASC
Topic 740, Income Taxes). ASC Topic 740 clarifies the
accounting for uncertain events related to income taxes
recognized in financial statements. This interpretation
prescribes a recognition threshold and measurement attribute for
the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return.
Accounting
for Contingencies
We account for contingent liabilities utilizing ASC Topic 450,
Contingencies. By their nature, the amount of the
contingency and the timing of a contingent event are subject to
our judgment of such events and our estimates of the amounts.
Actual results related to contingencies may be difficult to
predict and could differ significantly from the estimates
included in reported earnings. For a discussion of
contingencies, see Note 13 of the Notes to Consolidated
Financial Statements.
Accounting
for Derivative Instruments
We enter into both physical and financial contracts for the
purchase and sale of natural gas and electricity. We designate a
portion of our physical contracts related to the purchase of
natural gas and electricity to serve our customers as
normal purchases and normal sales and therefore,
they are not subject to the
mark-to-market
accounting requirements of ASC Topic 815, Derivatives and
Hedging. The financial contracts and the portion of the
physical contracts that qualify as derivative instruments and
are subject to the
mark-to-market
accounting requirements are recorded on the balance sheet at
fair value. Changes in the fair value of derivative instruments
recoverable or refundable to customers and therefore subject to
ASC Topic 980 are recorded as regulatory assets or liabilities
while changes in the fair value of derivative instruments not
affected by rate regulation are reflected in income. Washington
Gas also utilizes derivative instruments that are designed to
minimize the risk of interest-rate volatility associated with
planned issuances of debt securities.
Our judgment is required in determining the appropriate
accounting treatment for our derivative instruments. This
judgment involves various factors, including our ability to:
(i) evaluate contracts and other activities as
derivative instruments subject to the accounting guidelines of
ASC Topic 815; (ii) determine whether or not our
derivative instruments are recoverable from or refundable to
customers in future periods and (iii) derive the
estimated fair value of our derivative instruments.
If available, fair value is based on actively quoted market
prices. In the absence of actively quoted market prices, we seek
indicative price information from external sources, including
broker quotes and industry publications. If pricing information
from external sources is not available, we must estimate prices
based on available historical and near-term future price
information
and/or the
use of statistical methods and models that we developed. These
models reflect derivative pricing theory, formulated market
inputs and forward price projections for various periods.
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WGL
Holdings, Inc.
Washington Gas Light Company
Part II
Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations (continued)
Accounting
for Pension and Other Post-Retirement Benefit
Plans
Washington Gas maintains a qualified, trusteed,
employee-non-contributory defined benefit pension plan
(qualified pension plan) covering most active and vested former
employees of Washington Gas and a separate non-funded
supplemental retirement plan (SERP) covering executive officers.
Washington Gas accrues the estimated benefit obligation of the
SERP as earned by the covered employees and Washington Gas pays,
from internal funds, the individual benefits as they are due.
Washington Gas also provides certain healthcare and life
insurance benefits for retired employees which are accrued and
funded in a trust on an actuarial basis over the work life of
the retirees. The qualified pension plan, SERP and health and
post-retirement plans are collectively referred to as the
Plans.
On July 20, 2009, Washington Gas announced changes to the
non-contributory defined benefit pension plan to introduce a new
employer-provided retirement benefit under the Washington Gas
Light Company Savings Plan (Savings Plan) for
current management and newly hired employees. With the
introduction of the new retirement benefit, effective
January 1, 2010, current management employees have the
option to either remain in the pension plan or cease
participating in the pension plan and receive an enhanced
contribution under the Savings Plan. Management employees hired
after July 1, 2009, are not eligible to participate in the
qualified pension plan.
The measurement of the Plans obligations and costs is
dependent on a variety of factors, such as employee
demographics, the level of contributions made to the Plans,
earnings on the Plans assets and mortality rates. The
following assumptions are also critical to this measurement.
These assumptions are derived on an annual basis with the
assistance of a third party actuarial firm:
|
|
|
|
|
Discount rate,
|
|
|
|
Expected long-term return on plan assets,
|
|
|
|
Rate of compensation increase and
|
|
|
|
Healthcare cost trend rate.
|
We determine the discount rate by using publicly available
indexes from reliable financial sources that parallel the
duration of plan liabilities including:
(i) consideration and review of average bond yields
for 30 year maturities; (ii) bonds with the
highest yields at each maturity that are of sufficient quality
(AA- or better); (iii) bond yields that are
interpolated to prior years (iv) and pension
liability indexes. We determine the expected long-term rate of
return by averaging the expected earnings for the target asset
portfolio. In developing the expected rate of return assumption,
we evaluate an analysis of historical actual performance and
long-term return projections, which gives consideration to the
asset mix and anticipated length of obligation of the Plans.
Historically, the expected long-term return on plan assets has
been lower for the health and life benefit plan than for the
qualified pension plan due to differences in the allocation of
the assets in the plan trusts and the taxable status of one of
the trusts. We calculate the rate of compensation increase based
on salary expectations for the near-term, expected inflation
levels and promotional expectations. The healthcare cost trend
rate is determined by working with insurance carriers, reviewing
historical claims data for the health and life benefit plan, and
analyzing market expectations.
The following table illustrates the effect of changing these
actuarial assumptions, while holding all other assumptions
constant:
|
|
|
|
|
|
|
|
|
|
|
Effect of Changing Critical Actuarial Assumptions
|
(In millions)
|
|
|
|
Pension Benefits
|
|
Health and Life Benefits
|
|
|
|
|
|
Increase
|
|
|
|
Increase
|
|
|
|
|
Percentage-Point
|
|
(Decrease)
|
|
Increase
|
|
(Decrease) in
|
|
Increase
|
|
|
Change in
|
|
in Ending
|
|
(Decrease) in
|
|
Ending
|
|
(Decrease) in
|
Actuarial Assumptions
|
|
Assumption
|
|
Obligation
|
|
Annual Cost
|
|
Obligation
|
|
Annual Cost
|
|
Expected long-term return on plan assets
|
|
+/− 1.00 pt.
|
|
n/a
|
|
$(6.2) / $6.2
|
|
n/a
|
|
$(2.7) / $2.7
|
Discount rate
|
|
+/− 0.25 pt.
|
|
$(17.7) / $18.5
|
|
$(0.1) / $0.1
|
|
$(12.4) / $13.1
|
|
$(0.9) / $1.0
|
Rate of compensation increase
|
|
+/− 0.25 pt.
|
|
$2.7 / $(2.6)
|
|
$0.3 / $(0.3)
|
|
n/a
|
|
n/a
|
Healthcare cost trend rate
|
|
+/− 1.00 pt.
|
|
n/a
|
|
n/a
|
|
$54.1 / $(44.3)
|
|
$7.7 / $(6.3)
|
|
|
Differences between actuarial assumptions and actual plan
results are deferred and amortized into cost when the
accumulated differences exceed ten percent of the greater of the
Projected Benefit Obligation or the market-related value of the
plan assets. If necessary, the excess is amortized over the
average remaining service period of active employees. At
September 30, 2009, the discount rate decreased to 6.5%
from 7.5% from the comparable period, reflecting the change in
long-term interest rates primarily due to
35
WGL
Holdings, Inc.
Washington Gas Light Company
Part II
Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations (continued)
current market conditions. Refer to Note 10 of the Notes to
Consolidated Financial Statements for a listing of the actuarial
assumptions used and for a further discussion of the accounting
for the Plans.
OTHER ACCOUNTING
MATTERS
We account for our stock-based compensation in accordance with
ASC Topic 718, CompensationStock Compensation.
Under ASC Topic 718, we measure and record compensation expense
for both our stock option and performance share awards based on
their fair value at the date of grant. Our performance units,
however, are liability awards as they settle in cash; therefore,
we measure and record compensation expense for these awards
based on their fair value at the end of each period until their
vesting date. This may cause fluctuations in earnings that do
not exist under the accounting requirements for both our stock
options and performance shares.
We issued both performance shares and performance units in
fiscal year 2009; however, we did not issue stock options. As of
September 30, 2009, there are prior years option
grants outstanding with an exercise price at the market value of
our common stock on the date of the grant. Our stock options
generally have a vesting period of three years, and expire ten
years from the date of the grant.
Both our performance units and performance shares are valued
using a Monte Carlo simulation model, as they both contain
market conditions. Performance units and performance shares are
granted at target levels. Any performance units that may be
earned pursuant to terms of the grant will be paid in cash and
are valued at $1.00 per performance unit. Any performance shares
that are earned will be paid in shares of common stock of WGL
Holdings. The actual number of performance units and performance
shares that may be earned varies based on the total shareholder
return of WGL Holdings relative to a peer group over the three
year performance period. Median performance relative to the peer
group earns performance units and performance shares at the
targeted levels. The maximum that can be earned is 200% of the
targeted levels and the minimum is zero.
Refer to Notes 1 and 11 of the Notes to Consolidated
Financial Statements for a further discussion of our share-based
awards.
36
WGL
Holdings, Inc.
Washington Gas Light Company
Part II
Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations (continued)
WGL HOLDINGS,
INC.
RESULTS
OF OPERATIONS
We analyze our results of operations using utility net revenues
and retail energy-marketing gross margins. Both utility net
revenues and retail energy-marketing gross margins are
calculated as revenues less the associated cost of energy and
applicable revenue taxes. We believe utility net revenues is a
better measure to analyze profitability than gross operating
revenues for our regulated utility segment because the cost of
the natural gas commodity and revenue taxes are generally
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. We consider gross
margins to be a better reflection of profitability than gross
revenues or gross energy costs for our retail energy-marketing
segment because gross margins are a direct measure of the
success of our core strategy of earning a profit through
competitively priced contracts for the purchase of commodity
supply and for the sale of natural gas and electricity to
end-users.
Neither utility net revenues nor retail energy-marketing gross
margins should be considered as an alternative to, or a more
meaningful indicator of, our operating performance than net
income. Our measures of utility net revenues and retail
energy-marketing gross margins may not be comparable to
similarly titled measures of other companies. Refer to the
sections entitled Results of OperationsRegulated
Utility Operating Results and Results of
OperationsNon-Utility Operating Results for the
calculation of utility net revenues and retail energy-marketing
gross margins, respectively, as well as a reconciliation to
operating income and net income for both segments.
Summary
Results
WGL Holdings reported net income of $120.4 million, or
$2.39 per share, for the fiscal year ended September 30,
2009, over net income of $116.5 million, or $2.33 per
share, and $107.9 million, or $2.19 per share, for the
fiscal years ended September 30, 2008 and 2007,
respectively. We earned a return on average common equity of
11.2%, 11.5% and 11.3%, respectively, during each of these three
fiscal years.
The following table summarizes our net income (loss) by
operating segment for fiscal years ended September 30,
2009, 2008 and 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) by Operating Segment
|
|
|
|
|
|
Years Ended September 30,
|
|
|
Increase (Decrease)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
(In millions)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
vs. 2008
|
|
|
vs. 2007
|
|
|
|
|
Regulated Utility
|
|
$
|
106.0
|
|
|
$
|
113.7
|
|
|
$
|
89.9
|
|
|
$
|
(7.7
|
)
|
|
$
|
23.8
|
|
Non-utility operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail energy-marketing
|
|
|
15.0
|
|
|
|
4.8
|
|
|
|
22.4
|
|
|
|
10.2
|
|
|
|
(17.6
|
)
|
Design-Build Energy Systems
|
|
|
3.1
|
|
|
|
1.8
|
|
|
|
0.4
|
|
|
|
1.3
|
|
|
|
1.4
|
|
Other, principally non-utility activities
|
|
|
(3.7
|
)
|
|
|
(3.8
|
)
|
|
|
(4.8
|
)
|
|
|
0.1
|
|
|
|
1.0
|
|
|
Total non-utility
|
|
|
14.4
|
|
|
|
2.8
|
|
|
|
18.0
|
|
|
|
11.6
|
|
|
|
(15.2
|
)
|
|
Net income
|
|
$
|
120.4
|
|
|
$
|
116.5
|
|
|
$
|
107.9
|
|
|
$
|
3.9
|
|
|
$
|
8.6
|
|
|
Earnings per average common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
2.40
|
|
|
$
|
2.35
|
|
|
$
|
2.19
|
|
|
$
|
0.05
|
|
|
$
|
0.16
|
|
Diluted
|
|
$
|
2.39
|
|
|
$
|
2.33
|
|
|
$
|
2.19
|
|
|
$
|
0.06
|
|
|
$
|
0.14
|
|
|
The following is a summary discussion of
year-over-year
trends related to our results from continuing operations. For a
detailed description of material transactions and results, refer
to our discussion of operating results by segment below.
Fiscal Year 2009 vs. Fiscal Year
2008. Net income for fiscal year 2009, when
compared to fiscal year 2008, reflects increased earnings from
our non-regulated retail energy-marketing segment, partially
offset by lower earnings from our regulated utility segment.
Favorably affecting fiscal year 2009 earnings for the retail
energy-marketing segment were higher gross margins from the sale
of natural gas and electricity, partially offset by higher
operating expenses related to increased marketing initiatives.
Earnings
37
WGL
Holdings, Inc.
Washington Gas Light Company
Part II
Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations (continued)
comparisons for our regulated utility segment reflect the
unfavorable effects of changes in natural gas consumption
patterns that benefited 2008 net revenues and a scheduled
increase in the level of recurring service costs related to our
business process outsourcing, partially offset by additional net
revenues attributable to customer growth and lower employee
benefit expense.
Fiscal Year 2008 vs. Fiscal Year
2007. Net income for fiscal year 2008, when
compared to fiscal year 2007, reflects increased earnings from
our regulated utility segment, partially offset by lower
earnings from our retail energy-marketing segment. Favorably
affecting fiscal year 2008 earnings for the regulated utility
segment were new rates in all jurisdictions, favorable natural
gas consumption patterns and a new asset optimization strategy.
Earnings comparisons for our retail energy-marketing business
reflect lower gross margins from the sale of electricity,
partially offset by improved gross margins from natural gas.
Regulated
Utility Operating Results
The following table summarizes the regulated utility
segments operating results for fiscal years ended
September 30, 2009, 2008 and 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Regulated Utility Operating Results
|
|
|
|
|
|
Years Ended September 30,
|
|
|
Increase (Decrease)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
(In millions)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
vs. 2008
|
|
|
vs. 2007
|
|
|
|
|
Utility net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
1,505.9
|
|
|
$
|
1,552.3
|
|
|
$
|
1,513.8
|
|
|
$
|
(46.4
|
)
|
|
$
|
38.5
|
|
Less: Cost of gas
|
|
|
829.9
|
|
|
|
885.2
|
|
|
|
892.4
|
|
|
|
(55.3
|
)
|
|
|
(7.2
|
)
|
Revenue taxes
|
|
|
61.1
|
|
|
|
55.3
|
|
|
|
55.9
|
|
|
|
5.8
|
|
|
|
(0.6
|
)
|
|
Total utility net revenues
|
|
|
614.9
|
|
|
|
611.8
|
|
|
|
565.5
|
|
|
|
3.1
|
|
|
|
46.3
|
|
Operation and maintenance
|
|
|
255.5
|
|
|
|
250.1
|
|
|
|
246.3
|
|
|
|
5.4
|
|
|
|
3.8
|
|
Depreciation and amortization
|
|
|
94.5
|
|
|
|
94.2
|
|
|
|
89.9
|
|
|
|
0.3
|
|
|
|
4.3
|
|
General taxes and other assessmentsother
|
|
|
48.7
|
|
|
|
43.7
|
|
|
|
40.6
|
|
|
|
5.0
|
|
|
|
3.1
|
|
|
Operating income
|
|
|
216.2
|
|
|
|
223.8
|
|
|
|
188.7
|
|
|
|
(7.6
|
)
|
|
|
35.1
|
|
Interest expense
|
|
|
44.1
|
|
|
|
45.4
|
|
|
|
45.2
|
|
|
|
(1.3
|
)
|
|
|
0.2
|
|
Other (income)
expenses-net,
including preferred stock dividends
|
|
|
(0.3
|
)
|
|
|
(0.6
|
)
|
|
|
(1.3
|
)
|
|
|
0.3
|
|
|
|
0.7
|
|
Income tax expense
|
|
|
66.4
|
|
|
|
65.3
|
|
|
|
54.9
|
|
|
|
1.1
|
|
|
|
10.4
|
|
|
Net income
|
|
$
|
106.0
|
|
|
$
|
113.7
|
|
|
$
|
89.9
|
|
|
$
|
(7.7
|
)
|
|
$
|
23.8
|
|
|
Fiscal Year 2009 vs. Fiscal Year
2008. The regulated utility segment reported
net income of $106.0 million for the fiscal year ended
September 30, 2009, compared to net income of
$113.7 million reported for fiscal year 2008. The decrease
in net income primarily reflects: (i) the
$16.1 million unfavorable effects of changes in natural gas
consumption patterns that benefited fiscal year 2008;
(ii) $4.3 million higher net revenues in fiscal
year 2008 due to the timing of prior year rate relief in
Maryland; (iii) a $5.0 million scheduled
increase in recurring to service costs associated with the
implementation of the BPO agreement; (iv) a
$5.9 million lower of cost or market adjustment associated
with our asset optimization program; (v) a
$1.9 million increase in property and other general taxes
and (vi) a $1.8 million increase in
uncollectible accounts expense due to an adjustment to the
accumulated reserve in the current period to reflect changes in
economic conditions and an allowance for the effect of a
Maryland customer payment relief program.
Partially offsetting this decrease were: (i) a
$5.1 million increase in net revenues from customer growth
representing an increase of over 10,000 average active customer
meters over fiscal year 2008; (ii) a
$4.6 million reversal of a reserve for disallowed natural
gas costs in Maryland due to a February 5, 2009 Order from
the Public Service Commission of Maryland (PSC of MD);
(iii) a $4.6 million increase in unrealized
margins associated with our asset optimization program;
(iv) a $3.8 million decease in employee
benefits and (v) a $3.1 million decrease in
premium costs associated with our weather protection products
related to our District of Columbia territory. In addition,
under the Virginia Sharing Mechanism (ESM), a liability to
customers is accrued when regulated results exceed an earnings
threshold. The ESM threshold was exceeded in fiscal year 2008,
resulting in a reduction in earnings of
38
WGL
Holdings, Inc.
Washington Gas Light Company
Part II
Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations (continued)
$5.6 million. During fiscal year 2009, earnings were
unaffected as regulated results did not exceed the ESM threshold
(refer to the section entitled Rates and Regulatory
MattersPerformance-Based Rate Plans included in
Managements Discussion for Washington Gas).
Fiscal Year 2008 vs. Fiscal Year
2007. The regulated utility segment reported
net income of $113.7 million for the fiscal year ended
September 30, 2008, an increase of $23.8 million over
net income of $89.9 million reported for fiscal year 2007.
This
year-over-year
increase in net income primarily reflects: (i) new
rates that went into effect in Virginia on February 13,
2007, Maryland on November 27, 2007 and the District of
Columbia on December 31, 2007; (ii) a
$13.2 million increase in realized margins associated with
our asset optimization program; (iii) the favorable
effects of changes in natural gas consumption patterns due to
shifts in weather patterns and other factors and
(iv) an increase of nearly 9,700 average active
customer meters over fiscal year 2007.
Partially offsetting this increase were: (i) an
$8.8 million increase in uncollectible accounts expense due
to a favorable adjustment to the accumulated reserve made in the
prior year to reflect better collections, coupled with the
negative effects of the decline in the economy in fiscal year
2008; (ii) a $2.6 million increase in expenses
related to paving and leak repair primarily as a result of
receiving gas from the Cove Point terminal in a portion of our
distribution system in Virginia and (iii) a
$5.6 million accrual for an estimated refund to our
Virginia customers arising from an ESM that was implemented in
2008 as a part of our Performance-Based Rate (PBR) plan (refer
to the section entitled Rates and Regulatory
MattersPerformance-Based Rate Plans included in
Managements Discussion for Washington Gas).
Utility Net Revenues. The following
table provides the key factors contributing to the changes in
the utility net revenues of the regulated utility segment
between years.
|
|
|
|
|
|
|
|
|
Composition of Changes in Utility Net Revenues
|
|
|
|
|
|
Increase (Decrease)
|
|
|
|
|
|
2009
|
|
|
2008
|
|
(In millions)
|
|
vs. 2008
|
|
|
vs. 2007
|
|
|
|
|
Customer growth
|
|
$
|
5.1
|
|
|
$
|
5.0
|
|
Estimated Weather effects:
|
|
|
|
|
|
|
|
|
Increase (decrease) in
colder-than-normal
weather effects
|
|
|
|
|
|
|
(5.4
|
)
|
Offset by weather insurance and derivative products
|
|
|
7.5
|
|
|
|
(4.6
|
)
|
Estimated change in natural gas consumption patterns
|
|
|
(16.1
|
)
|
|
|
10.3
|
|
Impact of rate cases
|
|
|
(4.3
|
)
|
|
|
22.8
|
|
Gas administrative charge (GAC)
|
|
|
1.1
|
|
|
|
3.1
|
|
Asset optimization:
|
|
|
|
|
|
|
|
|
Realized margins
|
|
|
0.9
|
|
|
|
13.2
|
|
Unrealized mark-to-market valuations
|
|
|
4.6
|
|
|
|
(0.2
|
)
|
Lower of cost or market adjustment
|
|
|
(5.9
|
)
|
|
|
(2.5
|
)
|
Storage carrying costs
|
|
|
|
|
|
|
4.8
|
|
ESM
|
|
|
5.6
|
|
|
|
(4.8
|
)
|
Regulatory adjustment
|
|
|
(1.1
|
)
|
|
|
1.1
|
|
Reserve for disallowance of natural gas costs
|
|
|
4.6
|
|
|
|
|
|
Other
|
|
|
1.1
|
|
|
|
3.5
|
|
|
Total
|
|
$
|
3.1
|
|
|
$
|
46.3
|
|
|
Customer growthAverage active customer meters
increased 10,200 from fiscal year 2008 to 2009. Average active
customer meters increased 9,700 from fiscal year 2007 to 2008.
Estimated weather effectsWashington Gas has a
weather protection strategy that is designed to neutralize the
estimated financial effects of variations from normal weather
(refer to the section entitled Weather Risk
for further discussion of our weather protection strategy).
As part of this strategy, on October 1, 2008, Washington
Gas purchased weather derivatives to protect against variations
from normal weather in the District of Columbia. Washington Gas
had weather insurance in fiscal years 2008 and 2007 related to
the District of Columbia, which protected us from
warmer-than-normal
weather but allowed us to retain the benefits of
39
WGL
Holdings, Inc.
Washington Gas Light Company
Part II
Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations (continued)
colder-than-normal
weather. Both the effects of weather insurance and weather
derivatives are recorded to Operation and maintenance
expenses.
Weather, when measured by HDDs, was 11.6% colder than normal in
fiscal year 2009, 8.7% warmer than normal in fiscal year 2008
and 3.7% colder than normal in fiscal year 2007. Including the
effects of our weather protection strategy, there were no
material effects on net income attributed to colder or warmer
weather on either fiscal year 2009 or 2008. Including the
effects of our weather protection strategy, net income was
enhanced by an estimated $5.4 million (pre-tax) in fiscal
year 2007 in relation to normal weather. Refer to
Results of Operations in Managements
Discussion for Washington Gas for further discussion of the
effects of weather and statistical information for Washington
Gas.
Estimated change in natural gas consumption
patternsCustomer consumption patterns may be affected
by shifts in weather patterns in which customer heating usage
may not correlate highly with average historical levels of usage
per HDD that occur. Natural gas consumption patterns may also be
affected by non-weather related factors. The variance in fiscal
year 2009 net revenues reflects the changes in natural gas
consumption patterns that benefited the comparative period last
year.
Impact of rate casesNew rates went into effect in
Maryland on November 27, 2007. Concurrently, we implemented
new Revenue Normalization Adjustment (RNA) factors that allow
us, in combination with our approved base rates, to recover
anticipated revenues from customers regardless of changes in
weather and customer usage. Individual monthly revenues that we
can collect from our customers under the RNA reflect the pattern
of customer usage during the test year used to set the new base
rates. As results for the year ended September 30, 2008
reflect a combination of customer usage patterns from two
different test years, the RNA contributed incremental revenue
during the fiscal year 2008 as compared to the same period in
fiscal year 2009. The
year-to-year
comparisons for the fiscal year 2008 and 2007 includes the
effects of increased rates to firm customers in all
jurisdictions, as well as interruptible customers in Maryland.
GACRepresents a regulatory mechanism in all
jurisdictions that provides for recovery of uncollectible
accounts expense related to changes in gas costs. Higher
recoveries reflect the timing of GAC rate increases in DC,
partially offset by slightly lower natural gas prices. The
related uncollectible accounts expense is included in operation
and maintenance expenses.
Asset optimizationContributions to net revenues
from our Asset Optimization program remained relatively stable
between 2009 and 2008. The significant increase in 2008 net
revenues attributable to asset optimization compared to 2007
reflects the retention of all storage and transportation
capacity assets for self optimization. We recorded pre-tax
unrealized gains of $4.1 million and unrealized losses of
$(487,000) and $(265,000) for the fiscal year ended
September 30, 2009, 2008, and 2007 respectively, associated
with our energy-related derivatives. When these derivatives
settle, either financially or by physical delivery, any
unrealized amounts will ultimately be reversed, and Washington
Gas will realize margins when combined with the related
transactions these derivatives economically hedge. Pre-tax
realized gains related to our asset optimization program were
$16.5 million, $15.7 million, and $2.5 million
for the fiscal year ended September 30, 2009, 2008, and
2007, respectively. Partially offsetting these realized margins
were $8.4 million and $2.5 million of unrealized
lower-of-cost
or market adjustments associated with storage capacity assets
utilized for asset optimization for the fiscal year ended
September 30, 2009 and 2008, respectively. No
lower-of-cost
or market adjustments occurred in fiscal year 2007. Refer to the
section entitled Market RiskPrice Risk Related to
the Regulated Utility Segment for further discussion
of our asset optimization program.
Storage carrying costsRepresents recoverable
carrying costs based on the cost of capital approved in each
jurisdiction, multiplied by the
12-month
average balance of storage gas inventory. The comparison of
fiscal year 2008 to 2007 reflects higher average storage gas
inventory balances in fiscal year 2008 due to a significant
increase in gas prices during the storage fill season which
generally occurred in the spring and summer of 2008.
Earnings Sharing MechanismThe Virginia ESM, which
was effective on October 1, 2007 enables the sharing of
earnings in Virginia that exceed a target rate of return on
equity with shareholders and customers. The ESM threshold was
exceeded in fiscal year 2008. We recorded $4.8 million of
expense related to the obligation recorded for fiscal year 2008,
resulting in a reduction in 2008 earnings. Fiscal year 2009
earnings were unaffected as regulated results did not exceed the
ESM threshold. In addition, earnings in fiscal year 2009 include
the effects of reducing the amount accrued for in 2008 to
reflect the actual obligation approved by the SCC of VA. Refer
to the section entitled Rates and Regulatory
MattersPerformance- Based Rate Plans included in
Managements Discussion for Washington Gas for a further
discussion of the ESM.
Regulatory adjustmentRepresents an adjustment of
$1.1 million made in fiscal year 2008 applicable to prior
fiscal years as a result of an interpretive change in the
calculation of interruptible revenue sharing in the District of
Columbia.
40
WGL
Holdings, Inc.
Washington Gas Light Company
Part II
Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations (continued)
Reserve for disallowance of natural gas costsIn the
first quarter of 2009, Washington Gas reversed a
$4.6 million reserve for disallowed natural gas costs in
Maryland to income due to a February 5, 2009 Order from the
PSC of MD. This Order resolved a contingency related to a
proposed order issued by a Hearing Examiner of the PSC of MD in
fiscal year 2006. Refer to the section entitled Rates
and Regulatory Matters in Managements Discussion
for Washington Gas for further discussion of this matter.
Operation and Maintenance Expenses. The
following table provides the key factors contributing to the
changes in operation and maintenance expenses of the regulated
utility segment between years.
|
|
|
|
|
|
|
|
|
Composition of Changes in Operation and Maintenance
Expenses
|
|
|
|
|
|
Increase (Decrease)
|
|
|
|
(In millions)
|
|
2009 vs. 2008
|
|
|
2008 vs. 2007
|
|
|
|
|
Weather insurance and derivative benefits:
|
|
|
|
|
|
|
|
|
(Benefit)/Loss
|
|
$
|
7.5
|
|
|
$
|
(4.6
|
)
|
Decrease in premium costs
|
|
|
(3.1
|
)
|
|
|
|
|
Business Process Outsourcing (BPO)
|
|
|
5.0
|
|
|
|
(0.6
|
)
|
Labor and incentive plans
|
|
|
(1.5
|
)
|
|
|
3.2
|
|
Employee benefits
|
|
|
(3.8
|
)
|
|
|
(2.6
|
)
|
Uncollectible accounts
|
|
|
1.8
|
|
|
|
8.8
|
|
Other operating expenses
|
|
|
(0.5
|
)
|
|
|
(0.4
|
)
|
|
Total
|
|
$
|
5.4
|
|
|
$
|
3.8
|
|
|
Weather insurance and derivative benefitsThe
effects of hedging variations from normal weather in the
District of Columbia for fiscal years 2009, 2008 and 2007, and
in Virginia for fiscal year 2007 are recorded to operation and
maintenance expense. During fiscal year 2009, Washington Gas
recorded an expense of $2.9 million (pre-tax) related to
its weather derivatives as a result of
colder-than-normal
weather and incurred a cost of $294,000 for premiums on our
weather related derivatives. During fiscal year 2008, Washington
Gas received a benefit of $4.6 million (pre-tax) from its
weather insurance that resulted from
warmer-than-normal
weather and incurred a cost of $3.4 million for premiums on
our weather related derivatives. During fiscal year 2007, we
received no benefit as weather was colder than normal during
that period. The benefits or losses of the weather-related
instruments are offset by the effect of weather on utility net
revenues.
Business Process OutsourcingThe
year-over-year
comparison of fiscal year 2009 to 2008 reflects a scheduled
increase in the recurring service costs paid to the service
provider and amortization expense related to the regulatory
asset established for initial BPO implementation costs,
partially offset by reduced labor and employee benefits.
Labor and incentive plansThe
year-over-year
comparison of fiscal year 2009 and 2008 reflects the
capitalization of certain incentive benefits that were
previously charged to expense as a result of a regulatory
decision in Virginia. The increase in labor and incentive plans
for
year-over-year
comparison for 2008 and 2007 primarily reflects increases due to
incentive costs related to improved performance.
Employee benefitsThe decrease in employee benefits
expense for both
year-over-year
comparisons reflects a reduction in the costs of post-retirement
benefit plans as well as a higher discount rate assumption used
to measure the benefit obligation.
Uncollectible accountsThe increase for both
year-over-year
comparisons reflects the adjustments to the accumulated reserve
balances made in 2009 and 2008 to address changes in economic
conditions. The reserve in 2009 also reflects an adjustment for
the effect of a customer payment relief program adopted in
Maryland. The increases in fiscal years 2009 and 2008 were
partially offset by the GAC included in utility net revenues.
41
WGL
Holdings, Inc.
Washington Gas Light Company
Part II
Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations (continued)
Depreciation and Amortization. The
following table provides the key factors contributing to the
changes in depreciation and amortization of the regulated
utility segment between years.
|
|
|
|
|
|
|
|
|
Composition of Changes in Depreciation and Amortization
|
|
|
|
|
|
Increase (Decrease)
|
|
|
|
|
|
2009
|
|
|
2008
|
|
(In millions)
|
|
vs. 2008
|
|
|
vs. 2007
|
|
|
|
|
Retroactive depreciation expense adjustment
|
|
$
|
|
|
|
$
|
3.9
|
|
New depreciation ratesDistrict of Columbia
|
|
|
|
|
|
|
(2.5
|
)
|
Increase (decrease) in property, plant & equipment
|
|
|
1.0
|
|
|
|
3.4
|
|
Other
|
|
|
(0.7
|
)
|
|
|
(0.5
|
)
|
|
Total
|
|
$
|
0.3
|
|
|
$
|
4.3
|
|
|
Retroactive depreciation expense adjustmentIn the
first quarter of fiscal year 2007, we recorded a benefit of
$3.9 million applicable to the prior period from
January 1, 2006 to September 30, 2006 related to a
reduction in Washington Gass depreciation rates on fixed
assets in Virginia.
New depreciation ratesWashington Gas implemented
new depreciation rates in the District of Columbia on
January 1, 2008. Refer to the section entitled
Rates and Regulatory MattersDepreciation
Study for further discussion of depreciation matters.
Other Changes in Expenses. Fiscal year
2009 general taxes increased $5.0 million over 2008 due to
a $1.9 million increase in property taxes and
$3.1 million increase in DC energy taxes associated with
trust funds geared towards implementing energy efficiency and
renewable energy programs. These DC energy taxes are offset by
amounts collected in rates charged to customers. The
year-over-year
increase in general taxes for fiscal year 2008 compared to 2007,
was primarily attributable to property taxes. Income taxes
increased as a result of an increase in operating income,
partially offset by a lower effective tax rate for fiscal year
2008 resulting from an adjustment to our deferred tax balances
during that period.
|
|
|
Non-Utility
Operating Results
|
Our continuing non-utility operations are comprised of two
business segments: (i) retail energy-marketing and
(ii) design-build energy systems. Transactions that
are not significant enough on a stand-alone basis to warrant
treatment as an operating segment, and that do not fit into one
of our three operating segments, are aggregated as Other
Activities and included as part of non-utility operations
for purposes of segment reporting (refer to Note 15 of the
Notes to Consolidated Financial Statements).
Total net income from our non-utility operations for fiscal year
2009 was $14.4 million, an increase of $11.6 million
from fiscal year 2008. This comparison primarily reflects
increased earnings of our retail energy-marketing segment and
design build energy system segment. Total net income from our
continuing non-utility operations for fiscal year 2008 was
$2.8 million, compared to $18.0 million for fiscal
year 2007. This comparison primarily reflects lower earnings
from our retail energy-marketing segment.
42
WGL
Holdings, Inc.
Washington Gas Light Company
Part II
Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations (continued)
Retail
Energy-Marketing
Our retail energy-marketing subsidiary, WGEServices, was
established in 1997, and sells natural gas and electricity on an
unregulated, competitive basis directly to residential,
commercial and industrial customers. The following table depicts
the retail energy-marketing segments operating results
along with selected statistical data.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail-Energy Marketing Financial and Statistical Data
|
|
|
|
|
|
Years Ended September 30,
|
|
|
Increase (Decrease)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
vs. 2008
|
|
|
vs. 2007
|
|
|
|
|
Operating Results (In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margins:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
1,192.0
|
|
|
$
|
1,062.7
|
|
|
$
|
1,138.4
|
|
|
$
|
129.3
|
|
|
$
|
(75.7
|
)
|
Less: Cost of energy
|
|
|
1,127.4
|
|
|
|
1,023.3
|
|
|
|
1,071.6
|
|
|
|
104.1
|
|
|
|
(48.3
|
)
|
Revenue taxes
|
|
|
1.1
|
|
|
|
0.6
|
|
|
|
0.7
|
|
|
|
0.5
|
|
|
|
(0.1
|
)
|
|
Total gross margins
|
|
|
63.5
|
|
|
|
38.8
|
|
|
|
66.1
|
|
|
|
24.7
|
|
|
|
(27.3
|
)
|
Operation expenses
|
|
|
35.0
|
|
|
|
26.5
|
|
|
|
23.3
|
|
|
|
8.5
|
|
|
|
3.2
|
|
Depreciation and amortization
|
|
|
0.8
|
|
|
|
0.8
|
|
|
|
0.7
|
|
|
|
|
|
|
|
0.1
|
|
General taxes and other assessmentsother
|
|
|
3.0
|
|
|
|
2.8
|
|
|
|
2.5
|
|
|
|
0.2
|
|
|
|
0.3
|
|
|
Operating Income
|
|
|
24.7
|
|
|
|
8.7
|
|
|
|
39.6
|
|
|
|
16.0
|
|
|
|
(30.9
|
)
|
Other income (expenses)-net
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
0.1
|
|
Interest expense
|
|
|
0.6
|
|
|
|
1.1
|
|
|
|
2.9
|
|
|
|
(0.5
|
)
|
|
|
(1.8
|
)
|
Income tax expense
|
|
|
9.2
|
|
|
|
2.9
|
|
|
|
14.3
|
|
|
|
6.3
|
|
|
|
(11.4
|
)
|
|
Net income
|
|
$
|
15.0
|
|
|
$
|
4.8
|
|
|
$
|
22.4
|
|
|
$
|
10.2
|
|
|
$
|
(17.6
|
)
|
|
Analysis of gross margins (In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized margins
|
|
$
|
45.7
|
|
|
$
|
26.6
|
|
|
$
|
23.1
|
|
|
$
|
19.1
|
|
|
$
|
3.5
|
|
Unrealized
mark-to-market
gains (losses)
|
|
|
0.3
|
|
|
|
(1.7
|
)
|
|
|
(1.4
|
)
|
|
|
2.0
|
|
|
|
(0.3
|
)
|
|
Total gross marginsnatural gas
|
|
|
46.0
|
|
|
|
24.9
|
|
|
|
21.7
|
|
|
|
21.1
|
|
|
|
3.2
|
|
|
Electricity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized margins
|
|
$
|
37.3
|
|
|
$
|
24.7
|
|
|
$
|
35.9
|
|
|
$
|
12.6
|
|
|
$
|
(11.2
|
)
|
Unrealized
mark-to-market
gains (losses)
|
|
|
(19.8
|
)
|
|
|
(10.8
|
)
|
|
|
8.5
|
|
|
|
(9.0
|
)
|
|
|
(19.3
|
)
|
|
Total gross marginselectricity
|
|
|
17.5
|
|
|
|
13.9
|
|
|
|
44.4
|
|
|
|
3.6
|
|
|
|
(30.5
|
)
|
|
Total gross margins
|
|
$
|
63.5
|
|
|
$
|
38.8
|
|
|
$
|
66.1
|
|
|
$
|
24.7
|
|
|
$
|
(27.3
|
)
|
|
Other Retail-Energy Marketing Statistics
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Therm sales (millions of therms)
|
|
|
627.4
|
|
|
|
635.0
|
|
|
|
725.5
|
|
|
|
(7.6
|
)
|
|
|
(90.5
|
)
|
Number of customers (end of period)
|
|
|
151,500
|
|
|
|
133,300
|
|
|
|
140,700
|
|
|
|
18,200
|
|
|
|
(7,400
|
)
|
Electricity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electricity sales (millions of kWhs)
|
|
|
5,269.0
|
|
|
|
3,607.6
|
|
|
|
3,943.8
|
|
|
|
1,661.4
|
|
|
|
(336.2
|
)
|
Number of accounts (end of period)
|
|
|
113,000
|
|
|
|
61,800
|
|
|
|
65,900
|
|
|
|
51,200
|
|
|
|
(4,100
|
)
|
|
Fiscal Year 2009 vs. Fiscal Year
2008. The retail energy-marketing segment
reported net income of $15.0 million for the fiscal year
ended September 30, 2009, an increase of $10.2 million
over net income of $4.8 million reported for the prior
fiscal year. This comparison primarily reflects higher gross
margins from the sale of natural gas and electricity. Partially
offsetting these favorable margins are higher operating expenses
related to marketing initiatives designed to take advantage of
unique marketing opportunities that arose during the latter half
of fiscal year 2009.
Gross margins from natural gas sales increased
$21.1 million in fiscal year 2009 over the prior year,
reflecting a $19.1 million increase in realized margins due
to an increase in the margin per therm sold, and a favorable
$2.0 million variance related to unrealized
mark-to-market
gains (losses) associated with energy-related derivatives.
43
WGL
Holdings, Inc.
Washington Gas Light Company
Part II
Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations (continued)
Gross margins from electric sales increased $3.6 million in
fiscal year 2009 over fiscal year 2008, reflecting increased
sales volumes primarily due to a substantial number of customers
added during fiscal year 2009. The increase reflects
$10.5 million in realized margins and a $2.1 million
revision in 2009 to estimated electric costs, partially offset
by $9.0 million for unrealized
mark-to-market
gains (losses) associated with energy-related derivatives.
Unrealized
mark-to-market
gains and losses are primarily attributable to changes in the
fair value of certain contracts related to the purchase of
energy supplies to match future retail sales commitments. These
supply contracts are subject to
mark-to-market
treatment, while many of the corresponding retail sales
commitments are not.
Fiscal Year 2008 vs. Fiscal Year
2007. The retail energy-marketing segment
reported net income of $4.8 million for the fiscal year
ended September 30, 2008, compared to net income of
$22.4 million reported for the prior fiscal year. This
comparison primarily reflects lower gross margins from the sale
of electricity, partially offset by higher gross margins from
the sale of natural gas. Also reflected in the earnings
comparison is an increase in operations expense due to higher
expenses associated with uncollectible accounts and higher labor
and benefit costs.
Gross margins from electric sales decreased in fiscal year 2008,
reflecting a $19.3 million decline in unrealized
mark-to-market valuations and decreased sales volumes.
Unrealized mark-to-market gains and losses are primarily
attributable to changes in the fair value of certain contracts
related to the purchase of energy supplies to match future
retail sales commitments. These supply contracts are subject to
mark-to-market treatment, while the corresponding retail sales
commitments are not. The decreased sales volumes are primarily
due to increased competition and the loss of commercial
customers and lower margins per
kilowatt-hour
sold primarily as a result of unfavorable weather patterns
experienced early in the summer of 2008 and the unusually high
margins experienced in fiscal year 2007.
Gross margins from natural gas sales increased in fiscal year
2008, reflecting a rise in the margin per therm sold, partially
offset by a decrease in natural gas sales volumes. Also
affecting gross margins from natural gas sales was a $275,000
increase in unrealized mark-to-market losses associated with
energy-related derivatives.
Design-Build
Energy Systems
The design-build energy systems segment reported net income of
$3.1 million, $1.8 million, and $0.4 million in
fiscal years 2009, 2008, and 2007, respectively. The increases
in annual net income primarily reflect increased profitability,
and growth in the number and size of design-build projects.
Other Non-Utility
Activities
As previously discussed, transactions that are not significant
enough on a stand-alone basis to warrant treatment as an
operating segment, and that do not fit into one of our three
operating segments, are aggregated as Other
Activities and included as part of non-utility operations.
Results for our other non-utility activities reflect net losses
of $3.7 million, $3.8 million, and $4.8 million
for fiscal years 2009, 2008, and 2007, respectively. These
comparisons primarily reflect lower general and administrative
expenses.
|
|
|
Other Income
(Expenses)Net
|
Other income (expenses)net reflects income of
$2.2 million, $2.5 million and $3.4 million for
fiscal years 2009, 2008 and 2007, respectively. These amounts
primarily comprise interest income from short-term investments
that qualify as cash and cash equivalents as well as interest
income associated with certain regulatory items.
Interest expense was $44.9 million for the fiscal year
ended September 30, 2009, compared to $46.8 million
and $48.9 million for fiscal year 2008 and 2007,
respectively. Long-term debt primarily comprises unsecured MTNs
issued solely by Washington Gas.
44
WGL
Holdings, Inc.
Washington Gas Light Company
Part II
Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations (continued)
The weighted average cost of MTNs was 5.82%, 5.95% and 6.15% at
September 30, 2009, 2008 and 2007 respectively. The
following table shows the components of the changes in interest
expense between years.
|
|
|
|
|
|
|
|
|
Composition of Interest Expense Changes
|
|
|
|
|
|
Increase (Decrease)
|
|
|
|
(In millions)
|
|
2009 vs. 2008
|
|
|
2008 vs. 2007
|
|
|
|
|
Long-term debt
|
|
$
|
0.5
|
|
|
$
|
(0.1
|
)
|
Short-term debt
|
|
|
(3.1
|
)
|
|
|
(1.1
|
)
|
Other (includes
AFUDC(a))
|
|
|
0.7
|
|
|
|
(0.9
|
)
|
|
Total
|
|
$
|
(1.9
|
)
|
|
$
|
(2.1
|
)
|
|
|
|
|
(a) |
|
Represents Allowance for Funds
Used During Construction. |
For fiscal year 2009 compared to fiscal year 2008, the lower
interest expense related to short-term debt reflects a decrease
in the weighted average cost for these borrowings, partially
offset by an increase in the average balance outstanding. The
higher interest expense associated with long-term debt reflects
an increase of the average balance of long-term debt outstanding
mostly offset by the decrease in the embedded cost of these
borrowings as a result of issuing lower-cost debt. The decrease
in interest expense also reflects a decrease in interest expense
associated with customer deposits, among other items.
For fiscal year 2008 compared to fiscal year 2007, the lower
interest expense related to short-term debt reflects a decrease
in the weighted average cost for these borrowings, partially
offset by an increase in the average balance outstanding. The
lower interest expense associated with long-term debt reflects a
decrease in the embedded cost of these borrowings as a result of
issuing lower-cost debt, mostly offset by a higher average
balance of long-term debt outstanding. The decrease in interest
expense also reflects a decrease in interest expense associated
with customer deposits among other items.
|
|
|
LIQUIDITY
AND CAPITAL RESOURCES
|
|
|
|
General
Factors Affecting Liquidity
|
It is important for us to have access to short-term debt markets
to maintain satisfactory liquidity to operate our businesses on
a near-term basis. Acquisition of natural gas, electricity,
pipeline capacity, and the need to finance accounts receivable
and storage gas inventory are our most significant short-term
financing requirements. The need for long-term capital is driven
primarily by capital expenditures and maturities of long-term
debt.
Our ability to obtain adequate and cost effective financing
depends on our credit ratings as well as the liquidity of
financial markets. Our credit ratings depend largely on the
financial performance of our subsidiaries, and a downgrade in
our current credit ratings could require us to post additional
collateral with our wholesale counterparties and adversely
affect our borrowing costs, as well as our access to sources of
liquidity and capital. Also potentially affecting access to
short-term debt capital is the nature of any restrictions that
might be placed upon us, such as ratings triggers or a
requirement to provide creditors with additional credit support
in the event of a determination of insufficient
creditworthiness. Although the credit markets tightened in the
latter half of 2008 and continued into fiscal year 2009, we have
maintained our ability to meet our liquidity needs at reasonable
costs through: (i) the issuance of commercial paper
by WGL Holdings and Washington Gas; (ii) loans made
under the WGL Holdings committed bank credit facility and
(iii) the issuance of debt securities by Washington
Gas to support its operations. In the latter half of fiscal year
2009, the credit markets showed signs of improvements.
The level of our capital expenditure requirements, our financial
performance and the effect of these factors on our credit
ratings, as well as investor demand for our securities, affect
the availability of long-term capital at reasonable costs.
We have a goal to maintain our common equity ratio in the
mid-50% range of total consolidated capital. The level of this
ratio varies during the fiscal year due to the seasonal nature
of our business. This seasonality is also evident in the
variability of our short-term debt balances, which are typically
higher in the fall and winter months and substantially lower in
the spring when a significant portion of our current assets is
converted into cash at the end of the winter heating season.
Accomplishing this capital structure objective and maintaining
sufficient cash flow are necessary to maintain attractive credit
ratings for WGL Holdings and Washington Gas, and to allow access
to capital at reasonable costs. As of September 30, 2009,
total consolidated capitalization, including current maturities
of long-term debt and excluding notes payable, comprised 62.0%
common equity, 1.6% preferred stock and 36.4% long-
45
WGL
Holdings, Inc.
Washington Gas Light Company
Part II
Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations (continued)
term debt. Our cash flow requirements and our ability to provide
satisfactory resources to meet those requirements are primarily
influenced by the activities of Washington Gas and WGEServices
and, to a lesser extent, other non-utility operations.
Our plans provide for sufficient liquidity to satisfy our
financial obligations. At September 30, 2009, we did not
have any restrictions on our cash balances or retained earnings
that would affect the payment of common or preferred stock
dividends by WGL Holdings or Washington Gas.
|
|
|
Short-Term
Cash Requirements and Related Financing
|
Washington Gass business is weather sensitive and
seasonal, causing short-term cash requirements to vary
significantly during the year. Approximately 77% of the total
therms delivered in Washington Gass service area
(excluding deliveries to two electric generation facilities)
occur during the first and second fiscal quarters. Accordingly,
Washington Gas typically generates more net income in the first
six months of the fiscal year than it does for the entire fiscal
year. During the first six months of our fiscal year, Washington
Gas generates large sales volumes and its cash requirements peak
when accounts receivable and unbilled revenues are at their
highest levels. During the last six months of our fiscal year,
after the winter heating season, Washington Gas will typically
experience a seasonal net loss due to reduced demand for natural
gas. During this period, many of Washington Gass assets
are converted into cash which Washington Gas generally uses to
reduce and sometimes eliminate short-term debt and to acquire
storage gas for the next heating season.
Washington Gas and WGEServices have seasonal short-term cash
requirements resulting from their need to purchase storage gas
inventory in advance of the winter heating periods in which the
storage gas is sold. At September 30, 2009 and 2008
Washington Gas had investment balances in gas storage of
$237.7 million and $406.6 million, respectively with
one additional month, October, remaining in the fill seasons.
Washington Gas collects the cost of gas under cost recovery
mechanisms approved by its regulators. WGEServices collects
revenues that are designed to reimburse its commodity costs used
to supply its retail customer contracts. Variations in the
timing of cash receipts from customers under these collection
methods can significantly affect short-term cash requirements.
In addition, both Washington Gas and WGEServices pay their
respective commodity suppliers before collecting the accounts
receivable balances resulting from these sales. WGEServices
derives its funding to finance these activities from short-term
debt issued by WGL Holdings. Additionally, WGEServices may be
required to post collateral, either parent guarantees from WGL
Holdings or cash, for certain purchases.
Variations in the timing of collections of gas costs under
Washington Gass gas cost recovery mechanisms can
significantly affect short-term cash requirements. Washington
Gas had a $64.7 million and an $11.8 million net
under-collection of gas costs at September 30, 2009 and
2008, respectively reflected in current assets/liabilities as
gas costs due from/to customers. The under-collection in both
fiscal years stemmed primarily from an excess of gas costs paid
to suppliers over gas costs recovered from customers during the
most recent twelve month gas cost recovery cycle ended August 31
of each year. Most of this current balance will be returned to,
or collected from, customers in fiscal year 2010. Amounts
under-collected or over-collected that are generated during the
current gas cost recovery cycle are reflected as a regulatory
asset or liability in deferred charges or deferred credits on
the balance sheet until September 1st of each year, at
which time the accumulated amount is transferred to gas costs
due from/to customers as appropriate. At September 30, 2009
and 2008 Washington Gas reflected balances of $14.0 million
and $50.8 million as deferred gas costs in deferred charges.
WGL Holdings and Washington Gas utilize 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
46
WGL
Holdings, Inc.
Washington Gas Light Company
Part II
Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations (continued)
than our expected maximum commercial paper position. The
following is a summary of our committed credit agreements at
September 30, 2009.
|
|
|
|
|
|
|
|
|
Committed Credit Available (In millions)
|
|
|
|
|
|
WGL Holdings
|
|
|
Washington Gas
|
|
|
|
|
Committed credit agreements
|
|
|
|
|
|
|
|
|
|
Unsecured revolving credit facility, expires August 3,
2012(a)
|
|
$
|
400.0
|
|
|
$
|
300.0
|
|
|
Total committed credit agreements
|
|
|
400.0
|
|
|
|
300.0
|
|
Less: Commercial Paper
|
|
|
(59.0
|
)
|
|
|
(124.8
|
)
|
|
Net committed credit available
|
|
$
|
341.0
|
|
|
$
|
175.2
|
|
|
|
|
|
(a) |
|
Both WGL Holdings and Washington
Gas have the right to request extensions with the banks
approval. WGL Holdings revolving credit facility permits
it to borrow an additional $50 million, with the
banks approval, for a total of $450 million.
Washington Gass revolving credit facility permits it to
borrow an additional $100 million, with the banks
approval, for a total of $400 million. |
WGL Holdings typically issues commercial paper to meet its
financing requirements including cash collateral requirements
posted to counterparties associated with WGEServices
contracts (refer to Note 4 of the Notes to the Consolidated
Financial Statements for further information).
At September 30, 2009 and September 30, 2008, WGL
Holdings and its subsidiaries had outstanding notes payable in
the form of commercial paper
and/or bank
loans from revolving credit facilities of $183.8 million
and $271.0 million, respectively. Of the outstanding notes
payable balance at September 30, 2009, all borrowings were
in the form of commercial paper in the amount of
$59.0 million issued by WGL Holdings and
$124.8 million issued by Washington Gas. At September 30,
2009 there were no outstanding bank loans from WGL
Holdings or Washington Gass revolving credit
facilities. Of the outstanding notes payable balance at
September 30, 2008, $23.0 million and
$231.0 million was commercial paper issued by WGL Holdings
and Washington Gas, respectively. In addition, WGL Holdings had
$17.0 million in outstanding bank loans under its revolving
credit facility and there were no outstanding bank loans from
Washington Gass revolving credit facility.
To manage credit risk, both Washington Gas and WGEServices may
require deposits from certain customers and suppliers, which are
reported as current liabilities in Customer deposits and
advance payments. At September 30, 2009 and
September 30, 2008, Customer deposits and advance
payments totaled $52.9 million and
$46.1 million, respectively. For both periods, most of
these deposits related to customer deposits for Washington Gas.
For Washington Gas, deposits from customers may be refunded to
the depositor-customer at various times throughout the year
based on the customers 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 Gass use of these customer
deposits. Washington Gas pays interest to its customers on these
deposits in accordance with the requirements of its regulatory
commissions.
For WGEServices, deposits typically represent collateral for
transactions with wholesale counterparties for the purchase and
sale of natural gas and electricity. These deposits may be
required to be repaid or increased at any time based on the
current value of WGEServices net position with the
counterparty. Currently there are no restrictions on
WGEServices use of deposit funds and WGEServices pays
interest to the counterparty on these deposits in accordance
with its contractual obligations. Refer to the section entitled
Credit Risk for a further discussion of our
management of credit risk.
|
|
|
Long-Term Cash
Requirements and Related Financing
|
Our long-term cash requirements primarily depend upon the level
of capital expenditures, long-term debt maturities and decisions
to refinance long-term debt. Our capital expenditures primarily
relate to adding new utility customers and system supply as well
as maintaining the safety and reliability of Washington
Gass distribution system (refer to the section entitled
Capital Expenditures below).
47
WGL
Holdings, Inc.
Washington Gas Light Company
Part II
Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations (continued)
At September 30, 2009, Washington Gas had the capacity
under a shelf registration to issue up to $450.0 million of
Medium Term Notes (MTNs). Washington Gas has authority from its
regulators to issue other forms of debt, including private
placements. The following describes MTN activity during fiscal
year 2009 and 2008.
Fiscal Year 2009 MTN Activity. In
October 2008, Washington Gas retired $25.0 million of 5.49%
MTNs. On December 5, 2008, Washington Gas issued
$50.0 million of 7.46% fixed rate MTNs due December 5,
2018. Proceeds from this MTN were used by Washington Gas to
replace the matured MTNs and for general corporate purposes,
including funding capital expenditures and working capital
needs, and repaying commercial paper. On July 9, 2009,
Washington Gas retired $50.0 million of 6.92% MTNs. The
maturing MTNs were repaid by the sale of commercial paper.
Washington Gas maintains adequate access to capital markets to
meet its liquidity requirements.
Fiscal Year 2008 MTN Activity. In
August 2008 Washington Gas retired $20.1 million of
maturing MTNs with rates ranging from 6.51% to 6.61%. On
August 26, 2008, Washington Gas issued $50.0 million
of 3.61% floating rate MTNs due August 26, 2010, with a
call option at 100% of par value to redeem the MTNs at any time
on or after February 26, 2009. These MTNs have an interest
rate which is reset quarterly based on the
3-month
London Interbank Offer Rate (LIBOR) plus 80.0 basis points.
Proceeds from these MTNs were used by Washington Gas to retire
the maturing MTNs and for general corporate purposes such as the
funding of capital expenditures, working capital needs and the
retirement of commercial paper.
On November 2, 2009, Washington Gas issued
$50.0 million of unsecured 4.76% fixed rate notes due
November 1, 2019. These notes were issued through a private
placement. Proceeds from these notes were used by Washington Gas
to retire existing indebtedness.
We are exposed to interest-rate risk associated with our debt
financing costs. Washington Gas utilizes derivative instruments
from time to time in order to minimize its exposure to the risk
of interest-rate volatility. Refer to the section entitled
Interest-Rate Risk for a further discussion
of the management of our interest-rate risk.
The table below reflects the current credit ratings for the
outstanding debt instruments of WGL Holdings and Washington Gas.
Changes in credit ratings may affect WGL Holdings and
Washington Gass cost of short-term and long-term debt and
their access to the capital markets. A security rating is not a
recommendation to buy, sell or hold securities, it may be
subject to revision or withdrawal at any time by the assigning
rating organization and each rating should be evaluated
independently of any other rating. There was no change in the
ratings during the year ended September 30, 2009.
Credit
Ratings for Outstanding Debt Instruments
|
|
|
|
|
|
|
|
|
|
|
WGL Holdings
|
|
Washington Gas
|
|
|
Unsecured
|
|
|
|
Unsecured
|
|
|
|
|
Medium-Term Notes
|
|
Commercial
|
|
Medium-Term
|
|
Commercial
|
Rating Service
|
|
(Indicative)(a)
|
|
Paper
|
|
Notes
|
|
Paper
|
|
Fitch Ratings
|
|
A+
|
|
F1
|
|
AA−
|
|
F1+
|
Moodys Investors Service
|
|
Not Rated
|
|
Not Prime
|
|
A2
|
|
P-1
|
Standard & Poors Ratings
Services(b)
|
|
AA−
|
|
A-1
|
|
AA−
|
|
A-1
|
|
|
|
|
(a) |
|
Indicates the ratings that may
be applicable if WGL Holdings were to issue unsecured
MTNs. |
(b) |
|
The long-term debt rating issued
by Standard & Poors Rating Services for WGL
Holdings and Washington Gas is stable. |
|
|
|
Ratings
Triggers and Certain Debt Covenants
|
WGL Holdings and Washington Gas pay fees on their credit
facilities which in some cases are based on the long-term debt
ratings of Washington Gas. In the event the long-term debt of
Washington Gas is downgraded below certain levels, WGL Holdings
and Washington Gas would be required to pay higher fees. There
are five different levels of fees. The credit facility for WGL
Holdings defines its applicable fee level as one level below the
level applicable to Washington Gas. Under the terms of the
credit facilities, the fees based on the long-term debt credit
ratings range from four basis points to nineteen basis points.
48
WGL
Holdings, Inc.
Washington Gas Light Company
Part II
Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations (continued)
Under the terms of WGL Holdings and Washington Gass
credit agreements, the ratio of consolidated financial
indebtedness to consolidated total capitalization cannot exceed
0.65 to 1.0 (65.0%). In addition, WGL Holdings and Washington
Gas are required to inform lenders of changes in corporate
existence, financial conditions, litigation and environmental
warranties that might have a material adverse effect. The
failure to inform the lenders agent of changes in these
areas deemed material in nature might constitute default under
the agreements. Additionally, WGL Holdings or Washington
Gass failure to pay principal or interest when due on any
of its other indebtedness may be deemed a default under our
credit agreements. A default, if not remedied, may lead to a
suspension of further loans
and/or
acceleration in which obligations become immediately due and
payable. At September 30, 2009, we were in compliance with
all of the covenants under our revolving credit facilities.
For certain of Washington Gass natural gas purchase and
pipeline capacity agreements, if the long-term debt of
Washington Gas is downgraded to or below the lower of a BBB-
rating by Standard & Poors Ratings Services or a
Baa3 rating by Moodys Investors Service, or if Washington
Gas is deemed by a counterparty not to be creditworthy, then the
counterparty may withhold service or deliveries, or may require
additional credit support. For certain other agreements, if the
counterpartys credit exposure to Washington Gas exceeds a
contractually defined threshold amount, or if Washington
Gass credit rating declines, then the counterparty may
require additional credit support. At September 30, 2009,
Washington Gas would not be required to supply additional credit
support by these arrangements if its long-term debt rating were
to be downgraded one rating level.
WGL Holdings has guaranteed payments for certain purchases of
natural gas and electricity on behalf of its wholly-owned
subsidiary, WGEServices (refer to Contractual
Obligations, Off-Balance Sheet Arrangements and Other Commercial
Commitments for a further discussion of these
guarantees). If the credit rating of WGL Holdings declines,
WGEServices may be required to provide additional credit support
for these purchase contracts. At September 30, 2009,
WGEServices would be required to provide $7.8 million in
additional credit support for these arrangements if the
long-term debt rating of WGL Holdings were to be downgraded one
rating level.
|
|
|
Cash Flows
Provided by Operating Activities
|
The primary drivers for our operating cash flows are cash
payments received from natural gas and electricity customers,
offset by our payments for natural gas and electricity costs,
operation and maintenance expenses, taxes and interest costs.
Net cash provided by operating activities totaled
$307.1 million, $62.0 million and $213.3 million
for fiscal years 2009, 2008 and 2007, respectively. Net cash
provided by operating activities reflects net income applicable
to common stock, as adjusted for non-cash earnings and charges,
as well as changes in working capital. Certain changes in
working capital from September 30, 2008 to
September 30, 2009 are described below.
|
|
|
|
|
Accounts receivable and unbilled revenues increased
$30.6 million from September 30, 2008 primarily due to
increased sales volumes associated with Washington Gass
asset optimization program.
|
|
|
|
Storage gas inventory cost levels decreased $168.9 million
from September 30, 2008 primarily due to lower gas prices
of volumes in storage.
|
|
|
|
Gas costs and other regulatory assets increased
$48.0 million from September 30, 2008 due to an
increase in under-collection of gas costs during the year and an
increase in unbilled gas costs.
|
|
|
|
Accounts payable and other accrued liabilities decreased
$34.5 million, largely attributable to a decrease in the
cost of the natural gas purchased.
|
|
|
|
Other prepayments increased $52.5 million from
September 30, 2008 due to an increase in collateral
receivables for transactions with wholesale counterparties for
the purchase of energy for our retail-energy marketing segment.
This increase in collateral reflects lower market prices for
energy, compared to the contracted purchase price of energy
supplies.
|
|
|
|
Other current liabilities decreased $24.7 million primarily
due to unrealized fair value gains associated with
energy-related derivatives for both Washington Gas and
WGEServices.
|
|
|
|
Deferred purchased gas costsnet decreased
$36.8 million primarily due to a decrease in the
under-collection of gas costs from September 30, 2008.
|
49
WGL
Holdings, Inc.
Washington Gas Light Company
Part II
Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations (continued)
|
|
|
Cash Flows
Provided by (Used in) Financing Activities
|
Cash flows provided by (used in) financing activities totaled
$(166.5) million, $74.3 million and
$(47.2) million for fiscal years 2009, 2008 and 2007,
respectively. During fiscal year 2009, we decreased our notes
payable by a net amount of $87.1 million due to decreased
working capital requirements driven principally by lower storage
gas inventory costs, a dividend payment on common stock totaling
$72.4 million, partially offset by $5.1 million in
cash proceeds from the issuance of common stock pursuant to our
stock-based compensation plan. Additionally during fiscal year
2009, we retired $75.0 million of MTNs and issued
$50.0 million of lower-cost MTNs (refer to the section
entitled Long-Term Cash Requirements and Related
Financing).
During fiscal year 2008, we increased our notes payable by a net
amount of $86.7 million due to increased working capital
requirements, principally to fund higher storage gas inventory
costs at Washington Gas. This increase in notes payable was
partially offset by dividend payments on common stock totaling
$69.1 million, as well as $14.1 million in cash
proceeds from the issuance of common stock pursuant to our
stock-based compensation plan. Additionally during fiscal year
2008, we retired $20.1 million of MTNs and issued
$50.0 million of lower-cost MTNs.
Cash flows used in financing activities for fiscal year 2007 was
driven by our dividend payments on common stock totaling
$66.8 million, partially offset by $11.7 million in
cash proceeds from the issuance of common stock pursuant to our
stock-based compensation plan.
The following table reflects the issuances and retirements of
long-term debt that occurred during fiscal years 2009, 2008 and
2007 (also refer to Note 4 of the Notes to Consolidated
Financial Statements).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Debt Activity
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
Interest Rate
|
|
|
Amount
|
|
|
Interest Rate
|
|
|
Amount
|
|
|
Interest Rate
|
|
|
Amount
|
|
|
|
|
Medium-term notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued(a)
|
|
|
7.46
|
%
|
|
$
|
50.0
|
|
|
|
3.61
|
%
|
|
$
|
50.0
|
|
|
|
|
|
|
$
|
|
|
Retired
|
|
|
5.49 6.92
|
%
|
|
|
(75.0
|
)
|
|
|
6.51 6.61
|
%
|
|
|
(20.1
|
)
|
|
|
|
|
|
|
|
|
Other financing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued(b)
|
|
|
5.95 6.98
|
%
|
|
|
15.3
|
|
|
|
5.63
|
%
|
|
|
13.3
|
|
|
|
5.57
|
%
|
|
|
1.4
|
|
Retired(c)
|
|
|
4.76 7.53
|
%
|
|
|
(25.5
|
)
|
|
|
4.76 9.00
|
%
|
|
|
(1.0
|
)
|
|
|
4.76 9.00
|
%
|
|
|
(1.0
|
)
|
Other activity
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
(35.3
|
)
|
|
|
|
|
|
$
|
42.2
|
|
|
|
|
|
|
$
|
0.4
|
|
|
|
|
|
(a) |
|
Interest rate resets quarterly
on November, February, May, and August 26 of each year until
maturity. |
(b) |
|
Includes the non-cash issuances
of project debt financing of $1.4 million,
$13.3 million, and $14.9 million for fiscal years
2007, 2008 and 2009, respectively. |
(c) |
|
Includes the non-cash
extinguishments of project debt financing of $24.5 million
for fiscal year 2009. |
|
|
|
Cash Flows
Used in Investing Activities
|
Net cash flows used in investing activities totaled
$138.9 million, $135.0 million and $165.6 million
during fiscal years 2009, 2008 and 2007, respectively. In fiscal
years 2009, 2008 and 2007, $134.2 million,
$133.6 million and $162.0 million, respectively, of
cash was utilized for capital expenditures made on behalf of
Washington Gas.
50
WGL
Holdings, Inc.
Washington Gas Light Company
Part II
Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations (continued)
The following table depicts our actual capital expenditures for
fiscal years 2007, 2008 and 2009, and projected capital
expenditures for fiscal years 2010 through 2014. Our capital
expenditure program includes investments to extend service to
new areas, and to ensure safe, reliable and improved service.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Expenditures
|
|
|
|
|
|
Actual
|
|
|
Projected
|
|
(In millions)
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
Total
|
|
|
|
|
New business
|
|
$
|
44.9
|
|
|
$
|
45.8
|
|
|
$
|
28.8
|
|
|
$
|
48.2
|
|
|
$
|
51.4
|
|
|
$
|
55.4
|
|
|
$
|
62.5
|
|
|
$
|
67.7
|
|
|
$
|
285.2
|
|
Replacements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rehabilitation project
|
|
|
30.8
|
|
|
|
8.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
33.8
|
|
|
|
38.0
|
|
|
|
57.4
|
|
|
|
45.0
|
|
|
|
41.6
|
|
|
|
41.3
|
|
|
|
43.2
|
|
|
|
42.7
|
|
|
|
213.8
|
|
LNG storage facility
|
|
|
0.3
|
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
8.6
|
|
|
|
56.9
|
|
|
|
48.7
|
|
|
|
35.8
|
|
|
|
0.7
|
|
|
|
150.7
|
|
SOC redevelopment project
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13.5
|
|
|
|
34.1
|
|
|
|
30.7
|
|
|
|
|
|
|
|
|
|
|
|
78.3
|
|
Other
|
|
|
48.3
|
|
|
|
39.4
|
|
|
|
51.2
|
|
|
|
47.2
|
|
|
|
36.9
|
|
|
|
26.1
|
|
|
|
33.3
|
|
|
|
24.8
|
|
|
|
168.3
|
|
|
Total-accrual
basis(a)
|
|
$
|
158.1
|
|
|
$
|
131.4
|
|
|
$
|
137.5
|
|
|
$
|
162.5
|
|
|
$
|
220.9
|
|
|
$
|
202.2
|
|
|
$
|
174.8
|
|
|
$
|
135.9
|
|
|
$
|
896.3
|
|
Cash basis adjustments
|
|
|
6.4
|
|
|
|
3.6
|
|
|
|
1.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total-cash basis
|
|
$
|
164.5
|
|
|
$
|
135.0
|
|
|
$
|
138.9
|
|
|
$
|
162.5
|
|
|
$
|
220.9
|
|
|
$
|
202.2
|
|
|
$
|
174.8
|
|
|
$
|
135.9
|
|
|
$
|
896.3
|
|
|
|
|
|
(a) |
|
Excludes Allowance for Funds
Used During Construction and prepayments associated with capital
projects. Includes accruals for capital expenditures and other
non-cash additions. |
The 2010 to 2014 projected periods include $285.2 million
for continued growth to serve new customers, and
$213.8 million primarily related to the replacement and
betterment of existing capacity. Additionally, the projected
period contains capital expenditures to construct a necessary,
new source of peak day capacity within the boundaries of the
natural gas distribution system to support customer growth and
pressure requirements on the entire natural gas distribution
system. Specifically, these estimated expenditures are expected
to be used for the construction of a one billion cubic foot LNG
storage facility on the land historically used for storage
facilities by Washington Gas in Chillum, Maryland (refer to the
section entitled Chillum LNG Facility). Projected
expenditures also reflect $78.3 million for the development
of new facilities at the Springfield Operations Center (SOC) and
$168.3 million of other expenditures, which include general
plant.
|
|
|
CONTRACTUAL
OBLIGATIONS, OFF-BALANCE SHEET ARRANGEMENTS AND OTHER COMMERCIAL
COMMITMENTS
|
WGL Holdings and Washington Gas have certain contractual
obligations that extend beyond fiscal year 2009. These
commitments include long-term debt, lease obligations and
unconditional purchase obligations for pipeline capacity,
transportation and storage services, and certain natural gas and
electricity commodity commitments. The estimated obligations as
of September 30, 2009 for future fiscal years are shown
below.
51
WGL
Holdings, Inc.
Washington Gas Light Company
Part II
Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Contractual Obligations and Commercial
Commitments
|
|
|
|
|
|
Years Ended September 30,
|
|
|
|
(In millions)
|
|
Total
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
Thereafter
|
|
|
|
|
Pipeline and storage
contracts(a)
|
|
$
|
2,402.7
|
|
|
$
|
162.1
|
|
|
$
|
159.8
|
|
|
$
|
159.7
|
|
|
$
|
161.8
|
|
|
$
|
183.6
|
|
|
$
|
1,575.7
|
|
Medium-term
notes(b)
|
|
|
639.0
|
|
|
|
82.5
|
|
|
|
30.0
|
|
|
|
77.0
|
|
|
|
|
|
|
|
67.0
|
|
|
|
382.5
|
|
Other long-term
debt(b)
|
|
|
0.3
|
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense(c)
|
|
|
415.7
|
|
|
|
36.2
|
|
|
|
32.7
|
|
|
|
29.3
|
|
|
|
27.5
|
|
|
|
25.8
|
|
|
|
264.2
|
|
Gas purchase commitmentsWashington
Gas(d)
|
|
|
497.9
|
|
|
|
113.6
|
|
|
|
40.7
|
|
|
|
55.3
|
|
|
|
55.2
|
|
|
|
55.7
|
|
|
|
177.4
|
|
Gas purchase
commitmentsWGEServices(e)
|
|
|
536.8
|
|
|
|
306.4
|
|
|
|
152.5
|
|
|
|
69.8
|
|
|
|
8.1
|
|
|
|
|
|
|
|
|
|
Electric purchase
commitments(f)
|
|
|
885.8
|
|
|
|
474.7
|
|
|
|
273.0
|
|
|
|
116.3
|
|
|
|
21.1
|
|
|
|
0.7
|
|
|
|
|
|
Operating leases
|
|
|
36.7
|
|
|
|
4.2
|
|
|
|
4.3
|
|
|
|
4.4
|
|
|
|
4.4
|
|
|
|
4.2
|
|
|
|
15.2
|
|
Business Process
Outsourcing(g)
|
|
|
259.5
|
|
|
|
40.8
|
|
|
|
34.8
|
|
|
|
33.9
|
|
|
|
30.8
|
|
|
|
30.5
|
|
|
|
88.7
|
|
Other long-term
commitments(h)
|
|
|
10.4
|
|
|
|
5.2
|
|
|
|
4.0
|
|
|
|
0.3
|
|
|
|
0.3
|
|
|
|
0.1
|
|
|
|
0.5
|
|
|
Total
|
|
$
|
5,684.8
|
|
|
$
|
1,225.8
|
|
|
$
|
731.9
|
|
|
$
|
546.1
|
|
|
$
|
309.2
|
|
|
$
|
367.6
|
|
|
$
|
2,504.2
|
|
|
|
|
|
(a) |
|
Represents minimum payments
under natural gas transportation, storage and peaking contracts
which have expiration dates through fiscal year 2029.
Additionally, includes minimum payments for WGEServices pipeline
contracts. |
|
|
|
(b) |
|
Represents scheduled repayment
of principal including the assumed exercise of a put option by
the debt holders of $8.5 million in 2010. Excludes
$5.1 million in debt that is anticipated to be a non-cash
extinguishment of project debt financing (refer to the section
entitled Construction Project Financing). |
|
|
|
(c) |
|
Represents the scheduled
interest payments associated with MTNs and other long-term
debt. |
|
|
|
(d) |
|
Includes short-term commitments
to purchase fixed volumes of natural gas, as well as long-term
gas purchase commitments that contain fixed volume purchase
requirements. Cost estimates are based on both forward market
prices and option premiums for fixed volume purchases under
these purchase commitments. |
|
|
|
(e) |
|
Represents commitments based on
a combination of market prices at September 30, 2009 and
fixed price as well as index priced contract commitments for
natural gas delivered to various city gate stations, including
the cost of transportation to that point, which is bundled in
the purchase price. |
|
(f) |
|
Represents electric purchase
commitments which are based on existing fixed price and fixed
volume contracts. Also includes $6.5 million related to
renewable energy credits. |
|
(g) |
|
Represents fixed costs to the
service provider related to the
10-year
contract for business process outsourcing. These payments do not
reflect potential inflationary adjustments included in the
contract. Including these inflationary adjustments, required
payments to the service provider could total
$306.5 million. |
|
|
|
(h) |
|
Includes certain information
technology service contracts and committed payments related to
certain environmental response costs. |
The table above reflects fixed and variable obligations. Certain
of these estimates reflect likely purchases under various
contracts, and may differ from minimum future contractual
commitments disclosed in Note 13 of the Notes to
Consolidated Financial Statements.
For commitments related to Washington Gass pension and
post-retirement benefit plans, during fiscal year 2010,
Washington Gas does not expect to make any contributions to its
qualified, trusteed, employee-non-contributory defined benefit
pension plan covering all active and vested former employees of
Washington Gas. Washington Gas expects to make payments totaling
$10.2 million in fiscal year 2010 on behalf of participants
in our non-funded Supplemental Executive Retirement Plan.
Washington Gas also expects to contribute $19.0 million to
our health and life insurance benefit plans on behalf of
retirees during fiscal year 2010. For a further discussion of
our pension and post-retirement benefit plans, refer to
Note 10 of the Notes to Consolidated Financial Statements.
|
|
|
Construction
Project Financing
|
To fund certain of its construction projects, Washington Gas
enters into financing arrangements with third party lenders. As
part of these financing arrangements, Washington Gass
customers agree to make principal and interest payments over a
period of time, typically beginning after the projects are
completed. Washington Gas assigns these customer payment streams
to the lender. As the lender funds the construction project,
Washington Gas establishes a note receivable representing its
customers obligations to remit principal and interest and
a long-term note payable to the lender. When these projects are
formally accepted by the customer as completed,
Washington Gas transfers the ownership of the note receivable to
the lender and removes both the note receivable and the
long-term financing from its financial statements. As of
September 30, 2009, work on these construction projects
that was not completed or accepted by customers was valued at
$5.1 million, which is recorded on the balance sheet as a
note receivable in
52
WGL
Holdings, Inc.
Washington Gas Light Company
Part II
Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations (continued)
Deferred Charges and Other AssetsOther with
the corresponding long-term obligation to the lender in
Long-term debt. At any time before these contracts
are accepted by the customer, should there be a contract
default, such as, among other things, a delay in completing the
project, the lender may call on Washington Gas to fund the
unpaid principal in exchange for which Washington Gas would
receive the right to the stream of payments from the customer.
Once the project is accepted by the customer, the lender will
have no recourse against Washington Gas related to this
long-term debt.
WGL Holdings has guaranteed payments primarily for certain
purchases of natural gas and electricity on behalf of the retail
energy-marketing segment. At September 30, 2009, these
guarantees totaled $539.5 million. The amount of such
guarantees is periodically adjusted to reflect changes in the
level of financial exposure related to these purchase
commitments. We also receive financial guarantees or other
collateral from suppliers when required by our credit policy
(refer to the section entitled Credit Risk
for a further discussion of our credit policy). WGL Holdings
also issued guarantees totaling $3.0 million at
September 30, 2009 that were made on behalf of certain of
our non-utility subsidiaries associated with their banking
transactions. For all of its financial guarantees, WGL Holdings
may cancel any or all future obligations imposed by the
guarantees upon written notice to the counterparty, but WGL
Holdings would continue to be responsible for the obligations
that had been created under the guarantees prior to the
effective date of the cancellation.
Washington Gas plans to construct a one billion cubic foot LNG
storage facility on the land historically used for natural gas
storage facilities by Washington Gas in Chillum, Maryland, to
meet its customers forecasted peak demand for natural gas.
The new storage facility is currently expected to be completed
and in service by the
2013-2014
winter heating season at an estimated cost of $159 million,
subject to certain zoning and other legal challenges.
On October 30, 2006, the District Council of Prince
Georges County, Maryland denied Washington Gass
application for a special exception related to its proposed
construction of the LNG peaking plant because it believes that
current zoning restrictions prohibit such construction.
Washington Gas appealed this decision to the Prince
Georges County Circuit Court (the Circuit Court) on
November 22, 2006; however, the case was subsequently sent
back to the administrative process by the Circuit Court. On
April 16, 2008, Washington Gas filed a Complaint for
Declaratory and Injunctive Relief with the United States
District Court for the District of Maryland (the
U.S. District Court) seeking to clarify the role of the
local jurisdiction by affirming all local laws relating to
safety and location of the facility are preempted by Federal and
State law. A ruling by the U.S. District Court is pending.
On March 19, 2009, the PSC of MD ordered that evidentiary
proceedings be opened for the purpose of reviewing Washington
Gass most recent gas procurement plan including the role
the Chillum facility plays in meeting current and future
customers annual and seasonal natural gas requirements.
The Company revised its projected service date for the facility
in a public notice made on August 7, 2009. The Company has
requested that the proceeding be held in abeyance until the
Companys next gas procurement plan is filed in November,
2009. Refer to the section entitled Rates and
Regulatory MattersMaryland JurisdictionReview of the
Companys
2009-2013
Gas Portfolio Plan for a further discussion of this
issue. Washington Gas must begin construction of the storage
facility in the summer of 2010 in order for the Chillum Facility
to be completed and in service by the
2013-2014
winter heating season. Until the legal challenges are resolved
and the LNG plant is constructed, Washington Gas has planned for
alternative sources of supply to meet its customers peak
day requirements. These plans include capital expenditures
related to infrastructure improvements which contribute to
providing for adequate system performance based on projected
needs.
|
|
|
Operating
Issues Related To Cove Point Natural Gas Supply
|
In late fiscal year 2003, Dominion reactivated its Cove Point
LNG terminal. A large portion of the gas delivered from the Cove
Point LNG terminal comes to the Washington Gas service territory
as a result of the Companys multiple delivery points on
the Cove Point pipeline and from three interstate natural gas
transmission pipelines also interconnected with the Cove Point
pipeline, each of which serve Washington Gas from delivery
points downstream of its Cove Point pipeline interconnect. The
composition of the vaporized LNG received from the Cove Point
LNG terminal resulted in increased leaks in mechanical couplings
on the portion of our distribution system in Prince
Georges County, Maryland that directly receives the Cove
Point gas. The vaporized Cove Point gas contains a lower
concentration of heavy hydrocarbons (HHCs) than non-liquefied
natural gas, and caused the seals on those mechanical couplings
to shrink and to leak. Independent laboratory tests performed on
behalf of Washington Gas have shown that, in
53
WGL
Holdings, Inc.
Washington Gas Light Company
Part II
Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations (continued)
a laboratory environment, the injection of HHCs into the type of
gas coming from the Cove Point LNG terminal can be effective in
re-swelling the seals in couplings which increases their sealing
force and in turn, reduces the propensity for the affected
couplings to leak.
Through a pipeline replacement project and the construction of a
HHC injection facility at the largest gate station that
exclusively receives gas from the Cove Point terminal,
Washington Gas has reduced the occurrence of new coupling leaks
in this area of the distribution system. A recent expansion of
the physical capacity of the Cove Point terminal could result in
a substantial increase in the receipt of Cove Point gas into
additional portions of Washington Gass distribution system
as greater volumes of Cove Point gas are introduced into other
downstream pipelines that provide service to Washington Gas.
Based upon engineering and flow studies and our experience, this
increase in the receipt of Cove Point gas is likely to result in
a significantly greater number of leaks in other parts of
Washington Gass distribution system, unless our efforts to
mitigate these additional leaks are successful. Washington Gas
is attempting to mitigate this anticipated increase in leaks
through: (i) pipeline replacement programs; (ii)
the operation of three HHC injection facilities; (iii)
isolating its interstate pipeline receipt points and limiting
the amount of gas received, where possible, from pipelines that
transport Cove Point gas; (iv) blending, where possible,
the Cove Point gas with other supplies of natural gas from
within the continental United States and (v) continued
efforts before the FERC to condition incremental increases in
deliveries from the Cove Point terminal on the appropriate
resolution of safety concerns consistent with the public
interest.
Washington Gas installed and operates HHC injection facilities
at three gate stations. Assuming current gas flow patterns with
the current pipeline supply configurations, the strategic
placement of the three operational HHC injection facilities will
inject HHCs into the natural gas supplied to over 95% of the
pipelines that contain mechanical couplings within our
distribution system. Washington Gas has been granted recovery
for a portion of these costs allocable to Virginia and Maryland.
Additionally, Washington Gas will seek recovery of the costs of
these facilities allocable to the District of Columbia in a
future base rate proceeding. Washington Gas expects the cost of
these facilities to be recoverable in all jurisdictions.
The estimated cost of these facilities does not include the cost
of the HHCs injected into the gas stream at the gate stations.
We have been granted cost recovery for the majority of these
costs in Virginia and Maryland. On October 2, 2009,
Washington Gas and the District of Columbia Office of the
Peoples Counsel (DC OPC) filed a Joint Motion for Approval
of Unanimous Agreement of Stipulation and Full Settlement with
the PSC of DC which, if approved, will provide for full recovery
of the HHC commodity costs in the District of Columbia (refer to
the section entitled Rates and Regulatory Matters).
Washington Gas is replacing or remediating selected mechanically
coupled pipelines within the areas of the distribution system
that may receive high concentrations of Cove Point gas, but that
will not receive HHC injections. Washington Gas has also planned
for additional replacement of mechanically coupled pipeline in
other areas of its distribution system. In total, the current
estimated cost of planned mechanical coupling remediation and
replacement work over the next three years is $39.7 million
which includes $9.0 million as part of a planned
mechanically coupled pipe replacement program approved by the
Virginia State Corporation Commission (SCC of VA) as part of a
settlement of a Virginia rate case. The October 2, 2009
settlement filed in the District of Columbia includes a targeted
mechanically coupled pipe replacement and encapsulation program
which will cost no more than $28.0 million and is expected
to take approximately seven years to complete. Rate recovery of
the expenditures is provided for in the settlement.
Washington Gas continues to gather and evaluate field and
laboratory evidence to determine the efficacy of HHC injections
of the Cove Point gas in preventing additional leaks or impeding
the rate at which additional leaks may occur in the gas
distribution system if expanded volumes from the Cove Point
terminal are introduced. In a report filed with the PSC of MD on
June 30, 2008, Washington Gas reported a notable increase
in leaks in mechanical couplings in a portion of its
distribution system in Virginia where Cove Point gas injected
with HHCs was recently introduced for a short period of time.
Although this increase in leaks was significantly less than the
increase experienced in the affected area of Prince
Georges County, Maryland, the injection of HHCs into the
Cove Point gas did not reduce the occurrence of coupling leaks
to an acceptable level that would allow Washington Gas to safely
accommodate the increased deliveries of revaporized LNG
anticipated with the expansion of the Cove Point terminal. If we
are unable to implement a satisfactory solution on a timely
basis, additional operating expenses and capital expenditures
may be necessary to contend with leaks that may accompany the
receipt of increased volumes of vaporized LNG from the Cove
Point terminal into Washington Gass distribution system.
Such additional operating expenses and capital expenditures may
not be timely enough to mitigate the challenges posed by
increased volumes of Cove Point gas, potentially resulting in
leakage from mechanical couplings at a rate that could
compromise the safety of our distribution system. Additional
legal or regulatory remedies may be necessary to protect
54
WGL
Holdings, Inc.
Washington Gas Light Company
Part II
Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations (continued)
the Washington Gas distribution system and its customers from
the adverse effects of unblended vaporized LNG (refer to the
section entitled Request for FERC Action below for a
further discussion).
Notwithstanding Washington Gass recovery through local
regulatory commission action of costs related to the
construction of the injection facilities and HHC commodity
costs, Washington Gas is pursuing remedies to keep its customers
from having to pay more than their appropriate share of the
costs of the remediation to maintain the safety of the
Washington Gas distribution system.
Request for FERC
Action Regarding Cove Point
In November 2005, Washington Gas requested the FERC to invoke
its authority to require Dominion to demonstrate that the
increased volumes of the Cove Point gas resulting from the
expansion would flow safely through the Washington Gas
distribution system and would be consistent with the public
interest. Washington Gas specifically requested that the
proposed expansion of the Cove Point LNG terminal be denied
until Dominion has shown that the Cove Point gas:
(i) is of such quality that it is fully
interchangeable with the domestically produced natural gas
historically received by Washington Gas and
(ii) will not cause harm to its customers or to the
infrastructure of Washington Gass distribution system.
On June 16, 2006, the FERC issued an order authorizing
Dominions request to expand the capacity and output of its
Cove Point LNG terminal and, thereby, denying Washington
Gass request to require Dominion to demonstrate the safety
of the Cove Point gas flowing through the Washington Gas
distribution system. Washington Gas, the PSC of MD, Keyspan
Corporation, the Maryland Office of Peoples Counsel (MD
OPC) and other organizations all filed Requests for Rehearing
with the FERC to seek modification of the FERCs
June 16, 2006 order. These requests were all rejected by
the FERC. On January 26, 2007, Washington Gas filed a
notice of appeal with the United States Court of Appeals for the
District of Columbia Circuit (the Court of Appeals). Washington
Gas requested the Court of Appeals to reverse the June 16,
2006 FERC order that authorized the Cove Point expansion, as
well as a January 4, 2007 FERC order that denied Washington
Gass rehearing request.
On July 18, 2008, the Court of Appeals issued an opinion
vacating the FERC orders to the extent they approve the
expansion. The opinion remanded the case to the FERC to address
whether the expansion can go forward without causing unsafe
leakage on Washington Gas Light Companys distribution
system.
Although Washington Gas agrees with the portion of the Court of
Appeals decision that states the FERC failed to address
adequately the future safety concerns associated with increased
deliveries of LNG into its system, Washington Gas does not agree
with all of the findings of the Court of Appeals, including
conclusions related to the cause of the leaks, and on
September 2, 2008 filed a request for rehearing with the
Court of Appeals. This request has been denied. The FERC held a
technical conference on August 14, 2008 to discuss
the nature and progress of remedial measures taken to date, as
well as the need and benefit of any other remedial measures that
might be taken by WGL and Dominion Cove Point LNG, LP so that
WGLs system can safely accommodate the increased amounts
of regasified LNG from Cove Points LNG terminal.
Washington Gas filed initial Post Technical Conference Comments
on August 19, 2008 and reply Post Technical Conference
Comments on August 22, 2008. On October 7, 2008, the
FERC issued its reauthorization of the expansion of the Cove
Point terminal, allowing construction to continue; however, the
FERC limited the amount of vaporized LNG that may flow from the
Cove Point terminal into the Columbia Gas Transmission pipeline
and ultimately into the distribution system of Washington Gas.
On November 6, 2008, Washington Gas filed a Request for
Rehearing with the FERC, citing numerous factual and legal
errors in the October 7, 2008 reauthorization. The
reauthorization fails to adequately address future safety
concerns as directed by the Court of Appeals. Although this
reauthorization limited the amount of vaporized LNG that may
flow from the Cove Point terminal into Washington Gass
distribution system through the Columbia Gas Transmission
pipeline, this limited amount far exceeds any amount of Cove
Point gas that has been received by Columbia Gas Transmission to
date. On January 15, 2009, the FERC issued an order denying
Washington Gass request for rehearing and affirmed its
reauthorization of the expansion of the Cove Point terminal. On
February 13, 2009, Washington Gas filed a request with the
FERC for an emergency stay of the effectiveness of the orders
the FERC issued on October 7, 2008 and January 15,
2009. On March 19, 2009, the FERC denied Washington
Gass request for a stay. On March 13, 2009,
Washington Gas filed a Petition for Review in the Court of
Appeals of the FERCs Order on Remand issued on
October 7, 2008, and its Order on Rehearing of the
October 7, 2008 Order, issued January 15, 2009, that
established a cap on the volume of LNG that could be delivered
to the Columbia Gas interconnection with the Cove Point
pipeline. The October 2008 decision did not fully address the
concerns raised earlier by the Court of Appealsthat the
Cove Point expansion should not proceed until FERC addressed the
safety concerns raised by Washington Gas. On July 20, 2009
the Court of Appeals issued an Order setting a briefing schedule
with final briefs due on January 27, 2010. The date for
oral argument has not been set.
55
WGL
Holdings, Inc.
Washington Gas Light Company
Part II
Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations (continued)
Washington Gas is committed to maintaining the safety of its
distribution system for its customers and will continue to
oppose the authorization of the Cove Point expansion until a
long-term solution is determined that can address the safety
issues associated with the expanded flows of vaporized LNG from
the Cove Point terminal that flow into the interstate pipeline
system that also serves Washington Gas.
|
|
|
Additional LNG
Supply from the Elba Island Expansion
|
On September 20, 2007, the FERC approved the expansion of
the existing Elba Island LNG receiving terminal near Savannah,
Georgia owned by Southern LNG, Inc. (Southern LNG). Concurrent
with this approval, the FERC granted Southern LNG certificate
authority to construct and operate a new interstate natural gas
pipeline to transport regasified LNG from the Elba Island
facility to Georgia and South Carolina. On March 31, 2009,
Transcontinental Gas Pipe Line Corporation (Transco) filed with
FERC for authority to construct and operate interconnections in
Georgia and South Carolina between the Elba Island pipeline and
the Transco pipeline. This expansion and the requested
interconnections, expected to be completed in 2010, may result
in the receipt of gas from the Elba Island facility into
portions of Washington Gass distribution system. The gas
from the Elba Island facility is expected to contain a lower
concentration of HHCs than domestically produced natural gas,
and may result in increased leaks in Washington Gass
distribution system. Washington Gas is currently evaluating the
potential effect of the introduction of Elba Island gas into our
distribution system, and is evaluating potential preventative
and remedial measures to mitigate any possible increase in leaks
in the effected portions of Washington Gass distribution
system that may receive Elba Island gas. Washington Gas has
filed with FERC to challenge Transcos interconnection
request and has conditioned our support of such interconnection
on Transco maintaining minimum HHC levels in the blended gas
that would be delivered into the Washington Gas system. On
September 17, 2009, the FERC issued an Order granting
Transcos request for authorization to construct the
interconnections between the Elba Island facility and the
Transco pipeline. The FERC stated that Washington Gas had not
raised any new evidence to support claims of damage to the
distribution system and that the Cove Point orders had addressed
the same issues. FERC also found it was unreasonable to impose
restrictions on a long distance pipeline to accommodate the
Washington Gas system. On October 19, 2009, Washington Gas
filed a rehearing request of the FERC Order with the FERC.
Washington Gas welcomes the opportunity to work with Dominion as
well as the shippers who bring LNG into the Cove Point terminal
and the interstate pipelines that deliver gas to Washington Gas
in order to achieve and implement an appropriate solution to the
issue of gas quality affecting its distribution system.
Certain wholesale suppliers that sell natural gas to both
Washington Gas and WGEServices either have relatively low credit
ratings or are not rated by major credit rating agencies.
Washington Gas enters into transactions with wholesale
counterparties for the purpose of meeting firm ratepayer
commitments, to optimize the value of its long-term capacity
assets, and for hedging natural gas costs. In the event of a
suppliers 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. Washington
Gas may be at risk for financial loss to the extent these losses
are not passed through to its customers. To manage these various
credit risks, Washington Gas has a credit policy in place that
is designed to mitigate these credit risks through a requirement
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.
Additionally, for certain counterparties or their guarantors
that meet this policys credit worthiness criteria,
Washington Gas grants unsecured credit which is continuously
monitored.
For WGEServices, depending on the ability of wholesale
counterparties to deliver natural gas or electricity under
existing contracts, WGEServices could be financially exposed for
the difference between the price at which WGEServices has
contracted to buy these commodities and their replacement cost
from another supplier. To the extent that WGEServices sells
natural gas to these wholesale counterparties, WGEServices may
be exposed to payment risk if WGEServices is in a net receivable
position. Additionally, WGEServices enters into contracts with
third parties to hedge the costs of natural gas and electricity.
Depending on the ability of the third parties to fulfill their
commitments, WGEServices could be at risk for financial loss.
WGEServices has an existing credit policy that is designed to
mitigate credit risks through a requirement for credit
enhancements including, but not limited to, letters of credit,
56
WGL
Holdings, Inc.
Washington Gas Light Company
Part II
Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations (continued)
parent guarantees and cash collateral when deemed necessary. In
accordance with this policy, WGEServices has obtained credit
enhancements from certain of its counterparties. If certain
counterparties or their guarantors meet the policys credit
worthiness criteria, WGEServices grants unsecured credit to
those counterparties or their guarantors. The credit worthiness
of all counterparties is continuously monitored.
WGEServices is also subject to the credit policy requirements of
their counterparties which under certain circumstances require
similar credit enhancements from WGEServices under these
contracts. WGEServices credit risks may extend beyond the price
or payment risk outlined above to the extent that cash
collateral has been provided to the counterparty. At
September 30, 2009, WGEServices had provided
$39.7 million in cash collateral to supplier counterparties.
The following table provides information on our credit exposure,
net of collateral, to wholesale counterparties as of
September 30, 2009 for both Washington Gas and WGEServices,
separately.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Exposure to Wholesale Counterparties (In
millions )
|
|
|
|
|
|
Exposure
|
|
|
Offsetting
|
|
|
|
|
|
Number of
|
|
|
Net Exposure of
|
|
|
|
Before Credit
|
|
|
Credit Collateral
|
|
|
Net
|
|
|
Counterparties
|
|
|
Counterparties
|
|
Rating(a)
|
|
Collateral(b)
|
|
|
Held(c)
|
|
|
Exposure
|
|
|
Greater Than
10%(d)
|
|
|
Greater Than 10%
|
|
|
|
|
Washington Gas
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Grade
|
|
$
|
17.7
|
|
|
$
|
|
|
|
$
|
17.7
|
|
|
|
4
|
|
|
$
|
12.1
|
|
Non-Investment Grade
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No External Ratings
|
|
|
3.0
|
|
|
|
0.4
|
|
|
|
2.6
|
|
|
|
|
|
|
|
|
|
|
WGEServices
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Grade
|
|
$
|
0.4
|
|
|
$
|
|
|
|
$
|
0.4
|
|
|
|
1
|
|
|
$
|
0.4
|
|
Non-Investment Grade
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No External Ratings
|
|
|
0.4
|
|
|
|
|
|
|
|
0.4
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
(a) |
|
Included in Investment
Grade are counterparties with a minimum
Standard & Poors or Moodys Investor
Service rating of BBB- or Baa3, respectively. If a counterparty
has provided a guarantee by a higher-rated entity (e.g., its
parent), the guarantors rating is used in this
table. |
|
|
|
(b) |
|
Includes the net of all open
positions on energy-related derivatives subject to
mark-to-market
accounting requirements, the net receivable/payable for realized
transactions and net open positions for contracts designated as
normal purchases and normal sales and not recorded on our
balance sheet. Amounts due from counterparties are offset by
liabilities payable to those counterparties to the extent that
legally enforceable 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. |
Washington Gas is exposed to the risk of non-payment of utility
bills by certain of its customers. To manage this customer
credit risk, Washington Gas may require cash deposits from its
high risk customers to cover payment of their bills until the
requirements for the deposit refunds are met.
WGEServices is also exposed to the risk of non-payment of
invoiced sales by its retail customers. WGEServices manages this
risk by evaluating the credit quality of new customers as well
as by monitoring collections from existing customers. To the
extent necessary, WGEServices can obtain collateral from, or
terminate service to, its existing customers based on credit
quality criteria.
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
Related to the Regulated Utility Segment
|
Washington Gas faces price risk associated with the purchase of
natural gas. Washington Gas generally recovers the cost of the
natural gas to serve customers through gas cost recovery
mechanisms as approved in jurisdictional tariffs; therefore a
change in the
57
WGL
Holdings, Inc.
Washington Gas Light Company
Part II
Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations (continued)
price of natural gas generally has no direct effect on
Washington Gass net income. However, Washington Gas is
responsible for following competitive and reasonable practices
in purchasing natural gas for its customers.
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 historically lower, and
withdraws that gas during the winter heating season when prices
are historically higher and (iii) enters into
hedging contracts and other contracts that qualify as derivative
instruments related to the sale and purchase of natural gas.
Washington Gas has specific regulatory approval in the District
of Columbia, Maryland and Virginia to use forward contracts and,
except in Maryland, option contracts to hedge against potential
price volatility for a limited portion of its natural gas
purchases for firm customers. Specifically, Washington Gas has
approval to: (i) buy gas in advance using forward
contracts; (ii) purchase call options that lock in
a maximum price when Washington Gas is ready to buy gas and
(iii) use a combination of put and call options to
limit price exposure within an acceptable range. Regulatory
approval for Virginia is permanent. The regulatory approval in
the District of Columbia is pursuant to a pilot program, and
Washington Gas will be seeking to continue this program. The
current Maryland authority stems from March 2009 Orders
directing Washington Gas to hedge 40% of its summer storage fill
volumes at or below a certain price, but precluded the use of
options. Additionally, pursuant to a three-year pilot program
that expired in the latter half of 2008, Washington Gas had
specific regulatory approval in Maryland and Virginia to hedge
the cost of natural gas purchased for storage using financial
transactions in the form of forwards, swaps and option
contracts. Washington Gas has filed for the renewal of the
program in Maryland and Virginia. Additionally, pursuant to a
three-year pilot program in the District of Columbia, Washington
Gas has the ability to hedge the cost of natural gas for storage.
Washington Gas also executes commodity-related physical and
financial contracts in the form of forwards, swaps and option
contracts as part of an asset optimization program that is
managed by its internal staff. These transactions are accounted
for as derivatives. Under this program, Washington Gas realizes
value from its long-term natural gas transportation and storage
capacity resources when not fully being used to serve utility
customers. Regulatory sharing mechanisms in all three
jurisdictions allow the profit from these transactions to be
shared between Washington Gass customers and shareholders.
The following two tables summarize the changes in the fair value
of our net assets (liabilities) associated with the regulated
utility segments energy-related derivatives during the
twelve months ended September 30, 2009:
|
|
|
|
|
Regulated Utility Segment
|
|
Changes in Fair Value of Energy-Related Derivatives
|
|
|
|
(In millions)
|
|
|
|
|
|
Net assets (liabilities) at September 30, 2008
|
|
$
|
(35.6
|
)
|
Net fair value of contracts entered into during the period
|
|
|
4.5
|
|
Other changes in net fair value
|
|
|
12.4
|
|
Realized net settlement of derivatives
|
|
|
24.3
|
|
|
Net assets (liabilities) at September 30, 2009
|
|
$
|
5.6
|
|
|
|
|
|
|
|
Regulated Utility Segment
|
|
Roll Forward of Energy-Related Derivatives
|
|
|
|
(In millions)
|
|
|
|
|
|
Net assets (liabilities) at September 30, 2008
|
|
$
|
(35.6
|
)
|
Recorded to income
|
|
|
12.1
|
|
Recorded to regulatory assets/liabilities
|
|
|
3.2
|
|
Net option premium payments
|
|
|
1.6
|
|
Realized net settlement of derivatives
|
|
|
24.3
|
|
|
Net assets (liabilities) at September 30, 2009
|
|
$
|
5.6
|
|
|
58
WGL
Holdings, Inc.
Washington Gas Light Company
Part II
Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations (continued)
The maturity dates of our net assets (liabilities) associated
with the regulated utility segments energy-related
derivatives recorded at fair value at September 30, 2009,
is summarized in the following table based on the level of the
fair value calculation under ASC Topic 820:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Regulated Utility Segment
|
|
Maturity of Net Assets (Liabilities) Associated with our
Energy-Related Derivatives
|
|
|
|
|
|
Years Ended September 30,
|
|
|
|
(In millions)
|
|
Total
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
Thereafter
|
|
|
|
Level 1Quoted prices in active markets
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Level 2Significant other observable inputs
|
|
|
11.9
|
|
|
|
10.0
|
|
|
|
0.5
|
|
|
|
|
|
|
|
0.2
|
|
|
|
0.1
|
|
|
|
1.1
|
|
Level 3Significant unobservable inputs
|
|
|
(6.3
|
)
|
|
|
(3.4
|
)
|
|
|
(1.7
|
)
|
|
|
(0.1
|
)
|
|
|
(0.1
|
)
|
|
|
(0.1
|
)
|
|
|
(0.9
|
)
|
|
Total net assets (liabilities) associated with our
energy-related derivatives
|
|
$
|
5.6
|
|
|
$
|
6.6
|
|
|
$
|
(1.2
|
)
|
|
$
|
(0.1
|
)
|
|
$
|
0.1
|
|
|
$
|
|
|
|
$
|
0.2
|
|
|
Refer to Notes 5 and 14 of the Notes to Consolidated
Financial Statements for a further discussion of our derivative
activities and fair value measurements.
Price Risk
Related to the Retail Energy-Marketing Segment
Our retail energy-marketing subsidiary, WGEServices, sells
natural gas and electricity to retail customers at both fixed
and indexed prices. WGEServices must manage daily and seasonal
demand fluctuations for these products with its suppliers. Price
risk exists to the extent WGEServices does not closely match the
timing and volume of natural gas and electricity it purchases
with the related fixed price or indexed sales commitments.
WGEServices risk management policies and procedures are
designed to minimize this risk.
Natural Gas. A portion of
WGEServices annual natural gas sales volumes is subject to
variations in customer demand associated with fluctuations in
weather and other factors. Purchases of natural gas to fulfill
retail sales commitments are generally made under fixed-volume
contracts based on certain weather assumptions. If there is
significant deviation from normal weather or other factors which
affect customer usage, this may cause our purchase commitments
to differ significantly from actual customer usage. To the
extent that WGEServices cannot match its customer requirements
and supply commitments, it may be exposed to commodity price and
volume variances, which could negatively impact expected gross
margins. WGEServices may manage these risks through the use of
derivative instruments including financial products and
wholesale supply contracts that provide for volumetric
variability.
Electricity. WGEServices procures
electricity supply under contract structures in which
WGEServices assumes the responsibility of matching its customer
requirements with its supply purchases. WGEServices assembles
the various components of supply, including electric energy from
various suppliers, and capacity, ancillary services and
transmission service from the PJM Interconnection, a regional
transmission organization, to match its customer requirements in
accordance with its risk management policy.
To the extent WGEServices has not sufficiently matched its
customer requirements with its supply commitments, it could be
exposed to electricity commodity price risk. WGEServices may
manage this risk through the use of derivative instruments,
including financial products.
WGEServices electric business is also exposed to
fluctuations in weather and varying customer usage. Purchases
generally are made under fixed-price, fixed-volume contracts
that are based on certain weather assumptions. If there are
significant deviations in weather or usage from these
assumptions, WGEServices may incur price and volume variances
that could negatively impact expected gross margins (refer to
the section entitled Weather Risk for a
further discussion of our management of weather risk).
59
WGL
Holdings, Inc.
Washington Gas Light Company
Part II
Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations (continued)
The following two tables summarize the changes in the fair value
of our net assets (liabilities) associated with the retail
energy-marketing segments energy-related derivatives for
both natural gas and electricity during the twelve months ended
September 30, 2009:
|
|
|
|
|
Retail Energy-Marketing
Segment
|
|
Changes in Fair Value of Energy-Related Derivatives
|
|
|
|
(In millions)
|
|
|
|
|
|
Net assets (liabilities) at September 30, 2008
|
|
$
|
(3.4
|
)
|
Net fair value of contracts entered into during the period
|
|
|
(18.3
|
)
|
Other changes in net fair value
|
|
|
(22.2
|
)
|
Realized net settlement of derivatives
|
|
|
18.4
|
|
|
Net assets (liabilities) at September 30, 2009
|
|
$
|
(25.5
|
)
|
|
|
|
|
|
|
Retail Energy-Marketing
Segment
|
|
Roll Forward of Energy-Related Derivatives
|
|
|
|
(In millions)
|
|
|
|
|
|
|
Net assets (liabilities) at September 30, 2008
|
|
$
|
(3.4
|
)
|
Recorded to income
|
|
|
(38.3
|
)
|
Recorded to accounts payable
(a)
|
|
|
(4.4
|
)
|
Recorded to retained earnings
(b)
|
|
|
1.7
|
|
Net option premium payments
|
|
|
0.5
|
|
Realized net settlement of derivatives
|
|
|
18.4
|
|
|
Net assets (liabilities) at September 30, 2009
|
|
$
|
(25.5
|
)
|
|
(a) Represents
the amount to be paid for future Financial Transmission Rights
related to electricity for WGEServices.
(b) Represents
the cumulative effect adjustment to the opening balance of
retained earnings or other appropriate components of net assets
upon adoption of
SFAS No. 157, Fair Value Measurements.
The maturity dates of our net assets (liabilities) associated
with the retail energy-marketing segments energy-related
derivatives recorded at fair value at September 30, 2009,
is summarized in the following table based on the level of the
fair value calculation under ASC Topic 820:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail Energy Marketing Segment
|
|
Maturity of Net Assets (Liabilities) Associated with our
Energy-Related Derivatives
|
|
|
|
|
|
Years Ended September 30,
|
|
|
|
(In millions)
|
|
Total
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
Thereafter
|
|
|
|
Level 1Quoted prices in active markets
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Level 2Significant other observable inputs
|
|
|
(4.2
|
)
|
|
|
(2.5
|
)
|
|
|
(0.3
|
)
|
|
|
(0.5
|
)
|
|
|
(0.8
|
)
|
|
|
(0.1
|
)
|
|
|
|
|
Level 3Significant unobservable inputs
|
|
|
(21.3
|
)
|
|
|
(8.2
|
)
|
|
|
(9.0
|
)
|
|
|
(3.6
|
)
|
|
|
(0.5
|
)
|
|
|
|
|
|
|
|
|
|
Total net assets (liabilities) associated with our
energy-related derivatives
|
|
$
|
(25.5
|
)
|
|
$
|
(10.7
|
)
|
|
$
|
(9.3
|
)
|
|
$
|
(4.1
|
)
|
|
$
|
(1.3
|
)
|
|
$
|
(0.1
|
)
|
|
$
|
|
|
|
Refer to Notes 5 and 14 of the Notes to Consolidated
Financial Statements for further discussion of our derivative
activities and fair value measurements.
Value-at-Risk. WGEServices
measures the market risk of its energy commodity portfolio by
determining its
value-at-risk.
Value-at-risk
is an estimate of the maximum loss that can be expected at some
level of probability if a portfolio is held for a given time
period. The
value-at-risk
calculation for natural gas and electric portfolios include
assumptions for normal weather, new customers and renewing
customers for which supply commitments have been secured. Based
on a 95% confidence interval for a
one-day
60
WGL
Holdings, Inc.
Washington Gas Light Company
Part II
Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations (continued)
holding period, WGEServices
value-at-risk
at September 30, 2009 was approximately $27,000 and
$51,000, related to its natural gas and electric portfolios,
respectively.
Weather
Risk
We are exposed to various forms of weather risk in both our
regulated utility and unregulated business segments. For
Washington Gas, a large portion of its revenues is volume driven
and its current rates are based upon an assumption of normal
weather, however, billing adjustment mechanisms described below
address variations from this assumption. Without weather
protection strategies, variations from normal weather will cause
our earnings to increase or decrease depending on the weather
pattern. Washington Gas currently has a weather protection
strategy that is designed to neutralize the estimated financial
effects of weather on its net income, as discussed below.
The financial results of our non-regulated energy-marketing
business, WGEServices, are also affected by variations from
normal weather primarily in the winter relating to its natural
gas sales, and throughout the fiscal year relating to its
electricity sales. WGEServices manages these weather risks with,
among other things, weather derivatives.
Billing Adjustment Mechanisms. In
Maryland, Washington Gas has a 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 mechanism which is a billing adjustment
mechanism that is designed to eliminate the effect of variations
in weather from normal levels on utility net revenues.
For both the RNA and the WNA 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 to function conversely
because it adjusts billed revenues to provide a designed level
of net revenue per meter.
Weather Derivatives. On October 1,
2008, Washington Gas executed three HDD derivative contracts to
manage its exposure to variations from normal weather in the
District of Columbia. Washington Gas purchased an HDD put option
to protect against net revenue shortfalls due to
warmer-than-normal
weather during fiscal year 2009. To offset the cost of this warm
weather protection, Washington Gas sold cold weather benefits in
the form of two HDD call options. The net pre-tax premium cost
of these transactions was $250,000 plus fees of $44,000.
As a result of the
colder-than-normal
weather during the fiscal year ended September 30, 2009,
Washington Gas received no warm-weather benefit from this
strategy and paid out $3.0 million on the cold weather
benefits sold. Through September 30, 2009, the Company has
recognized a pre-tax loss from its weather derivatives of
$3.3 million. This loss was offset by higher net revenues
caused by the
colder-than-normal
weather.
On September 21, 2009, Washington Gas executed an HDD
derivative contract to manage its exposure to variations from
normal weather in the District of Columbia during fiscal year
2010. Under this contract, Washington Gas purchased protection
against net revenue shortfalls due to
warmer-than-normal
weather and sold cold weather benefits. This derivative contract
resulted in a payment to Washington Gas of $2.1 million.
WGEServices utilizes HDD derivatives from time to time to manage
weather risks related to its natural gas sales. WGEServices also
utilizes cooling degree day (CDD) derivatives to manage
weather risks related to its electricity sales during the summer
cooling season. These derivatives cover a portion of
WGEServices estimated revenue or energy-related cost
exposure to variations in HDDs or CDDs. Refer to Note 5 of
the Notes to Consolidated Financial Statements for a further
discussion of the accounting for these weather-related
instruments.
Interest-Rate
Risk
We are exposed to interest-rate risk associated with our
short-term and long-term financing. Management of this risk is
discussed below.
Short-Term Debt. At September 30,
2009 and 2008, WGL Holdings and its subsidiaries had outstanding
notes payable of $183.8 million and $271.0 million,
respectively. The carrying amount of our short-term debt
approximates fair value. In fiscal year
61
WGL
Holdings, Inc.
Washington Gas Light Company
Part II
Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations (continued)
2009, a change of 100 basis points in the underlying
average interest rate for our short-term debt would have caused
a change in interest expense of approximately $1.8 million.
Long-Term Debt. At September 30,
2009, we had fixed-rate MTNs and other long-term debt
aggregating $561.8 million in principal amount, excluding
current maturities and unamortized discounts, and having a fair
value of $627.8 million. Fair value is defined as the
present value of the debt securities future cash flows
discounted at interest rates that reflect market conditions as
of September 30, 2009. While these are fixed-rate
instruments and, therefore, do not expose us to the risk of
earnings loss due to changes in market interest rates, they are
subject to changes in fair value as market interest rates
change. None of Washington Gass outstanding MTNs,
excluding current maturities, have unexpired put options. None
of Washington Gass outstanding MTNs, excluding current
maturities, have unexpired call options. In addition, a total of
$421.5 million, or approximately 74.5%, of Washington
Gass outstanding MTNs, excluding current maturities, have
make-whole call options, and no associated put options.
Using sensitivity analyses to measure this market risk exposure,
we estimate that the fair value of our long-term debt would
increase by approximately $24.0 million or decrease by
approximately $22.4 million if interest rates were to
decline or increase by 10%, or 41 basis points,
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 all or a
portion of these instruments in the open market prior to their
maturity.
Derivative Instruments. Washington Gas
utilizes derivative instruments from time to time in order to
minimize its exposure to the risk of interest-rate volatility.
On July 6, 2009, Washington Gas entered into the following
three interest-rate derivative transactions to mitigate a
substantial portion of the risk of rising interest rates
associated with future debt issuances: (i) a
Treasury lock that expired August 11, 2009 at a gain of
$311,000 (pre-tax), locking in a 3.59% Treasury yield on
$50 million of ten-year debt that was issued on
November 2, 2009 (refer to Liquidity and Capital
Resources in Managements Discussion);
(ii) a forward starting swap that expires
April 6, 2010 and locks in a 4.10% cost for the combined
Treasury and LIBOR exposure on $4 million of ten-year debt
and (iii) a forward starting swap that expires
June 21, 2010 and locks in a 4.19% cost for the combined
Treasury and LIBOR exposure on $20 million of ten-year
debt. The expiration of each unexpired interest-rate derivative
is timed to coincide with expected issuance of new debt
securities whose proceeds will refund maturing medium-term
notes. There was no activity associated with these types of
derivatives in fiscal year 2008.
62
Washington Gas Light Company
Part II
Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations (continued)
WASHINGTON GAS
LIGHT COMPANY
This section of Managements Discussion focuses on
Washington Gas for the reported periods. In many cases,
explanations and disclosures for both WGL Holdings and
Washington Gas are substantially the same.
RESULTS
OF OPERATIONS
The results of operations for the regulated utility segment and
Washington Gas are substantially the same; therefore, this
section primarily focuses on statistical information and other
information that is not discussed in the results of operations
for the regulated utility segment. Refer to the section entitled
Results of OperationsRegulated Utility
in Managements Discussion for WGL Holdings for a
detailed discussion of the results of operations for the
regulated utility segment.
Washington Gass net income applicable to its common stock
was $105.3 million, $112.9 million and
$89.2 million for the fiscal years ended September 30,
2009, 2008 and 2007, respectively. Net income for fiscal year
2009, decreased $7.6 million over fiscal year 2008,
reflecting the unfavorable effects of changes in natural gas
consumption patterns that benefited 2008 net revenues and a
scheduled increase in the level of recurring service costs
related to our business process outsourcing, partially offset by
additional net revenues attributable to customer growth and
lower employee benefit expense. Net income for fiscal year 2008,
increased $23.7 million over fiscal year 2007 primarily
reflecting new rates in all jurisdictions as well as earnings
from our new asset optimization strategy, partially offset by
higher operation and maintenance expenses. Key gas delivery,
weather and meter statistics are shown in the table below for
the fiscal years ending September 30, 2009, 2008 and 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gas Deliveries, Weather and Meter Statistics
|
|
|
|
|
|
Years Ended September 30,
|
|
|
Increase (decrease)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
vs. 2008
|
|
|
vs. 2007
|
|
|
|
|
Gas Sales and Deliveries (millions of therms)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Firm
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gas sold and delivered
|
|
|
893.0
|
|
|
|
826.9
|
|
|
|
852.7
|
|
|
|
66.1
|
|
|
|
(25.8
|
)
|
Gas delivered for others
|
|
|
462.1
|
|
|
|
434.0
|
|
|
|
433.4
|
|
|
|
28.1
|
|
|
|
0.6
|
|
|
Total firm
|
|
|
1,355.1
|
|
|
|
1,260.9
|
|
|
|
1,286.1
|
|
|
|
94.2
|
|
|
|
(25.2
|
)
|
|
Interruptible
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gas sold and delivered
|
|
|
3.4
|
|
|
|
6.5
|
|
|
|
5.3
|
|
|
|
(3.1
|
)
|
|
|
1.2
|
|
Gas delivered for others
|
|
|
273.8
|
|
|
|
256.7
|
|
|
|
267.3
|
|
|
|
17.1
|
|
|
|
(10.6
|
)
|
|
Total interruptible
|
|
|
277.2
|
|
|
|
263.2
|
|
|
|
272.6
|
|
|
|
14.0
|
|
|
|
(9.4
|
)
|
|
Electric generationdelivered for others
|
|
|
102.8
|
|
|
|
92.1
|
|
|
|
111.9
|
|
|
|
10.7
|
|
|
|
(19.8
|
)
|
|
Total deliveries
|
|
|
1,735.1
|
|
|
|
1,616.2
|
|
|
|
1,670.6
|
|
|
|
118.9
|
|
|
|
(54.4
|
)
|
|
Degree Days
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
|
4,211
|
|
|
|
3,458
|
|
|
|
3,955
|
|
|
|
753
|
|
|
|
(497
|
)
|
Normal
|
|
|
3,773
|
|
|
|
3,788
|
|
|
|
3,815
|
|
|
|
(15
|
)
|
|
|
(27
|
)
|
Percent colder (warmer) than normal
|
|
|
11.6
|
%
|
|
|
(8.7
|
)%
|
|
|
3.7
|
%
|
|
|
n/a
|
|
|
|
n/a
|
|
Average active customer meters
|
|
|
1,065,573
|
|
|
|
1,055,396
|
|
|
|
1,045,709
|
|
|
|
10,177
|
|
|
|
9,687
|
|
New customer meters added
|
|
|
11,011
|
|
|
|
12,962
|
|
|
|
19,373
|
|
|
|
(1,951
|
)
|
|
|
(6,411
|
)
|
|
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 Gass rates are based on an assumption
of normal weather. The tariffs in the Maryland and Virginia
jurisdictions include provisions that consider the effects of
the RNA and WNA mechanisms, respectively, which are designed to,
among other things, eliminate the effect in net revenues of
variations in weather from normal
63
Washington Gas Light Company
Part II
Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations (continued)
levels (refer to the section entitled Weather
Risk for a further discussion of these mechanisms and
other weather-related instruments included in our weather
protection strategy). In addition to these mechanisms, the
combination of declining block rates in the Maryland and
Virginia jurisdictions and the existence of a fixed demand
charges in all jurisdictions to collect a portion of revenues
reduce the effect that variations from normal weather have on
net revenues.
Fiscal Year 2009 vs. Fiscal Year
2008. During the fiscal year ended
September 30, 2009, total gas deliveries to firm customers
were 1.355 billion therms, an increase of 94.2 million
therms, or 7.5%, in deliveries from fiscal year 2008. This
comparison in natural gas deliveries to firm customers primarily
reflects colder weather in the current fiscal year than the
prior year as well as an increase in average active customer
meters of 10,177.
In relation to normal weather patterns, weather for fiscal year
2009 was 11.6% colder than normal, as compared to 8.7% warmer
than normal for fiscal year 2008. Washington Gass overall
weather protection strategy in 2009 is designed to neutralize
the variations from normal weather on earnings; therefore, the
effects of weather were insignificant for the fiscal year ended
September 30, 2009.
Many customers choose to buy the natural gas commodity from
unregulated third party marketers, rather than purchase the
natural gas commodity and delivery service from Washington Gas
on a bundled basis. Natural gas delivered to firm
customers but purchased from unregulated third party marketers
represented 34.1% of total firm therms delivered during fiscal
year 2009, compared to 34.4% and 33.7% of therms delivered
during fiscal years 2008 and 2007, respectively. On a per unit
basis, Washington Gas earns the same net revenues from
delivering gas for others as it earns from bundled gas sales in
which customers purchase both the natural gas commodity and the
associated delivery service from Washington Gas. Therefore,
Washington Gas does not experience any loss in utility net
revenues when customers choose to purchase the natural gas
commodity from an unregulated third party marketer.
Fiscal Year 2008 vs. Fiscal Year
2007. During the fiscal year ended
September 30, 2008, total gas deliveries to firm customers
were 1.261 billion therms, a decrease of 25.2 million
therms, or 2.0%, in deliveries from fiscal year 2007. This
comparison in natural gas deliveries to firm customers primarily
reflects warmer weather in the current fiscal year than the
prior year partially offset by an increase in average active
customer meters of 9,687, well as the favorable effects of
changes in natural gas consumption patterns due to shifts in
weather patterns and non-weather related factors.
In relation to normal weather patterns, weather for fiscal year
2008 was 8.7% warmer than normal, as compared to 3.7% colder
than normal for fiscal year 2007. Washington Gass overall
weather protection strategy in 2008 and 2007 was designed to
neutralize the estimated negative financial effects of
warmer-than-normal
weather on earnings; therefore, there were no estimated effects
on net income from the
warmer-than-normal
weather in the fiscal year ended September 30, 2008.
Including the effects of our weather protection strategies, the
colder-than-normal
weather in fiscal year 2007 enhanced net income by an estimated
$5.4 million (pre-tax).
Natural gas delivered to firm customers but purchased from
unregulated third party marketers represented 34.4% of total
firm therms delivered during fiscal year 2008, compared to 33.7%
and 33.3% of therms delivered during fiscal years 2007 and 2006,
respectively. On a per unit basis, Washington Gas earns the same
net revenues from delivering gas for others as it earns from
bundled gas sales in which customers purchase both the natural
gas commodity and the associated delivery service from
Washington Gas. Therefore, Washington Gas does not experience
any loss in utility net revenues when customers choose to
purchase the natural gas commodity from an unregulated third
party marketer.
Gas Service to
Interruptible Customers
Washington Gas must curtail or interrupt service to this class
of customer when the demand by firm customers exceeds specified
levels. Therm deliveries to interruptible customers increased by
14.0 million therms, or 5.3%, in fiscal year 2009 compared
to fiscal year 2008, reflecting increased demand due to colder
weather. Therm deliveries to interruptible customers decreased
by 9.4 million therms, or 3.4%, in fiscal year 2008
compared to fiscal year 2007, reflecting decreased demand due to
warmer weather.
In the District of Columbia, the effect on net income of any
changes in delivered volumes and prices to interruptible
customers is limited by margin-sharing arrangements that are
included in Washington Gass rate designs in the District
of Columbia. In the District of Columbia, Washington Gas shares
a majority of the margins earned on interruptible gas sales and
deliveries with firm customers. A portion of the fixed costs for
servicing interruptible customers is collected through the firm
customers rate design. Rates for interruptible customers
in Maryland and Virginia are based on a traditional cost of
service approach. In Virginia, Washington Gas retains all
revenues above a pre-approved margin threshold level. In
Maryland, Washington Gas retains a defined amount of revenues
based on a set threshold.
64
Washington Gas Light Company
Part II
Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations (continued)
Gas Service
for Electric Generation
Washington Gas delivers natural gas for use at two electric
generation facilities in Maryland that are each owned by
companies independent of WGL Holdings. During fiscal year 2009,
deliveries to these customers increased 11.6% from fiscal year
2008. During fiscal year 2008, deliveries to these customers
decreased 17.7% from fiscal year 2007. 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.
Cost of
Gas
Washington Gass cost of natural gas sold to customers
includes both fixed and variable components. Washington Gas pays
fixed costs or demand charges to pipeline companies
for system capacity needed to transport and store natural gas.
Washington Gas pays variable costs, or the cost of the natural
gas commodity itself, to natural gas producers and suppliers.
Variations in the utilitys cost of gas expense result from
changes in gas sales volumes, the price of the gas purchased and
the level of gas costs collected through the operation of firm
gas cost recovery mechanisms. Under these regulated recovery
mechanisms, Washington Gas records cost of gas expense equal to
the cost of gas recovered from customers and included in
revenues. The difference between the firm gas costs incurred and
the gas costs recovered from customers is deferred on the
balance sheet as an amount to be collected from or refunded to
customers in future periods. Therefore, increases or decreases
in the cost of gas associated with sales made to firm customers
have no direct effect on Washington Gass net revenues and
net income. Changes in the cost of gas can cause significant
variations in Washington Gass cash provided by or used in
operating activities. Washington Gas receives from or pays to
its customers in the District of Columbia and Virginia, carrying
costs associated with under-collected or over-collected gas
costs recovered from its customers using short-term interest
rates. Additionally, included in Utility cost of gas
for Washington Gas are the net margins associated with our
internal asset optimization program. To the extent these amounts
are shared with customers in Virginia and the District of
Columbia, they are a reduction to the cost of gas invoiced to
customers. Amounts shared with Maryland customers are recorded
in operating revenues. Refer to the section entitled
Market RiskRegulated Utility Segment
for a further discussion of Washington Gass
optimization program.
The commodity cost of gas invoiced to Washington Gas (excluding
the cost and related volumes applicable to asset optimization)
were $0.79, $0.89 and $0.85 per therm for fiscal years 2009,
2008 and 2007, respectively. The lower gas costs in fiscal year
2009 reflect an overall decrease in natural gas price in the
wholesale market. The higher gas costs in fiscal year 2008
reflect a slight increase in the price volatility in the
wholesale market. The lower gas cost in fiscal year 2007
reflects decreased price volatility. Increased gas costs
generally will result in higher short-term debt levels and
greater short-term interest costs to finance higher accounts
receivables and storage gas inventory balances, as well as
result in higher uncollectible accounts expenses.
Revenue
Taxes
Revenue taxes are comprised of gross receipts taxes, PSC fees,
franchise fees and energy taxes. Changes in revenue taxes are
impacted by changes in the volume of gas sold and delivered. The
increase in revenue taxes of $5.8 million in fiscal year
2009 compared to the prior year was mostly attributable to an
increase in therm deliveries in Montgomery County and the
District of Columbia in fiscal year 2009 over the prior year
coupled with higher residential and commercial fuel tax rates
that went into effect during the latter half of 2008. Revenue
taxes were relatively unchanged when comparing fiscal year 2008
and 2007. Revenue taxes are recorded to General taxes and
other assessments in the Statements of Income.
LIQUIDITY AND
CAPITAL RESOURCES
Liquidity and capital resources for Washington Gas are
substantially the same as the liquidity and capital resources
discussion included in the Managements Discussion of WGL
Holdings (except for certain items and transactions that pertain
to WGL Holdings and its unregulated subsidiaries). Those
explanations are incorporated by reference into this discussion.
RATES AND
REGULATORY MATTERS
Washington Gas determines its request to modify existing rates
based on the level of net investment in plant and equipment,
operating expenses and the need to earn a just and reasonable
return on invested capital.
65
Washington Gas Light Company
Part II
Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations (continued)
The following table summarizes major rate applications and
results.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Summary of Major Rate Increase Applications and Results
|
|
|
|
|
|
|
|
|
|
Test Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Application
|
|
|
Effective
|
|
|
12 Months
|
|
|
Increase in Annual
|
|
|
Allowed
|
|
|
|
Jurisdiction
|
|
Filed
|
|
|
Date
|
|
|
Ended
|
|
|
Revenues (Millions)
|
|
|
Rate of Return
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Requested
|
|
|
Granted
|
|
|
Overall
|
|
|
Equity
|
|
|
|
|
District of
Columbia(a)
|
|
|
12/21/06
|
|
|
|
12/31/07
|
|
|
|
06/30/06
|
|
|
$
|
20.0
|
|
|
|
7.7
|
%
|
|
$
|
1.4
|
|
|
|
0.5
|
%
|
|
|
8.12
|
%
|
|
|
10.00
|
%
|
|
|
District of
Columbia(b)
|
|
|
02/07/03
|
|
|
|
11/24/03
|
|
|
|
09/30/02
|
|
|
|
18.8
|
|
|
|
9.7
|
%
|
|
|
5.4
|
|
|
|
2.8
|
%
|
|
|
8.42
|
%
|
|
|
10.60
|
%
|
|
|
District of Columbia
|
|
|
06/19/01
|
|
|
|
04/09/03
|
|
|
|
12/31/00
|
|
|
|
16.3
|
|
|
|
6.8
|
%
|
|
|
(5.4
|
)
|
|
|
(2.2
|
)%
|
|
|
8.83
|
%
|
|
|
10.60
|
%
|
|
|
|
Maryland
|
|
|
04/20/07
|
|
|
|
11/27/07
|
|
|
|
12/31/06
|
|
|
|
33.8
|
|
|
|
5.8
|
%
|
|
|
20.6
|
|
|
|
3.6
|
%
|
|
|
8.20
|
%
|
|
|
10.00
|
%
|
|
|
Maryland
|
|
|
03/31/03
|
|
|
|
11/06/03
|
|
|
|
12/31/02
|
|
|
|
27.2
|
|
|
|
6.8
|
%
|
|
|
2.9
|
|
|
|
0.7
|
%
|
|
|
8.61
|
%
|
|
|
10.75
|
%
|
|
|
Maryland(c)
|
|
|
03/28/02
|
|
|
|
09/30/02
|
|
|
|
12/31/01
|
|
|
|
31.4
|
|
|
|
9.3
|
%
|
|
|
9.3
|
|
|
|
2.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Virginia(d)
|
|
|
09/15/06
|
|
|
|
02/13/07
|
|
|
|
12/31/05
|
|
|
|
17.2
|
|
|
|
2.7
|
%
|
|
|
3.9
|
|
|
|
0.6
|
%
|
|
|
8.41
|
%
|
|
|
10.00
|
%
|
|
|
Virginia(e)
|
|
|
01/27/04
|
|
|
|
10/04/04
|
|
|
|
06/30/03
|
|
|
|
19.6
|
|
|
|
4.7
|
%
|
|
|
|
|
|
|
|
|
|
|
8.44
|
%
|
|
|
10.50
|
%
|
|
|
Virginia(f)
|
|
|
06/14/02
|
|
|
|
11/12/02
|
|
|
|
12/31/01
|
|
|
|
23.8
|
|
|
|
6.6
|
%
|
|
|
9.9
|
|
|
|
2.7
|
%
|
|
|
8.44
|
%
|
|
|
10.50
|
%
|
|
|
|
|
|
|
(a) |
|
The final order includes
(i) a rate case filing moratorium until January 1,
2011. Any new rates may not go into effect prior to
October 1, 2011; (ii) a reduction in depreciation
rates for all fixed assets and (iii) amortization
accounting, over a ten-year period, for initial implementation
costs allocable to the District of Columbia related to our BPO
plan. |
(b) |
|
The revenue increase includes a
reduction for the effect of a $6.5 million lower level of
pension and other post-retirement benefit costs that had been
previously deferred on the balance sheet of Washington Gas as a
regulatory liability. This deferral mechanism ensures that the
variation in these annual costs, when compared to the levels
collected from customers, does not affect net income.
Additionally, the $5.4 million annual revenue increase
includes an $800,000 per year increase in certain expenses that
are also subject to the regulatory deferral mechanism treatment.
Accordingly, the total annual effect of the Final Order on
Washington Gass pre-tax income results in an annual
increase of $11.1 million. |
(c) |
|
Application was settled without
stipulating the return on common equity. |
(d) |
|
New depreciation rates were
effective January 1, 2006. The new base rates went into
effect subject to refund on February 13, 2007. Stipulation
agreement settling the case was approved September 19,
2007. The approved Stipulation includes, among other rate design
mechanisms, a PBR plan which includes: (i) a four-year
delivery service base rate freeze; (ii) an earnings sharing
mechanism that enables Washington Gas to share with shareholders
and Virginia customers the earnings that exceed a target of
10.5% return on equity and (iii) recovery of initial
implementation costs associated with achieving Washington
Gass business processing outsourcing
initiatives. |
(e) |
|
Rates went into effect, subject
to refund, on February 26, 2004 under an expedited rate
application. As the result of the approval of a Stipulation that
resolved all issues related to this expedited rate case,
Washington Gas adjusted its billing rates commencing
October 4, 2004 to reflect the level of annual revenues as
determined in the previous Final Order issued on
December 18, 2003 and noted in (e) below. |
(f) |
|
New depreciation rates effective
January 1, 2002. New base rates went into effect subject to
refund on November 12, 2002. Final Order released on
December 18, 2003. |
The following is a discussion of significant current regulatory
matters in each of Washington Gass jurisdictions.
District of
Columbia Jurisdiction
Recovery of HHC Costs. On May 1,
2006, Washington Gas filed two tariff applications with the PSC
of DC requesting approval of proposed revisions to the balancing
charge provisions of its firm and interruptible delivery service
tariffs that would permit the utility to recover from its
delivery service customers the costs of HHCs that are being
injected into Washington Gass natural gas distribution
system to treat vaporized liquefied natural gas from the
Dominion Cove Point Facility. (refer to the section entitled
Operating Issues Related to Cove Point Natural Gas
Supply in Managements Discussion). Washington
Gas had been recovering the costs of HHCs from sales customers
in the District of Columbia through its Purchased Gas Charge
(PGC) provision in this jurisdiction. On October 2, 2006,
the PSC of DC issued an order rejecting Washington Gass
proposed tariff revisions until the PSC of MD issued a final
order related to this matter. On October 12, 2006,
Washington Gas filed a Motion for Clarification requesting that
the PSC of DC affirm that Washington Gas can continue collecting
HHC costs from sales customers through its PGC provision or to
record such HHC costs incurred as a regulatory asset pending a
ruling by the PSC of DC on future cost recovery. On May 11,
2007, the PSC of DC directed Washington Gas to cease prospective
recovery of the cost of HHCs through the PGC provision, with
future HHC costs to be recorded as a pending
regulatory asset. On November 16, 2007 the PSC of MD issued
a Final Order in the relevant case supporting full recovery of
the HHC costs in Maryland. On March 25, 2008, the PSC of DC
issued an order stating that the consideration of Washington
Gass HHC strategy will move forward and directed
interested parties to submit filings reflecting a proposed
procedural schedule. On June 6, 2008, Washington Gas and
the DC OPC filed a joint response to the order proposing a
procedural schedule and a list of issues for consideration in
the case. The PSC of DC adopted the proposed issues list and
approved a procedural schedule. Washington Gas and other parties
subsequently filed comments, conducted discovery and the parties
filed reply comments. On April 30, 2009, the PSC of DC
ruled that there were unresolved issues and directed that they
should be addressed in evidentiary hearings. The
66
Washington Gas Light Company
Part II
Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations (continued)
PSC of DC issued an order establishing a procedural schedule to
address these unresolved issues in the case. Initial testimony
was filed May 29, 2009, and rebuttal testimony was filed on
July 24, 2009.
On October 2, 2009, the Company and DC OPC filed a Joint
Motion for Approval of Unanimous Agreement of Stipulation and
Full Settlement with the PSC of DC (Stipulation). The parties to
the Stipulation agreed that hexane commodity costs incurred by
the Company to condition liquefied natural gas received in the
Companys natural gas system are recoverable expenses and
that the Company is authorized to achieve full cost recovery
from sales and delivery service customers of hexane commodity
costs incurred prior to September 30, 2009. Additionally,
the Stipulation:
|
|
|
|
(i)
|
approves the recovery of hexane commodity costs incurred after
September 30, 2009 from sales and delivery service
customers, subject to review as a component of the
Companys cost of gas;
|
|
|
(ii)
|
establishes the implementation of a coupling replacement and
encapsulation program (program), wherein the Company will
replace or encapsulate a portion of its mechanically coupled
pipe in the District of Columbia. The program is expected to
conclude in approximately seven years with total spending not to
exceed $28 million;
|
|
|
(iii)
|
provides for the cost of the program to be recovered through an
annual surcharge based on actual expenditures for coupling
replacement and encapsulation that will become effective at the
end of the existing base rate freeze (October 1, 2011). The
cost will include both a return of and return on the cost of
coupling replacement and encapsulation, computed in accordance
with the terms of the rates currently in effect and
|
|
|
(iv)
|
establishes periodic reporting on the level of hexane injected
at each of the Companys hexane facilities with the
associated commodity costs, and continued filing of leak-related
information with the PSC of DC.
|
On October 16, 2009, the PSC of DC published a Notice of
Public Interest Hearing, held on October 28, 2009. Although
there is no established time frame, the Company expects the PSC
of DC to issue a decision on the Stipulation during the first
quarter of fiscal year 2010.
As of September 30, 2009 Washington Gas has incurred
cumulative total HHC costs of $1.8 million related to the
District of Columbia of which approximately $0.5 million
has been recovered, $0.7 million has been charged to
expense and $0.6 million has been deferred as a regulatory
asset subject to the outcome of the most recent PSC of DC order.
Should the PSC of DC approve the Stipulation, the
$0.7 million of hexane costs previously charged to expense
would be reversed to income.
Maryland
Jurisdiction
Order on Previously Disallowed Purchased Gas
Charges. Each year, the PSC of MD reviews the
annual gas costs collected from customers in Maryland to
determine if Washington Gass purchased gas costs are
reasonable. On March 14, 2006, in connection with the PSC
of MDs annual review of Washington Gass gas costs
that were billed to customers in Maryland from September 2003
through August 2004, a Hearing Examiner of the PSC of MD issued
a proposed order approving purchased gas charges of Washington
Gas for the twelve-month period ended August 2004 except for
$4.6 million (pre-tax) of such charges that the Hearing
Examiner recommended be disallowed because, in the opinion of
the Hearing Examiner, they were not reasonably incurred. As a
result, during the fiscal year ended September 30, 2006,
Washington Gas accrued a liability of $4.6 million
(pre-tax) related to the proposed disallowance of these
purchased gas charges. Washington Gas filed appeals with the PSC
of MD asserting that the Hearing Examiners recommendation
was without merit. On February 5, 2009, the PSC of MD
issued an Order that granted the appeal and reversed the
findings of the Hearing Examiner. Accordingly, the gas costs at
issue were deemed recoverable from rate payers. The PSC of
MDs Order concluded that the responsibility for recovery
of these costs should be assigned to the specific group of
customers associated with unbundled firm delivery service,
directing Washington Gas to bill such costs to those customers
over a
24-month
period and to provide a credit to firm bundled sales customers
over the same period. As a result of this Order, the liability
recorded in fiscal year 2006 for this issue was reversed in the
quarter ended December 31, 2008, and Washington Gas
recorded income of $4.6 million (pre-tax) to
Operating revenues-utility. On February 25,
2009, Washington Gas filed its compliance plan with the PSC of
MD which outlined the plan for returning these funds to its firm
sales customers, as well as collecting funds from firm delivery
service customers beginning with Washington Gass May 2009
billing cycle and ending with its April 2011 billing cycle. On
April 29, 2009, the PSC of MD approved the Companys
plan.
Investigation of Asset Management and Gas Purchase
Practices. On July 24, 2008, the Office
of Staff Counsel of the PSC of MD submitted a petition to the
PSC of MD to establish an investigation into Washington
Gass asset management program as well as into the cost
recovery of its gas purchases. On September 4, 2008, the
PSC of MD issued a letter order docketing a new proceeding
67
Washington Gas Light Company
Part II
Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations (continued)
to consider the issues raised in the petition filed by the
Office of Staff Counsel. In accordance with the procedural
schedule, Washington Gas filed direct testimony on
November 21, 2008; direct testimony by intervening parties
was filed on February 4, 2009, and Washington Gass
rebuttal testimony was filed March 11, 2009. A public
hearing was held on March 19, 2009. Initial briefs were
filed by Washington Gas and other parties on June 25, 2009.
Reply briefs were filed on August 3, 2009.
On November 2, 2009, the Chief Hearing Examiner of the PSC
of MD issued a Proposed Order of Hearing Examiner (POHE) which
supports Washington Gass move to self-optimization of its
gas assets, concluding that the evidence on the record in
this case is overwhelming that the Companys decision to
transition to self-management has in fact been prudent and
resulted in substantial rate benefits... The POHE also
approves the Companys proposal for the sharing of margins
from asset optimization between the Company and customers based
on a graduated, tiered approach. The POHE directs the Company to
pass credits to customers through the PGC provision.
The POHE approves the Companys current methodology for
pricing storage injections. However, the POHE states that the
parties will have 60 days from the date of a final order in
the case to suggest any alternative pricing methods. The POHE
also directs the Company to consult with the other parties to
develop greater transparency and separate accounting or tracking
of asset optimization activities and to provide a proposal or
report within 60 days after a final order is issued.
The POHE directs the Company to include language in its tariff
that would prevent losses from asset optimization activity over
a full year from being passed on to ratepayers, but recognizes
that timing differences or accounting adjustments, which may
appear as a loss in a particular month, may occur.
The POHE will become a final order of the Commission on
December 3, 2009, if not appealed by any party by
December 2, 2009. The Company will have an opportunity to
respond to any appeals.
Investigation Into Operating Issues Related to Cove Point
Natural Gas Supply. On February 2, 2009,
the PSC of MD issued an order reopening the evidentiary
proceedings in a previously established case for the purpose of
investigating and considering revised solutions to the gas
distribution system leak problems (refer to the section entitled
Operating Issues Related to Cove Point Natural Gas
Supply ). A technical conference was held on May 22,
2009, interested parties are currently engaged in discovery and
status reports by the parties were filed with the Hearing
Examiner on July 23, 2009, September 18, 2009 and
November 5, 2009.
Review of the Companys
2009-2013
Gas Portfolio Plan. On March 19, 2009,
the PSC of MD issued a letter order docketing a review of the
Companys 20092013 Gas Portfolio Plan and
specifically noting the Companys plans to build an
on-system peaking facility on the grounds of the decommissioned
Chillum gas storage holders in Chillum, Maryland. The Commission
noted that the proposed Chillum peaking facility is ...
controversial, primarily because of its location... Refer
to the section entitled Chillum LNG Facility
for a further discussion of this issue. A pre-hearing
conference was held on April 15, 2009, at which time
interventions were granted and a procedural schedule was
established. The procedural schedule has been suspended pending
the resolution of motions to compel discovery. Oral arguments on
the discovery motions to compel were held on August 13,
2009. The Hearing Examiner issued rulings on the motions to
compel on August 18, 2009. An additional motion to compel
discovery, a motion to enforce ordered discovery and a motion to
consolidate review of the Companys next Gas Portfolio Plan
with the current docket have been filed in the proceeding. A
hearing on the motions to compel and to enforce ordered
discovery was held on October 27, 2009. The Commission
considered the motion to consolidate review of the
Companys next Gas Portfolio Plan with the current docket.
Washington Gas filed its response on November 5, 2009 and
the Maryland Office of Peoples Counsel (MD OPC) filed
its response on November 16, 2009. We are currently
awaiting orders from the PSC of MD.
Virginia
Jurisdiction
Application for Conservation and Ratemaking Efficiency
Plan. On September 29, 2009, Washington
Gas filed with the SCC of VA an application which includes a
portfolio of conservation and energy efficiency programs and a
decoupling mechanism which will adjust weather normalized
non-gas distribution revenues for the impact of conservation or
energy efficiency efforts. An evidentiary hearing in the
proceeding is scheduled for February 1, 2010. The SCC of VA
has six months from the date of the filing to issue an order.
68
Washington Gas Light Company
Part II
Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations (continued)
Performance-Based
Rate Plans
In recent rate case proceedings in all jurisdictions, Washington
Gas requested permission to implement PBR plans that include
performance measures for customer service and an ESM that
enables Washington Gas to share with shareholders and customers
the earnings that exceed a target rate of return on equity.
Effective October 1, 2007, the SCC of VA approved the
implementation of a PBR plan through the acceptance of a
settlement stipulation, which includes: (i) a
four-year base rate freeze; (ii) service quality
measures to be determined in conjunction with the Staff of the
SCC of VA and reported quarterly for maintaining a safe and
reliable natural gas distribution system while striving to
control operating costs; (iii) recovery of initial
implementation costs associated with achieving Washington
Gass BPO initiatives over the four-year period of the PBR
plan and (iv) an ESM that enables Washington Gas to
share with shareholders and Virginia customers the earnings that
exceed a target of 10.5% return on equity. The calculation of
the ESM excludes $2.4 million of asset management revenues
that are being refunded to customers as part of a new margin
sharing agreement in Virginia.
On May 4, 2009, the Staff of the SCC of VA issued a report,
commenting on the amount of the ESM liability that had been
reported for the fiscal year ending September 30, 2008.
Washington Gas filed its response to the Staff report on
June 18, 2009. On July 17, 2009, Washington Gas and
the Staff of the SCC of VA filed a Joint Motion to Approve
Stipulation and Close Proceeding with the SCC of VA whereby the
Staff of the SCC of VA and Washington Gas agreed upon the
appropriate refund to ratepayers under the ESM. The overall
difference between the Staff position and the Company position
was not material to the financial statements of Washington Gas.
On July 24, 2009, the SCC of VA granted the Joint Motion
and accepted the Stipulation submitted by Washington Gas and the
Staff of the SCC of VA in its Final Order approving the ESM
liability.
On an interim basis, the Company records the effects of the ESM
based on
year-to-date
earnings in relation to estimated annual earnings as calculated
for regulatory purposes. At September 30, 2009, Washington
Gas had accrued a customer liability of $3.3 million for
estimated sharing under the Virginia ESM related to fiscal year
2008. In accordance with the provisions of its VA tariff, the
Company began crediting customers bills in April 2009 for
the fiscal year 2008 ESM liability. The credits will continue
through March, 2010.
On November 16, 2007, the PSC of MD issued a Final Order in
a rate case, which established a phase-two proceeding to review
Washington Gass request to implement a PBR plan and issues
raised by the parties associated with Washington Gass BPO
agreement. On September 4, 2008, a Proposed Order of
Hearing Examiner was issued in this phase-two proceeding.
Consistent with Washington Gass current accounting
methodology, the Proposed Order approved
10-year
amortization accounting for initial implementation costs related
to Washington Gass BPO plan. At September 30, 2009
and 2008, we had recorded a regulatory asset of
$7.4 million and $6.8 million, respectively, net of
amortization, related to initial implementation costs allocable
to Maryland associated with our BPO plan. Washington Gass
application seeking approval of a PBR plan was denied.
Additionally, the Proposed Order (i) directs
Washington Gas to obtain an independent management audit related
to issues raised in the phase-two proceeding and
(ii) directs the initiation of a collaboration
process in which Washington Gas is directed to engage in
discussions with the Staff of the PSC of MD (MD Staff), the MD
OPC and interested parties to develop appropriate customer
service metrics and a periodic form for reporting results
similar to the metrics filed by Washington Gas as part of the
approved settlement in Virginia. This Proposed Order has been
appealed by the MD Staff, the MD OPC and other parties.
Washington Gass Reply Memorandum on Appeal was filed on
November 5, 2008. A final decision by the PSC of MD is
pending.
The Final Order issued by the PSC of DC on December 28,
2007 approved amortization accounting for initial implementation
costs related to the BPO plan in approving the stipulated
agreement filed in the proceeding. As part of that approved
agreement, Washington Gas withdrew its application seeking
approval of a PBR plan. Washington Gas is prohibited from
seeking approval of a PBR plan in the District of Columbia until
the filing of its next base rate case; however, the settling
parties may not seek a change in rates during the rate case
filing moratorium period under the terms of the approved rate
settlement.
Depreciation
Study
In October 2006, Washington Gas completed a depreciation rate
study based on its property, plant and equipment balances as of
December 31, 2005. The results of the depreciation study
concluded that Washington Gass depreciation rates should
be reduced due to asset lives being extended beyond previously
estimated lives. Under regulatory requirements, these
depreciation rates must be approved before they are placed into
effect.
69
Washington Gas Light Company
Part II
Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations (concluded)
On April 13, 2007, Washington Gas filed the portion of the
depreciation study related to the Maryland jurisdiction. A
separate proceeding was established on May 2, 2007, by the
PSC of MD to review Washington Gass request to implement
new depreciation rates. On October 25, 2007, Washington Gas
filed a 2007 technical update of the Maryland depreciation study
based on property, plant and equipment balances as of
December 31, 2006. Hearings were held May 12 and 13, 2008.
Initial briefs were filed on July 16, 2008 and reply briefs
were filed on August 6, 2008. On October 15, 2008, a
Proposed Order of Hearing Examiner was issued in Maryland, which
would reduce Washington Gass annual depreciation expense
related to the Maryland jurisdiction by approximately
$11.2 million when new depreciation rates are implemented,
with a corresponding decrease in annual revenues on a
prospective basis to be reflected in future billing rates.
Reflected in this reduction in depreciation expense, among other
things, are: (i) a change in methodology for
calculating accrued asset removal costs and (ii) the
designation of certain insurance and relocation reimbursements
as salvage value. This reduction in depreciation expense will
not impact annual operating income and will not prevent the
recovery of our capital investment; however, it will have the
effect of deferring full recovery of our capital investment into
future years. On November 14, 2008, Washington Gas and MD
OPC noted appeals of the October 15, 2008 Proposed Order,
thus suspending its effective date. Both Washington Gas and the
MD OPC filed Memoranda on Appeal on November 24, 2008,
Washington Gas, the MD OPC and the Staff of the PSC of MD filed
Reply Memoranda on December 15, 2008. We are currently
awaiting a final decision by the PSC of MD.
70
WGL
Holdings, Inc.
Consolidated Balance Sheets
Part II
Item 8. Financial Statements and Supplementary Data
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
(In thousands)
|
|
2009
|
|
|
2008
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Property, Plant and Equipment
|
|
|
|
|
|
|
|
|
At original cost
|
|
$
|
3,242,413
|
|
|
$
|
3,184,247
|
|
Accumulated depreciation and amortization
|
|
|
(973,272
|
)
|
|
|
(975,945
|
)
|
|
Net property, plant and equipment
|
|
|
2,269,141
|
|
|
|
2,208,302
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
7,845
|
|
|
|
6,164
|
|
Receivables
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
172,117
|
|
|
|
190,589
|
|
Gas costs and other regulatory assets
|
|
|
77,173
|
|
|
|
26,543
|
|
Unbilled revenues
|
|
|
80,594
|
|
|
|
50,134
|
|
Allowance for doubtful accounts
|
|
|
(20,969
|
)
|
|
|
(17,101
|
)
|
|
Net receivables
|
|
|
308,915
|
|
|
|
250,165
|
|
|
Materials and suppliesprincipally at average cost
|
|
|
23,626
|
|
|
|
21,117
|
|
Storage gasat cost
(first-in,
first-out)
|
|
|
237,681
|
|
|
|
406,629
|
|
Deferred income taxes
|
|
|
|
|
|
|
7,616
|
|
Other prepayments
|
|
|
82,415
|
|
|
|
32,290
|
|
Other
|
|
|
23,032
|
|
|
|
18,368
|
|
|
Total current assets
|
|
|
683,514
|
|
|
|
742,349
|
|
|
Deferred Charges and Other Assets
|
|
|
|
|
|
|
|
|
Regulatory assets
|
|
|
|
|
|
|
|
|
Gas costs
|
|
|
13,996
|
|
|
|
50,797
|
|
Pension and other post-retirement benefits
|
|
|
308,544
|
|
|
|
133,989
|
|
Other
|
|
|
53,904
|
|
|
|
58,417
|
|
Prepaid qualified pension benefits
|
|
|
|
|
|
|
24,683
|
|
Other
|
|
|
20,791
|
|
|
|
25,006
|
|
|
Total deferred charges and other assets
|
|
|
397,235
|
|
|
|
292,892
|
|
|
Total Assets
|
|
$
|
3,349,890
|
|
|
$
|
3,243,543
|
|
|
CAPITALIZATION AND LIABILITIES
|
|
|
|
|
|
|
|
|
Capitalization
|
|
|
|
|
|
|
|
|
Common shareholders equity
|
|
$
|
1,097,698
|
|
|
$
|
1,047,564
|
|
Washington Gas Light Company preferred stock
|
|
|
28,173
|
|
|
|
28,173
|
|
Long-term debt
|
|
|
561,830
|
|
|
|
603,738
|
|
|
Total capitalization
|
|
|
1,687,701
|
|
|
|
1,679,475
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Current maturities of long-term debt
|
|
|
82,592
|
|
|
|
75,994
|
|
Notes payable
|
|
|
183,851
|
|
|
|
270,955
|
|
Accounts payable and other accrued liabilities
|
|
|
213,529
|
|
|
|
243,123
|
|
Wages payable
|
|
|
15,294
|
|
|
|
14,106
|
|
Accrued interest
|
|
|
3,598
|
|
|
|
4,200
|
|
Dividends declared
|
|
|
18,758
|
|
|
|
18,070
|
|
Customer deposits and advance payments
|
|
|
52,908
|
|
|
|
46,074
|
|
Gas costs and other regulatory liabilities
|
|
|
14,842
|
|
|
|
12,180
|
|
Deferred income taxes
|
|
|
5,155
|
|
|
|
|
|
Accrued taxes
|
|
|
17,119
|
|
|
|
12,129
|
|
Other
|
|
|
26,970
|
|
|
|
51,648
|
|
|
Total current liabilities
|
|
|
634,616
|
|
|
|
748,479
|
|
|
Deferred Credits
|
|
|
|
|
|
|
|
|
Unamortized investment tax credits
|
|
|
10,761
|
|
|
|
11,360
|
|
Deferred income taxes
|
|
|
323,505
|
|
|
|
272,227
|
|
Accrued pensions and benefits
|
|
|
273,289
|
|
|
|
131,097
|
|
Asset retirement obligations
|
|
|
32,641
|
|
|
|
30,388
|
|
Regulatory liabilities
|
|
|
|
|
|
|
|
|
Accrued asset removal costs
|
|
|
319,173
|
|
|
|
306,014
|
|
Other
|
|
|
14,310
|
|
|
|
14,974
|
|
Other
|
|
|
53,894
|
|
|
|
49,529
|
|
|
Total deferred credits
|
|
|
1,027,573
|
|
|
|
815,589
|
|
|
Commitments and Contingencies (Note 13)
|
|
|
|
|
|
|
|
|
|
Total Capitalization and Liabilities
|
|
$
|
3,349,890
|
|
|
$
|
3,243,543
|
|
|
The accompanying notes are an
integral part of these statements.
72
WGL
Holdings, Inc.
Consolidated Statements of Income
Part II
Item 8. Financial Statements and Supplementary Data
(continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended September 30,
|
|
|
|
(In thousands, except per share
data)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
OPERATING REVENUES
|
|
|
|
|
|
|
|
|
|
|
|
|
Utility
|
|
$
|
1,481,089
|
|
|
$
|
1,536,443
|
|
|
$
|
1,497,274
|
|
Non-utility
|
|
|
1,225,767
|
|
|
|
1,091,751
|
|
|
|
1,148,734
|
|
|
Total Operating Revenues
|
|
|
2,706,856
|
|
|
|
2,628,194
|
|
|
|
2,646,008
|
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
Utility cost of gas
|
|
|
805,119
|
|
|
|
869,333
|
|
|
|
875,811
|
|
Non-utility cost of energy-related sales
|
|
|
1,153,166
|
|
|
|
1,047,146
|
|
|
|
1,079,378
|
|
Operation and maintenance
|
|
|
297,471
|
|
|
|
282,558
|
|
|
|
275,344
|
|
Depreciation and amortization
|
|
|
95,357
|
|
|
|
95,007
|
|
|
|
90,605
|
|
General taxes and other assessments
|
|
|
114,054
|
|
|
|
102,544
|
|
|
|
100,023
|
|
|
Total Operating Expenses
|
|
|
2,465,167
|
|
|
|
2,396,588
|
|
|
|
2,421,161
|
|
|
OPERATING INCOME
|
|
|
241,689
|
|
|
|
231,606
|
|
|
|
224,847
|
|
Other IncomeNet
|
|
|
2,181
|
|
|
|
2,525
|
|
|
|
3,378
|
|
Interest Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on long-term debt
|
|
|
40,432
|
|
|
|
39,930
|
|
|
|
40,047
|
|
Othernet
|
|
|
4,471
|
|
|
|
6,867
|
|
|
|
8,821
|
|
|
Total Interest Expense
|
|
|
44,903
|
|
|
|
46,797
|
|
|
|
48,868
|
|
Dividends on Washington Gas preferred stock
|
|
|
1,320
|
|
|
|
1,320
|
|
|
|
1,320
|
|
|
INCOME BEFORE INCOME TAXES
|
|
|
197,647
|
|
|
|
186,014
|
|
|
|
178,037
|
|
INCOME TAX EXPENSE
|
|
|
77,274
|
|
|
|
69,491
|
|
|
|
70,137
|
|
|
NET INCOME APPLICABLE TO COMMON STOCK
|
|
$
|
120,373
|
|
|
$
|
116,523
|
|
|
$
|
107,900
|
|
|
AVERAGE COMMON SHARES OUTSTANDING
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
50,104
|
|
|
|
49,607
|
|
|
|
49,172
|
|
Diluted
|
|
|
50,382
|
|
|
|
49,912
|
|
|
|
49,377
|
|
|
EARNINGS PER AVERAGE COMMON SHARE
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
2.40
|
|
|
$
|
2.35
|
|
|
$
|
2.19
|
|
Diluted
|
|
$
|
2.39
|
|
|
$
|
2.33
|
|
|
$
|
2.19
|
|
|
DIVIDENDS DECLARED PER COMMON SHARE
|
|
$
|
1.4575
|
|
|
$
|
1.4075
|
|
|
$
|
1.3650
|
|
|
The accompanying notes are an
integral part of these statements.
73
WGL
Holdings, Inc.
Consolidated Statements of Cash Flows
Part II
Item 8. Financial Statements and Supplementary Data
(continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended September 30,
|
|
|
|
(In thousands)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income applicable to common stock
|
|
$
|
120,373
|
|
|
$
|
116,523
|
|
|
$
|
107,900
|
|
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED
BY OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
95,357
|
|
|
|
95,007
|
|
|
|
90,605
|
|
Amortization of:
|
|
|
|
|
|
|
|
|
|
|
|
|
Other regulatory assets and liabilitiesnet
|
|
|
3,350
|
|
|
|
2,666
|
|
|
|
1,613
|
|
Debt related costs
|
|
|
785
|
|
|
|
925
|
|
|
|
1,038
|
|
Deferred income taxesnet
|
|
|
67,401
|
|
|
|
5,863
|
|
|
|
6,866
|
|
Accrued/deferred pension cost
|
|
|
(2,204
|
)
|
|
|
(4,219
|
)
|
|
|
1,517
|
|
Compensation expense related to equity awards
|
|
|
2,160
|
|
|
|
4,111
|
|
|
|
5,370
|
|
Provision for doubtful accounts
|
|
|
22,435
|
|
|
|
19,958
|
|
|
|
9,645
|
|
Other non-cash creditsnet
|
|
|
(125
|
)
|
|
|
(1,894
|
)
|
|
|
(1,766
|
)
|
CHANGES IN ASSETS AND LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable and unbilled revenues
|
|
|
(30,555
|
)
|
|
|
(65,019
|
)
|
|
|
(5,082
|
)
|
Gas costs and other regulatory assets/liabilitiesnet
|
|
|
(47,968
|
)
|
|
|
(19,093
|
)
|
|
|
5,127
|
|
Storage gas
|
|
|
168,948
|
|
|
|
(111,740
|
)
|
|
|
1,172
|
|
Other prepayments
|
|
|
(52,513
|
)
|
|
|
(4,379
|
)
|
|
|
(12,506
|
)
|
Accounts payable and other accrued liabilities
|
|
|
(34,505
|
)
|
|
|
33,479
|
|
|
|
18,862
|
|
Wages payable
|
|
|
1,188
|
|
|
|
629
|
|
|
|
(284
|
)
|
Customer deposits and advance payments
|
|
|
6,834
|
|
|
|
(3,172
|
)
|
|
|
(349
|
)
|
Accrued taxes
|
|
|
4,990
|
|
|
|
356
|
|
|
|
391
|
|
Accrued interest
|
|
|
(602
|
)
|
|
|
(16
|
)
|
|
|
918
|
|
Other current assets
|
|
|
(7,173
|
)
|
|
|
350
|
|
|
|
475
|
|
Other current liabilities
|
|
|
(24,678
|
)
|
|
|
28,498
|
|
|
|
8,734
|
|
Deferred gas costsnet
|
|
|
36,801
|
|
|
|
(24,556
|
)
|
|
|
(14,291
|
)
|
Deferred assetsother
|
|
|
(18,662
|
)
|
|
|
(10,808
|
)
|
|
|
(8,175
|
)
|
Deferred liabilitiesother
|
|
|
(7,466
|
)
|
|
|
(2,385
|
)
|
|
|
(4,535
|
)
|
Othernet
|
|
|
2,916
|
|
|
|
878
|
|
|
|
53
|
|
|
Net Cash Provided by Operating Activities
|
|
|
307,087
|
|
|
|
61,962
|
|
|
|
213,298
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued
|
|
|
5,131
|
|
|
|
14,064
|
|
|
|
11,659
|
|
Long-term debt issued
|
|
|
64,875
|
|
|
|
63,285
|
|
|
|
1,446
|
|
Long-term debt retired
|
|
|
(76,012
|
)
|
|
|
(21,110
|
)
|
|
|
(1,009
|
)
|
Debt issuance costs
|
|
|
(181
|
)
|
|
|
|
|
|
|
(16
|
)
|
Notes payable issued (retired)net
|
|
|
(87,104
|
)
|
|
|
86,708
|
|
|
|
6,871
|
|
Dividends on common stock
|
|
|
(72,387
|
)
|
|
|
(69,136
|
)
|
|
|
(66,818
|
)
|
Other financing activitiesnet
|
|
|
(820
|
)
|
|
|
482
|
|
|
|
681
|
|
|
Net Cash Provided by (Used in) Financing Activities
|
|
|
(166,498
|
)
|
|
|
74,293
|
|
|
|
(47,186
|
)
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures (excluding Allowance for Funds Used During
Construction)
|
|
|
(138,908
|
)
|
|
|
(134,961
|
)
|
|
|
(164,531
|
)
|
Other investing activitiesnet
|
|
|
|
|
|
|
|
|
|
|
(1,061
|
)
|
|
Net Cash Used in Investing Activities
|
|
|
(138,908
|
)
|
|
|
(134,961
|
)
|
|
|
(165,592
|
)
|
|
INCREASE IN CASH AND CASH EQUIVALENTS
|
|
|
1,681
|
|
|
|
1,294
|
|
|
|
520
|
|
Cash and Cash Equivalents at Beginning of Year
|
|
|
6,164
|
|
|
|
4,870
|
|
|
|
4,350
|
|
|
Cash and Cash Equivalents at End of Period
|
|
$
|
7,845
|
|
|
$
|
6,164
|
|
|
$
|
4,870
|
|
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
$
|
41,294
|
|
|
$
|
67,086
|
|
|
$
|
69,976
|
|
Interest paid
|
|
$
|
44,378
|
|
|
$
|
46,850
|
|
|
$
|
47,541
|
|
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING
ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Retirement of debt related to project financing
|
|
$
|
24,494
|
|
|
$
|
|
|
|
$
|
|
|
Capital Expenditures included in accounts payable and other
accrued liabilities
|
|
$
|
(3,791
|
)
|
|
$
|
(7,217
|
)
|
|
$
|
(1,069
|
)
|
The accompanying notes are an
integral part of these statements.
74
WGL
Holdings, Inc.
Consolidated Statements of Capitalization
Part II
Item 8. Financial Statements and Supplementary Data
(continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
(In thousands, except
shares)
|
|
2009
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
Common Shareholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, no par value, 120,000,000 shares authorized,
50,143,484 and 49,916,883 shares issued, respectively
|
|
$
|
514,501
|
|
|
|
|
|
|
$
|
507,105
|
|
|
|
|
|
Paid-in capital
|
|
|
13,516
|
|
|
|
|
|
|
|
14,398
|
|
|
|
|
|
Retained Earnings
|
|
|
576,122
|
|
|
|
|
|
|
|
527,812
|
|
|
|
|
|
Accumulated other comprehensive loss, net of taxes
|
|
|
(6,441
|
)
|
|
|
|
|
|
|
(1,751
|
)
|
|
|
|
|
|
Total Common Shareholders Equity
|
|
|
1,097,698
|
|
|
|
65.0%
|
|
|
|
1,047,564
|
|
|
|
62.4
|
%
|
|
Preferred Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WGL Holdings, Inc., without par value, 3,000,000 shares
authorized, none issued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Washington Gas Light Company, without par value, 1,500,000
shares authorizedissued and outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$4.80 series, 150,000 shares
|
|
|
15,000
|
|
|
|
|
|
|
|
15,000
|
|
|
|
|
|
$4.25 series, 70,600 shares
|
|
|
7,173
|
|
|
|
|
|
|
|
7,173
|
|
|
|
|
|
$5.00 series, 60,000 shares
|
|
|
6,000
|
|
|
|
|
|
|
|
6,000
|
|
|
|
|
|
|
Total Preferred Stock
|
|
|
28,173
|
|
|
|
1.7%
|
|
|
|
28,173
|
|
|
|
1.7
|
%
|
|
Long-Term Debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Washington Gas Light Company Unsecured Medium-Term Notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due fiscal year 2009, 5.49% to 6.92%
|
|
|
|
|
|
|
|
|
|
|
75,000
|
|
|
|
|
|
Due fiscal year 2010, 1.19% and 3.61%
|
|
|
50,000
|
|
|
|
|
|
|
|
50,000
|
|
|
|
|
|
Due fiscal year 2010, 7.70%
|
|
|
24,000
|
|
|
|
|
|
|
|
24,000
|
|
|
|
|
|
Due fiscal year 2011, 6.64%
|
|
|
30,000
|
|
|
|
|
|
|
|
30,000
|
|
|
|
|
|
Due fiscal year 2012, 5.90% to 6.05%
|
|
|
77,000
|
|
|
|
|
|
|
|
77,000
|
|
|
|
|
|
Due fiscal year 2014, 4.88% to 5.17%
|
|
|
67,000
|
|
|
|
|
|
|
|
67,000
|
|
|
|
|
|
Due fiscal year 2015, 4.83%
|
|
|
20,000
|
|
|
|
|
|
|
|
20,000
|
|
|
|
|
|
Due fiscal year 2016, 5.17%
|
|
|
25,000
|
|
|
|
|
|
|
|
25,000
|
|
|
|
|
|
Due fiscal year 2019, 7.46%
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due fiscal year 2023, 6.65%
|
|
|
20,000
|
|
|
|
|
|
|
|
20,000
|
|
|
|
|
|
Due fiscal year 2025, 5.44%
|
|
|
40,500
|
|
|
|
|
|
|
|
40,500
|
|
|
|
|
|
Due fiscal year 2027, 6.40% to 6.82%
|
|
|
125,000
|
|
|
|
|
|
|
|
125,000
|
|
|
|
|
|
Due fiscal year 2028, 6.57% to 6.85%
|
|
|
52,000
|
|
|
|
|
|
|
|
52,000
|
|
|
|
|
|
Due fiscal year 2030, 7.50%
|
|
|
8,500
|
|
|
|
|
|
|
|
8,500
|
|
|
|
|
|
Due fiscal year 2036, 5.70% to 5.78%
|
|
|
50,000
|
|
|
|
|
|
|
|
50,000
|
|
|
|
|
|
|
Total Unsecured Medium Term-Notes
|
|
|
639,000
|
|
|
|
|
|
|
|
664,000
|
|
|
|
|
|
Other long-term debt
|
|
|
5,465
|
|
|
|
|
|
|
|
15,785
|
|
|
|
|
|
Unamortized discount
|
|
|
(43
|
)
|
|
|
|
|
|
|
(53
|
)
|
|
|
|
|
Lesscurrent maturities
|
|
|
82,592
|
|
|
|
|
|
|
|
75,994
|
|
|
|
|
|
|
Total Long-Term Debt
|
|
|
561,830
|
|
|
|
33.3%
|
|
|
|
603,738
|
|
|
|
35.9
|
%
|
|
Total Capitalization
|
|
$
|
1,687,701
|
|
|
|
100.00%
|
|
|
$
|
1,679,475
|
|
|
|
100.00
|
%
|
|
The accompanying notes are an
integral part of these statements.
75
WGL
Holdings, Inc.
Consolidated Statements of Common
Shareholders Equity
and Comprehensive Income
Part II
Item 8. Financial Statements and Supplementary Data
(continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
|
|
|
|
|
Common Stock
|
|
Paid-In
|
|
Retained
|
|
Loss, Net of
|
|
|
(In thousands, except shares)
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Earnings
|
|
Taxes
|
|
Total
|
|
|
Balance at September 30, 2006
|
|
|
48,878,499
|
|
|
$
|
477,671
|
|
|
$
|
8,178
|
|
|
$
|
440,587
|
|
|
$
|
(4,629
|
)
|
|
$
|
921,807
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
107,900
|
|
|
|
|
|
|
|
107,900
|
|
Minimum pension liability adjustment, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,230
|
|
|
|
1,230
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
109,130
|
|
Impact of initially applying SFAS No. 158 (ASC Topic 715), net
of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
207
|
|
|
|
207
|
|
Stock-based compensation
|
|
|
437,712
|
|
|
|
12,586
|
|
|
|
4,250
|
|
|
|
|
|
|
|
|
|
|
|
16,836
|
|
Dividends declared on common stock ($1.3650 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(67,213
|
)
|
|
|
|
|
|
|
(67,213
|
)
|
|
Balance at September 30, 2007
|
|
|
49,316,211
|
|
|
|
490,257
|
|
|
|
12,428
|
|
|
|
481,274
|
|
|
|
(3,192
|
)
|
|
|
980,767
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
116,523
|
|
|
|
|
|
|
|
116,523
|
|
Post-retirement benefits adjustment, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,441
|
|
|
|
1,441
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
117,964
|
|
Stock-based compensation
|
|
|
600,672
|
|
|
|
16,848
|
|
|
|
1,970
|
|
|
|
|
|
|
|
|
|
|
|
18,818
|
|
Dividends declared on common stock ($1.4075 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(69,985
|
)
|
|
|
|
|
|
|
(69,985
|
)
|
|
Balance at September 30, 2008
|
|
|
49,916,883
|
|
|
|
507,105
|
|
|
|
14,398
|
|
|
|
527,812
|
|
|
|
(1,751
|
)
|
|
|
1,047,564
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
120,373
|
|
|
|
|
|
|
|
120,373
|
|
Post-retirement benefits adjustment, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,690
|
)
|
|
|
(4,690
|
)
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
115,683
|
|
Impact of applying SFAS No. 157 (ASC Topic 820) adjustment, net
of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,012
|
|
|
|
|
|
|
|
1,012
|
|
Stock-based compensation
|
|
|
226,601
|
|
|
|
7,396
|
|
|
|
(882
|
)
|
|
|
|
|
|
|
|
|
|
|
6,514
|
|
Dividends declared on common stock ($1.4575 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(73,075
|
)
|
|
|
|
|
|
|
(73,075
|
)
|
|
Balance at September 30, 2009
|
|
|
50,143,484
|
|
|
$
|
514,501
|
|
|
$
|
13,516
|
|
|
$
|
576,122
|
|
|
$
|
(6,441
|
)
|
|
$
|
1,097,698
|
|
|
The accompanying notes are an
integral part of these statements.
76
Washington
Gas Light Company
Balance Sheets
Part II
Item 8. Financial Statements and Supplementary Data
(continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
(In thousands)
|
|
2009
|
|
|
2008
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Property, Plant and Equipment
|
|
|
|
|
|
|
|
|
At original cost
|
|
$
|
3,206,576
|
|
|
$
|
3,152,259
|
|
Accumulated depreciation and amortization
|
|
|
(950,706
|
)
|
|
|
(954,974
|
)
|
|
Net property, plant and equipment
|
|
|
2,255,870
|
|
|
|
2,197,285
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
5,160
|
|
|
|
3,680
|
|
Receivables
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
70,382
|
|
|
|
105,132
|
|
Gas costs and other regulatory assets
|
|
|
77,173
|
|
|
|
26,543
|
|
Unbilled revenues
|
|
|
20,905
|
|
|
|
18,584
|
|
Allowance for doubtful accounts
|
|
|
(18,617
|
)
|
|
|
(15,736
|
)
|
|
Net receivables
|
|
|
149,843
|
|
|
|
134,523
|
|
|
Materials and suppliesprincipally at average cost
|
|
|
23,573
|
|
|
|
21,065
|
|
Storage gasat cost
(first-in,
first-out)
|
|
|
168,800
|
|
|
|
322,617
|
|
Deferred income taxes
|
|
|
|
|
|
|
8,429
|
|
Other prepayments
|
|
|
39,690
|
|
|
|
34,375
|
|
Receivables from associated companies
|
|
|
10,441
|
|
|
|
4,636
|
|
Other
|
|
|
11,531
|
|
|
|
4,833
|
|
|
Total current assets
|
|
|
409,038
|
|
|
|
534,158
|
|
|
Deferred Charges and Other Assets
|
|
|
|
|
|
|
|
|
Regulatory assets
|
|
|
|
|
|
|
|
|
Gas costs
|
|
|
13,996
|
|
|
|
50,797
|
|
Pension and other post-retirement benefits
|
|
|
306,918
|
|
|
|
133,326
|
|
Other
|
|
|
53,904
|
|
|
|
58,400
|
|
Prepaid qualified pension benefits
|
|
|
|
|
|
|
24,612
|
|
Other
|
|
|
11,846
|
|
|
|
24,188
|
|
|
Total deferred charges and other assets
|
|
|
386,664
|
|
|
|
291,323
|
|
|
Total Assets
|
|
$
|
3,051,572
|
|
|
$
|
3,022,766
|
|
|
CAPITALIZATION AND LIABILITIES
|
|
|
|
|
|
|
|
|
Capitalization
|
|
|
|
|
|
|
|
|
Common shareholders equity
|
|
$
|
966,439
|
|
|
$
|
935,049
|
|
Preferred stock
|
|
|
28,173
|
|
|
|
28,173
|
|
Long-term debt
|
|
|
561,830
|
|
|
|
603,745
|
|
|
Total capitalization
|
|
|
1,556,442
|
|
|
|
1,566,967
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Current maturities of long-term debt
|
|
|
82,592
|
|
|
|
75,000
|
|
Notes payable
|
|
|
124,811
|
|
|
|
231,013
|
|
Accounts payable and other accrued liabilities
|
|
|
125,295
|
|
|
|
166,060
|
|
Wages payable
|
|
|
14,622
|
|
|
|
13,638
|
|
Accrued interest
|
|
|
3,598
|
|
|
|
4,200
|
|
Dividends declared
|
|
|
18,008
|
|
|
|
17,695
|
|
Customer deposits and advance payments
|
|
|
52,908
|
|
|
|
46,074
|
|
Gas costs and other regulatory liabilities
|
|
|
14,842
|
|
|
|
12,180
|
|
Deferred income taxes
|
|
|
9,285
|
|
|
|
|
|
Accrued taxes
|
|
|
15,434
|
|
|
|
11,281
|
|
Payables to associated companies
|
|
|
11,390
|
|
|
|
22,746
|
|
Other
|
|
|
12,929
|
|
|
|
38,249
|
|
|
Total current liabilities
|
|
|
485,714
|
|
|
|
638,136
|
|
|
Deferred Credits
|
|
|
|
|
|
|
|
|
Unamortized investment tax credits
|
|
|
10,462
|
|
|
|
11,355
|
|
Deferred income taxes
|
|
|
326,921
|
|
|
|
279,818
|
|
Accrued pensions and benefits
|
|
|
271,859
|
|
|
|
130,478
|
|
Asset retirement obligations
|
|
|
31,627
|
|
|
|
29,469
|
|
Regulatory liabilities
|
|
|
|
|
|
|
|
|
Accrued asset removal costs
|
|
|
319,173
|
|
|
|
306,014
|
|
Other
|
|
|
14,307
|
|
|
|
14,973
|
|
Other
|
|
|
35,067
|
|
|
|
45,556
|
|
|
Total deferred credits
|
|
|
1,009,416
|
|
|
|
817,663
|
|
|
Commitments and Contingencies (Note 13)
|
|
|
|
|
|
|
|
|
|
Total Capitalization and Liabilities
|
|
$
|
3,051,572
|
|
|
$
|
3,022,766
|
|
|
The accompanying notes are an
integral part of these statements.
77
Washington
Gas Light Company
Statements of Income
Part II
Item 8. Financial Statements and Supplementary Data
(continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended September 30,
|
|
|
|
(In thousands)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
OPERATING REVENUES
|
|
|
|
|
|
|
|
|
|
|
|
|
Utility
|
|
$
|
1,505,875
|
|
|
$
|
1,552,344
|
|
|
$
|
1,513,839
|
|
Non-utility
|
|
|
41
|
|
|
|
66
|
|
|
|
242
|
|
|
Total Operating Revenues
|
|
|
1,505,916
|
|
|
|
1,552,410
|
|
|
|
1,514,081
|
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
Utility cost of gas
|
|
|
829,905
|
|
|
|
885,234
|
|
|
|
892,376
|
|
Operation and maintenance
|
|
|
257,874
|
|
|
|
252,915
|
|
|
|
248,817
|
|
Depreciation and amortization
|
|
|
93,562
|
|
|
|
93,189
|
|
|
|
88,893
|
|
General taxes and other assessments
|
|
|
109,522
|
|
|
|
98,721
|
|
|
|
96,493
|
|
|
Total Operating Expenses
|
|
|
1,290,863
|
|
|
|
1,330,059
|
|
|
|
1,326,579
|
|
|
OPERATING INCOME
|
|
|
215,053
|
|
|
|
222,351
|
|
|
|
187,502
|
|
Other IncomeNet
|
|
|
1,683
|
|
|
|
1,894
|
|
|
|
2,560
|
|
Interest Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on long-term debt
|
|
|
40,425
|
|
|
|
39,890
|
|
|
|
39,956
|
|
Othernet
|
|
|
3,708
|
|
|
|
5,466
|
|
|
|
5,109
|
|
|
Total Interest Expense
|
|
|
44,133
|
|
|
|
45,356
|
|
|
|
45,065
|
|
|
INCOME BEFORE INCOME TAXES
|
|
|
172,603
|
|
|
|
178,889
|
|
|
|
144,997
|
|
INCOME TAX EXPENSE
|
|
|
66,018
|
|
|
|
64,707
|
|
|
|
54,497
|
|
|
NET INCOME BEFORE PREFERRED STOCK DIVIDENDS
|
|
$
|
106,585
|
|
|
$
|
114,182
|
|
|
$
|
90,500
|
|
Dividends on preferred stock
|
|
|
1,320
|
|
|
|
1,320
|
|
|
|
1,320
|
|
|
NET INCOME APPLICABLE TO COMMON STOCK
|
|
$
|
105,265
|
|
|
$
|
112,862
|
|
|
$
|
89,180
|
|
|
The accompanying notes are an
integral part of these statements.
78
Washington
Gas Light Company
Statements of Cash Flows
Part II
Item 8. Financial Statements and Supplementary Data
(continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
(In thousands)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income before preferred stock dividends
|
|
$
|
106,585
|
|
|
$
|
114,182
|
|
|
$
|
90,500
|
|
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED
BY OPERATING ACTIVITIES
|
Depreciation and amortization
|
|
|
93,562
|
|
|
|
93,189
|
|
|
|
88,893
|
|
Amortization of:
|
|
|
|
|
|
|
|
|
|
|
|
|
Other regulatory assets and liabilitiesnet
|
|
|
3,350
|
|
|
|
2,666
|
|
|
|
1,613
|
|
Debt related costs
|
|
|
785
|
|
|
|
885
|
|
|
|
947
|
|
Deferred income taxesnet
|
|
|
69,009
|
|
|
|
13,559
|
|
|
|
4,249
|
|
Accrued/deferred pension cost
|
|
|
(2,198
|
)
|
|
|
(4,199
|
)
|
|
|
1,488
|
|
Compensation expense related to equity awards
|
|
|
2,052
|
|
|
|
3,547
|
|
|
|
4,827
|
|
Provision for doubtful accounts
|
|
|
18,567
|
|
|
|
16,761
|
|
|
|
7,884
|
|
Other non-cash creditsnet
|
|
|
(419
|
)
|
|
|
(1,892
|
)
|
|
|
(1,762
|
)
|
CHANGES IN ASSETS AND LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, unbilled revenues and receivables from
associated companies
|
|
|
10,938
|
|
|
|
(66,381
|
)
|
|
|
(12,389
|
)
|
Gas costs and other regulatory assets/liabilitiesnet
|
|
|
(47,968
|
)
|
|
|
(19,093
|
)
|
|
|
5,127
|
|
Storage gas
|
|
|
153,817
|
|
|
|
(106,846
|
)
|
|
|
1,471
|
|
Other prepayments
|
|
|
(8,070
|
)
|
|
|
(5,188
|
)
|
|
|
(14,595
|
)
|
Accounts payable and other accrued liabilities and payables to
associated companies
|
|
|
(57,350
|
)
|
|
|
34,387
|
|
|
|
14,654
|
|
Wages payable
|
|
|
984
|
|
|
|
255
|
|
|
|
(150
|
)
|
Customer deposits and advance payments
|
|
|
6,834
|
|
|
|
(3,072
|
)
|
|
|
(349
|
)
|
Accrued taxes
|
|
|
4,153
|
|
|
|
260
|
|
|
|
(74
|
)
|
Accrued interest
|
|
|
(602
|
)
|
|
|
(16
|
)
|
|
|
918
|
|
Other current assets
|
|
|
(9,206
|
)
|
|
|
611
|
|
|
|
2,553
|
|
Other current liabilities
|
|
|
(25,320
|
)
|
|
|
19,055
|
|
|
|
9,831
|
|
Deferred gas costsnet
|
|
|
36,801
|
|
|
|
(24,556
|
)
|
|
|
(14,291
|
)
|
Deferred assetsother
|
|
|
(10,505
|
)
|
|
|
(13,872
|
)
|
|
|
(5,210
|
)
|
Deferred liabilitiesother
|
|
|
(24,241
|
)
|
|
|
(4,871
|
)
|
|
|
(5,261
|
)
|
Othernet
|
|
|
3,893
|
|
|
|
850
|
|
|
|
(924
|
)
|
|
Net Cash Provided by Operating Activities
|
|
|
325,451
|
|
|
|
50,221
|
|
|
|
179,950
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt issued
|
|
|
64,875
|
|
|
|
63,285
|
|
|
|
1,446
|
|
Long-term debt retired
|
|
|
(76,011
|
)
|
|
|
(20,117
|
)
|
|
|
(15
|
)
|
Debt issuance costs
|
|
|
(181
|
)
|
|
|
|
|
|
|
(16
|
)
|
Notes payable issued (retired)net
|
|
|
(106,202
|
)
|
|
|
108,965
|
|
|
|
49,273
|
|
Dividends on common stock and preferred stock
|
|
|
(71,457
|
)
|
|
|
(69,711
|
)
|
|
|
(68,138
|
)
|
Other financing activitiesnet
|
|
|
(830
|
)
|
|
|
513
|
|
|
|
681
|
|
|
Net Cash Provided by (Used in) Financing Activities
|
|
|
(189,806
|
)
|
|
|
82,935
|
|
|
|
(16,769
|
)
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures (excluding Allowance for Funds Used During
Construction)
|
|
|
(134,165
|
)
|
|
|
(133,633
|
)
|
|
|
(162,049
|
)
|
Other investing activitiesnet
|
|
|
|
|
|
|
|
|
|
|
(1,061
|
)
|
|
Net Cash Used in Investing Activities
|
|
|
(134,165
|
)
|
|
|
(133,633
|
)
|
|
|
(163,110
|
)
|
|
INCREASE IN CASH AND CASH EQUIVALENTS
|
|
|
1,480
|
|
|
|
(477
|
)
|
|
|
71
|
|
Cash and Cash Equivalents at Beginning of Year
|
|
|
3,680
|
|
|
|
4,157
|
|
|
|
4,086
|
|
|
Cash and Cash Equivalents at End of Period
|
|
$
|
5,160
|
|
|
$
|
3,680
|
|
|
$
|
4,157
|
|
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
$
|
26,897
|
|
|
$
|
59,108
|
|
|
$
|
56,619
|
|
Interest paid
|
|
$
|
43,615
|
|
|
$
|
45,449
|
|
|
$
|
43,829
|
|
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING
ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Retirement of debt related to project financing
|
|
$
|
24,494
|
|
|
$
|
|
|
|
$
|
|
|
Capital Expenditures included in accounts payable and other
accrued liabilities
|
|
$
|
(3,473
|
)
|
|
$
|
(7,532
|
)
|
|
$
|
(1,007
|
)
|
The accompanying notes are an
integral part of these statements.
79
Washington
Gas Light Company
Statements of Capitalization
Part II
Item 8. Financial Statements and Supplementary Data
(continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
(In thousands, except
shares)
|
|
2009
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
Common Shareholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $1 par value, 80,000,000 shares
authorized, 46,479,536 shares issued, respectively
|
|
$
|
46,479
|
|
|
|
|
|
|
$
|
46,479
|
|
|
|
|
|
Paid-in capital
|
|
|
469,026
|
|
|
|
|
|
|
|
467,761
|
|
|
|
|
|
Retained Earnings
|
|
|
457,375
|
|
|
|
|
|
|
|
422,560
|
|
|
|
|
|
Accumulated other comprehensive loss, net of taxes
|
|
|
(6,441
|
)
|
|
|
|
|
|
|
(1,751
|
)
|
|
|
|
|
|
Total Common Shareholders Equity
|
|
|
966,439
|
|
|
|
62.1
|
%
|
|
|
935,049
|
|
|
|
59.7
|
%
|
|
Preferred Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Washington Gas Light Company, without par value, 1,500,000
shares authorizedissued and outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$4.80 series, 150,000 shares
|
|
|
15,000
|
|
|
|
|
|
|
|
15,000
|
|
|
|
|
|
$4.25 series, 70,600 shares
|
|
|
7,173
|
|
|
|
|
|
|
|
7,173
|
|
|
|
|
|
$5.00 series, 60,000 shares
|
|
|
6,000
|
|
|
|
|
|
|
|
6,000
|
|
|
|
|
|
|
Total Preferred Stock
|
|
|
28,173
|
|
|
|
1.8
|
%
|
|
|
28,173
|
|
|
|
1.8
|
%
|
|
Long-Term Debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Washington Gas Light Company Unsecured Medium-Term Notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due fiscal year 2009, 5.49% to 6.92%
|
|
|
|
|
|
|
|
|
|
|
75,000
|
|
|
|
|
|
Due fiscal year 2010, 1.19% and 3.61%
|
|
|
50,000
|
|
|
|
|
|
|
|
50,000
|
|
|
|
|
|
Due fiscal year 2010, 7.70%
|
|
|
24,000
|
|
|
|
|
|
|
|
24,000
|
|
|
|
|
|
Due fiscal year 2011, 6.64%
|
|
|
30,000
|
|
|
|
|
|
|
|
30,000
|
|
|
|
|
|
Due fiscal year 2012, 5.90% to 6.05%
|
|
|
77,000
|
|
|
|
|
|
|
|
77,000
|
|
|
|
|
|
Due fiscal year 2014, 4.88% to 5.17%
|
|
|
67,000
|
|
|
|
|
|
|
|
67,000
|
|
|
|
|
|
Due fiscal year 2015, 4.83%
|
|
|
20,000
|
|
|
|
|
|
|
|
20,000
|
|
|
|
|
|
Due fiscal year 2016, 5.17%
|
|
|
25,000
|
|
|
|
|
|
|
|
25,000
|
|
|
|
|
|
Due fiscal year 2019, 7.46%
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due fiscal year 2023, 6.65%
|
|
|
20,000
|
|
|
|
|
|
|
|
20,000
|
|
|
|
|
|
Due fiscal year 2025, 5.44%
|
|
|
40,500
|
|
|
|
|
|
|
|
40,500
|
|
|
|
|
|
Due fiscal year 2027, 6.40% to 6.82%
|
|
|
125,000
|
|
|
|
|
|
|
|
125,000
|
|
|
|
|
|
Due fiscal year 2028, 6.57% to 6.85%
|
|
|
52,000
|
|
|
|
|
|
|
|
52,000
|
|
|
|
|
|
Due fiscal year 2030, 7.50%
|
|
|
8,500
|
|
|
|
|
|
|
|
8,500
|
|
|
|
|
|
Due fiscal year 2036, 5.70% to 5.78%
|
|
|
50,000
|
|
|
|
|
|
|
|
50,000
|
|
|
|
|
|
|
Total Unsecured Medium Term-Notes
|
|
|
639,000
|
|
|
|
|
|
|
|
664,000
|
|
|
|
|
|
Other long-term debt
|
|
|
5,465
|
|
|
|
|
|
|
|
14,791
|
|
|
|
|
|
Unamortized discount
|
|
|
(43
|
)
|
|
|
|
|
|
|
(46
|
)
|
|
|
|
|
Lesscurrent maturities
|
|
|
82,592
|
|
|
|
|
|
|
|
75,000
|
|
|
|
|
|
|
Total Long-Term Debt
|
|
|
561,830
|
|
|
|
36.1
|
%
|
|
|
603,745
|
|
|
|
38.5
|
%
|
|
Total Capitalization
|
|
$
|
1,556,442
|
|
|
|
100.00
|
%
|
|
$
|
1,566,967
|
|
|
|
100.00
|
%
|
|
The accompanying notes are an
integral part of these statements.
80
Washington
Gas Light Company
Statements of Common Shareholders
Equity
and Comprehensive Income
Part II
Item 8. Financial Statements and Supplementary Data
(continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Retained
|
|
|
Loss,
|
|
|
|
|
(In thousands, except
shares)
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
Net of Taxes
|
|
|
Total
|
|
|
|
|
Balance at September 30, 2006
|
|
|
46,479,536
|
|
|
$
|
46,479
|
|
|
$
|
458,907
|
|
|
$
|
356,596
|
|
|
$
|
(4,629
|
)
|
|
$
|
857,353
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90,500
|
|
|
|
|
|
|
|
90,500
|
|
Minimum pension liability adjustment, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,230
|
|
|
|
1,230
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
91,730
|
|
Impact of initially applying SFAS No. 158 (ASC Topic
715), net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
207
|
|
|
|
207
|
|
Stock-based
compensation(a)
|
|
|
|
|
|
|
|
|
|
|
4,633
|
|
|
|
|
|
|
|
|
|
|
|
4,633
|
|
Dividends declared:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(67,213
|
)
|
|
|
|
|
|
|
(67,213
|
)
|
Preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,320
|
)
|
|
|
|
|
|
|
(1,320
|
)
|
|
Balance at September 30, 2007
|
|
|
46,479,536
|
|
|
|
46,479
|
|
|
|
463,540
|
|
|
|
378,563
|
|
|
|
(3,192
|
)
|
|
|
885,390
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
114,182
|
|
|
|
|
|
|
|
114,182
|
|
Post-retirement benefits adjustment, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,441
|
|
|
|
1,441
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
115,623
|
|
Stock-based
compensation(a)
|
|
|
|
|
|
|
|
|
|
|
4,221
|
|
|
|
|
|
|
|
|
|
|
|
4,221
|
|
Dividends declared:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(68,865
|
)
|
|
|
|
|
|
|
(68,865
|
)
|
Preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,320
|
)
|
|
|
|
|
|
|
(1,320
|
)
|
|
Balance at September 30, 2008
|
|
|
46,479,536
|
|
|
|
46,479
|
|
|
|
467,761
|
|
|
|
422,560
|
|
|
|
(1,751
|
)
|
|
|
935,049
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
106,585
|
|
|
|
|
|
|
|
106,585
|
|
Post-retirement benefits adjustment, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,690
|
)
|
|
|
(4,690
|
)
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101,895
|
|
Stock-based
compensation(a)
|
|
|
|
|
|
|
|
|
|
|
1,265
|
|
|
|
|
|
|
|
|
|
|
|
1,265
|
|
Dividends declared:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(70,450
|
)
|
|
|
|
|
|
|
(70,450
|
)
|
Preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,320
|
)
|
|
|
|
|
|
|
(1,320
|
)
|
|
Balance at September 30, 2009
|
|
|
46,479,536
|
|
|
$
|
46,479
|
|
|
$
|
469,026
|
|
|
$
|
457,375
|
|
|
$
|
(6,441
|
)
|
|
$
|
966,439
|
|
|
|
|
|
(a)
|
|
Stock-based compensation is based
on the stock awards of WGL Holdings that are allocated to
Washington Gas Light Company for its pro-rata share.
|
The accompanying notes are an
integral part of these statements.
81
WGL
Holdings, Inc.
Washington Gas Light Company
Part II
Item 8. Financial Statements and Supplementary Data
(continued)
Notes to Consolidated Financial Statements
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
GENERAL
WGL Holdings, Inc. (WGL Holdings) is a holding company that owns
all of the shares of common stock of Washington Gas Light
Company (Washington Gas), a regulated natural gas utility, and
all of the shares of common stock of Washington Gas Resources
Corporation (Washington Gas Resources), Hampshire Gas Company
(Hampshire) and Crab Run Gas Company. Washington Gas Resources
owns all of the shares of common stock of three unregulated
subsidiaries that include Washington Gas Energy Services, Inc.
(WGEServices), Washington Gas Energy Systems, Inc. (WGESystems)
and Washington Gas Credit Corporation. Except where the content
clearly indicates otherwise, WGL Holdings,
we, us or our refers to the
holding company or the consolidated entity of WGL Holdings and
all of its subsidiaries. Unless otherwise noted, these notes
apply equally to WGL Holdings and Washington Gas.
NATURE
OF OPERATIONS
Our core business is the delivery and sale of natural gas
through Washington Gas. We also offer retail energy-related
products and services that are closely related to our core
business. The majority of these energy-related activities are
performed by wholly owned unregulated subsidiaries of Washington
Gas Resources.
Washington Gas is a regulated public utility that sells and
delivers natural gas to approximately 1.1 million customers
primarily in the District of Columbia, and the surrounding
metropolitan areas in Maryland and Virginia. Deliveries to firm
residential and commercial customers accounted for 78.1% of the
total therms delivered to customers by Washington Gas in fiscal
year 2009. Deliveries to interruptible customers accounted for
16.0% and deliveries to customers who use natural gas to
generate electricity accounted for 5.9%. These amounts do not
include deliveries related to Washington Gass asset
optimization program discussed further below. Hampshire operates
an underground natural gas storage facility that provides
services exclusively to Washington Gas. Hampshire is regulated
under a cost of service tariff by the Federal Energy Regulatory
Commission (FERC). Both Washington Gas and Hampshire comprise
our regulated utility segment.
The retail energy-marketing segment consists of the operations
of WGEServices which competes with regulated utilities and other
unregulated third party marketers to sell natural gas and
electricity directly to residential, commercial and industrial
customers with the objective of earning a profit through
competitive pricing. The commodities that WGEServices sells are
delivered to retail customers through assets owned by regulated
utilities. Washington Gas delivers the majority of natural gas
sold by WGEServices, and unaffiliated electric utilities deliver
all of the electricity sold. During the fiscal year ended
September 30, 2009, WGEServices contracted for and
completed the construction of one Solar PV facility, which
includes ownership of the operational asset, and has contracted
for two additional facilities that are expected to be completed
by December 31, 2009. Other than these facilities,
WGEServices does not own or operate any natural gas or electric
generation, production, transmission or distribution assets. At
September 30, 2009, WGEServices served approximately
151,000 residential, commercial and industrial natural gas
customers and approximately 113,000 residential, commercial and
industrial electricity customers located in Maryland, Virginia,
Delaware and the District of Columbia.
The design-build energy systems segment comprises WGESystems,
which provides design-build energy efficient and sustainable
solutions to government and commercial clients under
construction contracts. Refer to Note 15Operating
Segment Reporting for further discussion of our segments.
CONSOLIDATION
OF FINANCIAL STATEMENTS
The consolidated financial statements include the accounts of
WGL Holdings and its subsidiaries during the fiscal years
reported. Inter-company transactions have been eliminated.
USE
OF ESTIMATES IN THE PREPARATION OF FINANCIAL
STATEMENTS
In accordance with generally accepted accounting principles in
the United States of America (GAAP), we make certain estimates
and assumptions regarding: (i) reported amounts of
assets and liabilities; (ii) disclosure of
contingent assets and liabilities at the date of the financial
statements and (iii) reported amounts of revenues,
revenues subject to refund, and expenses during the reporting
period. Actual results could differ from those estimates.
82
WGL
Holdings, Inc.
Washington Gas Light Company
Part II
Item 8. Financial Statements and Supplementary Data
(continued)
Notes to Consolidated Financial Statements
PROPERTY,
PLANT AND EQUIPMENT
Property, plant and equipment (comprised principally of utility
plant) is stated at original cost, including labor, materials,
taxes and overhead costs incurred during the construction
period. The cost of utility and other plant of Washington Gas
includes an allowance for funds used during construction (AFUDC)
that is calculated under a formula prescribed by our regulators.
Washington Gas capitalizes AFUDC as a component of construction
overhead. The before-tax rates for AFUDC for fiscal years 2009,
2008 and 2007 were 0.35%, 5.46% and 6.27%, respectively. As a
result of decreased construction balances and significant
decreases in short-term debt interest rates, Washington Gas made
an adjustment of $383,800 to reduce the amount of capitalized
AFUDC for the fiscal year ended September 30, 2009.
Washington Gas capitalized AFUDC of $999,000 and $869,000 during
the fiscal years ended September 30, 2008 and 2007,
respectively.
As approved by our regulators, Washington Gas accrues an annual
amount of asset removal costs through depreciation expense with
a corresponding credit to Regulatory
liabilitiesAccrued asset removal costs. When
Washington Gas retires depreciable utility plant and equipment,
it charges the associated original costs to Accumulated
depreciation and amortization and any related removal
costs incurred are charged to Regulatory
liabilitiesAccrued asset removal costs.
Washington Gas charges maintenance and repairs to operating
expenses, except those charges applicable to transportation and
power-operated equipment, which it allocates to operating
expenses, construction and other accounts based on the use of
the equipment. Washington Gas capitalizes betterments and
renewal costs, and calculates depreciation applicable to its
utility gas plant in service primarily using a straight-line
method over the estimated remaining life of the plant. The
composite depreciation and amortization rate of the regulated
utility segment was 3.12% during fiscal year 2009, and 3.23% and
3.19% during fiscal years 2008 and 2007, respectively. In
accordance with regulatory requirements, such rates include a
component related to asset removal costs for Washington Gas.
Washington Gas periodically reviews the adequacy of its
depreciation rates by considering estimated remaining lives and
other factors. Refer to Note 13Commitments and
Contingencies for a discussion of depreciation-related
contingencies.
At September 30, 2009 and 2008, 99.7% and 99.8%,
respectively, of WGL Holdings consolidated original cost
of property, plant and equipment was related to the regulated
utility segment as shown below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, Plant and Equipment at Original Cost
|
|
|
|
At September 30,
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
Dollars
|
|
|
%
|
|
|
Dollars
|
|
|
%
|
|
|
|
Regulated utility segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution, transmission and storage
|
|
$
|
2,890.6
|
|
|
|
89.2
|
|
|
$
|
2,791.2
|
|
|
|
87.7
|
|
General, miscellaneous and intangibles
|
|
|
293.1
|
|
|
|
9.0
|
|
|
|
314.1
|
|
|
|
9.9
|
|
Construction work in progress (CWIP)
|
|
|
49.4
|
|
|
|
1.5
|
|
|
|
71.8
|
|
|
|
2.2
|
|
|
Total regulated utility segment
|
|
|
3,233.1
|
|
|
|
99.7
|
|
|
|
3,177.1
|
|
|
|
99.8
|
|
Unregulated segments
|
|
|
9.3
|
|
|
|
0.3
|
|
|
|
7.1
|
|
|
|
0.2
|
|
|
Total
|
|
$
|
3,242.4
|
|
|
|
100.0
|
|
|
$
|
3,184.2
|
|
|
|
100.0
|
|
|
OPERATING
LEASES
We have classified the lease of our corporate headquarters as an
operating lease. We amortize to rent expense the total of all
scheduled lease payments (including lease payment escalations)
and tenant allowances on a straight-line basis over the term of
the lease. For this purpose, the lease term began on the date
when the lessor commenced constructing the leasehold
improvements which allowed us to occupy our corporate
headquarters. Leasehold improvement costs are classified as
Property, Plant and Equipment on the Balance Sheets,
and are being amortized to depreciation and amortization expense
on a straight-line basis over the
15-year
non-cancelable period of the lease. Refer to
Note 13Commitments and Contingencies for
financial data for all of our operating leases.
REGULATED
OPERATIONS
Washington Gas accounts for its regulated operations in
accordance with Financial Accounting Standards Board Accounting
Standards Codification (ASC) Topic 980, Regulated
Operations (ASC Topic 980). This standard includes
accounting principles for companies whose rates are determined
by independent third party regulators. When setting rates,
regulators may require us to record costs as expense in
different periods than may be appropriate for unregulated
enterprises. When this occurs, Washington Gas defers the
associated costs as assets (regulatory assets) on its balance
sheet and records them as expenses on its income statement as it
collects the
83
WGL
Holdings, Inc.
Washington Gas Light Company
Part II
Item 8. Financial Statements and Supplementary Data
(continued)
Notes to Consolidated Financial Statements
revenues designed to recover these costs through customers
rates. Further, regulators can also impose liabilities upon a
company for amounts previously collected from customers and for
recovery of costs that are expected to be incurred in the future
(regulatory liabilities).
Effective January 1, 2008, Washington Gas revised its
regulatory practice associated with the treatment of certain
indirect overhead costs related to its construction activities
for its fixed assets. The new treatment will be applicable to
the determination of the revenue required to recover such costs
in accordance with ASC Topic 980 for all subsequent periods and
has been adopted for all jurisdictions. The revision consists of
measuring internal labor costs that are spent on the
administration of the construction program and including these
costs in the overhead rates that are allocated to its
constructed assets. This treatment is in accordance with
regulatory rules applicable to fixed asset accounting and is
common practice within the public utility industry. The result
of this treatment for the fiscal year ended September 30,
2008 was to capitalize $1.1 million (pre-tax) of costs.
In fiscal year 2009, Washington Gas adopted a revised practice
associated with the capitalization of incentive compensation
costs related to its construction activities for fixed assets.
This accounting is in accordance with the regulatory rules
applicable to fixed asset accounting and is common place within
the public utility industry. The result of this treatment for
the fiscal year ended September 30, 2009 was to capitalize
$1.4 million (pre-tax) of costs.
At September 30, 2009 and 2008, we had recorded the
following regulatory assets and liabilities on its balance
sheets. These assets and liabilities will be recognized as
expenses or revenues in future periods as they are reflected in
customers rates.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Regulatory Assets and Liabilities
|
|
|
|
Regulatory
|
|
|
Regulatory
|
|
|
|
(In millions)
|
|
Assets
|
|
|
Liabilities
|
|
|
|
|
At September 30,
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gas costs due from/to customers
|
|
$
|
71.7
|
|
|
$
|
19.2
|
|
|
$
|
7.0
|
|
|
$
|
7.4
|
|
|
|
Interruptible sharing
|
|
|
3.8
|
|
|
|
5.3
|
|
|
|
4.1
|
|
|
|
|
|
|
|
Earnings Sharing Mechanism
(ESM)(a)(b)
|
|
|
|
|
|
|
|
|
|
|
3.3
|
|
|
|
4.8
|
|
|
|
Weather Normalization Adjustment (WNA) billing
mechanism(b)
|
|
|
|
|
|
|
2.0
|
|
|
|
|
|
|
|
|
|
|
|
Capacity Allocation Charge
|
|
|
1.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues Normalization Adjustment (RNA) billing
mechanism(c)
|
|
|
|
|
|
|
|
|
|
|
0.4
|
|
|
|
|
|
|
|
|
Total current
|
|
|
77.2
|
|
|
|
26.5
|
|
|
|
14.8
|
|
|
|
12.2
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued asset removal costs
|
|
|
|
|
|
|
|
|
|
|
319.2
|
|
|
|
306.0
|
|
|
|
Deferred gas costs
|
|
|
14.0
|
|
|
|
50.8
|
|
|
|
|
|
|
|
|
|
|
|
Pension and other post-retirement benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other post-retirement benefit
coststrackers(d)
|
|
|
6.1
|
|
|
|
8.7
|
|
|
|
|
|
|
|
|
|
|
|
Deferred pension
costs/incometrackers(d)
|
|
|
20.2
|
|
|
|
13.9
|
|
|
|
|
|
|
|
|
|
|
|
ASC Topic 715 unrecognized
costs/income(e)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pensions
|
|
|
173.5
|
|
|
|
52.6
|
|
|
|
|
|
|
|
|
|
|
|
Other post-retirement benefits
|
|
|
106.7
|
|
|
|
56.3
|
|
|
|
|
|
|
|
|
|
|
|
Other curtailment costs for pensions & other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
post-retirement
benefits(f)
|
|
|
2.0
|
|
|
|
2.5
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pension and other post-retirement benefits
|
|
|
308.5
|
|
|
|
134.0
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax-related amounts due from/to customers
|
|
|
22.8
|
|
|
|
26.4
|
|
|
|
9.3
|
|
|
|
9.7
|
|
|
|
Losses/gains on issuance and extinguishments of debt and
interest-rate derivative
instruments(g)
|
|
|
8.3
|
|
|
|
8.2
|
|
|
|
1.7
|
|
|
|
1.6
|
|
|
|
Deferred gain on sale of assets
|
|
|
|
|
|
|
|
|
|
|
3.0
|
|
|
|
3.2
|
|
|
|
Environmental response costs
|
|
|
2.8
|
|
|
|
2.8
|
|
|
|
|
|
|
|
|
|
|
|
Rights-of-way
fees
|
|
|
0.5
|
|
|
|
1.1
|
|
|
|
|
|
|
|
|
|
|
|
Other costsBusiness Process Outsourcing (BPO)
|
|
|
13.2
|
|
|
|
12.6
|
|
|
|
|
|
|
|
|
|
|
|
Sabbatical leave and other similar benefits
|
|
|
3.1
|
|
|
|
6.1
|
|
|
|
|
|
|
|
|
|
|
|
Other regulatory expenses
|
|
|
3.2
|
|
|
|
1.2
|
|
|
|
0.3
|
|
|
|
0.5
|
|
|
|
|
Total other
|
|
|
53.9
|
|
|
|
58.4
|
|
|
|
14.3
|
|
|
|
15.0
|
|
|
|
|
Total deferred
|
|
|
376.4
|
|
|
|
243.2
|
|
|
|
333.5
|
|
|
|
321.0
|
|
|
|
|
Total
|
|
$
|
453.6
|
|
|
$
|
269.7
|
|
|
$
|
348.3
|
|
|
$
|
333.2
|
|
|
|
|
84
WGL
Holdings, Inc.
Washington Gas Light Company
Part II
Item 8. Financial Statements and Supplementary Data
(continued)
Notes to Consolidated Financial Statements
(a) Refer
to the section entitled Performance-Based Rate Plans
under Note 13Commitments and Contingencies for a
further discussion of these amounts.
|
|
(b) |
Relates to the Virginia
jurisdiction.
|
|
|
(c) |
Relates to the Maryland
jurisdiction.
|
|
|
(d) |
Relates to the District of
Columbia.
|
|
|
(e) |
Refer to
Note 10Pension and Other Post-Retirement Benefit
Plans for a further discussion of these amounts.
|
|
|
(f)
|
Represents curtailment costs
related to Virginia and Maryland associated with our BPO plan.
Curtailment costs related to the District of Columbia are
included in Other post-retirement
benefitstrackers and Deferred pension
costs/incometrackers.
|
(g)
|
The losses or gains on the
issuance and extinguishment of debt and interest-rate derivative
instruments include unamortized balances from transactions
executed in prior fiscal years. These transactions create gains
and losses that are amortized over the remaining life of the
debt as prescribed by regulatory accounting
requirements.
|
With the exception of gas costs due from customers and deferred
gas costs, there are no material regulatory assets that reflect
an outlay of cash by Washington Gas for which Washington Gas
does not earn its overall rate of return. Washington Gas is
allowed to recover and is required to pay, using short-term
interest rates, the carrying costs related to gas costs due from
and to its customers in the District of Columbia and Virginia
jurisdictions.
As required by ASC Topic 980, Washington Gas monitors its
regulatory and competitive environment to determine whether the
recovery of its regulatory assets continues to be probable. If
Washington Gas were to determine that recovery of these assets
is no longer probable, it would write off the assets against
earnings. We have determined that ASC Topic 980 continues to
apply to our regulated operations, and the recovery of our
regulatory assets is probable.
CASH
AND CASH EQUIVALENTS
We consider all investments with original maturities of three
months or less to be cash equivalents. We did not have any
restrictions on our cash balances that would impact the payment
of dividends by WGL Holdings or our subsidiaries as of
September 30, 2009.
REVENUE
AND COST RECOGNITION
Regulated
Utility Operations
Revenues. For regulated deliveries of
natural gas, Washington Gas reads meters and bills customers on
a monthly cycle basis. The billing cycles for customers do not
coincide with the accounting periods used for financial
reporting purposes; therefore, Washington Gas accrues unbilled
revenues for gas delivered, but not yet billed, at the end of
each accounting period.
Cost of Gas. Washington Gass
jurisdictional tariffs contain mechanisms that provide for the
recovery of the cost of gas incurred on behalf of firm
customers, including related pipeline transportation and storage
capacity charges. Under these mechanisms, Washington Gas
periodically adjusts its firm customers rates to reflect
increases and decreases in these costs. Under or
over-collections of gas costs in the current cycle are charged
or credited to deferred charges or credits on the balance sheet
as non-current regulatory assets or liabilities. Amounts
deferred at the end of the cycle, August 31 of each year,
are fully reconciled and transferred to current assets or
liabilities under the balance sheet captions Gas costs and
other regulatory assets and Gas costs and other
regulatory liabilities. These balances are recovered or
refunded to customers over the subsequent 12 month period.
Revenue Taxes. Revenue taxes such as
gross receipts taxes, Public Service Commission (PSC) fees,
franchise fees and energy taxes are reported gross in operating
revenues. Refer to Note 15Operating Segment
Reporting for amounts recorded related to revenue taxes.
Transportation Gas
Imbalance. Interruptible shippers and third
party marketer shippers transport gas on Washington Gass
distribution system as part of the unbundled services that it
offers. The delivered volumes of gas from third party shippers
into Washington Gass distribution system often do not
equal the volumes delivered to those customers, resulting in
transportation gas imbalances. These imbalances are usually
short-term in duration, and Washington Gas monitors the activity
and regularly notifies the shippers when their accounts have an
imbalance. In accordance with regulatory treatment, Washington
Gas does not record a receivable from or liability to third
party marketers associated with gas volumes related to these
transportation imbalances but, rather, reflects the financial
impact as a regulatory asset or liability related to its gas
cost adjustment mechanism, thereby eliminating any profit or
loss that would occur as a result of the imbalance. The
regulatory treatment combines the imbalance for all marketers,
85
WGL
Holdings, Inc.
Washington Gas Light Company
Part II
Item 8. Financial Statements and Supplementary Data
(continued)
Notes to Consolidated Financial Statements
including WGEServices, into a single net adjustment
to the regulatory asset or liability. Refer to
Note 16Related Party Transactions for a
further discussion of the accounting for these imbalance
transactions.
Asset Optimization Program. Washington
Gas optimizes the value of its long-term natural gas
transportation and storage capacity resources by entering into
physical and financial transactions in the form of forwards,
swaps and option contracts for periods when these resources are
not being used to physically serve utility customers. Refer to
Derivative Activities below for a further
discussion of the accounting for derivative transactions entered
into under this program. Regulatory sharing mechanisms in all
three jurisdictions allow the profit from these transactions to
be shared between Washington Gass customers and
shareholders. The customer portion does not affect earnings.
Prior to May 1, 2008, Washington Gas contracted for the
management of a portion of Washington Gass asset
optimization program with non-affiliated asset managers. These
asset managers paid Washington Gas a fee to utilize the related
capacity resources for their own account when they were not
required to meet customer supply needs. On April 30, 2008,
the last of these asset management contracts expired, and
Washington Gas retained the use of all of its capacity resources
to manage the asset optimization program internally with the
assistance of external consultants.
All unrealized fair value gains and losses and margins generated
from the physical and financial settlement of these asset
optimization contracts are recorded in utility cost of gas or,
in the case of amounts to be shared with rate payers, regulatory
liabilities. In conjunction with optimizing Washington
Gass storage capacity, storage gas inventory may be
subject to lower of cost or market adjustments. Washington Gas
recorded a lower of cost or market adjustment after the effects
of regulatory sharing of $8.4 million and $2.5 million
during the fiscal years ended September 30, 2009 and 2008,
respectively related to its storage gas inventory, which was
recorded to Utility cost of gas. No such adjustments
were made during the fiscal year ended September 30, 2007.
Non-Utility
Operations
Retail Energy-Marketing
Segment. WGEServices sells natural gas and
electricity on an unregulated basis to residential, commercial
and industrial customers both inside and outside the Washington
Gas service territory.
WGEServices enters into indexed or fixed-rate contracts with
residential, commercial and industrial customers, for sales of
natural gas and electricity. Customer contracts, which typically
have terms less than 24 months, but may extend up to five
years, allow WGEServices to bill customers based upon metered
gas and electricity usage, measured on a cycle basis, at
customer premises or based on quantities delivered to the local
utility, either of which may vary by month. The billing cycles
for customers do not coincide with the accounting periods used
for financial reporting purposes; therefore, WGEServices accrues
unbilled revenues for gas and electricity delivered, but not yet
billed, at the end of each accounting period. Revenues are
reflected in Operating RevenuesNon utility.
WGEServices procures natural gas and electricity supply under
contract structures in which it assembles the various components
of supply from multiple suppliers to match its customer
requirements. The cost of natural gas and electricity for these
purchases is recorded using the contracted volumes and prices in
Non-Utility cost of energy-related sales.
Design-Build Energy Systems
Segment. WGESystems recognizes income and
expenses for all construction contracts using the
percentage-of-completion
method in Operating RevenuesNon-utility and
Non-Utility cost of energy-related sales.
RATE
REFUNDS DUE TO CUSTOMERS
When Washington Gas files a request with certain regulatory
commissions to modify customers rates, it is permitted to
charge customers new rates, subject to refund, until the
regulatory commission renders a final decision on the amount of
the authorized change in rates. During this interim period,
Washington Gas records a provision for a rate refund regulatory
liability based on the difference between the amount it collects
in rates and the amount it expects to recover from a final
regulatory decision. Similarly, Washington Gas periodically
records provisions for rate refunds related to other
transactions. Actual results for these regulatory contingencies
are often difficult to predict and could differ significantly
from the estimates reflected in the financial statements. When
necessary, Washington Gas establishes a liability for an
estimated refund to customers. Refer to
Note 13Commitments and Contingencies for a
further discussion of regulatory matters and related
contingencies.
86
WGL
Holdings, Inc.
Washington Gas Light Company
Part II
Item 8. Financial Statements and Supplementary Data
(continued)
Notes to Consolidated Financial Statements
REACQUISITION
OF LONG-TERM DEBT
Washington Gas defers gains or losses resulting from the
reacquisition of long-term debt as regulatory liabilities or
assets for financial reporting purposes, and amortizes them over
future periods as adjustments to interest expense in accordance
with established regulatory practice. For income tax purposes,
Washington Gas recognizes these gains and losses when they are
incurred.
WEATHER-RELATED
INSTRUMENTS
Periodically, we purchase certain weather-related instruments,
such as weather insurance policies, heating degree day (HDD)
derivatives and cooling degree day (CDD) derivatives. We
account for these weather related instruments in accordance with
ASC Subtopic
815-45,
Derivatives and HedgingWeather Derivatives.
For weather insurance policies and HDD derivatives, benefits or
costs are ultimately recognized to the extent actual HDDs fall
above or below the contractual HDDs for each instrument.
Benefits or costs are recognized for CDD derivatives when the
average temperature exceeds a contractually stated level during
the contract period. Premiums for weather-related instruments
are amortized based on the pattern of normal temperature days
over the coverage period. Weather-related instruments for which
we collect a premium are carried at fair value. Washington
Gass weather related instrument premium expense or benefit
are not considered in establishing retail rates. Washington Gas
does not purchase such instruments for jurisdictions in which it
has received rate mechanisms that compensate it on a normal
weather basis. Refer to Note 5Derivative and
Weather-Related Instruments for a further discussion of our
weather-related instruments.
CONCENTRATION
OF CREDIT RISK
Regulated
Utility Segment
Washington Gas has a relatively low concentration of customer
credit risk due to its large number of customers, none of which
is singularly large as a percentage of Washington Gass
total customer base. Although Washington Gas has credit
monitoring policies and procedures which are designed to limit
its exposure, it has credit risk to the extent the
implementation of such controls are not effective in mitigating
all of its risk. Certain wholesale suppliers that sell natural
gas to Washington Gas either have relatively low credit ratings
or are not rated by major credit rating agencies. In the event
of a suppliers failure to deliver contracted volumes of
gas, Washington Gas may need to replace those volumes at
prevailing market prices, which may be higher than the original
transaction prices, and pass these costs through to its sales
customers under the purchased gas cost adjustment mechanisms.
Additionally, Washington Gas enters into contracts with
wholesale counterparties to buy and sell natural gas for the
purpose of optimizing the value of its long-term capacity and
storage assets, as well as for hedging natural gas costs and
interest costs. In the event of a default by these
counterparties, Washington Gas may be at risk for financial loss
to the extent these costs are not passed through to its
customers.
Retail
Energy-Marketing Segment
WGEServices has credit monitoring policies and procedures which
are designed to limit its credit risk exposure; however, it has
credit risk to the extent the implementation of such controls
are not effective in mitigating all of its risk. Certain
suppliers that sell natural gas or electricity to WGEServices
have either relatively low credit ratings or are not rated by
major credit rating agencies. Depending on the ability of these
suppliers to deliver natural gas or electricity under existing
contracts, WGEServices could be financially exposed for the
difference between the price at which WGEServices has contracted
to buy these commodities and their replacement cost from another
supplier. Additionally, WGEServices enters into contracts with
third parties to hedge the costs of natural gas and electricity.
Depending on the ability of the third parties to fulfill their
commitments, WGEServices could be at risk for financial loss.
WGEServices is also exposed to the risk of non-payment of
invoiced sales by its retail customers. WGEServices manages this
risk by evaluating the credit quality of new customers as well
as by monitoring collections from existing customers. To the
extent necessary, WGEServices can obtain collateral from, or
terminate service to, its customers.
DERIVATIVE
ACTIVITIES
WGEServices enters into both physical and financial contracts
for the purchase and sale of natural gas and electricity. We
designate a portion of these physical contracts related to the
purchase of natural gas and electricity to serve our customers
as normal purchases and normal sales; therefore,
they are not subject to the
mark-to-market
accounting requirements of ASC Topic 815, Derivatives and
Hedging. The financial contracts and the portion of the
physical contracts that qualify as derivative instruments and
87
WGL
Holdings, Inc.
Washington Gas Light Company
Part II
Item 8. Financial Statements and Supplementary Data
(continued)
Notes to Consolidated Financial Statements
are subject to the
mark-to-market
accounting requirements are recorded on the balance sheet at
fair value and are reflected in earnings. Washington Gas enters
into both physical and financial derivative contracts for the
purchase and sale of natural gas, which are subject to
mark-to-market
accounting. Changes in the fair value of derivative instruments
recoverable or refundable to customers and therefore subject to
ASC Topic 980, are recorded as regulatory assets or liabilities
while changes in the fair value of derivative instruments not
affected by rate regulation are reflected in earnings.
As part of its asset optimization program, Washington Gas enters
into derivative contracts related to the sale and purchase of
natural gas at a future price to substantially lock-in operating
margins that Washington Gas will ultimately realize. The
derivatives used under this program may cause significant
period-to-period
volatility in earnings for the portion of net profits retained
for shareholders; however, this volatility will not change the
margins that Washington Gas will ultimately realize from these
transactions. In accordance with ASC Topic 815, all financially
and physically settled contracts under our asset optimization
program are reported on a net basis in the statements of income
in Utility cost of gas.
From time to time Washington Gas also utilizes derivative
instruments that are designed to minimize the risk of
interest-rate volatility associated with planned issuances of
Medium-Term Notes (MTNs). Gains or losses associated with these
derivative transactions are deferred as regulatory assets or
liabilities and amortized to interest expense in accordance with
regulatory accounting requirements. Refer to
Note 5Derivative and Weather-Related Instruments
for a further discussion of our derivative activities.
INCOME
TAXES
We recognize deferred income tax assets and liabilities for all
temporary differences between the financial statement basis and
the tax basis of assets and liabilities, including those where
regulators prohibit deferred income tax treatment for ratemaking
purposes of Washington Gas. Regulatory assets or liabilities,
corresponding to such additional deferred income tax assets or
liabilities, may be recorded to the extent recoverable from or
payable to customers through the ratemaking process. Refer to
the table under Regulated Operations above that
depicts Washington Gass regulatory assets and liabilities
associated with income taxes due from and to customers at
September 30, 2009 and 2008. Amounts applicable to income
taxes due from and due to customers primarily represent
differences between the book and tax basis of net utility plant
in service. We amortize investment tax credits as reductions to
income tax expense over the estimated service lives of the
related properties. Refer to Note 9Income Taxes
which provides detailed financial information related to our
income taxes.
STOCK-BASED
COMPENSATION
We account for stock-based compensation expense in accordance
with ASC Topic 718, CompensationStock Compensation
(ASC Topic 718) which requires us to measure and
recognize stock-based compensation expense in our financial
statements based on the fair value at the date of grant for our
share-based awards, which include performance shares,
performance units, stock options granted to certain employees
and shares issued to directors. In addition, we estimate
forfeitures over the requisite service period when recognizing
compensation expense; these estimates are periodically adjusted
to the extent to which actual forfeitures differ from such
estimates. Refer to Note 11Stock-Based
Compensation for a further discussion of the accounting for
our stock-based compensation plans.
ASSET
RETIREMENT OBLIGATIONS
Washington Gas accounts for its asset retirement obligations
(AROs) in accordance with ASC Subtopic
410-20,
Asset Retirement and Environmental ObligationsAsset
Retirement Obligations. Our asset retirement obligations
include the costs to cut, purge and cap our natural gas
distribution system, remove asbestos and plug storage wells upon
their retirement. These standards require recording the
estimated retirement cost over the life of the related asset by
depreciating the present value of the retirement obligation,
measured at the time of the assets acquisition, and
accreting the liability until it is settled. There are timing
differences between the ARO-related accretion and depreciation
amounts being recorded pursuant to GAAP and the recognition of
depreciation expense for legal asset removal costs that we are
currently recovering in rates. These timing differences are
recorded as a reduction to Regulatory
liabilitiesAccrued asset removal costs in accordance
with ASC Topic 980. We do not have any assets that are legally
restricted related to the settlement of asset retirement
obligations.
88
WGL
Holdings, Inc.
Washington Gas Light Company
Part II
Item 8. Financial Statements and Supplementary Data
(continued)
Notes to Consolidated Financial Statements
PENSION
AND OTHER POST-RETIREMENT BENEFIT PLANS
In September 2006, the FASB issued Statement of Financial
Accounting Standards (SFAS) No. 158, Employers
Accounting for Defined Benefit Pension and Other Postretirement
Plans (part of ASC Topic 715,
CompensationRetirement Benefits),
which amended SFAS No. 87, Employers
Accounting for Pensions, SFAS No. 88,
Employers Accounting for Settlements and Curtailments
of Defined Benefit Pension Plans and for Termination
Benefits, SFAS No. 106, Employers
Accounting for Postretirement Benefits Other Than Pensions
and SFAS 132 (revised 2003), Employers
Disclosures about Pensions and Other Postretirement Benefits.
SFAS No. 158 requires an employer to recognize the
over-funded or under-funded status of a defined benefit
post-retirement plan as an asset or liability on its balance
sheet, and to recognize changes in that funded status in the
year in which the changes occur through other comprehensive
income. Additionally, upon adoption companies were required to
record the initial impact of SFAS No. 158 directly to
accumulated other comprehensive income (loss), net of taxes.
This amount represents the initial recognition in the balance
sheet of unrecognized costs associated with actuarial net losses
and gains, prior service costs and transition obligations which
had previously been presented for disclosure purposes only.
Washington Gas adopted SFAS No. 158 prospectively
effective September 30, 2007. Almost all costs associated
with Washington Gass defined benefit post-retirement plans
have historically been, and will continue to be, recovered
through Washington Gass rates. Therefore, following the
guidance in SFAS No. 158, upon adoption of
SFAS No. 158 Washington Gas established a regulatory
asset or liability for the majority of the unrecognized costs or
income associated with its defined benefit post-retirement
plans. To the extent these amounts are not recovered through
Washington Gass rates, they were recorded directly to
Accumulated other comprehensive loss, net of taxes.
At September 30, 2007, the incremental effect of applying
SFAS No. 158 on our balance sheet was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incremental Effects of Adopting SFAS No. 158
|
|
|
|
Before
|
|
|
|
|
|
After
|
|
|
|
|
|
application of
|
|
|
SFAS No. 158
|
|
|
Application of
|
|
|
|
(In thousands)
|
|
SFAS No. 158
|
|
|
Adjustments
|
|
|
SFAS No. 158
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Regulatory assetsPension and other post-retirement benefits
|
|
$
|
21,683
|
|
|
$
|
119,480
|
|
|
$
|
141,163
|
|
|
|
Prepaid qualified pension benefits
|
|
|
70,612
|
|
|
|
19,413
|
|
|
|
90,025
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
298,401
|
|
|
|
(34,001
|
)
|
|
|
264,400
|
|
|
|
Accrued pensions and benefits
|
|
|
46,150
|
|
|
|
153,682
|
|
|
|
199,832
|
|
|
|
Regulatory liabilitiesPension and other post-retirement
benefits
|
|
|
|
|
|
|
19,005
|
|
|
|
19,005
|
|
|
|
Common shareholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss, net of taxes
|
|
|
(3,399
|
)
|
|
|
207
|
|
|
|
(3,192
|
)
|
|
|
|
Refer to Note 10Pension and Other Post-Retirement
Benefit Plans for disclosures regarding the funded status of
Washington Gass defined benefit post-retirement plans.
ACCOUNTING
STANDARDS ADOPTED IN FISCAL YEAR 2009
Subsequent Events. In May 2009, the
FASB issued SFAS No. 165, Subsequent Events
(now included in ASC Topic 855, Subsequent Events).
SFAS No. 165 establishes general standards of
accounting for and disclosure of events that occur after the
balance sheet date but before financial statements are issued or
are available to be issued. SFAS No. 165 does not
apply to the accounting for and disclosure of subsequent events
addressed in other generally accepted accounting principles.
Effective June 30, 2009, we adopted SFAS No. 165
for disclosures of events or transactions not within the scope
of other applicable GAAP. Refer to
Note 17Subsequent Events for the required
disclosure under this standard.
Fair Value. In April 2009, the FASB
issued FASB Staff Position (FSP)
No. FAS 107-1
and APB
28-1,
Interim Disclosures about Fair Value of Financial Instruments
(now part of ASC Topic 825, Financial Instruments).
FSP
FAS 107-1
and APB 28-1
amends SFAS No. 107 to require disclosures about fair
value of financial instruments for interim reporting periods.
This rule also amends Accounting Principles Board (APB) Opinion
No. 28 to require disclosures about fair value of financial
instruments in summarized
89
WGL
Holdings, Inc.
Washington Gas Light Company
Part II
Item 8. Financial Statements and Supplementary Data
(continued)
Notes to Consolidated Financial Statements
financial information at interim reporting periods. This
guidance was effective for us on June 30, 2009. Refer to
Note 14Fair Value of Financial Instruments for
the required disclosure under this standard.
Effective October 1, 2008, we adopted
SFAS No. 157, Fair Value Measurements (now part
of ASC Topic 820, Fair Value Measurements and
Disclosures), as amended, for our financial assets and
liabilities. SFAS No. 157 defines fair value,
establishes a framework for measuring fair value in GAAP and
expands disclosures about fair value measurements.
SFAS No. 157 applies under other accounting
pronouncements that require or permit assets or liabilities to
be measured at fair value, and does not require any new fair
value measurements. Additionally, SFAS No. 157
requires retrospective application to financial instruments that
were measured at fair value upon initial recognition at the
transaction price. Upon adoption, the differences between the
carrying amounts and the fair values of these instruments were
recognized as a cumulative-effect adjustment to the opening
balance of retained earnings or other appropriate components of
net assets. As a result, WGL Holdings recorded a pre-tax
$1.7 million cumulative-effect adjustment
($1.0 million after-tax) to increase the opening balance of
retained earnings. Additionally, Washington Gas recorded a
$4.7 million cumulative effect adjustment to the opening
balance of regulatory assets, as these differences relate to gas
costs that will be recoverable from customers. Refer to
Note 14Fair Value of Financial Instruments for
the required disclosures under this standard.
In October 2008, the FASB issued FSP
No. FAS 157-3,
Determining the Fair Value of a Financial Asset When the
Market for That Asset Is Not Active. This FSP clarifies the
application of SFAS No. 157 in a market that is not
active and provides an example to illustrate key considerations
in determining the fair value of a financial asset when the
market for that asset is not active. This standard was
implemented in conjunction with our implementation of
SFAS No. 157.
In April 2009, the FASB issued FSP
No. FAS 157-4,
Determining Fair Value When the Volume and Level of Activity
for the Asset or Liability Have Significantly Decreased and
Identifying Transactions That are Not Orderly (FSP
FAS 157-4).
This FSP provides additional guidance for estimating fair value
in accordance with SFAS No. 157 when the volume and
level of activity for the asset or liability have significantly
decreased, and for identifying circumstances that indicate a
transaction is not orderly. This FSP requires disclosure, in
interim and annual periods, of the inputs and valuation
techniques used to measure fair value and a discussion of
changes in valuation techniques and related inputs, if any,
during the period. The guidance in this FSP was effective for us
on June 30, 2009. Refer to Note 14Fair Value
of Financial Instruments for the required disclosure under
this standard.
Derivative Instruments. In March 2008,
the FASB issued SFAS No. 161, Disclosures about
Derivative Instruments and Hedging Activities, an amendment of
FASB Statement No. 133 (now part of ASC Topic 815,
Derivatives and Hedging). SFAS No. 161
establishes, among other things, the disclosure requirements for
derivative instruments and for hedging activities. This
statement requires (i) qualitative disclosures about
how and why we use derivative instruments; (ii) how
derivative instruments and related hedged items are accounted
for; and (iii) how derivative instruments and
related hedged items affect our financial position, financial
performance, and cash flows. SFAS No. 161 was
effective for us on January 1, 2009. Refer to
Note 5Derivative and Weather-Related Instruments
for the required disclosures under this standard.
In April 2007, the FASB issued FSP
No. FIN 39-1,
Amendment of FASB Interpretation No. 39. This FSP
amends FIN 39, Offsetting of Amounts Related to Certain
Contracts, to replace the terms conditional
contracts and exchange contracts with the term
derivative instruments as defined in
SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities, as amended. Additionally, it permits
a reporting entity to offset the fair value amounts recognized
for the right to reclaim cash collateral or the obligation to
return cash collateral against fair value amounts recognized for
derivative instruments executed with the same counterparty under
the same master netting arrangement. The guidance in this FSP
was effective for us on October 1, 2008. As a result of the
implementation of this standard, we net the fair value recorded
for each of our cash collateral positions against the net fair
value amounts recorded for the associated derivative instruments
executed under the same master netting arrangement. There were
no material effects on prior periods. At September 30,
2009, and September 30, 2008, WGL Holdings had collateral
receivables totaling $34.6 million and $400,000,
respectively, which were not eligible to be offset under master
netting arrangements. This collateral reflects lower market
prices for energy, compared to the contracted purchase price of
energy supplies. WGL Holdings had no collateral payables
outstanding at either September 30, 2009 or
September 30, 2008. Washington Gas had no collateral
receivables or payables under master netting arrangements at
either September 30, 2009 or September 30, 2008. Refer
to Note 5Derivative and Weather-Related
Instruments for other required disclosures under this
standard.
Accounting Standards Codification. In
June 2009, the FASB issued Accounting Standards Update (ASU)
No. 2009-01,
Topic 105Generally Accepted Accounting
PrinciplesAmendments Based on
SFAS No. 168The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting
Principles (ASC). The ASC is now the single source of
authoritative U.S. GAAP recognized by the FASB, replacing
all previous U.S. GAAP. The Codification does not change
U.S. GAAP, however it
90
WGL
Holdings, Inc.
Washington Gas Light Company
Part II
Item 8. Financial Statements and Supplementary Data
(continued)
Notes to Consolidated Financial Statements
significantly changes the way in which the accounting literature
is organized. The adoption of this standard did not have a
material effect on our consolidated financial statements.
OTHER
NEWLY ISSUED ACCOUNTING STANDARDS
Post Retirement Benefits. In December
2008, the FASB issued FSP FAS 132(R)-1, Employers
Disclosures about Postretirement Benefit Plan Assets (FSP
FAS 132(R)-1), now part of ASC Topic 715-20-65. FSP FAS 132(R)-1
contains amendments to ASC Topic 715 that are intended to
improve disclosures of postretirement benefit plan assets. This
ASU requires; (i) increased disclosure on how
investment allocation decisions are made, including the factors
that are pertinent to an understanding of investment policies
and strategies; (ii) the major categories of plan
assets; (iii) the inputs and valuation techniques
used to measure the fair value of plan assets;
(iv) the effect of fair value measurements using
significant unobservable inputs on changes in plan assets for
the period and (v) significant concentrations of
risk within plan assets. FSP FAS 132(R)-1 is effective for us on
September 30, 2010. We are currently evaluating the
possible effect of this standard on our consolidated financial
statements.
Fair Value. In February 2008, the FASB
issued FSP No. FAS 157-2, Effective Date of FASB Statement
No. 157 (FSP FAS
157-2), now
part of ASC Topic 820-10-55. This FSP was adopted on
October 1, 2008 in conjunction with our implementation of
ASC 820, Fair Value Measurements and Disclosures. ASC
820-10-55,
delays the effective date of ASC 820 for the Company by one year
(October 1, 2009) for non-financial assets and
non-financial liabilities, except for items that are recognized
or disclosed at fair value in the financial statements on a
recurring basis. We are currently evaluating the possible effect
on our consolidated financial statements of applying ASC Topic
820-10-55 to
our non-financial assets and liabilities.
In August 2009, the FASB issued ASU
2009-05,
Fair Value Measurements and DisclosuresMeasuring
Liabilities at Fair Value (ASU Topic
820-10).
This ASU provides amendments to Subtopic
820-10,
Fair Value Measurements and DisclosuresOverall, for
the fair value measurement of liabilities. ASU
820-10
provides clarification that in circumstances in which a quoted
price in an active market for the identical liability is not
available, a reporting entity is required to measure fair value
using; (i) a valuation technique that uses the
quoted price of the identical liability when traded as an asset,
or quoted prices for similar liabilities or similar liabilities
when traded as assets or (ii) another valuation
technique that is consistent with the principles of Topic 820.
ASU Topic
820-10 is
effective for us on October 1, 2009. We are currently
evaluating the possible effect of this standard on our
consolidated financial statements.
Other. In December 2007, the FASB
issued SFAS No. 160, Noncontrolling Interests in Consolidated
Financial Statements, an Amendment of ARB No. 51. SFAS No.
160 establishes accounting and reporting standards for the
non-controlling interest in a subsidiary and for the
deconsolidation of a subsidiary. ASC Topic
810-10-65 is
effective for us on October 1, 2009. We are currently
evaluating the possible effect of this standard on our
consolidated financial statements.
|
|
2.
|
ACCOUNTS PAYABLE
AND OTHER ACCRUED LIABILITIES
|
The tables below provide details for the amounts included in
Accounts payable and other accrued liabilities on
the balance sheets for both WGL Holdings and Washington Gas.
|
|
|
|
|
|
|
|
|
|
|
WGL Holdings, Inc.
|
|
|
|
September 30,
|
|
|
|
|
(In thousands)
|
|
2009
|
|
|
2008
|
|
|
|
|
Accounts payabletrade
|
|
$
|
174,098
|
|
|
$
|
204,283
|
|
|
|
Employee benefits and payroll accruals
|
|
|
28,813
|
|
|
|
22,823
|
|
|
|
Other accrued liabilities
|
|
|
10,618
|
|
|
|
16,017
|
|
|
|
|
Total
|
|
$
|
213,529
|
|
|
$
|
243,123
|
|
|
|
|
91
WGL
Holdings, Inc.
Washington Gas Light Company
Part II
Item 8. Financial Statements and Supplementary Data
(continued)
Notes to Consolidated Financial Statements
|
|
|
|
|
|
|
|
|
|
|
Washington Gas Light Company
|
|
|
|
September 30,
|
|
|
|
|
(In thousands)
|
|
2009
|
|
|
2008
|
|
|
|
|
Accounts payabletrade
|
|
$
|
90,630
|
|
|
$
|
131,630
|
|
|
|
Employee benefits and payroll accruals
|
|
|
26,530
|
|
|
|
20,631
|
|
|
|
Other accrued liabilities
|
|
|
8,135
|
|
|
|
13,799
|
|
|
|
|
Total
|
|
$
|
125,295
|
|
|
$
|
166,060
|
|
|
|
|
WGL Holdings and Washington Gas satisfy their short-term
financing requirements through the sale of commercial paper or
through bank borrowings. Due to the seasonal nature of the
regulated utility and retail energy-marketing segments,
short-term financing requirements can vary significantly during
the year. We maintain revolving credit agreements to support our
outstanding commercial paper and to permit short-term borrowing
flexibility. Our policy is to maintain bank credit facilities in
an amount equal to or greater than our expected maximum
commercial paper position. The following is a summary of our
committed credit available at September 30, 2009.
|
|
|
|
|
|
|
|
|
|
|
Committed Credit Available (In millions)
|
|
|
|
|
|
WGL Holdings
|
|
|
Washington Gas
|
|
|
|
|
|
Committed credit agreements
|
|
|
|
|
|
|
|
|
|
|
|
Unsecured revolving credit facility, expires August 3,
2012(a)
|
|
$
|
400.0
|
|
|
$
|
300.0
|
|
|
|
|
Total committed credit agreements
|
|
|
400.0
|
|
|
|
300.0
|
|
|
|
Less: Commercial Paper
|
|
|
(59.0
|
)
|
|
|
(124.8
|
)
|
|
|
|
Net committed credit available
|
|
$
|
341.0
|
|
|
$
|
175.2
|
|
|
|
|
|
|
(a) |
Both WGL Holdings and Washington
Gas have the right to request extensions with the banks
approval. WGL Holdings revolving credit facility permits
it to borrow an additional $50 million, with the
banks approval, for a total of $450 million.
Washington Gass revolving credit facility permits it to
borrow an additional $100 million, with the banks
approval, for a total of $400 million.
|
At September 30, 2009 and September 30, 2008, WGL
Holdings and its subsidiaries had outstanding notes payable in
the form of commercial paper
and/or bank
loans from revolving credit facilities of $183.8 million
and $271.0 million, respectively. Of the outstanding notes
payable balance at September 30, 2009, all borrowings were
in the form of commercial paper in the amount of
$59.0 million issued by WGL Holdings and
$124.8 million issued by Washington Gas. At
September 30, 2009 there were no outstanding bank loans
from WGL Holdings or Washington Gass revolving
credit facilities. Of the outstanding notes payable balance at
September 30, 2008, $23.0 million and
$231.0 million was commercial paper issued by WGL Holdings
and Washington Gas, respectively. In addition, WGL Holdings had
$17.0 million in outstanding bank loans under its revolving
credit facility and there were no outstanding bank loans from
Washington Gass revolving credit facility.
Depending on the type of borrowing option chosen under our
revolving credit facilities, loans may bear interest at variable
rates based on the Eurodollar rate, the higher of the prime
lending rate or the Fed Funds effective rate, or at a
competitive rate determined through auction. WGL Holdings and
Washington Gas may elect to have the principal balance of the
loans outstanding at maturity continue as non-revolving term
loans for a period of one year from the maturity date. An
additional 0.25% premium shall be applied to the pricing of the
non-revolving term loans. Facility fees related to these
revolving credit facilities for both companies are based on the
long-term debt ratings of Washington Gas. In the event the
long-term debt of Washington Gas is downgraded below certain
levels, WGL Holdings and Washington Gas would be required to pay
higher facility fees.
During fiscal year 2009, Washington Gas had five open credit
agreements with commercial banks that permitted Washington Gas
to borrow up to $125 million. Depending on the type of
borrowing option chosen, loans may bear interest at variable
rates based on the Eurodollar rate or the higher of the prime
lending rate or the Fed Funds effective rate plus a margin, or a
combination thereof.
92
WGL
Holdings, Inc.
Washington Gas Light Company
Part II
Item 8. Financial Statements and Supplementary Data
(continued)
Notes to Consolidated Financial Statements
During the fiscal year ended September 30, 2009, Washington
Gas did not borrow from any of the credit agreements. As of
September 30, 2009, each of the five credit agreements has
expired.
Under the terms of our credit agreements, the ratio of
consolidated financial indebtedness to consolidated total
capitalization can not exceed 0.65 to 1.0 (65.0%). In addition,
WGL Holdings and Washington Gas are required to inform lenders
of changes in corporate existence, financial conditions,
litigation and environmental warranties that might have a
material adverse effect. The failure to inform the lenders
agent of changes in these areas deemed material in nature might
constitute default under the agreements. Additionally, WGL
Holdings or Washington Gass failure to pay principal
or interest when due on any of its other indebtedness may be
deemed to be a default under our credit agreements. A default,
if not remedied, may lead to a suspension of further loans
and/or
acceleration in which obligations become immediately due and
payable. At September 30, 2009, we were in compliance with
all of the covenants under our revolving credit facilities.
FIRST
MORTGAGE BONDS
The Mortgage of Washington Gas dated January 1, 1933
(Mortgage), as supplemented and amended, securing any First
Mortgage Bonds (FMBs) it issues, constitutes a direct lien on
substantially all property and franchises owned by Washington
Gas, other than a small amount of property that is expressly
excluded. Washington Gas had no debt outstanding under the
Mortgage at September 30, 2009 and 2008. Any FMBs that may
be issued in the future will represent indebtedness of
Washington Gas.
SHELF
REGISTRATION
At September 30, 2009, Washington Gas had the capacity
under a shelf registration to issue up to $450.0 million
of additional MTNs.
UNSECURED
MEDIUM-TERM NOTES
Washington Gas issues unsecured MTNs with individual terms
regarding interest rates, maturities and call or put options.
These notes can have maturity dates of one or more years from
the date of issuance. At September 30, 2009 and 2008,
outstanding MTNs were $639.0 million and
$664.0 million, respectively. At September 30, 2009
and 2008, the weighted average interest rate on all outstanding
MTNs was 5.82% and 5.95%, respectively.
The indenture for these unsecured MTNs provides that Washington
Gas will not issue any FMBs under its Mortgage without securing
all MTNs with the Mortgage.
Certain of Washington Gass outstanding MTNs have a put
option. Certain other MTNs have a make-whole call feature that
pays the holder a premium based on a spread over the yield to
maturity of a U.S. Treasury security having a comparable
maturity, when that particular note is called by Washington Gas
before its stated maturity date. With the exception of this
make-whole call feature, Washington Gas is not required to pay
call premiums for calling debt prior to the stated maturity date.
The table below shows MTN issuances and retirements for the
years ended September 30, 2009 and 2008.
93
WGL
Holdings, Inc.
Washington Gas Light Company
Part II
Item 8. Financial Statements and Supplementary Data
(continued)
Notes to Consolidated Financial Statements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MTN Issuances and Retirements
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
Nominal
|
|
|
|
(In millions)
|
|
Principal
|
|
|
Rate
|
|
|
Maturity Date
|
|
|
|
|
Year Ended September 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuances:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/5/2008
|
|
$
|
50.0
|
|
|
|
7.46%
|
|
|
|
12/5/2018
|
|
|
|
|
Total
|
|
$
|
50.0
|
|
|
|
|
|
|
|
|
|
|
|
|
Retirements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10/21/2008
|
|
$
|
5.0
|
|
|
|
5.49%
|
|
|
|
10/21/2008
|
|
|
|
10/21/2008
|
|
|
20.0
|
|
|
|
5.49%
|
|
|
|
10/21/2008
|
|
|
|
7/9/2009
|
|
|
10.0
|
|
|
|
6.92%
|
|
|
|
7/9/2009
|
|
|
|
7/9/2009
|
|
|
10.0
|
|
|
|
6.92%
|
|
|
|
7/9/2009
|
|
|
|
7/9/2009
|
|
|
10.0
|
|
|
|
6.92%
|
|
|
|
7/9/2009
|
|
|
|
7/9/2009
|
|
|
7.2
|
|
|
|
6.92%
|
|
|
|
7/9/2009
|
|
|
|
7/9/2009
|
|
|
12.8
|
|
|
|
6.92%
|
|
|
|
7/9/2009
|
|
|
|
|
Total
|
|
$
|
75.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
Nominal
|
|
|
|
(In millions)
|
|
Principal
|
|
|
Rate
|
|
|
Maturity Date
|
|
|
|
|
|
Year Ended September 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuances:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8/26/2008
|
|
$
|
50.0
|
|
|
|
3.61%
|
|
|
|
08/26/2010(a
|
)
|
|
|
|
Total
|
|
$
|
50.0
|
|
|
|
|
|
|
|
|
|
|
|
|
Retirements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8/11/2008
|
|
$
|
12.1
|
|
|
|
6.60%
|
|
|
|
8/11/2008
|
|
|
|
8/12/2008
|
|
|
3.0
|
|
|
|
6.61%
|
|
|
|
8/12/2008
|
|
|
|
8/18/2008
|
|
|
3.5
|
|
|
|
6.55%
|
|
|
|
8/18/2008
|
|
|
|
8/18/2008
|
|
|
1.5
|
|
|
|
6.51%
|
|
|
|
8/18/2008
|
|
|
|
|
Total
|
|
$
|
20.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Floating rate MTN at 80 basis points over the
3-month
LIBOR with a call option at 100 percent of par value to
redeem the MTNs on or after February 26, 2009. Interest
rate resets quarterly on November, February, May, and August 26
of each year until maturity.
|
|
94
WGL
Holdings, Inc.
Washington Gas Light Company
Part II
Item 8. Financial Statements and Supplementary Data
(continued)
Notes to Consolidated Financial Statements
LONG-TERM
DEBT MATURITIES
Maturities of long-term debt for each of the next five fiscal
years and thereafter as of September 30, 2009 are
summarized in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Debt
Maturities(a)
|
|
|
|
(In millions)
|
|
MTNs
|
|
|
Other(b)
|
|
|
Total
|
|
|
|
2010(c)
|
|
$
|
82.5
|
|
|
$
|
0.1
|
|
|
$
|
82.6
|
|
2011
|
|
|
30.0
|
|
|
|
0.1
|
|
|
|
30.1
|
|
2012
|
|
|
77.0
|
|
|
|
0.1
|
|
|
|
77.1
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
|
|
2014
|
|
|
67.0
|
|
|
|
|
|
|
|
67.0
|
|
Thereafter
|
|
|
382.5
|
|
|
|
|
|
|
|
382.5
|
|
|
Total (before project debt financing)
|
|
|
639.0
|
|
|
|
0.3
|
|
|
|
639.3
|
|
Project debt
financing(d)
|
|
|
|
|
|
|
5.1
|
|
|
|
5.1
|
|
|
Total
|
|
|
639.0
|
|
|
|
5.4
|
|
|
|
644.4
|
|
Less: current maturities
|
|
|
82.5
|
|
|
|
0.1
|
|
|
|
82.6
|
|
|
Total non-current
|
|
$
|
556.5
|
|
|
$
|
5.3
|
|
|
$
|
561.8
|
|
|
|
|
|
(a)
|
Excludes unamortized discounts of $43 thousand at
September 30, 2009.
|
|
(b)
|
Includes the current portion of capital lease obligations.
|
|
|
|
|
(c)
|
Assumes the exercise of a put option by the MTN debt holders
of $8.5 million in 2010.
|
|
|
|
|
(d)
|
Project debt financing is anticipated to be a non-cash
extinguishment. Refer to Note 13Commitments and
Contingencies for a further discussion of this construction
project financing.
|
|
|
|
5.
|
DERIVATIVE AND
WEATHER-RELATED INSTRUMENTS
|
DERIVATIVE
INSTRUMENTS
To the extent that the information below is being disclosed
under the requirements of SFAS No. 161 (now part of
ASC Topic 815, Derivatives and Hedging), no prior period
information is presented. Under the standard, only information
after the date of implementation, January 1, 2009, is
required to be disclosed. Therefore, only September 30,
2009 balances are being disclosed for the balance sheet
information and, only activity for the nine month period ended
September 30, 2009 is being disclosed for the income
statement information.
Regulated
Utility Operations
Washington Gas enters into physical and financial contracts
related to the sale and purchase of natural gas that qualify as
derivative instruments and are accounted for under ASC Topic
815. Additionally, from time to time, Washington Gas utilizes
derivative instruments that are designed to minimize the risk of
interest-rate volatility associated with planned issuances of
debt. These derivative instruments are recorded at fair value on
our balance sheet and Washington Gas does not designate any
derivatives as hedges under ASC Topic 815. Washington Gass
derivative contracts relate to: (i) Washington
Gass 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:
(i) its transportation capacity assets to benefit
from favorable natural gas price differentials between different
geographic locations and (ii) its storage capacity
assets to benefit from favorable natural gas price differentials
between different time periods. As part of this asset
optimization program, Washington Gas enters into physical and
financial derivative transactions in the form of forwards, swaps
and option contracts to lock-in operating margins that
Washington Gas will ultimately realize. Regulatory sharing
mechanisms in all three jurisdictions allow the profit from
these transactions to be shared between Washington Gass
shareholders and customers; therefore, any changes in fair value
are recorded through earnings, or as regulatory assets or
liabilities, to the extent that gains and losses associated with
these derivative instruments will be included in the rates
charged to customers. The derivatives used under this program
are subject to
mark-to-market
accounting treatment. This treatment may cause significant
period-to-period
95
WGL
Holdings, Inc.
Washington Gas Light Company
Part II
Item 8. Financial Statements and Supplementary Data
(continued)
Notes to Consolidated Financial Statements
volatility in earnings from unrealized gains and losses
associated with these valuation changes for the portion of net
profits to be retained for shareholders; however, this
volatility does not change the locked-in operating margins that
Washington Gas will ultimately realize from these transactions.
In accordance with ASC Topic 815, all physically and
financially settled contracts under our asset optimization
program are reported on a net basis in the statements of income
in Utility cost of gas. Total net margins recorded
to Utility cost of gas after sharing and management
fees associated with all asset optimization transactions for
2009 were $12.2 million.
Managing Price Risk. As a part of
managing price risk associated with its natural gas supply to
utility customers, Washington Gas enters into forward contracts,
option contracts, financial swap contracts and other contracts
that are accounted for as derivative instruments. 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 utilizes derivative instruments from time to time 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, which is
typically over the life of the newly issued debt.
Non-Utility
Operations
WGEServices enters into certain derivative contracts as part of
managing the price risk associated with the sale and purchase of
natural gas and electricity to its retail customers. These
derivatives may cause significant
period-to-period
volatility in earnings; however, this volatility will not change
the operating margins that WGEServices will ultimately realize
from the sales to its customers. Derivative instruments are
recorded at fair value on our consolidated balance sheets.
WGEServices does not designate these derivatives as hedges under
ASC Topic 815; therefore, changes in the fair value of these
derivative instruments are reflected in the earnings of our
retail energy-marketing segment.
Consolidated
Operations
Reflected in the tables below is information for WGL Holdings as
well as Washington Gas. The information for WGL Holdings
includes derivative instruments for both Washington Gas and
WGEServices.
At September 30, 2009, the absolute notional amounts of our
derivatives are as follows.
|
|
|
|
|
|
|
|
|
|
|
Absolute Notional Amounts
|
|
|
|
of Open Positions on Derivative Instruments
|
|
|
|
|
|
|
Notional Amounts
|
|
|
|
|
Derivative
transactions
|
|
WGL Holdings
|
|
|
Washington Gas
|
|
|
|
|
|
Natural Gas (In millions of therms)
|
|
|
|
|
|
|
|
|
|
|
Asset Optimization
|
|
|
1,445.9
|
|
|
|
1,445.9
|
|
|
|
Retail sales
|
|
|
4.0
|
|
|
|
|
|
|
|
Other risk-management activities
|
|
|
477.7
|
|
|
|
301.7
|
|
|
|
Electricity (in kWhs)
|
|
|
|
|
|
|
|
|
|
|
Retail sales
|
|
|
2,057.0
|
|
|
|
|
|
|
|
Other risk-management activities
|
|
|
6,006.0
|
|
|
|
|
|
|
|
Interest Rate swaps (notional amount in millions)
|
|
$
|
24.0
|
|
|
$
|
24.0
|
|
|
|
|
96
WGL
Holdings, Inc.
Washington Gas Light Company
Part II
Item 8. Financial Statements and Supplementary Data
(continued)
Notes to Consolidated Financial Statements
The following tables present the balance sheet classification
for all derivative instruments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WGL Holdings, Inc.
|
Balance Sheet Classification of Derivative Instruments
|
As of September 30, 2009
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
|
|
|
Derivative
|
|
|
Netting of
|
|
|
|
|
|
|
Balance Sheet
location
|
|
Assets
|
|
|
Liabilities
|
|
|
Collateral
|
|
|
Total
|
|
|
|
|
|
Other current assets
|
|
$
|
23.6
|
|
|
$
|
(7.8
|
)
|
|
$
|
|
|
|
$
|
15.8
|
|
|
|
Deferred charges and other assetsother
|
|
|
13.2
|
|
|
|
(5.4
|
)
|
|
|
|
|
|
|
7.8
|
|
|
|
Other current
liabilities(a)
|
|
|
5.4
|
|
|
|
(26.0
|
)
|
|
|
1.4
|
|
|
|
(19.2
|
)
|
|
|
Deferred creditsother
|
|
|
24.4
|
|
|
|
(48.0
|
)
|
|
|
3.7
|
|
|
|
(19.9
|
)
|
|
|
|
Total
|
|
$
|
66.6
|
|
|
$
|
(87.2
|
)
|
|
$
|
5.1
|
|
|
$
|
(15.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Washington Gas Light Company
|
Balance Sheet Classification of Derivative Instruments
|
As of September 30, 2009
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
|
|
|
Derivative
|
|
|
Netting of
|
|
|
|
|
|
|
Balance Sheet
location
|
|
Assets
|
|
|
Liabilities
|
|
|
Collateral
|
|
|
Total
|
|
|
|
|
|
Other current assets
|
|
$
|
19.1
|
|
|
$
|
(7.6
|
)
|
|
$
|
|
|
|
$
|
11.5
|
|
|
|
Deferred charges and other assetsother
|
|
|
8.0
|
|
|
|
(5.4
|
)
|
|
|
|
|
|
|
2.6
|
|
|
|
Other current
liabilities(a)
|
|
|
2.9
|
|
|
|
(8.5
|
)
|
|
|
|
|
|
|
(5.6
|
)
|
|
|
Deferred creditsother
|
|
|
23.9
|
|
|
|
(27.5
|
)
|
|
|
|
|
|
|
(3.6
|
)
|
|
|
|
Total
|
|
$
|
53.9
|
|
|
$
|
(49.0
|
)
|
|
$
|
|
|
|
$
|
4.9
|
|
|
|
|
|
|
(a) |
Includes liability for interest rate swaps of
$0.7 million.
|
The following tables present all gains and losses associated
with derivative instruments for the nine months ended
September 30, 2009.
|
|
|
|
|
|
|
|
|
|
|
Gains and Losses on Derivative Instruments
|
Nine Months Ended September 30, 2009
|
|
(In millions)
|
|
WGL Holdings
|
|
|
Washington Gas
|
|
|
|
|
|
Recorded to income
|
|
|
|
|
|
|
|
|
|
|
Operating revenuesnon-utility
|
|
$
|
(8.7
|
)
|
|
$
|
|
|
|
|
Utility cost of gas
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
Non-utility cost of energy-related sales
|
|
|
(19.8
|
)
|
|
|
|
|
|
|
Recorded to regulatory assets
|
|
|
|
|
|
|
|
|
|
|
Gas costs
|
|
|
(6.6
|
)
|
|
|
(6.6
|
)
|
|
|
Other(a)
|
|
|
(0.4
|
)
|
|
|
(0.4
|
)
|
|
|
|
Total
|
|
$
|
(35.4
|
)
|
|
$
|
(6.9
|
)
|
|
|
|
|
|
(a) |
Represents net loss from interest rate swaps
|
Certain of Washington Gass derivative instruments contain
contract provisions that require collateral to be posted if the
credit rating of Washington Gass debt falls below certain
levels. Certain of WGEServices derivative instruments contain
contract provisions that require collateral to be posted if the
credit rating of WGL Holdings falls below certain levels or if
counterparty exposure to WGEServices exceeds a certain level.
Due to counterparty exposure levels, at September 30, 2009,
WGEServices posted $5.1 million of collateral related
to its derivative liabilities that contained credit-related
contingent features. Washington Gas was not required to post any
collateral at September 30, 2009. 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 to be
97
WGL
Holdings, Inc.
Washington Gas Light Company
Part II
Item 8. Financial Statements and Supplementary Data
(continued)
Notes to Consolidated Financial Statements
posted related to the net fair value of our derivative
instruments if the most intrusive credit-risk-related contingent
features underlying these agreements were triggered on
September 30, 2009.
|
|
|
|
|
|
|
|
|
Potential Collateral Requirements for Derivative
Liabilities
|
|
with Credit-risk-Contingent Features
|
|
|
|
(In millions)
|
|
WGL Holdings
|
|
|
Washington Gas
|
|
|
|
|
Derivative liabilities with credit-risk-contingent features
|
|
$
|
67.5
|
|
|
$
|
38.9
|
|
Maximum potential collateral requirements
|
|
|
29.0
|
|
|
|
3.1
|
|
|
Neither Washington Gas nor WGEServices enters into derivative
contracts for speculative purposes.
Concentration
of Credit Risk
Both Washington Gas and WGEServices are exposed to credit risk
associated with agreements with wholesale counterparties that
are accounted for as derivative instruments. We have credit
policies in place that are designed to mitigate credit risk
associated with wholesale counterparties through a requirement
for credit enhancements including, but not limited to, letters
of credit, parent guarantees and cash collateral when deemed
necessary. For certain counterparties or their guarantors that
meet this policys credit worthiness criteria, both
Washington Gas and WGEServices grant unsecured credit which is
continuously monitored. Additionally, our agreements with
wholesale counterparties contain netting provisions which allow
the receivable and payable exposure related to each counterparty
to be offset. At September 30, 2009, four counterparties
each represented over 10% of Washington Gass credit
exposure to wholesale derivative counterparties, for a total
credit risk of $12.1 million related to those four
counterparties. WGEServices did not have any significant
concentrations of credit risk associated with its wholesale
counterparties at September 30, 2009.
WEATHER-RELATED
INSTRUMENTS
Regulated
Utility Operations
On October 1, 2008, Washington Gas purchased and sold
heating degree day (HDD) derivatives to protect against
variations from normal weather in the District of Columbia from
October 1, 2008 through September 30, 2009. During
fiscal year 2008, Washington Gas also purchased weather
insurance to protect against warmer-than normal weather in the
District of Columbia.
During the fiscal year 2009, Washington Gas recorded a pre-tax
loss of $3.3 million including amortization expense,
related to its weather derivatives as a result of
colder-than-normal
weather. For the fiscal year 2008, Washington Gas recorded a
pre-tax benefit, net of premium costs and look-back provision,
of $1.1 million, related to its insurance policy as a
result of the
warmer-than-normal
weather. During the fiscal year ended September 30, 2007,
Washington Gas recorded a pre-tax expense of $3.6 million
related to both its weather insurance policy and weather
derivative as a result of colder-than-normal weather. Benefits
and expenses associated with Washington Gass
weather-related instruments are recorded to Operation and
maintenance expense.
On September 21, 2009, Washington Gas executed an HDD
derivative contract to manage its exposure to variations from
normal weather in the District of Columbia during fiscal year
2010. This derivative contract resulted in a premium payment to
Washington Gas of $2.1 million recognized on the balance
sheet as a liability.
Non-Utility
Operations
WGEServices utilizes weather-related derivatives for managing
the financial effects of weather risks. These derivatives cover
a portion of WGEServices estimated revenue or
energy-related cost exposure to variations in heating or cooling
degree days. These contracts provide for payment to WGEServices
of a fixed-dollar amount for every degree day over or under
specific levels during the calculation period depending upon the
type of contract executed. WGEServices recorded a pre-tax
benefit of $1.6 million and amortization expense of
$2.4 million related to these derivatives in fiscal year
2009. For fiscal year 2008, WGEServices recorded a pre-tax
benefit of $1.3 million and amortization expense of
$1.6 million related to these derivatives. For fiscal year
2007, WGEServices recorded amortization expense of
$1.7 million related to these derivatives.
98
WGL
Holdings, Inc.
Washington Gas Light Company
Part II
Item 8. Financial Statements and Supplementary Data
(continued)
Notes to Consolidated Financial Statements
|
|
6.
|
COMMON
STOCK WGL HOLDINGS
|
COMMON
STOCK OUTSTANDING
Shares of common stock outstanding were 50,143,484 and
49,916,883 at September 30, 2009 and 2008 respectively.
COMMON
STOCK RESERVES
At September 30, 2009, there were 3,390,670 authorized, but
unissued, shares of common stock reserved under the following
plans.
|
|
|
|
|
|
|
Common Stock Reserves
|
Reserve for:
|
|
Number of Shares
|
|
|
|
|
1999 Incentive compensation
plan(a)
|
|
|
426,061
|
|
|
|
Omnibus incentive compensation
plan(b)
|
|
|
1,700,000
|
|
|
|
Dividend reinvestment and common stock purchase plan
|
|
|
607,830
|
|
|
|
Employee savings plans
|
|
|
637,196
|
|
|
|
Directors stock compensation plan
|
|
|
19,583
|
|
|
|
|
Total common stock reserves
|
|
|
3,390,670
|
|
|
|
|
|
|
|
(a) |
|
Included are shares that
potentially could be issued and that would reduce the 1999
Incentive Compensation Plan shares authorized. These shares
include 846,207 shares dedicated to stock options issued
but not exercised, and 91,171 shares dedicated to
performance shares granted but not vested. If stock options
exercised or performance shares vested under this Plan exceed
amounts in reserve, WGL Holdings may settle these obligations in
cash. Effective March 1, 2007, no further awards will be
granted under the 1999 Plan. |
(b) |
|
Effective March 1, 2007,
WGL Holdings adopted a shareholder-approved Omnibus Incentive
Compensation Plan to replace on a prospective basis the 1999
Plan. Included are shares that potentially could be issued and
that would reduce the Omnibus Incentive Compensation Plan shares
authorized. These shares include 186,725 shares dedicated
to performance shares granted but not vested. |
Refer to Note 11Stock-Based Compensation for a
discussion regarding our stock-based compensation plans.
Washington Gas has three series of cumulative preferred stock
outstanding, and each series is subject to redemption by
Washington Gas. All three series have a dividend preference that
prohibits Washington Gas from declaring and paying dividends on
shares of its common stock unless dividends on all outstanding
shares of the preferred stock have been fully paid for all past
quarterly dividend periods. In addition, all outstanding shares
of preferred stock have a preference as to the amounts that
would be distributed in the event of a liquidation or
dissolution of Washington Gas. The following table presents this
information, as well as call prices for each preferred stock
series outstanding.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock
|
|
|
Preferred
|
|
|
|
Liquidation Preference
|
|
|
|
|
Series
|
|
Shares
|
|
Per Share
|
|
Call Price
|
|
|
Outstanding
|
|
Outstanding
|
|
Involuntary
|
|
Voluntary
|
|
Per Share
|
|
|
|
$4.80
|
|
|
150,000
|
|
|
$
|
100
|
|
|
$
|
101
|
|
|
$
|
101
|
|
|
|
$4.25
|
|
|
70,600
|
|
|
$
|
100
|
|
|
$
|
105
|
|
|
$
|
105
|
|
|
|
$5.00
|
|
|
60,000
|
|
|
$
|
100
|
|
|
$
|
102
|
|
|
$
|
102
|
|
|
|
|
99
WGL
Holdings, Inc.
Washington Gas Light Company
Part II
Item 8. Financial Statements and Supplementary Data
(continued)
Notes to Consolidated Financial Statements
Basic earnings per share (EPS) is computed by dividing net
income by the weighted average number of common shares
outstanding during the reported period. Diluted EPS assumes the
issuance of common shares pursuant to stock-based compensation
plans at the beginning of the applicable period unless the
effect of such issuance would be anti-dilutive (refer to
Note 11Stock-Based Compensation). The
following table reflects the computation of our basic and
diluted EPS for the fiscal years ended September 30, 2009,
2008 and 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted EPS
|
|
|
|
Years Ended September 30,
|
|
|
|
(In thousands, except per share
data)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Basic earnings per average common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income applicable to common stock
|
|
$
|
120,373
|
|
|
$
|
116,523
|
|
|
$
|
107,900
|
|
Average common shares outstandingbasic
|
|
|
50,104
|
|
|
|
49,607
|
|
|
|
49,172
|
|
|
Basic earnings per average common share
|
|
$
|
2.40
|
|
|
$
|
2.35
|
|
|
$
|
2.19
|
|
|
Diluted earnings per average common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income applicable to common stock
|
|
$
|
120,373
|
|
|
$
|
116,523
|
|
|
$
|
107,900
|
|
|
Average common shares outstandingbasic
|
|
|
50,104
|
|
|
|
49,607
|
|
|
|
49,172
|
|
Stock-based compensation plans
|
|
|
278
|
|
|
|
305
|
|
|
|
205
|
|
|
Total average common shares outstandingdiluted
|
|
|
50,382
|
|
|
|
49,912
|
|
|
|
49,377
|
|
|
Diluted earnings per average common share
|
|
$
|
2.39
|
|
|
$
|
2.33
|
|
|
$
|
2.19
|
|
|
For the fiscal years ended September 30, 2009 and 2008, we
did not exclude any weighted average outstanding stock options
from the calculation of diluted EPS. For the fiscal years ended
September 30, 2007, we had weighted average stock options
outstanding totaling 398,000 shares, which were not
included in the calculation of diluted EPS as their effect would
be anti-dilutive.
Washington Gas adopted the provisions of FIN 48 (now part
of ASC Topic 740, Income Taxes) on October 1, 2007.
As a result of the implementation, Washington Gas recognized no
change in our recorded assets or liabilities for unrecognized
income tax benefits. As of September 30, 2009 and 2008, we
did not have a liability for unrecognized tax benefits, and we
do not anticipate that this will change materially during the
next year.
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 income. During the fiscal
year ended September 30, 2009 and 2008, we did not
recognize any expense for interest or penalties on uncertain tax
positions, and do not have any amounts accrued as of
September 30, 2009 and 2008, respectively, for the payment
of interest and penalties on uncertain tax positions.
We file consolidated federal and District of Columbia returns
and various state income tax returns. We are no longer subject
to income tax examinations by the Internal Revenue Service for
years before September 30, 2006. Substantially all state
income tax years in major jurisdictions are closed for years
before September 30, 2005.
We file a consolidated federal income tax return. WGL Holdings
and each of its subsidiaries also participate in a tax sharing
agreement that establishes the method for allocating tax
benefits from losses to various subsidiaries that are utilized
on a consolidated federal income tax return. In fiscal year
2009, Washington Gas realized $534,000 of tax savings from this
tax sharing agreement that was reflected as a tax benefit on
Washington Gass Statements of Income. During fiscal years
2008 and 2007, Washington Gas realized $1.2 million and
$1.5 million, respectively, of tax savings as a result of
this tax sharing agreement. The effect of this allocation of
benefits to Washington Gas has no effect on our consolidated
financial statements. State income tax returns are filed on a
separate
100
WGL
Holdings, Inc.
Washington Gas Light Company
Part II
Item 8. Financial Statements and Supplementary Data
(continued)
Notes to Consolidated Financial Statements
company basis in most states where we have operations
and/or a
requirement to file. For the District of Columbia, we file a
consolidated return.
The tables below provide the following for WGL Holdings and
Washington Gas: (i) the components of income tax
expense; (ii) a reconciliation between the statutory
federal income tax rate and the effective income tax rate and
(iii) the components of accumulated deferred income
tax assets and liabilities at September 30, 2009 and 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
WGL Holdings, Inc.
|
|
Components of Income Tax Expense
|
|
|
|
Years Ended September 30,
|
|
|
|
(In thousands)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
INCOME TAX EXPENSE
|
|
|
|
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
4,637
|
|
|
$
|
54,683
|
|
|
$
|
53,915
|
|
State
|
|
|
6,142
|
|
|
|
9,840
|
|
|
|
10,252
|
|
|
Total current
|
|
|
10,779
|
|
|
|
64,523
|
|
|
|
64,167
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
|
|
|
|
|
|
|
|
|
|
Accelerated depreciation
|
|
|
46,331
|
|
|
|
5,574
|
|
|
|
4,529
|
|
Other
|
|
|
14,280
|
|
|
|
(3,823
|
)
|
|
|
(3,155
|
)
|
State
|
|
|
|
|
|
|
|
|
|
|
|
|
Accelerated depreciation
|
|
|
3,880
|
|
|
|
2,357
|
|
|
|
2,302
|
|
Other
|
|
|
2,910
|
|
|
|
1,755
|
|
|
|
3,190
|
|
|
Total deferred
|
|
|
67,401
|
|
|
|
5,863
|
|
|
|
6,866
|
|
|
Amortization of investment tax credits
|
|
|
(906
|
)
|
|
|
(895
|
)
|
|
|
(896
|
)
|
|
Total income tax expense
|
|
$
|
77,274
|
|
|
$
|
69,491
|
|
|
$
|
70,137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WGL Holdings, Inc.
|
|
Reconciliation Between the Statutory Federal Income Tax Rate
and Effective Tax Rate
|
|
|
|
Years Ended September 30,
|
|
|
|
(In thousands)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
Income taxes at statutory federal income tax rate
|
|
$
|
69,638
|
|
|
|
35.00
|
%
|
|
$
|
65,567
|
|
|
|
35.00
|
%
|
|
$
|
62,775
|
|
|
|
35.00
|
%
|
Increase (decrease) in income taxes resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accelerated depreciation less amount deferred
|
|
|
2,511
|
|
|
|
1.26
|
|
|
|
2,032
|
|
|
|
1.08
|
|
|
|
2,422
|
|
|
|
1.35
|
|
Amortization of investment tax credits
|
|
|
(906
|
)
|
|
|
(0.46
|
)
|
|
|
(895
|
)
|
|
|
(0.48
|
)
|
|
|
(896
|
)
|
|
|
(0.50
|
)
|
Cost of removal
|
|
|
(747
|
)
|
|
|
(0.38
|
)
|
|
|
(176
|
)
|
|
|
(0.09
|
)
|
|
|
(319
|
)
|
|
|
(0.18
|
)
|
State income
taxes-net of
federal benefit
|
|
|
8,497
|
|
|
|
4.27
|
|
|
|
8,013
|
|
|
|
4.28
|
|
|
|
7,970
|
|
|
|
4.44
|
|
Medicare D subsidy
|
|
|
(1,872
|
)
|
|
|
(0.94
|
)
|
|
|
(2,109
|
)
|
|
|
(1.13
|
)
|
|
|
(2,060
|
)
|
|
|
(1.15
|
)
|
Other
items-net
|
|
|
153
|
|
|
|
0.08
|
|
|
|
(2,941
|
)
|
|
|
(1.57
|
)
|
|
|
245
|
|
|
|
0.14
|
|
|
Total income tax expense and effective tax rate
|
|
$
|
77,274
|
|
|
|
38.83
|
%
|
|
$
|
69,491
|
|
|
|
37.09
|
%
|
|
$
|
70,137
|
|
|
|
39.10
|
%
|
|
101
WGL
Holdings, Inc.
Washington Gas Light Company
Part II
Item 8. Financial Statements and Supplementary Data
(continued)
Notes to Consolidated Financial Statements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WGL Holdings, Inc.
|
|
Components of Deferred Income Tax Assets (Liabilities)
|
|
|
|
September 30,
|
|
|
|
(In thousands)
|
|
2009
|
|
|
2008
|
|
|
|
ACCUMULATED DEFERRED INCOME
TAXES
|
|
Current
|
|
|
Non-current
|
|
|
Current
|
|
|
Non-current
|
|
|
|
Deferred Income Tax Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pensions and other post-retirement benefits
|
|
$
|
|
|
|
$
|
123,164
|
|
|
$
|
|
|
|
$
|
63,489
|
|
Uncollectible accounts
|
|
|
8,283
|
|
|
|
|
|
|
|
6,809
|
|
|
|
|
|
Inventory overheads
|
|
|
6,648
|
|
|
|
|
|
|
|
4,611
|
|
|
|
|
|
Capital gains/losses-net
|
|
|
1,968
|
|
|
|
|
|
|
|
1,966
|
|
|
|
|
|
Valuation allowance
|
|
|
(1,968
|
)
|
|
|
|
|
|
|
(1,966
|
)
|
|
|
|
|
Employee compensation and benefits
|
|
|
5,256
|
|
|
|
26,707
|
|
|
|
4,960
|
|
|
|
22,769
|
|
Customer advances
|
|
|
|
|
|
|
3,763
|
|
|
|
|
|
|
|
4,274
|
|
Other
|
|
|
2,477
|
|
|
|
464
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
22,664
|
|
|
|
154,098
|
|
|
|
16,380
|
|
|
|
90,532
|
|
|
Deferred Income Tax Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accelerated depreciation and other plant related items
|
|
|
|
|
|
|
332,553
|
|
|
|
|
|
|
|
281,800
|
|
Losses/gains on reacquired debt
|
|
|
|
|
|
|
2,287
|
|
|
|
|
|
|
|
2,496
|
|
Income taxes recoverable through future rates
|
|
|
|
|
|
|
139,733
|
|
|
|
|
|
|
|
72,880
|
|
Deferred gas costs
|
|
|
27,819
|
|
|
|
3,030
|
|
|
|
8,135
|
|
|
|
3,772
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
629
|
|
|
|
1,811
|
|
|
Total liabilities
|
|
|
27,819
|
|
|
|
477,603
|
|
|
|
8,764
|
|
|
|
362,759
|
|
|
Net accumulated deferred income tax assets (liabilities)
|
|
$
|
(5,155
|
)
|
|
$
|
(323,505
|
)
|
|
$
|
7,616
|
|
|
$
|
(272,227
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Washington Gas Light Company
|
|
Components of Income Tax Expense
|
|
|
|
Years Ended September 30,
|
|
|
|
|
|
|
(In thousands)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
INCOME TAX EXPENSE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(4,966
|
)
|
|
$
|
45,662
|
|
|
$
|
44,942
|
|
|
|
|
|
State
|
|
|
2,868
|
|
|
|
6,379
|
|
|
|
6,199
|
|
|
|
|
|
|
Total current
|
|
|
(2,098
|
)
|
|
|
52,041
|
|
|
|
51,141
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accelerated depreciation
|
|
|
46,018
|
|
|
|
5,544
|
|
|
|
4,523
|
|
|
|
|
|
Other
|
|
|
15,823
|
|
|
|
2,314
|
|
|
|
(5,196
|
)
|
|
|
|
|
State
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accelerated depreciation
|
|
|
3,879
|
|
|
|
2,357
|
|
|
|
2,302
|
|
|
|
|
|
Other
|
|
|
3,289
|
|
|
|
3,344
|
|
|
|
2,620
|
|
|
|
|
|
|
Total deferred
|
|
|
69,009
|
|
|
|
13,559
|
|
|
|
4,249
|
|
|
|
|
|
|
Amortization of investment tax credits
|
|
|
(893
|
)
|
|
|
(893
|
)
|
|
|
(893
|
)
|
|
|
|
|
|
Total income tax expense
|
|
$
|
66,018
|
|
|
$
|
64,707
|
|
|
$
|
54,497
|
|
|
|
|
|
|
102
WGL
Holdings, Inc.
Washington Gas Light Company
Part II
Item 8. Financial Statements and Supplementary Data
(continued)
Notes to Consolidated Financial Statements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Washington Gas Light Company
|
|
Reconciliation Between the Statutory Federal Income Tax Rate
and Effective Tax Rate
|
|
|
|
Years Ended September 30,
|
|
(In thousands)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Income taxes at statutory federal income tax rate
|
|
$
|
60,411
|
|
|
|
35.00
|
%
|
|
$
|
62,611
|
|
|
|
35.00
|
%
|
|
$
|
50,749
|
|
|
|
35.00
|
%
|
Increase (decrease) in income taxes resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accelerated depreciation less amount deferred
|
|
|
2,511
|
|
|
|
1.45
|
|
|
|
2,032
|
|
|
|
1.13
|
|
|
|
2,422
|
|
|
|
1.67
|
|
Amortization of investment tax credits
|
|
|
(893
|
)
|
|
|
(0.52
|
)
|
|
|
(893
|
)
|
|
|
(0.50
|
)
|
|
|
(893
|
)
|
|
|
(0.62
|
)
|
Cost of removal
|
|
|
(747
|
)
|
|
|
(0.43
|
)
|
|
|
(176
|
)
|
|
|
(0.10
|
)
|
|
|
(319
|
)
|
|
|
(0.22
|
)
|
State income
taxes-net of
federal benefit
|
|
|
7,010
|
|
|
|
4.06
|
|
|
|
7,546
|
|
|
|
4.22
|
|
|
|
6,119
|
|
|
|
4.22
|
|
Consolidated tax sharing allocation
|
|
|
(534
|
)
|
|
|
(0.31
|
)
|
|
|
(1,196
|
)
|
|
|
(0.67
|
)
|
|
|
(1,485
|
)
|
|
|
(1.02
|
)
|
Medicare D subsidy
|
|
|
(1,865
|
)
|
|
|
(1.08
|
)
|
|
|
(2,101
|
)
|
|
|
(1.17
|
)
|
|
|
(2,038
|
)
|
|
|
(1.41
|
)
|
Other
items-net
|
|
|
125
|
|
|
|
0.07
|
|
|
|
(3,116
|
)
|
|
|
(1.74
|
)
|
|
|
(58
|
)
|
|
|
(0.04
|
)
|
|
Total income tax expense and effective tax rate
|
|
$
|
66,018
|
|
|
|
38.24
|
%
|
|
$
|
64,707
|
|
|
|
36.17
|
%
|
|
$
|
54,497
|
|
|
|
37.58
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Washington Gas Light Company
|
|
Components of Deferred Income Tax Assets (Liabilities)
|
|
|
|
September 30,
|
|
|
|
(In thousands)
|
|
2009
|
|
|
2008
|
|
|
|
ACCUMULATED DEFERRED INCOME
TAXES
|
|
Current
|
|
|
Non-current
|
|
|
Current
|
|
|
Non-current
|
|
|
|
Deferred Income Tax Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pensions and other post-retirement benefits
|
|
$
|
|
|
|
$
|
122,415
|
|
|
$
|
|
|
|
$
|
63,076
|
|
Uncollectible accounts
|
|
|
7,339
|
|
|
|
|
|
|
|
6,248
|
|
|
|
|
|
Inventory overheads
|
|
|
6,648
|
|
|
|
|
|
|
|
4,610
|
|
|
|
|
|
Employee compensation and benefits
|
|
|
5,165
|
|
|
|
23,262
|
|
|
|
4,934
|
|
|
|
15,917
|
|
Customer advances
|
|
|
|
|
|
|
3,763
|
|
|
|
|
|
|
|
4,274
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
772
|
|
|
|
|
|
|
Total assets
|
|
|
19,152
|
|
|
|
149,440
|
|
|
|
16,564
|
|
|
|
83,267
|
|
|
Deferred Income Tax Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accelerated depreciation and other plant related items
|
|
|
|
|
|
|
331,824
|
|
|
|
|
|
|
|
281,926
|
|
Losses/gains on reacquired debt
|
|
|
|
|
|
|
2,287
|
|
|
|
|
|
|
|
2,495
|
|
Income taxes recoverable through future rates
|
|
|
|
|
|
|
139,193
|
|
|
|
|
|
|
|
72,609
|
|
Deferred gas costs
|
|
|
27,819
|
|
|
|
3,030
|
|
|
|
8,135
|
|
|
|
3,772
|
|
Other
|
|
|
618
|
|
|
|
27
|
|
|
|
|
|
|
|
2,283
|
|
|
Total liabilities
|
|
|
28,437
|
|
|
|
476,361
|
|
|
|
8,135
|
|
|
|
363,085
|
|
|
Net accumulated deferred income tax assets (liabilities)
|
|
$
|
(9,285
|
)
|
|
$
|
(326,921
|
)
|
|
$
|
8,429
|
|
|
$
|
(279,818
|
)
|
|
10. PENSION
AND OTHER POST-RETIREMENT BENEFIT PLANS
Washington Gas maintains a qualified, trusteed, non-contributory
defined benefit pension plan (qualified pension plan) covering
substantially all active and vested former employees of
Washington Gas. The non-contributory defined benefit pension
plan is closed to employees first hired on or after
January 1, 2009 who are covered under the collective
bargaining agreements with the International Brotherhood of
Teamsters and Office and Professional Employees International
Union Local 2 and management employees first hired on or after
July 1, 2009.
Executive officers of Washington Gas also participate in a
non-funded supplemental executive retirement plan (SERP), a
non-qualified defined benefit pension plan. A rabbi trust has
been established for the potential future funding of the SERP
liability.
103
WGL
Holdings, Inc.
Washington Gas Light Company
Part II
Item 8. Financial Statements and Supplementary Data
(continued)
Notes to Consolidated Financial Statements
Washington Gas provides certain healthcare and life insurance
benefits for retired employees. Substantially all employees of
Washington Gas may become eligible for such benefits if they
attain retirement status while working for Washington Gas.
Washington Gas accounts for these benefits under the provisions
of ASC
715-60,
Compensation-Retirement BenefitsDefined Benefit
Plans-Other Postretirement. Washington Gas elected to
amortize the accumulated post-retirement benefit obligation of
$190.6 million existing at the October 1, 1993
adoption date of this standard, known as the transition
obligation, over a twenty-year period.
On September 29, 2008, Washington Gas announced changes to
post-retirement medical benefits to increase the sharing of
costs with retirees who elect medical coverage. This amendment
reduced Washington Gass post-retirement benefit obligation
by $43.8 million at September 30, 2008, and will be
effective January 1, 2010.
Certain of our subsidiaries offer defined-contribution savings
plans to all eligible employees. These plans allow participants
to defer on a pre-tax or after-tax basis, a portion of their
salaries for investment in various alternatives. We make
matching contributions to the amounts contributed by employees
in accordance with the specific plan provisions. These
contributions to the plans were $3.4 million,
$3.0 million and $2.9 million during fiscal years
2009, 2008 and 2007, respectively.
On July 20, 2009, Washington Gas announced changes to the
non-contributory defined benefit pension plan to introduce a new
employer-provided retirement benefit under the defined
contribution savings plan for current management employees. With
the introduction of the new retirement benefit, effective
January 1, 2010, current management employees have the
option to either remain in the non-contributory defined benefit
pension plan or cease participating in the non-contributory
defined benefit pension plan and receive an enhanced
contribution under the defined-contribution savings plan.
Management employees hired after July 1, 2009 are not
eligible to participate in the qualified pension plan.
Washington Gas adopted SFAS No. 158 (now part of ASC Topic 715)
prospectively effective September 30, 2007. Almost all
costs associated with Washington Gass defined benefit
post-retirement plans have historically been, and will continue
to be, recovered through Washington Gass rates. Therefore,
following the guidance in ASC Topic 980, upon adoption of ASC
Topic 715, Washington Gas established a regulatory
asset/liability for the substantial majority of the unrecognized
costs/income associated with its defined benefit post-retirement
plans. To the extent these amounts will not be recovered through
Washington Gass rates they were recorded directly to
Accumulated other comprehensive loss, net of taxes.
ASC Topic 715 did not change the determination of pension and
other post- retirement costs. Refer to
Note 1Accounting Policies for further
discussion of the implementation of this standard.
104
WGL
Holdings, Inc.
Washington Gas Light Company
Part II
Item 8. Financial Statements and Supplementary Data
(continued)
Notes to Consolidated Financial Statements
Washington Gas uses a measurement date of September 30 for its
pension, and retiree healthcare and life insurance benefit
plans. The following table provides certain information about
Washington Gass post-retirement benefits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Post-Retirement Benefits
|
|
|
|
|
|
|
Health and Life
|
|
(In millions)
|
|
Pension Benefits
|
|
|
Benefits
|
|
|
|
Year Ended September 30,
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
Change in projected benefit obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
|
$
|
590.5
|
|
|
$
|
680.3
|
|
|
$
|
343.9
|
|
|
$
|
426.6
|
|
Service cost
|
|
|
8.4
|
|
|
|
9.8
|
|
|
|
5.1
|
|
|
|
8.8
|
|
Interest cost
|
|
|
42.7
|
|
|
|
39.7
|
|
|
|
25.0
|
|
|
|
25.0
|
|
Change in plan benefits
|
|
|
1.7
|
|
|
|
|
|
|
|
|
|
|
|
(43.8
|
)
|
Actuarial (gain) loss
|
|
|
76.4
|
|
|
|
(99.3
|
)
|
|
|
43.7
|
|
|
|
(52.2
|
)
|
Retiree contributions
|
|
|
|
|
|
|
|
|
|
|
1.0
|
|
|
|
1.0
|
|
Medicare part D reimbursements
|
|
|
|
|
|
|
|
|
|
|
0.7
|
|
|
|
1.3
|
|
Benefits paid
|
|
|
(41.6
|
)
|
|
|
(40.0
|
)
|
|
|
(20.1
|
)
|
|
|
(22.8
|
)
|
|
Projected benefit obligation at end of year
|
|
$
|
678.1
|
|
|
$
|
590.5
|
|
|
$
|
399.3
|
|
|
$
|
343.9
|
|
|
Change in plan assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
$
|
588.2
|
|
|
$
|
740.7
|
|
|
$
|
241.9
|
|
|
$
|
258.1
|
|
Actual return on plan assets
|
|
|
3.4
|
|
|
|
(114.4
|
)
|
|
|
9.1
|
|
|
|
(22.1
|
)
|
Company contributions
|
|
|
2.4
|
|
|
|
1.9
|
|
|
|
15.7
|
|
|
|
26.3
|
|
Retiree contributions
|
|
|
|
|
|
|
|
|
|
|
1.0
|
|
|
|
1.1
|
|
Medicare part D reimbursements
|
|
|
|
|
|
|
|
|
|
|
0.7
|
|
|
|
1.3
|
|
Expenses
|
|
|
(2.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits paid
|
|
|
(41.6
|
)
|
|
|
(40.0
|
)
|
|
|
(20.1
|
)
|
|
|
(22.8
|
)
|
|
Fair value of plan assets at end of year
|
|
$
|
550.0
|
|
|
$
|
588.2
|
|
|
$
|
248.3
|
|
|
$
|
241.9
|
|
|
Funded status at end of year
|
|
|
(128.1
|
)
|
|
|
(2.3
|
)
|
|
|
(151.0
|
)
|
|
|
(102.0
|
)
|
|
Total amounts recognized on balance sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid benefit cost
|
|
|
|
|
|
|
24.7
|
|
|
|
|
|
|
|
|
|
Current liability
|
|
|
(10.2
|
)
|
|
|
(1.5
|
)
|
|
|
|
|
|
|
|
|
Accrued benefit liability
|
|
|
(117.9
|
)
|
|
|
(25.5
|
)
|
|
|
(151.0
|
)
|
|
|
(102.0
|
)
|
|
Total recognized
|
|
|
(128.1
|
)
|
|
|
(2.3
|
)
|
|
|
(151.0
|
)
|
|
|
(102.0
|
)
|
|
The projected benefit obligation (PBO) and accumulated benefit
obligation (ABO) for the qualified pension plan was
$637.2 million and $603.9 million, respectively, as of
September 30, 2009, and $563.6 million and
$525.7 million, respectively, at September 30, 2008.
The PBO and ABO for the non-funded SERP was $40.9 million
and $35.8 million, respectively, as of September 30,
2009, and $26.9 million and $23.8 million,
respectively, as of September 30, 2008. The SERP, included
in pension benefits in the table above, has no assets.
105
WGL
Holdings, Inc.
Washington Gas Light Company
Part II
Item 8. Financial Statements and Supplementary Data
(continued)
Notes to Consolidated Financial Statements
The following table provides amounts recorded to regulatory
assets, regulatory liabilities and accumulated other
comprehensive loss at September 30, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized Costs/Income Recorded on the Balance Sheet
|
|
(In millions)
|
|
Pension Benefits
|
|
|
Health and Life Benefits
|
|
|
|
September 30,
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Unrecognized actuarial net (gain)/loss
|
|
$
|
175.9
|
|
|
$
|
49.4
|
|
|
$
|
170.2
|
|
|
$
|
122.6
|
|
Unrecognized prior service cost (credit)
|
|
|
5.3
|
|
|
|
5.4
|
|
|
|
(39.4
|
)
|
|
|
(43.4
|
)
|
Unrecognized transition obligation
|
|
|
|
|
|
|
|
|
|
|
4.3
|
|
|
|
5.4
|
|
|
Total
|
|
$
|
181.2
|
|
|
$
|
54.8
|
|
|
$
|
135.1
|
|
|
$
|
84.6
|
|
|
Regulatory asset
|
|
$
|
173.5
|
|
|
$
|
52.6
|
|
|
$
|
106.7
|
|
|
$
|
56.3
|
|
Deferred income tax benefit
|
|
|
|
|
|
|
|
|
|
|
25.0
|
|
|
|
25.7
|
|
Accumulated other comprehensive loss
(pre-tax)(a)
|
|
|
7.7
|
|
|
|
2.2
|
|
|
|
3.4
|
|
|
|
2.6
|
|
|
Total
|
|
$
|
181.2
|
|
|
$
|
54.8
|
|
|
$
|
135.1
|
|
|
$
|
84.6
|
|
|
|
|
|
(a) |
|
The total amount of accumulated
other comprehensive loss recorded on our balance sheets at
September 30, 2009 and 2008 is net of an income tax benefit
of $4.7 million and $3.0 million,
respectively. |
The following table provides amounts that are included in
regulatory assets/liabilities and accumulated other
comprehensive loss associated with our unrecognized pension and
other post-retirement benefit costs that were recognized as
components of net periodic benefit cost during fiscal year 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts Recognized During Fiscal Year 2009
|
|
|
|
|
|
|
Accumulated other
|
|
|
|
Regulatory assets/liabilities
|
|
|
comprehensive loss
|
|
|
|
|
|
|
|
|
Health and
|
|
|
|
|
|
Health and
|
|
(In millions)
|
|
Pension Benefits
|
|
|
Life Benefits
|
|
|
Pension Benefits
|
|
|
Life Benefits
|
|
|
|
|
Actuarial net loss
|
|
$
|
0.3
|
|
|
$
|
4.8
|
|
|
$
|
0.1
|
|
|
$
|
0.1
|
|
Prior service cost
|
|
|
1.7
|
|
|
|
(3.9
|
)
|
|
|
|
|
|
|
(0.1
|
)
|
Transition obligation
|
|
|
|
|
|
|
0.9
|
|
|
|
|
|
|
|
0.2
|
|
|
Total
|
|
$
|
2.0
|
|
|
$
|
1.8
|
|
|
$
|
0.1
|
|
|
$
|
0.2
|
|
|
The following table provides amounts that are included in
regulatory assets/liabilities and accumulated other
comprehensive loss associated with our unrecognized pension and
other post-retirement benefit costs that will be recognized as
components of net periodic benefit cost during fiscal year 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts to be Recognized During Fiscal Year 2010
|
|
|
|
|
|
|
Accumulated other
|
|
|
|
Regulatory assets/liabilities
|
|
|
comprehensive loss
|
|
|
|
|
|
|
|
|
Health and
|
|
|
|
|
|
Health and
|
|
(In millions)
|
|
Pension Benefits
|
|
|
Life Benefits
|
|
|
Pension Benefits
|
|
|
Life Benefits
|
|
|
|
|
Actuarial net loss
|
|
$
|
6.1
|
|
|
$
|
4.8
|
|
|
$
|
1.2
|
|
|
$
|
0.1
|
|
Prior service cost (credit)
|
|
|
1.1
|
|
|
|
(3.9
|
)
|
|
|
|
|
|
|
(0.1
|
)
|
Transition obligation
|
|
|
|
|
|
|
0.8
|
|
|
|
|
|
|
|
0.2
|
|
|
Total
|
|
$
|
7.2
|
|
|
$
|
1.7
|
|
|
$
|
1.2
|
|
|
$
|
0.2
|
|
|
106
WGL
Holdings, Inc.
Washington Gas Light Company
Part II
Item 8. Financial Statements and Supplementary Data
(continued)
Notes to Consolidated Financial Statements
The significant increase in the actuarial net loss for pension
benefits to be recognized in fiscal year 2010 when compared to
fiscal year 2009 is due to the commencement in 2010 of
amortization of unrecognized actuarial net losses associated
with our qualified pension plan and an expected settlement to be
recorded in fiscal year 2010 as a result of the retirement of
certain executive officers, including the chairman and chief
executive officer.
Realized and unrealized gains and losses for assets under
Washington Gass post-retirement benefit plans are spread
over a period of five years. Each year, 20% of the prior five
years asset gains and losses are recognized. The
market-related value of assets is equal to the market value of
assets less the following percentages of prior years
realized and unrealized gains and losses on equities: 80% of the
prior year, 60% of the second prior year, 40% of the third prior
year and 20% of the fourth prior year.
Washington Gas employs a total return investment approach
whereby a mix of equities, fixed income and other investments
can be used to maximize the long-term return of plan assets for
a prudent level of risk. The intent of this strategy is to
minimize plan expenses through asset growth over the long run.
Risk tolerance is established through consideration of plan
liabilities, plan funded status, and corporate financial
condition. Investment risk is measured and monitored on an
ongoing basis through annual liability measurements, periodic
asset/liability studies, and quarterly investment portfolio
reviews.
The asset allocations for the qualified pension plan and
healthcare and life insurance benefit trusts as of
September 30, 2009 and 2008, and the weighted average
target asset allocations as of September 30, 2009, by asset
category, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Post-Retirement Investment Allocations
|
|
|
|
|
|
Pension Benefits
|
|
|
Health and Life Benefits
|
|
|
|
|
|
Target
|
|
|
Actual
|
|
|
Target
|
|
|
Actual
|
|
|
|
Allocation
|
|
|
Allocation
|
|
|
Allocation
|
|
|
Allocation
|
|
|
|
September 30,
|
|
2009
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Asset Category
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity(a)
|
|
|
60
|
%
|
|
|
58
|
%
|
|
|
57
|
%
|
|
|
50
|
%
|
|
|
53
|
%
|
|
|
44
|
%
|
Debt
|
|
|
35
|
%
|
|
|
39
|
%
|
|
|
38
|
%
|
|
|
50
|
%
|
|
|
47
|
%
|
|
|
56
|
%
|
Real Estate
|
|
|
5
|
%
|
|
|
3
|
%
|
|
|
5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
(a) |
None of WGL Holdings common stock is included in these
plans.
|
Expected benefit payments, including benefits attributable to
estimated future employee service, which are expected to be paid
over the next ten years are as follows:
|
|
|
|
|
|
|
|
|
Expected Benefit Payments
|
|
|
|
|
|
Pension
|
|
|
Health and Life
|
|
(In millions)
|
|
Benefits
|
|
|
Benefits
|
|
|
|
|
2010
|
|
$
|
50.9
|
|
|
$
|
19.5
|
|
2011
|
|
|
44.0
|
|
|
|
20.7
|
|
2012
|
|
|
45.3
|
|
|
|
22.1
|
|
2013
|
|
|
47.0
|
|
|
|
23.4
|
|
2014
|
|
|
48.3
|
|
|
|
24.7
|
|
20152019
|
|
|
258.8
|
|
|
|
137.8
|
|
|
During fiscal year 2010, Washington Gas does not expect to make
any contributions related to its qualified pension plan.
Washington Gas expects to make payments totaling
$10.2 million in fiscal year 2010 on behalf of participants
in its non-funded SERP. Washington Gas expects to contribute
$19.0 million to its health and life insurance benefit
plans during fiscal year 2010. The significant increase in the
expected contributions for the non-funded SERP in fiscal year
2010 when compared to fiscal year 2009 is due to an expected
settlement to be recorded in fiscal year 2010 as a result of the
retirement of certain executive officers, including the chairman
and chief executive officer.
107
WGL
Holdings, Inc.
Washington Gas Light Company
Part II
Item 8. Financial Statements and Supplementary Data
(continued)
Notes to Consolidated Financial Statements
The components of the net periodic benefit costs (income) for
fiscal years 2009, 2008 and 2007 related to pension and other
postretirement benefits were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of Net Periodic Benefit Costs (Income)
|
|
(In millions)
|
|
Pension Benefits
|
|
|
Health and Life Benefits
|
|
|
|
Year Ended September 30,
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
Components of net periodic benefit costs (income)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
8.4
|
|
|
$
|
9.8
|
|
|
$
|
11.9
|
|
|
$
|
5.1
|
|
|
$
|
8.8
|
|
|
$
|
10.6
|
|
Interest cost
|
|
|
42.7
|
|
|
|
39.7
|
|
|
|
39.0
|
|
|
|
25.0
|
|
|
|
25.0
|
|
|
|
25.2
|
|
Expected return on plan assets
|
|
|
(51.5
|
)
|
|
|
(52.9
|
)
|
|
|
(50.7
|
)
|
|
|
(17.9
|
)
|
|
|
(17.4
|
)
|
|
|
(15.4
|
)
|
Recognized prior service cost
|
|
|
1.7
|
|
|
|
1.7
|
|
|
|
2.3
|
|
|
|
(4.0
|
)
|
|
|
|
|
|
|
|
|
Recognized actuarial loss
|
|
|
0.4
|
|
|
|
1.0
|
|
|
|
3.7
|
|
|
|
4.9
|
|
|
|
7.9
|
|
|
|
11.5
|
|
Amortization of transition obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.1
|
|
|
|
1.2
|
|
|
|
1.5
|
|
Curtailment loss
|
|
|
|
|
|
|
|
|
|
|
2.4
|
|
|
|
|
|
|
|
|
|
|
|
1.6
|
|
|
Net periodic benefit cost (income)
|
|
|
1.7
|
|
|
|
(0.7
|
)
|
|
|
8.6
|
|
|
|
14.2
|
|
|
|
25.5
|
|
|
|
35.0
|
|
|
Amount allocated to construction projects
|
|
|
0.2
|
|
|
|
0.4
|
|
|
|
(0.4
|
)
|
|
|
(2.3
|
)
|
|
|
(3.4
|
)
|
|
|
(4.2
|
)
|
Amount deferred as regulatory asset (liability)-net
|
|
|
(3.9
|
)
|
|
|
(3.5
|
)
|
|
|
(4.7
|
)
|
|
|
2.8
|
|
|
|
1.5
|
|
|
|
0.3
|
|
|
Amount charged (credited) to expense
|
|
($
|
2.0
|
)
|
|
$
|
(3.8
|
)
|
|
$
|
3.5
|
|
|
$
|
14.7
|
|
|
$
|
23.6
|
|
|
$
|
31.1
|
|
|
The curtailment loss in 2007 relates to our business process
outsourcing (BPO) plan and the table above excludes certain
adjustments to capitalize and amortize these amounts. Amounts
included in the line item Amount deferred as regulatory
asset/liability-net, represent the difference between the
cost of the applicable pension benefits and the health and life
benefits and the amount that Washington Gas is permitted to
recover in rates that it charges to customers in the District of
Columbia.
As a sponsor of a retiree health care benefit plan that is at
least actuarially equivalent to Medicare (Medicare Part D),
Washington Gas is eligible to receive a federal subsidy under
the Medicare Prescription Drug, Improvement and Modernization
Act of 2003. All amounts received related to this subsidy are
contributed by Washington Gas to its retiree healthcare plan.
Expected receipts attributable to the Medicare subsidy to be
received over the next ten years are as follows:
|
|
|
|
|
Medicare Subsidy Receipts
|
|
|
|
|
|
Health and Life
|
|
(In millions)
|
|
Benefits
|
|
|
|
2010
|
|
$
|
1.5
|
|
2011
|
|
|
1.7
|
|
2012
|
|
|
1.9
|
|
2013
|
|
|
2.1
|
|
2014
|
|
|
2.3
|
|
20152019
|
|
|
14.3
|
|
|
The weighted average assumptions used to determine net periodic
benefit obligations and net periodic benefit costs were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit Obligations Assumptions
|
|
|
|
|
|
|
Health and Life
|
|
|
|
Pension Benefits
|
|
|
Benefits
|
|
|
|
September 30,
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Discount
rate(a)
|
|
|
6.50
|
%
|
|
|
7.50
|
%
|
|
|
6.50
|
%
|
|
|
7.50
|
%
|
Rate of compensation
increase(b)
|
|
|
3.00
|
%
|
|
|
4.00
|
%
|
|
|
3.00
|
%
|
|
|
4.00
|
%
|
|
|
|
(a) |
The decrease in the discount rate at September 30, 2009
compared to 2008 primarily reflects the decrease in long-term
interest rates.
|
108
WGL
Holdings, Inc.
Washington Gas Light Company
Part II
Item 8. Financial Statements and Supplementary Data
(continued)
Notes to Consolidated Financial Statements
|
|
(b) |
The decrease in the rate of compensation increase from
September 30, 2009 compared to 2008 primarily reflects the
decrease in inflation rates in fiscal year 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Periodic Benefit Cost Assumptions
|
|
|
|
Pension Benefits
|
|
|
Health and Life Benefits
|
|
|
|
Years Ended September 30,
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Discount
rate(a)
|
|
|
7.50
|
%
|
|
|
6.00
|
%
|
|
|
5.75
|
%
|
|
|
7.50
|
%
|
|
|
6.00
|
%
|
|
|
5.75
|
%
|
Expected long-term return on plan
assets(b)
|
|
|
8.25
|
%
|
|
|
8.25
|
%
|
|
|
8.25
|
%
|
|
|
7.25
|
%
|
|
|
7.25
|
%
|
|
|
7.25
|
%
|
Rate of compensation increase
|
|
|
4.00
|
%
|
|
|
4.00
|
%
|
|
|
4.00
|
%
|
|
|
4.00
|
%
|
|
|
4.00
|
%
|
|
|
4.00
|
%
|
|
|
|
(a)
|
The increase in the discount rate in 2009 from 2008 primarily
reflects the increase in long-term interest rates primarily due
to the tightening of the credit markets in fiscal year 2008.
|
(b)
|
For health and life benefits, the expected returns for
certain funds may be lower due to certain portions of income
that are subject to taxes.
|
Washington Gas determines the expected long-term rate of return
on plan assets by averaging the expected earnings for the target
asset portfolio. In developing the expected rate of return
assumption, Washington Gas evaluates an analysis of historical
actual performance and long-term return projections, which gives
consideration to our asset mix and anticipated length of
obligation of our plan.
Washington Gas assumed the healthcare cost trend rates related
to the accumulated post-retirement benefit obligation for
Medicare and non-Medicare eligible retirees to be 9.0% for
fiscal year 2009 and 10.0% for fiscal year 2008. Washington Gas
expects these rates to decrease gradually to 5.0% in 2013 and
remain at those levels thereafter.
The assumed healthcare trend rate has a significant effect on
the amounts reported for the healthcare plans. A one
percentage-point change in the assumed healthcare trend rate
would have the following effects:
|
|
|
|
|
|
|
|
|
Healthcare Trends
|
|
|
|
One
|
|
|
One
|
|
|
|
Percentage-Point
|
|
|
Percentage-Point
|
|
(In millions)
|
|
Increase
|
|
|
Decrease
|
|
|
|
Increase (decrease) total service and interest cost components
|
|
$
|
4.5
|
|
|
$
|
(3.6
|
)
|
Increase (decrease) post-retirement benefit obligation
|
|
$
|
54.1
|
|
|
$
|
(44.3
|
)
|
|
REGULATORY
MATTERS
A significant portion of the estimated pension and
post-retirement medical and life insurance benefits apply to our
regulated activities. Each regulatory commission having
jurisdiction over Washington Gas requires it to fund amounts
reflected in rates for post-retirement medical and life
insurance benefits into irrevocable trusts. The expected pre-tax
long-term rate of return on the assets in the trusts was 7.25%
for fiscal years 2009, 2008 and 2007. Washington Gas assumes a
41.5% income tax rate to compute taxes on the taxable portion of
the income in the trusts.
District of
Columbia Jurisdiction
Washington Gas recovers all costs allocable to the District of
Columbia associated with its qualified pension plan and other
post-retirement medical and life insurance benefits. Expenses of
the SERP allocable to the District of Columbia are not recovered
through rates. The Public Service Commission of the District of
Columbia (PSC of DC) granted the recovery of
post-retirement medical and life insurance benefit costs
determined in accordance with GAAP through a five-year phase-in
plan that ended September 30, 1998. Washington Gas deferred
the difference generated during the phase-in period as a
regulatory asset. Effective October 1, 1998, the PSC of DC
granted Washington Gas full recovery of costs determined under
GAAP, plus a fifteen-year amortization of the regulatory asset
established during the phase-in period.
109
WGL
Holdings, Inc.
Washington Gas Light Company
Part II
Item 8. Financial Statements and Supplementary Data
(continued)
Notes to Consolidated Financial Statements
Virginia
Jurisdiction
On September 28, 1995, the Virginia State Corporation
Commission (SCC of VA) issued a generic order that allowed
Washington Gas to recover most costs determined under GAAP for
post-retirement medical and life insurance benefits in rates
over twenty years. The SCC of VA, however, set a forty-year
recovery period of the transition obligation. As prescribed by
GAAP, Washington Gas amortizes these costs over a twenty-year
period. With the exception of the transition obligation, the SCC
of VA has approved a level of rates sufficient to recover annual
costs for all pension and other post-retirement medical and life
insurance benefit costs determined under GAAP.
Maryland
Jurisdiction
The Public Service Commission of Maryland (PSC of MD) has
not rendered a decision that specifically addresses recovery of
post-retirement medical and life insurance benefit costs
determined in accordance with GAAP. However, the PSC of MD has
approved a level of rates sufficient to recover these costs and
pension costs as determined under GAAP.
|
|
11.
|
STOCK-BASED
COMPENSATION
|
STOCK-BASED
COMPENSATION FOR KEY EMPLOYEES
We have stock-based awards outstanding in the form of stock
options, performance shares and performance units. We have
issued stock options and performance shares under our
shareholder-approved 1999 Incentive Compensation Plan, as
amended and restated (1999 Plan). The 1999 Plan allows WGL
Holdings to issue up to 2,000,000 shares of common stock to
persons designated by the Human Resources Committee of the Board
of Directors, including officers and key employees. Effective
March 1, 2007, WGL Holdings adopted a shareholder-approved
Omnibus Incentive Compensation Plan (Omnibus Plan). The Omnibus
Plan was adopted to replace, on a prospective basis, the 1999
Plan. The Omnibus Plan provides similar benefits as provided
under the 1999 Plan. Stock options, stock appreciation rights,
restricted stock, deferred stock, stock granted as a bonus in
lieu of other awards, dividend equivalents, other stock-based
awards and cash awards may be granted under the Omnibus Plan.
The Omnibus Plan allows WGL Holdings to issue up to
1,700,000 shares of common stock, subject to adjustment as
provided by the plan, to persons designated by the Human
Resources Committee of the Board of Directors, including
officers and key employees. Refer to Note 6Common
StockWGL Holdings for amounts remaining to be issued
under these plans.
During the fiscal year ended September 30, 2009, we granted
performance shares and performance units under the Omnibus Plan;
however, we did not issue any stock options. As of
September 30, 2009, there are prior years stock
option grants outstanding with an exercise price at the market
value of our common stock on the date of the grant.
For both performance shares and performance units, we impose
performance goals based on certain market conditions, which if
unattained, may result in no performance shares or units being
earned for the applicable performance period. These performance
awards generally vest over three years from the date of grant.
The actual number of performance shares and units that may be
earned varies based on the total shareholder return of WGL
Holdings relative to a selected peer group of companies over the
three year performance period. Any performance shares that are
earned will be paid in shares of common stock of WGL Holdings.
Any performance units that may be earned pursuant to terms of
the grant will be paid in cash and are valued at $1.00 per
performance unit. Our stock options generally have a vesting
period of three years, and expire ten years from the date of the
grant. Performance units, performance shares and stock option
awards provide for accelerated vesting upon a change in control
of WGL Holdings. Additionally, stock options provide for
accelerated vesting upon retirement, death or disability. We
generally issue new shares of common stock in order to satisfy
stock issuances related to performance shares and stock options;
however, we may, from time to time, repurchase shares of our
common stock on the open market in order to satisfy these
issuances. Both performance shares and stock options are
accounted for as equity awards, and performance units are
accounted for as liability awards as they will settle in cash.
During the year ended September 30, 2009, forfeitures
increased as a result of the retirement of certain executive
officers, including the chairman and chief executive officer.
The increase in forfeitures decreased total stock-based
compensation expense for performance shares and performance
units.
For the year ended September 30, 2009, we recognized
stock-based compensation expense related to our performance
shares, performance units and stock options of
$4.2 million, net of a related income tax benefit of
$1.7 million. For the year ended September 30, 2008,
we recognized stock-based compensation expense related to our
performance shares, performance units and
110
WGL
Holdings, Inc.
Washington Gas Light Company
Part II
Item 8. Financial Statements and Supplementary Data
(continued)
Notes to Consolidated Financial Statements
stock options of $4.6 million, net of a related income tax
benefit of $1.8 million. For the year ended
September 30, 2007, we recognized stock-based compensation
expense related to our performance shares and stock options of
$5.0 million, net of a related income tax benefit of
$2.0 million.
As of September 30, 2009, there was $5.1 million of
total unrecognized compensation expense related to stock-based
awards granted. Performance shares and performance units
comprised $2.2 million and $2.9 million of total
unrecognized compensation expense, respectively. There was no
unrecognized compensation expense for stock options as of
September 30, 2009. The total unrecognized compensation
expense is expected to be recognized over a weighted average
period of 1.7 years for performance shares and performance
units. As of September 30, 2008, there was
$5.2 million of total unrecognized compensation expense
related to share-based awards granted. Performance shares,
performance units and stock options comprised $3.1 million,
$1.8 million and $311,000 of total unrecognized
compensation expense, respectively. During the fiscal years
ended September 30, 2009 and 2008, we paid
$1.0 million and $1.1 million, respectively, for
income taxes withheld in connection with the settlement of
share-based awards. During fiscal year 2007, there were no cash
payments in connection with the settlement of our share-based
awards.
Performance
Shares
The following table summarizes information regarding performance
share activity during the fiscal year ended September 30,
2009.
|
|
|
|
|
|
|
|
|
Performance Share Activity
|
|
|
|
Year Ended
|
|
|
|
September 30, 2009
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
Number of
|
|
|
Grant-Date
|
|
|
|
Shares(a)
|
|
|
Fair Value
|
|
|
|
Non-vested and outstanding, beginning of year
|
|
|
274,258
|
|
|
$
|
32.06
|
|
Granted
|
|
|
101,781
|
|
|
$
|
32.71
|
|
Vested
|
|
|
(82,223
|
)
|
|
$
|
32.62
|
|
Cancelled/forfeited
|
|
|
(15,920
|
)
|
|
$
|
32.09
|
|
|
Non-vested and outstanding, end of year
|
|
|
277,896
|
|
|
$
|
32.13
|
|
|
|
|
|
(a) |
|
The number of common shares
issued related to performance shares may range from zero to
200 percent of the number of shares shown in the table
above based on our achievement of performance goals for total
shareholder return relative to a selected peer group of
companies. |
The number of forfeited shares is expected to increase
significantly in fiscal year 2010 after the retirement of
certain executive officers, including the chairman and chief
executive officer.
The total intrinsic value of performance shares vested during
the years ended September 30, 2009 and 2008 was
$2.8 million and $3.2 million, respectively. No common
shares were issued related to performance shares that vested in
fiscal year 2007. Performance shares non-vested and outstanding
at September 30, 2009 had a weighted average remaining
contractual term of one year.
We measure compensation expense related to performance shares
based on the fair value of these awards at their date of grant.
Compensation expense for performance shares is recognized for
awards that ultimately vest, and is not adjusted based on the
actual
111
WGL
Holdings, Inc.
Washington Gas Light Company
Part II
Item 8. Financial Statements and Supplementary Data
(continued)
Notes to Consolidated Financial Statements
achievement of performance goals. We estimated the fair value of
performance shares on the date of grant using a Monte Carlo
simulation model based on the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Assumptions
|
|
|
|
Years Ended September 30,
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
Expected stock-price volatility
|
|
|
21.40
|
%
|
|
|
17.70
|
%
|
|
|
15.70
|
%
|
Dividend yield
|
|
|
4.38
|
%
|
|
|
4.00
|
%
|
|
|
4.30
|
%
|
Risk-free interest rate
|
|
|
2.27
|
%
|
|
|
4.00
|
%
|
|
|
4.60
|
%
|
Weighted average fair value of performance shares granted during
the year
|
|
$
|
32.71
|
|
|
$
|
34.01
|
|
|
$
|
29.68
|
|
|
Expected stock-price volatility is based on the daily historical
volatility of our common shares for the past three fiscal years.
The dividend yield represents our annualized dividend yield on
the closing market price of our common stock at the date of the
grant. The risk-free interest rate is based on the zero-coupon
U.S. Treasury bond, with a term equal to the remaining
contractual term of the performance shares.
Performance
Units
Our performance units are liability awards as they settle in
cash; therefore, we measure and record compensation expense for
these awards based on their fair value at the end of each period
until their vesting date. This may cause fluctuations in
earnings that do not exist under the accounting requirements for
both our stock options and performance shares.
The following table summarizes information regarding performance
unit activity during the fiscal year ended September 30,
2009.
|
|
|
|
|
Performance Unit Activity
|
|
|
|
Year Ended
|
|
|
|
September 30, 2009
|
|
|
|
|
|
Number of Units
|
|
|
|
Non-vested and outstanding, beginning of year
|
|
|
3,218,580
|
|
Granted
|
|
|
3,302,792
|
|
Vested
|
|
|
|
|
Cancelled/forfeited
|
|
|
(334,359
|
)
|
|
Non-vested and outstanding, end of year
|
|
|
6,187,013
|
|
|
The number of forfeited units is expected to increase
significantly in fiscal year 2010 after the retirement of
certain executive officers, including the chairman and chief
executive officer.
The weighted average fair value of our performance units
outstanding at September 30, 2009 for the units expected to
vest was $6.5 million. As of September 30, 2009 and
2008, we had recorded a liability of $2.9 million and
$898,000, respectively, related to our performance units. This
liability is recorded in Deferred creditsother.
We estimated the fair value of performance units using a Monte
Carlo simulation model. The following table provides the
year-end assumptions used to value our performance units:
|
|
|
|
|
|
|
|
|
Fair Value Assumptions
|
|
September 30,
|
|
2009
|
|
|
|
|
|
10/1/2008 Grant
|
|
|
10/1/2007 Grant
|
|
|
|
|
Expected stock-price volatility
|
|
|
33.37
|
%
|
|
|
39.54
|
%
|
Risk free interest rate
|
|
|
0.71
|
%
|
|
|
0.44
|
%
|
|
112
WGL
Holdings, Inc.
Washington Gas Light Company
Part II
Item 8. Financial Statements and Supplementary Data
(continued)
Notes to Consolidated Financial Statements
Expected stock-price volatility is based on the daily historical
volatility of our common shares for a period equal to the
remaining term of the performance units. The risk-free interest
rate is based on the zero-coupon U.S. Treasury bond, with a
term equal to the remaining contractual term of the performance
units.
Stock
Options
The following table summarizes information regarding stock
option activity during the fiscal year ended September 30,
2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Option Activity
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
Number
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
of
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic Value
|
|
|
|
Options
|
|
|
Price
|
|
|
Term (In years)
|
|
|
(In thousands)
|
|
|
|
Outstanding at September 30, 2008
|
|
|
1,017,177
|
|
|
$
|
30.57
|
|
|
|
6.87
|
|
|
$
|
1,913
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(159,270
|
)
|
|
|
29.63
|
|
|
|
|
|
|
|
|
|
Cancelled/forfeited
|
|
|
(11,700
|
)
|
|
|
31.34
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2009
|
|
|
846,207
|
|
|
|
30.74
|
|
|
|
5.77
|
|
|
$
|
2,035
|
|
|
Exercisable at September 30, 2009
|
|
|
459,006
|
|
|
|
30.23
|
|
|
|
4.73
|
|
|
$
|
1,338
|
|
|
We received $4.7 million, $14.1 million, and
$11.7 million related to the exercise of stock options
during the years ended September 30, 2009, 2008, and 2007,
respectively. The related tax benefits realized for the fiscal
years ended September 30, 2009, 2008 and 2007 were
$383,000, $1.8 million and $962,000, respectively.
We measure compensation expense related to stock options based
on the fair value of these awards at their date of grant.
Compensation expense for stock options is recognized for awards
that ultimately vest. We estimated the fair value of stock
options on the date of the grant using the Black-Scholes
option-pricing model.
Expected stock-price volatility is based on the daily historical
volatility of our common shares over a period that approximates
the expected term of the stock options. The dividend yield
represents our annualized dividend yield on the closing market
price of our common stock at the date of grant. The risk-free
interest rate is based on the zero-coupon U.S. Treasury
bond, with a term equal to the expected term of the stock
options. The expected option term is based on our historical
experience with respect to stock option exercises and
expectations about future exercises.
STOCK
GRANTS TO DIRECTORS
Non-employee directors receive a portion of their annual
retainer fee in the form of common stock through the
Directors Stock Compensation Plan. Up to
120,000 shares of common stock may be awarded under the
plan. Shares granted to directors totaled 12,600 for fiscal
years 2009, 2008 and 2007. For those years, the fair value of
the stock on the grant dates was $32.77, $32.55, and $32.72,
respectively. Shares awarded to the participants:
(i) vest immediately and cannot be forfeited,
(ii) may be sold or transferred and
(iii) have voting and dividend rights. For the years
ended September 30, 2009, 2008 and 2007, WGL Holdings
recognized stock-based compensation expense related to these
stock grants of $413,000, $410,000 and $412,000, respectively,
net of related income tax benefits of $148,000, $148,000 and
$149,000, respectively.
|
|
12.
|
ENVIRONMENTAL
MATTERS
|
We are subject to federal, state and local laws and regulations
related to environmental matters. These evolving laws and
regulations may require expenditures over a long timeframe 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
113
WGL
Holdings, Inc.
Washington Gas Light Company
Part II
Item 8. Financial Statements and Supplementary Data
(continued)
Notes to Consolidated Financial Statements
manufactured gas plants (MGPs). Estimates of liabilities for
environmental response costs are difficult to determine with
precision because of the various factors that can affect their
ultimate level. These factors include, but are not limited, to
the following:
|
|
|
|
|
the complexity of the site;
|
|
|
|
changes in environmental laws and regulations at the federal,
state and local levels;
|
|
|
|
the number of regulatory agencies or other parties involved;
|
|
|
|
new technology that renders previous technology obsolete or
experience with existing technology that proves ineffective;
|
|
|
|
the level of remediation required and
|
|
|
|
variations between the estimated and actual period of time that
must be dedicated to respond to an environmentally-contaminated
site.
|
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. Based on the information available
to us, we have concluded that none of the sites are likely to
present an unacceptable risk to human health or the environment.
At one of the former MGP sites, studies show the presence of
coal tar under the site and an adjoining property. Washington
Gas has taken steps to control the movement of contaminants into
an adjacent river by installing a water treatment system that
removes and treats contaminated groundwater at the site.
Washington Gas received approval from governmental authorities
for a comprehensive remediation plan for the majority of the
site that permits commercial development of Washington
Gass property. Washington Gas entered into an agreement
with a national developer for the development of this site in
phases. The first two phases have been completed, with
Washington Gas retaining a ground lease on each phase. A Record
of Decision for that portion of the site not owned by Washington
Gas was issued in August, 2006. Negotiations on a consent
agreement regarding remediation of that property were postponed
when the site was transferred in late 2007 to a new governmental
owner and the governmental entities involved agreed to review
how the transfer impacts the Record of Decision. On
September 21, 2006, governmental authorities notified
Washington Gas of their desire to have the utility investigate
and remediate river sediments in the area directly in front of
the former MGP site. As of September 30, 2009, there has
been no agreement among Washington Gas and governmental
authorities as to the type and level of sediment investigation
and remediation that should be undertaken for this area of the
river; accordingly, we cannot estimate at this time the
potential future costs of such investigation and remediation.
At a second former MGP site and on an adjacent parcel of land,
Washington Gas developed a monitoring-only
remediation plan for the site. This remediation plan received
approval under a state voluntary closure program.
We do not expect that the ultimate impact of these matters will
have a material adverse effect on our capital expenditures,
earnings or competitive position. At the remaining eight sites,
either the appropriate remediation is being undertaken, or no
remediation should be necessary.
At both September 30, 2009 and 2008, Washington Gas
recorded a liability of $6.9 million on an undiscounted
basis related to future environmental response costs, which
included the estimated costs for the ten MGP sites. These
estimates principally include the minimum liabilities associated
with a range of environmental response costs expected to be
incurred at the sites identified. At both September 30,
2009 and 2008, Washington Gas estimated the maximum liability
associated with all of its sites to be approximately
$13.5 million. The estimates were determined by Washington
Gass environmental experts, based on experience in
remediating MGP sites and advice from legal counsel and
environmental consultants. Variations within the range of
estimated liability result primarily from differences in the
number of years that will be required to perform environmental
response processes at each site and the extent of remediation
that may be required.
Regulatory orders issued by the PSC of MD allow Washington Gas
to recover the costs associated with the sites applicable to
Maryland over periods ranging from five to thirty years. Rate
orders issued by the PSC of DC allow Washington Gas a three-year
recovery of prudently incurred environmental response costs, and
allow Washington Gas to defer additional costs incurred between
rate cases. Regulatory orders from the SCC of VA have generally
allowed the recovery of prudent environmental remediation costs
to the extent they were included in a test year.
At both September 30, 2009 and 2008, Washington Gas
reported a regulatory asset of $2.8 million for the portion
of environmental response costs that are expected to be
recoverable in future rates. Washington Gas does not expect that
the ultimate impact of these matters will have a material
adverse effect on its financial statements.
114
WGL
Holdings, Inc.
Washington Gas Light Company
Part II
Item 8. Financial Statements and Supplementary Data
(continued)
Notes to Consolidated Financial Statements
|
|
13.
|
COMMITMENTS AND
CONTINGENCIES
|
OPERATING
LEASES
Minimum future rental payments under operating leases over the
next five years and thereafter are as follows:
|
|
|
|
|
|
|
Minimum Payments Under Operating Leases
|
(In millions)
|
2010
|
|
$
|
4.2
|
|
|
|
2011
|
|
|
4.3
|
|
|
|
2012
|
|
|
4.4
|
|
|
|
2013
|
|
|
4.4
|
|
|
|
2014
|
|
|
4.2
|
|
|
|
Thereafter
|
|
|
15.2
|
|
|
|
|
Total
|
|
$
|
36.7
|
|
|
|
|
Rent expense totaled $4.7 million, $4.9 million and
$4.8 million in fiscal years ended September 30, 2009,
2008 and 2007, respectively.
REGULATED
UTILITY OPERATIONS
Natural Gas
ContractsMinimum Commitments
At September 30, 2009, Washington Gas had service
agreements with four pipeline companies that provide direct
service for firm transportation
and/or
storage services. These agreements, which have expiration dates
ranging from fiscal years 2010 to 2029, require Washington Gas
to pay fixed charges each month. Additionally, Washington Gas
had agreements for other pipeline and peaking services with
expiration dates ranging from 2010 to 2027. These agreements
were entered into based on current estimates of growth of the
Washington Gas system, together with other factors, such as
current expectations of the timing and extent of unbundling
initiatives in the Washington Gas service territory.
The following table summarizes the minimum contractual payments
that Washington Gas will make under its pipeline transportation,
storage and peaking contracts during the next five fiscal years
and thereafter.
|
|
|
|
|
|
|
Washington Gas Contract Minimums
|
|
(In millions)
|
|
Pipeline Contracts
|
|
|
|
|
|
2010
|
|
$
|
159.2
|
|
|
|
2011
|
|
|
158.5
|
|
|
|
2012
|
|
|
158.6
|
|
|
|
2013
|
|
|
161.1
|
|
|
|
2014
|
|
|
183.2
|
|
|
|
Thereafter
|
|
|
1,573.8
|
|
|
|
|
Total
|
|
$
|
2,394.4
|
|
|
|
|
Not included in the table above are short-term minimum
commitments of $8.1 million to purchase natural gas in
fiscal year 2010, as well as long-term obligations to purchase
fixed quantities of natural gas totaling 193.3 million
therms for the period from
2010-2011 at
prices based on market conditions at the time the natural gas is
purchased. These commitments relate to purchases of natural gas
to serve utility customers. Additionally, excluded from the
table above are purchases under our asset optimization program
totaling 412.3 million therms from
2010-2017,
which are mostly offset by matching sales contracts of
436.3 million therms over that same period. Contracts under
our asset optimization program are accounted for as derivatives
(refer to Note 1Accounting Policies for a
description of our asset optimization program and
Note 5Derivative and Weather-Related Instruments
for a discussion of our derivative instruments).
115
WGL
Holdings, Inc.
Washington Gas Light Company
Part II
Item 8. Financial Statements and Supplementary Data
(continued)
Notes to Consolidated Financial Statements
When a customer selects a third party marketer to provide
supply, Washington Gas generally assigns pipeline and storage
capacity to unregulated third party marketers to deliver gas to
Washington Gass city gate. In order to provide the gas
commodity to customers who do not select an unregulated third
party marketer, Washington Gas has a commodity acquisition plan
to acquire the natural gas supply to serve the customers.
Currently, Washington Gas recovers its cost of gas to serve its
customers through the purchased gas cost recovery mechanisms
included in its retail rate schedules in each of its
jurisdictions. However, the timing and extent of Washington
Gass initiatives or regulatory requirements to separate
the purchase and sale of natural gas from the delivery of gas
could cause its gas supply commitments to exceed its continued
sales obligations.
Washington Gas has rate provisions in each of its jurisdictions
that would allow it to continue to recover these commitments in
rates. Washington Gas also actively manages its supply portfolio
to ensure its sales and supply obligations remain balanced. This
reduces the likelihood that the contracted supply commitments
would exceed supply obligations. However, to the extent
Washington Gas were to determine that changes in regulation
would cause it to discontinue recovery of these costs in rates,
Washington Gas would be required to charge these costs to
expense without any corresponding revenue recovery. If this
occurred, depending upon the timing of the occurrence, the
related impact on our financial position, results of operations
and cash flows would likely be significant.
Regulatory
Contingencies
Certain legal and administrative proceedings incidental to our
business, including regulatory contingencies, involve WGL
Holdings
and/or its
subsidiaries. In our opinion, we have recorded an adequate
provision for probable losses or refunds to customers for
regulatory contingencies related to these proceedings.
District of
Columbia Jurisdiction
Recovery of HHC Costs. On May 1,
2006, Washington Gas filed two tariff applications with the PSC
of DC requesting approval of proposed revisions to the balancing
charge provisions of its firm and interruptible delivery service
tariffs that would permit the utility to recover from its
delivery service customers the costs of heavy hydrocarbons
(HHCs) that are being injected into Washington Gass
natural gas distribution system to treat vaporized liquefied
natural gas from the Dominion Cove Point Facility. Washington
Gas had been recovering the costs of HHCs from sales customers
in the District of Columbia through its Purchased Gas Charge
(PGC) provision in this jurisdiction. On October 2, 2006,
the PSC of DC issued an order rejecting Washington Gass
proposed tariff revisions until the PSC of MD issued a final
order related to this matter. On October 12, 2006,
Washington Gas filed a Motion for Clarification requesting that
the PSC of DC affirm that Washington Gas can continue collecting
HHC costs from sales customers through its PGC provision or to
record such HHC costs incurred as a regulatory asset pending a
ruling by the PSC of DC on future cost recovery. On May 11,
2007, the PSC of DC directed Washington Gas to cease prospective
recovery of the cost of HHCs through the PGC provision, with
future HHC costs to be recorded as a pending
regulatory asset. On November 16, 2007 the PSC of MD issued
a Final Order in the relevant case supporting full recovery of
the HHC costs in Maryland. On March 25, 2008, the PSC of DC
issued an order stating that the consideration of Washington
Gass HHC strategy will move forward and directed
interested parties to submit filings reflecting a proposed
procedural schedule. On June 6, 2008, Washington Gas and
the District of Columbia Office of the Peoples Counsel (DC
OPC) filed a joint response to the order proposing a procedural
schedule and a list of issues for consideration in the case. The
PSC of DC adopted the proposed issues list and approved a
procedural schedule. Washington Gas and other parties
subsequently filed comments, conducted discovery and the parties
filed reply comments. On April 30, 2009, the PSC of DC
ruled that there were unresolved issues and directed that they
should be addressed in evidentiary hearings. The PSC of DC
issued an order establishing a procedural schedule to address
these unresolved issues in the case. Initial testimony was filed
May 29, 2009, and rebuttal testimony was filed on
July 24, 2009.
On October 2, 2009, the Company and DC OPC filed a Joint
Motion for Approval of Unanimous Agreement of Stipulation and
Full Settlement with the PSC of DC (Stipulation). The parties to
the Stipulation agreed that hexane commodity costs incurred by
the Company to condition liquefied natural gas received in the
Companys natural gas system are recoverable expenses and
that the Company is authorized to achieve full cost recovery
from sales and delivery service customers of hexane commodity
costs incurred prior to September 30, 2009. Additionally,
the Stipulation:
|
|
|
|
(i)
|
approves the recovery of hexane commodity costs incurred after
September 30, 2009 from sales and delivery service
customers, subject to review as a component of the
Companys cost of gas;
|
116
WGL
Holdings, Inc.
Washington Gas Light Company
Part II
Item 8. Financial Statements and Supplementary Data
(continued)
Notes to Consolidated Financial Statements
|
|
|
|
(ii)
|
establishes the implementation of a coupling replacement and
encapsulation program (program), wherein the Company will
replace or encapsulate a portion of its mechanically coupled
pipe in the District of Columbia. The program is expected to
conclude in approximately seven years with total spending not to
exceed $28 million;
|
|
|
(iii)
|
provides for the cost of the program to be recovered through an
annual surcharge based on actual expenditures for coupling
replacement and encapsulation that will become effective at the
end of the existing base rate freeze (October 1, 2011). The
cost will include both a return of and return on the cost of
coupling replacement and encapsulation, computed in accordance
with the terms of the rates currently in effect and
|
|
|
(iv)
|
establishes periodic reporting on the level of hexane injected
at each of the Companys hexane facilities with the
associated commodity costs, and continued filing of leak-related
information with the PSC of DC.
|
On October 16, 2009, the PSC of DC published a Notice of
Public Interest Hearing, held on October 28, 2009. Although
there is no established time frame, the Company expects the PSC
of DC to issue a decision on the Stipulation during the first
quarter of fiscal year 2010.
As of September 30, 2009 Washington Gas has incurred
cumulative total HHC costs of $1.8 million related to the
District of Columbia of which approximately $0.5 million
has been recovered, $0.7 million has been charged to
expense and $0.6 million has been deferred as a regulatory
asset subject to the outcome of the most recent PSC of DC order.
Should the PSC of DC approve the Stipulation, the
$0.7 million of hexane costs previously charged to expense
would be reversed to income.
Maryland
Jurisdiction
Order on Previously Disallowed Purchased Gas
Charges. Each year, the PSC of MD reviews the
annual gas costs collected from customers in Maryland to
determine if Washington Gass purchased gas costs are
reasonable. On March 14, 2006, in connection with the PSC
of MDs annual review of Washington Gass gas costs
that were billed to customers in Maryland from September 2003
through August 2004, a Hearing Examiner of the PSC of MD issued
a proposed order approving purchased gas charges of Washington
Gas for the twelve-month period ended August 2004 except for
$4.6 million (pre-tax) of such charges that the Hearing
Examiner recommended be disallowed because, in the opinion of
the Hearing Examiner, they were not reasonably incurred. As a
result, during the fiscal year ended September 30, 2006,
Washington Gas accrued a liability of $4.6 million
(pre-tax) related to the proposed disallowance of these
purchased gas charges. Washington Gas filed appeals with the PSC
of MD asserting that the Hearing Examiners recommendation
was without merit. On February 5, 2009, the PSC of MD
issued an Order that granted the appeal and reversed the
findings of the Hearing Examiner. Accordingly, the gas costs at
issue were deemed recoverable from rate payers. The PSC of
MDs Order concluded that the responsibility for recovery
of these costs should be assigned to the specific group of
customers associated with unbundled firm delivery service,
directing Washington Gas to bill such costs to those customers
over a
24-month
period and to provide a credit to firm bundled sales customers
over the same period. As a result of this Order, the liability
recorded in fiscal year 2006 for this issue was reversed in the
quarter ended December 31, 2008, and Washington Gas
recorded income of $4.6 million (pre-tax) to
Operating revenues-utility. On February 25,
2009, Washington Gas filed its compliance plan with the PSC of
MD which outlined the plan for returning these funds to its firm
sales customers, as well as collecting funds from firm delivery
service customers beginning with Washington Gass May 2009
billing cycle and ending with its April 2011 billing cycle. On
April 29, 2009, the PSC of MD approved the Companys
plan.
Performance-Based
Rate Plans
In recent rate case proceedings in all jurisdictions, Washington
Gas requested permission to implement performance-based rate
(PBR) plans that include performance measures for customer
service and an earnings sharing mechanism (ESM) that enables
Washington Gas to share with shareholders and customers the
earnings that exceed a target rate of return on equity.
Effective October 1, 2007, the SCC of VA approved the
implementation of a PBR plan through the acceptance of a
settlement stipulation, which includes: (i) a
four-year base rate freeze; (ii) service quality
measures to be determined in conjunction with the Staff of the
SCC of VA (VA Staff) and reported quarterly for maintaining a
safe and reliable natural gas distribution system while striving
to control operating costs; (iii) recovery of
initial implementation costs associated with achieving
Washington Gass BPO initiatives over the four-year period
of the PBR plan and (iv) an ESM that enables
Washington Gas to share with shareholders and Virginia customers
the earnings that exceed a target of 10.5% return on equity. The
calculation of the ESM excludes $2.4 million of asset
management revenues that are being refunded to customers as part
of a new margin sharing agreement in Virginia.
117
WGL
Holdings, Inc.
Washington Gas Light Company
Part II
Item 8. Financial Statements and Supplementary Data
(continued)
Notes to Consolidated Financial Statements
On May 4, 2009, the VA Staff issued a report, commenting on
the amount of the ESM liability that had been reported for the
fiscal year ending September 30, 2008. Washington Gas filed
its response to the Staff report on June 18, 2009. On
July 17, 2009, Washington Gas and the VA Staff filed a
Joint Motion to Approve Stipulation and Close Proceeding with
the SCC of VA whereby the VA Staff and Washington Gas agreed
upon the appropriate refund to ratepayers under the ESM. The
overall difference between the Staff position and the Company
position was not material to the financial statements of
Washington Gas. On July 24, 2009, the SCC of VA granted the
Joint Motion and accepted the Stipulation submitted by
Washington Gas and the VA Staff in its Final Order approving the
ESM liability.
On an interim basis, the Company records the effects of the ESM
based on
year-to-date
earnings in relation to estimated annual earnings as calculated
for regulatory purposes. At September 30, 2009, Washington
Gas had accrued a customer liability of $3.3 million for
estimated sharing under the Virginia ESM related to fiscal year
2008. In accordance with the provisions of its VA tariff, the
Company began crediting customers bills in April 2009 for
the fiscal year 2008 ESM liability. The credits will continue
through March, 2010.
On November 16, 2007, the PSC of MD issued a Final Order in
a rate case, which established a phase-two proceeding to review
Washington Gass request to implement a PBR plan and issues
raised by the parties associated with Washington Gass BPO
agreement. On September 4, 2008, a Proposed Order of
Hearing Examiner was issued in this phase-two proceeding.
Consistent with Washington Gass current accounting
methodology, the Proposed Order approved
10-year
amortization accounting for initial implementation costs related
to Washington Gass BPO plan. At September 30, 2009
and 2008, we had recorded a regulatory asset of
$7.4 million and $6.8 million, respectively, net of
amortization, related to initial implementation costs allocable
to Maryland associated with our BPO plan. Washington Gass
application seeking approval of a PBR plan was denied.
Additionally, the Proposed Order (i) directs
Washington Gas to obtain an independent management audit related
to issues raised in the phase-two proceeding and
(ii) directs the initiation of a collaboration
process in which Washington Gas is directed to engage in
discussions with the Staff of the PSC of MD (MD Staff), the
Maryland Office of Peoples Counsel (MD OPC) and interested
parties to develop appropriate customer service metrics and a
periodic form for reporting results similar to the metrics filed
by Washington Gas as part of the approved settlement in
Virginia. This Proposed Order has been appealed by the MD Staff,
the MD OPC and other parties. Washington Gass Reply
Memorandum on Appeal was filed on November 5, 2008. A final
decision by the PSC of MD is pending.
The Final Order issued by the PSC of DC on December 28,
2007 approved amortization accounting for initial implementation
costs related to the BPO plan in approving the stipulated
agreement filed in the proceeding. As part of that approved
agreement, Washington Gas withdrew its application seeking
approval of a PBR plan. Washington Gas is prohibited from
seeking approval of a PBR plan in the District of Columbia until
the filing of its next base rate case; however, the settling
parties may not seek a change in rates during the rate case
filing moratorium period under the terms of the approved rate
settlement.
Depreciation
Study
In October 2006, Washington Gas completed a depreciation rate
study based on its property, plant and equipment balances as of
December 31, 2005. The results of the depreciation study
concluded that Washington Gass depreciation rates should
be reduced due to asset lives being extended beyond previously
estimated lives. Under regulatory requirements, these
depreciation rates must be approved before they are placed into
effect.
On April 13, 2007, Washington Gas filed the portion of the
depreciation study related to the Maryland jurisdiction. A
separate proceeding was established on May 2, 2007 by the
PSC of MD to review Washington Gass request to implement
new depreciation rates. On October 25, 2007, Washington Gas
filed a 2007 technical update of the Maryland depreciation study
based on property, plant and equipment balances as of
December 31, 2006. Hearings were held May 12 and 13, 2008.
Initial briefs were filed on July 16, 2008 and reply briefs
were filed on August 6, 2008. On October 15, 2008, a
Proposed Order of Hearing Examiner was issued in Maryland, which
would reduce Washington Gass annual depreciation expense
related to the Maryland jurisdiction by approximately
$11.2 million when new depreciation rates are implemented,
with a corresponding decrease in annual revenues on a
prospective basis to be reflected in future billing rates.
Reflected in this reduction in depreciation expense, among other
things, are: (i) a change in methodology for
calculating accrued asset removal costs and (ii) the
designation of certain insurance and relocation reimbursements
as salvage value. This reduction in depreciation expense will
not impact annual operating income and will not prevent the
recovery of our capital investment; however, it will have the
effect of deferring full recovery of our capital investment into
future years. On November 14, 2008, Washington Gas and MD
OPC noted appeals of the October 15, 2008 Proposed Order,
thus suspending its effective date. Both Washington Gas and the
MD OPC filed Memoranda on Appeal on November 24, 2008;
Washington Gas, the
118
WGL
Holdings, Inc.
Washington Gas Light Company
Part II
Item 8. Financial Statements and Supplementary Data
(continued)
Notes to Consolidated Financial Statements
MD OPC and the MD Staff filed Reply Memoranda on
December 15, 2008. We are currently awaiting a final
decision by the PSC of MD.
NON-UTILITY
OPERATIONS
WGEServices enters into contracts to purchase natural gas and
electricity designed to match the duration of its sales
commitments, and effectively to lock in a margin on estimated
sales over the terms of existing sales contracts. As listed
below, natural gas purchase commitments are based on existing
fixed-price purchase contracts using city gate equivalent
deliveries, the majority of which are for fixed volumes. Also
listed below are electricity purchase commitments that are based
on existing fixed-price purchase commitments, all of which are
for fixed volumes.
The following table summarizes the contractual obligations and
minimum commitments of WGEServices for both natural gas and
electricity for the next five years and thereafter:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WGEServices Contract Minimums
|
|
|
|
|
|
Gas Purchase
|
|
|
Pipeline
|
|
|
Electric Purchase
|
|
|
|
|
(In millions)
|
|
Commitments(a)
|
|
|
Contracts
|
|
|
Commitments(b)
|
|
|
Total
|
|
|
|
2010
|
|
$
|
306.4
|
|
|
$
|
2.9
|
|
|
$
|
474.7
|
|
|
$
|
784.0
|
|
2011
|
|
|
152.5
|
|
|
|
1.3
|
|
|
|
273.0
|
|
|
|
426.8
|
|
2012
|
|
|
69.8
|
|
|
|
1.1
|
|
|
|
116.3
|
|
|
|
187.2
|
|
2013
|
|
|
8.1
|
|
|
|
0.8
|
|
|
|
21.1
|
|
|
|
30.0
|
|
2014
|
|
|
|
|
|
|
0.4
|
|
|
|
0.7
|
|
|
|
1.1
|
|
Thereafter
|
|
|
|
|
|
|
1.9
|
|
|
|
|
|
|
|
1.9
|
|
|
Total
|
|
$
|
536.8
|
|
|
$
|
8.4
|
|
|
$
|
885.8
|
|
|
$
|
1,431.0
|
|
|
|
|
(a)
|
Represents fixed price commitments with city gate equivalent
deliveries.
|
(b)
|
Includes $6.5 million of commitments related to
renewable energy credits.
|
Construction
Project Financing
To fund certain of its construction projects, Washington Gas
enters into financing arrangements with third party lenders. As
part of these financing arrangements, Washington Gass
customers agree to make principal and interest payments over a
period of time, typically beginning after the projects are
completed. Washington Gas assigns these customer payment streams
to the lender. As the lender funds the construction project,
Washington Gas establishes a note receivable representing its
customers obligations to remit principal and interest and
a long-term note payable to the lender. When these projects are
formally accepted by the customer as completed,
Washington Gas transfers the ownership of the note receivable to
the lender and removes both the note receivable and the
long-term financing from its financial statements. As of
September 30, 2009, work on these construction projects
that was not completed or accepted by customers was valued at
$5.1 million, which is recorded on the balance sheet as a
note receivable in Deferred Charges and Other
AssetsOther with the corresponding long-term
obligation to the lender in Long-term debt. At any
time before these contracts are accepted by the customer, should
there be a contract default, such as, among other things, a
delay in completing the project, the lender may call on
Washington Gas to fund the unpaid principal in exchange for
which Washington Gas would receive the right to the stream of
payments from the customer. Once the project is accepted by the
customer, the lender will have no recourse against Washington
Gas related to this long-term debt.
Financial
Guarantees
WGL Holdings has guaranteed payments primarily for certain
purchases of natural gas and electricity on behalf of the retail
energy-marketing segment. At September 30, 2009, these
guarantees totaled $539.5 million. The amount of such
guarantees is periodically adjusted to reflect changes in the
level of financial exposure related to these purchase
commitments. We also receive financial guarantees or other
collateral from suppliers when required by our credit policy.
WGL Holdings also issued guarantees totaling $3.0 million
at September 30, 2009 that were made on behalf of certain
of our non-utility subsidiaries associated with their banking
transactions. Of the total guarantees of $542.5 million,
$20.0 million and $17.0 million are due to expire on
December 31,
119
WGL
Holdings, Inc.
Washington Gas Light Company
Part II
Item 8. Financial Statements and Supplementary Data
(continued)
Notes to Consolidated Financial Statements
2009 and December 31, 2010, respectively. The remaining
guarantees do not have specific maturity dates. For all of its
financial guarantees, WGL Holdings may cancel any or all future
obligations imposed by the guarantees upon written notice to the
counterparty, but WGL Holdings would continue to be responsible
for the obligations that had been created under the guarantees
prior to the effective date of the cancellation.
|
|
14.
|
FAIR VALUE OF
FINANCIAL INSTRUMENTS
|
Effective October 1, 2008, we adopted
SFAS No. 157, now part of ASC Topic 820, for our
financial assets and liabilities that are required to be
measured at fair value on a recurring basis. These financial
assets and liabilities primarily consist of (i)
derivatives recorded on our balance sheet under ASC Topic 815,
(ii) weather derivatives for which we receive a
premium payment and (iii) long-term debt and
preferred stock outstanding that are 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 in
pricing the asset or liability, including assumptions about
credit risk (both our own credit risk and the
counterpartys credit risk) and the risks inherent in the
inputs to our valuation technique, the income approach.
We enter into derivative contracts in the
over-the-counter
(OTC) wholesale and retail markets. These markets are the
principal markets for the respective wholesale and retail
contracts. We have determined that all of our existing
counterparties and others who have participated in energy
transactions at our delivery points are the relevant market
participants. These participants have access to the same market
data as WGL Holdings. We value our derivative contracts based on
an in-exchange premise and valuations are generally
based on pricing service data or indicative broker quotes
depending on the market location. We measure the net credit
exposure at a 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 & Poors Ratings Services and
Moodys Investors Service as inputs for the determination
of credit adjustments.
ASC Topic 820 establishes a fair value hierarchy that
prioritizes the inputs used to measure fair value. The hierarchy
gives the highest priority to unadjusted quoted prices in active
markets for identical assets or liabilities and the lowest
priority to unobservable inputs. The three levels of the fair
value hierarchy under ASC Topic 820 are described below:
Level 1. Level 1 of the fair
value hierarchy consists of assets or liabilities that are
valued using observable inputs based upon unadjusted quoted
prices in active markets for identical assets or liabilities at
the reporting date. Level 1 assets and liabilities
primarily include exchange traded derivatives and securities. At
September 30, 2009, we do not have any financial assets or
liabilities in this category.
Level 2. Level 2 of the fair
value hierarchy consists of assets or liabilities that are
valued using directly or indirectly observable inputs that are
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 including: (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, 2009,
level 2 financial assets and liabilities included
non-exchange traded energy-related derivatives such as financial
swaps and options and physical forward contracts for deliveries
at active market locations. Additionally, at September 30,
2009, Level 2 financial assets and liabilities included a
weather derivative as well as interest rate swaps valued using
observable data.
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 historical volatility and
pricing data when delivery is to inactive market locations.
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. At
September 30, 2009, OTC derivative assets and liabilities
in this category included: (i) physical contracts
valued with significant basis adjustments to observable market
data when delivery is to inactive market locations;
(ii) long-dated positions where observable pricing
is not available over the life of the contract;
(iii) contracts valued using historical volatility
assumptions and (iv) valuations using indicative
broker quotes for inactive market locations.
120
WGL
Holdings, Inc.
Washington Gas Light Company
Part II
Item 8. Financial Statements and Supplementary Data
(continued)
Notes to Consolidated Financial Statements
The following table sets forth financial instruments recorded at
fair value on a recurring basis as of September 30, 2009. A
financial instruments 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 Measurements Under the Fair Value Hierarchy at
September 30, 2009
|
|
|
|
|
|
WGL Holdings
|
|
|
Washington Gas
|
|
|
|
(In millions)
|
|
Assets
|
|
|
Liabilities
|
|
|
Assets
|
|
|
Liabilities
|
|
|
|
Level 1
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Level 2
|
|
|
31.4
|
|
|
|
(26.5
|
)
|
|
|
28.9
|
|
|
|
(19.8
|
)
|
Level 3
|
|
|
35.2
|
|
|
|
(62.8
|
)
|
|
|
25.0
|
|
|
|
(31.3
|
)
|
Counterparty and cash collateral netting
|
|
|
(43.0
|
)
|
|
|
48.1
|
|
|
|
(39.8
|
)
|
|
|
39.8
|
|
|
Total
|
|
$
|
23.6
|
|
|
$
|
(41.2
|
)
|
|
$
|
14.1
|
|
|
$
|
(11.3
|
)
|
|
The following table is a summary of the changes in the fair
value of our derivative assets (liabilities) that are measured
at net fair value on a recurring basis in accordance with ASC
Topic 820 using significant Level 3 inputs during the
fiscal year ended September 30, 2009.
|
|
|
|
|
|
|
|
|
Reconciliation of Fair Value Measurements Using Significant
Level 3 Inputs
|
|
|
|
(In millions)
|
|
WGL Holdings
|
|
|
Washington Gas
|
|
|
|
Balance at October 1, 2008
|
|
$
|
(9.1
|
)
|
|
$
|
(17.0
|
)
|
Realized and unrealized gains (losses)
|
|
|
|
|
|
|
|
|
Recorded to income
|
|
|
(54.1
|
)
|
|
|
(1.4
|
)
|
Recorded to regulatory assetsgas costs
|
|
|
2.1
|
|
|
|
2.1
|
|
Transfers in and/or out of Level 3
|
|
|
|
|
|
|
|
|
Purchases and settlements, net
|
|
|
33.5
|
|
|
|
10.0
|
|
|
Balance at September 30, 2009
|
|
$
|
(27.6
|
)
|
|
$
|
(6.3
|
)
|
|
The table below sets forth the line items on the Statements of
Income of the amounts recorded to income for the fiscal year
ended September 30, 2009, related to fair value
measurements using significant level 3 inputs.
|
|
|
|
|
|
|
|
|
Realized and Unrealized Gains (Losses) Recorded to Income for
Level 3 Measurements
|
|
|
|
Year Ended
|
|
|
|
September 30, 2009
|
|
|
|
(In millions)
|
|
WGL Holdings
|
|
|
Washington Gas
|
|
|
|
|
Operating revenuesnon-utility
|
|
$
|
(4.2
|
)
|
|
$
|
|
|
Utility cost of gas
|
|
|
(1.4
|
)
|
|
|
(1.4
|
)
|
Non-utility cost of energy-related sales
|
|
|
(48.5
|
)
|
|
|
|
|
|
Total
|
|
$
|
(54.1
|
)
|
|
$
|
(1.4
|
)
|
|
121
WGL
Holdings, Inc.
Washington Gas Light Company
Part II
Item 8. Financial Statements and Supplementary Data
(continued)
Notes to Consolidated Financial Statements
Unrealized gains (losses) for the fiscal year ended
September 30, 2009 attributable to derivative assets and
liabilities measured using significant Level 3 inputs were
recorded as follows:
|
|
|
|
|
|
|
|
|
Unrealized Gains (Losses) Recorded for Level 3
Measurements
|
|
|
|
Year Ended
|
|
|
|
September 30, 2009
|
|
|
|
(In millions)
|
|
WGL Holdings
|
|
|
Washington Gas
|
|
|
|
|
Recorded to income
|
|
|
|
|
|
|
|
|
Operating revenuesnon-utility
|
|
$
|
8.1
|
|
|
$
|
|
|
Utility cost of gas
|
|
|
3.4
|
|
|
|
3.4
|
|
Non-utility cost of energy-related sales
|
|
|
(26.7
|
)
|
|
|
|
|
Recorded to regulatory assetsgas costs
|
|
|
(4.0
|
)
|
|
|
(4.0
|
)
|
|
Total
|
|
$
|
(19.2
|
)
|
|
$
|
(0.6
|
)
|
|
The following table presents the carrying amounts and estimated
fair values of our financial instruments at September 30,
2009. The carrying amount of current assets and current
liabilities approximates fair value because of the short-term
maturity of these instruments, and therefore are not shown in
the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value of Financial Instruments
|
|
|
|
At September 30,
|
|
2009
|
|
|
2008
|
|
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
Carrying
|
|
|
Fair
|
|
(In millions)
|
|
Amount
|
|
|
Value
|
|
|
Amount
|
|
|
Value
|
|
|
|
Long-term
debt(a)
|
|
$
|
561.8
|
|
|
$
|
627.8
|
|
|
$
|
603.8
|
|
|
$
|
564.6
|
|
|
|
|
|
(a) |
|
Excludes current maturities and
unamortized discounts. |
Washington Gass long-term debt is not actively traded. The
fair value of long-term debt was estimated based on the quoted
market prices of U.S. Treasury issues having a similar term
to maturity, adjusted for Washington Gass credit quality.
15. OPERATING
SEGMENT REPORTING
We identify and report on operating segments under the
management approach. Our chief operating decision
maker is our Chief Operating Officer. Operating segments
comprise revenue-generating components of an enterprise for
which we produce separate financial information internally that
we regularly use to make operating decisions and assess
performance. We report three operating segments:
(i) regulated utility, (ii) retail
energy-marketing and (iii) design-build energy
systems.
With approximately 91% of WGL Holdings consolidated total
assets, the regulated utility segment is our core business and
comprises Washington Gas and Hampshire. The regulated utility
segment, through Washington Gas, provides regulated gas
distribution services (including the sale and delivery of
natural gas, meter reading, responding to customer inquiries,
bill preparation and the construction and maintenance of its
natural gas distribution system) to customers primarily in the
District of Columbia and the surrounding metropolitan areas in
Maryland and Virginia. Hampshire, an underground natural gas
storage company that is regulated under a cost of service tariff
by the FERC, provides services exclusively to Washington Gas.
Through WGEServices, the retail energy-marketing segment sells
natural gas and electricity directly to retail customers, both
inside and outside of Washington Gass traditional service
territory, in competition with regulated utilities and
unregulated gas and electricity marketers. Through WGESystems,
the design-build energy systems segment provides design-build
energy efficient and sustainable solutions to government and
commercial clients under construction contracts.
122
WGL
Holdings, Inc.
Washington Gas Light Company
Part II
Item 8. Financial Statements and Supplementary Data
(continued)
Notes to Consolidated Financial Statements
Transactions that are not significant enough on a stand-alone
basis to warrant treatment as an operating segment, and that do
not fit into one of our three operating segments, are aggregated
as Other Activities and included as part of
non-utility operations as presented below in the Operating
Segment Financial Information.
The same accounting policies applied in preparing our
consolidated financial statements, as discussed in
Note 1Accounting Policies also apply to the
reported segments. While net income or loss applicable to common
stock is the primary criterion for measuring a segments
performance, we also evaluate our operating segments based on
other relevant factors, such as penetration into their
respective markets and return on equity. The following tables
present operating segment information for the fiscal years ended
September 30, 2009, 2008 and 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Segment Financial Information
|
|
|
|
|
|
|
Non-Utility Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Regulated
|
|
|
Energy-
|
|
|
Design-Build
|
|
|
Other
|
|
|
|
|
|
|
|
(In thousands)
|
|
Utility
|
|
|
Marketing
|
|
|
Energy Systems
|
|
|
Activities
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
|
Year Ended September 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Revenues
|
|
$
|
1,505,875
|
|
|
$
|
1,192,022
|
|
|
$
|
33,735
|
|
|
$
|
10
|
|
|
$
|
(24,786
|
)
|
|
$
|
2,706,856
|
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Energy-Related Sales
|
|
|
829,905
|
|
|
|
1,127,409
|
|
|
|
25,757
|
|
|
|
|
|
|
|
(24,786
|
)
|
|
|
1,958,285
|
|
Operation
|
|
|
211,772
|
|
|
|
35,041
|
|
|
|
2,835
|
|
|
|
4,149
|
|
|
|
|
|
|
|
253,797
|
|
Maintenance
|
|
|
43,674
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43,674
|
|
Depreciation and Amortization
|
|
|
94,545
|
|
|
|
753
|
|
|
|
59
|
|
|
|
|
|
|
|
|
|
|
|
95,357
|
|
General Taxes and Other Assessments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue Taxes
|
|
|
61,051
|
|
|
|
1,074
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62,125
|
|
Other
|
|
|
48,736
|
|
|
|
3,025
|
|
|
|
141
|
|
|
|
27
|
|
|
|
|
|
|
|
51,929
|
|
|
Total Operating Expenses
|
|
|
1,289,683
|
|
|
|
1,167,302
|
|
|
|
28,792
|
|
|
|
4,176
|
|
|
|
(24,786
|
)
|
|
|
2,465,167
|
|
|
Operating Income (Loss)
|
|
|
216,192
|
|
|
|
24,720
|
|
|
|
4,943
|
|
|
|
(4,166
|
)
|
|
|
|
|
|
|
241,689
|
|
Other IncomeNet
|
|
|
1,662
|
|
|
|
101
|
|
|
|
142
|
|
|
|
918
|
|
|
|
(642
|
)
|
|
|
2,181
|
|
Interest Expense
|
|
|
44,140
|
|
|
|
654
|
|
|
|
1
|
|
|
|
750
|
|
|
|
(642
|
)
|
|
|
44,903
|
|
Dividends on Washington Gas Preferred Stock
|
|
|
1,320
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,320
|
|
Income Tax Expense (Benefit)
|
|
|
66,442
|
|
|
|
9,192
|
|
|
|
1,930
|
|
|
|
(290
|
)
|
|
|
|
|
|
|
77,274
|
|
|
Net Income (Loss) Applicable to Common Stock
|
|
$
|
105,952
|
|
|
$
|
14,975
|
|
|
$
|
3,154
|
|
|
$
|
(3,708
|
)
|
|
$
|
|
|
|
$
|
120,373
|
|
|
Total Assets
|
|
$
|
3,059,838
|
|
|
$
|
300,491
|
|
|
$
|
21,517
|
|
|
$
|
83,260
|
|
|
$
|
(115,216
|
)
|
|
$
|
3,349,890
|
|
|
Capital Expenditures/Investments
|
|
$
|
136,483
|
|
|
$
|
2,393
|
|
|
$
|
32
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
138,908
|
|
|
123
WGL
Holdings, Inc.
Washington Gas Light Company
Part II
Item 8. Financial Statements and Supplementary Data
(continued)
Notes to Consolidated Financial Statements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Segment Financial Information
|
|
|
|
|
|
|
Non-Utility Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Regulated
|
|
|
Energy-
|
|
|
Design-Build
|
|
|
Other
|
|
|
|
|
|
|
|
(In thousands)
|
|
Utility
|
|
|
Marketing
|
|
|
Energy Systems
|
|
|
Activities
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
|
Year Ended September 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Revenues
|
|
$
|
1,552,344
|
|
|
$
|
1,062,692
|
|
|
$
|
29,051
|
|
|
$
|
8
|
|
|
$
|
(15,901
|
)
|
|
$
|
2,628,194
|
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Energy-Related Sales
|
|
|
885,234
|
|
|
|
1,023,297
|
|
|
|
23,849
|
|
|
|
|
|
|
|
(15,901
|
)
|
|
|
1,916,479
|
|
Operation
|
|
|
205,311
|
|
|
|
26,531
|
|
|
|
2,621
|
|
|
|
3,276
|
|
|
|
|
|
|
|
237,739
|
|
Maintenance
|
|
|
44,819
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44,819
|
|
Depreciation and Amortization
|
|
|
94,156
|
|
|
|
803
|
|
|
|
48
|
|
|
|
|
|
|
|
|
|
|
|
95,007
|
|
General Taxes and Other Assessments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue Taxes
|
|
|
55,349
|
|
|
|
548
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55,897
|
|
Other
|
|
|
43,685
|
|
|
|
2,841
|
|
|
|
92
|
|
|
|
29
|
|
|
|
|
|
|
|
46,647
|
|
|
Total Operating Expenses
|
|
|
1,328,554
|
|
|
|
1,054,020
|
|
|
|
26,610
|
|
|
|
3,305
|
|
|
|
(15,901
|
)
|
|
|
2,396,588
|
|
|
Operating Income (Loss)
|
|
|
223,790
|
|
|
|
8,672
|
|
|
|
2,441
|
|
|
|
(3,297
|
)
|
|
|
|
|
|
|
231,606
|
|
Other IncomeNet
|
|
|
1,910
|
|
|
|
93
|
|
|
|
388
|
|
|
|
1,254
|
|
|
|
(1,120
|
)
|
|
|
2,525
|
|
Interest Expense
|
|
|
45,397
|
|
|
|
1,139
|
|
|
|
|
|
|
|
1,381
|
|
|
|
(1,120
|
)
|
|
|
46,797
|
|
Dividends on Washington Gas Preferred Stock
|
|
|
1,320
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,320
|
|
Income Tax Expense
|
|
|
65,260
|
|
|
|
2,813
|
|
|
|
1,038
|
|
|
|
380
|
|
|
|
|
|
|
|
69,491
|
|
|
Net Income (Loss) Applicable to Common Stock
|
|
$
|
113,723
|
|
|
$
|
4,813
|
|
|
$
|
1,791
|
|
|
$
|
(3,804
|
)
|
|
$
|
|
|
|
$
|
116,523
|
|
|
Total Assets
|
|
$
|
3,020,471
|
|
|
$
|
231,839
|
|
|
$
|
21,647
|
|
|
$
|
60,462
|
|
|
$
|
(90,876
|
)
|
|
$
|
3,243,543
|
|
|
Capital Expenditures/Investments
|
|
$
|
134,570
|
|
|
$
|
231
|
|
|
$
|
160
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
134,961
|
|
|
Year Ended September 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Revenues
|
|
$
|
1,513,839
|
|
|
$
|
1,138,440
|
|
|
$
|
10,175
|
|
|
$
|
119
|
|
|
$
|
(16,565
|
)
|
|
$
|
2,646,008
|
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Energy-Related Sales
|
|
|
892,376
|
|
|
|
1,071,563
|
|
|
|
7,815
|
|
|
|
|
|
|
|
(16,565
|
)
|
|
|
1,955,189
|
|
Operation
|
|
|
206,623
|
|
|
|
23,253
|
|
|
|
2,053
|
|
|
|
3,730
|
|
|
|
|
|
|
|
235,659
|
|
Maintenance
|
|
|
39,685
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39,685
|
|
Depreciation and Amortization
|
|
|
89,907
|
|
|
|
674
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
90,605
|
|
General Taxes and Other Assessments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue Taxes
|
|
|
55,949
|
|
|
|
753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56,702
|
|
Other
|
|
|
40,648
|
|
|
|
2,561
|
|
|
|
87
|
|
|
|
25
|
|
|
|
|
|
|
|
43,321
|
|
|
Total Operating Expenses
|
|
|
1,325,188
|
|
|
|
1,098,804
|
|
|
|
9,979
|
|
|
|
3,755
|
|
|
|
(16,565
|
)
|
|
|
2,421,161
|
|
|
Operating Income (Loss)
|
|
|
188,651
|
|
|
|
39,636
|
|
|
|
196
|
|
|
|
(3,636
|
)
|
|
|
|
|
|
|
224,847
|
|
Other IncomeNet
|
|
|
2,615
|
|
|
|
39
|
|
|
|
446
|
|
|
|
3,220
|
|
|
|
(2,942
|
)
|
|
|
3,378
|
|
Interest Expense
|
|
|
45,157
|
|
|
|
2,930
|
|
|
|
|
|
|
|
3,723
|
|
|
|
(2,942
|
)
|
|
|
48,868
|
|
Dividends on Washington Gas Preferred Stock
|
|
|
1,320
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,320
|
|
Income Tax Expense
|
|
|
54,900
|
|
|
|
14,319
|
|
|
|
275
|
|
|
|
643
|
|
|
|
|
|
|
|
70,137
|
|
|
Net Income (Loss) Applicable to Common Stock
|
|
$
|
89,889
|
|
|
$
|
22,426
|
|
|
$
|
367
|
|
|
$
|
(4,782
|
)
|
|
$
|
|
|
|
$
|
107,900
|
|
|
Total Assets
|
|
$
|
2,836,492
|
|
|
$
|
224,150
|
|
|
$
|
12,475
|
|
|
$
|
70,329
|
|
|
$
|
(97,085
|
)
|
|
$
|
3,046,361
|
|
|
Capital Expenditures/Investments
|
|
$
|
162,561
|
|
|
$
|
1,885
|
|
|
$
|
85
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
164,531
|
|
|
16. RELATED
PARTY TRANSACTIONS
WGL Holdings and its subsidiaries engage in transactions during
the ordinary course of business. Inter-company transactions and
balances have been eliminated from the consolidated financial
statements of WGL Holdings. Washington Gas provides accounting,
treasury, legal and other administrative and general support to
affiliates, and files consolidated tax returns that include
affiliated taxable transactions. The actual costs of these
services are billed to the appropriate affiliates and to the
extent such billings are not yet paid, they are reflected in
Receivables from associated companies on Washington
Gass balance sheets. Washington Gas
124
WGL
Holdings, Inc.
Washington Gas Light Company
Part II
Item 8. Financial Statements and Supplementary Data
(continued)
Notes to Consolidated Financial Statements
assigns or allocates these costs directly to its affiliates and,
therefore, does not recognize revenues or expenses associated
with providing these services.
In connection with billing for unregulated third party marketers
and with other miscellaneous billing processes, Washington Gas
collects cash on behalf of affiliates and transfers the cash as
quickly as reasonably possible. Cash collected by Washington Gas
on behalf of its affiliates but not yet transferred is recorded
in Payables to associated companies on the
Washington Gas balance sheets. These transactions recorded by
Washington Gas impact the balance sheet only.
At September 30, 2009 and 2008, Washington Gas had recorded
receivables from associated companies of $10.4 million and
$4.6 million, respectively. At September 30, 2009 and
2008, Washington Gas had recorded payables to associated
companies of $11.4 million and $22.7 million,
respectively.
Washington Gas provides gas balancing services related to
storage, injections, withdrawals and deliveries to all energy
marketers participating in the sale of natural gas on an
unregulated basis through the customer choice programs that
operate in its service territory. These balancing services
include the sale of natural gas supply commodities related to
various peaking arrangements contractually supplied to
Washington Gas and then partially allocated and assigned by
Washington Gas to the energy marketers, including WGEServices.
Washington Gas records revenues for these balancing services
pursuant to tariffs approved by the appropriate regulatory
bodies. In conjunction with such services and the related sales
and purchases of natural gas, Washington Gas charged WGEServices
$24.8 million, $15.9 million and $16.6 million
for the fiscal years ended September 30, 2009, 2008 and
2007, respectively. These related party amounts have been
eliminated in the consolidated financial statements of WGL
Holdings.
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. WGEServices has recognized an accounts
receivable from Washington Gas in the amount of
$4.6 million and $5.4 million at September 30,
2009 and 2008, respectively, related to an imbalance in gas
volumes. Due to regulatory treatment, these receivables are not
eliminated in the consolidated financial statements of WGL
Holdings. Refer to Note 1Accounting Policies
for a further discussion of these imbalance transactions.
17. SUBSEQUENT
EVENTS
On November 2, 2009, Washington Gas Light Company entered
into a note purchase agreement by and among certain purchasers
for the issuance and sale of $50.0 million of unsecured
4.76% fixed rate notes with a ten year maturity due
November 1, 2019 through a private placement arrangement.
The estimated effective cost of the notes, including
consideration of issuance fees and hedge proceeds, is 4.79%. The
note purchase agreement provides that, subject to certain
conditions, the repayment of the notes may be accelerated in the
event of default. The conditions that constitute an event
of default are fully described in the note purchase
agreement. If the repayment of the notes is accelerated due to
an event of default, the notes will mature and the entire unpaid
principal amount plus all accrued and unpaid interest thereon
and a make whole amount determined in respect of such principal
amount, will all be immediately due and payable.
The Company has evaluated all events or transactions that
occurred after September 30, 2009 through November 25,
2009, the date the accompanying financial statements were
available to be issued. During this period, there were no
material subsequent events other than those disclosed above.
125
WGL
Holdings, Inc.
Washington Gas Light Company
Part II
Item 8. Financial Statements and Supplementary Data
(continued)
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of WGL Holdings, Inc.
We have audited the accompanying consolidated balance sheets and
consolidated statements of capitalization of WGL Holdings, Inc.
and subsidiaries (the Company) as of
September 30, 2009 and 2008, and the related consolidated
statements of income, common shareholders equity and
comprehensive income, and cash flows for each of the three years
in the period ended September 30, 2009. Our audits also
included the financial statement schedule listed in the Index at
Item 15 under Schedule II. These financial statements
and financial statement schedule are the responsibility of the
Companys management. Our responsibility is to express an
opinion on the financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of WGL
Holdings, Inc. and subsidiaries as of September 30, 2009
and 2008, and the results of their operations and their cash
flows for each of the three years in the period ended
September 30, 2009, in conformity with accounting
principles generally accepted in the United States of America.
Also, in our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
As discussed in Note 1 to the consolidated financial
statements, the Company adopted Statement of Financial
Accounting Standards No. 158, Employers Accounting
for Defined Benefit Pension and Other Postretirement Plans
(part of Accounting Standards Codification Topic 715,
Compensation Retirement Benefits), as of
September 30, 2007.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
Companys internal control over financial reporting as of
September 30, 2009, based on the criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated November 25, 2009 expressed
an unqualified opinion on the Companys internal control
over financial reporting.
DELOITTE & TOUCHE LLP
McLean, Virginia
November 25, 2009
126
WGL
Holdings, Inc.
Washington Gas Light Company
Part II
Item 8. Financial Statements and Supplementary Data
(continued)
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board
of Directors and Shareholder of Washington Gas Light Company
We have audited the accompanying balance sheets and statements
of capitalization of Washington Gas Light Company (the
Company) as of September 30, 2009 and 2008, and
the related statements of income, common shareholders
equity and comprehensive income, and cash flows for each of the
three years in the period ended September 30, 2009. Our
audits also included the financial statement schedule listed in
the Index at Item 15 under Schedule II. These
financial statements and financial statement schedule are the
responsibility of the Companys management. Our
responsibility is to express an opinion on the financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audits included
consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Companys internal control over
financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all
material respects, the financial position of Washington Gas
Light Company as of September 30, 2009 and 2008, and the
results of its operations and its cash flows for each of the
three years in the period ended September 30, 2009, in
conformity with accounting principles generally accepted in the
United States of America. Also, in our opinion, such financial
statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
As discussed in Note 1 to the financial statements, the
Company adopted Statement of Financial Accounting Standards
No. 158, Employers Accounting for Defined Benefit
Pension and Other Postretirement Plans (part of Accounting
Standards Codification Topic 715, Compensation
Retirement Benefits), as of September 30, 2007.
DELOITTE & TOUCHE LLP
McLean, Virginia
November 25, 2009
127
WGL
Holdings, Inc.
Washington Gas Light Company
Part II
Item 8. Financial Statements and Supplementary Data
(concluded)
SUPPLEMENTARY
FINANCIAL INFORMATION (Unaudited)
QUARTERLY
FINANCIAL DATA
All adjustments necessary for a fair presentation have been
included in the quarterly information provided below. Due to the
seasonal nature of our business, we report substantial
variations in operations on a quarterly basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
(In thousands, except per share
data)
|
|
December 31(a)
|
|
|
March 31(b)
|
|
|
June 30(b)
|
|
|
September
30(b)
|
|
|
|
|
Fiscal Year 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
826,088
|
|
|
$
|
1,040,888
|
|
|
$
|
427,036
|
|
|
$
|
412,844
|
|
Operating income (loss)
|
|
|
102,224
|
|
|
|
134,732
|
|
|
|
12,223
|
|
|
|
(7,490
|
)
|
Net income (loss) applicable to common stock
|
|
|
54,625
|
|
|
|
75,070
|
|
|
|
1,807
|
|
|
|
(11,129
|
)
|
Earnings (loss) per average share of common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic(c)
|
|
|
1.09
|
|
|
|
1.50
|
|
|
|
0.04
|
|
|
|
(0.22
|
)
|
Diluted(c)
|
|
|
1.09
|
|
|
|
1.49
|
|
|
|
0.04
|
|
|
|
(0.22
|
)
|
Fiscal Year 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
751,626
|
|
|
$
|
1,020,037
|
|
|
$
|
464,649
|
|
|
$
|
391,882
|
|
Operating income (loss)
|
|
|
89,935
|
|
|
|
145,009
|
|
|
|
9,502
|
|
|
|
(12,840
|
)
|
Net income (loss) applicable to common stock
|
|
|
47,197
|
|
|
|
81,038
|
|
|
|
(492
|
)
|
|
|
(11,220
|
)
|
Earnings (loss) per average share of common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic(c)
|
|
|
0.96
|
|
|
|
1.64
|
|
|
|
(0.01
|
)
|
|
|
(0.22
|
)
|
Diluted(c)
|
|
|
0.95
|
|
|
|
1.63
|
|
|
|
(0.01
|
)
|
|
|
(0.22
|
)
|
|
|
|
|
|
(a) |
|
Earnings for the regulated
utility segment for the quarter ended December 31, 2008
included reversal of a previously proposed disallowance of
purchased gas charges as a result of a review from the PSC of MD
Hearing Examiner. This reversal resulted in income of
$4.6 million (pre-tax) to Operating
revenues-utility. |
|
(b) |
|
Earnings for the regulated
utility segment for the quarters ended March 31, 2009 and
June 30, 2009 included accruals related to the Virginia ESM
of $4.3 million and $1.5 million, respectively. Management
identified and reversed these accruals in the fourth quarter of
2009 to correct for an error in the calculation. Management does
not believe the effects of these prior period corrections are
material either to the current period financial statements or
any prior period financial statements. |
|
(c) |
|
The sum of quarterly per share
amounts may not equal annual per share amounts as quarterly
calculations are based on varying numbers of common
shares. |
128
WGL
Holdings, Inc.
Washington Gas Light Company
Part II
ITEM 9. CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
|
|
ITEM 9A.
|
CONTROLS
AND PROCEDURES
|
EVALUATION OF
DISCLOSURE CONTROLS AND PROCEDURES
Senior management, including the Chairman and Chief Executive
Officer, and the Vice President and Chief Financial Officer,
evaluated the effectiveness of WGL Holdings disclosure
controls and procedures as of September 30, 2009. Based on
this evaluation process, the Chairman and Chief Executive
Officer, and the Vice President and Chief Financial Officer have
concluded that WGL Holdings disclosure controls and
procedures were effective as of September 30, 2009.
MANAGEMENTS
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management of WGL Holdings is responsible for establishing and
maintaining adequate internal control over financial reporting
as defined in
Rules 13a-15(f)
and
15d-15(f)
under the Securities Exchange Act of 1934. WGL Holdings
internal control over financial reporting is designed to provide
reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for
external purposes in accordance with generally accepted
accounting principles in the United States of America.
Because of the inherent limitations of internal control over
financial reporting, including the possibility of human error
and the circumvention or overriding of controls, material
misstatements may not be prevented or detected on a timely
basis. Accordingly, even internal controls determined to be
effective can provide only reasonable assurance with respect to
financial statement preparation and presentation. Furthermore,
projections of any evaluation of the effectiveness to future
periods are subject to the risk that such controls may become
inadequate due to changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
Management has assessed the effectiveness of WGL Holdings
internal control over financial reporting as of
September 30, 2009 based upon the criteria set forth in a
report entitled Internal ControlIntegrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on its assessment, management has
concluded that WGL Holdings maintained effective internal
control over financial reporting as of September 30, 2009.
Deloitte & Touche LLP, our independent registered public
accounting firm, has audited the effectiveness of our internal
control over financial reporting as of September 30, 2009.
Deloitte & Touche LLPs report on the audit of
internal control over financial reporting is included in
Item 9A of this Form 10-K.
CHANGES IN
INTERNAL CONTROL OVER FINANCIAL REPORTING
There have been no changes in the internal control over
financial reporting of WGL Holdings during the quarter ended
September 30, 2009 that have materially affected, or are
reasonably likely to materially affect, the internal control
over financial reporting of WGL Holdings.
129
WGL Holdings, Inc.
Washington Gas Light Company
Part II
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board
of Directors and Shareholders of WGL Holdings, Inc.
We have audited the internal control over financial reporting of
WGL Holdings, Inc. and subsidiaries (the Company) as
of September 30, 2009, based on criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission. The Companys management is responsible for
maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control
over financial reporting, included in the accompanying
Managements Report on Internal Control over Financial
Reporting. Our responsibility is to express an opinion on the
Companys internal control over financial reporting based
on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed by, or under the supervision of, the
companys principal executive and principal financial
officers, or persons performing similar functions, and effected
by the companys board of directors, management, and other
personnel to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of the inherent limitations of internal control over
financial reporting, including the possibility of collusion or
improper management override of controls, material misstatements
due to error or fraud may not be prevented or detected on a
timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting
to future periods are subject to the risk that the controls may
become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate.
In our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as
of September 30, 2009, based on the criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated financial statements and the financial statement
schedule as of and for the year ended September 30, 2009 of
the Company and our report dated November 25, 2009
expressed an unqualified opinion on those consolidated financial
statements and financial statement schedule.
DELOITTE & TOUCHE LLP
McLean, Virginia
November 25, 2009
130
WGL Holdings, Inc.
Washington Gas Light Company
Part II
ITEM 9AT. CONTROLS
AND PROCEDURES
Washington Gas is a non-accelerated filer; therefore, management
has included this Item 9AT as part of this combined report
being filed by the two separate registrants: WGL Holdings and
Washington Gas. Managements Report on Internal Control
over Financial Reporting included below is furnished to, but not
filed with, the Securities and Exchange Commission.
EVALUATION OF
DISCLOSURE CONTROLS AND PROCEDURES
Senior management, including the Chairman and Chief Executive
Officer, and the Vice President and Chief Financial Officer,
evaluated the effectiveness of Washington Gass disclosure
controls and procedures as of September 30, 2009. Based on
this evaluation process, the Chairman and Chief Executive
Officer, and the Vice President and Chief Financial Officer have
concluded that Washington Gass disclosure controls and
procedures were effective as of September 30, 2009.
MANAGEMENTS
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management of Washington Gas is responsible for establishing and
maintaining adequate internal control over financial reporting
as defined in
Rules 13a-15(f)
and
15d-15(f)
under the Securities Exchange Act of 1934. Washington Gass
internal control over financial reporting is designed to provide
reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for
external purposes in accordance with generally accepted
accounting principles in the United States of America.
Because of the inherent limitations of internal control over
financial reporting, including the possibility of human error
and the circumvention or overriding of controls, material
misstatements may not be prevented or detected on a timely
basis. Accordingly, even internal controls determined to be
effective can provide only reasonable assurance with respect to
financial statement preparation and presentation. Furthermore,
projections of any evaluation of the effectiveness to future
periods are subject to the risk that such controls may become
inadequate due to changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
Management has assessed the effectiveness of Washington
Gass internal control over financial reporting as of
September 30, 2009 based upon the criteria set forth in a
report entitled Internal ControlIntegrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on its assessment, management has
concluded that Washington Gas maintained effective internal
control over financial reporting as of September 30, 2009.
This annual report on
Form 10-K
does not include an attestation report of Washington Gass
registered public accounting firm regarding internal control
over financial reporting pursuant to temporary rules of the
Securities and Exchange Commission that permit Washington Gas to
provide only this managements report in this annual report
on
Form 10-K.
CHANGES IN
INTERNAL CONTROL OVER FINANCIAL REPORTING
There have been no changes in the internal control over
financial reporting of Washington Gas during the quarter ended
September 30, 2009 that have materially affected, or are
reasonably likely to materially affect, the internal control
over financial reporting of Washington Gas.
131
WGL
Holdings, Inc.
Washington Gas Light Company
ITEM 10. DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE OF THE
REGISTRANTS
Information concerning the Companys Board of Directors and
the audit committee financial expert contained in WGL
Holdings definitive Proxy Statement and Washington
Gass definitive Information Statement for the
March 4, 2010 Annual Meeting of Shareholders is hereby
incorporated by reference. Information related to Executive
Officers is reflected in Part I hereof.
ITEM 11. EXECUTIVE
COMPENSATION
Information concerning Executive Compensation contained in WGL
Holdings definitive Proxy Statement and Washington
Gass definitive Information Statement for the
March 4, 2010 Annual Meeting of Shareholders is hereby
incorporated by reference. Information related to Executive
Officers as of September 30, 2009 is reflected in
Part I hereof.
ITEM 12. SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The information captioned Security Ownership of Management
and Certain Beneficial Owners and the information captioned
Equity Compensation Plan Information in WGL
Holdings definitive Proxy Statement and Washington
Gass definitive Information Statement for the
March 4, 2010 Annual Meeting of Shareholders is hereby
incorporated by reference.
ITEM 13. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The information captioned Related Person Transactions During
Fiscal Year 2009 in WGL Holdings definitive Proxy
Statement and Washington Gass definitive
Information Statement for the March 4, 2010 Annual
Meeting of Shareholders is hereby incorporated by reference.
ITEM 14. PRINCIPAL
ACCOUNTANT FEES AND SERVICES
The information captioned Fiscal Years 2009 and 2008 Audit
Firm Fee Summary in WGL Holdings definitive Proxy
Statement and Washington Gass definitive
Information Statement for the March 4, 2010 Annual
Meeting of Shareholders is hereby incorporated by reference.
133
WGL
Holdings, Inc.
Washington Gas Light Company
Part IV
Item 15. Exhibits and Financial Statement Schedules
ITEM 15. EXHIBITS AND
FINANCIAL STATEMENT SCHEDULES
Financial
Statement Schedules
(a)(1)
All of the financial statements and financial statement
schedules filed as a part of the annual report on
Form 10-K
are included in Item 8.
(a)(2)
Schedule II should be read in conjunction with the
financial statements in this report. Schedules not included
herein have been omitted because they are not applicable or the
required information is shown in the financial statements or
notes thereto.
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|
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Schedule/
|
|
|
Exhibit
|
|
Description
|
|
II
|
|
Valuation and Qualifying Accounts and Reserves for the years
ended September 30, 2009, 2008 and 2007WGL Holdings,
Inc.
|
|
|
|
|
|
Valuation and Qualifying Accounts and Reserves for the years
ended September 30, 2009, 2008 and 2007Washington Gas
Light Company.
|
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(a)(3)
|
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Exhibits
|
|
|
Exhibits Filed Herewith:
|
|
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|
10.1
|
|
Amended Service Agreement, effective October 31, 2008, with
Columbia Gas Transmission Company related to Firm Transportation
Service.
|
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10.2
|
|
Amended Service Agreement, effective October 31, 2008, with
Columbia Gas Transmission Company related to Firm Transportation
Service.
|
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12.1
|
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Computation of Ratio of Earnings to Fixed ChargesWGL
Holdings, Inc.
|
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12.2
|
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Computation of Ratio of Earnings to Fixed Charges and Preferred
Stock DividendsWGL Holdings, Inc.
|
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12.3
|
|
Computation of Ratio of Earnings to Fixed
ChargesWashington Gas Light Company.
|
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12.4
|
|
Computation of Ratio of Earnings to Fixed Charges and Preferred
Stock DividendsWashington Gas Light Company.
|
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21
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Subsidiaries of WGL Holdings, Inc.
|
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23
|
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Consent of Deloitte & Touche LLP.
|
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24
|
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Power of Attorney
|
|
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|
31.1
|
|
Certification of Terry D. McCallister, the Chairman and Chief
Executive Officer of WGL Holdings, Inc., pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
31.2
|
|
Certification of Vincent L. Ammann, Jr., the Vice President and
Chief Financial Officer of WGL Holdings, Inc., pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
31.3
|
|
Certification of Terry D. McCallister, the Chairman and Chief
Executive Officer of Washington Gas Light Company, pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
31.4
|
|
Certification of Vincent L. Ammann, Jr., the Vice President and
Chief Financial Officer of Washington Gas Light Company,
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
32
|
|
Certification of Terry D. McCallister, the Chairman and Chief
Executive Officer, and Vincent L. Ammann, Jr., the
Vice President and Chief Financial Officer, pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
|
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|
|
|
|
Exhibits Incorporated by Reference:
|
|
|
|
2
|
|
Plan of Merger between WGL Holdings, Inc. and Washington Gas
Light Company, filed on
Form S-4
dated February 2, 2000.
|
|
|
|
3
|
|
Articles of Incorporation & Bylaws:
|
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|
|
|
|
Washington Gas Light Company Charter, filed on
Form S-3
dated July 21, 1995.
|
134
WGL Holdings, Inc.
Washington Gas Light Company
Part IV
Item 15. Exhibits and Financial Statement Schedules
(continued)
|
|
|
Schedule/
|
|
|
Exhibit
|
|
Description
|
|
(a)(3)
|
|
Exhibits (continued)
|
|
|
|
|
|
WGL Holdings, Inc. Charter, filed on
Form S-4
dated February 2, 2000.
|
|
|
|
|
|
Bylaws of WGL Holdings, Inc. as amended on March 5, 2009,
filed as Exhibit 3(ii) to
Form 8-K
on March 6, 2009.
|
|
|
|
|
|
Bylaws of Washington Gas Light Company as amended on
September 23, 2009, filed as Exhibit 3(ii) to
Form 8-K
on September 25, 2009.
|
|
|
|
|
|
Code of Conduct of WGL Holdings, Inc. as amended on
September 23, 2009, filed as Exhibit 14.1 to
Form 8-K
on September 25, 2009.
|
|
|
|
|
|
Code of Conduct of Washington Gas Light Company as amended on
September 23, 2009, filed as Exhibit 14.1 to
Form 8-K
on September 25, 2009.
|
|
|
|
4
|
|
Instruments Defining the Rights of Security Holders including
Indentures:
|
|
|
|
|
|
Indenture, dated September 1, 1991 between Washington Gas
Light Company and The Bank of New York, as Trustee, regarding
issuance of unsecured notes, filed as an exhibit to
Form 8-K
on September 19, 1991.
|
|
|
|
|
|
Supplemental Indenture, dated September 1, 1993 between
Washington Gas Light Company and The Bank of New York, as
Trustee, regarding the addition of a new section to the
Indenture dated September 1, 1991, filed as an exhibit to
Form 8-K
on September 10, 1993.
|
|
|
|
10
|
|
Material Contracts
|
|
|
|
|
|
Other Services Contracts
|
|
|
|
|
|
Master Services Agreement, effective June 19, 2007, with
Accenture LLP, related to business process outsourcing, and
service technology enhancements, filed as Exhibit 10.1 to
Form 10-Q
for the quarter ended June 30, 2007. Portions of this
exhibit were omitted pursuant to a request for confidential
treatment submitted to the Securities and Exchange Commission.
|
|
|
|
|
|
Gas transportation and storage contracts
|
|
|
|
|
|
Service Agreement, effective October 31, 2008, with
Columbia Gas Transmission Company related to Firm Storage
Service, filed as Exhibit 10.1 to
Form 10-Q
for the quarter ended June 30, 2009.
|
|
|
|
|
|
Service Agreement, effective October 31, 2008, with
Columbia Gas Transmission Company related to Firm Transportation
Service, filed as Exhibit 10.2 to
Form 10-Q
for the quarter ended June 30, 2009.
|
|
|
|
|
|
Service Agreement, effective October 31, 2008, with
Columbia Gas Transmission Company related to Firm Transportation
Service, filed as Exhibit 10.3 to
Form 10-Q
for the quarter ended June 30, 2009.
|
|
|
|
|
|
Service Agreement, effective October 31, 2008, with
Columbia Gas Transmission Company related to Firm Transportation
Service, filed as Exhibit 10.4 to
Form 10-Q
for the quarter ended June 30, 2009.
|
|
|
|
|
|
Service Agreement, effective April 1, 2007, with Hardy
Storage Company related to Firm Storage Service, filed as
Exhibit 10.1 to
Form 10-K
for the fiscal year ended September 30, 2007.
|
|
|
|
|
|
Service Agreement, effective November 1, 2007, with
Columbia Gas Transmission Company related to Firm Transportation
Service, filed as Exhibit 10.2 to
Form 10-K
for the fiscal year ended September 30, 2007.
|
|
|
|
|
|
Service Agreement, effective November 1, 2007, with
Transcontinental Gas Pipe Line Corporation related to Firm
Transportation Service, filed as Exhibit 10.3 to
Form 10-K
for the fiscal year ended September 30, 2007.
|
|
|
|
|
|
Service Agreement, effective November 1, 2005, with
Columbia Gulf Transmission Company related to Firm
Transportation Service, filed as Exhibit 10.1 to
Form 10-K
for the fiscal year ended September 30, 2005.
|
|
|
|
|
|
Service Agreement, effective November 1, 2005, with
Columbia Gas Transmission Corporation related to Firm Storage
Service (Agreement 85037), filed as Exhibit 10.2 to
Form 10-K
for the fiscal year ended September 30, 2005.
|
135
WGL Holdings, Inc.
Washington Gas Light Company
Part IV
Item 15. Exhibits and Financial Statement Schedules
(continued)
|
|
|
Schedule/
|
|
|
Exhibit
|
|
Description
|
|
(a)(3)
|
|
Exhibits (continued)
|
|
|
|
|
|
Service Agreement, effective November 1, 2005, with
Columbia Gas Transmission Corporation related to Storage Service
(Agreement 85038), filed as Exhibit 10.3 to
Form 10-K
for the fiscal year ended September 30, 2005.
|
|
|
|
|
|
Service Agreement, effective November 1, 2005, with
Columbia Gas Transmission Corporation related to Firm
Transportation Service (Agreement 85036), filed as
Exhibit 10.4 to
Form 10-K
for the fiscal year ended September 30, 2005.
|
|
|
|
|
|
Service Agreement, effective November 1, 2005, with Cove
Point LNG FPS2 related to Peaking Service, filed as
Exhibit 10.5 to
Form 10-K
for the fiscal year ended September 30, 2005.
|
|
|
|
|
|
Service Agreement, effective November 1, 2005, with Cove
Point LNG FPS3 related to Peaking Service, filed as
Exhibit 10.6 to
Form 10-K
for the fiscal year ended September 30, 2005.
|
|
|
|
|
|
Service Agreement, effective May 1, 2005, as amended, with
Dominion Cove Point LNG, LP related to Firm Transportation
Service, filed as Exhibit 10.2 to
Form 10-K
for the fiscal year ended September 30, 2004.
|
|
|
|
|
|
Service Agreement, effective November 1, 2004, with
Dominion Transmission Inc. related to Firm Transportation
Service from the Mid Atlantic project, filed as
Exhibit 10.5 to
Form 10-K
for the fiscal year ended September 30, 2004.
|
|
|
|
|
|
Service Agreement, renegotiated and effective June 1, 2004,
as amended, with Columbia Gas Transmission Corporation related
to Firm Storage Service, filed as Exhibit 10.7 to
Form 10-K
for the fiscal year ended September 30, 2004. (Agreement
78844)
|
|
|
|
|
|
Service Agreement, renegotiated and effective June 1, 2004,
as amended, with Columbia Gas Transmission Corporation related
to Firm Storage Service, filed as Exhibit 10.7 to
Form 10-K
for the fiscal year ended September 30, 2004. (Agreement
78845)
|
|
|
|
|
|
Service Agreement, renegotiated and effective June 1, 2004,
as amended, with Columbia Gas Transmission Corporation related
to Firm Storage Service, filed as Exhibit 10.7 to
Form 10-K
for the fiscal year ended September 30, 2004. (Agreement
78846)
|
|
|
|
|
|
Service Agreement, renegotiated and effective June 1, 2004,
as amended, with Columbia Gas Transmission Corporation related
to Storage Service filed as Exhibit 10.8 to
Form 10-K
for the fiscal year ended September 30, 2004.
(Agreement 78838)
|
|
|
|
|
|
Service Agreement, renegotiated and effective June 1, 2004,
as amended, with Columbia Gas Transmission Corporation related
to Storage Service filed as Exhibit 10.8 to
Form 10-K
for the fiscal year ended September 30, 2004.
(Agreement 78839)
|
|
|
|
|
|
Service Agreement, renegotiated and effective June 1, 2004,
as amended, with Columbia Gas Transmission Corporation related
to Storage Service filed as Exhibit 10.8 to
Form 10-K
for the fiscal year ended September 30, 2004.
(Agreement 78840)
|
|
|
|
|
|
Service Agreement, renegotiated and effective June 1, 2004,
as amended, with Columbia Gas Transmission Corporation related
to Firm Transportation Service, filed as Exhibit 10.9 to
Form 10-K
for the fiscal year ended September 30, 2004. (Agreement
78834)
|
|
|
|
|
|
Service Agreement, renegotiated and effective June 1, 2004,
as amended, with Columbia Gas Transmission Corporation related
to Firm Transportation Service, filed as Exhibit 10.9 to
Form 10-K
for the fiscal year ended September 30, 2004. (Agreement
78835)
|
|
|
|
|
|
Service Agreement, renegotiated and effective June 1, 2004,
as amended, with Columbia Gas Transmission Corporation related
to Firm Transportation Service, filed as Exhibit 10.9 to
Form 10-K
for the fiscal year ended September 30, 2004. (Agreement
78836)
|
|
|
|
|
|
Service Agreement, effective January 1, 1996, with
Transcontinental Gas Pipe Line Corporation related to Firm
Transportation Service, filed as Exhibit 10.11 to
Form 10-K
for the fiscal year ended September 30, 2004.
|
136
WGL Holdings, Inc.
Washington Gas Light Company
Part IV
Item 15. Exhibits and Financial Statement Schedules
(continued)
|
|
|
Schedule/
|
|
|
Exhibit
|
|
Description
|
|
(a)(3)
|
|
Exhibits (continued)
|
|
|
|
|
|
Service Agreement effective November 1, 2002 with the
Transcontinental Gas Pipe Line Corporation for the MarketLink
Firm Transportation Capacity, filed as Exhibit 10.1 to
Form 10-K
for the fiscal year ended September 30, 2003.
|
|
|
|
|
|
Service Agreement effective October 1, 1993 with
Transcontinental Gas Pipe Line Corporation related to General
Storage Service filed as Exhibit 10.3 to
Form 10-K
for the fiscal year ended September 30, 1993.
|
|
|
|
|
|
Service Agreement effective October 1, 1993 with Dominion
Transmission, Inc. related to Firm Transportation Service, filed
as Exhibit 10.11 to
Form 10-K
for the fiscal year ended September 30, 1993.
|
|
|
|
|
|
Service Agreement effective October 1, 1993 with Dominion
Transmission, Inc. related to General Storage Service, filed as
Exhibit 10.13 to
Form 10-K
for the fiscal year ended September 30, 1993.
|
|
|
|
|
|
Service Agreement effective August 1, 1991 with
Transcontinental Gas Pipe Line Corporation related to Washington
Storage Service, filed as Exhibit 10.16 to
Form 10-K
for the fiscal year ended September 30, 1993.
|
|
|
|
|
|
Management Contracts, Compensatory Plans or Arrangements with
Executive Officers and Directors
|
|
|
|
|
|
WGL Holdings, Inc. and Washington Gas Light Company Change in
Control Severance Plan for Certain Executives, as amended on
September 24, 2008, filed as Exhibit 10.1 to
Form 10-K
for the fiscal year ended September 30, 2008.*
|
|
|
|
|
|
WGL Holdings, Inc. and Washington Gas Light Company Deferred
Compensation Plan for Outside Directors, amended and restated
effective January 1, 2005, as further amended on
September 24, 2008, filed as Exhibit 10.1 to
Form 10-K
for the fiscal year ended September 30, 2008.*
|
|
|
|
|
|
Washington Gas Light Company Supplemental Executive Retirement
Plan, amended and restated effective January 1, 2005, as
further amended on September 24, 2008, filed as
Exhibit 10.1 to
Form 10-K
for the fiscal year ended September 30, 2008.*
|
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|
|
|
WGL Holdings, Inc. Omnibus Incentive Compensation Plan, filed as
Exhibit 10.2 to
form 8-K
dated December 21, 2006.*
|
|
|
|
|
|
WGL Holdings, Inc. 1999 Incentive Compensation Plan, as amended
and restated as of March 5, 2003, filed as
Exhibit 10.15 to
Form 10-K
for the fiscal year ended September 30, 2004.*
|
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|
|
|
|
Form of Nonqualified Stock Option Award Agreement, filed as
Exhibit 10.01 to
Form 8-K
dated October 5, 2004.*
|
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|
|
Form of Performance Share Award Agreement, filed as
Exhibit 10.01 to
Form 10-Q
dated February 11, 2008.*
|
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|
|
Form of Performance Units Award Agreement, filed as
Exhibit 10.02 to
Form 10-Q
dated February 11, 2008.*
|
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|
|
|
|
WGL Holdings, Inc. and Washington Gas Light Company Deferred
Compensation Plan for Outside Directors, adopted
December 18, 1985, and amended as of November 1, 2000,
filed as Exhibit 10.2 to
Form 10-K
in the fiscal year ended September 30, 2001.*
|
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|
|
|
Debt and Credit Agreements
|
|
|
|
|
|
Form of Note Purchase Agreement dated November 2, 2009,
entered into by and among Washington Gas Light Company and
certain purchasers, for the issuance and sale by Washington Gas
Light Company of $50 million of unsecured fixed rate notes
due November 1, 2019. Filed as Exhibit 4.1 to
Form 8-K
dated November 5, 2009.
|
|
|
|
|
|
Form of Note issued in connection with the Note Purchase
Agreement dated November 2, 2009, by and among Washington
Gas Light Company and certain purchasers, regarding the issuance
and sale by Washington Gas Light Company of $50 million of
unsecured fixed rate notes due November 1, 2019. Filed as
Exhibit 4.2 to
Form 8-K
dated November 5, 2009.
|
137
WGL Holdings, Inc.
Washington Gas Light Company
Part IV
Item 15. Exhibits and Financial Statement Schedules
(concluded)
|
|
|
Schedule/
|
|
|
Exhibit
|
|
Description
|
|
(a)(3)
|
|
Exhibits (continued)
|
|
|
|
|
|
Form of Distribution Agreement, dated June 3, 2009, entered
into by and among Washington Gas Light Company and Wachovia
Capital Markets, LLC., BB&T Capital Markets, a division of
Scott & Stringfellow, LLC., J.P. Morgan
Securities Inc., Mitsubishi UFJ Securities (USA), Inc., and The
Williams Capital Group, L.P. regarding the issuance and sale by
Washington Gas Light Company of up to $450 million of
Medium-Term Notes, Series I. Filed as Exhibit 1.1 to
Form 8-K
dated June 4, 2009.
|
|
|
|
|
|
Amended and Restated Credit Agreement dated as of August 3,
2007 among WGL Holdings, Inc., the Lenders, Wachovia Bank,
National Association, as administrative agent; Bank of
Tokyo-Mitsubishi Trust Company, as syndication agent;
Citibank, N.A., SunTrust Bank and Wells Fargo Bank, National
Association, as documentation agents; and Wachovia Capital
Markets, LLC, as lead arranger and book runner, filed as
Exhibit 10.2 to
Form 10-Q
for the quarter ended June 30, 2007.
|
|
|
|
|
|
Amended and Restated Credit Agreement dated as of August 3,
2007 among Washington Gas Light Company, the Lenders, Wachovia
Bank, National Association, as administrative agent; Bank of
Tokyo-Mitsubishi Trust Company, as syndication agent;
Citibank, N.A., SunTrust Bank, and Wells Fargo Bank, National
Association, as documentation agents; and Wachovia Capital
Markets, LLC, as lead arranger and book runner, filed as
Exhibit 10.3 to
Form 10-Q
for the quarter ended June 30, 2007.
|
|
|
|
|
|
Form of Distribution Agreement dated June 14, 2006 among
Washington Gas Light Company and Citigroup Global Markets Inc.,
Banc of America Securities LLC, Merrill Lynch, Pierce,
Fenner & Smith Incorporated, SunTrust Capital Markets,
Inc., The Williams Capital Group, L.P. and Wachovia Capital
Markets, LLC regarding the issuance and sale by Washington Gas
Light Company of up to $300 million of Medium-Term Notes,
Series H under an Indenture dated as of September 1,
1991. Filed as Exhibit 1.1 to
Form 8-K
dated June 15, 2006.
|
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|
|
|
* This asterisk designates an
agreement that is a compensatory plan or arrangement.
|
138
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|
|
|
|
WGL Holdings, Inc. and Subsidiaries
|
|
Schedule IIValuation and Qualifying Accounts and
Reserves
|
|
Years Ended September 30, 2009, 2008 and 2007
|
|
|
|
|
|
|
|
|
Additions Charged To
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
|
|
|
|
|
|
|
|
Balance
|
|
|
|
|
Beginning
|
|
|
|
Costs and
|
|
|
|
Other
|
|
|
|
|
|
|
|
at End of
|
|
(In thousands)
|
|
|
of Period
|
|
|
|
Expenses
|
|
|
|
Accounts(a)
|
|
|
|
Deductions(b)
|
|
|
|
Period
|
|
2009
|
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|
|
Valuation and Qualifying Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deducted from Assets in the Balance Sheet:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for Doubtful Accounts
|
|
|
$
|
17,101
|
|
|
|
$
|
22,435
|
|
|
|
$
|
4,167
|
|
|
|
$
|
22,734
|
|
|
|
$
|
20,969
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation and Qualifying Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deducted from Assets in the Balance Sheet:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for Doubtful Accounts
|
|
|
$
|
14,488
|
|
|
|
$
|
19,958
|
|
|
|
$
|
4,657
|
|
|
|
$
|
22,002
|
|
|
|
$
|
17,101
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation and Qualifying Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deducted from Assets in the Balance Sheet:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for Doubtful Accounts
|
|
|
$
|
17,676
|
|
|
|
$
|
9,645
|
|
|
|
$
|
4,123
|
|
|
|
$
|
16,956
|
|
|
|
$
|
14,488
|
|
|
Notes:
|
(a) Recoveries
on receivables previously written off as uncollectible and
unclaimed customer deposits, overpayments, etc., not
refundable.
|
(b) Includes
deductions for purposes for which reserves were provided or
revisions made of estimated exposure.
|
|
139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Washington Gas Light Company
|
|
Schedule IIValuation and Qualifying Accounts and
Reserves
|
|
Years Ended September 30, 2009, 2008 and 2007
|
|
|
|
|
|
|
|
|
Additions Charged To
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
|
Beginning
|
|
|
|
Costs and
|
|
|
|
Other
|
|
|
|
|
|
|
|
End of
|
|
(In thousands)
|
|
|
of Period
|
|
|
|
Expenses
|
|
|
|
Accounts(a)
|
|
|
|
Deductions(b)
|
|
|
|
Period
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation and Qualifying Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deducted from Assets in the Balance Sheet:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for Doubtful Accounts
|
|
|
$
|
15,736
|
|
|
|
$
|
18,567
|
|
|
|
$
|
3,733
|
|
|
|
$
|
19,419
|
|
|
|
$
|
18,617
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation and Qualifying Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deducted from Assets in the Balance Sheet:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for Doubtful Accounts
|
|
|
$
|
13,215
|
|
|
|
$
|
16,761
|
|
|
|
$
|
4,207
|
|
|
|
$
|
18,447
|
|
|
|
$
|
15,736
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation and Qualifying Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deducted from Assets in the Balance Sheet:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for Doubtful Accounts
|
|
|
$
|
16,543
|
|
|
|
$
|
7,884
|
|
|
|
$
|
4,123
|
|
|
|
$
|
15,335
|
|
|
|
$
|
13,215
|
|
|
Notes:
|
(a) Recoveries
on receivables previously written off as uncollectible and
unclaimed customer deposits, overpayments, etc., not
refundable.
|
(b) Includes
deductions for purposes for which reserves were provided or
revisions made of estimated exposure.
|
|
140
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrants have duly
caused this report to be signed on their behalf by the
undersigned, thereunto duly authorized.
WGL HOLDINGS, INC.
and
WASHINGTON GAS LIGHT COMPANY
(Co-registrants)
/s/ Vincent
L. Ammann, Jr.
Vincent L. Ammann, Jr.
Vice President and
Chief Financial Officer
Date: November 25, 2009
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrants and in the capacities and on the
dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Terry
D. McCallister
(Terry
D. McCallister)
|
|
Chairman of the Board and Chief Executive Officer
|
|
November 25, 2009
|
|
|
|
|
|
/s/ Adrian
P. Chapman
(Adrian
P. Chapman)
|
|
President and Chief Operating Officer
|
|
November 25, 2009
|
|
|
|
|
|
/s/ Vincent
L. Ammann, Jr.
(Vincent
L. Ammann, Jr.)
|
|
Vice President and Chief Financial Officer (Principal Financial
Officer)
|
|
November 25, 2009
|
|
|
|
|
|
/s/ Mark
P. OFlynn
(Mark
P. OFlynn)
|
|
Controller
(Principal Accounting Officer)
|
|
November 25, 2009
|
|
|
|
|
|
*
(Michael
D. Barnes)
|
|
Director
|
|
November 25, 2009
|
|
|
|
|
|
*
(George
P. Clancy, Jr.)
|
|
Director
|
|
November 25, 2009
|
|
|
|
|
|
*
(James
W. Dyke, Jr.)
|
|
Director
|
|
November 25, 2009
|
|
|
|
|
|
*
(Melvyn
J. Estrin)
|
|
Director
|
|
November 25, 2009
|
|
|
|
|
|
*
(James
F. Lafond)
|
|
Director
|
|
November 25, 2009
|
|
|
|
|
|
*
(Debra
L. Lee)
|
|
Director
|
|
November 25, 2009
|
|
|
|
|
|
*
(Karen
Hastie Williams)
|
|
Director
|
|
November 25, 2009
|
|
|
|
|
|
|
|
*By:
|
|
Vincent L. Ammann,
Jr.
(Vincent
L. Ammann, Jr.)
Attorney-in-Fact
|
|
|
|
November 25, 2009
|
141
WGL
HOLDINGS, INC. and WASHINGTON GAS LIGHT COMPANY 2009
Form 10-K
Exhibit Index
|
|
|
|
|
Exhibit
|
|
Description
|
|
|
10
|
.1
|
|
Amended Service Agreement, effective October 31, 2008, with
Columbia Gas Transmission Company related to Firm Transportation
Service.
|
|
10
|
.2
|
|
Amended Service Agreement, effective October 31, 2008, with
Columbia Gas Transmission Company related to Firm Transportation
Service.
|
|
12
|
.1
|
|
Computation of Ratio of Earnings to Fixed ChargesWGL
Holdings, Inc.
|
|
12
|
.2
|
|
Computation of Ratio of Earnings to Fixed Charges and Preferred
Stock DividendsWGL Holdings, Inc.
|
|
12
|
.3
|
|
Computation of Ratio of Earnings to Fixed
ChargesWashington Gas Light Company.
|
|
12
|
.4
|
|
Computation of Ratio of Earnings to Fixed Charges and Preferred
Stock DividendsWashington Gas Light Company.
|
|
21
|
|
|
Subsidiaries of WGL Holdings, Inc.
|
|
23
|
|
|
Consent of Deloitte & Touche LLP.
|
|
24
|
|
|
Power of Attorney
|
|
31
|
.1
|
|
Certification of Terry D. McCallister, the Chairman and Chief
Executive Officer of WGL Holdings, Inc., pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
31
|
.2
|
|
Certification of Vincent L. Ammann, Jr., the Vice President and
Chief Financial Officer of WGL Holdings, Inc., pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
31
|
.3
|
|
Certification of Terry D. McCallister, the Chairman and Chief
Executive Officer of Washington Gas Light Company, pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
31
|
.4
|
|
Certification of Vincent L. Ammann, Jr., the Vice President and
Chief Financial Officer of Washington Gas Light Company,
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
32
|
|
|
Certification of Terry D. McCallister, the Chairman and Chief
Executive Officer, and Vincent L. Ammann, Jr., the
Vice President and Chief Financial Officer, pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
|
142