Washington Gas Light (WGLCP) 10-Q 2012 Q3 Quarterly report

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 June 30, 2012

OR

¨ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number	Exact name of registrant as specified in its charter and principal office address and telephone number	State of Incorporation	I.R.S. Employer 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. Yesþ No¨

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). Yesþ No¨

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 filerþ	Accelerated filer¨	Non-accelerated filer¨	Smaller reporting company¨
	(Do not check if a smaller reporting company)

Washington Gas Light Company:

Large accelerated filer¨	Accelerated filer¨	Non-accelerated filerþ	Smaller reporting company¨
	(Do not check if a smaller reporting company)

Indicate by check mark whether each registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes¨ Noþ

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 July 31, 2012: 51,573,871 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 July 31, 2012.

WGL Holdings, Inc.

Washington Gas Light Company

For the Quarter Ended June 30, 2012

Table of Contents

PART I. Financial Information
Item 1. Financial Statements (Unaudited)
WGL Holdings, Inc.
Consolidated Balance Sheets	3
Consolidated Statements of Income	4
Consolidated Statements of Cash Flows	5
Washington Gas Light Company
Balance Sheets	6
Statements of Income	7
Statements of Cash Flows	8
Notes to Consolidated Financial Statements
WGL Holdings, Inc. and Washington Gas Light Company — Combined	9
Item  2.Management’s Discussion and Analysis of Financial Condition and Results of Operations	37
WGL Holdings, Inc.	41
Washington Gas Light Company	63
Item 3. Quantitative and Qualitative Disclosures about Market Risk	69
Item 4. Controls and Procedures	69
PART II. Other Information
Item 1. Legal Proceedings	70
Item 4. Mine Safety Disclosures	70
Item 6. Exhibits	70
Signature	71

(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 combined basis for both WGL Holdings and Washington Gas. TheManagement’s Discussion and Analysis of Financial Condition and Results of Operations (Management’s 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 thePrivate Securities Litigation Reform Act of 1995with 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 Gas’ 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 the Southern LNG, Inc. Elba Island facility to Washington Gas’ natural gas distribution system or changes in the composition of domestic natural gas as a result of liquids processing and new domestic sources of natural gas;

• 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 Gas’ 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, pipeline integrity and employment laws and regulations;

• legislative, regulatory and judicial mandates or decisions affecting business operations or the timing of recovery of costs and expenses;

• 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;

(ii)

WGL Holdings, Inc.

Washington Gas Light Company

• 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 thePrivate Securities Litigation Reform Act of 1995.

(iii)

WGL Holdings, Inc.

Consolidated Balance Sheets (Unaudited)

Part I—Financial Information

Item 1—Financial Statements

(In thousands)	June 30,      2012			September 30, 2011
ASSETS
Property, Plant and Equipment
At original cost	$	3,715,733		$	3,575,973
Accumulated depreciation and amortization		(1,124,488	)		(1,086,072	)
Net property, plant and equipment		2,591,245			2,489,901
Current Assets
Cash and cash equivalents		51,519			4,332
Receivables
Accounts receivable		222,290			205,950
Gas costs and other regulatory assets		36,518			14,364
Unbilled revenues		116,795			94,078
Allowance for doubtful accounts		(19,570	)		(17,969	)
Net receivables		356,033			296,423
Materials and supplies—principally at average cost		24,453			27,113
Storage gas		236,980			290,394
Deferred income taxes		18,925			18,816
Other prepayments		23,218			63,839
Derivatives		53,688			16,248
Other		11,513			7,568
Total current assets		776,329			724,733
Deferred Charges and Other Assets
Regulatory assets
Gas costs		—			16,798
Pension and other post-retirement benefits		448,820			471,378
Other		63,800			69,279
Derivatives		36,808			11,721
Other		36,033			25,224
Total deferred charges and other assets		585,461			594,400
Total Assets	$	3,953,035		$	3,809,034
CAPITALIZATION AND LIABILITIES
Capitalization
Common shareholders’ equity	$	1,281,869		$	1,202,715
Washington Gas Light Company preferred stock		28,173			28,173
Long-term debt		588,089			587,213
Total capitalization		1,898,131			1,818,101
Current Liabilities
Current maturities of long-term debt		45			77,104
Notes payable		90,494			39,421
Accounts payable and other accrued liabilities		234,168			279,434
Wages payable		15,414			16,949
Accrued interest		10,988			3,880
Dividends declared		20,959			20,256
Customer deposits and advance payments		71,477			78,139
Gas costs and other regulatory liabilities		21,746			7,843
Accrued taxes		42,966			16,925
Derivatives		48,311			31,851
Other		20,030			4,938
Total current liabilities		576,598			576,740
Deferred Credits
Unamortized investment tax credits		18,632			11,656
Deferred income taxes		561,377			527,189
Accrued pensions and benefits		381,239			397,460
Asset retirement obligations		70,774			66,928
Regulatory liabilities
Gas costs		23,409			—
Accrued asset removal costs		325,972			326,154
Other		17,701			18,574
Derivatives		19,555			15,066
Other		59,647			51,166
Total deferred credits		1,478,306			1,414,193
Commitments and Contingencies (Note 13)
Total Capitalization and Liabilities	$	3,953,035		$	3,809,034

The accompanying notes are an integral part of these statements.

4

WGL Holdings, Inc.

Consolidated Statements of Income (Unaudited)

Part I—Financial Information

Item 1—Financial Statements (continued)

	Three Months Ended June 30,				Nine Months Ended June 30,
(In thousands, except per share data)	2012		2011		2012		2011
OPERATING REVENUES
Utility	$	160,681	$	178,466	$	985,528	$	1,149,057
Non-utility		277,645		311,815		1,019,999		1,154,319
Total Operating Revenues		438,326		490,281		2,005,527		2,303,376
OPERATING EXPENSES
Utility cost of gas		40,926		60,774		384,710		555,964
Non-utility cost of energy-related sales		235,664		281,817		927,640		1,032,935
Operation and maintenance		89,054		80,776		255,735		245,875
Depreciation and amortization		25,184		22,833		73,530		68,124
General taxes and other assessments		26,965		28,840		111,043		123,515
Total Operating Expenses		417,793		475,040		1,752,658		2,026,413
OPERATING INCOME		20,533		15,241		252,869		276,963
Other Income—Net		1,228		481		4,222		49
Interest Expense
Interest on long-term debt		9,152		10,022		28,244		29,919
AFUDC and other, net		407		210		658		631
Total Interest Expense		9,559		10,232		28,902		30,550
INCOME BEFORE INCOME TAXES		12,202		5,490		228,189		246,462
INCOME TAX EXPENSE		4,415		2,208		95,125		97,860
NET INCOME	$	7,787	$	3,282	$	133,064	$	148,602
Dividends on Washington Gas preferred stock		330		330		990		990
NET INCOME APPLICABLE TO COMMON STOCK	$	7,457	$	2,952	$	132,074	$	147,612
AVERAGE COMMON SHARES OUTSTANDING
Basic		51,553		51,243		51,499		51,153
Diluted		51,632		51,314		51,574		51,235
EARNINGS PER AVERAGE COMMON SHARE
Basic	$	0.14	$	0.06	$	2.56	$	2.89
Diluted	$	0.14	$	0.06	$	2.56	$	2.88
DIVIDENDS DECLARED PER COMMON SHARE	$	0.4000	$	0.3875	$	1.1875	$	1.1525

The accompanying notes are an integral part of these statements.

5

WGL Holdings, Inc.

Consolidated Statements of Cash Flows (Unaudited)

Part I—Financial Information

Item 1—Financial Statements (continued)

	Nine Months Ended June 30,
(In thousands)	2012			2011
OPERATING ACTIVITIES
Net income	$	133,064		$	148,602
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES
Depreciation and amortization		73,530			68,124
Amortization of:
Other regulatory assets and liabilities—net		708			2,748
Debt related costs		661			671
Deferred income taxes—net		40,077			48,563
Accrued/deferred pension cost		14,562			13,131
Compensation expense related to equity awards		3,463			2,027
Provision for doubtful accounts		15,508			15,783
Impairment loss on Springfield Operations Center		5,015			—
Other non-cash charges (credits)—net		5,430			(1,654	)
CHANGES IN ASSETS AND LIABILITIES
Accounts receivable and unbilled revenues—net		(52,964	)		(68,469	)
Gas costs and other regulatory assets/liabilities—net		(8,251	)		24,369
Storage gas		53,414			34,458
Other prepayments		3,181			18,455
Accounts payable and other accrued liabilities		(35,877	)		46,220
Wages payable		(1,535	)		2,712
Customer deposits and advance payments		(6,662	)		(1,544	)
Accrued taxes		42,501			22,927
Accrued interest		7,108			8,440
Other current assets		(1,285	)		7,887
Other current liabilities		15,092			(30,119	)
Deferred gas costs—net		40,207			(1,333	)
Deferred assets—other		(1,940	)		31,752
Deferred liabilities—other		(24,645	)		(32,794	)
Other—net		(2,542	)		2,239
Net Cash Provided by Operating Activities		317,820			363,195
FINANCING ACTIVITIES
Common stock issued		1,618			11,299
Long-term debt issued		—			75,000
Long-term debt retired		(77,000	)		(30,000	)
Debt issuance costs		—			(167	)
Notes payable issued (retired)—net		51,073			(87,417	)
Dividends on common stock and preferred stock		(57,533	)		(59,413	)
Other financing activities—net		(695	)		(3,552	)
Net Cash Used in Financing Activities		(82,537	)		(94,250	)
INVESTING ACTIVITIES
Capital expenditures (excluding AFUDC)		(176,959	)		(128,710	)
Investments in non-utility interests		(17,813	)		(10,054	)
Distributions from non-utility interests		6,676			—
Net Cash Used in Investing Activities		(188,096	)		(138,764	)
INCREASE IN CASH AND CASH EQUIVALENTS		47,187			130,181
Cash and Cash Equivalents at Beginning of Year		4,332			8,849
Cash and Cash Equivalents at End of Period	$	51,519		$	139,030
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Income taxes paid—net	$	22,529		$	2,453
Interest paid	$	21,905		$	21,927
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Project debt financing activities—net	$	892		$	(3,539	)
Capital expenditure accruals included in accounts payable and other accrued liabilities	$	17,843		$	18,487

The accompanying notes are an integral part of these statements.

6

Washington Gas Light Company

Balance Sheets (Unaudited)

Part I—Financial Information

Item 1—Financial Statements (continued)

(In thousands)	June 30,      2012			September 30, 2011
ASSETS
Property, Plant and Equipment
At original cost	$	3,625,477		$	3,509,564
Accumulated depreciation and amortization		(1,097,050	)		(1,060,990	)
Net property, plant and equipment		2,528,427			2,448,574
Current Assets
Cash and cash equivalents		48,688			1,353
Receivables
Accounts receivable		105,297			81,778
Gas costs and other regulatory assets		36,518			14,364
Unbilled revenues		19,910			13,888
Allowance for doubtful accounts		(16,931	)		(15,863	)
Net receivables		144,794			94,167
Materials and supplies—principally at average cost		24,407			27,061
Storage gas		89,157			166,054
Deferred income taxes		19,316			15,748
Other prepayments		12,593			30,601
Receivables from associated companies		5,416			21,167
Derivatives		8,870			1,311
Other		6,285			1,154
Total current assets		359,526			358,616
Deferred Charges and Other Assets
Regulatory assets
Gas costs		—			16,798
Pension and other post-retirement benefits		446,103			468,522
Other		63,799			69,277
Derivatives		22,928			8,739
Other		8,275			8,522
Total deferred charges and other assets		541,105			571,858
Total Assets	$	3,429,058		$	3,379,048
CAPITALIZATION AND LIABILITIES
Capitalization
Common shareholder’s equity	$	1,046,922		$	990,135
Preferred stock		28,173			28,173
Long-term debt		588,089			587,213
Total capitalization		1,663,184			1,605,521
Current Liabilities
Current maturities of long-term debt		45			77,104
Notes payable		—			22
Accounts payable and other accrued liabilities		110,491			131,055
Wages payable		14,774			16,031
Accrued interest		10,988			3,880
Dividends declared		18,896			18,717
Customer deposits and advance payments		71,477			78,139
Gas costs and other regulatory liabilities		21,746			7,843
Accrued taxes		57,442			22,829
Payables to associated companies		23,965			11,792
Derivatives		6,645			6,105
Other		3,411			5,307
Total current liabilities		339,880			378,824
Deferred Credits
Unamortized investment tax credits		8,477			8,677
Deferred income taxes		548,279			524,253
Accrued pensions and benefits		378,613			394,818
Asset retirement obligations		69,519			65,725
Regulatory liabilities
Gas costs		23,409			—
Accrued asset removal costs		325,972			326,154
Other		17,701			18,574
Derivatives		3,361			7,115
Other		50,663			49,387
Total deferred credits		1,425,994			1,394,703
Commitments and Contingencies (Note 13)
Total Capitalization and Liabilities	$	3,429,058		$	3,379,048

7

Washington Gas Light Company

Statements of Income (Unaudited)

Part I—Financial Information

Item 1—Financial Statements (continued)

	Three Months Ended June 30,						Nine Months Ended June 30,
(In thousands)	2012			2011			2012		2011
OPERATING REVENUES	$	164,667		$	181,497		$	1,006,617	$	1,169,597
OPERATING EXPENSES
Utility cost of gas		44,627			63,805			404,185		576,504
Operation and maintenance		73,809			66,110			210,401		203,087
Depreciation and amortization		24,327			22,290			71,331		66,533
General taxes and other assessments		24,595			26,348			103,515		115,976
Total Operating Expenses		167,358			178,553			789,432		962,100
OPERATING INCOME (LOSS)		(2,691	)		2,944			217,185		207,497
Other Income—Net		492			600			2,236		899
Interest Expense
Interest on long-term debt		9,152			9,997			28,244		29,894
AFUDC and other, net		313			209			391		554
Total Interest Expense		9,465			10,206			28,635		30,448
INCOME (LOSS) BEFORE INCOME TAXES		(11,664	)		(6,662	)		190,786		177,948
INCOME TAX EXPENSE (BENEFIT)		(5,933	)		(2,825	)		79,539		70,005
NET INCOME (LOSS)	$	(5,731	)	$	(3,837	)	$	111,247	$	107,943
Dividends on Washington Gas preferred stock		330			330			990		990
NET INCOME (LOSS) APPLICABLE TO COMMON STOCK	$	(6,061	)	$	(4,167	)	$	110,257	$	106,953

The accompanying notes are an integral part of these statements.

8

Washington Gas Light Company

Statements of Cash Flows (Unaudited)

Part I—Financial Information

Item 1—Financial Statements (continued)

	Nine Months Ended June 30,
(In thousands)	2012			2011
OPERATING ACTIVITIES
Net income	$	111,247		$	107,943
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES
Depreciation and amortization		71,331			66,533
Amortization of:
Other regulatory assets and liabilities—net		710			(2,954	)
Debt related costs		661			671
Deferred income taxes—net		26,443			33,136
Accrued/deferred pension cost		14,446			13,024
Compensation expense related to equity awards		2,790			1,934
Provision for doubtful accounts		11,883			12,650
Impairment loss on Springfield Operations Center		5,015			—
Other non-cash charges (credits)—net		(242	)		(2,695	)
CHANGES IN ASSETS AND LIABILITIES
Accounts receivable, unbilled revenues and receivables from associated companies—net		(24,605	)		(50,528	)
Gas costs and other regulatory assets/liabilities—net		(8,251	)		24,369
Storage gas		76,897			45,760
Other prepayments		18,008			13,638
Accounts payable and other accrued liabilities, including payables to associated companies		(2,082	)		5,028
Wages payable		(1,257	)		2,629
Customer deposits and advance payments		(6,662	)		456
Accrued taxes		34,613			8,122
Accrued interest		7,108			8,440
Other current assets		(10,036	)		5,000
Other current liabilities		(1,356	)		(10,921	)
Deferred gas costs—net		40,207			(1,333	)
Deferred assets—other		6,705			30,539
Deferred liabilities—other		(42,456	)		(14,905	)
Other—net		185			2,559
Net Cash Provided by Operating Activities		331,302			299,095
FINANCING ACTIVITIES
Long-term debt issued		—			75,000
Long-term debt retired		(77,000	)		(30,000	)
Debt issuance costs		—			(167	)
Notes payable issued (retired)—net		(22	)		(43,419	)
Dividends on common stock and preferred stock		(56,345	)		(55,587	)
Other financing activities—net		1,665			(434	)
Net Cash Used in Financing Activities		(131,702	)		(54,607	)
INVESTING ACTIVITIES
Capital expenditures (excluding AFUDC)		(152,265	)		(112,575	)
Net Cash Used in Investing Activities		(152,265	)		(112,575	)
INCREASE IN CASH AND CASH EQUIVALENTS		47,335			131,913
Cash and Cash Equivalents at Beginning of Year		1,353			4,390
Cash and Cash Equivalents at End of Period	$	48,688		$	136,303
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Income taxes paid—net	$	13,990		$	—
Interest paid	$	21,668		$	21,870
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Project debt financing activities—net	$	892		$	(3,539	)
Capital expenditure accruals included in accounts payable and other accrued liabilities	$	15,800		$	18,431

The accompanying notes are an integral part of these statements.

9

WGL Holdings, Inc.

Washington Gas Light Company

Part I—Financial Information

Item 1—Financial 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 four non-utility subsidiaries that include Washington Gas Energy Services, Inc. (WGEServices), Washington Gas Energy Systems, Inc. (WGESystems), Capitol Energy Ventures Corp. (CEV) and WGSW, Inc. (WGSW). 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. 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, 2011. Due to the seasonal nature of our 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, 2012 and 2011 of either WGL Holdings or Washington Gas.

The accompanying unaudited 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. Certain prior period amounts in the accompanying balance sheets have been reclassified to conform to the current period presentation.

For a complete 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, 2011.

Storage Gas Valuation Methods

For Washington Gas and WGEServices, storage gas inventory is stated at the lower-of-cost or market as determined using the first-in, first-out method. For CEV, storage gas inventory is stated at the lower-of-cost or market using the weighted average cost method. For the three months ended June 30, 2012, WGL Holdings recorded an increase to net income (pre-tax) due to the reversal of prior period lower-of-cost or market adjustments of $7.2 million. For the nine months ended June 30, 2012, WGL Holdings recorded a reduction of net income of $24.4 million for lower-of-cost or market adjustments. Washington Gas recorded an increase to net income (pre-tax) due to a reversal of prior period lower-of-cost or market adjustment of $0.1 million for the three months ended June 30, 2012. For the nine months ended June 30, 2012, Washington Gas recorded a reduction to net income (pre-tax) of $1.5 million for lower-of-cost or market adjustments. There were no lower-of-cost or market adjustments recorded for the three or nine month periods ended June 30, 2011 for either WGL Holdings or Washington Gas.

Impairment of Long-Lived Assets

Management regularly reviews property and equipment and other long-lived assets, including certain definite-lived intangible assets, for possible impairment. This review occurs quarterly, or more frequently if events or changes in circumstances indicate the carrying amount of the asset may not be recoverable.

During fiscal year 2010, Washington Gas (a part of our regulated utility segment) began construction of a new operations facility. The new operations facility was constructed to replace Washington Gas’ previous operations facility. During the quarter ended June 30, 2012, Washington Gas completed the relocation of its employees from its previous operations facility to the new operations facility, and is no longer using the previous operations facility. Washington Gas is actively marketing the previous operations facility for sale. Washington Gas applied a discounted cash value model to the anticipated proceeds from a future sale and recorded an impairment loss of $5.0 million in operation and maintenance expense in the accompanying consolidated statements of income for the three and nine months ended June 30, 2012. There were no impairment indicators identified for the three or nine months ended June 30, 2011.

Accounting Standards Adopted in the Current Fiscal Year

Fair Value. In May 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2011-04,Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS. ASU 2011-04 amends ASC Topic 820 to include a consistent definition of the term “fair value” and set forth

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WGL Holdings, Inc.

Washington Gas Light Company

Part I—Financial Information

Item 1—Financial Statements (continued)

Notes to Consolidated Financial Statements (Unaudited)

common requirements for measuring fair value and disclosing information about fair value measurements in financial statements. ASU 2011-04 was effective for us beginning January 1, 2012. The adoption of this standard did not have a material effect on our financial statements.Refer to Note 10 – Fair Value Measurements for the required disclosure under this standard.

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 was effective for us on January 1, 2010. The remaining disclosure requirements were effective for us on October 1, 2011. The adoption of this standard did not have a material effect on our financial statements. Refer to Note 10 – Fair Value Measurements for the required disclosure under this standard.

Newly Issued Accounting Standards

Balance Sheet Offsetting.In December 2011, the FASB issued ASU 2011-11,Disclosures about Offsetting Assets and Liabilities. This standard amends the disclosure requirements on offsetting in ASC Topic 210 by requiring enhanced disclosures about financial instruments and derivative instruments that are either (i) offset in accordance with existing guidance or (ii) subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset on the balance sheet. ASU 2011-11 will be effective for us on October 1, 2013. We do not expect the adoption of this standard to have a material effect on our financial statements.

Comprehensive Income.In June 2011, the FASB issued ASU 2011-05,Comprehensive Income (Topic 220): Presentation of Comprehensive Income. ASU 2011-05 is intended to improve financial reporting by requiring companies to present items of net income in either one continuous statement, or in two separate but consecutive statements of net income and other comprehensive income. The new guidance removes the current presentation options in ASC Topic 220. The requirements of ASU 2011-05 do not change which components of comprehensive income are recognized in net income or other comprehensive income, nor does the update change the computation of earnings per share (EPS). ASU 2011-05 will be effective for us on October 1, 2012. We do not expect the adoption of this standard to have a material effect on our 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 millions)	June 30, 2012		September 30, 2011
Accounts payable—trade	$	189.4	$	210.4
Employee benefits and payroll accruals		19.6		26.5
Embedded derivatives and other accrued liabilities		25.2		42.5
Total	$	234.2	$	279.4
Washington Gas Light Company
(In millions)		June 30, 2012		September 30, 2011
Accounts payable—trade	$	83.9	$	103.0
Employee benefits and payroll accruals		17.8		23.7
Embedded derivatives and other accrued liabilities		8.8		4.4
Total	$	110.5	$	131.1

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WGL Holdings, Inc.

Washington Gas Light Company

Part I—Financial Information

Item 1—Financial Statements (continued)

Notes to Consolidated Financial Statements (Unaudited)

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 our businesses, short-term financing requirements can vary significantly during the year. We maintain revolving credit agreements to support our outstanding commercial paper and to permit short-term borrowing flexibility. Our policy is to maintain bank credit facilities in an amount equal to or greater than our expected maximum commercial paper position.

On April 3, 2012, WGL Holdings and Washington Gas each entered into separate revolving credit agreements to replace the existing revolving credit agreements which were due to expire in August 2012. The credit facilities for WGL Holdings and Washington Gas permit borrowings up to $450.0 and $350.0 million, respectively. These credit agreements provide for a term of five years. The following is a summary of our committed credit available at June 30, 2012 and September 30, 2011.

Committed Credit Available(In millions)
As of June 30, 2012	WGL Holdings			Washington Gas		Total Consolidated
Committed credit agreements
Unsecured revolving credit facility, expires April 3, 2017(a)	$	450.0		$	350.0	$	800.0
Less: Commercial Paper		(90.5	)		—		(90.5	)
Net committed credit available	$	359.5		$	350.0	$	709.5
As of September 30, 2011	WGL Holdings			Washington Gas		Total Consolidated
Committed credit agreements
Unsecured revolving credit facility, expires August 3, 2012(b)	$	400.0		$	300.0	$	700.0
Less: Commercial Paper		(39.4	)		—		(39.4	)
Net committed credit available	$	360.6		$	300.0	$	660.6

^(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 $100 million, with the banks’ approval, for a total of $550 million. Washington Gas’ revolving credit facility permits it to borrow an additional $100 million, with the banks’ approval, for a total of $450 million.

^(b)Under the previous credit agreements, both WGL Holdings and Washington Gas had the right to request extensions with the banks’ approval. WGL Holdings’ revolving credit facility allowed it to borrow an additional $50 million, with the banks’ approval, for a total of $450 million. Washington Gas’ revolving credit facility allowed it to borrow an additional $100 million, with the banks’ approval, for a total of $400 million.

At June 30, 2012 and September 30, 2011, WGL Holdings and its subsidiaries had outstanding notes payable in the form of commercial paper from revolving credit facilities of $90.5 million and $39.4 million, respectively, at a weighted average interest rate of 0.35% and 0.20%, respectively. At June 30, 2012 and September 30, 2011, there were no outstanding bank loans from WGL Holdings’ or Washington Gas’ 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 October 17 and 19, 2011, Washington Gas retired $7.0 million of 6.05% MTNs and $20.0 million of 6.00% MTNs respectively. In addition, Washington Gas retired $25.0 million of 6.00% MTNs on February 27, 2012 and $25.0 million of 5.90% of MTNs on June 19, 2012.

At June 30, 2012, Washington Gas had the capacity under a shelf registration to issue up to $450.0 million of additional MTNs. At June 30, 2012 and September 30, 2011, outstanding MTNs and private placement notes were $583.0 million and $660.0 million, respectively. At both June 30, 2012 and September 30, 2011, the weighted average interest rate on all MTNs and private placement notes was 5.91%.

12

WGL Holdings, Inc.

Washington Gas Light Company

Part I—Financial Information

Item 1—Financial Statements (continued)

Notes to Consolidated Financial Statements (Unaudited)

NOTE 5. COMMON SHAREHOLDERS’ EQUITY

The tables below reflect the changes in “Common shareholders’ equity” for WGL Holdings and “Common shareholder’s equity” for Washington Gas for the nine months ended June 30, 2012.

WGL Holdings, Inc.
Components of Common Shareholders’ Equity
(In thousands)	Common Stock Amount		Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Loss, Net of Taxes			Total
Balance at September 30, 2011	$	557,594	$	7,731		$	648,052		$	(10,662	)	$	1,202,715
Net income		—		—			133,064			—			133,064
Post-retirement benefits adjustment, net of taxes		—		—			—			397			397
Comprehensive income													133,461
Dividends reinvestment		4,729		—			—			—			4,729
Stock-based compensation		3,687		(535	)		—			—			3,152
Dividends declared:
Common stock		—		—			(61,198	)		—			(61,198	)
Preferred stock		—		—			(990	)		—			(990	)
Balance at June 30, 2012	$	566,010	$	7,196		$	718,928		$	(10,265	)	$	1,281,869

Washington Gas Light Company
Components of Common Shareholder’s Equity
(In thousands)	Common Stock Amount		Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive Loss, Net of Taxes			Total
Balance at September 30, 2011	$	46,479	$	473,099	$	481,219		$	(10,662	)	$	990,135
Net income		—		—		111,247			—			111,247
Post-retirement benefits adjustment, net of taxes		—		—		—			397			397
Comprehensive income												111,644
Stock-based compensation		—		1,666		—			—			1,666
Dividends declared:
Common stock		—		—		(55,533	)		—			(55,533	)
Preferred stock		—		—		(990	)		—			(990	)
Balance at June 30, 2012	$	46,479	$	474,765	$	535,943		$	(10,265	)	$	1,046,922

WGL Holdings had 51,572,613 and 51,365,337 shares issued of common stock at June 30, 2012 and September 30, 2011, respectively. Washington Gas had 46,479,536 shares issued of common stock at both June 30, 2012 and September 30, 2011.

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WGL Holdings, Inc.

Washington Gas Light Company

Part I—Financial Information

Item 1—Financial Statements (continued)

Notes to Consolidated Financial Statements (Unaudited)

NOTE 6. COMPREHENSIVE INCOME

The tables below reflect the components of comprehensive income (loss) for the three and nine months ended June 30, 2012 and 2011 for WGL Holdings and Washington Gas. Items that are excluded from net income (loss) and charged directly to common shareholders’ equity are recorded in other comprehensive income (loss), net of taxes. The amount of accumulated other comprehensive income (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 June 30,						Nine Months Ended June 30,
(In thousands)	2012			2011			2012		2011
Net income	$	7,787		$	3,282		$	133,064	$	148,602
Other comprehensive income, net of taxes(a)		208			146			397		421
Comprehensive income	$	7,995		$	3,428		$	133,461	$	149,023
(a) Amounts relate to post-retirement benefits.
Washington Gas Light Company
Components of Comprehensive Income (Loss)
	Three Months Ended June 30,						Nine Months Ended June 30,
(In thousands)	2012			2011			2012		2011
Net income (loss)	$	(5,731	)	$	(3,837	)	$	111,247	$	107,943
Other comprehensive income, net of taxes(a)		208			146			397		421
Comprehensive income (loss)	$	(5,523	)	$	(3,691	)	$	111,644	$	108,364
(a) Amounts relate to post-retirement benefits.

NOTE 7. EARNINGS PER SHARE

Basic EPS is computed by dividing net income by the weighted average number of common shares outstanding during the reported period. Diluted EPS assumes the issuance of common shares pursuant to stock-based compensation plans at the beginning of the applicable period unless the effect of such issuance would be anti-dilutive. The following table reflects the computation of our basic and diluted EPS for the three and nine months ended June 30, 2012 and 2011.

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WGL Holdings, Inc.

Washington Gas Light Company

Part I—Financial Information

Item 1— Financial Statements (continued)

Notes to Consolidated Financial Statements (Unaudited)

Basic and Diluted EPS

(In thousands, except per share data)	Net Income Applicable to Common Stock		Shares		Per Share Amount
Three Months Ended June 30, 2012
Basic EPS	$	7,457		51,553	$	0.14
Stock-based compensation plans		—		79
Diluted EPS	$	7,457		51,632	$	0.14
Three Months Ended June 30, 2011
Basic EPS	$	2,952		51,243	$	0.06
Stock-based compensation plans		—		71
Diluted EPS	$	2,952		51,314	$	0.06
Nine Months Ended June 30, 2012
Basic EPS	$	132,074		51,499	$	2.56
Stock-based compensation plans		—		75
Diluted EPS	$	132,074		51,574	$	2.56
Nine Months Ended June 30, 2011
Basic EPS	$	147,612		51,153	$	2.89
Stock-based compensation plans		—		82
Diluted EPS	$	147,612		51,235	$	2.88

There were no anti-dilutive shares for the three or nine months ended June 30, 2012 or 2011.

NOTE 8. INCOME TAXES

As of June 30, 2012, our uncertain tax positions were approximately $19.2 million primarily due to the change in tax accounting for repairs. If the amounts of unrecognized tax benefits are eventually realized, it would not materially impact the effective tax rate. It is reasonably possible that the amount of the unrecognized tax benefit with respect to Washington Gas’ uncertain tax positions will significantly increase or decrease in the next 12 months due to the on-going audit of Washington Gas by the IRS with respect to the tax year related to its change in accounting method for repairs. At this time an estimate of the range of reasonably possible outcomes cannot be determined.

Under ASC Topic 740, Income Taxes, Washington Gas recognizes any accrued interest associated with uncertain tax positions in interest expense and recognizes any accrued penalties associated with uncertain tax positions in other expenses in the statements of income. During each of the quarters ended June 30, 2012 and 2011, we accrued $0.2 million in expense for interest on uncertain tax positions. At June 30, 2012 and September 30, 2011, we had a total accrual of $1.6 million and $0.9 million, respectively, of interest expense related to uncertain tax positions included in other deferred credits in the accompanying balance sheets.

NOTE 9. DERIVATIVE AND WEATHER-RELATED INSTRUMENTS

DERIVATIVE INSTRUMENTS

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 Gas’ derivative instruments relate to:(i) Washington Gas’ 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 its transportation capacity assets to benefit from favorable natural gas prices between different geographic locations and 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 forward, swap and option contracts to lock-in operating margins that Washington Gas will ultimately realize. The derivatives used under this program are subject to mark-to-market accounting treatment.

15

WGL Holdings, Inc.

Washington Gas Light Company

Part I—Financial Information

Item 1—Financial Statements (continued)

Notes to Consolidated Financial Statements (Unaudited)

Regulatory sharing mechanisms allow the profit from these transactions to be shared between Washington Gas’ 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 when they are realized. Valuation changes for the portion of net profits to be retained for shareholders may cause significant period-to-period volatility in earnings from unrealized gains and losses. 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 June 30, 2012 was a gain of $2.5 million including an unrealized gain of $2.6 million. During the three months ended June 30, 2011 we recorded a gain of $3.9 million including an unrealized derivative gain of $4.8 million. Total net margins recorded for the nine months ended June 30, 2012 was a gain of $10.9 million including an unrealized gain of $4.1 million. During the nine months ended June 30, 2011 we recorded gains of $5.0 million including an unrealized derivative loss of $9.6 million.

Managing Price Risk.To manage price risk associated with acquiring natural gas supply for utility customers, Washington Gas enters into forward contracts, option contracts, financial swap contracts and other contracts, as authorized by its regulators. These instruments are accounted for as derivative instruments. Any gains and losses associated with these derivatives are recorded as regulatory liabilities or assets, respectively, to reflect the rate treatment for these economic hedging activities.

Managing Interest-Rate Risk.Washington Gas utilizes derivative instruments that are designed to minimize the risk of interest-rate volatility associated with planned issuances of debt securities. Any gains and losses associated with these types of derivatives are recorded as regulatory liabilities or assets, respectively, and amortized in accordance with regulatory requirements, which is typically over the life of the newly issued debt.

Non-Utility Operations

WGEServices enters into certain derivative contracts as part of managing the price risk associated with the sale and purchase of natural gas and electricity. CEV enters into derivative contracts for the purpose of optimizing its storage and transportation capacity as well as managing the transportation and storage assets on behalf of third parties. WGSW has warrants to purchase stock from ASD Holdings, Inc., which are accounted for as derivative instruments. Derivative instruments are recorded at fair value on our consolidated balance sheets. Neither WGEServices, CEV, or WGSW 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 non-utility operations and may cause significant period-to-period volatility in earnings.

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 utility and non-utility operations.

16

WGL Holdings, Inc.

Washington Gas Light Company

Part I—Financial Information

Item 1—Financial Statements (continued)

Notes to Consolidated Financial Statements (Unaudited)

At June 30, 2012 and September 30, 2011, respectively, the absolute notional amounts of our derivatives are as follows:

Absolute Notional Amounts
of Open Positions on Derivative Instruments
As of June 30, 2012	Notional Amounts
Derivative transactions	WGL Holdings	Washington Gas
Natural Gas(In millions of therms)
Asset optimization	4,535.9	3,237.6
Retail sales	133.3	—
Other risk-management activities	577.6	224.8
Electricity(In millions of kWhs)
Retail sales	5,701.5	—
Other risk-management activities	22,966.7	—
Warrants(In millions of shares)	4.4	—
Absolute Notional Amounts of Open Positions on Derivative Instruments
As of September 30, 2011	Notional Amounts
Derivative transactions	WGL Holdings	Washington Gas
Natural Gas(In millions of therms)
Asset optimization	1,538.6	1,221.7
Retail sales	131.4	—
Other risk-management activities	656.2	392.0
Electricity(In millions of kWhs)
Retail sales	606.5	—
Other risk-management activities	17,085.1	—

The following tables present the balance sheet classification for all derivative instruments as of June 30, 2012 and September 30, 2011.

WGL Holdings, Inc.
Balance Sheet Classification of Derivative Instruments
(In millions)
As of June 30, 2012	Derivative Assets		Derivative Liabilities			Netting of Collateral			Total
Current Assets — Derivatives	$	79.9	$	(26.2	)	$	—		$	53.7
Deferred Charges and Other Assets — Derivatives		77.9		(41.1	)		—			36.8
Accounts payable and other accrued liabilities		1.5		—			—			1.5
Current Liabilities — Derivatives		3.3		(51.6	)		—			(48.3	)
Deferred Credits — Derivatives		4.0		(24.8	)		1.2			(19.6	)
Total	$	166.6	$	(143.7	)	$	1.2		$	24.1
As of September 30, 2011
Current Assets — Derivatives	$	26.2	$	(10.1	)	$	0.1		$	16.2
Deferred Charges and Other Assets — Derivatives		39.1		(27.4	)		—			11.7
Accounts payable and other accrued liabilities		7.1		(1.8	)		—			5.3
Current Liabilities — Derivatives		9.6		(41.1	)		(0.4	)		(31.9	)
Deferred Credits — Derivatives		5.1		(23.2	)		3.0			(15.1	)
Total	$	87.1	$	(103.6	)	$	2.7		$	(13.8	)

17

WGL Holdings, Inc.

Washington Gas Light Company

Part I—Financial Information

Item 1—Financial Statements (continued)

Notes to Consolidated Financial Statements (Unaudited)

Washington Gas Light Company
Balance Sheet Classification of Derivative Instruments
(In millions)
As of June 30, 2012	Derivative Assets		Derivative Liabilities			Netting of Collateral		Total
Current Assets — Derivatives	$	20.0	$	(11.1	)	$	—	$	8.9
Deferred Charges and Other Assets — Derivatives		63.8		(40.9	)		—		22.9
Current Liabilities — Derivatives		1.6		(8.2	)		—		(6.6	)
Deferred Credits — Derivatives		2.7		(6.1	)		—		(3.4	)
Total	$	88.1	$	(66.3	)	$	—	$	21.8
As of September 30, 2011
Current Assets — Derivatives	$	5.8	$	(4.5	)	$	—	$	1.3
Deferred Charges and Other Assets — Derivatives		36.1		(27.4	)		—		8.7
Current Liabilities — Derivatives		9.0		(15.1	)		—		(6.1	)
Deferred Credits — Derivatives		4.5		(11.6	)		—		(7.1	)
Total	$	55.4	$	(58.6	)	$	—	$	(3.2	)

The following table presents all gains and losses associated with derivative instruments for the three and nine months ended June 30, 2012 and 2011.

Gains and Losses on Derivative Instruments
(In millions)	WGL Holdings, Inc.						Washington Gas Light Company
Three Months Ended June 30,		2012			2011			2012		2011
Recorded to income
Operating revenues—non-utility	$	(22.3	)	$	(3.6	)	$	—	$	—
Utility cost of gas		1.7			2.2			1.7		2.2
Non-utility cost of energy-related sales		15.5			3.1			—		—
Other income-net		1.0			—			—		—
Recorded to regulatory assets
Gas costs		5.9			1.6			5.9		1.6
Total	$	1.8		$	3.3		$	7.6	$	3.8

Gains and Losses on Derivative Instruments
(In millions)	WGL Holdings, Inc.						Washington Gas Light Company
Nine Months Ended June 30,		2012			2011			2012		2011
Recorded to income
Operating revenues—non-utility	$	43.3		$	(11.2	)	$	—	$	—
Utility cost of gas		9.3			(8.7	)		9.3		(8.7	)
Non-utility cost of energy-related sales		(46.8	)		30.8			—		—
Other income-net		1.0			—			—		—
Recorded to regulatory assets
Gas costs		31.5			(19.3	)		31.5		(19.3	)
Other		—			6.2			—		6.2
Total	$	38.3		$	(2.2	)	$	40.8	$	(21.8	)

18

WGL Holdings, Inc.

Washington Gas Light Company

Part I—Financial Information

Item 1—Financial Statements (continued)

Notes to Consolidated Financial Statements (Unaudited)

Collateral

In accordance with ASC 815, WGL Holdings offsets the fair value of derivative instruments against the right to reclaim or obligation to return collateral for derivative instruments executed under the same master netting arrangement. At June 30, 2012, Washington Gas, WGEServices and CEV posted $4.6 million, $6.2 million and $0.5 million, respectively, of collateral deposits with counterparties that were not offset against open and settled derivative contracts. At September 30, 2011, Washington Gas, WGEServices and CEV posted $9.7 million, $15.8 million and $9.7 million, respectively, of collateral deposits with counterparties that were not offset against open and settled derivative contracts. In addition, at September 30, 2011, Washington Gas held $3.5 million of cash collateral representing an obligation to counterparties that was not offset against open and settled derivative contracts. Any collateral posted that is not offset against open and settled derivative contracts is included in “Other prepayments” in the accompanying balance sheet. Collateral received and not offset against open and settled derivative contracts is included in “Customer deposits and advance payments” in the accompanying balance sheet.

Certain derivative instruments of Washington Gas, WGEServices and CEV contain contract provisions that require collateral to be posted if the credit rating of WGL Holdings falls below certain levels or if counterparty exposure to WGEServices or CEV exceeds a certain level. Due to counterparty exposure levels, at June 30, 2012, WGEServices posted $1.2 million of collateral related to its derivative liabilities that contained credit-related contingent features. At September 30, 2011, WGEServices’ posted $0.1 million of collateral related to these aforementioned derivative liabilities. Washington Gas and CEV were not required to post any collateral related to its derivative liabilities that contained credit-related contingent features at June 30, 2012 and September 30, 2011. 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 if the most intrusive credit-risk-related contingent features underlying these agreements were triggered on June 30, 2012 and September 30, 2011, respectively.

Potential Collateral Requirements for Derivative Liabilities
with Credit-risk-Contingent Features
(In millions)		WGL Holdings		Washington Gas
June 30, 2012
Derivative liabilities with credit-risk-contingent features	$	114.9	$	57.0
Maximum potential collateral requirements		54.4		3.0
September 30, 2011
Derivative liabilities with credit-risk-contingent features	$	75.1	$	45.1
Maximum potential collateral requirements		30.1		1.8

Washington Gas, WGEServices and CEV do not enter into derivative contracts for speculative purposes.

Concentration of Credit Risk

We are exposed to credit risk from derivative instruments that reflect certain agreements with wholesale counterparties. Our credit policies are designed to mitigate this credit risk by requiring 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 our specified creditworthiness criteria, Washington Gas, WGEServices and CEV grant unsecured credit, which we continuously monitor. Additionally, Washington Gas, WGEServices and CEV have separate agreements with wholesale counterparties that contain netting provisions to allow offsetting of the receivable and payable exposure related to each counterparty. At June 30, 2012, each of four counterparties represented over 10% of Washington Gas’ credit exposure to wholesale derivative counterparties for a total credit risk of $27.7 million; two counterparties each represented over 10% of WGEServices’ credit exposure to wholesale counterparties for a total credit risk of $0.3 million; and each of three counterparties represented over 10% of CEV’s credit exposure to wholesale counterparties for a total credit risk of $2.0 million.

WEATHER-RELATED INSTRUMENTS

During the three months ended June 30, 2012 and 2011, Washington Gas used Heating Degree Day (HDD) weather derivatives to manage its financial exposure to variations from normal weather in the District of Columbia. Under these contracts, Washington Gas purchased protection against net revenue shortfalls due to warmer-than-normal weather and sold to its counterparty the right to receive the benefit when weather is colder than normal. Washington Gas chose to value all weather derivatives at fair value.

19

WGL Holdings, Inc.

Washington Gas Light Company

Part I—Financial Information

Item 1—Financial Statements (continued)

Notes to Consolidated Financial Statements (Unaudited)

Gains and losses associated with Washington Gas’ weather-related instruments are recorded to “Operation and maintenance” expense. During the three months ended June 30, 2012 and 2011, Washington Gas recorded a pre-tax net fair value loss of $23,000 and a pre-tax net fair value gain of $0.5 million, respectively, related to weather derivatives. During the nine months ended June 30, 2012 and 2011, Washington Gas recorded a pre-tax net fair value gain of $7.7 million and a pre-tax net fair value loss of $2.1 million, respectively, related to weather derivatives.

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 June 30, 2012 and June 30, 2011, WGEServices recorded pre-tax losses of $1.0 million and $1.7 million, respectively. For the nine months ended June 30, 2012, WGEServices recorded a pre-tax gain of $14.0 million and for the nine months ended June 30, 2011, a pre-tax loss of $5.9 million related to these derivatives.

NOTE 10. FAIR VALUE MEASUREMENTS

RECURRING BASIS

We measure the fair value of our financial assets and liabilities using the income approach 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 and(iii) long-term debt outstanding that are required to be disclosed at fair value. Under ASC Topic 820, fair value is defined as the exit price, representing the amount that would be received in the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To value our financial instruments, we use market data or assumptions that market participants would use, including assumptions about credit risk (both our own credit risk and the counterparty’s credit risk) and the risks inherent in the inputs to valuation.

We enter into derivative contracts in the over-the-counter (OTC) wholesale and retail markets. These markets are the principal markets for the respective wholesale and retail contracts. We have determined that all of our existing counterparties and others who have participated in energy transactions at our delivery points are the relevant market participants. These participants have access to the same market data as WGL Holdings. We value our derivative contracts based on an “in-exchange” premise and valuations are generally based on pricing service data or indicative broker quotes depending on the market location. We measure the net credit exposure at the counterparty level where the right to set-off exists. The net exposure is determined using the mark-to-market exposure adjusted for collateral, letters of credit and parent guarantees. We use published default rates from Standard & Poor’s Ratings Services and Moody’s Investors Service as inputs for determining credit adjustments.

ASC Topic 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three levels of the fair value hierarchy under ASC Topic 820 are described below:

Level 1. Level 1 of the fair value hierarchy consists of assets or liabilities that are valued using observable inputs based upon unadjusted quoted prices in active markets for identical assets or liabilities at the reporting date. Level 1 assets and liabilities primarily include exchange traded derivatives and securities. At June 30, 2012, we do not have any financial assets or liabilities in this category.

Level 2. Level 2 of the fair value hierarchy consists of assets or liabilities that are valued using directly or indirectly observable inputs either corroborated with market data or based on exchange traded market data. Level 2 includes fair values based on industry-standard valuation techniques that consider various assumptions including:(i) quoted forward prices, including the use of mid-market pricing within a bid/ask spread;(ii) discount rates;(iii) implied volatility and(iv) other economic factors. Substantially all of these assumptions are observable throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the relevant market. At June 30, 2012, Level 2 financial assets and liabilities included non-exchange traded energy-related derivatives such as financial swaps and options and physical forward contracts for deliveries at active market locations. Additionally, Level 2 includes weather derivatives for Washington Gas.

Level 3. Level 3 of the fair value hierarchy consists of assets or liabilities that are valued using significant unobservable inputs at the reporting date. These unobservable assumptions reflect our assumptions about estimates that market participants would use in pricing the asset or liability, including natural gas basis prices, annualized volatilities of natural gas prices, and

20

WGL Holdings, Inc.

Washington Gas Light Company

Part I—Financial Information

Item 1—Financial Statements (continued)

Notes to Consolidated Financial Statements (Unaudited)

electricity congestion prices. A significant change to any one of these inputs in isolation could result in a significant upward or downward fluctuation in the fair value measurement. These inputs may be used with industry standard valuation methodologies that result in our best estimate of fair value for the assets or liabilities at the reporting date.

Our Risk Analysis and Mitigation (RA&M) Group determines the valuation policies and procedures. The RA&M Group reports to the WGL Holdings Treasurer. In accordance with WGL Holdings’ valuation policy, we may utilize a variety of valuation methodologies to fair value Level 3 derivative contracts including internally developed valuation inputs and pricing models. The prices used in our valuations are corroborated using multiple pricing sources, and we periodically conduct assessments to determine whether each valuation model is appropriate for its intended purpose. Any use of non-industry standard models is documented and approved by the WGL Holdings Treasurer. The RA&M Group also evaluates changes in fair value measurements on a daily basis.

At June 30, 2012, Level 3 derivative assets and liabilities included:(i) physical contracts valued with significant basis adjustments to observable market data when delivery is to inactive market locations;(ii) long-dated positions where observable pricing is not available over the life of the contract;(iii) contracts valued using historical volatility assumptions;(iv) valuations using indicative broker quotes for inactive market locations and(v) non-publicly traded stock warrants. Additionally, WGSW warrants to purchase stock of ASD Holdings, Inc. are valued using unobservable data, as such; these warrants are classified as Level 3 assets.

The following tables set forth financial instruments recorded at fair value as of June 30, 2012 and September 30, 2011, respectively. A financial instrument’s 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.

WGL Holdings, Inc.

Fair Value Measurements Under the Fair Value Hierarchy

(In millions)	Level 1		Level 2			Level 3			Total
At June 30, 2012
Assets
Natural gas related derivatives	$	—	$	80.1		$	53.6		$	133.7
Electricity related derivatives		—		0.7			31.2			31.9
Warrants		—		—			1.0			1.0
Weather derivatives		—		6.3			—			6.3
Total Assets	$	—	$	87.1		$	85.8		$	172.9
Liabilities
Natural gas related derivatives	$	—	$	(51.7	)	$	(44.5	)	$	(96.2	)
Electricity related derivatives		—		(18.2	)		(29.3	)		(47.5	)
Total Liabilities	$	—	$	(69.9	)	$	(73.8	)	$	(143.7	)
At September 30, 2011
Assets
Natural gas related derivatives	$	—	$	38.0		$	29.3		$	67.3
Electricity related derivatives		—		0.2			19.6			19.8
Weather derivatives		—		—			1.3			1.3
Total Assets	$	—	$	38.2		$	50.2		$	88.4
Liabilities
Natural gas related derivatives	$	—	$	(40.2	)	$	(33.2	)	$	(73.4	)
Electricity related derivatives		—		(3.8	)		(26.4	)		(30.2	)
Weather derivatives		—		—			(2.7	)		(2.7	)
Total Liabilities	$	—	$	(44.0	)	$	(62.3	)	$	(106.3	)

21

WGL Holdings, Inc.

Washington Gas Light Company

Part I—Financial Information

Item 1—Financial Statements (continued)

Notes to Consolidated Financial Statements (Unaudited)

Washington Gas Light Company

Fair Value Measurements Under the Fair Value Hierarchy

(In millions)	Level 1		Level 2			Level 3			Total
At June 30, 2012
Assets
Natural gas related derivatives	$	—	$	41.0		$	47.1		$	88.1
Weather derivatives		—		6.3			—			6.3
Total Assets	$	—	$	47.3		$	47.1		$	94.4
Liabilities
Natural gas related derivatives	$	—	$	(23.5	)	$	(42.8	)	$	(66.3	)
Total Liabilities	$	—	$	(23.5	)	$	(42.8	)	$	(66.3	)
At September 30, 2011
Assets
Natural gas related derivatives	$	—	$	28.7		$	26.7		$	55.4
Weather derivatives		—		—			1.3			1.3
Total Assets	$	—	$	28.7		$	28.0		$	56.7
Liabilities
Natural gas related derivatives	$	—	$	(27.0	)	$	(31.6	)	$	(58.6	)
Weather derivatives		—		—			(2.7	)		(2.7	)
Total Liabilities	$	—	$	(27.0	)	$	(34.3	)	$	(61.3	)

The following table includes quantitative information about the significant unobservable inputs used in the fair value measurement of our Level 3 financial instruments and the respective fair values of the net derivative asset and liability positions, by contract type, as of June 30, 2012.

22

WGL Holdings, Inc.

Washington Gas Light Company

Part I—Financial Information

Item 1—Financial Statements (continued)

Notes to Consolidated Financial Statements (Unaudited)

Quantitative Information about Level 3 Fair Value Measurements

(In millions)	Net Fair Value June 30, 2012	Valuation Techniques	Unobservable Inputs	Range
WGL Holdings
Natural gas related derivatives	$9.1	Discounted Cash Flow	Natural Gas Basis Price (per decatherm)	($0.314) - $1.723
		Option Model	Natural Gas Basis Price (per decatherm)	$.073 - $0.828
			Annualized Volatility of Spot Market Natural Gas	37.8% - 236.03%
Electricity related derivatives	$1.9	Discounted Cash Flow	Electricity Congestion Price (per mega watt hour)	($2.514) - $64.800
		Load-Shaping Option Model	Electricity Congestion Price (per mega watt hour)	$29.78 - $63.659
Washington Gas
Natural gas related derivatives	$4.3	Discounted Cash Flow	Natural Gas Basis Price (per decatherm)	($0.314) - $1.723
		Option Model	Natural Gas Basis Price (per decatherm)	$0.088 - $0.828
			Annualized Volatility of Spot Market Natural Gas	37.8% - 236.03%

The following tables are a summary of the changes in the fair value of our derivative instruments 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 and nine months ended June 30, 2012 and 2011, respectively.

23

WGL Holdings, Inc.

Washington Gas Light Company

Part I—Financial Information

Item 1—Financial Statements (continued)

Notes to Consolidated Financial Statements (Unaudited)

WGL Holdings

Reconciliation of Fair Value Measurements Using Significant Level 3 Inputs

(In millions)	Natural Gas Related Derivatives			Electricity Related Derivatives			Weather Related Derivatives			Warrants		Total
Three Months Ended June 30, 2012
Balance at April 1, 2012	$	(1.0	)	$	(4.4	)	$	6.3		$	—	$	0.9
Realized and unrealized gains (losses)
Recorded to income		3.1			(10.7	)		—			1.0		(6.6	)
Recorded to regulatory assets — gas costs		6.3			—			—			—		6.3
Transfers out of Level 3		—			—			(6.3	)		—		(6.3	)
Purchases		—			2.3			—			—		2.3
Settlements		0.7			14.7			—			—		15.4
Balance at June 30, 2012	$	9.1		$	1.9		$	—		$	1.0	$	12.0

Washington Gas

Reconciliation of Fair Value Measurements Using Significant Level 3 Inputs

(In millions)	Natural Gas Related Derivatives			Electricity Related Derivatives		Weather Related Derivatives			Warrants		Total
Three Months Ended June 30, 2012
Balance at April 1, 2012	$	(4.6	)	$	—	$	6.3		$	—	$	1.7
Realized and unrealized gains (losses)
Recorded to income		2.0			—		—			—		2.0
Recorded to regulatory assets — gas costs		6.3			—		—			—		6.3
Transfers out of Level 3		—			—		(6.3	)		—		(6.3	)
Settlements		0.6			—		—			—		0.6
Balance at June 30, 2012	$	4.3		$	—	$	—		$	—	$	4.3

Reconciliation of Fair Value Measurements Using Significant Level 3 Inputs

(In millions)
Three Months Ended June 30, 2011	WGL Holdings			Washington Gas
Balance at April 1, 2011	$	(27.1	)	$	(16.0	)
Realized and unrealized gains (losses)
Recorded to income		12.7			1.4
Recorded to regulatory assets — gas costs		1.7			1.7
Transfers in and/or out of Level 3		3.1			3.1
Purchases and settlements, net		(1.7	)		0.8
Balance at June 30, 2011	$	(11.3	)	$	(9.0	)

24

WGL Holdings, Inc.

Washington Gas Light Company

Part I—Financial Information

Item 1—Financial Statements (continued)

Notes to Consolidated Financial Statements (Unaudited)

WGL Holdings

Reconciliation of Fair Value Measurements Using Significant Level 3 Inputs

(In millions)	Natural Gas Related Derivatives			Electricity Related Derivatives			Weather Related Derivatives			Warrants		Total
Nine Months Ended June 30, 2012
Balance at October 1, 2011	$	(3.9	)	$	(6.8	)	$	(1.4	)	$	—	$	(12.1	)
Realized and unrealized gains (losses)
Recorded to income		12.9			(34.1	)		7.7			1.0		(12.5	)
Recorded to regulatory assets — gas costs		13.7			—			—			—		13.7
Transfers out of Level 3		(9.4	)		—			(6.3	)		—		(15.7	)
Purchases		—			3.1			—			—		3.1
Settlements		(4.2	)		39.7			—			—		35.5
Balance at June 30, 2012	$	9.1		$	1.9		$	—		$	1.0	$	12.0

Washington Gas

Reconciliation of Fair Value Measurements Using Significant Level 3 Inputs

(In millions)	Natural Gas Related Derivatives			Electricity Related Derivatives		Weather Related Derivatives			Warrants		Total
Nine Months Ended June 30, 2012
Balance at October 1, 2011	$	(4.9	)	$	—	$	(1.4	)	$	—	$	(6.3	)
Realized and unrealized gains (losses)
Recorded to income		3.5			—		7.7			—		11.2
Recorded to regulatory assets — gas costs		13.7			—		—			—		13.7
Transfers out of Level 3		(8.1	)		—		(6.3	)		—		(14.4	)
Settlements		0.1			—		—			—		0.1
Balance at June 30, 2012	$	4.3		$	—	$	—		$	—	$	4.3

Reconciliation of Fair Value Measurements Using Significant Level 3 Inputs

(In millions)
Nine Months Ended June 30, 2011		WGL Holdings			Washington Gas
Balance at October 1, 2010	$	(9.6	)	$	15.2
Realized and unrealized gains (losses)
Recorded to income		4.6			(6.5	)
Recorded to regulatory assets — gas costs		(13.2	)		(13.2	)
Transfers in and/or out of Level 3		(3.6	)		(4.7	)
Purchases and settlements, net		10.5			0.2
Balance at June 30, 2011	$	(11.3	)	$	(9.0	)

Transfers between different levels of the fair value hierarchy may occur based on the level of observable inputs used to value the instruments from period to period. It is our policy to show both transfers into and out of the different levels of the fair value hierarchy at the fair value as of the beginning of the reporting period. For WGL Holdings and Washington Gas net derivative assets transferred out of Level 3 during the three and nine months ended June 30, 2012, reflected an increase in observable market inputs used to value those instruments.

The table below sets forth the line items on the Statements of Income to which amounts are recorded for the three and nine months ended June 30, 2012 and 2011, respectively, related to fair value measurements using significant Level 3 inputs.

25

WGL Holdings, Inc.

Washington Gas Light Company

Part I—Financial Information

Item 1—Financial Statements (continued)

Notes to Consolidated Financial Statements (Unaudited)

WGL Holdings

Realized and Unrealized Gains (Losses) Recorded to Income for Level 3 Measurements

Three Months Ended	June 30, 2012													June 30, 2011
(In millions)	Natural Gas Related Derivatives			Electricity Related Derivatives			Weather Related Derivatives		Warrants		Total			Total
Operating revenues — non-utility	$	(0.7	)	$	(10.1	)	$	—	$	—	$	(10.8	)	$	(3.8	)
Utility cost of gas		2.0			—			—		—		2.0			1.4
Other income-net		—			—			—		1.0		1.0			—
Non-utility cost of energy — related sales		1.8			(0.6	)		—		—		1.2			15.1
Total	$	3.1		$	(10.7	)	$	—	$	1.0	$	(6.6	)	$	12.7

Washington Gas

Realized and Unrealized Gains (Losses) Recorded to Income for Level 3 Measurements

Three Months Ended	June 30, 2012										June 30, 2011
(In millions)	Natural Gas Related Derivatives		Electricity Related Derivatives		Weather Related Derivatives		Warrants		Total		Total
Utility cost of gas	$	2.0	$	—	$	—	$	—	$	2.0	$	1.4
Total	$	2.0	$	—	$	—	$	—	$	2.0	$	1.4

WGL Holdings

Realized and Unrealized Gains (Losses) Recorded to Income for Level 3 Measurements

Nine Months Ended	June 30, 2012												June 30, 2011
(In millions)	Natural Gas Related Derivatives		Electricity Related Derivatives			Weather Related Derivatives		Warrants		Total			Total
Operating revenues—non-utility	$	4.8	$	(2.3	)	$	—	$	—	$	2.5		$	(12.3	)
Utility cost of gas		3.5		—			—		—		3.5			(3.7	)
Other income-net		—		—			—		1.0		1.0			—
Non-utility cost of energy — related sales		4.6		(31.8	)		—		—		(27.2	)		23.4
Operation and maintenance expense		—		—			7.7		—		7.7			(2.8	)
Total	$	12.9	$	(34.1	)	$	7.7	$	1.0	$	(12.5	)	$	4.6

Washington Gas

Realized and Unrealized Gains (Losses) Recorded to Income for Level 3 Measurements

Nine Months Ended	June 30, 2012										June 30, 2011
(In millions)	Natural Gas Related Derivatives		Electricity Related Derivatives		Weather Related Derivatives		Warrants		Total		Total
Utility cost of gas	$	3.5	$	—	$	—	$	—	$	3.5	$	(3.7	)
Operation and maintenance expense		—		—		7.7		—		7.7		(2.8	)
Total	$	3.5	$	—	$	7.7	$	—	$	11.2	$	(6.5	)

26

WGL Holdings, Inc.

Washington Gas Light Company

Part I—Financial Information

Item 1—Financial Statements (continued)

Notes to Consolidated Financial Statements (Unaudited)

Unrealized gains (losses) attributable to derivative assets and liabilities measured using significant Level 3 inputs were recorded as follows, for the three and nine months ended June 30, 2012 and 2011, respectively.

WGL Holdings

Unrealized Gains (Losses) Recorded for Level 3 Measurements

Three Months Ended	June 30, 2012													June 30, 2011
(In millions)	Natural Gas Related Derivatives			Electricity Related Derivatives			Weather Related Derivatives		Warrants		Total			Total
Recorded to income
Operating revenues — non-utility	$	(0.5	)	$	(3.3	)	$	—	$	—	$	(3.8	)	$	1.8
Utility cost of gas		2.2			—			—		—		2.2			1.2
Non-utility cost of energy — related sales		3.2			12.0			—		—		15.2			5.4
Other income-net		—			—			—		1.0		1.0			—
Recorded to regulatory assets — gas costs		6.8			—			—		—		6.8			1.7
Total	$	11.7		$	8.7		$	—	$	1.0	$	21.4		$	10.1

Washington Gas

Unrealized Gains (Losses) Recorded for Level 3 Measurements

Three Months Ended	June 30, 2012										June 30, 2011
(In millions)	Natural Gas Related Derivatives		Electricity Related Derivatives		Weather Related Derivatives		Warrants		Total		Total
Recorded to income
Utility cost of gas	$	2.2	$	—	$	—	$	—	$	2.2	$	1.2
Recorded to regulatory assets — gas costs		6.8		—		—		—		6.8		1.7
Total	$	9.0	$	—	$	—	$	—	$	9.0	$	2.9

WGL Holdings

Unrealized Gains (Losses) Recorded for Level 3 Measurements

Nine Months Ended	June 30, 2012										June 30, 2011
(In millions)	Natural Gas Related Derivatives		Electricity Related Derivatives		Weather Related Derivatives		Warrants		Total		Total
Recorded to income
Operating revenues — non-utility	$	5.4	$	12.1	$	—	$	—	$	17.5	$	2.8
Utility cost of gas		2.4		—		—		—		2.4		(1.6	)
Non-utility cost of energy-related sales		0.5		5.8		—		—		6.3		9.5
Other income-net		—		—		—		1.0		1.0		—
Recorded to regulatory assets — gas costs		8.2		—		—		—		8.2		(12.5	)
Total	$	16.5	$	17.9	$	—	$	1.0	$	35.4	$	(1.8	)

27

WGL Holdings, Inc.

Washington Gas Light Company

Part I—Financial Information

Item 1—Financial Statements (continued)

Notes to Consolidated Financial Statements (Unaudited)

Washington Gas

Unrealized Gains (Losses) Recorded for Level 3 Measurements

Nine Months Ended	June 30, 2012										June 30, 2011
(In millions)	Natural Gas Related Derivatives		Electricity Related Derivatives		Weather Related Derivatives		Warrants		Total		Total
Recorded to income
Utility cost of gas	$	2.4	$	—	$	—	$	—	$	2.4	$	(1.6	)
Recorded to regulatory assets — gas costs		8.2		—		—		—		8.2		(12.5	)
Total	$	10.6	$	—	$	—	$	—	$	10.6	$	(14.1	)

The following table presents the carrying amounts and estimated fair values of our financial instruments at June 30, 2012 and September 30, 2011. The carrying amount of current assets and current liabilities approximates fair value because of the short-term maturity of these instruments, and therefore are not shown in the table below.

Fair Value of Financial Instruments

	June 30, 2012				September 30, 2011
(In millions)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Long-term debt(a)	$	588.1	$	747.7	$	587.2	$	720.9

^(a) Excludes current maturities and unamortized discounts.

Washington Gas’ long-term debt is not actively traded. The fair value of long-term debt was estimated based on the quoted market prices of the U.S. Treasury issues having a similar term to maturity, adjusted for Washington Gas’ credit quality. Our long-term debt fair value measurement is classified as Level 3 as defined in ASC Topic 820.

NONRECURRING BASIS

During the quarter ended June 30, 2012, Washington Gas impaired its previous operations facility by reducing the carrying amount of $29.9 million down to its fair value of $24.9 million, resulting in an impairment charge of $5.0 million (refer to Footnote 1, Accounting Policies for a discussion of this impairment and its valuation). The fair value of this facility is a level 3 measurement.

28

WGL Holdings, Inc.

Washington Gas Light Company

Part I—Financial Information

Item 1—Financial Statements (continued)

Notes to Consolidated Financial Statements (Unaudited)

NOTE 11. OPERATING SEGMENT REPORTING

We identify and report on operating segments under the “management approach.” Our chief operating decision maker is our Chief Executive 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.

During the first quarter of fiscal year 2012, we made certain changes to our operating segment reporting to reflect the recent growth of our non-utility business activities and the impact of those activities on our financial performance. All of our commercial energy assets and operating activities are now reported within a newly-defined operating segment entitled commercial energy systems. All activities of WGESystems are included in the commercial energy systems segment. WGESystems had previously been reported in the design build energy systems segment, which is now being eliminated as an operating segment. We have transferred all commercial solar projects, previously reported under retail energy-marketing into the commercial energy systems segment. Commercial solar projects, energy efficiency projects and combined heat and power projects, which we own and manage directly, are reported as commercial energy systems. We have also established wholesale energy solutions as a new segment that contains the activities of CEV, our non-utility asset optimization business, which was established in fiscal year 2010 and was previously included in our segment reporting as part of “other activities”. Prior period operating segment information has been recast to conform to the current quarter presentation.

These changes improve visibility into our operations and better align our reporting with current management accountability. Our four segments are summarized below.

• Regulated Utility– The regulated utility segment is our core business. It consists of Washington Gas and Hampshire. Washington Gas provides regulated gas distribution services (including the sale and delivery of natural gas) to customers and natural gas transportation services to an unaffiliated natural gas distribution company in West Virginia under a Federal Energy Regulatory Commission (FERC) approved interstate transportation service operating agreement. Hampshire provides regulated interstate natural gas storage services to Washington Gas under a FERC approved interstate storage service tariff.

• Retail Energy-Marketing– The retail energy-marketing segment consists of WGEServices, which sells natural gas and electricity directly to retail customers and in competition with regulated utilities and unregulated gas and electricity marketers.

• Commercial Energy Systems– The commercial energy systems segment consists of WGESystems and provides design-build energy efficient and sustainable solutions including commercial solar, energy efficiency and combined heat and power projects to government and commercial clients.

• Wholesale Energy Solutions– The wholesale energy solutions segment consists of CEV, which engages in acquiring, managing and optimizing natural gas storage and transportation assets.

Activities and 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 four operating segments, are aggregated as “Other Activities” and included as part of non-utility operations in the Operating Segment Financial Information presented below. These activities include the operations of WGSW, a holding company formed to invest in alternative energy assets, and administrative costs associated with WGL Holdings and Washington Gas Resources.

While net income or loss applicable to common stock is the primary criterion for measuring a segment’s 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 and nine months ended June 30, 2012 and 2011.

29

WGL Holdings, Inc.

Washington Gas Light Company

Part I—Financial Information

Item 1—Financial Statements (continued)

Notes to Consolidated Financial Statements (Unaudited)

Operating Segment Financial Information

			Non-Utility Operations
(In thousands)	Regulated Utility		Retail Energy-Marketing		Commercial Energy Systems		Wholesale Energy Solutions		Other Activities		Eliminations		Consolidated
Three Months Ended June 30, 2012
Operating Revenues(a)	$	164,667	$	272,449	$	13,587		$ (8,376)	$	—	$	(4,001)	$	438,326
Operating Expenses:
Cost of Energy-Related Sales		44,627		224,382		11,297		—		—		(3,716)		276,590
Operation		60,472		13,340		919		1,043		819		(189)		76,404
Maintenance		12,649		1		—		—		—		—		12,650
Depreciation and Amortization		24,625		176		448		31		—		(96)		25,184
General Taxes and Other Assessments:
Revenue Taxes		12,595		1,404		2		—		—		—		14,001
Other		12,044		808		57		39		16		—		12,964
Total Operating Expenses	$	167,012	$	240,111	$	12,723	$	1,113	$	835	$	(4,001)	$	417,793
Operating Income (Loss)		(2,345)		32,338		864		(9,489)		(835)		—		20,533
Other Income (Expense)-Net		478		32		(3)		(1)		702		20		1,228
Interest Expense		9,465		—		—		—		74		20		9,559
Dividends on Washington Gas Preferred Stock		330		—		—		—		—		—		330
Income Tax Expense (Benefit)		(5,816)		12,703		270		(3,532)		790		—		4,415
Net Income (Loss) Applicable to Common Stock	$	(5,846)	$	19,667	$	591	$	(5,958)	$	(997)	$	—	$	7,457
Total Assets	$	3,442,759	$	371,288	$	47,652	$	161,342	$	155,680	$	(225,686)	$	3,953,035
Capital Expenditures	$	58,457	$	375	$	8,295	$	—	$	—	$	—	$	67,127
Equity Method Investments	$	—	$	—	$	—	$	—	$	17,813	$	—	$	17,813
Three Months Ended June 30, 2011
Operating Revenues(a)	$	181,497	$	304,756	$	7,542	$	(482)	$	—	$	(3,032)	$	490,281
Operating Expenses:
Cost of Energy—Related Sales		63,805		275,246		6,572		—		—		(3,032)		342,591
Operation		53,398		12,950		943		408		1,101		—		68,800
Maintenance		11,976		—		—		—		—		—		11,976
Depreciation and Amortization		22,580		162		82		9		—		—		22,833
General Taxes and Other Assessments:
Revenue Taxes		13,950		1,492		—		—		—		—		15,442
Other		12,485		836		54		14		9		—		13,398
Total Operating Expenses		178,194		290,686		7,651		431		1,110		(3,032)		475,040
Operating Income (Loss)		3,303		14,070		(109)		(913)		(1,110)		—		15,241
Other Income (Expenses)-Net		639		25		5		—		(204)		16		481
Interest Expense		10,206		—		—		—		10		16		10,232
Dividends on Washington Gas Preferred Stock		330		—		—		—		—		—		330
Income Tax Expense (Benefit)		(2,663)		5,779		(149)		(360)		(399)		—		2,208
Net Income (Loss) Applicable to Common Stock	$	(3,931)	$	8,316	$	45	$	(553)	$	(925)	$	—	$	2,952
Total Assets at June 30, 2011	$	3,411,399	$	302,606	$	18,628	$	88,788	$	64,854	$	(89,598)	$	3,796,677
Capital Expenditures	$	42,760	$	4,684	$	5,762	$	520	$	—	$	—	$	53,726
Equity Method Investments	$	—	$	—	$	—	$	—	$	3,602	$	—	$	3,602

^(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. Operating revenue amounts in the “Eliminations” column represent total intersegment revenues associated with sales from the regulated utility segment to the retail energy-marketing segment. Wholesale Energy Solutions’ cost of energy related sales is netted with its gross revenues.

30

WGL Holdings, Inc.

Washington Gas Light Company

Part I—Financial Information

Item 1—Financial Statements (continued)

Notes to Consolidated Financial Statements (Unaudited)

Operating Segment Financial Information
			Non-Utility Operations
(In thousands)	Regulated Utility		Retail Energy- Marketing		Commercial Energy Systems		Wholesale Energy Solutions		Other Activities		Eliminations		Consolidated
Nine Months Ended June 30, 2012
Operating Revenues(a)	$	1,006,617	$	977,289	$	46,137	$	(3,412)	$	—	$	(21,104)	$	2,005,527
Operating Expenses:
Cost of Energy-Related Sales		404,185		887,778		39,877		—		—		(19,490)		1,312,350
Operation		168,814		40,702		2,788		1,842		3,194		(1,018)		216,322
Maintenance		39,412		1		—		—		—		—		39,413
Depreciation and Amortization		72,215		552		1,274		85		—		(596)		73,530
General Taxes and Other Assessments:
Revenue Taxes		63,916		4,197		4		—		—		—		68,117
Other		39,787		2,786		172		143		38		—		42,926
Total Operating Expenses	$	788,329	$	936,016	$	44,115	$	2,070	$	3,232	$	(21,104)	$	1,752,658
Operating Income (Loss)		218,288		41,273		2,022		(5,482)		(3,232)		—		252,869
Other Income (Expense)—Net		2,203		46		(4)		(1)		2,013		(35)		4,222
Interest Expense		28,635		38		—		—		264		(35)		28,902
Dividends on Washington Gas Preferred Stock		990		—		—		—		—		—		990
Income Tax Expense (Benefit)		79,955		16,304		593		(2,040)		313		—		95,125
Net Income (Loss) Applicable to Common Stock	$	110,911	$	24,977	$	1,425	$	(3,443)	$	(1,796)	$	—	$	132,074
Total Assets	$	3,442,759	$	371,288	$	47,652	$	161,342	$	155,680	$	(225,686)	$	3,953,035
Capital Expenditures	$	153,364	$	898	$	22,595	$	101	$	1	$	—	$	176,959
Equity Method Investments	$	—	$	—	$	—	$	—	$	17,813	$	—	$	17,813
Nine Months Ended June 30, 2011
Operating Revenues(a)	$	1,169,597	$	1,131,843	$	22,316	$	161	$	—	$	(20,541)	$	2,303,376
Operating Expenses:
Cost of Energy-Related Sales		576,504		1,014,060		18,876		—		—		(20,541)		1,588,899
Operation		166,647		38,267		3,096		735		2,902		—		211,647
Maintenance		34,228		—		—		—		—		—		34,228
Depreciation and Amortization		67,414		487		214		9		—		—		68,124
General Taxes and Other Assessments:
Revenue Taxes		74,210		3,985		—		—		—		—		78,195
Other		42,008		3,095		173		21		23		—		45,320
Total Operating Expenses		961,011		1,059,894		22,359		765		2,925		(20,541)		2,026,413
Operating Income (Loss)		208,586		71,949		(43)		(604)		(2,925)		—		276,963
Other Income (Expenses)—Net		900		48		14		—		(828)		(85)		49
Interest Expense		30,448		83		—		—		104		(85)		30,550
Dividends on Washington Gas Preferred Stock		990		—		—		—		—		—		990
Income Tax Expense (Benefit)		70,452		28,989		(54)		(238)		(1,289)		—		97,860
Net Income (Loss) Applicable to Common Stock	$	107,596	$	42,925	$	25	$	(366)	$	(2,568)	$	—	$	147,612
Total Assets at June 30, 2011	$	3,411,399	$	302,606	$	18,628	$	88,788	$	64,854	$	(89,598)	$	3,796,677
Capital Expenditures	$	112,974	$	4,754	$	10,462	$	520	$	—	$	—	$	128,710
Equity Method Investments	$	—	$	—	$	—	$	—	$	10,054	$	—	$	10,054

^(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. Operating revenue amounts in the “Eliminations” column represent total intersegment revenues associated with sales from the regulated utility segment to the retail energy-marketing segment. Wholesale Energy Solutions’ cost of energy related sales is netted with its gross revenues.

31

WGL Holdings, Inc.

Washington Gas Light Company

Part I—Financial Information

Item 1—Financial Statements (continued)

Notes to Consolidated Financial Statements (Unaudited)

NOTE 12. RELATED PARTY TRANSACTIONS

WGL Holdings and its subsidiaries engage in transactions during the ordinary course of business. Inter-company transactions and balances have been eliminated from the consolidated financial statements of WGL Holdings, except as described below. Washington Gas provides accounting, treasury, legal and other administrative and general support to affiliates, and files consolidated tax returns that include affiliated taxable transactions. Washington Gas bills its affiliates for the actual cost of providing these services, which approximates their market value. To the extent such billings for these services are not yet paid, they are reflected in “Receivables from associated companies” on Washington Gas’ 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 in a reasonable time period. Cash collected by Washington Gas on behalf of its affiliates but not yet transferred is recorded in “Payables to associated companies” on Washington Gas’ balance sheets.

At June 30, 2012 and September 30, 2011, Washington Gas recorded receivables from associated companies of $5.4 million and $21.2 million, respectively. At June 30, 2012 and September 30, 2011, Washington Gas recorded payables to associated companies of $24.0 million and $11.8 million, respectively.

Washington Gas provides gas balancing services (including storage injections, storage 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, including WGEServices. 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. 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 $3.7 million and $3.0 million for the three months ended June 30, 2012 and 2011, respectively. In the nine months ended June 30, 2012 and 2011, the charges were $19.5 million and $20.5 million, 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 recognized a payable to Washington Gas in the amount of $1.9 million at June 30, 2012 and a receivable from Washington Gas in the amount of $2.1 million at September 30, 2011 related to an imbalance in gas volumes. Due to regulatory treatment, these receivables are not eliminated in the consolidated financial statements of WGL Holdings. Refer to Note 1—Accounting Policiesof the Notes to Consolidated Financial Statements of the combined Annual Report on Form 10-K for the fiscal year ended September 30, 2011 for further discussion of these imbalance transactions.

On June 29, 2011, Washington Gas implemented a Purchase of Receivables (POR) program as approved by the Maryland Public Service Commission (PSC of MD), whereby it purchases receivables from participating energy marketers at approved discount rates. In addition, WGEServices participates in POR programs with certain Maryland and Pennsylvania utilities, whereby it sells its receivables to various utilities, including Washington Gas, at approved discount rates. The receivables purchased by Washington Gas are included in “Accounts receivable” in the accompanying balance sheet. Any activity between Washington Gas and WGEServices related to the POR program has been eliminated in the accompanying financial statements for WGL Holdings. During the three and nine months ended June 30, 2012, Washington Gas purchased $17.3 million and $88.7 million of receivables from WGEServices, respectively. For both the three and nine months ended June 30, 2011, Washington Gas purchased $0.4 million of receivables from WGEServices.

Effective October 1, 2011, WGL Holdings began charging fees for guarantees to its subsidiaries in an amount equal to the daily guarantee exposure multiplied by a monthly weighted average interest rate. During the three and nine months ended June 30, 2012, the total fees charged by WGL Holdings to its subsidiaries were $0.1 million and $0.4 million, respectively. The majority of these fees were charged to WGEServices. These fees have been eliminated in the accompanying consolidated financial statements of WGL Holdings. This program was not in effect during the three or nine months ended June 30, 2011. Refer to Note 13—Commitments and Contingencies for further discussion of our guarantees.

32

WGL Holdings, Inc.

Washington Gas Light Company

Part I—Financial Information

Item 1—Financial Statements (continued)

Notes to Consolidated Financial Statements (Unaudited)

NOTE 13. COMMITMENTS AND CONTINGENCIES

RATES AND REGULATORY MATTERS

Washington Gas makes its requests to modify existing rates based on its determination of the level of net investment in plant and equipment, operating expenses, and a level of return on invested capital that is just and reasonable. The following is an update of significant current regulatory matters in each of Washington Gas’ jurisdictions. For a more detailed discussion of the matters below, refer to our combined Annual Report on Form 10-K for WGL Holdings and Washington Gas for the fiscal year ended September 30, 2011.

District of Columbia Jurisdiction

Investigation of Depreciation Practices. On September 9, 2011, the Public Service Commission of the District of Columbia (PSC of DC) docketed a proceeding to review the proper and adequate rates of depreciation of the several classes of Washington Gas’ property. In accordance with the procedural schedule, interested parties’ comments were filed by October 24, 2011. Washington Gas’ reply comments were filed on November 14, 2011, wherein Washington Gas requested that the PSC of DC consider depreciation issues in the context of the newly-initiated rate case, referenced below. On April 26, 2012, the PSC of DC granted Washington Gas’ request to consolidate its investigation of depreciation issues into its base rate proceeding and closed the proceeding.

District of Columbia Base Rate Case. On November 2, 2011, the PSC of DC docketed a proceeding to investigate the reasonableness of Washington Gas’ base rates and charges and required Washington Gas to file a base rate case no later than 90 days from the date of the order. On February 29, 2012, Washington Gas filed a request with the PSC of DC for a $29.0 million annual increase in revenues. The $29.0 million revenue increase requested in this application included a proposed overall rate of return of 8.91% and a return on common equity of 10.90%. Washington Gas is also proposing to expand its previously approved program to replace or encapsulate certain vintage mechanical couplings, by adding the accelerated replacement of certain pipe in its system. Washington Gas plans to invest approximately $119.0 million to replace aging distribution pipe in the District of Columbia over the next five years and included in this proposal, a request for approval of these expenditures over the next five years. Washington Gas has provided a proposed procedural schedule and requested that the PSC of DC establish a pre-hearing conference. On April 26, 2012, the PSC of DC adopted a procedural schedule and designated issues for the proceeding. Intervenor testimony was filed on July 17, 2012.

Rebuttal testimony is due August 31, 2012, and evidentiary hearings are scheduled to occur in October 2012.

Maryland Jurisdiction

Order on and Reviews of Purchased Gas Charges. Each year, the PSC of MD reviews the annual gas costs collected from customers in Maryland to determine if Washington Gas’ purchased gas costs are reasonable.

On September 9, 2011, the PSC of MD issued an order approving purchased gas charges of Washington Gas for the twelve-month period ending August 2009, except for an undetermined amount related to excess gas deliveries by competitive service providers (CSP) which were cashed-out by Washington Gas. The PSC of MD found that the cash-out of excess deliveries was in violation of Washington Gas’ tariff and that Washington Gas should not have cashed-out the excess deliveries by CSPs, but rather should have eliminated the imbalances through volumetric adjustments in the future and designated that the hearing examiner in a separate proceeding determine whether civil penalties should be levied against Washington Gas. In accordance with generally accepted accounting principles, Washington Gas recorded a $5.3 million estimated regulatory liability associated with this decision during the fourth quarter of fiscal year 2011. On October 11, 2011, Washington Gas filed an application for rehearing of the order with respect to the decision that a violation of the tariff occurred and that civil penalties might be levied. Washington Gas requested that the PSC of MD find that Washington Gas is authorized to cash-out CSP account imbalances under its tariff and therefore is not subject to civil penalties. On January 3, 2012, the PSC of MD issued an order denying Washington Gas’ request for rehearing. Pending the ultimate decision of the PSC of MD, further action may be taken with respect to recovery from the CSPs.

33

WGL Holdings, Inc.

Washington Gas Light Company

Part I—Financial Information

Item 1—Financial Statements (continued)

Notes to Consolidated Financial Statements (Unaudited)

Investigation of Asset Management and Gas Purchase Practices. In 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 Gas’ asset management program and cost recovery of its gas purchases.

In November 2009, the Chief Hearing Examiner of the PSC of MD issued a Proposed Order of Hearing Examiner (POHE), which approved Washington Gas’ proposal for the sharing of margins from asset optimization between Washington Gas and customers and its current methodology for pricing storage injections.

Subsequently, both the MD Staff and the Office of People’s Counsel (MD OPC) filed notices of appeal of the POHE followed by a memorandum on appeal in support of their positions. In January 2010, Washington Gas filed a reply memorandum in response to the Staff of the PSC of MD and the MD OPC’s memoranda on appeal. A decision by the PSC of MD is pending.

Maryland Base Rate Case. On November 14, 2011, the PSC of MD issued an order authorizing:(i) an annual revenue increase of $8.4 million compared to Washington Gas’ revised request of $27.8 million;(ii) a rate of return on common equity of 9.60% and an overall rate of return of 8.09%; and(iii) an end of test period equity ratio of 57.88%. The order also authorized Washington Gas to implement the initial 5-year phase of the accelerated pipe replacement plan, but denied the proposed cost recovery mechanism; and disallowed the amortization of costs to achieve under Washington Gas’ Business Process Outsourcing (BPO) agreement.

On December 14, 2011, Washington Gas filed a petition for rehearing and clarification of the PSC of MD’s November 14, 2011 order to(i) correct the methodology used to calculate the adjustment related to interest synchronization, which would increase the revenue requirement determined by the PSC of MD in its order by $0.7 million,(ii) correct the omission of an adjustment related to “Other Tax Adjustments,” which would increase the revenue requirement by an additional $2.4 million, and(iii) reverse the decision to disallow $1.0 million of Washington Gas’ test period costs to achieve Washington Gas’ BPO agreement. Washington Gas also requested clarification related to implementation of the accelerated pipe replacement plan and what annual reporting requirements may apply.

On March 29, 2012, the PSC of MD issued an order in response to the petition for rehearing and clarification filed by Washington Gas. The PSC of MD(i) granted an additional revenue increase of $0.7 million related to interest synchronization, increasing the overall revenue increase granted to Washington Gas in the case to $9.1 million;(ii) denied Washington Gas’ request for an adjustment related to other tax adjustments, which would have increased the revenue requirement by an additional $2.4 million;(iii) denied recovery of the costs to initiate the outsourcing agreement with Accenture, LLC in 2007; and(iv) directed Washington Gas to provide written notice when it implements the accelerated pipeline replacement project and adopted the reporting structure suggested by a PSC of MD Staff (MD Staff) witness as guidance for reporting Washington Gas’ progress. As a result of this order, Washington Gas recorded a $2.8 million charge to income tax expense to write-off a regulatory asset that had been established in 2010 for the change in the tax treatment of Medicare Part D, the amortization of which comprised the majority of the other tax adjustments that were disallowed by the Commission.

On April 30, 2012, Washington Gas filed a petition for rehearing with the PSC of MD which requested the Commission to reverse its decisions in the March 29, 2012 order denying Washington Gas’ request for an adjustment related to other tax adjustments and the costs to initiate the outsourcing agreement with Accenture, LLC. Washington Gas also filed a petition for judicial review of the PSC of MD’s March 29, 2012 order with the Circuit Court for Baltimore City to preserve its right to appeal in this case. Washington Gas has requested the Circuit Court to hold further proceedings on the appeal in abeyance pending the PSC of MD’s action on the petition for rehearing. In its reply to the Circuit Court, the PSC of MD agreed with Washington Gas’ request to hold further proceedings on the appeal in abeyance pending further PSC of MD action.

Virginia Jurisdiction

Conservation and Ratemaking Efficiency Plan (CARE). On July 22, 2010, Washington Gas filed an amendment to the CARE Plan to include small commercial and industrial customers in Virginia. The application included a portfolio of conservation and energy efficiency programs, an associated cost recovery provision and a decoupling mechanism that will adjust weather normalized non-gas distribution revenues for the impact of conservation or energy efficiency efforts. On November 18, 2010, the State Corporation Commission of Virginia (SCC of VA) issued an order that denied Washington Gas’ application. The SCC of VA found that Washington Gas’ current tariff and its underlying class cost of service and revenue apportionment studies do not segregate small versus large customers and that only small customers qualify under the CARE law. The SCC of VA stated that Washington Gas could amend the underlying tariff and studies in connection with its required 2011 base rate case filing. By order issued on July 2, 2012, in

34

WGL Holdings, Inc.

Washington Gas Light Company

Part I—Financial Information

Item 1—Financial Statements (continued)

Notes to Consolidated Financial Statements (Unaudited)

Washington Gas’ base rate case, the SCC of VA approved Washington Gas’ proposal to add two new small commercial customer classes. Because the SCC of VA made a minor modification to the stipulation in the rate case, parties to the settlement had until July 17, 2012, to file a notice of acceptance of the modification to the stipulation. On July 24, 2012, the SCC of VA finalized its July 2, 2012 order.

Virginia Base Rate Case. On January 31, 2011, Washington Gas filed a request with the SCC of VA for a $29.6 million annual increase in revenues. The filing was made pursuant to the settlement agreement reached by the parties and approved by the SCC of VA in Washington Gas’ last base rate case, which resulted in a Performance-Based Rate (PBR) plan. On May 12, 2011, Washington Gas revised its requested revenue increase from $29.6 million to $28.5 million as a result of new proposed depreciation rates. Interim rates went into effect on October 1, 2011 with the requested increase subject to refund pending a final commission decision.

On November 30, 2011, Washington Gas filed a stipulation to reflect settlement terms to which Washington Gas, the Staff, and other stipulating parties to the settlement agreed. The Apartment and Office Building Association (AOBA) did not support this stipulation. In the stipulation, the settling parties agreed to a $20.0 million rate increase, a 9.75% return on equity, an 8.261% overall rate of return, and a provision for sharing margins from asset optimization activities between Washington Gas and customers which includes a $3.2 million annual guarantee. Evidentiary hearings were held on December 5 and 6, 2011. Post-hearing briefs were filed on January 26, 2012. On March 15, 2012, the Senior Hearing Examiner issued a report of findings and recommended that the SCC of VA adopt the stipulation. On April 5, 2012, Washington Gas, the Staff of the SCC of VA, the Office of the Attorney General and Fairfax County all filed comments in support of the recommended decision of the Hearing Examiner while the AOBA filed comments in opposition. On April 18, 2012, Washington Gas filed a petition for leave to file reply and reply to AOBA’s comments on the Hearing Examiner’s report. On July 2, 2012, the SCC of VA issued an order approving all terms and conditions of the stipulation, including the $20.0 million rate increase, except for one modification. The SCC of VA directed that approximately $0.2 million of the revenue increase be reallocated from commercial non-heating non-cooling rate classes to the residential and non-firm rate classes. Stipulating parties had up to July 17, 2012, to file a notice of acceptance of the SCC of VA’s modification to the stipulation. On July 24, 2012, the SCC of VA finalized its July 2, 2012 order. As a result of the SCC of VA decision received on July 24, 2012, a $2.3 million retroactive adjustment will be recorded in the fourth quarter of 2012 related to the approval of new depreciation rates.

Affiliate Transactions. On June 16, 2011, Washington Gas submitted an application to the SCC of VA requesting approval of three affiliate transactions with CEV:(i) the transfer to CEV of the remainder of the term of two agreements for natural gas storage service at the Washington Storage Service (WSS) and Eminence Storage Service (ESS) storage fields;(ii) the sale to CEV of any storage gas balances associated with the WSS and ESS agreements; and(iii) the assignment to CEV of Washington Gas’ rights to buy base gas in the WSS storage field. Washington Gas proposed to make these affiliate transactions by September 30, 2011, coincident with the expiration of its PBR plan approved by the SCC of VA in a separate proceeding. On September 14, 2011, the SCC of VA issued an order denying Washington Gas’ application to transfer Washington Gas’ contracts for certain storage capacity resources to its affiliate, CEV. On October 4, 2011, Washington Gas filed a petition for reconsideration on this proceeding. On October 5, 2011, the SCC of VA granted Washington Gas’ request that the matter be reconsidered, but has not made a final ruling on Washington Gas’ petition for reconsideration. On December 6, 2011, the Staff of the SCC of VA (VA Staff) submitted a supplement to action brief seeking to provide evidence to the commission that ratepayers have been funding the WSS and ESS assets during the PBR period based on the netting of costs associated with those assets when calculating net revenues. Washington Gas submitted comments rejecting the Staff’s position and showing that the ratepayers had not funded these assets. These comments were appended to the VA Staff’s brief on December 9, 2011. A commission decision is pending.

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 Gas’ customers agree to make principal and interest payments over a period of time, typically beginning after the projects are completed. Washington Gas assigns these customer payment streams to the lender. As the lender funds the construction project, Washington Gas establishes a 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 June 30, 2012 and September 30, 2011, work on these construction projects that was not completed or accepted by customers was valued at $5.1 million and $4.2 million, respectively, which are recorded on the balance sheet as a receivable in “Deferred Charges and Other Assets—Other” 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. Construction projects are financed primarily for government agencies, which Washington Gas considers to have minimal credit risk. Based on this assessment and previous collection experience, Washington Gas did not record a corresponding reserve for bad debts related to these receivables at June 30, 2012 or September 30, 2011.

35

WGL Holdings, Inc.

Washington Gas Light Company

Part I—Financial Information

Item 1—Financial Statements (continued)

Notes to Consolidated Financial Statements (Unaudited)

FINANCIAL GUARANTEES

WGL Holdings guarantees payments primarily for certain purchases of natural gas and electricity on behalf of WGEServices and for certain purchase commitments of CEV. At June 30, 2012, these guarantees totaled $506.1 million and $131.3 million for WGEServices and CEV, respectively. The amount of such guarantees is periodically adjusted to reflect changes in the level of financial exposure related to these purchase commitments. WGL Holdings also issued guarantees totaling $3.0 million at June 30, 2012 on behalf of certain of our non-utility subsidiaries associated with their banking transactions. Of the $640.4 million total, $1.0 million of guarantees expired on July 27, 2012, $22.2 million is due to expire on October 31, 2012 and $3.8 million is due to expire on November 15, 2012. The remaining guarantees do not have specific maturity dates. For all of its financial guarantees, WGL Holdings may cancel any or all future obligations upon written notice to the counterparty, but WGL Holdings would continue to be responsible for the obligations created under the guarantees prior to the effective date of the cancellation. We also receive financial guarantees or other collateral from counterparties when required by our credit policy.

NOTE 14. 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 and nine months ended June 30, 2012 and 2011:

Components of Net Periodic Benefit Costs (Income)
	Three Months Ended June 30,
	2012						2011
(In millions)	Pension Benefits			Health and Life Benefits			Pension Benefits			Health and Life Benefits
Components of net periodic benefit costs (income)
Service cost	$	3.2		$	2.0		$	3.0		$	1.8
Interest cost		10.2			6.2			10.3			6.3
Expected return on plan assets		(10.8	)		(4.7	)		(11.1	)		(4.6	)
Amortization of prior service cost		0.1			(0.9	)		0.3			(1.0	)
Amortization of actuarial loss		4.1			3.4			3.7			2.8
Amortization of transition obligation		—			0.2			—			0.3
Net periodic benefit cost		6.8			6.2			6.2			5.6
Amount allocated to construction projects		(1.0	)		(1.0	)		(0.7	)		(0.8	)
Amount deferred as regulatory asset (liability) — net		(1.9	)		0.3			(1.8	)		0.5
Amount charged to expense	$	3.9		$	5.5		$	3.7		$	5.3

36

WGL Holdings, Inc.

Washington Gas Light Company

Part I—Financial Information

Item 1—Financial Statements (concluded)

Notes to Consolidated Financial Statements (Unaudited)

Components of Net Periodic Benefit Costs (Income)
	Nine Months Ended June 30,
	2012						2011
(In millions)	Pension Benefits			Health and Life Benefits			Pension Benefits			Health and Life Benefits
Components of net periodic benefit costs (income)
Service cost	$	9.6		$	6.0		$	9.1		$	5.6
Interest cost		30.4			18.8			30.9			18.8
Expected return on plan assets		(32.6	)		(14.1	)		(33.4	)		(13.9	)
Amortization of prior service cost		0.7			(2.9	)		0.8			(2.9	)
Amortization of actuarial loss		12.1			10.0			11.0			8.4
Amortization of transition obligation		—			0.8			—			0.8
Net periodic benefit cost		20.2			18.6			18.4			16.8
Amount allocated to construction projects		(2.5	)		(2.9	)		(2.2	)		(2.6	)
Amount deferred as regulatory asset (liability) — net		(5.6	)		1.1			(5.3	)		1.5
Amount charged to expense	$	12.1		$	16.8		$	10.9		$	15.7

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.

During fiscal year 2012, Washington Gas expects to make contributions totaling $26.9 million to its qualified pension plan.

37

WGL Holdings, Inc.

Washington Gas Light Company

Part I—Financial Information

Item 2—Management’s Discussion and Analysis of

Financial Condition and Results of Operations

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

INTRODUCTION

Management’s Discussion analyzes the financial condition, results of operations and cash flows of WGL Holdings, Inc. (WGL Holdings) and its subsidiaries. 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.

Management’s 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 operations, including Washington Gas and Hampshire Gas Company (Hampshire), and our non-utility operations.

— Washington Gas Light Company (Washington Gas)—This section describes the financial condition and results of operations of Washington Gas, a wholly owned subsidiary of WGL Holdings, which comprises the majority of the regulated utility segment.

Both sections of Management’s Discussion—WGL Holdings and Washington Gas—are designed to provide an understanding of our operations and financial performance and should be read in conjunction with the respective company’s financial statements and the combined Notes to Consolidated Financial Statements in this quarterly report as well as our combined Annual Report on Form 10-K for WGL Holdings and Washington Gas for the fiscal year ended September 30, 2011 (2011 Annual Report).

Unless otherwise noted, earnings per share amounts are presented on a diluted basis, and are based on weighted average common and common equivalent shares outstanding. 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. Our regulated utility, Washington Gas, provides natural gas service to customers primarily in the District of Columbia and the surrounding metropolitan areas in Maryland and Virginia. Washington Gas Energy Services sells natural gas and electricity, including energy from renewable sources such as wind and solar, in the District of Columbia, Delaware, Maryland, Pennsylvania and Virginia. Washington Gas Energy Systems (WGESystems) provides efficient and sustainable energy solutions to commercial and governmental customers across the Washington metropolitan region and beyond. Capitol Energy Ventures (CEV) performs natural gas asset optimization activities. Additionally, WGL Holdings has investment agreements with several solar system installers.

In the first quarter of 2012, we made certain changes to our operating segment reporting to reflect the recent growth of our non-utility business activities and the impact of those activities on our financial performance. Projects that we own and manage directly, including commercial solar projects, energy efficiency projects, combined heat and power projects, along with activities of WGESystems, are reported within a newly-defined operating segment entitled Commercial Energy Systems. We also established Wholesale Energy Solutions as a new segment that contains the activities of CEV, our non-utility asset optimization business, which we began in fiscal year 2010. Prior period operating segment information has been recast to conform to current quarter presentation.

These changes improve visibility into our operations and better align our reporting with current management accountability. Our four segments are described below.

38

WGL Holdings, Inc.

Washington Gas Light Company

Part I—Financial Information

Item 2—Management’s Discussion and Analysis of

Financial Condition and Results of Operations

Regulated Utility.With approximately 87% of our consolidated total assets, the Regulated Utility segment consists of Washington Gas and Hampshire. Washington Gas delivers natural gas to retail customers in accordance with tariffs approved by the regulatory commissions that have jurisdiction over Washington Gas’ 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 Gas’ 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 purchased 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 Gas’ net revenues and net income.

Washington Gas’ asset optimization program utilizes Washington Gas’ storage and transportation capacity resources when those assets are not fully utilized to physically serve utility customers. The objective of this program is to derive a profit to be shared with its utility customers (refer to the section entitled “Market Risk” for further discussion of our asset optimization program) by entering into commodity-related physical and financial contracts with third parties. 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 FERC. Hampshire operates and owns full and partial interests in underground natural gas storage facilities including pipeline delivery facilities located in and around Hampshire County, West Virginia. Washington Gas purchases all of the storage services of Hampshire and includes the cost of these services in the bills sent to its customers. Hampshire operates under a “pass-through” cost of service-based tariff approved by the FERC, and adjusts its billing rates to Washington Gas on a periodic basis to account for changes in its investment in utility plant and associated expenses.

Retail Energy-Marketing. The Retail Energy-Marketing segment consists of the operations of WGEServices, a wholly owned subsidiary of Washington Gas Resources, which is a wholly owned subsidiary of WGL Holdings. 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.

Commercial Energy Systems.The Commercial Energy Systems segment consists of commercial solar projects, energy efficiency projects and combined heat and power projects, which we own and manage directly, including activities of WGESystems, a wholly owned subsidiary of Washington Gas Resources. 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 Delaware, District of Columbia, Maryland and Virginia. WGESystems is also increasing its investments in commercial solar, energy efficiency, and combined heat and power projects, which we own and manage directly. This expansion includes the ownership and management of its renewable energy producing assets. These investments are part of our long-term commitment to providing clean and efficient energy solutions to our customers and communities in select markets across the United States.

Wholesale Energy Solutions. The Wholesale Energy Solutions segment, which consists of the operations of CEV, engages in acquiring, managing and optimizing natural gas storage and transportation assets. CEV enters into both physical and financial transactions in a manner intended to utilize the most effective energy risk management products available to mitigate risks while maximizing potential profits from the optimization of these assets under its management.

39

WGL Holdings, Inc.

Washington Gas Light Company

Part I—Financial Information

Item 2—Management’s Discussion and Analysis of

Financial Condition and Results of Operations

Other Activities. Activities and 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 other operating segments, are aggregated as “Other activities” and included as part of non-utility operations as presented below in the operating segment financial information. These activities include the operations of WGSW, Inc. (WGSW), a wholly owned subsidiary of Washington Gas Resources, which is a holding company formed to invest in alternative energy assets. Administrative costs associated with WGL Holdings and Washington Gas Resources are also included in “Other activities.”

40

WGL Holdings, Inc.

Washington Gas Light Company

Part I—Financial Information

Item 2—Management’s Discussion and Analysis of

Financial Condition and Results of Operations (continued)

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, regulatory decisions and changes in legislation;

• availability of natural gas supply and pipeline transportation and storage capacity;

• diversity of natural gas supply;

• volatility of natural gas and electricity 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;

• 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 Management’s Discussion within the 2011 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-utility 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 Management’s Discussion within the 2011 Annual Report. There were no new critical accounting policies or changes to our critical accounting policies during the nine month period ended June 30, 2012.

41

WGL Holdings, Inc.

Washington Gas Light Company

Part I—Financial Information

Item 2—Management’s Discussion and Analysis of

Financial Condition and Results of Operations (continued)

WGL HOLDINGS, INC.

RESULTS OF OPERATIONS — Three Months Ended June 30, 2012 vs. June 30, 2011

We analyze the operating results using utility net revenues for the regulated utility segment and gross margins for the retail energy-marketing segment. 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 retail energy-marketing 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—Retail Energy-Marketing” 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 of $7.5 million and $3.0 million for the three months ended June 30, 2012 and 2011, respectively. For the twelve month periods ended June 30, 2012 and 2011, we earned a return on average common equity of 8.0% and 9.9%, respectively.

The following table summarizes our net income (loss) by operating segment for the three months ended June 30, 2012 and 2011.

Net Income (Loss) by Operating Segment

	Three Months Ended June 30,						Increase/
(In millions)	2012			2011			(Decrease)
Regulated Utility	$	(5.8	)	$	(3.9	)	$	(1.9	)
Non-utility operations:
Retail Energy-Marketing		19.7			8.3			11.4
Commercial Energy Systems		0.6			0.1			0.5
Wholesale Energy Solutions		(6.0	)		(0.6	)		(5.4	)
Other Activities		(1.0	)		(0.9	)		(0.1	)
Total non-utility		13.3			6.9			6.4
Net income applicable to common stock	$	7.5		$	3.0		$	4.5
EARNINGS PER AVERAGE COMMON SHARE
Basic	$	0.14		$	0.06		$	0.08
Diluted	$	0.14		$	0.06		$	0.08

42

WGL Holdings, Inc.

Washington Gas Light Company

Part I—Financial Information

Item 2—Management’s Discussion and Analysis of

Financial Condition and Results of Operations (continued)

Regulated Utility Operating Results

The following table summarizes the Regulated Utility segment’s operating results for the three months ended June 30, 2012 and 2011.

Regulated Utility Operating Results

	Three Months Ended June 30,						Increase/
(In millions)	2012			2011			Decrease
Utility net revenues:
Operating revenues	$	164.7		$	181.5		$	(16.8	)
Less: Cost of gas		44.6			63.8			(19.2	)
Revenue taxes		12.6			14.0			(1.4	)
Total utility net revenues		107.5			103.7			3.8
Operation and maintenance		73.1			65.4			7.7
Depreciation and amortization		24.6			22.6			2.0
General taxes and other assessments		12.0			12.4			(0.4	)
Operating income (loss)		(2.2	)		3.3			(5.5	)
Other income-net, including preferred stock dividends		0.1			0.3			(0.2	)
Interest expense		9.5			10.2			(0.7	)
Income tax benefit		(5.8	)		(2.7	)		(3.1	)
Net loss applicable to common stock	$	(5.8	)	$	(3.9	)	$	(1.9	)

The Regulated Utility segment’s net loss applicable to common stock was $5.8 million for the three months ended June 30, 2012 compared to a net loss of $3.9 million for the same three month period in 2011. This comparison primarily reflect:(i) $7.7 million in higher operation and maintenance expenses, including a $5.0 million impairment loss on our property;(ii) $2.2 million in lower unrealized margins associated with our asset optimization program;(iii) an increase of $2.0 million in depreciation expense due to the growth in, and changes in the asset mix of, our investment in utility plant and(iv) $1.7 million in unfavorable effects of changes in natural gas consumption patterns in the District of Columbia.Offsetting these variances were:(i) $6.3 million in higher revenues due to the implementation of new rates in Maryland and Virginia;(ii) $3.2 million in lower income taxes due to tax sharing and lower revenues, partially offset by an increase in the effective tax rate; (iii) a $0.5 million increase in revenues related to growth of more than 8,300 average active customer meters and(iv) a $0.7 million increase in realized margins, net of margin sharing, associated with our asset optimization program.

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 June 30, 2012 and 2011.

Composition of Changes in Utility Net Revenues

(In millions)	Increase/ (Decrease)
Customer growth	$	0.5
Impact of new base rates in Maryland and Virginia		6.3
Asset optimization:
Realized margins		0.7
Unrealized mark-to-market valuations		(2.2	)
Lower-of-cost or market adjustment		0.1
Estimated change in natural gas consumption patterns		(1.7	)
Other		0.1
Total	$	3.8

Customer growth — Average active customer meters increased by more than 8,300 for the three months ended June 30, 2012 compared to the same quarter of the prior fiscal year.

43

WGL Holdings, Inc.

Washington Gas Light Company

Part I—Financial Information

Item 2—Management’s Discussion and Analysis of

Financial Condition and Results of Operations (continued)

Impact of new base rates in Maryland and Virginia — New base rates were approved in Maryland and Virginia effective November 14, 2011 and October 1, 2011, respectively.

Asset optimization — We recorded net unrealized gains associated with our energy-related derivatives of $2.6 million and $4.8 million for the three months ended June 30, 2012 and 2011, respectively. 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. Favorably affecting asset optimization results were $0.7 million of higher realized margins and a $0.1 million reversal of a prior interim period lower-of-cost or market write-down associated with storage capacity assets utilized for asset optimization during the three months ended June 30, 2012. There were no lower-of-cost or market adjustments during the three months ended June 30, 2011. Refer to the section entitled“Market Risk—Price Risk Related to the Regulated Utility Segment” for a further discussion of our asset optimization program.

Estimated change in natural gas consumption patterns —The variance in net revenues reflects the changes in natural gas consumption patterns in the District of Columbia. 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 heating degree day (HDD) that occur. Natural gas consumption patterns may also be affected by non-weather related factors such as customer conservation.

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 June 30, 2012 compared to the same period in 2011.

Composition of Changes in Operation and Maintenance Expenses

(In millions)	Increase/ (Decrease)
Impairment loss on Springfield Operations Center	$	5.0
Employee benefits		1.0
Operation, engineering, compliance and safety		0.6
Lower weather derivative benefits		0.5
Other operating expenses		0.6
Total	$	7.7

Impairment loss on Springfield Operations Center — During fiscal year 2010, Washington Gas began construction of a new operations facility. The new operations facility was constructed to replace Washington Gas’ previous operations facility. During the quarter ended June 30, 2012, Washington Gas completed the relocation of its employees from its previous operations facility to the new operations facility, and is no longer using the previous operations facility. Washington Gas is actively marketing the previous operations facility for sale. Washington Gas applied a discounted cash value model to the anticipated proceeds from a future sale and recorded an impairment loss of $5.0 million in operation and maintenance expense in the accompanying consolidated statements of income for the three and nine months ended June 30, 2012. There were no impairment indicators identified for the three or nine months ended June 30, 2011.

Employee benefits — The increase in employee benefits expense reflects higher pension and other post-retirement benefits due to changes in the discount rate and other plan assumptions used to measure the benefit obligation.

Operation, engineering, compliance and safety —The increase in operation, engineering, compliance and safety costs during the quarter ended June 30, 2012 compared to the same quarter of the prior year is primarily due to higher costs due to certain projects being completed earlier this year than last year.

Weather derivative benefits — The effects of hedging variations from normal weather in the District of Columbia for the three months ended June 30, 2012 and 2011 are recorded to operation and maintenance expense. Washington Gas did not record a benefit from warmer weather in the quarter ended June 30, 2012, but did record a gain of $0.4 million during the quarter ended June 30, 2011 due to warmer than normal weather during that period.

Depreciation and Amortization.The increase of $2.0 million in depreciation and amortization is primarily attributed to growth in, and changes in the asset mix of, our investment in utility plant partially offset by a reduction in Virginia depreciation rates.

44

WGL Holdings, Inc.

Washington Gas Light Company

Part I—Financial Information

Item 2—Management’s Discussion and Analysis of

Financial Condition and Results of Operations (continued)

Retail Energy-Marketing Financial and Statistical Data

	Three Months Ended June 30,						Increase /
	2012			2011			(Decrease)
Operating Results(In millions)
Gross margins:
Operating revenues	$	272.4		$	304.8		$	(32.4	)
Less: Cost of energy		224.4			275.2			(50.8	)
Revenue taxes		1.4			1.5			(0.1	)
Total gross margins		46.6			28.1			18.5
Operation expenses		13.3			13.0			0.3
Depreciation and amortization		0.2			0.2			—
General taxes and other assessments		0.8			0.9			(0.1	)
Operating income		32.3			14.0			18.3
Interest expense		(0.1	)		0.1			(0.2	)
Income tax expense		12.7			5.6			7.1
Net income	$	19.7		$	8.3		$	11.4
Analysis of gross margins(In millions)
Natural gas
Realized margins	$	12.2		$	12.9		$	(0.7	)
Unrealized mark-to-market gains (losses)		8.5			(1.7	)		10.2
Total gross margins — natural gas		20.7			11.2			9.5
Electricity
Realized margins		16.5			14.2			2.3
Unrealized mark-to-market gains		9.4			2.7			6.7
Total gross margins — electricity		25.9			16.9			9.0
Total gross margins	$	46.6		$	28.1		$	18.5
Other Retail-Energy Marketing Statistics
Natural gas
Therm sales(millions of therms)		96.8			91.3			5.5
Number of customers(end of period)		180,900			172,100			8,800
Electricity
Electricity sales(millions of kWhs)		2,991.3			2,688.0			303.3
Number of accounts(end of period)		202,200			183,900			18,300

The Retail Energy-Marketing segment reported net income of $19.7 million for the three months ended June 30, 2012, compared to net income of $8.3 million reported for the same three-month period of the prior fiscal year.

The increase in net income primarily reflects higher gross margins from natural gas and electric sales. Period-to-period comparisons of quarterly gross margins for this segment can vary significantly and are not necessarily representative of expected annualized results.

Gross margins from natural gas sales increased by $9.5 million in the current quarter of fiscal year 2012 compared to the same quarter in the prior fiscal year. This increase is primarily due to the favorable change in unrealized mark-to-market margins on energy-related derivatives of $10.2 million resulting from fluctuating market prices, partially offset by lower realized margins of $0.7 million attributable to a less favorable pattern of margin recognition in the current quarter versus the same quarter of the prior year, partially offset by higher volumes.

Gross margins from electric sales in the current quarter increased $9.0 million from the same quarter of the prior period. This increase reflects higher realized electric retail margins of $2.3 million due to higher sales volumes due to customer growth, and favorable price conditions in the current quarter versus the same quarter of the prior year, and an increase of $6.7 million in unrealized margins due to fluctuating market prices.

The Retail Energy-Marketing segment’s increase in new electricity customer accounts compared to the prior year is primarily due to WGEServices being able to offer customers lower prices than utility standard offer service rates and the addition of new government and commercial accounts.

45

WGL Holdings, Inc.

Washington Gas Light Company

Part I—Financial Information

Item 2—Management’s Discussion and Analysis of

Financial Condition and Results of Operations (continued)

Commercial Energy Systems

The Commercial Energy Systems segment reported net income of $0.6 million for the third quarter of fiscal year 2012, compared to net income of $45,000 reported for the same period of fiscal year 2011. This increase is due to higher revenue from commercial solar projects and the timing of project work for government agency customers that was delayed in the prior year.

Wholesale Energy Solutions

The Wholesale Energy Solutions segment reported a net loss of $6.0 million for the three months ended June 30, 2012, compared to a net loss of $0.6 million reported for the same period of the prior fiscal year. This decrease is primarily due to lower storage and transportation spreads driven by one of the warmest winters on record across the country, which affected optimization opportunities as well as higher operation and maintenance expense associated with new storage and optimization arrangements and costs related to the Commonwealth Pipeline project.

Other Non-Utility

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 four operating segments, are aggregated as “Other Activities” and included as part of non-utility operations. Results from our other non-utility activities reflect net losses of $1.0 million and $0.9 million for the three months ended June 30, 2012 and 2011, respectively.

RESULTS OF OPERATIONS — Nine Months Ended June 30, 2012 vs. June 30, 2011

Summary Results

WGL Holdings reported net income applicable to common stock of $132.1 million, or $2.56 per share, for the nine months ended June 30, 2012 compared to $147.6 million, or $2.88 per share, reported for the nine months ended June 30, 2011.

The following table summarizes our net income (loss) applicable to common stock by operating segment for the nine months ended June 30, 2012 and 2011.

Net Income (Loss) by Operating Segment
	Nine Months Ended June 30,						Increase/
(In millions)	2012			2011			(Decrease)
Regulated Utility	$	110.9		$	107.6		$	3.3
Non-utility operations:
Retail Energy-Marketing		25.0			42.9			(17.9	)
Commercial Energy Systems		1.4			0.1			1.3
Wholesale Energy Solutions		(3.4	)		(0.4	)		(3.0	)
Other Activities		(1.8	)		(2.6	)		0.8
Total non-utility		21.2			40.0			(18.8	)
Net income applicable to common stock	$	132.1		$	147.6		$	(15.5	)
EARNINGS PER AVERAGE COMMON SHARE
Basic	$	2.56		$	2.89		$	(0.33	)
Diluted	$	2.56		$	2.88		$	(0.32	)

Regulated Utility Operating Results

The following table summarizes the Regulated Utility segment’s operating results for the nine months ended June 30, 2012 and 2011.

46

WGL Holdings, Inc.

Washington Gas Light Company

Part I—Financial Information

Item 2—Management’s Discussion and Analysis of

Financial Condition and Results of Operations (continued)

Regulated Utility Operating Results

	Nine Months Ended June 30,					Increase/
(In millions)	2012		2011			(Decrease)
Utility net revenues:
Operating revenues	$	1,006.6	$	1,169.6		$	(163.0	)
Less: Cost of gas		404.2		576.5			(172.3	)
Revenue taxes		63.9		74.2			(10.3	)
Total utility net revenues		538.5		518.9			19.6
Operation and maintenance		208.2		200.9			7.3
Depreciation and amortization		72.2		67.4			4.8
General taxes and other assessments		39.8		42.0			(2.2	)
Operating income		218.3		208.6			9.7
Other income (expenses)-net, including preferred stock dividends		1.2		(0.1	)		1.3
Interest expense		28.6		30.4			(1.8	)
Income tax expense		80.0		70.5			9.5
Net income	$	110.9	$	107.6		$	3.3

The Regulated Utility segment’s net income applicable to common stock was $110.9 million for the nine months ended June 30, 2012 compared to $107.6 million for the same nine month period of the prior fiscal year. The increase in net income primarily reflects:(i) $22.4 million in higher revenues due to the implementation of new rates in Maryland and Virginia;(ii) a $13.8 million increase in unrealized margins associated with our asset optimization program;(iii) a $3.8 million increase in revenues related to growth of more than 8,600 average customer meters and(iv) $1.8 million in lower interest expense. Partially offsetting these favorable variances were:(i) a $12.1 million reduction in revenue attributed to warmer weather, excluding the benefit of our weather protection;(ii) $4.4 million in higher income taxes due to an increase in the effective tax rate including a $2.8 million write off of a regulatory asset originally recognized in 2010 related to the tax effect of Med D;(iii) $7.3 million in higher operation and maintenance expenses, including a $5.0 million impairment loss on property;(iv) $6.3 million in lower realized margins, net of margin sharing, associated with our asset optimization program;(v) a $4.8 million increase in depreciation expense due to the growth in, and changes in the asset mix of, our investment in utility plant and(vi) $3.2 million in unfavorable effects of changes in natural gas consumption patterns in the District of Columbia.

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 nine months ended June 30, 2012 and 2011.

Composition of Changes in Utility Net Revenues

(In millions)	Increase / (Decrease)
Impact of new base rates in Maryland and Virginia	$	22.4
Customer growth		3.8
Asset optimization:
Realized margins		(6.3	)
Unrealized mark-to-market valuations		13.8
Lower-of-cost or market adjustment		(1.5	)
Estimated weather effects		(12.5	)
Estimated effects of changes in consumption patterns		(3.2	)
Other		3.1
Total	$	19.6

Impact of new base rates in Maryland and Virginia — New base rates were approved in Maryland and Virginia effective November 14, 2011 and October 1, 2011, respectively.

Customer growth — Average active customer meters increased by more than 8,600 for the nine months ended June 30, 2012 compared to the same period of the prior fiscal year.

Asset optimization — We recorded unrealized gains associated with our energy-related derivatives of $4.2 million for the nine months ended June 30, 2012 compared to net unrealized losses of $9.6 million for the same period of 2011. When these derivatives settle, any unrealized amounts will ultimately be reversed, and Washington Gas will realize margins in combination with the related

47

WGL Holdings, Inc.

Washington Gas Light Company

Part I—Financial Information

Item 2—Management’s Discussion and Analysis of

Financial Condition and Results of Operations (continued)

transactions that these derivatives economically hedge. Unfavorably affecting asset optimization results were $6.3 million of lower realized margins due to a change in Virginia margin sharing and $1.5 million of lower-of-cost or market adjustments associated with market adjustments during the nine months ended June 30, 2012. There were no lower-of-cost or market adjustments during the nine months ended June 30, 2011. (Refer to the section entitled“Market Risk—Price Risk Related to the Regulated Utility Segment” for a further discussion of our asset optimization program).

Estimated weather effects — Weather, when measured by HDDs, was 19.5% warmer and 6.1% colder than normal for the nine months ended June 30, 2012 and 2011, respectively. Washington Gas 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 further discussion of our weather protection strategy). Washington Gas executed heating degree day derivative contracts to manage its exposure to variations from normal weather in the District of Columbia. Changes in the fair value of this derivative are reflected in operation and maintenance expenses and offset the benefits reflected above. Due to the extremely warm weather, our weather protection instruments were not sufficient to offset approximately $3.5 million of the reduction in revenue for the nine months ended June 30, 2012. There were no material effects on net income attributed to colder or warmer weather for the nine months ended June 30, 2011.

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 nine months ended June 30, 2012 compared to the same period in 2011.

Composition of Changes in Operation and Maintenance Expenses

(In millions)	Increase/ (Decrease)
Impairment loss on Springfield Operations Center	$	5.0
Operation, engineering, compliance and safety		3.9
Employee benefits		3.6
Labor and incentive plans		2.7
Hexane costs		1.6
Weather derivative benefits:
Benefit		(9.0	)
Premium costs and fair value effects		(0.8	)
Other operating expenses		0.3
Total	$	7.3

Impairment loss on Springfield Operations Center —During fiscal year 2010, Washington Gas began construction of a new operations facility. The new operations facility was constructed to replace Washington Gas’ previous operations facility. During the quarter ended June 30, 2012, Washington Gas completed the relocation of its employees from its previous operations facility to the new operations facility, and is no longer using the previous operations facility. Washington Gas is actively marketing the previous operations facility for sale. Washington Gas applied a discounted cash value model to the anticipated proceeds from a future sale and recorded an impairment loss of $5.0 million in operation and maintenance expense in the accompanying consolidated statements of income for the three and nine months ended June 30, 2012. There were no impairment indicators identified for the three or nine months ended June 30, 2011.

Operation, engineering, compliance and safety — The increase in operation, engineering, construction and safety costs during the nine months ended June 30, 2012 compared to the same period of the prior year is primarily due to certain types of projects being completed earlier this year than last year.

Employee benefits — The increase in benefit expenses reflects higher pension and other post-retirement benefits due to changes in the discount rate and other plan assumptions used to measure the benefit obligation and higher reserve adjustments for long-term disability.

Labor and incentives —The increase in labor and incentive plans is primarily due to higher direct labor costs driven by higher long-term incentive plan valuations and general wage increases.

Hexane Costs —The increase in expense reflects the deferral costs in 2011 to a regulatory asset under the regulatory mechanism that was in existence at the time.

48

WGL Holdings, Inc.

Washington Gas Light Company

Part I—Financial Information

Item 2—Management’s Discussion and Analysis of

Financial Condition and Results of Operations (continued)

Weather derivative benefits — The effects of hedging variations from normal weather in the District of Columbia for the nine months ended June 30, 2012 and 2011 are recorded to operation and maintenance expense. Washington Gas recorded a gain of $6.4 million as a direct result of warmer than normal weather in the nine months ended June 30, 2012 and a loss of $2.6 million during the nine months ended June 30, 2011 due to colder-than-normal weather during that period. In addition, net premiums received related to the weather derivatives were higher due to market expectations of weather.

Depreciation and Amortization — The increase of $4.8 million in depreciation and amortization is primarily attributed to growth in, and changes in the asset mix of, our investment in utility plant partially offset by a reduction in Virginia depreciation rates.

Retail Energy-Marketing

The following table depicts the Retail Energy-Marketing segment’s operating results along with selected statistical data.

Retail-Energy Marketing Financial and Statistical Data

	Nine Months Ended June 30,					Increase /
	2012			2011		(Decrease)
Operating Results(In millions)
Gross margins:
Operating revenues	$	977.3		$	1,131.8	$	(154.5	)
Less: Cost of energy		887.8			1,014.0		(126.2	)
Revenue taxes		4.1			4.0		0.1
Total gross margins		85.4			113.8		(28.4	)
Operation expenses		40.7			38.3		2.4
Depreciation and amortization		0.6			0.5		0.1
General taxes and other assessments—other		2.8			3.0		(0.2	)
Operating income		41.3			72.0		(30.7	)
Interest expense		—			0.1		(0.1	)
Income tax expense		16.3			29.0		(12.7	)
Net income	$	25.0		$	42.9	$	(17.9	)
Analysis of gross margins(In millions)
Natural gas
Realized margins	$	30.1		$	35.2	$	(5.1	)
Unrealized mark-to-market gains		0.8			11.1		(10.3	)
Total gross margins — natural gas		30.9			46.3		(15.4	)
Electricity
Realized margins		59.2			44.4		14.8
Unrealized mark-to-market gains (losses)		(4.7	)		23.1		(27.8	)
Total gross margins — electricity		54.5			67.5		(13.0	)
Total gross margins	$	85.4		$	113.8	$	(28.4	)
Other Retail-Energy Marketing Statistics
Natural gas
Therm sales(millions of therms)		529.1			610.3		(81.2	)
Number of customers(end of period)		180,900			172,100		8,800
Electricity
Electricity sales(millions of kWhs)		8,400.2			7,744.6		655.6
Number of accounts(end of period)		202,200			183,900		18,300

The Retail Energy-Marketing segment reported net income of $25.0 million for the nine months ended June 30, 2012, compared to net income of $42.9 million reported for the same nine-month period of the prior fiscal year.

The reduction in net income primarily reflects lower gross margins from electric and natural gas sales. Period-to-period comparisons of gross margins for this segment can vary significantly and are not necessarily representative of expected annualized results.

49

WGL Holdings, Inc.

Washington Gas Light Company

Part I—Financial Information

Item 2—Management’s Discussion and Analysis of

Financial Condition and Results of Operations (continued)

Gross margins from natural gas sales decreased $15.4 million in the nine months ended June 30, 2012 when compared to the same period of the prior fiscal year. This decrease is primarily due to the unfavorable change in unrealized mark-to-market margins on energy-related derivatives of $10.3 million resulting from fluctuating market prices and $5.1 million in lower realized margins due to lower unit margins on portfolio optimization activities and lower retail sales volumes resulting from warmer weather.

Gross margins from electric sales in the current quarter decreased $13.0 million from the same quarter of the prior period. This decrease reflects a $27.8 million change in unrealized mark-to-market margins on energy-related derivatives from fluctuating market prices partially offset by $14.8 million in higher realized margins attributable to higher sales volumes due to customer growth, favorable price conditions and a different pattern of margin recognition versus the prior year.

The Retail Energy-Marketing segment’s increase in new electricity customer accounts compared to the prior year is primarily due to WGEServices being able to offer customers lower prices than utility standard offer service rates and the addition of new government and commercial accounts.

Commercial Energy Systems

The Commercial Energy Systems segment reported net income of $1.4 million for the nine months ended June 30, 2012, compared to net income of $25,000 reported for the same period of fiscal year 2011. This increase is due to higher revenue from commercial solar projects in the current period and the timing of project work for government agency customers that was delayed in the prior year.

Wholesale Energy Solutions

The Wholesale Energy Solutions segment reported a net loss of $3.4 million for the nine months ended June 30, 2012, compared to a net loss of $0.4 million reported for the same period of the prior fiscal year. This decrease is primarily due to lower storage and transportation spreads driven by one of the warmest winters on record across the country, which affected optimization opportunities. Additionally, operation and maintenance expense was higher as a result of new storage and optimization arrangements, as well as costs related to the Commonwealth Pipeline project.

Other Non-Utility

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 four operating segments, are aggregated as “Other Activities” and included as part of non-utility operations. Results from our other non-utility activities reflect net losses of $1.8 million and $2.6 million for the nine months ended June 30, 2012 and 2011, respectively.

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. Our most significant short-term financing requirements include the acquisition of natural gas, electricity and pipeline capacity, and the need to finance accounts receivable and storage gas inventory. 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, the liquidity of financial markets, and investor demand for our securities. 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 three months ended June 30, 2012, WGL Holdings met its liquidity and capital needs through the retention of earnings and the issuance of commercial paper and common stock. Washington Gas met its liquidity and capital needs through the retention of earnings and the issuance of commercial paper. Both WGL Holdings and Washington Gas believe that they will be able to meet their liquidity and capital needs through fiscal year 2012 through a mixture of operating earnings, issuances of commercial paper, and in the case of Washington Gas, issuance of MTNs.

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

50

WGL Holdings, Inc.

Washington Gas Light Company

Part I—Financial Information

Item 2—Management’s Discussion and Analysis of

Financial Condition and Results of Operations (continued)

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 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 June 30, 2012, total consolidated capitalization, including current maturities of long-term debt and excluding notes payable, comprised 67.5% common equity, 1.5% preferred stock and 31.0% 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 June 30, 2012, 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 Gas’ business is weather sensitive and seasonal, causing short-term cash requirements to vary significantly during the year. Approximately 91% of the total therms delivered in Washington Gas’ 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 combined storage inventory, accounts receivable, and unbilled revenues are at their highest levels. During the last six months of our fiscal year, after the heating season, Washington Gas will typically experience a seasonal net loss due to reduced demand for natural gas. During this period, many of Washington Gas’ 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 to fund the purchase of storage gas inventory in advance of the winter heating periods when a large portion of the storage gas is sold. At June 30, 2012 and September 30, 2011, Washington Gas had balances in gas storage of $89.2 million and $166.1 million, respectively; WGEServices had balances in gas storage of $30.7 million and $61.0 million, respectively, and CEV had balances in gas storage of $117.2 million and $63.3 million, respectively. Washington Gas collects the cost of gas under cost recovery mechanisms approved by its regulators. WGEServices collect revenues that are designed to reimburse their commodity costs used to supply their retail customer and wholesale counterparty contracts. Variations in the timing of cash receipts from customers under these collection methods can significantly affect short-term cash requirements. In addition, Washington Gas, WGEServices and CEV pay their respective commodity suppliers before collecting the accounts receivable balances resulting from these sales. WGEServices and CEV derive their funding to finance these activities from short-term debt issued by WGL Holdings. Additionally, Washington Gas, WGEServices and CEV may be required to post cash collateral for certain purchases. WGEServices and CEV may be required to provide parent guarantees from WGL Holdings for certain purchases.

Variations in the timing of collections of gas costs under Washington Gas’ gas cost recovery mechanisms can significantly affect short-term cash requirements. At June 30, 2012 and September 30, 2011, Washington Gas had a $1.3 million and $12.1 million net under-collection of unrecovered gas costs, respectively, reflected in current assets/liabilities as gas costs due from/to customers related to the most recent twelve month gas cost recovery cycle ended August 31 of each year. Most of this balance will be collected from customers in fiscal year 2012. 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 1^st of each year, at which time the accumulated amount is transferred to gas costs due from/to customers as appropriate. At June 30, 2012 and September 30, 2011, Washington Gas had a net regulatory asset of $14.8 million and $6.5 million, respectively, 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. Bank credit balances available to WGL Holdings and Washington Gas net of commercial paper balances were $ 359.5 million and $ 350.0 million at June 30, 2012 and $ 360.6 million and $ 300.0 million at September 30, 2011, respectively. On April 3, 2012, WGL Holdings and Washington Gas each entered into separate revolving credit agreements to replace the existing revolving credit agreements which were due to expire on August 2012. The credit facility for WGL Holdings permits it to borrow up to $450.0 million, and further permits, with the banks’ approval, additional borrowings of $100.0 million for a maximum potential total of $550.0 million. The credit facility for Washington Gas permits it to borrow up to $350.0 million, and further permits, with the banks’ approval, additional borrowings of $100.0 million for a maximum potential total of $450.0 million. The interest rate on loans made under each of the credit facilities will be a fluctuating rate per annum that will be set using certain parameters at the time each loan is made. These credit agreements provide for a term of five years and expire on April 3, 2017. The credit agreements each have two one-year extension options. Refer to Note 3—Short-Term Debtof the Notes to the Consolidated Financial Statements for further information.

51

WGL Holdings, Inc.

Washington Gas Light Company

Part I—Financial Information

Item 2—Management’s Discussion and Analysis of

Financial Condition and Results of Operations (continued)

To manage credit risk, Washington Gas, WGEServices and CEV may require deposits from certain customers and suppliers, which are reported as current liabilities in “Customer deposits and advance payments,” in the accompanying balance sheet. At June 30, 2012 and September 30, 2011, “Customer deposits and advance payments” totaled $71.5 million and $78.1 million, respectively. For both periods, almost all 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 customer’s 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 Gas’ 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 and CEV, deposits typically represent collateral for transactions with wholesale counterparties. 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 the use of deposited funds and interest is paid 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

The primary drivers of our long-term cash requirements include 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 Gas’ distribution system. Refer to our 2011 Annual Report for a discussion of our long-term debt maturities and capital expenditures.

On June 19, 2012, Washington Gas retired $25.0 million of 5.90% MTNs. Previously during the year, on February 27, 2012, Washington Gas retired $25.0 million of 6.0% MTNs and on October 17 and 19, 2011, Washington Gas retired $7.0 million of 6.05% MTNs and $20.0 million of 6.00% MTNs, respectively.

On May 18, 2012, Washington Gas filed a registration statement on Form S-3 with the Securities and Exchange Commission for issuance of up to $450.0 million of medium-term notes, Series J. A related distribution agreement among Washington Gas and seven agents was signed on June 6, 2012. At June 30, 2012, Washington Gas had the capacity under this shelf registration to issue up to $450.0 million of MTNs. Washington Gas has authority from its regulators to issue other forms of debt, including private placements.

We are exposed to interest-rate risk associated with our debt financing. Prior to issuing long-term debt, Washington Gas may utilize derivative instruments to minimize its exposure to the risk of interest-rate volatility. Refer to the section entitled “Interest-Rate Risk” included in Management’s Discussion for further discussion of our interest-rate risk management activity.

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 Gas’ 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. The rating 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.

Credit Ratings for Outstanding Debt Instruments

	WGL Holdings		Washington Gas
Rating Service	Unsecured Medium-Term Notes (Indicative)(a)	Commercial Paper	Unsecured Medium- Term Notes	Commercial Paper
Fitch Ratings(b)	A+	F1	AA–	F1+
Moody’s Investors Service(c)	Not Rated	P-2	A2	P-1
Standard & Poor’s Ratings Services(d)	A+	A-1	A+	A-1

^(a) Indicates the ratings that may be applicable if WGL Holdings were to issue unsecured MTNs.

^(b) The long-term debt ratings outlook issued by Fitch Ratings for WGL Holdings and Washington Gas is stable.

^(c) The long-term debt ratings outlook issued by Moody’s Investors Service for Washington Gas is stable.

^(d) The long-term debt ratings outlook issued by Standard & Poor’s Rating Services for WGL Holdings and Washington Gas is stable.

52

WGL Holdings, Inc.

Washington Gas Light Company

Part I—Financial Information

Item 2—Management’s 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 6.0 basis points and the highest is 17.5 basis points.

Under the terms of WGL Holdings’ and Washington Gas’ credit agreements, the ratio of consolidated financial indebtedness to consolidated total capitalization cannot exceed 0.65 to 1.0 (65.0%). In addition, WGL Holdings and Washington Gas are required to inform lenders of changes in corporate existence, financial conditions, litigation, and environmental warranties that might have a material effect. The failure to inform the lenders’ agent of changes in these areas deemed material in nature might constitute default under the agreements. Additionally, failure to pay principal or interest on any 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 June 30, 2012, we were in compliance with all of the covenants under our revolving credit facilities.

For certain of Washington Gas’ 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 & Poor’s or a Baa3 rating by Moody’s 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 counterparty’s credit exposure to Washington Gas exceeds a contractually defined threshold amount, or if Washington Gas’ credit rating declines by a certain rating level, then the counterparty may require additional credit support. At June 30, 2012, Washington Gas would not be required to provide additional credit support by these arrangements if its long-term credit rating was to be downgraded by one rating level.

WGL Holdings guarantees payments for certain purchases of natural gas and electricity on behalf of WGEServices and CEV (refer to our 2011 Annual Report for a further discussion of these guarantees). If the credit rating of WGL Holdings declines, WGEServices and CEV may be required to provide additional credit support for these purchase contracts. At June 30, 2012, neither WGEServices nor CEV would be required to provide additional credit support, for these arrangements if the long-term credit rating of WGL Holdings was to be downgraded by one rating level.

Cash Flows Provided by Operating Activities

The primary drivers for our operating cash flows are cash payments received from natural gas and electricity customers, offset by our payments for natural gas and electricity costs, operation and maintenance expenses, taxes and interest costs.

Net cash provided by operating activities totaled $317.8 million for the nine months ended June 30, 2012. 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 revenues—net increased $53.0 million from September 30, 2011, primarily due to increased sales volumes to customers during our winter heating season and increased sales volumes associated with Washington Gas’ asset optimization program.

• Storage gas inventory cost levels decreased $53.4 million from September 30, 2011 primarily due to conversion to cash through seasonal physical withdrawals.

• Gas costs (current and deferred) and other regulatory assets / liabilities—net decreased $32.0 million from September 30, 2011 primarily due to decreases in balancing charges and mark-to-market adjustments.

• Accounts payable and other accrued liabilities decreased $35.9 million, due to lower gas prices, partially offset by a seasonal increase in the volumes of natural gas purchases and increased trading activity in CEV. Volumes increased both for deliveries to customers for the winter heating season and for Washington Gas’ asset optimization program.

• Accrued taxes increased $42.5 million from September 30, 2011 primarily due to an increase in fuel taxes in Maryland and the District of Columbia.

• Other current liabilities decreased $15.1 million primarily due to net changes in the valuation of energy related derivative contracts.

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WGL Holdings, Inc.

Washington Gas Light Company

Part I—Financial Information

Item 2—Management’s Discussion and Analysis of

Financial Condition and Results of Operations (continued)

Cash Flows Provided by Financing Activities

Cash flows used in financing activities totaled $82.5 million for the nine months ended June 30, 2012, reflecting the retirement of $77.0 million of long-term debt, dividends on common and preferred stock of $57.5 million, partially offset by the issuance of $51.1 million of notes payable and $1.6 million of common stock.

Cash Flows Used in Investing Activities

During the nine months ended June 30, 2012, cash flows used in investing activities totaled $188.1 million, which primarily consists of capital expenditures made on behalf of Washington Gas. In addition, investing activities also reflects additional investments in commercial Solar Photovoltaic (Solar PV) facilities and investments in a partnership to directly fund residential Solar PV facilities.

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 BPO program.

Reference is made to the“Contractual Obligations, Off-Balance Sheet Arrangements and Other Commercial Commitments” section of Management’s Discussion in our 2011 Annual Report for a detailed discussion of our contractual obligations. Note 4 of the Notes to Consolidated Financial Statements in our 2011 Annual Report includes a discussion of long-term debt, including debt maturities. Note 13 of the Notes to Consolidated Financial Statements in our 2011 Annual Report reflects information about the various contracts of Washington Gas, WGEServices and CEV. Additionally, refer to Note 13 of the Notes to Consolidated Financial Statements in this quarterly report.

There have been no significant changes to contractual obligations in the three month period ended June 30, 2012.

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 Gas’ customers agree to make principal and interest payments over a period of time, typically beginning after the projects are completed. Washington Gas assigns these customer payment streams to the lender. As the lender funds the construction project, Washington Gas establishes a 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 June 30, 2012 and September 30, 2011, work on these construction projects that was not completed or accepted by customers was valued at $5.1 million and $4.2 million, respectively, which are recorded on the balance sheet as a receivable in “Deferred Charges and Other Assets—Other” 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. Construction projects are financed primarily for government agencies, which Washington Gas considers to have minimal credit risk. Based on this assessment and previous collection experience, Washington Gas did not record a corresponding reserve for bad debts related to these receivables at June 30, 2012 or September 30, 2011.

Financial Guarantees

WGL Holdings guarantees payments primarily for certain purchases of natural gas and electricity on behalf of WGEServices and for certain purchase commitments on behalf of CEV. At June 30, 2012, these guarantees totaled $506.1 million and $131.3 million for WGEServices and CEV, respectively. 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 counterparties 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 June 30, 2012 on behalf of certain of our non-utility subsidiaries associated with their banking transactions. Of the $640.4 million total, $1.0 million of guarantees expired on July 27, 2012, $22.2 million is due to expire on October 31, 2012 and $3.8 million is due to expire on November 15, 2012. The remaining guarantees do not have specific maturity dates. For all of its financial guarantees, WGL Holdings may cancel any or all future obligations

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WGL Holdings, Inc.

Washington Gas Light Company

Part I—Financial Information

Item 2—Management’s Discussion and Analysis of

Financial Condition and Results of Operations (continued)

upon written notice to the counterparty, but WGL Holdings would continue to be responsible for the obligations created under the guarantees prior to the effective date of the cancellation. We also receive financial guarantees or other collateral from counterparties when required by our credit policy.

Effective October 1, 2011, WGL Holdings began charging to its subsidiaries guarantee fees in an amount equal to the daily guarantee exposure multiplied by a monthly weighted average interest rate. During the three and nine months ended June 30, 2012, the total fees charged by WGL Holdings to its subsidiaries were $0.1 million and $0.4 million, respectively. Most of these fees were charged to WGEServices and have been eliminated in the accompanying consolidated financial statements of WGL Holdings.

Chillum LNG Facility

Washington Gas continues to incorporate in its plans construction of a proposed one billion cubic foot liquefied natural gas (LNG) storage facility on the land owned by Washington Gas in Chillum, Maryland, where natural gas storage facilities previously existed for meeting customers’ forecasted peak demand for natural gas. Subject to the resolution of certain legal and regulatory issues, the new storage facility is currently expected to be completed and in service by the 2019-2020 winter heating season at a total estimated cost of $185.3 million.

In 2005, Washington Gas requested approval from the PSC of MD regarding the safety of the proposed facility and compliance with applicable federal regulations. In 2007, the Engineering Division of the PSC of MD confirmed the analysis that had been presented by Washington Gas and found the proposed facility to be safely sited. On March 19, 2009, the PSC of MD docketed a proceeding for the purpose of reviewing Washington 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.

On October 30, 2006, the District Council of Prince George’s County, Maryland denied Washington Gas’ application for a special exception related to its proposed construction of the LNG peaking plant because of the District Council’s position that newly enacted zoning restrictions prohibit such construction. Washington Gas appealed this decision to the Prince George’s 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 a declaratory judgment that all local laws relating to safety and location of the facility are preempted by Federal and State law. On March 26, 2010, the U.S. District Court denied Washington Gas’ motion for summary judgment; however, Washington Gas filed an amended complaint and there have been further proceedings for consideration of the preemption issues raised by Washington Gas. On March 9, 2012, the U.S. District Court issued an order and memorandum opinion that denied Washington Gas’ motion for summary judgment. Washington Gas filed a notice of appeal with the U.S. Circuit Court of Appeals for the Fourth Circuit on April 3, 2012.

Washington Gas must begin construction of the storage facility in the spring of 2016 in order for the Chillum Facility to be completed and in service by the 2019-2020 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 Changes In Natural Gas Supply

In fiscal year 2005, Washington Gas began addressing a significant increase in the number of natural gas leaks on its distribution system in a portion of Prince George’s County, Maryland. Natural gas containing a low concentration of heavy hydrocarbons (HHCs) can cause the seals in certain mechanical couplings on the Washington Gas distribution system to shrink increasing the propensity for the coupling to leak. Independent laboratory tests performed on behalf of Washington Gas have shown that, in a laboratory environment, the injection of HHCs into gas with low concentrations of HHC can be effective in offsetting the affect of the low HHC gas on the seals in couplings which increases their sealing force and in turn, reduces the propensity for the affected couplings to leak.

To resolve the significant increase in leaks, Washington Gas replaced gas service lines and replaced or rehabilitated gas mains that contained the affected mechanical couplings in Prince George’s County. Additionally, Washington Gas constructed three facilities to inject HHCs into the gas stream entering the Washington Gas distribution system. Washington Gas has been evaluating the effectiveness of this HHC injection process on the affected couplings under field conditions. Our evaluation of the role of these HHC injections as a preventative and remedial measure was filed in a report to the PSC of MD on June 29, 2007. Washington Gas continues to mitigate the impact of low HHC gas from whatever source through accelerating the replacement of mechanically coupled pipeline and the operation of three HHC injection facilities.

The current forecast for mechanical coupling remediation and replacement work includes a planned $62.0 million, 5-year, mechanically coupled pipe replacement program approved by the SCC of VA on April 21, 2011 as part of Washington Gas’ Steps to Advance Virginia’s Energy Plan (SAVE) filing (the approved five-year SAVE plan is the first part of a fifteen-year timeline for pipe

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WGL Holdings, Inc.

Washington Gas Light Company

Part I—Financial Information

Item 2—Management’s Discussion and Analysis of

Financial Condition and Results of Operations (continued)

replacements in Virginia) and the continuation of the December 16, 2009 settlement in the District of Columbia that includes a targeted mechanically coupled pipe replacement and encapsulation program which is now estimated to cost $35.0 million and is expected to take approximately seven years to complete. Rate recovery of the expenditures has been approved by the SCC of VA and the PSC of DC. In Washington Gas’ current base rate proceeding in the District of Columbia, Washington Gas is requesting a continuation of the rate recovery mechanism. Additionally, Washington Gas has budgeted approximately $47.0 million related to a planned 5-year mechanically coupled pipe replacement program in Maryland. The accelerated pipe replacement plan in Maryland was proposed as a thirty-year program with $115.0 million to be spent during the first five years.

Additional operating expenses and capital expenditures may be necessary to contend with leaks caused by increased volumes of low HHC gas flowing into Washington Gas’ distribution system. Such additional operating expenses and capital expenditures may not be timely enough to mitigate the challenges posed by increased volumes of low HHC gas, potentially resulting in leakage from mechanical couplings at a rate that could compromise the safety of our distribution system.

Notwithstanding Washington Gas’ recovery of costs related to the construction of the injection facilities and hexane costs through local regulatory commission action, Washington Gas has pursued and will pursue all remedies available 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.

Commonwealth Pipeline

In February 2012, CEV entered into a joint development agreement with UGI Energy Services, Inc. (UGI) and Inergy Midstream, L.P. (Inergy), to jointly market and develop a 200-mile interstate pipeline named the Commonwealth Pipeline. The pipeline is planned to extend south from the terminus of Inergy’s Marc I line in Lycoming County, Pennsylvania and run through central and eastern Pennsylvania accessing markets in and around Philadelphia, Baltimore and the Washington, D.C. metropolitan region. The new pipeline will provide these markets with direct access to abundant supplies of Marcellus natural gas through a safe, reliable and cost-effective transportation system. The pipeline is expected to cross and link with a number of interstate pipelines along its route, providing even greater supply diversity to the mid-Atlantic region while simultaneously providing Marcellus producers with direct access to expanding markets currently served by legacy interstate pipelines.

The purpose of the joint development agreement is to determine the commercial, financial and engineering feasibility and viability of developing the interstate pipeline. The joint development agreement also defines the rights and obligations of each party with respect to the preliminary development and marketing of the interstate pipeline. CEV and UGI are expected to execute precedent agreements to become anchor shippers on the pipeline.

On June 18, 2012, CEV announced that the results of the non-binding open season held for the Commonwealth Pipeline project confirmed a high market demand for the project across a broad customer spectrum (including local distribution companies, electric generators, producers, and marketers) and a broad geographic region including existing and growth markets in Pennsylvania, the Mid-Atlantic and Southeast. Project representatives will be working with prospective shippers to finalize design and route selection and to negotiate binding precedent agreements that will economically support the project’s construction.

If the parties agree to construct the pipeline after analyzing and assessing certain development considerations, the pipeline is expected to go into service in 2015 and transport at least 800,000 dekatherms of natural gas per day. CEV, Inergy and UGI expect to be equal equity holders of the project. Inergy will construct and operate the pipeline which is expected to cost approximately $1.0 billion and be funded equally by the three parties. As of June 30, 2012, no capital expenditures have been incurred on the project and the company has recorded its expenses associated with marketing and development activities.

CREDIT RISK

Wholesale Credit Risk

Certain wholesale suppliers that sell natural gas to any or all of Washington Gas, WGEServices and CEV may have relatively low credit ratings or may not be 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 counterparty’s 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.

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WGL Holdings, Inc.

Washington Gas Light Company

Part I—Financial Information

Item 2—Management’s Discussion and Analysis of

Financial Condition and Results of Operations (continued)

For WGEServices, any failure of wholesale counterparties to deliver natural gas or electricity under existing contracts could cause financial exposure for the difference between the price at which WGEServices has contracted to buy these commodities and their replacement cost from another supplier. To the extent that WGEServices sells natural gas to these wholesale counterparties, WGEServices may be exposed to payment risk if WGEServices is in a net receivable position. Additionally, WGEServices enters into contracts with third parties to hedge the costs of natural gas and electricity. Depending on the ability of the third parties to fulfill their commitments, WGEServices could be at risk for financial loss.

CEV enters into transactions with wholesale counterparties to optimize its portfolio of owned and managed natural gas assets. Any failure of wholesale counterparties to deliver natural gas under existing contracts could cause financial exposure for the difference between the price at which CEV has contracted to buy these commodities and their replacement cost. To the extent that CEV sells natural gas to these wholesale counterparties, CEV may be exposed to payment risk if it is in a net receivable position. In addition, CEV enters into contracts with third parties to hedge the costs of natural gas. Depending on the ability of the third parties to fulfill their commitments, CEV could be at risk for financial loss.

Washington Gas, WGEServices and CEV have 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, Washington Gas, WGEServices and CEV have each obtained credit enhancements from certain of their counterparties. If certain counterparties or their guarantors meet the policy’s creditworthiness criteria, Washington Gas, WGEServices and CEV may grant unsecured credit to those counterparties or their guarantors. The creditworthiness of all counterparties is continuously monitored.

Washington Gas, WGEServices and CEV are also subject to the collateral requirements of their counterparties. At June 30, 2012, Washington Gas, WGEServices and CEV provided $4.6 million, $7.4 million and $0.5 million in cash collateral to counterparties, respectively.

The following table provides information on our credit exposure, net of collateral, to wholesale counterparties as of June 30, 2012 for Washington Gas, WGEServices and CEV, separately.

Credit Exposure to Wholesale Counterparties (In millions)

Rating(a)	Exposure Before Credit Collateral(b)		Offsetting Credit Collateral Held(c)		Net Exposure		Number of Counterparties Greater Than 10%(d)		Net Exposure of Counterparties Greater  Than 10%
Washington Gas
Investment Grade	$	22.5	$	—	$	22.5		2	$	16.0
Non-Investment Grade		11.8		5.3		6.5		1		6.5
No External Ratings		9.1		—		9.1		1		5.2
WGEServices
Investment Grade	$	0.2	$	—	$	0.2		1	$	0.2
Non-Investment Grade		—		—		—		—		—
No External Ratings		0.1		—		0.1		1		0.1
CEV
Investment Grade	$	2.8	$	—	$	2.8		3	$	2.0
Non-Investment Grade		—		—		—		—		—
No External Ratings		0.4		—		0.4		—		—

^(a)Included in “Investment Grade” are counterparties with a minimum Standard & Poor’s or Moody’s 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 guarantor’s 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

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WGL Holdings, Inc.

Washington Gas Light Company

Part I—Financial Information

Item 2—Management’s Discussion and Analysis of

Financial Condition and Results of Operations (continued)

the deposit refunds are met. In addition, Washington Gas implemented a POR program as approved by the PSC of MD, whereby it purchases receivables from participating energy marketers at approved discount rates. Under the program, Washington Gas is exposed to the risk of non-payment by the retail customers for these receivables. This risk is factored into the approved discount rate at which Washington Gas purchases the receivables.

WGEServices is also exposed to the risk of non-payment by its retail customers. WGEServices manages this risk by evaluating the credit quality of certain 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. In addition, WGEServices participates in POR programs with certain Maryland and Pennsylvania utilities, whereby it sells its receivables to various utilities at approved discount rates. Under the POR programs, WGEServices is exposed to the risk of non-payment by its retail customers for delivered commodities that have not yet been billed. Once the invoices are billed, however, the associated credit risk is assumed by the purchasing utilities. While participation in POR programs reduce the risk of collection and fixes a discount rate on the receivables, there is a risk that the discount rate paid to participate in the POR program will exceed the actual bad debt expense and billing fees associated with these receivables.

CEV is not subject to retail credit risk.

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.

Price Risk Related to the Regulated Utility Segment

Washington Gas faces price risk associated with the purchase and sale 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 Gas’ 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 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 being fully used to serve utility customers. Regulatory sharing mechanisms in all three jurisdictions allow the profit from these transactions to be shared between Washington Gas’ customers and shareholders.

58

WGL Holdings, Inc.

Washington Gas Light Company

Part I—Financial Information

Item 2—Management’s Discussion and Analysis of

Financial Condition and Results of Operations (continued)

The following two tables summarize the changes in the fair value of our net assets (liabilities) associated with the Regulated Utility segment’s energy-related derivatives during the nine months ended June 30, 2012:

Regulated Utility Segment

Changes in Fair Value of Energy-Related Derivatives

(In millions)
Net liabilities at September 30, 2011	$	(3.2	)
Net fair value of contracts entered into during the period		29.4
Other changes in net fair value		11.4
Realized net settlement of derivatives		(15.8	)
Net assets at June 30, 2012	$	21.8

Regulated Utility Segment

Roll Forward of Energy-Related Derivatives

(In millions)
Net liabilities at September 30, 2011	$	(3.2	)
Recorded to income		9.3
Recorded to regulatory assets/liabilities		31.5
Realized net settlement of derivatives		(15.8	)
Net assets at June 30, 2012	$	21.8

The maturity dates of our net assets (liabilities) associated with the Regulated Utility segment’s energy-related derivatives recorded at fair value at June 30, 2012, is summarized in the following table based on the level of the fair value calculation under ASC Topic 820:

Regulated Utility Segment

Maturity of Net Assets (Liabilities) Associated with our Energy-Related Derivatives

	Years Ended September 30,
(In millions)	Total		Remainder 2012			2013			2014			2015		2016		Thereafter
Level 1 — Quoted prices in active markets	$	—	$	—		$	—		$	—		$	—	$	—	$	—
Level 2 — Significant other observable inputs		17.5		(0.4	)		6.3			9.4			2.2		—		—
Level 3 — Significant unobservable inputs		4.3		(0.9	)		(3.5	)		(9.4	)		3.5		5.5		9.1
Total net assets (liabilities) associated with our energy-related derivatives	$	21.8	$	(1.3	)	$	2.8		$	—		$	5.7	$	5.5	$	9.1

Refer to Note 9,Derivative and Weather-Related Instruments and Note 10,Fair Value Measurementsof the Notes to Consolidated Financial Statements for a further discussion of our derivative activities and fair value measurements.

Price Risk Related to the Non-Utility Segments

Retail Energy Marketing.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.

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, purchase commitments may differ significantly from actual customer usage. To the extent that WGEServices cannot match its customer requirements and supply commitments, it may be exposed to commodity price and volume variances, which could negatively impact expected gross margins (refer to the section entitled “Weather Risk” for a further discussion of our management of weather risk). WGEServices manages these risks through the use of derivative instruments including financial products and wholesale supply contracts that provide for volumetric variability.

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.

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WGL Holdings, Inc.

Washington Gas Light Company

Part I—Financial Information

Item 2—Management’s Discussion and Analysis of

Financial Condition and Results of Operations (continued)

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 segment’s energy-related derivatives during the nine months ended June 30, 2012:

Retail Energy-Marketing Segment

Changes in Fair Value of Energy-Related Derivatives

(In millions)
Net liabilities at September 30, 2011	$	(21.4	)
Net fair value of contracts entered into during the period		(6.3	)
Other changes in net fair value		(38.6	)
Realized net settlement of derivatives		40.4
Net liabilities at June 30, 2012	$	(25.9	)

Retail Energy-Marketing Segment

Roll Forward of Energy-Related Derivatives

(In millions)
Net liabilities at September 30, 2011	$	(21.4	)
Recorded to income		(44.3	)
Recorded to accounts payable		—
Net option premium payments		(0.6	)
Realized net settlement of derivatives		40.4
Net liabilities at June 30, 2012	$	(25.9	)

The maturity dates of our net assets (liabilities) associated with the Retail Energy-Marketing segments’ energy-related derivatives recorded at fair value at June 30, 2012 is summarized in the following table based on the level of the fair value calculation under ASC Topic 820:

Retail Energy-Marketing Segment

Maturity of Net Assets (Liabilities) Associated with our Energy-Related Derivatives

	Years Ended September 30,
(In millions)	Total			Remainder 2012			2013			2014			2015			2016		Thereafter
Level 1 — Quoted prices in active markets	$	—		$	—		$	—		$	—		$	—		$	—	$	—
Level 2 — Significant other observable inputs		(32.6	)		(6.9	)		(18.6	)		(6.8	)		(0.3	)		—		—
Level 3 — Significant unobservable inputs		6.7			0.3			2.7			3.5			0.2			—		—
Total net assets (liabilities) associated with our energy-related derivatives	$	(25.9	)	$	(6.6	)	$	(15.9	)	$	(3.3	)	$	(0.1	)	$	—	$	—

Refer to Note 9,Derivative and Weather-Related Instruments and Note 10,Fair Value Measurementsof the Notes to Consolidated Financial Statements for a further discussion of our derivative activities and fair value measurements.

Wholesale Energy Solutions. CEV engages in wholesale commodity transactions to optimize its owned and managed capacity assets. Depending upon the nature of its forward contracts, CEV may be exposed to fluctuations in mark-to-market valuations based on changes in forward price curves. Price risk exists to the extent that physical natural gas volumes do not perfectly match with forward hedges.

60

WGL Holdings, Inc.

Washington Gas Light Company

Part I—Financial Information

Item 2—Management’s Discussion and Analysis of

Financial Condition and Results of Operations (continued)

The following two tables summarize the changes in the fair value of our net assets (liabilities) associated with the Wholesale Energy Solutions segments’ energy-related derivatives during the nine months ended June 30, 2012:

Wholesale Energy Solutions Segment

Changes in Fair Value of Energy-Related Derivatives

(In millions)
Net assets at September 30, 2011	$	8.1
Net fair value of contracts entered into during the period		33.8
Other changes in net fair value		7.0
Realized net settlement of derivatives		(22.9	)
Net assets at June 30, 2012	$	26.0

Wholesale Energy Solutions Segment

Roll Forward of Energy-Related Derivatives

(In millions)
Net assets at September 30, 2011	$	8.1
Recorded to income		40.8
Realized net settlement of derivatives		(22.9	)
Net assets at June 30, 2012	$	26.0

The maturity dates of our net assets (liabilities) associated with the Wholesale Energy Solutions segments’ energy-related derivatives recorded at fair value at June 30, 2012 is summarized in the following table based on the level of the fair value calculation under ASC Topic 820:

Wholesale Energy Solutions Segment

Maturity of Net Assets (Liabilities) Associated with our Energy-Related Derivatives

	Years Ended September 30,
(In millions)	Total		Remainder 2012			2013		2014		2015		2016		Thereafter
Level 1 — Quoted prices in active markets	$	—	$	—		$	—	$	—	$	—	$	—	$	—
Level 2 — Significant other observable inputs		26.0		(4.0	)		29.2		0.8		—		—		—
Level 3 — Significant unobservable inputs		—		—			—		—		—		—		—
Total net assets associated with our energy-related derivatives	$	26.0	$	(4.0	)	$	29.2	$	0.8	$	—	$	—	$	—

Refer to Note 9,Derivative and Weather-Related Instruments and Note 10,Fair Value Measurementsof the Notes to Consolidated Financial Statements 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 June 30, 2012 was approximately $900 and $13,900, related to its natural gas and electric portfolios, respectively. At September 30, 2011, WGEServices’ value-at-risk was approximately $9,000 and $46,000, 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 non-utility business segments. To the extent Washington Gas does not have weather derivatives or billing adjustment mechanisms in place, its revenues are volume driven and its current rates are based upon an assumption of normal weather. 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 within a reasonable range of weather expectations, as discussed below.

61

WGL Holdings, Inc.

Washington Gas Light Company

Part I—Financial Information

Item 2—Management’s Discussion and Analysis of

Financial Condition and Results of Operations (continued)

The financial results of our retail energy-marketing business, WGEServices, are 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.

Variations from normal weather may also affect the financial results of our wholesale energy business, CEV, primarily with regards to summer—winter storage spreads and in transportation spreads throughout the fiscal year. CEV manages these weather risks with, among other things, locational, physical and financial basis hedging.

Billing Adjustment Mechanisms.In Maryland, Washington Gas has a Revenue Normalization Adjustment (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) billing adjustment mechanism that is designed to eliminate the effect of variations in weather from normal levels on utility net revenues. Additionally, as part of the Conservation and Ratemaking Efficiency (CARE) plan, Washington Gas has a Care Ratemaking Adjustment (CRA) mechanism, which, coupled with the WNA, eliminates the effect of both weather and other factors such as conservation for residential customers in Virginia. For a discussion of current rates and regulatory matters, refer to the section entitled “Rates and Regulatory Matters” in Management’s Discussion for Washington Gas.

For the RNA, WNA, and CRA 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 and the CARE adjustment to function conversely because they adjust billed revenues to provide a designed level of net revenue per meter.

Weather Derivatives. On August 12, 2011, Washington Gas executed Heating Degree Day (HDD) weather derivative contracts to manage its financial exposure to variations from normal weather in the District of Columbia for fiscal year 2012 resulting in a net premium payment to Washington Gas of $0.8 million. Under these contracts, Washington Gas purchased protections against net revenue shortfalls due to warmer-than-normal weather and sold colder-than-normal weather benefits. Because weather during the first nine months of fiscal year 2012 was extraordinarily warm, Washington Gas expects to receive the maximum contractual payment of $7.1 million (including the net premium) from its weather derivatives. This amount is not expected to be sufficient to cover all of Washington Gas’ warm-weather exposure in the District of Columbia.

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 and other derivatives to manage weather and price 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 9—Derivatives 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. Refer to the section entitled “Long-Term Cash Requirements and Related Financing” for further discussion of our interest-rate risk management activity.

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WGL Holdings, Inc.

Washington Gas Light Company

Part I—Financial Information

Item 2—Management’s Discussion and Analysis of

Financial Condition and Results of Operations (continued)

WASHINGTON GAS LIGHT COMPANY

This section of Management’s Discussion focuses on Washington Gas for the reported periods. In many cases, explanations and disclosures for both WGL Holdings and Washington Gas are substantially the same.

RESULTS OF OPERATIONS — Three Months Ended June 30, 2012 vs. June 30, 2011

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 Management’s Discussion for WGL Holdings for a detailed discussion of the results of operations for the Regulated Utility segment.

Washington Gas’ net loss applicable to its common stock was $6.1 million and $4.2 million for the three months ended June 30, 2012 and 2011, respectively. Changes in the composition of earnings from the prior period are primarily due to:(i) higher revenues due to the implementation of new rates in Maryland and Virginia;(ii) an increase in revenues related to growth of more than 8,300 average active customer meters;(iii) lower income taxes due to income tax sharing and(iv) higher realized margins, net of margin sharing, associated with our asset optimization program. Offsetting these favorable variances were:(i) higher operation and maintenance expenses, including an impairment loss on property;(ii) lower unrealized margins associated with our asset optimization program; (iii) an increase in depreciation expense due to the growth in, and changes in the asset mix of, our investment in utility plant and(iv) unfavorable effects of changes in natural gas consumption patterns in the District of Columbia.

Key gas delivery, weather and meter statistics are shown in the table below for the three months ended June 30, 2012 and 2011.

Gas Deliveries, Weather and Meter Statistics

	Three Months Ended
	June 30,						Increase/
	2012			2011			(Decrease)
Gas Sales and Deliveries (millions of therms)
Firm
Gas sold and delivered		79.9			93.8			(13.9	)
Gas delivered for others		74.3			82.2			(7.9	)
Total firm		154.2			176.0			(21.8	)
Interruptible
Gas sold and delivered		0.3			0.5			(0.2	)
Gas delivered for others		49.5			47.4			2.1
Total interruptible		49.8			47.9			1.9
Electric generation—delivered for others		188.4			44.0			144.4
Total deliveries		392.4			267.9			124.5
Degree Days
Actual		224			273			(49	)
Normal		302			301			1
Percent colder (warmer) than normal		(25.8	)%		(9.3	)%		n/a
Average active customer meters		1,096,156			1,087,779			8,377
New customer meters added		2,404			2,175			229

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 Gas’ 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, WNA and CRA 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 a further discussion of these mechanisms and other weather-related instruments included in our weather protection strategy).

During the quarter ended June 30, 2012 total gas deliveries to firm customers were 154.2 million therms, a decrease of 21.8 million therms from 176.0 million therms delivered in the same quarter of the prior fiscal year. This comparison in natural gas deliveries to firm customers primarily reflects warmer weather in the current quarter than in the same quarter of the prior year, partially offset by an increase in average active customer meters of over 8,300.

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WGL Holdings, Inc.

Washington Gas Light Company

Part I—Financial Information

Item 2—Management’s Discussion and Analysis of

Financial Condition and Results of Operations (continued)

Weather, when measured by HDDs was 25.8% warmer than normal for the third quarter of fiscal year 2012, compared to 9.3% warmer than normal for the same quarter of fiscal year 2011. Due to the extremely warm weather, our weather protection instruments were not sufficient to offset approximately $3.5 million of the reduction in revenue for the three months ended June 30, 2012. There were no material effects on net income attributed to colder or warmer weather for the three months ended June 30, 2011.

Gas Service to Interruptible Customers.Washington Gas must curtail or interrupt service to this class of customer when the demand by firm customers exceeds specified levels. Therm deliveries to interruptible customers increased by 1.9 million therms in the third quarter of fiscal year 2012 compared to the same quarter of the prior fiscal year, reflecting increased 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 Gas’ 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 June 30, 2011, deliveries to these customers increased by 144.4 million therms when compared to the same quarter of the prior 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.

RESULTS OF OPERATIONS — Nine Months Ended June 30, 2012 vs. June 30, 2011

Washington Gas’ net income applicable to its common stock was $110.3 million and $107.0 million for the nine months ended June 30, 2012 and 2011, respectively. Changes in the composition of earnings from the prior period are primarily due to:(i) higher revenues due to the implementation of new rates in Maryland and Virginia;(ii) an increase in unrealized margins associated with our asset optimization program;(iii) an increase in revenues related to growth of more than 8,600 average customer meters and(iv) lower interest expense. Partially offsetting these favorable variances were:(i) higher income taxes due to an increase in the effective tax rate including a write off of a regulatory asset originally recognized in 2010 related to the tax effect of Med D;(ii) lower realized margins, net of margin sharing, associated with our asset optimization program;(iii) higher operation and maintenance expenses, including an impairment loss on property;(iv) an increase in depreciation expense due to the growth in, and changes in the asset mix of, our investment in utility plant;(v) a reduction in revenue attributed to warmer weather, excluding the benefit of our weather protection and(vi) unfavorable effects of changes in natural gas consumption patterns in the District of Columbia.

Key gas delivery, weather and meter statistics are shown in the table below for the nine months ended June 30, 2012 and 2011.

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WGL Holdings, Inc.

Washington Gas Light Company

Part I—Financial Information

Item 2—Management’s Discussion and Analysis of

Financial Condition and Results of Operations (continued)

Gas Deliveries, Weather and Meter Statistics

	Nine Months Ended June 30,						Increase/
	2012			2011			(Decrease)
Gas Sales and Deliveries (millions of therms)
Firm
Gas sold and delivered		636.4			813.2			(176.8	)
Gas delivered for others		387.1			461.5			(74.4	)
Total firm		1,023.5			1,274.7			(251.2	)
Interruptible
Gas sold and delivered		1.9			2.1			(0.2	)
Gas delivered for others		199.8			227.3			(27.5	)
Total interruptible		201.7			229.4			(27.7	)
Electric generation—delivered for others		231.4			67.4			164.0
Total deliveries		1,456.6			1,571.5			(114.9	)
Degree Days
Actual		3,031			3,985			(954	)
Normal		3,786			3,756			8
Percent colder (warmer) than normal		(19.9	)%		6.1	%		n/a
Average active customer meters		1,093,293			1,084,599			8,694
New customer meters added		8,206			7,037			1,169

Gas Service to Firm Customers.During the nine months ended June 30, 2012 total gas deliveries to firm customers were 1,023.5 million therms, a decrease of 251.2 million therms from 1,274.7 million therms delivered in the same period of the prior fiscal year. This comparison in natural gas deliveries to firm customers primarily reflects warmer weather in the current nine months than in the same period of the prior year, partially offset by an increase of over 8,600 average active customer meters.

Weather, when measured by HDDs was 19.9% warmer than normal for the nine months ended June 30, 2012, compared to 6.1% colder than normal for the same period of fiscal year 2011. Including the effects of our weather protection strategy, there was a $3.5 million unfavorable impact to net income attributed to warmer weather for the three months ended June 30, 2012 and no material effect on net income attributed to colder or warmer weather for the three months ended June 30, 2011.

Gas Service to Interruptible Customers.Therm deliveries to interruptible customers decreased by 27.7 million therms during the nine months ended June 30, 2012 compared to the same period of the prior fiscal year, reflecting decreased demand due to warmer weather.

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 nine months ended June 30, 2012, deliveries to these customers increased by 164.0 million therms when compared to the same quarter of the prior 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 Management’s 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 requests 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 an update of significant current regulatory matters in each of Washington Gas’ jurisdictions. For a more detailed discussion of the matters below, refer to our combined Annual Report on Form 10-K for WGL Holdings and Washington Gas for the fiscal year ended September 30, 2011.

District of Columbia Jurisdiction

Investigation of Depreciation Practices. On September 9, 2011, the PSC of DC docketed a proceeding to review the proper and adequate rates of depreciation of the several classes of Washington Gas’ property. In accordance with the procedural schedule,

65

WGL Holdings, Inc.

Washington Gas Light Company

Part I—Financial Information

Item 2—Management’s Discussion and Analysis of

Financial Condition and Results of Operations (continued)

interested parties’ comments were filed by October 24, 2011. Washington Gas’ reply comments were filed on November 14, 2011, wherein Washington Gas requested that the PSC of DC consider depreciation issues in the context of the newly-initiated rate case, referenced below. On April 26, 2012, the PSC of DC granted Washington Gas’ request to consolidate its investigation of depreciation issues into its base rate proceeding and closed the proceeding.

District of Columbia Base Rate Case. On November 2, 2011, the PSC of DC docketed a proceeding to investigate the reasonableness of Washington Gas’ base rates and charges and required Washington Gas to file a base rate case no later than 90 days from the date of the order. On February 29, 2012, Washington Gas filed a request with the PSC of DC for a $29.0 million annual increase in revenues. The $29.0 million revenue increase requested in this application included a proposed overall rate of return of 8.91% and a return on common equity of 10.90%. Washington Gas is also proposing to expand the existing program to replace or encapsulate certain vintage mechanical couplings, which was previously approved by the PSC of DC, to include the accelerated replacement of certain pipe in its system. Washington Gas plans to invest approximately $119.0 million to replace aging distribution pipe in the District of Columbia over the next five years and included, in this proposal, a request for approval of these expenditures over the next five years. Washington Gas also provided a proposed procedural schedule and requested that the PSC of DC establish a pre-hearing conference. On April 26, 2012, the PSC of DC adopted a procedural schedule and designated issues for the proceeding. Intervenor testimony was filed on July 17, 2012.

Rebuttal testimony is due August 31, 2012, and evidentiary hearings are scheduled in October 2012.

Maryland Jurisdiction

Order on and Reviews of Purchased Gas Charges. Each year, the PSC of MD reviews the annual gas costs collected from customers in Maryland to determine if Washington Gas’ purchased gas costs are reasonable.

On September 9, 2011, the PSC of MD issued an order approving purchased gas charges of Washington Gas for the twelve-month period ending August 2009, except for an undetermined amount related to excess gas deliveries by CSPs which were cashed-out by Washington Gas. The PSC of MD found that the cash-out of excess deliveries was in violation of Washington Gas’ tariff and that Washington Gas should not have cashed-out the excess deliveries by CSPs, but rather should have eliminated the imbalances through volumetric adjustments in the future and designated that the hearing examiner in a separate proceeding determine whether civil penalties should be levied against Washington Gas. In accordance with generally accepted accounting principles, Washington Gas recorded a $5.3 million estimated regulatory liability associated with this decision during the fourth quarter of fiscal year 2011. On October 11, 2011, Washington Gas filed an application for rehearing of the order with respect to the decision that a violation of the tariff occurred and that civil penalties might be levied. Washington Gas requested that the PSC of MD find that Washington Gas is authorized to cash-out CSP account imbalances under its tariff and therefore is not subject to civil penalties. On January 3, 2012, the PSC of MD issued an order denying Washington Gas’ request for rehearing. Pending the ultimate decision of the PSC of MD, further action may be taken with respect to recovery from the CSPs.

Investigation of Asset Management and Gas Purchase Practices. In 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 Gas’ asset management program and cost recovery of its gas purchases.

In November 2009, the Chief Hearing Examiner of the PSC of MD issued a POHE, which approved Washington Gas’ proposal for the sharing of margins from asset optimization between Washington Gas and customers and its current methodology for pricing storage injections.

Subsequently, both the MD Staff and the OPC filed notices of appeal of the POHE followed by a memorandum on appeal in support of their positions. In January 2010, Washington Gas filed a reply memorandum in response to the Staff of the PSC of MD and the MD OPC’s memoranda on appeal. A decision by the PSC of MD is pending.

66

WGL Holdings, Inc.

Washington Gas Light Company

Part I—Financial Information

Item 2—Management’s Discussion and Analysis of

Financial Condition and Results of Operations (continued)

Maryland Base Rate Case. On November 14, 2011, the PSC of MD issued an order authorizing:(i) an annual revenue increase of $8.4 million compared to Washington Gas’ revised request of $27.8 million;(ii) a rate of return on common equity of 9.60% and an overall rate of return of 8.09%; and(iii) an end of test period equity ratio of 57.88%. The order also authorized Washington Gas to implement the initial 5-year phase of the accelerated pipe replacement plan, but denied the proposed cost recovery mechanism; and disallowed the amortization of costs to achieve under Washington Gas’ BPO agreement.

On December 14, 2011, Washington Gas filed a petition for rehearing and clarification of the PSC of MD’s November 14, 2011 order to(i) correct the methodology used to calculate the adjustment related to interest synchronization, which would increase the revenue requirement determined by the PSC of MD in its order by $0.7 million,(ii) correct the omission of an adjustment related to “Other Tax Adjustments,” which would increase the revenue requirement by an additional $2.4 million, and(iii) reverse the decision to disallow $1.0 million of Washington Gas’ test period costs to achieve Washington Gas’ BPO agreement. Washington Gas also requested clarification related to implementation of the accelerated pipe replacement plan and what annual reporting requirements may apply.

On March 29, 2012, the PSC of MD issued an order in response to the petition for rehearing and clarification filed by Washington Gas. The PSC of MD(i) granted an additional revenue increase of $0.7 million related to interest synchronization, increasing the overall revenue increase granted to Washington Gas in the case to $9.1 million;(ii) denied Washington Gas’ request for an adjustment related to other tax adjustments, which would have increased the revenue requirement by an additional $2.4 million;(iii) denied recovery of the costs to initiate the outsourcing agreement with Accenture, LLC in 2007; and(iv) directed Washington Gas to provide written notice when it implements the accelerated pipeline replacement project and adopted the reporting structure suggested by a MD Staff witness as guidance for reporting Washington Gas’ progress. As a result of this order, Washington Gas recorded a $2.8 million charge to income tax expense to write-off a regulatory asset that had been established in 2010 for the change in the tax treatment of Medicare Part D, the amortization of which comprised the majority of the other tax adjustments that were disallowed by the Commission.

On April 30, 2012, Washington Gas filed a petition for rehearing with the PSC of MD which requested the Commission reverse its decisions in the March 29, 2012 order denying Washington Gas’ request for an adjustment related to other tax adjustments and the costs to initiate the outsourcing agreement with Accenture, LLC. Washington Gas also filed a petition for judicial review of the PSC of MD’s March 29, 2012 order with the Circuit Court for Baltimore City to preserve its right to appeal in this case. Washington Gas has requested the Circuit Court to hold further proceedings on the appeal in abeyance pending the PSC of MD’s action on the petition for rehearing. In its reply to the Circuit Court, the PSC of MD agreed with Washington Gas’ request to hold further proceedings on the appeal in abeyance pending further PSC of MD action.

Virginia Jurisdiction

Conservation and Ratemaking Efficiency Plan (CARE). On July 22, 2010, Washington Gas filed an amendment to the CARE Plan to include small commercial and industrial customers in Virginia. The application included a portfolio of conservation and energy efficiency programs, an associated cost recovery provision and a decoupling mechanism that will adjust weather normalized non-gas distribution revenues for the impact of conservation or energy efficiency efforts. On November 18, 2010, the SCC of VA issued an order that denied Washington Gas’ application. The SCC of VA found that Washington Gas’ current tariff and its underlying class cost of service and revenue apportionment studies do not segregate small versus large customers and that only small customers qualify under the CARE law. The SCC of VA stated that Washington Gas could amend the underlying tariff and studies in connection with its required 2011 base rate case filing. By order issued on July 2, 2012, in Washington Gas’ base rate case, the SCC of VA approved Washington Gas’ proposal to add two new small commercial customer classes. Because the SCC of VA made a minor modification to the stipulation in the rate case, parties to the settlement had until July 17, 2012, to file a notice of acceptance of the modification to the stipulation. On July 24, 2012, the SCC of VA finalized its July 2, 2012 order.

Virginia Base Rate Case. On January 31, 2011, Washington Gas filed a request with the SCC of VA for a $29.6 million annual increase in revenues. The filing was made pursuant to the settlement agreement reached by the parties and approved by the SCC of VA in Washington Gas’ last base rate case, which resulted in a PBR plan. On May 12, 2011, Washington Gas revised its requested revenue increase from $29.6 million to $28.5 million as a result of new proposed depreciation rates. Interim rates went into effect on October 1, 2011 with the requested increase subject to refund pending a final commission decision.

On November 30, 2011, Washington Gas filed a stipulation to reflect settlement terms to which Washington Gas, the Staff, and other stipulating parties to the settlement agreed. The AOBA did not support this stipulation. In the stipulation, the settling parties agreed to a $20.0 million rate increase, a 9.75% return on equity, an 8.261% overall rate of return, and a provision for sharing margins from asset optimization activities between Washington Gas and customers which includes a $3.2 million annual guarantee. Evidentiary hearings were held on December 5 and 6, 2011. Post-hearing briefs were filed on January 26, 2012. On March 15, 2012, the Senior Hearing Examiner issued a report of findings and recommended that the SCC of VA adopt the stipulation. On April 5, 2012, Washington Gas, the Staff of the SCC of VA, the Office of the Attorney General and Fairfax County all filed comments in

67

WGL Holdings, Inc.

Washington Gas Light Company

Part I—Financial Information

Item 2—Management’s Discussion and Analysis of

Financial Condition and Results of Operations (concluded)

support of the recommended decision of the Hearing Examiner while the AOBA filed comments in opposition. On April 18, 2012, Washington Gas filed a petition for leave to file reply and reply to AOBA’s comments on the Hearing Examiner’s report. On July 2, 2012, the SCC of VA issued an order approving all terms and conditions of the stipulation, including the $20.0 million rate increase, except for one modification. The SCC of VA directed that approximately $0.2 million of the revenue increase be reallocated from commercial non-heating non-cooling rate classes to the residential and non-firm rate classes. Stipulating parties had up to July 17, 2012, to file a notice of acceptance of the SCC of VA’s modification to the stipulation. On July 24, 2012, the SCC of VA finalized its July 2, 2012 order. As a result of the SCC of VA decision received on July 24, 2012, a $2.3 million retroactive adjustment will be recorded in the fourth quarter of 2012 related to the approval of new depreciation rates.

Affiliate Transactions. On June 16, 2011, Washington Gas submitted an application to the SCC of VA requesting approval of three affiliate transactions with CEV:(i) the transfer to CEV of the remainder of the term of two agreements for natural gas storage service at the WSS and ESS storage fields;(ii) the sale to CEV of any storage gas balances associated with the WSS and ESS agreements; and(iii) the assignment to CEV of Washington Gas’ rights to buy base gas in the WSS storage field. Washington Gas proposed to make these affiliate transactions by September 30, 2011, coincident with the expiration of its PBR plan approved by the SCC of VA in a separate proceeding. On September 14, 2011, the SCC of VA issued an order denying Washington Gas’ application to transfer Washington Gas’ contracts for certain storage capacity resources to its affiliate, CEV. On October 4, 2011, Washington Gas filed a petition for reconsideration on this proceeding. On October 5, 2011, the SCC of VA granted Washington Gas’ request that the matter be reconsidered, but has not made a final ruling on Washington Gas’ petition for reconsideration. On December 6, 2011, the VA Staff submitted a supplement to action brief seeking to provide evidence to the commission that ratepayers have been funding the WSS and ESS assets during the PBR period based on the netting of costs associated with those assets when calculating net revenues. Washington Gas submitted comments rejecting the Staff’s position and showing that the ratepayers had not funded these assets. These comments were appended to the VA Staff’s brief on December 9, 2011. A commission decision is pending.

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WGL Holdings, Inc.

Washington Gas Light Company

Part I—Financial Information

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The following issues related to our market risks are included under Item 2,Management’s 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 Non-Utility Segments

• Weather Risk

• Interest-Rate Risk

ITEM 4. CONTROLS AND PROCEDURES – WGL Holdings

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 June 30, 2012. Based on this evaluation process, the Chairman and Chief Executive Officer, and the Vice President and Chief Financial Officer have concluded that disclosure controls and procedures of WGL Holdings are effective. There have been no changes in the internal control over financial reporting of WGL Holdings during the quarter ended June 30, 2012 that have materially affected, or are reasonably likely to materially affect, the internal control over financial reporting of WGL Holdings.

ITEM 4. CONTROLS AND PROCEDURES—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 June 30, 2012. 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 June 30, 2012 that have materially affected, or are reasonably likely to materially affect, the internal control over financial reporting of Washington Gas.

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WGL Holdings, Inc.

Washington Gas Light Company

Part II—Other Information

ITEM 1. LEGAL PROCEEDINGS

The nature of our business ordinarily results in periodic regulatory proceedings before various state and federal authorities. For information regarding pending federal and state regulatory matters, see Note 13 —Commitments and Contingencies, contained in Part I under the Notes to Consolidated Financial Statements. Also, see Part II, Item 1 of our Form 10-Q for the quarter ended December 31, 2011 for the description of a material ongoing legal proceeding. There were no material developments in this matter during the quarter ended June  30, 2012.

ITEM 4. MINE SAFETY DISCLOSURES

None.

ITEM 6. EXHIBITS

Exhibits:

Schedule/ Exhibit	Description
(a)(3)	Exhibits
	Exhibits Filed Herewith:
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.
101.INS	XBRL Instance Document:
101.SCH	XBRL Schema Document:
101.CAL	XBRL Calculation Linkbase Document:
101.LAB	XBRL Labels Linkbase Document:
101.PRE	XBRL Presentation Linkbase Document:
101.DEF	XBRL Definition Linkbase Document.
3	Articles of Incorporation & Bylaws:
	Washington Gas Light Company Charter, filed on Form S-3 dated July 21, 1995.
	WGL Holdings, Inc. Charter, filed on Form S-4 dated February 2, 2000.
	Bylaws of WGL Holdings, Inc. as amended on March 5, 2009, filed as Exhibit 3(ii) to Form 8-K on March 6, 2009.
	Bylaws of Washington Gas Light Company as amended on December 16, 2011, filed as Exhibit 3(ii) to Form 8-K on December 21, 2011.

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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: August 3, 2012	/s/ William R. Ford
	William R. Ford
	Controller (Principal Accounting Officer)

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