RGC RESOURCES INC

CONDENSED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Resources is an energy services company primarily engaged in the sale and distribution of natural gas. The condensed consolidated financial statements include the accounts of Resources and its wholly-owned subsidiaries: Roanoke Gas, Diversified Energy and Midstream.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to fairly present Resources' financial position as of* December 31, 2023*, cash flows for thethree months ended* December 31, 2023and2022*, and the results of its operations, comprehensive income, and changes in stockholders' equity for thethree months ended* December 31, 2023and2022*. The results of operations for thethree months ended* December 31, 2023* arenot indicative of the results to be expected for the fiscal year ending* September 30, 2024*as quarterly earnings are affected by the highly seasonal nature of the business and weather conditions generally result in greater earnings during the winter months.

The unaudited condensed consolidated financial statements and condensed notes are presented under the rules and regulations of the SEC. Pursuant to those rules, certain information and note disclosures normally included in the annual financial statements prepared in accordance with GAAP have been condensed or omitted. Although the Company believes that the disclosures are adequate, the unaudited condensed consolidated financial statements and condensed notes should be read in conjunction with the financial statements and notes contained in the Company’s Form10-K for the year ended* September 30, 2023*. The* September 30, 2023* consolidated balance sheet was included in the Company’s audited financial statements included in Form10-K.

Roanoke Gas’ line of credit is renewed annually in* March,and there is approximately $6,700,000 outstanding under the line of credit at the time of this filing. Separately, Midstream has $33,850,000 of current maturities of long-term debt due in the next12* months. These amounts, in the aggregate, exceed the liquidity available to the Company through currently executed agreements and anticipated operating cash flows over this period without taking additional actions involving athird party. As a result, under ASU2014-15, substantial doubt exists about the Company's ability to continue as a going concern.

Management's plans are to refinance these amounts and management's discussions with banks regarding refinancing the amounts have been positive. Additionally, the Company has refinanced this debt in the past and the pending completion of the MVP further supports a favorable likelihood of successful refinancing. Since such refinancing isnot entirely within the Company's control, there can beno assurances that such refinancing can be completed.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

The Company’s significant accounting policies are described in Note1 to the consolidated financial statements contained in the Company's Form10-K for the year ended* September 30, 2023*.

Certain amounts previously disclosed have been reclassified to conform to current year presentations.

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Recently Issued or Adopted Accounting Standards

In* March 2020,the FASB issued ASU2020*-04, Reference Rate Reform (Topic848*) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting.In combination with ASU2021*-01 and ASU2022-06, the ASU provides temporary optional guidance to ease the potential burden in accounting for and recognizing the effects of reference rate change on financial reporting. The new guidance applies specifically to contracts and hedging relationships that reference LIBOR, or any other referenced rate that is expected to be discontinued due to reference rate reform. The new guidance is effective for the Company through* December 31, 2024.The Intercontinental Exchange Benchmark Administration, the administrator for LIBOR and other inter-bank offered rates, announced that the LIBOR rates forone*-day,one-month,six-month andone-year would cease publication in* June 2023and thatno* new financial contracts* mayuse LIBOR after December 31, 2021.Subsequent to June 30, 2023,theone*-day,one-month,six-month, andone-year LIBOR settings will continue to be published under an unrepresentative synthetic methodology until the end of* September 2024in order to bridge the transition to other reference rates. The Company has transitioned all butone* LIBOR-based variable rate note to a new reference rate as of* December**31,* 2023. Each of the revised notes has a corresponding swap that was also transitioned to align with the related notes. The last LIBOR-based variable rate note will mature in fiscal2024. See Note7 and Note9 for more information.

In* November 2023,the FASB issued ASU2023*-07, Segment Reporting (Topic280*) - Improvements to Reportable Segment Disclosures*. The new guidance is designed to provide users of financial statements with enhanced disclosures regarding the information provided to the chief operating decision maker (CODM) and how the CODM uses the information in assessing the performance of each segment. The Company is currently evaluating the new standard and determining the additional disclosure requirements. The new guidance is effective for fiscal years beginning after* December 15, 2023and interim periods within fiscal years beginning after December 31, 2024.*

In* December 2023,the FASB issued ASU2023*-09, Income Taxes (Topic740*): Improvements to Income Tax Disclosures*. The new guidance requires that on an annual basis public business entities disclose specific categories in the rate reconciliation table and provide additional information for reconciling items that meet a quantitative threshold (items equal to or greater than5 percent of the amount computed by multiplying pretax income or loss by the applicable statutory rate). The required disclosures will provide more granularity regarding the payment of income taxes to federal, state and foreign entities. The Company doesnot expect certain requirements of this ASU to have a significant impact to its current disclosures as all of its operations are domestic and reside intwo states. Changes to the rate reconciliation table will result in additional disclosure. The new guidance is effective for public business entities for annual periods beginning after* December 15, 2024.*

Other accounting standards that have been issued by the FASB or other standard-setting bodies arenot currently applicable to the Company or arenot expected to have a material impact on the Company’s financial position, results of operations or cash flows.

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The Company leases certain assets including office space and land classified as operating leases. The Company determines if an arrangement is a lease at inception of the agreement based on the terms and conditions in the contract. The operating lease ROU assets and operating lease liabilities are recognized as the present value of the future minimum lease payments over the lease term at commencement date. As most of the leases donot provide an implicit rate, the Company uses an estimate of its secured incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. The incremental borrowing rate is determined by management aided by inquiries of athird party.

Lease expense for minimum lease payments is recognized on a straight-line basis over the term of the agreement. The Company made an accounting policy election that payments under agreements with an initial term of12 months or less willnot be included on the condensed consolidated balance sheet but will be recognized when paid in the consolidated statements of operations.

During fiscal2023, the Company entered into a land lease in conjunction with its RNG facility that has a 20-year term withtwo five-year renewal options that arenot considered part of the ROU asset and liability as the decision to elect said options will be made by the Company in the future. The Company also hasthree other operating leases with original terms ranging from 3 to 6 years. The operating lease ROU assets of $354,320 are reflected in other non-current assets in the condensed consolidated balance sheets. The current operating lease liabilities of $30,657 and non-current lease liabilities of $321,056 are included in other current liabilities and deferred credits and other non-current liabilities, respectively, in the condensed consolidated balance sheets. The cost components of the Company’s operating leases are included under operations and maintenance expense in the condensed consolidated statements of income and were less than $50,000 for each period presented.

Other information related to leases were as follows:

On* December 31, 2023,*the future minimum rental payments under non-cancelable operating leases by fiscal year were as follows:

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The Company assesses new contracts and identifies related performance obligations for promises to transfer distinct goods or services to the customer. Revenue is recognized when performance obligations have been satisfied. In the case of Roanoke Gas, the Company contracts with its customers for the sale and/or delivery of natural gas.

The following tables summarize revenue by customer, product and income statement classification:

Gas utility revenues

Substantially all of Roanoke Gas' revenues are derived from rates authorized by the SCC through its tariffs. Based on its evaluation, the Company has concluded that these tariff-based revenues fall within the scope of ASC606, Revenue from Contracts with Customers. Tariff rates represent the transaction price. Performance obligations created under these tariff-based sales include the cost of natural gas sold to customers (commodity) and the cost of transporting natural gas through the Company’s distribution system to customers (delivery). The delivery of natural gas to customers results in the satisfaction of the Company’s respective performance obligations over time.

All customers are billed monthly based on consumption as measured by metered usage with payments due20 days from the rendering of the bill. Revenue is recognized as bills are issued for natural gas that has been delivered or transported. In addition, the Company utilizes the practical expedient that allows an entity to recognize the invoiced amount as revenue, if that amount corresponds to the value received by the customer. Since customers are billed tariff rates, there isno variable consideration in the transaction price.

Unbilled revenue is included in residential and commercial revenues in the preceding table. Natural gas consumption is estimated for the period subsequent to the last billed date and up through the last day of the month. Estimated volumes and approved tariff rates are utilized to calculate unbilled revenue. The following month, the unbilled estimate is reversed, the actual usage is billed and a new unbilled estimate is calculated. The Company obtains metered usage for industrial customers at the end of each month, thereby eliminating any unbilled consideration for these rate classes.

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Other revenues

Other revenues primarily consist of miscellaneous fees and charges, utility-related revenuesnot directly billed to utility customers and billings for non-utility activities. Customers are invoiced monthly based on services provided for these activities. The Company utilizes the practical expedient allowing revenue to be recognized based on invoiced amounts. The transaction price is based on a contractually predetermined rate schedule; therefore, the transaction price represents total value to the customer andno variable price consideration exists.

Alternative revenue program revenues

ARPs, which fall outside the scope of ASC606, are SCC approved mechanisms that allow for the adjustment of revenues for certain broad, external factors, or for additional billings if the entity achieves certain performance targets. The Company's ARPs include its WNA, which adjusts revenues for the effects of weather temperature variations as compared to the30-year average; the SAVE Plan over/under collection mechanism, which adjusts revenues for the differences between SAVE Plan revenues billed to customers and the revenue earned, as calculated based on the timing and extent of infrastructure replacement completed during the period; and the RNG over/under collection mechanism, which adjusts revenues similar to the SAVE Plan, but is calculated based on the timing and costs associated with owning, operating and maintaining the RNG facility. These amounts are ultimately collected from, or returned to, customers through future rate changes as approved by the SCC.

Customer accounts receivable and liabilities

Accounts receivable, as reflected in the condensed consolidated balance sheets, includes both billed and unbilled customer revenues, as well as amounts that arenot related to customers. The balances of customer receivables are provided below:

(1) Included in accounts receivable in the condensed consolidated balance sheet. Amounts shown net of reserve for credit losses.

The Company hadno significant contract assets or liabilities during the period. Furthermore, the Company didnot incur any significant costs to obtain contracts.

The effective tax rates for thethree-month periods ended* December 31, 2023and2022* reflected in the table below are less than the combined federal and state statutory rate of 25.74%. The reduction in the effective tax rate for thethree-month period ended* December 31, 2023is due to additional tax deductions from the amortization of excess deferred taxes and amortization of RNG tax credits deferred as a regulatory liability. The reduction in the effective tax rate for thethree*-month period ended* December 31, 2022*is due to additional tax deductions from the amortization of excess deferred taxes and amortization of R&D tax credits deferred as a regulatory liability.

The Company files a consolidated federal income tax return and state income tax returns in Virginia and West Virginia, and thus subject to examinations by federal and state tax authorities. The IRS is currently examining the Company's2018 and2019 federal tax returns and the ultimate outcome of these examinations is unknown as of the date of this Form10-Q. The Company believes its income tax assets and liabilities are fairly stated as of* December 31, 2023and2022;* however, these assets and liabilities could be adjusted as a result of this examination. The federal returns prior to* September 30, 2017,state returns for Virginia prior to September 30, 2018and state returns for West Virginia prior to September 30,*2020 areno longer subject to examination.

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The SCC exercises regulatory authority over the natural gas operations of Roanoke Gas. Such regulation encompasses terms, conditions and rates to be charged to customers for natural gas service, safety standards, service extension and depreciation.

On* December 2, 2022,Roanoke Gas filed an application with the SCC seeking an $8.55 million annual increase in its non-gas base rates, of which $4.05 million was being recovered through the SAVE Rider. Since the Company was seeking to recover the costs associated with its SAVE Plan through interim non-gas base rates effective January 1, 2023,the Company discontinued its SAVE Plan and Rider for the remainder of fiscal2023.*

On* December 21, 2022,the SCC issued its Order for Notice and Hearing, which authorized the Company to put its proposed rates into effect, on an interim basis and subject to refund, on January 1, 2023,and set the matter for hearing. In thefourth* quarter of fiscal2023, the Company reached a settlement with the SCC staff on all outstanding issues in the case. Under the terms of the settlement, the Company agreed to an incremental revenue requirement of $7.45 million. The Company agreed to begin billing the new rates effective* October 1, 2023.The Commission issued its Final Order in the matter on December 19, 2023*in which it approved the settlement agreement in its entirety.

The Company has recorded a provision for customer refund, including interest, associated with billings for the difference between the interim rates and the settlement rates. The Company expects to complete the customer refund process with the* February 2024*billing cycle.

In* December 2023,the Company notified the SCC of its intent to file a general rate case. The Company filed the general rate application on February 2, 2024.*

The Company filed an application with the SCC for a new, five-year SAVE Plan and Rider on* March 31, 2023,seeking recovery of costs associated with an estimated $8.5 million in SAVE eligible investment in fiscal2024* and an estimated cumulative investment of $49.5 million over the proposedfive-year plan period ending* September 30, 2028.On July 7, 2023,the SCC Staff filed its report on the Company’s SAVE Plan and Rider in which it recommended approval of the $49.5 million, five-year plan with a revenue requirement of approximately $366,000 beginning on October 1, 2023.On August 31, 2023,the SCC approved the new SAVE Plan and Rider with rates effective October 1, 2023.*

On* June 2, 2022,*Roanoke Gas filed an application with the SCC to acquire certain natural gas distribution assets from a local housing authority. Under this application, the Company requested the approval to acquire such facilities atfive separate apartment complexes, located in the Company’s service territory, that were under housing authority management. Under the proposed plan, the housing authority would renew existing natural gas distribution facilities to include mains, services, and meter installations and then transfer ownership of these facilities to Roanoke Gas. In turn, Roanoke Gas would assume responsibility for the operation and maintenance of these assets and recognize a gain related to the asset acquisition equal to the cost associated with the renewal.

On* July 19, 2022,the SCC approved the application and on August 4, 2022,the housing authority transferred the assets fromtwo apartment complexes to Roanoke Gas. Roanoke Gas recorded these assets and recognized a pre-tax gain of approximately $219,000 during thefourth* quarter of fiscal2022. On* September 29, 2023,the housing authority transferred the assets fromone* additional apartment complex to Roanoke Gas and the Company recorded a pre-tax gain of approximately $311,000 during thefourth quarter of fiscal2023. The authority is awaiting future funding to complete thetwo remaining apartment complexes. The timing of funding and the completion of the asset renewals for these complexes is unknown at this time.

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Midstream owns a less than 1% equity investment in the LLC constructing the MVP. Midstream is also a less than 1% investor, accounted for under the cost method, in Southgate. Since inception, the MVP has encountered various legal and regulatory issues that have substantially delayed the completion of the project, including a period in2022 where work on the projected was halted. With the passage of the FRA and certain judicial rulings in mid-2023, construction work was restarted.

While under construction, AFUDC has provided the majority of the income recognized by Midstream. The LLC temporarily suspended accruing AFUDC on the project for portions of prior periods. AFUDC accruals resumed in* June 2023*when construction activities restarted. The amount of AFUDC recognized during the current and prior year is included in the equity in earnings of unconsolidated affiliate in the tables below. As the MVP project nears completion, AFUDC on completed segments will cease and will only be recorded on areas still being constructed.

Midstream reassesses the value of its investment in the LLC on at least a quarterly basis, andno impairment indicators were identified in fiscal2023 or during thefirst fiscal quarter of2024. As noted above, developments in2023 on the legislative and legal fronts were favorable. The MVP project isnot yet completed and adverse developments, as well as potential macroeconomic factors related to interest rates, cost increases, or other unanticipated events could erode fair value leading to new indicators or impairment.

Funding for Midstream's investments has been provided through equity contributions from Resources and unsecured promissory notes as detailed in Note9. Midstream expects to refinance the notes maturing in2024.

The Company will participate in the earnings generated from the transportation of natural gas through both pipelines proportionate to its level of investment once the pipelines are placed in service.

Investment balances of MVP and Southgate, as of* December 31, 2023and September 30, 2023,*are reflected in the table below:

The undistributed earnings doesnot include the impairment of the investment in the LLC.

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The change in the investment in unconsolidated affiliates is provided below:

Summary unaudited financial statements of MVP are presented below. Southgate financial statements, which are accounted for under the cost method, arenot included.

The Company’s hedging and derivative policy allows management to enter into derivatives for the purpose of managing the commodity and financial market risks of its business operations, including the price of natural gas and the cost of borrowed funds. This policy specifically prohibits the use of derivatives for speculative purposes.

The Company hasfive interest rate swaps associated with its variable rate debt as of* December 31, 2023.Roanoke Gas hastwo variable-rate term notes in the amounts of $15 million and $10 million, with corresponding swap agreements to convert the variable interest rates into fixed rates of 2.00% and 2.49%, respectively. Midstream hasthree* swap agreements corresponding to the variable rate term notes with original principal amounts of $14 million, $10 million, and $8 million. The swap agreements convert thesethree notes into fixed rate instruments with effective interest rates of 3.24%,3.14%, and 2.443%, respectively. The swaps qualify as cash flow hedges with changes in fair value reported in other comprehensive income.No portion of the swaps were deemed ineffective during the periods presented.

The fair value of the current and non-current portions of the interest rate swaps are reflected in the condensed consolidated balance sheets under the caption interest rate swaps. The table in Note10 reflects the effect on income and other comprehensive income of the Company's cash flow hedges.

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On* March 24, 2023,Roanoke Gas entered into an unsecured Revolving Note in the principal amount of $25 million, which will mature on March 31, 2024.The Revolving Note's variable interest rate is based upon Term SOFR plus 110 basis points and provides for multiple tier borrowing limits to accommodate seasonal borrowing demands. The Company's total available borrowing limits during the term of the Revolving Note range from $4 million to $25 million. As of December 31, 2023,*the Company had an outstanding balance of $13,252,596 under the Revolving Note.

On* June 28, 2023,Midstream amended and restated its $14 million and $8 million Term Notes initially entered into on June 12, 2019and November 1, 2021,respectively. The amendments revised each of the original Term Note's interest rate from LIBOR plus 115 basis points to Daily Simple SOFR plus 126.448 basis points, effective July 1, 2023.*All other terms and requirements of the Term Notes were retained. In conjunction with the amendment of the Term Notes, Midstream also amended the corresponding interest rate swaps associated with the Term Notes. The amendments provided for the floating rates on the interest rate swaps to continue to match the rate of the associated notes as well as retain the overall fixed interest rates of 3.24% and 2.443%, respectively.

On* March 24, 2023,Roanoke Gas amended and restated the $10 million Term Note originally entered into on September 24, 2021.The amendment revised the original Term Note's interest rate from LIBOR plus 100 basis points to Term SOFR plus 100 basis points. All other terms and requirements of the original Term Note were retained. The effective date of the Amended Term Note was April 1, 2023.In addition, on April 3, 2023,the interest rate swap was amended to align with the Amended Term Note and retained the fixed interest rate of 2.49%. In connection with the Revolving Note and Amended Term Note, Roanoke Gas also amended and restated the Loan Agreement dated September 24, 2021.The amendment provides for borrowing limits on the Revolving Note and amends certain financial conditions required of Roanoke Gas and Resources. All other terms and requirements of the original Loan Agreement were retained. See Note7* for additional information regarding the interest rate swap and Note8 for additional information regarding the Revolving Note.

On* July 28, 2023,Midstream entered into the Fifth Amendment to Credit Agreement and related Promissory Notes on the non-revolving credit facility. The Fifth Amendment revised the interest rate from Term SOFR plus 1.50% to Term SOFR plus 2.00% and extended the maturity date of the Promissory Notes to December 31, 2024.*All other terms and requirements remain unchanged.

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Long-term debt consists of the following:

Debt issuance costs are amortized over the life of the related debt. As of* December 31, 2023and September 30, 2023,*the Company also had an unamortized loss on the early retirement of debt of $1,227,512 and $1,256,059, respectively, which has been deferred as a regulatory asset and is being amortized over a 20-year period.

All debt agreements set forth certain representations, warranties and covenants to which the Company is subject, including financial covenants that limit consolidated long-term indebtedness tonot more than 65% of total capitalization. All of the debt agreements provide for priority indebtedness tonot exceed 15% of consolidated total assets. The $15 million and $10 million notes, as well as the line-of-credit, have an interest coverage ratio requirement ofnot less than 1.5 to1, which excludes the effect of the non-cash impairments on the LLC investments up to the total investment as of* December 31, 2021,as revised by the Seventh Amendment to the Credit Agreement. The Company was in compliance with all debt covenants as of December 31, 2023* and* September 30, 2023*.

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A summary of other comprehensive income and loss is provided below:

The amortization of actuarial gains and losses, reflected in the preceding table, relate to the unregulated operations of the Company. Actuarial gains and losses attributable to the regulated operations are included as a regulatory asset. See Note16 for a schedule of regulatory assets. The amortization of actual gains and losses is recognized as a component of net periodic pension and postretirement benefit costs under other income, net in the condensed consolidated statements of income.

Reconciliation of Accumulated Other Comprehensive Income (Loss)

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Roanoke Gas currently holds the only franchises and/or CPCNs to distribute natural gas in its service area. These franchises generally extend for multi-year periods and are renewable by the municipalities, including exclusive franchises in the cities of Roanoke and Salem and the Town of Vinton, Virginia. Allthree franchises are set to expire* December 31, 2035.In2019,* the SCC issued an order granting a CPCN to furnish gas to all of Franklin County. Unlike the CPCNs for the other counties served by Roanoke Gas, the Franklin County CPCN was scheduled to terminate withinfive years of the date of the order if Roanoke Gas didnot furnish gas service to the designated service area. In* November 2023,the SCC granted Roanoke Gas athree*-year extension on the CPCN. Roanoke Gas plans to serve the Franklin County area with natural gas delivered through the MVP, once MVP is placed into service.

Due to the nature of the natural gas distribution business, the Company has entered into agreements with both suppliers and pipelines for natural gas commodity purchases, storage capacity and pipeline delivery capacity. The Company utilizes an asset manager to assist in optimizing the use of its transportation, storage rights and gas supply in order to provide a secure and reliable source of natural gas to its customers. The Company also has storage and pipeline capacity contracts to store and deliver natural gas to the Company’s distribution system. Roanoke Gas is currently served directly bytwo primary pipelines that deliver all of the natural gas supplied to the Company’s distribution system. Depending on weather conditions and the level of customer demand, failure ofone of these transmission pipelines could have a major adverse impact on the Company's ability to deliver natural gas to its customers and its results of operations. The MVP will provide Roanoke Gas with access to an additional delivery source to its distribution system, increasing system reliability and the Company's ability to meet future demands for natural gas.

Basic earnings per common share for thethree months ended* December 31, 2023and2022* were calculated by dividing net income by the weighted average common shares outstanding during the period. Diluted earnings per common share were calculated by dividing net income by the weighted average common shares outstanding during the period plus potential dilutive common shares.

A reconciliation of basic and diluted earnings per share is presented below:

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The Company has both a pension plan and a postretirement plan. The pension plan covers the Company’s employees hired before* January 1, 2017and provides a retirement benefit based on years of service and employee compensation. The postretirement plan, covering employees hired before January 1, 2000,*provides certain health care and supplemental life insurance benefits to retired employees who meet specific age and service requirements. Net pension plan and postretirement plan expense is detailed as follows:

The components of net periodic benefit cost, excluding the service cost component, are included in other income, net in the condensed consolidated statements of income. Service cost is included in operations and maintenance expense in the condensed consolidated statements of income.

For thethree-month period ended* December 31,*2023, no funding contributions were made to the pension plan or postretirement plan. The Company isnot currently planning to make any funding contributions to either plan for the remainder of fiscal2024.

ASC820, Fair Value Measurements and Disclosures, established a fair value hierarchy that prioritizes each input to the valuation method used to measure fair value of financial and nonfinancial assets and liabilities that are measured and reported on a fair value basis intoone of the followingthree levels:

Level1 – Unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

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Level2 – Inputs other than quoted prices in Level1 that are either for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that arenot active, inputs other than quoted prices that are observable for the asset or liability, or inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Level3 – Unobservable inputs for the asset or liability where there is little, if any, market activity for the asset or liability at the measurement date, which require the Company to develop its own assumptions.

The fair value hierarchy gives the highest priority to unadjusted quoted prices in active markets (Level1) and the lowest priority to unobservable inputs (Level3).

The following table summarizes the Company’s financial assets and liabilities that are measured at fair value on a recurring basis as required by existing guidance and the fair value measurements by level within the fair value hierarchy:

The fair value of the interest rate swaps are determined by using the counterparty's proprietary models and certain assumptions regarding past, present and future market conditions.

Under the asset management contract, a timing difference can exist between the payment for natural gas purchases and the actual receipt of such purchases. Payments are made based on a predetermined monthly volume with the price based on weighted averagefirst of the month index prices corresponding to the month of the scheduled payment. At* December 31, 2023* and* September 30, 2023*, the Company had recorded in accounts payable the estimated fair value of the liability valued at the correspondingfirst of month index prices for which the liability is expected to be settled.

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The Company’s nonfinancial assets and liabilities measured at fair value on a nonrecurring basis consist of its AROs. The AROs are measured at fair value at initial recognition based on expected future cash flows required to settle the obligation.

The carrying value of cash and cash equivalents, accounts receivable, borrowings under line-of-credit, accounts payable (with the exception of the timing difference under the asset management contract), customer credit balances and customer deposits is a reasonable estimate of fair value due to the short-term nature of these financial instruments. In addition, the carrying amount of the variable rate line-of-credit is a reasonable approximation of its fair value.

The following table summarizes the fair value of the Company’s financial assets and liabilities that arenot adjusted to fair value in the financial statements:

The fair value of long-term debt is estimated by discounting the future cash flows of the fixed rate debt based on the underlying Treasury rate or other Treasury instruments with a corresponding maturity period and estimated credit spread extrapolated based on market conditions since the issuance of the debt.

ASC825, Financial Instruments, requires disclosures regarding concentrations of credit risk from financial instruments. Cash equivalents are investments in high-grade, short-term securities (original maturity less thanthree months), placed with financially sound institutions. Accounts receivable are from a diverse group of customers including individuals and small and large companies in various industries. No individual customer amounted to more than5% of total accounts receivable at* December 31, 2023* and* September 30, 2023*. The Company maintains certain credit standards with its customers and requires a customer deposit if warranted.

Operating segments are defined as components of an enterprise for which separate financial information is available and is evaluated regularly by the Company's executive management in deciding how to allocate resources and assess performance. The Company uses operating income and equity in earnings to assess segment performance.

Intersegment transactions are recorded at cost.

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The reportable segments disclosed herein are defined as follows:

Gas Utility - The natural gas segment of the Company generates revenue from its tariff rates and other regulatory mechanisms through which it provides the sale and distribution of natural gas to its residential, commercial and industrial customers.

Investment in Affiliates - The investment in affiliates segment reflects the income generated through the activities of the Company's investment in MVP and Southgate projects.

Parent and Other - Parent and other include the unregulated activities of the Company as well as certain corporate reporting adjustments.

Information related to the Company's segments are provided below:

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The Company’s regulated operations follow the accounting and reporting requirements of ASC980, Regulated Operations. A regulated company* maydefer costs that have been or are expected to be recovered from customers in a period different from the period in which the costs would ordinarily be charged to expense by an unregulated enterprise. When this situation occurs, costs are deferred as assets in the condensed consolidated balance sheet (regulatory assets) and amortized into expense over periods when such amounts are reflected in customer rates. Additionally, regulators can impose liabilities upon a regulated company for amounts previously collected from customers and for current collection in customer rates of costs that are expected to be incurred in the future (regulatory liabilities). In the event the provisions of ASC980* no longer apply to any or all regulatory assets or liabilities, the Company would write off such amounts and include the effects in the condensed consolidated statements of income and comprehensive income in the period which ASC980 no longer applied.

Regulatory assets included in the Company’s accompanying balance sheets are as follows:

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Regulatory liabilities included in the Company’s accompanying balance sheets are as follows:

As of* December 31, 2023* and* September 30, 2023*, the Company had regulatory assets in the amount of $8,218,209 and $8,243,721, respectively, on which the Company didnot earn a return during the recovery period.

The Company has evaluated subsequent events through the date the financial statements were issued. There wereno itemsnot otherwise disclosed which would have materially impacted the Company’s condensed consolidated financial statements.

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