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spk00: You will now be placed into conference. The leader has muted your line. To unmute your line, press pound six.
spk01: Good morning. I am Paul Nestor, President and CEO of RGC Resources, Inc. I hope it is as beautiful and pleasant wherever you may be today as it is here in the Roanoke Valley. With me today are Tommy Oliver, our CFO, and David Garcia, our Director of Finance. Again, welcome and thank you for joining us as we discuss RGC Resources Physical 2021 second quarter results. First, a few housekeeping items. We have muted all lines and ask that all participants remain muted. After the presentation is completed, we will take questions. The link to today's presentation is available on the Investor and Financial Information page of our website at www.rgcresources.com. Let's get started. Slide one contains our forward-looking statements disclaimer. This presentation does contain forecasts and projections. This morning's agenda is on slide two. We will review the second quarter and year-to-date operational and financial results, followed by our outlook for the second half of fiscal 2021. We will conclude with an opportunity for you to ask questions. I want to preface the next few slides by saying that we are pleased with the year-to-date results of the Roanoke gas utility. Customer growth has been strong and capital spending is right on plan. As noted on slide three, our second quarter customer growth of 160 was almost equal to the first quarter total of 170, bringing us to a year-to-date total of 330 new customers. This is exactly the same as physical 2020. We mentioned our new main miles last quarter. As expected, we completed an additional 1.7 miles in the second quarter, bringing the year-to-date total to 3.3 miles, or exceeding by 50% the total for all of physical 2020, which was only 2.3 miles. Moving on to slide four. Second quarter volumes were up significantly from the prior year, primarily due to colder weather and the economic environment. Industrial volumes are down primarily due to the large customer that fuel switched to natural gas in March of 2020. You may recall that's when they started that fuel switch. They have switched back to coal so far in 2021. On slide five, year-to-date volumes are up as a result of the second quarter increase. We are pleased that firm volumes continue to be stronger than weather norms. Building suppliers, auto part manufacturing, and consumer products manufacturing continue to have noticeable year-over-year increases. Let's review capital spending on slide six. We're $1.4 million lower than 2020, almost entirely due to project timing. The signature project in 2020, the Blue Ridge Main Extension, had $1.8 million of spending through March 2020. Phase two of that project will kick off in June of this year. Our other key projects for 2021, the Carilion Expansion Support Project and the Mason Station Renewal started in the third quarter of this fiscal year. Tommy will now provide additional details of our financial results.
spk00: Tommy? Thank you, Paul, and good morning, everyone. I will now review our operating results. To aid in this discussion, we have included our condensed consolidated statements of income on slide seven. Let's start with our quarter-over-quarter results. As indicated on slide seven, Resources completed its first quarter of fiscal 2021 with earnings of 58 cents per diluted share compared to 70 cents for the same quarter of the prior year. While operating income was favorably impacted by customer growth, saved revenues, and furved This was all set by a one-time rate case adjustment that increased revenues in the prior year. We would also note that the significant increase in operating expenses in quarter two of 2021 was driven primarily by a 67% increase in gas costs in colder weather compared to last year. The increase in gas costs was driven by both the February 2021 polar vortex that affected gas supplies throughout much of the U.S., and higher transportation charges for our interstate pipeline suppliers. As a reminder, gas costs are recovered from customers on a dollar-for-dollar basis with no margin earned by the company on these costs. Non-gas O&M costs are flat year-over-year. As discussed during the first quarter call, equity and earnings halted in the second quarter commensurate with a halt in MVP field work. This drove a 11-cent decrease in earnings from the prior year. Now I will turn to the year-to-date results. The drivers for year-to-date results were primarily the same as for the quarterly results. Revenues and operating expenses were both primarily due to colder weather and a 31% increase in gas costs. Operating expenses in the prior year were affected by COVID-19 related bad debt expense, as well as a first quarter 2020 $317,000 write-down in regulatory assets stemming from the Virginia State Corporation Commission's final order of January 2020. Now let's review results from the trailing 12 months at March 31st, 2021. Operating income was favorably impacted by customer growth, saved revenues, and firm volumes. This was offset by prior year rate case adjustments and COVID-19 related bad debt, as well as maintenance initiatives in the first half of fiscal 2020. Year-over-year capital spending differences discussed previously by Paul has resulted in decreased capitalized overheads. I will now take a moment to discuss how the service disconnection moratorium has impacted our bad debt expense. As we discussed in the first quarter earnings call, utilities in Virginia are operating under a moratorium which prohibits disconnection of residential customers for nonpayment. We have not been given any indication as to when the moratorium may be lifted. However, along with the moratorium, we were allocated over $403,000 of CARES Act funds to help our customers who accounts had fallen behind as a result of the pandemic. We were able to apply about $205,000 of this money to eligible customer accounts in the second quarter, which reduced our bad debt expense. We expect to apply most, if not all, of the remaining CARES Act funds to customer accounts in the third quarter of 2021. It's also worth noting that over 70% of the company's workforce will be fully vaccinated by the end of May. I will now turn it back over to Paul.
spk01: Thank you, Tommy. We are excited about that news related to the vaccination and the willingness of our employees to be vaccinated. By definition, our company will have herd immunity by the end of May. We're happy about that. Let's discuss the remainder of physical 2021, starting with Renault Gas Capital on slide nine. We still plan to spend $21.1 million this fiscal year, with $12 million expected in the back half of physical 2021. Momentum on main extensions and new customer additions has continued into the third quarter, and we expect that trend to continue throughout the summer and into the early fall. As stated earlier, several key projects are about to be underway. We have started the renewal of Mason Station, which is one of our older gate stations. This is included in this year's save plan and will be approximately three-quarters of a million dollars. We also mentioned Phase 2 in Blue Ridge and approximately $1 million, 6,800-foot main extension. And very importantly, we have over a million dollars of primarily main work scheduled to support Carilion Clinic's current construction and future expansion plans. Moving on to slide 10, let's talk about the Mountain Valley Pipeline. To date, total project work for MVP is 92% complete, which includes all work on the project's three compressor stations and its three original interconnect facilities, with the additional green interconnect mechanically complete as well as roughly 265 miles of pipe welded and in place and half of the right of way fully restored. Currently, MVP has all necessary permits with exception of those needed to cross water bodies and wetlands. In March, MVP crews resumed construction in the upland areas where we currently have approval to work. MVP is on track to complete all of that work by September of this year. Once that upland work is complete, MVP will have roughly 10 miles of pipe to finish for the water crossing and eight miles of work in and around the Jefferson National Forest. Approximately, as was announced recently, the project is targeting a summer 2022 in-service date, and there was, of course, a cost increase associated with that, as we show on the slide. Approximately half of the cost increase is due to timing adjustments, which will require maintaining and protecting environmental controls along the right-of-way for a longer period of time. The balance of the cost increase is based on the resequencing of construction activities and related mobilization of crews. Again, it's a targeted cash cost of $65,000. million dollars for RGC midstream. One other comment about Mountain Valley, and this was described in our 10-Q, which we filed yesterday. The allowance for funds used during construction, the AFUDC, which Tommy referenced a few moments ago, that will be resuming in the third quarter of this fiscal year or in April. It's going to be at a much lower level. It's going to be very specific to the forward construction now occurring. We expect some recognition of this lower AFUDC through the end of the fiscal year, essentially right along with that work expected to be completed in September. To wrap up, let's discuss our earnings guidance on slide 11. You may recall on slide 7 our year-to-date earnings per share was $1.16. You probably are wondering why are we showing earnings for the full year in the $1.08 to $1.14 range. It is primarily driven by Mountain Valley and the impact of that to RGC Midstream. Midstream's year-to-date earnings per share is approximately five cents. However, that number will recede as we move to the end of the fiscal year due to the difference between interest expense on our investment there and the AFUDC for the final six months. That's reflected here on slide 11. You can see the red bars showing approximately two cents, our best estimate of midstream earnings for the full fiscal year. I started the review of the quarter and year to day results by stating that we are pleased. That is certainly true, but that does not mean that we are resting. In fact, it's quite the opposite. Our employees and their teams are presently working on multiple continuous improvement projects. Utilizing Lean Six Sigma methodology as well as technology, these projects will enable us to serve our customers better and operate more efficiently well into the future. As we go through the rest of this fiscal year and even into next fiscal year, we hope to share a few more details on some of the exciting results from those projects. That concludes our prepared remarks. If you have questions, please dial pound six to unmute your line. We'll pause just a few more seconds. If someone would like to ask a question, please dial pound six to unmute your line. Well, that doesn't appear that there are any questions at this time, so we will conclude the second quarter earnings call. We do thank you for taking the time to join us, and we look forward to speaking with you again in August to review our third quarter results. We certainly wish everyone a great day and a safe and pleasant weekend. Thank you.
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