RGC Resources Inc.

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 Nestor, President and CEO of RGC Resources, and Kelsey 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 our remarks, we will take questions. So let's transition over to slide one. And I'll note that this presentation contains forecasts and projections. The 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 count in the graph on the right side of the slide represents a steady increase in total customers since 2020. You've 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. So 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. and commercial and industrial volumes were also 2% lower than year-to-date last year. I'm now going to turn it over to Paul Nestor, Presidency of RGC Resources, who will discuss our financial results.

Thank you, Tommy, and good morning, and thanks to everyone for joining us today. We are on slide six. 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 um is under pressure due to the rising interest rate environment we still have floating rate debt supporting our mountain valley investment and 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 and 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 12-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 ten percent increase that we see on slide seven for trailing 12 results of 955 000 really reflects two things first It's execution on the RoNo 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-based. Tommy's going to cover that in just a minute, and customer growth. And again, we had a nice strategic investment in a new technology, which is reducing emissions in our RNG facility. And then the second piece of that earnings change is the non-cash equity earnings from the Mountain Valley investment. Tommy is now going to review Renogas' year-to-date capital spending as well as our capital spending projection for the remainder of fiscal 2023.

Thank you, Paul. And we're on slide eight. We continue to execute our 2023 Renogas capital investment plan with $19.4 million in utility properties. 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, we're going to 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. So on to slide 10, we anticipate approximately $4.5 million of additional spending on utility plants for the remainder of the fiscal year for a total of approximately 23.9 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.

to turn it over to paul now yeah thank you tommy you know due to the passage of the physical responsibility act in early june and 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 but the supreme court of the United States on July 27th granted MVP's application to vacate those stays and forward construction resumed immediately. We are grateful for the Supreme Court's swift action and assistance in this matter. So 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 within 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 want to follow up on Tommy's comment about the Renault gas interconnections. Those have also been on hold with the various permit and construction delays, but now that the project we believe is going to 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 reno gas regulatory environment?

Certainly, Paul. And as you may remember, we've been fairly active on the regulatory front. We have three formal proceedings going on. And I'll start with the SAVE plan. You may recall we discontinued billing the SAVE rider effective January 1st, 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 1st. So in the first quarter, second quarter, I'm sorry, this fiscal year, we filed a new SAVE plan with the commission and on July 7th, the staff followed its report in which it did recommend approval of our five-year plan which includes about 49 and a half million dollars in capital spend we expect the 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 at the same month it went operational but 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 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 in that as well in September. And the rate case, we filed that December of 2022, and that's still progressing through the audit phase. been very thorough and diligent and asking a lot of good questions and we are expecting their testimony August 23rd and we'll address it either with rebuttal and or a settlement perhaps and we'll have a final order or I'm sorry the hearing is scheduled for October 4th and a final order sometime after that yeah thank you Tommy just really outstanding results coming out of the regulatory

area this year. And again, we think that's, again, a reflection of just the way the utility has conducted itself and does business over a long period of time. And so we're pleased with those outcomes. So 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 1, 2024 in-service. So the 2024 forecast has AFUDC for the physical first quarter, October, November, December, and then operating income from the joint venture January through September. The range is 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 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.

Good morning, everyone.

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

Hey, Paul.

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

I'm doing well, sir. I'd ask how you're doing, but I think I already know. Just one question, and, look, I realize it's early days, and I'll probably ask this question next quarter. But 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 the Roanoke now that the good news is out?

Yeah, Mike, thank you for the question. Yeah, I would broadly characterize your question as economic development. And I would say there, in a general sense, there is slightly more inbound. And what I mean by that, we've actually had good inbound historically for the last six to 18 months. One of the limitations on those inbounds has been the lack of certainty around Mountain Valley completion. So with the recent bipartisan support in Congress and the signature by President Biden of the FRA and in the Supreme Court's very quick and decisive action, we do feel like we have certainty now on the completion and that is given a boost to our economic development folks in terms of their ability to pinpoint when we believe the gas in Mountain Valley will, in fact, arise. So it's a great question. 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, maybe even the world. And, again, it's going to be plentiful coming through that 42 inch pipe, delivering two billion cubic feet a day. So we are very excited about the future economic development front here in the greater Roanoke Valley and Franklin County.

All right gentlemen, that's all I have. Congrats on the MVP decision.

Well, thank you. Thank you very much. Do we have any other questions? Please dial down or hashtag, hashtag to unmute your line. Okay. Hearing none, this concludes our third quarter earnings call. We, again, really appreciate you taking the time to join us, and we really look forward to being with you again. early December to talk about our full physical 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.