Based on the provided financial report, the title of the article is likely: "RGC Resources, Inc. (RGCO) 10-K Filing for the Fiscal Year Ended September 30, 2024" This title indicates that the article is a summary of the 10-K filing submitted by RGC Resources, Inc. (RGCO) to the Securities and Exchange Commission (SEC) for the fiscal year ended September 30, 2024.
RGC Resources, Inc. (RGC) reported its financial results for the fiscal year ended September 30, 2024. The company’s revenue increased by 5% to $20 million, driven by growth in its gas utility segment. Net income was $10.25 million, up from $10.01 million in the prior year. The company’s cash and cash equivalents decreased by $5 million to $5 million, while its accounts receivable increased by $10.25 million to $10.25 million. RGC’s long-term debt decreased by $2.49 million to $2.49 million, and its stockholders’ equity increased by $3.58 million to $3.58 million. The company’s interest rate swap agreements had a positive impact on its financial results, with a gain of $2.443 million recognized in the current year. RGC’s pension costs decreased by $3.14 million to $3.14 million, and its other deferred expenses increased by $2.215 million to $2.215 million. The company’s regulatory assets and liabilities increased by $1.26448 million to $1.26448 million, and its other assets and liabilities decreased by $0.79 million to $0.79 million.
Overview of Roanoke Gas Company
Roanoke Gas Company is an energy services company primarily engaged in the regulated sale and distribution of natural gas to approximately 62,500 residential, commercial, and industrial customers in Roanoke, Virginia and the surrounding area. The company’s utility operations are regulated by the State Corporation Commission (SCC), which oversees the terms, conditions, and rates charged to customers. Nearly all of Roanoke Gas’ revenues come from the sale and delivery of natural gas to its customers.
The company also has a subsidiary called Midstream that holds a less than 1% equity investment in the Mountain Valley Pipeline (MVP) project. Midstream is also a less than 1% investor in the Southgate pipeline project, which is in the design and permitting phase.
Financial Performance
In fiscal year 2024, Roanoke Gas reported total operating revenues of $84.6 million, down 13% from $97.4 million in the prior year. This decrease was primarily due to significantly lower natural gas commodity prices and lower deliveries due to warmer weather, which more than offset increases from the implementation of a non-gas base rate increase and higher revenues from the Weather Normalization Adjustment (WNA) and Renewable Natural Gas (RNG) programs.
Gross utility margin, a non-GAAP financial measure, increased by 7% to $48.6 million in fiscal 2024 compared to $45.6 million in fiscal 2023. The increase was driven by the implementation of new non-gas base rates, net of the SAVE, WNA, and RNG revenue, partially offset by lower Infrastructure Cost Charge (ICC) revenues.
Operations and maintenance expenses increased by 15% to $18.2 million, primarily due to inflationary effects on personnel costs, professional services, and costs associated with operating the RNG facility. Depreciation and amortization expense increased by 8% to $10.5 million, corresponding to growth in utility property.
Equity in earnings of the MVP investment increased by $1.8 million to $3.9 million, associated with the recognition of Allowance for Funds Used During Construction (AFUDC) as a result of the pipeline’s construction activities. Interest expense increased by 16% to $6.4 million due to higher interest rates on variable rate debt.
Net income for fiscal 2024 was $11.8 million, up from $11.3 million in the prior year. Earnings per share increased from $1.14 to $1.16. Dividends declared per share of common stock were $0.80 in fiscal 2024 compared to $0.79 in fiscal 2023.
Strengths and Weaknesses
Strengths:
- Regulated utility business model provides stability and predictability in revenues and earnings
- Approved rate mechanisms like the SAVE Plan, WNA, and RNG Rider help mitigate volatility in weather, commodity prices, and operating costs
- Investment in the MVP project provides potential upside through equity earnings and cash distributions
- Strong liquidity position with access to credit facilities and ability to raise equity capital
Weaknesses:
- Exposure to inflationary pressures on operating expenses, which can lag recovery through rate cases
- Reliance on natural gas commodity prices and weather patterns to drive financial performance
- Regulatory lag in recovering increased costs through non-gas base rate adjustments
- Relatively small size compared to larger natural gas distribution utilities
Outlook and Future Prospects
Roanoke Gas faces several key challenges and opportunities in the coming years:
Inflation and Rising Prices: The company is experiencing inflationary pressures on non-gas expenses such as labor, materials, and contracted services. While Roanoke Gas can recover these increased costs through non-gas base rate adjustments, there is often a regulatory lag before new rates are approved and implemented. Management has proactively filed for a non-gas base rate increase to address these rising costs.
Natural Gas Commodity Prices: After peaking in late 2022, natural gas commodity prices have declined significantly. While Roanoke Gas can pass through changes in gas costs to customers, rapid price increases can create timing lags in recovery. Sustained high natural gas prices could also lead to customer conservation or fuel switching, impacting sales volumes.
Regulatory Environment: The company’s utility operations are subject to regulation by the SCC, which oversees rates, safety standards, and infrastructure investments. Roanoke Gas must navigate the regulatory process to recover increased costs and earn a reasonable return. The company’s ability to timely adjust rates will be crucial to maintaining financial performance.
MVP Investment: The completion and in-service operation of the MVP project in 2024 is expected to provide a steady stream of equity earnings and cash distributions to Roanoke Gas through its Midstream subsidiary. However, the company’s relatively small ownership stake limits the overall financial impact.
Overall, Roanoke Gas appears well-positioned to navigate the current challenges facing the natural gas distribution industry. The company’s regulated business model, approved rate mechanisms, and access to capital provide a solid foundation. However, managing inflationary pressures, natural gas price volatility, and the regulatory process will be key focus areas for management in the coming years.
