WGL (WGL) 10-K/A 2003 FY Annual report (amended)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-K/A

Amendment No. 2

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

For the Fiscal Year Ended September 30, 2003

Commission	Exact name of registrant as specified in its charter and	States of	I.R.S.
File Number	principal office address and telephone number	Incorporation	Employer I.D. Number
1-16163	WGL Holdings, Inc. 101 Constitution Ave, N.W. Washington, D.C. 20080 (703) 750-2000	Virginia	52-2210912
0-49807	Washington Gas Light Company 101 Constitution Ave, N.W. Washington, D.C. 20080 (703) 750-4440	District of Columbia and Virginia	53-0162882

Securities registered pursuant to Section 12(b) of the Act (as of September 30, 2003):
Title of each class	Name of each exchange on which registered
WGL Holdings, Inc. common stock, no par value	New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act (as of September 30, 2003):
Title of each class	Name of each exchange on which registered
Washington Gas Light Company preferred stock, cumulative, without par value:
$4.25 Series	Over-the-counter bulletin board
$4.80 Series	Over-the-counter bulletin board
$5.00 Series	Over-the-counter bulletin board

Indicate by check mark whether each registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:
Yes[X]  No [  ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrants’ knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12-b of the Act):
Yes[X]  No [  ]

The aggregate market value of the voting common equity held by non-affiliates of the registrant, WGL Holdings, Inc., amounted to $1,282,856,952 as of March 31, 2003.

WGL Holdings, Inc. common stock, no par value outstanding as of October 31, 2003: 48,626,243 shares.

All of the outstanding shares of Common Stock ($1 par value) of Washington Gas Light Company were held by WGL Holdings, Inc. as of October 31, 2003.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of WGL Holdings, Inc.’s definitiveProxy Statementand Washington Gas Light Company’s definitiveInformation Statementin connection with the 2004 Annual Meeting of Shareholders, to be filed with the Commission pursuant to Regulation 14A and 14C not later than 120 days after September 30, 2003, are incorporated in Part III of this report.

WGL Holdings, Inc.
Washington Gas Light Company

2003 Annual Report on Form 10-K/A
Amendment No. 2

Table of Contents

	Page
Explanatory Note		1
PART II
Item 6.Selected Financial Data		2
Item 8.Financial Statements and Supplementary Data
WGL Holdings, Inc		3
Washington Gas Light Company		9
PART IV
Item 15.Exhibits, Financial Statement Schedules, and Reports on Form 8-K		48
Signature		51

EXPLANATORY NOTE

     This Amendment No. 2 to the registrants’ Annual Report on Form 10-K for the fiscal year ended September 30, 2003 that was originally filed with the Securities and Exchange Commission (SEC) on December 17, 2003, is filed to reflect the reclassification of accrued non-legal asset removal costs from “Accumulated depreciation and amortization” to a non-current liability, “Accrued asset removal costs,” for all periods presented prior to fiscal year 2003. The registrants’ original filing had reflected this reclassification only for the fiscal year ended September 30, 2003; however, periods presented prior to fiscal year 2003 were not reclassified. Subsequent to the registrants’ original filing date, new accounting guidance applicable to all regulated utilities became available from the SEC, requiring that reclassification of accrued non-legal asset removal costs from “Accumulated depreciation and amortization” to a non-current liability be made for all prior periods presented. These reclassifications had no effect on the registrants’ previously reported results of operations or equity. This amendment does not reflect events occurring after the original filing of the registrants’ Annual Report on Form 10-K, and does not modify or update any of those disclosures except as stated in this paragraph.

1

WGL Holdings, Inc.
Washington Gas Light Company

Part II
Item 6. Selected Financial Data

ITEM 6. SELECTED FINANCIAL DATA

SELECTED FINANCIAL AND OPERATIONS DATA^(a)

(In thousands, except per share data)
Years Ended September 30,	2003			2002			2001			2000			1999
SUMMARY OF EARNINGS
Utility operating revenues	$	1,301,057		$	925,131		$	1,446,456		$	1,031,105		$	972,120
Less: Cost of gas		696,561			459,149			904,416			552,579			505,346
Revenue taxes		40,465			27,549			40,616			35,598			34,793
Utility net revenues	$	564,031		$	438,433		$	501,424		$	442,928		$	431,981
Utility operation and maintenance expenses	$	216,255		$	205,061		$	194,469		$	177,504		$	201,229
Non-utility operating revenues	$	763,191		$	659,671		$	493,063		$	218,087		$	140,096
Net income	$	112,342		$	39,121		$	82,445		$	83,251		$	67,437
Earnings per average common share
Basic	$	2.31		$	0.81		$	1.75		$	1.79		$	1.47
Diluted	$	2.30		$	0.80		$	1.75		$	1.79		$	1.47
CAPITALIZATION—YEAR-END
Common shareholders’ equity	$	818,218		$	766,403		$	788,253		$	711,496		$	684,034
Preferred stock		28,173			28,173			28,173			28,173			28,420
Long-term debt		636,650			667,951			584,370			559,724			506,084
Total capitalization	$	1,483,041		$	1,462,527		$	1,400,796		$	1,299,393		$	1,218,538
OTHER FINANCIAL DATA
Total assets—year-end(b)	$	2,436,052		$	2,339,146		$	2,292,999		$	2,139,989		$	1,964,147
Property, plant and equipment—net—year-end(b)	$	1,874,923		$	1,832,325		$	1,731,633		$	1,660,280		$	1,591,390
Capital expenditures	$	129,083		$	162,383		$	130,215		$	124,067		$	158,733
Long-term obligations—year-end	$	636,650		$	667,951		$	584,370		$	559,724		$	506,084
COMMON STOCK DATA
Annualized dividends per share	$	1.28		$	1.27		$	1.26		$	1.24		$	1.22
Dividends declared per share	$	1.2775		$	1.2675		$	1.2550		$	1.2350		$	1.2150
Book value per share—year-end	$	16.83		$	15.78		$	16.24		$	15.31		$	14.72
Return on average common equity		14.2	%		5.0	%		11.0	%		11.9	%		10.4	%
Dividend yield on book value		7.6	%		8.0	%		7.7	%		8.1	%		8.3	%
Dividend payout ratio		55.3	%		156.5	%		71.7	%		69.0	%		82.7	%
Shares outstanding—year-end (thousands)		48,612			48,565			48,543			46,470			46,473
UTILITY GAS SALES AND DELIVERIES(thousands of therms)
Gas sold and delivered
Residential-firm		648,809			509,243			634,949			557,825			604,162
Commercial and industrial
Firm		239,628			193,917			258,546			240,239			285,349
Interruptible		12,163			10,646			11,927			27,627			48,989
Total gas sold and delivered		900,600			713,806			905,422			825,691			938,500
Gas delivered for others
Firm		496,889			346,910			365,262			306,933			191,620
Interruptible		257,799			277,367			251,039			262,923			272,046
Electric generation		67,245			169,210			165,918			211,928			129,700
Total gas delivered for others		821,933			793,487			782,219			781,784			593,366
Total utility gas sales and deliveries		1,722,533			1,507,293			1,687,641			1,607,475			1,531,866
OTHER STATISTICS
Active customer meters—year-end		959,922			939,291			903,789			875,817			846,381
New customer meters added		26,167			31,205			32,188			30,063			29,503
Degree days—actual		4,550			3,304			4,314			3,637			3,652
Weather percent colder (warmer) than normal		19.8	%		(13.4	)%		13.1	%		(5.0	)%		(5.2	)%

(a)

Results presented for periods prior to fiscal year 2001 reflect the consolidated operation of Washington Gas Light Company and its subsidiaries.

(b)

In fiscal year 2003, the Company adopted Statement of Financial Accounting Standards No. 143, “Accounting for Asset Retirement Obligations,” resulting in an increase in “Total Assets” and “Property, Plant and Equipment-Net” due to a reclassification of accrued non-legal asset removal costs from accumulated depreciation to a regulatory liability. In accordance with new accounting guidance that became available from the Securities and Exchange Commission to the regulated utility industry subsequent to the issuance of the Company’s financial statements for fiscal year 2003, the Company adjusted all prior periods presented to reflect the reclassification of accrued non-legal asset removal costs from accumulated depreciation to a non-current liability.

2

WGL Holdings, Inc.
Consolidated Statements of Income
Part II

Item 8. Financial Statements and Supplementary Data

	Years Ended September 30,
(In thousands, except per share data)	2003		2002			2001
UTILITY OPERATIONS
Operating Revenues	$	1,301,057	$	925,131		$	1,446,456
Less: Cost of gas		696,561		459,149			904,416
Revenue taxes		40,465		27,549			40,616
Utility Net Revenues		564,031		438,433			501,424
Other Operating Expenses
Operation		176,482		164,236			157,662
Maintenance		39,773		40,825			36,807
Depreciation and amortization		83,549		72,921			68,754
General taxes		37,841		34,328			37,867
Income taxes		68,633		28,702			59,009
Utility Other Operating Expenses		406,278		341,012			360,099
Utility Operating Income		157,753		97,421			141,325
NON-UTILITY OPERATIONS
Operating Revenues
Retail energy-marketing		726,231		595,866			419,226
Heating, ventilating and air conditioning (HVAC)		35,521		61,887			70,279
Other non-utility activities		1,439		1,918			3,558
Non-Utility Operating Revenues		763,191		659,671			493,063
Equity Loss in 50%-Owned Residential HVAC Investment		—		(5,402	)		(2,595	)
Impairment of Residential HVAC Investment		—		(9,431	)		(3,900	)
Other Operating Expenses
Operating expenses		761,540		654,573			487,486
Income taxes		168		1,725			363
Non-Utility Operating Expenses		761,708		656,298			487,849
Non-Utility Operating Income (Loss)		1,483		(11,460	)		(1,281	)
TOTAL OPERATING INCOME		159,236		85,961			140,044
Other Income (Expenses)—Net		807		357			(6,279	)
INCOME BEFORE INTEREST EXPENSE		160,043		86,318			133,765
INTEREST EXPENSE
Interest on long-term debt		43,866		43,138			41,294
Other		2,515		2,739			8,706
Total Interest Expense		46,381		45,877			50,000
DIVIDENDS ON WASHINGTON GAS PREFERRED STOCK		1,320		1,320			1,320
NET INCOME (APPLICABLE TO COMMON STOCK )	$	112,342	$	39,121		$	82,445
AVERAGE COMMON SHARES OUTSTANDING
Basic		48,587		48,563			47,120
Diluted		48,756		48,651			47,190
EARNINGS PER AVERAGE COMMON SHARE
Basic	$	2.31	$	0.81		$	1.75
Diluted	$	2.30	$	0.80		$	1.75
DIVIDENDS DECLARED PER COMMON SHARE	$	1.2775	$	1.2675		$	1.2550

The accompanying notes are an integral part of these statements.

3

WGL Holdings, Inc.
Consolidated Balance Sheets
Part II
Item 8. Financial Statements and Supplementary Data (continued)

	September 30,
(In thousands)	2003			2002
ASSETS
Property, Plant and Equipment
At original cost	$	2,563,923		$	2,481,810
Accumulated depreciation and amortization		(689,000	)		(649,485	)
Net Property, Plant and Equipment		1,874,923			1,832,325
Current Assets
Cash and cash equivalents		4,470			2,529
Receivables
Accounts receivable		171,772			175,344
Gas costs due from customers		11,368			6,983
Accrued utility revenues		15,580			11,557
Allowance for doubtful accounts		(17,543	)		(13,740	)
Net Receivables		181,177			180,144
Materials and supplies—principally at average cost		12,989			13,088
Storage gas—at cost (first-in, first-out)		164,597			99,087
Deferred income taxes		11,980			29,973
Other prepayments—principally taxes		26,919			13,422
Exchange gas imbalance-non-utility operations		649			329
Other		6,104			2,259
Total Current Assets		408,885			340,831
Deferred Charges and Other Assets
Regulatory assets
Gas costs		10,490			5,272
Other		52,333			64,621
Prepaid qualified pension benefits		66,753			58,453
Other		22,668			37,644
Total Deferred Charges and Other Assets		152,244			165,990
Total Assets	$	2,436,052		$	2,339,146
CAPITALIZATION AND LIABILITIES
Capitalization
Common shareholders’ equity	$	818,218		$	766,403
Washington Gas Light Company Preferred stock		28,173			28,173
Long-term debt		636,650			667,951
Total Capitalization		1,483,041			1,462,527
Current Liabilities
Current maturities of long-term debt		12,180			42,396
Notes payable		166,662			90,865
Accounts payable		142,708			138,472
Wages payable		15,701			14,348
Accrued interest		3,027			3,308
Dividends declared		15,886			15,743
Customer deposits and advance payments		11,046			15,482
Gas costs due to customers		7,553			6,190
Accrued taxes		8,699			9,957
Other		2,612			750
Total Current Liabilities		386,074			337,511
Deferred Credits
Unamortized investment tax credits		15,841			16,739
Deferred income taxes		236,888			212,631
Accrued pensions and benefits		37,356			37,970
Accrued asset removal costs		230,672			225,482
Other regulatory liabilities		22,444			21,045
Other		23,736			25,241
Total Deferred Credits		566,937			539,108
Commitments and Contingencies (Note 15)
Total Capitalization and Liabilities	$	2,436,052		$	2,339,146

The accompanying notes are an integral part of these statements.

4

WGL Holdings, Inc.
Consolidated Statements of Cash Flows
Part II
Item 8. Financial Statements and Supplementary Data (continued)

	Years Ended September 30,
(In thousands)	2003			2002			2001
OPERATING ACTIVITIES
Net income (applicable to common stock)	$	112,342		$	39,121		$	82,445
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES
Depreciation and amortization:
Utility property, plant and equipment		83,549			72,921			68,754
Other accounts		5,724			5,001			4,507
Deferred income taxes—net		41,625			(7,391	)		42,656
Amortization of investment tax credits		(898	)		(901	)		(899	)
Accrued/deferred pension cost		(5,159	)		(14,980	)		(16,000	)
Equity loss in 50%-owned residential HVAC investment		—			5,402			2,595
Impairment of residential HVAC Investment		—			9,431			3,900
Gain from sale of assets		(5,671	)		—			—
Other non-cash charges (credits) – net		(519	)		434			(920	)
CHANGES IN ASSETS AND LIABILITIES
Accounts receivable and accrued utility revenues		3,352			(24,606	)		(27,798	)
Gas costs due from/to customers—net		(3,022	)		56,063			(60,183	)
Storage gas		(65,510	)		36,675			2,922
Other prepayments—principally taxes		(13,497	)		6,041			(11,995	)
Accounts payable		(2,289	)		21,650			(22,293	)
Wages payable		1,353			(1,010	)		1,483
Customer deposits and advance payments		(4,436	)		6,825			(2,089	)
Accrued taxes		(1,258	)		(3,172	)		4,877
Accrued interest		(281	)		50			206
Pipeline refunds due to customers		1,467			(138	)		(378	)
Deferred purchased gas costs—net		(5,218	)		(3,241	)		(6,125	)
Exchange gas imbalance–non-utility operations		(320	)		276			13,136
Other—net		2,450			869			1,238
Net Cash Provided by Operating Activities		143,784			205,320			80,039
FINANCING ACTIVITIES
Common stock issued		—			—			52,665
Long-term debt issued		93			130,411			98,304
Long-term debt retired		(41,903	)		(42,862	)		(27,062	)
Debt issuance costs		(418	)		(1,055	)		(666	)
Notes payable issued (retired)—net		75,797			(43,188	)		(27,371	)
Dividends on common stock		(61,948	)		(61,433	)		(58,753	)
Other financing activities		2,087			827			1,014
Net Cash (Used in) Provided by Financing Activities		(26,292	)		(17,300	)		38,131
INVESTING ACTIVITIES
Capital expenditures		(129,083	)		(162,383	)		(130,215	)
Net proceeds from the sale of assets		21,300			—			—
50%-owned residential HVAC investment		—			(3,900	)		(1,050	)
Other investing activities		(7,768	)		(31,312	)		863
Net Cash Used in Investing Activities		(115,551	)		(197,595	)		(130,402	)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		1,941			(9,575	)		(12,232	)
Cash and Cash Equivalents at Beginning of Year		2,529			12,104			24,336
Cash and Cash Equivalents at End of Year	$	4,470		$	2,529		$	12,104
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Income taxes paid	$	45,275		$	36,102		$	19,745
Interest paid	$	45,283		$	44,951		$	49,667
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Extinguishment of project debt financing	$	19,707		$	9,750		$	—

The accompanying notes are an integral part of these statements.

5

WGL Holdings, Inc.
Consolidated Statements of Capitalization
Part II
Item 8. Financial Statements and Supplementary Data (continued)

	September 30,
(In thousands, except shares)	2003					2002
Common Shareholders’ Equity
Common stock, no par value, 120,000,000 shares authorized, 48,650,635 shares issued	$	471,497				$	471,497
Paid-in capital		2,582					1,645
Retained earnings		345,927					295,676
Deferred compensation		(32	)				(120	)
Accumulated other comprehensive loss		(716	)				—
Treasury stock—at cost, 39,072 and 85,968 shares, respectively		(1,040	)				(2,295	)
Total Common Shareholders’ Equity		818,218		55.2	%		766,403		52.4	%
Preferred Stock
WGL Holdings, Inc., without par value, 3,000,000 shares authorized		—					—
Washington Gas Light Company, without par value, 1,500,000 shares authorized—
Issued and outstanding:
$4.80 series, 150,000 shares		15,000					15,000
$4.25 series, 70,600 shares		7,173					7,173
$5.00 series, 60,000 shares		6,000					6,000
Total Preferred Stock		28,173		1.9	%		28,173		1.9	%
Long-Term Debt
Washington Gas Light Company Unsecured Medium-Term Notes:
Due fiscal year 2003, 6.90%		—					5,000
Due fiscal year 2005, 7.45%		20,500					20,500
Due fiscal year 2008, 6.51% to 7.31%		45,100					45,100
Due fiscal year 2009, 5.49% to 6.92%		75,000					75,000
Due fiscal year 2010, 7.50% to 7.70%		24,000					24,000
Due fiscal year 2011, 6.64%		30,000					30,000
Due fiscal year 2012, 5.90% to 6.05%		77,000					77,000
Due fiscal year 2014, 5.17%		30,000					30,000
Due fiscal year 2022, 6.94% to 6.95%		—					5,000
Due fiscal year 2023, 6.50% to 7.04%		—					50,000
Due fiscal year 2023, 6.65%		20,000					—
Due fiscal year 2024, 6.95%		36,000					36,000
Due fiscal year 2025, 6.50% to 7.76%		40,000					40,000
Due fiscal year 2026, 6.15%		50,000					50,000
Due fiscal year 2027, 6.40% to 6.82%		125,000					125,000
Due fiscal year 2028, 6.57% to 6.85%		52,000					52,000
Due fiscal year 2030, 7.50%		8,500					8,500
Total Unsecured Medium-Term Notes		633,100					673,100
Other long-term debt		16,172					37,795
Unamortized discount		(442	)				(548	)
Less - current maturities		12,180					42,396
Total Long-Term Debt		636,650		42.9	%		667,951		45.7	%
Total Capitalization	$	1,483,041		100.0	%	$	1,462,527		100.0	%

The accompanying notes are an integral part of these statements.

6

WGL Holdings, Inc.
Consolidated Statements of Common Shareholders’ Equity
Part II
Item 8. Financial Statements and Supplementary Data (continued)

																Accumulated
																Other
	Common Stock Issued															Comprehensive
							Paid-In			Retained			Deferred			Loss, Net of			Treasury
(In thousands, except shares)	Shares			Amount			Capital			Earnings			Compensation			Taxes			Stock			Total
Balance at September 30, 2000		46,612,580		$	46,613		$	373,895		$	295,302		$	(544	)	$	—		$	(3,770	)	$	711,496
Net income		—			—			—			82,445			—			—			—			82,445
Exchange of Washington Gas Light Company common stock, $1 par value, for WGL Holdings, Inc. common stock, no par		—			372,306			(372,306	)		—			—			—			—			—
Common stock issued		2,038,500			54,489			—			—			—			—			—			54,489
Common stock expense		—			(1,911	)		—			—			—			—			—			(1,911	)
Stock-based compensation		—			—			192			—			269			—			909			1,370
Conversion of preferred stock		(445	)		—			—			—			—			—			—			—
Dividends declared on common stock ($1.2550 per share)		—			—			—			(59,636	)		—			—			—			(59,636	)
Balance at September 30, 2001		48,650,635			471,497			1,781			318,111			(275	)		—			(2,861	)		788,253
Net income		—			—			—			39,121			—			—			—			39,121
Stock-based compensation		—			—			(136	)		—			155			—			566			585
Dividends declared on common stock ($1.2675 per share)		—			—			—			(61,556	)		—			—			—			(61,556	)
Balance at September 30, 2002		48,650,635			471,497			1,645			295,676			(120	)		—			(2,295	)		766,403
Net income		—			—			—			112,342			—			—			—			112,342
Minimum pension liability adjustment		—			—			—			—			—			(716	)		—			(716	)
Comprehensive Income																							111,626
Stock-based compensation		—			—			937			—			88			—			1,255			2,280
Dividends declared on common stock ($1.2775 per share)		—			—			—			(62,091	)		—			—			—			(62,091	)
Balance at September 30, 2003		48,650,635		$	471,497		$	2,582		$	345,927		$	(32	)	$	(716	)	$	(1,040	)	$	818,218

The accompanying notes are an integral part of these statements.

7

WGL Holdings, Inc.
Consolidated Statements of Income Taxes
Part II
Item 8. Financial Statements and Supplementary Data (continued)

	Years Ended September 30,
(In thousands)	2003			2002			2001
INCOME TAX EXPENSE
Charged to utility operating expenses
Current	$	30,841		$	30,978		$	16,694
Deferred
Accelerated depreciation		26,997			26,078			15,770
Deferred gas costs		1,010			(21,243	)		26,740
Pensions and other employee benefit costs		976			2,450			6,368
Least-cost planning costs		(1,244	)		(722	)		(1,185	)
Inventory overheads		10,700			(1,649	)		(1,574	)
Losses/gains on reacquired debt		(181	)		9			(228	)
Other		432			(6,298	)		(2,677	)
Total Deferred Income Tax Expense		38,690			(1,375	)		43,214
Amortization of investment tax credits		(898	)		(901	)		(899	)
		68,633			28,702			59,009
Charged to non-utility operating expenses
Current		(1,731	)		4,647			567
Deferred		1,899			(2,922	)		(204	)
		168			1,725			363
Charged to other income (expenses)-net
Current		(1,869	)		4,544			(2,002	)
Deferred		1,036			(3,094	)		(354	)
		(833	)		1,450			(2,356	)
Total Income Tax Expense	$	67,968		$	31,877		$	57,016

						Years Ended September 30,
(In thousands)	2003					2002					2001
RECONCILIATION BETWEEN THE STATUTORY FEDERAL INCOME TAX RATE AND THE EFFECTIVE TAX RATE
Income taxes at statutory federal income tax rate	$	63,571		35.00	%	$	25,311		35.00	%	$	49,273		35.00	%
Increases (decreases) in income taxes resulting from:
Accelerated depreciation less amount deferred		2,149		1.18			2,528		3.50			2,491		1.77
Amortization of investment tax credits		(898	)	(0.49	)		(901	)	(1.25	)		(899	)	(0.64	)
Cost of removal		(870	)	(0.48	)		(1,077	)	(1.49	)		(1,081	)	(0.77	)
State income taxes-net of federal benefit		9,146		5.04			2,218		3.07			5,483		3.90
Change in valuation allowance		(2,446	)	(1.35	)		5,216		7.21			—		—
Other items-net		(2,684	)	(1.48	)		(1,418	)	(1.97	)		1,749		1.24
Total Income Tax Expense and Effective Tax Rate	$	67,968		37.42	%	$	31,877		44.07	%	$	57,016		40.50	%

					At September 30,
(In thousands)	2003						2002
ACCUMULATED DEFERRED INCOME TAXES	Current			Non-current			Current			Non-current
Deferred Income Tax Assets:
Pensions and other employee benefit costs	$	4,778		$	(10,064	)	$	4,910		$	(9,179	)
Uncollectible accounts		6,177			—			10,563			—
Inventory overheads		2,286			—			12,986			—
Capital gains/losses-net		4,001			—			9,681			—
Valuation allowance		(4,001	)		—			(6,650	)		—
Other		564			16,798			689			14,582
Total Assets		13,805			6,734			32,179			5,403
Deferred Income Tax Liabilities:
Accelerated depreciation		—			227,162			—			200,324
Losses/gains on reacquired debt		—			2,817			—			2,997
Construction overheads		—			1,865			—			2,047
Income taxes recoverable through future rates		—			7,331			—			6,327
Deferred gas costs		1,825			2,861			2,206			1,621
Least-cost planning costs		—			3,072			—			4,316
Other		—			(1,486	)		—			402
Total Liabilities		1,825			243,622			2,206			218,034
Net Accumulated Deferred Income Tax Assets (Liabilities)	$	11,980		$	(236,888	)	$	29,973		$	(212,631	)

The accompanying notes are an integral part of these statements.

8

Washington Gas Light Company
Statements of Income
Part II
Item 8. Financial Statements and Supplementary Data (continued)

	Years Ended September 30,
(In thousands)	2003			2002			2001
UTILITY OPERATIONS
Operating Revenues	$	1,313,039		$	938,804		$	1,458,864
Less: Cost of goods sold		708,543			472,823			916,824
Revenue taxes		40,465			27,549			40,616
Utility Net Revenues		564,031			438,432			501,424
Other Operating Expenses
Operation		178,239			166,305			159,472
Maintenance		39,459			40,595			36,570
Depreciation and amortization		82,866			72,254			68,154
General taxes		37,652			34,013			37,530
Income taxes		68,416			28,263			58,701
Utility Other Operating Expenses		406,632			341,430			360,427
Utility Operating Income		157,399			97,002			140,997
NON-UTILITY OPERATIONS
Operating Revenues
Retail energy-marketing		—			—			17,755
Heating, ventilating and air conditioning (HVAC)		—			—			5,066
Other non-utility activities		1,512			1,819			2,697
Non-Utility Operating Revenues		1,512			1,819			25,518
Equity Loss in 50%-Owned Residential HVAC Investment		—			—			(167	)
Other Operating Expenses
Operating expenses		9			7,645			26,125
Income tax expense (benefit)		591			(2,262	)		(738	)
Non-Utility Operating Expenses		600			5,383			25,387
Non-Utility Operating Income (Loss)		912			(3,564	)		(36	)
TOTAL OPERATING INCOME		158,311			93,438			140,961
Other Income (Expenses) – Net		(662	)		561			(5,311	)
INCOME BEFORE INTEREST EXPENSE		157,649			93,999			135,650
INTEREST EXPENSE
Interest on long-term debt		43,866			43,138			41,255
Other		2,885			2,174			8,625
Total Interest Expense		46,751			45,312			49,880
NET INCOME (BEFORE PREFERRED STOCK DIVIDENDS)		110,898			48,687			85,770
DIVIDENDS ON PREFERRED STOCK		1,320			1,320			1,320
NET INCOME (APPLICABLE TO COMMON STOCK)	$	109,578		$	47,367		$	84,450

The accompanying notes are an integral part of these statements.

9

Washington Gas Light Company
Balance Sheets
Part II
Item 8. Financial Statements and Supplementary Data (continued)

	September 30,
(In thousands)	2003			2002
ASSETS
Property, Plant and Equipment
At original cost	$	2,539,397		$	2,457,673
Accumulated depreciation and amortization		(671,990	)		(634,023	)
Net Property, Plant and Equipment		1,867,407			1,823,650
Current Assets
Cash and cash equivalents		4,119			2,637
Receivables
Accounts receivable		69,455			63,055
Gas costs due from customers		11,368			6,983
Accrued utility revenues		15,580			11,557
Allowance for doubtful accounts		(15,826	)		(9,395	)
Net Receivables		80,577			72,200
Materials and supplies—principally at average cost		12,825			12,858
Storage gas—at cost (first-in, first-out)		124,416			69,207
Deferred income taxes		10,957			25,387
Other prepayments—principally taxes		19,089			8,316
Receivables from associated companies		—			4,341
Total Current Assets		251,983			194,946
Deferred Charges and Other Assets
Regulatory assets
Gas costs		10,490			5,272
Other		52,333			64,621
Prepaid qualified pension benefits		66,420			58,162
Other		19,784			30,968
Total Deferred Charges and Other Assets		149,027			159,023
Total Assets	$	2,268,417		$	2,177,619
CAPITALIZATION AND LIABILITIES
Capitalization
Common shareholder’s equity	$	778,502		$	730,320
Preferred stock		28,173			28,173
Long-term debt		636,614			667,852
Total Capitalization		1,443,289			1,426,345
Current Liabilities
Current maturities of long-term debt		12,100			42,238
Notes payable		65,226			25,705
Accounts payable		111,001			81,868
Wages payable		15,623			14,282
Accrued interest		3,027			3,308
Dividends declared		15,886			15,764
Customer deposits and advance payments		11,046			15,482
Gas costs due to customers		7,553			6,190
Accrued taxes		6,426			7,220
Payables to associated companies		10,026			692
Other		1,496			29
Total Current Liabilities		259,410			212,778
Deferred Credits
Unamortized investment tax credits		15,818			16,711
Deferred income taxes		237,483			214,200
Accrued pensions and benefits		37,264			37,848
Accrued asset removal costs		230,672			225,482
Other regulatory liabilities		22,431			21,030
Other		22,050			23,225
Total Deferred Credits		565,718			538,496
Commitments and Contingencies (Note 15)
Total Capitalization and Liabilities	$	2,268,417		$	2,177,619

The accompanying notes are an integral part of these statements.

10

Washington Gas Light Company
Statements of Cash Flows
Part II
Item 8. Financial Statements and Supplementary Data (continued)

	Years Ended September 30,
(In thousands)	2003			2002			2001
OPERATING ACTIVITIES
Net Income (Before Preferred Stock Dividends)	$	110,898		$	48,687		$	85,770
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES
Depreciation and amortization
Utility property, plant and equipment		82,866			72,254			68,154
Other accounts		5,030			3,917			4,013
Deferred income taxes—net		37,165			(3,714	)		43,264
Amortization of investment tax credits		(893	)		(895	)		(894	)
Accrued/deferred pension cost		(5,118	)		(14,980	)		(15,908	)
Gain from sale of assets		(4,138	)		—			—
Equity loss in 50%-owned residential HVAC investment		—			—			167
Other non-cash charges and (credits)—net		(519	)		(261	)		(920	)
CHANGES IN ASSETS AND LIABILITIES
Accounts receivable, accrued utility revenues and receivables from associated companies		349			6,323			16,896
Gas costs due from/to customers—net		(3,022	)		56,063			(60,183	)
Storage gas		(55,209	)		40,467			29,010
Other prepayments—principally taxes		(10,773	)		8,325			(9,291	)
Accounts payable		31,940			(6,735	)		(37,741	)
Wages payable		1,341			(646	)		1,168
Customer deposits and advance payments		(4,436	)		6,825			(2,089	)
Accrued taxes		(794	)		(1,144	)		2,834
Accrued interest		(281	)		46			206
Pipeline refunds due to customers		1,467			(138	)		(378	)
Deferred purchased gas costs—net		(5,218	)		(3,241	)		(6,125	)
Exchange gas imbalance—non-utility operations		—			—			(2,405	)
Other—net		5,844			4,928			4,579
Net Cash Provided by Operating Activities		186,499			216,081			120,127
FINANCING ACTIVITIES
Long-term debt issued		—			130,338			97,885
Long-term debt retired		(41,669	)		(42,600	)		(26,697	)
Debt issuance costs		(418	)		(1,055	)		(595	)
Paid-in capital		—			20,186			52,665
Notes payable issued (retired)—net		39,521			(73,019	)		(62,699	)
Dividends on common and preferred stock		(63,260	)		(62,738	)		(60,942	)
Other financing activities		1,296			282			1,468
Net Cash (Used in) Provided by Financing Activities		(64,530	)		(28,606	)		1,085
INVESTING ACTIVITIES
Capital expenditures		(128,468	)		(161,230	)		(127,077	)
Formation of holding company—net		—			—			(11,797	)
Net proceeds from sale of assets		16,000			—			—
Other investing activities		(8,019	)		(31,145	)		863
Net Cash Used in Investing Activities		(120,487	)		(192,375	)		(138,011	)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		1,482			(4,900	)		(16,799	)
Cash and Cash Equivalents at Beginning of Year		2,637			7,537			24,336
Cash and Cash Equivalents at End of Year	$	4,119		$	2,637		$	7,537
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Income taxes paid	$	41,706		$	34,867		$	27,302
Interest paid	$	44,608		$	44,326		$	43,472
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Extinguishment of project debt financing	$	19,707		$	9,750		$	—

The accompanying notes are an integral part of these statements.

11

Washington Gas Light Company
Statements of Capitalization
Part II
Item 8. Financial Statements and Supplementary Data (continued)

	September 30,
(In thousands, except shares)	2003					2002
Common Shareholder’s Equity
Common stock, $1 par value, 80,000,000 shares authorized, 46,479,536 shares issued	$	46,479				$	46,479
Paid-in capital		450,813					449,518
Retained earnings		281,958					234,443
Deferred compensation		(32	)				(120	)
Accumulated other comprehensive loss		(716	)				—
Total Common Shareholder’s Equity		778,502		53.9	%		730,320		51.2	%
Preferred Stock
Washington Gas Light Company, without par value, 1,500,000 shares authorized—
issued and outstanding:
$4.80 series, 150,000 shares		15,000					15,000
$4.25 series, 70,600 shares		7,173					7,173
$5.00 series, 60,000 shares		6,000					6,000
Total Preferred Stock		28,173		2.0	%		28,173		2.0	%
Long-Term Debt
Washington Gas Light Company Unsecured Medium-Term Notes:
Due fiscal year 2003, 6.90%		—					5,000
Due fiscal year 2005, 7.45%		20,500					20,500
Due fiscal year 2008, 6.51% to 7.31%		45,100					45,100
Due fiscal year 2009, 5.49% to 6.92%		75,000					75,000
Due fiscal year 2010, 7.50% to 7.70%		24,000					24,000
Due fiscal year 2011, 6.64%		30,000					30,000
Due fiscal year 2012, 5.90% to 6.05%		77,000					77,000
Due fiscal year 2014, 5.17%		30,000					30,000
Due fiscal year 2022, 6.94% to 6.95%		—					5,000
Due fiscal year 2023, 6.50% to 7.04%		—					50,000
Due fiscal year 2023, 6.65%		20,000					—
Due fiscal year 2024, 6.95%		36,000					36,000
Due fiscal year 2025, 6.50% to 7.76%		40,000					40,000
Due fiscal year 2026, 6.15%		50,000					50,000
Due fiscal year 2027, 6.40% to 6.82%		125,000					125,000
Due fiscal year 2028, 6.57% to 6.85%		52,000					52,000
Due fiscal year 2030, 7.50%		8,500					8,500
Total Unsecured Medium-Term Notes		633,100					673,100
Other long-term debt		16,056					37,538
Unamortized discount		(442	)				(548	)
Less - current maturities		12,100					42,238
Total Long-Term Debt		636,614		44.1	%		667,852		46.8	%
Total Capitalization	$	1,443,289		100.0	%	$	1,426,345		100.0	%

The accompanying notes are an integral part of these statements.

12

Washington Gas Light Company
Statements of Common Shareholder’s Equity
Part II
Item 8. Financial Statements and Supplementary Data (continued)

	Common Stock Issued						Paid-In			Retained			Deferred			Accumulated Other Comprehensive Loss, Net of			Treasury
(In thousands, except shares)	Shares			Amount			Capital			Earnings			Compensation			Taxes			Stock			Total
Balance at September 30, 2000(a)		46,612,580		$	46,613		$	373,895		$	295,302		$	(544	)	$	—		$	(3,770	)	$	711,496
Net income		—			—			—			85,770			—			—			—			85,770
Exchange of Washington Gas Light Company common stock, $1 par value, for WGL Holdings, Inc. common stock, no par value and dividend of former subsidiaries to WGL Holdings, Inc.		(132,599	)		(132	)		—			(71,498	)		—			—			3,770			(67,860	)
Common stock expense transferred to WGL Holdings		—			—			2,515			—			—			—			—			2,515
Common stock expense		—			—			(15	)		—			—			—			—			(15	)
Stock-based compensation (b)		—			—			(10	)		—			269			—			—			259
Conversion of preferred stock		(445	)		(2	)		—			—			—			—			—			(2	)
Capital contributed by WGL Holdings		—			—			52,665			—			—			—			—			52,665
Dividends declared:
Common stock ($1.2550 per share)		—			—			—			(59,622	)		—			—			—			(59,622	)
Preferred stock		—			—			—			(1,320	)		—			—			—			(1,320	)
Balance at September 30, 2001		46,479,536			46,479			429,050			248,632			(275	)		—			—			723,886
Net income		—			—			—			48,687			—			—			—			48,687
Common stock expense adjustment					—			15			—			—			—			—			15
Stock-based compensation (b)		—			—			267			—			155			—			—			422
Capital contributed by WGL Holdings		—			—			20,186			—			—			—			—			20,186
Dividends declared:
Common stock ($1.2675 per share)		—			—			—			(61,556	)		—			—			—			(61,556	)
Preferred stock		—			—			—			(1,320	)		—			—			—			(1,320	)
Balance at September 30, 2002		46,479,536			46,479			449,518			234,443			(120	)		—			—			730,320
Net income		—			—			—			110,898			—			—			—			110,898
Minimum pension liability adjustment		—			—			—			—			—			(716	)		—			(716	)
Comprehensive Income																							110,182
Stock-based compensation (b)		—			—			1,295			—			88			—			—			1,383
Dividends declared:
Common stock ($1.2775 per share)		—			—			—			(62,063	)		—			—			—			(62,063	)
Preferred stock		—			—			—			(1,320	)		—			—			—			(1,320	)
Balance at September 30, 2003		46,479,536		$	46,479		$	450,813		$	281,958		$	(32	)	$	(716	)	$	—		$	778,502

(a)	The amount for fiscal year 2000 reflects the consolidated operations of Washington Gas Light Company and its former subsidiaries. Washington Gas Light Company does not have publicly traded common stock and is a wholly owned subsidiary of WGL Holdings, Inc.
(b)	The stock-based compensation is based on the stock awards of WGL Holdings, Inc. that are allocated to Washington Gas Light Company for its pro-rata share.

The accompanying notes are an integral part of these statements.

13

Washington Gas Light Company
Statements of Income Taxes
Part II
Item 8. Financial Statements and Supplementary Data (continued)

	Years Ended September 30,
(In thousands)	2003			2002			2001
INCOME TAX EXPENSE
Charged to utility operating expenses
Current	$	30,682		$	30,499		$	16,712
Deferred
Accelerated depreciation		26,955			26,141			15,818
Deferred gas costs		1,010			(21,243	)		26,740
Pensions and other employee benefit costs		954			2,419			6,332
Least-cost planning costs		(1,244	)		(722	)		(1,185	)
Inventory overheads		10,700			(1,649	)		(1,574	)
Losses/gains on reacquired debt		(181	)		9			(228	)
Other		433			(6,296	)		(3,022	)
Total Deferred Income Tax Expense		38,627			(1,341	)		42,881
Amortization of investment tax credits		(893	)		(895	)		(892	)
		68,416			28,263			58,701
Charged to non-utility operating expenses
Current		(1,130	)		125			(534	)
Deferred		1,721			(2,387	)		(204	)
		591			(2,262	)		(738	)
Charged to other income (expenses)-net
Current		2,343			1,843			(3,379	)
Deferred		(3,183	)		14			587
		(840	)		1,857			(2,792	)
Total Income Tax Expense	$	68,167		$	27,858		$	55,171

	Years Ended September 30,
(In thousands)	2003					2002					2001
RECONCILIATION BETWEEN THE STATUTORY FEDERAL INCOME TAX RATE AND THE EFFECTIVE TAX RATE
Income taxes at statutory federal income tax rate	$	62,673		35.00	%	$	26,791		35.00	%	$	49,329		35.00	%
Increases (decreases) in income taxes resulting from:
Accelerated depreciation less amount deferred		2,149		1.20			2,528		3.30			2,491		1.77
Amortization of investment tax credits		(893	)	(0.50	)		(895	)	(1.17	)		(892	)	(0.63	)
Cost of removal		(870	)	(0.49	)		(1,077	)	(1.41	)		(1,081	)	(0.77	)
State income taxes-net of federal benefit		8,552		4.78			1,665		2.18			5,020		3.56
Consolidated tax savings allocation		(355	)	(0.20	)		(1,140	)	(1.50	)		—		—
Other items-net		(3,089	)	(1.72	)		(14	)	(0.01	)		304		0.22
Total Income Tax Expense and Effective Tax Rate	$	68,167		38.07	%	$	27,858		36.39	%	$	55,171		39.15	%

	At September 30,
	2003					2002
(In thousands)	Current		Non-current			Current		Non-current
ACCUMULATED DEFERRED INCOME TAXES
Deferred Income Tax Assets:
Pensions and other employee benefit costs	$	4,765	$	(9,973	)	$	4,891	$	(9,103	)
Uncollectible accounts		5,264		—			8,974		—
Inventory overheads		2,286		—			12,986		—
Other		564		16,363			688		13,292
Total Assets		12,879		6,390			27,539		4,189
Deferred Income Tax Liabilities:
Accelerated depreciation		—		227,200			—		200,240
Losses/gains on reacquired debt		—		2,817			—		2,997
Construction overheads		—		1,882			—		2,044
Income taxes recoverable through future rates		—		7,343			—		6,342
Deferred gas costs		1,922		2,861			2,152		1,621
Least-cost planning costs		—		3,072			—		4,316
Other		—		(1,302	)		—		829
Total Liabilities		1,922		243,873			2,152		218,389
Net Accumulated Deferred Income Tax Assets (Liabilities)	$	10,957	$	(237,483	)	$	25,387	$	(214,200	)

The accompanying notes are an integral part of these statements.

14

WGL Holdings, Inc.
Washington Gas Light Company
Part II
Item 8. Financial Statements and Supplementary Data (continued)
Notes to Consolidated Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ACCOUNTING POLICIES

     GENERAL

     WGL Holdings, Inc. (WGL Holdings or the Company) is a holding company that was established on March 3, 2000 under thePublic Utility Holding Company Act of 1935. On November 1, 2000, all of the shares of common stock of Washington Gas Light Company (Washington Gas or the regulated utility), 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 Crab Run Gas Company, Hampshire Gas Company (Hampshire) and Washington Gas Resources Corporation (Washington Gas Resources). These companies previously were wholly owned subsidiaries of Washington Gas prior to November 1, 2000. Until October 15, 2002, the Company held a 50-percent equity investment in Primary Investors, LLC (Primary Investors) (refer to Note 3 —Disposition of Limited Liability Company Investment).

     NATURE OF OPERATIONS

     The Company’s core business is the delivery and sale of natural gas through its regulated utility, Washington Gas. The Company also offers retail energy-related products and services that are closely related to its core business. The majority of these energy-related activities are performed by wholly owned, unregulated subsidiaries of Washington Gas Resources.

     Washington Gas is a regulated public utility that delivers and sells natural gas to approximately 960,000 customers in the metropolitan areas of Washington, D.C., Maryland and Virginia. Deliveries to firm customers accounted for 80.4 percent of the total therms delivered by Washington Gas in fiscal year 2003, and deliveries to interruptible customers accounted for the remaining 19.6 percent. Washington Gas does not depend on any one customer or group of customers to derive income. WGL Holdings also has a wholly owned regulated subsidiary, Hampshire, that operates an underground gas storage field on behalf of Washington Gas in accordance with a tariff of approved rates administered by the Federal Energy Regulatory Commission (FERC).

     Washington Gas Resources Corporation owns the Company’s unregulated subsidiaries. These unregulated operations include retail energy-marketing provided by Washington Gas Energy Services (WGEServices), as well as commercial heating, ventilating and air conditioning (HVAC) products and services provided by Washington Gas Energy Systems, Inc. (WGESystems) and American Combustion Industries, Inc. (ACI).

     CONSOLIDATION OF FINANCIAL STATEMENTS

     The consolidated financial statements include the accounts of the Company and its subsidiaries during the periods reported. Intercompany transactions have been eliminated. WGL Holdings accounted for its former 50-percent investment in Primary Investors using the equity method. Certain amounts in financial statements of prior years have been reclassified to conform to the presentation of the current fiscal year.

     USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS

     In accordance with Generally Accepted Accounting Principles (GAAP) of the United States of America, management makes certain estimates and assumptions regarding:(i)reported amounts of assets and liabilities;(ii)disclosure of contingent assets and liabilities at the date of the financial

15

WGL Holdings, Inc.
Washington Gas Light Company
Part II
Item 8. Financial Statements and Supplementary Data (continued)
Notes to Consolidated Financial Statements (continued)

statements and(iii)reported amounts of revenues, revenues subject to refund, and expenses during the reporting period. Actual results could differ from those estimates.

     PROPERTY, PLANT AND EQUIPMENT

     Property, plant and equipment (principally utility plant) are stated at original cost, including labor, materials, taxes and overhead. The cost of utility and other plant of the regulated utility includes an allowance for funds used during construction (AFUDC) that is calculated under a formula prescribed by the FERC. The regulated utility capitalizes AFUDC as a component of construction overhead. The 2003, 2002 and 2001 before-tax rates for AFUDC were 1.76 percent, 4.4 percent and 6.5 percent, respectively. The regulated utility capitalized AFUDC of $193,600 during the fiscal year ended September 30, 2003, excluding offsets of $206,000 representing adjustments to AFUDC for items such as small projects that were discontinued and expensed. Capitalized AFUDC for fiscal years 2002 and 2001 was $329,000 and $565,000, respectively, excluding offsets of $362,000 and $1,218,000.

     Effective October 1, 2002, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 143,Accounting for Asset Retirement Obligations(ARO) (see“Recent Accounting Standards”below). Among other things, this standard requires that accrued non-legal asset removal costs that meet the requirements of SFAS No. 71,Accounting for the Effects of Certain Types of Regulation,as amended and supplemented, be classified as a regulatory liability. In accordance with long-standing regulatory treatment, Washington Gas had accrued interim costs of removal on certain of its regulated, long-lived assets through depreciation expense, with a corresponding credit to “Accumulated depreciation and amortization.” In response to this new accounting standard, at September 30, 2003, the Company reclassified $230.7 million of previously accrued non-legal asset removal costs recovered through rates in excess of actual costs incurred from “Accumulated depreciation and amortization” to “Accrued asset removal costs,” which represented a regulatory liability at September 30, 2003. Subsequent to the issuance of the Company’s financial statements for the year ended September 30, 2003, new accounting guidance applicable to all regulated utilities became available from the Securities and Exchange Commission (SEC), requiring that reclassification of accrued non-legal asset removal costs from accumulated depreciation to a non-current liability be made for all prior periods presented. Accordingly, the Company reclassified on its Balance Sheets, $225.5 million of previously accrued non-legal asset removal costs at September 30, 2002 to “Accrued asset removal costs,” which represented a non-regulatory liability. These reclassifications are based on the Company’s best estimate using a recent depreciation study. Washington Gas continues to accrue interim non-legal asset removal costs through depreciation expense, with a corresponding credit to “Accrued asset removal costs.” Additionally, when Washington Gas retires depreciable utility plant and equipment, it will charge the associated original costs to “Accumulated depreciation and amortization,” and any related non-legal removal costs incurred will be charged to “Accrued asset removal costs.” In the rate setting process, both the liability and accrued non-legal asset removal costs are treated as a reduction to the net rate base.

     The Company’s regulated utility charges maintenance and repairs to operating expenses, except those charges applicable to transportation and power-operated equipment, which it allocates to operating expenses, construction and other accounts based on the use of the equipment. The Company’s regulated utility capitalizes betterments and renewal costs, and calculates depreciation applicable to its utility gas plant in service primarily using a straight-line method over the estimated remaining life of the plant. The composite depreciation and amortization rate of the regulated utility was 3.20 percent, 2.93 percent and 2.94 percent for fiscal years 2003, 2002 and 2001, respectively. Such rates include the component related to non-legal asset removal costs, and these rates are not affected by the Company’s adoption of SFAS No. 143. The Company’s regulated utility periodically reviews the adequacy of its depreciation rates by considering estimated remaining lives and other factors. Refer to Note 15 —Commitments and Contingenciesfor a discussion of a depreciation-related contingency.

     At both September 30, 2003 and 2002, 99.7 percent of the Company’s consolidated original cost of property, plant and equipment was related to the regulated utility segment as shown below.

16

WGL Holdings, Inc.
Washington Gas Light Company
Part II
Item 8. Financial Statements and Supplementary Data (continued)
Notes to Consolidated Financial Statements (continued)

Property, Plant and Equipment
At Original Cost

	September 30,
(In millions)	2003					2002
	Dollar		%			Dollar		%
Regulated utility property
Distribution, transmission and storage	$	2,297.6		89.6	%	$	2,241.2		90.3	%
General, miscellaneous and intangibles		229.3		8.9	%		199.6		8.0	%
Construction work in progress (CWIP)		29.4		1.2	%		33.8		1.4	%
Total regulated utility property		2,556.3		99.7	%		2,474.6		99.7	%
Unregulated property		7.6		0.3	%		7.2		0.3	%
Total	$	2,563.9		100.0	%	$	2,481.8		100.0	%

     REGULATED OPERATIONS

     Washington Gas accounts for its regulated operations in accordance with SFAS No. 71. This standard includes accounting principles for companies whose rates are determined by independent third-party regulators. When setting rates, regulators often make decisions, the economics of which require companies to record costs as expense (or defer costs or revenues) in different periods than may be appropriate for unregulated enterprises. When this situation occurs, the regulated utility defers the associated costs as assets (regulatory assets) on the balance sheet, and records them as expenses on the income statement as it collects revenues through customers’ rates. Further, regulators can also impose liabilities upon a company for amounts previously collected from customers, and for recovery of costs that are expected to be incurred in the future (regulatory liabilities).

     At September 30, 2003 and 2002, the regulated utility had recorded the following regulatory assets and liabilities on the Balance Sheets. These assets and liabilities will be recognized as revenues and expenses in future periods as they are reflected in customers’ rates.

Regulatory Assets and Liabilities

	Regulatory				Regulatory
	Assets				Liabilities
(In millions)	2003		2002		2003		2002
Accrued asset removal costs (Note 1)	$	—	$	—	$	230.7	$	—
Income tax-related amounts due from/to customers		16.6		16.2		9.3		9.9
Least-cost planning costs		8.8		11.9		—		—
Losses on reacquired debt		7.1		7.7		—		—
Other post-retirement benefit costs (Note 12)		6.6		7.2		—		—
Gas costs due:
From customers		11.4		7.0		—		—
To customers		—		—		7.6		6.2
Deferred pension costs/income (Note 12)		4.2		6.0		8.1		7.3
Deferred regulatory and other expenses		2.6		6.0		5.0		3.9
Deferred gas costs and pipeline supplier fees		10.5		5.3		—		—
Environmental response costs (Note 14)		4.3		5.2		—		—
Rights-of-way fees and other taxes		2.1		4.4		—		—
Total	$	74.2	$	76.9	$	260.7	$	27.3

17

WGL Holdings, Inc.
Washington Gas Light Company
Part II
Item 8. Financial Statements and Supplementary Data (continued)
Notes to Consolidated Financial Statements (continued)

     Regulatory assets are reported on the Balance Sheets under the captions “Regulatory assets — Gas costs,” “Regulatory assets — Other” and “Gas costs due from customers.” Regulatory liabilities are reported on the Balance Sheets under the captions “Accrued asset removal costs” (as of September 30, 2003), “Regulatory liabilities — Other” and “Gas costs due to customers.” There are no material regulatory assets that reflect an outlay of cash by Washington Gas for which Washington Gas does not earn its rate of return.

     As required by SFAS No. 71, Washington Gas monitors its regulatory and competitive environment to determine whether the recovery of its regulatory assets continues to be probable. If Washington Gas were to determine that recovery of these assets is no longer probable, it would write off the assets against earnings. The Company believes that SFAS No. 71 continues to apply to its regulated operations, and the recovery of its regulatory assets is probable.

     CASH AND CASH EQUIVALENTS

     WGL Holdings considers all investments with original maturities of three months or less to be cash equivalents.

     REVENUE AND COST RECOGNITION

     Utility Operations

     Revenues.For regulated deliveries of natural gas, Washington Gas reads meters and bills customers on a cycle basis. It accrues revenues for gas delivered but not yet billed at the end of the accounting period. Such revenues are recognized as unbilled revenues that are adjusted in subsequent periods when actual meter readings are taken.

     Cost of Gas.The regulated utility’s jurisdictional tariffs contain mechanisms that provide for the recovery of the cost of gas paid to suppliers on behalf of firm customers. Under these mechanisms, the regulated utility periodically adjusts its firm customers’ rates to reflect increases and decreases in the cost of gas paid to suppliers. Annually, the regulated utility reconciles the difference between the total gas costs collected from firm customers and the total gas costs paid to suppliers. The regulated utility defers any excess or deficiency and either recovers it from, or refunds it to, customers over a subsequent twelve-month period. The balance sheet captions “Gas costs due from customers” and “Gas costs due to customers” reported on the Balance Sheets reflect amounts related to these reconciliations.

     Transportation Gas Imbalance.Interruptible shippers and third-party marketer shippers transport gas on the pipeline facilities of the regulated utility as part of the unbundled services offered by the regulated utility. The delivered volumes of gas from third-party shippers often do not equal the volumes delivered out of the pipeline system to the customers, resulting in a transportation gas imbalance. These imbalances are usually short-term in duration, and the regulated utility monitors the activity and regularly notifies the shippers when their accounts have an imbalance. In accordance with regulatory treatment, Washington Gas does not record assets or liabilities associated with gas volumes related to these transportation imbalances but, rather, reflects the economic impact in its actual cost adjustment balance calculations eliminating any profit or loss that would occur as a result of the imbalance.

     The regulated utility also engages an asset manager to operate its pipeline and storage capacity, and to assist in the acquisition of natural gas supply. From time to time, the asset manager will utilize the upstream pipeline capacity reserved by the regulated utility and the capacity from the regulated utility’s own pipeline system for its own purposes. The regulated utility also designates portions of its pipeline and storage capacity to third-party marketers, under a program approved by relevant regulatory bodies, in connection with its unbundling and customer choice programs.

18

WGL Holdings, Inc.
Washington Gas Light Company
Part II
Item 8. Financial Statements and Supplementary Data (continued)
Notes to Consolidated Financial Statements (continued)

     Non-Utility Operations

     Retail Energy-Marketing.WGEServices, the Company’s retail energy-marketing subsidiary, sells natural gas and electricity on an unregulated basis to residential, commercial and industrial customers both inside and outside the Washington Gas service territory.

     WGEServices enters into fixed-rate contracts with residential customers, and indexed or fixed-rate contracts with commercial and industrial customers, for sales of natural gas. Customer contracts, which have terms of up to twenty-four months, allow WGEServices to bill customers based upon metered gas usage at customer premises or quantities delivered to the local utility, either of which may vary by month. WGEServices recognizes revenue based on contractual billing amounts plus an accrual for gas delivered and unbilled.

     WGEServices’ electric commodity contracts are full requirements contracts in which the wholesale energy supplier from whom WGEServices purchases electricity is responsible for each customer’s full metered electricity usage. WGEServices recognizes revenue based on electricity delivered and billed to customers, and accrues revenue for electric volumes delivered but not yet billed at the end of the accounting period. WGEServices recognizes electricity costs based on the same volumetric estimates that it uses to record revenue. These estimates later are actualized to the customers’ final metered usage (refer to Note 15 —Commitments and Contingenciesfor a further discussion of this electric supplier contract).

     Heating, Ventilating and Air Conditioning.Two unregulated subsidiaries, ACI and WGESystems, design and renovate mechanical HVAC systems for commercial and governmental customers under construction contracts. The Company recognizes income for all contracts using the percentage-of-completion method.

     RATE REFUNDS DUE TO CUSTOMERS

     If Washington Gas were to file a request with a state regulatory commission to modify customers’ rates, the regulated utility could, depending on the jurisdiction, charge customers the new rates until the regulatory commission renders a final decision. During this interim period, the regulated utility would potentially record a provision for a rate refund based on the difference between the amount it collected in rates subject to refund and the amount it expected to recover pending the final regulatory decision. Similarly, Washington Gas periodically records provisions for rate refunds related to other transactions of the regulated utility. Actual results for these regulatory contingencies are difficult to predict and could differ significantly from the estimates reflected in the financial statements. When necessary, in management’s judgment, Washington Gas establishes an estimated refund to customers. Effective November 12, 2002, Washington Gas placed a proposed general revenue increase into effect subject to refund pending final decision of a Virginia rate case proceeding. A provision for rate refunds is reflected in the financial statements as of and for the twelve months ended September 30, 2003 (refer to Note 15 —Commitments and Contingencies).

     REACQUISITION OF LONG-TERM DEBT

     Washington Gas defers gains or losses resulting from the reacquisition of long-term debt for financial reporting purposes, and amortizes them over future periods as adjustments to interest expense in accordance with established regulatory practice. For income tax purposes, Washington Gas recognizes these gains and losses when they are incurred.

     WEATHER INSURANCE POLICY

     Effective October 1, 2000, Washington Gas purchased a five-year weather insurance policy to minimize the impact of warmer-than-normal weather on the Company’s financial results. On an annual

19

WGL Holdings, Inc.
Washington Gas Light Company
Part II
Item 8. Financial Statements and Supplementary Data (continued)
Notes to Consolidated Financial Statements (continued)

basis that begins on October 1 and ends on September 30 of each year during the five-year term of the policy, the regulated utility receives $32,000 for every heating degree day (HDD) below the normal level of HDDs stated in the policy. Washington Gas cannot be paid for more than 515 HDDs per fiscal year. Furthermore, the regulated utility cannot be paid for more than 1,295 HDDs over the entire five-year policy life.

     Washington Gas pays an annual premium of $4.3 million for the weather insurance policy and spreads the premium cost during the year on the basis of the estimated normal HDDs that are expected in each month of the year. Using this method of accounting for the insurance premium causes approximately 90 percent of the annual premium to be recorded during the first and second quarters of the fiscal year.

     At any point in time during the fiscal year, benefits derived from the policy are recorded in WGL Holdings’ Consolidated Statements of Income for the cumulative number of HDDs that are warmer than normal, multiplied by $32,000, with an assumption of normal weather for the remainder of the fiscal year. As a result, income from the policy recorded in one accounting period can be reduced or even eliminated in a subsequent accounting period. The benefits derived from the policy in any one fiscal year cannot be eliminated in a subsequent fiscal year other than to reduce the remaining number of HDDs that can be utilized over the five-year term of the policy.

     In fiscal year 2003, weather was colder than normal and Washington Gas recorded no benefits from the insurance. In fiscal year 2002, the regulated utility recorded $14.8 million of pre-tax income from the policy as the weather from October 1, 2001 through September 30, 2002 was 462 HDDs warmer than the normal HDDs as defined by the terms of the policy. This income from the policy was accrued in “Accounts receivable” at September 30, 2002, and cash was subsequently received in October 2002 from the underwriter of the insurance policy. No benefits were received from the insurance in fiscal year 2001 due to colder-than-normal weather.

     The weather insurance policy is accounted for under the guidelines issued by the Emerging Issues Task Force (EITF) of the FASB in Issue No. 99-2. Washington Gas records both the benefits and the costs of the insurance in “Other income (expenses) – net” in the Statements of Income.

     CONCENTRATION OF CREDIT RISK

     The revenues of the regulated utility segment accounted for approximately 63.6 percent of WGL Holding’s total consolidated revenues. There is a relatively low concentration of credit risk in the regulated utility due to the large number of customers, none of which are singularly large as a percentage of the regulated utility’s total customer base.

     The concentration of credit risk for WGEServices’ retail energy-marketing business as it relates to the size of its customer base is very similar to the credit risk associated with the regulated utility. The retail energy-marketing business purchases natural gas and electricity from some suppliers that have low credit ratings as determined by major credit rating agencies. This presents a risk to the extent a supplier does not deliver gas or electricity under the terms of its contract and the retail energy-marketing company has to repurchase energy at a higher cost. In July 2003, the sole supplier of electricity to WGEServices filed for bankruptcy protection under Chapter 11 of the Bankruptcy Code but has, to date, continued to honor its contract with WGEServices. Refer to Note 15—Commitments and Contingenciesfor a further discussion of the credit risk associated with WGEServices’ electric supplier contract.

     DERIVATIVE ACTIVITIES

     The Company applies the accounting guidelines of SFAS No. 133,Accounting for Derivative Instruments and Hedging Activities, as amended by SFAS No. 138,Accounting for Certain Derivative Instruments and Certain Hedging Activities and SFAS No. 149,Amendment of Statement 133 on Derivative Instruments and Hedging Activities(collectively referred to as SFAS No. 133). SFAS No. 133

20

WGL Holdings, Inc.
Washington Gas Light Company
Part II
Item 8. Financial Statements and Supplementary Data (continued)
Notes to Consolidated Financial Statements (continued)

requires derivative instruments, including derivative instruments embedded in certain contracts, to be recorded at fair value as either an asset or a liability. Changes in the derivative’s fair value are recorded in earnings, unless the derivative meets specific hedge accounting criteria. If the derivative is designated as a fair value hedge, the changes in the fair value of the derivative and the hedged item are recognized in earnings. If the derivative is designated as a cash flow hedge, changes in the fair value of the derivative generally are recorded in “Other comprehensive income,” and recognized in income when the hedged item affects earnings. Additionally in accordance with SFAS No. 133, the Company formally documents, designates and assesses the effectiveness of derivatives that are accounted for as hedging instruments. For those derivatives that are associated with activities of the regulated utility that are likely to be recovered from or passed back to customers in future periods, the corresponding fair value is recorded as regulatory assets or regulatory liabilities, rather than through “Other comprehensive income.”

     The Company enters into forward contracts for the purchase of natural gas that qualify as derivatives under SFAS No. 133. Forward contracts are accounted for as normal purchases if it is probable that the contracts will result in physical delivery. Certain forward contracts are recorded as a liability at fair value if the contracts contain volumetric variability or optionality, or contain provisions that allow for a net settlement. Since such contracts relate to the acquisition of natural gas under a hedging program providing for recovery of the actual cost, which has been approved by the regulatory bodies in the District of Columbia, Maryland and Virginia, offsetting mark-to-market amounts are recorded as a regulatory asset or liability.

     From time to time, Washington Gas engages in derivative activities that are designed to minimize interest-rate risk associated with planned issuances of Medium-Term Notes (MTNs). The interest costs associated with issuing MTNs reflect spreads over comparable maturity U.S. Treasury yields. Such spreads take into account credit quality, maturity and other factors.

     Refer to Note 7 –Derivative Instrumentsfor a further discussion of these transactions.

     INCOME TAXES

     The Company accounts for income taxes in accordance with SFAS No. 109,Accounting for Income Taxes. Under SFAS No. 109, the Company recognizes deferred income taxes for all temporary differences between the financial statement and tax basis of assets and liabilities at currently enacted income tax rates.

     SFAS No. 109 also requires recognition of the additional deferred income tax assets and liabilities for temporary differences where regulators prohibit deferred income tax treatment for ratemaking purposes of the regulated utility. Regulatory assets or liabilities corresponding to such additional deferred income tax assets or liabilities may be recorded to the extent the Company believes they will be recoverable from or payable to customers through the ratemaking process. Refer to the table in“Regulated Operations”above that depicts the regulated utility’s regulatory assets and liabilities associated with income taxes due from and to customers at September 30, 2003 and 2002. Amounts applicable to income taxes due from and due to customers primarily represent differences between the book and tax basis of net utility plant in service.

     The Company amortizes investment tax credits as reductions to income tax expense over the estimated service lives of the related properties.

     STOCK-BASED COMPENSATION

     Effective April 1, 2003, the Company adopted SFAS No. 148,Accounting for Stock-Based Compensation – Transition and Disclosure. SFAS No. 148 amends SFAS No. 123,Accounting for Stock-Based Compensation, by providing alternative methods of transition for a voluntary change to the fair

21

WGL Holdings, Inc.
Washington Gas Light Company
Part II
Item 8. Financial Statements and Supplementary Data (continued)
Notes to Consolidated Financial Statements (continued)

value method of accounting for stock-based employee compensation. In addition, SFAS No. 148 requires prominent disclosure in both annual and interim financial statements.

     No compensation expense has been recognized in the Consolidated Statements of Income for the stock option grants, as discussed in Note 13 –Stock-Based Compensation. If compensation expense for the stock-based compensation plans had been determined based on the fair value at the grant dates for awards under these plans consistent with the method prescribed by SFAS No. 123, as amended by SFAS No. 148, the Company’s net income and earnings per share would have been reduced to the amounts shown in the following table.

Pro Forma Effect of Stock Options
	Years ended September 30,
(In thousands, except per share data)	2003			2002			2001
Net Income As Reported	$	112,342		$	39,121		$	82,445
Add: Stock-based employee compensation Expense included in reported net Income, net of tax(a)		1,078			528			610
Deduct: Total stock-based employee Compensation expense determined Under the fair value-based method, net of tax		(1,425	)		(902	)		(889	)
Pro Forma Net Income	$	111,995		$	38,747		$	82,166
Earnings per average common share—basic
As reported	$	2.31		$	0.81		$	1.75
Pro forma		2.31			0.80			1.74
Earnings per average common share—diluted
As reported	$	2.30		$	0.80		$	1.75
Pro forma		2.30			0.80			1.74
(a)   Reflects compensation expense related to performance shares.

     RECENT ACCOUNTING STANDARDS

     Effective October 1, 2002, the Company adopted SFAS No. 142,Goodwill and Other Intangible Assets, which requires that goodwill no longer be amortized over an estimated useful life, but rather be tested annually for impairment and written down to the extent the test indicates the existence of an impairment. In connection with the implementation of this standard, the Company performed a transition impairment test for goodwill as of October 1, 2002, and performed an additional test as of September 30, 2003. For both tests, the Company concluded there was no impairment required to be recorded. Accordingly, the adoption of SFAS No. 142 did not have any effect on the Company’s financial statements for the fiscal year ended September 30, 2003. Unamortized goodwill was $2.1 million at September 30, 2003. Amortization expense was not material for fiscal years 2002 and 2001. Discontinuing goodwill amortization for fiscal year 2003 did not have a significant impact on the accompanying financial statements.

     Effective October 1, 2002, the Company adopted SFAS No. 143,Accounting for Asset Retirement Obligations(ARO). The standard requires that the Company identify legal obligations associated with the retirement of tangible long-lived assets. Liabilities must be recognized and measured at fair value when it is determined that there is a legal obligation associated with the retirement of tangible long-lived assets. The cost associated with the recognition of the liability for AROs is capitalized as part of the related asset’s book value and is depreciated over the expected life of the asset. As of September 30, 2003, the Company did not have a legal obligation to retire any of its tangible long-lived assets or, for certain immaterial assets, the Company could not estimate the ARO. However, the Company’s adoption of SFAS No. 143 did result in balance sheet reclassifications of non-legal asset removal costs of $230.7 million and $225.5 million at September 30, 2003 and 2002, respectively, from “Accumulated

22

WGL Holdings, Inc.
Washington Gas Light Company
Part II
Item 8. Financial Statements and Supplementary Data (continued)
Notes to Consolidated Financial Statements (continued)

depreciation and amortization” to a non-current liability (refer to“Property, Plant and Equipment”above for a discussion of the Company’s policy on non-legal asset removal costs).

     Effective January 1, 2003, the Company adopted Financial Accounting Standards Board (FASB) Financial Interpretation (FIN) No. 45,Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. FIN No. 45 clarifies SFAS No. 5,Accounting for Contingencies, by requiring a guarantor to recognize a liability on its balance sheet for the fair value of the obligation it has assumed under certain guarantees issued or modified after December 31, 2002. Additionally, FIN No. 45 requires expanded disclosures in interim and annual financial statements about a guarantor’s obligations under certain guarantees that it has issued. As of September 30, 2003, the Company did not have any obligations under guarantees that would be required to be recognized as a liability on the balance sheet. However, the Company did have obligations under guarantees subject to the disclosure requirements of FIN No. 45 (see Note 15 —Commitments and Contingencies).

     Effective July 1, 2003, the Company adopted SFAS No. 149,Amendment of Statement 133 on Derivative Instruments and Hedging Activities. SFAS No. 149 amends and clarifies the accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133. The amendments set forth in SFAS No. 149 require that contracts with comparable characteristics be accounted for similarly. Specifically, this statement clarifies the circumstances by which a contract with an initial net investment meets the characteristics of a derivative according to SFAS No. 133, and when a derivative contains a financing component that warrants special reporting in the Statements of Cash Flows (see Note 7 –Derivative Instruments). The adoption of this accounting standard did not have a material effect on the Company’s consolidated financial statements.

     In May 2003, the FASB issued SFAS No. 150,Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, which requires certain financial instruments that historically have been classified as equity to be classified as liabilities (or as an asset in certain circumstances). SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective for the Company on October 1, 2003. Management has reviewed the effects of this standard and concluded that it will not affect the Company’s consolidated financial statements.

     In January 2003, the FASB issued FIN No. 46,Consolidation of Variable Interest Entities, an Interpretation of ARB 51.The primary objectives of FIN No. 46 are to provide guidance on the identification and consolidation of variable interest entities (VIEs), which are entities by which control is achieved through means other than through voting rights. FIN No. 46 is effective commencing on October 1, 2003 for all new VIEs created subsequent to February 1, 2003. For all VIEs created prior to February 1, 2003, FIN No. 46 is effective for the Company by December 31, 2003. Management has reviewed the effects of this standard and concluded that it will not affect the Company’s consolidated financial statements.

2. CORPORATE RESTRUCTURING

     At its March 3, 2000 Annual Meeting of Shareholders, Washington Gas shareholders approved, by a two-thirds majority, a proposal to form WGL Holdings, a holding company established under thePublic Utility Holding Company Act of 1935. The Company subsequently received the necessary regulatory approvals, and the corporate restructuring was completed on November 1, 2000. Since this restructuring, Washington Gas, the regulated utility, and its former subsidiaries have operated as separate subsidiaries of WGL Holdings.

     On the November 1, 2000 date of restructuring, stock certificates previously representing shares of Washington Gas common stock also represented the same number of shares of WGL Holdings common stock. All serial preferred stock issued by Washington Gas remains issued and outstanding as shares of Washington Gas serial preferred stock. The dividend rates for the preferred stock were not changed and those dividends continue to be paid by Washington Gas. All outstanding indebtedness and other

23

WGL Holdings, Inc.
Washington Gas Light Company
Part II
Item 8. Financial Statements and Supplementary Data (continued)
Notes to Consolidated Financial Statements (continued)

obligations of Washington Gas prior to the restructuring remain outstanding as obligations of Washington Gas. Holders of Washington Gas’ long-term debt continue as security holders of Washington Gas.

3. DISPOSITION OF LIMITED LIABILITY COMPANY INVESTMENT

     In August 1999, Washington Gas and Thayer Capital Partners (Thayer) formed Primary Investors, a limited liability company. Effective November 1, 2000, in connection with a corporate restructuring, Washington Gas transferred its ownership interest in Primary Investors to WGL Holdings. WGL Holdings and Thayer each owned 50 percent of Primary Investors.

     On September 20, 2002, WGL Holdings and Thayer entered into an agreement to restructure Primary Investors such that WGL Holdings has no liability or financial commitment to Thayer, Primary Investors or any subsidiary of Primary Investors. On October 15, 2002, WGL Holdings and Primary Investors executed a final closing, and WGL Holdings transferred all of its interest in Primary Investors to Thayer. Since September 30, 2002, the Company had no net investment in this equity venture nor was there any effect on consolidated net income from this venture during fiscal year 2003. Net income for fiscal years ended 2002 and 2001 included a net loss from these operations of $3.5 million and $2.2 million, respectively, as well as an impairment provision of $9.4 million and $3.9 million, respectively, to reflect the permanent decline in value.

4. SALES OF PROPERTY

     In March 2003, the Company’s regulated utility recognized a pre-tax gain of $4.1 million (or $2.5 million after-tax) from the sale of its headquarters building and land located in downtown Washington, D.C. This gain was reported in “Other income (expenses) – net” for the year ended September 30, 2003 in accordance with regulatory accounting. The fiscal year 2003 results also include estimates for potential refunds to customers based on the outcome of regulatory decisions related to this gain.

     In the first quarter of fiscal year 2003, the Company’s non-utility operations recognized a pre-tax gain of $1.6 million (or $926,000 after-tax) from the sale of its interest in a land development venture.

5. SHORT-TERM DEBT

     WGL Holdings satisfies its short-term financing requirements through the sale of commercial paper or through bank borrowings. Due to the seasonal nature of the regulated utility and retail energy-marketing operations, short-term financing requirements can vary significantly during the year. The Company maintains revolving credit agreements to support its outstanding commercial paper and to permit short-term borrowing flexibility.

     On May 2, 2003, Washington Gas and WGL Holdings executed revolving credit agreements with a group of banks in the amounts of $175 million and $130 million, respectively. Washington Gas and WGL Holdings pay facility fees of 11 basis points and 13 basis points, respectively, for the revolving credit agreements, which will expire on April 30, 2004.

     Both WGL Holdings and Washington Gas can reduce the amount of commitments at their option. Collectively, the borrowing options under both credit agreements include, but are not limited to, the prime lending rate and the Eurodollar rate.

24

WGL Holdings, Inc.
Washington Gas Light Company
Part II
Item 8. Financial Statements and Supplementary Data (continued)
Notes to Consolidated Financial Statements (continued)

     At September 30, 2003, WGL Holdings and its subsidiaries had $166.7 million in commercial paper outstanding at a weighted average cost of 1.17 percent. Included in this balance was $65.2 million in commercial paper that Washington Gas had outstanding at September 30, 2003. At September 30, 2002, WGL Holdings and its subsidiaries had $90.9 million in commercial paper outstanding at a weighted average cost of 1.92 percent. Included in this balance was $25.7 million in commercial paper that Washington Gas had outstanding at September 30, 2002.

6. LONG-TERM DEBT

              FIRST MORTGAGE BONDS

          The Mortgage of Washington Gas dated January 1, 1933 (Mortgage), as supplemented and amended, securing any First Mortgage Bonds (FMBs) it issues, constitutes a direct lien on substantially all property and franchises owned by the regulated utility, other than a small amount of property that is expressly excluded. The regulated utility had no debt outstanding under the Mortgage at September 30, 2003 and 2002. Under the holding company structure discussed in Note 2 —Corporate Restructuring, any FMBs that may be issued in the future will represent an indebtedness of Washington Gas.

              SHELF REGISTRATION

          At September 30, 2003, Washington Gas was authorized to issue up to $250.0 million of long-term debt under a shelf registration that was declared effective by the SEC on April 24, 2003. On May 20, 2003, Washington Gas executed a Distribution Agreement with certain financial institutions for the issuance and sale of debt securities included in the shelf registration statement.

              UNSECURED MEDIUM-TERM NOTES

          Washington Gas issues unsecured medium-term notes (MTNs) with individual terms regarding interest rates, maturities and call or put options that are an integral part of the basic debt instrument. These notes can have maturity dates of one or more years from the date of issuance. At September 30, 2003 and 2002, the weighted average interest rate on all outstanding MTNs was 6.58 percent and 6.60 percent, respectively.

     The indenture for these unsecured MTNs provides that Washington Gas will not issue any FMBs under its Mortgage without securing all MTNs with all other debt secured by the Mortgage.

     Certain of Washington Gas’ outstanding MTNs have call options, put options, or both. Certain other MTNs have attached a make-whole call feature that pays the holder a premium based on a spread over the yield to maturity of a U.S. Treasury security having a comparable maturity, when that particular note is called by Washington Gas before its stated maturity date. With the exception of this make-whole call feature and one other relatively minor issuance, Washington Gas is not required to pay call premiums for calling debt prior to the stated maturity date.

     Additionally, on November 17, 2003, Washington Gas paid $37.2 million plus accrued interest to redeem $36.0 million of 6.95 percent MTNs that were due in 2024, and replaced this debt with $37.0 million of 4.88 percent MTNs due in 2013 that were issued in November 2003. The $1.2 million loss incurred in connection with the debt retirement was deferred and will be amortized over the life of the newly issued debt in accordance with regulatory accounting. Refer to Note 7 –Derivative Instrumentsfor a discussion of a derivative transaction that was settled concurrent with the new debt issuance.

25

WGL Holdings, Inc.
Washington Gas Light Company
Part II
Item 8. Financial Statements and Supplementary Data (continued)
Notes to Consolidated Financial Statements (continued)

     LONG-TERM DEBT MATURITIES

     Maturities of long-term debt for each of the next five fiscal years and thereafter as of September 30, 2003 are summarized in the following table.

7. DERIVATIVE INSTRUMENTS

Long-Term Debt Maturities(a)
(In millions)	MTNs		Other		Total
2004	$	12.0	$	0.2	$	12.2
2005		60.5		0.2		60.7
2006		50.0		0.1		50.1
2007		85.0		—		85.0
2008		45.1		—		45.1
Thereafter		380.5		15.7		396.2
Total		633.1		16.2		649.3
Less: current maturities		12.0		0.2		12.2
Total non-current(b)	$	621.1	$	16.0	$	637.1

(a) Excludes unamortized discounts of $442,000 as of September 30, 2003.

(b) The $36.0 million outstanding balance of MTNs at September 30, 2003 that were subsequently retired in November 2003 (as discussed above) was included as non-current debt rather than current maturities at September 30, 2003 since this debt was replaced in November 2003 with newly issued long-term debt.

     Washington Gas enters into forward contracts and other related transactions for the purchase of natural gas that qualify as derivatives under SFAS No. 133. Certain forward contracts are recorded on the balance sheet at fair value as they contained volumetric variability or optionality, or contained provisions that allowed for a net settlement. The fair value (loss)/gain of these forward contracts and other related derivative transactions at September 30, 2003 and 2002 totaled ($3.3) million and $1.3 million, respectively, and was recorded as a (payable)/receivable, with a corresponding amount recorded as a regulatory asset/(liability) in accordance with regulatory accounting.

     Washington Gas engages in derivative activities that are designed to minimize interest-rate risk associated with planned issuances of MTNs. On June 4, 2003, Washington Gas entered into two forward-starting swaps with an aggregate notional principal amount of $62.0 million to mitigate a substantial portion of interest-rate risk associated with debt transactions planned for fiscal year 2004. These swaps were designated as cash flow hedges and, in accordance with SFAS No. 133, carried at fair value. At September 30, 2003, the estimated fair value gain related to these swaps totaled $2.8 million, and was recorded as a receivable with a corresponding amount recorded as a regulatory liability in accordance with regulatory accounting. These swaps are scheduled to terminate concurrently with the execution of the planned debt transactions during fiscal year 2004. Concurrent with the issuance of MTNs in November 2003 (see Note 6 –Long-Term Debt), Washington Gas terminated $37.0 million of the total $62.0 million aggregate notional principal of the forward-starting swaps. Washington Gas received $2.6 million associated with the settlement of this hedge agreement, which was recorded as a reduction to unamortized debt issuance costs and will be amortized over the life of the newly issued MTNs in accordance with regulatory accounting.

     The Company’s non-regulated retail energy-marketing subsidiary, WGEServices, holds certain contracts for the sale and purchase of natural gas, as well as call and put options for the sale and purchase of natural gas, which qualify as derivative instruments under SFAS No. 133. The call options fix the price of gas WGEServices would pay if colder-than-normal weather required WGEServices to purchase additional natural gas supply over the amounts that were originally expected to be sold based on normal weather. Conversely, the put options fix the price of gas WGEServices would receive if weather were warmer than normal and there were excess supplies available. The derivative instruments are recorded at their fair value on the Company’s Consolidated Balance Sheets. Incremental changes in

26

WGL Holdings, Inc.
Washington Gas Light Company
Part II
Item 8. Financial Statements and Supplementary Data (continued)
Notes to Consolidated Financial Statements (continued)

the fair value of these various derivative instruments are reflected in the earnings of the retail energy-marketing segment. At September 30, 2003, WGEServices had open call and put options valued at $162,000 and $26,000, respectively, and recorded net gains of $271,000 during fiscal year 2003 related to these options. At September 30, 2002, WGEServices had open call and put options valued at $170,000 and $3,000, respectively, and recorded net losses of $373,000 during fiscal year 2002 related to these options.

     WGEServices also holds an HDD option contract, which is used to manage the risk of increased usage caused by colder-than-normal weather for a limited number of its customers, where such customers have chosen a fixed-price and volume service. This contract pays WGEServices a fixed dollar amount for every HDD over a specified level during the calculation period. Similar to Washington Gas’ weather insurance policy (see Note 1 –Accounting Policies), this contract is accounted for under the guidelines issued by EITF Issue No. 99-2. For fiscal year 2003, WGEServices recorded a gain related to this hedge of $372,000. No such gains or losses were recorded in fiscal year 2002 or 2001.

8. COMMON STOCK

     Effective November 1, 2000, WGL Holdings began operations as the parent company of Washington Gas and its former subsidiaries. At that time, Washington Gas had 80,000,000 shares of $1 par value common stock authorized, of which 46,612,580 shares were issued. As a result of the reorganization, stock certificates previously representing shares of Washington Gas common stock represent the same number of shares of WGL Holdings’ common stock. The Company did not have any restrictions on its cash balances that would impact the payment of dividends by WGL Holdings or its subsidiaries as of September 30, 2003.

     SALE OF COMMON STOCK

     In June 2001, WGL Holdings publicly sold 2,038,500 shares of common stock at $26.73 per share before underwriting discounts of $0.895 per share. Net proceeds from the sale of the shares of $52.7 million were used for general corporate purposes of the regulated utility, including capital expenditures and working capital requirements.

     COMMON STOCK OUTSTANDING

     Shares of common stock outstanding, net of treasury shares, were 48,611,563 at September 30, 2003, and 48,564,667 and 48,542,745 at September 30, 2002 and 2001, respectively.

     COMMON STOCK RESERVES

     At September 30, 2003, there were 7,125,741 authorized, but unissued, shares of common stock reserved under the following plans.

Common Stock Reserves
Reserved for:	Number of Shares
Incentive compensation plan*		1,896,801
Dividend reinvestment and common stock purchase plan		4,729,375
Employee savings plans		417,382
Directors’ stock compensation plan		82,183
Total common stock reserves		7,125,741

* Included are shares that potentially could be issued and that would reduce the Incentive Compensation Plan shares authorized. These shares include 615,384 shares dedicated to incentive stock options issued but not exercised, and 181,533 shares dedicated to performance shares granted but not vested.

     Refer to Note 13 –Stock-Based Compensationfor a discussion regarding the Company’s stock-based compensation plans.

27

WGL Holdings, Inc.
Washington Gas Light Company
Part II
Item 8. Financial Statements and Supplementary Data (continued)
Notes to Consolidated Financial Statements (continued)

9. PREFERRED STOCK

     Washington Gas has three series of preferred stock outstanding, and each series is callable by Washington Gas. All three series have a dividend preference that prevents Washington Gas from declaring and paying common dividends unless preferred dividends have been paid. In addition, all outstanding shares of preferred stock have a preference as to the amounts that would be distributed in the event of a liquidation or dissolution of Washington Gas. The following table presents this information, as well as call prices for each preferred stock series outstanding.

Preferred Stock
			Liquidation Preference
Preferred Series	Shares		per Share				Call Price
Outstanding	Outstanding		Involuntary		Voluntary		Per Share
$4.80		150,000	$	100	$	101	$	101
$4.25		70,600	$	100	$	105	$	105
$5.00		60,000	$	100	$	102	$	102

10. EARNINGS PER SHARE

     Basic earnings per share (EPS) is computed by dividing net income by the weighted average number of common shares outstanding during the reported period. Diluted EPS assumes the issuance of common shares pursuant to stock-based compensation plans at the beginning of the applicable period (see Note 13 –Stock-Based Compensation). The following table reflects the computation of the Company’s basic and diluted EPS for WGL Holdings for fiscal years ended September 2003, 2002 and 2001, respectively.

Basic EPS and Diluted EPS
	Net				Per Share
(In thousands, except per share data)	Income		Shares		Amount
Year Ended September 30, 2003
Basic EPS:
Net income	$	112,342		48,587	$	2.31
Stock-based compensation plans		—		169
Diluted EPS:
Net income	$	112,342		48,756	$	2.30
Year Ended September 30, 2002
Basic EPS:
Net income	$	39,121		48,563	$	0.81
Stock-based compensation plans		—		88
Diluted EPS:
Net income	$	39,121		48,651	$	0.80
Year Ended September 30, 2001
Basic EPS:
Net income	$	82,445		47,120	$	1.75
Stock-based compensation plans		—		70
Diluted EPS:
Net income	$	82,445		47,190	$	1.75

28

WGL Holdings, Inc.
Washington Gas Light Company
Part II
Item 8. Financial Statements and Supplementary Data (continued)
Notes to Consolidated Financial Statements (continued)

11. INCOME TAXES

     The Company and its subsidiaries file a consolidated federal income tax return. The Company’s federal income tax returns for all years through September 30, 1999 have been reviewed and closed, or closed without review by the Internal Revenue Service. The Company and its subsidiaries also participate in a tax sharing agreement that establishes the method for allocating losses utilized on a consolidated federal income tax return. State income tax returns are filed on a separate company basis in states where the Company has operations and/or a requirement to file.

     The Statements of Income Taxes provide the following:(i)the components of income tax expense;(ii)a reconciliation between the statutory federal income tax rate and the effective income tax rate; and(iii)the components of accumulated deferred income tax assets and liabilities at September 30, 2003 and 2002.

     During fiscal year ended September 30, 2003, the Company recognized tax benefits of $2.4 million from the release of a valuation allowance associated primarily with previously unrecognized capital losses. A valuation allowance of $4.0 million remained for unused tax benefits of capital losses as of September 30, 2003.

12. PENSION AND OTHER POST-RETIREMENT BENEFIT PLANS

     Washington Gas maintains a qualified, trusteed, non-contributory defined benefit pension plan covering all active and vested former employees of Washington Gas. To the extent allowable by law, Washington Gas funds pension costs accrued for the qualified plan. Assets under the defined benefit pension plan are valued using a method designed to spread realized and unrealized asset gains and losses from all assets over a period of five years.

     Executive officers of Washington Gas also participate in a non-funded supplemental executive retirement plan (SERP). A rabbi trust has been established for the potential future funding of the SERP liability.

     As of September 30, 2003, the Company had recorded a minimum pension obligation that included $5.3 million in regards to the SERP, with corresponding adjustments to “Regulatory assets” and “Other comprehensive income” of $4.2 million and $1.1 million, respectively. Based on the regulatory treatment in certain jurisdictions, the Company believes that it will be able to ultimately recover a significant portion of the additional minimum liability through future rates. Should the Company not recover this minimum liability through future rates, a balance sheet adjustment would be made to reclassify the obligation from “Regulatory assets” to “Other comprehensive income,” a component of “Common shareholders’ equity.”

     Certain subsidiaries of the Company offer defined-contribution savings plans to eligible employees, covering all employee groups. These plans allow participants to defer on a pre-tax or after-tax basis, a portion of their salaries for investment in various alternatives. The Company makes matching contributions to the amounts contributed by employees in accordance with the specific plan provisions. The Company’s contribution to the plans were $3.0 million, $2.9 million and $2.6 million during fiscal years 2003, 2002 and 2001, respectively.

29

WGL Holdings, Inc.
Washington Gas Light Company
Part II
Item 8. Financial Statements and Supplementary Data (continued)
Notes to Consolidated Financial Statements (continued)

     The Company provides certain healthcare and life insurance benefits for retired employees. Substantially all employees of the regulated utility may become eligible for such benefits if they attain retirement status while working for Washington Gas. The Company accounts for these benefits under the provisions of SFAS No. 106,Employers’ Accounting for Postretirement Benefits Other Than Pensions. The Company elected to amortize the accumulated post-retirement benefit obligation of $190.6 million existing at the October 1, 1993 adoption date of this standard, known as the transition obligation, over a twenty-year period. Effective January 1, 2004, changes are being made to post-retirement medical benefits that reduced the Company’s post-retirement benefit obligation by $37.9 million as of September 30, 2003.

     The following tables show certain information about the Company’s post-retirement benefits:

Post-Retirement Benefits
(In millions)	Pension Benefits						Health & Life Benefits
Years Ended September 30,	2003			2002			2003			2002
Change in benefit obligation
Benefit obligation at beginning of year	$	567.1		$	501.3		$	322.9		$	257.1
Service cost		9.2			8.1			8.0			6.1
Interest cost		35.9			35.5			20.5			18.2
Change in plan benefits		—			—			(37.9	)		—
Actuarial loss		35.6			53.0			62.7			56.1
Benefits paid		(31.9	)		(30.8	)		(15.0	)		(14.6	)
Benefit obligation at end of year		615.9			567.1			361.2			322.9
Change in plan assets
Fair value of plan assets at beginning of year		611.2			681.7			147.3			132.2
Actual return/(loss) on plan assets		83.1			(38.6	)		2.8			4.5
Company contributions		1.2			1.3			28.4			25.2
Expenses		(2.1	)		(2.4	)		—			—
Benefits paid		(31.9	)		(30.8	)		(15.0	)		(14.6	)
Fair value of plan assets at end of year		661.5			611.2			163.5			147.3
Funded status
Funded status of plan		45.6			44.1			(197.7	)		(175.6	)
Unrecognized actuarial net (gains)/losses		(11.3	)		(19.4	)		124.3			54.1
Unrecognized prior service cost		17.8			20.2			—			—
Unrecognized transition (assets) obligation		0.2			0.3			57.4			104.9
Prepaid (accrued) benefit cost	$	52.3		$	45.2		$	(16.0	)	$	(16.6	)

	Pension Benefits						Health & Life Benefits
(In millions)	2003			2002			2003			2002
Total amounts recognized on balance sheet
Prepaid benefit cost	$	66.8		$	58.5		$	—		$	—
Accrued benefit liability		(19.8	)		(18.5	)		(16.0	)		(16.6	)
Regulatory asset		4.2			5.2			—			—
Accumulated other comprehensive income		1.1			—			—			—
Total recognized	$	52.3		$	45.2		$	(16.0	)	$	(16.6	)

	Pension Benefits						Health & Life Benefits
Assumptions as of September 30,	2003			2002			2003			2002
Discount rate
Components of pension cost		6.50	%		7.25	%		6.50	%		7.25	%
Benefits obligations		6.00	%		6.50	%		6.00	%		6.50	%
Expected return on plan assets		8.50	%		8.50	%		8.25	%		8.25	%
Rate of compensation increase		4.00	%		4.00	%		4.00	%		4.00	%

30

WGL Holdings, Inc.
Washington Gas Light Company
Part II
Item 8. Financial Statements and Supplementary Data (continued)
Notes to Consolidated Financial Statements (continued)

     The Company has assumed healthcare cost trend rates for fiscal year 2003 for Medicare eligible and non-Medicare eligible retirees of 9.92 percent and 8.50 percent, respectively, and expects these rates to decrease gradually to 5.75 percent and 5.50 percent, respectively, in 2007 and remain at those levels thereafter.

Components of Net Periodic Benefit Costs (Income)
	Pension Benefits									Health and Life Benefits
(In millions)	2003			2002			2001			2003			2002			2001
Components of net periodic benefit cost (income)
Service cost	$	9.2		$	8.1		$	7.8		$	8.0		$	6.1		$	4.4
Interest cost		35.9			35.5			34.7			20.6			18.3			16.1
Expected return on plan assets		(54.0	)		(55.8	)		(51.7	)		(11.4	)		(10.2	)		(8.8	)
Recognized prior service cost		2.3			2.3			2.3			—			—			—
Recognized actuarial loss (gain)		0.5			(6.5	)		(10.2	)		1.1			—			(2.5	)
Amortization of transition obligation (asset)-net		0.2			(0.9	)		(2.4	)		9.5			9.5			9.5
Net periodic benefit cost (income)		(5.9	)		(17.3	)		(19.5	)		27.8			23.7			18.7
Amount capitalized as construction cost		1.5			4.4			3.6			(5.8	)		(4.2	)		(3.8	)
Amount deferred as regulatory asset/liability-net		0.8			3.4			3.4			0.6			1.4			2.1
Amount charged (credited) to expense	$	(3.6	)	$	(9.5	)	$	(12.5	)	$	22.6		$	20.9		$	17.0

     The projected benefit obligation and accumulated benefit obligation for the Company’s non-funded SERP, which had accumulated benefits in excess of plan assets, were $21.8 million and $19.7 million, respectively, as of September 30, 2003, and $20.5 million and $18.4 million, respectively, as of September 30, 2002. The plan has no assets.

     The assumed healthcare trend rate has a significant effect on the amounts reported for the healthcare plans. A one-percentage-point change in the assumed healthcare trend rate would have the following effects:

Healthcare Trends
	1-Percentage-Point		1-Percentage-Point
(In millions)	Increase		Decrease
Increase (decrease) total service and interest cost components	$	5.3	$	(4.0	)
Increase (decrease) post-retirement benefit obligation	$	50.8	$	(37.2	)

     A significant portion of the estimated post-retirement medical and life insurance benefits apply to the Company’s regulated activities.

     The Public Service Commission of the District of Columbia (PSC of DC) granted the recovery of post-retirement medical and life insurance benefit costs determined in accordance with GAAP through a five-year phase-in plan that ended September 30, 1998. The regulated utility deferred the difference generated during the phase-in period as a regulatory asset. Effective October 1, 1998, the PSC of DC granted the regulated utility full recovery of costs determined under GAAP, plus a fifteen-year amortization of the regulatory asset established during the phase-in period.

     On September 28, 1995, the State Corporation Commission of Virginia (SCC of VA) issued a generic order that allowed the regulated utility to recover most costs determined under GAAP in rates over twenty years. The SCC of VA, however, set a forty-year recovery period of the transition obligation. As prescribed by GAAP, the regulated utility amortizes these costs over a twenty-year period.

31

WGL Holdings, Inc.
Washington Gas Light Company
Part II
Item 8. Financial Statements and Supplementary Data (continued)
Notes to Consolidated Financial Statements (continued)

     The Public Service Commission of Maryland (PSC of MD) has not rendered a decision that specifically addresses recovery of post-retirement medical and life insurance benefit costs determined in accordance with GAAP. However, the PSC of MD has approved a level of rates sufficient to recover the costs determined under GAAP.

     Post-retirement medical and life insurance benefit costs deferred as a regulatory asset at September 30, 2003 and 2002 were $6.6 million and $7.2 million, respectively. The regulated utility expects that these costs will be recovered over a twenty-year period that began October 1, 1993.

     Each regulatory commission having jurisdiction over the regulated utility requires it to fund amounts reflected in rates for post-retirement medical and life insurance benefits to irrevocable trusts. The expected long-term rate of return on the assets in the trusts was 8.25 percent for fiscal years 2003, 2002 and 2001. The regulated utility assumes a 39.6 percent income tax rate to compute taxes on the taxable portion of the income in the trusts.

13. STOCK-BASED COMPENSATION

     The Company and its subsidiaries periodically provide compensation in the form of common stock to certain employees and Company directors. The Company designed its stock-based compensation plans to promote its long-term success by attracting, recruiting and retaining key employees, and providing certain employees and Company directors an ownership interest in the Company, thereby promoting a closer alignment of interests between such persons and the Company’s shareholders. Under SFAS No. 123,Accounting for Stock-Based Compensation, as amended by SFAS No. 148,Accounting for Stock-Based Compensation – Transition and Disclosure, the Company applies Accounting Principles Board Opinion No. 25 (APB No. 25),Accounting for Stock Issued to Employees, and related interpretations in accounting for its stock-based compensation plans. The stock-based compensation arrangements are discussed more fully below.

     STOCK-BASED COMPENSATION FOR KEY EMPLOYEES

     The Company has granted restricted stock to participants in the Long-Term Incentive Compensation Plan (LTICP) and to certain other employees. These shares have restrictions on vesting, sale and transferability. Restrictions lapse with the passage of time. The Company holds the certificates for restricted stock until the shares fully vest. In the interim, the participants receive full dividend and voting rights. The LTICP expired on June 27, 1999 and was replaced with the 1999 Incentive Compensation Plan (1999 Plan).

     Approved by the shareholders in February 1999 and amended in March 2003, the 1999 Plan allows the Company to grant up to 2,000,000 shares of unrestricted common stock to officers and key employees. Under the 1999 Plan, the Company may impose performance goals, which if unattained, may result in participants forfeiting all or part of the award. Through September 30, 2003, the Company granted an aggregate of 268,038 performance shares under the 1999 Plan, which currently vest over 36 months from the date of grant. At the end of the associated vesting period, the issuance of any performance shares depends upon the Company’s achievement of performance goals for total shareholder return relative to a selected peer group.

     In accordance with APB No. 25, the Company recognizes estimated compensation expense for restricted stock and performance shares ratably over the shares’ vesting periods. The following table discloses the number of shares granted and outstanding under the LTICP and 1999 Plan, as well as the associated weighted average fair value at grant dates and compensation expense recognized during each reporting period.

32

WGL Holdings, Inc.
Washington Gas Light Company
Part II
Item 8. Financial Statements and Supplementary Data (continued)
Notes to Consolidated Financial Statements (continued)

Schedule of LTICP and 1999 Plan Shares Outstanding
	Long-Term Incentive
	Compensation Plan									1999 Plan
	2003			2002			2001			2003			2002			2001
Shares outstanding — beginning of period		8,300			16,470			36,700			117,088			107,071			73,694
Shares granted
Performance shares		—			—			—			91,232			64,105			33,377
Shares vested		(5,900	)		(8,170	)		(17,670	)		(26,787	)		(40,332	)		—
Shares forfeited		—			—			(2,560	)		—			(13,756	)		—
Shares outstanding — end of period		2,400			8,300			16,470			181,533			117,088			107,071
Weighted average fair value on grant dates	$	—		$	—		$	—		$	23.91		$	26.89		$	26.88
Compensation expense recognized	$	83,119		$	150,000		$	209,000		$	1,574,594		$	662,836		$	730,213

     STOCK OPTIONS OUTSTANDING AND OTHER INFORMATION

     Through the end of fiscal year 2003, the Company granted an aggregate of 694,341 non-qualified stock options to officers under the 1999 Plan, 615,384 of which were outstanding at September 30, 2003. Since the stock options were granted at the fair market value of the Company’s stock on the grant dates, no compensation expense was recognized for any fiscal year. During fiscal year 2003, a total of 88,120 stock options became vested and may be exercised at various times through September 30, 2010 at prices ranging from $24.063 to $26.875 with a weighted average exercise price of $26.650. The Company’s stock options generally have a vesting period of three years, and expire ten years from the date of grant.

     The following table provides additional information regarding nonqualified stock options granted under the 1999 Plan for fiscal years 2003, 2002 and 2001, including the assumptions used to calculate the fair market value of the stock options granted in each fiscal year.

Stock Options
Years ended September 30,	2003			2002			2001
Stock options outstanding, beginning of year		411,836			271,604			209,969
Stock options granted		238,424			156,698			89,250
Stock options exercised		(28,826	)		—			(27,615	)
Stock options forfeited		(6,050	)		(16,466	)		—
Stock options outstanding, end of year		615,384			411,836			271,604
Exercise prices of stock options outstanding, end of year:
Low	$	22.63		$	22.63		$	22.63
High	$	27.13		$	27.13		$	27.13
Weighted average	$	25.00		$	25.64		$	25.41
Weighted average remaining vesting life of stock options outstanding, end of year	1.6 years			1.6 years			1.5 years
Fair market value assumptions (Black-Scholes model):
Dividend yield		5.3	%		5.3	%		4.6	%
Expected stock-price volatility		21.55	%		24.0	%		24.0	%
Risk-free interest rate		1.58	%		6.3	%		6.3	%
Expected option life	3 years			3 years			3 years
Weighted-average fair market value of stock options Granted during the year	$	2.13		$	4.41		$	4.57

33

WGL Holdings, Inc.
Washington Gas Light Company
Part II
Item 8. Financial Statements and Supplementary Data (continued)
Notes to Consolidated Financial Statements (continued)

     STOCK GRANTS TO DIRECTORS

     Non-employee directors receive a portion of their annual retainer fee in the form of common stock through the Directors’ Stock Compensation Plan. Up to 120,000 shares of common stock may be awarded under the plan. Shares granted to directors totaled 7,500, 5,600 and 5,600 for fiscal years 2003, 2002 and 2001, respectively. For those periods, the fair value of the stock on the grant dates was $24.89, $29.18 and $29.19, respectively. Shares awarded to the participants:(i)vest immediately and cannot be forfeited;(ii)may be sold or transferred; and(iii)have voting and dividend rights.

14. ENVIRONMENTAL MATTERS

     The Company and its subsidiaries are subject to federal, state and local laws and regulations related to environmental matters. These evolving laws and regulations may require expenditures over a long timeframe to control environmental impacts. Estimates of liabilities for environmental response costs are difficult to determine with precision because of the various factors that can affect their ultimate level. These factors include, but are not limited to the following:

• the complexity of the site;

• changes in environmental laws and regulations at the federal, state and local levels;

• the number of regulatory agencies or other parties involved;

• new technology that renders previous technology obsolete or experience with existing technology that proves ineffective;

• the ultimate selection of technology;

• the level of remediation required and

• variations between the estimated and actual period of time that must be dedicated to respond to an environmentally-contaminated site.

     The Company has identified up to ten sites where Washington Gas or its predecessors may have operated manufactured gas plants (MGP). Washington Gas last used any such plant in 1984. In connection with these operations, Washington Gas is aware that coal tar and certain other by-products of the gas manufacturing process are present at or near some former sites and may be present at others. Washington Gas does not believe that any of the sites present any unacceptable risk to human health or the environment.

     At one of the former MGP sites, studies show the presence of coal tar under the site and an adjoining property. Washington Gas has taken steps to control the movement of contaminants into an adjacent river by installing a water treatment system that removes and treats contaminated groundwater at the site. Washington Gas received approval from governmental authorities for a comprehensive remediation plan for the majority of the site that will allow commercial development of Washington Gas’ property. Washington Gas has entered into an agreement with a national developer for the development of this site in phases. Washington Gas also has entered into a ground lease and obtained an economic interest for the first two phases of development. Construction has been completed on the first two phases of this development. Washington Gas continues to seek approval of a remediation plan for the remainder of the site, including an adjoining property owned by a separate unaffiliated entity.

     At a second former MGP site and on an adjacent parcel of land, Washington Gas made application under a state voluntary closure program. Washington Gas has developed a remediation plan for the site and is currently seeking approval of that plan from the state.

34

WGL Holdings, Inc.
Washington Gas Light Company
Part II
Item 8. Financial Statements and Supplementary Data (continued)
Notes to Consolidated Financial Statements (continued)

     Washington Gas believes, at this time, that the appropriate remediation has been or is being undertaken, or that no remediation is necessary at the remaining eight sites.

     At September 30, 2003 and 2002, Washington Gas had a liability of $6.8 million and $7.1 million, respectively, on an undiscounted basis related to future environmental response costs, which included the estimated costs for the ten MGP sites. These estimates principally include the minimum liabilities associated with a range of environmental response costs expected to be incurred at the sites identified. At September 30, 2003 and 2002, Washington Gas estimated the maximum liability associated with all of its sites to be approximately $14.9 million and $15.4 million, respectively. The estimates were determined by Washington Gas’ environmental experts, based on experience in remediating MGP sites and advice from legal counsel and environmental consultants. Variations within the range of estimated liability result primarily from differences in the number of years that will be required to perform environmental response processes at each site and the extent of remediation that may be required.

     Regulatory orders issued by the PSC of MD allow Washington Gas to recover the costs associated with the sites applicable to Maryland over periods ranging from five to thirty years. Rate orders issued by the PSC of DC allow Washington Gas a three-year recovery of prudently incurred environmental response costs, and allow Washington Gas to defer additional costs incurred between rate cases. The SCC of VA allows the recovery of prudent environmental remediation costs.

     At September 30, 2003 and 2002, Washington Gas reported a regulatory asset of $4.3 million and $5.2 million, respectively, for the portion of environmental response costs it believes are recoverable in future rates. Washington Gas does not expect that the ultimate impact of these matters will have a material adverse effect on its financial statements.

15. COMMITMENTS AND CONTINGENCIES

     OPERATING LEASES

     Minimum future rental payments under operating leases over the next five years and thereafter are as follows:

Minimum Payments Under Operating Leases
(In millions)
2004	$	3.2
2005		3.2
2006		3.3
2007		3.3
2008		3.4
Thereafter		30.6
Total	$	47.0

Rent expense totaled $1.8 million, $809,000 and $710,000 in fiscal years ended 2003, 2002 and 2001, respectively.

     REGULATED UTILITY OPERATIONS

     Natural Gas Contracts – Minimum Commitments

     At September 30, 2003, Washington Gas had service agreements with four pipeline companies that provide direct service and one upstream pipeline company that provides for firm transportation and storage services. These agreements, which have expiration dates ranging from fiscal years 2004 to 2017, require Washington Gas to pay fixed charges each month. As of September 30, 2003, based on current estimates of growth of the Washington Gas system, together with current expectations of the

35

WGL Holdings, Inc.
Washington Gas Light Company
Part II
Item 8. Financial Statements and Supplementary Data (continued)
Notes to Consolidated Financial Statements (continued)

timing and extent of unbundling initiatives in the Washington Gas service territory, the minimum aggregate amount of required payments under the pipeline service agreements total approximately $679.4 million for contracts in effect through 2017. Certain agreements give Washington Gas an option to turn back capacity prior to the end of the agreements which, if not exercised, would increase the aggregate amount of the required payments. The SCC of VA has approved mandatory assignment of firm transportation to third-party marketers. The issue is still pending in the District of Columbia and, while recently rejected in Maryland the issue can be brought up in a subsequent Maryland proceeding. These assignments could reduce the aggregate amount of required payments and the amount of turn-back capacity depending on the capacity required for third-party marketers.

     The following table summarizes the contract minimum payments that Washington Gas will make under its pipeline transportation contracts during the next five fiscal years and thereafter.

Washington Gas Contract Minimums
(In millions)	Pipeline contracts
2004	$	116.9
2005		101.4
2006		88.7
2007		86.7
2008		82.3
Thereafter		203.4
Total	$	679.4

     When a customer selects a third-party marketer to provide supply, Washington Gas generally assigns pipeline and storage capacity to third-party marketers to deliver gas to Washington Gas’ city gate. If a customer does not select a third-party marketer, Washington Gas has a commodity acquisition plan to acquire the natural gas supply to serve the customer.

     In connection with this plan, Washington Gas utilizes an asset manager to acquire the necessary supply to serve these customers. Washington Gas’ commitment to the asset manager is to purchase gas supply at market prices that are tied to various public indices for natural gas. The contract commitment is related to customer demand, and there are no minimum bill commitments. Accordingly, there are no commitment amounts included in the table above.

     Currently, Washington Gas recovers the cost of gas through the purchased gas cost recovery mechanisms included in its retail rate schedules in each of its jurisdictions. However, the timing and extent of Washington Gas’ initiatives or regulatory requirements to separate the purchase and sale of natural gas from the delivery of gas could cause its gas supply commitments to be in excess of its continued sales obligations.

     Washington Gas has rate provisions in each of its jurisdictions that would allow it to continue to recover potential excess commitments in rates. The regulated utility also actively manages its supply portfolio to ensure its sales and supply obligations remain balanced. This reduces the likelihood that the contracted supply commitments would exceed supply obligations. However, to the extent Washington Gas were to determine that changes in regulation would cause it to discontinue recovery of these costs in rates, the regulated utility would be required to charge these costs to expense without any corresponding revenue recovery. If this occurred, depending upon the timing of the occurrence, the related impact on the Company’s financial position and results of operations would likely be significant.

     Rate Case Contingencies

     Certain legal and administrative proceedings, incidental to the Company’s business, including rate case contingencies, involve WGL Holdings and/or its subsidiaries. In the opinion of management, the Company has recorded an adequate provision for probable losses or refunds to customers for rate case contingencies related to these proceedings in accordance with SFAS No. 5, Accounting for Contingencies.

36

WGL Holdings, Inc.
Washington Gas Light Company
Part II
Item 8. Financial Statements and Supplementary Data (continued)
Notes to Consolidated Financial Statements (continued)

     District of Columbia Jurisdiction

     In response to an Order issued by the Public Service Commission of the District of Columbia (PSC of DC) on March 28, 2003, the District of Columbia Office of the People’s Counsel (DC OPC-a participant in the regulatory proceeding) filed an appeal with the District of Columbia Court of Appeals. The filing seeks to overturn certain portions of the March 28, 2003 ruling by the PSC of DC. In its March 28, 2003 ruling, the PSC of DC upheld a previous ruling that rejected a proposal by the DC OPC to refund to customers, asset management revenues previously received by Washington Gas. This ruling became effective on April 9, 2003. If the District of Columbia Court of Appeals were to rule in favor of the DC OPC in this matter, Washington Gas would be required to refund the amounts previously recorded in revenues totaling approximately $9.2 million (on a pre-tax basis). Though Washington Gas cannot predict the final outcome of this matter, it believes that the DC OPC’s appeal is without merit and, accordingly, no liability has been recorded related to this matter.

     Virginia Jurisdiction

     On June 14, 2002, Washington Gas filed an application with the State Corporation Commission of Virginia (SCC of VA) to increase annual revenues in Virginia. The Shenandoah Gas Division of Washington Gas (Shenandoah) was included in the application. The application requested an increase in overall annual revenues of approximately $23.8 million. Under the regulations of the SCC of VA, Washington Gas placed the proposed general revenue increase into effect on November 12, 2002, subject to refund, pending the SCC of VA’s final decision in the proceeding. In its financial statements from November 12, 2002 through September 30, 2003, Washington Gas has recorded a provision for rate refunds, representing the refund required based on management’s judgment of the rate case outcome.

     On September 16, 2003, the Chief Hearing Examiner issued a report recommending that the SCC of VA adopt the Chief Hearing Examiner’s findings for an increase in gross annual revenues of $5.7 million effective November 12, 2002. Of significance in the report of the Chief Hearing Examiner as it relates to the Company’s earnings for the year ended September 30, 2003, were two matters that relate to depreciation.

     In accordance with a previous Order of the SCC of VA, Washington Gas performed a depreciation study, using data as of December 31, 2000, to determine the adequacy of the depreciation rates that Washington Gas was using to record depreciation expense for property located in its Virginia jurisdiction. The Staff of the SCC of VA (VA Staff) issued a letter dated October 2, 2002, approving new depreciation rates for Washington Gas and Shenandoah that would increase annual depreciation expense by approximately $4.0 million. The VA Staff stated its position that the approved rates should be implemented as of January 1, 2002, before the higher depreciation expense was included in Washington Gas’ base rates. All parties agreed that the ultimate decision on the date that new depreciation rates should be implemented should be decided by the SCC of VA in the rate case discussed above. Washington Gas continues to believe that the new depreciation rates should be implemented concurrent with the effective date of new base rates, on November 12, 2002. Washington Gas began recording increased depreciation expense effective on that date.

     In the September 16, 2003 report mentioned above, the Chief Hearing Examiner concurred with the Company and recommended that the new higher depreciation rates be implemented concurrent with the effective date of new base rates on November 12, 2002. The VA Staff has since requested that the SCC of VA overturn the recommendation of the Chief Hearing Examiner as to the effective date of the new depreciation rates and adopt the VA Staff’s originally recommended implementation date of January 1,

37

WGL Holdings, Inc.
Washington Gas Light Company
Part II
Item 8. Financial Statements and Supplementary Data (continued)
Notes to Consolidated Financial Statements (continued)

2002. To the extent that the position of the VA Staff adopted by the SCC of VA, Washington Gas would have to record a charge to income for additional depreciation expense of approximately $3.4 million, before income tax benefits, calculated from January 1, 2002 to November 12, 2002, without a corresponding amount of revenue. The Company believes that it is reasonably possible that the SCC of VA will adopt the position Washington Gas has taken on this matter.

     Additionally in the September 16, 2003 report, the Chief Hearing Examiner recommended approval of a VA Staff-proposed adjustment that reduces the net rate base upon which Washington Gas is allowed to earn a rate of return by $42 million. This amount represents the difference between the accumulated reserve for depreciation recorded on the books of Washington Gas and the theoretical reserve that was derived by VA Staff as part of the review of Washington Gas’ depreciation rates. This recommended rate base adjustment, along with a partial offset for accumulated deferred income taxes, reduced the Chief Hearing Examiner’s determination of Washington Gas’ annual revenue requirement by approximately $3.5 million, based on the Chief Hearing Examiner’s recommended overall rate of return. The Chief Hearing Examiner’s recommendation permits continued recovery of this investment in rate base (i.e. the accumulated depreciation reserve deficiency) over the 32-year remaining life of assets currently in service.

     Although this VA Staff proposal related to the accumulated depreciation reserve and related accumulated deferred income taxes were included in the Chief Hearing Examiner’s recommendations, Washington Gas disagrees with this position. On October 14, 2003, Washington Gas filed theResponse of Washington Gas Light Company and the Shenandoah Gas Division to the Report of the Chief Hearing Examiner,objecting to the recommended rate base reduction related to the accumulated depreciation reserve deficiency and the related accumulated deferred income taxes, and commenting on other issues. Similarly, on the same date, the VA Staff filed a response with the SCC of VA expressing its opposition to certain matters in the Report of the Chief Hearing Examiner, most notably the implementation date for new depreciation rates.

     Washington Gas believes that it is reasonably possible that the recommendation of the Chief Hearing Examiner related to the accumulated depreciation reserve deficiency and related accumulated deferred income taxes will be rejected by the SCC of VA because, among other reasons, the Company believes it is unsupported by case-record evidence and is inaccurate in both theory and in principle. Accordingly, at the present time and based on existing information, Washington Gas has not recorded a refund liability at September 30, 2003 for the effect of this issue on revenues collected subject to refund since November 12, 2002. An Order from the SCC of VA is expected at any time. Management cannot predict the final outcome of the above rate proceedings.

     NON-UTILITY OPERATIONS

     Natural Gas

     WGEServices has contracts to purchase fixed quantities of natural gas with terms of up to 25 months. WGEServices designs its purchase contracts to match the duration of its sales commitments and effectively to lock in a margin on gas sales over the terms of existing sales contracts. Gas purchase commitments disclosed below are based on existing fixed-price purchase commitments using city gate equivalent deliveries, the majority of which are for fixed volumes.

     Electricity

     In anticipation of the opportunities to sell electricity in jurisdictions that have implemented customer choice programs, WGEServices entered into a master purchase and sale agreement in April 2000 with a wholesale energy marketer, Mirant Americas Energy Marketing L.P. (MAEM) which is an indirect wholly owned subsidiary of Mirant Corporation (Mirant). Under this contract, WGEServices can purchase electric energy, capacity and certain ancillary services from the wholesaler, then resell it to retail electric customers in the District of Columbia, Maryland and in other regions. Under the contract, electricity is provided to customers in the District of Columbia and Maryland on a full-requirements basis. As a result,

38

WGL Holdings, Inc.
Washington Gas Light Company
Part II
Item 8. Financial Statements and Supplementary Data (continued)
Notes to Consolidated Financial Statements (continued)

WGEServices has no open position on this contract at September 30, 2003. Electric commitments are based on system requirements, and the range of the commitment could extend from zero to the full amount used by customers. The Company has no fixed commitment to purchase electricity. Therefore, no commitment for electricity is shown in the table below.

     The following table summarizes the Contractual Obligations and Minimum Commitments of WGEServices at September 30, 2003.

WGEServices Contract Minimums
	Gas purchase		Pipeline
(In millions)	Commitments(a)		Contracts		Total
2004	$	167.4	$	1.3	$	168.7
2005		11.8		—		11.8
2006		—		—		—
2007		—		—		—
2008		—		—		—
Thereafter		—		—		—
Total	$	179.2	$	1.3	$	180.5
(a)   Represents fixed price commitments with city gate equivalent deliveries.

     On July 14, 2003, Mirant and substantially all of its subsidiaries filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code. MAEM, the sole provider of electricity under the full-requirements contract mentioned above, was included in these bankruptcy filings. Future performance by MAEM under its full requirements contract with WGEServices may be subject to further developments in the bankruptcy proceedings.

     The performance risk of the MAEM contract is mitigated through a Security and Escrow agreement entered into between WGEServices and MAEM prior to the bankruptcy filing. Under the Security and Escrow agreement, WGEServices has access to collateral that is intended to cover the difference between the current market price of electricity and the price at which WGEServices has contracted to sell electricity. In the opinion of counsel to the Company, WGEServices has the contractual right to draw on the escrow funds in the account if the contracts between WGEServices and MAEM are terminated. The amount of WGEServices’ exposure in the event of termination of the contracts between WGEServices and MAEM is estimated to be less than the amount of collateral included in the escrow account. This estimate of WGEServices’ exposure to contract termination is based upon acquiring supply, priced at forward electricity prices through the expiration of the existing sales contracts or until WGEServices exercises certain damage limitation provisions of its customers’ sales contracts. The actual exposure for WGEServices may differ from the estimate due to changes in timing of any contract termination, deviations from normal weather, changes in future market conditions, or other factors.

     Since the bankruptcy filing, MAEM has continued to honor its supply obligations to WGEServices. In October 2003, WGEServices and MAEM signed a post-bankruptcy petition contract that enables WGEServices to renew expiring contracts with its current electric retail customers. This post-bankruptcy petition contract is also a full-requirements contract with no fixed commitment to purchase electricity.

     Similar to WGEServices’ electric supplier, certain of the other supplier companies that sell gas to WGEServices have relatively low credit ratings as determined by major credit rating agencies. Depending on the future ability of these suppliers to deliver natural gas under existing contracts, WGEServices could be financially exposed for the difference between the price at which WGEServices has contracted to buy natural gas, and the cost of any replacement natural gas that may need to be purchased. WGEServices has a wholesale supplier credit policy that is designed to mitigate wholesale credit risks through a requirement for credit enhancements. Per the terms of this policy, WGEServices has obtained credit enhancements from certain of its gas suppliers.

39

WGL Holdings, Inc.
Washington Gas Light Company
Part II
Item 8. Financial Statements and Supplementary Data (continued)
Notes to Consolidated Financial Statements (continued)

     Transfers and Servicing of Financial Assets and Extinguishment of Liabilities

     The Company’s unregulated consumer financing business previously had extended credit to certain residential and small commercial customers to purchase gas appliances and other energy-related products. The Company’s unregulated consumer financing business transferred with recourse certain of these accounts receivable to commercial banks.

     In September 2001, the Company scaled back its consumer financing operation. The Company stopped financing new loans, but expects to continue servicing existing loans until they are fully amortized in approximately 2005. In May 2002, the Company contracted with a third-party vendor to service the remaining loans. During fiscal years 2003 and 2002, there were no sales of receivables to commercial banks. During fiscal year 2001, transfers of receivables with recourse totaled $19.2 million. At September 30, 2003, the Company had a $261,000 asset representing the present value of estimated future net cash flows related to these sales, along with a corresponding estimated recourse obligation of $421,000 for these receivables.

     At September 30, 2003, the Company had $8.5 million of loans, $4.0 million of which were recorded in the Company’s financial statements, and $4.5 million which were held by banks. The Company also had an $823,000 reserve for recourse obligations and uncollectible accounts. Loan repurchases totaled $3.2 million and $11.3 million for fiscal years 2003 and 2002, respectively.

     The Company finances certain construction projects being managed by its commercial HVAC subsidiary with long-term debt. Under the terms of the agreement with the lender, all payments received from the project owner are used to satisfy the payments of principal and interest associated with the debt for these construction projects. As the debt is incurred, the Company establishes a note receivable representing the owner’s obligation to remit principal and interest. Upon completion and acceptance of the project, the Company accounts for the transfer of the financed asset as an extinguishment of the long-term debt and removes both the note receivable and long-term debt from its financial statements.

     During fiscal years 2003 and 2002, the Company eliminated $21.3 million and $9.7 million, respectively, of notes receivable and long-term debt related to completed projects. The following table details the activity related to long-term borrowings associated with construction projects.

Debt Activity Related to Construction Projects
(In millions)		2003			2002
Balance at beginning of fiscal year	��	$	36.9		$	23.3
Debt issued			—			23.3
Debt retired(a)			(21.3	)		(9.7	)
Balance at end of fiscal year		$	15.6		$	36.9

(a) Includes the non-cash extinguishment of project debt financing of $19.7 million and $9.7 million for fiscal years 2003 and 2002, respectively.

     Financial Guarantees

     WGL Holdings and Washington Gas Resources are party to agreements naming them as the guarantor for certain purchases and sales of natural gas and electricity made by WGEServices. Total guarantees outstanding at September 30, 2003 were $245.4 million, of which $242.4 million and $3.0 million of such guarantees named WGL Holdings and Washington Gas Resources as the guarantor, respectively. Of the total guarantees, there were $42.0 million held by WGL Holdings that were due to expire December 31, 2004; the remaining $203.4 million do not have specific maturity dates. As of October 31, 2003, total guarantees increased by $45.9 million to $291.3 million, of which $288.3 million were guaranteed by WGL Holdings.

40

WGL Holdings, Inc.
Washington Gas Light Company
Part II
Item 8. Financial Statements and Supplementary Data (continued)
Notes to Consolidated Financial Statements (continued)

16. FAIR VALUE OF FINANCIAL INSTRUMENTS

     The following table presents the carrying amounts and estimated fair values of the Company’s financial instruments at September 30, 2003 and 2002. The fair value of a financial instrument represents the amount at which the instrument could be exchanged in a current transaction between willing parties.

Fair Value of Financial Instruments
	2003				2002
	Carrying		Fair		Carrying		Fair
(In millions)	Amount		Value		Amount		Value
Current assets	$	189.5	$	189.5	$	182.7	$	182.7
Current liabilities		375.5		375.5		326.4		326.4
Preferred stock		28.2		28.2		28.2		28.2
Long-term debt		637.1		722.9		668.0		725.5

     Financial instruments included in current assets consist of cash and cash equivalents, net accounts receivable, accrued utility revenues, other miscellaneous receivables and the fair market value of WGEServices and Washington Gas instrument asset hedging derivatives. The carrying amount of the financial instruments included in current assets, current liabilities and preferred stock approximates fair value. The fair value of long-term debt (excluding current maturities of long-term debt) was estimated based on the quoted market prices of U.S. Treasury issues having a similar term to maturity, adjusted for Washington Gas’ credit quality and the present value of future cash flows.

17. OPERATING SEGMENT REPORTING

     In accordance with SFAS No. 131,Disclosures about Segments of an Enterprise and Related Information,the Company identifies and reports on operating segments under the “management approach.” Operating segments comprise revenue-generating components of an enterprise for which the Company produces separate financial information internally that management regularly uses to make operating decisions and assess performance. The Company reports three operating segments: 1) regulated utility; 2) retail energy-marketing and 3) HVAC.

     With approximately 93 percent of WGL Holdings’ assets, the regulated utility segment is the Company’s core business. Represented almost entirely by Washington Gas, the regulated utility segment provides regulated gas distribution services (including the sale and delivery of natural gas, meter reading, responding to customer inquiries and bill preparation) to customers in the metropolitan areas of Washington, D.C., Maryland and Virginia. In addition to the regulated operations of Washington Gas, the regulated utility segment includes the operations of Hampshire, an underground natural gas storage facility that is regulated by the FERC and operated on behalf of Washington Gas.

     Through WGEServices, the retail energy-marketing segment sells natural gas and electricity directly to retail customers, both inside and outside of Washington Gas’ traditional service territory, in competition with unregulated gas and electricity marketers. Through two wholly owned subsidiaries, WGESystems and ACI, the HVAC segment designs, renovates and services mechanical heating, ventilating and air conditioning systems for commercial and governmental customers. For fiscal years 2002 and 2001, the HVAC segment also included the results of the Company’s 50 percent former equity investment in Primary Investors, an entity that provided HVAC services to residential customers. The Company terminated its interest in Primary Investors in October 2002 (refer to Note 3 –Disposition of Limited Liability Company Investment).

41

WGL Holdings, Inc.
Washington Gas Light Company
Part II
Item 8. Financial Statements and Supplementary Data (continued)
Notes to Consolidated Financial Statements (continued)

     Certain activities of the Company are not significant enough on a stand-alone basis to warrant treatment as a segment, and the activities do not fit into one of the segments contained in the Company’s financial statements. With respect to segment reporting, these activities are aggregated in the category “Other Activities” of the Company’s non-utility operations as presented below in the Operating Segment Financial Information. These activities are included in the Consolidated Statements of Income in the appropriate lines, revenues and expenses in “Non-Utility Operations.”

     The same accounting policies as those described in Note 1 –Accounting Policiesapply to the reported segments. While net income or loss is the primary criterion for measuring a segment’s performance, the Company also evaluates segments based on other relevant factors, such as penetration into their respective markets. The following table presents operating segment information.

42

WGL Holdings, Inc.
Washington Gas Light Company
Part II
Item 8. Financial Statements and Supplementary Data (continued)
Notes to Consolidated Financial Statements (continued)

Operating Segment Financial Information
				Non-Utility Operations
	Regulated			Retail Energy-						Other						Eliminations/
(In thousands)	Utility			Marketing			HVAC			Activities (a)			Total			Other			Consolidated
Year Ended September 30, 2003
Total Revenues	$	1,313,041		$	726,231		$	35,521		$	1,439		$	763,191		$	(11,984	)	$	2,064,248
Operating Expenses:
Depreciation and Amortization		83,549			(64	)		134			625			695			—			84,244
Other Operating Expenses (b)		1,003,106			719,459			37,539			3,847			760,845			(11,984	)		1,751,967
Income Tax Expense (Benefit)		68,633			2,521			(960	)		(1,393	)		168			—			68,801
Total Operating Expenses		1,155,288			721,916			36,713			3,079			761,708			(11,984	)		1,905,012
Operating Income (Loss)		157,753			4,315			(1,192	)		(1,640	)		1,483			—			159,236
Interest Expense—Net		45,563			581			16			669			1,266			(448	)		46,381
Other Non-Operating Income (Expense) (c)		(1,834	)		11			24			3,054			3,089			(448	)		807
Dividends on Washington Gas Preferred Stock		1,320			—			—			—			—			—			1,320
Net Income (Loss)	$	109,036		$	3,745		$	(1,184	)	$	745		$	3,306		$	—		$	112,342
Total Assets (e)	$	2,257,787		$	141,421		$	23,053		$	114,027		$	278,501		$	(100,236	)	$	2,436,052
Capital Expenditures/Investments	$	129,003		$	8		$	72		$	—		$	80		$	—		$	129,083
Year Ended September 30, 2002 (d)
Total Revenues	$	938,804		$	595,866		$	61,887		$	1,918		$	659,671		$	(13,673	)	$	1,584,802
Operating Expenses:
Depreciation and Amortization		72,921			430			675			483			1,588			—			74,509
Other Operating Expenses (b)		739,761			587,633			53,591			11,761			652,985			(13,673	)		1,379,073
Income Tax Expense (Benefit)		28,596			1,931			1,527			(1,733	)		1,725			105			30,426
Total Operating Expenses		841,278			589,994			55,793			10,511			656,298			(13,568	)		1,484,008
Equity in Net Loss of Affiliate		—			—			(5,402	)		—			(5,402	)		—			(5,402	)
Residential HVAC Impairment		—			—			(9,431	)		—			(9,431	)		—			(9,431	)
Operating Income (Loss)		97,526			5,872			(8,739	)		(8,593	)		(11,460	)		(105	)		85,961
Interest Expense—Net		45,312			912			335			795			2,042			(1,477	)		45,877
Other Non-Operating Income (Expense) (c)		827			7			117			778			902			(1,372	)		357
Dividends on Washington Gas Preferred Stock		1,320			—			—			—			—			—			1,320
Net Income (Loss)	$	51,721		$	4,967		$	(8,957	)	$	(8,610	)	$	(12,600	)	$	—		$	39,121
Total Assets (e)	$	2,177,713		$	128,127		$	25,591		$	73,672		$	227,390		$	(65,957	)	$	2,339,146
Capital Expenditures/Investments	$	161,645		$	433		$	4,313		$	(108	)	$	4,638		$	—		$	166,283
Year Ended September 30, 2001 (d)
Total Revenues	$	1,446,456		$	419,226		$	70,279		$	3,558		$	493,063		$	—		$	1,939,519
Operating Expenses:
Depreciation and Amortization		68,754			279			245			124			648			—			69,402
Other Operating Expenses (b)		1,177,368			420,670			61,643			4,525			486,838			—			1,664,206
Income Tax Expense (Benefit)		59,009			(896	)		1,708			(449	)		363			—			59,372
Total Operating Expenses		1,305,131			420,053			63,596			4,200			487,849			—			1,792,980
Equity in Net Loss of Affiliate		—			—			(2,595	)		—			(2,595	)		—			(2,595	)
Residential HVAC Impairment		—			—			(3,900	)		—			(3,900	)		—			(3,900	)
Operating Income (Loss)		141,325			(827	)		188			(642	)		(1,281	)		—			140,044
Interest Expense — Net		47,403			723			1,247			79			2,049			548			50,000
Other Non-Operating Income (Expense) (c)		(2,751	)		—			(76	)		—			(76	)		(3,452	)		(6,279	)
Dividends on Washington Gas Preferred Stock		1,320			—			—			—			—			—			1,320
Net Income (Loss)	$	89,851		$	(1,550	)	$	(1,135	)	$	(721	)	$	(3,406	)	$	(4,000	)	$	82,445
Total Assets (e)	$	2,166,730		$	102,254		$	32,698		$	89,689		$	224,641		$	(98,372	)	$	2,292,999
Capital Expenditures/Investments	$	128,588		$	1,028		$	1,202		$	447		$	2,677		$	—		$	131,265

43

WGL Holdings, Inc.
Washington Gas Light Company
Part II
Item 8. Financial Statements and Supplementary Data (continued)
Notes to Consolidated Financial Statements (continued)

(a)	2002 includes an after-tax charge of $5.1 million reflecting a loan loss provision associated with a consumer finance business that has stopped accepting new loans.
(b)	Includes cost of gas and revenue taxes.
(c)	Amounts reported are net of applicable income taxes.
(d)	Certain amounts in the fiscal years 2002 and 2001 have been reclassified to conform to the presentation of the current fiscal year period. Eliminations included in the Other Activities segment for fiscal years 2002 and 2001 have been reclassified into the Eliminations/Other column to conform to the same presentation in fiscal year 2003.
(e)	In fiscal year 2003, the Company increased “Total Assets” due to a reclassification of accrued non-legal asset removal costs from accumulated depreciation to a liability in connection with its adoption of SFAS No. 143. In accordance with new accounting guidance that became available from the SEC to the regulated utility industry, the Company adjusted “Total Assets” at the end of fiscal years 2002 and 2001 to reflect the reclassification of accrued non-legal asset removal costs from accumulated depreciation to a non-current liability in the amount of $225.5 million and $211.9 million, respectively.

18. TRANSACTIONS BETWEEN WASHINGTON GAS AND AFFILIATES

     Washington Gas and other subsidiaries of WGL Holdings engage in transactions with each other during the ordinary course of business. All of these intercompany transactions and balances have been eliminated from the consolidated financial statements of WGL Holdings. In addition, all such 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.

     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 September 30, 2003, have not been eliminated from Washington Gas’ financial statements. Due to the relatively small and immaterial size and number of these transactions, these transactions are not disclosed on the face of the Washington Gas financial statements.

     Washington Gas provides administrative and general support to affiliates, such as cash collections and other services, and has filed tax returns that include affiliated taxable transactions. The actual cost of these services are billed to the appropriate affiliates and to the extent such billings are not yet paid, they are reflected in “Receivables from associated companies” on the Washington Gas Balance Sheets. Cash collected by Washington Gas on behalf of its affiliates but not yet transferred is recorded in “Payables to associated companies” on the Washington Gas Balance Sheets. Washington Gas does not recognize revenues or expenses associated with providing these services.

     Washington Gas and its affiliates borrow and lend funds through the operation of a money pool. At September 30, 2003, the Washington Gas Balance Sheets reflected a total of $10.0 million of payables to associated companies. All affiliated transactions, including these balances, were eliminated from the WGL Holdings Consolidated Balance Sheets in accordance with GAAP.

     Additionally, Washington Gas provides gas balancing services related to storage, injections, withdrawals and deliveries to all unregulated energy marketers participating in the sale of natural gas on an unregulated basis through the choice programs that operate in its service territory. Washington Gas records revenues for these balancing services pursuant to tariffs approved by the appropriate regulatory bodies. In conjunction with such services, Washington Gas charged an affiliate, WGEServices, $12.0 million for the fiscal year ended September 30, 2003. The related party amounts have been eliminated in the Consolidated Financial Statements of WGL Holdings.

44

WGL Holdings, Inc.
Washington Gas Light Company
Part II
Item 8. Financial Statements and Supplementary Data (continued)

INDEPENDENT AUDITORS’ REPORT

To the Board of Directors and Shareholders of
          WGL Holdings, Inc. and Washington Gas Light Company:

          We have audited the accompanying consolidated balance sheets and consolidated statements of capitalization of WGL Holdings, Inc. and subsidiaries and the separate balance sheets and statements of capitalization of Washington Gas Light Company (the Companies) as of September 30, 2003 and 2002, and the related statements of income, common shareholders’ equity, and cash flows and income taxes for the years then ended. Our audits also included the financial statement schedules listed in the Index at Item 15 under Schedule II for the years ended September 30, 2003 and 2002. These financial statements and financial statement schedules are the responsibility of the Companies’ management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. The consolidated financial statements and financial statement schedule of WGL Holdings, Inc. and subsidiaries and the separate financial statements and financial statement schedules of Washington Gas Light Company and subsidiaries for the year ended September 30, 2001, prior to the restatement for a change in reportable segments, were audited by other auditors who have ceased operations. Those auditors expressed an unqualified opinion on those financial statements and stated that such 2001 financial statement schedules, when considered in relation to the 2001 basic financial statements taken as a whole, presented fairly, in all material respects, the information set forth therein, in their report dated October 29, 2001.

          We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

          In our opinion, such 2003 and 2002 financial statements present fairly, in all material respects, the consolidated financial position of WGL Holdings, Inc. and subsidiaries and the financial position of Washington Gas Light Company as of September 30, 2003 and 2002, and the respective results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein.

          As discussed above, the consolidated financial statements of WGL Holdings, Inc. and subsidiaries and the financial statements of Washington Gas Light Company as of September 30, 2001, were audited by other auditors who have ceased operations. As described in Note 17, WGL Holdings, Inc. and subsidiaries changed the composition of its reportable segments in 2002 and reclassified non-legal asset removal costs, which adjusted total assets in 2002, and the amounts in the 2001 consolidated financial statements relating to reportable segments have been restated to conform to the 2002 composition of reportable segments. We audited the adjustments that were applied to the restated disclosures for reportable segments reflected in the 2001 financial statements. Our procedures included (a) agreeing the adjusted amounts of segment revenues, depreciation and amortization, other operating expenses, income tax expense (benefit), total operating expenses, operating income, interest expense, net income and total assets to the Company’s underlying records obtained from management, and (b) testing the mathematical accuracy of the reconciliations of segment amounts to the consolidated financial statements. In our opinion, such adjustments have been properly applied. However, we were not engaged to audit, review or apply any procedures to the 2001 financial statements of WGL Holdings, Inc. and subsidiaries and Washington Gas Light Company other than with respect to such adjustments and, accordingly, we do not express an opinion or any other form of assurance on the 2001 financial statements taken as a whole.

     DELOITTE & TOUCHE LLP

McLean, Virginia
December 5, 2003 (April 23, 2004 as to Note 1, Accounting Policies—Property Plant and Equipment, and Note 17).

45

WGL Holdings, Inc.
Washington Gas Light Company
Part II
Item 8. Financial Statements and Supplementary Data (continued)

INDEPENDENT AUDITORS’ REPORT

REPORT OF ARTHUR ANDERSEN LLP FOR FISCAL YEAR 2001. THIS REPORT IS A COPY OF THE OCTOBER 29, 2001 REPORT AND HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN LLP, NOR HAS ARTHUR ANDERSEN LLP PROVIDED A CONSENT TO INCLUDE ITS REPORT IN THIS ANNUAL REPORT ON FORM 10-K. THE REGISTRANTS HEREBY DISCLOSE THAT THE LACK OF A CONSENT BY ARTHUR ANDERSEN LLP MAY IMPOSE LIMITATIONS ON RECOVERY BY INVESTORS.

To the Shareholders and Board of Directors of WGL Holdings, Inc. and Washington Gas Light Company:

We have audited the accompanying consolidated Balance Sheets and consolidated statements of capitalization of WGL Holdings, Inc. (a Virginia corporation) and subsidiaries and Washington Gas Light Company (a District of Columbia and Virginia corporation) (see Note 2) as of September 30, 2001 and 2000, and the related consolidated statements of income, common shareholders’ equity, cash flows and income taxes for each of the three years in the period ended September 30, 2001. These financial statements are the responsibility of the company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of WGL Holdings, Inc. and subsidiaries and Washington Gas Light Company as of September 30, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 2001, in conformity with accounting principles generally accepted in the United States.

Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedules listed in the index of financial statements are presented for purposes of complying with the Securities and Exchange Commission’s rules and are not part of the basic financial statements. These schedules have been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole.

ARTHUR ANDERSEN LLP

Vienna, VA
October 29, 2001

46

WGL Holdings, Inc.
Washington Gas Light Company
Part II
Item 8. Financial Statements and Supplementary Data (concluded)

SUPPLEMENTARY FINANCIAL INFORMATION (Unaudited)

QUARTERLY FINANCIAL INFORMATION

     The Company believes that all adjustments necessary for a fair presentation have been included in the quarterly information provided below. Due to the seasonal nature of its business, WGL Holdings reports substantial variations in operations on a quarterly basis.

			Quarter Ended
(In thousands, except per share data)	December 31(a)		March 31(b)		June 30(c)			September 30(d)
Fiscal Year 2003
Operating revenues	$	560,022	$	851,073	$	373,155		$	279,998
Operating income (loss)		63,137		92,955		9,283			(6,139	)
Net income (loss)		51,622		80,963		(2,640	)		(17,603	)
Earnings (loss) per average share of common stock:
Basic(e)		1.06		1.67		(0.05	)		(0.36	)
Diluted(e)		1.06		1.66		(0.05	)		(0.36	)
Fiscal Year 2002
Operating revenues	$	417,096	$	564,819	$	314,192		$	288,695
Operating income (loss)		42,267		55,639		(2,316	)		(9,629	)
Net income (loss)		30,237		45,760		(14,185	)		(22,691	)
Earnings (loss) per average share of common stock:
Basic(e)		0.62		0.94		(0.29	)		(0.47	)
Diluted(e)		0.62		0.94		(0.29	)		(0.47	)

(a)	Quarter ended December 31, 2002 of fiscal year 2003 included an after-tax gain of $926,000, or $0.02 per share, from the sale of the Company’s interest in a land development venture, and an adjustment to income taxes that added $2.7 million to income, or $0.06 per share. Quarter ended December 31, 2001 of fiscal year 2002 included an after-tax loss of $1.7 million, or $0.04 per share, associated with a transaction with a bankrupt energy trader, and an after-tax loss related to the Company’s former co-investment in a residential HVAC business of $700,000, or $0.01 per share.
(b)	Quarter ended March 31, 2003 included an after-tax gain of $2.5 million, or $0.05 per share, from the sale of the Company’s Washington D.C. headquarters property. Quarter ended March 31, 2002 included after-tax charges totaling $9.5 million, or $0.20 per share, for operating losses and an impairment provision associated with the former residential HVAC business.
(c)	Quarter ended June 30, 2003 included a reduction in income taxes of $2.1 million, or $0.04 per share, due to the realization of tax benefits of capital loss carryforwards. Quarter ended June 30, 2002 included after-tax charges totaling $5.1 million, or $0.10 per share, for operating losses and an impairment provision associated with the former residential HVAC business, as well as an after-tax loan loss provision of $5.1 million, or $0.11 per share, associated with a consumer finance business that has stopped accepting new loans.
(d)	Quarter ended September 30, 2002 included after-tax income of $2.4 million, or $0.05 per share, associated with the former residential HVAC business.
(e)	The sum of quarterly per share amounts may not equal annual per share amounts as the quarterly calculations are based on varying numbers of common shares.

47

WGL Holdings, Inc.
Washington Gas Light Company

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)1	Financial Statements
All of the financial statements filed as a part of the Annual Report on Form 10-K, as amended by this Amendment No. 2 on Form 10-K/A, are included in Item 8.
(a)2	Financial Statement Schedules
Schedule II should be read in conjunction with the financial statements in this report. Schedules not included herein have been omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.

Schedule/
Exhibit	Description
II	Valuation and Qualifying Accounts and Reserves for the years ended September 30, 2003, 2002 and 2001 – WGL Holdings, Inc.
	Valuation and Qualifying Accounts and Reserves for the years ended September 30, 2003, 2002 and 2001 – Washington Gas Light Company.
(a)3	Exhibits Exhibits Filed Herewith:
23	Consent of Experts and Counsel:
23.1	Consent of Deloitte & Touche LLP
23.2	Consent of Arthur Andersen LLP
31.1	Certification of James H. DeGraffenreidt, Jr., the Chairman and Chief Executive Officer of WGL Holdings, Inc., pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Frederic M. Kline, Vice President and Chief Financial Officer of WGL Holdings, Inc., pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.3	Certification of James H. DeGraffenreidt, Jr., the Chairman and Chief Executive Officer of Washington Gas Light Company, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.4	Certification of Frederic M. Kline, Vice President and Chief Financial Officer of Washington Gas Light Company, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of James H. DeGraffenreidt, Jr., Chairman and Chief Executive Officer, and Frederic M. Kline, Vice President and Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

48

WGL Holdings, Inc. and Subsidiaries
Schedule II – Valuation and Qualifying Accounts and Reserves
Years Ended September 30, 2003, 2002 and 2001

			Additions Charged to
	Balance at											Balance at
	Beginning		Costs and			Other				Deductions		End of
(In thousands)	of Period		Expenses			Accounts				(C)		Period
2003
Valuation and Qualifying Accounts Deducted from Assets in the Balance Sheet:
Allowance for Doubtful Accounts	$	13,740	$	13,327		$	2,380	(A	)	$	11,904	$	17,543
Provision for Impairment of Investments and Other Deferred Charges		1,946		—			—				400		1,546
Reserves:
Injuries and Damages		6,949		(3,120	)		—	(B	)		370		3,459
Other		450		—			—				—		450
2002
Valuation and Qualifying Accounts Deducted from Assets in the Balance Sheet:
Allowance for Doubtful Accounts	$	16,632	$	12,528		$	4,666	(A	)	$	20,086	$	13,740
Provision for Impairment of Investments and Other Deferred Charges		1,946		—			—				—		1,946
Reserves:
Injuries and Damages		6,939		327			322	(B	)		639		6,949
Other		450		—			—				—		450
2001
Valuation and Qualifying Accounts Deducted from Assets in the Balance Sheet:
Allowance for Doubtful Accounts	$	7,186	$	18,701		$	804	(A	)	$	10,059	$	16,632
Provision for Impairment of Investments and Other Deferred Charges		1,946		—			—				—		1,946
Reserves:
Injuries and Damages		7,275		134			262	(B	)		732		6,939
Other		450		—			—				—		450

Notes:
(A)	Recoveries on receivables previously written off as uncollectible and unclaimed customer deposits, overpayments, etc., not refundable.
(B)	Portion of injuries and damages charged to construction and reclassification from other accounts.
(C)	Includes deductions for purposes for which reserves were provided or revisions made of estimated exposure.

49

Washington Gas Light Company
Schedule II – Valuation and Qualifying Accounts and Reserves
Years Ended September 30, 2003, 2002 and 2001

	Balance at		Additions Charged to									Balance at
	Beginning		Costs and			Other				Deductions		End of
(In thousands)	of Period		Expenses			Accounts				(C)		Period
2003
Valuation and Qualifying Accounts Deducted from Assets in the Balance Sheet:
Allowance for Doubtful Accounts	$	9,395	$	15,801		$	2,380	(A	)	$	11,750	$	15,826
Provision for impairment of investments and other deferred charges		—		—			—				—		—
Reserves:
Injuries and Damages		6,899		(3,120	)		—	(B	)		370		3,409
Other		450		—			—				—		450
2002
Valuation and Qualifying Accounts Deducted from Assets in the Balance Sheet:
Allowance for Doubtful Accounts	$	14,372	$	11,847		$	2,939	(A	)	$	19,763	$	9,395
Provision for impairment of investments and other deferred charges		—		—			—				—		—
Reserves:
Injuries and Damages		6,939		277			322	(B	)		639		6,899
Other		450		—			—				—		450
2001
Valuation and Qualifying Accounts Deducted from Assets in the Balance Sheet:
Allowance for Doubtful Accounts	$	7,186	$	17,532		$	803	(A	)	$	11,149	$	14,372
Provision for impairment of investments and other deferred charges		1,946		—			—				1,946		—
Reserves:
Injuries and Damages		7,275		134			262	(B	)		732		6,939
Other		450		—			—				—		450

Notes:
(A)	Recoveries on receivables previously written off as uncollectible and unclaimed customer deposits, overpayments, etc., not refundable.
(B)	Portion of injuries and damages charged to construction and reclassification from other accounts.
(C)	Includes deductions for purposes for which reserves were provided or revisions made of estimated exposure and transfers at formation of the Holding Company.

50

WGL Holdings, Inc.
Washington Gas Light Company

SIGNATURE

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrants have duly caused this report to be signed on their behalf by the undersigned, thereunto duly authorized.

	WGL HOLDINGS, INC. and WASHINGTON GAS LIGHT COMPANY
	(Co-registrants)
Date: May 14, 2004
	/s/ Frederic M. Kline
	Frederic M. Kline Vice President and Chief Financial Officer

51

WGL Holdings, Inc.
Washington Gas Light Company

2003 Annual Report on Form 10-K/A
Amendment No. 2

Exhibit Index

Exhibit	Description
23	Consent of Experts and Counsel:
23.1	Consent of Deloitte & Touche LLP
23.2	Consent of Arthur Andersen LLP
31.1	Certification of James H. DeGraffenreidt, Jr., the Chairman and Chief Executive Officer of WGL Holdings, Inc., pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Frederic M. Kline, Vice President and Chief Financial Officer of WGL Holdings, Inc., pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.3	Certification of James H. DeGraffenreidt, Jr., the Chairman and Chief Executive Officer of Washington Gas Light Company, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.4	Certification of Frederic M. Kline, Vice President and Chief Financial Officer of Washington Gas Light Company, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of James H. DeGraffenreidt, Jr., Chairman and Chief Executive Officer, and Frederic M. Kline, Vice President and Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

52