| Other Investments | OTHER INVESTMENTS WGL has both solar and pipeline investments and accounts for its interests in legal entities as either a: (i) variable interest entity (VIE) or a (ii) voting interest entity (non-VIE). A VIE is a legal entity with the following characteristics: (i) has insufficient at-risk equity to fund its activities without additional subordinated financial support from any other party or parties; (ii) whose at-risk equity holders as a group do not have the power through voting or similar rights to direct the entity’s activities that most significantly affect its economic performance; or (iii) whose at-risk equity holders do not have the right to receive the expected residual returns. The determination of whether or not to consolidate a VIE under GAAP requires a significant amount of judgment. This includes, but is not limited to, consideration of our contractual relationship with the entity, the legal structure of the entity, whether or not the entity has enough equity to finance its activities without additional financial support, the voting power of the equity holders, the obligation of the equity holders to absorb losses of the entity and their rights to receive any expected residual returns. We have investments in both consolidated and unconsolidated VIEs which are described in detail below. The unconsolidated investments are accounted for under the equity method of accounting with profits and losses included in “Equity in earnings of unconsolidated affiliates” in the accompanying Consolidated Statements of Income. Under the VIE model, we have a controlling financial interest in a VIE (i.e. are the primary beneficiary) when we have current or potential rights that give us the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance combined with a variable interest that gives us the right to receive potentially significant benefits or the obligation to absorb potentially significant losses. When changes occur to the design of an entity, we reconsider whether it is subject to the VIE model. We continuously evaluate whether we have a controlling financial interest in a VIE. Under the voting interest model, we generally have a controlling financial interest in an entity where we currently hold, directly or indirectly, more than 50% of the voting rights or where we exercise control through substantive participating rights. However, we consider substantive rights held by other partners in determining if we hold a controlling financial interest, and in some cases, despite owning more than 50% of the common stock of an investee, an evaluation of our rights may result in the determination that we do not have a controlling financial interest. We reevaluate whether we have a controlling financial interest in these entities when our voting or substantive participating rights change. Where we do not have significant influence, the affiliates are accounted for under the cost method. Investments in, and advances to, affiliated companies are presented in the caption “Investments in unconsolidated affiliates” in the accompanying Consolidated Balance Sheets. WGL uses the Hypothetical Liquidation at Book Value (HLBV) methodology for certain equity method investments when the governing structuring agreement over the equity investment results in different liquidation rights and priorities than what is reflected by the underlying ownership interest percentage. For investments accounted for under the HLBV method, simply applying the percentage ownership interest to GAAP net income in order to determine earnings or losses does not accurately represent the income allocation and cash flow distributions that will ultimately be received by the investors. The calculation may vary in its complexity depending on the capital structure and the tax considerations for the investments. When applying HLBV, WGL determines the amount that it would receive if an equity investment entity were to liquidate all of its assets at book value (as valued in accordance with GAAP) and distribute that cash to the investors based on the contractually defined liquidation priorities. The change in WGL's claim on the investee's book value at the beginning and end of the reporting period (adjusted for contributions and distributions) is WGL’s share of the earnings or losses from the equity investment for the period. Consolidated Investments Variable Interest Entities At June 30, 2017 , WGL's subsidiary, WGSW, Inc. was the primary beneficiary of SFGF, SFRC and SFGF II, as a result of its ability to direct the activities most significant to the economic performance of those entities. Accordingly, we have consolidated those VIE entities. SFGF On August 24, 2016, WGSW and a tax equity partner formed SFGF to acquire distributed generation solar projects in the State of Georgia that were developed by WGL Energy Systems. WGSW is the managing member and contributed cash equity equal to the purchase price of the solar projects less any contributions from the tax-equity partner. As of June 30, 2017 , WGSW has contributed $16.8 million into the tax equity partnership. WGL Energy Systems is the operations and maintenance provider and was the developer of the projects. Profits and losses are allocated between the partners under the HLBV method of accounting and the portion allocated to the tax equity partner is included in "Net income (loss) attributable to non-controlling interest" on the consolidated statements of income and is recorded to "Non-controlling interest" on the consolidated balance sheets. SFRC On October 28, 2016, WGSW and a tax equity partner formed SFRC to acquire distributed generation solar projects in the State of Minnesota that are developed by WGL Energy Systems. WGSW is the managing member and will provide cash equity equal to the purchase price of the solar projects less any contributions from the tax-equity partner. As of June 30, 2017 , WGSW has contributed $13.5 million into the tax equity partnership. WGL Energy Systems is the operations and maintenance provider, and the developer of the projects. Profits and losses are allocated between the partners under the HLBV method of accounting and the portion allocated to the tax equity partner is included in "Net income (loss) attributable to non-controlling interest" on the consolidated statement of income and is recorded to "Non-controlling interest" on the consolidated balance sheets. SFGF II On June 30, 2017, WGSW and a tax equity partner formed SFGF II to acquire distributed generation solar projects in the United States of America that are expected to be developed by WGL Energy Systems. WGSW is the managing member and will provide cash equity equal to the purchase price of the solar projects less any contributions from the tax-equity partner. As of June 30, 2017 , no contributions have been made into the tax equity partnership. WGL Energy Systems will be the operations and maintenance provider and the developer of the projects. Profits and losses are allocated between the partners under the HLBV method of accounting and the portion allocated to the tax equity partner is included in "Net income (loss) attributable to non-controlling interest" on the consolidated statements of income and is recorded to "Non-controlling interest" on the consolidated balance sheets. The carrying amounts and classification of the consolidated VIEs’ assets and liabilities included in our condensed consolidated balance sheet at June 30, 2017 and September 30, 2016 are as follows: WGL Holdings, Inc. Balance Sheet Location of Consolidated Investments (in millions) June 30, 2017 September 30, 2016 Current assets $ 2.1 $ — Non-current assets 56.9 13.2 Total assets $ 59.0 $ 13.2 Current liabilities 0.4 0.6 Non-current liabilities 0.3 — Total liabilities $ 0.7 $ 0.6 Unconsolidated Investments Variable Interest Entities WGL has a variable interest in two investments which are considered unconsolidated VIEs: • Meade and • ASD. At June 30, 2017 , these VIEs were not consolidated because WGL and its subsidiaries were not the primary beneficiaries. The nature of WGL’s involvement with these investments lacks the characteristics of a controlling financial interest. WGL either does not have control over any of the non-consolidated VIEs’ activities that are economically significant to the VIEs and/or WGL does not have the obligation to absorb expected losses or the right to receive expected gains that could be significant to the VIE. Our maximum financial exposure to loss as a result of our involvement with the VIEs includes (a) the amount invested in, and advanced to, the VIE as of the reporting date and (b) any legal or contractual obligation to provide financing in the future, such as liquidity arrangements, guarantees, and other contractual commitments. Any such arrangements, if applicable, are included below. Meade In 2014, WGL through its subsidiary WGL Midstream, entered into a limited liability company agreement and formed Meade Pipeline Co LLC (Meade), a Delaware limited liability company with Transcontinental Gas Pipe Line Company, LLC (Williams) to invest in a regulated pipeline, a segment of Transco's Atlantic Sunrise project, called Central Penn Pipeline (Central Penn). Central Penn will be an approximately 185 -mile pipeline originating in Susquehanna County, Pennsylvania and extending to Lancaster County, Pennsylvania that will have the capacity to transport and deliver up to approximately 1.7 million dekatherms per day of natural gas. WGL Midstream plans to invest an estimated $410 million for a 55% interest in Meade. Although WGL Midstream holds greater than a 50% interest in Meade, Meade is accounted for under the equity method of accounting because WGL Midstream does not have the power to direct the activities most significant to the economic performance of Meade. Profits and losses are allocated under the HLBV method of accounting and are included in “Equity in earnings of unconsolidated affiliates” in the accompanying Consolidated Statement of Income and are added to or subtracted from the carrying amount of WGL’s investment balance. At June 30, 2017 and September 30, 2016 , WGL Midstream held a $121.0 million and $80.8 million , respectively, equity method investment in Meade. ASD WGSW is a limited partner in ASD Solar LP (ASD), a limited partnership formed to own and operate a portfolio of residential solar projects, primarily rooftop photovoltaic power generation systems. As a limited partner, WGSW provided funding to the partnership but did not have power to direct the activities that most significantly affect the operations and economic performance of the entity. In January 2014, the funding commitment period ended for the partnership. As of June 30, 2017 , ASD is being consolidated by the general partner, Solar Direct LLC (Solar Direct). Solar Direct is a wholly owned subsidiary of American Solar Direct Inc. (ASDI). Our investment in ASD is accounted for under the HLBV equity method of accounting; any profits and losses are included in “Equity in earnings of unconsolidated affiliates” in the accompanying Consolidated Statement of Income and are added to or subtracted from the carrying amount of WGSW’s investment balance. At June 30, 2017 and September 30, 2016 , WGSW held a $66.7 million and $66.1 million , respectively, equity method investment in ASD. At June 30, 2017 , the carrying amount of WGSW’s investment in ASD exceeded the amount of the underlying equity in net assets by $35.8 million due to WGSW recording additions to its investment in ASD’s net assets at fair value of contributions in accordance with GAAP. This basis difference is being amortized over the life of the assets. In June 2017, ASDI filed for Chapter 7 bankruptcy as a result of financial difficulties. To ensure continuing operations of the partnership and minimal disruptions to the customers, WGSW petitioned the Bankruptcy Court to remove Solar Direct as manager of ASD operations and to approve the appointment of SF ASD LLC (SF ASD), a subsidiary of WGSW, which was formed to take over the management and operations of the partnership, as manager of ASD operations. On July 10, 2017, the Bankruptcy Court granted the bankruptcy trustee's emergency motion to assign management rights and control of ASD to SF ASD. This change in partnership control will result in the consolidation of the ASD partnership by WGL as of July 10, 2017. WGSW's equity method investment will be eliminated with its partnership interest with ASDI's non-controlling interest in ASD to be recognized at fair value. It is anticipated that an estimated gain of approximately $2.0 million will be recognized to other income based on the difference between WGSW's net investment in the partnership and WGSW's partnership interest measured at fair value. Associated with the financial difficulties of ASDI, in April 2017, WGL paid $2.1 million to satisfy a bank guarantee on behalf of ASDI. The following table summarizes the preliminary fair value amounts of ASD assets and liabilities, as well as the non-controlling interest recorded at estimated fair value as of the date of control. (in millions) Preliminary Estimated Fair Value Current assets $ 1.1 Other assets 0.8 Property, plant and equipment 76.4 Total assets $ 78.3 Current liabilities 0.9 Other liabilities 27.0 Total liabilities $ 27.9 Net assets $ 50.4 Non-controlling interest $ 0.5 WGSW equity interest $ 49.9 Property, plant and equipment represent residential solar assets that were measured at estimated fair value using the income derived from discounted cash flows while the other liabilities represent deferred income tax credits, treasury grants and state government grants. The fair values were determined based on significant estimates and assumptions that are judgmental in nature, including projected cash flows and discount rates reflecting inherent risk in the future cash flows. Accounting guidance provides that the business combination value may be modified for up to one year from the date of the transaction to the extent that additional information is obtained about the facts and circumstances which existed as of the consolidation date. The valuation performed to assess fair value is preliminary and is expected to be finalized by the end of fiscal year 2017. SunEdison As of June 30, 2017 , WGSW ended its agreement with SunEdison, Inc. (SunEdison) by assigning the master purchase agreement and master lease agreement with SunEdison to its newly formed affiliate, SF Echo LLC. In April 2017, EchoFirst Finance Company LLC (EchoFirst), the subsidiary of SunEdison that was party to our master purchase and lease agreements filed a voluntary petition with the United States Bankruptcy Court for relief under Title 11 of the United States Code. In April 2016, SunEdison filed a voluntary bankruptcy petition with the United States Bankruptcy Court for relief under Title 11 of the United States Code. In April 2017, we executed an assignment of the master lease agreement, master purchase agreement and the EchoFirst customer leases from SunEdison, allowing SunEdison to divest the WGSW lease arrangement. SF Echo, a wholly-owned subsidiary of WGSW, will operate and maintain the assets and be entitled to all cash flows from the assets for the remainder of their lease terms. The master lease between SF Echo and WGSW will be accounted for as a direct financing lease. SF Echo accounts for the customer leases as operating leases. The fair value of the assets did not result in any adjustments during the period. Our maximum financial exposure is limited to lease payment receivables from retail residential solar customers, future maintenance and performance payments and customer non-payments. On a quarterly basis, we will evaluate our lease receivables for credit losses. SF Echo will record lease income in the accompanying condensed consolidated statements of income. WGSW did not hold an investment in SunEdison at June 30, 2017 . Additionally, we had balances of $9.4 million of unamortized tax credits related to the leased assets in "Unamortized investment tax credits" on the accompanying condensed consolidated balance sheets at June 30, 2017 . Non-VIE Investments Constitution In 2013, Constitution Pipeline Company, LLC (Constitution) was formed, with WGL Midstream as an investor. At June 30, 2017 , WGL Midstream's share of the total forecasted cash contributions over the term of the construction agreement for Constitution is $95.5 million , reflecting a 10% share in the pipeline venture. This natural gas pipeline will transport natural gas from the Marcellus region in northern Pennsylvania to major northeastern markets. Constitution is accounted for under the equity method of accounting; any profits and losses are included in “Equity in earnings of unconsolidated affiliates” in the accompanying Consolidated Statement of Income and are added to or subtracted from the carrying amount of WGL’s investment balance. The equity method is considered appropriate because Constitution is an LLC with specific ownership accounts and ownership between five and fifty percent resulting in WGL Midstream maintaining a more than minor influence over the partnership operating and financing policies. O n April 22, 2016, the New York State Department of Environmental Conservation (NYSDEC) denied Constitution's application for a Section 401 Water Quality Certification (Section 401 Certification) for the pipeline, which is necessary for the construction and operation of the pipeline. Constitution has stated that it remains committed to pursuing the project and that it intends to pursue all available options to challenge the legality and appropriateness of NYSDEC’s decision. In May, 2016, Constitution filed actions in the U.S. Circuit Court of Appeals for the Second Circuit and the U.S. District Court for the Northern District of New York, respectively, appealing the decision and seeking declaratory judgment that the State of New York’s permitting authority is preempted by federal law. On March 16, 2017, the U.S. District Court for the Northern District of New York issued an order ruling, without prejudice, that it lacked subject matter jurisdiction to hear Constitution's complaint. In light of the forgoing matters, Constitution has revised its target in-service date to as early as the first half of 2019, which assumes the timely receipt of a Notice to Proceed from the FERC. We can give no assurance, however, that Constitution’s efforts to obtain the Section 401 Certification will be successful. At June 30, 2017 and September 30, 2016 , we held a $ 38.5 million and $38.6 million equity method investment in Constitution, respectively. We have evaluated our investment in Constitution for other than temporary impairment as of June 30, 2017 . Our impairment assessment used income and market approaches in determining the fair value of our investment in Constitution, including consideration of the severity and duration of any decline in fair value of our investment in the project. Our key inputs included, but are not limited to, significant management judgments and estimates, including projections of the project’s cash flows, selection of a discount rate, market multipliers and probability weighting of potential outcomes of legal and regulatory proceedings. At this time, we do not have an other than temporary impairment and have not recorded any impairment charge to reduce the carrying value of our investment. If Constitution is ultimately unable to obtain the Section 401 Certification or other future developments or indicators of an unfavorable resolution arise subsequently, an impairment charge of up to substantially all of our investment in the capitalized project costs may be required. It is also possible that Constitution could incur certain supplier-related costs in the event of a prolonged delay or termination of the project. We will continue to monitor and update our impairment analysis as required. Mountain Valley Pipeline In March 2015, WGL Midstream acquired a 7% equity interest in Mountain Valley Pipeline, LLC (Mountain Valley). On October 24, 2016, WGL Midstream acquired an additional 3% equity interest in Mountain Valley by assuming all of Vega Midstream MVP LLC's (Vega Energy) interest in the joint venture. WGL Midstream now owns a 10% interest in Mountain Valley. The proposed pipeline to be developed, constructed, owned and operated by Mountain Valley, will transport approximately 2.0 million dekatherms of natural gas per day from interconnects with EQT Corporation's Equitrans system in Wetzel County, West Virginia to Transcontinental Gas Pipe Line Company LLC's Station 165 in Pittsylvania County, Virginia. The pipeline is scheduled to be in service in the fourth quarter of calendar year 2018. WGL Midstream expects to invest in scheduled capital contributions through the in-service date of the pipeline, its pro rata share (based on its 10% equity interest) of project costs, an estimated aggregate amount of approximately $327.6 million . At June 30, 2017 and September 30, 2016 , WGL Midstream held a $52.3 million and $ 22.5 million equity method investment in Mountain Valley, respectively. The equity method is considered appropriate because Mountain Valley is an LLC with specific ownership accounts and ownership between five and fifty percent resulting in WGL Midstream maintaining a more than minor influence over the partnership operating and financing policies. The carrying amount of WGL Midstream's investment in MVP exceeded the amount of the underlying equity in net assets by $0.5 million , which will be amortized over the life of the assets when it is put in production. Profits and losses are allocated under the HLBV method of accounting and are included in “Equity in earnings of unconsolidated affiliates” in the accompanying Consolidated Statement of Income and are added to or subtracted from the carrying amount of WGL’s investment balance. Stonewall System WGL Midstream has a 30% equity interest in an entity that owns and operates certain assets known as the Stonewall Gas Gathering System (the Stonewall System). WGL Midstream paid $89.4 million to acquire the equity interest pursuant to an option that WGL Midstream previously acquired. During the nine months ended June 30, 2017 , WGL Midstream contributed an additional $45.5 million related to retiring debt at the entity level. The Stonewall System has the capacity to gather up to 1.4 billion cubic feet of natural gas per day from the Marcellus production region in West Virginia, and connects with an interstate pipeline system that serves markets in the mid-Atlantic region. WGL Midstream held a $137.2 million and $95.5 million equity method investment in the Stonewall System at June 30, 2017 and September 30, 2016 , respectively. The equity method is considered appropriate because the Stonewall System is an LLC with specific ownership accounts and ownership between five and fifty percent resulting in WGL Midstream maintaining a more than minor influence over the partnership operating and financing policies. The carrying amount of WGL Midstream's investment in the Stonewall System exceeded the amount of the underlying equity in net assets by $8.9 million , which is being amortized over the life of the assets. Profits and losses are allocated under the HLBV method of accounting and are included in “Equity in earnings of unconsolidated affiliates” in the accompanying Consolidated Statement of Income and are added to or subtracted from the carrying amount of WGL’s investment balance. Nextility-Lease Settlement and Assignment During the nine months ended June 30, 2017 , WGSW terminated its sale/leaseback agreement with Nextility and entered into a new lease agreement with another unrelated third party, with significantly reduced payments and lease terms. Based on the lease classification criteria per ASC Topic 840, it was determined that the new lease is an operating lease. As a result, the net investment of $5.4 million on the consolidated balance sheet was eliminated. The solar assets were recorded at present fair value using the income approach as $4.0 million to "Property, plant and equipment" and $1.4 million was recorded as a receivable. The unamortized investment tax credits (ITC) balance associated with these assets continue to be deferred and amortized over the assets' useful life. As of June 30, 2017 , the deferred net ITC receivable related to these assets is $3.0 million . In May 2017, Nextility informed WGSW that it was unable to finalize a financing arrangement and is in the process of winding down its business. A $1.0 million reserve was recorded for the receivable due from Nextility as part of the settlement to terminate the sale/leaseback agreement. SFEE During the nine months ended June 30, 2017 , WGSW and a tax equity partner formed SFEE to acquire distributed generation solar projects that are developed by a third-party developer or WGL Energy Systems. New projects will be designed and constructed under long-term power purchase agreements. As of June 30, 2017 , WGSW has contributed $ 6.5 million and held an $ 9.6 million interest in SFEE. SFEE is not considered a VIE and is not consolidated under the voting interest model for limited partnerships. WGSW is the managing member of SFEE. WGSW is also the operations and maintenance provider for SFEE. In addition, WGL Energy Systems has the option to sell its own distributed generation solar projects to the developer for sale to SFEE and these assets remain on WGL Energy System's books until we no longer have continuing involvement. The equity method is considered appropriate because WGSW has significant influence over the operating and financial policies of SFEE. Profits and losses are allocated between the partners under the HLBV method of accounting and are included in “Equity in earnings of unconsolidated affiliates” in the accompanying Consolidated Statement of Income and are added to or subtracted from the carrying amount of WGSW’s investment balance. For SFEE, WGL has also provided a guarantee that could require additional future payments of $ 13.0 million . The following tables present summary information about our unconsolidated VIEs and non-VIEs: WGL Holdings, Inc. Balance Sheet Location of Unconsolidated Investments Solar Investments Pipelines (in millions) VIEs (a) Non-VIEs (b) VIEs (c) Non-VIEs (d) Total June 30, 2017 Assets Investments in unconsolidated affiliates $ 66.7 $ 9.6 $ 121.0 $ 228.0 $ 425.3 Total assets $ 66.7 $ 9.6 $ 121.0 $ 228.0 $ 425.3 September 30, 2016 Assets Investments in unconsolidated affiliates $ 66.1 $ — $ 80.8 $ 156.6 $ 303.5 Investments in direct financing leases, capital leases (e) 29.8 — — — 29.8 Accounts receivable (e) 1.1 — — 9.2 10.3 Total assets $ 97.0 $ — $ 80.8 $ 165.8 $ 343.6 (a) "Investments in unconsolidated affiliates" balance relates to equity method investment in ASD. (b) Balance relates to interest held in SFEE. (c) Balance relates to equity method investment in Meade. (d) Balance relates to equity method investments in Constitution, Mountain Valley Pipeline and Stonewall System. (e) Prior year balances relate to direct financing leases in Nextility and SunEdison. |
