Commitments and Contingencies | COMMITMENTS AND CONTINGENCIES Contractual Obligations Washington Gas has certain contractual obligations incurred in the normal course of business that require fixed and determinable payments in the future. These commitments include long-term debt, lease obligations, unconditional purchase obligations for pipeline capacity, transportation and storage services, and our commitments related to the business process outsourcing program. Reference is made to the “Contractual Obligations, Off-Balance Sheet Arrangements and Other Commercial Commitments” section of Management’s Discussion and Analysis in Washington Gas’ Form 10-K/T. Note 6 to the Financial Statements in Form 10-K/T includes a discussion of long-term debt, including debt maturities. Note 12 to the Financial Statements in Form 10-K/T reflects information about the various contracts of Washington Gas. There were no significant changes to contractual obligations during the six months ended June 30, 2019 . Silver Spring, Maryland Incident On April 23, 2019, the National Transportation and Safety Board (NTSB) held a hearing during which it found, among other things, that the probable cause of the August 10, 2016, explosion and fire at an apartment complex on Arliss Street in Silver Spring, Maryland “was the failure of an indoor mercury service regulator with an unconnected vent line that allowed natural gas into the meter room where it accumulated and ignited from an unknown ignition source. Contributing to the accident was the location of the mercury service regulators where leak detection by odor was not readily available.” Washington Gas disagrees with the NTSB’s probable cause findings. Following this hearing, on June 10, 2019, the NTSB issued an accident report. In connection with the incident, a total of 37 civil actions related to the incident have been filed and are pending against WGL and Washington Gas in the Circuit Court for Montgomery County, Maryland. All cases have been consolidated for discovery purposes. All of these suits seek unspecified damages for personal injury and/or property damage. The trial date for the civil actions has been scheduled for December 2, 2019. Washington Gas maintains excess liability insurance coverage from highly-rated insurers, subject to a nominal self-insured retention. Washington Gas believes that this coverage will be sufficient to cover any significant liability that may result from this incident. Given the early stage of the litigation, the outcome is not yet determinable and management is unable to make an estimate of any potential loss or range of potential losses that are reasonably possible of occurring. As a result, management has not recorded a reserve associated with this incident. Regulatory Contingencies Certain legal and administrative proceedings incidental to our business, including regulatory contingencies, involve Washington Gas. In our opinion, we have recorded an adequate provision for probable losses or refunds to customers for regulatory contingencies related to these proceedings. Merger Commitments In connection with the Merger, AltaGas and WGL made commitments related to the terms of the Public Service Commission of the District of Columbia (PSC of DC) settlement agreement and the conditions of approval from the Public Service Commission of Maryland (PSC of MD) and the State Corporation Commission of Virginia ( SCC of VA). Among other things, these commitments include rate credits distributable to both residential and non-residential customers, gas expansion and other programs, various public interest commitments, and safety programs. The cumulative amount expensed as of June 30, 2019 was $ 136.1 million , of which $ 117.6 million has been paid, including $ 4.2 million and $6.5 million paid in the three and six months ended June 30, 2019 , respectively. In March 2019, the PSC of MD directed that the $ 3.9 million Most Favored Nation adjustment, originally recorded as a commitment expense, should be used to offset future rates under Washington Gas’ natural gas expansion program in Maryland. As a result, Washington Gas reversed the commitment expense in the first quarter of 2019. Further, there are additional regulatory commitments that will be recorded when the costs are incurred in the future, including the hiring of damage prevention trainers in each jurisdiction for a total of $ 2.4 million over 5 years; investing up to $ 70.0 million over a 10 year period to further extend natural gas service; spending $ 8.0 million for leak mitigation within three years of the Merger close; and developing 15 megawatts of either electric grid energy storage or Tier 1 renewable resources within five years. Application for Approval of Reduction of Distribution Rates On January 12, 2018, Washington Gas filed applications to reduce customer rates in Maryland, Virginia, and the District of Columbia to reflect the impact of the Tax Act, including both the impact of the re-measurement of deferred tax assets and liabilities and reduction of the federal tax rate to 21%. Washington Gas began tracking the impact of the Tax Act on revenue requirements beginning January 1, 2018, recording all impacts to regulatory assets and liabilities. In Maryland and the District of Columbia, rates have been adjusted for the impact of the Tax Act. In Virginia, the SCC of VA dismissed the application on March 15, 2018. Washington Gas filed a new general rate case on July 31, 2018 incorporating the effects of the Tax Act, which is still pending (see discussion below). Washington Gas recorded a regulatory liability, representing the amounts owed to Virginia customers for reduced rates between January 1, 2018 and December 30, 2018 of $19.2 million . This liability is amortized over a 5 year period as it is refunded to Virginia customers. At June 30, 2019 , this liability had a balance of $16.8 million . Virginia Jurisdiction Virginia Rate Case. On July 31, 2018, Washington Gas filed an application with the SCC of VA to increase its base rates for natural gas service by $37.6 million , which includes $14.7 million of revenue associated with natural gas pipeline replacement initiatives previously approved by the Commission and paid by customers through a monthly ride r. Additionally, the requested revenue increase incorporates the effects of the Tax Act. On August 23, 2018, the SCC of VA issued an order setting a procedural schedule and appointing a Hearing Examiner. Interim rates became effective, subject to refund, for usage in the January 2019 billing cycle. On February 4, 2019, the Hearing Examiner granted an extension of time for Intervenor and Staff testimonies and Washington Gas rebuttal. On March 13, 2019, the Staff filed its Direct testimony. On April 12, 2019, Washington Gas filed rebuttal testimony and revised its original return on equity down from 10.6% to 10.3% and its overall rate of return down from 7.94% to 7.81% . Evidentiary hearings were held on April 30 and May 1, 2019. Post hearing briefs were filed on July 3, 2019. The case is pending SCC of VA review. Financial Guarantees At June 30, 2019 and December 31, 2018, there were no guarantees to external parties. Antero Contract Washington Gas and WGL Midstream (together, the Companies) contracted in June 2014 with Antero Resources Corporation (Antero) to buy gas from Antero at invoiced prices based on an index, and at a delivery point, specified in the contracts (the “Antero Contract”). Once deliveries began, however, the index price paid was more than the fair market value at the same physical delivery point, resulting in losses to the Companies. Accordingly, the Companies notified Antero that they sought to apply a contract provision that would permit the establishment of a new index. Antero objected. The dispute was arbitrated in January 2017, and the arbitral tribunal ruled in favor of Antero on the applicability of the re-pricing mechanism but found that it lacked authority to determine whether Antero was in breach of its obligation to deliver gas to the Companies at a point where a higher price could be obtained. The Companies filed suit in state court in Colorado for a determination of that issue. Separately, Antero initiated suit against the Companies, claiming that those entities failed to purchase specified daily quantities of gas. These two cases were consolidated and a jury trial was held in June 2019 in the County Court for Denver, Colorado. Following the trial, the jury returned a verdict in favor of Antero for $95.9 million , of which $11.2 million was against Washington Gas, and $84.7 million against WGL Midstream. Once the judgment is officially entered, the Companies would have 49 days to file a Notice of Appeal under Colorado rules, provided the Companies file a supersedeas bond within 14 days of the judgment entry. The Companies are considering their option to appeal. As a result of this verdict, it was determined that a loss contingency is probable and Washington Gas has recorded an estimated liability of $ 11.2 million in “Accounts payable and accrued liabilities” on the balance sheet as of June 30, 2019, of which $ 2.6 million had already been recorded in a prior period. Washington Gas has also recorded a receivable from our trading partner of $ 1.3 million net in “Accounts payable and accrued liabilities” and sharing with customers as the contract relates to asset optimization of $ 4.5 million in “Deferred charges and other assets - Gas costs”. In addition, Washington Gas has recorded an accrual for estimated court fees of $ 0.2 million . For the three months ending June 30, 2019, the net pre-tax loss recorded as a result of the verdict was $ 3.0 million , of which $ 2.8 million was recorded in “Utility cost of gas” and $ 0.2 million was recorded in “Operations and maintenance” on Washington Gas’ statements of operations. Environmental Matters We are subject to federal, state and local laws and regulations related to environmental matters. These laws and regulations may require expenditures over a long time frame to control environmental effects. Almost all of the environmental liabilities we have recorded are for costs expected to be incurred to remediate sites where we or a predecessor affiliate operated manufactured gas plants (MGPs). Washington Gas has identified up to ten sites where it or its predecessors may have operated MGPs. Washington Gas last used any such plant in 1984. In connection with these operations, we are aware that coal tar and certain other by-products of the gas manufacturing process are present at or near some former sites and may be present at others. At June 30, 2019 and December 31, 2018 , Washington Gas reported a liability of $ 11.6 million and $ 11.3 million on an undiscounted basis related to future environmental response costs. These estimates principally include the minimum liabilities associated with a range of environmental response costs expected to be incurred. At June 30, 2019 and December 31, 2018 , Washington Gas estimated the maximum liability associated with all of its sites to be approximately $35.6 million and $ 29.4 million , respectively. The estimates were determined by Washington Gas’ environmental experts, based on experience in remediating MGP sites and advice from legal counsel and environmental consultants. The variation between the recorded and estimated maximum liability primarily results from differences in the number of years that will be required to perform environmental response processes and the extent of remediation that may be required. Washington Gas is currently remediating its East Station property, which is adjacent to the Anacostia River, including ground water pump and treat, tar recovery, soil encapsulation and other treatment. Washington Gas is conducting a remedial investigation and feasibility study under a 2012 consent decree with the District of Columbia and the federal government and additional remediation may be required. In addition, manufactured gas waste was discovered at an adjoining property adjacent to East Station. Washington Gas has agreed to work with the owners of the adjoining property to perform a site investigation, ground water sampling, and report on the contamination at the site pursuant to oversight by the District of Columbia Department of Energy and Environment (DOEE). On July 12, 2019, Washington Gas received an Administrative Order from the DOEE requesting certain steps towards preparing and submitting a remedial investigation report and a feasibility study regarding potential actions associated with the adjoining property. Washington Gas is reviewing the Administrative Order and preparing potential workplans to address the items contained within. Washington Gas received a letter in February 2016 from the DOEE and National Park Service regarding the Anacostia River Sediment Project, indicating that the District of Columbia is conducting a separate remedial investigation and feasibility study of the river to determine if and what cleanup measures may be required and to prepare a natural resource damage assessment. The sediment project draft remedial investigation report issued on March 30, 2018 identifies East Station as one of seventeen potential environmental cleanup sites. We are not able to estimate the total amount of potential damages or timing associated with the District of Columbia’s environmental investigation on the Anacostia River at this time. While an allocation method has not been established, Washington Gas has accrued an amount for study costs based on a potential range of estimates. Regulatory orders issued by the PSC of MD allow Washington Gas to recover the costs associated with the sites applicable to Maryland over the period ending in 2025. Rate orders issued by the PSC of DC allow Washington Gas a three-year recovery of prudently incurred environmental response costs and allow Washington Gas to defer additional costs incurred between rate cases. Regulatory orders from the SCC of VA have generally allowed the recovery of prudent environmental remediation costs to the extent they were included in the underlying financial data supporting an application for rate change. At June 30, 2019 and December 31, 2018 , Washington Gas reported a regulatory asset of $ 6.4 million and $ 5.8 million for the portion of environmental response costs that are expected to be recoverable in future rates. For further information on our Environmental activities refer to Note 11 - Environmental Matters in Washington Gas’ 10-K/T for the three months ended December 31, 2018. |