WGL (WGL) 10-Q 2001 Q3 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549

FORM 10-Q

(Mark One)

[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarter Ended June 30, 2001

OR

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

	Exact name of registrant as		I.R.S.
Commission	specified in its charter and principal	States of	Employer
File Number	office address and telephone number	Incorporation	I.D. Number
1-16163	WGL Holdings, Inc. 1100 H Street, N.W. Washington, D.C. 20080 (703) 750-2000	Virginia	52-2210912
1-1483	Washington Gas Light Company 1100 H Street, N.W. Washington, D.C. 20080 (703) 750-4440	District of Columbia and Virginia	53-0162882

Indicate by check mark whether the 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 registrant was required to file such reports),

WGL Holdings, Inc.:	Yes X	No
Washington Gas Light Company:	Yes X	No

     and (2) has been subject to such filing requirements for the past 90 days:

WGL Holdings, Inc.:	Yes X	No
Washington Gas Light Company:	Yes X	No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date:

		Shares Outstanding at
Registrant	Description of Common Stock	July 31, 2001
WGL Holdings, Inc.	Common Stock (Without Par Value)		48,542,897
Washington Gas Light Company	Common Stock ($1.00 Par Value) (All held by WGL Holdings, Inc.)		46,479,536

Form 10-Q
For the Third Fiscal Quarter Ended June 30, 2001

TABLE OF CONTENTS

PART I. Financial Information
Item 1Financial Statements:
	WGL Holdings, Inc.:
		Consolidated Balance Sheets	3
		Consolidated Statements of Income	4
		Consolidated Statements of Cash Flows	6
	Washington Gas Light Company:
		Consolidated Balance Sheets	7
		Consolidated Statements of Income	8
		Consolidated Statements of Cash Flows	10
	Notes to Consolidated Financial Statements		11
		(WGL Holdings, Inc. and Washington Gas Light Company —Combined)
Item 2Management’s Discussion and Analysis of Financial Condition and Results of Operations			18
	WGL Holdings, Inc.		19
	Washington Gas Light Company		31
Item 3Quantitative and Qualitative Disclosures About Market Risks of the Company			35
PART II. Other Information
Item 6Exhibits and Reports on Form 8-K			35
Signatures			37

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FILING FORMAT

     This Quarterly Report on Form 10-Q is a combined report being filed by two separate registrants: WGL Holdings, Inc. (WGL Holdings or the Company) and Washington Gas Light Company (Washington Gas or the Utility).

     Effective November 1, 2000, Washington Gas and its subsidiaries became subsidiaries of WGL Holdings, a newly formed holding company that was established under thePublic Utility Holding Company Act of 1935. At that time, all of the shares of common stock of Washington Gas, a regulated natural gas utility, were converted into an equal number of shares of common stock of WGL Holdings. WGL Holdings also owns all of the shares of common stock of Washington Gas’ former wholly-owned subsidiaries (Hampshire Gas Company, Washington Gas Resources Corp. and Crab Run Gas Company), and its former 50 percent equity investment in Primary Investors, LLC.

     Part I —Financial Informationof this Quarterly Report on Form 10-Q includes separate consolidated financial statements (i.e., balance sheets, statements of income and statements of cash flows) for WGL Holdings and Washington Gas. The WGL Holdings financial statements (pages 3 through 6) present the consolidated financial position and results of operations of WGL Holdings for the respective periods indicated after the November 1, 2000 restructuring, as well as the consolidated financial position of Washington Gas prior to the restructuring (i.e., the highest level of consolidation). The consolidated results of operations and financial position of Washington Gas immediately before the restructuring are essentially identical to the financial position and results of operations of WGL Holdings immediately after the restructuring (i.e., legal entity results).

     The consolidated financial statements for Washington Gas (pages 7 through 10) present the financial position and results of operations of Washington Gas throughout the reported periods, as well as the consolidated financial position and results of operations of Washington Gas’ former subsidiaries prior to the November 1, 2000 restructuring.

     A single set of Notes to the Consolidated Financial Statements begins on page 11 which applies equally to WGL Holdings and Washington Gas, except where otherwise noted.

     This report includes a Management’s Discussion and Analysis of Financial Condition and Results of Operations for WGL Holdings as well as a separate discussion for Washington Gas. However, due to the similarity of the operating results of the two entities, the reader is directed to the WGL Holdings disclosure unless otherwise specified in the Washington Gas Management’s Discussion and Analysis.

     The financial information as of June 30, 2001 and for the three and nine months then ended differs from the amounts reflected in a Company press release dated August 1, 2001. See Note 1 to the consolidated financial statements for further discussion.

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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

WGL Holdings, Inc.
CONSOLIDATED BALANCE SHEETS

						June 30,			September 30,
(Thousands)						2001			2000
						(Unaudited)
ASSETS
	Property, Plant and Equipment
			At original cost			$	2,299,347		$	2,225,312
			Accumulated depreciation and amortization				(809,073	)		(765,032	)
				Net Property, Plant and Equipment			1,490,274			1,460,280
	Current Assets
		Cash and cash equivalents					14,560			24,336
		Accounts receivable					227,402			106,446
		Gas costs due from customers					6,578			2,313
		Allowance for doubtful accounts					(17,360	)		(7,186	)
		Accrued utility revenues					16,206			21,497
		Materials and supplies—principally at average cost					11,580			16,341
		Storage gas—at cost (first-in, first-out)					91,354			138,684
		Deferred income taxes					22,572			16,232
		Other prepayment—principally taxes					9,303			7,467
		Deferred gas costs—unregulated operations					3,511			13,741
		Other					—			5,991
				Total Current Assets			385,706			345,862
	Deferred Charges and Other Assets
		Regulatory assets					82,028			78,364
		Unrecovered gas costs					54,307			—
		Equity in 50%-owned residential HVAC investment					16,061			16,247
		Prepaid pensions and benefits					33,559			17,327
		Other					36,712			21,760
				Total Deferred Charges and Other Assets			222,667			133,698
				Total Assets		$	2,098,647		$	1,939,840
CAPITALIZATION AND LIABILITIES
	Capitalization				��
		Common shareholders’ equity				$	826,535		$	711,496
		Washington Gas preferred stock					28,173			28,173
		Long-term debt					614,359			559,575
				Total Capitalization			1,469,067			1,299,244
	Current Liabilities
		Current maturities of long-term debt					30,492			1,668
		Notes payable					58,493			161,423
		Accounts payable					117,682			138,218
		Wages payable					14,694			13,875
		Interest accrued					13,677			3,052
		Dividends declared					15,621			14,738
		Customer deposits and advance payments					7,932			10,746
		Gas costs due to customers					3,399			5,640
		Accrued taxes					41,761			8,252
		Other					8,242			2,389
				Total Current Liabilities			311,993			360,001
	Deferred Credits
		Unamortized investment tax credits					17,865			18,539
		Deferred income taxes					215,866			169,442
		Accrued pensions and benefits					35,027			37,936
		Other					48,829			54,678
				Total Deferred Credits			317,587			280,595
				Total Capitalization and Liabilities		$	2,098,647		$	1,939,840

The accompanying Notes to Consolidated Financial Statements are an integral part of these consolidated statements.

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WGL Holdings, Inc.
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

				Three Months Ended
				June 30,
(Thousands, Except Per Share Data)				2001			2000
UTILITY OPERATIONS
Operating Revenues				$	182,377		$	171,553
	Less: Cost of goods sold				101,071			92,307
		Revenue taxes			4,468			4,386
			Utility Net Revenues		76,838			74,860
Other Operating Expenses
	Operation				38,732			37,390
	Maintenance				9,365			8,355
	Depreciation and amortization				17,419			16,512
	General taxes				10,462			8,838
	Income Taxes				(4,039	)		(1,890	)
			Other Operating Expenses		71,939			69,205
			Utility Operating Income		4,899			5,655
NON-UTILITY OPERATIONS
Operating Revenues
	Energy marketing				82,709			29,101
	Heating, ventilating and air conditioning				16,182			9,938
	Consumer financing				345			584
	Other non-utility				87			182
			Non-Utility Operating Revenues		99,323			39,805
Equity Loss in 50%-Owned Residential HVAC Investment					(25	)		(102	)
Other Operating Expenses (Income)
	Operating expenses				98,009			40,301
	Income taxes				415			(172	)
			Non-Utility Operating Expenses		98,424			40,129
			Non-Utility Operating Income (Loss)		874			(426	)
TOTAL OPERATING INCOME					5,773			5,229
Other (Expenses) Income—Net					(429	)		(118	)
INCOME BEFORE INTEREST EXPENSE					5,344			5,111
INTEREST EXPENSE
	Interest on long-term debt				10,356			9,010
	Other				1,479			1,396
			Total Interest Expense		11,835			10,406
WASHINGTON GAS PREFERRED STOCK DIVIDENDS					330			330
NET LOSS				$	(6,821	)	$	(5,625	)
AVERAGE COMMON SHARES OUTSTANDING					47,012			46,479
LOSS PER AVERAGE COMMON SHARE—BASIC (Note 3)				$	(0.15	)	$	(0.12	)
LOSS PER AVERAGE COMMON SHARE —DILUTED (Note 3)				$	(0.15	)	$	(0.12	)
DIVIDENDS DECLARED PER COMMON SHARE				$	0.315		$	0.310

The accompanying Notes to Consolidated Financial Statements are an integral part of these consolidated statements.

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WGL Holdings, Inc.
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

					Nine Months Ended
					June 30,
(Thousands, Except Per Share Data)					2001			2000
UTILITY OPERATIONS
Operating Revenues					$	1,327,889		$	874,383
	Less: Cost of goods sold					845,612			457,423
		Revenue taxes				37,617			31,608
			Utility Net Revenues			444,660			385,352
Other Operating Expenses
	Operation					119,644			112,464
	Maintenance					26,957			22,508
	Depreciation and amortization					51,313			48,803
	General taxes					29,534			19,203
	Income Taxes					69,589			56,180
			Other Operating Expenses			297,037			259,158
				Utility Operating Income		147,623			126,194
NON-UTILITY OPERATIONS
Operating Revenues
	Energy marketing					315,435			136,110
	Heating, ventilating and air conditioning					58,419			32,352
	Consumer financing					1,972			2,271
	Other non-utility					469			826
			Non-Utility Operating Revenues			376,295			171,559
Equity Loss in 50%-Owned Residential HVAC Investment						(943	)		(629	)
Other Operating Expenses (Income)
	Operating expenses					371,742			163,265
	Gains on sales of non-utility assets					—			(711	)
	Income taxes					1,030			2,440
			Non-Utility Operating Expenses			372,772			164,994
				Non-Utility Operating Income		2,580			5,936
TOTAL OPERATING INCOME						150,203			132,130
Other Income (Expenses)—Net						(5,190	)		(28	)
INCOME BEFORE INTEREST EXPENSE						145,013			132,102
INTEREST EXPENSE
	Interest on long-term debt					30,870			26,505
	Other					7,690			5,870
			Total Interest Expense			38,560			32,375
WASHINGTON GAS PREFERRED STOCK DIVIDENDS						990			993
NET INCOME					$	105,463		$	98,734
AVERAGE COMMON SHARES OUTSTANDING						46,693			46,474
EARNINGS PER AVERAGE COMMON SHARE—BASIC(Note 3)					$	2.26		$	2.12
EARNINGS PER AVERAGE COMMON SHARE —DILUTED(Note 3)					$	2.26		$	2.12
DIVIDENDS DECLARED PER COMMON SHARE					$	0.94		$	0.925

The accompanying Notes to Consolidated Financial Statements are an integral part of these consolidated statements.

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WGL Holdings, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

			Nine Months Ended
			June 30,
(Thousands)			2001			2000
OPERATING ACTIVITIES
Net income			$	105,463		$	98,734
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
	Depreciation and amortization (a)			55,039			52,358
	Deferred income taxes—net			33,880			18,476
	Amortization of investment tax credits			(674	)		(675	)
	Accrued/deferred pension cost			(12,168	)		(9,818	)
	Allowance for funds used during construction			(376	)		(599	)
	Equity loss in 50%-owned residential HVAC investment			943			629
	Other non-cash credits—net, including gains and losses on investing activities			(320	)		(1,396	)
				181,787			157,709
CHANGES IN ASSETS AND LIABILITIES
	Accounts receivable and accrued utility revenues			(105,491	)		(56,515	)
	Gas costs due from/to customers—net			(6,506	)		(3,489	)
	Storage gas			47,330			4,665
	Other prepayments—principally taxes			(1,836	)		4,056
	Accounts payable			(13,593	)		8,027
	Wages payable			819			3,402
	Customer deposits and advance payments			(2,814	)		(8,124	)
	Accrued taxes			33,509			21,620
	Accrued interest			10,625			8,691
	Deferred purchased gas cost—net (utility)			(58,402	)		(6,089	)
	Deferred purchased gas costs (non-utility)			10,230			1,558
	Other—net			2,313			(1,187	)
		Net Cash Provided by Operating Activities		97,971			134,324
FINANCING ACTIVITIES
	Common Stock issued			52,664			—
	Long-term debt issued			85,442			54,930
	Long-term debt retired			(1,544	)		(935	)
	Debt issuance costs			(557	)		(439	)
	Notes payable—net			(102,930	)		(54,291	)
	Dividends on common stock			(43,462	)		(42,744	)
	Other financing activities			1,039			464
		Net Cash Used in Financing Activities		(9,348	)		(43,015	)
INVESTING ACTIVITIES
	Capital expenditures			(81,182	)		(77,265	)
	50%-owned residential HVAC investment			(750	)		(10,000	)
	Other investing activities			(16,467	)		(1,318	)
		Net Cash Used in Investing Activities		(98,399	)		(88,583	)
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS(b)				(9,776	)		2,726
Cash and Cash Equivalents at Beginning of Year (b)				24,336			26,935
Cash and Cash Equivalents at End of Year (b)			$	14,560		$	29,661
(a) Includes amounts charged to other accounts
(b) Cash equivalents are highly liquid investments with maturity of three months or less when purchased
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
	Income taxes paid		$	17,510		$	21,629
	Interest paid		$	28,048		$	23,679

The accompanying Notes to Consolidated Financial Statements are an integral part of these consolidated statements.

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Washington Gas Light Company
CONSOLIDATED BALANCE SHEETS

					June 30,			September 30,
(Thousands)					2001			2000
					(Unaudited)
ASSETS
	Property, Plant and Equipment
			At original cost		$	2,276,617		$	2,225,312
			Accumulated depreciation and amortization			(795,528	)		(765,032	)
				Net Property, Plant and Equipment		1,481,089			1,460,280
	Current Assets
		Cash and cash equivalents				10,297			24,336
		Accounts receivable (See Note 7)				155,679			106,446
		Gas costs due from customers				6,578			2,313
		Allowance for doubtful accounts				(15,677	)		(7,186	)
		Accrued utility revenues				16,206			21,497
		Materials and supplies—principally at average cost				11,346			16,341
		Storage gas—at cost (first-in, first-out)				76,470			138,684
		Deferred income taxes				16,760			16,232
		Other prepayments—principally taxes				7,619			7,467
		Deferred gas costs—unregulated operations				—			13,741
		Other				—			5,991
				Total Current Assets		285,278			345,862
	Deferred Charges and Other Assets
		Regulatory assets				82,028			78,364
		Unrecovered gas costs				54,307			—
		Equity in 50%-owned residential HVAC investment				—			16,247
		Prepaid pensions and benefits				33,389			17,327
		Other				35,839			21,760
				Total Deferred Charges and Other Assets		205,563			133,698
				Total Assets	$	1,971,930		$	1,939,840
CAPITALIZATION AND LIABILITIES
	Capitalization
		Common shareholder’s equity			$	758,349		$	711,496
		Preferred stock				28,173			28,173
		Long-term debt				614,090			559,575
				Total Capitalization		1,400,612			1,299,244
	Current Liabilities
		Current maturities of long-term debt				30,203			1,668
		Notes payable				33,296			161,423
		Accounts payable (See Note 7)				101,029			138,218
		Wages payable				14,198			13,875
		Dividends declared				15,621			14,738
		Customer deposits and advance payments				7,932			10,746
		Gas costs due to customers				3,399			5,640
		Accrued taxes				33,294			8,252
		Other				13,869			5,441
				Total Current Liabilities		252,841			360,001
	Deferred Credits
		Unamortized investment tax credits				17,830			18,539
		Deferred income taxes				217,254			169,442
		Accrued pensions and benefits				34,884			37,936
		Other				48,509			54,678
				Total Deferred Credits		318,477			280,595
				Total Capitalization and Liabilities	$	1,971,930		$	1,939,840

The accompanying Notes to Consolidated Financial Statements are an integral part of these consolidated statements.

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Washington Gas Light Company
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

					Three Months Ended
					June 30,
(Thousands)					2001			2000
UTILITY OPERATIONS
Operating Revenues(See Note 7)					$	186,815		$	171,553
	Less: Cost of goods sold (See Note 7)					105,509			92,307
		Revenue taxes				4,468			4,386
			Utility Net Revenues			76,838			74,860
Other Operating Expenses
	Operation (See Note 7)					39,190			37,390
	Maintenance					9,289			8,355
	Depreciation and amortization					17,255			16,512
	General taxes					10,352			8,838
	Income Taxes					(4,249	)		(1,904	)
			Other Operating Expenses			71,837			69,191
				Utility Operating Income		5,001			5,669
NON-UTILITY OPERATIONS
Operating Revenues
	Energy marketing					—			29,101
	Heating, ventilating and air conditioning					—			9,959
	Consumer financing					225			584
	Other non-utility					87			179
			Non-Utility Operating Revenues			312			39,823
Equity Loss in 50%-Owned Residential HVAC Investment						—			(102	)
Other Operating Expenses (Income)
	Operating expenses					675			40,301
	Income taxes					(231	)		(151	)
			Non-Utility Operating Expenses			444			40,150
				Non-Utility Operating (Loss)		(132	)		(429	)
TOTAL OPERATING INCOME						4,869			5,240
Other Income (Expenses)—Net						(404	)		(129	)
INCOME BEFORE INTEREST EXPENSE						4,465			5,111
INTEREST EXPENSE
	Interest on long-term debt					10,317			9,010
	Other					1,558			1,396
			Total Interest Expense			11,875			10,406
NET LOSS						(7,410	)		(5,295	)
DIVIDENDS ON PREFERRED STOCK						330			330
NET LOSS APPLICABLE TO COMMON STOCK					$	(7,740	)	$	(5,625	)

The accompanying Notes to Consolidated Financial Statements are an integral part of these consolidated statements.

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Washington Gas Light Company
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

					Nine Months Ended
					June 30,
(Thousands)					2001			2000
UTILITY OPERATIONS
Operating Revenues(See Note 7)					$	1,338,468		$	874,383
	Less: Cost of goods sold (See Note 7)					856,191			457,423
		Revenue taxes				37,617			31,608
			Utility Net Revenues			444,660			385,352
Other Operating Expenses
	Operation (See Note 7)					120,921			112,464
	Maintenance					26,804			22,508
	Depreciation and amortization					50,878			48,803
	General taxes					29,250			19,203
	Income Taxes					69,270			56,180
			Other Operating Expenses			297,123			259,158
				Utility Operating Income		147,537			126,194
NON-UTILITY OPERATIONS
Operating Revenues
	Energy marketing					17,755			136,110
	Heating, ventilating and air conditioning					5,066			32,385
	Consumer financing					1,852			2,271
	Other non-utility					469			923
			Non-Utility Operating Revenues			25,142			171,689
Equity Loss in 50%-Owned Residential HVAC Investment						(167	)		(629	)
Other Operating Expenses (Income)
	Operating expenses					24,755			163,265
	Gains on sales of non-utility assets					—			(711	)
	Income taxes					(252	)		2,485
			Non-Utility Operating Expenses			24,503			165,039
				Non-Utility Operating Income		472			6,021
TOTAL OPERATING INCOME						148,009			132,215
Other (Expenses) Income—Net						(4,553	)		(113	)
INCOME BEFORE INTEREST EXPENSE						143,456			132,102
INTEREST EXPENSE
	Interest on long-term debt					30,831			26,505
	Other					7,773			5,870
			Total Interest Expense			38,604			32,375
NET INCOME						104,852			99,727
DIVIDENDS ON PREFERRED STOCK						990			993
NET INCOME APPLICABLE TO COMMON STOCK					$	103,862		$	98,734

The accompanying Notes to Consolidated Financial Statements are an integral part of these consolidated statements.

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Washington Gas Light Company
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

				Nine Months Ended
				June 30,
(Thousands)				2001			2000
OPERATING ACTIVITIES
Net income				$	104,852		$	98,734
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
	Depreciation and amortization (a)				54,244			52,358
	Deferred income taxes—net				40,529			18,476
	Amortization of investment tax credits				(670	)		(675	)
	Accrued/deferred pension cost				(12,095	)		(9,818	)
	Allowance for funds used during construction				(376	)		(599	)
	Equity loss in 50%-owned residential HVAC investment				167			629
	Other non-cash credits—net, including gains and losses on investing activities				(320	)		(1,396	)
					186,331			157,709
CHANGES IN ASSETS AND LIABILITIES
	Accounts receivable and accrued utility revenues				(63,431	)		(56,515	)
	Gas costs due from/to customers—net				(6,506	)		(3,489	)
	Storage gas				62,214			4,665
	Other prepayments—principally taxes				(269	)		4,056
	Accounts payable				(25,709	)		8,027
	Wages payable				438			3,402
	Customer deposits and advance payments				(2,814	)		(8,124	)
	Accrued taxes				27,764			21,620
	Accrued Interest				10,625			8,691
	Pipeline refunds due to customers				(356	)		(1,679	)
	Deferred purchased gas costs—net (utility)				(58,402	)		(6,089	)
	Deferred purchased gas costs (non-utility)				(2,405	)		1,558
	Other—net				3,649			492
			Net Cash Provided by Operating Activities		131,129			134,324
FINANCING ACTIVITIES
	Contributed Paid in Capital				52,664			—
	Long-term debt issued				85,157			54,930
	Long-term debt retired				(1,387	)		(935	)
	Debt issuance costs				(486	)		(439	)
	Notes payable—net				(128,127	)		(54,291	)
	Dividends on common and preferred stock				(44,439	)		(42,744	)
	Other financing activities				392			464
			Net Cash Used in Financing Activities		(36,226	)		(43,015	)
INVESTING ACTIVITIES
		Capital expenditures			(80,678	)		(77,265	)
		Formation of holding company structure-net			(11,797	)		—
		Equity in 50%-owned residential HVAC investment			—			(10,000	)
		Other investing activities			(16,467	)		(1,318	)
			Net Cash Used in Investing Activities		(108,942	)		(88,583	)
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS(b)					(14,039	)		2,726
Cash and Cash Equivalents at Beginning of Year (b)					24,336			26,935
Cash and Cash Equivalents at End of Year (b)				$	10,297		$	29,661
(a) Includes amounts charged to other accounts
(b) Cash equivalents are highly liquid investments with maturity of three months or less when purchased
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
	Income taxes paid			$	14,169		$	21,629
	Interest paid			$	27,625		$	23,679

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WGL Holdings, Inc. and
Washington Gas Light Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 1—GENERAL

      After the public release on August 1, 2001 of the Company's financial results for the third quarter of fiscal year 2001, but before the filing of this Form 10-Q, the Company discovered an accounting error that affected previously reported net income. A description of the accounting error that was made and the effects on financial statements as of and for the periods ended March 31, 2001 and June 30, 2001, were described and included in a press release dated and filed with the Commission on Form 8-K on August 13, 2001. This error required a restatement of the WGL Holdings, Inc. and Washington Gas Light Company balance sheet, statement of cash flows and statement of income as of and for the quarter and six months ended March 31, 2001. The effects of the restatement on the March 31, 2001 financial statements will be reflected in a Form 10-Q/A. The financial statements included in this Form 10-Q reflect amounts that have been corrected from the amounts shown in the attachment to the August 1, 2001 press release, and are consistent with those that were filed in the Form 8-K dated August 13, 2001.

     Effective November 1, 2000, Washington Gas Light Company (Washington Gas or the Utility) and its subsidiaries became subsidiaries of WGL Holdings, Inc. (WGL Holdings or the Company), a newly formed holding company that was established under thePublic Utility Holding Company Act of 1935. At that time, all of the shares of common stock of Washington Gas, a regulated natural gas utility, were converted into an equal number of shares of common stock of WGL Holdings. WGL Holdings also owns all of the shares of common stock of Washington Gas’ former wholly-owned subsidiaries (Hampshire Gas Company, Washington Gas Resources Corp., and Crab Run Gas Company), and its former 50 percent equity investment in Primary Investors, LLC. See the fiscal year 2000 Washington Gas Annual Report on Form 10-K for additional details about this restructuring.

     This Quarterly Report on Form 10-Q is a combined report of WGL Holdings and Washington Gas. Consolidated Financial Statements included in this Quarterly Report on Form 10-Q are presented as follows:

WGL Holdings—For all periods reported in this Quarterly Report on Form 10-Q prior to November 1, 2000, the consolidated financial position and results of operations reflect Washington Gas and its subsidiaries. The consolidated financial position and results of operations of Washington Gas immediately before the November 1, 2000, restructuring are essentially identical to the consolidated financial position and results of operations of WGL Holdings immediately after the November 1, 2000, restructuring.

Washington Gas—For all periods reported in this Quarterly Report on Form 10-Q, the Washington Gas consolidated financial statements present the financial position and results of operations reported for Washington Gas. The Washington Gas consolidated statements also include the results of operations and cash flows of its former wholly-owned subsidiaries and 50 percent equity investment in Primary Investors prior to the November 1, 2000 corporate restructuring.

     These notes are an integral part of the accompanying consolidated financial statements of WGL Holdings and its subsidiaries, including Washington Gas. Except where otherwise noted, these Notes to Consolidated Financial Statements apply equally to WGL Holdings and Washington Gas. In the opinion of WGL Holdings and Washington Gas, these financial statements, including the notes hereto, reflect all adjustments (which include only normal recurring adjustments) necessary for a fair statement of the results of operations for the periods presented. These financial statements, including the notes thereto, should be read together with Washington Gas’ Annual Report on Form 10-K for the fiscal year ended September 30, 2000. Certain amounts in the financial statements of prior years have been reclassified to conform to the presentation of the current year.

     Washington Gas’ financial position and results of operations account for the vast majority of the WGL Holdings’ financial position and results of operations. Due to the seasonal nature of Washington Gas’ business, the results of operations shown do not necessarily represent the expected results of either WGL Holdings or Washington Gas for the entire fiscal year ending September 30, 2001.

     Use of Estimates in Preparation of Financial Statements

     In accordance with generally accepted accounting principles in the United States, management makes estimates and assumptions regarding: 1) reported amounts of assets and liabilities; 2) disclosure of contingent assets and liabilities at the date of the financial statements; and 3) reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

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NOTE 2—LONG-TERM DEBT

     Unsecured Medium-Term Notes

     In October 2000, Washington Gas issued $25,000,000 of unsecured Medium Term Notes (MTNs) at a fixed interest rate of 7.31 percent, which mature in October 2007. In January 2001, Washington Gas also issued $30,000,000 of unsecured MTNs at a fixed interest rate of 6.64 percent, which mature in January 2011. The Utility has the option to redeem all, or part, of either issue of these MTNs at any time prior to maturity at the greater of 100 percent of the principal amount or the present value of the remaining scheduled payments of the notes to be redeemed, discounted to the redemption date on a semiannual basis at the comparable treasury rate plus 15 basis points and 20 basis points, respectively, plus accrued interest to the date of redemption.

NOTE 3—COMMON STOCK, PREFERRED STOCK AND EARNINGS PER SHARE

     Issuance of Common Stock

     On June 20, 2001, WGL Holdings executed a Purchase Agreement to publicly issue 1,790,000 shares of its common stock, at a price to the public of $26.73 per share, and before underwriting discounts and commissions of $0.895 per share. In addition, the Purchase Agreement authorized the underwriters to purchase up to an additional 268,500 shares of Option Securities. On June 26, 2001 the underwriters purchased 248,500 shares of the Option Securities. The resulting shares were sold to the underwriters at the same price as those sold to the public on June 20, 2001 and were issued on June 26, 2001.

     The proceeds from the sale of the 2,038,500 shares issued resulted in approximately $52.7 million. Net proceeds of this offering were invested in the regulated utility and are being used for general corporate purposes, including capital expenditures and working capital requirements.

     Earnings Per Share

     Basic earnings per share (EPS) is computed by dividing net income applicable to common stock by the weighted-average number of common shares outstanding during the reported period. Diluted EPS assumes the conversion of convertible preferred stock and the issuance of common shares pursuant to stock-based compensation plans at the beginning of the applicable period. The following tables show the computation of basic and diluted EPS of WGL Holdings for the three months and nine months ended June 30, 2001 and 2000.

				Basic and Diluted Earnings Per Average Common Share
				Net					Per Share
(In thousands, except per share data)				Income			Shares		Amount
For the Three Months Ended June 30, 2001
	Basic EPS:
		Net (Loss)		$	(6,821	)		47,012	$	(0.15	)
		Effect of Dilutive Securities: *
			Stock-Based Compensation Plans		—			—
	Diluted EPS:
		Net (Loss)		$	(6,821	)		47,012	$	(0.15	)

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				Basic and Diluted Earnings Per Average Common Share
				Net					Per Share
(In thousands, except per share data)				Income			Shares		Amount
For the Three Months Ended June 30, 2000
	Basic EPS:
		Net (Loss)		$	(5,625	)		46,479	$	(0.12	)
		Effect of Dilutive Securities:  *
			Stock-Based Compensation Plans		—			—
	Diluted EPS
		Net (Loss) Plus Assumed Conversions		$	(5,625	)		46,479	$	(0.12	)
* Excluded because the effect would be antidilutive.
For the Nine Months Ended June 30, 2001
	Basic EPS:
		Net Income		$	105,463			46,693	$	2.26
		Effect of Dilutive Securities:
			Stock-Based Compensation Plans		—			71
	Diluted EPS:
		Net Income		$	105,463			46,764	$	2.26
For the Nine Months Ended June 30, 2000
	Basic EPS:
		Net Income		$	98,734			46,484	$	2.12
		Effect of Dilutive Securities:
			Dividends on Preferred Stock		3			—
			Stock-Based Compensation Plans		—			50
	Diluted EPS:
		Net Income Plus Assumed Conversions		$	98,737			46,534	$	2.12

NOTE 4—PRIMARY INVESTORS, LLC

     In August 1999, Washington Gas and Thayer Capital Partners (Thayer) formed Primary Investors, LLC (Primary Investors), a limited liability company. Effective November 1, 2000, in connection with its formation of a holding company underthe Public Utility Holding Company Act of 1935, Washington Gas transferred its ownership interest to WGL Holdings, its newly formed holding company parent.

     Primary Investors, through its wholly-owned subsidiary Primary Service Group, LLC (PSG), focuses on investment opportunities in after-market products and services in the heating, ventilating and air conditioning (HVAC) industry. PSG primarily sells, installs, repairs and maintains HVAC equipment in the residential and light commercial markets in the District of Columbia and parts of Maryland and Virginia. PSG has acquired nine companies with approximately $50 million of annualized revenues. WGL Holdings and Thayer each own 50 percent of Primary Investors and each has an equal number of representatives on Primary

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Investors’ Board of Directors. As co-investors, WGL Holdings and Thayer each committed to invest up to $25 million of equity capital in Primary Investors.

     Through June 30, 2001, WGL Holdings has made investments in Primary Investors totaling $19.0 million. Thayer has contributed equal amounts to Primary Investors. Since inception, Primary Investors has generated operating losses totaling $6.0 million, of which WGL Holdings has recorded its 50-percent share totaling $3.0 million, using the equity method of accounting. WGL Holdings has also recorded $1.0 million for the related income tax benefits of the losses. At June 30, 2001, WGL Holdings’ equity investment was $16 million.

     Thayer and WGL Holdings’ relationship is governed by an investor’s agreement. This agreement grants independent rights to each of the owners of Primary Investors that could affect the timing of and the ultimate amount realized from the investment of each party in Primary Investors.

      Effective August 18, 2001 and at any time thereafter, either WGL Holdings or the other 50 percent investor can exercise its right to sell its individual interest to a third party, after offering the other investor the opportunity to purchase the interest. Subject to certain conditions, either investor can also require the other party to sell. Prior to August 18, 2001 either investor can also provide non-binding notice of intent to exercise its sale rights. As a result, the ultimate value of WGL Holding’s investment in Primary Investors, LLC could depend on the nature and timing of the exercise of these rights.

     Primary Investors has performed an impairment test on its investments using the provisions of Statement of Financial Accounting Standards No. 121,Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of. The estimates of future cash flows used in the test contain assumptions that Primary Investors’ management believes are reasonable for the purpose of developing such estimates. Such assumptions are inherently subjective and future results may differ significantly from the projections. Additionally, the ultimate success of Primary Investors depends upon its ability to attract any needed capital from investors and lenders. Consequently, WGL Holdings’ realization of its investment depends on Primary Investors’ ability to achieve its plans consistent with the results underlying the impairment test.

     Primary Investors’ impairment test does not indicate impairment at June 30, 2001. However, WGL Holdings will continue to monitor Primary Investors’ performance relative to its plans and to assess its investment in Primary Investors for potential impairment.

NOTE 5—DERIVATIVE ACTIVITY

     At June 30, 2001, Washington Gas Energy Services, Inc. (WGEServices) held certain contracts for the sale and purchase of natural gas that qualify as derivative instruments under the provisions of Statement of Financial Accounting Standards No. 133,Accounting for Derivative Instruments and Hedging Activities(SFAS No. 133). WGEServices originally entered into the sales contracts with the intent of taking delivery of the commodity and selling it to its retail customers. During the second quarter of fiscal year 2001, WGEServices determined that it would no longer require this supply in the time period it had originally anticipated. As a result, WGEServices entered into an agreement to sell this gas to certain of the original suppliers. The contracts do not qualify as hedges under the definitions included in SFAS No. 133. Therefore, the contracts are recognized at their fair value on the Company’s balance sheet and recorded net in the caption “Deferred gas costs—unregulated operations.” The gains and losses on these contracts were recorded in the second quarter and are reflected in the earnings of the Energy Marketing segment in the nine months ended June 30, 2001.

NOTE 6—OPERATING SEGMENT REPORTING

     WGL Holdings reports four operating segments: 1) regulated utility; 2) energy marketing; 3) HVAC activities; and 4) consumer financing.

     With over 90 percent of WGL Holdings’ assets, the regulated utility segment is its core business. Represented almost entirely by Washington Gas, the regulated utility segment provides regulated gas distribution services (including the purchase and delivery of natural gas,

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meter reading, responding to customer inquiries, and bill preparation) to customers in metropolitan Washington, D.C. and parts of Maryland and Virginia.

     Through WGL Holdings’ subsidiary, WGEServices, the energy marketing segment sells natural gas and electricity directly to customers, both inside and outside Washington Gas’ traditional service territory, in competition with unregulated gas and electricity marketers. Through two wholly-owned subsidiaries, Washington Gas Energy Systems, Inc. (WGESystems) and American Combustion Industries, Inc. (ACI), and as a partner in Primary Investors, the HVAC segment designs, renovates and services mechanical heating, ventilating and air conditioning systems for commercial, governmental and residential customers. The consumer-financing segment provides financing for consumer purchases of natural gas appliances and energy-related equipment.

     The following table presents operating segment information.

OPERATING SEGMENT FINANCIAL INFORMATION

					Non-Utility Operations
		Regulated			Energy						Consumer			Other						Eliminations/
(Thousands)		Utility			Marketing			HVAC			Financing			Activities			Total			Other			Consolidated
Three Months Ended June 30, 2001
Total Revenues		$	182,377		$	82,709		$	16,182		$	345		$	87		$	99,323		$	—		$	281,700
Operating Expenses Depreciation and Amortization			17,419			104			(2	)		48			—			150			—			17,569
Other Operating Expense (a)			164,098			82,739			14,555			614			(49	)		97,859			—			261,957
Income Tax (Benefit)Expense			(4,039	)		(79	)		575			(124	)		43			415			—			(3,624	)
	Total Operating Expenses		177,478			82,764			15,128			538			(6	)		98,424			—			275,902
Equity in Net Loss of Affiliate			—			—			(25	)		—			—			(25	)		—			(25	)
Operating Income (Loss)			4,899			(55	)		1,029			(193	)		93			874			—			5,773
Interest Expense —Net			11,042			160			295			9			—			464			329			11,835
Other Non-Operating Inc. (Exp.) (b)			(234	)		—			83			—			—			83			(278	)		(429	)
WGL Preferred Dividends			330			—			—			—			—			—			—			330
Net (Loss)Income		$	(6,707	)	$	(215	)	$	817		$	(202	)	$	93		$	493		$	(607	)	$	(6,821	)
Total Assets		$	1,957,506		$	78,020		$	45,862		$	16,246		$	870		$	140,998		$	143		$	2,098,647
Capital Expenditures/ Investments		$	32,308		$	1,176		$	(32	)	$	(123	)	$	—		$	1,021		$	—		$	33,329
Three Months Ended June 30, 2000
Total Revenues		$	171,553		$	29,101		$	9,938		$	584		$	182		$	39,805		$	—		$	211,358
Operating Expenses
Depreciation and Amortization			16,512			9			143			—			—			152			—			16,664
Other Operating Expenses (a)			151,276			30,320			9,000			328			501			40,149			—			191,425
Income Tax (Benefit) Expense			(1,890	)		(431	)		288			84			(113	)		(172	)		—			(2,062	)
	Total Operating Expenses		165,898			29,898			9,431			412			388			40,129			—			206,027
Equity in Net Loss of Affiliate			—			—			(102	)		—			—			(102	)		—			(102	)
Operating Income			5,655			(797	)		405			172			(206	)		(426	)		—			5,229
Interest Expense —Net			9,875			3			308			41			1			353			178			10,406
Other Non-Operating Inc. (Exp.) (b)			—			—			(86	)		—			—			(86	)		(32	)		(118	)
WGL Preferred Dividends			330			—			—			—			—			—			—			330
Net (Loss) Income		$	(4,550	)	$	(800	)	$	11		$	131		$	(207	)	$	(865	)	$	(210	)	$	(5,625	)
Total Assets		$	1,753,492		$	45,313		$	38,702		$	6,157		$	569		$	90, 741		$	6,219		$	1,850,452
Capital Expenditures/ Investments		$	27,400		$	107		$	52		$	—		$	—		$	159		$	—		$	27,559

(a)	Includes cost of gas and revenue taxes during all reported periods.
(b)	The amounts reported for Other Non-Operating Income (Expense) are net of applicable income taxes.

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OPERATING SEGMENT FINANCIAL INFORMATION

											Non-Utility Operations
																						��
		Regulated			Energy						Consumer			Other						Eliminations/
(Thousands)		Utility			Marketing			HVAC			Financing			Activities			Total			Other			Consolidated
Nine Months Ended June 30, 2001
Total Revenues		$	1,327,889		$	315,435		$	58,419		$	1,972		$	469		$	376,295		$	—		$	1,704,184
Operating Expenses Depreciation and Amortization			51,313			162			223			49			—			434			—			51,747
Other Operating Expenses (a)			1,059,363			318,680			50,115			2,015			498			371,308			—			1,430,671
Income Tax Expense (Benefit)			69,589			(1,343	)		2,447			(63	)		(10	)		1,031			—			70,620
	Total Operating Expenses		1,180,265			317,499			52,785			2,001			488			372,773			—			1,553,038
Equity in Net Loss of Affiliate			—			—			(943	)		—			—			(943	)		—			(943	)
Operating Income (Loss)			147,624			(2,064	)		4,691			(29	)		(19	)		2,579			—			150,203
Interest Expense —Net			36,436			498			1,001			53			—			1,552			572			38,560
Other Non-Operating Inc. (Exp.) (b)			(2,751	)		—			(47	)		—			—			(47	)		(2,392	)		(5,190	)
WGL Preferred Dividends			990			—			—			—			—			—			—			990
Net Income (Loss)		$	107,447		$	(2,562	)	$	3,643		$	(82	)	$	(19	)	$	980		$	(2,964	)	$	105,463
Total Assets		$	1,957,506		$	78,020		$	45,862		$	16,246		$	870		$	140,998		$	143		$	2,098,647
Capital Expenditures/ Investments		$	79,835		$	1,182		$	165		$	—		$	—		$	1,347		$	—		$	81,182
Nine Months Ended June 30, 2000
Total Revenues		$	874,383		$	136,110		$	32,352		$	2,271		$	826		$	171,559		$	—		$	1,045,942
Operating Expenses
Depreciation and Amortization			48,803			23			428			—			—			451			—			49,254
Other Operating Expenses (a)			643,206			132,995			27,844			1,055			209			162,103			—			805,309
Income Tax Expense (Benefit)			56,180			1,137			1,349			422			(468	)		2,440			—			58,620
	Total Operating Expenses		748,189			134,155			29,621			1,477			(259	)		164,994			—			919,183
Equity in Net Loss of Affiliate			—			—			(629	)		—			—			(629	)		—			(629	)
Operating Income			126,194			1,955			2,102			794			1,085			5,936			—			132,130
Interest Expense —Net			30,807			8			756			127			2			893			675			32,375
Other Non-Operating Inc. (Exp.) (b)			—			—			(285	)		—			—			(285	)		257			(28	)
WGL Preferred Dividends			993			—			—			—			—			—			—			993
Net Income (Loss)		$	94,394		$	1,947		$	1,061		$	667		$	1,083		$	4,758		$	(418	)	$	98,734
Total Assets		$	1,753,492		$	45,313		$	38,702		$	6,157		$	569		$	90,741		$	6,219		$	1,850,452
Capital Expenditures/ Investments		$	76,944		$	139		$	182		$	—		$	—		$	321		$	—		$	77,265

(a)	Includes cost of gas and revenue taxes during all reported periods and gains on sales of non-utility assets during both years for the nine months ended June 30.
(b)	The amounts reported for Other Non-Operating Income (Expense) are net of applicable income taxes.

NOTE 7—TRANSACTIONS BETWEEN WASHINGTON GAS AND AFFILIATES

     Washington Gas and other subsidiaries of WGL Holdings may engage in transactions during the ordinary course of business. All significant intercompany balances have been eliminated from the consolidated financial statements of WGL Holdings. In addition, all such significant transactions between Washington Gas and its affiliates that occurred prior to the November 1, 2000 restructuring have similarly been eliminated from the consolidated financial statements of Washington Gas.

     In compliance with generally accepted accounting principles, transactions between Washington Gas and its affiliates which occurred after the November 1, 2000 restructuring, as well as intercompany balances remaining on Washington Gas’ balance sheet on June 30, 2001, have not been eliminated from the Washington Gas consolidated financial statements. Because of the relatively small size of these transactions, these transactions are not disclosed on the face of the Washington Gas consolidated financial statements.

     From time-to-time, Washington Gas provides administrative and general support to affiliates and has filed consolidated tax returns, which include affiliated company tax obligations. All such costs are billed to the appropriate affiliates and are reflected in accounts receivable on Washington Gas’ Consolidated Balance Sheets. Washington Gas may also, on

- 16 -

occasion, borrow funds from, or lend funds to, affiliated companies. At June 30, 2001, the Washington Gas Consolidated Balance Sheet reflected a net total of $12.8 million of intercompany payables and no receivables. All affiliated company transactions, including these balances, were eliminated from the WGL Holdings Consolidated Balance Sheet in accordance with generally accepted accounting principles.

     On an ongoing basis, Washington Gas transports gas for its third party marketers, including WGEServices. Associated with this transportation, Washington Gas incurs certain system balancing charges, which it passes to the third-party marketers with no mark-up. In turn, the third party marketers pass these costs to their customers. For consolidation purposes, WGL Holdings eliminates both sides of this transaction from the utility operations, to avoid distorting either the utility or non-utility net operating income.

- 17 -

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

     Certain matters discussed in this report, excluding historical information, may 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 company believes such forward-looking statements are based on reasonable assumptions, it cannot give assurance that every objective will be reached. Forward-looking statements speak only as of today, and the company assumes no duty to update them. In addition to the factors previously disclosed in the company’s filings with the Securities and Exchange Commission, the following factors, among others, could cause actual results to differ materially from forward-looking statements or historical performance:1) changes in economic, competitive, political and regulatory conditions and developments; 2) changes in capital and energy commodity market conditions; 3) changes in relevant laws and regulations, including tax, environmental and employment laws and regulations; 4) variations in weather conditions from normal levels; 5) legislative, regulatory, and judicial mandates and decisions; 6) timing and success of business and product development efforts; 7) technological improvements; 8) the pace of deregulation efforts and the availability of other competitive alternatives; and 9) other uncertainties.

     This Management’s Discussion and Analysis of Financial Condition and Results of Operations 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. This section includes separate discussions of WGL Holdings’ utility and non-utility operations.

• Washington Gas Light Company (Washington Gas or the Utility)—Washington Gas comprises the vast majority of WGL Holdings’ utility segment. As such, the financial condition and results of operations of Washington Gas’ utility operations and WGL Holdings utility segment are essentially the same. Therefore, the discussion of Washington Gas’ financial condition and results of operations only describes those results which are significantly different from those operations which are described in WGL Holdings’ Management’s Discussion and Analysis of Financial Condition and Results of Operations.

     The Management’s Discussion and Analysis of Financial Condition and Results of Operations for both WGL Holdings and Washington Gas should be read in conjunction with the respective company’s Consolidated Financial Statements and the combined Notes thereto.

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WGL HOLDINGS, INC.

Results of Operations—Three Months Ended June 30, 2001 vs.
June 30, 2000

     EARNINGS

     For the three months ended June 30, 2001, the third quarter of its fiscal year, WGL Holdings reported a net loss of $6.8 million, which was $1.2 million greater than the $5.6 million loss reported for the same period last year. The basic and diluted loss per average common share in the current quarter was $0.15 compared to $0.12 for both basic and diluted loss per average common share for the quarter ended June 30, 2000. WGL Holdings’ utility operations contributed $0.16 and $0.10, respectively, to diluted losses per average common share for the three months ended June 30, 2001, and 2000. The company’s utility segment operations are weather sensitive and a significant portion of its revenue stream comes from deliveries to residential heating customers. A seasonal decline in demand for natural gas historically results in a net loss for the utility segment in the quarter ending June 30.

     The Company’s utility operations net loss was offset somewhat as net income from the Company’s major non-utility operations improved from a $0.7 million net loss in the third quarter of fiscal year 2000, to $0.4 million of net income in the current quarter. Earnings per average common share from the Company’s major non-utility operations improved from a net loss of $0.01 during the three months ended June 30, 2000, to net income of $0.01 per average common share in the current quarter.

     UTILITY SEGMENT NET REVENUES

     Utility net revenues for the quarter ended June 30, 2001 increased $2.0 million (2.6 percent) from the same period last year to $76.8 million. This represents a $0.03 per average common share improvement this quarter over the three months ended June 30, 2000.

     Included in the increase in net revenues are increased proceeds from asset optimization agreements of $1.1 million, $1.4 million of revenues the Utility is collecting from newly-enacted rights-of-way fees in the District of Columbia and $1.0 million of income taxes in Maryland and Virginia. The Utility is allowed recovery of the rights of way fees and taxes from its customers. Therefore, these higher expenses do not affect net income. These increases were partially offset by lower firm therm sales.

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Gas, Weather and Meter Statistics

					Three Months Ended
					June 30,
														Percent
					2001			2000			Variance			Inc. (Dec.)
Gas Sales and Deliveries(thousands of therms)
	Firm
		Gas Sold and Delivered				86,438			86,095			343			0.4
		Gas Delivered for Others				56,611			62,661			(6,050	)		(9.7	)
				Total Firm		143,049			148,756			(5,707	)		(3.8	)
	Interruptible
			Gas Sold and Delivered			2,489			5,684			(3,195	)		(56.2	)
			Gas Delivered for Others			51,379			58,092			(6,713	)		(11.6	)
				Total Interruptible		53,868			63,776			(9,908	)		(15.5	)
	Electric Generation—Delivered for Others					28,997			84,096			(55,099	)		(65.5	)
				Total Deliveries		225,914			296,628			(70,714	)		(23.8	)
Degree Days
	Actual					300			326			(26	)		(8.0	)
	Normal					307			309			(2	)		(0.6	)
		Percent Colder (Warmer) than Normal				(2.3	%)		5.5	%		—			—
Customer Meters(end of period)						898,694			871,175			27,519			3.2

     Gas Delivered to Firm Customers

     The level of gas delivered to firm customers is highly sensitive to weather variability because a large portion of the natural gas delivered by Washington Gas is used for space heating. The Utility’s rates are based on normal weather and none of the tariffs for the jurisdictions in which it operates currently have a weather normalization provision. Nonetheless, declining block rates in the Utility’s Maryland and Virginia jurisdictions reduce the impact that deviations from normal weather have on net revenues.

     During the three months ended June 30, 2001, firm therm deliveries declined by 5.7 million therms, a 3.8 percent decline over the same quarter last year. This decrease primarily reflects an 8 percent decrease in heating degree-days in the current quarter compared to last year partially offset by a 3.2 percent rise in the number of customer meters. Weather for the three months ended June 30, 2001, was 2.3 percent warmer than normal, while weather for the same period last year was 5.5 percent colder than normal.

     The Utility passes the cost of the natural gas commodity to customers without a mark-up, and, therefore, rising gas prices during the current fiscal year did not affect the Utility’s net revenues. However, higher gas prices quarter over quarter caused both the cost of gas and operating revenue components of net revenues to rise.

     Gas sold and delivered to firm customers with bundled service remained relatively constant during the current quarter as compared to the prior year with 86.4 million therms sold and delivered in the three months ended June 30, 2001, and 86.1 million therms sold and delivered during the quarter ended June 30, 2000. The volume of firm gas delivered for others decreased from 62.7 million therms to 56.6 million therms, a 9.7 percent decrease. On a per unit basis, the net revenues that Washington Gas

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earns from delivering gas for others are the same as it earns from bundled gas sales in which customers purchase both the natural gas commodity and the associated delivery service from Washington Gas. Therefore, the Utility does not experience any loss of margins when customers choose to purchase their gas from a third-party supplier.

     Gas Delivered to Interruptible Customers

     Therm deliveries to Washington Gas’ interruptible customers were 15.5 percent lower during the three months ended June 30, 2001 than the same period last year. This decrease reflects the impact of warmer weather and a small decline in interruptible meters.

     The effect on net income of any changes in delivered volumes and prices to the interruptible class is minimized by margin-sharing arrangements embedded in Washington Gas’ interruptible rate design. Under these arrangements, Washington Gas applies a majority of the margins earned on interruptible gas sales and deliveries to firm customers’ rates. This margin sharing occurs once Washington Gas reaches a pre-established gross margin threshold in exchange for shifting many of the fixed costs of providing service from the interruptible to the firm class of customers.

     Gas Delivered for Electric Generation

     Washington Gas sells and/or delivers natural gas for use at two electric generation facilities in Maryland, which are each owned by separate companies that are independent of WGL Holdings. During the current quarter, deliveries to these customers were 65.5 percent lower than the same period last year. Deliveries were higher in the quarter ended June 30, 2000, primarily because an operational problem at one customer’s electric generation facility precluded it from receiving delivery of other alternate fossil fuels, which it typically includes in its fuel mix, during most of calendar year 2000. The operational problem was resolved by December 1, 2000, causing gas deliveries for electric generation to be at more normal levels in the current fiscal year.

     OTHER UTILITY SEGMENT OPERATING EXPENSES

     Operation and maintenance expenses for the three months ended June 30, 2001, increased by $2.4 million (5.1 percent) from the prior year’s levels. This increase caused earnings per average common share to decline by $0.03 from the same quarter of last year. The key factor that contributed to the variance in operation and maintenance expenses for this quarter compared with the same quarter last year was a $2.4 million increase in uncollectible accounts expense, which directly relates to higher natural gas costs and colder weather in the current year, causing an increase in the Utility’s customer accounts receivable balance.

     Depreciation and amortization expense increased by $0.9 million (5.5 percent) in the current quarter primarily because of Washington Gas’ increased investment in property, plant and equipment. The general taxes incurred by the utility operations during the quarter ended June 30, 2001 increased largely due to the inclusion of $1.4 million in the current quarter for a newly enacted rights-of-way fee imposed by the District of Columbia. As previously discussed, this fee is recovered currently from customers and has no impact on net income.

     Utility income taxes reflect a $2.1 million additional benefit. A combination of greater losses and higher tax rates generated the additional benefit. For utility operations, the effective income tax rates were 38.5 percent for the third fiscal quarter of 2001 and 31.1 percent for the same period in fiscal year 2000. The rise in the effective income tax rate reflects recently enacted utility income taxes in Maryland and Virginia. The utility’s revenues have been

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increased by an offsetting amount to reflect collection of these new taxes from customers, thereby mitigating any earnings impact associated with the change.

     NON-UTILITY OPERATING RESULTS

     WGL Holdings reports three major unregulated operating segments: 1) energy marketing; 2) Heating, ventilating and air conditioning (HVAC); and 3) consumer financing. The net income from those operations improved from a $0.7 million net loss during the quarter ended June 30, 2000 to net income of $0.4 million in the current quarter. Earnings per average common share from these major non-utility activities improved from a net loss per average common share of $0.01 during the three months ended June 30, 2000, to net income per average common share of $0.01 in the current quarter The following table compares the financial results from major non-utility activities for the quarters ended June 30, 2001 and 2000.

Net Income (Loss) Applicable to Major Non-Utility Activities

		Three Months Ended
		June 30
(In thousands of dollars)		2001			2000			Variance
Energy Marketing		$	(215)		$	(800)		$	585
HVAC:
	Commercial		992			233			759
	Residential		(175	)		(222	)		47
Consumer Financing			(202	)		131			(333	)
Total		$	400		$	(658)		$	1,058

     Energy Marketing Segment

     WGL Holdings’ retail energy marketing segment, through its subsidiary, Washington Gas Energy Services, Inc. (WGEServices), sells natural gas and electricity in competition with unregulated marketers and unregulated subsidiaries of other utility companies. WGEServices continued to expand rapidly as the subsidiary sold 9.1 billion cubic feet (bcf) of gas in the current quarter, an increase of 42.2 percent from 6.4 bcf sold in the third quarter of fiscal year 2000. During the quarters ended June 30, 2001 and 2000, respectively, 34.1 percent and 23.9 percent of these sales were made to customers outside of the service territory of the regulated utility.

     In addition to supplying gas to 116,250 residential customers, during the three months ended June 30, 2001, WGEServices sold 563.7 gigawatt-hours to over 25,000 electric accounts in Maryland, Virginia and the District of Columbia. Electricity sales include amounts sold under a $16 million, two-year electricity supply contract for all Washington Metropolitan Area Transit Authority facilities in the District of Columbia and Maryland and a $125 million contract to supply electricity to 47 large federal facilities in the District of Columbia and suburban Maryland. These facilities will receive service for up to three and one-half years under the contract. WGEServices’ total energy marketing revenues have almost tripled, increasing from $29.1 million in the quarter ended June 30, 2000, to $82.7 million in the quarter ended June 30, 2001.

     Net losses incurred by WGEServices declined from $0.8 million in the quarter ended June 30, 2000 to a loss of $0.2 million in the current quarter. The improvement was the result of higher gas volumes, an improvement in gas margins over last year, and profits made on the sale of electricity. Partially offsetting this improvement were higher selling, general and administrative expenses during the quarter particularly related to electricity sales marketing efforts. The earnings pattern for the natural gas portion of the energy-marketing segment tends

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to be seasonal with narrower margins in the winter months and higher margins in the summer. Because of this seasonality, the Company expects energy-marketing earnings to improve during the remainder of fiscal year 2001.

     HVAC Segment

     Two subsidiaries, American Combustion Industries, Inc. and Washington Gas Energy Systems, Inc., offer large-scale HVAC installations and related services to commercial and government customers. In addition, the Company has a 50 percent equity investment in Primary Investors, LLC (Primary Investors), a limited liability company that, through its investment in Primary Services Group, LLC (PSG), has invested in nine companies that offer HVAC products and services to residential and light commercial customers.

     Revenues from the Company’s commercial HVAC activities have nearly doubled, increasing from $9.9 million in the quarter ended June 30, 2000 to $16.1 million in the quarter ended June 30, 2001. Net income from these operations rose from $0.2 million to $1.0 million, as gross profit margins continue to be strong. Commercial HVAC operations include $6.4 million of revenues from a $64 million contract that the Company signed in December 2000 with the federal government to modernize a U.S. General Services Administration central heating and refrigeration plant in Washington, D.C. Work on this project was approximately 20 percent complete on June 30, 2001.

     The HVAC operations for the three months ended June 30, 2001 and 2000, both include net losses of $0.2 million from the Company’s 50 percent equity investment in Primary Investors. (See Note 4 to the Consolidated Financial Statements for a further discussion of Primary Investors). Primary Investors improved its margins and reduced its selling and administrative expenses during the quarter.

     Consumer Financing Segment

     The consumer-financing segment provides financing for consumer purchases of natural gas appliances and energy-related equipment. Through March 31, 2001, a portion of the consumer financing operations was performed by Washington Gas as a non-utility activity. Beginning April 1, 2001, Washington Gas Credit Corporation, a separate subsidiary of WGL Holdings, began performing all operations. During the three months ending June 30, 2001 the consumer financing segment reported a net loss of $0.2 million compared to net income of $0.1 million for the quarter ended June 30, 2000. The consumer-financing segment periodically makes sales of customer contracts to banks and records a gain on the sale at that time. Results for the quarter ended June 30, 2000 include a gain on such a sale. In the quarter ended June 30, 2001, the consumer-financing segment did not complete a sale of receivables to banks. The contracts remain available for sale. Additionally, the consumer financing segment continued to experience increases in labor costs and other expenses in the current quarter as this segment acquires additional resources to help it evaluate its operations.

OTHER INCOME (EXPENSES)—NET

     The $0.3 million decrease in Other Income (Expenses)-Net (after income taxes) was primarily attributable to a $0.2 million expense (net of income tax benefits) for the premium on the weather insurance policy purchased in October 2000 by Washington Gas that was allocated to the current quarter based on a normal level of heating degree days. No recoveries have been received to date under this policy.

     INTEREST EXPENSE

     Total WGL Holdings interest expense increased by $1.4 million (13.7 percent) from the same period last year, reflecting the following changes in interest expense:

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Composition of Interest Expense
(In thousands of dollars)

		WGL Holdings							Washington Gas
		Three Months Ended							Three Months Ended
		June 30,							June 30,
		2001		2000		Variance			2001		2000		Variance
Long-Term Debt		$	10,356	$	9,010	$	1,346		$	10,317	$	9,010	$	1,307
Short-Term Debt			1,275		1,291		(16	)		1,133		1,291		(158	)
Other (Includes AFUDC)			204		105		99			425		105		320
	Total	$	11,835	$	10,406	$	1,429		$	11,875	$	10,406	$	1,469

     Interest on long-term debt increased $1.3 million primarily due to a $95.9 million increase in the average balance outstanding. The average balance of Medium Term Notes (MTNs) outstanding during the current quarter was $608 million compared to $512.5 million in the prior year quarter. The increase in the average balance outstanding was partially offset by a decrease in the weighted average cost of such debt for each quarter, which decreased by 0.31 percentage points. The embedded cost of long-term debt outstanding at June 30, 2001, was 6.87 percent.

     Interest on short-term debt remained constant at approximately $1.3 million. Although the average balance of short-term debt outstanding rose over the same period last year, short-term interest expense remained constant because of a 1.75 percentage point decrease in the weighted-average cost of such debt.

     WGL Holdings increased its average level of debt during the quarter ended June 30, 2001, over the same period last year in order to finance construction and higher working capital requirements associated with higher accounts receivable, inventory and yet-to-be-recovered gas cost balances and increased unregulated non-utility investments. The Company expects its interest expense during fiscal year 2001 to be higher than previous years because of its continuing requirement for increased working capital.

Results of Operations—Nine Months Ended June 30, 2001 vs.
June 30, 2000

     EARNINGS

     For the nine months ended June 30, 2001, WGL Holdings reported net income of $105.5 million, or $6.7 million higher than the results reported for the same period last year. Basic earnings per average common share in the current nine-month period were $2.26, compared to $2.12 for the nine months ended June 30, 2000. Diluted earnings were also $2.26 per average common share in the current nine-month period, which represented a 6.6 percent improvement over diluted earnings of $2.12 per average common share for the same period last year. Recurring earnings per average common share for the most recent nine months were $2.29, excluding a $0.03 per average common share adjustment for certain general taxes in the first quarter of fiscal year 2001. This compares to recurring diluted earnings per average common share of $2.10 for the first nine months of fiscal year 2000, excluding a $0.02 per average common share gain from the sale of certain non-utility investments in that nine-month period. WGL Holdings’ utility operations contributed $2.24 and

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$2.02, respectively, to diluted earnings per average common share for the nine months ended June 30, 2001, and 2000.

     The impact of the improved performance of the Company’s utility operations on earnings was reduced somewhat as net income from the Company’s major non-utility operations was $3.7 million in the first nine months of fiscal year 2000, compared to $1.0 million in the current nine-month period. Earnings per average common share were $0.08 during the nine months ended June 30, 2000, and $0.02 in the current nine-month period. Other non-utility results for the nine months ended June 30, 2000 included the aforementioned nonrecurring $0.02 per average common share gain from the sales of minor non-utility investments.

     In addition, interest expense rose from $32.4 million during the nine months ended June 30, 2000, to $38.6 million during the current nine-month period, primarily because of an increase in the cost and level of debt used to fund: (1) capital additions; (2) the higher average cost of storage gas inventory and unrecovered gas costs; and (3) higher levels of accounts receivable.

     UTILITY SEGMENT NET REVENUES

     Utility net revenues for the nine months ended June 30, 2001, increased $59.3 million (15.4 percent) from the same period last year to $444.7 million.

     Included in the net revenue increase are $7.5 million of additional revenues for the previously discussed newly enacted fees and income taxes.

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Gas, Weather and Meter Statistics

					Nine Months Ended
					June 30,
														Percent
					2001			2000			Variance			Inc. (Dec.)
Gas Sales and Deliveries(thousands of therms)
	Firm
		Gas Sold and Delivered				835,686			738,989			96,697			13.1
		Gas Delivered for Others				333,335			275,514			57,821			21.0
			Total Firm			1,169,021			1,014,503			154,518			15.2
	Interruptible
		Gas Sold and Delivered				9,085			23,806			(14,721	)		(61.8	)
		Gas Delivered for Others				205,904			214,288			(8,384	)		(3.9	)
			Total Interruptible			214,989			238,094			(23,105	)		(9.7	)
	Electric Generation—Delivered for Others					101,757			137,449			(35,692	)		(26.0	)
				Total Deliveries		1,485,767			1,390,046			95,721			6.9
Degree Days
	Actual					4,270			3,574			696			19.5
	Normal					3,799			3,812			(13	)		(0.3	)
		Percent Colder (Warmer) than Normal				12.4	%		(6.2	%)		—			—
Customer Meters(end of period)						898,694			871,175			27,519			3.2

     Gas Delivered to Firm Customers

     During the nine months ended June 30, 2001, firm therm deliveries rose by 154.5 million therms or 15.2 percent over the same period last year. This increase primarily reflects 19.5 percent more heating degree days in the current nine-month period compared to last year and a 3.2 percent rise in the number of firm customer meters. Weather for the nine months ended June 30, 2001, was 12.4 percent colder than normal, while weather for the same period last year was 6.2 percent warmer than normal.

     The volume of firm therm deliveries to customers who purchase bundled service from Washington Gas increased 13.1 percent from 739.0 million therms in the nine months ended June 30, 2000 to 835.7 million therms during the nine months ended June 30, 2001. The volume of firm gas delivered for others rose from 275.5 million therms to 333.3 million therms, a 21.0 percent increase. Contributing to the increase is the rise in the number of customers that are choosing to buy the natural gas commodity from third-party suppliers and the substantially colder weather.

     Gas Delivered to Interruptible Customers

     Interruptible therm deliveries to Washington Gas’ interruptible customers were 9.7 percent lower during the nine months ended June 30, 2001 than the same period last year. As previously described in this report, the effect on net income of changes in gas deliveries to interruptible customers is minimal due to margin-sharing arrangements in each of the Utility’s jurisdictions.

     Gas Delivered for Electric Generation

     Volumes delivered for electric generation were 26.0 percent lower than the same period last year. Deliveries were lower in the nine months ended June 30, 2001 primarily because of the previously discussed operational problem at one customer’s electric generation facility. Margins

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earned on such deliveries are being shared with firm customers as described previously in this report.

     OTHER UTILITY OPERATING EXPENSES

     Operation and maintenance expenses for the nine months ended June 30, 2001 increased by $11.6 million (8.6 percent) from the prior year’s levels. This increase caused earnings per average common share to decline by $0.15 from the same period last year. Key factors that contributed to the variance in operation and maintenance expenses for the current nine-month period compared with last year include:

• an $8.4 million increase in uncollectible accounts expense, which directly relates to higher natural gas costs and colder weather, causing a corresponding increase in the Utility’s customer accounts receivable balance; and

• a $2.0 million increase relating to higher natural gas distribution expenses.

     Depreciation and amortization expense increased by $2.5 million (5.1 percent) in the current nine-month period primarily because of Washington Gas’ increased investment in property, plant and equipment.

     The general taxes incurred by the utility operations during the nine months ended June 30, 2001 increased largely due to:

• a $2.2 million one-time adjustment to a Virginia business license tax made as a result of a tax law restructuring that replaced some taxes with an income tax on utility operations; and

• the inclusion of $7.1 million in the current nine-month period for a newly enacted rights-of-way fee imposed by the District of Columbia. This fee is recovered currently from customers and has no impact on net income.

     Utility income taxes rose $13.4 million primarily due to an increase in pre-tax income for the current nine-month period. For utility operations, the effective income tax rates were 38.6 percent for the first nine months of fiscal quarter of 2001 and 37.1 percent for the same period in fiscal year 2000. The rise in the effective income tax rate reflects recently enacted utility income taxes in Maryland and Virginia. The Utility’s revenues have been increased by an offsetting amount to reflect collection of this new tax from customers, thereby mitigating any earnings impact associated with the change.

     NON-UTILITY OPERATING RESULTS

     During the nine months ended June 30, 2001, the net income from the Company’s unregulated energy marketing, HVAC and consumer financing activities decreased to $1.0 million compared to $3.7 million earned during the same period last year. Earnings per average common share from non-utility activities declined from $0.08 during the nine months ended June 30, 2000, to $0.02 in the current nine-month period. Other non-utility results for the nine months ended June 30, 2000 include a nonrecurring gain of $0.02 per average common share from sales of certain venture funds and a preferred stock interest. The following table compares the financial results from major non-utility activities for the nine months ended June 30, 2001 and 2000.

- 27 -

Net Income (Loss) Applicable to Major Non-Utility Activities

		Nine Months Ended
		June 30
(In thousands of dollars)		2001			2000			Variance
Energy Marketing		$	(2,562	)	$	1,947		$	(4,509	)
HVAC:
	Commercial		4,749			1,792			2,957
	Residential		(1,106	)		(731	)		(375	)
Consumer Financing			(82	)		667			(749	)
Total		$	999		$	3,675		$	(2,676	)

     Energy Marketing Segment

     WGEServices sold 45.2 bcf of gas in the current nine-month period, an increase of 18.3 percent from 38.2 bcf sold in the first nine months of fiscal year 2000. During the nine-month periods ended June 30, 2001 and 2000, respectively, 25.3 percent and 22.5 percent of these sales were made to customers outside of the service territory of the regulated utility. WGEServices’ total energy marketing revenues, including sales of electricity in fiscal year 2001, have more than doubled, increasing from $136.1 million in the nine months ended June 30, 2000, to $315.4 million in the current nine-month period.

     In its initial operating period for selling electricity, of the nine months ended June 30, 2001, WGEServices sold 814.7 gigawatt hours of electricity. Net income earned by WGEServices declined from $1.9 million in the nine months ended June 30, 2000, to a $2.5 million loss in the current nine-month period as gross margins fell and selling, general and administrative expenses rose in the current year. Despite the significant increase in the volume of natural gas sold, rapidly rising natural gas prices, combined with higher selling, general and administrative expenses, principally from electricity marketing, during the current fiscal year, have suppressed the earnings produced by this segment. Margins were, nevertheless, positive in all periods. Results for the first nine-months of fiscal year 2000 benefited from a general decline in natural gas prices in 1999, which provided higher gross margins.

     HVAC Segment

     Revenues from the Company’s commercial HVAC activities increased from $32.4 million in the nine months ended June 30, 2000 to $58.4 million in the nine months ended June 30, 2001, an 80.2 percent increase. Revenues from two customers, collectively, represented 58.5 percent of total revenues for nine months ended June 30, 2001 compared to 39.1 percent for the nine months ended June 30, 2000. Net income from these operations rose from $1.8 million to $4.7 million as a result of continued growth in sales and strong gross profit margins.

     The HVAC operations for the nine months ended June 30, 2001 and 2000 include net losses of $1.1 million and $0.7 million, respectively, from the Company’s 50 percent equity investment in Primary Investors. A portion of the net losses incurred by Primary Investors in the current nine-month period stems from difficulties integrating the nine HVAC companies it acquired. Excluding its share of the net losses incurred to-date, WGL Holdings has invested $19.0 million in Primary Investors as of June 30, 2001. (See Note 4 to the Consolidated Financial Statements for a further discussion of Primary Investors).

     Consumer Financing Segment

     During the nine months ending June 30, 2001, the consumer financing segment reported a net loss of $0.1 million compared to net income of $0.7 million for the nine months

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ended June 30, 2000. The net loss from this segment in the current nine months resulted from fewer contract sales to banks and increased labor costs and other expenses incurred during the current fiscal year as this segment explores potential market opportunities. Through March 31, 2001, a portion of the consumer financing operations was performed by Washington Gas as a non-utility activity. Beginning April 1, 2001, Washington Gas Credit Corporation, a separate subsidiary of WGL Holdings, began performing all operations.

     Sale of Non-Utility Assets

     During the nine months ended June 30, 2000, a non-utility Company subsidiary sold a preferred stock investment and recorded a pre-tax book gain of $300,000. In addition, the same subsidiary recorded a pre-tax gain of $411,000 from the sales of certain venture funds. In total, the Company recorded a $1,154,000 after-tax gain on these transactions, which includes the tax benefit of capital loss carrybacks.

     OTHER INCOME (EXPENSES)—NET

     The $5.2 million decrease in Other Income (Expenses)-Net was primarily attributable to the premium on the weather insurance policy purchased in October 2000 by Washington Gas that was allocated to the first three quarters of fiscal year 2001 based on a normal level of heating degree days. The entire premium for fiscal year 2001 ($2.9 million, net of income taxes) has been charged to expense in the current nine-month period. No recoveries have been received under this policy in the nine months ended June 30, 2001.

     INTEREST EXPENSE

     Total WGL Holdings interest expense increased by $6.2 million (19.1 percent) from the same period last year, reflecting the following changes in interest expense:

Composition of Interest Expense
(In thousands of dollars)

		WGL Holdings						Washington Gas
		Nine Months Ended						Nine Months Ended
		June 30,						June 30,
		2001		2000		Variance		2001		2000		Variance
Long-Term Debt		$	30,870	$	26,505	$	4,365	$	30,831	$	26,505	$	4,326
Short-Term Debt			7,260		5,622		1,638		6,887		5,622		1,265
Other (Includes AFUDC)			430		248		182		886		248		638
	Total	$	38,560	$	32,375	$	6,185	$	38,604	$	32,375	$	6,229

     Interest on long-term debt increased $4.4 million primarily due to an $86.7 million increase in the average balance outstanding, which reflects the effect of the issuance of $108.0 million of MTNs since April 2000. The average long-term debt balance increased from $504.0 million during the nine months ended June 30, 2000 to $590.7 million during the current fiscal year. The weighted average cost of such debt was relatively constant in each nine-month period.

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     Interest on short-term debt increased $1.6 million because of a $40.3 million rise in the average short-term debt balance. This increase was partially offset by a 0.16 percentage point decrease in the weighted-average cost of such debt.

     WGL Holdings increased its average level of debt during the first nine months of fiscal year 2001 in order to finance construction and higher working capital requirements associated with higher accounts receivable, storage gas inventory and yet-to-be-recovered gas cost balances, and increased unregulated non-utility investments. The Company expects its interest expense during fiscal year 2001 to be higher than previous years because of its continuing requirement for increased working capital.

LIQUIDITY AND CAPITAL RESOURCES

     Short-Term Cash Requirements and Related Financing

     The Company’s business is highly weather sensitive and seasonal. Approximately 75 percent of Washington Gas’ therm deliveries (excluding deliveries for electric generation) occur in the first and second fiscal quarters. This weather sensitivity causes short-term cash requirements to vary significantly during the year. Cash requirements peak in the fall and winter months when accounts receivable, accrued utility revenues and storage gas are at, or near, their highest levels. After the winter heating season, these assets are converted into cash and are generally used to reduce short-term debt and acquire storage gas for the subsequent heating season.

     At June 30, 2001, the Company had notes payable outstanding, which consist of commercial paper, of $58.5 million compared to $161.4 million at September 30, 2000. The decrease in notes payable from September 30, 2000 was primarily due to the Company’s issuance of $52.7 million of common stock in June 2001, the proceeds of which were initially used to retire short-term debt.

     Long-Term Cash Requirements and Related Financing

     To fund construction expenditures and other capital requirements, the Company draws upon both internal and external sources of cash. The Company’s ability to generate adequate cash internally depends upon a number of factors, including the timing and amount of rate increases received and the level of therm deliveries. The Company’s last significant base rate increase became effective in December 1994. The number of customer meters and the variability of the weather from normal levels significantly affect the level of therms delivered.

     Cash Flow from Operating Activities

     Net cash provided by operating activities totaled $97.9 million during the first nine months of fiscal year 2001 compared to $134.3 million of net cash for the same period last year. The $36.3 million decline in cash from operating activities was primarily the result of:

• higher funds used to support increased levels of utility accounts receivable which resulted from increased firm therm deliveries and higher natural gas costs were partially offset by lower accrued utility revenues. In addition, a rise in third-party and off-system gas sales also contributed to the increased levels of utility accounts receivable in the current year;

• a significant increase in the under-recovery of purchased gas costs due from utility customers during the nine months ended June 30, 2001 compared to the prior fiscal year period;

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• a decrease in the level of accounts payable related to lower amounts of gas purchased due to the lower seasonal demand.

     Partially offsetting these uses of cash were:

• a $24.1 million increase in net income, adjusted for non-cash items;

• a reduction of 4.4 million Dth in the volume of gas stored during the nine months ended June 30, 2001 compared with the same period last year, partially offset by a significantly higher price increase of 30.6 percent per therm of the stored gas this year; and

• an increase in accrued taxes, primarily due to higher taxable income.

     Cash Flow from Financing Activities

     On June 20, 2001, the company issued 1,790,000 shares of its common stock to the public (the initial offering) through a purchase agreement executed with several underwriters. The per share price for the initial offering was $26.73, before underwriting discounts of $0.895 per share. On June 26, 2001, the underwriters exercised their option granted in the purchase agreement to purchase an additional 248,500 shares of the company’s stock at the same price as the initial offering. The net proceeds from these sales generated $52.7 million in capital for the company. All of the proceeds from the sale of the company’s stock were contributed to the company’s utility subsidiary and are being used for general corporate purposes, including capital expenditures and working capital requirements.

     During the nine months ended June 30, 2001, the Company issued $85.4 million of long-term debt, including $55.0 million of Medium-Term Notes (MTNs) with a weighted average coupon rate of 6.9 percent and $30.2 million of term loans used primarily to fund construction projects.

     Cash Flow from Investing Activities

     During the nine months ended June 30, 2001, WGL Holdings had consolidated capital expenditures of $81.2 million on a budget of $133.5 million for fiscal year 2001, compared to capital expenditures of $77.3 million for the first nine months of fiscal year 2000.

     Sales of Accounts Receivable

     During the nine months ended June 30, 2001, Washington Gas sold, with recourse, $12.8 million of non-utility accounts receivable, compared to $18.4 million in the nine months ended June 30, 2000.

WASHINGTON GAS LIGHT COMPANY

     As discussed on page 2, this Quarterly Report on Form 10-Q includes separate consolidated financial statements for WGL Holdings (pages 3 through 6), as well as for Washington Gas (pages 7 through 10). This section of the Quarterly Report on Form 10-Q discusses the financial position and results of operations of Washington Gas throughout the reported periods. As previously noted, all results for Washington Gas prior to the November 1, 2000 corporate restructuring are reported on a consolidated basis, in accordance with generally accepted accounting principles. This consolidation reflects the results of Washington Gas’ operations, as well as those of its subsidiaries prior to the restructuring. All results of operations reported after the restructuring reflect the financial position and results of Washington Gas alone.

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     In many cases, the reasons for the changes in the financial position and results of operations for both WGL Holdings and Washington Gas are essentially the same. In those instances, the reader is referred to the WGL Holdings Management’s Discussion and Analysis of Financial Condition and Results of Operations, which begins on page 19. The following management’s discussion of Washington Gas’ financial position and results of operations only describes those instances in which the reasons for changes in the results of operations vary significantly from those of WGL Holdings.

RESULTS OF OPERATIONS—THREE MONTHS ENDED
JUNE 30, 2001 VS. JUNE 30, 2000

     EARNINGS

     For the three months ended June 30, 2001, Washington Gas reported a net loss applicable to common stock of $7.7 million compared to a loss of $5.6 million for the quarter ended June 30, 2000. Washington Gas results for the current quarter are $0.9 million lower than for WGL Holdings because they do not include net income generated by Washington Gas’ former subsidiaries (including the 50 percent equity investment in Primary Investors), as well as operating expenses incurred by the holding company. In compliance with generally accepted accounting principles, the subsidiary earnings for the current quarter were recognized on the consolidated financial statements of WGL Holdings, the new parent company of Washington Gas’ former subsidiaries.

     The Washington Gas financial statements were prepared in accordance with generally accepted accounting principles. Therefore, non-utility results reported on these statements for the quarters ended June 30, 2001 and 2000 are not comparable because of the absence of the results for the energy marketing, HVAC, and consumer financing segments in the current year’s quarter. These entities became subsidiaries and investments of WGL Holdings pursuant to the November 1, 2000 corporate restructuring. Comparable results for the non-utility operations are reflected in WGL Holdings’ consolidated financial statements and notes thereto which begin on page 3, and the WGL Holdings Management’s Discussion and Analysis of Financial Condition and Results of Operations which begins on page 19.

     UTILITY NET REVENUES

     The operating revenues and cost of gas for the three months ended June 30, 2001 (reported on the Washington Gas Statements of Income on page 8) both include offsetting amounts of $4.4 million for system balancing transactions with WGEServices, a subsidiary of Washington Gas before the November 1, 2000 restructuring. These intercompany charges were eliminated on WGL Holdings’ Consolidated Statements of Income (page 4). The reasons for the remaining variances in Washington Gas’ utility net revenues are essentially identical to theUtility Segment Net Revenuesresults discussed in WGL Holdings’ Management’s Discussion and Analysis beginning on page 19.

     OTHER UTILITY OPERATING EXPENSES

     The other utility operating expenses reported by Washington Gas for the quarter ended June 30, 2001 include $0.6 million of expenses for transactions with Hampshire Gas Company (Hampshire), a subsidiary of Washington Gas before the restructuring. These intercompany charges were eliminated on WGL Holdings’ Consolidated Statements of Income (page 4). The reasons for the remaining variances in Washington Gas’ other utility operating expenses are essentially identical toOther Utility Segment Operating Expenses, discussed in WGL Holdings’ Management’s Discussion and Analysis which begins on page 21.

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     NON-UTILITY OPERATING RESULTS

     The non-utility results of operations reported by Washington Gas for the current quarter exclude the results of its former energy marketing, HVAC, and consumer financing segments. For a discussion of the results of these segments for the three months ended June 30, 2001 and 2000, seeNon-Utility Operating Results,beginning on page 22 of WGL Holdings’ Management’s Discussion and Analysis.

     Prior to April 1, 2001, a portion of the Company’s consumer financing activities continued to be performed by Washington Gas. Effective April 1, 2001, these activities were moved to a subsidiary of WGL Holdings. During the three months ended June 30, 2001, the only activity reflected in Washington Gas’ financial results for consumer financing were revenues and charges from the associated company for servicing previously sold contracts which were in Washington Gas’ name. SeeConsumer Financing Segmenton page 23 of the WGL Holdings’ Management’s Discussion and Analysis for a complete discussion about the results of operations for the consumer-financing segment.

     OTHER INCOME (EXPENSES)—NET AND INTEREST EXPENSE

     The primary reasons for the changes in Washington Gas’ Other Income (Expenses)-Net and Interest Expense are essentially as those described in WGL Holdings’ Management’s Discussion and Analysis on page 23.

RESULTS OF OPERATIONS—NINE MONTHS ENDED
JUNE 30, 2001 VS. JUNE 30, 2000

     EARNINGS

     For the nine months ended June 30, 2001, Washington Gas reported net income applicable to common stock of $103.9 million, a $5.1 million improvement over the results reported for the same period last year. Washington Gas results for the current year-to-date are $1.6 million lower than those for WGL Holdings because the former does not include net income generated by Washington Gas’ former subsidiaries (including the 50 percent equity investment in Primary Investors) after the November 1, 2000 corporate restructuring, as well as operating expenses incurred by the holding company during the current nine-month period.

     UTILITY NET REVENUES

     The operating revenues and cost of gas for the nine months ended June 30, 2001 (reported on the Washington Gas Statements of Income on page 9) both include offsetting amounts of $10.6 million for system balancing transactions with WGEServices, a subsidiary of Washington Gas before the November 1, 2000 restructuring. These intercompany charges were eliminated on WGL Holdings’ Consolidated Statements of Income (page 5). The reasons for the remaining variances in Washington Gas’ utility net revenues are essentially identical to theUtility Segment Net Revenuesresults discussed in WGL Holdings’ Management’s Discussion and Analysis beginning on page 25.

     OTHER UTILITY OPERATING EXPENSES

     The other utility operating expenses reported by Washington Gas for the nine months ended June 30, 2001 include $1.8 million of expenses for transactions with Hampshire. These intercompany charges were eliminated on WGL Holdings’ Consolidated Statements of Income (page 5). The utility operating expenses reported by Washington Gas exclude $1.6 million of other utility operating expenses incurred by Hampshire subsequent to November 1, 2000. The reasons for the remaining variances in Washington Gas’ other utility operating expenses are essentially identical toOther Utility Operating Expenses, discussed in WGL Holdings’ Management’s Discussion and Analysis which begins on page 27.

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     NON-UTILITY OPERATING RESULTS

     The non-utility results of operations reported by Washington Gas exclude the results of its former energy marketing and HVAC segments after November 1, 2000. For a complete discussion of the results of these segments for the nine months ended June 30, 2001 and 2000, seeNon-Utility Operating Results beginning on page 27 of WGL Holdings’ Management’s Discussion and Analysis.

     OTHER INCOME (EXPENSES)—NET AND INTEREST EXPENSE

     The primary reasons for the changes in Washington Gas’ Other Expenses-Net and Interest Expense are essentially as those described in WGL Holdings’ Management’s Discussion and Analysis on page 29.

LIQUIDITY AND CAPITAL RESOURCES

     This section does not differ materially from the disclosure provided in the WGL Holdings Management’s Discussion and Analysis. However, Washington Gas’ investing activities for the current nine-month period include an $11.8 million cash transfer related to the formation of the holding Company and the related dividend of the former subsidiaries. Also, as noted previously in this report, in June 2001 Washington Gas’ parent, WGL Holdings, issued 2,038,500 shares to the public generating proceeds to the company of $52.7 million. WGL Holdings infused the entire $52.7 million generated from the sale to Washington Gas as additional contributed capital. This additional contributed capital is being used for general corporate purposes, including capital expenditures and working capital requirements by Washington Gas. Please refer to the Washington Gas Statements of Cash Flows on page 10.

OTHER MATTERS AFFECTING THE COMPANY

     On July 20, 2001, the Financial Accounting Standards Board issued Statement No. 142, “Goodwill and Other Intangible Assets”, (“SFAS 142”). This standard supercedes Accounting Principles Board Opinion No. 17, "Intangible Assets” and addresses the financial accounting and reporting for acquired goodwill and other intangible assets. The new standard addresses how goodwill and intangible assets should be accounted for upon their acquisition and how they should be accounted for after they have been initially recognized in the financial statements. Under SFAS 142 goodwill amortization will no longer be permitted. Instead, goodwill and other intangible assets will be tested annually for impairment and will only be written down to the extent this test indicates an impairment. The provisions of this statement must be adopted for fiscal years beginning after December 15, 2001. At the present time, WGL Holdings and its subsidiaries plan to adopt the provisions of the statement in its fiscal year beginning October 1, 2002.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS OF THE COMPANY

     INTEREST RATE RISK EXPOSURE RELATED TO OTHER FINANCIAL INSTRUMENTS

     WGL Holdings and its subsidiary, Washington Gas, have interest rate risk exposure related to long-term debt. For information regarding the exposure related to these risks, see Item 7A in Washington Gas’ most recently filed Form 10-K. Neither WGL Holdings nor Washington Gas’ risk associated with interest rates have materially changed from September 30, 2000.

     RISKS RELATED TO RETAIL ENERGY MARKETING OPERATIONS

     WGL Holdings’ subsidiary, WGEServices, markets both natural gas and electricity. In the course of its business, WGEServices makes fixed-price sales commitments to customers. WGEServices purchases the corresponding physical supplies at fixed prices to lock in margins. WGEServices has exposure to changes in gas prices related to the volumetric differences between the purchase commitments and sales commitments. WGEServices has managed the risk associated with gas price fluctuations by closely matching purchases from suppliers with sales commitments to customers.

     Historically, the responsibility for managing daily demand fluctuations from WGEServices’ customers resulting from variability in weather was assumed by WGL Holdings’ regulated utility subsidiary through the use of its storage and peaking capacity. The regulated utility charged WGEServices a fee for this service.

     Effective April 1, 2001, WGEServices assumed a major portion of the responsibility to deliver the appropriate level of gas to its customers on a daily basis. WGEServices will continue to be able to avail itself of certain peak shaving capacity that the regulated utility provides for a fee and also is acquiring a pro-rata portion of the utility’s storage gas capacity to manage its load. Therefore, variations in demand caused by fluctuations in weather applicable to approximately 50 percent of WGEServices’ annual sales volumes could result in WGEServices having contracted for more or less gas than its customers require on any given day. As a result, WGEServices is modifying its risk management and procurement policies to reflect the need to obtain storage capacity and other contractual arrangements to meet the weather-related variability in its demand and to ensure the financial exposure caused by this variability in demand is adequately controlled.

PART II. OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

99	Additional Exhibits
	99.0	Computation of Ratio of Earnings to Fixed Charges—WGL Holdings
	99.1	Computation of Ratio of Earnings to Fixed Charges and Preferred Stock Dividends—WGL Holdings
	99.2	Computation of Ratio of Earnings to Fixed Charges—Washington Gas

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99.3 Computation of Ratio of Earnings to Fixed Charges and Preferred Stock Dividends—Washington Gas

(b) Reports on Form 8-K:

• As co-registrants, WGL Holdings and Washington Gas Light Company filed a Current report on Form 8-K dated June 19, 2001 to announce the filing of an application with the Public Service Commission of the District of Columbia to increase rates within the District of Columbia.

• As co-registrants, WGL Holdings and Washington Gas Light Company filed a Current Report on Form 8-K dated June 21, 2001 to report the execution of a Purchase Agreement for the issuance of 1,790,000 shares of WGL Holdings common stock. The Purchase Agreement also authorized the Underwriters to purchase up to an additional 268,500 shares of the common stock of WGL Holdings (the Option Securities) at the same price to the public.

• On June 26, 2001, WGL Holdings filed a Current report on Form 8-K to report and file as an exhibit a Purchase Agreement relating to the issue and sale of 1,790,000 shares of WGL Holdings common stock.

• A Current Report on Form 8-K/A dated June 26, 2001 was filed by co-registrants, WGL Holdings and Washington Gas Light Company, to correct the event date listed in the filing on June 21, 2001 and to correct the name of one of the representatives of the underwriters related to the June 20, 2001 Purchase Agreement.

• As co-registrants, WGL Holdings and Washington Gas Light Company filed a Current Report on Form 8-K dated June 28, 2001 to report the exercise by the Representatives, on behalf of several Underwriters, the option to purchase from WGL Holdings 248,500 shares of the total 268,500 shares of Option Securities authorized under the Purchase Agreement.

• On July 5, 2001, WGL Holdings and Washington Gas Light Company filed a Current Report on Form 8-K to announce the election of Beverly J. Burke to Vice President and General Counsel of WGL Holdings as a replacement for John K. Keane, Jr. effective July 1, 2001.

• On August 13, 2001, WGL Holdings and Washington Gas Light Company filed a Current Report on Form 8-K to report the restatement of earnings for the second fiscal quarter ended March 31, 2001 and the correction of the press release issued on August 1, 2001 announcing earnings for the third fiscal quarter ended June 30, 2001.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	WGL HOLDINGS, INC.
	and
	WASHINGTON GAS LIGHT COMPANY (Co-Registrants)
Date: August 14, 2001	/s/ Robert E. Tuoriniemi Robert E. Tuoriniemi Controller (Principal Accounting Officer)

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