Q3 2024 RGC Resources Inc Earnings Call
Unknown Executive: Declaring the MVP in service and, in fact, on that same day, receipt of the initial natural gas delivery into our run of gas system. It's hard to believe, but we're almost two months in operation now as of this day. We're just so excited to have finally reached and achieved this milestone.
Unknown Executive: 2014, declaring the MVP in service and, in fact, on that same day, receipt of the initial natural gas delivery into our run-out gas system. It's hard to believe, but we're almost two months in operation now as of this day. We're just so excited to have finally reached and achieved this milestone.
Declaring the MVP in service and in fact on that same day receipt of the initial natural gas delivery into our Reno gas.
System, it's hard to believe but we're almost two months in operation.
Now as of this date, we're just so excited to finally.
Reached and achieved this milestone.
Unknown Executive: Although gas flows started in mid-June, the shipper contracts for the capacity and demand charges did not go into effect on July 1st, and that was contemplated in those agreements.
Although gas flows started in mid June the shipper contracts for the capacity and demand charges did not go into effect on July 1st and that was.
Contemplated in those agreements.
Unknown Executive: Tim's going to give us some additional color on how this transition from construction to pipeline operation will be reflected in our financial statements when he gives his remarks shortly.
Tim is going to give us some additional color on.
Tim: How this transition from construction to pipeline operation will be reflected in our financial statements. When he gives us his remarks shortly moving on to slide four.
Unknown Executive: Moving on to slide four, this is a picture we've used in some of our other presentations. You may have seen it, but it's what the Mountain Valley Pipeline right-of-way looks like once it has been restored and the vegetation is at an opportunity to take hold. As you can see, it's quite beautiful. The joint venture is completing the restoration along the entire right-of-way of the pipeline as we speak.
Tim: This is.
Tim: Picture, we've used in some of our other presentations you may have seen it but it's what the mountain valley pipeline right of way it looks like once it has been restored and the vegetation is that an opportunity to take hold as you can see it's quite beautiful.
Tim: <unk> venture is completing the restoration along the entire right away of the pipeline as we speak.
Unknown Executive: One important point: once this restoration is finished, the construction project will also be deemed complete, and at that point, RGC Midstream's final ownership level will be set. In other words, our percentage of the operating earnings and the available cash flows from the joint venture will be locked in at that point in time.
Unknown Executive: Moving to slide five, we've included a picture of our Lafayette interconnect in today's presentation. That's one of our two interconnects to the Mountain Valley, the other being the Some of you gave station in Franklin County. Both interconnect stations are complete, and in fact attached to MVP, and gas is flowing. We've stated this for many, many years, but these stations will enable the additional firm capacity provided by MVP and contracted four bi-runner of gas to enter the run out gas system, and of course, also provide gas through that. Some of you interconnect in Franklin County for the first time in Franklin County's history.
Unknown Executive: We are working earnestly to connect our first customer in Franklin County, and we expect that connection to be completed very, very soon. In fact, the picture on the agenda page that Tommy reviewed was from just a few weeks ago where we were installing the natural gas main in the Some of You park downstream of the Some of You gate station.
Unknown Executive: Finally, we're just going to mention this one last time. We really believe the Mountain Valley, now that it's operational, will spur economic development in this region. We're excited about that. We continue to actively participate with our run out regional partnership and Virginia Economic Development Partnership and the other localities, their economic development offices, to promote and enhance economic development.
Tommy: With that, I'll turn it back to Tommy. Well, thank you, Paul, and we're now on Slide six. Main extensions and renewals for the first time months of 2024 fiscal year total 4.6 miles, and we connected 478 new services. In addition, we renewed 319 services during that same period. This reflects continued growth in our rate-based and customer base. Now on slide seven, where we're showing our delivered gas volumes for the quarter. Volumes overall were 6% lower compared to the third quarter last year, with the decline attributable to the continuation of warmer weather throughout the third quarter of the 2024 fiscal year.
Unknown Executive: Now on slide seven, where we're showing our delivered gas volumes for the quarter, volumes overall were 6% lower compared to the third quarter of last year, with the decline attributable to the continuation of warmer weather throughout the third quarter of the 2024 fiscal year. This is very evident in the residential and commercial volumes, which are much more weather sensitive than industrial use.
Tommy: This is very evident in the residential and commercial volumes, which are much more weather-sensitive than industrial usage. Slide 8 shows delivered gas volumes for the 2024 fiscal year today, as shown in total volumes of remain steady compared to the last year's comparable period. We're on slide nine now; our cap expending total 16.6 million for the first fine months of fiscal 2024 compared to 19.4 million last year at the same time. This decrease is attributable to the 3.1 million spent in 2023 related to the RNG project.
Unknown Executive: Slide 8 shows delivered gas volumes for the 2024 fiscal year today. Our CapEx spending totaled $16.6 million for the first nine months of fiscal 2024, compared to $19.4 million last year at the same time. This decrease is attributable to the $3.1 million spent in 2023 related to the R&G project.
Paul: Paul will discuss the full year capital spending projection shortly.
Timothy Mulvaney: I'm now going to turn it over to Tim Mulvaney, our treasurer, CFA, who will discuss our financial results. Tim. Thank you, Tommy. Moving on to slide 10, as we noted last quarter, we continue to experience cost pressures compared to a year ago, particularly for personnel and professional costs.
Unknown Executive: Moving on to slide 10, third quarter operating income decreased $240,000 or 13% to $1.6 million compared to the third quarter of 2023, as the higher costs were not offset with new revenues during the quarter. This is impacting our floating rate debt that supports our investment in the Mountain Valley pipeline and our Roanoke gas line of credit. The combination of cost pressures, lower MVP results, and higher interest expense led to the decline. EPS was $0.02 per diluted share for the third quarter of this year, compared to $0.07 per diluted share in the quarter a year ago.
Timothy Mulvaney: Third quarter operating income decreased 240,000 or 13% to 1.6 million compared to the third quarter of 2023, as the higher costs were not offset with new revenues during the quarter. New interim rates went into effect July 1 under the February 2nd filed rate case. Tommy will discuss the rate case in more detail in a moment. Equity and earnings of the unconsolidated affiliates or MVP was down 237,000 pre-tax compared to a year ago, as the transition from construction phase that included non-cash AFUDC to the operational phase occurred this quarter. With the MVP in operation, going forward, the company will recognize its share of earnings from the MVP, favorably adjusted for a basis difference between the company share of the MVP assets and the carrying value of our investment.
Timothy Mulvaney: You may recall that we took size; we took sizeable write downs of our investment in 2022. This basis difference will be amortized over the operational life of the MVP for 40 years. Interest expense increased 145,000 compared to the same quarter a year ago due to the higher interest rate environment, which is impacting our floating rate debt that supports our investment in the Mountain Valley Pipeline and our grown up gas line of credit.
Timothy Mulvaney: Our net income was 160,000 in the third quarter of this year compared to 690,000 in the same quarter a year ago. The combination of cost pressures, lower MVP results, and higher interest expense led to the decline. EPS was 2 cents per diluted share for the third quarter this year compared to 7 cents per diluted share in the quarter a year ago. The year-to-date numbers are also on the slide. 10.
Unknown Executive: The year-to-date numbers are also on the slide, although the performance for the nine months is more favorable than the third quarter alone. Net income was $11.6 million, or $1.15 per diluted share, through nine months of Fiscal 24, compared to $10.3 million, or $1.04 per diluted share, in Fiscal 23. While inflationary pressures and higher interest rates were present as they were in the third quarter of fiscal 24, revenues from the prior year rate case were present for all nine months of fiscal 2024, but only for six months in fiscal 23. Additionally, our share of AFUDC earlier in 2024 was also stronger.
Timothy Mulvaney: The performance for the nine months is more favorable than the third quarter alone. Net income was $11.6 million or $1.15 per diluted share through nine months of fiscal 24, compared to $10.3 million or $1.04 per diluted share in fiscal 23. While the inflationary pressures and higher interest rates were present as they were in the third quarter of fiscal 24, revenues from the prior year rate case were present for all nine months in fiscal 2024, but only for six months in fiscal 23. Additionally, our share of AFU DC earlier in 2024 was stronger.
Tommy: I will now turn the presentation back to Tommy to discuss our latest rate case and regulatory developments. Well, thank you, Tim. As we noted in our earnings call from last quarter, Ronald Gasball for an increase in base rates on February 2nd with the Virginia State Corporation Commission. The company is seeking an annual increase in its base rates of 4.3 million, or approximately 5% increase in total revenues. The increase includes a projected rate base through June 30th, 2025, and an increase in our authorized ROE to 10.35%, which reflects current market conditions. Unlike our prior rate case, we did not roll our save rider into base rates, nor did we roll in our RNG rider.
Unknown Executive: Well, thank you, Tim. As we noted in our earnings call from last quarter, Renault Gas filed for an increase in base rates on February 2nd with the Virginia State Corporation Commission. The company is seeking an annual increase in its base rates of $4.3 million, or approximately 5% of total revenue. The increase includes a projected rate base through June 30, 2025 and an increase in our authorized ROE to 10.35%, which reflects current market conditions. Unlike our prior rate case, we did not roll our save rider into base rates, nor did we roll in our RNG ride. The audit of the raid case continues.
Speaker Change: With a 5% increase in total revenues. The increase includes a projected rate base through June 32025, and an increase in our authorized ROE to 10, 35%, which reflects current market conditions.
Speaker Change: Like our prior rate case, we did not roll or save rider into base rates, nor did we roll in our R&D rider.
Tommy: The audit of the rate case continues. Staff testimony is due in the case on September 20th, and a hearing with the Commission is set for November 7th. We do not expect final resolution until the second quarter of 2025. With regard to the save and RNG riders, on May 30th, we fall for an update to the RNG rider, and on June 28th, we fall for an update to our RNG rider.
Unknown Executive: Staff's testimony is due in the case on September 20th, and a hearing with the Commission is set for November 7th. We do not expect final resolution until the second quarter of 2025. With regard to the SAVE and R&G Riders, on May 30th, we filed for an update to the R&G Riders, and on June 28th, we filed for an update to our R&G Riders. Both of these cases are pending before the Commission with the resolution expected in September of 2024. I will now pass the presentation to Paul Nester to discuss our full year 2024 and expectations for 2025. Yeah, thank you, Tommy.
Speaker Change: The audit of the rate case continues staff's testimony is due in the case on September 20th and a hearing with the commission is set for November 7th we do not expect final resolution until the second quarter of.
Speaker Change: 2025.
Speaker Change: With regard to the save and R&D riders on May 30, we fall for an update to the R&D rider and on June 28, we fall for an update to our RMG. Roger both of these cases are pending before the commission with the resolution expected in September of 2024.
Tommy: But that these cases are pending before the Commission, with the resolution expected in September 2024.
Paul: Oh, now pass the presentation to Paul Lester to discuss our full year 2024 and expectations for 2025. Yeah, thank you, Tommy. And we're going to start by just reviewing our RNG Gas capital investment plan, which is on slide 13. We're holding firm to what we've been communicating on that at 21.7 million dollars for this fiscal year, as discussed a few moments ago, it is lower than last year. We obviously had the one time step up in 2023 related to the RNG facility investment. We continue to focus on our growth strategies in the regulated utility of customer growth and infrastructure renewal, as you can see, safe spending this year is going to get close to 10 million dollars.
Paul Nester: I will now pass the presentation to Paul Nester to discuss our full year 2024 and expectations for 2025, yes. Thank you Tommy and we're going to start by just reviewing our Rona of gas capital investment plan, which is on slide.
Paul Nester: 13.
Paul Nester: We're holding firm to what we've done.
Paul: Something we're very happy about improving the safety and reliability.
Paul: Our should say, continuing to improve the safety and reliability of our natural gas distribution system, moving to slide 14. And maybe before we talk about the ETS guidance, I just want to summarize Tommy and Tim's comments. Really, the first nine months of the year have been really strong. I'm very happy with the company's performance. I think all of our employees and our departments are firing on all cylinders, doing exactly what we ask, which is to focus on customer service and safety. Tommy and his team from a regulatory standpoint, as you can tell, have been very busy working very closely with the commission staff on all of these proceedings.
Paul: We're just, again, very pleased with where we are through the first nine months. I believe the dollar 15 EPS is what Tim reported to us a moment ago. So, as you can see, for our full fiscal year, which ends September 30th, we kept the upper end of the range of the dollar 16 for share. We've moved the lower end up two cents to a dollar 12. We feel very, very comfortable with that right now. You know, we think, again, the outstanding performance of the company and our employees. And in fact, our customers too, our customers economically have been hanging right in there so far this summer.
Paul Nester: So, as you can see, for our full fiscal year, which ends September 30th, we've kept the upper end of the range at $1.16 per share, and we've moved the lower end up two cents to $1.12.
Paul Nester: We feel very, very comfortable with that right now. You know, we thank, again, the outstanding performance of the company and our employees, and, in fact, our customers, too. Our customers, economically, have been hanging right in there so far this summer. You know, despite the fourth quarter being a lower revenue period, we're optimistic that this performance trend is going to continue for the next approximately 50 to 55 days toward the end of the fiscal year and pushes toward the upper end of this. EPS, and forecast. With that, let's talk for a minute about 2025.
Paul: You know, despite the four quarter being a lower revenue period, we're optimistic that this performance trend is going to continue for the next approximately 50 to 55 days toward the end of the fiscal year. And push this toward the upper end of this EPS forecast.
Paul: with that. Let's talk for a minute about 2025. Ordinarily, at this call, we would get some guidance for the next fiscal year. We've listed out several of what we're calling drivers or key variables to the next fiscal year. Obviously, the rate case Tommy just discussed is still ongoing, and the final outcome of that is pending. In this inflationary environment, it is endlessly discussed. We see a lot of that. Continuing or persevering into physical 2025, we're going to do everything we can as a management team and as a company to manage expense and keep that as reasonable as we can.
Paul Nester: Ordinarily, at this call, we would give some guidance for the next fiscal year. We've listed out several of what we're calling drivers or key variables for the next fiscal year. Obviously, the rate case, as Tommy just discussed, is still ongoing, and the final outcome of that is pending in this inflationary environment. As Tim has discussed, we see a lot of that continuing or persevering into fiscal 2025. We're going to do everything we can as a management team and as a company to manage expenses and keep that as reasonable as we can.
Paul: We've got a great history of doing that. I think we're practiced in that. So it's not a new experience for us. And that's something again, I'm expecting good results from interest rates. We think we're going to hopefully trend favorably in 2025. There's prevailing literature on that, particularly with what the Fed may do over the next three to six months. So we're optimistic that we may see some with our floating rate debt, some favorable interest rate activity. Tim talked about the Mountain Valley investment and what that means to RGC Midstream. There is a change there as he discussed from the AF UDC related to the construction and now our operational earnings year over year.
Paul Nester: We've got a great history of doing that. I think we're practiced at that, so it's not a new experience for us, and that's something again I'm expecting good results from. Interest rates, we think, are going to hopefully trend favorably in 2025. There's prevailing literature on that, particularly on what the Fed may do over the next three to six months, so we're optimistic that we may see some, with our floating rate debt, some favorable interest rate activity.
Paul Nester: Tim talked about the Mountain Valley investment and what that means to RGC midstream. There is a change there, as he discussed, from the AFUDC related to the construction and now our operational earnings. Year over year, we'll see a decline in book earnings, and cash is finally coming back to us from that investment. We're still working on our capital spending plans for next fiscal year, but we think it should be very similar to this year in that 20 to $22 million range.
Paul: We'll see a decline in the book earnings related to that. But again, the cash flows are going to start in 2025. So we're excited about cash finally coming back to us from that investment. We're still working on our capital spending plans for next fiscal year, but we think it should be very similar to this year in that $20 to $22 million range. And as always, we're in discussion with our board about our shareholder dividend, and we're again setting expectations for that relative to next year's earnings. We're seeking to maintain a fairly consistent payout ratio relative to the earnings.
Paul: So, with that, we're not providing any EPS guidance right now for 2025. Again, we're still working on that vigorously. We hope to be able to share that before the end of the physical year.
Unknown Executive: So that concludes our prepared remarks. If you have any questions, please dial pound pound one to unmute your line. Pound pound one.
Unknown Executive: Okay, good morning, Paul. Good morning, Tommy. Good morning, David. Mike, good morning. Thank you for joining us. Hope you're well today. Doing all right.
unknown: Good morning, Paul. Morning, Tommy. Good morning.
unknown: Mike, good morning. Thank you for joining us. I hope you're well today.
Mike: Good afternoon; seasons winding down seems to have been a longer one this quarter. Congrats on the Mount Valley, getting the flows finally into your service territory. Paul, you mentioned you're yet ready to connect your first customer there. Is that in that industrial? Park in Sanford. It is Mike. It's approximately 50 hundred feet from our gate station within the park. And we're just excited about that. And in fact, working closely with the county to bring that to fruition.
unknown: on Mount Valley, getting the flows finally into your service territory. Paul, you mentioned you're getting ready to connect your first customer there. Is that in that industrial park in front?
Mike: And we hope to, you know, have a little sort of ribbon cutting and ceremony around that when it's ready. But it is; it is within some of your business part. Are you?
Paul Nester: We hope to, you know, have a little sort of ribbon-cutting and ceremony around that when it's ready, but it is within the scope of view of Business Park.
unknown: Are you? I've asked this before, but now with Mountain Valley Open.
Mike: I've asked this before, but now with Mountain Valley Open. It's probably a better question today. Are you seeing what's the level of inquiries you're seeing now that gas is flowing? Has that gone up? Is it remains static? You know, is there a lot in that pipeline that looks now like it's actually come to realization? Yes, it continues to be a good question. And thank you for asking it again. This region has continued to have steady inquiry, is what I would say live from economic development prospect. I don't know that it's increased now that Mountain Valley finish, but it certainly has changed the tone and tenor of some of those inquiries.
Speaker Change: Please know that mountain Valley is finished but it certainly has changed the tone and tenor on some of those inquiries in other words.
Paul: In other words, prior to completion, and certainly if you went back in time when there were still magnificent legal challenges, it was when do you think it will be done, and when could we expect it to be done now that it is done. It just provides so much certainty to that prospect about what their opportunity is to receive gas, potentially directly from Mountain Valley at some of you are as a blended product in our existing run of gas system.
Speaker Change: Higher to completion importantly, if you went back in time, when there were still a magna.
Speaker Change: Magnificent legal.
Speaker Change: <unk> as it was when do you think it will be done and when could we expect it to be done now that it has done. It just provides so much certainty to that prospect about what they are.
Speaker Change: Our opportunity is to receive gas potentially directly from mountain Valley. If some of you are as a blended.
Speaker Change: <unk> and our existing Roanoke gas system.
Mike: Okay, then just one final one. So looking forward to 2025 and the drivers. The one thing I didn't see on the slide is perhaps maybe you can add some color to it here. What was the negative weather impact earnings for 24 or three year winter heating season? Because I'm just trying to get a feel for what earnings could be if we have normal weather conditions this year. Yeah, that's a great question too. We're still fortunate here in Virginia to have weather normalization, and weather normalization allows us, Mike, to adjust back to normal weather. So I think our order 30,000 foot level answer to that question is we really didn't in our firm load see negative earnings impact.
Speaker Change: Okay, and then just one final one.
Speaker Change: So looking forward to 2025.
unknown: and the drivers. The one thing I didn't see on the slide is, and perhaps, maybe you can add some color to it here.
Speaker Change: And the drivers are the one thing I didn't see on the slide is.
Okay.
unknown: What was the negative weather impact on earnings? If we have normal weather conditions this year, yeah, that's a great.
Speaker Change: Maybe you can add some color to it here.
Speaker Change: What was the negative weather impact to earnings.
Speaker Change: For 24 through your winter heating season, because I'm just trying to get at.
Speaker Change: Feel for.
Speaker Change: What earnings could be.
Speaker Change: If we have normal weather conditions this year.
Speaker Change: Yeah. That's a great question too we're still fortunate here in Virginia to have weather normalization and.
Speaker Change: Weather normalization allows us Mike to adjust back to normal weather.
Speaker Change: So I think our.
Mike: A 30000 foot.
Mike: Level answer to that question is we really didn't in our firm load see negative earnings impact.
Paul: Tommy or Tim, anything you want to add to that relative to the WNA? I think you captured a pretty well tall. Yeah, again, the industrial customers, and I think was alluded to in the remarks and, in fact, in our team Q, they've been steady too, which we're pleased about. Certainly, there's uncertainty in the economy going forward. But so far they've been, they've been, they've been steady, so I hope that answered your question. Oh, it does. I mean, with most of my gas utilities coverage, even when even those that have, you know, weather normal. There's usually a little bit of upside that they can realize if it's a cold or winter, and I'm just asking because I know this was extremely warm this year and just trying to get a feel from a forecasting perspective of where numbers might be if we get a cold one.
Speaker Change: Tommy or Tim anything you want to add to that relative to the WMA.
Tim: Captured it pretty well Paul.
Speaker Change: Again, the industrial customers and I think was alluded to in the remarks and in fact in our 10-Q, they they've been steady to which we're pleased about certainly there is uncertainty in the economy.
Speaker Change: Going forward, but so far they've been they've been steady so.
Speaker Change: I hope that answered your question.
Josh: Hi, Josh.
Josh: With most of my gas utilities coverage.
unknown: with most of my gas utilities coverage, even when there's usually a little bit of upside.
Speaker Change: Even when.
Josh: Even those that have weather normalization riders.
Josh: Theres, usually a little bit of upside.
Josh: They can realize if it's a if it's a colder winter.
Speaker Change: And I'm, just asking because I know this was extremely warm this year.
Speaker Change: Just trying to get a feel from a forecasting perspective, where numbers might be.
Speaker Change: If we if we get a cold.
unknown: Yeah, certainly, Tim or Tommy, you may remember the exact statistics. This was one of the warmer winter seasons on record.
Paul: Yeah, certainly, Tim or Tommy, you may remember the exact statistic. This was one of the warmer winter seasons on record. My memory was we were greater than 20% warmer than normal over the winter period, but certainly we would see increased volume lift and live remarkably return to a normal winter. The other side of our WNA mechanism, if it's colder than normal, we're going to return the customers and happy to do that. We think that's the appropriate way. Again, when you're jumping back to pure normal 30 or normal for that to work.
Speaker Change: Yes, certainly.
Speaker Change: Tim or Tom you May remember the exact statistic. This was one of the warmer.
Winter seasons on record Mommy.
Speaker Change: My memory was we were greater than 20% warmer than normal over the winter.
Speaker Change: <unk>, but.
Speaker Change: Certainly we would see increased volume lift and delivery, Michael if we return to a normal.
Winter in.
Speaker Change: The other side of RW named mechanism, if it's colder than normal we're going to return the customers and happy to do that we think that's the appropriate way again, when you're adjusting back to pure normal 30 year normal for that to work.
Unknown Executive: All right. Thank you, gentlemen. Thank you so much.
Speaker Change: Alright, Thank you gentlemen.
unknown: All right. Thank you, gentlemen.
Speaker Change: Thank you so much good morning.
unknown: Thank you so much. Do we have any other questions? Press pound one to unmute your line. Any other questions at this time? Okay, well, hearing none, this concludes our four quarter earnings call. And again, thank you so much for taking time out of your morning to join us, and we really look forward to speaking with you again in early December as we review our full year physical results. We hope you all have a safe and pleasant day and rest of the week. Thank you.
Unknown Executive: Do we have any other questions found? Found one. I'm you, your line. Any other questions at this time?
Speaker Change: Do we have any other question bound pound one.
Speaker Change: So on mute your line.
Speaker Change: Okay.
Speaker Change: Any other questions at this time.
Unknown Executive: Okay, well, hearing none, this concludes our four quarter earnings call, and again, thank you so much for taking time out of your morning to join us. We really look forward to speaking with you again in early December as we review our full year physical results. We hope you all have a safe and pleasant day and rest of the week. Thank you.
Speaker Change: Okay, well hearing none this concludes our fourth quarter earnings call and again. Thank you. So much for taking time out of your morning to join us.
Speaker Change: And we really look forward to speaking with you again in early December as we review our full year physical results.
Speaker Change: We hope you all have a safe and pleasant day and rest of the week. Thank you.
Speaker Change: Okay.
Speaker Change: Yeah.