| Accounting Policies | ACCOUNTING POLICIES Nature of Operations and Basis of Presentation Following the 2018 Merger Agreement, Washington Gas became an indirect, majority owned subsidiary of, among other entities, AltaGas and WGL. In connection with the Merger and at the command of Washington Gas’ regulators, WGL formed a wholly owned subsidiary, Wrangler, a bankruptcy remote, special purpose entity to own the common stock of Washington Gas. In addition, WGL owns all of the shares of common stock of certain affiliated non-utility subsidiaries, some of which provide services to Washington Gas, and some of which own interests in other entities. On December 20, 2019, Washington Gas redeemed all the outstanding shares of its preferred stock. As a result, as of December 20, 2019, Washington Gas is a wholly owned subsidiary of AltaGas and WGL. As a public utility company, Washington Gas sells and delivers natural gas to more than one million customers primarily in the District of Columbia and the surrounding metropolitan areas in Maryland and Virginia. The Financial Statements of Washington Gas have been prepared in conformity with GAAP and under the rules of the Securities and Exchange Commission (SEC). The information presented in this annual report on Form 10-K are presented solely for the registrant Washington Gas on a stand-alone basis. Use of Estimates in the Preparation of Financial Statements In accordance with GAAP, we make certain estimates and assumptions regarding: (i) reported assets and liabilities; (ii) disclosed contingent assets and liabilities at the date of the financial statements and (iii) reported revenues, revenues subject to refund, and expenses during the reporting period. Actual results could differ from those estimates. Change of Fiscal Year End On December 28, 2018, our Board of Directors approved a change of Washington Gas' fiscal year from the period beginning on October 1 and ending on September 30 to the period beginning on January 1 and ending on December 31. This annual report on Form 10-K is for the twelve-month period from January 1, 2020 to December 31, 2020. References in this report to "calendar year" refer to the year ended December 31. References in this report to "fiscal year" refer to the twelve-month period ending on September 30. Change in Accounting Principle During the third quarter of 2020, Washington Gas made a voluntary change in accounting principle for calculating the market-related value of assets (MRVA) used in the determination of net periodic pension and other post-retirement benefit plan costs. The change uses the fair value approach for the fixed income investments and related derivatives, which represent a separate asset class of the plan assets, compared to the prior method that utilized a calculated value for all investments where gains and losses arising from changes in fair value were deferred and amortized into the calculation of the MRVA over a period of five years. The MRVA is used in the calculation of the expected return on assets and the recognized actuarial gain or loss components of net periodic benefit cost. The gains and losses for other plan assets will continue to be deferred and amortized into the MRVA over a five-year period. We believe that using the fair value approach for the fixed income investments and related derivatives in our plan assets is preferable because the Company will immediately recognize the gains and losses of the fixed income investments and derivatives in MRVA rather than deferring them over a five-year period, which results in a better matching of the change in fixed income investments and the related pension obligations. We retrospectively applied this change in accounting principle to all applicable prior period financial information presented herein as required. The change in accounting principle increased retained earnings $8.0 million and decreased accumulated other comprehensive income (loss), net of taxes, $0.4 million, with a net increase of $7.6 million in common shareholder’s equity at October 1, 2017. The following tables summarize the effect of the change in accounting principle on the primary financial statement line items on Washington Gas' balance sheets, statements of operations, statements of comprehensive income, statements of common shareholder's equity, and statements of cash flows. The following Notes have been impacted by the change: Note 5 — Regulated Operations , Note 9 — Income Taxes , Note 10 — Pension and Other Post — Retirement Benefit Plans, Note 17 — Accumulated Other Comprehensive Income (Loss), Note 19 — Comparative Data, and Note 20 — Quarterly Financial Information. December 31, 2020 December 31, 2019 (In thousands) Without Change Adjustment As Reported (with change) As Previously Reported Adjustment As Adjusted Balance Sheets Regulatory assets — Pension and other post-retirement benefits $ (6,539) $ 10,419 $ 3,880 $ 39,435 $ 4,643 $ 44,078 Common shareholder’s equity $ 1,843,211 $ 12,714 $ 1,855,925 $ 1,572,196 $ 6,396 $ 1,578,592 Regulatory liabilities — Pension and other post-retirement benefits $ 269,181 $ (6,770) $ 262,411 $ 199,665 $ (3,995) $ 195,670 Deferred income taxes $ 652,401 $ 4,475 $ 656,876 $ 462,475 $ 2,242 $ 464,717 Calendar Year Ended Calendar Year Ended (In thousands) Without Change Adjustment As Reported (with change) As Previously Reported Adjustment As Adjusted Statements of Operations Other income (expense) — net $ 12,195 $ 9,542 $ 21,737 $ 9,478 $ (3,656) $ 5,822 Income tax expense (benefit) $ 30,367 $ 2,477 $ 32,844 $ 19,032 $ (949) $ 18,083 Net income $ 124,810 $ 7,065 $ 131,875 $ 99,812 $ (2,707) $ 97,105 Statements of Comprehensive Income Other comprehensive income (loss), net of taxes $ (2,252) $ (747) $ (2,999) $ 11,536 $ 146 $ 11,682 Comprehensive income $ 122,558 $ 6,318 $ 128,876 $ 111,348 $ (2,561) $ 108,787 Condensed Statements of Cash Flows Net income $ 124,810 $ 7,065 $ 131,875 $ 99,812 $ (2,707) $ 97,105 ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES Accrued/deferred pension and other post-retirement benefit cost (benefit) $ 1,142 $ (9,542) $ (8,400) $ (1,466) $ 3,656 $ 2,190 Deferred income taxes — net $ 39,048 $ 2,477 $ 41,525 $ 19,690 $ (949) $ 18,741 Three Months Ended Fiscal Year Ended (In thousands) As Previously Reported Adjustment As Adjusted As Previously Reported Adjustment As Adjusted Statements of Operations Other income (expense) — net $ 3,494 $ (1,449) $ 2,045 $ (7,592) $ 3,366 $ (4,226) Income tax expense (benefit) $ 7,847 $ (376) $ 7,471 $ (25,863) $ 874 $ (24,989) Net income (loss) $ 49,173 $ (1,073) $ 48,100 $ (26,642) $ 2,492 $ (24,150) Statements of Comprehensive Income Other comprehensive income (loss), net of taxes $ (4,797) $ 71 $ (4,726) $ 2,692 $ (161) $ 2,531 Comprehensive income (loss) $ 44,376 $ (1,002) $ 43,374 $ (23,950) $ 2,331 $ (21,619) Condensed Statements of Cash Flows Net income $ 49,173 $ (1,073) $ 48,100 $ (26,642) $ 2,492 $ (24,150) ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES Accrued/deferred pension and other post-retirement benefit cost (benefit) $ (330) $ 1,449 $ 1,119 $ 11,127 $ (3,366) $ 7,761 Deferred income taxes — net $ 8,012 $ (376) $ 7,636 $ (26,435) $ 874 $ (25,561) Statements of Common Shareholder's Equity Retained Earnings Accumulated Other (In thousands) As Previously Reported Adjustment As Adjusted As Previously Reported Adjustment As Adjusted Balance, September 30, 2017 $ 630,691 8,017 $ 638,708 $ (4,522) (389) (4,911) Net income (loss) (26,642) 2,492 (24,150) — Other comprehensive income 4,176 (161) 4,015 Stock-based compensation 4,197 4,197 — ASU 2018-02 adoption impact 1,484 1,484 (1,484) (1,484) Dividends declared: Common stock (89,568) (89,568) Preferred stock (1,320) (1,320) Balance, September 30, 2018 $ 518,842 $ 10,509 $ 529,351 $ (1,830) $ (550) $ (2,380) Net income 49,173 (1,073) 48,100 Other comprehensive loss (4,797) 71 (4,726) Dividends declared: Common stock (24,237) (24,237) Preferred stock (330) (330) Balance, December 31, 2018 $ 543,448 $ 9,436 $ 552,884 $ (6,627) $ (479) $ (7,106) Net income 99,812 (2,707) 97,105 Other comprehensive income 11,536 146 11,682 Loss on preferred stock extinguishment (556) (556) Dividends declared: Common stock (100,000) (100,000) Preferred stock (1,169) (1,169) Balance, December 31, 2019 $ 541,535 $ 6,729 $ 548,264 $ 4,909 $ (333) $ 4,576 Without Change Adjustment As Reported (With change) Without Change Adjustment As Reported (With change) Net income 124,810 7,065 131,875 Other comprehensive loss (2,252) (747) (2,999) ASU 2016-13 implementation (1,543) (1,543) Dividends declared: Common stock (75,000) (75,000) Balance, December 31, 2020 $ 589,802 $ 13,794 $ 603,596 $ 2,657 $ (1,080) $ 1,577 Property, Plant and Equipment Property, plant and equipment are stated at original cost, including labor, materials, taxes and overhead costs incurred during the construction period. The cost of utility plant of Washington Gas includes an allowance for funds used during construction (AFUDC) that is calculated under a formula prescribed by our regulators in Maryland and the District of Columbia. AFUDC equity is reported on the statements of operations as non-cash income in "Other income (expense)". AFUDC debt is reported as a non-cash offset to interest expense. After construction is completed, the Company is permitted to recover these costs through inclusion in rate base and the corresponding subsequent depreciation or amortization of those regulated assets. The rates for AFUDC for the calendar years ended December 31, 2020 and 2019, the three months ended December 31, 2018, and fiscal year ended September 30, 2018 were 2.33%, 3.48%, 5.84% and 2.42%, respectively. Costs of replacement and betterments that extend the useful life of property, plant, and equipment are also capitalized. The cost of maintenance and repairs, which do not extend the useful life or increase the expected output of the asset, are expensed as incurred. Depreciation applicable to utility gas plant in service primarily uses a straight-line method over the estimated remaining life of the plant. The composite annual depreciation and amortization rate was 2.80%, 2.96%, 2.78%, and 2.77% for the calendar years ended December 31, 2020 and 2019, the three months ended December 31, 2018, and fiscal year ended September 30, 2018, respectively. In accordance with regulatory requirements, such rates include a component related to asset removal costs for Washington Gas. Washington Gas periodically reviews the adequacy of its depreciation rates by considering estimated remaining lives and other factors. The following table represents the components of Washington Gas' Property, Plant and Equipment at original cost. ($ In millions) December 31, 2020 2019 Distribution, transmission and storage $ 5,502.6 86.5 % $ 5,148.1 86.3 % General, miscellaneous, intangibles and finance leases 547.9 8.6 % 543.2 9.1 % Construction work in progress (CWIP) 312.9 4.9 % 271.6 4.6 % Total 6,363.4 100.0 % 5,962.9 100.0 % Impairment of Long-Lived Assets Management regularly reviews property and equipment and other long-lived assets for possible impairment whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. For property and equipment, the indicators of potential impairment may include a deteriorating business or legal climate, a significant adverse change in asset condition, specific regulatory disallowance, advances in technology or plans to dispose of an asset significantly before the end of its useful life, among others. Management performs a recoverability test whenever the indicators show a possible impairment. The amount used to test recoverability is determined based on an estimate of undiscounted cash flows, and measurement of an impairment loss is determined based on the fair value of the asset, using assumptions about future cash inflows and outflows over the life of an asset. During the fiscal year ended September 30, 2018, Washington Gas recorded a $38.0 million impairment to Property, Plant and Equipment in connection with an agreement ancillary to the merger proceeding not to seek recovery of certain costs incurred under the Formal Case 1027 mechanical coupling program. During the calendar years ended December 31, 2020 and 2019 and the three months ended December 31, 2018, Washington Gas did not record any impairments related to our long-lived assets. Refer to Note 15 — Fair Value Measurements of the Notes to Financial Statements for further discussion of these assets. Cash, Cash Equivalents, and Restricted Cash and Cash Equivalents We consider all investments with original maturities of three months or less to be cash equivalents. Restricted cash and cash equivalents represent funds that are restricted and are not available for general use by the Company. Restricted cash and cash equivalents available to satisfy designated current liabilities are classified as current assets. Restricted cash and cash equivalents expected to satisfy non-current liabilities are classified as non-current assets. Pursuant to the Merger Agreement with AltaGas, rabbi trust funds were funded to satisfy certain executives and outside director retirement benefit plan obligations. The rabbi trust funds are invested in money market funds which are considered cash equivalents. The rabbi trust funds that are used for the settlement of benefit plans in long-term liabilities are classified in “Deferred charges and other assets-other” and current liabilities are classified in “Current Assets-Other” on Washington Gas’ balance sheets. Refer to Note 10 — Pension and Other Post-Retirement Benefits for a further discussion of the rabbi trusts. Receivables and Allowance for Doubtful Accounts Receivables on the balance sheets include account receivables and unbilled revenues, including contract assets. Account receivables from contracts with customers, which consist of services to residential, commercial, industrial and other customers, were $238.2 million and $259.1 million at December 31, 2020 and 2019, respectively. Washington Gas accrues unbilled revenues for gas delivered, but not yet billed at the end of each accounting period due to our customer billing cycles. Unbilled revenues represent performance obligations that have been satisfied and to which Washington Gas has an unconditional right to payment, except for contract assets related to Washington Gas’ area-wide contract, which requires project acceptance by the federal government for the right to payment to occur. Total unbilled revenues and contract assets were $128.8 million and $160.5 million at December 31, 2020 and 2019, respectively, were included in "Receivables" on Washington Gas' balance sheets. Refer to Note 3 — Revenue from Contracts with Customers for further discussion on unbilled revenue and contract assets . Receivables are recorded net of allowance for doubtful accounts. Washington Gas estimates its bad debt expense based on current sales and establishes the allowance. Periodically, Washington Gas evaluates the reasonableness of the allowance utilizing a variety of factors including historical payment and collection experience, current economic conditions, receivable aging, and the financial health of its customers. If the financial condition of its customers deteriorates or other circumstances occur that impact the customers’ ability or desire to make payments, Washington Gas considers these factors in its evaluation of the adequacy of the allowance. Accounts are written off to the allowance when collection efforts are complete and future recovery is unlikely. Refer to Note 2 — Credit Losses for further discussion of allowance for doubtful accounts. Regulatory Assets and Liabilities Washington Gas accounts for its regulated operations in accordance with ASC Topic 980, Regulated Operations (ASC Topic 980), which results in differences in the application of GAAP between regulated and unregulated businesses. ASC Topic 980 requires recording regulatory assets or liabilities for certain transactions that would have been treated as expense or revenue in unregulated businesses. Washington Gas defers the recognition of an incurred cost and records a regulatory asset when it is probable that these costs will be recovered in future rates. Washington Gas defers the recognition of revenue and records a regulatory liability when it is probable that it will refund an amount previously collected from customers or refund a gain to customers. Additionally, Washington Gas records a regulatory liability when a regulator provides current rates intended to recover costs that will be incurred in the future. Future regulatory changes or changes in the competitive environment could result in WGL discontinuing the application of ASC Topic 980 for some of its business and require the write-off of the portion of any regulatory asset or liability for which recovery or refund is no longer probable. If Washington Gas were required to discontinue the application of ASC Topic 980 for any of its operations, it would record a non-cash charge or credit to income for the net book value of its regulatory assets and liabilities. Other adjustments might also be required. The current regulatory environment and Washington Gas’ specific facts and circumstances support both the continued application of ASC Topic 980 for our regulatory activities and the conclusion that all of our regulatory assets and liabilities as of December 31, 2020 are recoverable or refundable through rates charged to customers. See Note 5 — Regulated Operations for further discussion of our regulated operations. Leases We determine if an arrangement is a lease and the lease classification at inception. Washington Gas has operating leases for our corporate headquarters and other corporate offices, communication tower space, and certain office equipment. Operating leases are included in "Operating lease right-of-use (ROU) assets", "Current liabilities-Operating lease liability", and "Deferred credits-Operating lease liability". The Company also has leases of vehicles which are classified as finance leases. Finance leases are included in "Property, Plant and Equipment", "Current liabilities-Other", and "Long -term debt" on the balance sheets. ROU assets represent the right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease. For the operating leases in which we are the lessee, a ROU asset and lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. We use the rate implicit in the lease to determine the present value of the lease payments when the rate is readily determinable or we use our incremental borrowing rate. Our ROU assets are adjusted for lease incentives, any lease payments made in advance, and initial direct costs incurred. Lease expenses are recognized on a straight-line basis over the lease term. The estimated lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. For our lessee building and certain equipment leases, we do not separate the lease and non-lease components. Variable lease payments are recognized as lease expense when the related facts and circumstances occur, and are dependent on various external factors, including real estate taxes, common area maintenance and usage charges. The Company has elected not to record a ROU asset and lease liability for short-term leases. Short-term leases are defined as leases with a term of 12 months or less at the commencement date, including extension options that are reasonably certain of being exercised, and do not include an option to purchase the underlying asset. For our multiple office location leases classified as operating leases, the lease term begins on the date when construction of the leasehold improvements can start and the lessor has allowed us to occupy the respective locations. Leasehold improvement costs are classified as “Property, Plant, and Equipment” on the balance sheet, and are being amortized to “Depreciation and amortization” expense on a straight-line basis over the non-cancelable period of the leases. The Company also has lessor leases for land, office space and communication tower space that are classified as operating leases. Lease payments under operating leases are recognized on a straight-line basis over the lease term. Revenue and Cost of Gas Recognition Revenues. Washington Gas generally recognizes revenue from contracts with customers when natural gas is delivered. Washington Gas reads meters and bills customers on a 19-day monthly cycle basis. The billing cycles for customers do not coincide with the accounting periods used for financial reporting purposes; therefore, Washington Gas accrues unbilled revenues for gas delivered, but not yet billed, at the end of each accounting period. Refer to Note 3 — Revenue from Contracts with Customers for further discussion of the Utility’s revenue from contracts with customers. Alternative Revenue Programs. Certain ratemaking mechanisms of Washington Gas qualify as alternative revenue programs in accordance with ASC Topic 980, if (i) the program is established by an order from a regulatory commission and allows for automatic adjustment of future rates, (ii) additional program revenues (above those amounts currently reflected in base rates) are objectively determinable and probable of recovery, and (iii) the collection of the additional revenues is allowed within 24 months of the end of the period in which they were recognized. The Company has determined that its RNA, WNA and CRA billing adjustment mechanisms and APRPs are alternative revenue programs. Alternative revenue program revenues represent the initial recognition of revenue related to these programs. When amounts are billed and collected from customers through rates, the amounts are recorded as a recovery of the associated regulatory asset or liability. Cost of Gas. Washington Gas’ jurisdictional tariffs contain mechanisms that provide for the recovery of the cost of gas incurred on behalf of firm customers, including related pipeline transportation and storage capacity charges. Under these mechanisms, Washington Gas periodically adjusts its firm customers’ rates to reflect increases and decreases in these costs. Under or over-collections of gas costs in the current cycle are charged or credited to deferred charges or credits on the balance sheet as non-current regulatory assets or liabilities. Amounts deferred at the end of the cycle, August 31 of each year, are fully reconciled and transferred to current assets or liabilities under the balance sheet captions “Gas costs and other regulatory assets” and “Gas costs and other regulatory liabilities.” These balances are recovered or refunded to customers over the subsequent 12 month period. Revenue Taxes. Revenue taxes such as gross receipts taxes, regulatory fees, franchise fees and energy taxes are reported gross in operating revenues. During the calendar years ended December 31, 2020 and 2019, the three months ended December 31, 2018, and fiscal year ended September 30, 2018, $77.5 million, $81.8 million, $24.2 million, and $82.5 million, respectively, were recorded to "Operating revenues" of Washington Gas' statements of operations. Transportation Gas Imbalance. Interruptible shippers and third-party marketer shippers transport gas to Washington Gas’ distribution system as part of the unbundled services offered. The delivered volumes of gas from third-party shippers into Washington Gas’ distribution system rarely equal the volumes billed to third-party marketer customers, resulting in transportation gas imbalances. These imbalances are usually short-term in duration, and Washington Gas monitors the activity and regularly notifies the shippers when their accounts have an imbalance. In accordance with regulatory treatment, Washington Gas does not record a receivable from or liability to third-party marketers associated with gas volumes related to these transportation imbalances but, rather, reflects the financial impact as a regulatory asset or liability related to its gas cost adjustment mechanism, thereby eliminating any profit or loss that would occur because of the imbalance. The regulatory treatment combines the imbalance for all marketers, including our affiliate WGL Energy Services, into a single “net” adjustment to the regulatory asset or liability. Refer to Note 16 — Related Party Transactions for further discussion of the accounting for these imbalance transactions. Asset Optimization Program. Washington Gas optimizes the value of its long-term natural gas transportation and storage capacity resources by entering into physical and financial transactions in the form of forwards, futures and option contracts for periods when these resources are not being used to physically serve utility customers. Refer to “Derivative Activities” below for further discussion of the accounting for derivative transactions entered into under this program. Regulatory sharing mechanisms in all three jurisdictions outline how the profits from these transactions should be shared with Washington Gas’ customers. All unrealized fair value gains and losses, and margins generated from the physical and financial settlement of these asset optimization contracts are recorded in "Utility cost of gas" on the statements of operations or, in the case of amounts to be shared with rate payers, regulatory assets/liabilities on the balance sheets. Materials, Supplies and Storage Gas Washington Gas values materials, supplies and storage gas using a weighted-average cost method. These materials, supplies and storage gas are carried at the lower of weighted-average cost or net realizable value. Interim period inventory losses attributable to lower of cost or net realizable value adjustments may be reversed if the net realizable value of the inventory is recovered by the end of the same year. In general, commodity costs and variable transportation costs are capitalized as gas in underground storage. Fixed costs, primarily pipeline demand charges and storage charges, are expensed as incurred through the cost of gas. Washington Gas did not record a material lower-of-cost or net realizable value adjustment to net income for the calendar years ended December 31, 2020 and 2019, the three months ended December 31, 2018, and fiscal year ended September 30, 2018. Derivative Activities Washington Gas enters into both physical and financial derivative contracts for the purchase and sale of natural gas that are subject to mark-to-market accounting. Changes in the fair value of derivative instruments which are recoverable or refundable to customers when they settle are subject to ASC Topic 980 and are recorded as regulatory assets or liabilities while changes in the fair value of derivative instruments not affected by rate regulation are reflected in earnings. As part of its asset optimization program, Washington Gas enters into derivative contracts related to the sale and purchase of natural gas at a future price with the primary objective of securing operating margins that Washington Gas expects to ultimately realize. The fair value changes of derivatives used under this program may cause significant period-to-period volatility in earnings for the portion of net profits retained for shareholders; however, this earnings volatility will not change the realized margins that Washington Gas expects to earn. In accordance with ASC Topic 815, all financially and physically settled contracts under our asset optimization program are reported on a net basis in the statements of operations in “Utility cost of gas”. Washington Gas historically utilized derivative instruments that are designed to minimize the risk of interest-rate volatility associated with planned issuances of long-term debt. Gains or losses associated with these derivative transactions are deferred as regulatory assets or liabilities and amortized to interest expense in accordance with regulatory accounting requirements. Refer to Note 14 — Derivatives for further discussion of our derivative activities. Income Taxes We recognize deferred income tax assets and liabilities for all temporary differences between the financial statement basis and the tax basis of assets and liabilities computed on a separate company basis. Regulatory assets or liabilities, corresponding to such additional deferred income tax assets or liabilities, may be recorded to the extent recoverable from or payable to customers through the ratemaking process in future periods. Refer to Note 5 — Regulated Operations for Washington Gas’ regulatory assets and liabilities associated with income taxes due from and due to customers. Amounts applicable to income taxes due from and due to customers primarily represent differences between the financial statement basis and tax basis of net utility plant in service. Refer to Note 9 — Income Taxes which provides detailed financial information related to our income taxes. Stock-Based Compensation We account for stock-based compensation expense in accordance with ASC Topic 718, Compensation-Stock Compensation, or ASC Topic 710, Compensation - General for certain awards that do not meet the definition of a stock-based award under ASC 718. All outstanding awards at December 31, 2020 and 2019 are liability-classified share-based awards. We recognize stock-based compensation expense based on their fair value at the end of each reporting period. Compensation expense for awards subject to ASC 710 is recognized based on the probable outcome of the award at the end of each reporting period. For all awards, we estimate forfeitures over the requisite service period when recognizing compensation expense; these estimates are periodically adjusted to the extent to which actual forfeitures differ from such estimates. Refer to Note 11 — Stock-Based Compensation for further discussion of the accounting for our stock-based compensation plans. Asset Retirement Obligations Washington Gas accounts for its AROs in accordance with ASC Subtopic 410-20, Asset Retirement and Environmental Obligations—Asset Retirement Obligations. Our AROs include the costs to cut, purge and cap Washington Gas' distribution and transmission system. These standards require recording the estimated retirement cost over the life of the related asset by depreciating the present value of the retirement obligation, measured at the time of the asset’s acquisition, and accreting the liability until it is settled. There are timing differences between the ARO-related accretion and depreciation amounts being recorded pursuant to GAAP and the recognition of depreciation expense for legal asset removal costs that we are currently recovering in rates. These timing differences are recorded as a reduction to “Regulatory liabilities — Accrued asset removal costs” in accordance with ASC Topic 980. We do not have any assets that are legally restricted related to the settlement of asset retirement obligations. Changes in Asset Retirement Obligations (In millions) Calendar Years Three Months Fiscal Year 2020 2019 2018 2018 Asset retirement obligations at beginning of the period $ 211.6 $ 308.1 $ 305.5 $ 298.9 Liabilities incurred in the period 1.7 1.7 — 1.4 Revaluation of asset retirement obligation — (101.0) — — Liabilities settled in the period (4.8) (7.4) — (7.3) Accretion expense 8.7 10.2 2.6 12.5 Asset retirement obligations at the end of the period (a) $ 217.2 $ 211.6 $ 308.1 $ 305.5 (a) Includes short-term asset retirement obligations of $5.0 million, $4.8 million, $7.3 million and $7.3 million for calendar years ended December 31, 2020 and 2019, the three months ended December 31, 2018, and fiscal year ended September 30, 2018, respectively. Dividend Restrictions Generally, Washington Gas can make dividend payments in the ordinary course of business unless any of the following regulatory limitations apply: (i) Washington Gas will not pay extraordinary dividends to its parent for three years after the Merger Close, (ii) Washington Gas will not pay dividends to its parent company if Washington Gas' senior unsecured debt rating is below investment grade or (iii) Washington Gas will not make a dividend payment to its parent company if the payment would result in its equity level to drop below 48%, We had no significant restrictions on our cash balances or retained earnings that would affect the payment of dividends during the reported |
