RGC RESOURCES INC

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

In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to fairly present Resources' financial position as of* June 30, 2024*, cash flows for thenine months ended* June 30, 2024and2023*, and the results of its operations, comprehensive income, and changes in stockholders' equity for thethree andnine months ended* June 30, 2024and2023*. The results of operations for thethree andnine months ended* June 30, 2024* arenot indicative of the results to be expected for the fiscal year ending* September 30, 2024*as quarterly earnings are affected by the highly seasonal nature of the business and weather conditions generally result in greater earnings during the winter months.

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

Roanoke Gas' line of credit is renewed annually in* March,and there was $7.6 million outstanding under the line of credit at June 30, 2024.In Marchand May 2024,Midstream refinanced nearly $32 million of long-term debt that was scheduled to mature in fiscal2024* and fiscal2025. See Notes6 and7 for a discussion of these transactions. In the future, there* maybe circumstances where such refinancing isnot* entirely within the Company's control and disclosure under ASU2014-15 is warranted.

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

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

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

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Recently Issued or Adopted Accounting Standards

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

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

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

In* March 2024,the SEC issued its final rule that requires registrants to provide climate disclosures in their annual reports and registration statements. The new guidance requires that registrants provide information about specified financial statement effects of severe weather events and other natural conditions, certain carbon offsets and renewable energy certificates, and material impacts on financial estimates and assumptions in the footnotes to financial statements. The rule also requires additional disclosures outside of the financial statements including governance and oversight of material climate-related risks, the material impact of climate risks on the company's strategy, business model and outlook, risk management processes for material climate-related risks and material climate targets and goals. The Company is currently evaluating the new rule and determining the impact of the additional disclosure requirements, as well as the data needed and the source of that data to comply with required disclosures. The new rule is currently effective for fiscal years beginning in2027* for smaller reporting companies. The final rule was scheduled to become effective* May 28, 2024;however, the SEC has voluntarily stayed the rule's effective date pending judicial review. Depending on when the legal challenges are resolved, the mandatory compliance date may*be retained or delayed.

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

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

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

Gas utility revenues

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

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

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

Other revenues

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

Alternative revenue program revenues

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

Customer accounts receivable and liabilities

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

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

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

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

Intersegment transactions are recorded at cost.

The reportable segments disclosed herein are defined as follows:

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

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

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

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

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

In response to continued inflationary pressures, Roanoke Gas filed a general rate application on* February 2, 2024with 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.*

The SCC requires regulated utilities within the state to perform a depreciation study everyfive years and to submit the study for SCC approval. The Company's current depreciation rates are based on the last depreciation study approved by the SCC in2019. As part of the general rate application filed in* February 2024,the Company submitted its requisite depreciation study and proposed new depreciation rates. In July 2024,the Company received administrative approval from the SCC staff that authorized the new depreciation rates. The new depreciation rates will result in a small decrease in depreciation expense for fiscal2024,* as the new depreciation rates are effective retroactive to* October 1, 2023.This adjustment to depreciation expense will be reflected in thefourth* quarter of fiscal2024.

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 thefourth* quarter of fiscal2023, the Company reached a settlement with the SCC staff on all outstanding issues in the case. Under the terms of the settlement, the Company agreed to an 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, 2023in which it approved the settlement agreement in its entirety. Refunds, which had previously been accrued, were made to customers in February 2024.*

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 fiscal2024* and an estimated cumulative investment of $49.5 million over the proposedfive-year plan period ending* September 30, 2028.The plan was approved with a revenue requirement of approximately $366,000 for fiscal2024.* 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 fiscal2025* which results in a revenue requirement of $1.53 million. The Company expects a Final Order from the SCC in* September 2024.*

By Order dated* September 1, 2023,the SCC approved the Company’s RNG Rider effective for the period October**1,* 2023 through* September 30, 2024.In its Order, the SCC directed the Company to file an application to update the RNG Rider by May 30, 2024.In compliance with the SCC’s directive, on May 30, 2024,Roanoke Gas filed for an update to its annual RNG Rider to become effective October 1, 2024.The revenue requirement associated with the proposed RNG Rider is $1.56 million, offset by the sale of environmental credits in the amount of $1.11 million as well as credits for the over-recovery of costs during the prior year of approximately $35,000, resulting in a net revenue requirement of approximately $415,000. The Company expects a Final Order from the SCC in September 2024.*

Roanoke Gas is authorized by the SCC to acquire certain natural gas distribution assets from a local housing authority atfive 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.

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The assets oftwo complexes were transferred to Roanoke Gas in fiscal2022. On* September 29, 2023,the housing authority transferred the assets fromone* additional apartment complex to Roanoke Gas and the Company recorded a pre-tax gain of approximately $311,000 during thefourth quarter of fiscal2023. The authority is substantially complete with renewing thefourth 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.

Midstream owns a less than 1% equity investment in the LLC that owns the MVP, which went into service in* June 2024.*Midstream is also a less than 1% investor, accounted for under the cost method, in Southgate, which is in the design and permitting phase.

While under construction, AFUDC provided the majority of the income recognized by Midstream. The amount of AFUDC recognized during the current and prior year is included in the equity in earnings of unconsolidated affiliate in the tables below. AFUDC ceased in* June 2024*when the pipeline went into service.

The Company participates in the earnings of the MVP proportionate to its level of investment. With the MVP in operation, the Company recognizes its share of earnings from the MVP, favorably adjusted for a basis difference between the Company's proportional share of assets and its carrying value that arose when the Company recorded an other-than-temporary impairment of its investment in2022. This basis difference will be amortized over the operational life of the MVP. Midstream assesses the value of its investment in the LLC on at least a quarterly basis, andno impairment indicators were identified in fiscal2023 or fiscal2024 to date.

Funding for Midstream's investments has been provided through equity contributions from Resources and unsecured promissory notes as detailed in Note7.

Investment balances of MVP and Southgate, as of* June 30, 2024and September 30, 2023,*are reflected in the table below:

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

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

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

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On* March 24, 2023,Roanoke Gas entered into an unsecured Revolving Note in the principal amount of $25 million. On March 31, 2024,the Revolving Note was amended to extend the maturity date to March 31, 2025.Other key terms and requirements of the Revolving Note were retained. The Revolving Note's variable interest rate is based upon Term SOFR plus 110 basis points and provides for multiple tier borrowing limits to accommodate seasonal borrowing demands. The Company's total available borrowing limits during the term of the Revolving Note currently range from $15 million to $25 million. As of June 30, 2024,*the Company had an outstanding balance of $7,615,825 under the Revolving Note.

On* March 6, 2024,Midstream entered into the Sixth Amendment to Credit Agreement and related Promissory Notes on the non-revolving credit facility. The Sixth Amendment revised the interest rate from Term SOFR plus 2.00% to Term SOFR plus 2.00% subject to adjustment to Term SOFR plus 1.75% and Term SOFR plus 1.55% upon meeting certain milestones. The Sixth Amendment also consolidated the Promissory Notes toone* Promissory Note withone lender, increased the available non-revolving credit facility to $25 million, and extended the maturity date to* December 31, 2025.*All other terms and requirements remain unchanged.

On* May 2, 2024,Midstream established a new $9 million revolving line of credit facility. The interest rate on the borrowings under the facility is Daily Simple SOFR plus 2.215%; the arrangement included a 0.40% upfront fee and 0.125% unused line fee. The facility matures on May 2,*2026.

On* May 29, 2024,Midstream paid in full the $9 million note payable that was set to mature June 1, 2024.*

On* June 28, 2023,Midstream amended and restated its $14 million and $8 million Term Notes initially entered into on June 12, 2019and November 1, 2021,respectively. The amendments revised each of the original Term Note's interest rate from LIBOR plus 115 basis points to Daily Simple SOFR plus 126.448 basis points, effective July 1, 2023.On March 6, 2024,Midstream further amended and restated its $8 million Term Note. The amendment suspended quarterly principal payments beginning April 1, 2024through January 1, 2025.Principal payments will commence again on April 1, 2025.All other terms and requirements of the Term Notes were retained. In conjunction with the original amendment of the Term Notes in June 2023,Midstream also amended the corresponding interest rate swaps associated with the Term Notes. The amendments provided for the floating rates on the interest rate swaps to continue to match the rate of the associated notes as well as retain the overall fixed interest rates of 3.24% and 2.443%, respectively. The interest rate swap related to the $8 million Term Note wasnot* amended on* March 6, 2024,*but the Company did re-designate its hedge documentation to address the suspension of repayments.

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

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Long-term debt consists of the following:

Debt issuance costs are amortized over the life of the related debt. As of* June 30, 2024and September 30, 2023,*the Company also had an unamortized loss on the early retirement of debt of $1,170,418 and $1,256,059, respectively, which has been deferred as a regulatory asset and is being amortized over a 20-year period.

All debt agreements set forth certain representations, warranties and covenants to which the Company is subject, including financial covenants that limit consolidated long-term indebtedness tonot more than 65% of total capitalization. All of the debt agreements provide for Priority Indebtedness (defined in the debt agreements) tonot exceed 15% of consolidated total assets. The $15 million and $10 million notes, as well as the line-of-credit, have an interest coverage ratio requirement ofnot less than 1.5 to1, which excludes the effect of the non-cash impairments on the LLC investments up to the total investment as of* December 31, 2021,as revised by the Seventh Amendment to the Credit Agreement. The $9 million revolving line of credit facility also has an interest coverage ratio requirement ofnot* less than 1.5 to1. The Company was in compliance with all debt covenants as of* June 30, 2024* and* September 30, 2023*.

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

The Company hasfour interest rate swaps associated with certain of its variable rate debt as of* June 30, 2024.Roanoke Gas hastwo variable-rate term notes in the amounts of $15 million and $10 million, with corresponding swap agreements to effectively convert the variable interest rates into fixed rates of 2.00% and 2.49%, respectively. Midstream hastwo* swap agreements corresponding to the variable rate term notes with original principal amounts of $14 million and $8 million. The swap agreement pertaining to the $14 million note effectively converts the variable interest rate into a fixed rate of 3.24%. The swap agreement pertaining to the $8 million note remains in place and was concurrently re-designated to hedge an applicable portion of the note taking into account the temporary suspension of amortization described in Note7, and converts that portion of the note to a fixed rate of 2.443%. The swaps qualify as cash flow hedges with changes in fair value reported in other comprehensive income.No portion of the swaps were deemed ineffective during the periods presented.

The fair value of the current and non-current portions of the interest rate swaps are reflected in the condensed consolidated balance sheets under the caption interest rate swaps. The table in Note11 reflects the effect on income and other comprehensive income of the Company's cash flow hedges.

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

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

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

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

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

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

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

Under the asset management contract, a timing difference can exist between the payment for natural gas purchases and the actual receipt of such purchases. Payments are made based on a predetermined monthly volume with the price based on weighted averagefirst of the month index prices corresponding to the month of the scheduled payment. At* June 30, 2024* and* September 30, 2023*, the Company had recorded in accounts payable the estimated fair value of the liability valued at the correspondingfirst of month index prices for which the liability is expected to be settled.

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

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

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

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

ASC825, Financial Instruments, requires disclosures regarding concentrations of credit risk from financial instruments. Cash equivalents are investments in high-grade, short-term securities (original maturity less thanthree months), placed with financially sound institutions. Accounts receivable are from a diverse group of customers including individuals and small and large companies in various industries. No individual customer amounted to more than5% of total accounts receivable at* June 30, 2024* and* September 30, 2023*. The Company maintains certain credit standards with its customers and requires a customer deposit if warranted.

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Basic earnings per common share for thethree andnine months ended* June 30, 2024and2023* were calculated by dividing net income by the weighted average common shares outstanding during the period. Diluted earnings per common share were calculated by dividing net income by the weighted average common shares outstanding during the period plus potential dilutive common shares.

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

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

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The amortization of actuarial gains and losses, reflected in the preceding table, relate to the unregulated operations of the Company. Actuarial gains and losses attributable to the regulated operations are included as a regulatory asset. See Note13 for a schedule of regulatory assets. The amortization of actual gains and losses is recognized as a component of net periodic pension and postretirement benefit costs under other income, net in the condensed consolidated statements of income.

Reconciliation of Accumulated Other Comprehensive Income (Loss)

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The effective tax rates for thethree-month andnine-month periods ended* June 30, 2024and2023* reflected in the table below are less than the combined federal and state statutory rate of 25.74%. The reduction to the effective tax rates for thethree-month andnine-month periods ended* June 30, 2024is due to additional tax deductions from the amortization of excess deferred taxes and amortization of RNG tax credits deferred as a regulatory liability. The reduction to the effective tax rates for thethree*-month andnine-month periods ended* June 30, 2023*is due to additional tax deductions from the amortization of excess deferred taxes and amortization of R&D tax credits deferred as a regulatory liability.

The Company files a consolidated federal income tax return and state income tax returns in Virginia and West Virginia, and thus subject to examinations by federal and state tax authorities. The IRS is currently examining the Company's2018 and2019 amended federal tax returns and the ultimate outcome of these examinations is unknown as of the date of this Form10-Q. The Company believes its income tax assets and liabilities are fairly stated as of* June 30, 2024and2023;* however, these assets and liabilities could be adjusted asa result of this examination. Aside from the* September 30, 2018and2019* amended returns, the federal returns prior to* September 30, 2020areno* longer subject to examination as of the date of this Form10-Q. Additionally, the state returns for Virginia and West Virginia prior to* September 30, 2020areno* longer subject to examination as of the date of this Form10-Q.

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

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

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

As of* June 30, 2024* and* September 30, 2023*, the Company had regulatory assets in the amount of $8,795,500 and $8,243,721, respectively, on which the Company didnot earn a return during the recovery period.

Roanoke Gas currently holds the only franchises and/or CPCNs to distribute natural gas in its service area. These franchises generally extend for multi-year periods and are renewable by the municipalities, including exclusive franchises in the cities of Roanoke and Salem and the Town of Vinton, Virginia. Allthree franchises are set to expire* December 31, 2035.In2019,* the SCC issued an order granting a CPCN to furnish gas to all of Franklin County. Unlike the CPCNs for the other counties served by Roanoke Gas, the Franklin County CPCN was scheduled to terminate withinfive years of the date of the order if Roanoke Gas didnot furnish gas service to the designated service area. In* November 2023,the SCC granted Roanoke Gas athree*-year extension on the CPCN. Roanoke Gas has commissioned its new gate station in Franklin County, and expects to deliver gas to itsfirst customer in Franklin County this fiscal year.

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

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

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

For thethree-month andnine-month periods ended* June 30,*2024, no funding contributions were made to the pension plan or postretirement plan. The Company isnot currently planning to make any funding contributions to either plan for the remainder of fiscal2024.

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

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

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During fiscal2023, the Company entered into a land lease in conjunction with its RNG facility that has a 20-year term withtwo five-year renewal options that arenot considered part of the ROU asset and liability as the decision to elect said options will be made by the Company in the future. The Company also hasthree other operating leases with original terms ranging from 3 to 6 years. The operating lease ROU assets of $339,022 are reflected in othernon-current assets in the condensed consolidated balance sheets. The current operating lease liabilities of $31,366 and non-current lease liabilities of $317,482 are included inother current liabilities and deferred credits and othernon-current liabilities, respectively, in the condensed consolidated balance sheets. The expense components of the Company’s operating leases are included under operations and maintenance expense in the condensed consolidated statements of income and were less than $50,000 for each period presented.

Other information related to leases were as follows:

On* June 30, 2024,*the future minimum rental payments under non-cancelable operating leases by fiscal year were as follows:

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