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Presentation

Tommy Oliver: Good morning and thank you for joining us as we discuss RGC Resources, Inc.’s 2024 Second Quarter Results. I am Tommy Oliver, Senior Vice President, Regulatory and External Affairs for RGC Resources. I am joined this morning by Paul Nester, President and CEO of RGC Resources; and Tim Mulvaney, our Treasurer and CFO. Before we get started, I wanted to review a few administrative items. We have muted our lines and ask that all participants remain muted. The link to today’s presentation is available on Investor and Financial Information page on our website at www.rgcresources.com. At the conclusion of the presentation and our remarks, we will take questions. So let’s start on Slide 1. This presentation aims forecast and projections — Slide 1 has information about risks and uncertainty, including forward-looking statements that should be understood in the context of our public filings.

Slide 2 contains our agenda. We will review our quarterly operational and financial results, provide an update on our rate case and the MVP and discuss the outlook for the full year fiscal 2024 with time allotted for questions at the end. Turning to Slide 3. Total billed customers at the end of April were 63,660. This reflects our continued steady growth within our historic footprint. Main extensions for the first 6 months of the 2024 fiscal year totaled 1.2 miles and we connected 370 new services during that same period. Slide 4 shows our delivered gas volumes for the quarter. Volumes overall were 9% higher compared to last year’s second quarter, attributable to colder weather in the second quarter of the 2024 fiscal year. Gas volumes were up in total.

Residential and commercial volumes were higher as a result of more heating degree days. It was enhanced by a year-over-year increase in industrial throughput as natural gas prices are at historic levels. Slide 5 shows the same two charts for the year-to-date. Total volumes were up modestly for the first half of fiscal 2024 despite fewer heating degree days. As in the quarter, delivered gas volumes were lower. Now we are on Slide 6. Our CapEx spending totaled $11.3 million for the first 6 months of fiscal 2024 compared to $12.9 million [ph] last year at the same time. This decrease is attributable to the $3.1 million spent in 2023 related to the RNG facility, offset by current year spending for the MVP interconnections. Excluding the RNG spend, our overall capital spend is up $1.7 million over last fiscal year’s comparable period spending.

And Paul will discuss the full year’s capital spending projection shortly. And now I’m going to turn it over to Tim Mulvaney, our Treasurer and CFO, who will discuss our financial results. Tim?

Tim Mulvaney: Thank you, Tommy. We’re moving on to Slide 7. We had a steady quarter against inflationary headwinds. Second quarter operating income decreased $960,000 or approximately 10% to $8.6 million in the second quarter — compared to the second quarter of 2023. We continue to experience cost pressures across the board but particularly in personnel and IT-related costs. We expect this pressure to continue in the third quarter with rates under the February second filed rate case, taking effect July 1. Tommy will discuss the rate case in more detail shortly. Equity in the earnings of unconsolidated affiliates was $1.2 million pretax to noncash AFUDC which resulted from our investment in the MVP. This AFUDC will taper off as construction on various sections is completed and ultimately cease as the pipeline goes into service.

Interest expense increased $170,000 due to higher interest rate environment which is impacting our floating rate debt which supports our investment in the Mountain Valley Pipeline as well as the Roanoke Gas line of credit. Our net income was $6.4 million in the second quarter of this year compared to $6.3 million in the same quarter a year ago. The presence of the AFUDC from the MVP this year drove the strong results. EPS was $0.63 per diluted share for the second quarter of this year compared to $0.64 per diluted share in the quarter a year ago. The year-to-date numbers are also on Slide 7. The story, while similar to the second quarter is more favorable. Net income was $11.5 million or $1.13 per diluted share through 6 months of fiscal 2024 compared to $9.6 million or $0.97 per diluted share in fiscal ’23.

The inflationary pressures and higher interest rates were present as they were in the second quarter of fiscal 2024. Revenues from the prior year rate case were present for all 6 months of fiscal ’24 but only for 3 months in fiscal ’23. An additional note related to the balance sheet. We had nearly $34 million in debt supporting our investment in the MVP coming due in 2024 that we refinanced in two pieces with new maturities at the end of 2025 and in 2026. The details are in our Form 10-Q that we filed on Friday. Finally, we renewed our operating line of credit at Roanoke Gas in March. I will now turn the presentation back to Tommy to discuss our latest rate case. Tommy?

Tommy Oliver: Thank you, Tim. Rental gas, like most consumers and businesses continue to experience upward expense pressure. Accordingly, as we discussed in our prior earnings call, on February 2, we filed a general rate case with the Virginia State Corporation Commission in which we are seeking an increase in base rates of approximately $4.3 million or about a 5% increase in total revenues. The increase includes a projected rate base through June 30, 2025 and an increase in our authorized ROE to $10.35 [ph] which reflects current capital market conditions. The commission has authorized the new rates to go into effect July 1 subject to refund. The $4.3 million in incremental revenue does not include the roll-in of SAVE or RNG Capital and revenues as we had received authority for a new 5-year SAVE plan this past October.

Since the RNG facility by statute qualifies for a 100 basis point adder to our ROE, we do not expect the RNG facility to be ever rolled into base rates. The SEC staff review of our rate case is underway and a hearing with the commission is set for November 7. We do not expect final resolution until the second quarter of 2025. I will now pass the presentation to Paul Nester, President and CEO of RGC Resources to discuss the MVP.

Paul Nester: Good morning. Thank you, Tommy. We are on Slide 9. We truly are excited about the progress and what we believe to soon be the commercial operation of the Mountain Valley Pipeline. The MVP filed with FERC recently for permission to initiate operations and requested at May 23, 2024 in-service date. So just 2.5 weeks away. If the schedule hold, this would make the shipper contract for the pipeline active June first. For Roanoke Gas, we’ll interconnect with the pipeline in two locations, the Lafayette Gate station, we’ll see a picture in just a moment, is substantially complete and we are doing final testing on that station. The [indiscernible] station down in Franklin County is nearing substantial completion and we expect it to be ready when MVP gas flows again.

The picture you’re seeing on Slide 9 is actually from just about a week ago with the installation of the first distribution company natural gas lane in the history of Franklin County. This picture is in the Summit View Business Park, very close to the gate station. We’re just thrilled to finally be installing this pipe and approaching service to a customer in the Summit View Park. It really is a historic moment and something we’re pleased to be partnering with the county and the business community on. All right. Moving on to Slide 10. Let’s just take a look at where we think we’re going to end 2024 with respect to our capital spending as well as our earnings. And this is the picture I just mentioned of the Lafayette Gas station, as you can see, it looks fantastic and we’re so happy to have it nearing 100% in service.

Moving on to Slide 11. The 2024 Roanoke Gas capital investment plan is holding steady, up only slightly and we have been, of course, feeling pressure in capital expenditure just like our operating and maintenance expenditures, as Tim and Tommy have mentioned a few moments ago. However, our overspend is lower than 2023 because of the completion of the RNG project. I just want to note, we’re hitting our targets on our SAVE and renewal spending as well as our customer growth and system expansion plans there. And I want to compliment our entire operation. We just continue to work safely in the investments we’re making in our system to keep it safe and reliable are paying dividends. All right. On Slide 12, our consolidated earnings guidance, we haven’t changed this from what we shared with you in the first quarter.

As Tim mentioned in the results, the AFUDC from the Mount Valley project has been a little higher so far this year than we expected. Obviously, the slight changes in the in-service date and the slightly prolonged construction has influence that the rate case that Tommy just described with the interim rates to begin July 1 is a real driver for the second half of the year and in particular, the fiscal fourth quarter. So with that, we can conclude our prepared remarks.

A – Paul Nester: [Operator Instructions]

Michael Gaugler: I guess one question on gas supply. Now that you’re looking at Mountain Valley gas coming into the system here shortly, we’ve already got gas prices at pretty cheap levels. Is there a big step down in the cost of your gas supply when Mountain Valley starts mixing in, given where prices are today?

Paul Nester: Yes, that’s a great question, Mike. And you’re right, our earlier comments alluded to the really historically low natural gas prices, particularly when you’re looking at the Henry Hub or the NYMEX right now. Coming out of warm winter, gas prices are still low. Industrial and commercial demand is still strong which I think makes sense based on those low prices. Mountain Valley’s coming online, if you will, in a warmer period, Mike. We don’t see a lot of change in our overall natural gas basket or portfolio of pricing that our State Corporation Commission approved. How it rolls through the winter is something we’re more carefully analyzing and looking at, just a small regulatory tidbit which we alluded to — I think, in our 10-Q that we have incorporated the Mountain Valley demand charge into our purchased gas adjustment actually starting the order as approved by the commission.

Michael Gaugler: Okay. And then just kind of a follow-up. Does it make sense for you to take every molecule you can get out of MVP versus the other pipes?

Paul Nester: That’s a good question. So we utilize an asset manager to optimize our natural gas supply as it relates to our capacity for our customers’ benefit, Mike. And I think on a day-to-day nominating basis, they’ll again, do what they always do which is the most cost efficient for the customer. So as you know, it will depend on market conditions on a day-to-day basis. And how the pricing hubs are moving relative to our pricing basket. I think, Tommy, we have 7 pricing points, 8 pricing points in our basket currently.

Tommy Oliver: That’s right, yes.

Paul Nester: Yes. So all that Mike will come together on a daily basis. So I don’t know that it’s 100% certain every single day that they would take full MVP capacity versus, in this case, East Tennessee or TransCanada.

Michael Gaugler: Okay. Well, thank you. Much appreciated. And congrats on an NVP in service data [ph]. I guess there is going to be quite a party.

Paul Nester: Well, thank you. We haven’t had time to plan the party yet but we’ll let you know.

Michael Gaugler: All right, Paul. Thank you.

Paul Nester: Thank you so much. Do we have any other questions? [Operator Instructions]

Paul Nester: Well, hearing none, we thank everyone for joining us this morning and reviewing our second quarter. We as always, look forward to being with you in about 3 months as we review our third quarter results, wishing everyone a safe and pleasant Monday and rest of the work week. Thank you very much.