RGC Resources Inc.

Good morning and welcome to RGC Resources 2023 first quarter earnings call. I am Paul Nestor, President and CEO of RGC Resources. Let's review a few administrative items. We have muted all lines and ask that all participants remain muted. At the conclusion of the presentation and our remarks, 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. Joining me this morning are Jason Field, Chief Financial Officer, Tommy Oliver, Senior Vice President of Regulatory and External Affairs, and Kelsey Davenport, Director of Finance. Moving on to slide one, this presentation does contain forecasts and projections, and slide one has our forward-looking statements. The agenda for today's call is on slide two, As usual, we will review operational and financial highlights from the first quarter, talk about our physical 2023 outlook, and again, we'll be happy to take questions at the end of the call. Moving on to slide three, we continue to have good customer growth. You'll notice that the bar chart there shows a slight decrease in customer count from 2021. You may remember as we've discussed extensively going back to 2020 about the moratorium that was imposed on utility disconnects and the effect that that had on our customer counts. In March of 2022, we were able to resume our collection processes for non-pay turnoffs and consequently, as we've gotten into the colder weather this winter, we have been able to re-add some of those Our total customer count is just under 63,000. We're really happy with that number. We fully expect to go over 63,000 here in the coming months. We had a good first quarter adding new services and main extension, another 1.1 miles of main. We really believe that the housing development in the greater Roanoke Valley is still strong. We expect, again this year, to add approximately 500 to 600 new customers. Jason, walk us through our delivered volumes and financial statements and capital spending for the first quarter.

We'd be happy to, Paul. Thank you. We are on slide four. Our first quarter delivered volumes were up approximately 620,000 decatherms compared to the first quarter of 2022. That's a 23% increase due largely to the colder than normal weather compared to a year ago. Heating degrees overall were 31% greater than last year. Additionally, we continued to benefit from an increase in transportation and interruptible volumes due to our single multi-fuel customer that has continued its higher natural gas utilization during the quarter. Moving to slide five. Our financial results are highlighted. For the quarter, our operating income of $5,544,000 was up from the previous year, approximately $166,000. Operating revenues adjusted for normal weather were up, while non-gas operating expenses for the quarter exceeded the prior year due to higher expenditures for contracted services, bad debt expense, and personnel costs. Interest expense for the quarter was higher compared to last year due to increases in rates on our variable rate debt, primarily in our midstream affiliate. Overall, we saw a reduction in net income of approximately $329,000 compared to the first quarter of last year. On an earnings per share basis, we recorded 33 cents per share, which was down about 10 cents per share and that was a result of the dilutive effect of the equity offering which occurred in March of 2022 and the small reduction in net income. The comparison of our 12-month operating results ending December 31st, 2022 is difficult due to the impact of the impairments that we recorded again in our midstream affiliate relative to the Mountain Valley pipeline. We've adjusted for that impairment on slide six. If you move to slide six, you'll see our underlying net income, which removes the after tax impact of those impairments and reflects the underlying net income of $8,851,000. As you recall, we recorded those in the second and fourth quarters of 2022. This result is down $112,000 compared to the 12 months here in And overall, we're pleased with that financial performance. Our management of costs in this inflationary environment, we feel like we did a good job with that. We'll discuss a little later the non-gas rate case filing, which we filed in early December, which we expect to alleviate some of those cost pressures through the remainder of the year. If we transition on to slide seven. You'll see that we experienced strong investments made by the Roanoke gas utility for utility property in these first three months of the fiscal year. Overall, we invested approximately $7.5 million in utility property, and that was up compared to the first quarter of last year by about $1.8 million. This increase was primarily the result of investments that we've made in the RNG project and save eligible renewal projects. Paul and Tommy will now discuss the outlook for the remainder of fiscal 2023. Thank you, Jason.

I'd just like to make one comment about the first quarter before we review the fiscal year forecast. I'm really happy with our Renault gas operation and the overall quarter we had, but just incredibly thrilled and proud of the efforts in mid-December leading up to Christmas with the extreme cold weather event that we had in our part of Virginia here. Our folks and our teams performed exceptionally well. We did not lose a single customer, and that's something that we are very proud of and happy about. So as we look at our 2023 forecast, we will look at the capital investment projection for the full year. Tommy's going to give us some further details on our non-gas base rate case filing. We'll talk about our earnings per share projection, and then Tommy will conclude with A nice update on our RNG facility project. Moving on to slide 9, you can see we are still leading our capital investment with $6.8 million of saved spending. Just a little comment there. Tommy's going to talk about this in a minute, but that's renewal spending, essentially. In other words, we're still renewing pre-1973 Adelaide plastic pipes. That's been about our annual spend for the last three or four years. We're going to continue on that trajectory through the remainder of this year. We actually have a couple of other noteworthy projects in addition to the RNG facility that I'd like to update you on. We're in the process of doing an enterprise resource planning or ERP system upgrade. We're projected to spend about $1.4 million on that this fiscal year. Our old system is at its end of life. actually 30 years old. It's been a very good system, but it's time for us to modernize and get a new tool there. And our teams in our finance area and IT areas and operations areas are working through that project right now. We're going to invest about $1.7 million in the Carilion and Virginia Tech Carilion Medical School area to support the growth that just continues down there. There's a new addition to Roanoke Memorial Hospital and the medical school is also building another building. We're going to put a large eight inch plastic main to reinforce the distribution system in that part of downtown Roanoke. We also have approximately two million dollars of Virginia Department of Transportation related projects and what those are is Our General Assembly, over the last five years in particular, has resumed funding, if you will, for important and necessary road infrastructure projects. And we have a pretty major bridge replacement that's occurring, as well as some other road maintenance that requires us to relocate existing gas mains. And we'd like to take those opportunities to make the mains either larger for more capacity or, in fact, safer. The bridge mains, an example. we're going to be putting that main underground instead of hanging on the bridge as it presently does. Again, those are good projects, good for the community in terms of transportation, but also good in terms of making our system safer and more reliable. Tommy, give us a few details of the recent rate case filing.