# RGC Resources Inc: Form 10-Q for the period ended Dec 31, 2023

- Company: [RGC Resources Inc](/companies/rgco.md) (CIK 1069533)
- Form: 10-Q
- Filed: 2024-02-06
- Accepted by EDGAR: Feb 6, 2024, 16:58 ET
- Period: 2023-12-31
- Accession: 0001437749-24-003248
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1069533/000143774924003248/rgco20231231_10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1069533/000143774924003248/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-12-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-10-01 to 2023-12-31 | $23.4m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Operating income | 3 months, 2023-10-01 to 2023-12-31 | $6.7m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-10-01 to 2023-12-31 | $1.6m | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-10-01 to 2023-12-31 | $1.6m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-10-01 to 2023-12-31 | $5.0m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-10-01 to 2023-12-31 | $0.50 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-10-01 to 2023-12-31 | $0.50 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-10-01 to 2023-12-31 | 10,031,354 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2023-10-01 to 2023-12-31 | −$564.3k | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2023-10-01 to 2023-12-31 | $5.3m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 3 months, 2023-10-01 to 2023-12-31 | $2.0m | us-gaap:PaymentsOfDividendsCommonStock |
| Current assets | at 2023-12-31 | $34.8m | us-gaap:AssetsCurrent |
| Total assets | at 2023-12-31 | $314.7m | us-gaap:Assets |
| Current liabilities | at 2023-12-31 | $64.2m | us-gaap:LiabilitiesCurrent |
| Long-term debt | at 2023-12-31 | $102.5m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2023-12-31 | $33.9m | us-gaap:LongTermDebtCurrent |
| Short-term borrowings | at 2023-12-31 | $13.3m | us-gaap:ShortTermBorrowings |
| Shareholders' equity | at 2023-12-31 | $103.5m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 34,375 characters.

### Forward-Looking Statements

This report contains forward-looking statements that relate to future transactions, events or expectations. In addition, Resources may publish forward-looking statements relating to such matters as anticipated financial performance, business prospects, technological developments, new products, research and development activities, operational impacts and similar matters. These statements are based on management’s current expectations and information available at the time of such statements and are believed to be reasonable and are made in good faith. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. In order to comply with the terms of the safe harbor, the Company notes that a variety of factors could cause the Company’s actual results and experience to differ materially from the anticipated results or other expectations expressed in the Company’s forward-looking statements. The risks and uncertainties that may affect the operations, performance, development and results of the Company’s business include, but are not limited to those set forth in the following discussion and within Item 1A “Risk Factors” in the Company’s 2023 Annual Report on Form 10-K. All of these factors are difficult to predict and many are beyond the Company’s control. Accordingly, while the Company believes its forward-looking statements to be reasonable, there can be no assurance that they will approximate actual experience or that the expectations derived from them will be realized. When used in the Company’s documents or news releases, the words, “anticipate,” “believe,” “intend,” “plan,” “estimate,” "predict", "target", “expect,” “objective,” “projection,” “forecast,” “budget,” “assume,” “indicate” or similar words or future or conditional verbs such as “will,” “would,” “should,” “can,” “could”, “may” or "might" are intended to identify forward-looking statements.

Forward-looking statements reflect the Company’s current expectations only as of the date they are made. The Company assumes no duty to update these statements should expectations change or actual results differ from current expectations except as required by applicable laws and regulations.

The three-month earnings presented herein should not be considered as reflective of the Company’s consolidated financial results for the fiscal year ending September 30, 2024. The total revenues and margins realized during the first three months reflect higher billings due to the weather sensitive nature of the natural gas business.

### Overview

Resources is an energy services company primarily engaged in the regulated sale and distribution of natural gas to approximately 63,200 residential, commercial and industrial customers in Roanoke, Virginia and surrounding localities through its Roanoke Gas subsidiary. Midstream, a wholly-owned subsidiary of Resources, is a less than 1% investor in both the MVP and Southgate.

The utility operations of Roanoke Gas are regulated by the SCC, which oversees the terms, conditions, and rates charged to customers for natural gas service, safety standards, extension of service and depreciation. Nearly all of the Company’s revenues are derived from the sale and delivery of natural gas to Roanoke Gas customers based on rates and fees authorized by the SCC. These rates are designed to provide the Company with the opportunity to recover its gas and non-gas expenses and to earn a reasonable rate of return for shareholders based on normal weather. These rates are determined based on various rate applications filed with the SCC. Generally, investments related to extending service to new customers are recovered through the additional revenues generated by the non-gas base rates in place at that time. The investment in replacing and upgrading existing infrastructure, as well as recovering increases in non-gas expenses due to inflationary pressures, regulatory requirements or operational needs, are generally not recoverable until a formal rate application is filed to include the additional investment and higher costs, and new non-gas base rates are approved.

Beginning January 1, 2023, Roanoke Gas implemented interim, non-gas base rates designed to provide $8.55 million in additional annual revenues in response to higher operating costs and to recover its investment in non-SAVE related projects since the prior non-gas base rate increase in fiscal 2019. Revenues from the SAVE Plan and Rider were incorporated into the new non-gas base rates. On December 19, 2023, the SCC issued a final order approving a non-gas base rate increase of $7.45 million. The order also directed Roanoke Gas to refund the excess revenues collected during the time the interim rates were in effect with interest. The refund to customers, which was accrued in fiscal 2023 and reflected in regulatory liabilities, is expected to be completed during the Company's 2024 second fiscal quarter. Roanoke Gas has notified the SCC of its intent to file a general rate case and submitted its application on February 2, 2024. See the Regulatory section for additional information.

The Company is also subject to regulation from the United States Department of Transportation in regard to the construction, operation, maintenance, safety and integrity of its transmission and distribution pipelines. FERC regulates the prices for the transportation and delivery of natural gas to the Company’s distribution system and underground storage services. In addition, the Company is subject to other regulations which are not necessarily industry specific.

As the Company’s business is seasonal in nature, volatility in winter weather and the commodity price of natural gas can impact the effectiveness of the Company’s rates in recovering its costs and providing a reasonable return for its shareholders. In order to mitigate the effect of weather variations and other factors not provided for in the Company's base rates, Roanoke Gas has certain approved rate mechanisms in place that help provide stability in earnings, adjust for volatility in the price of natural gas and provide a return on qualified infrastructure investment. These mechanisms include the SAVE Rider, WNA, ICC, RNG and PGA.

The SAVE Plan and Rider provides the Company with a mechanism through which it recovers costs related to qualified SAVE infrastructure investments on a prospective basis, until a rate application is filed incorporating these investments in non-gas base rates. SAVE Plan revenues decreased by approximately $1,028,000 for the three-month period ended December 31, 2023 compared to the same period last year, reflecting the movement of the SAVE Plan revenues into the new non-gas base rates on January 1, 2023. Roanoke Gas filed and received approval from the SCC for a new SAVE Plan and Rider with new rates placed into effect on October 1, 2023 that is expected to result in approximately $366,000 in SAVE related revenues during fiscal 2024. Additional information regarding the SAVE Plan and Rider is provided under the Regulatory section below.

The WNA mechanism reduces the volatility in earnings due to the variability in temperatures during the heating season. The WNA is based on the most recent 30-year temperature average and provides the Company with a level of earnings protection when weather is warmer than normal and provides its customers with price protection when weather is colder than normal. The WNA allows the Company to recover from its customers the lost margin (excluding gas costs) from warmer than normal weather and correspondingly requires the Company to refund the excess margin earned for colder than normal weather. The WNA mechanism used by the Company is based on a linear regression model that determines the value of a single heating degree day and thereby estimates the revenue adjustment based on weather variance from normal. Any billings or refunds related to the WNA are completed following each WNA year, which extends for the 12-month period from April to March. For the three months ended December 31, 2023, the Company accrued approximately $1,173,000 in additional revenues under the WNA model for weather that was 16% warmer than normal compared to an accrued refund of approximately $187,000 for weather that was 3% colder than normal for the corresponding period last year.

The Company has an approved rate structure to mitigate the impact of the financing costs of its natural gas inventory. Under this rate structure, Roanoke Gas recognizes revenue by applying the ICC factor, based on the Company’s weighted-average cost of capital, including interest rates on short-term and long-term debt, and the Company’s authorized return on equity, to the average cost of natural gas inventory during the period. Total ICC revenues decreased by approximately $128,000 for the three-month period ended December 31, 2023, compared to the corresponding period last year, due to lower natural gas commodity prices during the 2023 summer storage injection season resulting in a lower average cost of natural gas in storage. Accordingly, fiscal 2024 ICC revenues are expected to continue to remain below last year's levels.

In March 2023, Roanoke Gas began operating the RNG facility, through a cooperative agreement with the Western Virginia Water Authority, to produce commercial quality RNG for delivery into its distribution system. With SCC approval, Roanoke Gas is allowed to recover the costs associated with the investment in RNG facilities and the related operating costs through an RNG Rider added to customer bills. Customers receive the benefit of the monetization of environmental credits generated through the production of RNG. Roanoke Gas recognized approximately $300,000 in revenue for the three months ended December 31, 2023.

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

### Results of Operations

The analysis on the results of operations is based on the consolidated operations of the Company, which is primarily associated with the utility segment. Additional segment analysis is provided when Midstream's investment in affiliates represents a significant component of the comparison.

The Company's operating revenues are affected by the cost of natural gas, as reflected in the consolidated income statement under cost of gas - utility. The cost of natural gas, which includes commodity price, transportation, storage, injection and withdrawal fees, with any increase or decrease offset by a correlating change in revenue through the PGA, is passed through to customers at cost. Accordingly, management believes that gross utility margin, a non-GAAP financial measure defined as utility revenues less cost of gas, is a more useful and relevant measure to analyze financial performance. The term gross utility margin is not intended to represent or replace operating income, the most comparable GAAP financial measure, as an indicator of operating performance and is not necessarily comparable to similarly titled measures reported by other companies. The following results of operations analyses will reference gross utility margin.

### Three Months Ended December 31, 2023:

Net income increased by $1,763,587 for the three months ended December 31, 2023, compared to the same period last year, primarily due to AFUDC on MVP and the implementation of new non-gas base rates effective January 1, 2023.

The tables below reflect operating revenues, volume activity and heating degree days.

| Operating Revenues | Three Months Ended December 31, 2023 | 2022 | Increase / (Decrease) Percentage |  |
| --- | ---: | ---: | ---: | ---: |
| Gas utility | $24,391,854 | $33,252,767 | $(8,860,913) | (27)% |
| Non utility | 27,498 | 29,568 | (2,070) | (7)% |
| Total operating revenues | $24,419,352 | $33,282,335 | $(8,862,983) | (27)% |
| **Delivered Volumes** |  |  |  |  |
| Regulated natural gas (DTH) |  |  |  |  |
| Residential and commercial | 2,094,640 | 2,433,239 | (338,599) | (14)% |
| Transportation and interruptible | 925,995 | 875,301 | 50,694 | 6% |
| Total delivered volumes | 3,020,635 | 3,308,540 | (287,905) | (9)% |
| HDD | 1,237 | 1,523 | (286) | (19)% |

Total operating revenues for the three months ended December 31, 2023, compared to the same period last year, decreased by approximately 27% primarily due to significantly lower natural gas commodity prices, reductions in delivered natural gas volumes and lower SAVE revenues more than offsetting the implementation of a non-gas base rate increase. Natural gas commodity prices during the quarter declined by 58% from the corresponding period last year. Total gas costs decreased by 44% compared to the same period last year, which corresponds to the decline in the gas cost component included in total customer billing rate. In addition, total heating degree days decreased by 19% from the same period last year resulting in a 14% decline in the weather sensitive residential and commercial sales. Transportation and interruptible volumes increased by approximately 6% primarily due to a single, multi-fuel customer that increased its natural gas utilization during the quarter. With the reset of the SAVE Rider as discussed above, SAVE Plan revenues declined by approximately $1,028,000.

| Gross Utility Margin | Three Months Ended December 31, 2023 | 2022 | Increase / (Decrease) Percentage |  |
| --- | ---: | ---: | ---: | ---: |
| Gas utility revenues | $24,391,854 | $33,252,767 | $(8,860,913) | (27)% |
| Cost of gas - utility | 10,097,016 | 20,804,153 | (10,707,137) | (51)% |
| Gross utility margin | $14,294,838 | $12,448,614 | $1,846,224 | 15% |

Gross utility margin increased over the same period last year primarily as a result of the aforementioned implementation of new non-gas base rates, WNA and RNG revenue, offset by the reductions in SAVE and ICC revenues. When adjusted for WNA, the volumetric margin increased by approximately $2,260,000 and base charge revenues increased by approximately $442,000 due to the non-gas base rate increase. However, SAVE revenues decreased by approximately $1,028,000 as these revenues are reflected in the increased volumetric and base charge rates. The RNG Rider contributed an additional $300,000 to margin, and ICC revenue declined by $128,000 due to lower cost of gas in storage.

The components of and the change in gas utility margin are summarized below:

|  | Three Months Ended December 31, 2023 | 2022 | Increase/ (Decrease) |
| --- | ---: | ---: | ---: |
| Customer base charge | $4,032,454 | $3,590,557 | $441,897 |
| ICC | 243,330 | 371,539 | (128,209) |
| SAVE Plan | 21,187 | 1,049,310 | (1,028,123) |
| Volumetric | 8,473,367 | 7,573,398 | 899,969 |
| WNA | 1,173,127 | (186,647) | 1,359,774 |
| RNG | 300,365 | — | 300,365 |
| Other revenues | 51,008 | 50,457 | 551 |
| Total | $14,294,838 | $12,448,614 | $1,846,224 |

Operations and maintenance expenses increased by $414,684, or 11%, from the same period last year primarily due to lower capitalized overheads and increased compensation costs. Total capitalized construction overheads declined by approximately $230,000 due to a reduction in direct construction expenditures related to Roanoke Gas capital projects compared to the same period last year and lower overheads capitalized as part of LNG due to timing of production. Compensation costs increased by approximately $160,000 due to increased staffing and inflationary impact on salaries. Professional services and corporate insurance premiums accounted for much of the remaining cost increases.

General taxes increased by $43,195, or 7%, primarily due to increases in payroll taxes related to increased staffing and compensation and higher property taxes associated with growth in utility property.

Depreciation expense increased by $278,166, or 11%, on a comparable increase in utility property balances.

Equity in earnings of unconsolidated affiliate increased by $1,466,603 associated with the recognition of AFUDC as a result of MVP construction activities.

Other income, net increased by $46,180, or 62%, primarily due to an increase of approximately $69,000 in revenue sharing related to the asset management agreement and higher interest income offset by the absence of AFUDC related to the RNG facility, which was placed in service in March 2023.

Interest expense increased by $267,109, or 20%, as the weighted-average interest rate on total debt increased from 3.78% during the first quarter of fiscal 2023 to 4.28% during the first quarter of fiscal 2024, while total daily average debt outstanding increased by 2%. The increase in the weighted-average interest rate was primarily associated with Roanoke Gas' variable rate line-of-credit and Midstream's credit facility.

Roanoke Gas' interest expense increased by $146,371 primarily due to a combination of higher borrowing levels and an increase in the interest rate on the variable rate line-of-credit.

Midstream's interest expense increased by $120,738 primarily due to rising interest rates on its credit facility. Total average outstanding debt decreased by $1.4 million over the same quarter last year due to amortization payments under two of Midstream's promissory notes.

Income tax expense increased by $589,639 due to a corresponding increase in pre-tax income. The effective tax rate was 24.0% and 23.4% for the three-month periods ended December 31, 2023 and 2022, respectively. The effective tax rate is below the combined statutory state and federal rate due to the amortization of excess deferred taxes and tax credits.

### Critical Accounting Policies and Estimates

The consolidated financial statements of Resources are prepared in accordance with GAAP. The amounts of assets, liabilities, revenues and expenses reported in the Company’s consolidated financial statements are affected by accounting policies, estimates and assumptions that are necessary to comply with generally accepted accounting principles. Estimates used in the financial statements are derived from prior experience, statistical analysis and management judgments. Actual results may differ significantly from these estimates and assumptions.

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, 2023.

### Asset Management

Roanoke Gas uses a third-party asset manager to oversee its pipeline transportation, storage rights and gas supply inventories and deliveries. In return for utilizing the excess capacities of the transportation and storage rights, the asset manager pays Roanoke Gas a monthly utilization fee. In accordance with an SCC order issued in 2018, a portion of the utilization fee is retained by the Company with the balance passed through to customers through reduced gas costs. The current asset management agreement ends March 31, 2025.

### Equity Investment in Mountain Valley Pipeline

The Company has a less than 1% interest in the MVP, which is accounted for as an equity investment, and a less than 1% interest in Southgate, which is contemplated to interconnect with the MVP. As discussed more fully in Note 6, since inception, the MVP has encountered various legal and regulatory issues that have substantially delayed the completion of the project, including a period in 2022 where work on the project was halted. With the passage of the FRA and certain judicial rulings in mid-2023, construction work was restarted, and the Company believes the MVP will be completed relatively soon.

Since its inception, earnings from MVP have been primarily attributable to AFUDC income. Once the pipeline is commercially operational, AFUDC will cease and the Company will begin to receive its share of LLC earnings from long-term contracts to provide gas. Resources expects cash distributions from the LLC to begin three to six months after commercial operations begin. The Company recorded $1,467,835 and $1,232 in the first fiscal quarters of 2023 and 2022, respectively, as its share of Midstream’s earnings.

Midstream fully borrowed $23 million under its non-revolving credit facility, which matures in December 2024. Installment payments have begun on two of Midstream's promissory notes with one of the notes due in full in June 2024. The Company is actively discussing and anticipates refinancing those obligations in 2024. Additionally, Midstream is considering the long-term structure of its debt as the MVP evolves from a project phase to an operating phase. See Note 9 for more information on all borrowings related to Midstream.

### Regulatory

On December 2, 2022, Roanoke Gas filed an application with the SCC seeking an $8.55 million annual increase in its non-gas base rates, of which $4.05 million was being recovered through the SAVE Rider. Since the Company was seeking to recover the costs associated with its SAVE Plan through interim non-gas base rates effective January 1, 2023, the Company discontinued its SAVE Plan and Rider for the remainder of fiscal 2023. In the fourth quarter of fiscal 2023, the Company reached a settlement with the SCC staff on all outstanding issues in the case. Under the terms of the settlement, the Company agreed to an incremental revenue requirement of $7.45 million. The Company agreed to begin billing the new rates effective October 1, 2023. The Commission issued its Final Order on the matter on December 19, 2023 in which it approved the settlement agreement in its entirety.

The Company has recorded a provision for refund, including interest, associated with customer billings for the difference between the interim rates and the settlement rates. The Company expects to complete the customer refund process with the February 2024 billing cycle.

In December 2023, the Company notified the SCC of its intent to file a general rate case. The Company filed the general rate application on February 2, 2024.

The Company filed an application with the SCC for a new, five-year SAVE Plan and Rider on March 31, 2023, seeking recovery of costs associated with an estimated $8.5 million in SAVE-eligible investment in fiscal 2024 and an estimated cumulative investment of $49.5 million over the proposed five-year plan period ending September 30, 2028. On July 7, 2023, the SCC Staff filed its report on the Company’s SAVE Plan and Rider in which it recommended approval of the $49.5 million, five-year plan with a revenue requirement of approximately $366,000 beginning on October 1, 2023. On August 31, 2023, the SCC approved the new SAVE Plan and Rider with rates effective October 1, 2023.

On June 2, 2022, Roanoke Gas filed an application with the SCC to acquire certain natural gas distribution assets from a local housing authority. Under this application, the Company requested the approval to acquire such facilities at five separate apartment complexes, located in the Company’s service territory, that were under housing authority management. Under the proposed plan, the housing authority would renew existing natural gas distribution facilities to include mains, services, and meter installations and then transfer ownership of these facilities to Roanoke Gas. In turn, Roanoke Gas would assume responsibility for the operation and maintenance of these assets and recognize a gain related to the asset acquisition equal to the cost associated with the renewal.

On July 19, 2022, the SCC approved the application and on August 4, 2022, the housing authority transferred the assets from two apartment complexes to Roanoke Gas. Roanoke Gas recorded these assets and recognized a pre-tax gain of approximately $219,000 during the fourth quarter of fiscal 2022. On September 29, 2023, the housing authority transferred the assets from one additional apartment complex to Roanoke Gas and the Company recorded a pre-tax gain of approximately $311,000 during the fourth quarter of fiscal 2023. The authority is awaiting future funding to complete the two remaining apartment complexes. The timing of funding and the completion of the asset renewals for these complexes is unknown at this time.

### Capital Resources and Liquidity

Due to the capital intensive nature of the utility business, as well as the impact of weather variability, the Company’s primary capital needs are the funding of its capital projects, the seasonal funding of its natural gas inventories and accounts receivables, debt service and payments of dividends to shareholders. The Company anticipates funding these items through its operating cash flows, credit availability under short-term and long-term debt agreements and proceeds from the sale of its common stock.

Cash and cash equivalents increased by $1,352,306 for the three-month period ended December 31, 2023 compared to a decrease of $1,664,722 for the three-month period ended December 31, 2022. The following table summarizes the sources and uses of cash:

| Cash Flow Summary | Three Months Ended December 31, 2023 | 2022 |
| --- | ---: | ---: |
| Net cash used in operating activities | $(564,347) | $(2,424,401) |
| Net cash used in investing activities | (5,300,295) | (8,348,589) |
| Net cash provided by financing activities | 7,216,948 | 9,108,268 |
| Increase (decrease) in cash and cash equivalents | $1,352,306 | $(1,664,722) |

### Cash Flows Used in Operating Activities:

The seasonal nature of the natural gas business causes operating cash flows to fluctuate significantly during the year as well as from year-to-year. Factors, including weather, energy prices, natural gas storage levels and customer collections contribute to working capital levels and related cash flows. Generally, operating cash flows are positive during the second and third fiscal quarters as a combination of earnings, declining storage gas levels and collections on customer accounts contribute to higher cash levels. During the first and fourth fiscal quarters, operating cash flows generally decrease due to increases in natural gas storage levels and rising customer receivable balances.

Cash flows from operating activities for the three months ended December 31, 2023 increased by $1,860,054 compared to the same period last year. The table below summarizes the significant components of operating cash flows:

| Cash Flow From Operating Activities: | Three Months Ended December 31, 2023 | 2022 | Increase/ (Decrease) |
| --- | ---: | ---: | ---: |
| Net income | $5,019,992 | $3,256,405 | $1,763,587 |
| Non-cash adjustments: |  |  |  |
| Depreciation and amortization | 2,761,920 | 2,477,084 | 284,836 |
| Equity in earnings | (1,467,835) | (1,232) | (1,466,603) |
| AFUDC | — | (103,771) | 103,771 |
| Changes in working capital and regulatory assets and liabilities: |  |  |  |
| Accounts receivable | (8,963,996) | (15,967,191) | 7,003,195 |
| Over-recovery of gas cost | 2,046,845 | 5,763,958 | (3,717,113) |
| Accounts payable | 572,694 | 3,220,632 | (2,647,938) |
| WNA | (1,173,127) | 186,648 | (1,359,775) |
| Income tax | 2,317,469 | (205,393) | 2,522,862 |
| Accrued expenses | (1,452,841) | (1,005,348) | (447,493) |
| Other | (225,468) | (46,193) | (179,275) |
| Net cash used in operating activities | $(564,347) | $(2,424,401) | $1,860,054 |

Significantly higher natural gas prices during the first quarter of fiscal 2023 resulted in much higher accounts receivable and accounts payable balances compared to the current fiscal quarter. In anticipation of these higher prices, the Company adjusted the PGA component of its billing rates for the first quarter of fiscal 2023. However, in December 2022, the commodity prices declined significantly resulting in the Company recognizing a larger than normal over-recovery of gas costs during the period. The Company subsequently reduced the PGA component of it billing rates in January 2023 to compensate for the lower natural gas prices. For the first quarter of fiscal 2024, natural gas prices have remained low and relatively stable resulting in lower accounts receivable and accounts payable balances. Warmer weather during the current quarter also contributed to the decline in accounts receivable balances. As discussed in the Overview section above, the current fiscal quarter had 19% fewer HDD than the same period last year and 16% fewer HDD than normal resulting in an increase in the WNA receivable of approximately $1.2 million during the quarter. The same quarter last year was 3% colder than normal resulting in a decline of approximately $200,000 in the WNA receivable leading to a $1.4 million decline in operating cash between periods. The timing of income tax estimated payments in the first quarter of fiscal 2023 and the receipt of a tax refund during the first quarter of fiscal 2024 resulted in a $2.5 million increase in operating cash between periods. The increase in non-cash equity in earnings from the Company's investment in the LLC offset most of the net income cash flow.

### Cash Flows Used in Investing Activities:

Investing activities primarily consist of expenditures related to Roanoke Gas' utility property, which includes replacing aging natural gas pipe with new plastic or coated steel pipe, improvements to the LNG plant and gas distribution system facilities and expansion of its natural gas system to meet the demands of customer growth. With the recent approval of its new SAVE Plan and Rider, the Company is continuing its focus on SAVE infrastructure replacement projects, including the replacement of pre-1973 first generation plastic pipe. New customer demand for natural gas continues to be strong and therefore extending the natural gas distribution system within its service territory is also a priority. Roanoke Gas' total capital expenditures for the three-month period ended December 31, 2023 were approximately $5.3 million compared to $7.5 million during the same period last year. The $2.2 million decrease in expenditures is primarily due to the completion of the RNG project, which was placed in service in March 2023. Total fiscal 2024 capital expenditures are expected to be approximately $20 million. Midstream's investment in the LLC was approximately $800,000 in the first quarter of fiscal 2023. However, Midstream ceased future participation in capital calls following its May 2023 funding payment based on an agreement with the LLC's managing partner. Midstream continues to be invested in the LLC; however, its participation percentage is declining with no additional investment. Once MVP is placed into service, Midstream may incur periodic future capital investment related to ongoing operations requirements and system improvements. Midstream will continue to make capital investments in Southgate. The targeted completion timing for the Southgate project is June 2028.

### Cash Flows Provided by Financing Activities:

Financing activities generally consist of borrowings and repayments under credit agreements, issuance of common stock and the payment of dividends. Net cash flows provided by financing activities were approximately $7.2 million for the three months ended December 31, 2023, compared to $9.1 million for the same period last year. The reduction in financing cash flows is primarily attributable to Midstream's $1.1 million borrowing under its credit facility during the first quarter of fiscal 2023 combined with an additional $400,000 in debt retirement on amortizing notes during the current year. In addition, Resources issued a total of 44,367 shares of common stock resulting in net proceeds of approximately $821,000, including 26,077 shares through the ATM program in which Resources received approximately $542,000, net of fees. During the same period last year, Resources issued 31,245 shares for approximately $653,000, including 17,199 shares through the ATM program for approximately $377,000, net of fees.

Notes 8 and 9 provide details on the Company's line-of-credit and borrowing activity.

The current interest rate environment is expected to continue to result in higher interest expense associated with the Company's variable-rate debt or on the issuance of any new debt.

Management regularly evaluates the Company’s liquidity through a review of its available financing resources and its cash flows. Resources’ maintains the ability to raise equity capital through its ATM program, private placement or other public offerings. Management believes Roanoke Gas has access to sufficient financing resources to meet its cash requirements for the next year, including the line-of-credit, which it expects to renew, and the two private shelf facilities. Roanoke Gas may also adjust capital spending as necessary if such a need would arise.

Based on the agreement with the LLC's managing partner to assume future capital contributions related to the MVP, Midstream's future cash requirements are reduced to regular monthly operating expenses, debt service and capital contributions to Southgate. Midstream's total debt service over the succeeding 12 months includes $33.85 million to retire maturing debt. Management believes that they will be able to negotiate extensions on the current debt or obtain other financing options to satisfy the debt servicing requirements and be able to meet Midstream's cash requirements over the ensuing 12 month period.

As of December 31, 2023, Resources' long-term capitalization ratio was 43% equity and 57% debt.

## Controls and procedures

As filed, 1,485 characters.

The Company maintains disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to be effective in providing reasonable assurance that information required to be disclosed in reports under the Exchange Act are identified, recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to management to allow for timely decisions regarding required disclosure.

Through December 31, 2023, the Company has evaluated, under the supervision and with the participation of management, including the chief executive officer and the chief financial officer, the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based upon that evaluation, the chief executive officer and chief financial officer concluded that the Company’s disclosure controls and procedures were effective at the reasonable assurance level as of December 31, 2023.

Management routinely reviews the Company’s internal control over financial reporting and makes changes, as necessary, to enhance the effectiveness of the internal controls. There were no control changes during the fiscal quarter ended December 31, 2023, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

## Risk factors

As filed, 156 characters.

There have been no material changes to the risk factors previously disclosed in Resources' Annual Report on Form 10-K for the year ended September 30, 2023.

Filed Feb 6, 2024.
Source: SEC EDGAR, the filing index for accession 0001437749-24-003248. Last ingested by Listed: Nov 4, 2026, 14:35 ET. No prices; not investment advice.