RGC Resources Inc: Form 10-K for the period ended Sep 30, 2024

General and Historical Development

Resources was incorporated in the Commonwealth of Virginia on July 31, 1998 and, effective July 1, 1999, its subsidiaries were reorganized into the Resources holding company structure. Resources is currently composed of the following subsidiaries: Roanoke Gas and Midstream.

Roanoke Gas, originally established in 1883, was organized as a public service corporation under the laws of the Commonwealth of Virginia in 1912. The principal service of Roanoke Gas is the distribution and sale of natural gas to residential, commercial and industrial customers within its service territory in Roanoke, Virginia and the surrounding localities. Roanoke Gas also provides certain non-regulated services which account for less than 1% of consolidated revenues.

In July 2015, the Company formed Midstream for the purpose of becoming an investor in Mountain Valley Pipeline, LLC. The LLC was created to construct and operate interstate natural gas pipelines. Additional information regarding this investment is provided under Note 5 of the Company's annual consolidated financial statements and under the Equity Investment in Mountain Valley Pipeline section of Item 7.

Services

Roanoke Gas maintains an integrated natural gas distribution system to deliver natural gas purchased from suppliers to residential, commercial and industrial users in its service territory. The schedule below is a summary of customers, delivered volumes (expressed in DTHs), revenues and margin as a percentage of the total for each category. For the purposes of this schedule, margin is defined as revenues less cost of gas.

Roanoke Gas’ regulated natural gas distribution business accounted for more than 99% of Resources total revenues for fiscal years ending September 30, 2024 and 2023. The tables above indicate that residential customers represent over 91% of the Company’s customer total; however, they represent less than 35% of the total gas volumes delivered and more than half of the Company’s consolidated revenues and margin. Industrial customers primarily include transportation customers that purchase their natural gas directly from a supplier other than the Company and utilize Roanoke Gas’ natural gas distribution system for delivery to their operations. Most of the revenue billed for these customers, which is less than 10% of total revenues, relates only to transportation service, and not to the purchase of natural gas. Transportation customers account for more than 35% of total natural gas volume deliveries and approximately 10% of margin for the years presented.

The Company’s revenues are affected by changes in gas costs, changes in consumption volume due to weather and economic conditions and changes in the non-gas portion of customer billing rates. Increases or decreases in the cost of natural gas are passed on to customers through the PGA mechanism as explained in Note 1 of the consolidated financial statements.

The Company’s residential and commercial sales are primarily seasonal and subject to temperature sensitivity as the majority of the gas sold by Roanoke Gas to these customers is used for heating. For the fiscal year ended September 30, 2024, approximately 60% of the Company’s total DTH of natural gas deliveries and 72% of the residential and commercial deliveries were made in the five-month period of November through March.

Roanoke Gas relies on multiple interstate pipelines, including those operated by Columbia Gas Transmission Corporation, LLC and Columbia Gulf Transmission Corporation, LLC (together “Columbia”), East Tennessee Natural Gas, LLC (“East Tennessee”), Tennessee Gas Pipeline, Midwestern Gas Transmission Company, Saltville Gas Storage Company, LLC ("Saltville") and Mountain Valley Pipeline, LLC ("Mountain Valley"), to transport natural gas from production and storage fields to Roanoke Gas’ distribution system. Roanoke Gas is directly served by Columbia, East Tennessee and Mountain Valley. Columbia historically has delivered more than 65% of the Company’s required gas supply, with East Tennessee delivering the remainder. The Mountain Valley Pipeline began operations in June 2024. The rates paid for interstate natural gas transportation and storage services are established by tariffs approved by FERC. The current pipeline and storage contracts expire at various times from calendar 2027 to 2044. The Company anticipates being able to renew these contracts or enter into other contracts to meet customers’ existing demand for natural gas.

The Company manages its pipeline contracts and LNG facility in order to provide for sufficient capacity to meet the current natural gas demands of its customers. The maximum daily winter capacity available for delivery into Roanoke Gas’ distribution system from the current interstate pipelines is 93,606 DTH per day. The LNG facility is capable of storing up to 200,000 DTH of natural gas in a liquid state for use during peak demand. Combined, the pipelines and LNG facility may provide up to 118,606 DTH on a single winter day.

The Company currently contracts with Sequent Energy Management, L.P. to manage its pipeline transportation, storage rights, gas supply inventories and deliveries and serve as the primary supplier of natural gas for Roanoke Gas. Natural gas purchased under the asset management agreement is priced at indexed-based market prices as reported in major industry pricing publications. The current Sequent contract expires March 31, 2025. The Company also contracts with Tenaska Marketing Ventures to manage its pipeline transportation and deliveries on Mountain Valley Pipeline. The current Tenaska contract also expires March 31, 2025.

The Company uses summer storage programs to supplement heating season gas supply requirements. The Company has contracted for 2.4 million DTH of storage capacity from Columbia, Tennessee Gas Pipeline and Saltville in addition to the capacity available at the Company's LNG facility. The balance of the Company’s annual natural gas requirements are met primarily through market purchases made by its asset managers.

In March 2023, Roanoke Gas began operation of its RNG facility. Total volume produced from RNG is expected to be less than 1% of current system demand.

Competition

The Company’s natural gas utility operates in a regulated, monopolistic environment. Roanoke Gas currently holds the only franchises and/or CPCNs to distribute natural gas in its Virginia service areas. These franchises generally extend for multi-year periods and are renewable by the municipalities, including exclusive franchises in the cities of Roanoke and Salem and the Town of Vinton, Virginia. All three franchises are set to expire December 31, 2035. In 2019, the SCC issued an order granting a CPCN to furnish gas to all of Franklin County, Virginia. Unlike the CPCNs for the other counties served by Roanoke Gas, the Franklin County CPCN was scheduled to terminate within five years of the date of the order if Roanoke Gas did not furnish gas service to the designated service area. In November 2023, the SCC granted Roanoke Gas a three-year extension on the CPCN. Roanoke Gas is now serving the Franklin County area with natural gas delivered through the MVP.

Management anticipates that the Company will be able to renew all of its franchises prior to their current expiration date; however, there can be no assurance that a given jurisdiction will not refuse to renew a franchise or will not, in connection with the renewal of a franchise, attempt to impose restrictions or conditions that could adversely affect the Company’s business operations or financial condition. CPCNs, issued by the SCC, are generally of perpetual duration and subject to compliance with regulatory standards.

Although Roanoke Gas has exclusive rights for the distribution of natural gas in its service area, the Company competes with suppliers of other forms of energy such as fuel oil, electricity, propane and coal. Competition can be intense among the other energy sources with price being the primary consideration. This is particularly true for those industrial applications that have the ability to switch to alternative fuels. The relationship between supply and demand has the greatest impact on the price of natural gas. Greater demand for natural gas for electric generation and other uses can exert upward pressure on the price of natural gas.

Competition from renewable energy sources for generating electricity, such as solar and wind, is likely to increase as the political environment currently favors these energy sources through incentives or by placing restrictions on emissions from the burning of fossil fuels. However, the demand for all forms of energy, including natural gas, is being driven by consumers using more digital platforms and expanding their use of artificial intelligence. Growth in residential and commercial service has been steady as the Company continues to expand its customer base through a combination of extending distribution service and converting other energy users to natural gas.

Regulation

In addition to the regulatory requirements generally applicable to all companies, Roanoke Gas is also subject to additional regulation from federal, state and local authorities. At the federal level, the Company is subject to pipeline safety regulations issued by the Department of Transportation's Pipeline and Hazardous Materials Safety Administration.

At the state level, the SCC performs regulatory oversight including the approval of rates and other charges for natural gas sold to customers, the approval of agreements between or among affiliated companies involving the provision of goods and services, pipeline safety and certain other corporate activities of the Company, including mergers and acquisitions related to utility operations.

At the local level, Roanoke Gas is further regulated by the municipalities and localities that grant franchises for the placement of gas distribution pipelines and the operation of gas distribution networks within their jurisdictions.

Human Capital Resources

At September 30, 2024, Resources had 104 full-time employees. The Company’s business strategy and ability to serve customers relies on employing talented professionals and attracting, training, developing and retaining a skilled workforce. This is particularly relevant as the Company continues to project retirements of key personnel over the next several years. As the Company's workforce transforms, including departures and retirements, the Company has been successful in engaging the necessary qualified personnel to fill vacancies by reviewing and adjusting its compensation package to remain competitive in the current market environment.

Website Access to Reports

The Company’s website address is www.rgcresources.com (http://www.rgcresources.com). Information appearing on this website is not incorporated by reference in and is not a part of this annual report. The Company files reports with the SEC. A copy of this annual report, as well as other recent annual and quarterly reports, are available on the Company's website or through the SEC. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding the Company’s filings at www.sec.gov (http://www.sec.gov).

Please carefully consider the risks described below regarding the Company. These risks are not the only ones faced by the Company. Additional risks not presently known to the Company or that the Company currently believes are immaterial may also impair business operations and financial results. If any of the following risks actually occur, the Company’s business, financial condition or results of operations could be adversely affected. In such case, the trading price of the Company’s common stock could decline and investors could lose all or part of their investment. The risk factors below are categorized by operational, regulatory and financial:

OPERATIONAL RISKS

Risks associated with the operation of a natural gas distribution pipeline and LNG storage facility.

Numerous potential risks are inherent in the operation of a natural gas distribution system and LNG storage facility, including unanticipated or unforeseen events that are beyond the control of the Company. Examples of such events include adverse weather conditions, acts of terrorism or sabotage, accidents and damage caused by third parties, equipment failure, failure of upstream pipelines and storage facilities, as well as catastrophic events such as explosions, fires, earthquakes, floods, or other similar events. These risks could result in injury or loss of life, property damage, pollution and customer service disruption resulting in potentially significant financial losses. The Company maintains insurance coverage to protect against many of these risks. However, if losses result from an event that is not fully covered by insurance, the Company’s financial condition could be significantly impacted if it were unable to recover such losses from customers through the regulatory rate-making process. Even if the Company did not incur a direct financial loss as a result of any of the events noted above, it could encounter significant reputational damage from a reliability, safety, integrity or similar viewpoint, potentially resulting in a longer-term negative earnings impact or decline in share price.

Security incident or cyber-attacks on the Company’s computer or information technology systems.

The Company’s business operations and information technology systems are targets of cyber attack, and they may be vulnerable to an attack by individuals or organizations intending to disrupt the operations of the Company. Such an attack or cybersecurity incident on the Company’s information technology systems could result in corruption of the Company’s financial information; disruption of services to our customers; the unauthorized release of confidential customer, employee or vendor information; the interruption of natural gas deliveries to our customers; and/or compromise the safety of our distribution, transmission and storage systems. The Company has implemented policies, procedures and controls to prevent and detect these activities; however, there are no guarantees that Company processes will adequately protect against unauthorized access. In the event of a successful attack, the Company could be exposed to material financial and reputational risks, possible disruptions in natural gas deliveries or a compromise of the safety of the natural gas distribution system, as well as be exposed to claims by persons harmed by such an attack, all of which could materially increase the Company's costs to protect against such risks. The Company maintains cyber-insurance coverage, which does not protect the Company from cyber incidents but does provide some potential mitigation of the financial impacts resulting from such attacks. See Item 1C of this Form 10-K for additional discussion.

Volatility in the price and availability of natural gas.

Natural gas purchases represent the single largest expense of the Company. Increasing demand from other areas, including electricity generation, combined with other factors, have placed upward pressure on natural gas commodity prices in the past. If these factors return and continue for an extended period of time, higher natural gas prices could result in declining usage as well as increases in bad debt expense and increased competition from other energy providers.

Inability to attract and retain professional and technical employees.

The ability to implement the Company’s business strategy and serve customers is dependent upon employing talented professionals and attracting, training, developing and retaining a skilled workforce. As the Company expects key personnel to retire over the next several years, as well as higher mobility trends, failure to hire and adequately train replacement employees, including the transfer of significant internal historical knowledge and skills to new employees, or future availability and cost of contracted labor may adversely affect the ability to manage and operate the Company. In addition, certain specialized knowledge is required of the Company’s technical employees for construction and operation of the natural gas distribution facilities. If the Company is unable to attract and/or retain qualified employees, the Company could experience increased operating costs and expose the Company to other operational, reputational and financial risks.

Availability of sufficient and reliable pipeline capacity.

The Company is currently served directly by three interstate pipelines. These pipelines carry 100% of the natural gas transported to the Company’s distribution system. Depending on weather conditions and the level of customer demand, failure of one or more of these interstate transmission pipelines could have a major impact on the Company’s ability to meet customer demand for natural gas and adversely affect the Company’s earnings as a result of lost revenue and the cost of service restoration. Frequent or prolonged failure could lead customers to switch to alternative energy sources. Hurricanes, floods, fires and other natural or man-made disasters could damage or inhibit production and/or pipeline transportation facilities, which could result in decreased natural gas supplies. Capacity limitations on existing pipeline and storage infrastructure could impact the Company’s ability to obtain additional natural gas supplies, thereby limiting its ability to add new customers or meet increased customer demand thereby limiting future earnings potential.

Inability to complete necessary or desirable pipeline expansion or infrastructure improvement projects.

In order to serve new customers or expand service to existing customers, the Company installs new pipeline facilities and maintains, expands or upgrades its existing distribution, transmission and/or storage infrastructure. Various factors may prevent or delay the completion of such projects or make them more costly, such as the inability to obtain required approval from local, state and/or federal regulatory and governmental bodies, public opposition to the projects, inability to obtain adequate financing, competition for labor and materials, construction delays, cost overruns, and an inability to negotiate acceptable agreements relating to rights-of-way, construction or other material development components. As a result, the Company may not be able to adequately serve existing customers or expand its distribution system to support customer growth. These factors could negatively impact earnings.

Increased dependence on technology may hinder the Company’s business operations and adversely affect its financial condition and results of operations if such technologies fail.

Over the last several years, the Company has implemented or acquired a variety of technological tools including both Company-owned information technology and technological services provided by outside parties. Additionally, the Company is currently upgrading its new financial and customer information systems. These tools and systems support critical functions including, scheduling and dispatching of service technicians, automated meter reading systems, customer care and billing, revenue recognition, operational plant logistics, and external financial reporting. Issues in the implementation or the failure of these or other similarly important technologies, or the Company’s inability to have these technologies supported, updated, expanded, or integrated into other technologies, could hinder its business operations and adversely impact its financial condition and results of operations. Although the Company has, when possible, developed alternative sources of technology and built redundancy into its computer networks and tools, there can be no assurance that these efforts would protect against all potential issues related to the loss of any such technologies.

Geographic concentration of business activities.

The Company's business activities are concentrated in the Roanoke Valley and surrounding areas. Changes in the local economy, politics, regulations and weather patterns or other factors limiting demand for natural gas could negatively impact the Company's existing customer base, leading to declining usage patterns and financial condition of customers. Furthermore, these changes could also limit the Company's ability to serve its customers or add new customers within its service territory. These factors could adversely affect earnings.

Competition from other energy providers.

The Company competes with other energy providers in its service territory, including those that provide electricity, propane, coal, fuel oil, wind and solar. Price is a significant competitive factor. Higher natural gas costs or decreases in the price of other energy sources may enhance competition and encourage customers to switch to alternative energy sources, thus lowering natural gas deliveries and earnings. Price considerations could also inhibit customer and revenue growth if builders and developers do not perceive, or are regulatorially prevented from installing, natural gas as a better value than other energy options and elect to install heating systems that use energy sources, including those perceived as more environmentally friendly.

REGULATORY RISKS

Laws or regulations associated with ESG matters.

Focus on ESG matters related to, among other things, concerns raised by advocacy groups about climate change, social issues and corporate governance may lead to increased regulatory review, which in turn may lead to new state and federal safety and laws, regulations, guidelines, and enforcement interpretations. Social and corporate governance initiatives retain prominence. In addition, several federal and state legislative and regulatory initiatives have been proposed and enacted in recent years in an attempt to limit the effects of climate change, including greenhouse gas emissions such as those created by the combustion of fossil fuels, including natural gas. Passage of environmental legislation or implementation of regulations that mandate the use of electric rather than gas appliances, or reductions in greenhouse gas emissions or other similar restrictions could have a negative effect on the Company’s core operations and its investment in the LLC. Such legislation could impose limitations on greenhouse gas emissions, require funding of new energy efficiency objectives, impose new operational requirements or lead to other additional costs to the Company. Regulations restricting or prohibiting the use of coal as a fuel for electric power generation has increased the demand for natural gas, and could at some point potentially result in natural gas supply concerns and higher costs for natural gas. Legislation or regulations could limit the exploration and development of natural gas reserves, making the price of natural gas less competitive and less attractive as a fuel source for consumers. Future legislation could also place limitations on the amount of natural gas used by businesses and homeowners to reduce the level of emissions, resulting in reduced deliveries and earnings or provide incentives to customers to utilize alternative energy sources not associated with fossil fuels.

In addition, advocacy groups, both domestically and internationally, have campaigned for governmental and private action to influence change in the business strategies of oil and gas companies, including through the investment and voting practices of investment advisers, public pension funds, universities and other members of the investing community. These activities include increasing attention and demands for action related to climate change and energy transition matters, such as promoting the use of substitutes to fossil fuel and encouraging the divestment of investments in the oil and gas industry, as well as pressuring lenders and other financial services companies to limit or curtail activities with oil and gas companies. If investors or financial institutions shift funding away from companies in the oil and gas industry, the Company’s access to and costs of capital or the market for the Company’s securities may be adversely impacted.

Increased compliance and pipeline safety requirements and fines.

The Company is committed to the safe and reliable delivery of natural gas to its customers. Working in concert with this commitment are numerous federal and state laws and regulations. Failure to comply with these laws and regulations could result in the levy of significant fines. There are inherent risks that may be beyond the Company’s control, including third-party actions, which could result in damage to pipeline facilities, injury and even death. Such incidents could subject the Company to lawsuits, large fines, increased scrutiny and loss of customers, all of which could have a significant effect on the Company’s financial position and results of operations.

Regulatory actions or failure to obtain timely rate relief.

The Company’s natural gas distribution operations are regulated by the SCC. The SCC approves the rates that the Company charges its customers. During periods of enhanced inflationary pressure or the incurrence of significant additional costs, if the SCC did not timely authorize rates that provide for the recovery of such costs including a reasonable rate of return on investment in natural gas distribution facilities, earnings could be negatively impacted.

Furthermore, issuance of debt and equity by Roanoke Gas is also subject to SCC regulation and approval. Delays or lack of approvals could inhibit the ability to access capital markets and negatively impact liquidity or earnings.

FINANCIAL RISKS

Access to capital to maintain liquidity.

The Company relies on a variety of capital sources to operate its business and fund capital expenditures, including internally generated cash from operations, short-term borrowings under its line-of-credit, proceeds from the issuance of additional shares of its common stock and other sources. Access to a line-of-credit is essential to provide seasonal funding of natural gas operations and provide capital budget bridge financing. Access to capital markets and other long-term funding sources is important for refinancing and capital outlays. The ability of the Company to secure longer-term financing and to maintain and renew its line-of-credit is critical to operations. Adverse market trends, market disruptions or deterioration in the financial condition of the Company could increase the cost of borrowing, restrict the Company's ability to issue additional shares of its common stock or otherwise limit the Company’s ability to secure adequate funding.

Investment in Mountain Valley Pipeline, LLC.

The MVP went into service in June 2024. The LLC’s gas infrastructure facilities are subject to many operational risks. Operational risks could result in, among other things, lost revenues due to prolonged outages, increased expenses due to monetary penalties or fines for compliance failures, liability to third parties for property damage and personal injury, a failure to perform under applicable sales agreements and associated loss of revenues from terminated agreements or liability for liquidated damages under continuing agreements. The consequences of these risks, if realized, could adversely affect the LLC’s business, cash flows, financial condition, results of operations and prospects. Uncertainties and risks inherent in operating and maintaining the LLC's facilities include, but are not limited to, risks associated with facility start-up operations, such as whether the facility will achieve projected operating performance on schedule and otherwise as planned. The LLC’s business, cash flows, financial condition, results of operations and prospects potentially could be adversely affected by weather conditions, including, but not limited to, the impact of severe weather. Threats of terrorism and catastrophic events resulting from terrorism, sabotage, cyber-attacks, or individuals and/or groups attempting to disrupt the LLC’s business, or the businesses of third parties, may materially adversely affect the LLC’s business, financial condition, results of operations and prospects.

Any adverse developments, such as those noted above, could have a significant effect on the LLC and the Company's earnings, cash flows and financial position, and materially impact Resources' consolidated financial position and results of operations, including Resources' ability to pay shareholder dividends at the current level or remain in compliance with credit agreement covenants.

Failure to comply with debt covenant requirements.

The Company's long-term debt obligations and bank line-of-credit contain financial covenants. Noncompliance with any of these covenants could result in an event of default which, if not cured or waived, could accelerate payment on outstanding debt obligations or cause prepayment penalties. In such an event, the Company may not be able to refinance or repay all of its indebtedness, pay dividends or have sufficient liquidity to meet operating and capital expenditure requirements. Any such acceleration would cause a material adverse change in the Company's financial condition.

Obligations for income taxes that may arise from examinations by taxing authorities.

The Company is subject to federal and state income taxes as prescribed by the laws within the United States. Significant judgments are required in determining the provisions for income taxes. In preparing its tax provisions and returns, the Company must make calculations and assumptions regarding tax treatment of various transactions including the applicability of tax credits. The Company’s tax returns are subject to examination by the IRS and state tax authorities as disclosed in Note 9 of the consolidated financial statements. Although the Company utilizes the assistance of tax professionals in the preparation of its tax returns, there can be no assurance as to the outcome of these examinations. If the ultimate determination from an examination results in additional taxes above the amount reflected in its financial statements, the Company may record any additional income tax expenses as may be required including any interest and penalties that might result.

The cost of providing post-retirement benefits.

The Company provides certain pension and post-retirement benefits. The costs of providing defined benefit pension and retiree medical plans are dependent on a number of factors such as the rates of return on plan assets, discount rates used in determining plan liabilities, the level of interest rates used to measure the required minimum funding levels of the plan, future government regulation, changes in life expectancy and required or voluntary contributions made to the plan. Changes in actuarial assumptions and differences between the assumptions and actual results, as well as a significant decline in the value of investments that fund these plans, if not offset or mitigated by a decline in plan liabilities, could increase the expense of these plans and require significant additional funding. Although the Company has soft-frozen both plans to limit future growth in each plan's liabilities, ongoing funding obligations and expenses could have a material impact on the Company's financial position, results of operation and cash flows should there be a material reduction in the amount of the recovery of these costs through rates currently charged to customers or significant delays in the timing of the recovery of such costs.

Exposure to market risks.

The Company is subject to market risks that are beyond the Company’s control, such as commodity price volatility and interest rate risk. The Company is generally isolated from commodity price risk through the PGA mechanism. With respect to interest rate risk, there has been significant movement in interest rates in recent years. Much of the Company's outstanding debt is comprised of fixed rate notes or have interest rate swaps in place. However, higher interest rates do impact the Company through higher borrowing costs on Roanoke Gas' line-of-credit and Midstream's variable rate credit facilities as well as any future borrowings by the Company.

Risk Management and Strategy

In an effort to mitigate cyber intrusions, the Company has implemented a cybersecurity program intended to protect and preserve the integrity, confidentiality and reliability of data and systems. Cybersecurity risks are a key component of the Company's overall risk management, is integrated into other corporate processes and goes beyond the Company to certain vendors or suppliers. The Company has instituted certain cybersecurity requirements, interacted with various external organizations including its state regulator, and participated in proprietary briefings by industry experts to maintain an awareness of current cybersecurity threats and vulnerabilities.

The Company's cybersecurity program fundamentally aligns with the COBIT framework. This is reflected in our related policies, practices and procedures. We have multiple layers of security controls as well as a third-party SOC that helps identify, avoid and mitigate cybersecurity threats. The evaluation of risks includes consideration of cybersecurity and privacy risk, including (1) potential impact on the Company's employees, customers, and other stakeholders, (2) intelligence briefings on notable cyber events impacting the industry and (3) evaluation of external threats. The Company utilizes internal and third-party assessment tools and tests to evaluate its cyber risk policies, practices and procedures as well as to challenge how its defenses are built and deployed. These assessments provide opportunities for critical self-analysis, constructive feedback from third parties, and learnings from industry experts to enhance cyber resilience. Both formal and informal cybersecurity awareness trainings are provided to employees to help identify and avoid cybersecurity threats and to ensure employees understand the Company's cyber risk management policies along with the key role they play to ensure cyber hygiene. The Company has established a cybersecurity incident response team that includes the CEO, CFO, VP of HR, IT Director and other personnel. The Company has also retained counsel to advise on cybersecurity matters.

The Company's current security posture and regulatory compliance efforts are intended to address evolving and changing cyber threats. During the past three years, the Company has not experienced a cybersecurity incident resulting in a material impact to its business strategy, results of operations, or financial condition. The Company has identified the risk that a hostile cyber intrusion could severely impair the Company's operations, lead to disclosure of confidential information, damage the Company's reputation or otherwise have an adverse effect on the Companies' business as disclosed within Item 1A. Risk Factors.

Governance

The Company's Board of Directors, including its Audit Committee, provides oversight of the Company’s risks from cybersecurity threats. Management, including the CEO, CFO and IT personnel, presents formal reports to the Audit Committee and to the full board at least annually, as well as whenever cyber events warrant update.

Included in “Utility Property” on the Company’s consolidated balance sheet are storage plant, transmission plant, distribution plant and general plant of Roanoke Gas consistent with other natural gas utilities. The Company has approximately 1,180 miles of transmission and distribution pipeline representing 91% of the total utility property. The transmission and distribution pipelines are located on or under public roads, highways or private property for which the Company has obtained the legal authorization and rights to operate.

Roanoke Gas currently owns and operates eleven metering stations through which it measures and regulates the gas being delivered by its suppliers. These stations are located at various points throughout the Company’s distribution system.

Roanoke Gas owns a liquefied natural gas storage facility located in its service territory that has the capacity to store up to 200,000 DTH of natural gas.

Roanoke Gas also began operation of an RNG facility, that it owns, during fiscal 2023 as part of a cooperative agreement with the local water authority to produce commercial quality biogas at the regional pollution control facility. The Company leases the land upon which the RNG facility is located.

The Company’s executive, accounting and business offices, along with its operations departments, are located on Kimball Avenue in Roanoke, Virginia.

Although the Company considers its present properties to be adequate, management continues to evaluate the adequacy of its current facilities as additional needs arise.

Overview

Resources is an energy services company primarily engaged in the regulated sale and distribution of natural gas to approximately 62,500 residential, commercial and industrial customers in Roanoke, Virginia, and the 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. More information regarding the investment in MVP is provided below and under the Equity Investment in Mountain Valley Pipeline section.

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 operation needs, are generally not recoverable until a formal rate application is filed to include additional investment and higher costs, and new non-gas base rates are approved.

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

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 interim, 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. Refunds to customers, which were accrued in fiscal 2023 and reflected in regulatory liabilities, were made in February 2024. On February 2, 2024, primarily in response to continued inflationary pressures, Roanoke Gas filed for a non-gas base rate increase of $4.33 million. The filing also reflected an increase in the Company's authorized return on equity from 9.44% to 10.35%. The new interim non-gas base rates went into effect for customer billings on or after July 1, 2024, subject to refund. On October 16, 2024, the Company reached a settlement with the SCC staff on all outstanding issues in the case. Under the terms of the settlement, the Company agreed to an annual incremental revenue requirement increase of $4.08 million based on a return on equity of 9.90%.

Following extended periods of regulatory and judicial delays, as well as receipt of authorization from the FERC, the MVP entered into service on June 14, 2024 and became available for interruptible or short-term firm transportation service. On July 1, 2024, the MVP commenced long-term firm capacity obligations. See the Equity Investment in Mountain Valley Pipeline section for additional information on the MVP.

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 to customer bills and 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 SAVE qualified infrastructure investments on a prospective basis, until such time a formal rate application is filed incorporating these investments in non-gas base rates. The SAVE Plan and Rider were reset effective January 1, 2023, when the recovery of all prior SAVE Plan investment was incorporated into the new non-gas base rates. 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, and as a result, SAVE Plan revenues declined to approximately $461,000 in fiscal 2024 from approximately $1,104,000 in fiscal 2023. Roanoke Gas filed and received approval from the SCC for an updated annual SAVE Rider rate to become effective October 1, 2024 that will result in approximately $1,389,000 of SAVE-related revenues during fiscal 2025. See Note 4 of the consolidated financial statements for additional information regarding the SAVE Plan and Rider.

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 a level of price protection when the weather is colder than normal. The WNA allows the Company to recover from customers the lost margin, excluding gas costs, from the impact of warmer-than-normal weather and correspondingly requires the Company to refund to customers 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. The Company recorded approximately $3,761,000 and $3,005,000 in additional revenues under the WNA for weather that was approximately 20% and 16% warmer than normal for the fiscal years ended September 30, 2024 and 2023, respectively. The number of heating degree days used to determine normal can change annually as a new year is added to the 30-year period and the oldest year is removed. As a result of adding warmer than normal years to replace colder years, the number of heating degree days that defines normal has trended downward over the last several years.

The Company also has an approved rate structure that mitigates the impact of 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 from approximately $967,000 in fiscal 2023 to $728,000 in fiscal 2024 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. The average price of gas in storage at September 30, 2024 declined by 23% compared to the same period last year. Accordingly, fiscal 2025 ICC revenues are expected to continue to remain below the prior year's levels.

In March 2023, Roanoke Gas began the operation of the RNG facility to produce commercial quality biogas for delivery into its distribution system through a cooperative agreement with the Western Virginia Water Authority. With SCC approval, Roanoke Gas is allowed to recover the costs associated with the investment in RNG facilities and related operating costs through an RNG Rider added to customer bills. The customer benefits from this program through the monetization of environmental credits generated through RNG production, in which these credits are returned to customers through the RNG Rider. Total RNG revenue increased from approximately $712,000 in fiscal 2023 to $1,629,000 in fiscal 2024 as the facility was operational for a full twelve months in the current year compared to seven months in the prior year. See Note 4 of the consolidated financial statements for more information on RNG.

The cost of natural gas is a pass-through cost and 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 and usage 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.

Inflation and Rising Prices

Natural gas commodity, delivery and storage capacity costs constitute the single largest expense of the Company, representing 53% of fiscal 2024 total operating expenses. After peaking in December 2022, natural gas commodity prices decreased significantly through the remainder of fiscal 2023 and fiscal 2024. The decline in prices was primarily due to improved supply availability resulting from a warm winter season. Roanoke Gas recovers natural gas costs through the PGA mechanism as noted above; however, in times where commodity prices rapidly increase, the timing of recovery may lag. Increasing natural gas prices, especially in relation to other energy options, may lead to reductions in energy consumption through customer conservation or fuel switching. In addition, there is potential for higher bad debts related to customers' inability to pay higher natural gas bills.

Inflation, due to supply chain delays, labor shortages and limited availability of critical supplies, among other factors, affects the Company through increases in non-gas expenses such as labor, employee benefits, materials and supplies, contracted services, corporate insurance and other areas. The Company recovers non-gas related costs through the non-gas portion of its tariff rates, which are adjusted through a non-gas base rate application. Unlike the rate adjustments for the gas portion of rates which are done administratively, the non-gas base rate application process can result in an inherent lag in non-gas expense recovery. Therefore, authorized non-gas base rates may not keep pace with rising costs during inflationary periods. Management regularly evaluates the Company's operations, economic conditions and other factors to assess the need to apply for a non-gas base rate adjustment. Accordingly, management filed a non-gas rate application in February 2024 to incorporate increased expense levels from continued inflationary pressures since the last non-gas base rate application. These new non-gas base rates were implemented effective July 1, 2024, subject to refund. See Note 4 of the consolidated financial statements for more information, including reaching settlement with SCC staff.

Results of Operations

The analysis on the results of operations is based on the consolidated operations of the Company, which are primarily associated with the utility segment. Additional segment analysis is provided when Midstream's investment in affiliates represents a significant component of the comparison. Net income increased by $461,614 from the prior year primarily due to AFUDC and earnings from the MVP and the implementation of new non-gas base rates effective July 1, 2024, partially offset by increased inflationary pressures on operating expenses and higher interest rates.

The Company's operating revenues are affected by the cost of natural gas, as reflected in the consolidated statement of income under the line item 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 useful and relevant measure to analyze financial performance. The term gross utility margin is not intended to represent or replace gross margin, 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. A reconciliation between gross utility margin and gross margin is presented under the Gross Utility Margin section below.

The following results of operations analyses will reference gross utility margin.

Fiscal Year 2024 Compared with Fiscal Year 2023

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

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Total gas utility operating revenues for the year ended September 30, 2024 decreased by 13% from the year ended September 30, 2023 primarily due to significantly lower natural gas commodity prices and lower deliveries due to warmer weather more than offsetting the implementation of a non-gas base rate increase and increases in WNA and RNG revenues. Natural gas commodity prices for fiscal 2024 purchases declined by 43% per DTH from the prior year and the total commodity component of gas costs decreased by 44% per DTH from the prior year. Total gas costs, including pipeline and storage demand charges, decreased by 29% compared to a year ago, which corresponds to a 31% decline in the gas cost component included in total customer billing rate. Corresponding to the lower average price of natural gas in storage during 2024, ICC revenues declined 25%. In addition, total heating degree days decreased by 6% from the same period last year, resulting in a 2% decline in the weather-sensitive residential and commercial volumes, while transportation and interruptible volumes, primarily driven by business activity rather than weather, increased by 1%. The non-gas base rate increases implemented in 2023 and 2024 were the main contributing factors to an approximate $1.7 million increase in non-gas volumetric revenues, net of lower delivered volumes, and a $522,000 increase in customer base charge revenue. Additionally, the operation of the RNG facility for a full twelve months in the current year compared to seven months in the prior year resulted in increased revenues of approximately $917,000.

Gross utility margin increased over the prior fiscal year primarily as a result of the implementation of new non-gas base rates, net of SAVE, WNA and RNG revenue, offset by the reductions in ICC revenues. When adjusted for WNA, the volumetric margin increased by approximately $2,430,000. Base charge revenues increased by approximately $522,000 due to the non-gas base rate increase. The RNG Rider contributed an additional $917,000 to margin, as it was operational for all twelve months of fiscal 2024 compared to seven months during fiscal 2023, and ICC revenue declined by $239,000 due to lower cost of gas in storage.

The changes in the components of the gross utility margin are summarized below:

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Reconciliation between gross utility margin and gross margin is presented below:

Operations and Maintenance Expense - Operations and maintenance expense increased by $2,450,764, or 15%, over the prior year primarily due to inflationary effects on personnel costs, professional services, costs associated to operate and maintain the RNG facility and lower capitalized overheads. Personnel costs increased by approximately $1,094,000 due to increased staffing and the inflationary impact on salaries and benefits as well as awards of restricted stock. During fiscal 2023, no performance-based restricted stock was awarded, but was reinstated in fiscal 2024. Professional services expenses increased approximately $270,000 primarily due to increased external audit fees, actuarial services, recruiting costs and IT support. Further, costs associated with the RNG facility increased approximately $299,000, as the facility was only operational during seven months of the prior year as compared to all twelve months in the current year. Total capitalized construction overheads declined by approximately $429,000 compared to the prior year primarily due to a reduction in direct construction expenditures related to the RNG project, which was completed in fiscal 2023. Corporate insurance premiums accounted for much of the remaining cost increase.

Taxes Other Than Income Taxes - Taxes other than income taxes increased by $370,338, or 16%, primarily due to higher property tax rates and growth in utility property, as well as increases in payroll taxes related to increased staffing and compensation.

Depreciation and Amortization - Depreciation and amortization expense increased by $753,416, or 8%, corresponding to a similar increase in net additions to depreciable utility property.

Equity in Earnings of Unconsolidated Affiliate - The equity in earnings of the MVP investment increased by $1,766,881 associated with the recognition of AFUDC as a result of MVP construction activities continuing through May 2024. With the MVP in service, the Company now recognizes its share of operational earnings from the MVP, favorably adjusted for the amortization of a basis difference that arose when the Company recorded an other-than-temporary impairment of its investment in 2022. See Note 5 of the consolidated financial statements for additional information related to the MVP.

Other Income, Net - Other income increased by $382,233, or 59%, primarily due an increase of approximately $471,000 related to donations of certain natural gas distribution assets from a local housing authority. Additionally, revenue sharing related to the asset management agreements increased by approximately $239,000. These increases were offset by an approximate $286,000 decrease in AFUDC related to the RNG facility, which was placed in service in March 2023, and approximately $62,000 less interest income.

Interest Expense - Total interest expense increased by $886,080, or 16%, primarily due to higher interest rates on the Company's variable rate debt and, to a lesser extent, higher borrowing levels. The weighted-average interest rate on the Company's total debt increased from 3.83% during fiscal 2023 to 4.27% during fiscal 2024, representing a 12% increase in the average rate. Total average debt outstanding during fiscal 2024 increased by 3% from fiscal 2023. Total borrowing levels were mitigated by equity issues through the ATM in fiscal 2024.

Roanoke Gas' interest expense increased by $484,454, or 15%, as total average debt outstanding increased by approximately $5,600,000 associated with net borrowings under the Company's line-of-credit. The average interest rate increased slightly from 3.51% in fiscal 2023 to 3.72% in fiscal 2024. All of Roanoke Gas' long-term debt carry fixed rates either due to fixed rate notes or with variable rate debt that has a corresponding swap agreement. See Note 6 and 7 of the consolidated financial statements for more information on the Company's debt.

Midstream's interest expense increased by $401,626, or 17%, as the average interest rate on Midstream's total debt increased from 4.32% to 5.21% related to higher interest rates on the variable rate credit facilities that were refinanced in 2024, net of an approximate $1,600,000 decrease in total average debt outstanding during the period.

The current interest rate environment may result in lower interest costs associated with the Company's variable rate debt.

Income Taxes - Income tax expense increased by $204,700, or 6%, corresponding to an increase in pre-tax income. The effective tax rate was 23.9% and 23.6% for fiscal 2024 and 2023, 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. See Note 9 of the consolidated financial statements for the impact of tax credits on the effective tax rate.

Earnings Per Share and Dividends - Basic and diluted earnings per share were $1.16 in fiscal 2024 compared to $1.14 per share in fiscal 2023. Dividends declared per share of common stock were $0.80 in fiscal 2024 compared to $0.79 in fiscal 2023.

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 payment 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 decreased by approximately $618,000 in fiscal 2024 compared to $3.4 million in fiscal 2023. The following table summarizes the categories of sources and uses of cash:

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Cash Flows Provided by Operating Activities:

The seasonal nature of the natural gas distribution 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, all 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 all contribute to higher cash levels. During the first and fourth fiscal quarters, operating cash flows generally decrease due to the combination of increasing natural gas storage levels and rising customer receivable balances.

Cash flows from operating activities decreased by $6.4 million from the prior year. The table below summarizes the significant components operating cash flow:

The decline in operating cash flows is primarily due to the reduction in the value of gas withdrawn from storage. The average price of gas in storage during fiscal 2023 was more than $6.00 per DTH compared to approximately $4.00 per DTH during the current fiscal year. The decrease in the unit cost of gas in storage was attributable to much lower commodity prices during last year's summer storage injections as compared to fiscal 2022. Accordingly, as lower-priced gas was withdrawn from storage during fiscal 2024, cash flow levels were reduced when compared to fiscal 2023. Additionally, though the SCC issued its final order in December 2023, Roanoke Gas implemented interim billing rates in January 2023; therefore, the Company began accruing an estimated rate refund representing the amount due customers for the difference between total customer billings at interim rates versus total customer billings at final rates. Upon SCC approval of final rates, Roanoke Gas issued refunds in February 2024 to all customers that were billed at interim rates since January 2023. When compared to the prior year, the distribution of the rate refund to customers reduced cash available for operations by $1.3 million.

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. Roanoke Gas' expenditures were approximately $22.1 million and $25.3 million in fiscal 2024 and 2023, respectively. The $3.2 million decrease in expenditures is primarily due to higher prior-year investment for the RNG project, which was placed in service in March 2023. Roanoke Gas renewed 5.4 miles of main and 412 service lines and 5.7 miles of main and 452 service lines in fiscal years 2024 and 2023, respectively. 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’ capital expenditures included costs to extend natural gas distribution mains and services to 521 customers in fiscal 2024, compared to 430 customers in fiscal 2023.

Capital expenditures are expected to be approximately $22 million annually over the next few years as Roanoke Gas continues to focus on its SAVE Plan, as well as system improvements and customer growth. The Company expects to utilize its operating cash flows and credit facilities, as well as to consider additional long-term debt and equity capital, to meet the funding requirements of these planned expenditures.

Investing cash flows also reflects the fiscal 2024 funding of approximately $18,000 for Midstream's participation in the LLC, down from the $2.1 million in fiscal 2023. 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 ownership percentage declined as it did not make additional investments. Now that the MVP is in service, Midstream will incur normal periodic capital investment related to ongoing MVP operations requirements and system improvements, in which it will again participate. Midstream has and will continue to make capital investments in Southgate. The targeted timing for completion of the Southgate project is 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 $4.0 million and $200,000 in fiscal 2024 and 2023, respectively. The $3.8 million increase in financing cash flows is primarily attributable to net borrowings of $6.8 million under Roanoke Gas' line-of-credit during fiscal 2024 compared to $4.3 million in net borrowings in the prior year. Additionally, Midstream borrowed a net amount of $680,000 during fiscal 2024 from its amended credit facility compared to net repayments of approximately $196,000 in the prior year. During fiscal 2024, the Company realized $4.7 million from the issuance of 234,645 shares through the ATM program and DRIP activity compared to $3.9 million received from the issuance of 194,719 shares from those same activities, as well as the exercise of stock options, during the prior year. Cash outflows for dividend payments were $8.0 million as the annualized dividend rate increased from $0.79 to $0.80 per share and total outstanding shares increased as a result of the stock issuance activity. The Company’s consolidated capitalization was 44.1% equity and 55.9% long-term debt at September 30, 2024, exclusive of unamortized debt expense. This compares to 44.4% equity and 55.6% long-term debt at September 30, 2023.

The current interest rate environment may result in lower interest costs associated with the Company's variable rate 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 and the two private shelf facilities. The first shelf facility provides for the issuance of up to $40 million in unsecured notes in addition to the $28 million previously issued. This shelf agreement is scheduled to expire on December 6, 2025. The second facility provides for the issuance of up to $70 million in unsecured notes during its current term, which expires September 30, 2025.

Roanoke Gas may also adjust capital spending as necessary, if such a need would arise. With the MVP now in service, Midstream's future cash requirements will relate to regular monthly operating expenses, debt service and capital contributions. The Company received its first cash distribution from MVP of approximately $800,000 in October 2024, and should receive similar distributions quarterly. On March 6, 2024, Midstream refinanced its Promissory Notes with one lender, increased the capacity of its $23 million credit facility to $25 million and extended the maturity date to December 31, 2025. Further, on May 2, 2024, Midstream established a new $9 million line of credit facility that matures on May 2, 2026. With these proceeds, Midstream paid in full the $9 million balance on its note payable that matured on June 1, 2024. With the extension of its original credit facility and the establishment of the new credit facility, Midstream's total debt repayment over the succeeding 12 months is $800,000 in principal payments. Management believes that it will be able to meet Midstream's cash requirements over the ensuing 12-month period with its quarterly cash distributions from MVP.

Notes 6 and 7 of the consolidated financial statements provide details on the Company's line-of-credit and borrowing activities.

ATM Program

Resources issued 129,164 shares of common stock for $2,635,200, net of $67,569 in fees, under the ATM program for the year ended September 30, 2024. For the year ended September 30, 2023, Resources issued 127,852 shares of common stock for $2,713,020, net of $69,565 in fees, under the ATM program.

Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements as defined in Regulation S-K, Item 303(a)(4)(ii).

Equity Investment in Mountain Valley Pipeline

Midstream owns a less than 1% equity investment in the LLC that owns and operates the MVP. The Company accounts for its interest in the LLC under the equity method of accounting given the LLC maintains specific ownership accounts for each investor, and also considering the Company's rights under the LLC management agreement and the Company's involvement as a customer of the MVP. The Company has been using the equity method since the inception of its investment in fiscal 2016. Following receipt of authorization from the FERC, the MVP entered commercial operation on June 14, 2024 and became available for interruptible or short-term firm transportation service. On July 1, 2024, the MVP commenced long-term firm capacity obligations. Midstream is also a less than 1% investor, accounted for under the cost method, in Southgate, which is in the design and permitting phase. Completion of the Southgate pipeline is targeted for June 2028.

From inception through May 2024, earnings from the LLC were primarily attributable to AFUDC income. With the MVP now in operation, the Company recognizes its share of earnings from the LLC, favorably adjusted for a basis difference between the Company's proportional share of assets and its carrying value that arose when the Company recorded an other-than-temporary impairment of its investment in 2022. This basis difference amortization is a favorable non-cash adjustment over the operational life of the MVP, or 40 years. For fiscal 2024 and 2023, the Company recorded equity in earnings of consolidated affiliates of $3.9 million and $2.1 million, respectively, which included $3.0 million and $2.1 million from AFUDC. The Company participates in quarterly cash distributions by the LLC, the first of which was in October 2024. The Company's share was approximately $800,000.

Regulatory

See Note 4 of the consolidated financial statements for discussion on Regulatory matters.

Critical Accounting 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 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 and professional judgments. Actual results may differ significantly from these estimates and assumptions.

The Company considers an estimate to be critical if it is material to the financial statements and requires assumptions to be made that were uncertain at the time the estimate was made and changes in the estimate are reasonably likely to occur from period to period. The Company considers the following accounting policies and estimates to be critical.

Regulatory accounting - The Company’s regulated operations follow the accounting and reporting requirements of ASC 980, Regulated Operations. The economic effects of regulation can result in a regulated company deferring costs that have been or are expected to be recovered from customers in a period different from the period in which the costs would be charged to expense by an unregulated enterprise. When this occurs, costs are deferred as regulatory assets on the consolidated balance sheet and recorded as expenses in the consolidated statements of income and comprehensive income when such amounts are reflected in rates. Additionally, regulators can impose regulatory liabilities upon a regulated company for amounts previously collected from customers and for current collection in rates of costs that are expected to be incurred in the future.

If, for any reason, the Company ceases to meet the criteria for application of regulatory accounting treatment for all or part of its operations, the Company would remove the applicable regulatory assets or liabilities from the consolidated balance sheet and include them in the consolidated statements of income and comprehensive income for the period in which the discontinuance occurred.

Unbilled revenue recognition - The Company bills its regulated natural gas customers on a monthly cycle. The billing cycle for most customers does not coincide with the accounting periods used for financial reporting. The Company accrues revenue for estimated natural gas delivered to customers but not yet billed during the accounting period. The following month, the unbilled estimate is reversed, the actual usage is billed and a new unbilled estimate is calculated. The consolidated financial statements include unbilled revenue of $1,294,798 and $1,240,097 as of September 30, 2024 and 2023, respectively. Because the process is performed monthly, the Company routinely ensures its methodology continues to provide a reasonable estimate.

Pension and Postretirement Benefits - The Company offers a pension plan and a postretirement plan to eligible employees. The expenses and liabilities associated with these plans, as disclosed in Note 12 of the consolidated financial statements, are based on numerous assumptions and factors, including provisions of the plans, employee demographics, contributions made to the plan, return on plan assets and various actuarial calculations, assumptions and accounting requirements. In regard to the pension plan, specific factors include assumptions regarding the discount rate used in determining future benefit obligations, expected long-term rate of return on plan assets, compensation increases and life expectancies. Similarly, the postretirement medical plan also requires the estimation of many of the same factors as the pension plan in addition to assumptions regarding the rate of medical inflation and Medicare availability. Actual results may differ materially from the results expected from the actuarial assumptions due to changing economic conditions, differences in actual returns on plan assets, different rates of medical inflation, volatility in interest rates and changes in life expectancy. Such differences may result in a material impact on the amount of expense recorded in future periods or the value of the obligations on the consolidated balance sheet.

In selecting the discount rate to be used in determining the benefit liability, the Company utilized the FTSE Pension Discount Curve, which incorporates the rates of return on high-quality, fixed-income investments that corresponded to the length and timing of benefit streams expected under both the pension plan and postretirement plan. The Company used a discount rate of 4.83% for valuing both its pension plan and postretirement plan liabilities at September 30, 2024. These discount rates represent a decrease from the 5.63% for the pension plan and postretirement plan used for valuing the corresponding liabilities at September 30, 2023. The decrease in discount rates reflect the Federal Reserve's easing of interest rates in 2024 and general long-term rate decline. The yield on the 30-year Treasury increased from 3.79% at September 30, 2022 to 4.73% at September 30, 2023 and decreased to 4.14% at September 30, 2024. Corporate bond rates experienced a smaller increase as credit spreads have narrowed. The rise in the discount rates through 2023 was the primary factor in the reduction of the benefit obligations for both the pension and the postretirement plan. Mortality assumptions were based on the PRI-2012 Mortality Table with improvements projected generational using Projection Scale MP-2021 for the current year valuation.

The Company has focused on minimizing the financial risk associated with these plans. With the soft freezes of both the pension and postretirement plans, future liability growth associated with participant service and compensation has been limited. Since January 2017, when the pension plan froze access to new employees, the asset allocation has transitioned from 60% equity and 40% fixed income to 25% equity and 75% fixed. During the same period, the fixed income portion of the plan was transitioned to an LDI approach, with the fixed income assets invested in securities with a duration that corresponds to the duration of the corresponding liability. This synchronization of the pension assets with the pension liabilities has reduced volatility in the funded status of the plan. This is evidenced by the relative stability of the funded status of the pension plan at September 30, 2024 and 2023 with a funded ratio of 104% and 100%, respectively. The 25% allocation to equity investments provides asset growth potential to offset increases in the pension liability related to those employees continuing to accrue benefits. Management will continue to evaluate the investment allocation as the liabilities mature and make adjustments as necessary.

The Company has initiated a transition of the postretirement plan assets from a 50% equity and 50% fixed income allocation to a 30% equity and 70% fixed income allocation. This revision to the investment targets is in response to a greater proportion of participants that have transitioned to retirement. Similar to the pension plan, the revision to the asset allocation will seek to reduce the volatility in funded status while still providing the opportunity for asset growth through the equity portion of the portfolio. The funded status for the postretirement plan was 139% and 116% as of September 30, 2024 and 2023, respectively. The improvement in the funded status was due to stronger-than-expected market performance only partially offset by higher liabilities as the Company is effectively matching durations within the portfolio. Management will continue to monitor and evaluate the asset allocation and adjust as warranted.

A summary of the funded status of both the pension and postretirement plans is provided below:

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The Company annually evaluates the long-term rate of return on its targeted investment allocation model, as well as the overall asset allocation of its benefit plans, and reviews both plans' potential long-term rate of return assumptions with its investment advisors to determine the rates used in each plan's actuarial calculations. The long-term rates of return increased slightly from 4.50% in fiscal 2024 to 4.95% for fiscal 2025 for the pension plan and from 4.21% in fiscal 2024 to 4.95% for fiscal 2025 for the postretirement plan. Management will continue to evaluate the return assumptions and asset allocation and adjust both as market conditions warrant.

Management estimates that the Company will have no minimum funding requirements next year. The Company currently does not expect to make contributions to its pension plan and postretirement plan in fiscal 2025 due to the funded position of the plans. The Company will continue to evaluate its benefit plan funding levels in light of funding requirements and ongoing investment returns and make adjustments, as necessary, to avoid benefit restrictions and minimize PBGC premiums.

The following schedule reflects the sensitivity of pension costs to changes in certain actuarial assumptions, assuming that the other components of the calculation remain constant.

The following schedule reflects the sensitivity of postretirement benefit costs from changes in certain actuarial assumptions, while the other components of the calculation remain constant.

Derivatives - The Company may hedge certain risks incurred in its operation through the use of derivative instruments. The Company applies the requirements of ASC 815, Derivatives and Hedging, which requires the recognition of derivative instruments as assets or liabilities in the Company’s consolidated balance sheet at fair value. In most instances, fair value is based upon quoted futures prices for natural gas commodities and interest rate futures for interest rate swaps. Changes in the commodity and futures markets will impact the estimates of fair value in the future. Furthermore, the actual market value at the point of realization of the derivative may be significantly different from the values used in determining fair value in prior financial statements. The Company had four interest-rate swaps outstanding at September 30, 2024 related to its variable rate notes. The corresponding fair value of these swaps is reflected on the consolidated balance sheets as of September 30, 2024 and 2023. A 25 basis point decrease and increase on the yield curve would result in a $228,248 decrease and $226,748 increase, respectively, in the fair value of the interest rate swaps on the balance sheet. See Notes 1 and 8 to the consolidated financial statements for additional information regarding the swaps.

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 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.

As of September 30, 2024, the Company completed an evaluation, under the supervision and with the participation of management, including the chief executive officer and the chief financial officer, of 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 September 30, 2024.

Management routinely reviews the Company’s internal control over financial reporting and makes changes, as necessary, to enhance the effectiveness of the internal controls over financial reporting. There were no changes in the internal controls over financial reporting during the fourth quarter of the fiscal year covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) under the Securities and Exchange Act of 1934). Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation and fair presentation of financial statements for external purposes in accordance with GAAP and include those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures are being made only in accordance with authorizations of the management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of the inherent limitations, any system of internal control over financial reporting, no matter how well designed, may not prevent or detect misstatements due to the possibility that a control can be circumvented or overridden or that misstatements due to error or fraud may occur that are not detected. Projections of the effectiveness to future periods are subject to the risk that the internal controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures included in such controls may deteriorate. The Company’s internal control system was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.

The Company has conducted an evaluation of the design and effectiveness of the Company’s system of internal control over financial reporting as of September 30, 2024, based on the framework set forth in ”Internal Control - Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based upon such evaluation, the Company concluded that, as of September 30, 2024, the Company’s internal control over financial reporting was effective.

Item9B. Other Information.

None.

Item9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.

Not Applicable.