10-Q 1 rgco20240630_10q.htm FORM 10-Q rgco20240630_10q.htm
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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form

10-Q

 

(Mark One)

 

☒ 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

For Quarterly Period Ended June 30, 2024

 

OR

 

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

For Transition Period From

to

 

 

Commission File Number 000-26591

 

RGC Resources, Inc.

(Exact name of Registrant as Specified in its Charter)

 

Virginia

54-1909697

(State or Other Jurisdiction of
Incorporation or Organization)

(I.R.S. Employer
Identification No.)

 

519 Kimball Ave., N.E., Roanoke, VA

24016

(Address of Principal Executive Offices)

(Zip Code)

 

(540) 777-4427

(Registrant’s Telephone Number, Including Area Code)

None

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

 

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Trading Symbol

Name of Each Exchange on Which Registered

Common Stock, $5 Par Value

RGCO

NASDAQ Global Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated-filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

☐

 

Accelerated filer

☐

Non-accelerated filer

☒

 

Smaller reporting company

☒

   

Emerging growth company

☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class

Outstanding at July 31, 2024

Common Stock, $5 Par Value

10,218,894

 

 
Table of Contents

 

 

INDEX

 

​

​

Page No.

​

​

​

PART I. FINANCIAL INFORMATION

​

​

​

Item 1.

Financial Statements

  

​

Condensed Consolidated Balance Sheets

1

​

 CONDENSED CONSOLIDATED STATEMENTS OF INCOME

3

​

 CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

4

​

 CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY 5
  CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 6

​

Notes to Condensed Consolidated Financial Statements

 7

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

26

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

36

Item 4.

Controls and Procedures

36

PART II. OTHER INFORMATION

Item 1.

Legal Proceedings

37

Item 1A.

Risk Factors

37

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

37

Item 3.

Defaults Upon Senior Securities

37

Item 4.

Mine Safety Disclosures

37

Item 5.

Other Information

37

Item 6.

Exhibits

38

Signatures

​

39

 ​

 
Table of Contents

 

 

GLOSSARY OF TERMS

 

AFUDC

Allowance for Funds Used During Construction
   

AOCI/AOCL

Accumulated Other Comprehensive Income (Loss)
   

ARO

Asset Retirement Obligation
   

ARP

Alternative Revenue Program, regulatory or rate recovery mechanisms approved by the SCC that allow for the adjustment of revenues for certain broad, external factors, or for additional billings if the entity achieves certain performance targets
   

ASC

Accounting Standards Codification
   

ASU

Accounting Standards Update as issued by the FASB
   
ATM At-the-market program whereby a Company can incrementally offer common stock through a broker at prevailing market prices and on an as-needed basis
   

Company

RGC Resources, Inc. or Roanoke Gas Company
   

COVID-19 or Coronavirus

 A pandemic disease that causes respiratory illness similar to the flu with symptoms such as coughing, fever, and in more severe cases, difficulty in breathing
   

CPCN

Certificate of Public Convenience and Necessity
   

Diversified Energy

Diversified Energy Company, a wholly-owned subsidiary of Resources
   

DRIP

Dividend Reinvestment and Stock Purchase Plan of RGC Resources, Inc.
   

DTH

Decatherm (a measure of energy used primarily to measure natural gas)
   

EPS

Earnings Per Share
   

ERISA

Employee Retirement Income Security Act of 1974
   

FASB

Financial Accounting Standards Board
   

FDIC

Federal Deposit Insurance Corporation
   
FERC Federal Energy Regulatory Commission
   
FRA Fiscal Responsibility Act of 2023, bi-partisan legislation containing certain provisions specific to the MVP
   
GAAP Generally Accepted Accounting Principles in the United States

 

 
Table of Contents

 

HDD

Heating degree day, a measurement designed to quantify the demand for energy. It is the number of degrees that a day’s average temperature falls below 65 degrees Fahrenheit

 

ICC

Inventory carrying cost revenue, an SCC approved rate structure that mitigates the impact of financing costs on natural gas inventory
   

IRS

Internal Revenue Service
   

KEYSOP

RGC Resources, Inc. Key Employee Stock Option Plan
   
LDI Liability Driven Investment approach, a strategy which reduces the volatility in the pension plan's funded status and expense by matching the duration of the fixed income investments with the duration of the corresponding pension liabilities
   

LIBOR

London Inter-Bank Offered Rate
   

LLC

Mountain Valley Pipeline, L.L.C., a joint venture established to design, construct and operate the MVP and Southgate
   

LNG

Liquefied natural gas, the cryogenic liquid form of natural gas. Roanoke Gas operates and maintains a plant capable of producing and storing up to 200,000 DTH of liquefied natural gas

 

MGP

Manufactured gas plant
   

Midstream

RGC Midstream, L.L.C., a wholly-owned subsidiary of Resources created to invest in pipeline projects including the MVP and Southgate
   

MVP

Mountain Valley Pipeline, a FERC-regulated natural gas pipeline project that connects the EQT Corporation's gathering and transmission system in northern West Virginia to the Transco interstate pipeline in south central Virginia with a planned interconnect to Roanoke Gas’ natural gas distribution system
   

NQDC Plan

RGC Resources, Inc. Non-qualified Deferred Compensation Plan
   

Normal Weather

The average number of heating degree days over the most recent 30-year period
   

PBGC

Pension Benefit Guaranty Corporation
   

Pension Plan

Defined benefit plan that provides pension benefits to employees hired prior to January 1, 2017 who meet certain years of service criteria
   
PGA Purchased Gas Adjustment, a regulatory mechanism, which adjusts natural gas customer rates to reflect changes in the forecasted cost of gas and actual gas costs
   
Postretirement Plan Defined benefit plan that provides postretirement medical and life insurance benefits to eligible employees hired prior to January 1, 2000 who meet years of service and other criteria
   
R&D credit Research and development federal tax credit defined under Internal Revenue Code section 41 and the related regulations

 

 
Table of Contents

 

Resources

RGC Resources, Inc., parent company of Roanoke Gas, Midstream and Diversified Energy
   

RGCO

Trading symbol for RGC Resources, Inc. on the NASDAQ Global Stock Market
   

Roanoke Gas

Roanoke Gas Company, a wholly-owned subsidiary of Resources
   
ROU Asset Right of Use Asset
   
RNG Renewable Natural Gas
   
RNG Rider

Renewable Natural Gas Rider, the rate component as approved by the SCC that is billed monthly to the Company’s customers to recover the costs associated with the investment in RNG facilities and related operating costs 
   

RSPD

RGC Resources, Inc. Restricted Stock Plan for Outside Directors
   

RSPO

RGC Resources, Inc. Restricted Stock Plan for Officers
   

SAVE

Steps to Advance Virginia's Energy, a regulatory mechanism per Chapter 26 of Title 56 of the Code of Virginia that allows natural gas utilities to recover the investment, including related depreciation and expenses and provide return on rate base, in eligible infrastructure replacement projects without the filing of a formal base rate application
   

SAVE Plan

Steps to Advance Virginia's Energy Plan, the Company's proposed and approved operational replacement plan and related spending under the SAVE regulatory mechanism
   

SAVE Rider

Steps to Advance Virginia's Energy Plan Rider, the rate component of the SAVE Plan as approved by the SCC that is billed monthly to the Company’s customers to recover the costs associated with eligible infrastructure projects including the related depreciation and expenses and return on rate base of the investment
   

SCC

Virginia State Corporation Commission, the regulatory body with oversight responsibilities of the utility operations of Roanoke Gas
   
SCOTUS Supreme Court of the United States
   

SEC

U.S. Securities and Exchange Commission
   
SOFR Secured Overnight Financing Rate
   

Southgate

Mountain Valley Pipeline, LLC’s Southgate project, which is a contemplated interstate pipeline that was approved by the FERC to extend from the MVP in south central Virginia to central North Carolina, of which Midstream holds less than a 1% investment
   

S&P 500 Index

Standard & Poor’s 500 Stock Index
   

WNA

Weather Normalization Adjustment, an ARP mechanism which adjusts revenues for the effects of weather temperature variations as compared to the 30-year average
   

Some of the terms above may not be included in this filing

 

 
Table of Contents
 

 

 

RGC RESOURCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 

  

June 30,

  

September 30,

 
  

2024

  

2023

 

ASSETS

        

CURRENT ASSETS:

        

Cash and cash equivalents

 $2,541,093  $1,512,431 

Accounts receivable (less allowance for credit losses of $444,369, and $155,164, respectively)

  5,229,249   4,194,934 

Materials and supplies

  1,666,342   1,674,462 

Gas in storage

  7,231,617   11,185,601 

Prepaid income taxes

  2,326,667   3,227,544 

Regulatory assets

  3,523,818   2,854,276 

Interest rate swaps

  1,239,879   1,533,057 

Other

  1,649,366   612,957 

Total current assets

  25,408,031   26,795,262 

UTILITY PROPERTY:

        

In service

  335,181,418   318,369,891 

Accumulated depreciation and amortization

  (91,218,942)  (85,752,798)

In service, net

  243,962,476   232,617,093 

Construction work in progress

  13,974,279   14,966,458 

Utility property, net

  257,936,755   247,583,551 

OTHER NON-CURRENT ASSETS:

        

Regulatory assets

  5,271,682   5,389,445 

Investment in unconsolidated affiliates

  20,175,659   17,187,093 

Benefit plan assets

  1,687,894   1,901,902 

Deferred income taxes

  1,004,415   1,163,594 

Interest rate swaps

  1,996,748   3,084,398 

Other

  672,976   624,095 

Total other non-current assets

  30,809,374   29,350,527 

TOTAL ASSETS

 $314,154,160  $303,729,340 

 

1
Table of Contents

 

 

RGC RESOURCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 

  

June 30,

  

September 30,

 
  

2024

  

2023

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

        

CURRENT LIABILITIES:

        

Current maturities of long-term debt

 $400,000  $10,975,000 

Line-of-credit

  7,615,825   4,353,572 

Dividends payable

  2,038,956   1,978,400 

Accounts payable

  6,791,934   5,838,643 

Customer credit balances

  1,075,453   1,972,132 

Customer deposits

  1,586,618   1,476,321 

Accrued expenses

  3,524,073   4,661,722 

Regulatory liabilities

  718,331   1,632,716 

Other

  31,366   30,281 

Total current liabilities

  23,782,556   32,918,787 

LONG-TERM DEBT:

        

Notes payable

  136,615,000   126,100,000 

Unamortized debt issuance costs

  (303,652)  (255,272)

Long-term debt, net

  136,311,348   125,844,728 

DEFERRED CREDITS AND OTHER NON-CURRENT LIABILITIES:

        

Asset retirement obligations

  11,027,988   10,792,831 

Regulatory cost of retirement obligations

  14,036,454   13,029,376 

Benefit plan liabilities

  328,902   47,674 

Deferred income taxes

  1,914,471   2,008,458 

Regulatory liabilities

  17,587,869   18,031,693 

Other

  396,780   323,168 

Total deferred credits and other non-current liabilities

  45,292,464   44,233,200 

STOCKHOLDERS’ EQUITY:

        

Common stock, $5 par; authorized 20,000,000 shares; issued and outstanding 10,193,160 and 10,015,254 shares, respectively

  50,965,800   50,076,270 

Preferred stock, no par, authorized 5,000,000 shares; no shares issued and outstanding

  —   — 

Capital in excess of par value

  47,053,931   44,430,786 

Retained earnings

  9,484,498   3,972,280 

Accumulated other comprehensive income

  1,263,563   2,253,289 

Total stockholders’ equity

  108,767,792   100,732,625 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 $314,154,160  $303,729,340 

 

See notes to condensed consolidated financial statements.

 

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RGC RESOURCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

 

   

Three Months Ended June 30,

    

Nine Months Ended June 30,

  
   

2024

    

2023

    

2024

    

2023

  

OPERATING REVENUES:

                                

Gas utility

   $ 14,431,379     $ 13,631,856     $ 71,455,564     $ 84,885,600  

Non utility

     26,823       28,389       81,366       86,637  

Total operating revenues

     14,458,202       13,660,245       71,536,930       84,972,237  

OPERATING EXPENSES:

                                

Cost of gas - utility

     5,344,684       5,003,371       30,741,090       47,092,581  

Cost of sales - non utility

     4,567       4,724       16,421       13,997  

Operations and maintenance

     4,221,661       3,845,377       13,879,513       11,856,618  

General taxes

     631,990       588,767       1,967,446       1,816,046  

Depreciation and amortization

     2,697,707       2,419,541       8,093,121       7,258,623  

Total operating expenses

     12,900,609       11,861,780       54,697,591       68,037,865  

OPERATING INCOME

     1,557,593       1,798,465       16,839,339       16,934,372  

Equity in earnings of unconsolidated affiliate

     282,604       519,482       2,979,823       523,581  

Other income (expense), net

     (69,349 )     6,725       140,924       203,155  

Interest expense

     1,567,093       1,423,566       4,769,979       4,188,592  

INCOME BEFORE INCOME TAXES

     203,755       901,106       15,190,107       13,472,516  

INCOME TAX EXPENSE

     47,063       214,290       3,570,033       3,187,409  

NET INCOME

   $ 156,692     $ 686,816     $ 11,620,074     $ 10,285,107  

BASIC EARNINGS PER COMMON SHARE

   $ 0.02     $ 0.07     $ 1.15     $ 1.04  

DILUTED EARNINGS PER COMMON SHARE

   $ 0.02     $ 0.07     $ 1.15     $ 1.04  

 

See notes to condensed consolidated financial statements.

 

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RGC RESOURCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

 

   

Three Months Ended June 30,

    

Nine Months Ended June 30,

  
   

2024

    

2023

    

2024

    

2023

  

NET INCOME

   $ 156,692     $ 686,816     $ 11,620,074     $ 10,285,107  

Other comprehensive income (loss), net of tax:

                                

Interest rate swaps

     (199,217 )     461,130       (1,025,405 )     (227,325 )

Defined benefit plans

     11,893       14,631       35,679       43,893  

OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX

     (187,324 )     475,761       (989,726 )     (183,432 )

COMPREHENSIVE INCOME (LOSS)

   $ (30,632 )   $ 1,162,577     $ 10,630,348     $ 10,101,675  

 

See notes to condensed consolidated financial statements.

 

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RGC RESOURCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(UNAUDITED)

 

  

Nine Months Ended June 30, 2024

 
  

Common Stock

  

Capital in Excess of Par Value

  

Retained Earnings

  

Accumulated Other Comprehensive Income (Loss)

  

Total Stockholders' Equity

 

Balance - September 30, 2023

 $50,076,270  $44,430,786  $3,972,280  $2,253,289  $100,732,625 

Net income

  —   —   5,019,992   —   5,019,992 

Other comprehensive loss

  —   —   —   (1,013,827)  (1,013,827)

Cash dividends declared ($0.20 per share)

  —   —   (2,032,679)  —   (2,032,679)

Net issuance of common stock (44,367 shares)

  221,835   616,657   —   —   838,492 

Balance - December 31, 2023

 $50,298,105  $45,047,443  $6,959,593  $1,239,462  $103,544,603 

Net income

  —   —   6,443,390   —   6,443,390 

Other comprehensive income

  —   —   —   211,425   211,425 

Cash dividends declared ($0.20 per share)

  —   —   (2,036,221)  —   (2,036,221)

Issuance of common stock (119,858 shares)

  599,290   1,781,375   —   —   2,380,665 

Balance - March 31, 2024

 $50,897,395  $46,828,818  $11,366,762  $1,450,887  $110,543,862 

Net income

  —   —   156,692   —   156,692 

Other comprehensive loss

  —   —   —   (187,324)  (187,324)

Cash dividends declared ($0.20 per share)

  —   —   (2,038,956)  —   (2,038,956)

Issuance of common stock (13,681 shares)

  68,405   225,113   —   —   293,518 

Balance - June 30, 2024

 $50,965,800  $47,053,931  $9,484,498  $1,263,563  $108,767,792 

 

 

 

  

Nine Months Ended June 30, 2023

 
  

Common Stock

  

Capital in Excess of Par Value

  

Retained Earnings

  

Accumulated Other Comprehensive Income (Loss)

  

Total Stockholders' Equity

 

Balance - September 30, 2022

 $49,102,675  $41,479,459  $544,158  $1,964,364  $93,090,656 

Net income

  —   —   3,256,405   —   3,256,405 

Other comprehensive loss

  —   —   —   (168,667)  (168,667)

Cash dividends declared ($0.1975 per share)

  —   —   (1,957,369)  —   (1,957,369)

Net issuance of common stock (31,245 shares)

  156,225   512,757   —   —   668,982 

Balance - December 31, 2022

 $49,258,900  $41,992,216  $1,843,194  $1,795,697  $94,890,007 

Net income

  —   —   6,341,886   —   6,341,886 

Other comprehensive loss

  —   —   —   (490,526)  (490,526)

Cash dividends declared ($0.1975 per share)

  —   —   (1,960,156)  —   (1,960,156)

Issuance of common stock (71,567 shares)

  357,835   1,139,362   —   —   1,497,197 

Balance - March 31, 2023

 $49,616,735  $43,131,578  $6,224,924  $1,305,171  $100,278,408 

Net income

  —   —   686,816   —   686,816 

Other comprehensive income

  —   —   —   475,761   475,761 

Cash dividends declared ($0.1975 per share)

  —   —   (1,975,236)  —   (1,975,236)

Issuance of common stock (75,088 shares)

  375,440   1,106,624   —   —   1,482,064 

Balance - June 30, 2023

 $49,992,175  $44,238,202  $4,936,504  $1,780,932  $100,947,813 

 

See notes to condensed consolidated financial statements.

 

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RGC RESOURCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

 

   

Nine Months Ended June 30,

  
   

2024

    

2023

  

CASH FLOWS FROM OPERATING ACTIVITIES:

                

Net income

   $ 11,620,074     $ 10,285,107  

Adjustments to reconcile net income to net cash provided by operating activities:

                

Depreciation and amortization

     8,285,761       7,431,251  

Cost of retirement of utility property

     (485,165 )     (627,225 )

Amortization of stock option grants

     51,500       21,560  

Equity in earnings of unconsolidated affiliate

     (2,979,823 )     (523,581 )

Allowance for funds used during construction

     —       (184,619 )

Changes in assets and liabilities which provided cash, exclusive of changes and noncash transactions shown separately

     563,839       7,231,786  

Net cash provided by operating activities

     17,056,186       23,634,279  

CASH FLOWS FROM INVESTING ACTIVITIES:

                

Expenditures for utility property

     (16,568,542 )     (19,368,974 )

Investment in unconsolidated affiliates

     (8,743 )     (2,132,679 )

Proceeds from disposal of utility property

     33,023       37,674  

Net cash used in investing activities

     (16,544,262 )     (21,463,979 )

CASH FLOWS FROM FINANCING ACTIVITIES:

                

Proceeds from issuance of unsecured notes

     10,115,000       1,103,800  

Repayments of notes payable

     (10,175,000 )     (775,000 )

Borrowings under line-of-credit

     34,622,405       26,946,775  

Repayments under line-of-credit

     (31,360,152 )     (26,946,775 )

Debt issuance expenses

     (99,390 )     (10,749 )

Proceeds from issuance of stock

     3,461,175       3,626,683  

Cash dividends paid

     (6,047,300 )     (5,832,842 )

Net cash provided by (used in) financing activities

     516,738       (1,888,108 )

NET INCREASE IN CASH AND CASH EQUIVALENTS

     1,028,662       282,192  

BEGINNING CASH AND CASH EQUIVALENTS

     1,512,431       4,898,914  

ENDING CASH AND CASH EQUIVALENTS

   $ 2,541,093     $ 5,181,106  

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

                

Cash paid during the period for:

                

Interest

   $ 4,604,431     $ 4,333,580  

Income taxes

     2,640,000       1,623,145  

 

See notes to condensed consolidated financial statements.

 

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RGC RESOURCES, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

 

1.

Basis of Presentation

 

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 the nine months ended June 30, 2024 and 2023, and the results of its operations, comprehensive income, and changes in stockholders' equity for the three and nine months ended June 30, 2024 and 2023. The results of operations for the three and nine months ended June 30, 2024 are not 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 Form 10-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 Form 10-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 March and May 2024, Midstream refinanced nearly $32 million of long-term debt that was scheduled to mature in fiscal 2024 and fiscal 2025.  See Notes 6 and 7 for a discussion of these transactions.  In the future, there may be circumstances where such refinancing is not entirely within the Company's control and disclosure under ASU 2014-15 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 Note 1 to the consolidated financial statements contained in the Company's Form 10-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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RGC RESOURCES, INC. AND SUBSIDIARIES

 

Recently Issued or Adopted Accounting Standards

 

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting. In combination with ASU 2021-01 and ASU 2022-06, 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 for one-day, one-month, six-month and one-year would cease publication in June 2023 and that no new financial contracts may use LIBOR after December 31, 2021. Subsequent to June 30, 2023, the one-day, one-month, six-month, and one-year LIBOR settings will continue to be published under an unrepresentative synthetic methodology until the end of September 2024 in 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 Note 7 and Note 9 for more information. 

 

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280) - 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, 2023 and interim periods within fiscal years beginning after December 31, 2024.  

 

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): 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 than 5 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 does not expect certain requirements of this ASU to have a significant impact to its current disclosures as all of its operations are domestic and reside in two 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 in 2027 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 are not currently applicable to the Company or are not expected to have a material impact on the Company’s financial position, results of operations or cash flows.

 

 

2.

Revenue

 

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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RGC RESOURCES, INC. AND SUBSIDIARIES

 

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

 

  

Three Months Ended June 30, 2024

  

Three Months Ended June 30, 2023

 
  

Gas utility

  

Non utility

  

Total operating revenues

  

Gas utility

  

Non utility

  

Total operating revenues

 

Natural Gas (Billed and Unbilled):

                        

Residential

 $7,333,332  $—  $7,333,332  $7,405,959  $—  $7,405,959 

Commercial

  4,706,086   —   4,706,086   4,459,667   —   4,459,667 

Transportation and interruptible

  1,317,890   —   1,317,890   1,354,678   —   1,354,678 

Other

  168,514   26,823   195,337   170,160   28,389   198,549 

Total contracts with customers

  13,525,822   26,823   13,552,645   13,390,464   28,389   13,418,853 

Alternative revenue programs

  905,557   —   905,557   241,392   —   241,392 

Total operating revenues

 $14,431,379  $26,823  $14,458,202  $13,631,856  $28,389  $13,660,245 

 

  

Nine Months Ended June 30, 2024

  

Nine Months Ended June 30, 2023

 
  

Gas utility

  

Non utility

  

Total operating revenues

  

Gas utility

  

Non utility

  

Total operating revenues

 

Natural Gas (Billed and Unbilled):

                        

Residential

 $40,001,039  $—  $40,001,039  $48,148,235  $—  $48,148,235 

Commercial

  22,946,163   —   22,946,163   28,502,754   —   28,502,754 

Transportation and interruptible

  4,047,151   —   4,047,151   4,508,997   —   4,508,997 

Other

  653,571   81,366   734,937   855,079   86,637   941,716 

Total contracts with customers

  67,647,924   81,366   67,729,290   82,015,065   86,637   82,101,702 

Alternative revenue programs

  3,807,640   —   3,807,640   2,870,535   —   2,870,535 

Total operating revenues

 $71,455,564  $81,366  $71,536,930  $84,885,600  $86,637  $84,972,237 

 

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 ASC 606, 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 due 20 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 is no variable consideration in the transaction price.

 

 

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RGC RESOURCES, INC. AND SUBSIDIARIES

 

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 revenues not 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 and no variable price consideration exists.

 

Alternative revenue program revenues

 

ARPs, which fall outside the scope of ASC 606, 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 the 30-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 are not related to customers. The balances of customer receivables are provided below:

 

  

Current Assets

  

Current Liabilities

 
  

Trade accounts receivable(1)

  

Unbilled revenue(1)

  

Customer credit balances

  

Customer deposits

 

Balance at September 30, 2023

 $2,782,025  $1,240,097  $1,972,132  $1,476,321 

Balance at June 30, 2024

  3,783,662   1,423,346   1,075,453   1,586,618 

Increase (decrease)

 $1,001,637  $183,249  $(896,679) $110,297 

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

 

The Company had no significant contract assets or liabilities during the period. Furthermore, the Company did not incur any significant costs to obtain contracts.

 

 

3.

Segment Information

 

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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RGC RESOURCES, INC. AND SUBSIDIARIES

 

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:

 

  

Three Months Ended June 30, 2024

 
  

Gas Utility

  

Investment in Affiliates

  

Parent and Other

  

Consolidated Total

 

Operating revenues

 $14,431,379  $—  $26,823  $14,458,202 

Depreciation

  2,697,707   —   —   2,697,707 

Operating income (loss)

  1,574,375   (37,692)  20,910   1,557,593 

Equity in earnings

  —   282,604   —   282,604 

Interest expense

  868,000   699,093   —   1,567,093 

Income (loss) before income taxes

  637,332   (454,462)  20,885   203,755 

 

  

Three Months Ended June 30, 2023

 
  

Gas Utility

  

Investment in Affiliates

  

Parent and Other

  

Consolidated Total

 

Operating revenues

 $13,631,856  $—  $28,389  $13,660,245 

Depreciation

  2,419,541   —   —   2,419,541 

Operating income (loss)

  1,839,910   (63,766)  22,321   1,798,465 

Equity in earnings

  —   519,482   —   519,482 

Interest expense

  808,384   615,182   —   1,423,566 

Income (loss) before income taxes

  1,039,212   (160,402)  22,296   901,106 

 

  

Nine Months Ended June 30, 2024

 
  

Gas Utility

  

Investment in Affiliates

  

Parent and Other

  

Consolidated Total

 

Operating revenues

 $71,455,564  $—  $81,366  $71,536,930 

Depreciation

  8,093,121   —   —   8,093,121 

Operating income (loss)

  16,884,683   (106,380)  61,036   16,839,339 

Equity in earnings

  —   2,979,823   —   2,979,823 

Interest expense

  2,748,741   2,021,238   —   4,769,979 

Income before income taxes

  14,277,365   851,777   60,965   15,190,107 

 

  

Nine Months Ended June 30, 2023

 
  

Gas Utility

  

Investment in Affiliates

  

Parent and Other

  

Consolidated Total

 

Operating revenues

 $

84,885,600

  $

—

  $

86,637

  $

84,972,237

 

Depreciation

  

7,258,623

   

—

   

—

   

7,258,623

 

Operating income (loss)

  

17,034,575

   

(169,217)

   

69,014

   

16,934,372

 

Equity in earnings

  

—

   

523,581

   

—

   

523,581

 

Interest expense

  

2,441,296

   

1,747,296

   

—

   

4,188,592

 

Income (loss) before income taxes

  

14,798,527

   

(1,394,950)

   

68,939

   

13,472,516

 

 

  

June 30, 2024

 
  

Gas Utility

  

Investment in Affiliates

  

Parent and Other

  

Consolidated Total

 

Total assets

 $274,432,384  $20,418,572  $19,303,204  $314,154,160 

 

  

September 30, 2023

 
  

Gas Utility

  

Investment in Affiliates

  

Parent and Other

  

Consolidated Total

 

Total assets

 $268,664,460  $17,882,108  $17,182,772  $303,729,340 

 

11
Table of Contents
 

RGC RESOURCES, INC. AND SUBSIDIARIES

 
 

4.

Rates and Regulatory Matters

 

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

 

The SCC requires regulated utilities within the state to perform a depreciation study every five 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 in 2019.  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 fiscal 2024, as the new depreciation rates are effective retroactive to October 1, 2023.  This adjustment to depreciation expense will be reflected in the fourth quarter of fiscal 2024. 

 

On December 2, 2022, Roanoke Gas filed an expedited rate application with the SCC seeking an $8.55 million annual increase in its non-gas base rates, of which $4.05 million was being recovered through the SAVE Rider.  The proposed interim rates went into effect January 1, 2023, subject to refund.  In the fourth quarter of fiscal 2023, the Company reached a settlement with the SCC staff on all outstanding issues in the case.  Under the terms of the settlement, the Company agreed to an annual incremental revenue requirement of $7.45 million. The Company began billing the approved rates effective October 1, 2023. The SCC issued its Final Order in the matter on December 19, 2023 in which it approved the settlement agreement in its entirety.  Refunds, which had previously been accrued, were made to customers in February 2024.

 

On August 31, 2023, the SCC approved the Company's new SAVE Plan and Rider with rates effective October 1, 2023.  Under this plan, Roanoke Gas can recover costs associated with an estimated $8.5 million in SAVE eligible investment in fiscal 2024 and an estimated cumulative investment of $49.5 million over the proposed five-year plan period ending September 30, 2028.  The plan was approved with a revenue requirement of approximately $366,000 for fiscal 2024.  On June 28, 2024, Roanoke Gas filed for approval of an updated annual SAVE Rider rate to become effective October 1, 2024.   The proposed SAVE rate is based on an estimated $9.13 million of SAVE eligible investment during fiscal 2025 which results in a revenue requirement of $1.53 million.  The Company expects a Final Order from the SCC in September 2024.

 

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

 

12
 
 

RGC RESOURCES, INC. AND SUBSIDIARIES

 

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

 
 

5.

Other Investments

 

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 in 2022.  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, and no impairment indicators were identified in fiscal 2023 or fiscal 2024 to date.

 

Funding for Midstream's investments has been provided through equity contributions from Resources and unsecured promissory notes as detailed in Note 7.

 

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

 

Balance Sheet location:

 

June 30, 2024

  

September 30, 2023

 

Other Assets:

        

MVP

 $20,076,299  $17,096,476 

Southgate

  99,360   90,617 

Investment in unconsolidated affiliates

 $20,175,659  $17,187,093 

 

  

Three Months Ended June 30,

  

Nine Months Ended June 30,

 

Income Statement location:

  2024   2023   2024   2023 

Equity in earnings of unconsolidated affiliate

 $282,604  $519,482  $