RGC Resources - Q3 2023

Transcript

Tommy Oliver (SVP, Regulatory and External Affairs)

Well, good morning. Thank you for joining us as we discuss RGC Resources' 2023 third quarter results. I am Tommy Oliver, Senior Vice President, Regulatory and External Affairs for RGC Resources, Inc. I am joined this morning by Paul Nester, President and CEO of RGC Resources, and Kelsie Davenport, our Director of Finance. Before we get started, I want to review a few administrative items. We have muted all lines and ask that all participants remain muted. The link to today's presentation is available on the Investor and Financial Information page of our website at www.rgcresources.com. Lastly, at the conclusion of the presentation and all remarks, we will take questions. Let's transition over to slide one. I'll note that this presentation contains forecasts and projections. Slide one is the forward-looking statement disclaimer. On to slide two, which contains our agenda.

During the presentation, we will review our quarterly operational and financial results and discuss the outlook for the remainder of fiscal 2023, with time allotted for questions at the end. Over to slide three. Our main extensions for the year have totaled 3.1 million, I'm sorry, 3.1 miles, and we have added, which is really reflective of the great construction weather we've experienced in the Roanoke area, and we have added 464 customers through the first nine months of the fiscal year. Our customer counts in the graph on the right side of the slide represents a steady increase in total customers since 2020. You got to be mindful that customer counts for 2021 and 2022 were impacted by the state-mandated service disconnection moratorium that occurred during parts of 2020 and 2021.

Overall, our collections have improved, and we are experiencing collection activity, which largely resembles pre-pandemic results. Our bad debt expense for the nine months is approximately $223,000, less than this time last year. We're on slide four, which shows our delivered gas volumes, which were lower than last year, largely due to warmer weather compared to the third quarter of 2022. Heating degree days were 6% lower, which resulted in 3% lower delivery of total volumes compared to third quarter of last year. Slide five. For the first nine months of the current fiscal year, gas volumes are lower, again, largely due to fewer heating degree days. Commercial and industrial volumes were also 2% lower than year-to-date last year.

I'm now going to turn it over to Paul Nester, President and CEO of RGC Resources, who will discuss our financial results.

Paul Nester (President and CEO)

Thank you, Tommy. Good morning, and thanks to everyone for joining us today. We are on slide 6. You know, the third quarter operating income increased $158,000, or 9.6%, to $1,798,000. This is obviously an improvement over the third quarter of 2022. This increase was primarily driven by the interim base rates that we implemented on January 1st, in addition to our investment in the RNG project and Mountain Valley Pipeline AFUDC. We're going to talk about Mountain Valley a little bit later in the presentation. One thing to note on slide six, our interest expense is under pressure due to the rising interest rate environment. We still have floating rate debt supporting our Mountain Valley investment. It is subject to rising interest rates.

Our net income for the quarter was $687,000, up approximately $94,000 compared to the third quarter of 2022. This did include $519,000 of the non-cash AFUDC related to Mountain Valley returning to full construction in June 2023. To aid in the comparison of our trailing twelve-month results, which includes impairments recorded on our MVP investment in fiscal 2022, we have represented our financial results on an underlying basis on slide seven. The 10% increase that we see on slide seven for trailing twelve results, $955,000, really reflects two things. First, it's execution on the Roanoke Gas organic growth strategy. Tommy just covered our volume deliveries and our main miles and our customer additions.

We just continue to have excellent results in our operation on all those fronts. We're still investing in rate base, Tommy's going to cover that in just a minute, and customer growth. Again, we had a nice strategic investment in a new technology, which is reducing emissions in our-- emissions in our RNG facility. The second piece of that earnings change is the non-cash equity earnings from the Mountain Valley investment. Tommy is now going to review Roanoke Gas's year-to-date capital spending, as well as our capital spending projection for the remainder of fiscal 2023.

Tommy Oliver (SVP, Regulatory and External Affairs)

Thank you, Paul. We're on slide eight. We continue to execute our 2023 Roanoke Gas capital investment plan with 19.4 million in utility property, which represents an increase of 1.9 million compared to 2022. The increase is primarily the result of the investment we made in the RNG facilities completed and to make it operational. Turning to slide nine, where we're gonna review the outlook for the remainder of the fiscal year, including Roanoke Gas's capital budget forecast, provide an outlook for RGC Midstream, and provide updated guidance for 2023, as well as provide initial guidance for 2024. On to slide 10. We anticipate approximately $4.5 million of additional spending on utility plant for the remainder of the fiscal year, for a total of approximately 23.9 million for the fiscal year.

You may notice that amount is higher than the second quarter forecast in May, due to anticipated spending in the fourth quarter for the Roanoke Gas interconnections to the Mountain Valley Pipeline. I'm gonna turn it over to Paul now.

Paul Nester (President and CEO)

Yeah. Thank you, Tommy. You know, due to the passage of the Fiscal Responsibility Act in early June, all the permits that were completed and issued subsequent to that, the Mountain Valley did resume full project construction at the end of June for the first time in several years. As you all know, the Fourth Circuit issued a couple of stays in early July, the Supreme Court of the United States, on July 27th, granted MVP's application to vacate those stays, forward construction resumed immediately. We are grateful for the Supreme Court's swift action and assistance in this matter. As a result, we have revised our midstream forecast for 2023 and 2024, as shown on slide 11.

These numbers do reflect AFUDC related to project construction, which we expect to see each month, beginning in July, and concluding with in-service. Equitrans Midstream, the MVP's managing partner, is still projecting that the pipe will be completed and in service by the end of calendar 2023. I do wanna follow up on Tommy's comment about the Roanoke Gas interconnections. Those have also been on hold with the various permit and construction delays. Now that the project, we believe is gonna be completed in the next four months, we are resuming our construction of those interconnects and really look forward to having those in service and delivering gas into the Roanoke Valley.

Before we conclude with our earnings per share guidance, Tommy, would you mind giving us a few updates on what's been happening in the Roanoke Gas regulatory environment?

Tommy Oliver (SVP, Regulatory and External Affairs)

Certainly, Paul. As you may remember, we've been fairly active on the regulatory front. We have three formal proceedings going on, I'll start with the SAVE plan. You may recall, we discontinued billing the SAVE rider, effective January 1, 2023. We rolled in the investment we were making through the SAVE plan into base rates, and we're recovering those investments, or the return on those investments, through the interim rates that went into effect January 1. In the first quarter-- second quarter, I'm sorry, of this fiscal year, we filed a new SAVE plan with the commission. On July 7, the staff filed its report, in which it did recommend approval of our five-year plan, which includes about $49.5 million in capital spend.

We expect a final order in that case in September of this year, and we'll start billing that October 1st, 2023. The RNG proceeding, we began billing our initial rate on March 1, 2023, the same month it went operational. We had to file for an update of the rate, and we did that, I believe it was May of 2023, for a rate that became that will become effective 10/1, 2023, and that's to align it with our fiscal year. This past Friday, August 4th, staff recommended approval of that rider update, so we expect a final order on that as well in September. The rate case, we filed that December of 2022, and that's still progressing through the audit phase.

Staff's been very thorough and diligent in asking a lot of good questions. We are expecting their testimony August 23rd. We'll address it either with rebuttal and, or a settlement, perhaps. We'll have a final order or, I'm sorry, the hearing is scheduled for October 4th. A final order sometime after that.

Paul Nester (President and CEO)

Yeah. Thank you, Tommy. just really outstanding results coming out of the regulatory area this year. Again, we think that's, again, a reflection of, of just the way the utility has conducted itself and does business over a long period of time. We're, we're pleased with, pleased with those outcomes. Our, our earnings guidance on slide 12 does reflect the change in the Mountain Valley status, certainly in 2023, as well as, again, assuming essentially a January 1st, 2024, in service. The 2024 forecast has AFUDC for the fiscal first quarter, October, November, December, and then operating income from the joint venture, January through September.

The range is a, a little wider than maybe you've seen in the past, but we think that's appropriate, again, based on the outcome of the rate case, in particular. We're on track, particularly in the utility. The utility, as we've discussed at length today, is doing wonderful, so we're on track to have another solid, if not, not great year. With that, that concludes our prepared remarks. If you have any questions, please dial pound, pound or hashtag, hashtag to unmute your line.... pound, pound to unmute your line. Okay, we'll wait just a few more seconds to see if anyone has any questions.

Mike Gaugler (Managing Director, Senior Analyst, Utilities and Infrastructure)

Good morning, everyone.

Paul Nester (President and CEO)

Okay, it sounds like we've got one coming through. Go ahead.

Mike Gaugler (Managing Director, Senior Analyst, Utilities and Infrastructure)

Hey, Paul, it's Mike Gaugler.

Paul Nester (President and CEO)

Hi, good morning. How are you? Thank you for joining us.

Mike Gaugler (Managing Director, Senior Analyst, Utilities and Infrastructure)

I'm doing well, sir. I'd ask how you're doing, but I think I already know. Just one question, and I look, I realize it's early days, and I'll probably ask this question next quarter. With all the positive developments on gas supply now, just wondering, are you getting any inbounds from either real estate developers or potential new industrial or commercial customers, you know, just in general about locating to Roanoke now that the good news is out?

Paul Nester (President and CEO)

Yeah, Mike, thank you for the question. Yeah, I would broadly characterize your question as, as economic development. I would say in a general sense, there is slightly more inbound. What we mean by that, we've actually had good inbounds historically for the last six-18 months. One of the limitations on those inbounds has been the lack of certainty around Mountain Valley completion. With the recent bipartisan support in Congress and the signature by President Biden of the FRA and then the Supreme Court's very quick and decisive action, we do feel like we have certainty now on the completion, and that is giving a boost to our economic development, both in terms of their ability to pinpoint when we believe the gas in Mountain Valley will, in fact, arrive.

It's a great question. I think, I think there's going to be more inbound to come, particularly with the certainty of the supply. You know, the pricing is low. It's the cheapest gas, certainly in the United States, may- maybe even the world. Again, it's going to be plentiful, coming through that 42-inch pipe, delivering two billion cubic feet a day. We are very excited about the future economic development front here in the Greater Roanoke Valley and Franklin County.

Mike Gaugler (Managing Director, Senior Analyst, Utilities and Infrastructure)

All right, gentlemen. Well, that's all I had, and congrats on the MVP decision.

Paul Nester (President and CEO)

Well, thank you. Thank you very much. Do we have any other questions? Please dial pound, pound or hashtag, hashtag to unmute your line. Okay, hearing none, this concludes our third quarter earnings call. We, again, really appreciate you taking the, the time to join us, and we really look forward to being with you again in early December to talk about our full fiscal 2023 results and hopefully be very, very precise on when the Mountain Valley is going to be flowing gas at that point in time. We hope everyone has a great day and a great week and a safe end to their summer. Thank you.