RGC Resources(RGCO) - 2023 Q2 - Quarterly Report

Cover Page This section identifies the Quarterly Report (Form 10-Q) for RGC Resources, Inc. and provides key registrant details - This is a Quarterly Report (Form 10-Q) for RGC Resources, Inc. for the period ended March 31, 2023[2] Registrant Information | Field | Value | | :--- | :--- | | Registrant Name | RGC Resources, Inc. | | State of Incorporation | Virginia | | Commission File Number | 000-26591 | | Trading Symbol | RGCO | | Exchange | NASDAQ Global Market | | Filer Status | Non-accelerated filer, Smaller reporting company | - As of April 30, 2023, there were 9,924,848 shares of Common Stock, $5 Par Value, outstanding[6] Table of Contents This section outlines the report's structure, including financial information, management's discussion, and other disclosures - The report is structured into Part I (Financial Information) and Part II (Other Information), detailing financial statements, management's discussion, market risk, controls, legal proceedings, risk factors, and exhibits[8][9] Glossary of Terms This section defines key acronyms and terms used throughout the report, ensuring clarity and understanding - The glossary defines key acronyms and terms used throughout the report, such as AFUDC (Allowance for Funds Used During Construction), ARP (Alternative Revenue Program), DTH (Decatherm), EPS (Earnings Per Share), MVP (Mountain Valley Pipeline), PGA (Purchased Gas Adjustment), SCC (Virginia State Corporation Commission), and WNA (Weather Normalization Adjustment)[11][12][13] PART I. FINANCIAL INFORMATION This part presents the company's comprehensive financial data, including statements and detailed accounting notes ITEM 1. FINANCIAL STATEMENTS This section presents the unaudited condensed consolidated financial statements, along with detailed notes on accounting policies and specific financial items CONDENSED CONSOLIDATED BALANCE SHEETS This section provides a snapshot of the company's assets, liabilities, and equity at specific reporting dates Condensed Consolidated Balance Sheet Highlights (March 31, 2023 vs. September 30, 2022) | Metric | March 31, 2023 ($) | September 30, 2022 ($) | Change ($) | | :--- | :--- | :--- | :--- | | Total Assets | $296,452,222 | $290,309,243 | +$6,142,979 | | Total Current Assets | $32,360,035 | $35,548,319 | -$3,188,284 | | Utility Property, net | $239,285,862 | $229,861,074 | +$9,424,788 | | Total Liabilities and Stockholders' Equity | $296,452,222 | $290,309,243 | +$6,142,979 | | Total Current Liabilities | $43,632,463 | $22,315,310 | +$21,317,153 | | Current maturities of long-term debt | $25,100,000 | $1,300,000 | +$23,800,000 | | Long-term debt, net | $112,762,045 | $135,695,289 | -$22,933,244 | | Total Stockholders' Equity | $100,278,408 | $93,090,656 | +$7,187,752 | CONDENSED CONSOLIDATED STATEMENTS OF INCOME This section details the company's revenues, expenses, and net income (loss) over specific reporting periods Condensed Consolidated Statements of Income Highlights | Metric | Three Months Ended March 31, 2023 ($) | Three Months Ended March 31, 2022 ($) | Six Months Ended March 31, 2023 ($) | Six Months Ended March 31, 2022 ($) | | :--- | :--- | :--- | :--- | :--- | | Total Operating Revenues | $38,029,657 | $29,529,683 | $71,311,992 | $52,792,763 | | Total Operating Expenses | $28,438,235 | $22,086,295 | $56,176,085 | $39,970,952 | | Operating Income | $9,591,422 | $7,443,388 | $15,135,907 | $12,821,811 | | Impairment of unconsolidated affiliates | $0 | $(39,822,213) | $0 | $(39,822,213) | | Net Income (Loss) | $6,341,886 | $(24,494,429) | $9,598,291 | $(20,909,900) | | Basic Earnings (Loss) Per Common Share | $0.64 | $(2.89) | $0.97 | $(2.48) | | Diluted Earnings (Loss) Per Common Share | $0.64 | $(2.89) | $0.97 | $(2.48) | | Dividends Declared Per Common Share | $0.1975 | $0.1950 | $0.3950 | $0.3900 | - Net income significantly improved from a loss in the prior year, primarily due to the absence of a $39.8 million impairment charge on unconsolidated affiliates recorded in the three and six months ended March 31, 2022[18] CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME This section presents net income and other comprehensive income (loss) components, reflecting total non-owner changes in equity Condensed Consolidated Statements of Comprehensive Income Highlights | Metric | Three Months Ended March 31, 2023 ($) | Three Months Ended March 31, 2022 ($) | Six Months Ended March 31, 2023 ($) | Six Months Ended March 31, 2022 ($) | | :--- | :--- | :--- | :--- | :--- | | Net Income (Loss) | $6,341,886 | $(24,494,429) | $9,598,291 | $(20,909,900) | | Other comprehensive income (loss), net of tax | $(490,526) | $1,524,308 | $(659,193) | $1,875,391 | | Comprehensive Income (Loss) | $5,851,360 | $(22,970,121) | $8,939,098 | $(19,034,509) | - Other comprehensive income (loss) for the six months ended March 31, 2023, was a loss of $(659,193), primarily driven by interest rate swaps[20] CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY This section outlines changes in the company's equity from net income, dividends, and other comprehensive items Changes in Stockholders' Equity (Six Months Ended March 31, 2023) | Item | Amount ($) | | :--- | :--- | | Balance - September 30, 2022 | $93,090,656 | | Net Income | $9,598,291 | | Other comprehensive loss | $(659,193) | | Cash dividends declared | $(3,917,525) | | Issuance of common stock | $2,166,179 | | Balance - March 31, 2023 | $100,278,408 | - Total stockholders' equity increased by $7,187,752 from September 30, 2022, to March 31, 2023, primarily due to net income and common stock issuance, partially offset by cash dividends and other comprehensive loss[21] CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS This section categorizes cash inflows and outflows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows Highlights (Six Months Ended March 31) | Cash Flow Activity | 2023 ($) | 2022 ($) | | :--- | :--- | :--- | | Net cash provided by operating activities | $16,965,342 | $12,992,906 | | Net cash used in investing activities | $(14,350,139) | $(14,278,880) | | Net cash provided by (used in) financing activities | $(888,144) | $9,199,647 | | Net increase in cash and cash equivalents | $1,727,059 | $7,913,673 | | Ending Cash and Cash Equivalents | $6,625,973 | $9,431,990 | - Operating cash flows increased by $3.97 million YoY, while financing cash flows shifted from a $9.2 million inflow to an $0.89 million outflow, largely due to a significant equity offering in the prior year[22] NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements Note 1. Basis of Presentation This note describes the company's business, the basis for financial statement preparation, and significant accounting policies - RGC Resources, Inc. is an energy services company primarily engaged in the sale and distribution of natural gas, with consolidated financial statements including Roanoke Gas, Diversified Energy, and Midstream[23] - The unaudited condensed consolidated financial statements are prepared in accordance with SEC rules and GAAP, with results for the three and six months ended March 31, 2023, not indicative of the full fiscal year due to the seasonal nature of the business[24][25] - The company anticipates adopting ASU 2020-04 (Reference Rate Reform) later in fiscal 2023, which addresses the transition from LIBOR to other reference rates for financial contracts[28] Note 2. Stock Issue This note details common stock issuances, including an equity offering and shares issued through various plans - In March 2022, the Company issued 1,350,000 shares of common stock in an equity offering, generating nearly $27,000,000 in net proceeds to strengthen its balance sheet and fund infrastructure improvements[30] - During fiscal 2023, through March 31, 2023, 102,812 shares of common stock were issued through the DRIP, Restricted Stock, stock option exercises, and ATM activity[31] Note 3. Revenue This note outlines the company's revenue recognition policies, sources, and the impact of alternative revenue programs Total Operating Revenues by Type (Six Months Ended March 31) | Revenue Type | 2023 ($) | 2022 ($) | | :--- | :--- | :--- | | Gas utility | $71,253,744 | $52,730,874 | | Non utility | $58,248 | $61,889 | | Total operating revenues | $71,311,992 | $52,792,763 | - Roanoke Gas's revenues are primarily derived from SCC-authorized tariff rates for natural gas sales and delivery, with performance obligations satisfied over time as gas is delivered[34][35] - Alternative Revenue Programs (ARPs), such as the Weather Normalization Adjustment (WNA), SAVE Plan, and Renewable Natural Gas (RNG) mechanisms, adjust revenues for external factors like weather variations or infrastructure replacement costs[38] Note 4. Income Taxes This note explains the effective tax rates, factors causing deviations from statutory rates, and ongoing tax examinations Effective Tax Rates | Period | March 31, 2023 (%) | March 31, 2022 (%) | | :--- | :--- | :--- | | Three Months Ended | 23.8% | 26.1% | | Six Months Ended | 23.6% | 26.6% | | Six Months Ended (Excluding LLC impairment) | 23.6% | 23.7% | - The effective tax rates are lower than the combined federal and state statutory rate (25.74%) due to additional tax deductions from the amortization of excess deferred taxes and R&D tax credits[41] - The IRS is currently examining the Company's 2018 and 2019 federal tax returns[43] Note 5. Rates and Regulatory Matters This note discusses regulatory filings, rate increases, and the status of the SAVE Plan and Renewable Natural Gas project - Roanoke Gas filed for an $8.55 million annual increase in non-gas base rates, which became interim effective on January 1, 2023, subject to refund, with final resolution expected in late 2023 or early 2024[45][46][47] - A new five-year SAVE Plan and Rider application was filed on March 31, 2023, seeking recovery for an estimated $49.5 million in eligible infrastructure investments through September 30, 2028[49] - The Renewable Natural Gas (RNG) project became operational in March 2023, with SCC approval for a rate adjustment clause to recover associated costs, and billing to customers commenced on March 1, 2023[50] Note 6. Other Investments This note details the company's equity investment in the Mountain Valley Pipeline (MVP) and related impairment considerations - Midstream holds an approximate 1% equity investment in the Mountain Valley Pipeline (MVP) project, which continues to face legal and regulatory delays, leading to the suspension of AFUDC accruals since November 2021[53] - In fiscal 2022, Midstream recorded pre-tax impairment charges of $39.8 million and $15.3 million on its MVP investment due to unfavorable legal decisions and increased regulatory uncertainties[56][57] - As of March 31, 2023, management, with a valuation specialist, determined the MVP investment was fairly stated and no further impairment was required, but acknowledged ongoing risks[59][60] Investment in Unconsolidated Affiliates (March 31, 2023 vs. September 30, 2022) | Investment | March 31, 2023 ($) | September 30, 2022 ($) | | :--- | :--- | :--- | | MVP | $15,008,995 | $13,689,370 | | Southgate | $88,080 | $83,705 | | Total Investment | $15,097,075 | $13,773,075 | Note 7. Derivatives and Hedging This note describes the company's use of interest rate swaps for hedging and their fair value measurement - The Company uses five interest rate swaps to manage variable rate debt, converting it to fixed rates, which qualify as cash flow hedges with changes in fair value reported in other comprehensive income[67][68] - On April 3, 2023, Roanoke Gas amended a $10 million interest rate swap to revise the floating rate from LIBOR to Term SOFR, effective April 1, 2023[69] Fair Value of Interest Rate Swaps (March 31, 2023 vs. September 30, 2022) | Item | March 31, 2023 ($) | September 30, 2022 ($) | | :--- | :--- | :--- | | Interest rate swaps (Assets) | $3,871,379 | $4,798,467 | | Natural gas purchases (Liabilities) | $623,009 | $1,295,225 | Note 8. Short-Term Debt This note provides details on the company's revolving note, its terms, and outstanding balances - On March 24, 2023, Roanoke Gas entered into a new $25 million unsecured Revolving Note, replacing the previous line-of-credit, which matures on March 31, 2024, with a variable interest rate based on Term SOFR plus 110 basis points[72] - As of March 31, 2023, the Company had no outstanding balance under the new Revolving Note[72] Note 9. Long-Term Debt This note summarizes the company's long-term debt obligations, including types of notes and compliance with covenants - On March 24, 2023, Roanoke Gas amended a $10 million Term Note, revising its interest rate from LIBOR to Term SOFR plus 100 basis points, effective April 1, 2023[73] Long-Term Debt Summary (March 31, 2023) | Entity | Type of Note | Principal Amount ($) | | :--- | :--- | :--- | | Roanoke Gas | Unsecured senior notes payable, 4.26%, due 2034 | $30,500,000 | | Roanoke Gas | Unsecured term notes payable, 3.58%, due 2027 | $8,000,000 | | Roanoke Gas | Unsecured term notes payable, 4.41%, due 2031 | $10,000,000 | | Roanoke Gas | Unsecured term notes payable, 3.60%, due 2029 | $10,000,000 | | Roanoke Gas | Unsecured term note payable, 30-day SOFR + 1.20%, due 2026 | $15,000,000 | | Roanoke Gas | Unsecured term note payable, Term SOFR + 1.00%, due 2028 | $10,000,000 | | Midstream | Unsecured term notes payable, TERM SOFR + 1.50%, due 2023 | $23,000,000 | | Midstream | Unsecured term note payable, 30-day LIBOR + 1.15%, due 2026 | $14,000,000 | | Midstream | Unsecured term note payable, 30-day LIBOR + 1.20%, due 2024 | $9,625,000 | | Midstream | Unsecured term note payable, 30-day LIBOR + 1.15%, due 2028 | $8,000,000 | | Total Long-Term Debt | | $138,125,000 | | Less: Current maturities | | $(25,100,000) | | Total Long-Term Debt, net current maturities | | $113,025,000 | - The Company was in compliance with all debt covenants as of March 31, 2023, and September 30, 2022[76] Note 10. Other Comprehensive Income (Loss) This note details components of other comprehensive income (loss), primarily from interest rate swaps and benefit plans Other Comprehensive Income (Loss) (Six Months Ended March 31) | Component | Before-Tax Amount (2023) ($) | Net-of-Tax Amount (2023) ($) | | :--- | :--- | :--- | | Net interest rate swaps | $(927,088) | $(688,455) | | Defined benefit plans | $39,406 | $29,262 | | Total Other Comprehensive Loss | $(887,682) | $(659,193) | - The accumulated other comprehensive income (loss) balance at March 31, 2023, was $1,305,171, reflecting a decrease from September 30, 2022, primarily due to losses from interest rate swaps[78] Note 11. Commitments and Contingencies This note outlines the company's franchise agreements and the expected benefits from the Mountain Valley Pipeline - Roanoke Gas holds exclusive franchises and Certificates of Public Convenience and Necessity (CPCNs) for natural gas distribution in its service area, with current franchise agreements expiring December 31, 2035[80] - The Mountain Valley Pipeline (MVP) is expected to provide Roanoke Gas with an additional delivery source, enhancing system reliability and capacity to meet future natural gas demands[81] Note 12. Earnings Per Share This note presents the calculation of basic and diluted earnings per common share and their year-over-year changes Earnings Per Share (Six Months Ended March 31) | Metric | 2023 ($) | 2022 ($) | | :--- | :--- | :--- | | Net income (loss) | $9,598,291 | $(20,909,900) | | Weighted average common shares | 9,870,259 (shares) | 8,434,689 (shares) | | Basic EPS | $0.97 | $(2.48) | | Diluted EPS | $0.97 | $(2.48) | - Basic and diluted earnings per common share significantly improved from a loss in the prior year to positive earnings in the current period, reflecting the turnaround in net income[83] Note 13. Employee Benefit Plans This note details net periodic pension and postretirement benefit costs and funding contributions Net Periodic Pension and Postretirement Benefit Costs (Six Months Ended March 31, 2023) | Component | Pension Cost ($) | Postretirement Benefit Cost ($) | | :--- | :--- | :--- | | Service cost | $183,270 | $22,950 | | Interest cost | $686,050 | $310,312 | | Expected return on plan assets | $(616,298) | $(232,024) | | Recognized loss | $158,362 | $0 | | Net periodic cost (benefit) | $411,384 | $101,238 | - No funding contributions were made to either the pension plan or postretirement plan for the three and six months ended March 31, 2023, and none are planned for the remainder of fiscal 2023[85] Note 14. Fair Value Measurements This note describes the fair value hierarchy and measurement techniques for financial instruments like swaps and debt Fair Value Measurements (March 31, 2023) | Item | Fair Value ($) | Level 1 ($) | Level 2 ($) | Level 3 ($) | | :--- | :--- | :--- | :--- | :--- | | Assets: Interest rate swaps | $3,871,379 | $0 | $3,871,379 | $0 | | Liabilities: Natural gas purchases | $623,009 | $0 | $623,009 | $0 | | Liabilities not adjusted to fair value: Current maturities of long-term debt | $25,075,314 | $0 | $0 | $25,075,314 | | Liabilities not adjusted to fair value: Notes payable | $110,157,640 | $0 | $0 | $110,157,640 | - The fair value of interest rate swaps and natural gas purchases are determined using Level 2 inputs, while the fair value of long-term debt is estimated using Level 3 inputs based on discounted future cash flows and market conditions[89][94] Note 15. Segment Information This note provides financial data broken down by the company's reportable segments: Gas Utility, Investment in Affiliates, and Parent and Other - The Company's reportable segments are Gas Utility, Investment in Affiliates (primarily MVP), and Parent and Other (unregulated activities and corporate eliminations)[99][100] Segment Operating Revenues and Income (Six Months Ended March 31, 2023) | Segment | Operating Revenues ($) | Operating Income (Loss) ($) | | :--- | :--- | :--- | | Gas Utility | $71,253,744 | $15,194,665 | | Investment in Affiliates | $0 | $(105,451) | | Parent and Other | $58,248 | $46,693 | | Consolidated Total | $71,311,992 | $15,135,907 | Segment Total Assets (March 31, 2023) | Segment | Total Assets ($) | | :--- | :--- | | Gas Utility | $262,105,231 | | Investment in Affiliates | $16,022,382 | | Parent and Other | $18,324,609 | | Consolidated Total | $296,452,222 | Note 16. Regulatory Assets and Liabilities This note details the company's regulatory assets and liabilities, reflecting deferred costs and expected customer recoveries - The Company's regulated operations follow ASC 980, allowing deferral of costs (regulatory assets) or imposition of liabilities (regulatory liabilities) based on expected customer recovery or future cost incurrence[103] Regulatory Assets and Liabilities (March 31, 2023) | Category | March 31, 2023 ($) | | :--- | :--- | | Total regulatory assets | $9,179,208 | | - Accrued WNA revenues | $2,805,972 | | - Under-recovery of RNG revenues | $95,290 | | Total regulatory liabilities | $39,484,629 | | - Over-recovery of gas costs | $1,246,485 | | - Rate refund | $763,282 | | - Supplier refunds | $695,474 | - As of March 31, 2023, the Company had $9,167,263 in regulatory assets on which it did not earn a return during the recovery period[105] Note 17. Subsequent Events This note reports on any material events occurring after the balance sheet date that impact the financial statements - No material subsequent events were identified that would have materially impacted the Company's condensed consolidated financial statements[106] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section provides management's analysis of financial performance, liquidity, and key operational drivers Forward-Looking Statements This section cautions that the report contains forward-looking statements subject to risks and uncertainties - The report contains forward-looking statements based on management's current expectations, which are subject to various risks and uncertainties that could cause actual results to differ materially[107] - The Company assumes no duty to update these statements unless required by applicable laws and regulations[108] Overview This section provides a general business description, regulatory context, and key operational developments - RGC Resources, Inc. is an energy services company primarily engaged in the regulated sale and distribution of natural gas to approximately 63,200 customers through its Roanoke Gas subsidiary[111] - Midstream's investment in the Mountain Valley Pipeline (MVP) project continues to be on hold due to legal and regulatory challenges, particularly concerning water crossing permits[112] - Roanoke Gas implemented new non-gas base rates effective January 1, 2023, designed to provide an $8.55 million annual revenue increase, subject to refund pending final SCC order[114] - The Company utilizes various approved rate mechanisms, including SAVE Rider, Weather Normalization Adjustment (WNA), Inventory Carrying Cost (ICC), Renewable Natural Gas (RNG), and Purchased Gas Adjustment (PGA), to mitigate the impact of weather variations and commodity price volatility[116] WNA Accrued Revenues (Three and Six Months Ended March 31, 2023) | Period | Accrued Revenues ($) | Weather Variance from Normal (%) | | :--- | :--- | :--- | | Three Months Ended March 31, 2023 | ~$2,800,000 | 28% warmer | | Six Months Ended March 31, 2023 | ~$2,612,000 | 15% warmer | - ICC revenues increased by approximately $118,000 (three months) and $312,000 (six months) due to significantly higher natural gas commodity prices in storage[120] - The RNG facility began operation in March 2023, with costs recovered through an RNG Rider, and customer benefits include monetization of environmental credits[121] Results of Operations This section analyzes the company's financial performance, including revenue, expenses, and net income drivers - Net income increased by $30.8 million (three months) and $30.5 million (six months) compared to the prior year, primarily due to the absence of the $39.8 million impairment charge on unconsolidated affiliates recorded in fiscal 2022[126][139] Operating Revenues and Delivered Volumes (Three Months Ended March 31) | Metric | 2023 ($) | 2022 ($) | Change ($) | Percentage Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total Operating Revenues | $38,029,657 | $29,529,683 | +$8,499,974 | +29% | | Regulated Natural Gas | 3,448,807 (DTH) | 4,242,022 (DTH) | (793,215) (DTH) | (19)% | | Heating Degree Days (HDD) | 1,487 | 1,918 | (431) | (22)% | Operating Revenues and Delivered Volumes (Six Months Ended March 31) | Metric | 2023 ($) | 2022 ($) | Change ($) | Percentage Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total Operating Revenues | $71,311,992 | $52,792,763 | +$18,519,229 | +35% | | Regulated Natural Gas | 6,757,347 (DTH) | 6,930,193 (DTH) | (172,846) (DTH) | (2)% | | Heating Degree Days (HDD) | 3,010 | 3,079 | (69) | (2)% | Gross Utility Margin (Three and Six Months Ended March 31) | Period | 2023 ($) | 2022 ($) | Change ($) | Percentage Change (%) | | :--- | :--- | :--- | :--- | :--- | | Three Months Ended | $16,715,920 | $14,575,644 | +$2,140,276 | +15% | | Six Months Ended | $29,164,534 | $26,490,894 | +$2,673,640 | +10% | - Gross utility margin increased due to higher non-gas base rates and ICC revenues, despite a decrease in delivered volumes attributed to warmer weather, which was partially normalized by the WNA mechanism[129][130][142] - Interest expense increased by 26% (three months) and 25% (six months) due to higher weighted-average interest rates on variable-rate debt, despite a slight decline in total daily average debt outstanding[135][148] Critical Accounting Policies and Estimates This section confirms no significant changes to the company's critical accounting policies and estimates - There have been no significant changes to the critical accounting policies as reflected in the Company's Annual Report on Form 10-K for the year ended September 30, 2022[153] Asset Management This section describes the company's use of a third-party asset manager for optimizing gas supply and transportation - Roanoke Gas utilizes a third-party asset manager to optimize its pipeline transportation, storage rights, and gas supply, with a portion of the monthly utilization fee retained by the Company and the balance passed through to customers[154] - The current asset management agreement is set to end on March 31, 2025[154] Equity Investment in Mountain Valley Pipeline This section details the status of the MVP project, including legal challenges, cost increases, and management's investment re-evaluation - The Mountain Valley Pipeline (MVP) project continues to experience repeated, significant delays and cost increases due to ongoing legal challenges and regulatory setbacks, particularly from the Fourth Circuit[156] - The Fourth Circuit recently vacated the West Virginia Department of Environmental Protection (WVDEP) State 401 Approval on April 3, 2023, while denying challenges to the Virginia Department of Environmental Quality (VADEQ) State 401 Approval on March 29, 2023[159] - The LLC's managing partner expects requisite authorizations by early summer 2023, with a goal of completing the project by the end of calendar 2023 at an estimated total cost of $6.6 billion (excluding AFUDC), but acknowledges continued hostility and risk from the Fourth Circuit[162][164] - Management re-evaluated its investment as of March 31, 2023, and concluded no additional impairment was required, but will continue monitoring for future circumstances that may lead to further impairments[165] - On May 4, 2023, Midstream agreed to limit its future capital contributions to the MVP project, which will result in a proportionate adjustment to its ownership interest[167] Regulatory This section discusses regulatory developments, including rate applications, the SAVE Plan, and the RNG project - Roanoke Gas's application for an $8.55 million annual increase in non-gas base rates became interim effective January 1, 2023, subject to refund, with the SAVE Plan and Rider temporarily discontinued[169][170] - A new five-year SAVE Plan and Rider application was filed on March 31, 2023, for recovery of costs associated with estimated $49.5 million in SAVE eligible investments through September 30, 2028[173] - The Renewable Natural Gas (RNG) project became operational in March 2023, and billing to customers under the RNG rate adjustment began March 1, 2023, following SCC approval[174] - Roanoke Gas acquired natural gas distribution assets from a local housing authority, recognizing a pre-tax gain of approximately $219,000 in fiscal 2022[176] Capital Resources and Liquidity This section analyzes the company's cash flows, capital needs, and overall liquidity position - The Company's primary capital needs include funding capital projects, investment in the MVP, seasonal natural gas inventories, accounts receivables, dividend payments, and debt service[178] Cash Flow Summary (Six Months Ended March 31) | Cash Flow Activity | 2023 ($) | 2022 ($) | | :--- | :--- | :--- | | Net cash provided by operating activities | $16,965,342 | $12,992,906 | | Net cash used in investing activities | $(14,350,139) | $(14,278,880) | | Net cash provided by (used in) financing activities | $(888,144) | $9,199,647 | | Increase in cash and cash equivalents | $1,727,059 | $7,913,673 | - Net cash provided by operating activities increased by $3.97 million YoY, driven by declining storage gas levels and customer collections, while financing cash flows decreased significantly due to the prior year's $27 million equity offering[182][185] - Midstream has $23 million of debt maturing in December 2023, for which management is seeking an extension or refinancing option until the MVP is placed in service[188] - As of March 31, 2023, Resources' long-term capitalization ratio was 42% equity and 58% debt[189] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK This section states that no quantitative and qualitative disclosures about market risk are applicable for this period - This item is not applicable for the current reporting period[190] ITEM 4. CONTROLS AND PROCEDURES This section confirms the effectiveness of disclosure controls and procedures and reports no material changes to internal controls - The Company's disclosure controls and procedures were effective at the reasonable assurance level as of March 31, 2023[193] - There were no control changes during the fiscal quarter ended March 31, 2023, that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting[194] PART II. OTHER INFORMATION This part provides additional non-financial disclosures, including legal proceedings, risk factors, and exhibits ITEM 1. LEGAL PROCEEDINGS This section reports that there are no material legal proceedings to disclose for the company - No material legal proceedings were reported[196] ITEM 1A. RISK FACTORS This section indicates no material changes to the risk factors previously disclosed in the annual report - No material changes to the risk factors previously disclosed in Resources' Annual Report on Form 10-K for the year ended September 30, 2022[197] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS This section reports no unregistered sales of equity securities or use of proceeds during the period - No unregistered sales of equity securities and use of proceeds were reported[198] ITEM 3. DEFAULTS UPON SENIOR SECURITIES This section confirms that there were no defaults upon senior securities during the reporting period - No defaults upon senior securities were reported[199] ITEM 4. MINE SAFETY DISCLOSURES This section states that mine safety disclosures are not applicable to the company's operations - Mine safety disclosures are not applicable[200] ITEM 5. OTHER INFORMATION This section discloses a subsequent event regarding Midstream's limited capital contributions to the MVP project - On May 4, 2023, Midstream agreed to limit its future capital contributions to the MVP project, leading to a proportionate adjustment in its ownership interest[201] ITEM 6. EXHIBITS This section lists all supporting documents and certifications filed as exhibits with the Form 10-Q - The exhibits include various agreements (e.g., Letter Agreement, Promissory Notes, Loan Agreement, Guaranty Agreement, Swap Agreement) and certifications (e.g., Rule 13a–14(a)/15d–14(a) Certifications, Section 1350 Certifications)[203] SIGNATURES This section confirms the official signing and submission of the report by the authorized financial officer - The report was duly signed on May 5, 2023, by Jason A. Field, Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer) of RGC Resources, Inc[205][206][207]