UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
|
|
|
þ
|
|
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|
For the quarterly period ended December 31, 2009
OR
|
|
|
o
|
|
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commission
|
|
|
Exact name of registrant as specified in its charter
|
|
|
State of
|
|
|
I.R.S.
Employer
|
|
|
File Number
|
|
|
and principal office address and telephone number
|
|
|
Incorporation
|
|
|
Identification No.
|
|
|
1-16163
|
|
|
WGL Holdings, Inc.
101 Constitution Ave., N.W.
Washington, D.C. 20080
(703) 750-2000
|
|
|
Virginia
|
|
|
52-2210912
|
|
|
0-49807
|
|
|
Washington
Gas Light Company
101 Constitution Ave., N.W.
Washington, D.C. 20080
(703) 750-4440
|
|
|
District of
Columbia
and Virginia
|
|
|
53-0162882
|
|
|
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
þ
No
o
Indicate by check mark whether each registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes
o
No
o
Indicate by check mark whether each 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.:
Large accelerated filer
þ
|
Accelerated filer
o
|
Non-accelerated filer
o
(Do not check if a smaller reporting company)
|
Smaller reporting company
o
|
Washington Gas Light Company:
Large accelerated filer
o
|
Accelerated filer
o
|
Non-accelerated filer
þ
(Do not check if a smaller reporting company)
|
Smaller reporting company
o
|
Indicate by check mark whether each registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes
o
No
þ
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
the latest practicable date.
WGL Holdings, Inc. common stock, no par value, outstanding as of January 29, 2010: 50,302,721
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 January 29, 2010.
WGL Holdings, Inc.
Washington Gas Light Company
For the Quarter Ended December 31, 2009
Table of Contents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
|
5
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
|
|
8
|
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
28
|
|
|
|
|
31
|
|
|
|
|
53
|
|
|
|
|
|
|
|
|
|
60
|
|
|
|
|
|
|
|
|
|
60
|
|
|
|
|
|
|
|
|
|
60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61
|
|
|
|
|
|
|
|
|
|
62
|
|
i
WGL Holdings, Inc.
Washington Gas Light Company
INTRODUCTION
FILING FORMAT
This Quarterly Report on Form 10-Q 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.
Part I Financial information in this Quarterly Report on Form 10-Q includes separate
financial statements (i.e. balance sheets, statements of income and statements of cash flows) for
WGL Holdings and Washington Gas. The Notes to Consolidated Financial Statements are also included
and are presented on a consolidated basis for both WGL Holdings and Washington Gas. The
Managements Discussion and Analysis of Financial Condition and Results of Operations
(Managements
Discussion) included under Item 2 is divided into two major sections for 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:
|
|
|
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;
|
|
|
|
|
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;
|
|
|
|
|
the availability of natural gas supply and interstate pipeline transportation and
storage capacity;
|
|
|
|
|
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;
|
|
|
|
|
changes and developments in economic, competitive, political and regulatory conditions;
|
|
|
|
|
changes in capital and energy commodity market conditions;
|
|
|
|
|
changes in credit ratings of debt securities of WGL Holdings or Washington Gas that may
affect access to capital or the cost of debt;
|
|
|
|
|
changes in credit market conditions and creditworthiness of customers and suppliers;
|
|
|
|
|
changes in relevant laws and regulations, including tax, environmental and employment
laws and regulations;
|
|
|
|
|
legislative, regulatory and judicial mandates or decisions affecting business
operations or the timing of recovery of costs and expenses;
|
ii
WGL Holdings, Inc.
Washington Gas Light Company
|
|
|
the timing and success of business and product development efforts and technological
improvements;
|
|
|
|
|
the pace of deregulation efforts and the availability of other competitive alternatives
to our products and services;
|
|
|
|
|
changes in accounting principles;
|
|
|
|
|
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;
|
|
|
|
|
the ability to manage the outsourcing of several business processes;
|
|
|
|
|
acts of nature;
|
|
|
|
|
terrorist activities and
|
|
|
|
|
other uncertainties.
|
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 Quarterly Report on Form 10-Q. All forward-looking statements made in this report rely upon
the safe harbor protections provided under the
Private Securities Litigation Reform Act of 1995
.
iii
WGL Holdings, Inc.
Consolidated Balance Sheets (Unaudited)
Part IFinancial Information
Item 1Financial Statements
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
September 30,
|
(In thousands)
|
|
2009
|
|
2009
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Property, Plant and Equipment
|
|
|
|
|
|
|
|
|
At original cost
|
|
$
|
3,257,411
|
|
|
$
|
3,242,413
|
|
Accumulated depreciation and amortization
|
|
|
(980,371
|
)
|
|
|
(973,272
|
)
|
|
Net property, plant and equipment
|
|
|
2,277,040
|
|
|
|
2,269,141
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
13,622
|
|
|
|
7,845
|
|
Receivables
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
277,793
|
|
|
|
172,117
|
|
Gas costs and other regulatory assets
|
|
|
65,235
|
|
|
|
77,173
|
|
Unbilled revenues
|
|
|
223,560
|
|
|
|
80,594
|
|
Allowance for doubtful accounts
|
|
|
(18,150
|
)
|
|
|
(20,969
|
)
|
|
Net receivables
|
|
|
548,438
|
|
|
|
308,915
|
|
|
Materials and suppliesprincipally at average cost
|
|
|
24,365
|
|
|
|
23,626
|
|
Storage gasat cost (first-in, first-out)
|
|
|
198,710
|
|
|
|
237,681
|
|
Deferred income taxes
|
|
|
128
|
|
|
|
|
|
Other prepayments
|
|
|
56,026
|
|
|
|
82,415
|
|
Other
|
|
|
24,364
|
|
|
|
23,032
|
|
|
Total current assets
|
|
|
865,653
|
|
|
|
683,514
|
|
|
Deferred Charges and Other Assets
|
|
|
|
|
|
|
|
|
Regulatory assets
|
|
|
|
|
|
|
|
|
Gas costs
|
|
|
76,443
|
|
|
|
13,996
|
|
Pension and other post-retirement benefits
|
|
|
307,404
|
|
|
|
308,544
|
|
Other
|
|
|
52,756
|
|
|
|
53,904
|
|
Other
|
|
|
25,560
|
|
|
|
20,791
|
|
|
Total deferred charges and other assets
|
|
|
462,163
|
|
|
|
397,235
|
|
|
Total Assets
|
|
$
|
3,604,856
|
|
|
$
|
3,349,890
|
|
|
|
|
|
|
|
|
|
|
|
CAPITALIZATION AND LIABILITIES
|
|
|
|
|
|
|
|
|
Capitalization
|
|
|
|
|
|
|
|
|
Common shareholders equity
|
|
$
|
1,127,145
|
|
|
$
|
1,097,698
|
|
Washington Gas Light Company preferred stock
|
|
|
28,173
|
|
|
|
28,173
|
|
Long-term debt
|
|
|
612,795
|
|
|
|
561,830
|
|
|
Total capitalization
|
|
|
1,768,113
|
|
|
|
1,687,701
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Current maturities of long-term debt
|
|
|
82,594
|
|
|
|
82,592
|
|
Notes payable
|
|
|
176,553
|
|
|
|
183,851
|
|
Accounts payable and other accrued liabilities
|
|
|
271,285
|
|
|
|
213,529
|
|
Wages payable
|
|
|
15,890
|
|
|
|
15,294
|
|
Accrued interest
|
|
|
12,830
|
|
|
|
3,598
|
|
Dividends declared
|
|
|
18,816
|
|
|
|
18,758
|
|
Customer deposits and advance payments
|
|
|
60,310
|
|
|
|
52,908
|
|
Gas costs and other regulatory liabilities
|
|
|
85,459
|
|
|
|
14,842
|
|
Deferred income taxes
|
|
|
|
|
|
|
5,155
|
|
Accrued taxes
|
|
|
20,307
|
|
|
|
17,119
|
|
Other
|
|
|
30,996
|
|
|
|
26,970
|
|
|
Total current liabilities
|
|
|
775,040
|
|
|
|
634,616
|
|
|
|
|
|
|
|
|
|
|
|
Deferred Credits
|
|
|
|
|
|
|
|
|
Unamortized investment tax credits
|
|
|
10,531
|
|
|
|
10,761
|
|
Deferred income taxes
|
|
|
350,155
|
|
|
|
323,505
|
|
Accrued pensions and benefits
|
|
|
273,809
|
|
|
|
273,289
|
|
Asset retirement obligations
|
|
|
33,112
|
|
|
|
32,641
|
|
Regulatory liabilities
|
|
|
|
|
|
|
|
|
Accrued asset removal costs
|
|
|
322,934
|
|
|
|
319,173
|
|
Other
|
|
|
13,985
|
|
|
|
14,310
|
|
Other
|
|
|
57,177
|
|
|
|
53,894
|
|
|
Total deferred credits
|
|
|
1,061,703
|
|
|
|
1,027,573
|
|
|
Commitments and Contingencies (Note 12)
|
|
|
|
|
|
|
|
|
|
Total Capitalization and Liabilities
|
|
$
|
3,604,856
|
|
|
$
|
3,349,890
|
|
|
The accompanying notes are an integral part of these statements.
4
WGL Holdings, Inc.
Consolidated Statements of Income (Unaudited)
Part IFinancial Information
Item 1Financial Statements (continued)
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
December 31,
|
|
(In thousands, except per share data)
|
|
2009
|
|
|
2008
|
|
|
OPERATING REVENUES
|
|
|
|
|
|
|
|
|
Utility
|
|
$
|
390,532
|
|
|
$
|
522,481
|
|
Non-utility
|
|
|
336,891
|
|
|
|
303,607
|
|
|
Total Operating Revenues
|
|
|
727,423
|
|
|
|
826,088
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
Utility cost of gas
|
|
|
197,277
|
|
|
|
306,784
|
|
Non-utility cost of energy-related sales
|
|
|
313,205
|
|
|
|
292,238
|
|
Operation and maintenance
|
|
|
73,516
|
|
|
|
70,334
|
|
Depreciation and amortization
|
|
|
24,163
|
|
|
|
24,081
|
|
General taxes and other assessments
|
|
|
31,420
|
|
|
|
30,427
|
|
|
Total Operating Expenses
|
|
|
639,581
|
|
|
|
723,864
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME
|
|
|
87,842
|
|
|
|
102,224
|
|
Other Income (Expenses)Net
|
|
|
369
|
|
|
|
17
|
|
Interest Expense
|
|
|
|
|
|
|
|
|
Interest on long-term debt
|
|
|
9,895
|
|
|
|
9,952
|
|
AFUDC and other net
|
|
|
(138
|
)
|
|
|
2,227
|
|
|
Total Interest Expense
|
|
|
9,757
|
|
|
|
12,179
|
|
|
INCOME BEFORE INCOME TAXES
|
|
|
78,454
|
|
|
|
90,062
|
|
INCOME TAX EXPENSE
|
|
|
30,483
|
|
|
|
35,107
|
|
|
NET INCOME BEFORE PREFERRED STOCK DIVIDENDS
|
|
|
47,971
|
|
|
|
54,955
|
|
Dividends on Washington Gas preferred stock
|
|
|
330
|
|
|
|
330
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME APPLICABLE TO COMMON STOCK
|
|
$
|
47,641
|
|
|
$
|
54,625
|
|
|
|
|
|
|
|
|
|
|
|
AVERAGE COMMON SHARES OUTSTANDING
|
|
|
|
|
|
|
|
|
Basic
|
|
|
50,241
|
|
|
|
50,022
|
|
Diluted
|
|
|
50,429
|
|
|
|
50,208
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS PER AVERAGE COMMON SHARE
|
|
|
|
|
|
|
|
|
Basic
|
|
|
0.95
|
|
|
|
1.09
|
|
Diluted
|
|
|
0.94
|
|
|
|
1.09
|
|
|
DIVIDENDS DECLARED PER COMMON SHARE
|
|
$
|
0.3675
|
|
|
$
|
0.3550
|
|
|
The accompanying notes are an integral part of these statements.
5
WGL Holdings, Inc.
Consolidated Statements of Cash Flows (Unaudited)
Part IFinancial Information
Item 1Financial Statements (continued)
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
December 31,
|
|
(In thousands)
|
|
2009
|
|
|
2008
|
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net income before preferred stock dividends
|
|
$
|
47,971
|
|
|
$
|
54,955
|
|
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
24,163
|
|
|
|
24,081
|
|
Amortization of:
|
|
|
|
|
|
|
|
|
Other regulatory assets and liabilitiesnet
|
|
|
911
|
|
|
|
744
|
|
Debt related costs
|
|
|
210
|
|
|
|
194
|
|
Deferred income taxesnet
|
|
|
21,162
|
|
|
|
28,486
|
|
Accrued/deferred pension cost
|
|
|
1,598
|
|
|
|
(1,040
|
)
|
Compensation expense related to equity awards
|
|
|
597
|
|
|
|
189
|
|
Provision for doubtful accounts
|
|
|
3,909
|
|
|
|
4,585
|
|
Other non-cash charges (credits)net
|
|
|
(406
|
)
|
|
|
(299
|
)
|
CHANGES IN ASSETS AND LIABILITIES
|
|
|
|
|
|
|
|
|
Accounts receivable and unbilled revenues
|
|
|
(255,370
|
)
|
|
|
(360,651
|
)
|
Gas costs and other regulatory assets/liabilitiesnet
|
|
|
82,555
|
|
|
|
100,331
|
|
Storage gas
|
|
|
38,971
|
|
|
|
63,134
|
|
Other prepayments
|
|
|
26,619
|
|
|
|
(28,311
|
)
|
Accounts payable and other accrued liabilities
|
|
|
59,603
|
|
|
|
88,170
|
|
Wages payable
|
|
|
596
|
|
|
|
1,894
|
|
Customer deposits and advance payments
|
|
|
7,402
|
|
|
|
(544
|
)
|
Accrued taxes
|
|
|
3,188
|
|
|
|
9,468
|
|
Accrued interest
|
|
|
9,232
|
|
|
|
8,941
|
|
Other current assets
|
|
|
(2,071
|
)
|
|
|
(14,376
|
)
|
Other current liabilities
|
|
|
4,026
|
|
|
|
(1,788
|
)
|
Deferred gas costsnet
|
|
|
(62,447
|
)
|
|
|
(45,062
|
)
|
Deferred assetsother
|
|
|
(4,004
|
)
|
|
|
(4,188
|
)
|
Deferred liabilitiesother
|
|
|
581
|
|
|
|
(3,393
|
)
|
Othernet
|
|
|
452
|
|
|
|
1,441
|
|
|
Net Cash Provided by (Used in) Operating Activities
|
|
|
9,448
|
|
|
|
(73,039
|
)
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Common stock issued
|
|
|
884
|
|
|
|
4,194
|
|
Long-term debt issued
|
|
|
51,008
|
|
|
|
53,642
|
|
Long-term debt retired
|
|
|
(20
|
)
|
|
|
(26,012
|
)
|
Debt issuance costs
|
|
|
295
|
|
|
|
|
|
Notes payable issued (retired)net
|
|
|
(7,298
|
)
|
|
|
94,332
|
|
Dividends on common stock and preferred stock
|
|
|
(18,801
|
)
|
|
|
(18,069
|
)
|
Other financing activitiesnet
|
|
|
(791
|
)
|
|
|
(803
|
)
|
|
Net Cash Provided by Financing Activities
|
|
|
25,277
|
|
|
|
107,284
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Capital expenditures (excluding Allowance for Funds Used During Construction)
|
|
|
(28,948
|
)
|
|
|
(31,574
|
)
|
|
Net Cash Used in Investing Activities
|
|
|
(28,948
|
)
|
|
|
(31,574
|
)
|
|
INCREASE IN CASH AND CASH EQUIVALENTS
|
|
|
5,777
|
|
|
|
2,671
|
|
Cash and Cash Equivalents at Beginning of Year
|
|
|
7,845
|
|
|
|
6,164
|
|
|
Cash and Cash Equivalents at End of Period
|
|
$
|
13,622
|
|
|
$
|
8,835
|
|
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
$
|
1,836
|
|
|
$
|
1,869
|
|
Interest paid
|
|
$
|
490
|
|
|
$
|
2,791
|
|
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Capital Expenditures included in accounts payable and other accrued liabilities
|
|
$
|
(1,847
|
)
|
|
$
|
(4,441
|
)
|
The accompanying notes are an integral part of these statements.
6
Washington Gas Light Company
Balance Sheets (Unaudited)
Part IFinancial Information
Item 1Financial Statements (continued)
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
September 30,
|
(In thousands)
|
|
2009
|
|
2009
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Property, Plant and Equipment
|
|
|
|
|
|
|
|
|
At original cost
|
|
$
|
3,219,100
|
|
|
$
|
3,206,576
|
|
Accumulated depreciation and amortization
|
|
|
(957,431
|
)
|
|
|
(950,706
|
)
|
|
Net property, plant and equipment
|
|
|
2,261,669
|
|
|
|
2,255,870
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
8,858
|
|
|
|
5,160
|
|
Receivables
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
144,184
|
|
|
|
70,382
|
|
Gas costs and other regulatory assets
|
|
|
65,235
|
|
|
|
77,173
|
|
Unbilled revenues
|
|
|
136,868
|
|
|
|
20,905
|
|
Allowance for doubtful accounts
|
|
|
(15,663
|
)
|
|
|
(18,617
|
)
|
|
Net receivables
|
|
|
330,624
|
|
|
|
149,843
|
|
|
Materials and suppliesprincipally at average cost
|
|
|
24,313
|
|
|
|
23,573
|
|
Storage gasat cost (first-in, first-out)
|
|
|
146,052
|
|
|
|
168,800
|
|
Other prepayments
|
|
|
26,101
|
|
|
|
39,690
|
|
Receivables from associated companies
|
|
|
3,261
|
|
|
|
10,441
|
|
Other
|
|
|
7,824
|
|
|
|
11,531
|
|
|
Total current assets
|
|
|
547,033
|
|
|
|
409,038
|
|
|
Deferred Charges and Other Assets
|
|
|
|
|
|
|
|
|
Regulatory assets
|
|
|
|
|
|
|
|
|
Gas costs
|
|
|
76,443
|
|
|
|
13,996
|
|
Pension and other post-retirement benefits
|
|
|
305,799
|
|
|
|
306,918
|
|
Other
|
|
|
52,756
|
|
|
|
53,904
|
|
Other
|
|
|
11,742
|
|
|
|
11,846
|
|
|
Total deferred charges and other assets
|
|
|
446,740
|
|
|
|
386,664
|
|
|
Total Assets
|
|
$
|
3,255,442
|
|
|
$
|
3,051,572
|
|
|
|
|
|
|
|
|
|
|
|
CAPITALIZATION AND LIABILITIES
|
|
|
|
|
|
|
|
|
Capitalization
|
|
|
|
|
|
|
|
|
Common shareholders equity
|
|
$
|
988,712
|
|
|
$
|
966,439
|
|
Preferred stock
|
|
|
28,173
|
|
|
|
28,173
|
|
Long-term debt
|
|
|
612,795
|
|
|
|
561,830
|
|
|
Total capitalization
|
|
|
1,629,680
|
|
|
|
1,556,442
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Current maturities of long-term debt
|
|
|
82,594
|
|
|
|
82,592
|
|
Notes payable
|
|
|
68,320
|
|
|
|
124,811
|
|
Accounts payable and other accrued liabilities
|
|
|
164,966
|
|
|
|
125,295
|
|
Wages payable
|
|
|
15,473
|
|
|
|
14,622
|
|
Accrued interest
|
|
|
12,830
|
|
|
|
3,598
|
|
Dividends declared
|
|
|
18,066
|
|
|
|
18,008
|
|
Customer deposits and advance payments
|
|
|
60,310
|
|
|
|
52,908
|
|
Gas costs and other regulatory liabilities
|
|
|
85,459
|
|
|
|
14,842
|
|
Deferred income taxes
|
|
|
5,917
|
|
|
|
9,285
|
|
Accrued taxes
|
|
|
18,656
|
|
|
|
15,434
|
|
Payables to associated companies
|
|
|
37,977
|
|
|
|
11,390
|
|
Other
|
|
|
13,912
|
|
|
|
12,929
|
|
|
Total current liabilities
|
|
|
584,480
|
|
|
|
485,714
|
|
|
|
|
|
|
|
|
|
|
|
Deferred Credits
|
|
|
|
|
|
|
|
|
Unamortized investment tax credits
|
|
|
10,239
|
|
|
|
10,462
|
|
Deferred income taxes
|
|
|
354,545
|
|
|
|
326,921
|
|
Accrued pensions and benefits
|
|
|
272,370
|
|
|
|
271,859
|
|
Asset retirement obligations
|
|
|
32,084
|
|
|
|
31,627
|
|
Regulatory liabilities
|
|
|
|
|
|
|
|
|
Accrued asset removal costs
|
|
|
322,934
|
|
|
|
319,173
|
|
Other
|
|
|
13,984
|
|
|
|
14,307
|
|
Other
|
|
|
35,126
|
|
|
|
35,067
|
|
|
Total deferred credits
|
|
|
1,041,282
|
|
|
|
1,009,416
|
|
|
Commitments and Contingencies (Note 12)
|
|
|
|
|
|
|
|
|
|
Total Capitalization and Liabilities
|
|
$
|
3,255,442
|
|
|
$
|
3,051,572
|
|
|
The accompanying notes are an integral part of these statements.
7
Washington Gas Light Company
Statements of Income (Unaudited)
Part IFinancial Information
Item 1Financial Statements (continued)
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
December 31,
|
|
(In thousands, except per share data)
|
|
2009
|
|
|
2008
|
|
|
OPERATING REVENUES
|
|
|
|
|
|
|
|
|
Utility
|
|
$
|
398,864
|
|
|
$
|
530,640
|
|
Non-utility
|
|
|
7
|
|
|
|
2
|
|
|
Total Operating Revenues
|
|
|
398,871
|
|
|
|
530,642
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
Utility cost of gas
|
|
|
205,609
|
|
|
|
314,943
|
|
Operation and maintenance
|
|
|
63,853
|
|
|
|
62,284
|
|
Depreciation and amortization
|
|
|
23,714
|
|
|
|
23,621
|
|
General taxes and other assessments
|
|
|
29,817
|
|
|
|
29,524
|
|
|
Total Operating Expenses
|
|
|
322,993
|
|
|
|
430,372
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME
|
|
|
75,878
|
|
|
|
100,270
|
|
Other Income (Expenses)Net
|
|
|
351
|
|
|
|
(199
|
)
|
Interest Expense
|
|
|
|
|
|
|
|
|
Interest on long-term debt
|
|
|
9,895
|
|
|
|
9,945
|
|
AFUDC and other net
|
|
|
(194
|
)
|
|
|
1,831
|
|
|
Total Interest Expense
|
|
|
9,701
|
|
|
|
11,776
|
|
|
INCOME BEFORE INCOME TAXES
|
|
|
66,528
|
|
|
|
88,295
|
|
INCOME TAX EXPENSE
|
|
|
25,678
|
|
|
|
34,367
|
|
|
NET INCOME BEFORE PREFERRED STOCK DIVIDENDS
|
|
$
|
40,850
|
|
|
$
|
53,928
|
|
Dividends on preferred stock
|
|
|
330
|
|
|
|
330
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME APPLICABLE TO COMMON STOCK
|
|
$
|
40,520
|
|
|
$
|
53,598
|
|
|
The accompanying notes are an integral part of these statements.
8
Washington Gas Light Company
Statements of Cash Flows (Unaudited)
Part IFinancial Information
Item 1Financial Statements (continued)
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
December 31,
|
|
(In thousands)
|
|
2009
|
|
|
2008
|
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net income before preferred stock dividends
|
|
$
|
40,850
|
|
|
$
|
53,928
|
|
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
23,714
|
|
|
|
23,621
|
|
Amortization of:
|
|
|
|
|
|
|
|
|
Other regulatory assets and liabilitiesnet
|
|
|
911
|
|
|
|
744
|
|
Debt related costs
|
|
|
233
|
|
|
|
187
|
|
Deferred income taxesnet
|
|
|
24,060
|
|
|
|
28,290
|
|
Accrued/deferred pension cost
|
|
|
1,586
|
|
|
|
(1,035
|
)
|
Compensation expense related to equity awards
|
|
|
572
|
|
|
|
175
|
|
Provision for doubtful accounts
|
|
|
2,932
|
|
|
|
3,512
|
|
Other non-cash charges (credits)net
|
|
|
(399
|
)
|
|
|
(606
|
)
|
CHANGES IN ASSETS AND LIABILITIES
|
|
|
|
|
|
|
|
|
Accounts receivable, unbilled revenues and receivables from associated companies
|
|
|
(188,471
|
)
|
|
|
(269,676
|
)
|
Gas costs and other regulatory assets/liabilitiesnet
|
|
|
82,555
|
|
|
|
100,331
|
|
Storage gas
|
|
|
22,748
|
|
|
|
41,442
|
|
Other prepayments
|
|
|
13,894
|
|
|
|
653
|
|
Accounts payable and other accrued liabilities, including payables to associated companies
|
|
|
68,109
|
|
|
|
70,982
|
|
Wages payable
|
|
|
851
|
|
|
|
1,774
|
|
Customer deposits and advance payments
|
|
|
7,402
|
|
|
|
(544
|
)
|
Accrued taxes
|
|
|
3,222
|
|
|
|
9,142
|
|
Accrued interest
|
|
|
9,232
|
|
|
|
8,941
|
|
Other current assets
|
|
|
2,967
|
|
|
|
(11,203
|
)
|
Other current liabilities
|
|
|
983
|
|
|
|
(5,188
|
)
|
Deferred gas costsnet
|
|
|
(62,447
|
)
|
|
|
(45,062
|
)
|
Deferred assetsother
|
|
|
855
|
|
|
|
(3,651
|
)
|
Deferred liabilitiesother
|
|
|
(2,668
|
)
|
|
|
(8,526
|
)
|
Othernet
|
|
|
425
|
|
|
|
1,437
|
|
|
Net Cash Provided by (Used in) Operating Activities
|
|
|
54,116
|
|
|
|
(332
|
)
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Long-term debt issued
|
|
|
51,008
|
|
|
|
53,642
|
|
Long-term debt retired
|
|
|
(20
|
)
|
|
|
(25,018
|
)
|
Debt issuance costs
|
|
|
295
|
|
|
|
|
|
Notes payable issued (retired)net
|
|
|
(56,491
|
)
|
|
|
20,293
|
|
Dividends on common stock and preferred stock
|
|
|
(18,051
|
)
|
|
|
(17,695
|
)
|
Other financing activitiesnet
|
|
|
(685
|
)
|
|
|
(791
|
)
|
|
Net Cash Provided by (Used in) Financing Activities
|
|
|
(23,944
|
)
|
|
|
30,431
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Capital expenditures (excluding Allowance for Funds Used During Construction)
|
|
|
(26,474
|
)
|
|
|
(29,288
|
)
|
|
Net Cash Used in Investing Activities
|
|
|
(26,474
|
)
|
|
|
(29,288
|
)
|
|
INCREASE IN CASH AND CASH EQUIVALENTS
|
|
|
3,698
|
|
|
|
811
|
|
Cash and Cash Equivalents at Beginning of Year
|
|
|
5,160
|
|
|
|
3,680
|
|
|
Cash and Cash Equivalents at End of Period
|
|
$
|
8,858
|
|
|
$
|
4,491
|
|
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
$
|
|
|
|
$
|
1,460
|
|
Interest paid
|
|
$
|
433
|
|
|
$
|
2,397
|
|
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Capital Expenditures included in accounts payable and other accrued liabilities
|
|
$
|
(1,851
|
)
|
|
$
|
(4,064
|
)
|
The accompanying notes are an integral part of these statements.
9
WGL Holdings, Inc.
Washington Gas Light Company
Part IFinancial Information
Item 1Financial Statements (continued)
Notes to Consolidated Financial Statements (Unaudited)
NOTE
1. ACCOUNTING POLICIES
Basis of Presentation
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 Capitol Energy
Ventures Corp. (CEV), formerly known as 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.
The interim consolidated financial statements have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission (SEC). Therefore, certain financial
information and note disclosures accompanying annual financial statements prepared in accordance
with generally accepted accounting principles in the United States of America (GAAP) are omitted in
this interim report pursuant to the SEC rules and regulations. The interim consolidated financial
statements and accompanying notes should be read in conjunction with the combined Annual Report on
Form 10-K for WGL Holdings and Washington Gas for the fiscal year ended September 30, 2009. Due to
the seasonal nature of Washington Gass and WGEServices businesses, the results of operations for
the periods presented in this report are not necessarily indicative of actual results for the full
fiscal years ending September 30, 2010 and 2009 of either WGL Holdings or Washington Gas.
The accompanying unaudited consolidated financial statements for WGL Holdings and Washington
Gas reflect all normal recurring adjustments that are necessary, in our opinion, to present fairly
the results of operations in accordance with GAAP.
For a description of our accounting policies, refer to Note 1 of the Notes to Consolidated
Financial Statements of the combined Annual Report on Form 10-K for WGL Holdings and Washington Gas
for the fiscal year ended September 30, 2009. See
Accounting Standards Adopted in the Current
Period
below for changes to these policies subsequent to September 30, 2009.
Accounting Standards Adopted in the Current Period
Fair Value.
In August 2009, the Financial Accounting Standards Board (FASB) issued Accounting
Standards Update (ASU) 2009-05,
Fair Value Measurements and DisclosuresMeasuring Liabilities at
Fair Value
(ASU 2009-05). This ASU provides amendments to Accounting Standards Codification (ASC) Subtopic 820-10,
Fair Value
Measurements and DisclosuresOverall
, for the fair value measurement of liabilities. ASU 2009-05
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 2009-05 is effective for us on October 1, 2009. The adoption of this guidance did not have a
material effect on our consolidated financial statements.
Other.
Effective October 1, 2009, we adopted ASC Topic 810,
Noncontrolling Interests in
Consolidated Financial Statements, an Amendment of ARB No. 51
. ASC Topic 810 establishes accounting
and reporting standards for the non-controlling interest in a subsidiary and for the
deconsolidation of a subsidiary. The adoption of this standard resulted in reclassifying
Washington Gass preferred stock dividends on the Statement of Income to present consolidated net
income attributable to
both the shareholders of WGL Holdings Inc. and to the noncontrolling interest of the
Washington Gass preferred shareholders. In addition, the Statements of Cash Flows have been changed to include income from all
equity holders as a source of cash in Operating Activities and to reflect the distribution of preferred stock dividends as a use of
cash in Financing Activities. The adoption of this standard had no other effect on our
consolidated financial statements.
10
WGL Holdings, Inc.
Washington Gas Light Company
Part IFinancial Information
Item 1Financial Statements (continued)
Notes to Consolidated Financial Statements (Unaudited)
Other Newly Issued Accounting Standards
Postretirement 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 January 2010, the FASB issued ASU 2010-06,
Improving Disclosures about Fair
Value Measurements.
ASU 2010-06 amends ASC Topic 820 to require the following additional
disclosures regarding fair value measurements:
(i)
the amounts of transfers between Level 1 and
Level 2 of the fair value hierarchy;
(ii)
reasons for any transfers in or out of Level 3 of the
fair value hierarchy and
(iii)
the inclusion of information about purchases, sales, issuances and
settlements in the reconciliation of recurring Level 3 measurements. ASU 2010-06 also amends ASC
Topic 820 to clarify existing disclosure requirements, requiring fair value disclosures by class of
assets and liabilities rather than by major category and the disclosure of valuation techniques and
inputs used to determine the fair value of Level 2 and Level 3 assets and liabilities. With the
exception of disclosures relating to purchases, sales issuances and settlements of recurring Level
3 measurements, ASU 2010-06 is effective for us on January 1, 2010. The disclosure requirements
related to purchases, sales, issuances and settlements of recurring Level 3 measurements will be
effective for us on October 1, 2011. We are currently evaluating the possible effect of this
standard on our consolidated financial statements.
NOTE
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.
|
|
(In thousands)
|
|
Dec. 31, 2009
|
|
|
Sept. 30, 2009
|
|
|
Accounts payable trade
|
|
$
|
242,961
|
|
|
$
|
174,098
|
|
Employee benefits and payroll accruals
|
|
|
16,692
|
|
|
|
28,813
|
|
Other accrued liabilities
|
|
|
11,632
|
|
|
|
10,618
|
|
|
Total
|
|
$
|
271,285
|
|
|
$
|
213,529
|
|
|
Washington Gas Light Company
|
|
(In thousands)
|
|
Dec. 31, 2009
|
|
|
Sept. 30, 2009
|
|
|
Accounts payable trade
|
|
$
|
139,752
|
|
|
$
|
90,630
|
|
Employee benefits and payroll accruals
|
|
|
15,991
|
|
|
|
26,530
|
|
Other accrued liabilities
|
|
|
9,223
|
|
|
|
8,135
|
|
|
Total
|
|
$
|
164,966
|
|
|
$
|
125,295
|
|
|
NOTE 3. SHORT-TERM DEBT
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
11
WGL Holdings, Inc.
Washington Gas Light Company
Part IFinancial Information
Item 1Financial Statements (continued)
Notes to Consolidated Financial Statements (Unaudited)
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 December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
Committed Credit Available
(In millions)
|
|
|
WGL Holdings
|
|
|
Washington Gas
|
|
|
Total Consolidated
|
|
|
Committed credit agreements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unsecured revolving credit facility, expires August 3, 2012
(a)
|
|
$
|
400.0
|
|
|
$
|
300.0
|
|
|
$
|
700.0
|
|
Less: Commercial Paper
|
|
|
(108.3
|
)
|
|
|
(68.3
|
)
|
|
|
(176.6
|
)
|
|
Net committed credit available
|
|
$
|
291.7
|
|
|
$
|
231.7
|
|
|
$
|
523.4
|
|
|
|
|
|
(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
for a total of $400 million.
|
At December 31, 2009 and September 30, 2009, WGL Holdings and its subsidiaries had
outstanding notes payable in the form of commercial paper of $176.6 million and $183.8 million,
respectively, at a weighted average interest rate of 0.24% and 0.27%, respectively. Of the
outstanding notes payable balance at December 31, 2009, $108.3 million was issued by WGL Holdings
and $68.3 million was issued by Washington Gas. Of the outstanding notes payable balance at
September 30, 2009, $59.0 million was issued by WGL Holdings and $124.8 million was issued by
Washington Gas.
As of December 31, 2009 and September 30, 2009, respectively, there were no outstanding bank
loans from WGL Holdings or Washington Gass revolving credit facilities.
NOTE
4. LONG-TERM DEBT
UNSECURED NOTES
Washington Gas issues unsecured Medium-Term Notes (MTNs) and private placement notes 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.
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%.
At December 31, 2009, Washington Gas had the capacity, under a shelf registration to issue up
to $450.0 million of additional MTNs. At December 31, 2009 and September 30, 2009, outstanding
notes were $689.0 million and $639.0 million, respectively. At December 31, 2009 and September 30,
2009, the weighted average interest rate on all outstanding notes was 5.73% and 5.82%,
respectively.
NOTE
5. COMMON SHAREHOLDERS EQUITY
The
tables below reflect the changes in Common shareholders equity for WGL Holdings and
Washington Gas for the three months ended December 31, 2009.
12
WGL Holdings, Inc.
Washington Gas Light Company
Part IFinancial Information
Item 1Financial Statements (continued)
Notes to Consolidated Financial Statements (Unaudited)
WGL Holdings, Inc.
Components of Common Shareholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
|
|
|
|
|
Common Stock
|
|
Paid-In
|
|
Retained
|
|
Loss, Net of
|
|
|
(In thousands)
|
|
Amount
|
|
Capital
|
|
Earnings
|
|
Taxes
|
|
Total
|
|
Balance at September 30, 2009
|
|
$
|
514,501
|
|
|
$
|
13,516
|
|
|
$
|
576,122
|
|
|
$
|
(6,441
|
)
|
|
$
|
1,097,698
|
|
Net income applicable to common stock
|
|
|
|
|
|
|
|
|
|
|
47,641
|
|
|
|
|
|
|
|
47,641
|
|
Post-retirement benefits adjustment, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(370
|
)
|
|
|
(370
|
)
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47,271
|
|
Stock-based compensation
|
|
|
4,720
|
|
|
|
(4,015
|
)
|
|
|
|
|
|
|
|
|
|
|
705
|
|
Dividends declared on common stock ($0.3675 per share)
|
|
|
|
|
|
|
|
|
|
|
(18,529
|
)
|
|
|
|
|
|
|
(18,529
|
)
|
|
Balance at December 31, 2009
|
|
$
|
519,221
|
|
|
$
|
9,501
|
|
|
$
|
605,234
|
|
|
$
|
(6,811
|
)
|
|
$
|
1,127,145
|
|
|
|
Washington Gas Light Company
Components of Common Shareholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
|
|
|
|
|
Common Stock
|
|
Paid-In
|
|
Retained
|
|
Loss, Net of
|
|
|
(In thousands)
|
|
Amount
|
|
Capital
|
|
Earnings
|
|
Taxes
|
|
Total
|
|
Balance at September 30, 2009
|
|
$
|
46,479
|
|
|
$
|
469,026
|
|
|
$
|
457,375
|
|
|
$
|
(6,441
|
)
|
|
$
|
966,439
|
|
Net income before preferred stock dividends
|
|
|
|
|
|
|
|
|
|
|
40,850
|
|
|
|
|
|
|
|
40,850
|
|
Post-retirement benefits adjustment, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(370
|
)
|
|
|
(370
|
)
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,480
|
|
Stock-based compensation
|
|
|
|
|
|
|
(98
|
)
|
|
|
|
|
|
|
|
|
|
|
(98
|
)
|
Dividends declared:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
|
|
|
|
|
|
|
|
(17,779
|
)
|
|
|
|
|
|
|
(17,779
|
)
|
Preferred Stock
|
|
|
|
|
|
|
|
|
|
|
(330
|
)
|
|
|
|
|
|
|
(330
|
)
|
|
Balance at December 31, 2009
|
|
$
|
46,479
|
|
|
$
|
468,928
|
|
|
$
|
480,116
|
|
|
$
|
(6,811
|
)
|
|
$
|
988,712
|
|
|
WGL
Holdings had 50,290,121 and 50,143,484 shares issued of common stock
at December 31, 2009 and September 30, 2009, respectively. Washington
Gas had 46,479,536 shares issued at both December 31, 2009 and September
30, 2009.
NOTE
6. COMPREHENSIVE INCOME
The tables below reflect the components of Comprehensive income for the three months ended
December 31, 2009 and 2008 for WGL Holdings and Washington Gas. Items that are excluded from Net
income and charged directly to Common shareholders equity are recorded in Other comprehensive
income, net of taxes. The amount of Accumulated other comprehensive loss, net of taxes is
included in Common shareholders equity (refer to Note 5
Common Shareholders Equity
).
|
|
|
|
|
|
|
|
|
WGL Holdings, Inc.
Components of Comprehensive Income
|
|
|
|
Three Months Ended
|
|
|
|
December 31,
|
|
|
(In thousands)
|
|
2009
|
|
|
2008
|
|
|
Net income applicable to common stock
|
|
$
|
47,641
|
|
|
$
|
54,625
|
|
Other comprehensive income, net of taxes
(a)
|
|
|
(370
|
)
|
|
|
49
|
|
|
Comprehensive income
|
|
$
|
47,271
|
|
|
$
|
54,674
|
|
|
|
|
|
(a)
|
|
Amounts relate to postretirement benefits.
|
|
|
|
|
|
|
|
|
|
Washington Gas Light Company
Components of Comprehensive Income
|
|
|
|
Three Months Ended
|
|
|
|
December 31,
|
|
|
(In thousands)
|
|
2009
|
|
|
2008
|
|
|
Net income before preferred stock dividends
|
|
$
|
40,850
|
|
|
$
|
53,928
|
|
Other comprehensive income, net of taxes
(a)
|
|
|
(370
|
)
|
|
|
49
|
|
|
Comprehensive income
|
|
$
|
40,480
|
|
|
$
|
53,977
|
|
|
|
|
|
(a)
|
|
Amounts relate to postretirement benefits.
|
13
WGL Holdings, Inc.
Washington Gas Light Company
Part IFinancial Information
Item 1Financial Statements (continued)
Notes to Consolidated Financial Statements
(Unaudited)
NOTE
7. EARNINGS PER SHARE
Basic earnings per share (EPS) is computed by dividing net income applicable to common stock 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. The following table reflects the
computation of our basic and diluted EPS for WGL Holdings for the three months ended December 31,
2009 and 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted EPS
|
|
|
Net Income
|
|
|
|
|
|
|
|
|
|
|
Applicable to
|
|
|
|
|
|
|
Per Share
|
|
(In thousands, except per share data)
|
|
Common Stock
|
|
|
Shares
|
|
|
Amount
|
|
|
Three Months Ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS
|
|
$
|
47,641
|
|
|
|
50,241
|
|
|
$
|
0.95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation plans
|
|
|
|
|
|
|
188
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS
|
|
$
|
47,641
|
|
|
|
50,429
|
|
|
$
|
0.94
|
|
|
Three Months Ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS
|
|
$
|
54,625
|
|
|
|
50,022
|
|
|
$
|
1.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation plans
|
|
|
|
|
|
|
186
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS
|
|
$
|
54,625
|
|
|
|
50,208
|
|
|
$
|
1.09
|
|
|
For the three months ended December 31, 2009, we did not exclude any outstanding shares
pursuant to stock-based compensation plans in the calculation of diluted EPS. For the three months
ended December 31, 2008, we had weighted average outstanding stock options totaling approximately
697,000 shares, which were not included in the calculation of diluted EPS as their effect would be
anti-dilutive.
NOTE
8. DERIVATIVE AND WEATHER-RELATED INSTRUMENTS
DERIVATIVE INSTRUMENTS
To the extent that the information below is being disclosed under certain requirements of ASC
Topic 815, no prior period information is presented. Under this guidance, only information after
January 1, 2009 is required to be disclosed. Therefore, only December 31,
2009 balances are being disclosed for the balance sheet information and, only activity for the
three months ended December 31, 2009 is being disclosed for the income statement information.
Regulated Utility Operations
Washington Gas enters into contracts related to the sale and purchase of natural gas that
qualify as derivative instruments and are accounted for under ASC Topic 815. 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
prices between different geographic locations and
(ii)
its storage capacity
assets to benefit from favorable natural gas prices between different time periods. As
part of this asset optimization program, Washington Gas enters into physical and financial
derivative transactions in the form of forwards, swaps and option contracts to lock-in operating
margins that Washington Gas will ultimately realize. Regulatory sharing mechanisms in all three
jurisdictions allow
14
WGL Holdings, Inc.
Washington Gas Light Company
Part IFinancial Information
Item 1Financial Statements (continued)
Notes to Consolidated Financial Statements (Unaudited)
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. 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 three
months ended December 31, 2009 were a loss of $498,000, including unrealized losses of $4.0 million
on derivatives.
Managing Price Risk.
Washington Gas enters into forward contracts, option contracts, financial
swap contracts and other contracts that are accounted for as derivative instruments as a part of
managing price risk associated with its natural gas supply to utility customers. 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
Our non-regulated retail energy-marketing subsidiary, WGEServices, also 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.
15
WGL Holdings, Inc.
Washington Gas Light Company
Part IFinancial Information
Item 1Financial Statements (continued)
Notes to Consolidated Financial Statements (Unaudited)
At December 31, 2009, the absolute notional amounts of our derivatives are as follows:
Absolute Notional Amounts
of Open Positions on Derivative instruments
|
|
|
|
|
|
|
|
|
(In millions)
|
|
Notional Amounts
|
Derivative transactions
|
|
WGL Holdings
|
|
Washington Gas
|
|
Natural Gas
(in therms)
|
|
|
|
|
|
|
|
|
Asset Optimization
|
|
|
1,479.0
|
|
|
|
1,479.0
|
|
Retail sales
|
|
|
7.0
|
|
|
|
|
|
Other risk-management activities
|
|
|
478.6
|
|
|
|
271.6
|
|
Electricity
(in kWhs)
|
|
|
|
|
|
|
|
|
Retail sales
|
|
|
1,980.0
|
|
|
|
|
|
Other risk-management activities
|
|
|
9,008.0
|
|
|
|
|
|
Interest Rate Swap
(notional amount in millions)
|
|
$
|
24.0
|
|
|
$
|
24.0
|
|
|
The following tables present the balance sheet classification for all derivative instruments.
WGL Holdings, Inc.
Balance Sheet Classification of Derivative Instruments
As of December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
Derivative
|
|
Derivative
|
|
Netting of
|
|
|
Balance Sheet location
|
|
Assets
|
|
Liabilities
|
|
Collateral
|
|
Total
|
|
Other current assets
|
|
$
|
19.5
|
|
|
$
|
(6.3
|
)
|
|
$
|
|
|
|
$
|
13.2
|
|
Deferred charges and other assetsother
|
|
|
17.7
|
|
|
|
(8.4
|
)
|
|
|
|
|
|
|
9.3
|
|
Other current liabilities
|
|
|
5.7
|
|
|
|
(34.0
|
)
|
|
|
4.3
|
|
|
|
(24.0
|
)
|
Deferred credits other
|
|
|
29.8
|
|
|
|
(59.0
|
)
|
|
|
4.5
|
|
|
|
(24.7
|
)
|
|
Total
|
|
$
|
72.7
|
|
|
$
|
(107.7
|
)
|
|
$
|
8.8
|
|
|
$
|
(26.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Washington Gas Light Company
Balance Sheet Classification of Derivative Instruments
As of December 31, 2009
|
(In millions)
|
|
|
|
|
Derivative
|
|
Derivative
|
|
Netting of
|
|
|
Balance Sheet location
|
|
Assets
|
|
Liabilities
|
|
Collateral
|
|
Total
|
|
Other current assets
|
|
$
|
14.1
|
|
|
$
|
(6.3
|
)
|
|
$
|
|
|
|
$
|
7.8
|
|
Deferred charges and other assetsother
|
|
|
9.5
|
|
|
|
(8.3
|
)
|
|
|
|
|
|
|
1.2
|
|
Other current liabilities
|
|
|
3.0
|
|
|
|
(11.1
|
)
|
|
|
|
|
|
|
(8.1
|
)
|
Deferred credits other
|
|
|
28.8
|
|
|
|
(33.4
|
)
|
|
|
|
|
|
|
(4.6
|
)
|
|
Total
|
|
$
|
55.4
|
|
|
$
|
(59.1
|
)
|
|
$
|
|
|
|
$
|
(3.7
|
)
|
|
16
WGL Holdings, Inc.
Washington Gas Light Company
Part IFinancial Information
Item 1Financial Statements (continued)
Notes to Consolidated Financial Statements (Unaudited)
The following tables present all gains and losses associated with derivative instruments
for the three months ended December 31, 2009.
Gains and Losses on Derivative Instruments
Three Months Ended December 31, 2009
|
|
|
|
|
|
|
|
|
(In millions)
|
|
WGL Holdings
|
|
|
Washington Gas
|
|
|
Recorded to income
|
|
|
|
|
|
|
|
|
Operating revenues non-utility
|
|
$
|
2.5
|
|
|
$
|
|
|
Utility cost of gas
|
|
|
1.5
|
|
|
|
1.5
|
|
Non-utility cost of energy-related sales
|
|
|
(3.2
|
)
|
|
|
|
|
Recorded to regulatory assets
|
|
|
|
|
|
|
|
|
Gas costs
|
|
|
(4.9
|
)
|
|
|
(4.9
|
)
|
Other
|
|
|
0.9
|
|
|
|
0.9
|
|
|
Total
|
|
$
|
(3.2
|
)
|
|
$
|
(2.5
|
)
|
|
Certain of Washington Gass derivative instruments contain contract provisions that would
require collateral to be posted if the credit rating of Washington Gass debt falls below certain
levels. Similarly, 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. At
December 31, 2009, WGEServices had posted $8.8 million of collateral related to its derivative
liabilities that contained credit-related contingent features. Washington Gas was not required to
post any collateral at December 31, 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 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 December 31, 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
|
|
$
|
81.8
|
|
|
$
|
49.0
|
|
Maximum potential collateral requirements
|
|
|
34.2
|
|
|
|
3.4
|
|
|
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 to/from
each counterparty to be offset. At December 31, 2009, four counterparties each represented over 10%
of Washington Gass credit exposure to wholesale derivative counterparties, for a total credit risk
of $15.6 million related to those counterparties. WGEServices had three counterparties, each representing
over 10% of its credit exposure to wholesale counterparties for a credit risk of $1.3
million at December 31, 2009.
17
WGL Holdings, Inc.
Washington Gas Light Company
Part IFinancial Information
Item 1Financial Statements (continued)
Notes to Consolidated Financial Statements (Unaudited)
WEATHER-RELATED INSTRUMENTS
Regulated Utility Operations
On September 21, 2009, Washington Gas executed an heating degree day (HDD) derivative contract to manage its
financial 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 to the counterparty the right to receive the benefit when
weather is colder than normal. This derivative contract resulted in a payment to Washington Gas of
$2.1 million.
Our weather protection instruments are accounted for under ASC Topic 815. For weather
derivative contracts, when we pay a net premium, benefits or losses are recognized to the extent
actual HDDs are less than or greater than the contracted HDDs. The cost of our weather-related
instruments is amortized based on the pattern of normal HDDs over the coverage period. For weather
derivative contracts, when we receive a net option premium, we record the receipt as a liability and mark
the contract to fair value each period. The expenses or benefits that are derived from our weather-related
instruments are not considered in establishing the retail rates of Washington Gas.
During
the three months ended December 31, 2009 and 2008, Washington
Gas recorded total pre-tax
losses of $1.4 million and $1.8 million, respectively, including premium
costs and any fair value adjustments related to its weather derivatives. Benefits and expenses associated with Washington Gass
weather-related instruments are recorded to Operation and maintenance expense.
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. For the three months ended
December 31, 2009 and 2008, WGEServices recorded pre-tax expenses of $283,000 and $448,000,
respectively, related to these derivatives.
NOTE 9. FAIR VALUE MEASUREMENTS
We measure the fair value of our financial assets and liabilities in accordance with ASC Topic
820. 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 net option premium payment
and
(iii)
long-term debt outstanding that is required to be disclosed at fair value.
The following table sets forth financial instruments recorded at fair value
as of December 31, 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 December 31, 2009
|
(In millions)
|
|
WGL Holdings
|
|
Washington Gas
|
|
|
Assets
|
|
Liabilities
|
|
Assets
|
|
Liabilities
|
|
|
|
Level 1
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Level 2
|
|
|
25.4
|
|
|
|
(25.5
|
)
|
|
|
23.7
|
|
|
|
(19.6
|
)
|
Level 3
|
|
|
47.3
|
|
|
|
(85.7
|
)
|
|
|
31.7
|
|
|
|
(43.0
|
)
|
Counterparty and cash collateral netting
|
|
|
(50.2
|
)
|
|
|
59.0
|
|
|
|
(46.4
|
)
|
|
|
46.4
|
|
|
Total
|
|
$
|
22.5
|
|
|
$
|
(52.2
|
)
|
|
$
|
9.0
|
|
|
$
|
(16.2
|
)
|
|
18
WGL Holdings, Inc.
Washington Gas Light Company
Part IFinancial Information
Item 1Financial Statements (continued)
Notes to Consolidated Financial Statements (Unaudited)
The following table is a summary of the changes in the fair value of our energy-related
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 three month period ended
December 31, 2009.
|
|
|
|
|
|
|
|
|
Reconciliation of Fair Value Measurements Using Significant Level 3 Inputs
|
(In millions)
|
|
WGL Holdings
|
|
|
Washington Gas
|
|
|
Balance at October 1, 2009
|
|
$
|
(27.6
|
)
|
|
$
|
(6.3
|
)
|
Realized and unrealized gains (losses)
|
|
|
|
|
|
|
|
|
Recorded to income
|
|
|
(16.6
|
)
|
|
|
(1.6
|
)
|
Recorded to regulatory assets gas costs
|
|
|
(2.5
|
)
|
|
|
(2.5
|
)
|
Transfers in
and/or out of Level 3
(a)
|
|
|
(2.1
|
)
|
|
|
(2.1
|
)
|
Purchases and settlements, net
|
|
|
10.4
|
|
|
|
1.2
|
|
|
Balance at December 31, 2009
|
|
$
|
(38.4
|
)
|
|
$
|
(11.3
|
)
|
|
|
|
|
(a)
|
|
Represents weather derivative.
|
The table below sets forth the line items on the Statements of Income of the amounts
recorded to income for the three months ended December 31, 2009, related to fair value measurements
using significant level 3 inputs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized and Unrealized Gains (Losses) Recorded to Income for Level 3 Measurements
|
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
|
December 31, 2009
|
|
|
December 31, 2008
|
|
(In millions)
|
|
WGL Holdings
|
|
|
Washington Gas
|
|
|
WGL Holdings
|
|
|
Washington Gas
|
|
|
Operating revenues non-utility
|
|
$
|
2.5
|
|
|
$
|
|
|
|
$
|
4.5
|
|
|
$
|
|
|
Utility cost of gas
|
|
|
(0.2
|
)
|
|
|
(0.2
|
)
|
|
|
4.7
|
|
|
|
4.7
|
|
Non-utility cost of energy-related sales
|
|
|
(18.9
|
)
|
|
|
(1.4
|
)
|
|
|
(6.6
|
)
|
|
|
|
|
|
Total
|
|
$
|
(16.6
|
)
|
|
$
|
(1.6
|
)
|
|
$
|
2.6
|
|
|
$
|
4.7
|
|
|
Unrealized gains (losses) for the three months ended December 31, 2009 attributable to
derivative assets and liabilities measured using significant Level 3 inputs at December 31, 2009
were recorded as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized Gains (Losses) Recorded for Level 3 Measurements
|
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
|
December 31, 2009
|
|
|
December 31, 2008
|
|
(In millions)
|
|
WGL Holdings
|
|
|
Washington Gas
|
|
|
WGL Holdings
|
|
|
Washington Gas
|
|
|
Recorded to income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues non-utility
|
|
$
|
6.0
|
|
|
$
|
|
|
|
$
|
3.9
|
|
|
$
|
|
|
Utility cost of gas
|
|
|
(0.1
|
)
|
|
|
(0.1
|
)
|
|
|
4.6
|
|
|
|
4.6
|
|
Non-utility cost of energy-related sales
|
|
|
(7.9
|
)
|
|
|
(1.4
|
)
|
|
|
(5.2
|
)
|
|
|
|
|
Recorded to regulatory assets gas costs
|
|
|
(2.8
|
)
|
|
|
(2.8
|
)
|
|
|
4.2
|
|
|
|
4.2
|
|
|
Total
|
|
$
|
(4.8
|
)
|
|
$
|
(4.3
|
)
|
|
$
|
7.5
|
|
|
$
|
8.8
|
|
|
The following table presents the carrying amounts and estimated fair values of our
financial instruments at December 31, 2009. The carrying amount of any other financial instruments
in 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.
19
WGL Holdings, Inc.
Washington Gas Light Company
Part IFinancial Information
Item 1Financial Statements (continued)
Notes to Consolidated Financial Statements (Unaudited)
|
|
|
|
|
|
|
|
|
Fair Value of Financial Instruments
|
At December 31,
|
|
2009
|
|
|
Carrying
|
|
Fair
|
(In millions)
|
|
Amount
|
|
Value
|
|
Long-term debt
(a)
|
|
$
|
612.8
|
|
|
$
|
664.2
|
|
|
|
|
|
(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.
NOTE 10. 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 90% 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 Federal Energy Regulatory Commission (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.
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. During the quarter, Washington Gas Resources changed the
name of Washington Gas Credit Corporation to Capitol Energy Ventures Corp. to better align its name with its mission.
The same accounting policies applied in preparing our consolidated financial statements, as
discussed in Note 1
Accounting 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 three months ended December 31, 2009 and 2008.
20
WGL Holdings, Inc.
Washington Gas Light Company
Part IFinancial Information
Item 1Financial Statements (continued)
Notes to Consolidated Financial Statements (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Segment Financial Information
|
|
|
|
|
|
|
Non-Utility Operations
|
|
|
|
|
|
|
|
|
|
|
Retail Energy
|
|
Design-Build
|
|
|
|
|
|
|
(In thousands)
|
|
Regulated Utility
|
|
Marketing
|
|
Energy Systerms
|
|
Other Activities
|
|
Eliminations
|
|
Consolidated
|
|
Three Months Ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Revenues
(a)
|
|
$
|
398,864
|
|
|
$
|
333,524
|
|
|
$
|
3,362
|
|
|
$
|
5
|
|
|
$
|
(8,332
|
)
|
|
$
|
727,423
|
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Energy-Related Sales
|
|
|
205,609
|
|
|
|
310,499
|
|
|
|
2,706
|
|
|
|
|
|
|
|
(8,332
|
)
|
|
|
510,482
|
|
Operation
|
|
|
51,962
|
|
|
|
8,781
|
|
|
|
959
|
|
|
|
603
|
|
|
|
|
|
|
|
62,305
|
|
Maintenance
|
|
|
11,211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,211
|
|
Depreciation and Amortization
|
|
|
23,974
|
|
|
|
173
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
24,163
|
|
General Taxes and Other Assessments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue Taxes
|
|
|
17,407
|
|
|
|
614
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,021
|
|
Other
|
|
|
12,460
|
|
|
|
890
|
|
|
|
40
|
|
|
|
9
|
|
|
|
|
|
|
|
13,399
|
|
|
Total Operating Expenses
|
|
|
322,623
|
|
|
|
320,957
|
|
|
|
3,721
|
|
|
|
612
|
|
|
|
(8,332
|
)
|
|
|
639,581
|
|
|
Operating Income (Loss)
|
|
|
76,241
|
|
|
|
12,567
|
|
|
|
(359
|
)
|
|
|
(607
|
)
|
|
|
|
|
|
|
87,842
|
|
Other Income (Expenses)Net
|
|
|
281
|
|
|
|
19
|
|
|
|
10
|
|
|
|
120
|
|
|
|
(61
|
)
|
|
|
369
|
|
Interest Expense
|
|
|
9,701
|
|
|
|
59
|
|
|
|
|
|
|
|
58
|
|
|
|
(61
|
)
|
|
|
9,757
|
|
Income Tax Expense (Benefit)
|
|
|
25,795
|
|
|
|
5,020
|
|
|
|
(137
|
)
|
|
|
(195
|
)
|
|
|
|
|
|
|
30,483
|
|
Dividends on Washington Gas Preferred Stock
|
|
|
330
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
330
|
|
|
Net Income (Loss) Applicable to Common Stock
|
|
$
|
40,696
|
|
|
$
|
7,507
|
|
|
$
|
(212
|
)
|
|
$
|
(350
|
)
|
|
$
|
|
|
|
$
|
47,641
|
|
|
Total Assets
|
|
$
|
3,262,330
|
|
|
$
|
365,295
|
|
|
$
|
18,303
|
|
|
$
|
129,959
|
|
|
$
|
(171,031
|
)
|
|
$
|
3,604,856
|
|
|
Capital Expenditures/Investments
|
|
$
|
26,688
|
|
|
$
|
2,233
|
|
|
$
|
27
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
28,948
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Revenues
(a)
|
|
$
|
530,640
|
|
|
$
|
293,845
|
|
|
$
|
9,778
|
|
|
$
|
(16
|
)
|
|
$
|
(8,159
|
)
|
|
$
|
826,088
|
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Energy-Related Sales
|
|
|
314,943
|
|
|
|
284,939
|
|
|
|
7,299
|
|
|
|
|
|
|
|
(8,159
|
)
|
|
|
599,022
|
|
Operation
|
|
|
51,093
|
|
|
|
6,831
|
|
|
|
1,151
|
|
|
|
608
|
|
|
|
|
|
|
|
59,683
|
|
Maintenance
|
|
|
10,651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,651
|
|
Depreciation and Amortization
|
|
|
23,860
|
|
|
|
207
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
24,081
|
|
General Taxes and Other Assessments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue Taxes
|
|
|
17,278
|
|
|
|
129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,407
|
|
Other
|
|
|
12,305
|
|
|
|
678
|
|
|
|
29
|
|
|
|
8
|
|
|
|
|
|
|
|
13,020
|
|
|
Total Operating Expenses
|
|
|
430,130
|
|
|
|
292,784
|
|
|
|
8,493
|
|
|
|
616
|
|
|
|
(8,159
|
)
|
|
|
723,864
|
|
|
Operating Income (Loss)
|
|
|
100,510
|
|
|
|
1,061
|
|
|
|
1,285
|
|
|
|
(632
|
)
|
|
|
|
|
|
|
102,224
|
|
Other Income (Expenses)Net
|
|
|
(232
|
)
|
|
|
10
|
|
|
|
75
|
|
|
|
450
|
|
|
|
(286
|
)
|
|
|
17
|
|
Interest Expense
|
|
|
11,785
|
|
|
|
290
|
|
|
|
|
|
|
|
390
|
|
|
|
(286
|
)
|
|
|
12,179
|
|
Income Tax Expense (Benefit)
|
|
|
34,446
|
|
|
|
331
|
|
|
|
528
|
|
|
|
(198
|
)
|
|
|
|
|
|
|
35,107
|
|
Dividends on Washington Gas Preferred Stock
|
|
|
330
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
330
|
|
|
Net Income (Loss) Applicable to Common Stock
|
|
$
|
53,717
|
|
|
$
|
450
|
|
|
$
|
832
|
|
|
$
|
(374
|
)
|
|
$
|
|
|
|
$
|
54,625
|
|
|
Total Assets
|
|
$
|
3,299,148
|
|
|
$
|
346,371
|
|
|
$
|
23,583
|
|
|
$
|
138,221
|
|
|
$
|
(169,881
|
)
|
|
$
|
3,637,442
|
|
|
Capital Expenditures/Investments
|
|
$
|
30,392
|
|
|
$
|
1,167
|
|
|
$
|
14
|
|
|
$
|
1
|
|
|
$
|
|
|
|
$
|
31,574
|
|
|
|
|
|
(a)
|
|
Operating revenues are reported gross of revenue taxes. Revenue taxes of both the regulated utility and the retail energy-marketing
segments include gross receipt taxes. Revenue taxes of the regulated utility segment also include PSC fees, franchise fees and energy
taxes
|
21
WGL Holdings, Inc.
Washington Gas Light Company
Part IFinancial Information
Item 1Financial Statements (continued)
Notes to Consolidated Financial Statements (Unaudited)
NOTE 11. RELATED PARTY TRANSACTIONS
WGL Holdings and its subsidiaries engage in transactions among each other during the ordinary
course of business. Intercompany 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
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 Washington Gass balance
sheets. These transactions recorded by Washington Gas impact the balance sheet only.
At December 31, 2009 and September 30, 2009, the Washington Gas Balance Sheets reflected a
receivable from associated companies of $3.3 million and $10.4 million, respectively. At December
31, 2009 and September 30, 2009, the Washington Gas Balance Sheets reflected a payable to
associated companies of $38.0 million and $11.4 million, respectively, related to the activities
described above.
Additionally, 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, an affiliated energy marketer, $8.3 million and $8.2 million for the three
months ended December 31, 2009 and 2008, 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 $11.7 million and $4.6 million at December 31, 2009 and September 30, 2009,
respectively, related to an imbalance in gas volumes. Due to regulatory requirements, these
receivables are not eliminated in the consolidated financial statements of WGL Holdings.
NOTE 12. COMMITMENTS AND CONTINGENCIES
REGULATED UTILITY OPERATIONS
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.
22
WGL Holdings, Inc.
Washington Gas Light Company
Part IFinancial Information
Item 1Financial Statements (continued)
Notes to Consolidated Financial Statements (Unaudited)
District of Columbia Jurisdiction
Recovery of Heavy Hydrocarbon (HHC) Costs.
On May 1, 2006, Washington Gas filed two tariff
applications with the Public Service Commission of the District of Columbia (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. 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 Public Service
Commission of Maryland (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 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, 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 (Stipulation). The parties to the Stipulation agreed that hexane
commodity costs incurred by Washington Gas to condition liquefied natural gas received in
Washington Gass natural gas system are recoverable expenses and that Washington Gas 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 Washington Gass
cost of gas;
|
|
|
(ii)
|
|
establishes the implementation of a coupling replacement and encapsulation program
(program), wherein Washington Gas 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 $28.0 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 Washington
Gass hexane facilities with the associated commodity costs, and continued filing of
leak-related information with the PSC of DC.
|
23
WGL Holdings, Inc.
Washington Gas Light Company
Part IFinancial Information
Item 1Financial Statements (continued)
Notes to Consolidated Financial Statements (Unaudited)
On October 16, 2009, the PSC of DC published a Notice of Public Interest Hearing, held on
October 28, 2009. On December 16, 2009, the PSC of DC issued a final order approving the
settlement agreement, including recovery of hexane commodity costs, provided the parties agree to
change the September 30, 2009 date to the effective date of the newly approved tariffs. The
parties filed the modified language consistent with the final order. Pursuant to the final order,
Washington Gas established a regulatory asset by reversing hexane costs previously expensed of $0.7
million into income.
As of December 31, 2009 Washington Gas has incurred cumulative total HHC costs of $2.0 million
related to the District of Columbia of which approximately $0.5 million has been recovered and $1.5
million has been deferred as a regulatory asset.
Revenue Normalization Adjustment (RNA).
On December 21, 2009, Washington Gas filed a revised
tariff application seeking approval of an RNA, a sales adjustment mechanism that decouples
Washington Gass non-gas revenues from actual delivered volumes of gas. On December 22, 2009, the
DC OPC filed a motion requesting that the PSC of DC establish public hearing procedures to examine
the merits of Washington Gass RNA application. Washington Gas filed an opposition to the DC OPCs
motion on January 4, 2010. The PSC of DC issued an order on January 19, 2010 granting the DC OPCs
motion for evidentiary hearing and initiated a rate proceeding to consider issues surrounding
Washington Gass tariff application. A Commission decision on a procedural schedule is pending.
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 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 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
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 Washington Gass plan.
Virginia Jurisdiction
Application for Conservation and Ratemaking Efficiency Plan.
On September 29, 2009,
Washington Gas filed with the Virginia State Corporation Commission (SCC of VA) an application
which includes a portfolio of conservation and energy efficiency programs, an associated cost
recovery provision 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 9, 2010. The SCC of VA has six months from the
date of the filing to issue an order.
24
WGL Holdings, Inc.
Washington Gas Light Company
Part IFinancial Information
Item 1Financial Statements (continued)
Notes to Consolidated Financial Statements (Unaudited)
Performance-Based Rate Plans
In 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 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 business process outsourcing (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 Washington Gass
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 for fiscal year 2008. At
December 31, 2009, Washington Gas had accrued a customer liability of $2.3 million for estimated
sharing under the Virginia ESM related to fiscal year 2008. In accordance with the provisions of
its VA tariff, Washington Gas began crediting customers bills in April 2009 for the fiscal year
2008 ESM liability. The credits will continue through March, 2010. On
January 28, 2010, Washington Gas filed its annual information filing confirming that there was no
liability for fiscal year 2009 and that approximately $0.5 million of previously expensed hexane
cost were recoverable in rates. A decision on this filing is expected in the summer of 2010.
On an interim basis, Washington Gas records the effects of the ESM based on year-to-date
earnings in relation to estimated annual earnings as calculated for regulatory purposes. For the three months ended December 31, 2009, we did not incur expense related to the ESM.
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 December 31, 2009 and
September 30, 2009, we had recorded a regulatory asset of $7.2 million and $7.4 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
25
WGL Holdings, Inc.
Washington Gas Light Company
Part IFinancial Information
Item 1Financial Statements (continued)
Notes to Consolidated Financial Statements (Unaudited)
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, with the exception of the implementation of a revenue normalization
adjustment.
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 the MD OPC noted appeals of the October 15, 2008 proposed
order, thus suspending its effective date.
On February 5, 2010, the PSC of MD issued an order on
appeal. The order affirmed the proposed order with two exceptions: (i) it directed the parties to
confer and report on a prospective allocation method for reimbursements and (ii) it directed Washington
Gas to amortize its $13.3 million reserve deficiency imbalance over a 33.5 year time frame. We are currently
assessing the requirements of the decision and the merits of an appeal. The PSC of MDs practice provides
that the prospective impact of changes in depreciation rates from such an order will not be reflected on
Washington Gass accounts and records until a change in Washington Gass distribution rates
charged to customers takes effect. Implementation of revised depreciation rates and base rates is
subject to approval by the PSC of MD.
NON-UTILITY OPERATIONS
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 in exchange for the contract payments paid to Washington Gas during the construction period.
As the lender funds the construction project, Washington Gas establishes a receivable representing
its customers obligations to remit principal and interest and a long-term payable to the lender.
When these projects are formally accepted by the customer as completed, Washington Gas transfers
the ownership of the receivable to the lender and removes both the receivable and the long-term
financing from its financial statements. As of December 31, 2009, work on these construction
projects that was not completed or accepted by customers was valued at $6.1 million, which is
recorded on the balance sheet as a 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.
26
WGL Holdings, Inc.
Washington Gas Light Company
Part IFinancial Information
Item 1Financial Statements (concluded)
Notes to Consolidated Financial Statements (Unaudited)
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 December 31, 2009, these
guarantees totaled $532.0 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 December 31, 2009 that were made on
behalf of certain of our non-utility subsidiaries associated with their banking transactions. Of
the total guarantees of $535.0 million, $33.0 million are due to expire on December 31, 2010. 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; however, 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.
NOTE 13. PENSION AND OTHER POST-RETIREMENT BENEFIT PLANS
The following tables show the components of net periodic benefit costs (income) recognized in
our financial statements during the three months ended December 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of Net Periodic Benefit Costs (Income)
|
|
|
Three Months Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Pension
|
|
|
Health and
|
|
|
Pension
|
|
|
Health and
|
|
(In thousands)
|
|
Benefits
|
|
|
Life Benefits
|
|
|
Benefits
|
|
|
Life Benefits
|
|
|
Components of net periodic benefit costs (income)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
2,482
|
|
|
$
|
1,648
|
|
|
$
|
2,117
|
|
|
$
|
1,278
|
|
Interest cost
|
|
|
10,814
|
|
|
|
6,331
|
|
|
|
10,678
|
|
|
|
6,257
|
|
Expected return on plan assets
|
|
|
(11,755
|
)
|
|
|
(4,605
|
)
|
|
|
(12,888
|
)
|
|
|
(4,492
|
)
|
Amortization of prior service cost
|
|
|
270
|
|
|
|
(1,005
|
)
|
|
|
429
|
|
|
|
(1,005
|
)
|
Amortization of actuarial loss
|
|
|
1,088
|
|
|
|
2,195
|
|
|
|
104
|
|
|
|
1,231
|
|
Amortization of transition obligation
|
|
|
|
|
|
|
272
|
|
|
|
|
|
|
|
271
|
|
|
Net periodic benefit cost (income)
|
|
|
2,899
|
|
|
|
4,836
|
|
|
|
440
|
|
|
|
3,540
|
|
|
Amount allocated to construction projects
|
|
|
(270
|
)
|
|
|
(769
|
)
|
|
|
30
|
|
|
|
(499
|
)
|
Amount deferred as regulatory asset/liabilitynet
|
|
|
(1,304
|
)
|
|
|
505
|
|
|
|
(990
|
)
|
|
|
800
|
|
Other
|
|
|
7
|
|
|
|
|
|
|
|
(25
|
)
|
|
|
5
|
|
|
Amount charged (credited) to expense
|
|
$
|
1,332
|
|
|
$
|
4,572
|
|
|
$
|
(545
|
)
|
|
$
|
3,846
|
|
|
Amounts included in the line item Amount deferred as regulatory asset/liability-net as shown
in the table above, represent the difference between the cost of the applicable pension benefits or
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.
Under the new changes to the defined contribution savings plan announced on July 20, 2009,
approximately 65 employees elected to cease participating in the non-contributory defined benefit
plan in return for receiving an enhanced contribution under the defined contribution savings plan.
NOTE 14. SUBSEQUENT EVENTS
The Company has evaluated all events or transactions that occurred after December 31, 2009
through February 5, 2010, the date the accompanying financial statements were available to be
issued. During this period, there were no material subsequent events.
27
WGL Holdings, Inc.
Washington Gas Light Company
Part IFinancial Information
Item 2Managements Discussion and Analysis of
Financial Condition and Results of Operations
|
|
|
ITEM 2.
|
|
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 and should be read in conjunction with our
unaudited financial statements and the accompanying notes in this quarterly report, as well as our
combined Annual Report on Form 10-K for WGL Holdings and Washington Gas Light Company (Washington
Gas) for the fiscal year ended September 30, 2009 (2009 Annual Report). 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 Holdings
This 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 and the results of our non-utility operations.
|
|
|
|
|
Washington Gas
This 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.
|
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. Our operations are
seasonal and, accordingly, our operating results for the interim periods presented are not
indicative of the results to be expected for the full fiscal year.
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. WGL Holdings has three
operating segments that are described below.
Regulated Utility.
With approximately 90% 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.
28
WGL Holdings, Inc.
Washington Gas Light Company
Part IFinancial Information
Item 2Managements 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 therm deliveries 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
Washington Gas Energy Services, Inc. (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, Pennsylvania 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
quarter ended December 31, 2009, WGEServices completed the construction of two Solar Photovoltaic
(PV) facilities which includes ownership of the operational assets. Other than its Solar PV
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.
PRIMARY FACTORS AFFECTING WGL HOLDINGS AND WASHINGTON GAS
The principal business, economic and other factors that affect our operations and/or financial
performance include:
|
|
|
weather conditions and weather patterns;
|
|
|
|
|
regulatory environment and regulatory decisions;
|
|
|
|
|
availability of natural gas supply and pipeline transportation and storage capacity;
|
|
|
|
|
diversity of natural gas supply;
|
|
|
|
|
volatility of natural gas prices;
|
|
|
|
|
non-weather related changes in natural gas consumption patterns;
|
|
|
|
|
maintaining the safety and reliability of the natural gas distribution system;
|
|
|
|
|
competitive environment;
|
|
|
|
|
environmental matters;
|
29
WGL Holdings, Inc.
Washington Gas Light Company
Part IFinancial Information
Item 2Managements Discussion and Analysis of
Financial Condition and Results of Operations (continued)
|
|
|
industry consolidation;
|
|
|
|
|
economic conditions and interest rates;
|
|
|
|
|
inflation/deflation;
|
|
|
|
|
use of business process outsourcing;
|
|
|
|
|
labor contracts, including labor and benefit costs; and
|
|
|
|
|
changes in accounting principles.
|
For further discussion of the factors listed above, refer to Managements Discussion within
the 2009 Annual Report. Also, refer to the section entitled
Safe Harbor for Forward-Looking
Statements
included in this quarterly report for a listing of forward-looking statements related
to factors affecting WGL Holdings and Washington Gas.
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements and related disclosures in compliance with GAAP
requires the selection and the application of appropriate technical accounting guidance to the
relevant facts and circumstances of our operations, as well as our use of estimates to compile the
consolidated financial statements. The application of these accounting policies involves judgment
regarding estimates and projected outcomes of future events, including the likelihood of success of
particular regulatory initiatives, the likelihood of realizing estimates for legal and
environmental contingencies and the probability of recovering costs and investments in both the
regulated utility and non-regulated business segments.
We have identified the following critical accounting policies that require our judgment and
estimation, where the resulting estimates may have a material effect on the consolidated financial
statements:
|
|
|
accounting for unbilled revenue;
|
|
|
|
|
accounting for regulatory operations regulatory assets and liabilities;
|
|
|
|
|
accounting for income taxes;
|
|
|
|
|
accounting for contingencies;
|
|
|
|
|
accounting for derivative instruments;
|
|
|
|
|
accounting for pension and other post-retirement benefit plans and
|
|
|
|
|
accounting for stock based compensation.
|
For a description of these critical accounting policies, refer to Managements Discussion
within the 2009 Annual Report. Refer to Note 1 of the Notes to Consolidated Financial Statements in
this quarterly report for a discussion of newly implemented accounting policies.
30
WGL Holdings, Inc.
Washington Gas Light Company
Part IFinancial Information
Item 2Managements Discussion and Analysis of
Financial Condition and Results of Operations (continued)
WGL HOLDINGS, INC.
RESULTS OF OPERATIONS Three Months Ended December 31, 2009 vs. December 31, 2008
We analyze the operating results of the regulated utility segment using utility net revenues
and the retail energy-marketing segment using gross margins. Both utility net revenues and 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 for the sale of
natural gas and electricity.
Neither utility net revenues nor 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 gross margins may not be comparable to similarly titled measures of other
companies. Refer to the sections entitled
Results of Operations
Regulated Utility Operating
Results
and
Results of Operations
Non-Utility Operating Results
for the calculation of utility
net revenues and gross margins, respectively, as well as a reconciliation to operating income and
net income for both segments.
Summary Results
WGL Holdings reported net income applicable to common stock (hereinafter referred to as net income) of $47.6 million, or $0.94 per share, for the three months
ended December 31, 2009 compared to $54.6 million, or $1.09 per share, reported for the three
months ended December 31, 2008. For the twelve-month periods ended December 31, 2009 and 2008, we
earned a return on average common equity of 10.2% and 11.8%, respectively.
The comparison of results for the three month period ended December 31, 2009 compared to the
same period of the prior fiscal year primarily reflects a decrease in earnings from the regulated
utility segment partially offset by increased earnings from our retail energy-marketing segment.
The following table summarizes our net income (loss) by operating segment for the three months
ended December 31, 2009 and 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) Applicable to Common Stock by Operating Segment
|
|
|
Three Months Ended
|
|
|
|
|
December 31,
|
|
Increase/
|
(In millions)
|
|
2009
|
|
2008
|
|
(Decrease)
|
|
Regulated Utility
|
|
$
|
40.7
|
|
|
$
|
53.7
|
|
|
$
|
(13.0
|
)
|
Non-utility operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail Energy-Marketing
|
|
|
7.5
|
|
|
|
0.5
|
|
|
|
7.0
|
|
Design-Build Energy Systems
|
|
|
(0.2
|
)
|
|
|
0.8
|
|
|
|
(1.0
|
)
|
Other, principally non-utility activities
|
|
|
(0.4
|
)
|
|
|
(0.4
|
)
|
|
|
|
|
|
Total non-utility
|
|
|
6.9
|
|
|
|
0.9
|
|
|
|
6.0
|
|
|
Net Income applicable to common stock
|
|
$
|
47.6
|
|
|
$
|
54.6
|
|
|
$
|
(7.0
|
)
|
|
EARNINGS PER AVERAGE COMMON SHARE
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.95
|
|
|
$
|
1.09
|
|
|
$
|
(0.14
|
)
|
Diluted
|
|
$
|
0.94
|
|
|
$
|
1.09
|
|
|
$
|
(0.15
|
)
|
|
31
WGL Holdings, Inc.
Washington Gas Light Company
Part IFinancial Information
Item 2Managements Discussion and Analysis of
Financial Condition and Results of Operations (continued)
Regulated Utility Operating Results
The following table summarizes the regulated utility segments operating results for the three
months ended December 31, 2009 and 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
Regulated Utility Operating Results
|
|
|
Three Months Ended
|
|
|
|
|
December 31,
|
|
Increase/
|
(In millions)
|
|
2009
|
|
2008
|
|
(Decrease)
|
|
Utility net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
398.9
|
|
|
$
|
530.6
|
|
|
$
|
(131.7
|
)
|
Less: Cost of gas
|
|
|
205.6
|
|
|
|
314.9
|
|
|
|
(109.3
|
)
|
Revenue taxes
|
|
|
17.4
|
|
|
|
17.3
|
|
|
|
0.1
|
|
|
Total utility net revenues
|
|
|
175.9
|
|
|
|
198.4
|
|
|
|
(22.5
|
)
|
Operation and maintenance
|
|
|
63.2
|
|
|
|
61.7
|
|
|
|
1.5
|
|
Depreciation and amortization
|
|
|
24.0
|
|
|
|
23.9
|
|
|
|
0.1
|
|
General taxes and other assessmentsother
|
|
|
12.5
|
|
|
|
12.3
|
|
|
|
0.2
|
|
|
Operating income
|
|
|
76.2
|
|
|
|
100.5
|
|
|
|
(24.3
|
)
|
Interest expense
|
|
|
9.7
|
|
|
|
11.8
|
|
|
|
(2.1
|
)
|
Other (income) expenses-net, including preferred stock dividends
|
|
|
|
|
|
|
0.6
|
|
|
|
(0.6
|
)
|
Income tax expense
|
|
|
25.8
|
|
|
|
34.4
|
|
|
|
(8.6
|
)
|
|
Net income applicable to common stock
|
|
$
|
40.7
|
|
|
$
|
53.7
|
|
|
$
|
(13.0
|
)
|
|
The regulated utility segments net income was $40.7 million for the three months ended
December 31, 2009 compared to $53.7 million for the same three-month period of the prior fiscal
year. The decrease in net income primarily reflects:
(i
) a $14.3 million decrease in unrealized
margins associated with our asset optimization program; (
ii
) a $4.6 million reversal in fiscal year
2009 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 $2.9 million decrease in the
recovery of storage carrying costs on lower average storage gas inventory balances and (
iv
) higher
employee benefit expenses due to changes in plan asset values and obligation measurement
assumptions. Partially offsetting this decrease was an increase in over 10,300 average active
customer meters and lower interest expense related to lower weighted-average interest rates
associated with our borrowings.
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 the three months ended
December 31, 2009 and 2008.
32
WGL Holdings, Inc.
Washington Gas Light Company
Part IFinancial Information
Item 2Managements Discussion and Analysis of
Financial Condition and Results of Operations (continued)
|
|
|
|
|
Composition of Changes in Utility Net Revenues
|
|
|
Increase /
|
(In millions)
|
|
(Decrease)
|
|
Customer growth
|
|
$
|
1.5
|
|
Estimated weather effects offset by weather insurance and derivative products
|
|
|
(0.8
|
)
|
Estimated change in natural gas consumption patterns
|
|
|
1.1
|
|
Gas administrative charge (GAC)
|
|
|
(1.3
|
)
|
Asset optimization:
|
|
|
|
|
Realized margins
|
|
|
1.2
|
|
Unrealized mark-to-market valuations
|
|
|
(14.3
|
)
|
Storage carrying costs
|
|
|
(2.9
|
)
|
Earnings Sharing Mechanism (ESM)
|
|
|
(0.3
|
)
|
Reversal of reserve for natural gas costs
|
|
|
(4.6
|
)
|
Other
|
|
|
(2.1
|
)
|
|
Total
|
|
$
|
(22.5
|
)
|
|
Customer growth
Average active customer meters increased 10,370 for the three months
ended December 31, 2009 compared to the same quarter of the prior fiscal year.
Estimated weather effects
Washington Gas currently has a weather protection strategy that
is designed to neutralize the estimated financial effects of variations from normal weather on net
income (refer to the section entitled
Weather Risk
for a further discussion of our weather
protection strategy). On September 21, 2009, Washington Gas executed an heating degree day (HDD) derivative contract to
manage its exposure to variations from normal weather in the District of Columbia during fiscal
year 2010. Changes in the fair value of this derivative are reflected in operation and maintenance
expense.
Weather, when measured by HDDs, was 6.2% and 13.4% colder than normal in
the quarter ended December 31, 2009 and 2008, respectively. Including the effects of our weather
protection strategy, there were no material effects on net income attributed to colder or warmer
weather on either the quarter ended December 31, 2009 or 2008.
Estimated change in natural gas consumption patterns
The variance in net revenues reflects
the changes in natural gas consumption patterns in the Virginia and District of Columbia jurisdictions. These changes 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.
GAC
Represents a regulatory mechanism in all jurisdictions that provides for recovery of
uncollectible accounts expense related to changes in gas costs. Lower recoveries reflect the lower
cost of natural gas for the first quarter of fiscal year 2010 as compared to the same quarter in
fiscal year 2009. The related uncollectible accounts expense is included in operation and
maintenance expenses.
Asset optimization
We recorded unrealized losses associated with our energy-related
derivatives of $4.0 million for the three months ended December 31, 2009 compared to gains of $10.3
million for the same period of 2008. When these derivatives settle, 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 margins related to our asset
optimization program were $1.2 million higher for the quarter ended December 31, 2009 as compared
the quarter ended December 31, 2008. (Refer to the section entitled
Market RiskPrice Risk
Related to the Regulated Utility Segment
for a further discussion of our asset optimization
program).
Storage carrying costs
Represents 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 decrease in the three months ended December 31, 2009 is due to lower average storage gas
inventory
33
WGL Holdings, Inc.
Washington Gas Light Company
Part IFinancial Information
Item 2Managements Discussion and Analysis of
Financial Condition and Results of Operations (continued)
balances due primarily to a significant decrease in gas prices during the spring and
summer of 2009 compared to the same period of the prior fiscal year.
Earnings Sharing Mechanism
The Virginia ESM shares with shareholders and customers in
Virginia, earnings that exceed a target rate of return on equity with shareholders and customers.
For the three months ended December 31, 2009, we did not incur additional expense related to the
ESM. For the three months ended December 31, 2008, Washington Gas recorded a $293,000 benefit which
includes an adjustment reducing the fiscal year 2008 liability. Refer to the section entitled
Rates and Regulatory Matters Performance-Based Rate Plans
included in Managements Discussion
for Washington Gas for a further discussion of the ESM.
Reserve for disallowance of natural gas costs
In the first quarter of fiscal year 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 for the three months
ended December 31, 2009 compared to 2008.
|
|
|
|
|
Composition of Changes in Operation and Maintenance Expenses
|
|
|
Increase/
|
(in millions)
|
|
(Decrease)
|
|
Weather derivatives
|
|
|
|
|
Loss
|
|
$
|
(0.8
|
)
|
Premium costs and fair value effects
|
|
|
0.4
|
|
Employee benefits
|
|
|
2.2
|
|
Uncollectible accounts
|
|
|
(0.6
|
)
|
Other operating expenses
|
|
|
0.3
|
|
|
Total
|
|
$
|
1.5
|
|
|
Weather derivatives
Washington Gas recorded losses of $861,000 and $1.7 million
related to its weather derivatives as a direct result of the colder-than-normal weather for the quarter ended
December 31, 2009 and 2008 respectively. These losses are
offset by the effect of weather on utility net revenues.
Employee benefits
The increase in benefit expenses primarily reflects higher pension and
other post retirement benefits due to changes in plan asset values and discount rate assumptions
used to measure the benefit obligation.
Uncollectible accounts
This reduction in uncollectible accounts expense tracks the lower
revenues due to reduced gas costs reflected in the first quarter of fiscal year 2010 compared to
the same quarter in fiscal year 2009.
Non-Utility Operating Results
Our non-utility operations comprise 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. Total net income from our non-utility operations was $6.9 million for the three months
ended December 31, 2009, an increase of
34
WGL Holdings, Inc.
Washington Gas Light Company
Part IFinancial Information
Item 2Managements Discussion and Analysis of
Financial Condition and Results of Operations (continued)
$6.0 million compared to net income of $908,000 for the
same three-month period of the prior fiscal year. This comparison primarily reflects increased
earnings from our retail energy-marketing segment, partially offset by the decreased earnings from
design-build energy systems.
Retail Energy-Marketing.
The following table depicts the retail energy-marketing segments
operating results along with selected statistical data.
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail-Energy Marketing Financial and Statistical Data
|
|
|
Three Months Ended
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase /
|
|
|
2009
|
|
2008
|
|
(Decrease)
|
|
Operating Results
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margins:
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
333.5
|
|
|
$
|
293.8
|
|
|
$
|
39.7
|
|
Less: Cost of energy
|
|
|
310.5
|
|
|
|
284.9
|
|
|
|
25.6
|
|
Revenue taxes
|
|
|
0.6
|
|
|
|
0.1
|
|
|
|
0.5
|
|
|
Total gross margins
|
|
|
22.4
|
|
|
|
8.8
|
|
|
|
13.6
|
|
Operation expenses
|
|
|
8.8
|
|
|
|
6.8
|
|
|
|
2.0
|
|
Depreciation and amortization
|
|
|
0.2
|
|
|
|
0.2
|
|
|
|
|
|
General taxes and other assessmentsother
|
|
|
0.8
|
|
|
|
0.7
|
|
|
|
0.1
|
|
|
Operating income
|
|
|
12.6
|
|
|
|
1.1
|
|
|
|
11.5
|
|
Interest expense
|
|
|
0.1
|
|
|
|
0.3
|
|
|
|
(0.2
|
)
|
Income tax expense
|
|
|
5.0
|
|
|
|
0.3
|
|
|
|
4.7
|
|
|
Net income
|
|
$
|
7.5
|
|
|
$
|
0.5
|
|
|
$
|
7.0
|
|
|
Analysis of gross margins
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized margins
|
|
$
|
13.0
|
|
|
$
|
7.1
|
|
|
$
|
5.9
|
|
Unrealized mark-to-market gains (losses)
|
|
|
(3.4
|
)
|
|
|
(3.3
|
)
|
|
|
(0.1
|
)
|
|
Total gross margins natural gas
|
|
|
9.6
|
|
|
|
3.8
|
|
|
|
5.8
|
|
|
Electricity
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized margins
|
|
|
9.3
|
|
|
|
10.4
|
|
|
|
(1.1
|
)
|
Unrealized mark-to-market gains (losses)
|
|
|
3.5
|
|
|
|
(5.4
|
)
|
|
|
8.9
|
|
|
Total gross margins electricity
|
|
|
12.8
|
|
|
|
5.0
|
|
|
|
7.8
|
|
|
Total gross margins
|
|
$
|
22.4
|
|
|
$
|
8.8
|
|
|
$
|
13.6
|
|
|
Other Retail-Energy Marketing Statistics
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas
|
|
|
|
|
|
|
|
|
|
|
|
|
Therm sales
(millions of therms)
|
|
|
177.0
|
|
|
|
189.5
|
|
|
|
(12.5
|
)
|
Number of customers
(end of period)
|
|
|
158,100
|
|
|
|
135,800
|
|
|
|
22,300
|
|
Electricity
|
|
|
|
|
|
|
|
|
|
|
|
|
Electricity sales
(millions of kWhs)
|
|
|
1,873.4
|
|
|
|
845.3
|
|
|
|
1,028.1
|
|
Number of accounts
(end of period)
|
|
|
123,800
|
|
|
|
63,900
|
|
|
|
59,900
|
|
|
WGEServices reported net income of $7.5 million for the three months ended December 31,
2009, an improvement of $7.0 million over net income of $450,000 reported for the same three-month
period of the prior fiscal year.
The quarter-to-quarter comparison primarily reflects higher gross margins from electric and
natural gas sales, partially offset by increased marketing initiatives primarily from
mass-marketing efforts targeted toward residential and small commercial customers. Such efforts
are reflected in the increased electric sales volumes and in the number of accounts in both the gas
and electric markets during the quarter ended December 31, 2009. Period-to-period comparisons of
quarterly gross margins for this segment can vary significantly and are not representative of
expected annualized results.
35
WGL Holdings, Inc.
Washington Gas Light Company
Part IFinancial Information
Item 2Managements Discussion and Analysis of
Financial Condition and Results of Operations (continued)
Gross margins from natural gas sales increased $5.8 million in the first quarter of fiscal
year 2010 over the same period in the prior fiscal year due to a $5.9 million increase in realized
margins. The increase in realized margins is due to a rise in the margin per therm sold reflecting
lower priced inventory withdrawals and more favorable weather conditions compared to the same
period of the prior fiscal year, partially offset by unrealized mark-to-mark losses associated with
energy-related derivatives.
Gross margins from electric sales in the current quarter increased $7.8 million from the same
quarter of the prior period. This increase reflects an $8.9 million increase in unrealized
mark-to-market gains associated with energy-related derivatives. Realized margins were lower by
$1.1 million primarily due to a compression of unit margins, partially offset by an increase in
electric sales volumes.
Design-Build Energy Systems.
The design-build energy systems segment reported a net loss of
$212,000 for the first quarter of fiscal year 2010, compared to net income of $832,000 reported for
the same period of fiscal year 2009. This decrease is primarily due to the timing of project work
in the first quarter of 2010 compared to the same period of the prior fiscal year.
Interest Expense
The following table depicts the components of the change in interest expense from the quarter
ended December 31, 2009 compared to 2008.
Composition of Interest Expense Changes
|
|
|
|
|
|
|
|
Increase /
|
(In millions)
|
|
(Decrease)
|
|
Long-term debt
|
|
$
|
(0.1
|
)
|
Short-term debt
|
|
|
(1.9
|
)
|
Other (includes AFUDC
(a)
)
|
|
|
(0.4
|
)
|
|
Total
|
|
$
|
(2.4
|
)
|
|
|
|
|
(a)
|
|
Represents Allowance for Funds Used During Construction.
|
WGL Holdings interest expense of $9.7 million for the first quarter of fiscal year 2010
decreased $2.4 million from the same quarter of the prior fiscal year. Lower interest expense for
the period primarily reflects lower weighted average interest rates, partially offset by higher
average balances of long-term debt outstanding.
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. During the quarter ended December 31, 2009, we met our liquidity needs at
reasonable cost through the
36
WGL Holdings, Inc.
Washington Gas Light Company
Part IFinancial Information
Item 2Managements Discussion and Analysis of
Financial Condition and Results of Operations (continued)
issuance of commercial paper by WGL Holdings and Washington Gas and the
issuance of debt securities by Washington Gas to support its operations.
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 are 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 December 31, 2009, total consolidated capitalization,
including current maturities of long-term debt and excluding notes payable, comprised 60.9% common
equity, 1.5% preferred stock and 37.6% long-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 December
31, 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 77.0% 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 December 31, 2009 and September 30, 2009, Washington Gas had investment
balances in gas storage of $198.7 million and $237.7 million, respectively. 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. At December 31, 2009, Washington Gas had a $63.1
million balance of unrecovered gas costs due from customers related to the most
recent twelve month gas
37
WGL Holdings, Inc.
Washington Gas Light Company
Part IFinancial Information
Item 2Managements Discussion and Analysis of
Financial Condition and Results of Operations (continued)
cost
recovery cycle ended August 31, 2009. Most of this
balance will be collected from customers in fiscal year 2010.
Amounts under-collected or over-collected that are generated during the current gas cost recovery
cycle are deferred as a regulatory asset or liability 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 December 31, 2009, Washington Gas had a net deferred balance of
$1.5 million related to the current gas recovery cycle.
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 than our expected maximum
commercial paper position. The following is a summary of our committed credit agreements at
December 31, 2009.
Committed Credit Available
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WGL Holdings
|
|
|
Washington Gas
|
|
|
Total Consolidated
|
|
|
Committed credit agreements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unsecured revolving credit facility, expires August 3, 2012
(a)
|
|
$
|
400.0
|
|
|
$
|
300.0
|
|
|
$
|
700.0
|
|
Less: Commercial Paper
|
|
|
(108.3
|
)
|
|
|
(68.3
|
)
|
|
|
(176.6
|
)
|
|
Net committed credit available
|
|
$
|
291.7
|
|
|
$
|
231.7
|
|
|
$
|
523.4
|
|
|
|
|
|
(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.
At December 31, 2009 and September 30, 2009, WGL Holdings and its subsidiaries had outstanding
notes payable in the form of commercial paper of $176.6 million and $183.8 million, respectively,
at a weighted average interest rate of 0.24% and 0.27%, respectively. Of the outstanding notes
payable balance at December 31, 2009, $108.3 million was issued by WGL Holdings and $68.3 million
was issued by Washington Gas. Of the outstanding notes payable balance at September 30, 2009,
$59.0 million was issued by WGL Holdings and $124.8 million was issued by Washington Gas. As of
December 31, 2009 and September 30, 2009, there were no outstanding bank loans under WGL Holdings
or Washington Gass revolving credit facilities.
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 December 31, 2009 and September 30, 2009, Customer deposits and advance
payments totaled $60.3 million and $52.9 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
38
WGL Holdings, Inc.
Washington Gas Light Company
Part IFinancial Information
Item 2Managements Discussion and Analysis of
Financial Condition and Results of Operations (continued)
pays interest to the counterparty on these deposits in accordance with its contractual
obligations. Refer to the section entitled
Credit Risk
for 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 our 2009 Annual Report for
further discussion of our capital expenditures forecast and our long-term debt maturities.
At December 31, 2009, Washington Gas had the capacity under a shelf registration to issue up
to $450.0 million of additional MTNs. Washington Gas has authority from its regulators to issue
other forms of debt, including private placements.
On November 2, 2009, Washington Gas issued $50.0 million of unsecured 4.76% fixed rate notes
with a ten year maturity due November 1, 2019. These notes were issued through a private placement
arrangement. 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. 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 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, locking in a 3.59% Treasury yield on $50 million of ten-year debt that was issued on
November 2, 2009; (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. For further discussion of our management of interest-rate risk, refer to
Managements Discussion within our 2009 Annual Report.
Security Ratings
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 quarter ended
December 31, 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.
|
39
WGL Holdings, Inc.
Washington Gas Light Company
Part IFinancial Information
Item 2Managements Discussion and Analysis of
Financial Condition and Results of Operations (continued)
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 lowest level facility fee is four basis points
and the highest is eight basis points.
Under the terms of WGL Holdings and Washington Gass 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 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 December 31, 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 December 31, 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 our 2009 Annual Report 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 December 31, 2009,
WGEServices would be required to provide $4.1 million in additional credit support for these
arrangements if the long-term debt rating of WGL Holdings were to be downgraded one rating level.
40
WGL Holdings, Inc.
Washington Gas Light Company
Part IFinancial Information
Item 2Managements Discussion and Analysis of
Financial Condition and Results of Operations (continued)
Cash Flows Provided by (Used in) 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 $9.4 million for the three months ended
December 31, 2009. Net cash provided by operating activities reflects net income before preferred stock dividends, as adjusted for non-cash earnings and charges and changes in working capital including:
|
|
|
Accounts receivable and unbilled revenuesnet increased $255.4 million from September
30, 2009, primarily due to increased sales volumes to customers during our winter heating
season and increased sales volumes associated with Washington Gass asset optimization
program.
|
|
|
|
|
Storage gas inventory cost levels decreased $39.0 million from September 30, 2009 due
to seasonal physical withdrawals.
|
|
|
|
|
Gas costs and other regulatory assets / liabilities decreased $20.2 million from September 30, 2009
primarily due to the recovery of gas cost under collections related to the prior gas cost
recovery cycle and increases in the liability for weather related billing adjustment mechanisms.
|
|
|
|
|
Accounts payable and other accrued liabilities increased $59.6 million, largely
attributable to an increase in the cost of the natural gas purchased for both deliveries to
customers for the 2009-2010 winter heating season and Washington Gass asset optimization
program.
|
|
|
|
|
Other prepayments decreased $26.6 million from September 30, 2009 due to a decrease in
collateral receivables for transactions with wholesale counterparties for the purchase of
energy for our retail-energy marketing segment and due to payments for renewal of insurance
policies. This decrease in collateral reflects higher market prices for energy, compared to
the contracted purchase price of energy supplies.
|
Cash Flows Provided by Financing Activities
Cash flows provided by financing activities totaled $25.3 million for the three months ended
December 31, 2009 reflecting our long-term debt issuance of $51.0 million, partially offset by our
common and preferred stock dividend payments totaling $18.8 million.
Cash Flows Used in Investing Activities
During the three months ended December 31, 2009, cash flows used in investing activities
totaled $28.9 million, which primarily consists of capital expenditures made on behalf of
Washington Gas.
CONTRACTUAL OBLIGATIONS, OFF-BALANCE SHEET ARRANGEMENTS AND OTHER COMMERCIAL COMMITMENTS
Contractual Obligations
We have certain contractual obligations incurred in the normal course of business that require
us to make fixed and determinable payments in the future. These commitments include long-term debt,
lease obligations, unconditional purchase obligations for pipeline capacity, transportation and
storage services, certain natural gas and electricity commodity commitments and our commitments
related to the business process outsourcing (BPO) program.
Reference is made to the
Contractual Obligations, Off-Balance Sheet Arrangements and Other
Commercial Commitments
section of Managements Discussion in our 2009 Annual Report for a detailed
41
WGL Holdings, Inc.
Washington Gas Light Company
Part IFinancial Information
Item 2Managements Discussion and Analysis of
Financial Condition and Results of Operations (continued)
discussion of our contractual obligations. Note 4 of the Notes to Consolidated Financial Statements
in our 2009 Annual Report includes a discussion of long-term debt, including debt maturities.
Reference is made to Note 13 of the Notes to Consolidated Financial Statements in our 2009 Annual
Report that reflects
information about the various contracts of Washington Gas and WGEServices. Additionally,
refer to Note 12 of the Notes to Consolidated Financial Statements in this quarterly report.
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 in exchange for the contract payments paid to Washington Gas during the construction period.
As the lender funds the construction project, Washington Gas establishes a receivable representing
its customers obligations to remit principal and interest and a long-term payable to the lender.
When these projects are formally accepted by the customer as completed, Washington Gas transfers
the ownership of the receivable to the lender and removes both the receivable and the long-term
financing from its financial statements. As of December 31, 2009, work on these construction
projects that was not completed or accepted by customers was valued at $6.1 million, which is
recorded on the balance sheet as a 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 December 31, 2009, these
guarantees totaled $532.0 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 December 31, 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.
Chillum LNG Facility
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.
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 has taken the position 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.
42
WGL Holdings, Inc.
Washington Gas Light Company
Part IFinancial Information
Item 2Managements Discussion and Analysis of
Financial Condition and Results of Operations (continued)
On March 19, 2009, the Maryland Public Service Commission (PSC of MD) ordered that evidentiary
proceedings be opened for the purpose of reviewing Washington Gass gas 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, in November 2009, filed a gas
procurement plan
for 2010-2014, and a review of that plan has been consolidated with the existing proceeding.
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 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 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.
43
WGL Holdings, Inc.
Washington Gas Light Company
Part IFinancial Information
Item 2Managements Discussion and Analysis of
Financial Condition and Results of Operations (continued)
The 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
all three of our jurisdictions. 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 was approved on December 16, 2009 and 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 $45.0 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 and the December 16, 2009 settlement in the District of Columbia
that 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 agreements approved respectively by
the SCC of VA and the PSC of DC.
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 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 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 of costs related to the construction of the
injection facilities and HHC commodity costs through local regulatory commission action, 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.
44
WGL Holdings, Inc.
Washington Gas Light Company
Part IFinancial Information
Item 2Managements Discussion and Analysis of
Financial Condition and Results of Operations (continued)
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 Appeals that 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 been
set for March 11, 2010.
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.
45
WGL Holdings, Inc.
Washington Gas Light Company
Part IFinancial Information
Item 2Managements Discussion and Analysis of
Financial Condition and Results of Operations (continued)
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. The
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.
CREDIT RISK
Wholesale Credit Risk
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 counterpartys 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
46
WGL Holdings, Inc.
Washington Gas Light Company
Part IFinancial Information
Item 2Managements Discussion and Analysis of
Financial Condition and Results of Operations (continued)
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, 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 December 31, 2009,
WGEServices had provided $39.6 million in cash collateral to supplier counterparties.
The following table provides information on our credit exposure, net of collateral, to
wholesale counterparties as of December 31, 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
|
|
$
|
18.3
|
|
|
$
|
|
|
|
$
|
18.3
|
|
|
|
3
|
|
|
$
|
13.1
|
|
Non-Investment Grade
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No External Ratings
|
|
|
3.7
|
|
|
|
0.4
|
|
|
|
3.3
|
|
|
|
1
|
|
|
|
2.5
|
|
|
WGEServices
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Grade
|
|
$
|
1.4
|
|
|
$
|
|
|
|
$
|
1.4
|
|
|
|
3
|
|
|
$
|
1.3
|
|
Non-Investment Grade
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No External Ratings
|
|
|
0.1
|
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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.
|
Retail Credit Risk
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. The PSC of MD is currently reviewing and evaluating proposals by electric and gas
utilities to purchase the receivables of competitive suppliers who render their charges through the
utilities billing process. WGEServices bills the majority of its customers through utilities, and
the shift to this new purchase of receivables may affect WGEServices billing practices and bad debt
expense.
MARKET RISK
We are exposed to various forms of market risk including commodity price risk, weather risk
and interest-rate risk. The following discussion describes these risks and our management of them.
47
WGL Holdings, Inc.
Washington Gas Light Company
Part IFinancial Information
Item 2Managements Discussion and Analysis of
Financial Condition and Results of Operations (continued)
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 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 a March 2009 order 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,
in a July 2009 order, the PSC of MD authorized Washington Gas to hedge 25% of its expected
2009-2010 winter purchase volumes at or below a certain price.
Pursuant to a three-year pilot program that expired in the
latter half of 2008, Washington Gas had specific regulatory approval
in 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 Virginia and requested that the SCC of VA combine the
existing permanent winter gas hedging program and the pilot summer storage gas financial
hedging program and implement the combined program as a permanent part of Washington Gass
hedging program. On September 3, 2009, the SCC of VA granted Washington Gas regulatory
approval in Virginia to implement the new combined hedging program. 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
three months ended December 31, 2009:
48
WGL Holdings, Inc.
Washington Gas Light Company
Part IFinancial Information
Item 2Managements Discussion and Analysis of
Financial Condition and Results of Operations (continued)
|
|
|
|
|
Regulated Utility Segment
|
Changes in Fair Value of Energy-Related Derivatives
|
(In millions)
|
|
|
|
|
|
Net assets (liabilities) at September 30, 2009
|
|
$
|
5.6
|
|
Net fair value of contracts entered into during the period
|
|
|
0.4
|
|
Other changes in net fair value
|
|
|
(3.8
|
)
|
Realized net settlement of derivatives
|
|
|
(6.0
|
)
|
|
Net assets (liabilities) at December 31, 2009
|
|
$
|
(3.8
|
)
|
|
|
|
|
|
|
Regulated Utility Segment
|
Roll Forward of Energy-Related Derivatives
|
(In millions)
|
|
|
|
|
|
Net assets (liabilities) at September 30, 2009
|
|
$
|
5.6
|
|
Recorded to income
|
|
|
1.5
|
|
Recorded to regulatory assets/liabilities
|
|
|
(4.9
|
)
|
Realized net settlement of derivatives
|
|
|
(6.0
|
)
|
|
Net assets (liabilities) at December 31, 2009
|
|
$
|
(3.8
|
)
|
|
The maturity dates of our net assets (liabilities) associated with the regulated utility
segments energy-related derivatives recorded at fair value at December 31, 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,
|
|
|
|
|
|
|
Remainder
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
Total
|
|
2010
|
|
2011
|
|
2012
|
|
2013
|
|
2014
|
|
Thereafter
|
|
Level 1 Quoted prices in active markets
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Level 2 Significant other observable inputs
|
|
|
4.0
|
|
|
|
1.9
|
|
|
|
0.1
|
|
|
|
(0.1
|
)
|
|
|
0.7
|
|
|
|
0.2
|
|
|
|
1.2
|
|
Level 3 Significant unobservable inputs
|
|
|
(7.8
|
)
|
|
|
(3.7
|
)
|
|
|
(2.7
|
)
|
|
|
(0.1
|
)
|
|
|
(0.1
|
)
|
|
|
(0.1
|
)
|
|
|
(1.1
|
)
|
|
Total net assets (liabilities) associated
with our energy-related derivatives
|
|
$
|
(3.8
|
)
|
|
$
|
(1.8
|
)
|
|
$
|
(2.6
|
)
|
|
$
|
(0.2
|
)
|
|
$
|
0.6
|
|
|
$
|
0.1
|
|
|
$
|
0.1
|
|
|
Refer to Notes 8 and 9 of the Notes to Consolidated Financial Statements in this
quarterly report 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
49
WGL Holdings, Inc.
Washington Gas Light Company
Part IFinancial Information
Item 2Managements Discussion and Analysis of
Financial Condition and Results of Operations (continued)
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).
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 three months ended December 31, 2009:
|
|
|
|
|
Retail Energy-Marketing Segment
|
Changes in Fair Value of Energy-Related Derivatives
|
(In millions)
|
|
|
|
|
|
Net assets (liabilities) at September 30, 2009
|
|
$
|
(25.5
|
)
|
Net fair value of contracts entered into during the period
|
|
|
(5.3
|
)
|
Other changes in net fair value
|
|
|
(1.2
|
)
|
Realized net settlement of derivatives
|
|
|
0.7
|
|
|
Net assets (liabilities) at December 31, 2009
|
|
$
|
(31.3
|
)
|
|
|
|
|
|
|
Retail Energy-Marketing Segment
|
Roll Forward of Energy-Related Derivatives
|
(In millions)
|
|
|
|
|
|
Net assets (liabilities) at September 30, 2009
|
|
$
|
(25.5
|
)
|
Recorded to income
|
|
|
(0.6
|
)
|
Recorded to accounts payable
|
|
|
(5.9
|
)
|
Realized net settlement of derivatives
|
|
|
0.7
|
|
|
Net assets (liabilities) at December 31, 2009
|
|
$
|
(31.3
|
)
|
|
The maturity dates of our net assets (liabilities) associated with the retail energy-marketing segments
energy-related derivatives recorded at fair value at December 31, 2009,
is summarized in the following table based on the level of the fair value calculation under ASC Topic 820:
50
WGL Holdings, Inc.
Washington Gas Light Company
Part IFinancial Information
Item 2Managements Discussion and Analysis of
Financial Condition and Results of Operations (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail Energy Marketing Segment
Maturity of Net Assets (Liabilities) Associated with our Energy-Related Derivatives
|
|
|
Years Ended September 30,
|
|
|
|
|
|
|
|
Remainder
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
Total
|
|
2010
|
|
2011
|
|
2012
|
|
2013
|
|
2014
|
|
Thereafter
|
|
Level 1 Quoted prices in active markets
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Level 2 Significant other observable inputs
|
|
|
(4.2
|
)
|
|
|
(0.9
|
)
|
|
|
(1.3
|
)
|
|
|
(1.1
|
)
|
|
|
(0.8
|
)
|
|
|
(0.1
|
)
|
|
|
|
|
Level 3 Significant unobservable inputs
|
|
|
(27.1
|
)
|
|
|
(8.8
|
)
|
|
|
(12.5
|
)
|
|
|
(6.4
|
)
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
Total net assets (liabilities) associated with our energy-related derivatives
|
|
$
|
(31.3
|
)
|
|
$
|
(9.7
|
)
|
|
$
|
(13.8
|
)
|
|
$
|
(7.5
|
)
|
|
$
|
(0.2
|
)
|
|
$
|
(0.1
|
)
|
|
$
|
|
|
|
Refer to Note 8 and 9 of the Notes to Consolidated Financial Statements in this quarterly
report for a 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 holding period, WGEServices value-at-risk at December
31, 2009 was approximately $126,000 and $138,000, 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 revenue normalization
agreement (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 Weather Normalization Adjustment (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 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
51
WGL Holdings, Inc.
Washington Gas Light Company
Part IFinancial Information
Item 2Managements Discussion and Analysis of
Financial Condition and Results of Operations (continued)
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 and electricity 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 8 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.
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 three
interest-rate derivative transactions to mitigate a substantial portion of the risk of rising
interest rates associated with future debt issuances (refer to the section entitled
Long-Term Cash
Requirements and Related Financing
for further discussion of our interest-rate risk management
activity).
52
WGL Holdings, Inc.
Washington Gas Light Company
Part IFinancial Information
Item 2Managements Discussion and Analysis of
Financial Condition and Results of Operations (continued)
WASHINGTON GAS LIGHT COMPANY
This section of Managements Discussion focuses on the financial position and results of
operations of Washington Gas for the reported periods. In many cases, explanations for the changes
in financial position and results of operations for both WGL Holdings and Washington Gas are
substantially the same.
RESULTS OF OPERATIONS Three Months Ended December 31, 2009 vs. December 31, 2008
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 Operations-Regulated Utility
in Managements
Discussion for WGL Holdings for a detailed discussion of the results of operations for the
regulated utility segment.
Washington Gas reported net income applicable to common stock of $40.5 million for the three
months ended December 31, 2009, compared to net income of $53.6 million reported for the same three
months of the prior fiscal year. The decrease in net income primarily reflects:
(i
) unrealized
margins associated with our asset optimization program, (
ii
) the reversal in fiscal year 2009 of a
reserve for disallowed natural gas costs in Maryland due to a February 5, 2009 order from the PSC
of MD; (
iii
) a decrease in the recovery of storage carrying costs on lower average storage gas
inventory balances and (
iv
) higher employee benefit expenses due to changes in plan asset values
and obligation measurement assumptions. Partially offsetting this decrease were:
(i)
an increase in
over 10,300 average active customer meters;
(ii)
favorable effects of changes in natural gas
consumption patterns and
(iii)
lower interest expense related to lower weighted average interest
rates associated with our borrowings.
Key gas delivery, weather and meter statistics are shown in the table below for the three
months ended December 31, 2009 and 2008.
Gas Deliveries, Weather and Meter Statistics
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
December 31,
|
|
Increase/
|
|
|
2009
|
|
2008
|
|
(Decrease)
|
|
Gas Sales and Deliveries
(millions of therms)
|
|
|
|
|
|
|
|
|
|
|
|
|
Firm
|
|
|
|
|
|
|
|
|
|
|
|
|
Gas sold and delivered
|
|
|
269.9
|
|
|
|
295.4
|
|
|
|
(25.5
|
)
|
Gas delivered for others
|
|
|
158.9
|
|
|
|
147.7
|
|
|
|
11.2
|
|
|
Total firm
|
|
|
428.8
|
|
|
|
443.1
|
|
|
|
(14.3
|
)
|
|
Interruptible
|
|
|
|
|
|
|
|
|
|
|
|
|
Gas sold and delivered
|
|
|
1.5
|
|
|
|
1.2
|
|
|
|
0.3
|
|
Gas delivered for others
|
|
|
77.5
|
|
|
|
78.5
|
|
|
|
(1.0
|
)
|
|
Total interruptible
|
|
|
79.0
|
|
|
|
79.7
|
|
|
|
(0.7
|
)
|
|
Electric generationdelivered for others
|
|
|
11.1
|
|
|
|
23.5
|
|
|
|
(12.4
|
)
|
|
Total deliveries
|
|
|
518.9
|
|
|
|
546.3
|
|
|
|
(27.4
|
)
|
|
Degree Days
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
|
1,431
|
|
|
|
1,527
|
|
|
|
(96
|
)
|
Normal
|
|
|
1,347
|
|
|
|
1,346
|
|
|
|
1
|
|
Percent colder (warmer) than normal
|
|
|
6.2
|
|
%
|
|
13.4
|
|
%
|
|
n/a
|
|
Average active customer meters
|
|
|
1,069,533
|
|
|
|
1,059,163
|
|
|
|
10,370
|
|
New customer meters added
|
|
|
3,084
|
|
|
|
3,856
|
|
|
|
(772
|
)
|
|
53
WGL Holdings, Inc.
Washington Gas Light Company
Part IFinancial Information
Item 2Managements Discussion and Analysis of
Financial Condition and Results of Operations (continued)
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 on net revenues of variations in weather from normal levels (refer to the section entitled
Weather Risk
for 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 fixed demand
charges in all jurisdictions to collect a portion of revenues reduce the effect that variations
from normal weather have on net revenues.
During the quarter ended December 31, 2009, total gas deliveries to firm customers were 428.8
million therms compared to 443.1 million therms delivered in the same quarter of the prior fiscal
year. This comparison in natural gas deliveries to firm customers reflects warmer weather in the
current three-month period than in the same period of the prior fiscal year, partially offset by
the favorable effects of changes in natural gas consumption patterns as well as an increase in
average active customer meters of 10,370.
Weather, when measured by HDDs, was 6.2% colder than normal in the first quarter of fiscal
year 2010, compared to 13.4% colder than normal for the same quarter of fiscal year 2009. Including
the effects of our weather protection strategy, there were no material effects on net income
attributed to colder or warmer weather on either the quarter ended December 31, 2009 or December
31, 2008.
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 were 79.0 million therms during the first quarter of fiscal year 2010,
compared to 79.7 million therms for the same quarter last year, reflecting decreased demand due to
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.
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 the three months ended December 31, 2009, deliveries to these customers decreased
by 12.4 million therms, when compared to the same quarter of the prior fiscal year. Washington Gas
shares with firm customers a significant majority of the margins earned from natural gas deliveries
to these customers. Therefore, changes in the volume of interruptible gas deliveries to these
customers do not materially affect either net revenues or net income.
LIQUIDITY AND CAPITAL 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. The following is a discussion of significant current regulatory matters
in each of Washington Gass jurisdictions.
54
WGL Holdings, Inc.
Washington Gas Light Company
Part IFinancial Information
Item 2Managements Discussion and Analysis of
Financial Condition and Results of Operations (continued)
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 District of Columbia Office of the Peoples Counsel 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, Washington Gas and the 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 Washington Gas to
condition liquefied natural gas received in Washington Gass natural gas system are recoverable
expenses and that Washington Gas 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 Washington Gass
cost of gas;
|
|
|
(ii)
|
|
establishes the implementation of a coupling replacement and encapsulation program
(program), wherein Washington Gas 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 $28.0 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 Washington
Gass hexane facilities with the associated commodity costs, and continued filing of
leak-related information with the PSC of DC.
|
55
WGL Holdings, Inc.
Washington Gas Light Company
Part IFinancial Information
Item 2Managements Discussion and Analysis of
Financial Condition and Results of Operations (continued)
On October 16, 2009, the PSC of DC published a Notice of Public Interest Hearing, held on
October 28, 2009. On December 16, 2009, the PSC of DC issued a final order approving the
settlement agreement, including recovery of hexane commodity costs, provided the parties agree to
change the September 30, 2009 date to the effective date of the newly approved tariffs. The
parties filed the modified language consistent with the final order. Pursuant to the final order,
Washington Gas established a regulatory asset by reversing hexane costs previously expensed of $0.7
million into income.
As of December 31, 2009 Washington Gas has incurred cumulative total HHC costs of $2.0 million
related to the District of Columbia of which approximately $0.5 million has been recovered and $1.5
million has been deferred as a regulatory asset.
Revenue Normalization Adjustment.
On December 21, 2009, Washington Gas filed a revised tariff
application seeking approval of a RNA, a sales adjustment mechanism that decouples Washington Gass
non-gas revenues from actual delivered volumes of gas. On December 22, 2009, the DC OPC filed a
motion requesting that the PSC of DC establish public hearing procedures to examine the merits of
Washington Gass RNA application. Washington Gas filed an opposition to the DC OPCs motion on
January 4, 2010. The PSC of DC issued an order on January 19, 2010 granting the DC OPCs motion for
evidentiary hearing and initiated a rate proceeding to consider issues surrounding Washington Gass
tariff application. A Commission decision on a procedural schedule is pending.
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 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 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
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 Washington Gass 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 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
56
WGL Holdings, Inc.
Washington Gas Light Company
Part IFinancial Information
Item 2Managements Discussion and Analysis of
Financial Condition and Results of Operations (continued)
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.
On December 2, 2009, both the Staff of the PSC of MD and the Office of Peoples Counsel filed
Notices of Appeal of the POHE and on December 14, 2009, both filed a Memorandum on Appeal in
support of their positions. On January 4, 2010, Washington Gas filed a Reply Memorandum in
response
to the Staff of the PSC of MD and the MD OPCs Memoranda on Appeal. A Commission decision is
pending.
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 2009 2013 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. On January 6, 2010, the PSC of
57
WGL Holdings, Inc.
Washington Gas Light Company
Part IFinancial Information
Item 2Managements Discussion and Analysis of
Financial Condition and Results of Operations (continued)
MD consolidated this proceeding with the Companys 2010 2014 Gas Portfolio Plan, which was
filed on November 17, 2009.
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, an associated cost recovery provision 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 9,
2010. The SCC of VA has six months from the date of the filing to issue an order.
Performance-Based Rate Plans
In 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 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 Washington Gass
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 for fiscal year 2008.
At
December 31, 2009, Washington Gas had accrued a customer liability of $2.3 million for estimated
sharing under the Virginia ESM related to fiscal year 2008. In accordance with the provisions of
its VA tariff, Washington Gas began crediting customers bills in April 2009 for the fiscal year
2008 ESM liability. The credits will continue through March, 2010.
On
January 28, 2010, Washington Gas filed its annual information filing confirming that there was no
liability for fiscal year 2009 and that approximately $0.5 million of previously expensed hexane
cost were recoverable in rates. A decision on this filing is expected in the summer of 2010.
On an interim basis, Washington Gas records the effects of the ESM based on year-to-date
earnings in relation to estimated annual earnings as calculated for regulatory purposes.
For three months ended December 31, 2009, we did not incur expense
related to the ESM.
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 December 31, 2009 and
September 30,
58
WGL Holdings, Inc.
Washington Gas Light Company
Part IFinancial Information
Item 2Managements Discussion and Analysis of
Financial Condition and Results of Operations (concluded)
2009, we had recorded a regulatory asset of $7.2 million and $7.4 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, with the exception of the implementation of a revenue
normalization adjustment.
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 the MD OPC noted appeals of the October 15, 2008 proposed
order, thus suspending its effective date.
On February 5, 2010, the PSC of MD issued an order on
appeal. The order affirmed the proposed order with two exceptions: (i) it directed the parties to
confer and report on a prospective allocation method for reimbursements and (ii) it directed Washington
Gas to amortize its $13.3 million reserve deficiency imbalance over a 33.5 year time frame. We are currently
assessing the requirements of the decision and the merits of an appeal. The PSC of MDs practice provides
that the prospective impact of changes in depreciation rates from such an order will not be reflected on
Washington Gass accounts and records until a change in Washington Gass distribution rates
charged to customers takes effect. Implementation of revised depreciation rates and base rates is
subject to approval by the PSC of MD.
59
WGL Holdings, Inc.
Washington Gas Light Company
Part IFinancial Information
|
|
|
ITEM 3.
|
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
The following issues related to our market risks are included under Item 2,
Managements
Discussion and Analysis of Financial Condition and Results of Operations
, and are incorporated by
reference into this discussion.
|
|
|
Price Risk Related to the Regulated Utility Segment
|
|
|
|
|
Price Risk Related to the Retail Energy-Marketing Segment
|
|
|
|
|
Weather Risk
|
|
|
|
|
Interest-Rate Risk
|
|
|
|
ITEM 4.
|
|
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 such term is defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange
Act of 1934) as of December 31, 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 are effective. There have been no changes in the
internal control over financial reporting of WGL Holdings during the quarter ended December 31,
2009 that have materially affected, or are reasonably likely to materially affect, the internal
control over financial reporting of WGL Holdings.
|
|
|
ITEM 4T.
|
|
CONTROLS AND PROCEDURES
|
Washington Gas is a non-accelerated filer; therefore, management has included this Item 4T as
part of this combined report being filed by the two separate registrants: WGL Holdings and
Washington Gas.
Senior management, including the Chairman and Chief Executive Officer, and the Vice President
and Chief Financial Officer, evaluated the effectiveness of the disclosure controls and procedures
(as such term is defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934)
of Washington Gas as of December 31, 2009. Based on this evaluation process, the Chairman and
Chief Executive Officer, and the Vice President and Chief Financial Officer have concluded that the
disclosure controls and procedures of Washington Gas are effective. There have been no changes in
the internal control over financial reporting of Washington Gas during the quarter ended December
31, 2009 that have materially affected, or are reasonably likely to materially affect, the internal
control over financial reporting of Washington Gas.
60
WGL Holdings, Inc.
Washington Gas Light Company
Part IIOther Information
Item 6Exhibits
Exhibits:
|
|
|
|
|
|
10.1
|
|
|
Form of Defined Contribution Supplemental Executive Retirement Plan.*
|
|
|
10.2
|
|
|
Form of Defined Contribution Restoration Plan.*
|
|
|
10.3
|
|
|
Form of Defined Benefit Restoration Plan.*
|
|
|
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.
|
|
|
99.1
|
|
|
Computation of Ratio of Earnings to Fixed ChargesWGL Holdings, Inc.
|
|
|
99.2
|
|
|
Computation of Ratio of Earnings to Fixed Charges and Preferred Stock DividendsWGL
Holdings, Inc.
|
|
|
99.3
|
|
|
Computation of Ratio of Earnings to Fixed ChargesWashington Gas Light Company.
|
|
|
99.4
|
|
|
Computation of Ratio of Earnings to Fixed Charges and Preferred Stock
DividendsWashington Gas Light Company.
|
|
|
|
*
|
|
This asterisk designates an agreement that is a compensatory plan or arrangement.
|
61
WGL Holdings, Inc.
Washington Gas Light Company
Signature
Pursuant to the requirements 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)
|
|
Date: February 5, 2010
|
/s/ Mark P. OFlynn
|
|
|
Mark P. OFlynn
|
|
|
Controller
(Principal Accounting Officer)
|
|
|
62
Exhibit 10.1
WASHINGTON GAS LIGHT COMPANY
DEFINED CONTRIBUTION
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
Effective as of January 1, 2010
|
|
|
|
|
ARTICLE I PURPOSE
|
|
|
1
|
|
|
|
|
|
|
1.1 Establishment and Purpose
|
|
|
1
|
|
|
|
|
|
|
ARTICLE II DEFINITIONS
|
|
|
1
|
|
|
|
|
|
|
2.1 Account
|
|
|
1
|
|
2.2 Base Pay
|
|
|
1
|
|
2.3 Beneficiary(ies)
|
|
|
1
|
|
2.4 Board
|
|
|
1
|
|
2.5 Change in Control
|
|
|
1
|
|
2.6 Code
|
|
|
1
|
|
2.7 Company
|
|
|
2
|
|
2.8 Company Credit
|
|
|
2
|
|
2.9 Disability or Disabled
|
|
|
2
|
|
2.10 Eligible Employee
|
|
|
2
|
|
2.11 Employee
|
|
|
2
|
|
2.12 ERISA
|
|
|
2
|
|
2.13 Incentive Compensation
|
|
|
2
|
|
2.14 Matching Credit
|
|
|
2
|
|
2.15 Measurement Funds
|
|
|
2
|
|
2.16 Participant
|
|
|
3
|
|
2.17 Plan
|
|
|
3
|
|
2.18 Plan Administrator
|
|
|
3
|
|
2.19 Plan Year
|
|
|
3
|
|
2.20 Incentive Credit
|
|
|
3
|
|
2.21 Savings Plan
|
|
|
3
|
|
2.22 Termination of Employment
|
|
|
3
|
|
2.23 Total Pay
|
|
|
3
|
|
2.24 Unforeseeable Emergency
|
|
|
3
|
|
2.25 Years of Service
|
|
|
3
|
|
|
|
|
|
|
ARTICLE III ADMINISTRATION
|
|
|
3
|
|
|
|
|
|
|
3.1 Plan Administrator
|
|
|
3
|
|
3.2 Duties
|
|
|
4
|
|
3.3 Agents
|
|
|
4
|
|
3.4 Binding Effect of Decisions
|
|
|
4
|
|
|
|
|
|
|
ARTICLE IV PARTICIPATION
|
|
|
4
|
|
|
|
|
|
|
4.1 Commencement of Participation
|
|
|
4
|
|
4.2 Termination of Participation
|
|
|
4
|
|
|
|
|
|
|
ARTICLE V BENEFITS
|
|
|
5
|
|
|
|
|
|
|
5.1 Company Credit
|
|
|
5
|
|
5.2 Matching Credit
|
|
|
5
|
|
5.3 Incentive Credit
|
|
|
5
|
|
5.4 Vesting
|
|
|
5
|
|
i
|
|
|
|
|
ARTICLE VI PARTICIPANT ACCOUNT
|
|
|
7
|
|
|
|
|
|
|
6.1 Establishment and Crediting of Account
|
|
|
7
|
|
6.2 Investment of Accounts
|
|
|
7
|
|
6.3 Valuation of Account
|
|
|
7
|
|
6.4 Statement of Account
|
|
|
8
|
|
6.5 Separate Accounting
|
|
|
8
|
|
|
|
|
|
|
ARTICLE VII PAYMENTS TO PARTICIPANTS
|
|
|
8
|
|
|
|
|
|
|
7.1 Time and Form of Payment
|
|
|
8
|
|
7.2 Valuation of Payments
|
|
|
8
|
|
7.3 Withholding Taxes
|
|
|
9
|
|
7.4 Effect of Payment
|
|
|
9
|
|
7.5 Delay of Payment for Specified Employees
|
|
|
9
|
|
|
|
|
|
|
ARTICLE VIII CLAIMS PROCEDURES
|
|
|
9
|
|
|
|
|
|
|
8.1 Claim for Benefits
|
|
|
9
|
|
8.2 Notice of Denial
|
|
|
10
|
|
8.3 Review of Claim
|
|
|
10
|
|
8.4 Decision After Review
|
|
|
10
|
|
8.5 Legal Action
|
|
|
11
|
|
8.6 Discretion of the Plan Administrator
|
|
|
11
|
|
|
|
|
|
|
ARTICLE IX MISCELLANEOUS
|
|
|
11
|
|
|
|
|
|
|
9.1 Unfunded Status of Plan
|
|
|
11
|
|
9.2 Nonalienation of Benefits
|
|
|
11
|
|
9.3 No Contract of Employment
|
|
|
11
|
|
9.4 No Limitation on Company Actions
|
|
|
11
|
|
9.5 No Liability for Action or Omission
|
|
|
11
|
|
9.6 Designation of Beneficiary
|
|
|
12
|
|
9.7 Payments to Minors, Etc.
|
|
|
12
|
|
9.8 Code Section 409A
|
|
|
12
|
|
9.9 Applicable Law and Construction
|
|
|
12
|
|
9.10 Severability of Provisions
|
|
|
12
|
|
9.11 Headings and Captions
|
|
|
12
|
|
9.12 Gender and Number
|
|
|
13
|
|
9.13 Notice
|
|
|
13
|
|
9.14 Amendment and Termination
|
|
|
13
|
|
9.15 Successors
|
|
|
13
|
|
ii
WASHINGTON GAS LIGHT COMPANY
DEFINED CONTRIBUTION
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
ARTICLE I
Purpose
1.1
Establishment and Purpose
. The Company established the Plan effective January
1, 2010 to provide a select group of management and highly compensated employees of the Company
with supplemental retirement benefits. The Company intends that the Plan constitute an unfunded
deferred compensation plan for a select group of management or highly compensated employees within
the meaning of ERISA sections 201(2), 301(a)(3) and 401(a)(1). All provisions of the Plan shall be
interpreted and administered to the extent possible in a manner consistent with the stated
intentions. Capitalized terms, unless otherwise defined herein, shall have the meaning provided in
ARTICLE II.
ARTICLE II
Definitions
For ease of reference, the following definitions will be used in the Plan:
2.1
Account
. Account means the unfunded bookkeeping account maintained on the
books of the Company used solely to calculate the amount payable to each Participant who is
otherwise entitled to a benefit under ARTICLE V and shall not constitute a separate fund of assets.
2.2
Base Pay
. Base Pay means a Participants base salary as in effect from time
to time during a Plan Year as shown on the Companys payroll records. Without limiting the
generality of the foregoing, Base Pay does not include bonuses or incentive compensation, non-cash
compensation or other non-base compensation.
2.3
Beneficiary(ies)
. Beneficiary or Beneficiaries means the person or
persons designated by the Participant to receive payments under this Plan in the event of the
Participants death.
2.4
Board
. Board means the Board of Directors of Washington Gas Light Company.
2.5
Change in Control
. Change in Control means a Change in Control pursuant to
the terms of the Washington Gas Light Company Change in Control Policy, which is incorporated by
reference herein.
2.6
Code
. Code means the Internal Revenue Code of 1986, as amended.
1
2.7
Company
. Company means Washington Gas Light Company, a Virginia and
District of Columbia corporation, and any successor to all, or substantially all, of the Companys
assets or business.
2.8
Company Credit
. Company Credit means an amount credited by the Company to a
Participants Account for the benefit of the Participant pursuant to Section 5.1.
2.9
Disability or Disabled
. Disability means, to the extent consistent with
Code section 409A, a physical or mental condition which prevents an Employee from engaging in any
substantially gainful activity as determined by the Companys Medical Director provided such
disability is expected to result in death or can be expected to last for a continuous period of not
less than 12 months.
2.10
Eligible Employee
. Eligible Employee means any Employee who (i) is an
executive, management or highly compensated Employee; (ii) is not a participant in the Washington
Gas Light Company Supplemental Executive Retirement Plan; and (iii) is selected by the Board to
participate in the Plan.
2.11
Employee
. Employee means any person who receives salary, wages or
commissions from the Company and whose wages from the Company are subject to withholding for
purposes of federal income taxes and the Federal Insurance Contribution Act, as determined by the
Plan Administrator.
2.12
ERISA
. ERISA means the Employee Retirement Income Security Act of 1974, as
it may be amended from time to time.
2.13
Incentive Compensation.
Incentive Compensation means any short term
incentive award under any incentive compensation plan maintained by the Company that is paid during
the Plan Year.
2.14
Matching Credit
. Matching Credit means an amount credited to a
Participants Account by the Company for the benefit of the Participant pursuant to Section 5.2.
2.15
Measurement Funds
. Measurement Funds means the investment alternatives
offered under the Savings Plan unless the Plan Administrator takes an affirmative action, in its
sole discretion, to discontinue, substitute, or modify such investment alternatives solely for
purposes of this Plan. Notwithstanding the foregoing, the WGL Holdings, Inc. Stock Fund and the
Stable Value Fund offered under the Savings Plan shall not constitute Measurement Funds for
purposes of the Plan. Measurement Funds are used solely to calculate the notional earnings that
are credited to each Participants Account(s) in accordance with Section 6.2 below, and do not
represent any beneficial interest on the part of the Participant in any asset or other property of
WGL Holdings, Inc., the Company or any affiliate thereof. Unless the Plan Administrator otherwise
determines in its discretion, any addition, removal or replacement of investment funds under the
Savings Plan shall automatically result in a corresponding change to the Measurement Funds
hereunder.
2
2.16
Participant
. Participant means an individual described in Section 4.1 or a
former Employee who has an Account that is not fully distributed.
2.17
Plan
. Plan means this Plan, entitled the Washington Gas Light Company
Defined Contribution Supplemental Executive Retirement Plan, as amended from time to time
hereafter.
2.18
Plan Administrator
. Plan Administrator means the plan administrator
appointed by the Board to administer the Plan pursuant to Section 3.1 (or, where the context so
requires, any delegate of the Plan Administrator).
2.19
Plan Year
. Plan Year means a period beginning on January 1 of each
calendar year and continuing through December 31 of such calendar year.
2.20
Incentive Credit
. Incentive Credit means an amount credited to a
Participants Account by the Company for the benefit of the Participant pursuant to Section 5.3.
2.21
Savings Plan
. Savings Plan means the Washington Gas Light Company Savings
Plan, as amended from time to time.
2.22
Termination of Employment
. Termination of Employment means a Participants
separation from service with the Company within the meaning of Code section 409A and the
regulations and rulings promulgated thereunder.
2.23
Total Pay.
Total Pay means the aggregate of Base Pay and Incentive
Compensation.
2.24
Unforeseeable Emergency
. Unforeseeable Emergency means a severe financial
hardship to a Participant or the Participants spouse, Beneficiary or dependents within the meaning
of Code section 409A(a)(2)(B)(ii) and the regulations and rulings promulgated thereunder.
2.25
Years of Service
. Years of Service means the total number of years that a
Participant has been employed by the Company as determined in accordance with the Savings Plan and
Treasury Regulation section 1.410(a)-7 as of any determination date.
ARTICLE III
Administration
3.1
Plan Administrator
. The Plan shall be administered by a committee that is
comprised of the members of the Retirement Board appointed by the Companys Board of Directors with
respect to the Washington Gas Light Company Employees Pension Plan, or such other committee or
persons as are selected from time to time by the Board of Directors (the Committee). The Plan
Administrator may delegate any of its duties to such other person or persons from time to time as
it may designate. Members of the
3
Committee may participate in the Plan; however, any individual serving on the Committee
shall not vote or act on any matter relating solely to himself or herself.
3.2
Duties
. The Plan Administrator shall have the sole discretion to construe and
interpret all provisions of the Plan and, to the extent permitted by Code section 409A, the Plan
Administrator is authorized to remedy any errors, inconsistencies or omissions, to resolve any
ambiguities, to adopt rules and practices concerning the administration of the Plan, and to make
any determinations and calculations necessary or appropriate hereunder. Benefits under the Plan
will be paid only if the Plan Administrator decides in its discretion that the Participant is
entitled to them, except as reserved to the Human Resources Committee of the Board under Section
7.1(c). The Company shall pay all expenses and liabilities incurred in connection with Plan
administration.
3.3
Agents
. The Plan Administrator may engage the services of accountants,
attorneys, actuaries, investment consultants, and such other professional personnel as are deemed
necessary or advisable to assist in fulfilling the Plan Administrators responsibilities. The Plan
Administrator, the Company and the Board may rely upon the advice, opinions or valuations of any
such persons.
3.4
Binding Effect of Decisions
. The decision or action of the Plan Administrator
with respect to any question arising out of or in connection with the administration,
interpretation and application of the Plan and the rules and regulations promulgated hereunder
shall be final, conclusive and binding upon all persons having any interest in the Plan. Neither
the Plan Administrator, its delegates, nor the Board shall be personally liable for any good faith
action, determination or interpretation with respect to the Plan, and each shall be fully protected
by the Company in respect of any such action, determination or interpretation.
ARTICLE IV
Participation
4.1
Commencement of Participation
. Each Eligible Employee shall become a
Participant no earlier than the date the Board meets and designates the Employee as an Eligible
Employee; Participation shall begin on the date the Board shall specify.
4.2
Termination of Participation
. If the Board determines in good faith that a
Participant is no longer an Eligible Employee, such Employee shall no longer be eligible to receive
any Company Credits, Matching Credits or Incentive Credits, and the terms of this Plan shall
continue to govern until amounts previously credited to Participants Account are paid in full.
4
ARTICLE V
Benefits
5.1
Company Credit
. Eligible Employees shall be entitled to receive a Company
Credit equal to 6% of the Participants Total Pay for the pay period each pay period in the Plan
Year.
5.2
Matching Credit
. An Eligible Employee who has elected to defer any portion of
his or her compensation under the Savings Plan as of the first day of a Plan Year shall be entitled
to receive a Matching Credit each pay period equal to 4% of the Participants Incentive
Compensation for the pay period.
5.3
Incentive Credit
. An Eligible Employee who is not currently accruing a
benefit under the Washington Gas Light Company Employees Pension Plan shall be entitled to receive
a Incentive Credit each pay period in an amount equal to the percentage attributable to the
Participants Years of Service as of the December 31 of the previous Plan Year in accordance with
the table set forth in this Section 5.3, multiplied by the Participants Incentive Compensation for
the pay period.
|
|
|
|
|
|
|
Percentage of
|
Years of Service
|
|
Annual Compensation
|
Less than 5
|
|
|
4.00
|
%
|
5 to 9
|
|
|
5.00
|
%
|
10 to 14
|
|
|
5.50
|
%
|
15 or more
|
|
|
6.00
|
%
|
5.4
Vesting
.
(a)
General
. Subject to Section 5.4(d) below and the right of the Company
to amend or terminate the Plan, Participants shall vest in amounts credited to their
Accounts as follows:
(i) At the time a Participant first becomes a Participant in the Plan
(A) The Participant shall become 10% vested for every period of 5
Years of Service completed prior to January 1 of the year in which he or
she became a Participant. For this purpose, four complete Years of
Service plus one day of service with the Company will be treated as 5
Years of Service; plus
(B) The Participant shall become 5% vested for every Year of
Service prior to, and including, the year the Participant attained age 49.
(ii) Thereafter, a Participant shall vest an additional 10% each Plan Year
that constitutes a Year of Service, up to a maximum of 100%.
5
(b)
Disability
. If a Participant becomes Disabled when the Participant is
an Employee, the Participant shall become 100% vested in his Account.
(c)
Change in Control
. Upon a Change in Control, Participants shall
become 100% vested in their Accounts.
(d)
Exceptions
.
(i)
Company Initiated Termination
. The provisions of Section
5.4(a) will not apply if a Participants Termination of Employment occurs as a
result of a Company-initiated action. In such event, the Participants vested
interest in his Account balance shall be calculated in accordance with the
following schedule:
|
|
|
|
|
Years
|
|
|
of
|
|
|
Service
|
|
Vested Percentage
|
1
|
|
|
20
|
%
|
2
|
|
|
40
|
%
|
3
|
|
|
60
|
%
|
4
|
|
|
80
|
%
|
5
|
|
|
100
|
%
|
(ii)
Acceleration of Vesting
. The Plan Administrator may waive
all vesting requirements or permit accelerated vesting arrangements in any case
which, in the Plan Administrators discretion, represents special circumstances.
(iii)
Misconduct
. Notwithstanding any Plan provision to the
contrary, if a Participant willfully performs any act or willfully fails to perform
any act of material importance to the Company, that may result in material
discredit or substantial detriment to the Company, then upon a majority vote of the
Board, such Participant and any Beneficiary of such individual shall forfeit any
benefit payments owing on and after the date fixed by the Board and the Company
shall have no further obligation under this Plan to such Participant or any
Beneficiary. If a Participant to which this Section applies received payment of
his or her Account pursuant to Section 7.1, then the Participant or his Beneficiary
shall return
6
to the Company a proportionate share of such payment calculated as
follows:
The payment amount shall be multiplied by a fraction, the numerator of which is the
number of full years and months which elapsed from the time of the payment to the
time of the willful act or failure to act described above, and the denominator of
which is the number of full years and months of the Participants life expectancy
determined as of the time of the payment.
ARTICLE VI
Participant Account
6.1
Establishment and Crediting of Account
. The Plan Administrator will establish
notional accounts for each Participant as the Plan Administrator deems necessary or advisable from
time to time. The Plan Administrator will establish a Participants Account at the time the
Company first credits a Company Credit, a Matching Credit or a Incentive Credit to the Account.
The Plan Administrator shall, to the extent possible, credit Company Credits, Matching Credits and
Incentive Credits to Participant Accounts on a per pay period basis. Each Account shall be
credited as appropriate with notional earnings and reduced for notional losses or distributions
from the Account.
6.2
Investment of Accounts
. Participants may allocate the credits to their
Account among the various Measurement Funds under procedures adopted by the Plan Administrator. In
default of such designation, credits to a Participants Account shall be allocated to the
Measurement Fund(s) that serves as the default investment option in the Savings Plan, unless the
Plan Administrator makes an affirmative election otherwise in its sole discretion. A Participants
Account shall be credited with all deemed earnings (or losses) generated by the Measurement Funds,
as elected by the Participant, on each business day for the sole purpose of determining the amount
of earnings to be credited or debited to such Account as if the designated balance of the Account
had been invested in the applicable Measurement Fund. Notwithstanding that the rates of return
credited to a Participants Accounts are based upon the actual performance of the corresponding
Measurement Funds, the Company shall not be obligated to invest any amount credited to a
Participants Account under this Plan in such Measurement Funds or in any other investment funds.
Upon notice to the Plan Administrator in the manner it prescribes, a Participant may reallocate the
Measurement Funds to which his or her Account is deemed to be allocated.
6.3
Valuation of Account
. The value of a Participants Account as of any date
shall equal the amounts theretofore credited to such Account, including any earnings (positive or
negative) deemed to be earned on such Account in accordance with Section 6.2, less any amounts
theretofore deducted from such Account.
7
6.4
Statement of Account
. The Plan Administrator shall provide or make available
to each Participant (including electronically), not less frequently than quarterly, a statement in
such form as the Plan Administrator deems desirable setting forth the balance standing to the
credit of his or her Account.
6.5
Separate Accounting
. If and to the extent required for the proper
administration of the Plan, the Plan Administrator may segregate a Participants Account into
subaccounts on the books and records of the Plan, all of which subaccounts shall, together,
constitute the Participants Account.
ARTICLE VII
Payments to Participants
7.1
Time and Form of Payment
. The vested portion of a Participants Account will
be distributed upon the first to occur of the Participants Separation from Service, Disability or
the occurrence of an Unforeseeable Emergency.
(a)
Separation from Service
. Distributions due to Separation from Service
will be paid in a lump sum to the Participant on the first day of the seventh month
following the Participants Termination of Employment, or, if earlier, within 30 days
following the Participants death. In the event of death, the vested portion of a
Participants Account shall be paid in a lump sum to the Participants Beneficiary.
(b)
Disability
. Distributions due to a Disability will be paid in a lump
sum 30 days following the occurrence of the Disability.
(c)
Unforeseeable Emergency
. In the event that the Human Resources
Committee of the Board, upon written request of a Participant, determines that the
Participant has suffered an Unforeseeable Emergency, the Participant will be paid from his
or her Account, within 30 days following such determination, an amount necessary to meet
the emergency (determined in a manner consistent with Section 409A), plus amounts necessary
to pay taxes reasonably anticipated because of the distribution.
Notwithstanding the foregoing, if a payment is not made on the designated payment date, the payment
shall be made by December 31 of the calendar year in which the designated payment date occurs or,
if later, on or before the 15th day of the third month following the designated payment date. Any
payment that complies with this Section shall be deemed for all purposes to comply with the Plan
requirements regarding the time and form of payment.
7.2
Valuation of Payments
. Benefits shall be payable in an amount equal to the
balance credited to the Participants Account as of the most recent business day immediately
preceding the date of the actual distribution, with the Measurement Funds being deemed to have been
liquidated on that date to make the payment.
8
7.3
Withholding Taxes
. The Company may make such provisions and take such action
as it may deem necessary or appropriate for the withholding of any taxes which the Company is
required by any law or regulation of any governmental authority, whether federal, state or local,
to withhold in connection with any benefits under the Plan, including, but not limited to, the
withholding of appropriate sums from any amount otherwise payable to the Participant (or his or her Beneficiary). Each Participant, however,
shall be responsible for the payment of all individual tax liabilities relating to any such
benefits.
Notwithstanding the foregoing, to the extent permitted by Code section 409A, the Plan
Administrator, in its sole discretion, may accelerate the time of payment if a Participant is
subject to tax under the Federal Insurance Contribution Act (FICA) before distributions are to be
made under the Plan to pay the FICA tax imposed under section 3101 of the Code, section 3121(a) of
the Code, and section 3121(v)(2) of the Code, or to pay the income tax at source on wages imposed
under section 3401 of the Code or the corresponding withholding provisions of applicable state,
local, or foreign tax laws as a result of the payment of the FICA amount, and to pay the additional
income tax at source on wages attributable to the pyramiding section 3401 of the Code wages and
taxes. Any payment distributed pursuant to this Section must not exceed the aggregate FICA and
related tax amount permitted under section 409A of the Code.
7.4
Effect of Payment
. The full payment of the vested portion of a Participants
Account shall completely discharge all obligations on the part of the Company to the Participant
(and each Beneficiary) with respect to the operation of this Plan, and the Participants (and
Beneficiarys) rights under this Plan shall terminate.
7.5
Delay of Payment for Specified Employees
. Notwithstanding any provision of
this Plan to the contrary, in the case of any Participant who is a specified employee within the
meaning of Code section 409A as of the date of such Participants Termination of Employment, no
distribution under this Plan may occur before the date which is six months after the date of such
Participants Termination of Employment (or, if earlier, the date of the Participants death).
ARTICLE VIII
Claims Procedures
8.1
Claim for Benefits
. Any claim for benefits under this Plan shall be made in
writing to the Plan Administrator. If a claim for benefits is wholly or partially denied, the Plan
Administrator, or its delegate, shall so notify the claimant within 90 days after receipt of the
claim. If the Plan Administrator determines that an extension is necessary, the Plan Administrator
will notify the claimant within the initial 90-day period that the Plan Administrator needs up to
an additional 90 days to review the claim. In the case of a claim for disability benefits, the
Plan Administrator shall notify the claimant within 45 days after the claim is received unless the
Plan Administrator determines that an extension of time for processing is required due to matters
beyond the control of the Plan, in which case written notice of the extension shall be furnished to
the claimant prior to
9
termination of the original 45-day period. Such extension shall not exceed
30 days from the end of the initial period. If, prior to the end of the first 30-day extension
period, the Plan Administrator determines that, due to matters beyond the control of the Plan, an
additional extension of time for processing is required, written notice of a second 30-day
extension shall be furnished to the claimant prior to termination of the first 30-day
extension.
8.2
Notice of Denial
. The notice of denial shall be written in a manner
calculated to be understood by the claimant and shall contain (a) the specific reason or reasons
for denial of the claim, (b) specific references to the pertinent Plan provisions upon which the
denial is based, (c) a description of any additional material or information necessary to perfect
the claim together with an explanation of why such material or information is necessary and (d) an
explanation of the claims review procedure and time limits, including a statement of the claimants
right to bring a civil action under section 502(a) of ERISA following an adverse benefit
determination on review. In the case of a claim for disability benefits, the notification shall
also advise the claimant whether the Plan Administrators denial relied upon any specific rule,
guideline, protocol or scientific or clinical judgment. The decision or action of the Plan
Administrator shall be final, conclusive and binding on all persons having any interest in the
Plan, unless a written appeal is filed as provided in Section 8.3 hereof.
8.3
Review of Claim
. Within 60 days after the receipt by the claimant of notice
of denial of a claim, the claimant may (a) file a request with the Plan Administrator that it
conduct a full and fair review of the denial of the claim, (b) receive, upon request and free of
charge, reasonable access to, and copies of, all documents, records, and other information relevant
to the claim for benefits, and (c) submit questions and comments to the Plan Administrator in
writing.
8.4
Decision After Review
. Within 60 days after the receipt of a request for
review under Section 8.3, the Plan Administrator, or its delegate, shall deliver to the claimant a
written decision with respect to the claim, except that if there are special circumstances which
require more time for processing, the 60-day period shall be extended to 120 days upon notice to
that effect to the claimant. The decision shall be written in a manner calculated to be understood
by the claimant and shall (a) include the specific reason or reasons for the decision, (b) contain
a specific reference to the pertinent Plan provisions upon which the decision is based, (c) a
statement that the claimant is entitled to receive, upon request and free of charge, reasonable
access to, and copies of, all documents, records, and other information relevant to the claim for
benefits, and (d) a statement of the claimants right to bring a civil action under section 502(a)
of ERISA. In the case of a claim for disability benefits, the notice shall set forth: (1) whether
the Plan Administrators denial relied upon any specific rule, guideline, protocol or scientific or
clinical judgment; and (2) the following statement: You and your Plan may have other voluntary
alternative dispute resolution options, such as mediation. One way to find out what may be
available is to contact your local U.S. Department of Labor Office and your State insurance
regulatory agency.
10
8.5
Legal Action
. A claimant may not bring any legal action relating to a claim
for benefits under the Plan unless and until the claimant has followed the claims procedures under
the Plan and exhausted his or her administrative remedies under such claims procedures.
8.6
Discretion of the Plan Administrator
. All interpretations, determinations and
decisions of the Plan Administrator with respect to any claim shall be made in its sole discretion,
and shall be final and conclusive.
ARTICLE IX
Miscellaneous
9.1
Unfunded Status of Plan
. The Plan is intended to constitute an unfunded
deferred and supplemental retirement compensation plan for Participants, with all benefits payable
hereunder constituting an unfunded contractual payment obligation of the Company. The Company
shall reflect on its books the Participants interests hereunder, but no Participant or any other
person shall under any circumstances acquire any property interest in any specific assets of the
Company. A Participants right to receive payments under the Plan shall be no greater than the
right of an unsecured general creditor of the Company.
9.2
Nonalienation of Benefits
. None of the payments, benefits or rights of any
Participant under the Plan shall be subject to any claim of any creditor, and, in particular, to
the fullest extent permitted by law, all such payments, benefits and rights shall be free from
attachment, garnishment, trustees process, or any other legal or equitable process available to
any creditor of such Participant. No Participant shall have the right to alienate, anticipate
commute, pledge, encumber or assign any of the benefits or payments which he or she may expect to
receive, contingently or otherwise, under the Plan.
9.3
No Contract of Employment
. Neither the establishment of the Plan, nor any
modification thereof, nor the creation of any fund, trust or account, nor the payment of any
benefits shall be construed as giving any Participant, or any person whosoever, the right to be
retained in the service of the Company, and all Participants and other employees shall remain
subject to discharge to the same extent as if the Plan had never been adopted.
9.4
No Limitation on Company Actions
. Nothing contained in the Plan shall be
construed to prevent the Company from taking any action which is deemed by it to be appropriate or
in its best interest. No Participant, Beneficiary, or other person shall have any claim against
the Company as a result of such action.
9.5
No Liability for Action or Omission
. Neither the Company, the Plan
Administrator nor any director, officer or employee of the Company shall be responsible or liable
in any manner to any Participant, Beneficiary or any person claiming through them for any benefit
or action taken or omitted in connection with the granting of benefits, the continuation of
benefits, or the interpretation and administration of this Plan.
11
9.6
Designation of Beneficiary
. Each Participant may designate in writing a
Beneficiary or Beneficiaries (which Beneficiary may be an entity other than a natural person if
approved by the Plan Administrator in its sole discretion) to receive any payments which may be
made under the Plan following the Participants death. No
Beneficiary designation shall become effective until it is in writing and it is filed with the
Plan Administrator. A Beneficiary designation under the Plan may be separate from all other
retirement-type plans sponsored by the Company. Such designation may be changed or canceled by the
Participant at any time without the consent of any such Beneficiary. Any such designation, change
or cancellation must be made in a form approved by the Plan Administrator and shall not be
effective until received by the Plan Administrator or its designee. If no Beneficiary has been
named, or the designated Beneficiary or Beneficiaries have predeceased the Participant, the
Beneficiary shall be the Participants estate.
9.7
Payments to Minors, Etc.
. Any benefit payable to or for the benefit of a
minor, an incompetent person or other person incapable of receipting therefore shall be deemed paid
when paid to such persons guardian or to the party providing or reasonably appearing to provide
for the care of such person, and such payment shall be a complete discharge of any liability for
such payment amount.
9.8
Code Section 409A
. The Plan is intended to be a nonqualified deferred
compensation plan within the meaning of Code section 409A and shall be interpreted to meet the
requirements of Code section 409A. To the extent that any provision of the Plan would cause a
conflict with the requirements of Code section 409A, or would cause the administration of the Plan
to fail to satisfy Code section 409A, such provision shall be deemed null and void to the extent
permitted by applicable law. Nothing herein shall be construed as a guarantee of any particular
tax treatment to a Participant.
9.9
Applicable Law and Construction
. This Plan shall be governed by, construed
and administered in accordance with the applicable provisions of ERISA, and any other applicable
Federal law, including Code section 409A, and to the extent not preempted by Federal law, this Plan
shall be governed by, construed, and administered in accordance with the laws of the Commonwealth
of Virginia, without reference to the principles of conflict of laws.
9.10
Severability of Provisions
. If any provision of this Plan shall be held
invalid or unenforceable, such invalidity or unenforceability shall not affect any other provisions
hereof, and the Plan Administrator may elect in its sole discretion to construe such invalid or
unenforceable provisions in a manner that conforms to applicable law or as if such provisions, to
the extent invalid and unenforceable, had not been included.
9.11
Headings and Captions
. The headings and captions herein are provided for
reference and convenience only, shall not be considered part of the Plan, and shall not be employed
in the construction of the Plan.
12
9.12
Gender and Number
. Except where otherwise indicated by the context, any
masculine term used herein also shall include the feminine; the plural shall include the singular
and the singular shall include the plural.
9.13
Notice
. Any notice or filing required or permitted under the Plan shall be
sufficient if in writing and if (i) hand-delivered or sent by telecopy, (ii) sent by registered or
certified mail, or (iii) sent by nationally-recognized overnight courier. Such notice shall be
deemed given as of (i) the date of delivery if hand-delivered or sent by telecopy, (ii) as of the
date shown on the postmark on the receipt for registration or certification, if delivery is by
mail, or (iii) on the first business day after dispatch, if sent by nationally-recognized overnight
courier.
9.14
Amendment and Termination
. The Plan may be amended, suspended, or terminated
at any time (in whole or in part) by the Company in its sole discretion; provided, however, that no
such amendment, suspension or termination shall result in any reduction in the value of a
Participants Account determined as of the effective date of such amendment. In addition, the
Plan, may be amended at any time and in any respect by the Company (and/or its operation modified
by the Plan Administrator) if and to the extent recommended by Company counsel in order to conform
to the requirements of Code section 409A and regulations thereunder or to any other Code section or
regulation that bears on the tax-deferred character of the benefits provided hereunder. In the
event of any suspension or termination of the Plan (or any portion thereof), payment of
Participants Accounts shall be made under and in accordance with the terms of the Plan (except
that the Plan Administrator may determine, in its sole discretion, to accelerate payments to all
Participants if and to the extent that such acceleration is permitted under Code section 409A and
regulations thereunder).
9.15
Successors
. This Plan shall bind any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of the business or
assets of the Company, in the same manner and to the same extent that the Company would be
obligated under this Plan if no succession had taken place.
[The remainder of this page intentionally left blank]
13
Exhibit 10.2
WASHINGTON GAS LIGHT COMPANY
DEFINED CONTRIBUTION
RESTORATION PLAN
Effective as of January 1, 2010
|
|
|
|
|
ARTICLE I PURPOSE
|
|
|
1
|
|
|
|
|
|
|
1.1 Establishment and Purpose
|
|
|
1
|
|
|
|
|
|
|
ARTICLE II DEFINITIONS
|
|
|
1
|
|
|
|
|
|
|
2.1 Account
|
|
|
1
|
|
2.2 Base Pay
|
|
|
1
|
|
2.3 Base Pay Matching Credit
|
|
|
1
|
|
2.4 Base Pay Restoration Credit
|
|
|
1
|
|
2.5 Beneficiary(ies)
|
|
|
1
|
|
2.6 Board
|
|
|
1
|
|
2.7 Change in Control
|
|
|
2
|
|
2.8 Code
|
|
|
2
|
|
2.9 Company
|
|
|
2
|
|
2.10 Disability
|
|
|
2
|
|
2.11 Eligible Employee
|
|
|
2
|
|
2.12 Employee
|
|
|
2
|
|
2.13 ERISA
|
|
|
2
|
|
2.14 Measurement Funds
|
|
|
2
|
|
2.15 Participant
|
|
|
2
|
|
2.16 Plan
|
|
|
3
|
|
2.17 Plan Administrator
|
|
|
3
|
|
2.18 Plan Year
|
|
|
3
|
|
2.19 Savings Plan
|
|
|
3
|
|
2.20 Termination of Employment
|
|
|
3
|
|
2.21 Unforeseeable Emergency
|
|
|
3
|
|
2.22 Years of Service
|
|
|
3
|
|
|
|
|
|
|
ARTICLE III ADMINISTRATION
|
|
|
3
|
|
|
|
|
|
|
3.1 Plan Administrator
|
|
|
3
|
|
3.2 Duties
|
|
|
3
|
|
3.3 Agents
|
|
|
4
|
|
3.4 Binding Effect of Decisions
|
|
|
4
|
|
|
|
|
|
|
ARTICLE IV PARTICIPATION
|
|
|
4
|
|
|
|
|
|
|
4.1 Commencement of Participation
|
|
|
4
|
|
4.2 Termination of Participation
|
|
|
4
|
|
|
|
|
|
|
ARTICLE V BENEFITS
|
|
|
4
|
|
|
|
|
|
|
5.1 Base Pay Matching Credit
|
|
|
4
|
|
5.2 Base Pay Restoration Credit
|
|
|
4
|
|
5.3 Vesting
|
|
|
5
|
|
|
|
|
|
|
ARTICLE VI PARTICIPANT ACCOUNT
|
|
|
6
|
|
|
|
|
|
|
6.1 Establishment and Crediting of Account
|
|
|
6
|
|
6.2 Investment of Accounts
|
|
|
6
|
|
i
|
|
|
|
|
6.3 Valuation of Account
|
|
|
7
|
|
6.4 Statement of Account
|
|
|
7
|
|
6.5 Separate Accounting
|
|
|
7
|
|
|
|
|
|
|
ARTICLE VII PAYMENTS TO PARTICIPANTS
|
|
|
7
|
|
|
|
|
|
|
7.1 Time and Form of Payment
|
|
|
7
|
|
7.2 Valuation of Payments
|
|
|
8
|
|
7.3 Withholding Taxes
|
|
|
8
|
|
7.4 Effect of Payment
|
|
|
8
|
|
7.5 Delay of Payment for Specified Employees
|
|
|
8
|
|
|
|
|
|
|
ARTICLE VIII CLAIMS PROCEDURES
|
|
|
8
|
|
|
|
|
|
|
8.1 Claim for Benefits
|
|
|
8
|
|
8.2 Notice of Denial
|
|
|
9
|
|
8.3 Review of Claim
|
|
|
9
|
|
8.4 Decision After Review
|
|
|
9
|
|
8.5 Legal Action
|
|
|
10
|
|
8.6 Discretion of the Plan Administrator
|
|
|
10
|
|
|
|
|
|
|
ARTICLE IX MISCELLANEOUS
|
|
|
10
|
|
|
|
|
|
|
9.1 Unfunded Status of Plan
|
|
|
10
|
|
9.2 Nonalienation of Benefits
|
|
|
10
|
|
9.3 No Contract of Employment
|
|
|
10
|
|
9.4 No Limitation on Company Actions
|
|
|
10
|
|
9.5 No Liability for Action or Omission
|
|
|
11
|
|
9.6 Designation of Beneficiary
|
|
|
11
|
|
9.7 Payments to Minors, Etc.
|
|
|
11
|
|
9.8 Code Section 409A
|
|
|
11
|
|
9.9 Applicable Law and Construction
|
|
|
11
|
|
9.10 Severability of Provisions
|
|
|
11
|
|
9.11 Headings and Captions
|
|
|
12
|
|
9.12 Gender and Number
|
|
|
12
|
|
9.13 Notice
|
|
|
12
|
|
9.14 Amendment and Termination
|
|
|
12
|
|
9.15 Successors
|
|
|
12
|
|
ii
WASHINGTON GAS LIGHT COMPANY
DEFINED CONTRIBUTION
RESTORATION PLAN
ARTICLE I
Purpose
1.1
Establishment and Purpose
. The Company established the Plan effective January 1,
2010 to provide a select group of management and highly compensated employees of the Company with
supplemental retirement benefits. The Company intends that the Plan constitute an unfunded
deferred compensation plan for a select group of management or highly compensated employees within
the meaning of ERISA sections 201(2), 301(a)(3) and 401(a)(1). All provisions of the Plan shall be
interpreted and administered to the extent possible in a manner consistent with the stated
intentions. Capitalized terms, unless otherwise defined herein, shall have the meaning provided in
Article II.
ARTICLE II
Definitions
For ease of reference, the following definitions will be used in the Plan:
2.1
Account
. Account means the unfunded bookkeeping account maintained on the books
of the Company used solely to calculate the amount payable to each Participant who is otherwise
entitled to a benefit under ARTICLE V and shall not constitute a separate fund of assets.
2.2
Base Pay
. Base Pay means a Participants base salary as in effect from time to
time during a Plan Year as shown on the Companys payroll records. Without limiting the generality
of the foregoing, Base Pay does not include bonuses or incentive compensation, non-cash
compensation or other non-base compensation.
2.3
Base Pay Matching Credit
. Base Pay Matching Credit means an amount credited to
a Participants Account by the Company for the benefit of the Participant pursuant to Section 5.1.
2.4
Base Pay Restoration Credit
. Base Pay Restoration Credit means an amount
credited to a Participants Account by the Company for the benefit of the Participant pursuant to
Section 5.2.
2.5
Beneficiary(ies)
. Beneficiary or Beneficiaries means the person or persons
designated by the Participant to receive payments under this Plan in the event of the Participants
death.
2.6
Board
. Board means the Board of Directors of Washington Gas Light Company.
1
2.7
Change in Control
. Change in Control means a Change in Control pursuant to the
terms of the Washington Gas Light Company Change in Control Policy, which is incorporated by
reference herein.
2.8
Code
. Code means the Internal Revenue Code of 1986, as amended.
2.9
Company
. Company means Washington Gas Light Company, a Virginia and District of
Columbia corporation, and any successor to all, or substantially all, of the Companys assets or
business.
2.10
Disability
. Disability means, to the extent consistent with Code section 409A,
a physical or mental condition which prevents an Employee from engaging in any substantially
gainful activity as determined by the Companys Medical Director provided such disability is
expected to result in death or can be expected to last for a continuous period of not less than 12
months.
2.11
Eligible Employee
. Eligible Employee means any Employee (i) who is not a
participant in the Washington Gas Light Company Supplemental Executive Retirement Plan and (ii)
whose Base Pay for a Plan Year exceeds the Code section 401(a)(17) limit.
2.12
Employee
. Employee means any person who receives salary, wages or commissions
from the Company and whose wages from the Company are subject to withholding for purposes of
federal income taxes and the Federal Insurance Contribution Act, as determined by the Plan
Administrator.
2.13
ERISA
. ERISA means the Employee Retirement Income Security Act of 1974, as it
may be amended from time to time.
2.14
Measurement Funds
. Measurement Funds means the investment alternatives offered
under the Savings Plan unless the Plan Administrator takes an affirmative action, in its sole
discretion, to discontinue, substitute, or modify such investment alternatives solely for purposes
of this Plan. Notwithstanding the foregoing, the WGL Holdings, Inc. Stock Fund and the Stable
Value Fund offered under the Savings Plan shall not constitute Measurement Funds for purposes of
the Plan. Measurement Funds are used solely to calculate the notional earnings that are credited
to each Participants Account(s) in accordance with Section 6.2 below, and do not represent any
beneficial interest on the part of the Participant in any asset or other property of WGL Holdings,
Inc., the Company or any affiliate thereof. Unless the Plan Administrator otherwise determines in
its discretion, any addition, removal or replacement of investment funds under the Savings Plan
shall automatically result in a corresponding change to the Measurement Funds hereunder.
2.15
Participant
. Participant means an individual described in Section 4.1 or a
former Employee who has an Account that is not fully distributed.
2
2.16
Plan
. Plan means this Plan, entitled the Washington Gas Light Company Defined
Contribution Restoration Plan, as amended from time to time hereafter.
2.17
Plan Administrator
. Plan Administrator means the plan administrator appointed
by the Board to administer the Plan pursuant to Section 3.1 (or, where the context so requires, any
delegate of the Plan Administrator).
2.18
Plan Year
. Plan Year means a period beginning on January 1 of each calendar
year and continuing through December 31 of such calendar year.
2.19
Savings Plan
. Savings Plan means the Washington Gas Light Company Savings
Plan, as amended from time to time.
2.20
Termination of Employment
. Termination of Employment means a Participants
separation from service with the Company within the meaning of Code section 409A and the
regulations and rulings promulgated thereunder.
2.21
Unforeseeable Emergency
. Unforeseeable Emergency means a severe financial
hardship to a Participant or the Participants spouse, Beneficiary or dependents within the meaning
of Code section 409A(a)(2)(B)(ii) and the regulations and rulings promulgated thereunder.
2.22
Years of Service
. Years of Service means the total number of years that a
Participant has been employed by the Company as determined in accordance with the Savings Plan and
Treasury Regulation section 1.410(a)-7 as of any determination date.
ARTICLE III
Administration
3.1
Plan Administrator
. The Plan shall be administered by a committee that is
comprised of the members of the Retirement Board appointed by the Companys Board of Directors with
respect to the Washington Gas Light Company Employees Pension Plan, or such other committee or
persons as are selected from time to time by the Board of Directors (the Committee). The Plan
Administrator may delegate any of its duties to such other person or persons from time to time as
it may designate. Members of the Committee may participate in the Plan; however, any individual
serving on the Committee shall not vote or act on any matter relating solely to himself or herself.
3.2
Duties
. The Plan Administrator shall have the sole discretion to construe
and interpret all provisions of the Plan and, to the extent permitted by Code section 409A, the
Plan Administrator is authorized to remedy any errors, inconsistencies or omissions, to resolve any
ambiguities, to adopt rules and practices concerning the administration of the Plan, and to make
any determinations and calculations necessary or appropriate hereunder. Benefits under the Plan
will be paid only if the Plan Administrator decides in its discretion that the Participant is
entitled to them, except as reserved to the Human
3
Resources Committee of the Board under Section 7.1(c). The Company shall pay all expenses and
liabilities incurred in connection with Plan administration.
3.3
Agents
. The Plan Administrator may engage the services of accountants, attorneys,
actuaries, investment consultants, and such other professional personnel as are deemed necessary or
advisable to assist in fulfilling the Plan Administrators responsibilities. The Plan
Administrator, the Company and the Board may rely upon the advice, opinions or valuations of any
such persons.
3.4
Binding Effect of Decisions
. The decision or action of the Plan Administrator
with respect to any question arising out of or in connection with the administration,
interpretation and application of the Plan and the rules and regulations promulgated hereunder
shall be final, conclusive and binding upon all persons having any interest in the Plan. Neither
the Plan Administrator, its delegates, nor the Board shall be personally liable for any good faith
action, determination or interpretation with respect to the Plan, and each shall be fully protected
by the Company in respect of any such action, determination or interpretation.
ARTICLE IV
Participation
4.1
Commencement of Participation
. Each Eligible Employee shall become a Participant
upon the date the Plan Administrator credits a Base Pay Matching Credit or a Base Pay Restoration
Credit to an Account on behalf of the Eligible Employee.
4.2
Termination of Participation
. If the Plan Administrator determines in good faith
that a Participant is no longer an Eligible Employee, such Employee shall no longer be eligible to
receive any Base Pay Matching Credits or Base Pay Restoration Credits, and the terms of this Plan
shall continue to govern until amounts previously credited to the Participants Account are paid in
full.
ARTICLE V
Benefits
5.1
Base Pay Matching Credit
. An Eligible Employee who has elected to defer any
portion of his or her Base Pay under the Savings Plan as of the first day of a Plan Year shall be
entitled to receive a Base Pay Matching Credit commencing the first pay period that the aggregate
amount of the Participants Base Pay paid to date for the Plan Year exceeds the Code section
401(a)(17) limit and each pay period thereafter in the Plan Year. The Base Pay Matching Credit
shall equal 4% of the portion of the Participants Base Pay for the pay period that, when
aggregated with Participants Base Pay paid to date for the Plan Year, exceeds the Code section
401(a)(17) limit.
5.2
Base Pay Restoration Credit
. An Eligible Employee who is not currently
accruing a benefit in the Washington Gas Light Company Employees Pension Plan shall
4
be entitled to receive a Base Pay Restoration Credit commencing the first pay period that the
aggregate amount of the Participants Base Pay paid to date for the Plan Year exceeds the Code
section 401(a)(17) limit and each pay period thereafter in the Plan Year. The amount of the Base
Pay Restoration Credit shall be calculated by multiplying the percentage attributable to the
Participants Years of Service as of the December 31 of the previous Plan Year in accordance with
table set forth in this Section 5.2, by the portion of Participants Base Pay for the pay period
that, when aggregated with Participants Base Pay paid to date for the Plan Year, exceeds the Code
section 401(a)(17) limit.
|
|
|
|
|
|
|
Percentage of
|
Years of Service
|
|
Annual Compensation
|
Less than 5
|
|
|
4.00
|
%
|
5 to 9
|
|
|
5.00
|
%
|
10 to 14
|
|
|
5.50
|
%
|
15 or more
|
|
|
6.00
|
%
|
5.3
Vesting
.
(a)
General
. A Participants Account shall be 100% vested at all times.
(b)
Exceptions
.
(i)
Company Initiated Termination
. The provisions of Section 5.3(a)
shall not apply if a Participants Termination of Employment occurs as a result of
a Company-initiated action. In such event, the Participants vested interest in
his Account balance shall be calculated in accordance with the following schedule:
|
|
|
|
|
Years
|
|
|
of
|
|
|
Service
|
|
Vested Percentage
|
1
|
|
|
20
|
%
|
2
|
|
|
40
|
%
|
3
|
|
|
60
|
%
|
4
|
|
|
80
|
%
|
5
|
|
|
100
|
%
|
5
(ii)
Misconduct
. Notwithstanding any Plan provision to the contrary,
if a Participant willfully performs any act or willfully fails to perform any act
of material importance to the Company, that may result in material discredit or
substantial detriment to the Company, then upon a majority vote of the Board, such
Participant and any Beneficiary of such individual shall forfeit any benefit
payments owing on and after the date fixed by the Board and the Company shall have
no further obligation under this Plan to such Participant or any Beneficiary. If a
Participant to which this Section applies received payment of his or her Account
pursuant to Section 7.1, then the Participant or his Beneficiary shall return to
the Company a proportionate share of such payment calculated as follows:
The payment amount shall be multiplied by a fraction, the numerator of which is the
number of full years and months which elapsed from the time of the payment to the
time of the willful act or failure to act described above, and the denominator of
which is the number of full years and months of the Participants life expectancy
determined as of the time of the payment.
ARTICLE VI
Participant Account
6.1
Establishment and Crediting of Account
. The Plan Administrator will establish
notional accounts for each Participant as the Plan Administrator deems necessary or advisable from
time to time. The Plan Administrator will establish a Participants Account at the time the
Company first credits a Base Pay Matching Credit or a Base Pay Restoration Credit to the Account.
The Plan Administrator shall, to the extent possible, credit Base Pay Matching Credits and Base Pay
Restoration Credits to Participant Accounts on a per pay period basis. Each Account shall be
credited as appropriate with notional earnings and reduced for notional losses or distributions
from the Account.
6.2
Investment of Accounts
. Participants may allocate the credits to their
Account among the various Measurement Funds under procedures adopted by the Plan Administrator. In
default of such designation, credits to a Participants Account shall be allocated to the
Measurement Fund(s) that serves as the default investment option in the Savings Plan, unless the
Plan Administrator makes an affirmative election otherwise in its sole discretion. A Participants
Account shall be credited with all deemed earnings (or losses) generated by the Measurement Funds,
as elected by the Participant, on each business day for the sole purpose of determining the amount
of earnings to be credited or debited to such Account as if the designated balance of the Account
had been invested in the applicable Measurement Fund. Notwithstanding that the rates of return
credited to a Participants Accounts are based upon the actual performance of the corresponding
Measurement Funds, the Company shall not be obligated to invest any amount credited to a
Participants Account under this Plan in such Measurement Funds or in any other
6
investment funds. Upon notice to the Plan Administrator in the manner it prescribes, a
Participant may reallocate the Measurement Funds to which his or her Account is deemed to be
allocated.
6.3
Valuation of Account
. The value of a Participants Account as of any date shall
equal the amounts theretofore credited to such Account, including any earnings (positive or
negative) deemed to be earned on such Account in accordance with Section 6.2, less any amounts
theretofore deducted from such Account.
6.4
Statement of Account
. The Plan Administrator shall provide or make available to
each Participant (including electronically), not less frequently than quarterly, a statement in
such form as the Plan Administrator deems desirable setting forth the balance standing to the
credit of his or her Account.
6.5
Separate Accounting
. If and to the extent required for the proper administration
of the Plan, the Plan Administrator may segregate a Participants Account into subaccounts on the
books and records of the Plan, all of which subaccounts shall, together, constitute the
Participants Account.
ARTICLE VII
Payments to Participants
7.1
Time and Form of Payment
. The vested portion of a Participants Account will be
distributed upon the first to occur of the Participants Separation from Service, Disability or the
occurrence of an Unforeseeable Emergency.
(a)
Separation from Service
. Distributions due to Separation from Service
will be paid in a lump sum to the Participant on the first day of the seventh month
following the Participants Termination of Employment, or, if earlier, within 30 days
following the Participants death. In the event of death, the vested portion of a
Participants Account shall be paid in a lump sum to the Participants Beneficiary.
(b)
Disability
. Distributions due to a Disability will be paid in a lump sum
30 days following the occurrence of the Disability.
(c)
Unforeseeable Emergency
. In the event that the Human Resources Committee
of the Board, upon written request of a Participant, determines that the Participant has
suffered an Unforeseeable Emergency, the Participant will be paid from his or her Account,
within 30 days following such determination, an amount necessary to meet the emergency
(determined in a manner consistent with Section 409A), plus amounts necessary to pay taxes
reasonably anticipated because of the distribution.
Notwithstanding the foregoing, if a payment is not made on the designated payment date, the payment
shall be made by December 31 of the calendar year in which the designated payment date occurs or,
if later, on or before the 15th day of the third month following
7
the designated payment date. Any payment that complies with this Section shall be deemed for all
purposes to comply with the Plan requirements regarding the time and form of payment.
7.2
Valuation of Payments
. Benefits shall be payable in an amount equal to the
balance credited to the Participants Account as of the most recent business day immediately
preceding the date of the actual distribution, with the Measurement Funds being deemed to have been
liquidated on that date to make the payment.
7.3
Withholding Taxes
. The Company may make such provisions and take such action as
it may deem necessary or appropriate for the withholding of any taxes which the Company is required
by any law or regulation of any governmental authority, whether federal, state or local, to
withhold in connection with any benefits under the Plan, including, but not limited to, the
withholding of appropriate sums from any amount otherwise payable to the Participant (or his or her
Beneficiary). Each Participant, however, shall be responsible for the payment of all individual
tax liabilities relating to any such benefits.
Notwithstanding the foregoing, to the extent permitted by Code section 409A, the Plan
Administrator, in its sole discretion, may accelerate the time of payment if a Participant is
subject to tax under the Federal Insurance Contribution Act (FICA) before distributions are to be
made under the Plan to pay the FICA tax imposed under section 3101 of the Code, section 3121(a) of
the Code, and section 3121(v)(2) of the Code, or to pay the income tax at source on wages imposed
under section 3401 of the Code or the corresponding withholding provisions of applicable state,
local, or foreign tax laws as a result of the payment of the FICA amount, and to pay the additional
income tax at source on wages attributable to the pyramiding section 3401 of the Code wages and
taxes. Any payment distributed pursuant to this Section must not exceed the aggregate FICA and
related tax amount permitted under section 409A of the Code.
7.4
Effect of Payment
. The full payment of the vested portion of a Participants
Account shall completely discharge all obligations on the part of the Company to the Participant
(and each Beneficiary) with respect to the operation of this Plan, and the Participants (and
Beneficiarys) rights under this Plan shall terminate.
7.5
Delay of Payment for Specified Employees
. Notwithstanding any provision of this
Plan to the contrary, in the case of any Participant who is a specified employee within the
meaning of Code section 409A as of the date of such Participants Termination of Employment, no
distribution under this Plan may occur before the date which is six months after the date of such
Participants Termination of Employment (or, if earlier, the date of the Participants death).
ARTICLE VIII
Claims Procedures
8.1
Claim for Benefits
. Any claim for benefits under this Plan shall be made in
writing to the Plan Administrator. If a claim for benefits is wholly or partially
denied,
8
the Plan Administrator, or its delegate, shall so notify the claimant within 90 days after
receipt of the claim. If the Plan Administrator determines that an extension is necessary, the
Plan Administrator will notify the claimant within the initial 90-day period that the Plan
Administrator needs up to an additional 90 days to review the claim. In the case of a claim for
disability benefits, the Plan Administrator shall notify the claimant within 45 days after the
claim is received unless the Plan Administrator determines that an extension of time for processing
is required due to matters beyond the control of the Plan, in which case written notice of the
extension shall be furnished to the claimant prior to termination of the original 45-day period.
Such extension shall not exceed 30 days from the end of the initial period. If, prior to the end
of the first 30-day extension period, the Plan Administrator determines that, due to matters beyond
the control of the Plan, an additional extension of time for processing is required, written notice
of a second 30-day extension shall be furnished to the claimant prior to termination of the first
30-day extension.
8.2
Notice of Denial
. The notice of denial shall be written in a manner calculated to
be understood by the claimant and shall contain (a) the specific reason or reasons for denial of
the claim, (b) specific references to the pertinent Plan provisions upon which the denial is based,
(c) a description of any additional material or information necessary to perfect the claim together
with an explanation of why such material or information is necessary and (d) an explanation of the
claims review procedure and time limits, including a statement of the claimants right to bring a
civil action under section 502(a) of ERISA following an adverse benefit determination on review.
In the case of a claim for disability benefits, the notification shall also advise the claimant
whether the Plan Administrators denial relied upon any specific rule, guideline, protocol or
scientific or clinical judgment. The decision or action of the Plan Administrator shall be final,
conclusive and binding on all persons having any interest in the Plan, unless a written appeal is
filed as provided in Section 8.3 hereof.
8.3
Review of Claim
. Within 60 days after the receipt by the claimant of notice of
denial of a claim, the claimant may (a) file a request with the Plan Administrator that it conduct
a full and fair review of the denial of the claim, (b) receive, upon request and free of charge,
reasonable access to, and copies of, all documents, records, and other information relevant to the
claim for benefits, and (c) submit questions and comments to the Plan Administrator in writing.
8.4
Decision After Review
. Within 60 days after the receipt of a request for review
under Section 8.3, the Plan Administrator, or its delegate, shall deliver to the claimant a written
decision with respect to the claim, except that if there are special circumstances which require
more time for processing, the 60-day period shall be extended to 120 days upon notice to that
effect to the claimant. The decision shall be written in a manner calculated to be understood by
the claimant and shall (a) include the specific reason or reasons for the decision, (b) contain a
specific reference to the pertinent Plan provisions upon which the decision is based, (c) a
statement that the claimant is entitled to receive, upon request and free of charge, reasonable
access to, and copies of, all documents, records, and other information relevant to the claim for
benefits, and (d) a statement of the claimants right to bring a civil action under section 502(a)
of ERISA.
9
In the case of a claim for disability benefits, the notice shall set forth: (1) whether the
Plan Administrators denial relied upon any specific rule, guideline, protocol or scientific or
clinical judgment; and (2) the following statement: You and your Plan may have other voluntary
alternative dispute resolution options, such as mediation. One way to find out what may be
available is to contact your local U.S. Department of Labor Office and your State insurance
regulatory agency.
8.5
Legal Action
. A claimant may not bring any legal action relating to a claim for
benefits under the Plan unless and until the claimant has followed the claims procedures under the
Plan and exhausted his or her administrative remedies under such claims procedures.
8.6
Discretion of the Plan Administrator
. All interpretations, determinations and
decisions of the Plan Administrator with respect to any claim shall be made in its sole discretion,
and shall be final and conclusive.
ARTICLE IX
Miscellaneous
9.1
Unfunded Status of Plan
. The Plan is intended to constitute an unfunded
deferred and supplemental retirement compensation plan for Participants, with all benefits payable
hereunder constituting an unfunded contractual payment obligation of the Company. The Company
shall reflect on its books the Participants interests hereunder, but no Participant or any other
person shall under any circumstances acquire any property interest in any specific assets of the
Company. A Participants right to receive payments under the Plan shall be no greater than the
right of an unsecured general creditor of the Company.
9.2
Nonalienation of Benefits
. None of the payments, benefits or rights of any
Participant under the Plan shall be subject to any claim of any creditor, and, in particular, to
the fullest extent permitted by law, all such payments, benefits and rights shall be free from
attachment, garnishment, trustees process, or any other legal or equitable process available to
any creditor of such Participant. No Participant shall have the right to alienate, anticipate
commute, pledge, encumber or assign any of the benefits or payments which he or she may expect to
receive, contingently or otherwise, under the Plan.
9.3
No Contract of Employment
. Neither the establishment of the Plan, nor any
modification thereof, nor the creation of any fund, trust or account, nor the payment of any
benefits shall be construed as giving any Participant, or any person whosoever, the right to be
retained in the service of the Company, and all Participants and other employees shall remain
subject to discharge to the same extent as if the Plan had never been adopted.
9.4
No Limitation on Company Actions
. Nothing contained in the Plan shall be
construed to prevent the Company from taking any action which is deemed by it to be appropriate or
in its best interest. No Participant, Beneficiary, or other person shall have any claim against
the Company as a result of such action.
10
9.5
No Liability for Action or Omission
. Neither the Company, the Plan Administrator
nor any director, officer or employee of the Company shall be responsible or liable in any manner
to any Participant, Beneficiary or any person claiming through them for any benefit or action taken
or omitted in connection with the granting of benefits, the continuation of benefits, or the
interpretation and administration of this Plan.
9.6
Designation of Beneficiary
. Each Participant may designate in writing a
Beneficiary or Beneficiaries (which Beneficiary may be an entity other than a natural person if
approved by the Plan Administrator in its sole discretion) to receive any payments which may be
made under the Plan following the Participants death. No Beneficiary designation shall become
effective until it is in writing and it is filed with the Plan Administrator. A Beneficiary
designation under the Plan may be separate from all other retirement-type plans sponsored by the
Company. Such designation may be changed or canceled by the Participant at any time without the
consent of any such Beneficiary. Any such designation, change or cancellation must be made in a
form approved by the Plan Administrator and shall not be effective until received by the Plan
Administrator or its designee. If no Beneficiary has been named, or the designated Beneficiary or
Beneficiaries have predeceased the Participant, the Beneficiary shall be the Participants estate.
9.7
Payments to Minors, Etc.
. Any benefit payable to or for the benefit of a minor,
an incompetent person or other person incapable of receipting therefore shall be deemed paid when
paid to such persons guardian or to the party providing or reasonably appearing to provide for the
care of such person, and such payment shall be a complete discharge of any liability for such
payment amount.
9.8
Code Section 409A
. The Plan is intended to be a nonqualified deferred
compensation plan within the meaning of Code section 409A and shall be interpreted to meet the
requirements of Code section 409A. To the extent that any provision of the Plan would cause a
conflict with the requirements of Code section 409A, or would cause the administration of the Plan
to fail to satisfy Code section 409A, such provision shall be deemed null and void to the extent
permitted by applicable law. Nothing herein shall be construed as a guarantee of any particular
tax treatment to a Participant.
9.9
Applicable Law and Construction
. This Plan shall be governed by, construed
and administered in accordance with the applicable provisions of ERISA, and any other applicable
Federal law, including Code section 409A, and to the extent not preempted by Federal law, this Plan
shall be governed by, construed, and administered in accordance with the laws of the Commonwealth
of Virginia, without reference to the principles of conflict of laws.
9.10
Severability of Provisions
. If any provision of this Plan shall be held
invalid or unenforceable, such invalidity or unenforceability shall not affect any other provisions
hereof, and the Plan Administrator may elect in its sole discretion to construe such invalid or
unenforceable provisions in a manner that conforms to applicable law or as if such provisions, to
the extent invalid and unenforceable, had not been included.
11
9.11
Headings and Captions
. The headings and captions herein are provided for
reference and convenience only, shall not be considered part of the Plan, and shall not be employed
in the construction of the Plan.
9.12
Gender and Number
. Except where otherwise indicated by the context, any
masculine term used herein also shall include the feminine; the plural shall include the singular
and the singular shall include the plural.
9.13
Notice
. Any notice or filing required or permitted under the Plan shall be
sufficient if in writing and if (i) hand-delivered or sent by telecopy, (ii) sent by registered or
certified mail, or (iii) sent by nationally-recognized overnight courier. Such notice shall be
deemed given as of (i) the date of delivery if hand-delivered or sent by telecopy, (ii) as of the
date shown on the postmark on the receipt for registration or certification, if delivery is by
mail, or (iii) on the first business day after dispatch, if sent by nationally-recognized overnight
courier.
9.14
Amendment and Termination
. The Plan may be amended, suspended, or terminated at
any time (in whole or in part) by the Company in its sole discretion; provided, however, that no
such amendment, suspension or termination shall result in any reduction in the value of a
Participants Account determined as of the effective date of such amendment. In addition, the
Plan, may be amended at any time and in any respect by the Company (and/or its operation modified
by the Plan Administrator) if and to the extent recommended by Company counsel in order to conform
to the requirements of Code section 409A and regulations thereunder or to any other Code section or
regulation that bears on the tax-deferred character of the benefits provided hereunder. In the
event of any suspension or termination of the Plan (or any portion thereof), payment of
Participants Accounts shall be made under and in accordance with the terms of the Plan (except
that the Plan Administrator may determine, in its sole discretion, to accelerate payments to all
Participants if and to the extent that such acceleration is permitted under Code section 409A and
regulations thereunder).
9.15
Successors
. This Plan shall bind any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets
of the Company, in the same manner and to the same extent that the Company would be obligated under
this Plan if no succession had taken place.
[The remainder of this page intentionally left blank]
12