RGC Resources Q4 2023 Earnings Call Transcript

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Provided by Quartr
December 4, 2023

There are 4 speakers on the call.

Operator

Good morning. I am Tommy Oliver, Senior Vice President, Regulatory and External Affairs for RGC Resources Inc. Thank you for joining us this morning as we discuss RGC Resources 2023 Q4 and full year results. I'm joined this morning by Paul Nestor, President and CEO of RGC Resources and Tim Mulvaney, our Interim Chief Financial Officer and Treasurer. Before we get started, I want to review a few administrative items.

Operator

First, We have muted all lines and ask that all participants remain muted. 2nd, the link to today's presentation is available on the Investor and Financial Information page of our website at www.rgcresources.com. And lastly, at the conclusion of the presentation and our remarks, we will take questions. So Slide 1, This presentation contains forecasts and projections. Slide 1 has information about risks and uncertainty, including forward looking statements that should be understood in the context of our public filings.

Operator

The agenda is on Slide 2. We will review our quarterly and annual operational and financial results and discuss the outlook for fiscal 2024 with time allotted for questions at the end. So turning to Slide 3. Our main extensions for the year totaled 4 miles and we added over 550 new customers, another outstanding year of customer growth and our 7th straight year of adding at least 550 new customers. I'd also like to highlight the work we have done with the Roanoke Redevelopment and Housing Authority.

Operator

Since 2022, we have helped the housing authority modernize the natural gas facilities within 3 of its apartment complexes. After the authority renewed these facilities, Roanoke Gas assumed ownership and operational control. Not only did this add to our customer count and rate base, It provided the residents within those communities a new, safer and more reliable gas system. The housing authority intends to renew 2 additional properties in the coming years. On the right side of the graph, our total customer count represents a steady increase in the total customer since 2020.

Operator

The customer count for 20212022 were impacted by the state mandated service that occurred during parts of 2020 2021. At the end of fiscal 2023, Our customer count was 62,740 customers. This figure doesn't really reflect true customer growth customers disconnect service during the spring and reconnect once cold weather sets in. To that end, our active customer count as of December 1st was $63,599. Transition over to Slide 4.

Operator

2023 was a busy year on the regulatory front. As we've discussed in prior earnings call, we received approval from the State Corporation Commission in January to rate base an RNG facility. This facility became operational and we began billing customers in March of this year. We also filed for a new 5 year save plan. The SAID plan was approved by the commission in August.

Operator

The plan included a $50,000,000 spending cap over the life of the plan with $8,550,000 allowed for fiscal 2024. We began billing the new save rate October 1, 2023. During the past year, we also had a rate case working its way through the SEC. We did reach a settlement with the SEC staff in September, in which we agreed to a revenue requirement increase of $7,450,000 The hearing examiner assigned to the case issued his report in November, accepting the stipulated revenue requirement and essentially all other terms and conditions of the stipulation. We expect a final order from the commission in the next 30 to 60 days.

Operator

Lastly, we received an extension of our certificate to serve Franklin County. The original certificate issued in February of 2020 I'm sorry, 2019 contained a 5 year sunset provision, which would have voided our certificate had we not begun serving customers within that 5 year window. The commission extended the sunset provision for 3 years for the February of 2027. Slide 5 shows our delivered gas volumes, which were higher compared to last year, attributable to higher industrial usage. Slide 6 shows for the fiscal year, gas volumes were down slightly.

Operator

Residential and commercial volumes were down as a result of fewer heating degree days offset by a small year over year industrial utilization increase. We're on Slide 7. We executed our 2023 Roanoke Gas Capital investment plan with over $25,000,000 of investment in utility plant, which is down nominally from a year ago. A significant part of our investment for the year related to the RNG facility I discussed earlier. And it's worth noting that this capital is fully embedded in our current rates as a result of the rate case and the RNG rider.

Operator

I'm now going to turn it over to Tim Mulvaney, our Interim CFO and Treasurer, who will discuss our financial results. Tim? Thank you, Tommy.

Speaker 1

We are on Slide 8 now. For the Q4, operating income increased $290,000 or 64 percent to $745,000 compared to the Q4 of 2022. The increase was primarily driven by interim base rates implemented on January 1. Interest expense up $242,000 continues to be pressured due to the higher interest rate environment, which is impacting our floating rate debt supporting the investment in the Mountain Valley Pipeline. Our net income for the quarter was just over $1,000,000 compared to an $11,000,000 loss due to a $15,000,000 pre tax impairment taken on our investment in MVP in the Q4 last year.

Speaker 1

The Q4 of this year included $1,500,000 of non cash AFUDC pre tax, which resulted from our investment in the MVP resuming construction. Moving on to Slide 9. To aid in the comparison of our fiscal year results, excluding impairments recorded on our MVP investment In 2022, we have represented our financial results for the quarter and the year on an underlying basis on Slide 9. I will now turn the presentation over to Paul Nestor, RGC Resources' President and CEO for an outlook on 2024.

Speaker 2

Paul? Thank you, Tim, and good morning. We are on Slide 10. We're going to take a few minutes and review the 2024 Roanoke Gas Capital spending forecast, we're also going to try to provide an update on the Mountain Valley Pipeline and then we'll share our initial guidance for for our 2024 earnings per share. Moving on to Slide 11, we're projecting a total spend on utility plant For fiscal year 2024 of approximately $21,000,000 this is down from the 2023 capital pending primarily due to the $4,100,000 we invested in the RNG facility in 2023, But this is a resumption of a more normal level of annual capital spending And the utility.

Speaker 2

I would like to take one minute and just comment on the customer growth numbers that Tommy shared with us a few moments ago and in particular the 63,500 customers, that is certainly an all time high for our company. And I want to Certainly thank our customer experience and our operations personnel for getting well over 1500 customers turned on since October 1st. For a small company like ours, it's a noteworthy achievement due to a lot of dedication and hard work by many folks. So thank you. Moving on to Slide 12, many of you may have seen the AquaTrans 8 Okay.

Speaker 2

That was filed last week where they provided an update on some of the statistics related to Mountain Valley Construction. It's a good update. We'll try to interpret a little bit of that for you. Of the remaining scope work when construction resumed this summer, Approximately 50% of the Upland pipe, 65% of the tie in, 75% of the crossing And over or approximately 104 miles of hydrostatic testing have occurred. So again, the progress has been Very good.

Speaker 2

We've had a nice dry fall here, which has been conducive to construction and good progress. The total budget for the project remains $7,200,000,000 with projected completion in the Q1 of calendar 2024. I would like to also mention that Roanoke Gas has resumed construction on both our Lafayette and Summit View interconnects. You may remember that Roanoke Gas has 2 taps off the Mountain Valley to bring the much needed supply of natural gas to this region, including at the Summit View Business Park in Franklin County, which will be Franklin County's first opportunity or natural gas. We're on track for both stations to be complete commensurate with the Mountain Valley construction being completed and the Mountain Valley Flowing Gas.

Speaker 2

We're really excited to finally see the Mountain Valley be completed and we're really excited about having Marcelo, in Utica Basin Natural Gas flowing into the Roanoke Valley.

Speaker 3

So I mean

Speaker 2

the MVP schedule of Q1 calendar 2024 stays on track and We believe that to be the case right now. We expect that our RGC Midstream subsidiary to essentially have a breakeven Fiscal 2024 from an earnings standpoint. Moving on to Slide 13 with our earnings per share Guidance, again, we had a tremendous 2023. We filed our 10 ks this past Friday. It provides many of the details of 2023.

Speaker 2

And again, I would just like to thank our customers and our employees for an outstanding Year, if you are on these calls as we went through 2023, we did not expect to hit 1.14 Earnings per share, but through a lot of hard work, we were able to achieve that. Thank you. 2024, we do believe Reno Gas is going to have another solid year. Tim mentioned inflationary pressures and the rising interest rate environment. That is Still very real and we do expect that to challenge 2024 earnings in the Roanoke Gas Utility.

Speaker 2

Our range as you can see, we think right now we can be in the $1.10 to Hopefully, dollars 1.16 again with a breakeven RGC Midstream. That concludes our prepared remarks. If you have questions, please unmute your line. We believe that is pound pound 1. We think to unmute your line

Speaker 3

Good morning, everyone.

Speaker 2

Good morning, Michael. How are you?

Speaker 3

I'm good. How about yourself?

Speaker 2

We're very good. Thank you.

Speaker 3

You're getting some good weather this quarter?

Speaker 2

We are. We've had incredible weather. It's not been great heating load weather, if you will, but it's been great construction weather. Then very dry, which again ordinarily you don't care for, but we're happy about that this year.

Speaker 3

Okay. You had mentioned the Franklin County tie in And the business part there, I think that's what we toured the last time I was down. Just wondering, Are there any tenants or anybody waiting in Franklin County for the gas?

Speaker 2

So we can't comment on very specific opportunities from an economic development standpoint, but There is a lot of potential and excitement, Michael. In fact, Tommy and Jim Sciacca in our meeting this afternoon in Franklin County with the Some of the folks down there to discuss some of these matters. So there's a lot, again, to be excited about and we have natural gas in that park is a wonderful opportunity.

Speaker 3

Okay. And then I would assume earnings From what we'll say cash flow from Mountain Valley. That'll be used to just reduce debt?

Speaker 2

Yes. Tim, I think we've talked a little bit about cash flow in the 10 ks. Would you like to comment on that to Michael? So

Speaker 1

we have certain pieces of our Mountain Valley debt that are coming due in 2024 and we're working with banks to Replace that in the short term, but as the Mountain Valley pipeline does begin to flow, there are provisions in the agreement That they will pass excess cash flow as defined in those agreements on to the company and we expect to use those.

Speaker 3

Okay. And then last question. Any idea if you had to I guess, Paul, what month you could actually start seeing some of that gas flow into Roanoke? Yes.

Speaker 2

I think The public guidance from the JV, Michael, is still calendar Q1 and they haven't gotten more precise than that. As you know, in other words, There's not a month or a day at this point. And a lot of it, of course, does depend on the ability to Do field construction over the coming days weeks as we are in the winter time, with some shorter days. So We are still planning and operationally planning for Q1 20 24. So hypothetically, if that were March 1, we'll be ready.

Speaker 2

If that's March 31, we will be ready as RunoGas to received that gas. Okay.

Speaker 3

And I was just wondering if that lower cost gas could Flowing in January or February, when you need it the most?

Speaker 2

Yes, it's a great question. We're not making plans for January at this point in time. That would be wonderful. But we Don't know that that's maybe physically possible.

Speaker 3

Okay. Well, I guess we'll wait for the next Equitrans 8 ks.

Speaker 2

Yes, yes, yes. That will hopefully be informational in that regard. But again, we can see it coming from here. That's the good news. Good.

Speaker 3

All right, gentlemen, congrats on a great year. It really was.

Speaker 2

Thank you, Michael. Thanks, Michael. Do we have any other questions from the audience? Any other questions? Okay.

Speaker 2

Well, if there are no more questions today, this does conclude our 4th and fiscal year 2023 earnings call. Thank you so much for joining us and we look forward to speaking with you again In February to review the Q1 of 2024, we certainly wish you and your families a Merry Christmas and a Happy New Year. Thank you.

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Key Takeaways

  • RGC added over 550 new customers in 2023—its seventh consecutive year hitting that mark—and ended the year with approximately 62,740 total customers (63,599 active as of December 1).
  • The company’s regulatory wins included having its RNG facility approved and rate-based (operational since March), a new five-year SAVE plan capped at $50 million, and a settled rate case adding $7.45 million in revenue.
  • In Q4, operating income rose 64% to $745,000 and net income was just over $1 million (compared to an $11 million loss last year), driving full-year 2023 EPS of $1.14 on an underlying basis.
  • Capital investments totaled about $25 million in 2023 (including $4.1 million for the RNG facility) and are expected to normalize to roughly $21 million in 2024.
  • The Mountain Valley Pipeline remains on track for Q1 2024 completion (at a $7.2 billion budget), and RGC Midstream anticipates breaking even in 2024 with excess pipeline cash flow earmarked for debt reduction.
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Earnings Conference Call
RGC Resources Q4 2023
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