RGC RESOURCES INC

Previous wording

This report contains forward-looking statements that relate to future transactions, events or expectations. In addition, Resources may announce or publish forward-looking statements relating to such matters as anticipated financial performance, business prospects and closures, investments, inflation, ratemaking and other regulatory actions, debt refinancing, technological developments, new products, research and development activities, weather variations, operational impacts and similar matters. These statements are based on management’s current expectations and information available at the time of such statements and are believed to be reasonable and are made in good faith. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. In order to comply with the terms of the safe harbor, the Company notes that a variety of factors could cause the Company’s actual results and experience to differ materially from the anticipated results or other expectations expressed in the Company’s forward-looking statements. The risks and uncertainties that may affect the operations, performance, development and results of the Company’s business include, but are not limited to, those set forth in the following discussion and within Item 1A “Risk Factors” in the Company’s 2025 Annual Report on Form 10-K, as well as an updated risk within Item 1A "Risk Factors" in Part II below. These factors are difficult to predict and many are beyond the Company’s control. Accordingly, while the Company believes its forward-looking statements to be reasonable, there can be no assurance that they will approximate actual experience or that the expectations derived from them will be realized. When used in the Company’s documents or news releases, the words “anticipate,” “believe,” “intend,” “plan,” “estimate,” “predict,” “target,” “expect,” “objective,” “projection,” “potential,” “forecast,” “budget,” “assume,” “indicate” or similar words or future or conditional verbs such as “will,” “would,” “should,” “can,” “could,” “may,” or “might” are intended to identify forward-looking statements.

Current wording

This report contains forward-looking statements that relate to future transactions, events or expectations. In addition, Resources may announce or publish forward-looking statements relating to such matters as anticipated financial performance, business prospects and closures, investments, inflation, ratemaking and other regulatory actions, debt refinancing, technological developments, new products, research and development activities, weather variations, operational impacts, including those related to the LNG facility, and similar matters. These statements are based on management’s current expectations and information available at the time of such statements and are believed to be reasonable and are made in good faith. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. In order to comply with the terms of the safe harbor, the Company notes that a variety of factors could cause the Company’s actual results and experience to differ materially from the anticipated results or other expectations expressed in the Company’s forward-looking statements. The risks and uncertainties that may affect the operations, performance, development and results of the Company’s business include, but are not limited to, those set forth in the following discussion and within Item 1A “Risk Factors” in the Company’s 2025 Annual Report on Form 10-K, as well as an updated risk within Item 1A "Risk Factors" in the Company's March 31, 2026 Form 10-Q. These factors are difficult to predict and many are beyond the Company’s control. Accordingly, while the Company believes its forward-looking statements to be reasonable, there can be no assurance that they will approximate actual experience or that the expectations derived from them will be realized. When used in the Company’s documents or news releases, the words “anticipate,” “believe,” “intend,” “plan,” “estimate,” “predict,” “target,” “expect,” “objective,” “projection,” “potential,” “forecast,” “budget,” “assume,” “indicate” or similar words or future or conditional verbs such as “will,” “would,” “should,” “can,” “could,” “may,” or “might” are intended to identify forward-looking statements.

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, 2026. 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, 2026. 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 63,900 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 the MVP, Southgate and Boost. 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 63,800 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 the MVP, Southgate and Boost. The utility operations of Roanoke Gas are regulated by the SCC, which oversees the terms, conditions and rates charged to customers for natural gas service, safety standards, extension of service and depreciation. The Company is also subject to regulation from the United States Department of Transportation in regard to the construction, operation, maintenance, safety and integrity of its transmission and distribution pipelines. FERC regulates the prices for the transportation and delivery of natural gas to the Company’s distribution system and underground storage services. In addition, the Company is subject to other regulations which are not necessarily industry specific.

Previous wording

The 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. Roanoke Gas filed and received approval from the SCC for an updated annual SAVE Rider rate which became effective October 1, 2025. As a result of the updated SAVE Rider, SAVE Plan revenues increased by approximately $261,000 and $532,000, respectively, for the three-month and six-month periods ended March 31, 2026 compared to the same periods last year. The updated SAVE Rider is expected to result in approximately $2.61 million of annualized SAVE-related revenues during fiscal 2026. Additional information regarding the SAVE Plan and Rider is provided in Note 4 of the condensed consolidated financial statements.

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. Roanoke Gas filed and received approval from the SCC for an updated annual SAVE Rider rate which became effective October 1, 2025. As a result of the updated SAVE Rider, SAVE Plan revenues increased by approximately $242,000 and $774,000, respectively, for the three-month and nine-month periods ended June 30, 2026 compared to the same periods last year. The updated SAVE Rider is expected to result in approximately $2.61 million of annualized SAVE-related revenues during fiscal 2026. On June 30, 2026, Roanoke Gas filed for approval of an updated annual SAVE Rider to become effective October 1, 2026. The proposed SAVE Rider revenue requirement of $3.79 million is designed to recover the costs associated with prior years' SAVE-eligible investments that occurred under the current SAVE Plan and an estimated $9.26 million of SAVE-eligible investment during fiscal 2027. The revenue requirement also included an adjustment for under-recovered costs incurred during the prior year. The Company expects final resolution from the SCC in September 2026. Additional information regarding the SAVE Plan and Rider is provided in Note 4 of the condensed consolidated financial statements.

Previous wording

The WNA mechanism reduces the volatility in earnings due to the variability in temperatures during the heating season. The WNA is based on the most recent 30-year temperature average and provides the Company with a level of earnings protection when weather is warmer than normal and provides its customers with price protection when weather is colder than normal. The WNA allows the Company to recover from its customers the lost margin (excluding gas costs) from warmer-than-normal weather and correspondingly requires the Company to refund the excess margin earned for colder-than-normal weather. The WNA mechanism used by the Company is based on a linear regression model that determines the value of a single heating degree day and thereby estimates the revenue adjustment based on weather variance from normal. Any billings or refunds related to the WNA are completed following each WNA year, which extends for the 12-month period from April to March. For the three months ended March 31, 2026, the Company accrued approximately $298,000 in additional revenues under the WNA model for weather that was 2% warmer than normal, compared to reducing revenues by approximately $27,000 for weather that was in line with normal for the corresponding period last year. For the six months ended March 31, 2026, the Company reduced revenues by approximately $21,000 for weather that was in line with normal, compared to approximately $473,000 in additional revenues for weather that was 2% warmer than normal for the corresponding period last year. The WNA for the 12-month period ended March 31, 2026 was approximately $483,000, which will be billed to customers during May 2026.

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, 2026, the Company accrued approximately $383,000 and $361,000, respectively, in additional revenues under the WNA model for weather that was 18% and 1% warmer than normal, compared to approximately $493,000 and $966,000 in additional revenues for weather that was 22% and 4% warmer than normal for the corresponding periods last year. The adjusted WNA balance for the 12-month period ended March 31, 2026 was approximately $481,000, and was collected from customers during May 2026.

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 nominally for both the three-month and six-month periods ended March 31, 2026 compared to the corresponding periods last year. While the average price of gas in storage fluctuated nominally for the six-month period ended March 31, 2026 compared to the same period in the prior year, the average price of gas in storage decreased by 4% during the second quarter of fiscal 2026 compared to the second quarter of fiscal 2025. If natural gas prices remain at or continue to decline as compared to the prior year, coupled with possible reduced storage levels at the LNG facility, the average dollar balance of gas in storage is expected to decrease, leading to lower ICC revenues in fiscal 2026.

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 nominally for both the three-month and nine-month periods ended June 30, 2026 compared to the corresponding periods last year. While the average price of gas in storage fluctuated nominally for the nine-month period ended June 30, 2026 compared to the same period in the prior year, the average price of gas in storage decreased by 8% during the third quarter of fiscal 2026 compared to the third quarter of fiscal 2025. If natural gas prices remain at or continue to decline as compared to the prior year, coupled with reduced storage levels at the LNG facility, the average dollar balance of gas in storage is expected to decrease, leading to lower ICC revenues in fiscal 2026 and 2027.

Previous wording

Roanoke Gas operates an RNG facility, through a cooperative agreement with the Western Virginia Water Authority, to produce commercial quality RNG for delivery into its distribution system. Roanoke Gas is allowed to recover the costs associated with the investment in RNG facilities and the related operating costs through an RNG Rider added to customer bills that was approved by the SCC in 2023 and updated annually. Customers receive the benefit of environmental credits generated through the production of RNG. Roanoke Gas recognized approximately $450,000 and $934,000, respectively, in RNG revenue for the three and six months ended March 31, 2026 compared to approximately $429,000 and $817,000 for the corresponding periods in the prior year.

Current wording

Roanoke Gas operates an RNG facility, through a cooperative agreement with the Western Virginia Water Authority, to produce commercial quality RNG for delivery into its distribution system. Roanoke Gas is allowed to recover the costs associated with the investment in its RNG facility and the related operating costs through an RNG Rider added to customer bills that was approved by the SCC in 2023 and updated annually. Customers receive the benefit of environmental credits generated through the production of RNG. Roanoke Gas recognized approximately $462,000 and $1,396,000, respectively, in RNG revenue for the three and nine months ended June 30, 2026 compared to approximately $479,000 and $1,296,000 for the corresponding periods in the prior year.

Previous wording

The cost of natural gas, which is a pass-through cost, is independent of the Company's non-gas rates. Accordingly, the Company's approved billing rates include a component designed to allow for the recovery of the cost of natural gas. This rate component, referred to as the PGA, allows the Company to pass along to its customers increases and decreases in natural gas costs through a quarterly filing, or more frequent if necessary, once SCC staff approval is received. As actual costs will differ from the projections used in establishing the PGA rate, the Company will either over-recover or under-recover its actual gas costs during the period. The difference between actual costs incurred and costs recovered through the application of the PGA is recorded as a regulatory asset or liability. At the end of the annual deferral period, the balance is amortized over a succeeding 12-month period through the ensuing non-gas rate component. Due to the extended and extreme cold weather experienced across the eastern half of the United States during Winter Storm Fern, natural gas prices spiked from less than $4 per DTH to well over $30 per DTH at the end of January and into February 2026. As such, the Company adjusted the PGA rate effective February 2026 to offset the increased under-recovery of gas costs, which are anticipated to be collected from customers over the ensuing 12 to 18 months.

Current wording

The cost of natural gas, which is a pass-through cost, is independent of the Company's non-gas rates. Accordingly, the Company's approved billing rates include a component designed to allow for the recovery of the cost of natural gas. This rate component, referred to as the PGA, allows the Company to pass through to its customers increases and decreases in natural gas costs through a quarterly filing, or more frequent if necessary, once SCC staff approval is received. As actual costs will differ from the projections used in establishing the PGA rate, the Company will either over-recover or under-recover its actual gas costs during the period. The difference between actual costs incurred and costs recovered through the application of the PGA is recorded as a regulatory asset or liability. At the end of the annual deferral period, the balance is amortized over a succeeding 12-month period through the ensuing non-gas rate component.

Previous wording

Net income increased by $1,068,282 for the three months ended March 31, 2026, compared to the same period last year, primarily due to implementation of higher non-gas base rates effective January 1, 2026.

Current wording

Net income increased by $20,488 for the three months ended June 30, 2026, compared to the same period last year.

Previous wording

Total operating revenues for the three months ended March 31, 2026, compared to the same period last year, increased by approximately 25% primarily due to the implementation of a non-gas base rate increase, higher natural gas commodity prices and increased SAVE revenues, slightly offset by a reduction in delivered volumes. Roanoke Gas placed new non-gas rates into effect for natural gas service rendered on or after January 1, 2026, subject to refund. These new non-gas rates will generate approximately $4.3 million in additional annual revenues, all of which was allocated to the volumetric component; and as such, a larger portion of the rate increase was recognized during the quarter due to the volume of gas consumption. Additionally, total natural gas costs increased by 44% compared to the same period last year, primarily due to pipeline capacity charges increasing over $1.2 million, which corresponds to a 54% increase in the gas cost component included in the total customer billing rate. The average commodity price per dekatherm during the current quarter was $5.90 compared to $3.80 per dekatherm for the corresponding quarter in the prior year. Overall volumes delivered decreased in line with the decrease in HDD as weather for the whole quarter was 2% warmer compared to the 30-year normal despite Winter Storm Fern. Transportation and interruptible volumes declined by 6% as a single, multi-fuel customer that had been utilizing natural gas as its primary fuel source reduced its consumption during the quarter, however, the Company expects this customer's usage to return to normal levels. SAVE Plan revenues increased by approximately $261,000 compared to the same period in the prior year as Roanoke Gas continues to invest in qualified SAVE infrastructure projects.

Current wording

Total operating revenues for the three months ended June 30, 2026, compared to the same period last year, decreased slightly primarily due to weather-related normalization andlower natural gas commodity prices more than offsetting the implementation of a non-gas base rate increase and increases in SAVE revenues. Weather-sensitive residential and commercial volumes decreased, despite the increase in HDD, as weather for the whole quarter was 18% warmer compared to the 30-year norm. Transportation and interruptible volumes increased by 27% primarily driven by increased business activity of a single, multi-fuel customer that has been utilizing natural gas as its primary fuel source. Additionally, total natural gas costs decreased by 12% compared to the same period last year, primarily due to pipeline capacity charges decreasing over $350,000. The average commodity price per dekatherm during the current quarter was $3.10 compared to $3.60 per dekatherm for the corresponding quarter in the prior year. Roanoke Gas placed new non-gas rates into effect for natural gas service rendered on or after January 1, 2026, subject to refund, and when coupled with the increase in delivered volumes, contributed an additional $643,000 to revenues in the current quarter compared to the same period in the prior year. SAVE Plan revenues increased by approximately $242,000 compared to the same period in the prior year as Roanoke Gas continues to invest in qualified SAVE infrastructure projects.

Previous wording

Gross utility margin increased 7% from the same period last year primarily as a result of the aforementioned increases in non-gas base rates, as well as increased SAVE and RNG revenues, which contributed $611,000 and $298,000, respectively. As discussed in the Overview section, the WNA model adjusts for the impact of variability of temperatures during the heating season. The WNA model calculates what the corresponding volumes would be if temperatures were equivalent to the 30-year normal during each period and adjusts for the difference in margin from normal. In applying the WNA model to both the current and prior periods, the volumetric margin, inclusive of the WNA, increased by approximately $1.1 million due to weather that was 2% warmer than normal.

Current wording

Gross utility margin increased 8% from the same period last year primarily as a result of the aforementioned increases in non-gas base rates, delivered volumes and SAVE revenues. The WNA model calculates what the corresponding volumes would be if temperatures were equivalent to the 30-year normal during each period and adjusts for the difference in margin from normal. In applying the WNA model to both the current and prior periods, the volumetric margin, inclusive of the WNA, increased by approximately $533,000 due to weather that was 18% warmer than normal.

Previous wording

Operations and maintenance expenses increased $295,775, or 6%. The Company continues to experience inflation over the 2% level historically targeted by the Federal Reserve. Inflation levels in health care benefits, certain types of insurance, contracted services and IT service costs, as well as other items, continue to put upward pressure on the Company's expenses. Contracted services increased by approximately $86,000 also due to inflationary pressures as well as increased customer turn-ons. Capitalized construction overheads declined by approximately $124,000 due to a reduction in Roanoke Gas capital projects as a result of winter weather. Higher corporate insurance premiums accounted for much of the remaining cost increase.

Current wording

Operations and maintenance expenses increased $534,328, or 12%. The Company continues to experience inflation over the 2% level historically targeted by the Federal Reserve. Inflation levels in health care benefits, certain types of insurance, professional services and IT service costs, as well as other items, continue to put upward pressure on the Company's expenses. Personnel costs increased by approximately $180,000 due to increased staffing and the inflationary impact on salaries and benefits. Capitalized overheads declined by approximately $125,000 as there was no capitalization associated with LNG liquefaction during the quarter. See Note 14 of the consolidated financial statements for additional information related to the LNG facility. Higher corporate insurance premiums and professional services expenses accounted for much of the remaining cost increase.

Previous wording

Taxes other than income taxes increased by $51,945, or 6%, due to higher property taxes associated with growth in utility property and increased tax rates.

Current wording

Taxes other than income taxes increased by $83,060, or 11%, due to higher property taxes associated with growth in utility property and increased tax rates.

Previous wording

Depreciation expense increased by $214,337, or 8%, corresponding to a similar increase in investments in depreciable utility property. Increases over the last year in capitalized software, with shorter useful lives, resulted in depreciation expense increasing slightly more than the 5% increase in the average utility property balance from the prior year quarter.

Current wording

Depreciation expense increased by $161,761, or 6%, corresponding to a similar increase in investments in depreciable utility property. Increases over the last year in capitalized software, with shorter useful lives, resulted in depreciation expense increasing slightly more than the 5% increase in the average gross utility property balance from the prior year quarter.

Previous wording

Interest expense decreased by $44,437, or 3%, as the weighted-average interest rate on total debt decreased from 4.33% during the second quarter of fiscal 2025 to 4.10% in the current quarter. Midstream's interest expense decreased by $89,017, or 13%, as the total average debt outstanding decreased by approximately $1,586,000 as a result of principal payments made on term notes, along with the weighted-average interest rate decreasing from 5.06% during the second quarter of fiscal 2025 to 4.53% in the current quarter. Roanoke Gas' interest expense increased by $44,580, or 5%, as total average debt outstanding increased by approximately $3,870,000 associated with higher net borrowings under the Company's line-of-credit. Roanoke Gas' weighted-average interest rate remained relatively flat from the second quarter of fiscal 2025 to the current quarter. See Notes 6 and 7 of the consolidated financial statements for more information on the Company's debt.

Current wording

Interest expense increased by $38,996, or 3%, as the average debt outstanding for the quarter increased by approximately 5% compared to the same period in the prior year. Midstream's interest expense decreased by $66,044, or 10%, as the total average debt outstanding decreased by approximately $1,197,000 as a result of principal payments made on term notes, along with the weighted-average interest rate decreasing from 5.10% during the third quarter of fiscal 2025 to 4.72% in the current quarter. Roanoke Gas' interest expense increased by $105,040, or 13%, as total average debt outstanding increased by approximately $7,573,000 associated with higher net borrowings under the Company's line-of-credit. Roanoke Gas' weighted-average interest rate increased from 3.82% in the third quarter of fiscal 2025 to 3.96% in the current quarter. See Notes 6 and 7 of the consolidated financial statements for more information on the Company's debt.

Previous wording

Net income increased by $681,458 for the six months ended March 31, 2026, compared to the same period last year, primarily due to the aforementioned implementation of higher non-gas base rates this quarter, lower interest expense and income taxes, slightly offset by continued inflationary pressures on operating costs.

Current wording

Net income increased by $701,946 for the nine months ended June 30, 2026, compared to the same period last year, primarily due to the aforementioned implementation of higher non-gas base rates in January 1, 2026, lower interest expense and income taxes, slightly offset by continued inflationary pressures on operating costs.

Previous wording

Total operating revenues for the six months ended March 31, 2026, compared to the same period last year, increased by approximately 19% for similar reasons as previously discussed for the quarter. Total natural gas costs increased by 36% compared to the same period last year, primarily due to pipeline capacity charges increasing over $2.3 million, which corresponds to a 38% increase in the gas cost component included in the total customer billing rate. The average commodity price per dekatherm for the first half of fiscal 2026 was $5.10 compared to $3.70 per dekatherm for the same period in the prior year. Although weather was 3% colder than the prior year and almost even with the 30-year normal, delivered volumes decreased 3%. Weather-sensitive residential and commercial volumes declined 1%, while transportation and interruptible volumes declined by 8% as a single, multi-fuel customer that had been utilizing natural gas as its primary fuel source reduced its consumption, however, the Company expects this customer's usage to return to normal levels. SAVE Plan revenues increased by approximately $532,000 compared to the same period in the prior year as Roanoke Gas continues to invest in qualified SAVE infrastructure projects.

Current wording

Total operating revenues for the nine months ended June 30, 2026, compared to the same period last year, increased by approximately 15%primarily due to higher natural gas commodity prices, the implementation of a non-gas base rate increase and increased SAVE revenues. Total natural gas costs increased by 26% compared to the same period last year, primarily due to pipeline capacity charges increasing over $1.9 million, which corresponds to a 29% increase in the gas cost component included in the total customer billing rate. The average commodity price per dekatherm for the first nine months of fiscal 2026 was $4.84 compared to $3.67 per dekatherm for the same period in the prior year. Commodity prices during the second quarter of fiscal 2026 included the effect of Winter Storm Fern. The non-gas base rate increase implemented in January 2026, which will generate approximately $3.85 million in additional annual revenues, have contributed an additional $2.0 million to non-gas volumetric revenues during the current year compared to the same period in the prior year. Weather-sensitive residential and commercial volumes declined 1%, while transportation and interruptible volumes increased by 3% primarily driven by business activity of a single, multi-fuel customer that has been utilizing natural gas as its primary fuel source. SAVE Plan revenues increased by approximately $774,000 compared to the same period in the prior year as Roanoke Gas continues to invest in qualified SAVE infrastructure projects.

Previous wording

Gross utility margin increased 4% from the same period last year primarily as a result of the aforementioned increases in non-gas base rates and gas costs, as well as increased SAVE and RNG revenues, which contributed $1.2 million and $934,000, respectively, to margin.

Current wording

Gross utility margin increased 5% from the same period last year primarily as a result of the aforementioned increases in non-gas base rates and SAVE revenues.

Previous wording

Operations and maintenance expenses increased $829,585, or 8%. The Company continues to experience inflation over the 2% level historically targeted by the Federal Reserve. Inflation levels in health care benefits, certain types of insurance, contracted services and IT service costs, as well as other items, continue to put upward pressure on the Company's expenses. Personnel costs increased by approximately $147,000 due to increased staffing and the inflationary impact on salaries and benefits. Contracted services increased by approximately $274,000 also due to inflationary pressures as well as increased customer turn-ons. Capitalized construction overheads declined by approximately $311,000 due to a reduction in Roanoke Gas capital projects as a result of winter weather. Higher corporate insurance premiums and RNG-related costs accounted for much of the remaining increase, which were slightly offset by a decrease in professional services expenses.

Current wording

Operations and maintenance expenses increased $1,363,913, or 9%. The Company continues to experience inflation over the 2% level historically targeted by the Federal Reserve. Inflation levels in health care benefits, certain types of insurance, contracted services and IT service costs, as well as other items, continue to put upward pressure on the Company's expenses. Personnel costs increased by approximately $327,000 due to increased staffing and the inflationary impact on salaries and benefits. Contracted services increased by approximately $166,000 also due to inflationary pressures as well as increased customer turn-ons. Capitalized overheads declined by approximately $436,000 as there was no capitalization associated with LNG liquefaction during the current year. See Note 14 of the consolidated financial statements for additional information related to the LNG facility. Higher corporate insurance premiums and RNG-related costs accounted for much of the remaining increase, which were slightly offset by a decrease in professional services expenses.

Previous wording

Taxes other than income taxes increased by $159,627, or 10%, due to higher property taxes associated with growth in utility property and increased tax rates, as well as increases in payroll taxes.

Current wording

Taxes other than income taxes increased by $242,687, or 11%, due to higher property taxes associated with growth in utility property and increased tax rates, as well as increases in payroll taxes.

Previous wording

Depreciation expense increased by $442,082, or 8%, corresponding to a similar increase in investments in depreciable utility property. Increases over the last year in capitalized software, with shorter useful lives, resulted in depreciation expense increasing slightly more than the 5% increase in the average utility property balance.

Current wording

Depreciation expense increased by $603,843, or 7%, corresponding to a similar increase in investments in depreciable utility property. Increases over the last year in capitalized software, with shorter useful lives, resulted in depreciation expense increasing slightly more than the 5% increase in the average gross utility property balance.

Previous wording

Equity in earnings of unconsolidated affiliate increased by $102,816, or 13%. See Note 5 of the consolidated financial statements for additional information related to the MVP.

Current wording

Equity in earnings of unconsolidated affiliate increased by $67,769, or 3%. See Note 5 of the consolidated financial statements for additional information related to the MVP.

Previous wording

Other income, net increased by $228,788, or 49%, primarily due to increased interest income and postretirement income, partially offset by a decrease in revenue sharing related to the renewed asset management agreement.

Current wording

Other income, net increased by $345,406, or 29%, primarily due to interest income and increased postretirement benefit plan income, partially offset by a decrease in revenue sharing related to the asset management agreement.

Previous wording

Interest expense decreased by $153,217, or 4%, as the weighted-average interest rate on total debt decreased from 4.40% during the first six months of fiscal 2025 to 4.12% in the current year. Midstream's interest expense decreased by $210,295, or 15%, as the total average debt outstanding decreased by approximately $1,460,000 as a result of principal payments made on term notes, along with the weighted-average interest rate decreasing from 5.22% during the first six months of fiscal 2025 to 4.58 % in the current year. Roanoke Gas' interest expense increased by $57,078, or 3%, as total average debt outstanding increased by approximately $2,727,000 associated with net borrowings under the Company's line-of-credit. Roanoke Gas' weighted-average interest rate remained relatively flat from the first six months of fiscal 2025 to the current year. See Notes 6 and 7 of the consolidated financial statements for more information on the Company's debt.

Current wording

Interest expense decreased by $114,221, or 2%, as the weighted-average interest rate on total debt decreased from 4.36% during the first nine months of fiscal 2025 to 4.12% in the current year. Midstream's interest expense decreased by $276,339, or 13%, as the total average debt outstanding decreased by approximately $1,372,000 as a result of principal payments made on term notes, along with the weighted-average interest rate decreasing from 5.18% during the first nine months of fiscal 2025 to 4.62 % in the current year. Roanoke Gas' interest expense increased by $162,118, or 6%, as total average debt outstanding increased by approximately $4,342,000 associated with net borrowings under the Company's line-of-credit. Roanoke Gas' weighted-average interest rate remained relatively flat from the first nine months of fiscal 2025 to the current year. See Notes 6 and 7 of the consolidated financial statements for more information on the Company's debt.

Previous wording

Income tax expense decreased by $85,803, or 2%. The effective tax rate was 22.2% and 23.4% for the six-month periods ended March 31, 2026 and 2025, 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. Additionally, amortization recognition related to R&D tax credits and certain restricted stock-related tax deductions contributed to a further reduction to the effective tax rate during the current period.

Current wording

Income tax expense decreased by $92,516, or 2%. The effective tax rate was 22.1% and 23.4% for the nine-month periods ended June 30, 2026 and 2025, 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. R&D tax credit amortization and certain restricted stock-related tax deductions further reduced the effective tax rate during the current period.

Previous wording

In addition, the Company produces commercial quality RNG for delivery into its distribution system and operates and maintains an LNG liquefaction, vaporization and storage tank facility to supplement heating season gas supply requirements on the coldest days (the LNG peak shaving facility). During a routine inspection in the second quarter of fiscal 2026, the Company noted damage to its LNG tank. The Company has hired subject matter experts to help assess the cause(s) and scope of the damage and to design possible solutions. While that work is ongoing, the Company believes that the LNG peak shaving facility is unlikely to be available in the 2026 to 2027 winter heating season and is developing plans to provide service without this facility. Currently, the Company is unable to estimate the cost to complete the assessment and design processes as well as any investment necessary to repair the damage or replace the LNG facility. The Company has held discussions with the SCC Staff about establishing a regulatory asset related to the event for amounts not covered by insurance.

Current wording

In addition, the Company produces commercial quality RNG for delivery into its distribution system and operates and maintains an LNG liquefaction, vaporization and storage tank facility to supplement heating season gas supply requirements on the coldest days (the LNG peak shaving facility). During a routine inspection in the second quarter of fiscal 2026, the Company noted damage to its LNG facility, and more specifically, to the LNG tank. The Company has hired subject-matter experts to help assess the cause(s), the scope of the damage and to design possible workarounds, replacement or remediation. The Company has confirmed that the LNG facility will not be available in the 2026-2027 winter heating season. Although no natural or liquified natural gas was discovered outside of the LNG tank, analysis shows the LNG tank underwent significant stress. Further damage investigation costs could exceed $1 million, could be partially destructive in nature, and may or may not be determinative. Accordingly, the Company is considering alternatives and has not finalized its long-term plans for the LNG tank or the LNG facility, but has taken several actions to add natural gas supply to its distribution system, including (1) installing additional steel pipe to increase the gas flows from MVP farther into the Roanoke system, (2) contracting for additional daily supply from TCO from November 2026 through March 2027, and (3) procuring trucked LNG. Currently, the Company is unable to estimate the total cost associated with this event. The Company has fully engaged with its insurer but does not yet know what portion, if any, of its spending will be covered by insurance. The Company has held numerous discussions with the SCC Staff, and continues to keep them apprised of significant developments. The Company has established a regulatory asset for costs to safely empty the LNG tank and evaluate future options, and will seek recovery of the regulatory asset in a future regulatory proceeding.

Previous wording

The Company recognizes its share of earnings from the LLC, 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 in 2022. This basis difference amortization is a favorable non-cash adjustment over the operational life of the MVP, or 40 years. For the second quarter of fiscal 2026 and 2025, the Company recorded equity in earnings of consolidated affiliates of approximately $904,000 and $801,000, respectively. For the first six months of fiscal 2026 and 2025, the Company recorded equity in earnings of consolidated affiliates of approximately $1.7 million in both periods. The Company received a quarterly cash distribution of its share from the LLC totaling approximately $641,000 and $983,000 during the second quarter of fiscal 2026 and 2025, respectively, which was a return on its invested capital, and expects future quarterly distributions to be of a similar magnitude. For the first half of fiscal 2026 and 2025, quarterly cash distributions totaled $1.4 million and $1.8 million, respectively. The Company is using this cash to pay interest and other expenditures related to Midstream. The Company refinanced all of the debt supporting its investment in the MVP in September 2025, as described in the liquidity section.

Current wording

The Company recognizes its share of earnings from the LLC, 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 in 2022. This basis difference amortization is a favorable non-cash adjustment over the operational life of the MVP, or 40 years. For the third quarter of fiscal 2026 and 2025, the Company recorded equity in earnings of consolidated affiliates of approximately $764,000 and $772,000, respectively. For the first nine months of fiscal 2026 and 2025, the Company recorded equity in earnings of consolidated affiliates of approximately $2.5 million and $2.4 million, respectively. The Company received a quarterly cash distribution of its share from the LLC totaling approximately $971,000 and $874,000 during the third quarter of fiscal 2026 and 2025, respectively, which was a return on its invested capital, and expects future quarterly distributions to be of a similar magnitude. For the first nine months of fiscal 2026 and 2025, quarterly cash distributions totaled $2.4 million and $2.7 million, respectively. The Company is using this cash to pay interest and other expenditures related to Midstream. The Company refinanced all of the debt supporting its investment in the MVP in September 2025, as described in the liquidity section.

Previous wording

Cash and cash equivalents increased by $1,071,617 for the six-month period ended March 31, 2026 compared to an increase of $1,258,586 for the six-month period ended March 31, 2025. The following table summarizes the sources and uses of cash:

Current wording

The following table summarizes the sources and uses of cash for the nine-month periods ended June 30, 2026 and 2025:

Previous wording

Cash flows from operating activities for thesix months ended March 31, 2026 decreased by $5,364,236 compared to the same period last year. Under-recovered gas costs increased approximately $384,000 during the six months ended March 31, 2026 compared to a $5.8 million increase in over-recovered gas cost during the same period in the prior year. The fluctuation from a liability position to an asset position resulted in a decline of approximately $6.2 million in operating cash flows between periods. As previously discussed, due to the extended and extreme cold weather experienced across the eastern half of the United States during Winter Storm Fern, natural gas prices spiked from less than $4 per DTH to well over $30 per DTH at the end of January and into February 2026. As a result, total commodity costs increased from $3.70 per DTH in the first half of fiscal 2025 to $5.07 per DTH in the first half of fiscal 2026. Although incurred by the Company during the six months ended March 31, 2026, the recovery of these costs will be collected from customers over the ensuing 12 to 18 months. The colder weather and increased gas costs also resulted in higher accounts receivable balances.

Current wording

Cash flows from operating activities for thenine months ended June 30, 2026 decreased by $5,864,403 compared to the same period last year. Under-recovered gas costs increased approximately $2.4 million during the nine months ended June 30, 2026 compared to a $4.1 million increase in over-recovered gas cost during the same period in the prior year. The fluctuation from a liability position to an asset position resulted in a decline of approximately $6.5 million in operating cash flows between periods. Additionally, due to the extended and extreme cold weather experienced across the eastern half of the United States during Winter Storm Fern, natural gas prices spiked from less than $4 per DTH to well over $30 per DTH at the end of January and into February 2026. As a result, total commodity costs increased from $3.67 per DTH during the first nine months of fiscal 2025 to $4.84 per DTH in the first nine months of fiscal 2026. Although incurred by the Company during the second quarter of fiscal 2026, the recovery of these costs will be collected from customers over the ensuing 12 months. The colder weather and increased gas costs also resulted in higher accounts receivable balances. WNA revenues for the first nine months of fiscal 2026 declined by approximately $605,000 from the same period last year, corresponding to a 3% increase in the number of heating degree days between periods. This decline in the WNA receivable contributed approximately $387,000 in operating cash.

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 new customer demand. 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 steady 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, 2026 were approximately $9.8 million compared to $10.7 million during the same period last year. The decline is a result of colder weather delaying completion of capital projects. Total fiscal 2026 capital expenditures are expected to be approximately $22 million.

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, separate from the repairs previously discussed, and gas distribution system facilities and expansion of its natural gas system to meet new customer demand. 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 steady 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, 2026 were approximately $16.1 million compared to $15.7 million during the same period last year. Total fiscal 2026 capital expenditures are expected to be approximately $22 million.

Previous wording

Investing cash flows also include the Company's funding of its participation in Southgate and Boost, with a total cash investment of approximately $731,000 for the six months ended March 31, 2026, which are being funded by dedicated revolving credit facilities as described below. With FERC approval and issuance of the Notice to Proceed on the Southgate extension, construction activities have begun. While the Boost expansion is pending FERC approval, investments have been made for materials related to the construction of the pipeline and other pre-constructions costs. With MVP in service, Midstream will incur periodic, future capital investment related to ongoing MVP operations requirements and system improvements.

Current wording

Investing cash flows also include the Company's participation in Southgate and Boost, with a total cash investment of approximately $1 million for the nine months ended June 30, 2026, which are being funded by dedicated revolving credit facilities as described below. Upon receiving FERC approval and the Notice to Proceed, construction activities began in Virginia on the Southgate extension in March 2026. In June 2026, work began in North Carolina after the project received all necessary permits and authorizations for construction. While the Boost expansion is pending FERC approval, work has continued with federal and state regulators as they review project plans and permit applications, and investments have been made for materials related to the construction of the pipeline and other pre-constructions costs. Midstream will incur periodic future capital investment related to ongoing MVP operations requirements and system improvements.

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 used in financing activities were approximately $4.9 million for the six months ended March 31, 2026, compared to approximately $9.9 million for the same period last year. The $5 million reduction in financing cash flows is primarily attributable to a decrease in net repayments under Roanoke Gas' line-of-credit, slightly offset by an increase in net payments under Midstream's notes payable. The Company's net payments on Roanoke Gas' line-of-credit during the first six months of fiscal 2026 were $1.2 million compared to $7.0 million in the same period last year. Additionally, during the first half of fiscal 2026, Midstream repaid a net $692,000 compared to borrowing a net $145,000 during the same period in the prior year. Notes 6 and 7 provide details on the Company's line-of-credit and borrowing activity.

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 used in financing activities were approximately $5.2 million for the nine months ended June 30, 2026, compared to approximately $11.3 million for the same period last year. The $6.1 million reduction in financing cash flows is primarily attributable to a decrease in net repayments under Roanoke Gas' line-of-credit, slightly offset by an increase in net payments under Midstream's notes payable. The Company's net borrowings on Roanoke Gas' line-of-credit during the first nine months of fiscal 2026 were approximately $895,000 compared to net payments of $6.2 million in the same period last year. Additionally, during the first nine months of fiscal 2026, Midstream repaid a net $1.1 million compared to $255,000 during the same period in the prior year. Notes 6 and 7 provide details on the Company's line-of-credit and borrowing activity.

Previous wording

Resources issued a total of 67,503 shares of common stock resulting in net proceeds of approximately $1.4 million during the first six months of fiscal 2026, compared to issuing 59,986 shares of common stock resulting in net proceeds of approximately $1.2 million during the first six months of fiscal 2025. The ATM program was not utilized during either period.

Current wording

Resources issued a total of 79,947 shares of common stock resulting in net proceeds of approximately $1.7 million during the first nine months of fiscal 2026, compared to issuing 74,057 shares of common stock resulting in net proceeds of approximately $1.5 million during the first nine months of fiscal 2025. The ATM program was not utilized during either period.

Previous wording

Management regularly evaluates the Company’s liquidity through a review of its available financing resources and its cash flows. Roanoke Gas has a term note in the principal amount of $15 million coming due in August 2026. Management believes Roanoke Gas has access to sufficient financing resources to meet its cash requirements for the next year, including cash from operations, the line of credit and a private shelf facility. Roanoke Gas may also adjust capital spending as necessary, if such a need would arise.

Current wording

Management regularly evaluates the Company’s liquidity through a review of its available financing resources and its cash flows. On June 2, 2026, Roanoke Gas entered into an unsecured delayed-draw promissory note in the principal amount of $15 million. Under the provisions of the loan agreement, Roanoke Gas can draw the funds at any time through September 20, 2026. The Company intends to draw the full amount on August 20, 2026 and the proceeds will be used to repay a maturing note of equal amount. Management believes Roanoke Gas has access to sufficient financing resources to meet its cash requirements for the next year, including cash from operations, the line of credit and a private shelf facility. Roanoke Gas may also adjust capital spending as necessary, if such a need would arise.

Previous wording

Midstream's future cash requirements will relate to regular monthly operating expenses, debt service and capital contributions. The Company received two quarterly cash distributions from MVP in fiscal 2026 totaling approximately $1.4 million, and should receive similar quarterly distributions going forward. On September 5, 2025, Midstream established new amortizing term notes with two banks in the initial amounts of $38.6 million and $15 million, which refinanced and replaced all of Midstream's outstanding debt. The term notes mature on September 5, 2032. Also on September 5, 2025, Midstream entered into a new Loan Agreement for the MVP Southgate extension and MVP Boost expansion that can be drawn to principal amounts of $1.85 million and $3.65 million, respectively. These loans mature on September 5, 2030, at which time the outstanding principal balance on each note is due. With the establishment of the new term notes, Midstream's total debt principal payments over the succeeding 12 months is $2,846,018. Management believes that it will be able to meet Midstream's cash requirements over the ensuing 12-month period with availability on the Southgate and Boost revolving credit facilities and its quarterly cash distributions from MVP.

Current wording

Midstream's future cash requirements will relate to regular monthly operating expenses, debt service and capital contributions. Since MVP became operational, the Company has received quarterly Excess Cash Distributions, as defined in the agreements, that have averaged from $800,000 to $900,000. The Company expects future distributions to be of a similar magnitude. On September 5, 2025, Midstream established new amortizing term notes with two banks in the initial amounts of $38.6 million and $15 million, which refinanced and replaced all of Midstream's outstanding debt. The term notes mature on September 5, 2032. Also on September 5, 2025, Midstream entered into a new loan agreement for the MVP Southgate extension and MVP Boost expansion that can be drawn to principal amounts of $1.85 million and $3.65 million, respectively. These loans mature on September 5, 2030, at which time the outstanding principal balance on each note is due. Management believes that it will be able to meet Midstream's cash requirements over the ensuing 12-month period with availability on the Southgate and Boost revolving credit facilities and its quarterly cash distributions from MVP.

Previous wording

As of March 31, 2026, Resources' long-term capitalization ratio was 46% equity and 54% debt.

Current wording

As of June 30, 2026, Resources' long-term capitalization ratio was 45% equity and 55% debt.