RGC RESOURCES INC

Previous wording

The three-month earnings presented herein should not be considered as reflective of the Company’s consolidated financial results for the fiscal year ending September 30, 2024. The total revenues and margins realized during the first three months reflect higher billings due to the weather sensitive nature of the natural gas business.

Current wording

The three-month and six-month earnings presented herein should not be considered as reflective of the Company’s consolidated financial results for the fiscal year ending September 30, 2024. The total revenues and margins realized during the first six months reflect higher billings due to the weather-sensitive nature of the natural gas business.

Previous wording

The Company is also subject to regulation from the United States Department of Transportation in regard to the construction, operation, maintenance, safety and integrity of its transmission and distribution pipelines. FERC regulates the prices for the transportation and delivery of natural gas to the Company’s distribution system and underground storage services. In addition, the Company is subject to other regulations which are not necessarily industry specific.

Current wording

Resources is an energy services company primarily engaged in the regulated sale and distribution of natural gas to approximately 63,300 residential, commercial and industrial customers in Roanoke, Virginia and surrounding localities through its Roanoke Gas subsidiary. Midstream, a wholly owned subsidiary of Resources, is a less than 1% investor in both the MVP and Southgate. The utility operations of Roanoke Gas are regulated by the SCC, which oversees the terms, conditions and rates charged to customers for natural gas service, safety standards, extension of service and depreciation. The Company is also subject to regulation from the United States Department of Transportation in regard to the construction, operation, maintenance, safety and integrity of its transmission and distribution pipelines. FERC regulates the prices for the transportation and delivery of natural gas to the Company’s distribution system and underground storage services. In addition, the Company is subject to other regulations which are not necessarily industry specific.

Previous wording

The utility operations of Roanoke Gas are regulated by the SCC, which oversees the terms, conditions, and rates charged to customers for natural gas service, safety standards, extension of service and depreciation. Nearly all of the Company’s revenues are derived from the sale and delivery of natural gas to Roanoke Gas customers based on rates and fees authorized by the SCC. These rates are designed to provide the Company with the opportunity to recover its gas and non-gas expenses and to earn a reasonable rate of return for shareholders based on normal weather. These rates are determined based on various rate applications filed with the SCC. Generally, investments related to extending service to new customers are recovered through the additional revenues generated by the non-gas base rates in place at that time. The investment in replacing and upgrading existing infrastructure, as well as recovering increases in non-gas expenses due to inflationary pressures, regulatory requirements or operational needs, are generally not recoverable until a formal rate application is filed to include the additional investment and higher costs, and new non-gas base rates are approved.

Current wording

Nearly all of the Company’s revenues are derived from the sale and delivery of natural gas to Roanoke Gas customers based on rates and fees authorized by the SCC. These rates are designed to provide the Company with the opportunity to recover its gas and non-gas expenses and to earn a reasonable rate of return for shareholders based on normal weather. These rates are determined based on various rate applications filed with the SCC. Generally, investments related to extending service to new customers are recovered through the additional revenues generated by the non-gas base rates in place at that time. The investment in replacing and upgrading existing infrastructure, as well as recovering increases in non-gas expenses due to inflationary pressures, regulatory requirements or operational needs, are generally not recoverable until a formal rate application is filed to include the additional investment and higher costs, and new non-gas base rates are approved.

Previous wording

Beginning January 1, 2023, Roanoke Gas implemented interim, non-gas base rates designed to provide $8.55 million in additional annual revenues in response to higher operating costs and to recover its investment in non-SAVE related projects since the prior non-gas base rate increase in fiscal 2019. Revenues from the SAVE Plan and Rider were incorporated into the new non-gas base rates. On December 19, 2023, the SCC issued a final order approving a non-gas base rate increase of $7.45 million. The order also directed Roanoke Gas to refund the excess revenues collected during the time the interim rates were in effect with interest. The refund to customers, which was accrued in fiscal 2023 and reflected in regulatory liabilities, is expected to be completed during the Company's 2024 second fiscal quarter. Roanoke Gas has notified the SCC of its intent to file a general rate case and submitted its application on February 2, 2024. See the Regulatory section for additional information.

Current wording

Beginning January 1, 2023, Roanoke Gas implemented interim, non-gas base rates designed to provide $8.55 million in additional annual revenues in response to higher operating costs and to recover its investment in non-SAVE related projects since the prior non-gas base rate increase in fiscal 2019. Revenues from the SAVE Plan and Rider were incorporated into the new non-gas base rates. On December 19, 2023, the SCC issued a final order approving a non-gas base rate increase of $7.45 million. The order also directed Roanoke Gas to refund the excess revenues collected during the time the interim rates were in effect with interest. Refunds to customers, which were accrued in fiscal 2023 and reflected in regulatory liabilities, were made in February 2024. On February 2, 2024, primarily in response to continued inflationary pressures, Roanoke Gas filed for a non-gas base rate increase of $4.33 million, which reflected an increase in the Company's authorized rate of return from 9.44% to 10.35%. The new non-gas base rates will go into effect for customer billings on or after July 1, 2024, subject to refund. These additional revenues are subject to refund pending audit, which is currently underway. A hearing has been set for November 7, 2024. See the Regulatory section for additional information.

Previous wording

As the Company’s business is seasonal in nature, volatility in winter weather and the commodity price of natural gas can impact the effectiveness of the Company’s rates in recovering its costs and providing a reasonable return for its shareholders. In order to mitigate the effect of weather variations and other factors not provided for in the Company's base rates, Roanoke Gas has certain approved rate mechanisms in place that help provide stability in earnings, adjust for volatility in the price of natural gas and provide a return on qualified infrastructure investment. These mechanisms include the SAVE Rider, WNA, ICC, RNG and PGA.

Current wording

As the Company’s business is seasonal in nature, volatility in winter weather and the commodity price of natural gas can impact the effectiveness of the Company’s rates in recovering its costs and providing a reasonable return for its shareholders. In order to mitigate the effect of weather variations and other factors not provided for in the Company's base rates, Roanoke Gas has certain approved rate mechanisms in place that help provide stability in earnings, adjust for volatility in the price of natural gas and provide a return on qualified infrastructure investment. These mechanisms include the SAVE Rider, WNA, ICC, RNG Rider and PGA.

Previous wording

The SAVE Plan and Rider provides the Company with a mechanism through which it recovers costs related to qualified SAVE infrastructure investments on a prospective basis, until a rate application is filed incorporating these investments in non-gas base rates. SAVE Plan revenues decreased by approximately $1,028,000 for the three-month period ended December 31, 2023 compared to the same period last year, reflecting the movement of the SAVE Plan revenues into the new non-gas base rates on January 1, 2023. Roanoke Gas filed and received approval from the SCC for a new SAVE Plan and Rider with new rates placed into effect on October 1, 2023 that is expected to result in approximately $366,000 in SAVE related revenues during fiscal 2024. Additional information regarding the SAVE Plan and Rider is provided under the Regulatory section below.

Current wording

The SAVE Plan and Rider provides the Company with a mechanism through which it recovers costs related to qualified SAVE infrastructure investments on a prospective basis, until a rate application is filed incorporating these investments in non-gas base rates. SAVE Plan revenues increased by approximately $68,000 for the three-month period ended March 31, 2024 and decreased by approximately $960,000 for the six-month period ended March 31, 2024 compared to the same periods last year, reflecting the movement of the SAVE Plan revenues into the new non-gas base rates on January 1, 2023. Roanoke Gas filed and received approval from the SCC for a new SAVE Plan and Rider with new rates placed into effect on October 1, 2023 that is expected to result in approximately $366,000 in SAVE-related revenues during fiscal 2024. Additional information regarding the SAVE Plan and Rider is provided under the Regulatory section below.

Previous wording

The WNA mechanism reduces the volatility in earnings due to the variability in temperatures during the heating season. The WNA is based on the most recent 30-year temperature average and provides the Company with a level of earnings protection when weather is warmer than normal and provides its customers with price protection when weather is colder than normal. The WNA allows the Company to recover from its customers the lost margin (excluding gas costs) from warmer than normal weather and correspondingly requires the Company to refund the excess margin earned for colder than normal weather. The WNA mechanism used by the Company is based on a linear regression model that determines the value of a single heating degree day and thereby estimates the revenue adjustment based on weather variance from normal. Any billings or refunds related to the WNA are completed following each WNA year, which extends for the 12-month period from April to March. For the three months ended December 31, 2023, the Company accrued approximately $1,173,000 in additional revenues under the WNA model for weather that was 16% warmer than normal compared to an accrued refund of approximately $187,000 for weather that was 3% colder than normal for the corresponding period last year.

Current wording

The WNA mechanism reduces the volatility in earnings due to the variability in temperatures during the heating season. The WNA is based on the most recent 30-year temperature average and provides the Company with a level of earnings protection when weather is warmer than normal and provides its customers with price protection when weather is colder than normal. The WNA allows the Company to recover from its customers the lost margin (excluding gas costs) from warmer-than-normal weather and correspondingly requires the Company to refund the excess margin earned for colder-than-normal weather. The WNA mechanism used by the Company is based on a linear regression model that determines the value of a single heating degree day and thereby estimates the revenue adjustment based on weather variance from normal. Any billings or refunds related to the WNA are completed following each WNA year, which extends for the 12-month period from April to March. For the three and six months ended March 31, 2024, the Company accrued approximately $1,694,000 and $2,868,000 in additional revenues under the WNA model for weather that was 18% and 17% warmer than normal, respectively, compared to approximately $2,800,000 and $2,612,000 in additional revenues for weather that was 28% and 15% warmer than normal for the corresponding periods last year. The WNA balance for the 12-month period ended March 31, 2024 was approximately $3,282,000, which will be collected from customers beginning in May 2024.

Previous wording

The Company has an approved rate structure to mitigate the impact of the financing costs of its natural gas inventory. Under this rate structure, Roanoke Gas recognizes revenue by applying the ICC factor, based on the Company’s weighted-average cost of capital, including interest rates on short-term and long-term debt, and the Company’s authorized return on equity, to the average cost of natural gas inventory during the period. Total ICC revenues decreased by approximately $128,000 for the three-month period ended December 31, 2023, compared to the corresponding period last year, due to lower natural gas commodity prices during the 2023 summer storage injection season resulting in a lower average cost of natural gas in storage. Accordingly, fiscal 2024 ICC revenues are expected to continue to remain below last year's levels.

Current wording

The Company has an approved rate structure to mitigate the impact of the financing costs of its natural gas inventory. Under this rate structure, Roanoke Gas recognizes revenue by applying the ICC factor, based on the Company’s weighted-average cost of capital, including interest rates on short-term and long-term debt, and the Company’s authorized return on equity, to the average cost of natural gas inventory during the period. Total ICC revenues decreased by approximately $67,000 and $195,000 for the three-month and six-month periods ended March 31, 2024, respectively, compared to the corresponding periods last year, due to lower natural gas commodity prices during the 2023 summer storage injection season resulting in a lower average cost of natural gas in storage. Accordingly, fiscal 2024 and 2025 ICC revenues are expected to continue to remain below last year's levels.

Previous wording

In March 2023, Roanoke Gas began operating the RNG facility, through a cooperative agreement with the Western Virginia Water Authority, to produce commercial quality RNG for delivery into its distribution system. With SCC approval, Roanoke Gas is allowed to recover the costs associated with the investment in RNG facilities and the related operating costs through an RNG Rider added to customer bills. Customers receive the benefit of the monetization of environmental credits generated through the production of RNG. Roanoke Gas recognized approximately $300,000 in revenue for the three months ended December 31, 2023.

Current wording

In March 2023, Roanoke Gas began operating the RNG facility, through a cooperative agreement with the Western Virginia Water Authority, to produce commercial quality RNG for delivery into its distribution system. With SCC approval, Roanoke Gas is allowed to recover the costs associated with the investment in RNG facilities and the related operating costs through an RNG Rider. Customers receive the benefit of the monetization of environmental credits generated through the production of RNG. Roanoke Gas recognized approximately $517,000 and $818,000 in revenue for the three and six months ended March 31, 2024, respectively, compared to approximately $83,000 for both the three and six months ended March 31, 2023.

Previous wording

The Company's operating revenues are affected by the cost of natural gas, as reflected in the consolidated income statement under cost of gas - utility. The cost of natural gas, which includes commodity price, transportation, storage, injection and withdrawal fees, with any increase or decrease offset by a correlating change in revenue through the PGA, is passed through to customers at cost. Accordingly, management believes that gross utility margin, a non-GAAP financial measure defined as utility revenues less cost of gas, is a more useful and relevant measure to analyze financial performance. The term gross utility margin is not intended to represent or replace operating income, the most comparable GAAP financial measure, as an indicator of operating performance and is not necessarily comparable to similarly titled measures reported by other companies. The following results of operations analyses will reference gross utility margin.

Current wording

The Company's operating revenues are affected by the cost of natural gas, as reflected in the condensed consolidated statements of income under cost of gas - utility. The cost of natural gas, which includes commodity price, transportation, storage, injection and withdrawal fees, with any increase or decrease offset by a correlating change in revenue through the PGA, is passed through to customers at cost. Accordingly, management believes that gross utility margin, a non-GAAP financial measure defined as utility revenues less cost of gas, is a more useful and relevant measure to analyze financial performance. The term gross utility margin is not intended to represent or replace operating income, the most comparable GAAP financial measure, as an indicator of operating performance and is not necessarily comparable to similarly titled measures reported by other companies. The following results of operations analyses will reference gross utility margin.

Previous wording

General taxes increased by $43,195, or 7%, primarily due to increases in payroll taxes related to increased staffing and compensation and higher property taxes associated with growth in utility property.

Current wording

General taxes increased by $64,982, or 10%, primarily due to higher property taxes associated with growth in utility property and increases in payroll taxes related to increased staffing and compensation.

Previous wording

Depreciation expense increased by $278,166, or 11%, on a comparable increase in utility property balances.

Current wording

Depreciation expense increased by $278,166, or 11%, on a commensurate increase in utility property balances.

Previous wording

Equity in earnings of unconsolidated affiliate increased by $1,466,603 associated with the recognition of AFUDC as a result of MVP construction activities.

Current wording

Equity in earnings of unconsolidated affiliate increased by $1,226,517 associated with the recognition of AFUDC as a result of MVP construction activities resuming.

Previous wording

Other income, net increased by $46,180, or 62%, primarily due to an increase of approximately $69,000 in revenue sharing related to the asset management agreement and higher interest income offset by the absence of AFUDC related to the RNG facility, which was placed in service in March 2023.

Current wording

Other income, net decreased by $32,337, or 27%, primarily due to the absence of AFUDC related to the RNG facility, which was placed in service in March 2023, and increased postretirement costs, partially offset by an increase in revenue sharing related to the asset management agreement.

Previous wording

Roanoke Gas' interest expense increased by $146,371 primarily due to a combination of higher borrowing levels and an increase in the interest rate on the variable rate line-of-credit.

Current wording

Roanoke Gas' interest expense increased by $101,458 primarily due to a combination of higher borrowing levels and an increase in the interest rate on the variable rate line-of-credit.

Previous wording

Midstream's interest expense increased by $120,738 primarily due to rising interest rates on its credit facility. Total average outstanding debt decreased by $1.4 million over the same quarter last year due to amortization payments under two of Midstream's promissory notes.

Current wording

Midstream's interest expense increased by $69,293 primarily due to rising interest rates on its credit facility. Total average outstanding debt decreased by $2.2 million from the same quarter last year due to amortization payments under two of Midstream's promissory notes.

Previous wording

Net income increased by $1,763,587 for the three months ended December 31, 2023, compared to the same period last year, primarily due to AFUDC on MVP and the implementation of new non-gas base rates effective January 1, 2023.

Current wording

Net income increased by $1,865,091 for the six months ended March 31, 2024, compared to the same period last year, primarily due to AFUDC on MVP and the implementation of new non-gas base rates effective January 1, 2023 partially offset by increased inflationary pressures on operating expenses and higher interest rates.

Previous wording

Total operating revenues for the three months ended December 31, 2023, compared to the same period last year, decreased by approximately 27% primarily due to significantly lower natural gas commodity prices, reductions in delivered natural gas volumes and lower SAVE revenues more than offsetting the implementation of a non-gas base rate increase. Natural gas commodity prices during the quarter declined by 58% from the corresponding period last year. Total gas costs decreased by 44% compared to the same period last year, which corresponds to the decline in the gas cost component included in total customer billing rate. In addition, total heating degree days decreased by 19% from the same period last year resulting in a 14% decline in the weather sensitive residential and commercial sales. Transportation and interruptible volumes increased by approximately 6% primarily due to a single, multi-fuel customer that increased its natural gas utilization during the quarter. With the reset of the SAVE Rider as discussed above, SAVE Plan revenues declined by approximately $1,028,000.

Current wording

Total operating revenues for the six months ended March 31, 2024, compared to the same period last year, decreased by approximately 20% primarily due to significantly lower natural gas commodity prices and lower SAVE revenues more than offsetting the implementation of a non-gas base rate increase. Natural gas commodity prices during the period declined by 50% from the corresponding period last year. Total gas costs decreased by 40% compared to the same period last year, which corresponds to a 39% decline in the gas cost component included in total customer billing rate. In addition, total heating degree days decreased by 3% from the same period last year resulting in a 1% decline in the weather sensitive residential and commercial sales. Transportation and interruptible volumes increased by approximately 4% primarily due to a single, multi-fuel customer that increased its natural gas utilization during the year. With the reset of the SAVE Rider due to the implementation of new non-gas base rates in January 2023, as discussed above, SAVE Plan revenues declined by approximately $960,000.

Previous wording

Gross utility margin increased over the same period last year primarily as a result of the aforementioned implementation of new non-gas base rates, WNA and RNG revenue, offset by the reductions in SAVE and ICC revenues. When adjusted for WNA, the volumetric margin increased by approximately $2,260,000 and base charge revenues increased by approximately $442,000 due to the non-gas base rate increase. However, SAVE revenues decreased by approximately $1,028,000 as these revenues are reflected in the increased volumetric and base charge rates. The RNG Rider contributed an additional $300,000 to margin, and ICC revenue declined by $128,000 due to lower cost of gas in storage.

Current wording

Gross utility margin increased over the same period last year primarily as a result of the implementation of new non-gas base rates, WNA and RNG revenue, offset by the reductions in SAVE and ICC revenues. When adjusted for WNA, the volumetric margin increased by approximately $2,429,000 and base charge revenues increased by approximately $460,000 due to the non-gas base rate increase. However, SAVE revenues decreased by approximately $960,000 as these revenues are reflected in the increased volumetric and base charge rates. The RNG Rider contributed an additional $735,000 to margin, as it was operational for all six months of fiscal 2024 compared to less than a month during fiscal 2023, and ICC revenue declined by $195,000 due to lower cost of gas in storage.

Previous wording

Interest expense increased by $267,109, or 20%, as the weighted-average interest rate on total debt increased from 3.78% during the first quarter of fiscal 2023 to 4.28% during the first quarter of fiscal 2024, while total daily average debt outstanding increased by 2%. The increase in the weighted-average interest rate was primarily associated with Roanoke Gas' variable rate line-of-credit and Midstream's credit facility.

Current wording

Interest expense increased by $437,860, or 16%, as the weighted-average interest rate on total debt increased from 3.86% during the first half of fiscal 2023 to 4.30% during the first half of fiscal 2024, while total daily average debt outstanding increased by 2%. The increase in the weighted-average interest rate was primarily associated with Roanoke Gas' variable rate line-of-credit and Midstream's credit facility.

Previous wording

Income tax expense increased by $589,639 due to a corresponding increase in pre-tax income. The effective tax rate was 24.0% and 23.4% for the three-month periods ended December 31, 2023 and 2022, respectively. The effective tax rate is below the combined statutory state and federal rate due to the amortization of excess deferred taxes and tax credits.

Current wording

Income tax expense increased by $549,851, or 18%, due to a corresponding increase in pre-tax income. The effective tax rate was 23.5% and 23.6% for the six-month periods ended March 31, 2024 and 2023, respectively. The effective tax rate is below the combined statutory state and federal rate due to the amortization of excess deferred taxes and tax credits.

Previous wording

Roanoke Gas uses a third-party asset manager to oversee its pipeline transportation, storage rights and gas supply inventories and deliveries. In return for utilizing the excess capacities of the transportation and storage rights, the asset manager pays Roanoke Gas a monthly utilization fee. In accordance with an SCC order issued in 2018, a portion of the utilization fee is retained by the Company with the balance passed through tocustomers through reduced gas costs. The current asset management agreement ends March 31, 2025.

Current wording

Roanoke Gas uses a third-party asset manager to oversee its pipeline transportation, storage rights and gas supply inventories and deliveries. In return for utilizing the excess capacities of the transportation and storage rights, the asset manager pays Roanoke Gas a monthly utilization fee. In accordance with an SCC order issued in 2018, a portion of the utilization fee is retained by the Company with the balance passed through tocustomers through reduced gas costs. The current asset management agreement ends March 31, 2025. Upon MVP being placed in service, the Company expects to sign an asset management agreement for the utilization of its MVP capacity.

Previous wording

The Company has a less than 1% interest in the MVP, which is accounted for as an equity investment, and a less than 1% interest in Southgate, which is contemplated to interconnect with the MVP. As discussed more fully in Note 6, since inception, the MVP has encountered various legal and regulatory issues that have substantially delayed the completion of the project, including a period in 2022 where work on the project was halted. With the passage of the FRA and certain judicial rulings in mid-2023, construction work was restarted, and the Company believes the MVP will be completed relatively soon.

Current wording

The Company has a less than 1% interest in the MVP, which is accounted for as an equity investment, and a less than 1% interest in Southgate, which is contemplated to interconnect with the MVP. As discussed more fully in Note 5, since inception, the MVP has encountered various legal and regulatory issues that have substantially delayed the completion of the project. With the passage of the FRA and certain judicial rulings in mid-2023, construction work was restarted, and the Company believes the MVP will be completed during the second calendar quarter of 2024.

Previous wording

Since its inception, earnings from MVP have been primarily attributable to AFUDC income. Once the pipeline is commercially operational, AFUDC will cease and the Company will begin to receive its share of LLC earnings from long-term contracts to provide gas. Resources expects cash distributions from the LLC to begin three to six months after commercial operations begin. The Company recorded $1,467,835 and $1,232 in the first fiscal quarters of 2023 and 2022, respectively, as its share of Midstream’s earnings.

Current wording

Since its inception, earnings from MVP have been primarily attributable to AFUDC income. The Company recorded $2,697,219 and $4,099 in the first half of fiscal 2024 and 2023, respectively, as its share of Midstream’s earnings, primarily associated with AFUDC. On April 22, 2024, the LLC filed its in service request for MVP with FERC, with an expectation that during the second calendar quarter gas will begin to flow and the long-term firm contracts will become effective. Once the pipeline is commercially operational, AFUDC will cease and the Company will begin to receive its share of LLC earnings from long-term contracts to provide gas. Resources expects cash distributions from the LLC to begin three to six months after commercial operations begin.

Previous wording

Midstream fully borrowed $23 million under its non-revolving credit facility, which matures in December 2024. Installment payments have begun on two of Midstream's promissory notes with one of the notes due in full in June 2024. The Company is actively discussing and anticipates refinancing those obligations in 2024. Additionally, Midstream is considering the long-term structure of its debt as the MVP evolves from a project phase to an operating phase. See Note 9 for more information on all borrowings related to Midstream.

Current wording

The Company refinanced two promissory notes related to Midstream in the last 60 days. Additionally, Midstream is considering its long-term capital structure as the MVP evolves from a project phase to an operating phase. See Note 7 for a full discussion of all borrowings related to Midstream.

Previous wording

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 fiscal 2023. In the fourth quarter of fiscal 2023, 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 on the matter on December 19, 2023 in which it approved the settlement agreement in its entirety.

Current wording

On December 2, 2022, Roanoke Gas filed an expedited rate 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. The proposed rates went into effect January 1, 2023, subject to refund. In the fourth quarter of fiscal 2023, 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. Refunds, which had previously been accrued, were made to customers in February 2024.

Previous wording

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 fiscal 2024 and an estimated cumulative investment of $49.5 million over the proposed five-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.

Current wording

On August 31, 2023, the SCC approved the new SAVE Plan and Rider with rates effective October 1, 2023. Under this plan, Roanoke Gas can recover costs associated with an estimated $8.5 million in SAVE eligible investment in fiscal 2024 and an estimated cumulative investment of $49.5 million over the proposed five-year plan period ending September 30, 2028. The plan was approved with a revenue requirement of approximately $366,000 for fiscal 2024.

Previous wording

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 at five 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.

Current wording

Roanoke Gas is authorized by the SCC to acquire certain natural gas distribution assets from a local housing authority at five separate apartment complexes, located in the Company’s service territory. The housing authority renews existing natural gas distribution facilities to include mains and services then transfers ownership of these facilities to Roanoke Gas. In turn, Roanoke Gas assumes responsibility for the operation and maintenance of these assets and recognizes a gain related to the asset acquisition equal to the cost associated with the renewal.

Previous wording

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

Current wording

The assets of two complexes were transferred to Roanoke Gas in fiscal 2022. On September 29, 2023, the housing authority transferred the assets from one additional apartment complex to Roanoke Gas and the Company recorded a pre-tax gain of approximately $311,000 during the fourth quarter of fiscal 2023. The authority is underway with renewing the fourth complex and is awaiting future funding to complete the remaining apartment complex. The timing of funding and the completion of the asset renewals for these complexes is uncertain at this time.

Previous wording

Cash and cash equivalents increased by $1,352,306 for the three-month period ended December 31, 2023 compared to a decrease of $1,664,722 for the three-month period ended December 31, 2022. The following table summarizes the sources and uses of cash:

Current wording

Cash and cash equivalents increased by $506,752 for the six-month period ended March 31, 2024 compared to an increase of $1,727,059 for the six-month period ended March 31, 2023. The following table summarizes the sources and uses of cash:

Previous wording

Cash flows from operating activities for the three months ended December 31, 2023 increased by $1,860,054 compared to the same period last year. The table below summarizes the significant components of operating cash flows:

Current wording

Cash flows from operating activities for the six months ended March 31, 2024 decreased by $5,763,340 compared to the same period last year. The table below summarizes the significant components of operating cash flows:

Previous wording

Investing activities primarily consist of expenditures related to Roanoke Gas' utility property, which includes replacing aging natural gas pipe with new plastic or coated steel pipe, improvements to the LNG plant and gas distribution system facilities and expansion of its natural gas system to meet the demands of customer growth. With the recent approval of its new SAVE Plan and Rider, the Company is continuing its focus on SAVE infrastructure replacement projects, including the replacement of pre-1973 first generation plastic pipe. New customer demand for natural gas continues to be strong and therefore extending the natural gas distribution system within its service territory is also a priority. Roanoke Gas' total capital expenditures for the three-month period ended December 31, 2023 were approximately $5.3 million compared to $7.5 million during the same period last year. The $2.2 million decrease in expenditures is primarily due to the completion of the RNG project, which was placed in service in March 2023. Total fiscal 2024 capital expenditures are expected to be approximately $20 million. Midstream's investment in the LLC was approximately $800,000 in the first quarter of fiscal 2023. However, Midstream ceased future participation in capital calls following its May 2023 funding payment based on an agreement with the LLC's managing partner. Midstream continues to be invested in the LLC; however, its participation percentage is declining with no additional investment. Once MVP is placed into service, Midstream may incur periodic future capital investment related to ongoing operations requirements and system improvements. Midstream will continue to make capital investments in Southgate. The targeted completion timing for the Southgate project is June 2028.

Current wording

Investing activities primarily consist of expenditures related to Roanoke Gas' utility property, which includes replacing aging natural gas pipe with new plastic or coated steel pipe, improvements to the LNG plant and gas distribution system facilities and expansion of its natural gas system to meet the demands of customer growth. With the recent approval of its new SAVE Plan and Rider, the Company is continuing its focus on SAVE infrastructure replacement projects, including the replacement of pre-1973 first generation plastic pipe. New customer demand for natural gas continues to be strong and therefore extending the natural gas distribution system within its service territory is also a priority. Roanoke Gas' total capital expenditures for the six-month period ended March 31, 2024 were approximately $11.3 million compared to $12.9 million during the same period last year. The $1.6 million decrease in expenditures is primarily due to higher investment a year ago related to the completion of the RNG project, which was placed in service in March 2023. Total fiscal 2024 capital expenditures are expected to be approximately $21 million. Midstream's investment in the LLC was approximately $1.5 million in the first half of fiscal 2023. However, Midstream ceased future participation in capital calls following its May 2023 funding payment based on an agreement with the LLC's managing partner. Midstream continues to be invested in the LLC; however, its participation percentage is declining with no additional investment. Once MVP is placed into service, which is expected in the second calendar quarter of 2024, Midstream may incur periodic future capital investment related to ongoing operations requirements and system improvements. Midstream has and will continue to make capital investments in Southgate. The targeted timing for completion of the Southgate project is 2028.

Previous wording

Financing activities generally consist of borrowings and repayments under credit agreements, issuance of common stock and the payment of dividends. Net cash flows provided by financing activities were approximately $7.2 million for the three months ended December 31, 2023, compared to $9.1 million for the same period last year. The reduction in financing cash flows is primarily attributable to Midstream's $1.1 million borrowing under its credit facility during the first quarter of fiscal 2023 combined with an additional $400,000 in debt retirement on amortizing notes during the current year. In addition, Resources issued a total of 44,367 shares of common stock resulting in net proceeds of approximately $821,000, including 26,077 shares through the ATM program in which Resources received approximately $542,000, net of fees. During the same period last year, Resources issued 31,245 shares for approximately $653,000, including 17,199 shares through the ATM program for approximately $377,000, net of fees.

Current wording

Financing activities generally consist of borrowings and repayments under credit agreements, issuance of common stock and the payment of dividends. Net cash flows provided by financing activities were approximately $600,000 for the six months ended March 31, 2024, compared to $900,000 in net cash flows used in financing activities for the same period last year. The $1.5 million increase in financing cash flows is primarily attributable to net borrowings of $2.2 million under Roanoke Gas' line-of-credit during the first six months of fiscal 2024 compared to no net borrowings in the same period last year. Roanoke Gas' increased borrowings were slightly offset by a decrease of approximately $800,000 in borrowings under Midstream's credit facility during the first half of fiscal 2024 combined with an additional $800,000 in debt retirements on amortizing notes during the current year. In addition, Resources issued a total of 164,225 shares of common stock resulting in net proceeds of $3.2 million, including 85,501 shares through the ATM program in which Resources received $1.7 million, net of fees. During the same period last year, Resources issued 102,812 shares for $2.1 million, including 74,566 shares through the ATM program for $1.6 million, net of fees.

Previous wording

Notes 8 and 9 provide details on the Company's line-of-credit and borrowing activity.

Current wording

Notes 6 and 7 provide details on the Company's line-of-credit and borrowing activity.

Previous wording

The current interest rate environment is expected to continue to result in higher interest expense associated with the Company's variable-rate debt or on the issuance of any new debt.

Current wording

The current interest rate environment is expected to continue to result in higher year-over-year interest expense associated with the Company's variable-rate debt or on the issuance of any new debt.

Previous wording

Management regularly evaluates the Company’s liquidity through a review of its available financing resources and its cash flows. Resources’ maintains the ability to raise equity capital through its ATM program, private placement or other public offerings. Management believes Roanoke Gas has access to sufficient financing resources to meet its cash requirements for the next year, including the line-of-credit, which it expects to renew, and the two private shelf facilities. Roanoke Gas may also adjust capital spending as necessary if such a need would arise.

Current wording

Management regularly evaluates the Company’s liquidity through a review of its available financing resources and its cash flows. Resources maintains the ability to raise equity capital through its ATM program, private placement or other public offerings. Management believes Roanoke Gas has access to sufficient financing resources to meet its cash requirements for the next year, including the line of credit and the two private shelf facilities. Roanoke Gas may also adjust capital spending, as necessary, if such a need would arise.

Previous wording

Based on the agreement with the LLC's managing partner to assume future capital contributions related to the MVP, Midstream's future cash requirements are reduced to regular monthly operating expenses, debt service and capital contributions to Southgate. Midstream's total debt service over the succeeding 12 months includes $33.85 million to retire maturing debt. Management believes that they will be able to negotiate extensions on the current debt or obtain other financing options to satisfy the debt servicing requirements and be able to meet Midstream's cash requirements over the ensuing 12 month period.

Current wording

Based on the agreement with the LLC's managing partner to assume future capital contributions related to the MVP, Midstream's future cash requirements are reduced to regular monthly operating expenses, debt service and capital contributions to Southgate. On March 6, 2024, Midstream consolidated the Promissory Notes to one Promissory Note with one lender, increased the capacity of its $23 million credit facility to $25 million and extended the maturity date to December 31, 2025. Subsequent to the end of the quarter, on May 2, 2024, Midstream established a new $9 million line of credit facility that matures on May 2, 2026. With this agreement, Midstream has the ability and intent to refinance the $9 million balance on its note payable scheduled to mature on June 1, 2024, and accordingly, it has classified that amount as long-term on the condensed consolidated balance sheet as of March 31, 2024. After considering the extension of its original credit facility and the establishment of the new credit facility, Midstream's total debt service over the succeeding 12 months includes $125,000 to retire maturing debt. Management believes that it will be able to meet Midstream's cash requirements over the ensuing 12-month period.

Previous wording

As of December 31, 2023, Resources' long-term capitalization ratio was 43% equity and 57% debt.

Current wording

As of March 31, 2024, Resources' long-term capitalization ratio was 45% equity and 55% debt.