2017 // corporate performance report2017cpr.wgl.com/wgl-2017-annual-report.pdfin new infrastructure...

2 0 17 // C O R P O R AT E P E R F O R M A N C E R E P O R T

IN 2009, WGL BEGAN TO FORGE A NEW LEGACY.

0 1 // WG L C O R P O R AT E P E R FO R M A N C E R E P O R T

In the past nine years, our company has grown into a diversified energy company with a thriving regulated utility, substantial investments in midstream operations and alternative energy solutions delivered to customers across the nation.

02 // WGL C O R P O R AT E P E R F O R M A N C E R E P O R T

OUR SUCCESS IS THE RESULT OF:• The vision and leadership of our board and executive management team• The hard work and dedication of our employees• And shared values that serve as the guiding light for our decisions

DIVERSITY INNOVATION SERVICE SUSTAINABILITY PERFORMANCE

FO R G I N G A N E W L EG ACY // 0 3

WGL has a proud history as a pillar of the Washington, D.C., area. As we have transformed our company, we have maintained our commitment to the communities we serve and strengthened our role as a corporate citizen within those communities.

As we forge our new legacy and embark upon our next journey into the future, that commitment will live on for the benefit of us all.


When we think back over the past nine years, we are thankful in so many ways for the privilege of leading this company—the inspiration we’ve drawn from an ener-gized WGL team, the growth we’ve been able to realize and the promising future we anticipate.

Perhaps our greatest satisfaction comes from the decision our board of directors made at the very beginning of our tenure allowing us to envision a future for WGL that stepped outside the traditional utility model and, in essence, forged a new legacy for our company. It was this important step that made possible all that WGL has become today.

We set out to point WGL toward an energy future that would not only serve our busi-ness in the present, but one that would endure to the benefit of future genera-tions. We were empowered to ask—and answer—a profound question: Where do we think the world needs to be in 30 years, 50 years, and well into the future?

Our mission was to forge a new legacy, a future built on WGL’s distinguished 160-plus-year history, but at the same time establish an ambitious, reinvigorated

mission, one that would both benefit our shareholders and also create a better future for our planet, our communities, the customers we serve now and those we will serve for many decades to come.

EXECUTING ON A VISION

For us, that meant asking where the world of energy is headed over the long term, and how do we help drive the future by what we do. It was clear the world was moving toward cleaner energy, with natural gas a key part of that picture. That energy future also embraced wind, solar, energy efficiency, natural gas-powered fuel cells and even more from the world’s best engineering minds. So how would we get involved?

In the past nine years, we have addressed these questions to realize the vision of a company intent on participating in that new energy future while further growing those portions of our enterprise that have served us for the past 169 years. To wit:

• We have continued to operate a safe, reliable, growing and state-of-the-art regulated natural gas utility. Washington

Gas, our largest business unit, is an indis-pensable part of the comprehensive energy solution we offer to our customers.

• We have grown our gas infrastructure effort through our WGL Midstream busi-ness. Here we’ve extended a major presence in natural gas storage and transportation into a growing infrastruc-ture business—our investments in pipe-line systems are now projected to total nearly $1 billion in the near future.

• Finally, through WGL Energy, we have built a robust and profitable presence in alternative energy, offering our custom-ers solar solutions, remotely generated wind and other options. Through a dis-tributed generation model, we can pro-vide a combination of natural gas and alternative energy solutions.

We’ve continued to deliver solid financial returns to our shareholders, year in and year out. In Fiscal Year 2017, we reported record GAAP consolidated net income of $192.6 million, or $3.74 per share, versus FY 2016 GAAP results of $167.6 million, or $3.31 per share, and non-GAAP con-solidated operating earnings of $160.2 million, or $3.11 per share, versus FY 2016

Forging a New Legacy

LEVERAGING THE LEGACY OF ENERGY SOLUTIONS THE COMPANY HAS PROVIDED FOR DECADES


Our mission was to forge a new legacy, a future built on WGL’s distinguished 160-plus-year history, but at the same time establish an ambitious, reinvigorated mission, one that would both benefit our shareholders and also create a better future for our planet, our communities, the customers we serve now and those we will serve for many decades to come.

non-GAAP results of $155.6 million, or $3.08 per share. These results can be attributed to:

• the addition of more than 12,400 meters during the year;

• timely returns on our investments to replace segments of aging infrastruc-ture in all three of Washington Gas’ jurisdictions;

• pipeline infrastructure investments; and

• higher earnings from alternative energy investments.

Overall, we extended our track record of increasing dividends for 41 consecutive years and paying dividends for 166 years.

LOOKING FORWARD—A PROMISING NEW LEGACY

In January of 2017 the boards of directors of WGL Holdings and AltaGas Ltd., of Calgary, each unanimously approved a definitive agreement for WGL to be acquired by

AltaGas, a North American infrastructure company, in an all-cash transaction valued at approximately $6.4 billion, pending regu-latory approval.

The concept of creating a bigger, better company with the combined resources of WGL and AltaGas is exactly in sync with all that we have been doing leading up to this. As part of a larger company with more resources, we will be able to provide energy solutions we currently don’t offer and to grow parts of our business that are com-plementary to those of AltaGas. Importantly, we will also be able to continue running existing businesses, including providing safe and reliable natural gas to our service area and growing Washington Gas as we do today.

As we said at the beginning of this letter, all this would not have been possible without the highly dedicated and focused WGL employees that it has been our privilege to lead, professionals who have worked tire-lessly to realize the vision of a more diverse, environmentally conscious and modern energy company. This dedication has been particularly true in the past year, with every one of our employees remaining focused, and with many of our people essentially doing two jobs, fulfilling their regular duties

while also attending to the myriad details of a large, complex merger.

We want to thank these colleagues, and also our customers, shareholders and communities, for their support. We have built something great, something last-ing, a legacy—one that promises only to get better.

Sincerely yours,

Terry D. McCallisterChairman and Chief Executive Officer

Adrian P. ChapmanPresident and Chief Operating Officer

FORGING A SAFE AND RELIABLE LEGACY

01Our Regulated Utility: Growth, Safety, Reliability and Customer ServiceWashington Gas stands at the center of our business—the foundation of our past and the keystone of our future. In FY 2017, we made giant strides in improving customer service and continued to build upon a natural gas delivery network that is, first and foremost, safe and reliable. We connected more than 12,400 new customers to our system and maintained our reliability at a remarkably high 99.7 percent through continued investment in upgrading our pipe infrastructure.


Responding to Housing Preferences: The Bozzuto Group

A Team Approach to a Complex Challenge: Carmese ie & Stone

Toll Brothers’ Marlboro Ridge © RON BLUNT Toll Brothers’ kitchens feature natural gas © RON BLUNT


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Toll Brothers and Washington Gas:BUILDING OUR CUSTOMER BASE

Washington Gas has a long-standing relationship with Toll Brothers, a Fortune 500 homebuilder with developments in 50 suburban and urban markets in 20 states, working with the company to bring natural gas to their properties in our service area.

Since 2006, Washington Gas has worked with Toll Brothers to supply natural gas to its communities, including the luxury Marlboro Ridge community in Prince George’s County, Maryland. Marlboro Ridge is an ongoing project that consists of 317 townhomes and 482 single family homes, a sophisticated residential community offering state-of-the-art equestrian facilities and resort-style amenities.

Developers like Toll Brothers know that homebuyers want natural gas heating, cooking and hot water. Accordingly, natural gas-supplied homes are in high demand. They are comfortable and convenient, and energy costs are lower. In addition to reduced operating costs, high-efficiency natural gas appliances are better for the environment.

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In FY 2017, WGL invested $408 million in our natural gas utility, including $131 million in the accelerated replacement of existing pipe and $129 million in new infrastructure that can support customer growth. Moreover, we project that in the next five years, we will invest another $1.8 billion in our system.

Also in FY 2017, we took steps to significantly improve service to our customers. During the year, we implemented our new SAP customer information system, a tool that provides our call center with improved ability to resolve customer billing calls that are not addressable through our Internet-based eService system. That same SAP system also put tablets in the hands of our field employees, giving them more real-time, at-the-site information about a call.


RELIABILITY

CUSTOMER SATISFACTION

84.5%

99.7%CUSTOMER SERVICE PERFORMANCE



$470M RECEIVED Through WGL’s optimization of natural gas storage

and transportation assets, we work to fully utilize our

pipeline capacity when it is not otherwise needed

to serve our customers. Maximizing our assets

produces results for customers and shareholders.

WASHINGTON GAS

$207M RETURNED TO

UTILITY CUSTOMERS

METER GROWTH

MAKING THE MOST OF OUR PIPELINE CAPACITY

2009 2010 2011 2012 2013 2014 2015 2016 2017

120K

100K

80K

60K

40K

20K

0

12,468

13,327

12,099

12,221

12,488

11,250

9,868

9,845

11,011

OVER 100,000 NEW METERS INSTALLED SINCE 2009

Mountain Valley Pipeline

10%

Constitution Pipeline

10%

Central Penn Line

21%

Our Midstream enterprise is generating both revenue and profit while also helping build a natural gas transmission network serving the Northeastern region of the U.S., improving supply lines and connecting the huge Marcellus natural gas formation with millions of customers along the Eastern seaboard and mid-Atlantic states.

FORGING A REGIONAL LEGACY

02Midstream Energy Services Segment: Sales, Supply and Regional InfrastructureWGL Midstream began as a natural gas storage business outside of our regulated utility business. We buy gas at one price, store it and plan to sell it on a regional basis at a higher price. Soon we began to transport that gas, and more recently recognized that we had an interest in the natural gas infrastructure in our region and began to make investments in pipelines.

35 BillionCUBIC FEET STORAGE CAPACITY

OWNERSHIP

OWNERSHIP

Stonewall Gathering System

30%OWNERSHIP

OWNERSHIP

FO R G I N G A N E W L EG ACY // 13

Central Penn Line: CONSTRUCTION BEGINS, A MAJOR STEP FORWARD

WGL’s growing presence in the regional transmission of natural gas took a major step forward in 2017 with the commencement of construction of the Central Penn Line (a major component of Transco’s Atlantic Sunrise Pipeline Project), a natural gas pipeline that will provide new firm gas transportation capacity through Pennsylvania. WGL has committed $410 million to the project as part of our overall $1 billion projected investment in regional transmission pipelines.

WGL Midstream is a significant investor in Central Penn, a 185-mile “greenfield” pipeline in Susquehanna County, Pennsylvania, and extending to Lancaster County, Pennsylvania. The Central Penn Line will be instrumental in addressing the current challenge of transporting natural gas from an area with abundant supply to existing established markets.

The Central Penn Line will have the capacity to transport and deliver up to 1.7 million dekatherms per day of natural gas and is expected to be put into service in 2018.

FORGING A REGIONAL LEGACY

The Central Penn Line will have the capacity to transport and deliver up to 1.7 million dekatherms per day of natural gas and is expected to be put into service in 2018.

FORGING A NATIONAL LEGACY

03Our Portfolio of Alternative Energy InvestmentsWGL has worked to build a presence locally, regionally and nationally as a leader in the development and implementation of alternative energy solutions.

CALIFORNIA

MINNESOTA

GEORGIA

MARYLAND

36 PROJECTS in SERVICE

25 MW of DC CAPACITY







STATES + D.C. WITH DISTRIBUTED GENERATION ASSETS

NATIONAL HIGHLIGHTS

20


Powering Washington’s Favorite Teams with Renewables

Government Infrastructure for the Future

Shining Light: Powering D.C. Buildings with On-Site Solar

Celebrating the addition of 2.2 MW of capacity at UMD Solar canopies at the University of Maryland


University of Maryland: TOWARD A RENEWABLE FUTURE

The University of Maryland (UMD) is one of WGL’s oldest customers. Through its regulated utility, Washington Gas, WGL has provided natural gas to UMD for decades. WGL’s partnership with UMD also represents one of our most established relationships, as we provide for the university’s more diverse energy needs, including electricity and alternative energy sources.

Located in College Park, Maryland, UMD first embraced solar energy as an alternative source of power when it partnered with WGL in 2011 to install solar panels on its Severn Building. Since then, the university has developed an ambitious plan to ensure that, by 2020, 100 percent of its purchased power comes from renewable sources.

UMD is well on its way toward that goal, most recently engaging with WGL in a purchased power agreement to fund the installation of solar canopies on top of three UMD parking garages, adding nearly 2.2 megawatts of generating capacity, meeting 80 percent of the university’s goal of 2.7 megawatts of solar power for university facilities by 2018.

When added to the power generated from solar installations on its Severn Building and the Institute for Bioscience and Biotechnology Research, the new project brings UMD’s total capacity to more than 3,000 megawatt hours generated by solar power, the equivalent emissions reduction of not burning nearly 5,200 barrels of oil—that’s more than 250,000 gallons of gasoline.

STATES + D.C. WITH DISTRIBUTED GENERATION ASSETS

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We have built our alternative energy portfolio on a consistent and growing commitment. Each year, our accumulating investment generates an increasing level of revenue. As we have gained experience in alternative energy, our annual investment has grown, reaching an annual rate of $100 million or more over the past four years.

We’ve also become more sophisticated, growing toward a distributed generation model that involves large multiple-solution projects that employ natural gas, solar, remotely generated wind and other solutions. One of those massive projects—supplying a comprehensive solution to the U.S. government’s General Services Administration—is now taking shape, with others also in the works.

WGL now has alternative energy projects across the United States, representing a total investment of almost $700 million.

Producing power at or near the site of consumption, utilizing a diverse

combination of traditional energy, such as natural gas, along with

renewable resources such as wind, solar, geothermal and more.

DISTRIBUTED GENERATION



MEGAWATTS IN SERVICE (Solar Electricity Generated)

FY2010 FY2013 FY2017

22,883 MWh

570 MWh

254,003 MWh

DISTRIBUTED GENERATION INVESTMENT($ in millions)

$32M$42M

$84M

$108M

$158M

$164M

$85.5M

NEARLY $700 MILLION INVESTED SINCE 2011

20172011 2012 2013 2014 2015 2016

$800

640

480

320

160

0

FORGING A LEGACY IN OUR COMMUNITIES

04Living Our Values; Caring for Our CommunitiesThroughout our history, WGL has been an active participant in the communities we serve, donating our resources and our time to improve the quality of life of those in need. Our efforts are focused on the areas of health, education and the environment. We also organize several events each year to honor and serve our nation’s veterans.

Washington Area Fuel Fund: Helping the “Energy Poor”


Veterans Helping Veterans: GIVING OUR BEST

Veterans know a great deal about giving, and the veterans who work at WGL make up one of the most dedicated groups of volunteers at our company.

WGL’s veterans volunteer for a wide variety of events and activities to help serve their fellow service members. Our veterans lay wreaths at Arlington National Cemetery, connect with veterans during regular visits to the Armed Forces Retirement Home, adopt operating units serving overseas—sending care packages—and establish individual mentoring relationships with service members who are new to the WGL family.

WGL currently employs more than 100 veterans and has established relationships with veterans’ groups such as Troops to Energy, Virginia Values Veterans (V3), and veteran-focused staffing organizations to actively recruit members of our armed services. We also actively encourage veterans to apply for work at WGL, indicating on certain Operations job postings “military experience preferred.”


WGL currently employs more than 100 veterans and has established relationships with veterans’ groups such as Troops to Energy, V3 and veteran-focused staffing organizations.

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WGL, through our Community Service Program, sponsored more than 50 events in 2017. Among these many events, employee volunteers staffed a science bowl for high school students, worked on the Washington, D.C., Special Olympics Summer Games, winterized the homes of elderly and disabled residents and organized a toy drive for children in need.

In 2017, more than 600 of WGL’s employees served as volunteers, collectively giving nearly 12,500 hours of their time to teach elementary school students the basics of business, economics and safety; plant trees; and help veterans, among our many projects.

WGL is consistently ranked by the Washington Business Journal’s Corporate Philanthropy Awards for the Capital Region. Most recently, our company ranked 14th in volunteer hours and was in the top 25 for dollars contributed, at $976,476. Over the past 11 years, our employees have made more than $1.2 million in donations to local, national and international charities.

CORPORATE CONTRIBUTIONS SINCE 2009 $7.6M+RANKED IN THE TOP 25 FOR DOLLARS CONTRIBUTED BY THE WASHINGTON BUSINESS JOURNAL FOR 10 YEARS

FO R G I N G A N E W L EG ACY // 2 1FO R G I N G A N E W L E G A C Y // 21


VOLUNTEER PROJECTS AND TOTAL HOURS 12,491

1,684 HoursLight The Night Walk & Fundraising Activities

1,289 HoursJunior Achievement Events

270 HoursArmed Forces Retirement Home

330 HoursSo Others Might Eat

617 HoursYMCA Thingamajig Invention Convention

1,677 HoursDay of Weatherization

FORGING A SUSTAINABLE LEGACY

05New Goals for Environmental ResponsibilityWGL is dedicated to providing clean, reliable and affordable energy to our communities. At the heart of that imperative is our belief that energy generates the pathway to a more sustainable economy and helps eradicate poverty, combat climate change and generate advancements in health, education, food and water, and industrialization.

LEED–certified operations center

FO R G I N G A N E W L EG ACY // 2 3 FO R G I N G A N E W L EG ACY // 2 3


In recent years, we have intensified our commitment to a healthy environment and a sustainable future. We have adopted a far more systemic, organized process of measuring our impact on the environment and have also embraced new business initiatives that help governments, institutions, corporations and communities develop alternative clean energy sources such as solar and wind as well as increased energy efficiency, in addition to clean-burning natural gas.

Our sustainability program is based on the core principles of ensuring access to modern energy, expanding economic opportunities, maintaining resilient infrastructure and enabling sustainable cities and communities.

We are proud of our efforts so far and are committed to advancing them in the years to come.

LEED–certified operations center Fleet of 200 natural gas vehicles

24 // WG L C O R P O R AT E P E R FO R M A N C E R E P O R T24 // WGL C O R P O R AT E P E R F O R M A N C E R E P O R T

We take our responsibilities as stewards of our environment seriously. We lead by example in our operations and the solutions we offer to customers. We have established comprehensive metrics to ensure our progress toward a clean and sustainable future.

Our first set of sustainability goals was achieved four years ahead of schedule. Through operation of more than 200 natural gas vehicles in our fleet and LEED-certified buildings, such as our operations center in Springfield, Va., we achieved a 74 percent reduction in fleet and facilities emissions. By investing in our natural gas infrastructure, with accelerated pipe replacement programs in all three of Washington Gas’ jurisdictions, we have been able to reduce the emissions intensity from our natural gas distribution system by 20 percent.

Our next set of targets is equally ambitious. By 2025, we are committed to operating completely carbon neutral facilities and fleet across all of the WGL companies; enabling our customers to avoid 18 million metric tons of carbon emissions; and achieving a 38% reduction in carbon emission intensity per therm of delivered natural gas. Finally, we have a companion target to invest 30% of our business spend with diverse suppliers, including minority-owned, women-owned and service-disabled, veteran-owned businesses by 2021.

REDUCTION

ACHIEVEDACHIEVED

REDUCTION

Reduce operational emissions 70% below 2008 baseline by 2020

GOAL 1

74%

Reduce fugitive emission intensity of gas supply system 18% below 2008 baseline by 2020

GOAL 2

20%

FO R G I N G A N E W L EG ACY // 2 5FO R G I N G A N E W L EG ACY // 2 5


2025 SUSTAINABILITY TARGETS

18 million metric tons of avoided greenhouse gas emissions by our customers (2015–2025) 18STRONG COMMUNITIES

38% reduction in carbon intensity per delivered therm of natural gas 38%RESILIENT INFRASTRUCTURE

Our fleet and facilities will be carbon neutral

CLEAN ENERGY

0

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COMPANY OFFICERS (1) WGL Holdings, Inc.(2) Washington Gas

LUANNE S. GUTERMUTH(1,2)

Senior Vice President and Chief Human Resources Officer

LOUIS J. HUTCHINSON, III(1,2)

Vice President and Chief Revenue Officer

RICK MOORE(1)

Vice PresidentMARCELLOUS P. FRYE, JR.(2)

Vice PresidentMARK A. LOWE(2)

Vice President

ANTHONY M. NEE(1,2)

Vice President LESLIE T. THORNTON(1,2)

Senior Vice President, General Counsel and Corporate Secretary

DOUGLAS A. STAEBLER(2)

Senior Vice PresidentTRACY L. TOWNSEND(2)

Vice President

DOUGLAS I. BONAWITZ(1,2)

Vice President and TreasurerADRIAN P. CHAPMAN(1,2)

President and Chief Operating Officer

WILLIAM R. FORD(1,2)

Vice President and Chief Accounting Officer

VINCENT L. AMMANN, JR.(1,2)

Senior Vice President and Chief Financial Officer

TERRY D. McCALLISTER(1,2)

Chairman of the Board and Chief Executive Officer


COMMITTEE MEMBERSHIP(1) Executive(2) Audit

(3) Human Resources(4) Governance

BOARD OF DIRECTORS

WGL Honored Among Top Boards in America for DiversityWGL is proud of the diversity of our board of directors. In 2017, our directors Lee, Dyke and Gooden were recognized by Savoy magazine as being among the most influential black directors in corporate America. Also this year, WGL was honored by the Women’s Forum of New York for accelerating gender parity in the boardroom.

MICHAEL D. BARNES(1,4)

Senior Fellow Center for International Policy

GEORGE P. CLANCY, JR.(1,2,3)

Retired Executive Vice President Chevy Chase Bank

TERRY D. McCALLISTER(1)

Chairman of the Board and Chief Executive Officer WGL Holdings, Inc. and Washington Gas

NANCY C. FLOYD(2,4)

Founder and Managing DirectorNth Power

JAMES W. DYKE, JR.(3,4)

Senior Advisor McGuire Woods Consulting

DALE S. ROSENTHAL(2)

Division President Clark Financial Services Group

LINDA GOODEN(3)

Retired Executive Vice President Lockheed Martin Information Systems & Global Solutions

DEBRA L. LEE(2)

Chairman and Chief Executive Officer BET Networks

JAMES F. LAFOND(1,3)

Retired Area Managing Partner PricewaterhouseCoopers LLP


We look back on 2017 with pride and anticipate the years to come with optimism and excitement about WGL’s place in the advanced energy economy. As part of a much larger organization, WGL will be well positioned to build upon our great history, forging a new legacy while delivering the same exceptional service to our natural gas utility customers and an even more comprehensive set of services in regional gas distribution and alternative energy solutions. At the heart of these efforts will remain our key to success—our skilled and experienced employees, dedicated to our customers, shareholders, communities and each other.

An owner and operator of interests in natural gas storage facilities in and around Hampshire County, West Virginia. Hampshire Gas provides exclusive storage services to Washington Gas.

WGL Energy delivers a full ecosystem of energy offerings, including natural gas, electricity, renewable energy, and carbon reduction provided by WGL Energy Services, Inc. and distributed generation and energy efficiency from WGL Energy Systems, Inc.

WGL Midstream specializes in the investment, management, development and optimization of natural gas storage and transportation projects. WGL Midstream’s customers and counterparties include producers, utilities, LNG exporters, local distribution companies, power generators, wholesale energy suppliers, pipelines and storage facilities.

A regulated natural gas utility providing safe, reliable natural gas service to more than 1.1 million customers in the District of Columbia, Maryland and Virginia. Through Washington Gas, we have provided energy to residential, commercial and industrial customers for 169 years.

A NEW LEGACY


Cover printed on Green Seal-certified paper

WGL Energy has retired 71 Green-e® Climate certified carbon offsets to counterbalance the greenhouse gas emissions resulting from the production, printing and distribution of this Performance Report. Designed by Curran & Connors, Inc. / www.curran-connors.com

(1) Fiscal year 2017 includes adjustments related to: unrealized mark-to-market valuations on energy-related derivatives of $79.4 million (of which $49.3 million

related to Washington Gas) and $(11.8) million for estimated weather effects in the District of Columbia; a $(6.8) million reclassification of distributed generation

asset-related investment tax credits related to WGL Energy Systems; storage inventory valuation changes of $8.0 million related to WGL Midstream; merger

related costs of $(12.9) million; and other adjustments of $(0.5) million. Fiscal year 2016 primarily includes adjustments related to: unrealized mark-to-market val-

uations on energy-related derivatives of $43.4 million (of which $20.1 million related to WGL Midstream); $(9.3) million for estimated weather effects in the District

of Columbia; a $(5.3) million reclassification of distributed generation asset-related investment tax credits related to WGL Energy Systems; storage inventory val-

uation changes of $(15.5) million related to WGL Midstream; and other adjustments of $1.2 million.

(2) Non-GAAP adjustment related to mark-to-market valuations on forward starting interest rate swaps associated with anticipated future financing. Due to certain

covenants in the merger agreement with AltaGas, it is no longer probable that the 30-year debt issuance that the swaps were originally intended to hedge will

occur. However, we believe that some form of financing will continue to be required. The hedges were de-designated in January 2017.

(3) Non-GAAP adjustments are presented on a gross basis and the income tax effects of those adjustments are presented separately. The income tax effects of

non-GAAP adjustments, both current and deferred, are calculated at the individual company level based on the applicable composite tax rate for each period

presented, with the exception of transactions not subject to income taxes. Additionally, the income tax effect of non-GAAP adjustments includes investment

tax credits related to distributed generation assets.

GAAP RECONCILIATION

The following table represents an unaudited reconciliation of non-GAAP operating earnings to GAAP net income applicable to common stock:

Fiscal Year Ended September 30,

(In thousands, except per share data) 2017 2016

Operating earnings $160,244 $155,600

Non-GAAP adjustments(1) 55,368 14,477

De-designated interest rate swaps(2) (5,570) —

Income tax expense on non-GAAP adjustments(3) (17,422) (2,483)

Net income applicable to common stock $192,620 $167,594

Diluted average common shares outstanding 51,475 50,564

Operating earnings per share $ 3.11 $ 3.08

Per share effect of non-GAAP adjustments 0.63 0.23

Diluted earnings per average common share $ 3.74 $ 3.31

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