Q2 2024 RGC Resources Inc Earnings Call

Participants

Tommy Oliver; SVP - Regulatory and External Affairs; RGC Resources Inc

Tim Mulvaney; CFO, VP, & Treasurer; RGC Resources Inc

Paul Nester; President, CEO, & Director; RGC Resources Inc

Presentation

Tommy Oliver

Good morning and thank you for joining us as we discuss RGC Resources, Inc's 2024 second quarter results. I am Tommy Oliver, Senior Vice President, Regulatory and External Affairs for RGC Resources. I am joined this morning by Paul Nester, President and CEO of RGC Resources; and Tim Mulvaney, Treasurer and CFO.
Before we get started, I wanted to review a few administrative items. We have muted all lines. I'd ask that all participants remain muted. 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 start on slide 1. 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 file.
Slide 2 contains our agenda, we will review our quarterly operational and financial results, provide an update on our rate case and the NZP and discuss the outlook for the full year fiscal 2024 with time allotted for questions at the end.
So turning to Slide 3. Total billed customers at the end of April were 63,660. This reflects our continued steady growth within our store footprint. Main extensions for the first six months of the 2024 fiscal year totaled 1.2 miles, and we connected 317 new services during that same period.
Slide 4 shows our delivered gas volumes for the quarter. Volumes overall were 9% higher compared to last year's second quarter attributable to colder weather in the second quarter of the 2024 fiscal year, gas volumes were up in total, residential and commercial volumes were higher as a result of more heating degree days. It was enhanced by a year-over-year increase in industrial throughput as natural gas prices are at historic levels.
Slide 5 shows the same two charts for the year to date. Total volumes were up modestly for the first half of fiscal 2024. Despite fewer heating degree days as in the quarter, delivered gas volumes were lower.
Now on slide 6, our CapEx spending totaled $11.3 million for the first six months of fiscal 2024 compared to $12.9 million last year. At the same time, this decrease is attributable to the $3.1 million spent in 2023 related to the RNG facility, offset by current year spending for the MDP interconnection. Excluding the R&D spend, our overall capital spend is up $1.7 million over last fiscal year's comparable period spending and Paul will discuss the full year's capital spending projection shortly, but now I'm going to turn it over to Tim Mulvaney, our Treasurer and CFO, who will discuss our financial results.

Tim Mulvaney

Thank you, Tommy. We're moving on to Slide 7. We had a steady quarter against inflationary headwinds. Second quarter operating income decreased $960,000 or approximately 10% to $8.6 million in the second quarter compared to the second quarter of 2023, we continued to experience cost pressures across the board, but particularly in personnel and IT related costs. We expect this pressure to continue in the third quarter with rates under the February second filed rate case taking effect July first. Tommi will discuss the rate case in more detail shortly.
Equity in the earnings of unconsolidated affiliates was $1.2 million pretax 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 completed and ultimately sees as the pipeline goes into service. Interest expense increased 170,000 due to higher interest rate environment, which is impacting our floating rate debt, which supports our investment in the Mountain Valley pipeline as well as the Roanoke Gas line of credit.
Our net income was $6.4 million in the second quarter of this year compared to $6.3 million in the same quarter a year ago. The presence of the AFUDC from the MDP. this year drove the strong results. Eps was $0.63 per diluted share for the second quarter of this year compared to $0.64 per diluted share in the quarter a year ago. The year-to-date numbers are also on slide 7 story. While similar to the second quarter is more favorable. Net income was $11.5 million or $1.13 per diluted share through six months of fiscal 2024 compared to $9.6 million or $0.97 per diluted share in fiscal 2013. While the inflationary pressures and higher interest rates were present as they were in the second quarter of fiscal 2024. Revenues from the prior year rate case were present for all six months of fiscal 24, but only for three months in fiscal 23, an additional note related to the balance sheet. We had nearly $34 million in debt supporting our investment in the MVP. coming due in 2024 that we refinanced in two pieces with new maturities at the end of 2025 and in 2026. Details are in our Form 10 Q that we filed on Friday. Finally, we renewed our operating line of credit at Roanoke Gas in March.
I will now turn the presentation back to Tommy to discuss our latest rate case timing.

Tommy Oliver

Thank you, Tim. Roanoke Gas, like most consumers and businesses, continue to experience upward expense pressure accordingly, as we discussed in our prior earnings call on February second, we filed a general rate case with the Virginia State Corporation Commission in which we are seeking an increase in base rates of approximately $4.3 million or about a 5% increase in total revenues from the increase includes a projected rate base through June 30th, 2025, and an increase in our authorized ROE to 10.35, which reflects current capital market conditions.
The commission as of the commission has authorized the new rates to go into effect July first subject to refund $4.3 million in incremental revenue. Does that include the roll-in of Save for RNG capital and revenues as we had received authority for a new five year SAVE plan this past October since the RNG facility by statute qualifies for a 100 basis point adder to or are we we do not expect the RNG facility to be ever rolled into base rates. The SEC Staff Review of our rate cases underway and a hearing with the Commission is set for November seventh, so we do not expect final resolution until the second quarter of 2025.
I will now pass the presentation to Paul Nester, President and CEO of RGC Resources to discuss the MDP.

Paul Nester

Good morning. Thank you, Tommy. Where on slide 9, we truly are excited about the progress and what we believe to soon be the commercial operation of the Mountain Valley pipeline on the MVP filed with Burke recently for permission to initiate operations and requested on May 23rd, 2020 for in-service date so just 2.5 weeks away, if the schedule holds, this would make the shipper contracts for the pipeline active June first for Renault gas will interconnect with the pipeline and two locations. Lafayette Gate Station will see a picture in just a moment is substantially complete and we are doing final testing on that station, the funnel of new station and down in Franklin County is nearing substantial completion, and we expect it to be ready when NBP gas flows.
Again, the picture you're seeing on slide 9 is actually from just about a week ago with the installation of the first distribution company, natural gas main in the history of Franklin County. This picture is in the sum of New Business Park, very close to the Gate Station. We're just thrilled to finally be installing this pipe and approaching service to a customer. And some of you park, it really is a historic moment and something we're pleased to be partnering with the accounting and the business community.
On Moving on to slide 10, let's just take a look at where we think we're going to be in 2024 with respect to our capital spending as well as our earnings. And this is the picture I just mentioned of the Lafayette Gate Station. As you can see, it looks fantastic, and we're so happy to have it nearing 100% in service.
Moving on to slide 11, the 2024 Runner gas capital investment plan is holding steady up only slightly. And we have been, of course, feeling pressure in capital expenditure just like our operating and maintenance expenditures are as Tim and Tom, you had mentioned a few moments ago However, our overall spend is lower than 2023 because of the completion of the RNG project. I just want to note, we're hitting our targets on our Save and renewal spending as well as our customer growth and system expansion plans there. And I want to compliment our entire operation. We just continue to work safely and the investments we're making in our system to keep it safe and reliable are paying dividends.
All right. On slide 12, our consolidated earnings guidance. We haven't changed this from what we shared with you in the first quarter. As Tim mentioned in the results, the AFUDC from the Mumbai project has been a little higher so far this year than we expected. Obviously, the slight changes in the in-service date. And the slightly prolonged construction has influenced that the rate case that Tommy just described with the interim rates that began July first is a real driver for the second half of the year and in particular the fiscal fourth quarter.
So with that, we can conclude our prepared remarks.

Question and Answer Session

Paul Nester

(Event Instructions)

Good morning, everyone.

Paul Nester

Hey, Mike. How are you today?

Fine. A little foggy here. How's yourself?

Paul Nester

Well, it's cleared up a little today. We did have a foggy, rainy weekend, but it's a beautiful spring morning today.

Yes, just I guess one question on gas supply. Now that in looking at Mountain Valley Gas coming into the system here shortly, we've already got gas prices at pretty cheap levels. Is there a big step down in the cost of your gas supply with Mountain Valley starts mixing in given where prices are today?

Paul Nester

Yes, that's a great question, Mike. And on the right, our earlier comments alluded to the really historically low natural gas prices, particularly when you're looking at the Henry Hub or the economics right now on coming out of the warm winter gas prices are still low. Industrial and commercial demand is still strong, I think makes sense based on those low prices on Cincinnati Valley's coming online, if you will in a warmer period, Mike, on we don't see a lot of a change in our overall natural gas basket or portfolio of pricing that our State Corporation Commission approves how it rolls through the winter is something we are more carefully analyzing and looking at just those small regulatory tidbit, which we alluded to, I think in our the 10 Q that we have incorporated the Mountain Valley demand charges into our purchased gas adjustment actually starting this quarter as approved by the commission.

And just kind of follow, does it make sense for you you take every molecule you can get out of NDP versus the other pipes that that's a good question.

Paul Nester

So we utilize an asset manager to optimize our natural gas supply as it relates to our capacity for our customers' benefit, Mike and I think on a day to day nominating basis, Bill again, do what they always do, which is the most cost-efficient for the customer. So as you know, it'll depend on market conditions on a day-to-day basis and how the pricing hubs are moving relative to our pricing basket.
I think Tommy we have seven pricing point A. pricing points in our basket currently penetrate?
Yes, yes. So it'll all that all that Mike will come together on a daily daily basis. Subtle, I don't know that it's up 100% certain every single day that they wouldn't take for MVP capacity versus in this case, East, Tennessee or TransCanada.

Okay. Well, thank you much appreciated and congrats on. And then VPN service data. I guess there's going to be quite a party.

Paul Nester

Well, thank you. We haven't had time to plan the party, but we'll let you know our April.

Thank you.

Paul Nester

Thank you so much. Do we have any other questions? (Event Instructions)
Well, hearing none. We thank everyone for joining us this morning and reviewing our second quarter week. As always, I look forward to being with you in about three months as we review our third quarter results. Wishing everyone a safe and pleasant Monday and rest of their work week. Thank you very much.