RGC Resources Q3 2023 Earnings Call Transcript

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August 7, 2023

There are 3 speakers on the call.

Operator

Good morning. Thank you for joining us as we discuss RGC Resources 2023 Third Quarter Results. I am Tommy Oliver, Senior Vice President, Regulatory and External Affairs for RGC Resources, Inc. I am joined this morning by Paul Nestor, President and CEO of RGC Resources and Kelsey Davenport, our Director of Finance. Before we get started, I want to review a few administrative items.

Operator

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 of our website at www.rgcresources.com. Lastly, at the conclusion of the presentation and our remarks, we will take questions. So let's transition over to Slide 1. And I'll note that this presentation contains forecasts and projections.

Operator

The Slide 1 is a forward looking statement disclaimer. On to Slide 2, which contains our agenda. During the presentation, we will review our quarterly operational and financial results and discuss the outlook for the remainder of fiscal 2023 with time allotted for questions at the end. Over to Slide 3. Our main extensions for the year have totaled 3.1 miles and we have added which is really reflective of the great construction weather we've experienced in the Roanoke area, and we have added 464 customers to the 1st 9 months of the fiscal year.

Operator

Our customer counts in the graph on the right side of the slide represents a steady increase in total customers since 2020. You got to be mindful that customer accounts for 2021 2022 were impacted by the state mandated service connection moratorium that occurred during parts of 2020 2021. Overall, our collections have improved and we are experiencing collection activity, which largely resembles pre pandemic results. Our bad debt expense for the 9 months approximately 223,000 less than this time last year. So we're on Slide 4, which shows our delivered gas volumes, which were lower than last year, largely due to warmer weather compared to the Q3 of 2022.

Operator

Heating degree days were 6% lower, which resulted in 3% lower delivery of total volumes compared to Q3 of last year. Slide 5. For the 1st 9 months of the current fiscal year, gas volumes are lower, again largely due to fewer heating degree days. And commercial and industrial volumes were also 2% lower than year to date last year. I'm now going to turn it over to Paul Nestor, President and CEO of RGC Resources, who will discuss our financial results.

Speaker 1

Thank you, Tommy, and good morning, and thanks to everyone for Joining us today, we are on Slide 6. The 3rd quarter operating income increased $158,000 or 9.6 percent to $1,798,000 This is obviously an improvement over the Q3 of 2022. This increase was primarily driven by the interim base rates that we implemented on January 1 in addition to our investment in the RNG project and Mountain Valley Pipeline AFUDC. We're going to talk about Mountain Valley a little bit later in the presentation. One thing to note on Slide 6, our interest expense is under pressure due to the rising interest rate environment.

Speaker 1

We still have Floating rate debt supporting our Mountain Valley investment and it is subject to rising interest rates. Our net income for the quarter was $687,000 up approximately $94,000 compared to the Q3 of 2022 and this did include $519,000 of the non cash AFUDC related to Mountain Valley returning to full construction in June 2023. To aid in the comparison of our trailing 12 month results, which includes impairments recorded on our MVP investment in fiscal 2022. We have represented our financial results on an underlying basis on Slide 7. The 10% increase that we see on Slide 7 for trailing 12 results of $955,000 really reflects 2 things.

Speaker 1

1st, It's execution on the Roanoke Gas organic growth strategy. Tommy just covered our volume deliveries and our main miles and our customer additions. We just continue to have excellent results in our operation on all those fronts. We're still investing in rate base. Tommy is going to cover that in just a minute and customer growth.

Speaker 1

And again, we had a nice strategic investment in a new technology, which is reducing admissions in our RNG facility. And then the second piece of that earnings change is the non cash equity earnings from the Mountain Valley Investment. Tommy is now going to review Run of Gas' year

Operator

to date capital spending as well as our capital spending projection for the remainder of fiscal 2023. Thank you, Paul, and we're on Slide 8. We continue to execute our 2023 Roanoke Gas Capital Investment plan with $19,400,000 in utility property, which represents an increase of $1,900,000 compared to 2022. The increase is primarily the result of the investment we made in the RNG facilities completed and to make it operational. Turning to Slide 9, where we're going to review the outlook for the remainder of the fiscal year, including Roanoke Gas' capital budget forecast, provide an outlook for RGC Midstream and provide updated guidance for 2023 as well as provide initial guidance for 2024.

Operator

So on to Slide 10, we anticipate approximately $4,500,000 of additional spending on utility plant for the remainder of the fiscal year for a total of approximately $23,900,000 for the fiscal year. You may notice that amount is higher than the 2nd quarter forecast in May due to anticipated spending in the Q4 for the Roanoke gas interconnections to the Mount Valley pipeline. I'm going to turn it over to Paul now. Yes.

Speaker 1

Thank you, Tommy. Due to the passage of the Physical Responsibility Act in early June and all the permits that were completed and issued subsequent to that, Mountain Valley did resume full project construction at the end of June for the first time in several years. As you all know, the 4th Circuit issued a couple of stays in early July, but the Supreme Court of the United States on July 27th, grand MVP's application to vacate those stays and forward construction resumed immediately. We are grateful for the Supreme Court's swift action and assistance in this matter. So as a result, we have revised our midstream forecast for 2023 2024 as shown on Slide 11.

Speaker 1

These numbers do reflect AFUDC related to project construction, which we expect to see each month beginning In July, concluding within service, Equitrans Midstream, the MVP's managing partner is still projecting that the pipe will be completed and in service by the end of calendar 2023. I do want to follow-up on Tommy's comment about the run of gas interconnections, those have also been on hold with the various Permit and construction delays, but now that the project we believe is going to be completed in the next 4 months, we are resuming our Construction of those interconnects and really look forward to having those in service and delivering gas into the Roanoke Valley. Before we conclude with our earnings per share guidance, Tommy, would

Operator

you mind giving us a few updates on what's been happening in the Roanoke Gas Regulatory Environment? Certainly, Paul. And as you may remember, we've been fairly active on the regulatory front. We have 3 formal proceedings going on. And I'll start with the SAVE plan.

Operator

You may recall, we discontinued billing the SAVE Prior effective January 1, 2023, we rolled in the investment we were making through the same plan in the base rates and we're recovering those investments or the return on those investments through the interim rates that went into effect January 1. In the Q1 2nd quarter, I'm sorry, this fiscal year, we filed a new safe plan with the commission. And on July 7, The staff filed its report in which it did recommend approval of our 5 year plan, which includes about $49,500,000 in capital spend. We back to final order in that case in September of this year and we'll start billing that October 1, 2023. The RNG Proceeding, we began billing our initial rate on March 1, 2023, the same month it went operational, but we had to file for an update of the rate and we did that, I believe it was May of 2023 for a rate that will become effective tenonetwenty23 and that's to align it with our fiscal year.

Operator

This past Friday, August 4, staff recommended approval of that rider update. So we expect to final order in that as well in September. And the rate case, we filed that December of 2022 and that's still progressing through the audit phase. Staff has been very thorough and diligent and asking a lot of good questions. And we are expecting their testimony August 23rd and We'll address it either with rebuttal and or a settlement perhaps and we'll have a final order or I'm sorry, this Hearing is scheduled for October 4 and a final order sometime after that.

Operator

Yes. Thank you, Tommy. Just really outstanding results coming out of the regulatory

Speaker 1

area this year. And again, we think that's Again, a reflection of just the way the utility has conducted itself and does business over a long period of time. And so we're pleased with those outcomes. So our earnings guidance on Slide 12 does reflect the change in the Mountain Valley status certainly in 2023 as well as again assuming essentially a January 1, 2024 in service. So the 2024 forecast has AFUDC for the physical Q1 October, November, and then operating income from the joint venture January through September.

Speaker 1

The range is A little wider than maybe you've seen in the past, but we think that's appropriate again based on the outcome of the rate case in particular. We're on track particularly in the utility. The utility as we've discussed that length today is doing wonderful. So we're on track to have another solid, if not great year. With that, that concludes our prepared remarks.

Speaker 1

Okay. We'll wait just a few more seconds to see if anyone has any questions.

Speaker 2

Good morning, everyone.

Speaker 1

Okay. It sounds like we've got one coming through. Go ahead.

Speaker 2

Hey, Paul. It's Mike Oglett from William Blair.

Speaker 1

Hi. Good morning. How are you? Thank you for joining us.

Speaker 2

I'm doing well, sir. I'd ask how you're doing, but I think I already know. Just one question and I look, I realize it's early days and I'll probably ask this question next quarter. But with all the positive developments on gas supply now, just wondering, are you getting any inbounds from Either real estate developers or potential new industrial or commercial customers, just in general about locating the Roanoke now The good news is out.

Speaker 1

Yes, Mike, thank you for the question. Yes, I would broadly characterize Your question is economic development. And I would say there in a general sense, there is Slightly more inbound and what we mean by that, we've actually had good inbound historically for the last 6 to 18 months. One of the limitations on those inbound has been the lack of certainty around Mountain Valley completion. So With the recent bipartisan support in Congress and the signature by President Biden of the FRA and in the Supreme Court, Very quick and decisive action.

Speaker 1

We do feel like we have certainty now on the completion and that is given a boost to our economic development folks in terms of their ability to pinpoint when

Operator

we believe the gas in

Speaker 1

Mountain Valley will in fact arise. So, it's a great question. I think there's going to be More inbound to some, particularly with the certainty of the supply. The pricing is low. It's the cheapest gas certainly in the United States, maybe even the world.

Speaker 1

And Again, it's going to be plentiful coming through that 42 inches pipe delivering 2,000,000,000 cubic feet a day. So we are very excited about the future economic development front here in the Greater Roanoke Valley and Franklin County.

Speaker 2

All right, gentlemen. Well, that's all I had. Congrats on the MVP decision.

Speaker 1

Well, thank you. Thank you very much. Do we have any other questions? Please stop outbound or hashtag to unmute your line. Okay.

Speaker 1

Hearing none, This concludes our Q3 earnings call. We again really appreciate you taking the time to join us and We really look forward to being with you again in early December to talk about our full fiscal 2023 results and hopefully be very, very precise on when the Mt. Valley is going to be flowing gas at that point in time. We hope everyone has a great day

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Key Takeaways

  • Customer Growth and Collections: RGC added 464 new customers and extended 3.1 miles of main in the first nine months, driving improved collections with bad debt expense down $223,000 year-over-year.
  • Weather-Driven Volume Decline: Third quarter delivered gas volumes fell 3% with 6% fewer heating degree days versus Q3 2022, while year-to-date commercial and industrial volumes were 2% lower.
  • Stronger Q3 Financials: Operating income rose 9.6% to $1.8 million and net income increased $94,000 to $687,000, supported by interim base rates, the RNG project, and $519,000 of non-cash MVP AFUDC.
  • Increased Capital Spending and MVP Progress: Year-to-date utility capital spending reached $19.4 million (up $1.9 million), and full construction resumed on the Mountain Valley Pipeline in June with in-service now expected by end of 2023.
  • Regulatory Advances and Guidance: Regulators recommended approval for the SAVE plan and RNG rider updates, the general rate case hearing is set for October, and management reaffirmed full-year 2023 and initial 2024 earnings guidance reflecting MVP AFUDC.
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Earnings Conference Call
RGC Resources Q3 2023
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