Q1 2024 RGC Resources Inc Earnings Call

Yes.

Tommy Oliver: Good morning and thank you for joining us as we discuss RGC Resources Inc.'s 2024 first quarter results. I am Tommy Oliver, Senior Vice President, Regulatory and External Affairs for RGC Resources. I'm joined this morning by Paul Nestor, President of RGC Resources, and Tim Mulvaney, our Treasurer and Chief Financial Officer. Let me review a few administrative items before we get started. We have muted all lines and ask that all participants remain mu

Good morning.

And thank you for joining us as we discuss our G. C Resources, Inc. 's 2024 first quarter results named Tommy Oliver Senior Vice President regulatory and external affairs for RBC resources.

I'm joined this morning by Paul Nester, President and CEO of RTC resources until Malaney, our treasurer and Chief Financial Officer.

Let me review a few administrative submit administrative items before we get started.

We had needed all lines and ask that all participants remain muted.

Tommy Oliver: 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 transition to slide one.

The link to today's presentation is available on the Investor and financial information page on our website at W. W. W. Dot RTC resources Dot com.

The conclusion of the presentation in our remarks, we will take questions. So let's transition to slide one.

Tommy Oliver: This presentation contains forecasts and projections. Slide 1 has information about risks and uncertainties, including forward-looking statements that should be understood in the context of our public filings. Transition to 2.

This presentation contains forecasts and projections slide.

Slide one has information about risks and uncertainties, including forward looking statements it should be understood in the context of our public filings.

Transition to two.

Tommy Oliver: Slide 2 contains our agenda. We will review our quarterly operational financial results and the Scottsdale Outlook for full year fiscal 2024, with time allotted for questions at the end. Turning to slide three, we made extensions for the quarter total just under a mile, and we connected 185 service lines. Total customers were 63,219 at the end of the first quarter.

Slide two contains our agenda, we will review, our quarterly operational and financial results and discuss the outlook for full year fiscal 2024.

With time allotted for questions at the end.

Turning to slide three.

Main extensions for the quarter totaled just under a mile and we connected 185 service lines total customers were 63219 at the end of the first quarter.

Tommy Oliver: As we discussed in prior earnings calls, the customer accounts for 2021-2022 were impacted by the state mandated service disconnection moratorium that occurred during parts of 2020-2021. However, when factoring this into our customer accounts for the prior four years, shown in the graph on the right side of the slide, we have experienced steady growth over this period. Transition to slide four. We delivered gas volumes for the quarter, which were 9% lower compared to last fiscal year, and this is attributable to warmer weather in the first quarter of the 2024 fiscal year. As shown on this slide, gas volumes were down in total, residential and commercial volumes were lower as a result of fewer heating degree days, but that was offset by a nice year-over-year industrial utilization increase as natural gas prices remained low.

As we discussed in prior earnings calls the customer count for 2021 2022 were impacted by state mandated service disconnection moratorium that occurred during parts of 2000 22021, when factoring this into our customer accounts for the prior four year shown in the graph on the right side of the fly we have experienced.

Steady growth over this period.

Transition to slide four.

Where are delivered gas volumes for the quarter, which were 9% lower compared to last fiscal year and this is attributable to warmer weather in the first quarter of the 2020 for fiscal year.

As shown on this slide gas volumes were down in total residential and commercial volumes were lower as a result of fewer heating degree days, but that was offset by nice year over year industrial utilization increase as natural gas prices remain low.

Tommy Oliver: So let's turn to slide five. Our CapEx spending totaled $5.3 million in the current quarter, compared to $7.5 million last year at this time. The decline is attributable to spending for the R&G facility last year that became operational in March of 2023. When one removes the effects of the R&G spending, the year-over-year variance is approximately $500,000 spread across all categories.

So, let's turn to slide five our Capex spending totaled $5 3 million in the current quarter compared to $7 5 million last year at this time to.

The decline is attributable to spending for the R&D facility last year. It became operational in March of 2023.

When one removes the effects of the R&D spending the year over year variance is approximately $500000 spread across all categories. Paul will discuss the full year capital spending projection shortly allowed.

Tim Mulvaney: Paul will discuss the full-year capital spending projection shortly. I'm now going to turn it over to Tim Mulvaney, our treasurer and CFO, who will discuss our financial results. Tim.

I'm now going to turn it over to Tim Mulvaney, our treasurer, and CFO, who will discuss our financial results Tim.

Tim Mulvaney: Thank you, Tommy. Moving on to slide six. We had a strong quarter. First quarter operating income increased $1.1 million, or 20%, to $6.7 million compared to the first quarter of 2023. The increase was primarily driven by interim base rates that were implemented on January 1st, 2023. Equity and net earnings of unconsolidated affiliates were $1.5 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 complete and will cease as the pipeline goes into service. Interest expense increased $268,000 due to the higher interest rate environment, which is impacting our floating rate debt, supporting the investment in the Mountain Valley pipeline, as well as the Roanoke gas line of credit. Our net income for the quarter was $5 million.

Thank you Tommy.

Moving to slide six we had a strong quarter.

First quarter operating income increased $1 1 million or 20% to $6 7 million compared to the first quarter of 2023.

The increase was primarily driven by interim base rates that were implemented on January one of 2023.

Equity in net earnings of unconsolidated affiliates was $1 5 million pretax.

Due to noncash ASU D C, which resulted from our investment in a M D ph.

<unk> will taper off as the construction on various sections is complete and will cease as the pipeline goes into service.

Interest expense increased 268000 due to higher the higher interest rate environment, which is impacting our floating rate debt supporting the investment in the mountain Valley pipeline as well as the Roanoke gas line of credit.

Our net income for the quarter was $5 million.

Okay.

Okay.

Tim Mulvaney: In the first quarter of this year, compared to 3.3 million in the same quarter a year ago, the combination of the rate case and the presence of the AFUDC from the MVP drove this strong result. EPS was $0.50 per share for the first quarter of this year, compared to $0.33 per share in the quarter a year ago.

Four in the first quarter of this year compared to $3 3 million in the same quarter a year ago.

Combination of the rate case, and the presence of the a F. D C from the MVP drove the strong results.

<unk> was <unk> 50 per share for the first quarter of this year compared to 33 cents per share in the quarter a year ago I will now turn the presentation over to Paul Masters RG C Resources', President and CEO for an outlook on 2024.

Paul Nestor: I will now turn the presentation over to Paul Mester, RGC Resources President and CEO, for an outlook on 2024. Thank you, Tim. And I would like to just take a minute and have you join me in congratulating Tim, the board appointed him as our permanent treasurer and chief financial officer last week and after serving in the interim role for about five months, so we're just delighted to have him with us. Now, on slide seven, I plan to touch on our capital spending projection for fiscal 2024, the status of the MVP project, and our earnings forecast for the full physical year. But before we get to those items, I'm going to ask Tommy to come back on and provide us with a regulatory update. Okay, Tommy?

Thank you, Tom and I would like to just take a minute and.

Have you join me in congratulating town, the board points him as our permanent Treasurer and Chief on Natural Officer last weekend after serving in the interim role for about five months. So we're just delighted.

To have.

At Tam with us.

We are on slide seven our plan to touch on our cash.

Capital spending projections for fiscal 'twenty, 'twenty, four and the status of the MVP project.

And our earnings forecast for the full fiscal year, but before we get to those items.

I'm gonna as Tommy to come back on and provide us a regulatory update Tommy Sherman Paul as I mentioned on the last earnings call. We settled our then pending rate case with the Virginia staff and we're awaiting a final order from the commission. We received the final order in December of this year of last year in which the commission accepted the settlement on <unk>.

Tommy Oliver: Surely, Paul. As I mentioned on the last earnings call, we settled our then pending rate case with the Virginia staff, and we're awaiting a final order from the commission. We received the final order in December of last year in which the Commission accepted the settlement in full. Refunds to customers will be made in the second quarter of 2024 with no income statement impact to be made in the cool for the refunds in fiscal 2023.

<unk> refunds to customers will be made in the second quarter of 2024 with no income statement impact do we made an accrual for the refund in fiscal 2023.

Tommy Oliver: Unfortunately, like most consumers and businesses, we continue to experience upward expense pressure. As such, on February 2nd, we filed a general rate case with the Commission, in which we are seeking an increase of $4.3 million, or approximately a 5% increase in total revenue. The increase includes a projected rate base and an increase in the authorized ROE, which reflects current capital markets. The $4.3 million does not include any rolling of saved capital as the new save plan became effective in October 2023.

Unfortunately, like most consumers and businesses, we continue to experience upward expense pressure as such on February 2nd We filed a general rate case with the commission and which we are seeking an increase of $4 $3 million or approximately a 5% increase in total revenues.

The increase includes a projected rate base and an increase in the authorized or are we which reflects correct capital markets. The $4 3 million does not include any role and have saved capital as the new St plan became effective October 2023.

Paul Nestor: Since this case was filed as a general rate case, we expect the commission to suspend the implementation date for interim rates until July 1st, 2024. We'll know more about the schedule when the commission issues its order for notice and hearing for this case in early March. I'll turn it over to Paul now. Yeah, thank you, Tommy, for reviewing that. It's a little unusual if you know much about our history to so quickly file a general rate case after just completing an expedited case.

Since this case will fall to the general rate case, we expect the commission to suspend the implementation date for interim rates until July one 2024, we'll know more about the schedule. When the commission issued its order for notice and hearing for this case in early March So I'll turn it over to Paul now, yes. Thank you Tommy for for review and added some.

A little unusual as you know much about our history.

So quickly file certainly a general rate case after just <unk>.

Completing a an expedited case, but again the.

Paul Nestor: But again, the overall inflationary environment, as Tommy said, we certainly know our customers and our vendors are feeling that as well, has led us to that action. Thanks to Tommy and Nick and the Regulatory Department for all their efforts on that. We're on slide eight. The 2024 Reno Gas Capital Plan is still holding at about $21 million, which is again down from last year due to the aforementioned RNG project. However, the projection right now is very similar to what we shared with you on the December earnings call. Moving on to slide nine, it has been an exciting several months on the MVP project. You know, weather in the fall period and into December was excellent in this region, and it enabled really outstanding construction progress.

Overall inflationary environment as Tommy said, we certainly know who are our customers and our vendors are feeling that as well.

And led us to that.

To that action, thanks for Tommy and Nick and the regulatory department rather their efforts on that we're on slide eight the 2020 for Renault guests Morneau gas capital plan.

<unk> is still holding at about $21 million, which is again down from last year due to the aforementioned RMG.

Project.

Our projection right now is very similar to what we shared with you on the December earnings call.

Moving onto slide nine.

It has been an exciting.

Several months on the MVP project, you know weather in the fall period and into December.

Was excellent in this region and it enabled.

Really outstanding construction progress the picture on slide nine is of our summit you interconnect actually that picture was taken in mid December and we are working on both our Lafayette and somewhat new interconnect sites simultaneously. We are on track for both of those.

Paul Nestor: The picture on slide nine is of our Summit View Interconnect, actually. That picture was taken in mid-December, and we are working on both our Lafayette and Summit View Interconnect sites simultaneously. We are on track for both of those sites and stations to be complete when Mountain Valley is complete and flowing natural gas. Mountain Valley still has some work to be done, of course, but we are genuinely happy to be nearing the end of this long, what's turned into, a very long journey with the project. I think this is related to this, and Tim mentioned it a little bit in his comments on the interest expense.

<unk> sites and stations to be complete when mountain Valley is complete and flowing natural gas Mon Valley still has some.

Work to be done of course.

But we are.

We are genuinely happy to be nearing the end of this.

Longs was turned in to be a very long journey.

With the project.

I think related to this and Tim mentioned it a little bit in his comments on the interest expense down demand taken a moment and providing a brief update on our <unk>.

Tim Mulvaney: Tim, do you mind taking a moment and providing a brief update on our financing activities for our RGC midstream subsidiary? Sure, Paul. We have two facilities related to RGC Midstream that come due this year, totaling approximately $33 million, and we've begun discussions with our banks, and those discussions have been very positive. We fully expect to renew the facilities in the coming year. Yeah, fantastic. Again, a lot of good effort there. And, you know, I'll just make a comment. Those of you that are in project work or construction work or partnership, you know that sometimes the secret to success is that good partners are great partners.

Financing activities for our RG see midstream subsidiary.

Sure Paul.

We have two facilities related to our GC midstream that come due this year totaling approximately $33 million.

And we've just we've begun discussions with our banks and those discussions have been very positive we fully expect to renew the facilities in the coming months.

Yeah Fantastic again lot of good effort there.

I'll just make a comment.

Those of you that are in project work or construction work.

Our partnership you know that sometimes the secrets of successes.

Good partners are great partners and I will tell you that not only is the joint venture been a group of great partners, but our financing partners.

Paul Nestor: And I will tell you that not only is the joint venture a group of great partners, but our financing partners now for many years have been excellent too. Our consolidated earnings guidance on slide 10 for 2024 is also unchanged from what we shared with you in December. Again, we talked on that call about the inflationary pressures, you know, weighing on the year-over-year earnings per share. And as Tommy just updated us, we're addressing that to the, you know, the most expedient extent possible through the general rate case filing. Maybe just in summary, we're off to a great start. We've had a fantastic first quarter.

Now over many years have been excellent too.

Okay.

Our consolidated earnings guidance on Slide 10 for 2024 is also unchanged from what we shared with you in December again.

We talked it on that call about the inflationary pressures.

Weighing on the year over year earnings per share and as Tommy just updated as we're addressing that so the you know the most expedient extent possible through the general rate case.

Filing.

Maybe just in summary, we're off to a great start we've had a fantastic first quarter I am really happy about that.

Paul Nestor: I am really happy about the direction and trajectory of the company. Right now, we continue to work safely and do everything we can to meet the customer's needs, and I'm just so happy about that.

The direction and the trajectory of the company.

Right now our we continue to work safely.

And do everything we can to meet the customers' needs and I'm just.

So happy about that.

Unspecified: With that, that concludes our prepared remarks. If you have questions, please dial pound pound. One to unmute your line. Pound, pound, one to unmute your microphone.

With that that concludes our prepared remarks, if you have questions. Please dial pound pound.

One to on mute your line.

Pound pound one.

To unused your line.

Okay.

Okay.

Michael E. Gaugler: Hi. Good morning, everyone. Good morning, Mike. How are you?

Okay.

Good morning, everyone.

The morning, Mike how are you.

Unspecified: Doin' fine, sir? yourself? We are doing very well. It's a beautiful, cool, sunny morning here in the Greater Roanoke Valley.

So inside sorry yourselves.

We're doing very well it's butte.

Beautiful.

Cool Sunny morning here in the greater honour of Valley.

I saw that.

Michael E. Gaugler: I saw that. I was looking at your weather. We're supposed to warm up, but it looks like it's kind of, That seems to be changing a little bit. Anyway, on your rate case, www. RGC.gov. I've never seen so many rate cases filed by utilities in my entire career, and they're all coming relatively quickly. So you're going to get it. It's going to be a surprise. I'm seeing it on the water side, I guess.

I'm looking at your whether there.

We're supposed to warm up but it looks like it's kind of.

That seems to be changing a little bit.

Anyway.

On your rate case filings.

Here's a company.

I've never seen so many rate cases filed by utilities in my entire career and they're all they're all come in relatively close together. So you're in good company I don't think it's going to be a surprise with the commission.

I'm seeing it on the water side your gas on the electric side.

Paul Nestor: Just wondering when you think that might be finalized, are we looking at October or November? Yeah, Mike, I'll let Tommy answer the specifics of the timing there, but I'll just make a comment. I know we shared this with our board and our employees, and even, in fact, some of our customers, but the inflationary pressures over the last 24 months are unlike any I've seen in my professional career.

Just wondering why do you think that might be finalized so we locked in the server November timeframe.

Yeah, Mike I'll, let Tommy answer the specifics of the timing there, but I'll just make a comment I know we've shared this with our board and our employees and in fact, some of our customers but.

The inflationary pressures over the last.

24 months are unlike any I've seen in my professional career. So your comment about the other companies also have having to.

Tommy Oliver: So your comment about the other companies also having to be at the table rate does make complete sense. With that, Tommy, maybe you want to talk about the schedule a little bit? Sure, Mike. Unlike the prior case that was followed as an expedited case, this is a general case, so the scope is a little broader.

Be at the table Rea, making does make complete sense.

With that Tommy maybe you want to talk about the schedule a little bit sure Mike. Unlike the prior case that was filed as an expedited cases, a general case or the scope is a little broader.

Paul Nestor: So we're expecting this process to play out over a 12 to 15 month period, for a final resolution until, you know.., first quarter 2025 or first calendar quarter 2025, and then with Mountain Valley coming online. Paul, just wondering what you're thinking in terms of how much of your actual gas supply for runout gas you're actually going to pull from that line. Yes, but Mike, presently, and this is public knowledge, we're signed up for 10,000 decatherms a day, and that represents approximately 15 percent of our firm's supply, and again, that's just a starting point. So it is meaningful, and as you know with natural gas supply and natural gas distribution, it's those incremental decatherms that are especially meaningful.

So we're expecting this the process to play out over a 12 to 15 months area.

For any final resolution until you know.

First quarter 2020 fiber first calendar quarter 2025.

Got it.

And then.

With Mountain Valley coming online.

Paul just wondering what you're thinking in terms of.

How much of your actual gas supply thrown out gas, you're actually going to pull from that line.

Yes, Mike.

Presently.

<unk>.

And this is this is public knowledge, where we're signed up for 10000 ducats arms, a day and that represents approximately.

15% of our firm supply and again, that's just a starting point.

So it is it is meaningful and as you know natural gas supply and natural gas distribution at those incremental debt to firms that are especially.

Paul Nestor: So we're really looking forward to the 10,000 a day coming online and coming into the system. We've discussed this in our filings and in hearings and support letters over the years to FERC and the courts, and the ability to have Marcellus and Utica basin gas, 12 and 2 Mountain Valley, into our system is just a wonderful opportunity it is. You know, as you know, approximately the cheapest natural gas in the world, and the ability to bring that into this region and what that means for economic development is truly something that we're excited about. Is there an upper limit?

Meaningful so.

We're really looking forward to the 10000 a day.

Coming online in coming into the system.

We've discussed this in our filings in and hearings and support letters over the years to FERC and the courts and others.

Our ability to have.

Have Marcellus and Utica basin gas.

Influencing mountain valley into our system is just a wonderful opportunity it is.

As you know approximately the cheapest natural gas in the world and.

The ability to bring that into this region and what that means for economic development as is truly something that were.

I'm excited about.

Is there an upper limit.

Michael E. Gaugler: www. RGC.gov Yeah, that's a good question. Mike, as you know, it's going to transport 400,000 BCF a day, have the capacity to transport that much gas, but ultimately, that entire 400,000 BCF is spoken for or reserved, if you will, at this time. Certainly, if we had economic development that required more natural gas, we would do everything in our power to make that happen, but it would require some contract work presently.

In front of our capital is to how much you would actually take off that line of your total supply.

Yeah. That's a that's a good question Mike as you know, it's a it's going to transport two Bcf a day.

Has the capacity to transport that much gas ultimately.

That entire two Bcf is.

Spoken for or reserved if you will at this time.

Certainly if we had economic development that.

Require more natural gas, we would do everything in our power to make that happen, but it would that would require some some contract work presently.

Paul Nestor: Okay. And then there's the last question. Notice the size of the pipe was, wondering where that was on the website: https://www.rgc.gov Yeah, I think the joint venture partners that are part of Southgate made an announcement in December in that regard, that included a change in the scoping of the project. And I believe, if I remember correctly, Mike, I think the timing of that was late 2027, early 2028 calendar years. So certainly. I'm looking forward to the main line getting completed and in service, and hopefully, some of the process for Southgate, you know, will ramp up at that point.

Okay.

Last question.

Southgate noticed the the size of the pipe was increased.

Wondering where that process stands in terms of timing and when that really gets going.

Yeah, I think the the joint venture partners that are part of South gate.

<unk> made an announcement in December in that regard.

That included a change in the scoping of the project.

I believe if I remember correctly, Mike I think the timing of.

Of that was late 2027, and early 2028 calendar years I believe so.

Certainly.

Looking forward to the mainline getting completed and in service and hopefully some of the.

The process for Southgate will ramp up at that point.

Michael E. Gaugler: All right, that's all I had, gentlemen. Thank you. Oh, thank you. Do we have any other questions from anyone on the line? Pound Pound Wong to unmute your line. We'll wait just a few more seconds in case there's another question. Anybody have a question? Pound pound one to unmute your line, www. RGC.gov, All right.

Alright.

That's all I had gentlemen, thank you.

Thank you.

Do we have any other questions from anyone on the line how valid one.

On mute your line.

Yes.

Okay.

We'll wait just a premium on flagships in cases, another questions anybody have a question pound pound want a mute your line.

All right well if there are no more questions. This concludes our first quarter.

Unspecified: Well, if there are no more questions, this concludes our first quarter earnings call. We do appreciate everyone taking time out of their busy schedule to join us, and we are looking forward to speaking with you again in the same time frame as we discuss our physical second quarter results. Have a great day. Thank you.

Earnings call. We do appreciate everyone, taking time out of their busy schedule to join US and we are looking forward to speaking with you again.

Timeframe as we discuss our physical second quarter results.

Have a great day. Thank you.

Yes.

Yeah.