RGC RESOURCES INC

Previous 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.

Current wording

The three-month and nine-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 nine months reflect higher billings due to the weather-sensitive nature of the natural gas business.

Previous 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.

Current wording

Resources is an energy services company primarily engaged in the regulated sale and distribution of natural gas to approximately 62,800 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

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.

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 interim, 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 return on equity from 9.44% to 10.35%. The new interim non-gas base rates went 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

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.

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 $127,000 for the three-month period ended June 30, 2024 and decreased by approximately $833,000 for the nine-month period ended June 30, 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 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.

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 nine months ended June 30, 2024, the Company accrued approximately $821,000 and $3,689,000 in additional revenues under the WNA model for weather that was 48% and 19% warmer than normal, respectively, compared to approximately $290,000 and $2,902,000 in additional revenues for weather that was 18% 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, and is being collected from customers over a three-month period that began 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 $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.

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 $3,000 and $198,000 for the three-month and nine-month periods ended June 30, 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. 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.

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 $394,000 and $1,211,000 in RNG revenue for the three and nine months ended June 30, 2024, respectively, compared to approximately $283,000 and $366,000 for the corresponding periods in the prior year.

Previous wording

Net income increased by $101,504 for the three months ended March 31, 2024, compared to the same period last year, primarily due to AFUDC on MVP and RNG revenues offset by increased inflationary pressures on operating expenses and higher interest rates.

Current wording

Net income decreased by $530,124 for the three months ended June 30, 2024, compared to the same period last year, primarily due to increased inflationary pressures on operating expenses, lower AFUDC from the MVP as the project transitioned from construction to in service and higher interest rates, partially offset by WNA and RNG revenues.

Previous wording

Total operating revenues for the three months ended March 31, 2024, compared to the same period last year, decreased by approximately 14% primarily due to significantly lower natural gas commodity prices and a decrease in WNA revenues more than offsetting the increase in delivered natural gas volumes. Natural gas commodity prices during the quarter declined by 42% from the corresponding period last year. Total gas costs decreased by 28% compared to the same period last year, which corresponds to a 35% decline in the gas cost component included in total customer billing rate, offset by an increase in residential and commercial volumes. Additionally, heating degree days decreased 18% when compared to the 30-year normal, resulting in a 39% decrease in WNA revenues for the period. While heating degree days compared to normal decreased, heating degree days compared to the same period last year increased by 13%, resulting in a 12% increase in the more weather-sensitive residential and commercial volumes. Transportation and interruptible volumes increased by approximately 3% primarily due to a single, multi-fuel customer that increased its natural gas utilization during the quarter.

Current wording

Total operating revenues for the three months ended June 30, 2024, compared to the same period last year, increased by approximately 6% primarily due to increases in WNA, SAVE and RNG revenues more than offsetting the decrease in delivered natural gas volumes. Total heating degree days decreased by 39% from the same period last year, and were substantially less than the 30-year normal, resulting in an increase of approximately $531,000 in WNA revenues. SAVE Plan revenues continued their upward trend as Roanoke Gas continues to invest in qualified SAVE infrastructure projects, resulting in an increase of approximately $127,000 from the same period in the prior year. The decline in volumetric revenues slightly offset the overall increase in operating revenues. Natural gas commodity prices during the quarter declined by 25% from the corresponding period last year. Total gas costs increased by 7% compared to the same period last year, which corresponds to a 13% increase in the gas cost component included in total customer billing rate, offset by a decrease in delivered volumes. The decrease in heating degree days as previously discussed resulted in a 14% decline in the weather-sensitive residential and commercial sales.

Previous wording

Gross utility margin increased over the same period last year primarily as a result of increased delivered volumes, SAVE and RNG revenue, offset by the reductions in WNA and ICC revenues. The volumetric margin increased by approximately $1,274,000 due to the aforementioned 9% increase in total delivered volumes, while WNA decreased approximately $1,105,000 due to the increase in heating degree days as compared to the same period last year. When adjusted for WNA, the volumetric margin increased by approximately $170,000. The RNG Rider and SAVE Plan contributed an additional $434,000 and $68,000, respectively, to margin, while ICC revenue declined by approximately $67,000 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 increased SAVE, RNG and WNA revenue, offset by the reduction in delivered volumes. The WNA increased approximately $531,000 due to a decrease of 39% in heating degree days as compared to the same period last year. The RNG Rider and SAVE Plan contributed an additional $111,000 and $127,000, respectively, to margin, while volumetric margin decreased by approximately $260,000 due to a 6% decrease in total delivered volumes.

Previous wording

Operations and maintenance expenses increased by $1,231,927, or 30%, from the same period last year primarily due to increased personnel costs, costs associated to operate and maintain the RNG facility and increased professional services. Personnel costs increased by approximately $702,000 due to increased staffing and the inflationary impact on salaries and benefits as well as amortization of restricted stock awards. During fiscal 2023, no restricted stock awards were made and were reinstated in fiscal 2024. Further, costs associated with the RNG facility increased approximately $228,000, as the facility began operations in March 2023, as compared to being fully operational for all three months in the current quarter. Professional services expenses increased approximately $95,000 primarily due to increased external audit fees and recruiting costs. Lower capitalized overheads and increased corporate insurance premiums accounted for much of the remaining cost increases.

Current wording

Operations and maintenance expenses increased by $376,284, or 10%, from the same period last year primarily due to increased personnel costs and increased professional services. Personnel costs grew by approximately $223,000 due to increased staffing and the inflationary impact on salaries and benefits as well as amortization of restricted stock awards. During fiscal 2023, no restricted stock awards were made and were reinstated in fiscal 2024. Further, professional services expenses increased approximately $90,000 primarily due to increased external audit fees, actuarial services and IT support. Lower capitalized overheads and increased contracted services accounted for much of the remaining cost increase.

Previous 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.

Current wording

General taxes increased by $43,223, or 7%, 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

Interest expense increased by $170,751, or 12%, as the weighted-average interest rate on total debt increased from 3.94% during the second quarter of fiscal 2023 to 4.31% during the second quarter of fiscal 2024 coupled with a 2% increase in the total daily average debt outstanding period-over-period. 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 $143,527, or 10%, as the weighted-average interest rate on total debt increased from 3.98% during the third quarter of fiscal 2023 to 4.42% during the third quarter of fiscal 2024. The increase in the weighted-average interest rate was primarily associated with Roanoke Gas' variable rate line-of-credit and Midstream's credit facilities. Roanoke Gas' borrowing levels also increased from the same period last year, contributing to higher interest expense, while Midstream's total average outstanding debt decreased due to amortization payments under one of Midstream's promissory notes.

Previous wording

Income tax expense decreased by $39,788, or 2%. Although income before taxes slightly increased, the reduction in income tax expense is primarily due to the recognition of tax credits associated with the RNG facility that had not been utilized in the prior year due to timing of the RNG facility becoming operational. The effective tax rate was 23.1% and 23.8% for the three-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.

Current wording

Income tax expense decreased by $167,227, or 78%, primarily due to a corresponding decrease in pre-tax income, coupled with the recognition of tax credits associated with the RNG facility that had not been utilized in the prior year due to timing of the RNG facility becoming operational. The effective tax rate was 23.1% and 23.8% for the three-month periods ended June 30, 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

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.

Current wording

Net income increased by $1,334,967 for the nine months ended June 30, 2024, compared to the same period last year, primarily due to AFUDC from the 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 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.

Current wording

Total operating revenues for the nine months ended June 30, 2024, compared to the same period last year, decreased by approximately 16% 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 and increases in WNA and RNG revenues. Natural gas commodity prices during the period declined by 46% from the corresponding period last year. Total gas costs decreased by 35% compared to the same period last year, which corresponds to a 33% decline in the gas cost component included in total customer billing rate. In addition, total heating degree days decreased by 6% from the same period last year, resulting in a 1% decline in the weather sensitive residential and commercial sales. 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 $833,000.

Previous 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.

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 $2,701,000 and base charge revenues increased by approximately $410,000 due to the non-gas base rate increase. However, SAVE revenues decreased by approximately $833,000 as these revenues are reflected in the increased volumetric and base charge rates. The RNG Rider contributed an additional $846,000 to margin, as it was operational for all nine months of fiscal 2024 compared to four months during fiscal 2023, and ICC revenue declined by $198,000 due to lower cost of gas in storage.

Previous wording

Operations and maintenance expenses increased by $1,646,611, or 21%, from the same period last year primarily due to increased personnel costs, professional services, costs associated to operate and maintain the RNG facility and lower capitalized overheads. Personnel costs increased by approximately $861,000 due to increased staffing and the inflationary impact on salaries and benefits as well as amortization of restricted stock awards. During fiscal 2023, no restricted stock awards were made and were reinstated in fiscal 2024. Professional services expenses increased approximately $170,000 primarily due to increased external audit fees and recruiting costs. Further, costs associated with the RNG facility increased approximately $236,000, as the facility was only operational during one month of the prior period as compared to all six months in the current year. Total capitalized construction overheads declined by approximately $302,000 compared to the same period last year primarily due to a reduction in direct construction expenditures related to the RNG project, which was completed in fiscal 2023. Corporate insurance premiums accounted for much of the remaining cost increases.

Current wording

Operations and maintenance expenses increased by $2,022,895, or 17%, from the same period last year primarily due to increased personnel costs, professional services, costs associated to operate and maintain the RNG facility and lower capitalized overheads. Personnel costs increased by approximately $1,084,000 due to increased staffing and the inflationary impact on salaries and benefits as well as amortization of restricted stock awards. During fiscal 2023, no restricted stock awards were made and were reinstated in fiscal 2024. Professional services expenses increased approximately $259,000 primarily due to increased external audit fees, actuarial services, recruiting costs and IT support. Further, costs associated with the RNG facility increased approximately $340,000, as the facility was only operational during four months of the prior period as compared to all nine months in the current period. Total capitalized construction overheads declined by approximately $293,000 compared to the same period last year primarily due to a reduction in direct construction expenditures related to the RNG project, which was completed in fiscal 2023. Corporate insurance premiums accounted for much of the remaining cost increase.

Previous wording

General taxes increased by $108,177, or 9%, primarily due to higher property taxes associated with growth in utility property and increases in payroll taxes related to increased staffing and compensation.

Current wording

General taxes increased by $151,400, or 8%, 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 $556,332, or 11%, on a commensurate increase in utility property balances.

Current wording

Depreciation expense increased by $834,498, or 11%, on a commensurate increase in utility property balances.

Previous 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.

Current wording

Equity in earnings of unconsolidated affiliate increased by $2,456,242 associated with the recognition of AFUDC as a result of MVP construction activities resuming through May 2024. With the MVP in service, the Company now recognizes its share of operational earnings from the MVP, favorably adjusted for the amortization of a basis difference that arose when the Company recorded an other-than-temporary impairment of its investment in 2022. See footnote 5 for additional information related to the MVP.

Previous 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.

Current wording

Other income, net decreased by $62,231, or 31%, primarily due to an approximate $146,000 decrease in AFUDC related to the RNG facility, which was placed in service in March 2023, and approximately $59,000 less interest income, offset by an increase of approximately $138,000 in revenue sharing related to the asset management agreement.

Previous 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.

Current wording

Interest expense increased by $581,387, or 14%, as the weighted-average interest rate on total debt increased from 3.90% during the first nine months of fiscal 2023 to 4.34% during the first nine months of fiscal 2024, while total daily average debt outstanding increased by 1%. The increase in the weighted-average interest rate was primarily associated with Roanoke Gas' variable rate line-of-credit and Midstream's credit facilities. Roanoke Gas' borrowing levels also increased from the same period last year, contributing to higher interest expense, while Midstream's total average outstanding debt decreased due to amortization payments under two of Midstream's promissory notes.

Previous 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.

Current wording

Income tax expense increased by $382,624, or 12%, due to a corresponding increase in pre-tax income. The effective tax rate was 23.5% and 23.7% for the nine-month periods ended June 30, 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. Upon MVP being placed in service, the Company expects to sign an asset management agreement for the utilization of its MVP capacity.

Current wording

Roanoke Gas uses third-party asset managers to oversee its pipeline transportation, storage rights and gas supply inventories and deliveries in order to provide a secure and reliable source of natural gas to its customers. In return for utilizing the excess capacities of the transportation and storage rights, the asset managers pay 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. Prior to the MVP being placed in service, Roanoke Gas utilized one asset manager. With the MVP now in service, Roanoke Gas entered into a second asset management agreement for the utilization of its MVP capacity. Both asset management agreements end March 31, 2025.

Previous 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.

Current wording

Earlier in 2024, the Company refinanced two promissory notes related to Midstream. Midstream is considering its long-term capital structure as the MVP has entered its operating phase. See Note 7 for a full discussion of all borrowings related to Midstream.

Previous wording

In response to continued inflationary pressures, Roanoke Gas filed a general rate application on February 2, 2024 with the SCC seeking to increase its non-gas base rates by $4.33 million and sought to increase its permitted rate of return from 9.44% to 10.35% reflecting its higher cost of capital, including continued increases in interest rates. The new rates will go into effect for customer billings on or after July 1, 2024, subject to refund. The SCC’s review of Roanoke Gas’ filing is underway and a hearing has been set for November 7, 2024.

Current wording

In response to continued inflationary pressures, Roanoke Gas filed a general rate application on February 2, 2024 with the SCC seeking to increase its non-gas base rates by $4.33 million and its permitted return on equity from 9.44% to 10.35% reflecting its higher cost of capital, including higher interest expense. The SCC permitted the Company to implement its new rates on an interim basis for customer billings on or after July 1, 2024, subject to refund. The SCC’s review of Roanoke Gas’ filing is underway and a hearing has been set for November 7, 2024.

Previous 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.

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 interim 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 annual incremental revenue requirement of $7.45 million. The Company began billing the approved rates effective October 1, 2023. The SCC 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

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.

Current wording

On August 31, 2023, the SCC approved the Company's 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. On June 28, 2024, Roanoke Gas filed for approval of an updated annual SAVE Rider rate to become effective October 1, 2024. The proposed SAVE rate is based on an estimated $9.13 million of SAVE eligible investment during fiscal 2025 which results in a revenue requirement of $1.53 million. The Company expects a Final Order from the SCC in September 2024.

Previous 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.

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 substantially complete with renewing the fourth complex, which may be transferred to Roanoke Gas before the end of this fiscal year. The timing of funding and the completion of the asset renewals for the final complex is uncertain at this time.

Previous 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:

Current wording

Cash and cash equivalents increased by $1,028,662 for the nine-month period ended June 30, 2024 compared to an increase of $282,192 for the nine-month period ended June 30, 2023. The following table summarizes the sources and uses of cash:

Previous 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:

Current wording

Cash flows from operating activities for the nine months ended June 30, 2024 decreased by $6,578,093 compared to the same period last year. The table below summarizes the significant components of operating cash flows:

Previous wording

The decline in operating cash flows is primarily due to the reduction in the value of gas withdrawn from storage. The average price of gas in storage during the first six months of fiscal 2023 was more than $7.00 per DTH compared to approximately $4.50 per DTH during the current fiscal year. The decrease in the unit cost of gas in storage was attributable to much lower commodity prices during last year's summer storage injections. Accordingly, as lower-priced gas was withdrawn from storage during the first half of fiscal 2024, cash flow levels were reduced when compared to the same period in fiscal 2023. Additionally, though the SCC issued its final order in December 2023, Roanoke Gas implemented interim billing rates in January 2023; therefore, the Company began accruing an estimated rate refund representing the amount due customers for the difference between total customer billings at interim rates versus total customer billings at final rates. Upon SCC approval of final rates, Roanoke Gas issued refunds in February 2024 to all customers that were billed at interim rates since January 2023. When compared to the six-month period ending March 31, 2023, the distribution of the rate refund to customers reduced cash available for operations by $1.4 million. The timing of income tax estimated payments during the first six months of fiscal 2023 and the receipt of a tax refund during the first six months of fiscal 2024, net of estimated payments, resulted in a $1.6 million increase in operating cash between periods. The increase in non-cash equity in earnings from the Company's investment in the LLC of $2.7 million offset most of the net income cash flow.

Current wording

The decline in operating cash flows is primarily due to the reduction in the value of gas withdrawn from storage. The average price of gas in storage during the first nine months of fiscal 2023 was more than $6.50 per DTH compared to approximately $4.25 per DTH during the current fiscal year. The decrease in the unit cost of gas in storage was attributable to much lower commodity prices during last year's summer storage injections. Accordingly, as lower-priced gas was withdrawn from storage during the first half of fiscal 2024, cash flow levels were reduced when compared to the same period in fiscal 2023. Additionally, though the SCC issued its final order in December 2023, Roanoke Gas implemented interim billing rates in January 2023; therefore, the Company began accruing an estimated rate refund representing the amount due customers for the difference between total customer billings at interim rates versus total customer billings at final rates. Upon SCC approval of final rates, Roanoke Gas issued refunds in February 2024 to all customers that were billed at interim rates since January 2023. When compared to the nine-month period ending June 30, 2023, the distribution of the rate refund to customers reduced cash available for operations by $1.6 million.

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 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.

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 nine-month period ended June 30, 2024 were approximately $16.6 million compared to $19.4 million during the same period last year. The $2.8 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 exceed $21 million. Midstream's investment in the LLC was approximately $2.1 million in the first nine months 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. Now that the MVP is in service, Midstream may incur periodic, future capital investment related to ongoing MVP 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 $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.

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 $517,000 for the nine months ended June 30, 2024, compared to $1.9 million in net cash flows used in financing activities for the same period last year. The $2.4 million increase in financing cash flows is primarily attributable to net borrowings of $3.3 million under Roanoke Gas' line-of-credit during the first nine months of fiscal 2024 compared to no net borrowings in the same period last year. Roanoke Gas' increased borrowings were slightly offset by a net decrease in cash of approximately $389,000 associated with Midstream's debt. 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 year-over-year 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.

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. 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.

Current wording

With the MVP now in service, Midstream's future cash requirements will relate to regular monthly operating expenses, debt service and capital contributions. 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. Further, on May 2, 2024, Midstream established a new $9 million line of credit facility that matures on May 2, 2026. With these proceeds, Midstream paid in full the $9 million balance on its note payable that matured on June 1, 2024. With 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 $400,000 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 March 31, 2024, Resources' long-term capitalization ratio was 45% equity and 55% debt.

Current wording

As of June 30, 2024, Resources' long-term capitalization ratio was 44% equity and 56% debt.