5/6/2024

speaker
Operator

Good morning and thank you for joining us as we discuss RGC Resources, Inc.' 's 2024 second quarter results. I am Tommy Oliver, Senior Vice President, Regulatory and External Affairs for RGC Resources. I am joined this morning by Paul Nestor, President and CEO of RGC Resources, and Tim Mulvaney, our Treasurer and CFO. Before we get started, I wanted 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 on our website at www.rgcresources.com. At the conclusion of the presentation and our remarks, we will take questions. So let's start on slide one. This presentation contains forecasts and projections Slide one has information about risks and uncertainty, including forward-looking statements that should be understood in the context of our public violence. Slide two contains our agenda. We will review our quarterly operational and financial results, provide an update on our rate case and the MDP, and discuss the outlook for the full year fiscal 2024, with time allotted for questions at the end. So turning to slide three, total billed customers at the end of April were 63,660. This reflects our continued steady growth within our historic footprint. Main extensions for the first six months of the 2024 fiscal year totaled 1.2 miles, and we connected 317 new services during that same period. Slide four shows our delivered gas volumes for the quarter. Volumes overall were 9% higher compared to last year's second quarter. to colder weather in the second quarter of the 2024 fiscal year. Gas volumes were up in total. Residential and commercial volumes were higher as a result of more heating degree days. It was enhanced by a year-over-year increase in industrial throughput as natural gas prices are at historic levels. Slide 5 shows the same two charts for the year to date. Total volumes were up modestly for the first half of fiscal 2024, despite fewer heating degree days. As in the quarter, delivered gas volumes were lower. Now we're on slide six. Our capex spending totaled $11.3 million for the first six months of fiscal 2024, compared to $12.9 million last year at the same time. This decrease is attributable to the $3.1 million spent in 2023 related to the RNG facility offset by current year spending for the MVP interconnections. Excluding the RNG spend, our overall capital spend is up $1.7 million over last fiscal year's comparable period spending. And Paul will discuss the full year's capital spending projection short-links. But now I'm going to turn it over to Tim Mulvaney, our treasurer and CFO, who will discuss our financial results. Tim?

speaker
Tim Mulvaney

Thank you, Tommy. We're moving on to slide seven. We had a steady quarter against inflationary headwinds. Second quarter operating income decreased 960,000 or approximately 10% to 8.6 million compared to the second quarter of 2023. We continue to experience cost pressures across the board, but particularly in personnel and IT-related costs. We expect this pressure to continue in the third quarter with rates under the February 2nd filed rate case taking effect July 1. Tommy will discuss the rate case in more detail shortly. Equity in the earnings of unconsolidated affiliates was 1.2 million pre-tax due to non-cash AFUDC, which resulted from our investment in the MVP. This AFUDC will taper off as the construction on various sections is completed and ultimately cease as the pipeline goes into service. Interest expense increased 170,000 due to higher interest rate environment, which is impacting our floating rate debt, which supports our investment in the Mountain Valley pipeline, as well as the Roanoke gas line of credit. Our net income was 6.4 million in the second quarter of this year, compared to 6.3 million in the same quarter a year ago. The presence of the AFU DC from the MVP this year drove the strong results. EPS was 63 cents per diluted share for the second quarter of this year compared to 64 cents per diluted share in the quarter a year ago. The year-to-date numbers are also on slide seven. The story, while similar to the second quarter, is more favorable. Net income was $11.5 million or $1.13 per diluted share through six months of fiscal 2024 compared to $9.6 million or $0.97 per diluted share in fiscal 23. While the inflationary pressures and higher interest rates were present as they were in the second quarter of fiscal 2024, revenues from the prior year rate case were present for all six months of fiscal 24 but only for three months in fiscal 23. An additional note related to the balance sheet. We had nearly $34 million in debt supporting our investment in the MVP coming due in 2024 that we refinanced in two pieces with new maturities at the end of 2025 and in 2026. The details are in our form 10Q that we filed on Friday. Finally, we renewed our operating line of credit at Roanoke Gas in March. I will now turn the presentation back to Tommy to discuss our latest rate case. Tommy?

speaker
Operator

Thank you, Tim. Roanoke Gas, like most consumers and businesses, continue to experience upward expense pressure. Accordingly, as we discussed in our prior earnings call, on February 2nd, we filed a general rate case with the Virginia State Corporation Commission. in which we are seeking an increase in base rates of approximately $4.3 million, or about a 5% increase in total revenues. The increase includes a projected rate base through June 30, 2025, and an increase in our authorized ROE to 10.35, which reflects current capital market conditions. The Commission has authorized the new rates to go into effect July 1 subject to refund. The $4.3 million in incremental revenue does not include the roll-in of SAVE or RNG capital and revenues, as we had received authority for a new five-year SAVE plan this past October. Since the RNG facility by statute qualifies for a 100 basis point adder to our ROE, we do not expect the RNG facility to be ever rolled into base rates. The SEC staff review of our eight cases underway and a hearing with the Commission is set for November 7th. We do not expect final resolution until the second quarter of 2025. I will now pass the presentation to Paul Nestor, President and CEO of RGC Resources, to discuss the MVP.

speaker
Paul Nestor

Good morning. Thank you, Tommy. We're on slide nine. We truly are excited about the progress and what we believe to soon be the commercial operation of the Mountain Valley pipeline. The MVP filed with FERC recently for permission to initiate operations and requested a May 23rd, 2024 in-service date, so just two and a half weeks away. If the schedule holds, this would make the shipper contracts for the pipeline active June 1st. For Renault gas, we'll interconnect with the pipeline in two locations. The Lafayette Gate Station, we'll see a picture in just a moment, is substantially complete and we're doing final testing on that station. The Summit Mews Station down in Franklin County is nearing substantial completion and we expect it to be ready when MVP gas flows again. picture you're seeing on slide nine is actually from just about a week ago with the installation of the first distribution company natural gas main in the history of Franklin County this picture is in the summit view business park very close to the gate station we're just thrilled to finally be installing this pipe and approaching service to a customer in the Summit View Park. It really is a historic moment and something we're pleased to be partnering with the county and the business community on. All right, moving on to slide 10, let's just take a look at where we think we're going to end 2024 with respect to our capital spending as well as our earnings. And this is the picture I just mentioned of the Lafayette Gate Station. As you can see, it looked Fantastic, and we're so happy to have it nearing 100% in service. Moving on to slide 11, the 2024 Renewable Gas Capital Investment Plan is holding steady, up only slightly, and we have been, of course, feeling pressure in capital expenditure, just like our operating and maintenance expenditures, as Tim and Tommy have mentioned a few moments ago. However, our overall spend is lower than 2023 because of the completion of the RNG project. I just want to note we're hitting our targets on our save and renewal spending as well as our customer growth and system expansion plans there. And I want to compliment our entire operation. We just continue to work safely in the investments we're making in our system to Keep it safe and reliable are paying dividends All right on slide 12 our consolidated earnings guidance. We haven't changed this from what we shared with you in the first quarter As Tim mentioned in the results the AFU DC from the mountain valley project has been a little higher so far this year than we expected obviously the slight changes in the in-service date and the slightly prolonged construction has influenced that. The rate case that Tommy just described with the interim rates that begin July 1st is a real driver for the second half of the year, and in particular, the fiscal fourth quarter. So with that, we conclude our prepared remarks.

speaker
Tim

If you have questions, please dial pound pound one or hashtag hashtag one to unmute your line.

speaker
Paul Nestor

We'll hold for just another 15 or so seconds to see if anyone has a question. Pound pound one to unmute your line.

speaker
Tim

Good morning, everyone.

speaker
spk11

Mike, how are you today?

speaker
spk07

Fine. A little foggy here. How about yourself?

speaker
Paul Nestor

Well, it's cleared up a little today. We did have a foggy, rainy weekend, but it's a beautiful spring morning today.

speaker
Mike

Just, I guess, one question on gas supply. Now that you're looking at Mountain Valley Gas coming into the system here shortly, And we've already got gas prices, pretty cheap levels. Is there a big step down in the cost of your gas supply when Mountain Valley starts mixing in, given where prices are today?

speaker
Paul Nestor

Yeah, that's a great question, Mike. And you're right, our earlier comments alluded to the really historically low natural gas prices, particularly when you're looking at the Henry Hub or the NIMEX right now. Coming out of the warm winter, gas prices are still low. Industrial and commercial demand is still strong, which I think makes sense based on those low prices. Since Mountain Valley's coming online, if you will, in a warmer period, Mike, we don't see a lot of change in our overall natural gas basket or portfolio of pricing that our State Corporation Commission approves. How it rolls through the winter is something we're carefully analyzing and looking at. Just a small regulatory tidbit, which we alluded to, I think, in our 10Q, that we have incorporated the Mountain Valley demand charges into our purchase gas adjustment, actually starting this quarter as approved by the commission.

speaker
Mike

Okay. And just kind of a follow-up. Does it make sense for you to take every molecule you can get out of MVP versus the other pipes?

speaker
Paul Nestor

That's a good question. So we utilize an asset manager to optimize our natural gas supply that relates to our capacity for our customers' benefits, Mike. And I think on a day-to-day nominating basis, again, do what they always do, which is be most cost-efficient for the customer. So, as you know, it'll depend on market conditions on a day-to-day basis and how the pricing hubs are moving relative to our pricing basket. I think, Tommy, we have seven pricing points, eight pricing points in our basket currently.

speaker
Tommy

That sounds right, yes. Yeah.

speaker
Paul Nestor

So, all that All that, Mike, will come together on a daily basis. I don't know that it's 100% certain every single day that they would take full MVP capacity versus, in this case, East Tennessee or TransCanada.

speaker
Mike

Okay.

speaker
spk05

Well, thank you.

speaker
Mike

Much appreciated. And congrats on an MVP in service data. I guess there's going to be quite a party.

speaker
Paul Nestor

Well, thank you. We haven't had time to plan the party yet, but we'll let you know.

speaker
spk05

All right, Paul. Thank you.

speaker
Paul Nestor

Thank you so much.

speaker
Tim

Do we have any other questions? Pound, pound one to unmute your line.

speaker
Paul Nestor

Well, hearing none, we thank everyone for joining us this morning and reviewing our second quarter. We, as always, look forward to being with you in about three months as we review our third quarter results. Wishing everyone a safe and pleasant Monday and rest of their work week.

speaker
spk00

Thank you very much. you Bye. Thank you. Thank you. you you

speaker
Operator

Good morning and thank you for joining us as we discuss RGC Resources Inc's 2024 second quarter results. I am Tommy Oliver, Senior Vice President, Regulatory and External Affairs for RGC Resources. I am joined this morning by Paul Nestor, President and CEO of RGC Resources, and Tim Mulvaney, our Treasurer and CFO. Before we get started, I wanted 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 on our website at www.rgcresources.com. At the conclusion of the presentation and our remarks, we will take questions. So let's start on slide one. This presentation contains forecasts and projections Slide one has information about risks and uncertainty, including forward-looking statements that should be understood in the context of our public violence. Slide two contains our agenda. We will review our quarterly operational and financial results, provide an update on our rate case and the MVP, and discuss the outlook for the full year fiscal 2024, with time allotted for questions at the end. So turning to slide three, total billed customers at the end of April were 63,660. This reflects our continued steady growth within our historic footprint. Main extensions for the first six months of the 2024 fiscal year totaled 1.2 miles, and we connected 317 new services during that same period. Slide four shows our delivered gas volumes for the quarter. Volumes overall were 9% higher compared to last year's second quarter. to colder weather in the second quarter of the 2024 fiscal year. Gas volumes were up in total. Residential and commercial volumes were higher as a result of more heating degree days. It was enhanced by a year-over-year increase in industrial throughput as natural gas prices are at historic levels. Slide 5 shows the same two charts for the year to date. Total volumes were up modestly for the first half of fiscal 2024, despite fewer heating degree days. As in the quarter, delivered gas volumes were lower. Now we're on slide six. Our CapEx spending totaled $11.3 million for the first six months of fiscal 2024, compared to 12.9 million last year at the same time. This decrease is attributable to the $3.1 million spent in 2023 related to the RNG facility offset by current year spending for the MVP interconnections. Excluding the RNG spend, our overall capital spend is up $1.7 million over last fiscal year's comparable period spending. And Paul will discuss the full year's capital spending projection short-links. But now I'm going to turn it over to Tim Mulvaney, our treasurer and CFO, who will discuss our financial results. Tim?

speaker
Tim Mulvaney

Thank you, Tommy. We're moving on to slide seven. We had a steady quarter against inflationary headwinds. Second quarter operating income decreased 960,000 or approximately 10% to 8.6 million in the second quarter compared to the second quarter of 2023. We continue to experience cost pressures across the board, but particularly in personnel and IT related costs. We expect this pressure to continue in the third quarter with rates under the February 2nd filed rate case taking effect July 1. Tommy will discuss the rate case in more detail shortly. Equity in the earnings of unconsolidated affiliates was 1.2 million pre-tax due to non-cash AFUDC, which resulted from our investment in the MVP. This AFUDC will taper off as the construction on various sections is completed and ultimately cease as the pipeline goes into service. Interest expense increased 170,000 due to higher interest rate environment, which is impacting our floating rate debt, which supports our investment in the Mountain Valley pipeline, as well as the Roanoke gas line of credit. Our net income was 6.4 million in the second quarter of this year, compared to 6.3 million in the same quarter a year ago. The presence of the AFU DC from the MVP this year drove the strong results. EPS was 63 cents per diluted share for the second quarter of this year compared to 64 cents per diluted share in the quarter a year ago. The year-to-date numbers are also on slide seven. The story, while similar to the second quarter, is more favorable. Net income was $11.5 million or $1.13 per diluted share through six months of fiscal 2024 compared to $9.6 million or $0.97 per diluted share in fiscal 23. While the inflationary pressures and higher interest rates were present as they were in the second quarter of fiscal 2024, revenues from the prior year rate case were present for all six months of fiscal 24 but only for three months in fiscal 23. An additional note related to the balance sheet. We had nearly $34 million in debt supporting our investment in the MVP coming due in 2024 that we refinanced in two pieces with new maturities at the end of 2025 and in 2026. The details are in our form 10Q that we filed on Friday. Finally, we renewed our operating line of credit at Roanoke Gas in March. I will now turn the presentation back to Tommy to discuss our latest rate case. Tommy?

speaker
Operator

Thank you, Tim. Roanoke Gas, like most consumers and businesses, continue to experience upward expense pressure. Accordingly, as we discussed in our prior earnings call, on February 2nd, we filed a general rate case with the Virginia State Corporation Commission in which we are seeking an increase in base rates of approximately $4.3 million, or about a 5% increase in total revenues. The increase includes a projected rate base through June 30, 2025, and an increase in our authorized ROE to 10.35, which reflects current capital market conditions. The Commission has authorized the new rates to go into effect July 1 subject to refund. The $4.3 million in incremental revenue does not include the roll-in of SAVE or RNG capital and revenues, as we had received authority for a new five-year SAVE plan this past October. Since the RNG facility by statute qualifies for a 100 basis point adder to our ROE, we do not expect the RNG facility to be ever rolled into base rates. The SEC staff review of our eight cases underway and a hearing with the Commission is set for November 7th. We do not expect final resolution until the second quarter of 2025. I will now pass the presentation to Paul Nestor, President and CEO of RGC Resources, to discuss the MVP.

speaker
Paul Nestor

Good morning. Thank you, Tommy. We're on slide nine. We truly are excited about the progress and what we believe to soon be the commercial operation of the Mountain Valley pipeline. The MVP filed with FERC recently for permission to initiate operations and requested a May 23, 2024 in-service date, so just two and a half weeks away. If the schedule holds, this would make the shipper contract for the pipeline active June 1st. For Renault Gas, we'll interconnect with the pipeline in two locations. The Lafayette Gate Station, we'll see a picture in just a moment, is substantially complete and we're doing final testing on that station. The Summit View Station down in Franklin County is nearing substantial completion and we expect it to be ready when MVP gas flows again. The picture you're seeing on slide nine is actually from just about a week ago with the installation of the first distribution company natural gas main in the history of Franklin County. This picture is in the Summit View Business Park, very close to the gate station. We're just thrilled to finally be installing this pipe and approaching service to a customer in the Summit View Park. It really is a historic moment and something we're pleased to be partnering with the county and the business community on. All right, moving on to slide 10, let's just take a look at where we think we're going to end 2024 with respect to our capital spending as well as our earnings. And this is the picture I just mentioned of the Lafayette Gate Station. As you can see, it looks fantastic, and we're so happy to have it nearing completion. 100% in service. Moving on to slide 11, the 2024 Renault Gas Capital Investment Plan is holding steady, up only slightly, and we have been, of course, feeling pressure in capital expenditure, just like our operating and maintenance expenditures, as Tim and Tommy have mentioned a few moments ago. However, our overall spend is lower than 2023. because of the completion of the RNG project. I just want to note we're hitting our targets on our save and renewal spending, as well as our customer growth and system expansion plans there. And I want to compliment our entire operation. We just continue to work safely, and the investments we're making in our system to keep it safe and reliable are paying dividends. All right, on slide 12, our consolidated earnings guidance, we haven't changed this from what we shared with you in the first quarter. As Tim mentioned in the results, the AFUDC from the Mountain Valley Project has been a little higher so far this year than we expected. Obviously, the slight changes in the in-service date and the slightly prolonged construction has influenced that. The rate case, that Tommy just described with the interim rates that begin July 1st is a real driver for the second half of the year, and in particular, the fiscal fourth quarter. So with that, we conclude our prepared remarks. If you have questions, please dial pound pound one or hashtag hashtag one to unmute your line. We'll hold for just another 15 or so seconds to see if anyone has a question. Pound, pound, one to unmute your line.

speaker
Tim

Good morning, everyone.

speaker
spk11

Mike, how are you today?

speaker
spk07

Fine. A little foggy here.

speaker
spk11

How about yourself?

speaker
Paul Nestor

Well, it's cleared up a little today. We did have a foggy, rainy weekend, but it's a beautiful spring morning today.

speaker
Mike

Just, I guess, one question on gas supply. Now that you're looking at Mountain Valley Gas coming into the system here shortly, we've already got gas prices, pretty cheap levels. Is there a big step down? in the cost of your gas supply when Mountain Valley starts mixing in, given where prices are today?

speaker
Paul Nestor

Yeah, that's a great question, Mike. And you're right, our earlier comments alluded to the really historically low natural gas prices, particularly when you're looking at the Henry Hub or the NYMEX right now. Coming out of the warm winter, gas prices are still low. Industrial and commercial demand is still strong, I think makes sense based on those low prices. Since Mountain Valley's coming online, if you will, in a warmer period, Mike, we don't see a lot of change in our overall natural gas basket or portfolio of pricing that our State Corporation Commission approves. How it rolls through the winter is something we're carefully analyzing and looking at. Just a small regulatory tidbit, which we alluded to, I think, in our 10Q, that we have incorporated the Mountain Valley demand charges into our purchase gas adjustment, actually starting this quarter as approved by the commission.

speaker
Mike

Okay. And just kind of a follow-up. Does it make sense for you to take every molecule you can get out of MVP versus the other pipes?

speaker
Paul Nestor

That's a good question. So we utilize an asset manager to optimize our natural gas supply that relates to our capacity for our customers' benefits, Mike. And I think on a day-to-day nominating basis, again do what they always do which is uh the most cost efficient for the the customer um so as you know it'll depend on market conditions on a day-to-day basis and how the pricing hubs are are moving relative to our uh pricing basket i think tommy we have seven pricing points eight pricing points in our basket that sounds right yes yeah so it'll all that All that, Mike, will come together on a daily basis. I don't know that it's 100% certain every single day that they would take full MVP capacity versus, in this case, East Tennessee or TransCanada.

speaker
Mike

Okay. Well, thank you. Much appreciated. And congrats on an MVP in service data. I guess there's going to be quite a party.

speaker
Paul Nestor

Well, thank you. We haven't had time to plan the party yet, but we'll let you know.

speaker
spk05

All right, Paul. Thank you.

speaker
Paul Nestor

Thank you so much.

speaker
Tim

Do we have any other questions? Pound, pound one to unmute your line.

speaker
Paul Nestor

Well, hearing none, we thank everyone for joining us this morning and reviewing our second quarter. We, as always, look forward to being with you in about three months as we review our third quarter results. Wishing everyone a safe and pleasant Monday and rest of their work week. Thank you very much.

Disclaimer

This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.

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