Financial Data and Key Metrics Changes - For Q4 2022, operating income was $455,000, approximately $100,000 less than Q4 2021, while total operating income for the year was $14,916,000, which is $137,000 higher than 2021 [13][14] - Interest expense increased by approximately $466,000 due to higher debt balances and increased interest rates on variable rate debt [15] - Underlying net income for Q4 was a $75,000 net loss, while for the year it was $9,179,000, with declines attributed to limited growth in construction activity of the Mountain Valley Pipeline [17] Business Line Data and Key Metrics Changes - Delivered volumes for Q4 were up approximately 181,000 dekatherms, a 14% increase compared to Q4 2021, primarily driven by industrial customers [9] - Total delivered volumes for the year were approximately 4% higher than fiscal 2021, despite a 6% decline in heating degree days [11] - Capital expenditures for utility property totaled $25,461,000 for the fiscal year, an increase of approximately 27.5% over the prior year [18] Market Data and Key Metrics Changes - The decline in weather-related deliveries to residential customers was offset by increased industrial transportation volumes, with six of the top seven customers by volume increasing their usage over 2021 [11] - The company expects reasonable volumes from industrial customers through the winter months, although a slight decrease is anticipated compared to the previous year [39] Company Strategy and Development Direction - The company is focused on the RNG project, which is expected to add about $7.7 million to the rate base, with operational service expected in the second quarter of the fiscal year [25][23] - The company plans to continue investments in infrastructure and customer growth, with approximately $3.2 million allocated for the RNG project in fiscal 2023 [28] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism regarding the RNG project and its partnership with Western Virginia Water Authority, anticipating a positive impact on future revenues [28] - The company forecasts a loss in the midstream subsidiary for fiscal 2023 due to financing costs, while expecting strong results from Roanoke Gas [30] Other Important Information - The company has filed a rate case requesting an incremental revenue of about $4.4 million, with rates expected to take effect on an interim basis starting January 2023 [26] - The dividend has been slightly increased to an implied annual rate of $0.79 per share, with a payout ratio in the 85% to 95% range [32] Q&A Session Summary Question: Expected carrying costs for MVP in fiscal '23 - Management expects pretax costs to be in the $2 million to $2.2 million range for the fiscal year [37] Question: Volumes from industrial customers through winter months - Management anticipates reasonable volumes from the industrial customer, with some seasonal slowdowns expected [39] Question: Dynamic of coal and gas switching in the market - Management noted that while there was a significant switch from coal to gas in fiscal 2022, a blend of coal may be used in 2023 due to more predictable commodity prices [41]

[GLOSSARY OF TERMS](index=5&type=section&id=Glossary) The glossary defines key terms and acronyms crucial for understanding the company's operations and financial disclosures - The glossary defines key terms and acronyms used throughout the report, such as **AFUDC** (Allowance for Funds Used During Construction), **MVP** (Mountain Valley Pipeline), **SCC** (Virginia State Corporation Commission), and **WNA** (Weather Normalization Adjustment), which are crucial for understanding the company's operations and financial disclosures[12](index=12&type=chunk)[13](index=13&type=chunk)[15](index=15&type=chunk)[16](index=16&type=chunk)[17](index=17&type=chunk) [Cautionary Note Regarding Forward Looking Statements](index=10&type=section&id=Cautionary%20Note%20Regarding%20Forward%20Looking%20Statements) This section advises on forward-looking statements, subject to risks detailed in 'Risk Factors', with no duty to update unless legally required - This section advises readers that the report contains forward-looking statements based on management's current expectations, which are subject to various risks and uncertainties detailed in Item 1A 'Risk Factors'[18](index=18&type=chunk) - The company explicitly states it assumes no duty to update these statements unless required by law[19](index=19&type=chunk) PART I [Item 1. Business](index=11&type=section&id=Item%201.%20Business) RGC Resources, Inc. is an energy services company primarily engaged in regulated natural gas distribution and sale, with an investment in the Mountain Valley Pipeline project - RGC Resources, Inc. was incorporated in Virginia on July 31, 1998, and its subsidiaries were reorganized into a holding company structure effective July 1, 1999[21](index=21&type=chunk) - The company is composed of three subsidiaries: Roanoke Gas (natural gas distribution), Midstream (investor in Mountain Valley Pipeline, LLC), and Diversified Energy (currently inactive)[21](index=21&type=chunk)[22](index=22&type=chunk)[23](index=23&type=chunk) - Roanoke Gas's principal service is the distribution and sale of natural gas to residential, commercial, and industrial customers in Roanoke, Virginia, and surrounding localities, accounting for over **99% of consolidated revenues**[22](index=22&type=chunk)[25](index=25&type=chunk) Customer, Volume, Revenue, and Margin Breakdown (2022 vs. 2021) | Category | 2022 Customers | 2022 Volume | 2022 Revenue | 2022 Margin | 2021 Customers | 2021 Volume | 2021 Revenue | 2021 Margin | | :--------- | :------------- | :---------- | :----------- | :---------- | :------------- | :---------- | :----------- | :---------- | | Residential | 91.3% | 35% | 57% | 63% | 91.3% | 37% | 58% | 63% | | Commercial | 8.6% | 29% | 35% | 24% | 8.6% | 31% | 34% | 25% | | Industrial | 0.1% | 36% | 7% | 11% | 0.1% | 32% | 7% | 11% | | Other Utility | 0.0% | 0% | 1% | 2% | 0.0% | 0% | 1% | 1% | | Other Non-Utility | 0.0% | 0% | 0% | 0% | 0.0% | 0% | 0% | 0% | | **Total Percent** | **100.0%** | **100.0%** | **100.0%** | **100.0%** | **100.0%** | **100.0%** | **100.0%** | **100.0%** | | **Total Value** | **62,001** | **10,325,336 DTH** | **$84,165,222** | **$41,640,041** | **62,623** | **9,909,529 DTH** | **$75,174,779** | **$39,969,380** | - The company operates in a regulated, monopolistic environment with exclusive franchises in its service areas, but faces competition from other energy sources like electricity, propane, coal, wind, and solar[33](index=33&type=chunk)[36](index=36&type=chunk) - As of September 30, 2022, Resources had **96 full-time employees**[41](index=41&type=chunk) - The collective bargaining agreement with the Union expired on August 1, 2022, and the Union disclaimed interest in serving as the exclusive representative[41](index=41&type=chunk) [Item 1A. Risk Factors](index=17&type=section&id=Item%201A.%20Risk%20Factors) The company faces broad operational, regulatory, and financial risks, including pipeline reliance, cybersecurity, price volatility, and MVP project uncertainties - Operational risks include dependence on two interstate pipelines for **100% of natural gas supply**, potential for service disruption from system failures or catastrophic events, and vulnerability to cyber-attacks[47](index=47&type=chunk)[48](index=48&type=chunk)[49](index=49&type=chunk) - Volatility in natural gas prices, supply disruptions due to disasters, inability to attract and retain skilled employees, and failure of technology systems are also significant operational risks[51](index=51&type=chunk)[53](index=53&type=chunk)[54](index=54&type=chunk)[55](index=55&type=chunk) - Regulatory risks encompass new environmental laws (especially related to climate change and greenhouse gas emissions), increased compliance and pipeline safety requirements, and the potential for delayed or unfavorable rate relief from the SCC[61](index=61&type=chunk)[62](index=62&type=chunk)[63](index=63&type=chunk) - Financial risks are heavily influenced by the investment in Mountain Valley Pipeline, LLC, which incurred a total pre-tax impairment loss of **$55.1 million** in fiscal 2022 due to legal and regulatory setbacks and increased uncertainty[68](index=68&type=chunk)[69](index=69&type=chunk) - Other financial risks include access to capital, compliance with debt covenants, rising costs of healthcare and post-retirement benefits, exposure to market risks (commodity price, interest rates), and the potential negative impacts of a pandemic outbreak or general economic downturn[77](index=77&type=chunk)[78](index=78&type=chunk)[79](index=79&type=chunk)[83](index=83&type=chunk)[84](index=84&type=chunk)[90](index=90&type=chunk) [Item 1B. Unresolved Staff Comments](index=29&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reported no unresolved staff comments from the SEC - There are no unresolved staff comments[93](index=93&type=chunk) [Item 2. Properties](index=29&type=section&id=Item%202.%20Properties) The company's properties include 1,168 miles of natural gas pipelines, six metering stations, and a 200,000 DTH LNG storage facility - Utility property includes approximately **1,168 miles of transmission and distribution pipeline**, representing **89% of total utility property investment**[94](index=94&type=chunk) - Roanoke Gas owns and operates six metering stations and a liquefied natural gas (LNG) storage facility capable of storing up to **200,000 DTH**[95](index=95&type=chunk) - The company's executive, accounting, business offices, and maintenance departments are located on Kimball Avenue in Roanoke, Virginia[96](index=96&type=chunk) [Item 3. Legal Proceedings](index=29&type=section&id=Item%203.%20Legal%20Proceedings) The company is not currently a party to any pending legal proceedings - The Company is not known to be a party to any pending legal proceedings[96](index=96&type=chunk) [Item 4. Mine Safety Disclosures](index=29&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) Mine safety disclosures are not applicable to the company's operations - Mine Safety Disclosures are not applicable[97](index=97&type=chunk) PART II [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=30&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) RGC Resources common stock trades on NASDAQ, with dividends determined by the Board, and equity compensation plans in place for future issuance - Resources' common stock is listed on the NASDAQ Global Market under the trading symbol **RGCO**[100](index=100&type=chunk) - As of November 18, 2022, there were **992 holders of record** of the Company's common stock[101](index=101&type=chunk) Common Stock Dividends Declared and Market Prices | Year Ending September 30, 2022 | High ($) | Low ($) | Cash Dividends Declared ($) | | :----------------------------- | :--- | :-- | :---------------------- | | First Quarter | $25.00 | $21.32 | $0.195 | | Second Quarter | $23.84 | $20.25 | $0.195 | | Third Quarter | $22.00 | $18.01 | $0.195 | | Fourth Quarter | $23.35 | $19.18 | $0.195 | | **Year Ending September 30, 2021** | | | | | First Quarter | $27.40 | $22.82 | $0.185 | | Second Quarter | $25.60 | $22.08 | $0.185 | | Third Quarter | $25.60 | $21.32 | $0.185 | | Fourth Quarter | $26.02 | $22.33 | $0.185 | Equity Compensation Plan Summary (September 30, 2022) | Plan Category | Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights | Weighted Average Exercise Price of Outstanding Options, Warrants and Rights ($) | Number of Securities Remaining Available for Future Issuance | | :--------------------------------------------- | :---------------------------------------------------------------------------------------- | :-------------------------------------------------------------------------- | :----------------------------------------------------------- | | Equity compensation plans approved by security holders | 34,500 | $18.69 | 411,547 | | Equity compensation plans not approved by security holders | — | — | — | | **Total** | **34,500** | **$18.69** | **411,547** | [Item 6. [Reserved]](index=30&type=section&id=Item%206.%20%5BReserved%5D) This item is reserved and contains no information - Item 6 is reserved[102](index=102&type=chunk) [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=31&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) The company reported a significant net loss in fiscal 2022 due to a **$55.1 million** MVP impairment, while utility operations saw increased gross margin and regulatory activity - Resources is primarily engaged in the regulated sale and distribution of natural gas to approximately **62,000 customers** through its Roanoke Gas subsidiary[103](index=103&type=chunk) - Midstream, a wholly-owned subsidiary, is a more than **1% investor** in the MVP and a less than **1% investor** in Southgate[103](index=103&type=chunk) - The company recorded a total pre-tax impairment of **$55.1 million** on its investment in the Mountain Valley Pipeline (MVP) in fiscal 2022 due to increased uncertainty regarding its completion and commercial operation, following unfavorable Fourth Circuit decisions[104](index=104&type=chunk) - Roanoke Gas's utility operations are regulated by the SCC, with rates designed to recover costs and provide a reasonable return, utilizing mechanisms like **SAVE Rider**, **WNA**, **ICC**, and **PGA** to mitigate weather volatility and gas price fluctuations[105](index=105&type=chunk)[107](index=107&type=chunk)[108](index=108&type=chunk) [Overview](index=31&type=section&id=Overview) The company recorded a **$55.1 million** MVP impairment in fiscal 2022, while Roanoke Gas utility operations are regulated by the SCC with various rate mechanisms - The company recorded a total pre-tax impairment of **$55.1 million** on its investment in the Mountain Valley Pipeline (MVP) in fiscal 2022 due to increased uncertainty regarding its completion and commercial operation, following unfavorable Fourth Circuit decisions[104](index=104&type=chunk) - Roanoke Gas's utility operations are regulated by the SCC, with rates designed to recover costs and provide a reasonable return, utilizing mechanisms like **SAVE Rider**, **WNA**, **ICC**, and **PGA** to mitigate weather volatility and gas price fluctuations[105](index=105&type=chunk)[107](index=107&type=chunk)[108](index=108&type=chunk) Alternative Revenue Program (ARP) Revenues (2022 vs. 2021) | ARP Mechanism | Fiscal Year 2022 Revenue ($) | Fiscal Year 2021 Revenue ($) | Change ($) | | :-------------- | :----------------------- | :----------------------- | :----- | | SAVE Rider | $3,286,000 | $2,487,000 | +$799,000 | | WNA | $1,973,000 | $1,196,000 | +$777,000 | | ICC | $657,000 | $396,000 | +$261,000 | [COVID-19](index=35&type=section&id=COVID-19) COVID-19 impacts shifted to supply chain disruptions and inflation, with most restrictions eased and commercial natural gas consumption returning to pre-pandemic levels - COVID-19 impacts shifted from quarantines to supply chain disruptions, labor shortages, and inflation, though most restrictions have eased, allowing a return to mostly normal operating conditions[115](index=115&type=chunk) - Natural gas consumption by commercial customers has largely returned to pre-pandemic levels[115](index=115&type=chunk) - Roanoke Gas expensed **$57,000** and **$217,000** in COVID-19 related deferred costs in fiscal 2022 and 2021, respectively, as earnings exceeded the authorized return on equity[114](index=114&type=chunk)[170](index=170&type=chunk) [Cyber Risk](index=35&type=section&id=Cyber%20Risk) The company actively monitors and safeguards its IT systems against constant cyber threats, with security measures and cyber insurance in place - The company faces constant cyber threats and is committed to safeguarding its information technology systems, which contain confidential customer, vendor, and employee information[117](index=117&type=chunk) - Management continuously monitors system access and has security measures in place, including a Security Incident Response Plan and cyber insurance, to mitigate financial impacts from potential cyber incidents[117](index=117&type=chunk) [Inflation and Rising Prices](index=35&type=section&id=Inflation%20and%20Rising%20Prices) Rising natural gas and non-gas expenses are managed through regulatory mechanisms, with a non-gas rate application planned to address cost recovery lags - Natural gas commodity, delivery, and storage capacity costs represent **61% of fiscal 2022 total operating expenses**, with prices increasing sharply in the fiscal third and fourth quarters[118](index=118&type=chunk) - Roanoke Gas can recover rising natural gas costs through the **PGA mechanism**, but the timing of recovery may lag during periods of rapid increases[118](index=118&type=chunk) - Inflation also affects non-gas expenses (labor, benefits, materials), which are recovered through non-gas tariff rates, leading to an inherent lag in recovery[119](index=119&type=chunk) - Management plans to file a non-gas rate application in early December 2022 to incorporate increased expense levels and additional rate base[120](index=120&type=chunk) [Results of Operations](index=37&type=section&id=Results%20of%20Operations) Net income decreased significantly to a **$31.7 million** net loss in fiscal 2022, primarily due to the MVP impairment, despite increased gross utility margin - Net income decreased by **$41,834,664** to a net loss of **$31,732,602** for the year ended September 30, 2022, primarily due to the impairment of the LLC investment and lower equity in earnings[121](index=121&type=chunk) - Gross utility margin, defined as utility revenues less cost of gas, is considered a more useful measure of financial performance by management[122](index=122&type=chunk) Operating Revenues and Volumes (2022 vs. 2021) | Metric | 2022 ($) | 2021 ($) | Change ($) | Percentage Change (%) | | :------------------------- | :------------ | :------------ | :------------ | :---------------- | | Gas Utility Revenues | $84,035,644 | $75,045,103 | $8,990,541 | 12% | | Non Utility Revenues | $129,578 | $129,676 | $(98) | (0)% | | **Total Operating Revenues** | **$84,165,222** | **$75,174,779** | **$8,990,443** | **12%** | | Residential and Commercial Volumes (DTH) | 6,577,369 | 6,773,819 | (196,450) | (3)% | | Transportation and Interruptible Volumes (DTH) | 3,747,967 | 3,135,710 | 612,257 | 20% | | **Total Delivered Volumes (DTH)** | **10,325,336** | **9,909,529** | **415,807** | **4%** | | Heating Degree Days (HDD) | 3,398 | 3,610 | (212) | (6)% | - Total gas utility operating revenues increased by **12%** in 2022, driven by higher natural gas commodity prices, increases in SAVE and ICC revenues, and higher transportation and interruptible volumes[126](index=126&type=chunk) Gross Utility Margin Components (2022 vs. 2021) | Component | 2022 ($) | 2021 ($) | Increase (Decrease) ($) | | :-------------------- | :------------ | :------------ | :------------------ | | Customer Base Charge | $14,557,492 | $14,563,274 | $(5,782) | | SAVE Plan | $3,285,518 | $2,487,299 | $798,219 | | Volumetric | $20,901,637 | $21,188,794 | $(287,157) | | WNA | $1,972,801 | $1,196,499 | $776,302 | | ICC | $657,042 | $395,626 | $261,416 | | Other Revenues | $165,099 | $33,769 | $131,330 | | **Total Gross Utility Margin** | **$41,539,589** | **$39,865,261** | **$1,674,328** | - Operations and maintenance expense increased by **$1,012,885 (7%)** due to higher bad debt expense, corporate insurance premiums, professional and contracted services, and accelerated amortization of regulatory assets[130](index=130&type=chunk) - Equity in earnings of unconsolidated affiliate (MVP investment) decreased by **$1,594,227** as limited growth construction activities and AFUDC accruals ceased in October 2021[132](index=132&type=chunk) - The **$55,092,303 impairment** is due to two other-than-temporary write-downs of the Company's investment in the LLC during the second and fourth quarters of fiscal 2022[133](index=133&type=chunk) - Interest expense increased by **$446,044 (11%)** due to higher total debt levels and increasing interest rates on variable rate debt[135](index=135&type=chunk) - Income tax expense decreased by **$14,614,707**, resulting in a net tax benefit of **$11,410,645** in fiscal 2022, primarily due to a deferred tax benefit from the MVP impairment[138](index=138&type=chunk) Earnings Per Share and Dividends (2022 vs. 2021) | Metric | 2022 ($) | 2021 ($) | | :---------------------- | :------ | :------ | | Basic EPS | $(3.48) | $1.22 | | Diluted EPS | $(3.48) | $1.22 | | Dividends Declared per Share | $0.78 | $0.74 | [Capital Resources and Liquidity](index=41&type=section&id=Capital%20Resources%20and%20Liquidity) Capital needs for projects and MVP investment are funded by operating cash flows, credit facilities, and common stock sales, with Midstream requiring **$15-17 million** for MVP - The company's primary capital needs include funding capital projects, investment in the LLC, seasonal natural gas inventories, accounts receivables, and dividend payments[140](index=140&type=chunk) - Funding is anticipated through operating cash flows, credit availability (short-term and long-term debt), and common stock sales[140](index=140&type=chunk) Cash Flow Summary (2022 vs. 2021) | Cash Flow Category | 2022 ($) | 2021 ($) | | :----------------------------- | :------------ | :------------ | | Net cash provided by operating activities | $15,551,676 | $11,568,108 | | Net cash used in investing activities | $(30,615,878) | $(25,849,237) | | Net cash provided by financing activities | $18,444,799 | $15,508,380 | | **Net increase in cash and cash equivalents** | **$3,380,597** | **$1,227,251** | - Operating cash flows increased by nearly **$4 million**, largely due to the recovery of prior year under-collected gas costs and receipt of supplier refunds, offset by higher natural gas storage costs[144](index=144&type=chunk) - Investing activities primarily involved **$25.5 million** in utility property expenditures for Roanoke Gas and **$5.3 million** for Midstream's investment in the LLC in fiscal 2022[146](index=146&type=chunk)[148](index=148&type=chunk) - Financing activities increased due to a **$27 million equity offering** in March 2022, with **$12 million** invested in Roanoke Gas and **$10 million** in Midstream, alongside new debt issuances[149](index=149&type=chunk) - Midstream expects to need **$15 million to $17 million** in additional capital over the next 12-24 months for MVP funding, with its **$21.9 million credit facility** maturing in December 2023[150](index=150&type=chunk) - Roanoke Gas has **$28 million available** under its line-of-credit and private shelf agreements for up to **$40 million** (expiring Dec 2022) and **$70 million** (expiring Sep 2025) in unsecured notes[151](index=151&type=chunk) [ATM Program](index=46&type=section&id=ATM%20Program) Resources issued **4,872** shares for **$112,500** under the ATM program in fiscal 2022, a significant decrease from the prior year - Resources issued **4,872 shares** of common stock for **$112,500** (net of fees) under the ATM program in fiscal 2022, a significant decrease from **142,726 shares** for **$3,400,443** in fiscal 2021[153](index=153&type=chunk) [Off-Balance Sheet Arrangements](index=46&type=section&id=Off-Balance%20Sheet%20Arrangements) The company has no off-balance sheet arrangements as defined by Regulation S-K - The Company has no off-balance sheet arrangements as defined in Regulation S-K, Item 303(a)(4)(ii)[154](index=154&type=chunk) [Equity Investment in Mountain Valley Pipeline](index=46&type=section&id=Equity%20Investment%20in%20Mountain%20Valley%20Pipeline) The MVP project faces significant delays and cost increases due to legal and regulatory setbacks, leading to a **$55.1 million** impairment in fiscal 2022 - The MVP project has faced repeated, significant delays and cost increases due to legal and regulatory setbacks, particularly Fourth Circuit rulings in January and February 2022 vacating key permits[155](index=155&type=chunk)[158](index=158&type=chunk) - The LLC is pursuing new authorizations and an updated Biological Opinion, and FERC granted an extension to complete the project through October 13, 2026[158](index=158&type=chunk)[159](index=159&type=chunk) - Management believes federal energy infrastructure permitting reform legislation specifically requiring MVP completion is the best path forward for the project[161](index=161&type=chunk) - AFUDC accruals on the MVP project and Roanoke Gas's interconnecting gate stations have been suspended due to construction delays[163](index=163&type=chunk)[164](index=164&type=chunk) - The Southgate project, an extension of MVP, also faces litigation and regulatory delays, with its Clean Water Act Section 401 certification denied and a compressor station permit denied[165](index=165&type=chunk) - Midstream recognized a total pre-tax impairment loss of **$55.1 million** on its MVP investment in fiscal 2022 due to an other-than-temporary decline in fair value, with further impairments possible[167](index=167&type=chunk) - Midstream's **$23 million non-revolving credit facility** matures in December 2023, and additional financing will be required for MVP funding[168](index=168&type=chunk) [Regulatory](index=49&type=section&id=Regulatory) Roanoke Gas received SCC approval for an updated SAVE Rider and asset acquisition, plans a non-gas rate case, and managed COVID-19 deferred costs - Roanoke Gas expensed **$57,000** and **$217,000** in COVID-19 related deferred costs in fiscal 2022 and 2021, respectively, as its earnings exceeded the authorized return on equity[170](index=170&type=chunk) - The SCC approved Roanoke Gas's SAVE application in August 2022, updating the SAVE Rider to collect approximately **$4.1 million** in annual revenues, effective October 2022[171](index=171&type=chunk) - Roanoke Gas filed an application with the SCC in August 2022 for a rate adjustment clause to recover costs associated with constructing, owning, operating, and maintaining a renewable natural gas (RNG) facility[172](index=172&type=chunk) - The SCC approved Roanoke Gas's application to acquire natural gas distribution assets from a local housing authority, resulting in a pre-tax gain of approximately **$219,000** in fiscal Q4 2022[173](index=173&type=chunk)[174](index=174&type=chunk) - The company filed notice with the SCC on September 30, 2022, to file a non-gas base rate case in early December, with rates expected to be effective January 1, 2023, on an interim basis[175](index=175&type=chunk) - AFUDC accruals on MVP interconnect construction projects ceased in January 2021 but resumed in fiscal 2022 for the RNG project, totaling **$75,154**[176](index=176&type=chunk) - The service disconnection moratorium expired on August 30, 2021, leading to historically high arrearage balances, though **CARES Act** and **ARPA funds** (**$403,000** and **$859,000**, respectively) were applied to assist customers[177](index=177&type=chunk)[178](index=178&type=chunk) [Critical Accounting Policies and Estimates](index=53&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) Fair value determination for the MVP investment, regulatory accounting, revenue recognition, credit loss allowances, and pension assumptions are critical estimates - The determination of fair value for the investment in Mountain Valley Pipeline, LLC is a critical estimate, requiring significant judgment and assumptions regarding discounted cash flows and probability scenarios, which led to a **$55.1 million impairment** in fiscal 2022[181](index=181&type=chunk)[182](index=182&type=chunk) - Regulatory accounting (ASC 980) allows the company to defer costs and liabilities based on expected recovery or collection through rates, with a write-off if criteria are no longer met[183](index=183&type=chunk)[185](index=185&type=chunk)[186](index=186&type=chunk) - Revenue recognition for regulated utility sales and transportation is based on SCC-approved tariff rates, with ARPs (WNA, SAVE Plan) adjusting revenues for external factors[188](index=188&type=chunk)[189](index=189&type=chunk)[191](index=191&type=chunk) - The allowance for credit losses became more subjective post-COVID-19 due to the disconnection moratorium and federal financial assistance, with estimates at **$371,271** and **$242,010** as of September 30, 2022 and 2021, respectively[192](index=192&type=chunk) - Pension and postretirement benefit expenses and liabilities are based on numerous actuarial assumptions (discount rate, return on assets, compensation increases, life expectancies), with significant changes in discount rates impacting obligations[193](index=193&type=chunk)[196](index=196&type=chunk) - The company has implemented strategies to reduce pension plan risk, including a 'soft freeze' for new employees and transitioning asset allocation to a **Liability Driven Investment (LDI) approach** for **70% of assets**[197](index=197&type=chunk)[198](index=198&type=chunk) Funded Status of Pension and Postretirement Plans (September 30, 2022 vs. 2021) | Metric | Pension Plan 2022 ($) | Postretirement Plan 2022 ($) | Total 2022 ($) | Pension Plan 2021 ($) | Postretirement Plan 2021 ($) | Total 2021 ($) | | :---------------------- | :---------------- | :----------------------- | :------------ | :---------------- | :----------------------- | :------------ | | Benefit Obligation | $27,268,456 | $12,416,546 | $39,685,002 | $37,654,468 | $16,796,849 | $54,451,317 | | Fair value of assets | $28,017,797 | $12,138,119 | $40,155,916 | $38,914,107 | $15,882,342 | $54,796,449 | | **Funded status** | **$749,341** | **$(278,427)** | **$470,914** | **$1,259,639** | **$(914,507)** | **$345,132** | - The company uses derivative instruments, such as interest rate swaps, to hedge commodity and financial market risks, with changes in fair value reported in other comprehensive income for cash flow hedges[205](index=205&type=chunk)[206](index=206&type=chunk) [Recently Adopted Accounting Standards](index=59&type=section&id=Recently%20Adopted%20Accounting%20Standards) The company adopted ASU 2018-01 and ASU 2018-14, neither of which had a material effect on its financial statements - The company adopted **ASU 2018-01** (Leases: Land Easement Practical Expedient) and **ASU 2018-14** (Defined Benefit Plans Disclosure Framework), neither of which had a material effect on its consolidated financial statements[274](index=274&type=chunk)[276](index=276&type=chunk) [Recently Issued Accounting Standards](index=60&type=section&id=Recently%20Issued%20Accounting%20Standards) The FASB issued ASU 2020-04 (Reference Rate Reform) to ease accounting for LIBOR changes, with adoption anticipated in fiscal 2023 - The FASB issued **ASU 2020-04** (Reference Rate Reform) to ease the burden of accounting for reference rate changes like **LIBOR**, which is expected to cease publication in June 2023[277](index=277&type=chunk) - The company anticipates adopting this guidance in fiscal 2023, and it could significantly impact its financial position, results of operations, and cash flows when the reference rate changes for related contracts[277](index=277&type=chunk) [Reclassification](index=60&type=section&id=Reclassification) Certain prior year amounts have been reclassified to conform to current year presentations - Certain prior year amounts have been reclassified to conform to current year presentations[279](index=279&type=chunk) [Item 7A. Quantitative and Qualitative Disclosures About Market Risk](index=61&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This item is not applicable to the company - This item is not applicable[207](index=207&type=chunk) [Item 8. Financial Statements and Supplementary Data](index=61&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents audited consolidated financial statements, including balance sheets, income statements, cash flows, and detailed notes, with an unqualified audit opinion - The independent registered public accounting firm issued an unqualified opinion on the consolidated financial statements for the years ended September 30, 2022 and 2021[211](index=211&type=chunk) - A critical audit matter identified was the valuation of the equity method investment in Mountain Valley Pipeline, LLC, due to the significant judgment and sensitivity of fair value estimates to assumptions like discounted cash flows and probability estimates[215](index=215&type=chunk)[216](index=216&type=chunk)[217](index=217&type=chunk) [Report of Independent Registered Public Accounting Firm](index=64&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) The independent auditor issued an unqualified opinion on the financial statements, highlighting the MVP investment valuation as a critical audit matter - The independent registered public accounting firm provided an unqualified opinion on the consolidated financial statements for the years ended September 30, 2022 and 2021[211](index=211&type=chunk) - The valuation of the equity method investment in Mountain Valley Pipeline, LLC was identified as a critical audit matter due to the significant judgment required for fair value determination, particularly regarding discounted cash flows and probability estimates[215](index=215&type=chunk)[216](index=216&type=chunk)[217](index=217&type=chunk) [Consolidated Balance Sheets](index=66&type=section&id=Consolidated%20Balance%20Sheets) The consolidated balance sheets show total assets decreased by **$19.8 million** in 2022, primarily due to a **$51.1 million** reduction in the MVP investment Consolidated Balance Sheet Highlights (September 30, 2022 vs. 2021) | Asset/Liability Category | 2022 ($) | 2021 ($) | Change ($) | | :----------------------- | :------------ | :------------ | :------------ | | Total Current Assets | $35,548,319 | $25,143,855 | +$10,404,464 | | Utility Property, net | $229,861,074 | $211,649,684 | +$18,211,390 | | Investment in unconsolidated affiliates | $13,773,075 | $64,867,319 | $(51,094,244) | | Total Assets | $290,309,243 | $310,109,193 | $(19,799,950) | | Total Current Liabilities | $22,315,310 | $26,013,532 | $(3,698,222) | | Long-Term Debt, net | $135,695,289 | $133,471,427 | +$2,223,862 | | Total Stockholders' Equity | $93,090,656 | $99,701,709 | $(6,611,053) | [Consolidated Statements of Income](index=68&type=section&id=Consolidated%20Statements%20of%20Income) The consolidated statements of income reflect a **$31.7 million** net loss in 2022, driven by a **$55.1 million** impairment of unconsolidated affiliates Consolidated Statements of Income Highlights (2022 vs. 2021) | Income Statement Item | 2022 ($) | 2021 ($) | Change ($) | | :------------------------- | :-------------- | :-------------- | :-------------- | | Total Operating Revenues | $84,165,222 | $75,174,779 | +$8,990,443 | | Total Operating Expenses | $69,248,547 | $60,396,470 | +$8,852,077 | | Operating Income | $14,916,675 | $14,778,309 | +$138,366 | | Equity in earnings of unconsolidated affiliate | $73,327 | $1,667,554 | $(1,594,227) | | Impairment of unconsolidated affiliates | $(55,092,303) | — | $(55,092,303) | | Income (Loss) Before Income Taxes | $(43,143,247) | $13,306,124 | $(56,449,371) | | Income Tax Expense (Benefit) | $(11,410,645) | $3,204,062 | $(14,614,707) | | **Net Income (Loss)** | **$(31,732,602)** | **$10,102,062** | **$(41,834,664)** | | Basic EPS | $(3.48) | $1.22 | $(4.70) | | Diluted EPS | $(3.48) | $1.22 | $(4.70) | [Consolidated Statements of Comprehensive Income (Loss)](index=69&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income%20%28Loss%29) Comprehensive income shows a **$28.2 million** loss in 2022, primarily due to the net loss, partially offset by gains from interest rate swaps Consolidated Statements of Comprehensive Income (Loss) Highlights (2022 vs. 2021) | Comprehensive Income Item | 2022 ($) | 2021 ($) | Change ($) | | :------------------------ | :-------------- | :-------------- | :-------------- | | Net Income (Loss) | $(31,732,602) | $10,102,062 | $(41,834,664) | | Other comprehensive income (loss), net of tax: | | | | | Interest rate swaps | $4,451,551 | $763,003 | +$3,688,548 | | Defined benefit plans | $(951,753) | $1,149,507 | $(2,101,260) | | **Total Other Comprehensive Income, Net of Tax** | **$3,499,798** | **$1,912,510** | **+$1,587,288** | | **Comprehensive Income (Loss)** | **$(28,232,804)** | **$12,014,572** | **$(40,247,376)** | [Consolidated Statements of Stockholders' Equity](index=70&type=section&id=Consolidated%20Statements%20of%20Stockholders%27%20Equity) Total stockholders' equity decreased by **$6.6 million** in 2022, mainly due to the net loss and dividends, partially offset by common stock issuance Consolidated Statements of Stockholders' Equity Highlights (2022 vs. 2021) | Equity Component | September 30, 2022 ($) | September 30, 2021 ($) | | :--------------------------- | :----------------- | :----------------- | | Common Stock | $49,102,675 | $41,875,460 | | Capital in Excess of Par Value | $41,479,459 | $19,705,387 | | Retained Earnings | $544,158 | $39,656,296 | | Accumulated Other Comprehensive Income (Loss) | $1,964,364 | $(1,535,434) | | **Total Stockholders' Equity** | **$93,090,656** | **$99,701,709** | - Total stockholders' equity decreased by **$6,611,053** from **$99,701,709** in 2021 to **$93,090,656** in 2022, primarily due to the net loss of **$31,732,602** and cash dividends declared of **$7,379,536**, partially offset by issuance of common stock totaling **$28,912,318**[229](index=229&type=chunk) [Consolidated Statements of Cash Flows](index=71&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Operating cash flows increased by nearly **$4 million** in 2022, while investing activities saw higher utility property and affiliate investments, and financing was boosted by stock issuance Consolidated Statements of Cash Flows Highlights (2022 vs. 2021) | Cash Flow Category | 2022 ($) | 2021 ($) | Change ($) | | :----------------------------- | :------------ | :------------ | :------------ | | Net cash provided by operating activities | $15,551,676 | $11,568,108 | +$3,983,568 | | Net cash used in investing activities | $(30,615,878) | $(25,849,237) | $(4,766,641) | | Net cash provided by financing activities | $18,444,799 | $15,508,380 | +$2,936,419 | | **Net increase in cash and cash equivalents** | **$3,380,597** | **$1,227,251** | **+$2,153,346** | | Ending Cash and Cash Equivalents | $4,898,914 | $1,518,317 | +$3,380,597 | - Cash flows from operating activities increased by nearly **$4 million**, primarily due to the recovery of prior year under-collected gas costs and supplier refunds, partially offset by higher gas in storage costs[144](index=144&type=chunk) - Investing activities saw increased expenditures for utility property (**$25.5 million** in 2022) and investment in unconsolidated affiliates (**$5.3 million** in 2022)[146](index=146&type=chunk)[148](index=148&type=chunk) - Financing activities were significantly boosted by **$28.9 million** in proceeds from stock issuance in 2022, enabling debt repayments and capital infusions[149](index=149&type=chunk)[231](index=231&type=chunk) [Notes to Consolidated Financial Statements](index=72&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) This section provides detailed explanations of the company's accounting policies, regulatory matters, segment information, and other financial disclosures [1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=72&type=section&id=1.%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) This note outlines key accounting policies including consolidation, rate-regulated accounting, depreciation, AROs, fair value, and revenue recognition - The consolidated financial statements include RGC Resources, Inc. and its wholly-owned subsidiaries: Roanoke Gas (natural gas utility), Midstream (MVP investor), and Diversified Energy (inactive)[232](index=232&type=chunk) - The company's regulated operations follow **ASC 980, Regulated Operations**, allowing deferral of costs and liabilities based on expected recovery or collection through rates[234](index=234&type=chunk) Regulatory Assets and Liabilities (September 30, 2022 vs. 2021) | Category | 2022 ($) | 2021 ($) | | :----------------------- | :------------ | :------------ | | Total Regulatory Assets | $7,797,302 | $12,824,346 | | Total Regulatory Liabilities | $38,873,065 | $34,490,726 | - Utility property is stated at original cost and depreciated using composite straight-line rates, with the estimated cost of asset retirement accrued through depreciation expense as a regulatory liability[238](index=238&type=chunk)[240](index=240&type=chunk) - The company capitalizes **Allowance for Funds Used During Construction (AFUDC)** for equity and debt financing costs during construction phases of infrastructure projects, including the RNG project[242](index=242&type=chunk) - Asset Retirement Obligations (AROs) are recorded for legal obligations related to purging and capping distribution mains and services upon retirement, with revisions to estimated cash flows increasing the ARO by **$2,072,266** in 2022[243](index=243&type=chunk)[245](index=245&type=chunk)[247](index=247&type=chunk) - The allowance for credit losses was estimated at **$371,271** in 2022, up from **$242,010** in 2021, reflecting the impact of COVID-19, the disconnection moratorium, and federal financial assistance[249](index=249&type=chunk)[250](index=250&type=chunk) - The company uses the asset and liability method for income taxes, recognizing deferred tax assets and liabilities for temporary differences, and revalued them in fiscal 2018 due to the corporate federal income tax rate reduction[254](index=254&type=chunk)[331](index=331&type=chunk)[332](index=332&type=chunk) - The company uses interest rate swaps to hedge variable rate debt, which qualify as cash flow hedges, with changes in fair value reported in other comprehensive income[269](index=269&type=chunk) [2. REVENUE](index=84&type=section&id=2.%20REVENUE) This note details the company's revenue recognition policies, primarily from tariff-based natural gas sales and delivery, which fall under ASC 606 Revenue by Customer, Product, and Income Statement Classification (2022 vs. 2021) | Revenue Category (2022) | Gas Utility ($) | Non Utility ($) | Total Operating Revenues ($) | | :---------------------- | :------------ | :---------- | :----------------------- | | Residential | $46,915,892 | — | $46,915,892 | | Commercial | $28,874,522 | — | $28,874,522 | | Industrial & Transportation | $5,671,884 | — | $5,671,884 | | Other | $822,140 | $129,578 | $951,718 | | Total contracts with customers | $82,284,438 | $129,578 | $82,414,016 | | Alternative Revenue Programs | $1,751,206 | — | $1,751,206 | | **Total Operating Revenues** | **$84,035,644** | **$129,578** | **$84,165,222** | | Revenue Category (2021) | Gas Utility ($) | Non Utility ($) | Total Operating Revenues ($) | | :---------------------- | :------------ | :---------- | :----------------------- | | Residential | $43,108,790 | — | $43,108,790 | | Commercial | $25,217,030 | — | $25,217,030 | | Industrial & Transportation | $4,973,885 | — | $4,973,885 | | Other | $429,397 | $129,676 | $559,073 | | Total contracts with customers | $73,729,102 | $129,676 | $73,858,778 | | Alternative Revenue Programs | $1,316,001 | — | $1,316,001 | | **Total Operating Revenues** | **$75,045,103** | **$129,676** | **$75,174,779** | - Gas utility revenues are derived from SCC-authorized tariff rates, with performance obligations satisfied over time as natural gas is delivered or transported[282](index=282&type=chunk)[283](index=283&type=chunk) - Unbilled revenue, included in residential and commercial revenues, was **$1,585,062** in 2022 and **$1,191,227** in 2021[284](index=284&type=chunk)[287](index=287&type=chunk) - Alternative Revenue Programs (ARPs), such as the **WNA** and **SAVE Plan**, are SCC-approved mechanisms that adjust revenues for external factors or performance targets and fall outside the scope of **ASC 606**[286](index=286&type=chunk) [3. REGULATORY MATTERS](index=88&type=section&id=3.%20REGULATORY%20MATTERS) This note details recent regulatory activities and approvals impacting Roanoke Gas - Roanoke Gas expensed **$57,000** and **$217,000** in COVID-19 related deferred costs in fiscal 2022 and 2021, respectively, as earnings exceeded the authorized return on equity[290](index=290&type=chunk) - The SCC approved an updated **SAVE Rider** in August 2022, designed to collect approximately **$4.1 million** in annual revenues for infrastructure replacement, effective October 2022[291](index=291&type=chunk) - Roanoke Gas filed applications with the SCC for a rate adjustment clause for a Renewable Natural Gas (RNG) facility and to acquire natural gas distribution assets from a local housing authority, the latter resulting in a **$219,000 pre-tax gain**[292](index=292&type=chunk)[293](index=293&type=chunk)[294](index=294&type=chunk) - The company filed notice on September 30, 2022, to file a non-gas base rate case in early December, with rates expected to be effective January 1, 2023, on an interim basis[295](index=295&type=chunk) - AFUDC accruals on MVP interconnect projects were temporarily ceased in January 2021 but resumed in fiscal 2022 for the RNG project, totaling **$75,154**[296](index=296&type=chunk)[297](index=297&type=chunk) - The service disconnection moratorium expired on August 30, 2021, leading to high arrearage balances, with **ARPA funds** (**$859,000**) applied to customer accounts in early fiscal 2022[178](index=178&type=chunk)[290](index=290&type=chunk) [4. SEGMENT INFORMATION](index=90&type=section&id=4.%20SEGMENT%20INFORMATION) This note provides financial data segmented by Gas Utility, Investment in Affiliates, and Parent and Other, highlighting the **$55.1 million** MVP impairment - Operating segments are defined as Gas Utility, Investment in Affiliates, and Parent and Other, with performance assessed using operating income and equity in earnings[298](index=298&type=chunk)[300](index=300&type=chunk)[301](index=301&type=chunk) Segment Information (2022 vs. 2021) | Metric (2022) | Gas Utility ($) | Investment in Affiliates ($) | Parent and Other ($) | Consolidated Total ($) | | :------------------------ | :------------ | :----------------------- | :--------------- | :----------------- | | Operating revenues | $84,035,644 | — | $129,578 | $84,165,222 | | Operating income (loss) | $15,104,946 | $(281,843) | $93,572 | $14,916,675 | | Equity in earnings | — | $73,327 | — | $73,327 | | Impairment of investments | — | $(55,092,303) | — | $(55,092,303) | | Income (loss) before taxes | $13,547,601 | $(56,784,957) | $94,109 | $(43,143,247) | | Total assets | $258,519,230 | $13,838,108 | $17,951,905 | $290,309,243 | | Gross additions to utility property | $25,461,000 | — | — | $25,461,000 | | Gross investment in affiliates | — | $5,260,863 | — | $5,260,863 | | Metric (2021) | Gas Utility ($) | Investment in Affiliates ($) | Parent and Other ($) | Consolidated Total ($) | | :------------------------ | :------------ | :----------------------- | :--------------- | :----------------- | | Operating revenues | $75,045,103 | — | $129,676 | $75,174,779 | | Operating income (loss) | $14,955,375 | $(267,391) | $90,325 | $14,778,309 | | Equity in earnings | — | $1,667,554 | — | $1,667,554 | | Income before taxes | $13,043,470 | $171,861 | $90,793 | $13,306,124 | | Total assets | $231,737,427 | $65,686,376 | $12,685,390 | $310,109,193 | | Gross additions to utility property | $19,967,567 | — | — | $19,967,567 | | Gross investment in affiliates | — | $6,028,760 | — | $6,028,760 | - The Investment in Affiliates segment recorded a significant impairment of **$(55,092,303)** in 2022, leading to a substantial loss before income taxes for that segment[302](index=302&type=chunk) [5. OTHER INVESTMENTS](index=92&type=section&id=5.%20OTHER%20INVESTMENTS) This note details Midstream's equity investment in MVP and Southgate, highlighting **$55.1 million** in impairment losses due to ongoing legal and regulatory challenges - Midstream holds an approximately **1% equity investment** in the Mountain Valley Pipeline (MVP) and a less than **1% investment** in Southgate[304](index=304&type=chunk)[306](index=306&type=chunk) - The MVP project has faced repeated legal and regulatory issues, including Fourth Circuit decisions vacating key permits in January and February 2022[304](index=304&type=chunk)[307](index=307&type=chunk) - Midstream recognized a total pre-tax impairment loss of **$55.1 million** on its MVP investment in fiscal 2022 due to an other-than-temporary decline in fair value, based on probability-weighted discounted future cash flows[308](index=308&type=chunk)[309](index=309&type=chunk) - AFUDC accruals on the MVP project were temporarily suspended from January 1, 2021, through March 31, 2021, and again from November 2021, resuming when growth construction activities restart[305](index=305&type=chunk) - There is a risk of further impairment due to continuing legal and regulatory matters, macroeconomic factors, changes in interest rates, and cost increases[311](index=311&type=chunk) Investment in Unconsolidated Affiliates (September 30, 2022 vs. 2021) | Investment Category | 2022 ($) | 2021 ($) | | :------------------ | :------------ | :------------ | | MVP | $13,689,370 | $64,462,194 | | Southgate | $83,705 | $405,125 | | **Total Investment** | **$13,773,075** | **$64,867,319** | MVP Summary Unaudited Financial Statements (2022 vs. 2021) | Income Statement Item | 2022 ($) | 2021 ($) | | :-------------------- | :------------ | :------------ | | AFUDC | $6,883,069 | $165,048,237 | | Net income | $7,030,223 | $164,659,801 | | Balance Sheet Item | 2022 ($) | 2021 ($) | | :-------------------- | :-------------- | :-------------- | | Total assets | $6,751,643,266 | $6,491,932,558 | | Capital | $6,636,581,543 | $6,291,478,531 | [6. LINE-OF-CREDIT](index=95&type=section&id=6.%20LINE-OF-CREDIT) Roanoke Gas entered a new unsecured line-of-credit for **$21-33 million** in March 2022, with no outstanding balance and compliance with all covenants - Roanoke Gas entered into a new unsecured line-of-credit agreement on March 31, 2022, with a variable interest rate based on **Daily Simple SOFR plus 1.10%**[316](index=316&type=chunk) - The total available borrowing limits range from **$21 million to $33 million**, with the agreement expiring on March 31, 2023[316](index=316&type=chunk)[318](index=318&type=chunk) - As of September 30, 2022, the company had no outstanding balance under its line-of-credit agreement[316](index=316&type=chunk)[319](index=319&type=chunk) - The credit agreement includes covenants requiring an interest coverage ratio of not less than **1.5 to 1** and a long-term debt to long-term capitalization ratio of less than **65%**[319](index=319&type=chunk) - The company was in compliance with all debt covenants as of September 30, 2022[329](index=329&type=chunk) [7. LONG-TERM DEBT](index=96&type=section&id=7.%20LONG-TERM%20DEBT) This note details the company's long-term debt, including new unsecured promissory notes, many hedged with interest rate swaps, and confirms covenant compliance - Midstream entered into an **$8 million unsecured promissory note** on November 1, 2021, with an interest rate based on **30-day LIBOR plus 115 basis points**, maturing January 1, 2028, and hedged with an interest rate swap to a fixed rate of **2.443%**[320](index=320&type=chunk) - Roanoke Gas entered into a **$10 million unsecured Delayed Draw Promissory Note** on September 24, 2021, with a variable interest rate (**30-day LIBOR plus 100 basis points**) converted to a fixed **2.49%** via an interest rate swap, maturing October 1, 2028[321](index=321&type=chunk) - Roanoke Gas also entered into a **$15 million unsecured Delayed Draw Term Note** on August 20, 2021, with a variable interest rate (**30-day SOFR Average plus 1.20%**) converted to a fixed **2.00%** via an interest rate swap, maturing August 20, 2026[322](index=322&type=chunk)[323](index=323&type=chunk) Long-Term Debt Summary (September 30, 2022 vs. 2021) | Debt Type (Roanoke Gas) | Principal 2022 ($) | Unamortized Debt Issuance Costs 2022 ($) | Principal 2021 ($) | Unamortized Debt Issuance Costs 2021 ($) | | :---------------------- | :------------- | :----------------------------------- | :------------- | :----------------------------------- | | 4.26% Senior Notes (2034) | $30,500,000 | $115,849 | $30,500,000 | $125,502 | | 3.58% Term Notes (2027) | $8,000,000 | $24,080 | $8,000,000 | $28,896 | | 4.41% Term Notes (2031) | $10,000,000 | $26,627 | $10,000,000 | $29,760 | | 3.60% Term Notes (2029) | $10,000,000 | $25,539 | $10,000,000 | $29,062 | | SOFR + 1.20% Term Note (2026) | $15,000,000 | — | — | — | | LIBOR + 1.00% Term Note (2028) | $10,000,000 | $28,674 | — | $21,545 | | Debt Type (Midstream) | | | | | | TERM SOFR + 1.50% Notes (2023) | $21,896,200 | $18,553 | $33,610,200 | $14,904 | | LIBOR + 1.15% Term Note (2026) | $14,000,000 | $9,029 | $14,000,000 | $11,437 | | LIBOR + 1.20% Term Note (2024) | $9,875,000 | $3,929 | $10,000,000 | $6,286 | | LIBOR + 1.15% Term Note (2028) | $8,000,000 | $23,631 | — | — | | **Total Notes Payable** | **$137,271,200** | **$275,911** | **$123,110,200** | **$267,670** | | Line-of-credit | — | — | $17,628,897 | — | | **Total Long-Term Debt** | **$137,271,200** | **$275,911** | **$140,739,097** | **$267,670** | - The company was in compliance with all debt covenants as of September 30, 2022 and 2021, including limits on consolidated long-term indebtedness and priority indebtedness, and an interest coverage ratio requirement[329](index=329&type=chunk) Aggregate Annual Maturities of Long-Term Debt (Years Ending September 30) | Year Ending September 30 | Maturities ($) | | :----------------------- | :------------ | | 2023 | $1,300,000 | | 2024 | $32,871,200 | | 2025 | $1,600,000 | | 2026 | $30,600,000 | | 2027 | $1,600,000 | | Thereafter | $69,300,000 | | **Total** | **$137,271,200** | [8. INCOME TAXES](index=100&type=section&id=8.%20INCOME%20TAXES) This note details income tax accounting, including deferred taxes, R&D tax credits, and an ongoing IRS examination of 2018 and 2019 federal tax returns - The company accounts for income taxes using the asset and liability method, recognizing deferred tax assets and liabilities for temporary differences[331](index=331&type=chunk) - Deferred tax assets and liabilities were revalued in fiscal 2018 due to the reduction in the corporate federal income tax rate, with excess deferred income taxes reclassified to a regulatory liability[332](index=332&type=chunk) - The company claimed federal **R&D tax credits** totaling **$3,169,656** for fiscal years 2017-2020 and **$659,920** for fiscal 2021, deferring them as regulatory liabilities and amortizing them over **20 years**[333](index=333&type=chunk) Income Tax Expense (Benefit) (2022 vs. 2021) | Income Tax Component | 2022 ($) | 2021 ($) | | :------------------- | :-------------- | :------------ | | Current income taxes | $3,018,513 | $3,097,874 | | Deferred income taxes | $(14,258,294) | $106,188 | | Amortization of R&D tax credits | $(170,864) | — | | **Total Income Tax Expense (Benefit)** | **$(11,410,645)** | **$3,204,062** | - The effective tax rate for fiscal 2022 was **26.5%**, exceeding the combined federal and state statutory rate of **25.74%** due to moving to a taxable loss position and R&D tax credit amortization[138](index=138&type=chunk) Deferred Tax Assets and Liabilities (September 30, 2022 vs. 2021) | Deferred Tax Item | 2022 ($) | 2021 ($) | | :---------------------------- | :-------------- | :------------ | | Total Gross Deferred Tax Assets | $19,566,993 | $5,521,587 | | Total Gross Deferred Tax Liabilities | $21,675,368 | $20,469,800 | | Net Deferred Tax Asset | $1,057,079 | — | | Net Deferred Tax Liability | $3,165,454 | $14,948,213 | - The IRS is currently examining the company's 2018 and 2019 federal tax returns[338](index=338&type=chunk) [9. EMPLOYEE BENEFIT PLANS](index=103&type=section&id=9.%20EMPLOYEE%20BENEFIT%20PLANS) This note details pension and postretirement plans, their funded status, actuarial assumptions, and strategies to manage risk, including an LDI approach - The company sponsors a noncontributory pension plan for employees hired before January 2017 and a postretirement plan for employees hired before January 2000[339](index=339&type=chunk)[341](index=341&type=chunk) - The funded status of defined benefit plans is recognized as an asset or liability, with changes recognized through comprehensive income and a regulatory asset established for the portion expected to be recovered through rates[342](index=342&type=chunk) Benefit Obligation, Fair Value of Plan Assets, and Funded Status (September 30, 2022 vs. 2021) | Metric | Pension Plan 2022 ($) | Postretirement Plan 2022 ($) | Pension Plan 2021 ($) | Postretirement Plan 2021 ($) | | :---------------------- | :---------------- | :----------------------- | :---------------- | :----------------------- | | Benefit obligation at end of year | $27,268,456 | $12,416,546 | $37,654,468 | $16,796,849 | | Fair value of plan assets at end of year | $28,017,797 | $12,138,119 | $38,914,107 | $15,882,342 | | **Funded status** | **$749,341** | **$(278,427)** | **$1,259,639** | **$(914,507)** | - The reduction in benefit obligations for both plans was primarily due to actuarial gains from increased discount rates (**5.15% for pension, 5.16% for postretirement in 2022**, up from ~**2.7% in 2021**)[196](index=196&type=chunk)[347](index=347&type=chunk) - The company implemented a 'soft freeze' for the pension plan in 2017 and transitioned its asset allocation to a **Liability Driven Investment (LDI) approach** for **70% of pension assets** to reduce volatility[197](index=197&type=chunk)[198](index=198&type=chunk) Net Periodic Benefit Cost Components (2022 vs. 2021) | Component | Pension Plan 2022 ($) | Pension Plan 2021 ($) | Postretirement Plan 2022 ($) | Postretirement Plan 2021 ($) | | :---------------------- | :---------------- | :---------------- | :----------------------- | :----------------------- | | Service cost | $648,289 | $734,282 | $97,802 | $140,691 | | Interest cost | $1,013,115 | $975,139 | $443,721 | $430,490 | | Expected return on plan assets | $(1,831,550) | $(2,015,743) | $(666,167) | $(596,488) | | Recognized loss | $146,402 | $502,141 | — | $154,659 | | **Net periodic benefit cost** | **$(23,744)** | **$195,819** | **$(124,644)** | **$129,352** | - The company expects no minimum funding requirements and no contributions to its pension and postretirement plans in fiscal 2023[202](index=202&type=chunk) - The Nonqualified Deferred Compensation (NQDC) Plan is an unfunded plan for senior management, with a balance of **$59,108** in 2022[358](index=358&type=chunk)[360](index=360&type=chunk) - The **401(k) Plan** includes matching contributions (**100% on first 4%, 50% on next 2%**) and discretionary contributions for employees hired after January 1, 2017, totaling **$404,722** in 2022[361](index=361&type=chunk) [10. COMMON STOCK OPTIONS](index=114&type=section&id=10.%20COMMON%20STOCK%20OPTIONS) This note describes the KESOP, granting common stock options to employees, with **34,500** outstanding options and **22,000** shares available for future grants - The **KESOP** provides common stock options to officers and certain full-time salaried employees, with **22,000 shares** available for future grants as of September 30, 2022[362](index=362&type=chunk) - Options vest over a **six-month period** and are exercisable over a **ten-year period** from the date of issuance[363](index=363&type=chunk) - The fair value of each grant is estimated using the **Black-Scholes option pricing model**, with assumptions for expected volatility, dividends, exercise term, and risk-free interest rate[364](index=364&type=chunk) Stock Option Activity (September 30, 2022 vs. 2021) | Metric | 2022 | 2021 | | :----------------------------------- | :------ | :------ | | Options outstanding, September 30 | 34,500 | 45,250 | | Weighted Average Exercise Price ($) | $18.69 | $19.34 | | Weighted-average grant date option fair value ($) | $5.39 | $5.55 | | Stock option expense ($) | $16,330 | $11,100 | [11. OTHER STOCK PLANS](index=115&type=section&id=11.%20OTHER%20STOCK%20PLANS) This note outlines DRIP, RSPD, and RSPO plans, detailing shares issued, vesting conditions, and compensation recognized for restricted stock grants - The **Dividend Reinvestment and Stock Purchase Plan (DRIP)** allows shareholders to reinvest dividends and purchase additional common stock, with **34,290 shares** issued in 2022 and **29,604** in 2021[371](index=371&type=chunk) - The **Restricted Stock Plan for Outside Directors (RSPD)** allows directors to elect to receive fees in Director Restricted Stock, which vests upon death, disability, retirement, or change in control[372](index=372&type=chunk) Director Restricted Stock Activity (2022 vs. 2021) | Metric | 2022 | 2021 | | :---------------------- | :------ | :------ | | Granted Shares | 13,538 | 11,374 | | Vested Shares | (15,855) | — | | End of year balance | 108,127 | 110,444 | | Fair market value included in compensation ($) | $291,767 | $269,200 | - The **RGC

RGC Resources, Inc. (NASDAQ:RGCO) Q3 2022 Earnings Conference Call August 11, 2022 9:00 AM ET Company Participants Paul Nester - President, CEO Jason Field - CFO Tommy Oliver - VP, RA&S Kelsie Davenport - DoF Conference Call Participants Paul Nester Good morning. I'm Paul Nester, President and CEO of RGC Resources. Thank you for joining us as we discuss RGC Resources 2022 third quarter results. Let's review a few administrative items. We have muted all lines [Operator Instructions]. The link to today's pres ...

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, 2022 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 Juri ...

Financial Data and Key Metrics Changes - For Q2 2022, operating income was $7.4 million, a 4.8% increase from Q2 2021, reflecting an improvement of $344,000 [7] - The overall net loss for Q2 2022 was impacted by a $29.6 million noncash impairment related to the Mountain Valley pipeline investment [7] - For the 12 months ending March 31, 2022, operating income was $14.9 million, a 14% increase compared to the prior year [9] - Underlying net income for Q2 2022, after adjusting for impairment, was $5.1 million, a 6.5% increase from the prior year [10] - The 12-month underlying net income was $9.3 million, reflecting a decrease of $1.1 million from the previous year due to reduced equity earnings from the MVP [11] Business Line Data and Key Metrics Changes - Roanoke Gas, the core business, continues to serve 63,000 customers in the greater Roanoke Valley [4] - Capital expenditures for utility property in the first half of fiscal 2022 totaled $10.76 million, a 20% increase from the previous year [12] - Delivered volumes for Q2 2022 were 4.2 million dekatherms, a 5.6% increase from Q2 2021, driven by a 26% increase in industrial customer consumption [13] Market Data and Key Metrics Changes - Year-to-date volumes were 1% higher than the first six months of 2021, despite warmer weather [14] - The company noted that the increase in industrial customer deliveries offset the decline in residential customer deliveries due to weather [14] Company Strategy and Development Direction - The company expects capital spending to be approximately $24.5 million in the second half of fiscal 2022, with a slight shift from new business to maintenance spending [15][16] - The company continues to support the Mountain Valley pipeline project, emphasizing its importance for domestic supply constraints and the broader market [20] Management's Comments on Operating Environment and Future Outlook - Management expressed concern over elevated natural gas costs due to legal challenges facing the Mountain Valley pipeline, which they believe impacts both businesses and residential customers [18][19] - The company anticipates underlying earnings for fiscal 2022 to be in the range of $0.96 to $1.02 per share [21] - The company announced a $27 million common stock equity placement, which is expected to have an effect of approximately $0.10 per share for the full fiscal year [22] Other Important Information - The expected quarterly dividend remains unchanged, with an implied payout ratio in the 80% range, which management considers comfortable based on cash earnings [23] Q&A Session Summary - No questions were raised during the Q&A session, and the call concluded without further inquiries [25]

Part I [Item 1. Financial Statements](index=7&type=section&id=Item%201.%20Financial%20Statements) The company reported a significant net loss for the period, primarily due to a $39.8 million MVP impairment, affecting assets but boosting equity [Condensed Consolidated Balance Sheets](index=7&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets decreased to $288.4 million due to reduced affiliate investment, while stockholders' equity increased to $105.5 million from stock issuance Condensed Consolidated Balance Sheet Highlights (Unaudited) | Account | March 31, 2022 | September 30, 2021 | | :--- | :--- | :--- | | **Total Assets** | **$288,358,485** | **$310,109,193** | | Cash and cash equivalents | $9,431,990 | $1,518,317 | | Investment in unconsolidated affiliates | $27,321,251 | $64,867,319 | | **Total Liabilities** | **$182,895,756** | **$210,407,484** | | Long-term debt, net | $104,841,078 | $133,471,427 | | **Total Stockholders' Equity** | **$105,462,729** | **$99,701,709** | [Condensed Consolidated Statements of Income](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) The company shifted from net income to a $24.5 million net loss in Q2 2022, primarily due to a $39.8 million MVP impairment, despite increased operating revenues Income Statement Summary (Unaudited) | Metric | Three Months Ended Mar 31, 2022 | Three Months Ended Mar 31, 2021 | Six Months Ended Mar 31, 2022 | Six Months Ended Mar 31, 2021 | | :--- | :--- | :--- | :--- | :--- | | Total operating revenues | $29,529,683 | $28,253,662 | $52,792,763 | $47,770,679 | | Operating Income | $7,443,388 | $7,099,426 | $12,821,811 | $12,680,813 | | Impairment of unconsolidated affiliates | ($39,822,213) | $0 | ($39,822,213) | $0 | | **Net Income (Loss)** | **($24,494,429)** | **$4,767,478** | **($20,909,900)** | **$9,490,741** | | **Diluted EPS (Loss)** | **($2.89)** | **$0.58** | **($2.48)** | **$1.16** | [Condensed Consolidated Statements of Cash Flows](index=12&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash from operations increased to $13.0 million due to non-cash adjustments, while financing activities rose significantly from a $28.3 million stock issuance Cash Flow Summary (Six Months Ended March 31, Unaudited) | Cash Flow Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $12,992,906 | $9,611,402 | | Net cash used in investing activities | ($14,278,880) | ($11,691,440) | | Net cash provided by financing activities | $9,199,647 | $2,515,521 | | **Net increase in cash** | **$7,913,673** | **$435,483** | [Notes to Condensed Consolidated Financial Statements](index=13&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Key notes detail a $27 million equity offering, a $39.8 million MVP impairment, segment results, and compliance with debt covenants - In March 2022, the Company issued 1,350,000 shares of common stock, raising net proceeds of nearly **$27 million** to strengthen its balance sheet and fund infrastructure programs[25](index=25&type=chunk) - A pre-tax impairment loss of approximately **$39.8 million** was recognized in Q2 2022 on the company's investment in the Mountain Valley Pipeline (MVP) and Southgate projects due to unfavorable court rulings that increased uncertainty about the projects' completion[42](index=42&type=chunk)[44](index=44&type=chunk) Segment Income (Loss) Before Income Taxes (Three Months Ended March 31, 2022) | Segment | Income (Loss) Before Taxes | | :--- | :--- | | Gas Utility | $7,117,202 | | Investment in Affiliates | ($40,279,495) | | Parent and Other | $23,689 | | **Consolidated Total** | **($33,138,604)** | - The company was in compliance with **all debt covenants** as of March 31, 2022, including a key covenant that excludes the non-cash impairment on LLC investments from the interest coverage ratio calculation[61](index=61&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=37&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the $39.8 million MVP impairment, stable Gas Utility business, $27 million equity raise, and ongoing MVP project challenges [Results of Operations](index=41&type=section&id=Results%20of%20Operations) Net income fell to a loss due to the $39.8 million MVP impairment, while gross utility margin increased by 6% to $14.6 million, and O&M expenses rose Gross Utility Margin Comparison (Three Months Ended March 31) | Metric | 2022 | 2021 | Increase | Percentage | | :--- | :--- | :--- | :--- | :--- | | Gas Utility Revenues | $29,499,219 | $28,221,274 | $1,277,945 | 5% | | Cost of Gas - Utility | $14,923,575 | $14,447,057 | $476,518 | 3% | | **Gross Utility Margin** | **$14,575,644** | **$13,774,217** | **$801,427** | **6%** | - The increase in gross utility margin for Q2 2022 was driven by higher SAVE revenues (+$193k), WNA revenues (+$307k), and transportation volumes[115](index=115&type=chunk)[117](index=117&type=chunk) - Operations and maintenance expenses for Q2 2022 increased by **8%** (**$310,537**), primarily due to higher bad debt expense (+$194k), insurance premiums (+$43k), and professional services for the LLC impairment valuation (+$44k)[117](index=117&type=chunk) [Equity Investment in Mountain Valley Pipeline](index=48&type=section&id=Equity%20Investment%20in%20Mountain%20Valley%20Pipeline) The MVP project faced significant legal setbacks, leading to a $39.8 million impairment loss and a revised completion target of H2 2023 at $6.6 billion - The Fourth Circuit vacated and remanded key permits for the MVP project in January and February 2022, creating significant uncertainty[148](index=148&type=chunk) - As a result of legal setbacks, the company recorded a pre-tax impairment loss of approximately **$39.8 million** on its LLC investment in the second quarter of fiscal 2022[154](index=154&type=chunk) - The MVP operator is now targeting a full in-service date in the **second half of 2023** with a revised total project cost of approximately **$6.6 billion** (excluding AFUDC)[148](index=148&type=chunk) [Capital Resources and Liquidity](index=52&type=section&id=Capital%20Resources%20and%20Liquidity) The company's liquidity improved with a $27 million equity offering, increased operating cash flow, renewed credit lines, and a 46% equity to 54% debt capitalization ratio - A March 2022 equity offering of 1,350,000 common shares resulted in net proceeds of nearly **$27 million**, which was used to strengthen the balance sheet and reduce debt[170](index=170&type=chunk) - On March 31, 2022, Roanoke Gas entered into a new one-year unsecured line-of-credit agreement with borrowing limits ranging from **$21 million to $33 million**[168](index=168&type=chunk) - The company's long-term capitalization ratio stood at **46% equity** and **54% debt** as of March 31, 2022[173](index=173&type=chunk) Part II [Item 1A. Risk Factors](index=56&type=section&id=Item%201A.%20Risk%20Factors) Updated risk factors highlight increased uncertainty for the MVP investment due to adverse court rulings, potentially leading to further impairment and impacting financial position - The primary updated risk factor relates to the Investment in Mountain Valley Pipeline, LLC, following adverse rulings by the Fourth Circuit Court in early 2022[181](index=181&type=chunk) - The company warns that future circumstances, such as construction delays or further permit denials, could lead to additional and possibly **full impairment** of the remaining investment in the LLC[181](index=181&type=chunk) - Significant delays or failure to receive requisite approvals for the MVP could **materially impact** Resources' consolidated financial position, results of operations, and ability to pay shareholder dividends at the current level[182](index=182&type=chunk)[185](index=185&type=chunk) [Other Items](index=56&type=section&id=Other%20Items) No material legal proceedings, unregistered equity sales, senior security defaults, or mine safety disclosures were reported for the period - Item 1 – Legal Proceedings: No material proceedings[179](index=179&type=chunk) - Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds: None[189](index=189&type=chunk) - Item 3 – Defaults Upon Senior Securities: None[190](index=190&type=chunk)

Financial Data and Key Metrics Changes - The first quarter operating income for Roanoke Gas showed a modest decline compared to the prior year's quarterly results, with gross margins increasing due to the SAVE rider and customer growth, offset by higher depreciation expense and receipt of CARES Act money in the previous year [5][6] - Consolidated earnings per share decreased to $1.08 compared to $1.38 for the prior 12 months, primarily due to a $4.6 million decline in equity and earnings from Midstream's investment in the Mountain Valley pipeline [7] Business Line Data and Key Metrics Changes - Residential volumes declined by 8% and commercial volumes declined by 5% due to significantly warmer weather in December 2021, which was 32% lower in heating degree days compared to normal [3][2] - Industrial volumes were down, primarily due to a large customer switching its primary fuel from natural gas to coal in 2020; excluding this customer, industrial volumes would have increased [3] Market Data and Key Metrics Changes - The capital spending during the first quarter of the current fiscal year is running slightly ahead of the previous year, with a focus on customer growth and system expansion, including investments in the Blue Ridge project [4][9] - The company expects to spend approximately $25 million in capital expenditures for the fiscal year, marking the largest capital spend in Roanoke Gas's 139-year history [9] Company Strategy and Development Direction - The company is focused on expanding its customer base and infrastructure, with ongoing projects such as the Blue Ridge pipeline and main extensions [11][12] - Management emphasized the importance of the Mountain Valley pipeline for future service and growth, citing the need for more natural gas infrastructure in the Eastern United States [16][17] Management's Comments on Operating Environment and Future Outlook - Management noted that despite the challenges posed by recent court decisions affecting the Mountain Valley pipeline, the long-term demand for natural gas remains strong and unchanged [17][18] - The company remains optimistic about customer growth and the economic development of the Roanoke region, which has seen significant growth over the past several years [14][16] Other Important Information - The company has started the renewal of the loan gate station, with completion expected by late summer [10] - Management indicated that the Mountain Valley pipeline project is still under review due to recent legal challenges, and further updates will be provided as more information becomes available [12][18] Q&A Session Summary Question: Guidance on volumes for the heating season - Management confirmed that December was significantly warmer than normal, impacting volumes, but January has been colder, leading to stronger delivered volumes [24][25] Question: Impact of recent court decisions on Mountain Valley pipeline - Management stated that the exact implications of the court decision are still being determined, particularly regarding work in the Jefferson National Forest [26][27] Question: Timeline for returning to the field for construction - Management indicated that construction would depend on weather conditions, with a reasonable expectation for work to resume in April if conditions improve [27]

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 December 31, 2021 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 In ...

RGC Resources, Inc. (NASDAQ:RGCO) Q4 2021 Earnings Conference Call December 3, 2021 9:00 AM ET Company Participants Paul Nestor – President and CEO of RGC Resources Tommy Oliver – CFO David Garcia – Director of Finance Automated Voice – Unidentified Conference Call Participants Mike – Analyst Jack – Analyst Automated Voice You will now be placed into conference. Paul Nestor Good morning. I'm Paul Nestor, President and CEO of RGC Resources. Thank you for taking time on this Friday to join us for our Fourth Q ...

Part I [Business](index=11&type=section&id=Item%201.%20Business) RGC Resources, Inc. operates Roanoke Gas, a regulated natural gas utility, with revenue dominated by utility operations and a focus on residential customers - RGC Resources, Inc. is a holding company primarily operating Roanoke Gas, a regulated natural gas utility, and holds an investment in the Mountain Valley Pipeline (MVP)[21](index=21&type=chunk)[22](index=22&type=chunk)[23](index=23&type=chunk) Customer and Margin Mix (FY 2021) | Customer Category | % of Customers | % of Volume | % of Revenue | % of Margin | | :--- | :--- | :--- | :--- | :--- | | Residential | 91.3% | 37% | 58% | 63% | | Commercial | 8.6% | 31% | 34% | 25% | | Industrial | 0.1% | 32% | 7% | 11% | - The company's business is seasonal, with approximately **63% of natural gas deliveries** occurring between November and March[28](index=28&type=chunk) - Roanoke Gas relies on two main interstate pipelines and operates an LNG facility with **200,000 DTH of storage capacity** for peak demand[29](index=29&type=chunk)[30](index=30&type=chunk) - The company holds exclusive, long-term franchise agreements in its primary service areas, renewed until **December 31, 2035**[33](index=33&type=chunk) - As of September 30, 2021, the company had **99 full-time employees**, with **17% unionized** under an agreement expiring July 31, 2022[40](index=40&type=chunk) [Risk Factors](index=16&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant operational, regulatory, and financial risks, notably dependence on pipelines, cyber threats, and MVP investment delays - Operational risks include **100% reliance on two interstate pipelines** for gas transport, system failures, and cyber-attack vulnerability[46](index=46&type=chunk)[47](index=47&type=chunk)[49](index=49&type=chunk) - Regulatory risks include new environmental laws, increased pipeline safety requirements, and the need for timely rate relief from the Virginia SCC[60](index=60&type=chunk)[61](index=61&type=chunk)[62](index=62&type=chunk) - The Mountain Valley Pipeline (MVP) investment poses a major financial risk due to significant delays and cost overruns impacting financial position and dividend capacity[65](index=65&type=chunk)[66](index=66&type=chunk)[67](index=67&type=chunk) - The company faces financial risks from pandemics like COVID-19, potentially reducing demand, increasing bad debt, and straining liquidity[73](index=73&type=chunk)[74](index=74&type=chunk)[75](index=75&type=chunk) - Costs and funding obligations for defined benefit pension and retiree medical plans depend on market returns and actuarial assumptions, posing financial risk[79](index=79&type=chunk) [Unresolved Staff Comments](index=27&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments from the SEC - No unresolved staff comments[84](index=84&type=chunk) [Properties](index=27&type=section&id=Item%202.%20Properties) The company's properties include approximately **1,157 miles of pipelines** and an **LNG storage facility** with **200,000 DTH capacity** - The company's utility property includes approximately **1,157 miles of transmission and distribution pipeline**, representing **89% of total utility plant investment**[85](index=85&type=chunk) - The company owns an LNG storage facility with a capacity to store up to **200,000 DTH of natural gas**[86](index=86&type=chunk) [Legal Proceedings](index=27&type=section&id=Item%203.%20Legal%20Proceedings) The company is not known to be a party to any pending legal proceedings - The Company is not known to be a party to any pending legal proceedings[88](index=88&type=chunk) [Mine Safety Disclosures](index=27&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[89](index=89&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=28&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock trades on NASDAQ under RGCO, with **FY2021 dividends totaling $0.74 per share**, up from **$0.70** in FY2020 - The company's common stock is listed on the NASDAQ Global Market under the trading symbol **RGCO**[92](index=92&type=chunk) Quarterly Stock Price and Dividends | Year Ending Sep 30 | Quarter | High Price ($) | Low Price ($) | Dividends Declared ($) | | :--- | :--- | :--- | :--- | :--- | | **2021** | First | $27.40 | $22.82 | $0.185 | | | Second | $25.60 | $22.08 | $0.185 | | | Third | $25.60 | $21.32 | $0.185 | | | Fourth | $26.02 | $22.33 | $0.185 | | **2020** | First | $30.00 | $27.53 | $0.175 | | | Second | $31.98 | $24.55 | $0.175 | | | Third | $28.85 | $23.15 | $0.175 | | | Fourth | $24.86 | $22.58 | $0.175 | Equity Compensation Plan Information (as of Sep 30, 2021) | Plan Category | Securities to be issued upon exercise | Weighted-average exercise price ($) | Securities remaining available for future issuance | | :--- | :--- | :--- | :--- | | Approved by security holders | 45,250 | $19.34 | 457,079 | [Selected Financial Data](index=28&type=section&id=Item%206.%20Selected%20Financial%20Data) This item is not applicable as the company is a smaller reporting company - Not applicable[94](index=94&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=30&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial performance, noting increased revenues from higher gas prices but decreased net income due to lower MVP equity earnings and ongoing investment in infrastructure [Results of Operations (FY2021 vs. FY2020)](index=35&type=section&id=Results%20of%20Operations) FY2021 operating revenues increased **19% to $75.2 million**, but net income decreased to **$10.1 million** due to a **$3.1 million reduction** in MVP equity earnings Operating Revenues and Delivered Volumes | Year Ended September 30, | 2021 ($) | 2020 ($) | Change ($) | % Change | | :--- | :--- | :--- | :--- | :--- | | Total Operating Revenues | $75,174,779 | $63,075,391 | $12,099,388 | 19% | | Total Delivered Volumes (DTH) | 9,909,529 | 10,357,174 | (447,645) | (4)% | Gross Utility Margin | Year Ended September 30, | 2021 ($) | 2020 ($) | Change ($) | % Change | | :--- | :--- | :--- | :--- | :--- | | Gas Utility Revenues | $75,045,103 | $62,408,925 | $12,636,178 | 20% | | Cost of Gas - Utility | $35,179,842 | $23,949,481 | $11,230,361 | 47% | | **Gross Utility Margin** | **$39,865,261** | **$38,459,444** | **$1,405,817** | **4%** | - Equity in earnings from the MVP decreased by **$3.1 million** in FY2021 due to temporary cessation of AFUDC activity[124](index=124&type=chunk) Net Income and Earnings Per Share | Metric | FY 2021 ($) | FY 2020 ($) | | :--- | :--- | :--- | | Net Income | $10,102,062 | $10,564,534 | | Basic & Diluted EPS | $1.22 | $1.30 | [Capital Resources and Liquidity](index=38&type=section&id=Capital%20Resources%20and%20Liquidity) Liquidity is managed through cash flow, debt, and equity, with FY2021 operating cash decreasing to **$11.6 million** and **$25.8 million** used in investing activities Summary of Cash Flows | Cash Flow Summary (Years Ended Sep 30) | 2021 ($) | 2020 ($) | | :--- | :--- | :--- | | Net cash provided by operating activities | $11,568,108 | $12,823,903 | | Net cash used in investing activities | ($25,849,237) | ($30,721,011) | | Net cash provided by financing activities | $15,508,380 | $16,556,826 | | Net increase (decrease) in cash | $1,227,251 | ($1,340,282) | - Capital expenditures for Roanoke Gas's utility plant were approximately **$20 million** in FY2021, primarily for pipe replacement and customer growth[139](index=139&type=chunk) - Midstream's cash investment in the MVP was **$6.0 million** in FY2021, with total expected funding increasing to between **$60 million and $62 million**[141](index=141&type=chunk) - The company issued **142,726 shares** through its At-the-Market (ATM) stock offering program during fiscal 2021[149](index=149&type=chunk) [Equity Investment in Mountain Valley Pipeline](index=43&type=section&id=Equity%20Investment%20in%20Mountain%20Valley%20Pipeline) The MVP project faces ongoing legal and regulatory challenges, targeting a summer 2022 in-service date at a **$6.2 billion** cost, with AFUDC accrual temporarily suspended - The MVP project targets a full in-service date in **summer 2022** at an estimated total cost of approximately **$6.2 billion** (excluding AFUDC)[154](index=154&type=chunk) - The LLC temporarily suspended AFUDC accrual from **January 1, 2021, through March 31, 2021**, significantly reducing equity earnings from the MVP investment[156](index=156&type=chunk) - Management, with a third-party valuation, concluded the MVP investment was **not impaired** as of September 30, 2021[157](index=157&type=chunk) [Critical Accounting Policies and Estimates](index=49&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) Critical accounting policies involve significant estimates for regulatory accounting, revenue recognition, doubtful accounts, pension and postretirement benefits, and derivative instruments - Critical accounting policies include Regulatory Accounting (ASC 980), Revenue Recognition, Allowance for Doubtful Accounts, Pension and Postretirement Benefits, and Derivatives[169](index=169&type=chunk)[170](index=170&type=chunk)[172](index=172&type=chunk)[177](index=177&type=chunk)[179](index=179&type=chunk) Pension and Postretirement Plan Funded Status (as of Sep 30) | Plan | Funded Status 2021 ($) | Funded Status 2020 ($) | | :--- | :--- | :--- | | Pension | $1,259,639 (103% funded) | ($2,340,371) (94% funded) | | Postretirement | ($914,507) | ($3,809,156) | - The company shifted its pension plan asset allocation to **30% equity / 70% fixed income** and adopted a Liability Driven Investment (LDI) approach[183](index=183&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=57&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This item is not applicable as the company is a smaller reporting company - Not applicable[191](index=191&type=chunk) [Financial Statements and Supplementary Data](index=57&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents the company's audited consolidated financial statements for FY2021 and FY2020, including the independent auditor's report and detailed notes Consolidated Balance Sheet Summary (as of Sep 30) | Metric | 2021 ($) | 2020 ($) | | :--- | :--- | :--- | | Total Assets | $310,109,193 | $281,679,507 | | Total Liabilities | $210,407,484 | $192,791,530 | | Total Stockholders' Equity | $99,701,709 | $88,887,977 | Consolidated Income Statement Summary (Years Ended Sep 30) | Metric | 2021 ($) | 2020 ($) | | :--- | :--- | :--- | | Total Operating Revenues | $75,174,779 | $63,075,391 | | Operating Income | $14,778,309 | $12,518,182 | | Net Income | $10,102,062 | $10,564,534 | | Diluted EPS | $1.22 | $1.30 | Consolidated Cash Flow Summary (Years Ended Sep 30) | Metric | 2021 ($) | 2020 ($) | | :--- | :--- | :--- | | Net Cash from Operations | $11,568,108 | $12,823,903 | | Net Cash from Investing | ($25,849,237) | ($30,721,011) | | Net Cash from Financing | $15,508,380 | $16,556,826 | - The independent auditor identified the valuation of the equity method investment in Mountain Valley Pipeline, LLC (MVP) as a Critical Audit Matter due to significant judgment required for fair value determination[199](index=199&type=chunk)[200](index=200&type=chunk)[201](index=201&type=chunk) [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=116&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - No changes in or disagreements with accountants on accounting and financial disclosure[375](index=375&type=chunk) [Controls and Procedures](index=116&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that disclosure controls and internal control over financial reporting were effective as of September 30, 2021, with no material changes - Management concluded the Company's disclosure controls and procedures were **effective** as of September 30, 2021[377](index=377&type=chunk) - Management concluded the Company's internal control over financial reporting was **effective** as of September 30, 2021, based on the COSO 2013 framework[381](index=381&type=chunk) [Other Information](index=118&type=section&id=Item%209B.%20Other%20Information) The company reports no other information for this item - No other information is reported for this item[383](index=383&type=chunk) Part III [Directors, Executive Officers and Corporate Governance](index=119&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information on directors, executive officers, and corporate governance is incorporated by reference from the 2022 Proxy Statement - Information for this item is incorporated by reference from the RGC Resources, Inc. Proxy Statement for the 2022 Annual Meeting of Shareholders[385](index=385&type=chunk)[386](index=386&type=chunk)[387](index=387&type=chunk) [Executive Compensation](index=119&type=section&id=Item%2011.%20Executive%20Compensation) Executive and director compensation information is incorporated by reference from the 2022 Proxy Statement - Information for this item is incorporated by reference from the Proxy Statement for the 2022 Annual Meeting of Shareholders[389](index=389&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=119&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Security ownership information for beneficial owners and management is incorporated by reference from the 2022 Proxy Statement - Security ownership information is incorporated by reference from the Proxy Statement for the 2022 Annual Meeting of Shareholders[391](index=391&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=119&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information on certain relationships, related transactions, and director independence is incorporated by reference from the 2022 Proxy Statement - Information for this item is incorporated by reference from the Proxy Statement for the 2022 Annual Meeting of Shareholders[392](index=392&type=chunk) [Principal Accounting Fees and Services](index=119&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) Principal accounting fees and services information is incorporated by reference from the 2022 Proxy Statement - Information for this item is incorporated by reference from the Proxy Statement for the 2022 Annual Meeting of Shareholders[393](index=393&type=chunk) Part IV [Exhibits and Financial Statement Schedules](index=121&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists financial statements, schedules, and exhibits filed with the Form 10-K, with financial statements under Item 8 - All financial statements of the registrant are filed as part of **Item 8** of the report[396](index=396&type=chunk) - Financial statement schedules are either inapplicable or the information is included within the consolidated financial statements and related notes[396](index=396&type=chunk) [Form 10-K Summary](index=134&type=section&id=Item%2016.%20Form%2010-K%20Summary) This item is not applicable - Not applicable[414](index=414&type=chunk)