UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form

10-Q

(Mark One)

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For Quarterly Period Ended ~~March~~December 31, 2022

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For Transition Period From

Commission File Number 000-26591

RGC Resources, Inc.
(Exact name of Registrant as Specified in its Charter)

Virginia	54-1909697
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

519 Kimball Ave., N.E., Roanoke, VA	24016
(Address of Principal Executive Offices)	(Zip Code)

(540) 777-4427

(Registrant’s Telephone Number, Including Area Code)

None

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class			Trading Symbol			Name of Each Exchange on Which Registered

Common Stock, $5 Par Value

RGCO

NASDAQ Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated-filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

☒

Smaller reporting company

☒

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class	Outstanding at ~~April 30 2022~~January 31, 2023
Common Stock, $5 Par Value	~~9,791,422~~9,910,731

Table of Contents

INDEX

		PageNo.

PARTI. FINANCIAL INFORMATION

Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets	1
	CONDENSED CONSOLIDATED STATEMENTS OF INCOME	3
	CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME	4
	CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY	5
	CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33
Item 4.	Controls and Procedures	33
PARTII. OTHER INFORMATION
Item 1.	Legal Proceedings	34
Item 1A.	Risk Factors	34
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	34
Item 3.	Defaults Upon Senior Securities	34
Item 4.	Mine Safety Disclosures	34
Item 5.	Other Information	34
Item 6.	Exhibits	34
Signatures		35

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GLOSSARY OF TERMS

AFUDC		Allowance for Funds Used During Construction

AOCI/AOCL		Accumulated Other Comprehensive Income (Loss)

ARO		Asset Retirement Obligation

ARP		Alternative Revenue Program, regulatory or rate recovery mechanisms approved by the SCC that allow for the adjustment of revenues for certain broad, external factors, or for additional billings if the entity achieves certain performance targets

ARPA		American Rescue Plan Act of 2021

ASC		Accounting Standards Codification

ASU		Accounting Standards Update as issued by the FASB

ATM		At-the-market program whereby a Company can incrementally offer common stock through a broker at prevailing market prices and on an as-needed basis

CARES/CARES Act		The Coronavirus Aid, Relief, and Economic Security Act

Company		RGC Resources, Inc. or Roanoke Gas Company

COVID-19 or Coronavirus		A pandemic disease that causes respiratory illness similar to the flu with symptoms such as coughing, fever, and in more severe cases, difficulty in breathing

CPCN		Certificate of Public Convenience and Necessity

Diversified Energy		Diversified Energy Company, a wholly-owned subsidiary of Resources

DRIP		Dividend Reinvestment and Stock Purchase Plan of RGC Resources, Inc.

DTH		Decatherm (a measure of energy used primarily to measure natural gas)

EPS		Earnings Per Share

ERISA		Employee Retirement Income Security Act of 1974

~~ESAC~~		Eligible Safety Activity Costs, a Virginia natural gas utility’s operation and maintenance expenditures that are related to the development, implementation, or execution of the utility’s integrity management plan or programs and measures implemented to comply with regulations issued by the SCC or a federal regulatory body with jurisdiction over pipeline safety

FASB		Financial Accounting Standards Board

FDIC		Federal Deposit Insurance Corporation

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FERC		Federal Energy Regulatory Commission

Fourth Circuit		U.S. Fourth Circuit Court of Appeals

GAAP		Generally Accepted Accounting Principles in the United States

HDD		Heating degree day, a measurement designed to quantify the demand for energy. It is the number of degrees that a day’s average temperature falls below 65 degrees Fahrenheit

ICC		Inventory carrying cost revenue, an SCC approved rate structure that mitigates the impact of financing costs on natural gas inventory

IRS		Internal Revenue Service

KEYSOP		RGC Resources, Inc. Key Employee Stock Option Plan

LDI		Liability Driven Investment approach, a strategy which reduces the volatility in the pension plan's funded status and expense by matching the duration of the fixed income investments with the duration of the corresponding pension liabilities

LIBOR		London Inter-Bank Offered Rate

LLC		Mountain Valley Pipeline, L.L.C., a joint venture established to design, construct and operate MVP and Southgate

LNG		Liquefied natural gas, the cryogenic liquid form of natural gas. Roanoke Gas operates and maintains a plant capable of producing and storing up to 200,000 ~~dth~~DTH of liquefied natural gas

MGP		Manufactured gas plant

Midstream		RGC Midstream, L.L.C., a wholly-owned subsidiary of Resources created to invest in pipeline projects including MVP and Southgate

MVP		Mountain Valley Pipeline, a FERC-regulated natural gas pipeline project intended to connect the Equitran's gathering and transmission system in northern West Virginia to the Transco interstate pipeline in south central Virginia with a planned interconnect to Roanoke Gas’ natural gas distribution system

NQDC Plan		RGC Resources, Inc. Non-qualified Deferred Compensation Plan

Normal Weather		The average number of heating degree days over the most recent 30-year period

PBGC		Pension Benefit Guaranty Corporation

Pension Plan		Defined benefit plan that provides pension benefits to employees hired prior to January 1, 2017 who meet certain years of service criteria

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PGA		Purchased Gas Adjustment, a regulatory mechanism, which adjusts natural gas customer rates to reflect changes in the forecasted cost of gas and actual gas costs

Postretirement Plan		Defined benefit plan that provides postretirement medical and life insurance benefits to eligible employees hired prior to January 1, 2000 who meet years of service and other criteria

R&D credit		Research and development federal tax credit defined under Internal Revenue Code section 41 and the related regulations

Resources		RGC Resources, Inc., parent company of Roanoke Gas, Midstream and Diversified Energy

RGCO		Trading symbol for RGC Resources, Inc. on the NASDAQ Global Stock Market

Roanoke Gas		Roanoke Gas Company, a wholly-owned subsidiary of Resources

RNG		Renewable natural gas

RSPD		RGC Resources, Inc. Restricted Stock Plan for Outside Directors

RSPO		RGC Resources, Inc. Restricted Stock Plan for Officers

SAVE		Steps to Advance Virginia's Energy, a regulatory mechanism per Chapter 26 of Title 56 of the Code of Virginia that allows natural gas utilities to recover the investment, including related depreciation and expenses and provide return on rate base, in eligible infrastructure replacement projects without the filing of a formal base rate application

SAVE Plan		Steps to Advance Virginia's Energy Plan, the Company's proposed and approved operational replacement plan and related spending under the SAVE regulatory mechanism

SAVE Rider		Steps to Advance Virginia's Energy Plan Rider, the rate component of the SAVE Plan as approved by the SCC that is billed monthly to the Company’s customers to recover the costs associated with eligible infrastructure projects including the related depreciation and expenses and return on rate base of the investment

SCC		Virginia State Corporation Commission, the regulatory body with oversight responsibilities of the utility operations of Roanoke Gas

SEC		U.S. Securities and Exchange Commission

SOFR		Secured Overnight Financing Rate

Southgate		Mountain Valley Pipeline, LLC’s Southgate project, which ~~extends~~is a contemplated interstate pipeline that was approved by the FERC to extend from the MVP in south central Virginia to central North Carolina, of which Midstream holds less than a 1% investment

S&P 500 Index		Standard & Poor’s 500 Stock Index

~~TCJA~~		~~Tax Cuts and Jobs Act of 2017~~

WNA		Weather Normalization Adjustment, an ARP mechanism which adjusts revenues for the effects of weather temperature variations as compared to the 30-year average

Some of the terms above may not be included in this filing

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RGC RESOURCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	March 31, 2022			September 30,			December 31, 2022			September 30,
	Unaudited			2021			Unaudited			2022
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	9,431,990		$	1,518,317		$	3,234,192		$	4,898,914
Accounts receivable (less allowance for credit losses of $712,100, and $242,010, respectively)		10,997,174			4,949,900
Accounts receivable (less allowance for credit losses of $662,054, and $371,271, respectively)								21,029,677			5,353,270
Materials and supplies		1,043,133			1,031,666			1,340,154			1,228,554
Gas in storage		2,063,974			7,867,470			15,251,579			16,916,651
Prepaid income taxes		2,118,634			3,104,950			3,293,148			3,087,755
Regulatory assets		1,997,076			5,656,453			314,762			1,877,468
Interest rate swap		312,511			0
Interest rate swaps								1,258,824			1,218,211
Other		4,556,142			1,015,099			2,122,737			967,496
Total current assets		32,520,634			25,143,855			47,845,073			35,548,319
UTILITY PROPERTY:
In service		280,362,362			272,382,539			294,958,870			290,940,683
Accumulated depreciation and amortization		(78,862,695	)		(76,038,433	)		(81,739,456	)		(80,242,946	)
In service, net		201,499,667			196,344,106			213,219,414			210,697,737
Construction work in progress		17,209,963			15,305,578			21,630,301			19,163,337
Utility plant, net		218,709,630			211,649,684
OTHER ASSETS:
Utility property, net								234,849,715			229,861,074
OTHER NON-CURRENT ASSETS:
Regulatory assets		6,706,015			6,769,759			5,420,668			5,446,547
Investment in unconsolidated affiliates		27,321,251			64,867,319			14,631,951			13,773,075
Benefit plan assets		1,344,713			1,259,639			622,831			749,341
Deferred income taxes		337,757			0			952,124			1,057,079
Interest rate swap		1,046,987			0
Interest rate swaps								3,292,811			3,580,256
Other		371,498			418,937			336,989			293,552
Total other assets		37,128,221			73,315,654
Total other non-current assets								25,257,374			24,899,850
TOTAL ASSETS	$	288,358,485		$	310,109,193		$	307,952,162		$	290,309,243

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RGC RESOURCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	March 31, 2022			September 30,			December 31, 2022			September 30,
	Unaudited			2021			Unaudited			2022
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt	$	19,705,200		$	7,000,000		$	24,700,000		$	1,300,000
Line-of-credit								9,391,974			—
Dividends payable		1,908,139			1,549,841			1,957,369			1,915,317
Accounts payable		5,809,165			7,729,707			11,124,909			8,600,919
Capital contributions payable		773,090			2,140,637			843,972			804,506
Customer credit balances		682,959			1,539,680			1,269,179			1,400,770
Income taxes payable		88,080			0
Customer deposits		1,583,542			1,571,342			1,559,528			1,457,610
Accrued expenses		2,831,418			3,819,977			2,404,087			3,668,122
Interest rate swaps		0			332,389
Regulatory liabilities		3,195,059			329,959			6,913,419			3,168,066
Total current liabilities		36,576,652			26,013,532			60,164,437			22,315,310
LONG-TERM DEBT:
Notes payable		105,125,000			116,110,200			113,550,000			135,971,200
Line-of-credit		0			17,628,897
Less unamortized debt issuance costs		(283,922	)		(267,670	)		(261,005	)		(275,911	)
Long-term debt, net		104,841,078			133,471,427			113,288,995			135,695,289
DEFERRED CREDITS AND OTHER LIABILITIES:
Interest rate swaps		0			863,694
DEFERRED CREDITS AND OTHER NON-CURRENT LIABILITIES:
Asset retirement obligations		7,876,084			7,628,958			10,329,950			10,204,079
Regulatory cost of retirement obligations		14,126,243			13,640,567			12,520,934			12,277,796
Benefit plan liabilities		885,806			949,851			390,531			337,535
Deferred income taxes		5,883,375			14,948,213			3,299,760			3,165,454
Regulatory liabilities		12,706,518			12,891,242			13,067,548			13,223,124
Total deferred credits and other liabilities		41,478,026			50,922,525
Total deferred credits and other non-current liabilities								39,608,723			39,207,988
STOCKHOLDERS’ EQUITY:
Common stock, $5 par; authorized 20,000,000 shares; issued and outstanding 9,789,895 and 8,375,092 shares, respectively		48,949,475			41,875,460
Common stock, $5 par; authorized 20,000,000 shares; issued and outstanding 9,851,780 and 9,820,535 shares, respectively								49,258,900			49,102,675
Preferred stock, no par, authorized 5,000,000 shares; no shares issued and outstanding		0			0			—			—
Capital in excess of par value		40,978,942			19,705,387			41,992,216			41,479,459
Retained earnings		15,194,355			39,656,296			1,843,194			544,158
Accumulated other comprehensive income (loss)		339,957			(1,535,434	)
Accumulated other comprehensive income								1,795,697			1,964,364
Total stockholders’ equity		105,462,729			99,701,709			94,890,007			93,090,656
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	288,358,485		$	310,109,193		$	307,952,162		$	290,309,243

See notes to condensed consolidated financial statements.

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RGC RESOURCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

UNAUDITED

	Three Months Ended March 31,						Six Months Ended March 31,					Three Months Ended December 31,
	2022			2021			2022			2021		2022		2021
OPERATING REVENUES:
Gas utility	$	29,499,219		$	28,221,274		$	52,730,874		$	47,704,774	$	33,252,767	$	23,231,655
Non utility		30,464			32,388			61,889			65,905		29,568		31,425
Total operating revenues		29,529,683			28,253,662			52,792,763			47,770,679		33,282,335		23,263,080
OPERATING EXPENSES:
Cost of gas - utility		14,923,575			14,447,057			26,239,980			22,147,756		20,804,153		11,316,405
Cost of sales - non utility		4,756			4,580			8,791			9,967		4,593		4,035
Operations and maintenance		4,242,007			3,931,470			7,932,321			7,433,592		3,920,513		3,690,314
General taxes		647,253			642,825			1,250,462			1,216,849		589,050		603,209
Depreciation and amortization		2,268,704			2,128,304			4,539,398			4,281,702		2,419,541		2,270,694
Total operating expenses		22,086,295			21,154,236			39,970,952			35,089,866		27,737,850		17,884,657
OPERATING INCOME		7,443,388			7,099,426			12,821,811			12,680,813		5,544,485		5,378,423
Equity in earnings (loss) of unconsolidated affiliate		(445	)		(3,797	)		71,682			1,352,886
Impairment of unconsolidated affiliates		(39,822,213	)		0			(39,822,213	)		0
Equity in earnings of unconsolidated affiliate													1,232		72,127
Other income, net		344,510			287,548			666,949			617,574		74,606		322,439
Interest expense		1,103,844			1,007,764			2,208,700			2,027,593		1,369,164		1,104,856
INCOME (LOSS) BEFORE INCOME TAXES		(33,138,604	)		6,375,413			(28,470,471	)		12,623,680
INCOME TAX EXPENSE (BENEFIT)		(8,644,175	)		1,607,935			(7,560,571	)		3,132,939
NET INCOME (LOSS)	$	(24,494,429	)	$	4,767,478		$	(20,909,900	)	$	9,490,741
BASIC EARNINGS (LOSS) PER COMMON SHARE	$	(2.89	)	$	0.58		$	(2.48	)	$	1.16
DILUTED EARNINGS (LOSS) PER COMMON SHARE	$	(2.89	)	$	0.58		$	(2.48	)	$	1.16
INCOME BEFORE INCOME TAXES													4,251,159		4,668,133
INCOME TAX EXPENSE													994,754		1,083,604
NET INCOME												$	3,256,405	$	3,584,529
BASIC EARNINGS PER COMMON SHARE												$	0.33	$	0.43
DILUTED EARNINGS PER COMMON SHARE												$	0.33	$	0.43
DIVIDENDS DECLARED PER COMMON SHARE	$	0.195		$	0.185		$	0.390		$	0.370	$	0.1975	$	0.1950

See notes to condensed consolidated financial statements.

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RGC RESOURCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

UNAUDITED

	Three Months Ended March 31,					Six Months Ended March 31,					Three Months Ended December 31,
	2022			2021		2022			2021		2022			2021
NET INCOME (LOSS)	$	(24,494,429	)	$	4,767,478	$	(20,909,900	)	$	9,490,741
NET INCOME											$	3,256,405		$	3,584,529
Other comprehensive income (loss), net of tax:
Interest rate swaps		1,535,499			494,294		1,897,773			663,019		(183,298	)		362,274
Defined benefit plans		(11,191	)		14,864		(22,382	)		29,728		14,631			(11,191	)
OTHER COMPREHENSIVE INCOME, NET OF TAX		1,524,308			509,158		1,875,391			692,747
COMPREHENSIVE INCOME (LOSS)	$	(22,970,121	)	$	5,276,636	$	(19,034,509	)	$	10,183,488
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX												(168,667	)		351,083
COMPREHENSIVE INCOME											$	3,087,738		$	3,935,612

See notes to condensed consolidated financial statements.

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RGC RESOURCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

UNAUDITED

Six Months Ended March 31, 2022

Common Stock

Capital in Excess of Par Value

Retained Earnings

Accumulated Other Comprehensive Income (Loss)

Total Stockholders' Equity

Balance - September 30, 2021
$ 41,875,460 $ 19,705,387 $ 39,656,296 $ (1,535,434 ) $ 99,701,709
Net Income
0 0 3,584,529 0 3,584,529
Other comprehensive income
0 0 0 351,083 351,083
Cash dividends declared ($0.195 per share)
0 0 (1,642,324 ) 0 (1,642,324 )
Issuance of common stock (13,914 shares)
69,570 230,278 0 0 299,848
Balance - December 31, 2021
$ 41,945,030 $ 19,935,665 $ 41,598,501 $ (1,184,351 ) $ 102,294,845
Net Loss
0 0 (24,494,429 ) 0 (24,494,429 )
Other comprehensive income
0 0 0 1,524,308 1,524,308
Cash dividends declared ($0.195 per share)
0 0 (1,909,717 ) 0 (1,909,717 )
Issuance of common stock (1,400,889 shares)
7,004,445 21,043,277 0 0 28,047,722
Balance - March 31, 2022
$ 48,949,475 $ 40,978,942 $ 15,194,355 $ 339,957 $ 105,462,729

	Three Months Ended December 31, 2022
	Common Stock		Capital in Excess of Par Value		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Stockholders' Equity
Balance - September 30, 2022	$	49,102,675	$	41,479,459	$	544,158		$	1,964,364		$	93,090,656
Net Income		—		—		3,256,405			—			3,256,405
Other comprehensive loss		—		—		—			(168,667	)		(168,667	)
Cash dividends declared ($0.1975 per share)		—		—		(1,957,369	)		—			(1,957,369	)
Issuance of common stock (31,245 shares)		156,225		512,757		—			—			668,982
Balance - December 31, 2022	$	49,258,900	$	41,992,216	$	1,843,194		$	1,795,697		$	94,890,007

Six Months Ended March 31, 2021

Common Stock

Capital in Excess of Par Value

Retained Earnings

Accumulated Other Comprehensive Income (Loss)

Total Stockholders' Equity

Balance - September 30, 2020
$ 40,800,290 $ 15,847,121 $ 35,688,510 $ (3,447,944 ) $ 88,887,977
Net Income
0 0 4,723,263 0 4,723,263
Other comprehensive income
0 0 0 183,589 183,589
Cash dividends declared ($0.185 per share)
0 0 (1,519,670 ) 0 (1,519,670 )
Issuance of common stock (11,979 shares)
59,895 214,487 0 0 274,382
Balance - December 31, 2020
$ 40,860,185 $ 16,061,608 $ 38,892,103 $ (3,264,355 ) $ 92,549,541
Net Income
0 0 4,767,478 0 4,767,478
Other comprehensive income
0 0 0 509,158 509,158
Cash dividends declared ($0.185 per share)
0 0 (1,521,635 ) 0 (1,521,635 )
Issuance of common stock (54,613 shares)
273,065 997,001 0 0 1,270,066
Balance - March 31, 2021
$ 41,133,250 $ 17,058,609 $ 42,137,946 $ (2,755,197 ) $ 97,574,608

	Three Months Ended December 31, 2021
	Common Stock		Capital in Excess of Par Value		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Stockholders' Equity
Balance - September 30, 2021	$	41,875,460	$	19,705,387	$	39,656,296		$	(1,535,434	)	$	99,701,709
Net Income		—		—		3,584,529			—			3,584,529
Other comprehensive income		—		—		—			351,083			351,083
Cash dividends declared ($0.195 per share)		—		—		(1,642,324	)		—			(1,642,324	)
Issuance of common stock (13,914 shares)		69,570		230,278		—			—			299,848
Balance - December 31, 2021	$	41,945,030	$	19,935,665	$	41,598,501		$	(1,184,351	)	$	102,294,845

See notes to condensed consolidated financial statements.

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RGC RESOURCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

UNAUDITED

	Six Months Ended March 31,						Three Months Ended December 31,
	2022			2021			2022			2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	(20,909,900	)	$	9,490,741
Adjustments to reconcile net income to net cash provided by operating activities:
Net income							$	3,256,405		$	3,584,529
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization		4,656,829			4,405,956			2,477,084			2,329,409
Cost of retirement of utility plant, net		(298,580	)		(265,021	)
Cost of retirement of utility property, net								(159,174	)		(113,505	)
Stock option grants		5,550			0			16,170			5,550
Equity in earnings of unconsolidated affiliate		(71,682	)		(1,352,886	)		(1,232	)		(72,127	)
Impairment of unconsolidated affiliates		39,822,213			0
Allowance for funds used during construction		0			(55,981	)		(103,771	)		—
Changes in assets and liabilities which used cash, exclusive of changes and noncash transactions shown separately		(10,211,524	)		(2,611,407	)		(7,909,883	)		(9,278,622	)
Net cash provided by operating activities		12,992,906			9,611,402
Net cash used in operating activities								(2,424,401	)		(3,544,766	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for utility property		(10,758,703	)		(8,978,822	)		(7,530,620	)		(5,737,232	)
Investment in unconsolidated affiliates		(3,572,011	)		(2,720,008	)		(818,178	)		(2,143,981	)
Proceeds from disposal of utility property		51,834			7,390			209			48,300
Net cash used in investing activities		(14,278,880	)		(11,691,440	)		(8,348,589	)		(7,832,913	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of unsecured notes		26,720,000			3,780,000			1,103,800			25,930,000
Retirement of notes payable		(25,000,000	)		0
Repayments of notes payable								(125,000	)		(15,000,000	)
Borrowings under line-of-credit		34,423,129			22,535,162			17,952,768			24,123,902
Repayments under line-of-credit		(52,052,026	)		(22,396,839	)		(8,560,795	)		(22,147,391	)
Debt issuance expenses		(39,732	)		0			—			(39,732	)
Proceeds from issuance of stock		28,342,019			1,544,448			652,812			294,297
Cash dividends paid		(3,193,743	)		(2,947,250	)		(1,915,317	)		(1,549,840	)
Net cash provided by financing activities		9,199,647			2,515,521			9,108,268			11,611,236
NET INCREASE IN CASH AND CASH EQUIVALENTS		7,913,673			435,483
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS								(1,664,722	)		233,557
BEGINNING CASH AND CASH EQUIVALENTS		1,518,317			291,066			4,898,914			1,518,317
ENDING CASH AND CASH EQUIVALENTS	$	9,431,990		$	726,549		$	3,234,192		$	1,751,874

See notes to condensed consolidated financial statements.

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RGC RESOURCES, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

UNAUDITED

1.	Basis of Presentation

Resources is an energy services company primarily engaged in the sale and distribution of natural gas. The condensed consolidated financial statements include the accounts of Resources and its wholly-owned subsidiaries: Roanoke Gas, Diversified Energy and Midstream.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to fairly present Resources' financial position as of ~~March~~December 31, 2022, cash flows for the ~~six~~three months ended ~~March~~December 31, 2022 and 2021, and the results of its operations, comprehensive income, and changes in stockholders' equity for the three ~~and~~ ~~six~~months ended ~~March~~December 31, 2022 and 2021. The results of operations for the three ~~and~~ ~~six~~months ended ~~March~~December 31, 2022 are not indicative of the results to be expected for the fiscal year ending September 30, ~~2022~~2023 as quarterly earnings are affected by the highly seasonal nature of the business and weather conditions generally result in greater earnings during the winter months.

The unaudited condensed consolidated financial statements and condensed notes are presented under the rules and regulations of the SEC. Pursuant to those rules, certain information and note disclosures normally included in the annual financial statements prepared in accordance with GAAP have been condensed or omitted. Although the Company believes that the disclosures are adequate, the unaudited condensed consolidated financial statements and condensed notes should be read in conjunction with the financial statements and notes contained in the Company’s Form 10-K for the year ended September 30, ~~2021~~2022. The September 30, ~~2021~~2022 consolidated balance sheet was included in the Company’s audited financial statements included in Form 10-K.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

The Company’s significant accounting policies are described in Note 1 to the consolidated financial statements contained in the Company's Form 10-K for the year ended September 30, ~~2021~~2022.

Recently Issued or Adopted Accounting Standards

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting. In combination with ASU 2021-01 and ASU 2022-06, the ASU provides temporary optional guidance to ease the potential burden in accounting for and recognizing the effects of reference rate change on financial reporting. The new guidance applies specifically to contracts and hedging relationships that reference LIBOR, or any other referenced rate that is expected to be discontinued due to reference rate reform. The new guidance is effective for the Company through December 31, ~~2022.~~2024. The Intercontinental Exchange ~~(ICE)~~ Benchmark Administration, the administrator for LIBOR and other inter-bank offered rates, announced that the LIBOR rates for one-day, one-month, six-month and one-year will cease publication in June 2023 and that no new financial contracts may use LIBOR after December 31, 2021. Currently, all of the Company's LIBOR based financial contracts are based on the one-month LIBOR rate. None of the holders of these financial contracts have indicated when a transition from LIBOR will occur. Accordingly, the Company does not anticipate adopting this guidance until later in fiscal ~~2022.~~2023. The new guidance could result in a significant impact on the Company's financial position, results of operations, and cash flows when the reference rate is changed for related contracts.

Other accounting standards that have been issued by the FASB or other standard-setting bodies are not currently applicable to the Company or are not expected to have a material impact on the Company’s financial position, results of operations or cash flows.

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2.	~~Stock Issue~~

In ~~March 2022,~~ the Company issued 1,350,000 shares of common stock in an equity offering resulting in net proceeds of nearly $27,000,000. The Company issued the common stock to strengthen its balance sheet by increasing its cash position and lowering its outstanding debt. The net proceeds were invested in Roanoke Gas to supplement the funding of its infrastructure improvement and replacement program and in Midstream to reduce its outstanding debt. An additional 64,803 shares of common stock have been issued during fiscal ~~2022~~ ~~related to the DRIP, Restricted Stock, stock option exercises and ATM activity.~~

Revenue

The Company assesses new contracts and identifies related performance obligations for promises to transfer distinct goods or services to the customer. Revenue is recognized when performance obligations have been satisfied. In the case of Roanoke Gas, the Company contracts with its customers for the sale and/or delivery of natural gas.

The following tables summarize revenue by customer, product and income statement classification:

Three Months Ended March 31, 2022

Three Months Ended March 31, 2021

Gas utility

Non utility

Total operating revenues

Gas utility

Non utility

Total operating revenues

Natural Gas (Billed and Unbilled):

Residential
$ 18,104,512 $ 0 $ 18,104,512 $ 17,402,552 $ 0 $ 17,402,552
Commercial
9,487,312 0 9,487,312 9,264,611 0 9,264,611
Industrial and Transportation
1,352,161 0 1,352,161 1,252,343 0 1,252,343
Other
138,035 30,464 168,499 95,092 32,388 127,480
Total contracts with customers
29,082,020 30,464 29,112,484 28,014,598 32,388 28,046,986
Alternative Revenue Programs
417,199 0 417,199 206,676 0 206,676
Total operating revenues
$ 29,499,219 $ 30,464 $ 29,529,683 $ 28,221,274 $ 32,388 $ 28,253,662

	Six Months Ended March 31, 2022						Six Months Ended March 31, 2021						Three Months Ended December 31, 2022								Three Months Ended December 31, 2021
	Gas utility		Non utility		Total operating revenues		Gas utility		Non utility		Total operating revenues		Gas utility			Non utility		Total operating revenues			Gas utility		Non utility		Total operating revenues
Natural Gas (Billed and Unbilled):
Residential	$	31,317,001	$	0	$	31,317,001	$	28,648,746	$	0	$	28,648,746	$	19,365,840		$	—	$	19,365,840		$	13,212,489	$	—	$	13,212,489
Commercial		16,873,030		0		16,873,030		15,254,631		0		15,254,631		12,019,113			—		12,019,113			7,385,718		—		7,385,718
Industrial and Transportation		2,665,252		0		2,665,252		2,476,144		0		2,476,144		1,588,068			—		1,588,068			1,313,091		—		1,313,091
Other		361,863		61,889		423,752		256,169		65,905		322,074		421,995			29,568		451,563			223,828		31,425		255,253
Total contracts with customers		51,217,146		61,889		51,279,035		46,635,690		65,905		46,701,595		33,395,016			29,568		33,424,584			22,135,126		31,425		22,166,551
Alternative Revenue Programs		1,513,728		0		1,513,728		1,069,084		0		1,069,084		(142,249	)		—		(142,249	)		1,096,529		—		1,096,529
Total operating revenues	$	52,730,874	$	61,889	$	52,792,763	$	47,704,774	$	65,905	$	47,770,679	$	33,252,767		$	29,568	$	33,282,335		$	23,231,655	$	31,425	$	23,263,080

Gas utility revenues

Substantially all of Roanoke Gas' revenues are derived from rates authorized by the SCC through its tariffs. Based on its evaluation, the Company has concluded that these tariff-based revenues fall within the scope of ASC 606. Tariff rates represent the transaction price. Performance obligations created under these tariff-based sales include ~~commodity (the~~the cost of natural gas sold to ~~customers)~~customers (commodity) and ~~delivery (transporting~~the cost of transporting natural gas through the Company’s distribution system to ~~customers)~~customers (delivery). The delivery of natural gas to customers results in the satisfaction of the Company’s respective performance obligations over time.

All customers are billed monthly based on consumption as measured by metered ~~usage.~~usage with payments due 20 days from the rendering of the bill. Revenue is recognized as bills are issued for natural gas that has been delivered or transported. In addition, the Company utilizes the practical expedient that allows an entity to recognize the invoiced amount as revenue, if that amount corresponds to the value received by the customer. Since customers are billed tariff rates, there is no variable consideration in the transaction price.

~~RGC RESOURCES, INC. AND SUBSIDIARIES~~

Unbilled revenue is included in residential and commercial revenues in the preceding table. Natural gas consumption is estimated for the period subsequent to the last billed date and up through the last day of the month. Estimated volumes and approved tariff rates are utilized to calculate unbilled revenue. The following month, the unbilled estimate is reversed, the actual usage is billed and a new unbilled estimate is calculated. The Company obtains metered usage for industrial customers at the end of each month, thereby eliminating any unbilled consideration for these rate classes.

Other revenues

Other revenues primarily consist of miscellaneous fees and charges, utility-related revenues not directly billed to utility customers and billings for non-utility activities. ~~Regarding these activities, the customer is~~Customers are invoiced monthly based on services ~~provided.~~provided for these activities. The Company utilizes the practical expedient allowing revenue to be recognized based on invoiced amounts. The transaction price is based on a contractually predetermined rate schedule; therefore, the transaction price represents total value to the customer and no variable price consideration exists.

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Alternative Revenue Program revenues

ARPs, which fall outside the scope of ASC 606, are SCC approved mechanisms that allow for the adjustment of revenues for certain broad, external factors, or for additional billings if the entity achieves certain performance targets. The Company's ARPs include its WNA, which adjusts revenues for the effects of weather temperature variations as compared to the 30-year average, and the SAVE Plan over/under collection mechanism, which adjusts revenues for the differences between SAVE Plan revenues billed to customers and the revenue earned, as calculated based on the timing and extent of infrastructure replacement completed during the period. These amounts are ultimately collected from, or returned to, customers through future rate changes as approved by the SCC.

Customer ~~AccountsReceivable~~accounts receivable and ~~Liabilities~~liabilities

Accounts receivable, as reflected in the condensed consolidated balance sheets, includes both billed and unbilled customer revenues, as well as amounts that are not related to customers. The balances of customer receivables are provided below:

Current Assets

Current Liabilities

Trade accounts receivable(1)

Unbilled revenue(1)

Customer credit balances

Customer deposits

Balance at September 30, 2021
$ 3,722,916 $ 1,191,227 $ 1,539,680 $ 1,571,342
Balance at March 31, 2022
7,872,022 3,057,298 682,959 1,583,542
Increase (decrease)
$ 4,149,106 $ 1,866,071 $ (856,721 ) $ 12,200

	Current Assets				Current Liabilities
	Trade accounts receivable(1)		Unbilled revenue(1)		Customer credit balances			Customer deposits
Balance at September 30, 2022	$	3,697,431	$	1,585,062	$	1,400,770		$	1,457,610
Balance at December 31, 2022		11,282,850		9,531,260		1,269,179			1,559,528
Increase (decrease)	$	7,585,419	$	7,946,198	$	(131,591	)	$	101,918

⁽¹⁾ Included in accounts receivable in the condensed consolidated balance sheet. Amounts shown net of reserve for credit losses.

The Company had no significant contract assets or liabilities during the period. Furthermore, the Company did not incur any significant costs to obtain contracts.

4.3.

Income Taxes

The effective tax ~~rate~~rates for the three month ~~and~~ ~~six~~ ~~month~~ periods ended ~~March~~December 31, 2022 and 2021reflected in the table below are ~~higher~~less than ~~the corresponding periods in fiscal~~ ~~2021~~ ~~and~~ the combined federal and state statutory rate of 25.74%. due to additional tax deductions from the amortization of excess deferred taxes and amortization of R&D tax credits deferred as a regulatory liability.

	Three Months Ended December 31,
	2022			2021
Effective tax rate		23.4	%		23.2	%

The Company files a consolidated federal income tax return and state income tax returns in Virginia and West Virginia, and thus subject to examinations by federal and state tax authorities. The IRS is currently examining the Company's 2018 and 2019 federal tax returns. The Company does not have any indication at this time of the outcome. The Company believes its income tax assets and liabilities are fairly stated as of December 31, 2022 and 2021; however, these assets and liabilities could be adjusted as a result of this examination. With the amendment of the federal returns for fiscal 2017,2018 and 2019, these years will remain open for IRS examination for two more years. Aside from these exceptions, the federal returns and the state returns for Virginia for the tax years ended prior to September 30,2017 are no longer subject to examination. The state returns for West Virginia prior to September 30, 2019 are no longer subject to examination.

4.	Rates and Regulatory Matters

The SCC exercises regulatory authority over the natural gas operations of Roanoke Gas. Such regulation encompasses terms, conditions and rates to be charged to customers for natural gas service, safety standards, service extension and depreciation.

On December 2, 2022, Roanoke Gas filed an application with the SCC seeking an $8.55 million increase in base rates, of which $4.05 million was being recovered through the ~~effective tax rate corresponds to~~Company’s SAVE Rider. Since the ~~recognition~~Company is seeking recovery of ~~a deferred tax asset~~the costs associated with its SAVE plan through its proposed base rates, the ~~impairment~~Company proposed discontinuing its SAVE Plan and SAVE Rider for the remainder of the ~~Company's investment in the LLC.~~

current fiscal year, effective January 1, 2023.

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RGC RESOURCES, INC. AND SUBSIDIARIES

~~Excluding~~ On December 21, 2022, the SCC issued its Order for Notice and Hearing which authorized the Company to put its proposed rates into effect on January 1, 2023, on an interim basis. The SCC also established a procedural schedule and set the matter for hearing. The Company expects final resolution of the ~~impairment,~~rate case to occur in late calendar 2023 or early 2024.

The Company expects to file for a new SAVE Plan and Rider in the ~~effective tax~~third quarter of fiscal 2023 for recovery of costs associated with SAVE eligible investments beginning October 1, 2023.

On May 16, 2022, Roanoke Gas announced a cooperative agreement under which Roanoke Gas and the Western Virginia Water Authority will produce commercial quality RNG from biogas produced at the regional water pollution control plant. In August 2022, Roanoke Gas filed an application with the SCC seeking approval of a rate adjustment clause under which the Company will recover the costs associated with constructing, owning, operating and maintaining the renewable natural gas facility. The application was filed under Chapter 30 of Title 56 of the Code of Virginia. Chapter 30 allows the Company to accrue AFUDC on the RNG project. In connection with the RNG project, Roanoke Gas began accruing AFUDC in fiscal 2022 associated with construction of the facility. As of December 31, 2022, the Company has recognized approximately $179,000 in AFUDC since inception of the RNG project. The Company received a final order from the SCC on January 23, 2023 approving the Company’s application. The Company is permitted to start billing customers for the ~~three~~ ~~and~~ ~~six~~ ~~month periods ended~~RNG rate adjustment upon administrative approval of the final rates, which the Company expects to occur by early March ~~31,~~2023, at which time the Company will cease recording AFUDC.

On June 2, 2022, Roanoke Gas filed an application with the SCC to acquire certain natural gas delivery assets from a local housing authority. Under this application, the Company requested the approval to acquire such facilities at five separate apartment complexes, located in the Company’s service territory, that were under housing authority management. Under the proposed plan, the housing authority would ~~have been 24.0%~~renew existing natural gas distribution facilities to include mains, services, and ~~23.7%, respectively, reflecting~~meter installations and then transfer ownership of these facilities to Roanoke Gas. In turn, Roanoke Gas would assume responsibility for the ~~impact~~operation and maintenance of ~~additional tax deductions from the amortization of R&D tax credits deferred as~~these assets and recognize a ~~regulatory liability and the exercise of stock options. The recognition of the impairment resulted in a net loss position for both periods thereby generating a higher effective tax rate as compared~~gain related to the ~~effective tax rate~~asset acquisition equal to the cost associated with the renewal.

On July 19, 2022, the SCC approved the application and on August 4, 2022, the ~~income positions~~housing authority transferred the assets from two apartment complexes to Roanoke Gas. Roanoke Gas recorded these assets and recognized a pre-tax gain of approximately $219,000 during the ~~corresponding periods~~Company’s fourth quarter of fiscal 2022. The housing authority expects to complete the upgrade and subsequent asset transfer at one more apartment complex in fiscal ~~2021.~~2023.

Three Months Ended March 31,

Six Months Ended March 31,

2022

2021

2022

2021

Effective tax rate
26.1 % 25.2 % 26.6 % 24.8 %
Effective tax rate - LLC impairment
25.7 % 0 25.7 % 0
Effective tax rate excluding LLC impairment
24.0 % 25.2 % 23.7 % 24.8 %

The authority is awaiting future funding to complete the two remaining apartment complexes. The timing of funding and the completion of the asset renewals for these complexes is unknown at this time.

5.	~~Rates and Regulatory Matters~~

In ~~April 2020,~~ ~~the SCC issued an order allowing regulated utilities in Virginia to defer certain incremental, prudently incurred costs associated with the COVID-~~19 ~~pandemic and to apply for recovery at a future date. Roanoke Gas deferred certain COVID-~~19 ~~related costs during the~~ ~~first~~~~two~~ ~~quarters of fiscal~~ ~~2022.~~

In ~~October 2021,~~ Roanoke Gas received notification that its application for ARPA funds had been approved. This notification allowed the pending receipt of these funds to be considered in the valuation of the estimated allowance for credit losses as of ~~September 30, 2021.~~ In ~~November 2021,~~ ~~Roanoke Gas received over $850,000 in ARPA funds to assist customers with growing past due balances based on arrearage balances as of~~ ~~August 31, 2021.~~ ~~The Company applied the full amount to eligible customer accounts in~~ ~~December 2021.~~

6.	Other Investments

Midstream is an approximately 1% equity investment owner of the LLC constructing the MVP, a 303 mile natural gas ~~interstate~~inter-state pipeline that is designed to extend from northern West Virginia to southern Virginia. Since inception, the MVP has encountered various legal and regulatory issues that continue to delay the completion of the project. While under construction, AFUDC has provided the majority of the income recognized by Midstream.

The LLC temporarily suspended accruing AFUDC ~~accruals were suspended~~on the project beginning January 1, 2021 and through March 31, 2021 due to a temporary reduction in growth construction activities. The LLC resumed accruing AFUDC beginning April 2021 through November 2021, ~~until such time~~when certain associated growth construction activities were again reduced. AFUDC accruals will resume when growth construction activities ~~are allowed~~restart. The amount of AFUDC recognized during the prior years is included in the tables below.

Roanoke Gas will continue to ~~resume.~~suspend accruing AFUDC on its two gate stations that will interconnect with the MVP until such time as construction activities resume on the respective gate stations.

Midstream is ~~also~~ a less than 1% investor in Southgate, which is being accounted for under the cost method.

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In the ~~January 25,~~ second quarter of fiscal 2022, Midstream incurred an other-than-temporary decline in the ~~Fourth Circuit vacated and remanded on specific issues certain permits issued by the Bureau~~fair value of ~~Land Management and the U.S. Forest Service to~~its equity investment in the LLC, ~~in respect of the Jefferson National Forest. On~~ ~~February 3, 2022,~~ ~~the Fourth Circuit vacated and remanded on specific issues the Biological Opinion and Incidental Take Statement issued by the U.S. Fish and Wildlife Service for MVP. Primarily~~primarily due to ~~these~~ unfavorable decisions by the Fourth Circuit that vacated and remanded key authorizations, which required a pre-tax impairment charge of approximately $39.8 million. During the fourth quarter of fiscal 2022,Midstream ~~identified as~~incurred an ~~indicator of an~~additional other-than-temporary decline in value ~~the increased uncertainty of the completion and commercial operation of MVP and Southgate. As a result, Midstream assessed the value of~~in its equity investment in the LLC due to increased uncertainty in the permitting process for the MVP project as a result of legal developments and regulatory uncertainties, as well as macroeconomic pressures primarily due to increased interest rates impacting the discount rate. As a result of the impairment, the carrying value of Midstream’s equity investment in the LLC was further reduced by $15.3 million pre-tax, to a carrying value of $13.8 million as of ~~February 22, 2022~~ September 30, 2022.~~and~~ ~~March 31, 2022,~~ ~~to determine if its investment's carrying value exceeded the fair value.~~

Midstream estimated the fair value of its investment in the LLC, with the assistance of a valuation specialist, using an ~~income based~~income-based approach that primarily considered probability-weighted scenarios of discounted future cash flows based on the estimated project costs at completion and projected revenues. These scenarios reflected assumptions and judgments regarding the ultimate outcome of further matters relating to, or resulting from, the ~~January~~ ~~and~~ ~~February 2022~~ Fourth Circuit rulings, as well as various other ongoing legal and regulatory matters affecting MVP and Southgate. Such assumptions and judgments also included certain additional potential delays and related cost increases that could result from unfavorable decisions on these proceedings and matters. Midstream’s analysis also took into account, among other things, probability weighted growth expectations from additional compression expansion opportunities. This analysis also considered scenarios under which ongoing or new legal and regulatory matters further delay the completion and increase the total costs of the project; all required legal and regulatory approvals and authorizations and certain compression expansion opportunities are realized; and MVP and Southgate are canceled. ~~As a result~~

Midstream reassesses the value of ~~the assessment, Midstream recognized a pre-tax impairment loss of approximately $39.8 million~~its investment in the LLC on at least a quarterly basis. With the assistance of a valuation specialist, Midstream conducted the quarterly evaluation of its investment in the LLC as of ~~second~~December 31, 2022 and determined that its investment was fairly stated and no ~~quarter of fiscal~~ ~~2022.~~further impairment was required. The fair value of the investment in the LLC was determined under a Level 3 measurement considering the significant assumptions and judgments required in estimating the fair value of the Company's investment in the LLC. ~~Investment balances of MVP and Southgate, as of~~ ~~March 31, 2022,~~ ~~are reflected in the table below.~~

~~RGC RESOURCES, INC. AND SUBSIDIARIES~~

There is risk that Midstream’s equity investment in the LLC may be impaired further ~~impaired~~ in the future. There are ~~ongoing,~~continuing, and potential future, legal and regulatory matters related to MVP and Southgate, any of which could affect the ability to complete or operate the project, as well as potential macroeconomic factors, changes in interest rates, cost increases, other unanticipated events and legal and regulatory matters ~~related to Southgate~~ that must be resolved. While macroeconomic factors in and of themselves may not be a direct indicator of impairment, should an impairment indicator be identified in the future, macroeconomic factors such as changes in interest rates could ultimately impact the size and scope of any potential impairment. Assumptions and estimates utilized in assessing the fair value of Midstream’s investment in the LLC may change depending on the nature or timing of resolutions to the legal and regulatory matters or based on other relevant developments. Adverse changes in circumstances relevant to the likelihood of project or expansion completion could prompt Midstream, in future assessments, to apply lower probability of project or expansion ~~completion and such~~completion. Such changes in assumptions or estimates, including discount rates, could have a material adverse effect on the fair value of Midstream’s investment in the LLC and potentially result in an additional impairment, which could have a material adverse effect on the results of operations and financial position of Midstream and the Company as a whole.

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RGC RESOURCES, INC. AND SUBSIDIARIES

Funding for Midstream's investments in the LLC for both MVP and Southgate is being provided through two variable rate unsecured promissory notes, under a non-revolving credit agreement maturing in December ~~2022,~~2023, and three additional notes as detailed in Note 9.8, as well as by equity contributions from Resources.

The ~~investments~~Company will participate in the ~~LLC~~earnings generated from the transportation of natural gas through both pipelines proportionate to its level of investment once the pipelines are ~~included~~placed in service.

Investment balances of MVP and Southgate, as of December 31, 2022, are reflected in the ~~accompanying financial statements as follows:~~table below:

Balance Sheet location:

March 31, 2022

September 30, 2021

Other Assets:

MVP
$ 27,237,888 $ 64,462,194
Southgate
83,363 405,125
Investment in unconsolidated affiliates
$ 27,321,251 $ 64,867,319

Current Liabilities:

MVP
$ 772,601 $ 2,139,696
Southgate
489 941
Capital contributions payable
$ 773,090 $ 2,140,637

Three Months Ended

Six Months Ended

Income Statement location:

March 31, 2022

March 31, 2021

March 31, 2022

March 31, 2021

Equity in earnings (loss) of unconsolidated affiliate
$ (445 ) $ (3,797 ) $ 71,682 $ 1,352,886

Balance Sheet location:	December 31, 2022		September 30, 2022
Other Assets:
MVP	$	14,545,563	$	13,689,370
Southgate		86,388		83,705
Investment in unconsolidated affiliates	$	14,631,951	$	13,773,075

Current Liabilities:
MVP	$	843,415	$	804,404
Southgate		557		102
Capital contributions payable	$	843,972	$	804,506

March 31, 2022

September 30, 2021

Undistributed earnings, net of income taxes, of MVP in retained earnings
$ 8,134,259 $ 8,081,027

	Three Months Ended
Income Statement location:	December 31, 2022		December 31, 2021
Equity in earnings of unconsolidated affiliate	$	1,232	$	72,127

		December 31, 2022				September 30, 2022
Undistributed earnings, net of income taxes, of MVP in retained earnings, excluding impairment		$	8,136,398			$	8,135,482

The undistributed earnings does not include the impairment of the investment in the LLC.

1112

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The change in the investment in unconsolidated affiliates is provided below:

	Six Months Ended						Three Months Ended
	March 31, 2022			March 31, 2021			December 31, 2022		December 31, 2021
Cash investment	$	3,572,011		$	2,720,008		$	818,178	$	2,143,981
Change in accrued capital calls		(1,367,548	)		(1,071,205	)		39,466		(211,580	)
Pre-tax impairment		(39,822,213	)		0
Equity in earnings of unconsolidated affiliate		71,682			1,352,886			1,232		72,127
Change in investment in unconsolidated affiliates	$	(37,546,068	)	$	3,001,689		$	858,876	$	2,004,528

Summary unaudited financial statements of MVP are presented below. Southgate financial statements, which are accounted for under the cost method, are not ~~included:~~included.

	Income Statements										Income Statements
	Three Months Ended				Six Months Ended						Three Months Ended
	March 31, 2022		March 31, 2021		March 31, 2022			March 31, 2021			December 31, 2022		December 31, 2021
AFUDC	$	0	$	0	$	6,883,069		$	133,757,314		$	—	$	6,883,069
Other income (expense), net		9,245		5,514		(35,818	)		(47,094	)		160,472		(45,063	)
Net income	$	9,245	$	5,514	$	6,847,251		$	133,710,220		$	160,472	$	6,838,006

	Balance Sheets				Balance Sheets
	March 31, 2022		September 30, 2021		December 31, 2022		September 30, 2022
Assets:
Current assets	$	118,201,286	$	208,961,113	$	91,864,255	$	76,474,981
Construction work in progress		6,514,077,686		6,281,991,035		6,727,679,677		6,667,146,408
Other assets		1,190,042		980,410		8,873,646		8,021,877
Total assets	$	6,633,469,014	$	6,491,932,558	$	6,828,417,578	$	6,751,643,266

Liabilities and Equity:
Current liabilities	$	146,102,517	$	200,441,027	$	118,168,250	$	115,061,723
Noncurrent liabilities		45,000		13,000
Capital		6,487,321,497		6,291,478,531		6,710,249,328		6,636,581,543
Total liabilities and equity	$	6,633,469,014	$	6,491,932,558	$	6,828,417,578	$	6,751,643,266

7.6.

Derivatives and Hedging

The Company’s hedging and derivative policy allows management to enter into derivatives for the purpose of managing the commodity and financial market risks of its business operations, including the price of natural gas and the cost of borrowed funds. This policy specifically prohibits the use of derivatives for speculative purposes.

The Company has 5five interest rate swaps associated with its variable rate debt as of ~~March~~December 31, 2022. ~~During fiscal~~ ~~2021,~~Roanoke Gas ~~entered into 2~~has two delayed draw variable-rate term notes in the amounts of $15 million and $10 million, with corresponding swap agreements to convert the variable interest rates into fixed rates of 2.00% and 2.49%, respectively. ~~Proceeds~~Under the provisions of ~~$5 million associated with~~ the $10 million delayed draw note, ~~were~~Roanoke Gas received $5 million on April 1, ~~2022;~~2022 ~~therefore,~~and the ~~swap associated with that note has~~remaining $5 million on noSeptember 30, 2022. ~~financial impact during the current period.~~ Midstream has 2two swap agreements corresponding to the $14 million and $10 million variable rate term notes. The swap agreements convert these 2two notes into fixed rate instruments with effective interest rates of 3.24% and 3.14%, respectively. In addition, on November 1, 2021, Midstream entered into a promissory note in the amount of $8 million, with a corresponding swap agreement to convert the variable interest rate into a fixed rate of 2.443%. The swaps qualify as cash flow hedges with changes in fair value reported in other comprehensive income. No portion of the swaps were deemed ineffective during the periods presented.

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The Company had no outstanding derivative instruments for the purchase of natural gas.

The fair value of the current and non-current portions of the interest rate swaps are reflected in the condensed consolidated balance sheets under the caption interest rate swaps. The table in Note 109 reflects the effect on income and other comprehensive income of the Company's cash flow hedges.

8.7.

Short-Term Debt

On March 31, 2022, Roanoke Gas entered into an unsecured line-of-credit agreement replacing the line-of-credit agreement dated March 25, 2021. The agreement provides for a variable interest rate based upon Daily Simple SOFR plus 1.10% and multiple tier borrowing limits to accommodate seasonal borrowing demands. The Company's total available borrowing limits during the term of the line-of-credit agreement range from ~~$21,000,000~~$21 million to ~~$33,000,000.~~$33 million. The line-of-credit agreement will expire on March 31, 2023, unless extended. The Company anticipates being able to extend or replace the credit line upon expiration. As of ~~March~~December 31, 2022, the Company had 0a balance of $9,391,974 outstanding ~~balance~~ under its line-of-credit agreement.

In connection with the line-of-credit, the Company also entered into the Seventh Amendment to Credit Agreement as of March 31, 2022, which ~~amends~~amended the original Credit Agreement dated March 31, 2016 and all subsequent amendments. The Amendment ~~aligns~~aligned the termination date, maximum principal amount available under the line-of-credit, ~~amends~~amended certain financial conditions required of Resources, and ~~retains~~retained all other terms and requirements of prior credit agreements.

9.8.

Long-Term Debt

On November 1, 2021, Midstream entered into an unsecured promissory note in the principal amount of $8 million with an interest rate based on 30-day LIBOR plus 115 basis points maturing January 1, 2028. Related to this note, Midstream also entered into an interest rate swap agreement that effectively ~~converts~~converted the variable rate note into a fixed rate instrument with an effective annual interest rate of 2.443%. The loan will convert into an installment loan with principal pay-down beginning ~~in fiscal~~on April 1, 2023.In addition, this note ~~reduces~~reduced the borrowing capacity defined by the Third Amendment to Credit Agreement and related Promissory Notes. The total borrowing capacity declined from $41 million to $33 million effective with the new promissory note. ~~All other terms of the Third Amendment to Credit Agreement remain unchanged.~~ On March 31, 2022, Midstream applied $10 million from a cash infusion received from Resources to pay down a corresponding amount on the non-revolving credit facility which in turn reduced the total borrowing capacity from $33 million to $23 million. On June 30, 2022, Midstream entered into the Fourth Amendment to Credit Agreement and related Promissory Notes. The Amendment modified the original Credit Agreement and prior amendments by replacing the 30-day LIBOR plus 1.35% interest on the Promissory Notes with Term SOFR plus 1.50%, as well as extended the maturity date to December 31, 2023. All other terms of the Fourth Amendment to Credit Agreement remain unchanged.

On September 24, 2021, Roanoke Gas entered into a Loan Agreement ("Agreement") and an unsecured Delayed Draw Promissory Note in the principal amount of $10 million ("Promissory Note"). Under the provisions of the Agreement, Roanoke Gas received the first advance of $5 million on April 1, 2022 ~~with~~and the remaining $5 million ~~to be received~~ on ~~or about~~ ~~October 1,~~September 30, 2022. The Promissory Note has an interest rate of 30-day LIBOR plus 100 basis points and a maturity date of October 1, 2028. The proceeds from this Promissory Note ~~will be~~were used to finance Roanoke Gas' infrastructure enhancement and replacement projects. Also, on September 24, 2021, Roanoke Gas entered into an interest rate swap agreement for $10 million corresponding to the term and draw provisions of the Agreement, which effectively ~~converts~~converted the variable rate Promissory Note to a fixed instrument with an effective annual interest rate of 2.49%.

On August 20, 2021, Roanoke Gas entered into an unsecured Delayed Draw Term Note in the principal amount of $15 million ("Term Note") with an interest rate of 1.20% above 30-day SOFR Average per annum maturing on August 20, 2026. In connection with the Term Note, Roanoke Gas also entered into the Sixth Amendment to its Credit Agreement ("Amendment"), which ~~amends~~amended the original Credit Agreement with the corresponding bank dated March 31, 2016 and all subsequent amendments. The Amendment ~~aligns~~aligned the termination date and the maximum principal amount available under the Term Note and retains all other terms and requirements of prior credit agreements. The proceeds from this Term Note ~~will be~~were used to finance Roanoke Gas' infrastructure enhancement and replacement projects, as well as to refinance a portion of its existing debt. Also, on August 20, 2021, Roanoke Gas entered into an interest rate swap agreement for $15 million corresponding to the duration of the Term Note, which effectively ~~converts~~converted the variable rate note to a fixed rate instrument with an effective annual interest rate of 2.00%. The Term Note funded in full on October 1, 2021.

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Long-term debt consists of the following:

	March 31, 2022					September 30, 2021					December 31, 2022					September 30, 2022
	Principal			Unamortized Debt Issuance Costs		Principal			Unamortized Debt Issuance Costs		Principal			Unamortized Debt Issuance Costs		Principal			Unamortized Debt Issuance Costs
Roanoke Gas:
Unsecured senior notes payable, at 4.26%, due September 18, 2034	$	30,500,000		$	120,676	$	30,500,000		$	125,502
Unsecured term note payable, at 30-day LIBOR plus 0.90%, due November 1, 2021		0			0		7,000,000			278
Unsecured term notes payable, at 3.58%, due October 2, 2027		8,000,000			26,488		8,000,000			28,896
Unsecured term notes payable, at 4.41%, due March 28, 2031		10,000,000			28,193		10,000,000			29,760
Unsecured term notes payable, at 3.60%, due December 6, 2029		10,000,000			27,301		10,000,000			29,062
Unsecured term note payable, at 30-day SOFR plus 1.20%, due August 20, 2026		15,000,000			0		0			0
Unsecured delayed draw note payable		0			31,064		0			21,545
Unsecured senior notes payable, at 4.26%, due September 18, 2034											$	30,500,000		$	113,435	$	30,500,000		$	115,849
Unsecured term notes payable, at 3.58%, due October 2, 2027												8,000,000			22,876		8,000,000			24,080
Unsecured term notes payable, at 4.41%, due March 28, 2031												10,000,000			25,844		10,000,000			26,627
Unsecured term notes payable, at 3.60%, due December 6, 2029												10,000,000			24,659		10,000,000			25,539
Unsecured term note payable, at 30-day SOFR plus 1.20%, due August 20, 2026												15,000,000			—		15,000,000			—
Unsecured term note payable, at 30-day LIBOR plus 1.00%, due October 1, 2028												10,000,000			27,479		10,000,000			28,674
Midstream:
Unsecured term notes payable, at 30-day LIBOR plus 1.35%, due December 29, 2022		19,330,200			8,942		33,610,200			14,904
Unsecured term note payable, at 30-day LIBOR plus 1.15%, due June 12, 2026		14,000,000			10,233		14,000,000			11,437
Unsecured term note payable, at 30-day LIBOR plus 1.20%, due June 1, 2024		10,000,000			5,107		10,000,000			6,286
Unsecured term note payable, at 30-day LIBOR plus 1.15%, due January 1, 2028		8,000,000			25,918		0			0
Total notes payable, current and non-current		124,830,200			283,922		123,110,200			267,670
Line-of-credit, at 30-day LIBOR plus 1.00%, due March 31, 2023		0			—		17,628,897			—
Unsecured term notes payable, at TERM SOFR plus 1.50%, due December 31, 2023												23,000,000			12,458		21,896,200			18,553
Unsecured term note payable, at 30-day LIBOR plus 1.15%, due June 12, 2026												14,000,000			8,427		14,000,000			9,029
Unsecured term note payable, at 30-day LIBOR plus 1.20%, due June 1, 2024												9,750,000			3,340		9,875,000			3,929
Unsecured term note payable, at 30-day LIBOR plus 1.15%, due January 1, 2028												8,000,000			22,487		8,000,000			23,631
Total long-term debt		124,830,200			283,922		140,739,097			267,670		138,250,000			261,005		137,271,200			275,911
Less: current maturities of long-term debt		(19,705,200	)		—		(7,000,000	)		—		(24,700,000	)		—		(1,300,000	)		—
Total long-term debt, net current maturities	$	105,125,000		$	283,922	$	133,739,097		$	267,670	$	113,550,000		$	261,005	$	135,971,200		$	275,911

All debt agreements set forth certain representations, warranties and covenants to which the Company is subject, including financial covenants that limit consolidated long-term indebtedness to not more than 65% of total capitalization. All of the debt agreements, except for the line-of-credit, provide for priority indebtedness to not exceed 15% of consolidated total assets. The $15 million note and the line-of-credit have an interest coverage ratio requirement of 1.5, which excludes the effect of a ~~non cash~~non-cash impairment on the LLC investments up to the total investment as of December 31, 2021 as revised by the Seventh Amendment to the Credit Agreement. The Company was in compliance with all debt covenants as of ~~March~~December 31, 2022 and September 30, ~~2021~~2022.

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~~10.~~9.

Other Comprehensive Income (Loss)

A summary of other comprehensive income and loss is provided below:

Tax

Before-Tax

(Expense)

Net-of-Tax

Amount

or Benefit

Amount

Three Months Ended March 31, 2022

Interest rate swaps:

Unrealized gains
$ 1,903,875 $ (490,057 ) $ 1,413,818
Transfer of realized losses to interest expense
163,860 (42,179 ) 121,681
Net interest rate swaps
2,067,735 (532,236 ) 1,535,499
Defined benefit plans:

Amortization of actuarial gains
(15,070 ) 3,879 (11,191 )
Other comprehensive income
$ 2,052,665 $ (528,357 ) $ 1,524,308
Three Months Ended March 31, 2021

Interest rate swaps:

Unrealized gains
$ 529,356 $ (136,257 ) $ 393,099
Transfer of realized losses to interest expense
136,270 (35,075 ) 101,195
Net interest rate swaps
665,626 (171,332 ) 494,294
Defined benefit plans:

Amortization of actuarial losses
20,017 (5,153 ) 14,864
Other comprehensive income
$ 685,643 $ (176,485 ) $ 509,158

				Tax									Tax
	Before-Tax			(Expense)			Net-of-Tax			Before-Tax			(Expense)			Net-of-Tax
	Amount			or Benefit			Amount			Amount			or Benefit			Amount
Six Months Ended March 31, 2022
Three Months Ended December 31, 2022
Interest rate swaps:
Unrealized gains										$	43,947		$	(11,311	)	$	32,636
Transfer of realized gains to interest expense											(290,779	)		74,845			(215,934	)
Net interest rate swaps											(246,832	)		63,534			(183,298	)
Defined benefit plans:
Amortization of actuarial losses											19,703			(5,072	)		14,631
Other comprehensive loss										$	(227,129	)	$	58,462		$	(168,667	)
Three Months Ended December 31, 2021
Interest rate swaps:
Unrealized gains	$	2,219,858		$	(571,390	)	$	1,648,468		$	315,983		$	(81,333	)	$	234,650
Transfer of realized losses to interest expense		335,723			(86,418	)		249,305			171,863			(44,239	)		127,624
Net interest rate swaps		2,555,581			(657,808	)		1,897,773			487,846			(125,572	)		362,274
Defined benefit plans:
Amortization of actuarial gains		(30,140	)		7,758			(22,382	)		(15,070	)		3,879			(11,191	)
Other comprehensive income	$	2,525,441		$	(650,050	)	$	1,875,391		$	472,776		$	(121,693	)	$	351,083
Six Months Ended March 31, 2021
Interest rate swaps:
Unrealized gains	$	619,126		$	(159,364	)	$	459,762
Transfer of realized losses to interest expense		273,708			(70,451	)		203,257
Net interest rate swaps		892,834			(229,815	)		663,019
Defined benefit plans:
Amortization of actuarial losses		40,034			(10,306	)		29,728
Other comprehensive income	$	932,868		$	(240,121	)	$	692,747

The amortization of actuarial gains and losses, reflected in the preceding table, relate to the unregulated operations of the Company. Actuarial gains and losses attributable to the regulated operations are included as a regulatory asset. See Note 1615 for a schedule of regulatory assets. The amortization of actual gains and losses is recognized as a component of net periodic pension and postretirement benefit costs under other income, net.

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Reconciliation of Accumulated Other Comprehensive Income (Loss)

Accumulated

Other

Interest Rate

Defined Benefit

Comprehensive

Swaps

Plans

Income (Loss)

Balance at September 30, 2021
$ (888,210 ) $ (647,224 ) $ (1,535,434 )
Other comprehensive income (loss)
1,897,773 (22,382 ) 1,875,391
Balance at March 31, 2022
$ 1,009,563 $ (669,606 ) $ 339,957

							Accumulated
							Other
	Interest Rate			Defined Benefit			Comprehensive
	Swaps			Plans			Income (Loss)
Balance at September 30, 2022	$	3,563,341		$	(1,598,977	)	$	1,964,364
Other comprehensive income (loss)		(183,298	)		14,631			(168,667	)
Balance at December 31, 2022	$	3,380,043		$	(1,584,346	)	$	1,795,697

~~11.~~10.

Commitments and Contingencies

~~COVID-~~Roanoke Gas currently holds the only franchises and CPCNs to distribute natural gas in its service area. The current franchise agreements expire 19December 31, 2035. The Company's CPCNs are exclusive and the related pandemic continues to impact local, state, national and global economies. Supply chain disruptions, labor shortages and inflation have supplanted quarantines and government restrictions as the primary examples of matters impacting economic conditions. Significant progress was made in distributing and administering vaccinesgenerally are intended for perpetual duration.

Due to the ~~public, which has allowed a return to mostly normal operating conditions. Restrictions implemented as a result~~nature of the ~~pandemic have eased, allowing~~natural gas distribution business, the Company has entered into agreements with both suppliers and pipelines for ~~increased business, recreational~~natural gas commodity purchases, storage capacity and ~~travel activities. Natural~~pipeline delivery capacity. The Company utilizes an asset manager to assist in optimizing the use of its transportation, storage rights and gas ~~consumption by~~supply in order to provide a secure and reliable source of natural gas to its customers. The Company also has storage and pipeline capacity contracts to store and deliver natural gas to the Company’s ~~commercial customers has returned to pre-pandemic levels. However, future surges in COVID-~~19 ~~infections could result in the reinstatement of some or~~distribution system. Roanoke Gas is currently served directly by two primary pipelines that deliver all of the ~~restrictions previously in place. Management continues~~natural gas supplied to ~~monitor current~~the Company’s distribution system. Depending on weather conditions and the level of customer demand, failure of one of these transmission pipelines could have a major adverse impact on the Company's ability to ~~ensure the continuation of safe and reliable service~~deliver natural gas to its customers and its results of operations. The MVP will provide Roanoke Gas with access to ~~maintain the safety of~~an additional delivery source to its distribution system, increasing system reliability and the Company's ~~employees.~~ability to meet future demands for natural gas.

~~12.~~11.

Earnings Per Share

Basic earnings per common share for the three ~~and~~ ~~six~~months ended ~~March~~December 31, 2022 and 2021 were calculated by dividing net income by the weighted average common shares outstanding during the period. Diluted earnings per common share were calculated by dividing net income by the weighted average common shares outstanding during the period plus potential dilutive common shares.

A reconciliation of basic and diluted earnings per share is presented below:

Three Months Ended March 31,

Six Months Ended March 31,

2022

2021

2022

2021

Net income (loss)
$ (24,494,429 ) $ 4,767,478 $ (20,909,900 ) $ 9,490,741
Weighted average common shares
8,486,518 8,217,822 8,434,689 8,192,533
Effect of dilutive securities:

Options to purchase common stock
0 12,828 0 13,621
Diluted average common shares
8,486,518 8,230,650 8,434,689 8,206,154
Earnings (loss) per share of common stock:

Basic
$ (2.89 ) $ 0.58 $ (2.48 ) $ 1.16
Diluted
$ (2.89 ) $ 0.58 $ (2.48 ) $ 1.16

	Three Months Ended December 31,
	2022		2021
Net income	$	3,256,405	$	3,584,529
Weighted average common shares		9,830,206		8,383,986
Effect of dilutive securities:
Options to purchase common stock		6,982		9,046
Diluted average common shares		9,837,188		8,393,032
Earnings per share of common stock:
Basic	$	0.33	$	0.43
Diluted	$	0.33	$	0.43

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~~13.~~12.

Employee Benefit Plans

The Company has both a pension plan and a postretirement plan. The pension plan covers the Company’s employees hired before January 1, 2017 and provides retirement income based on years of service and employee compensation. The postretirement plan provides certain health care and supplemental life insurance benefits to retired employees who meet specific age and service requirements. Net pension plan and postretirement plan expense is detailed as follows:

	Three Months Ended						Six Months Ended						Three Months Ended
	March 31,						March 31,						December 31,
	2022			2021			2022			2021			2022			2021
Components of net periodic pension cost:
Service cost	$	162,072		$	183,570		$	324,144		$	367,140		$	91,635		$	162,072
Interest cost		253,279			243,785			506,558			487,570			343,025			253,279
Expected return on plan assets		(457,888	)		(503,936	)		(915,776	)		(1,007,872	)		(308,149	)		(457,888	)
Recognized loss		36,600			125,535			73,200			251,070			79,181			36,600
Net periodic pension cost (benefit)	$	(5,937	)	$	48,954		$	(11,874	)	$	97,908		$	205,692		$	(5,937	)

	Three Months Ended						Six Months Ended						Three Months Ended
	March 31,						March 31,						December 31,
	2022			2021			2022			2021			2022			2021
Components of postretirement benefit cost:
Service cost	$	24,450		$	35,172		$	48,900		$	70,344		$	11,475		$	24,450
Interest cost		110,930			107,623			221,860			215,246			155,156			110,930
Expected return on plan assets		(166,541	)		(149,122	)		(333,082	)		(298,244	)		(116,012	)		(166,541	)
Recognized loss		0			38,664			0			77,328			—			—
Net postretirement benefit cost (benefit)	$	(31,161	)	$	32,337		$	(62,322	)	$	64,674		$	50,619		$	(31,161	)

The components of net periodic benefit cost, other than the service cost component, are included in other income, net in the condensed consolidated statements of income. Service cost is included in operations and maintenance expense in the condensed consolidated statements of income.

For the three-month period ended December 31, 2022, no contributions were made to the pension plan or postretirement plan. The ~~table below reflects the Company's actual contributions made fiscal year-to-date and the expected remaining~~Company is not currently anticipating making any funding contributions to ~~be made during the balance of the current~~either plan in fiscal ~~year.~~2023.

Fiscal Year-to-Date Contributions

Remaining Fiscal Year Contributions

Pension plan
$ 0 $ 500,000
Postretirement plan
0 400,000
Total
$ 0 $ 900,000

~~14.~~13.

Fair Value Measurements

~~FASB~~ ASC~~No.~~ 820, Fair Value Measurements and Disclosures, established a fair value hierarchy that prioritizes each input to the valuation method used to measure fair value of financial and nonfinancial assets and liabilities that are measured and reported on a fair value basis into one of the following three levels:

Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

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Level 2 – Inputs other than quoted prices in Level 1 that are either for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability, or inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Level 3 – Unobservable inputs for the asset or liability where there is little, if any, market activity for the asset or liability at the measurement date.

The fair value hierarchy gives the highest priority to unadjusted quoted prices in active markets (Level 1) and the lowest priority to unobservable inputs (Level 3).

The following table summarizes the Company’s financial assets and liabilities that are measured at fair value on a recurring basis as required by existing guidance and the fair value measurements by level within the fair value hierarchy:

	Fair Value Measurements - March 31, 2022								Fair Value Measurements - December 31, 2022
			Quoted		Significant						Quoted		Significant
			Prices		Other		Significant				Prices		Other		Significant
			in Active		Observable		Unobservable				in Active		Observable		Unobservable
	Fair		Markets		Inputs		Inputs		Fair		Markets		Inputs		Inputs
	Value		(Level 1)		(Level 2)		(Level 3)		Value		(Level 1)		(Level 2)		(Level 3)
Assets:
Interest rate swaps	$	1,359,498	$	0	$	1,359,498	$	0	$	4,551,635	$	—	$	4,551,635	$	—
Total	$	1,359,498	$	0	$	1,359,498	$	0	$	4,551,635	$	—	$	4,551,635	$	—

Liabilities:
Natural gas purchases	$	1,355,281	$	0	$	1,355,281	$	0	$	2,187,722	$	—	$	2,187,722	$	—
Total	$	1,355,281	$	0	$	1,355,281	$	0	$	2,187,722	$	—	$	2,187,722	$	—

	Fair Value Measurements - September 30, 2021								Fair Value Measurements - September 30, 2022
			Quoted		Significant						Quoted		Significant
			Prices		Other		Significant				Prices		Other		Significant
			in Active		Observable		Unobservable				in Active		Observable		Unobservable
	Fair		Markets		Inputs		Inputs		Fair		Markets		Inputs		Inputs
	Value		(Level 1)		(Level 2)		(Level 3)		Value		(Level 1)		(Level 2)		(Level 3)
Assets:
Interest rate swaps									$	4,798,467	$	—	$	4,798,467	$	—
Total									$	4,798,467	$	—	$	4,798,467	$	—

Liabilities:
Natural gas purchases	$	2,728,935	$	0	$	2,728,935	$	0	$	1,295,225	$	—	$	1,295,225	$	—
Interest rate swaps		1,196,083		0		1,196,083		0
Total	$	3,925,018	$	0	$	3,925,018	$	0	$	1,295,225	$	—	$	1,295,225	$	—

The fair value of the interest rate swaps are determined by using the counterparty's proprietary models and certain assumptions regarding past, present and future market conditions.

See Note 5 for discussion on the fair value assumptions of the Company's investment in the LLC.

Under the asset management contract, a timing difference can exist between the payment for natural gas purchases and the actual receipt of such purchases. Payments are made based on a predetermined monthly volume with the price based on weighted average first of the month index prices corresponding to the month of the scheduled payment. At ~~March~~December 31, 2022 and September 30, ~~2021~~2022, the Company had recorded in accounts payable the estimated fair value of the liability valued at the corresponding first of month index prices for which the liability is expected to be settled.

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The Company’s nonfinancial assets and liabilities measured at fair value on a nonrecurring basis consist of its AROs. The AROs are measured at fair value at initial recognition based on expected future cash flows required to settle the obligation.

The carrying value of cash and cash equivalents, accounts receivable, borrowings under line-of-credit, accounts payable (with the exception of the timing difference under the asset management contract), customer credit balances and customer deposits is a reasonable estimate of fair value due to the short-term nature of these financial instruments. In addition, the carrying amount of the variable rate line-of-credit is a reasonable approximation of its fair value.

The following table summarizes the fair value of the Company’s financial assets and liabilities that are not adjusted to fair value in the financial statements:

	Fair Value Measurements - March 31, 2022								Fair Value Measurements - December 31, 2022
			Quoted		Significant						Quoted		Significant
			Prices		Other		Significant				Prices		Other		Significant
			in Active		Observable		Unobservable				in Active		Observable		Unobservable
	Carrying		Markets		Inputs		Inputs		Carrying		Markets		Inputs		Inputs
	Value		(Level 1)		(Level 2)		(Level 3)		Value		(Level 1)		(Level 2)		(Level 3)
Liabilities:
Current maturities of long-term debt	$	19,705,200	$	0	$	0	$	19,765,421	$	24,700,000	$	—	$	—	$	24,697,717
Notes payable		105,125,000		0		0		107,952,588		113,550,000		—		—		109,036,788
Total	$	124,830,200	$	0	$	0	$	127,718,009	$	138,250,000	$	—	$	—	$	133,734,505

	Fair Value Measurements - September 30, 2021								Fair Value Measurements - September 30, 2022
			Quoted		Significant						Quoted		Significant
			Prices		Other		Significant				Prices		Other		Significant
			in Active		Observable		Unobservable				in Active		Observable		Unobservable
	Carrying		Markets		Inputs		Inputs		Carrying		Markets		Inputs		Inputs
	Value		(Level 1)		(Level 2)		(Level 3)		Value		(Level 1)		(Level 2)		(Level 3)
Liabilities:
Current maturities of long-term debt	$	7,000,000	$	0	$	0	$	7,000,000	$	1,300,000	$	—	$	—	$	1,300,000
Notes payable		116,110,200		0		0		124,691,896		135,971,200		—		—		130,266,252
Total	$	123,110,200	$	0	$	0	$	131,691,896	$	137,271,200	$	—	$	—	$	131,566,252

The fair value of long-term debt is estimated by discounting the future cash flows of the fixed rate debt based on the underlying Treasury rate or other Treasury instruments with a corresponding maturity period and estimated credit spread extrapolated based on market conditions since the issuance of the debt.

~~FASB~~ ASC 825, Financial Instruments, requires disclosures regarding concentrations of credit risk from financial instruments. Cash equivalents are investments in high-grade, short-term securities (original maturity less than three months), placed with financially sound institutions. Accounts receivable are from a diverse group of customers including individuals and small and large companies in various industries. ~~As of~~ ~~March 31, 2022~~ ~~and~~ ~~September 30, 2021~~~~, 0 single~~No individual customer ~~accounted for~~amounted to more than 5% of ~~the~~ total accounts receivable ~~balance.~~at December 31, 2022 and one customer amounted to approximately 5.1% of total receivables at September 30, 2022. The Company maintains certain credit standards with its customers and requires a customer deposit if such evaluation warrants.

~~15.~~14.

Segment Information

Operating segments are defined as components of an enterprise for which separate financial information is available and is evaluated regularly by the Company's chief operating decision maker in deciding how to allocate resources and assess performance. The Company uses operating income and equity in earnings to assess segment performance.

Intersegment transactions are recorded at cost.

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The reportable segments disclosed herein are defined as follows:

Gas Utility - The natural gas segment of the Company generates revenue from its tariff rates and other regulatory mechanisms through which it provides the sale and distribution of natural gas to its residential, commercial and industrial customers.

Investment in Affiliates - The investment in affiliates segment reflects the ~~income generated through the~~ activities of the Company's investment in the LLC.

Parent and Other - The category parent and other includes the unregulated activities of the Company as well as certain corporate eliminations.

Information related to the segments of the Company are provided below:

	Three Months Ended March 31, 2022										Three Months Ended December 31, 2022
	Gas Utility		Investment in Affiliates			Parent and Other		Consolidated Total			Gas Utility		Investment in Affiliates			Parent and Other		Consolidated Total
Operating revenues	$	29,499,219	$	0		$	30,464	$	29,529,683		$	33,252,767	$	—		$	29,568	$	33,282,335
Depreciation		2,268,704		0			0		2,268,704			2,419,541		—			—		2,419,541
Operating income (loss)		7,528,839		(108,987	)		23,536		7,443,388			5,567,345		(46,704	)		23,844		5,544,485
Equity in earnings (loss)		0		(445	)		0		(445	)
Impairment of investments in affiliates		0		(39,822,213	)		0		(39,822,213	)
Equity in earnings												—		1,232			—		1,232
Interest expense		751,038		352,806			0		1,103,844			822,566		546,598			—		1,369,164
Income (loss) before income taxes		7,117,202		(40,279,495	)		23,689		(33,138,604	)		4,819,955		(592,615	)		23,819		4,251,159

Three Months Ended March 31, 2021

Gas Utility

Investment in Affiliates

Parent and Other

Consolidated Total

Operating revenues
$ 28,221,274 $ 0 $ 32,388 $ 28,253,662
Depreciation
2,128,304 0 0 2,128,304
Operating income (loss)
7,175,532 (102,295 ) 26,189 7,099,426
Equity in earnings (loss)
0 (3,797 ) 0 (3,797 )
Interest expense
707,532 300,232 0 1,007,764
Income (loss) before income taxes
6,750,004 (400,880 ) 26,289 6,375,413

	Three Months Ended December 31, 2021
	Gas Utility		Investment in Affiliates			Parent and Other		Consolidated Total
Operating revenues	$	23,231,655	$	—		$	31,425	$	23,263,080
Depreciation		2,270,694		—			—		2,270,694
Operating income (loss)		5,404,316		(51,560	)		25,667		5,378,423
Equity in earnings		—		72,127			—		72,127
Interest expense		764,863		339,993			—		1,104,856
Income (loss) before income taxes		4,959,182		(316,881	)		25,832		4,668,133

~~RGC RESOURCES, INC. AND SUBSIDIARIES~~

Six Months Ended March 31, 2022

Gas Utility

Investment in Affiliates

Parent and Other

Consolidated Total

Operating revenues
$ 52,730,874 $ 0 $ 61,889 $ 52,792,763
Depreciation
4,539,398 0 0 4,539,398
Operating income (loss)
12,933,155 (160,547 ) 49,203 12,821,811
Equity in earnings
0 71,682 0 71,682
Impairment of investments in affiliates
0 (39,822,213 ) 0 (39,822,213 )
Interest expense
1,515,901 692,799 0 2,208,700
Income (loss) before income taxes
12,076,384 (40,596,376 ) 49,521 (28,470,471 )

Six Months Ended March 31, 2021

Gas Utility

Investment in Affiliates

Parent and Other

Consolidated Total

Operating revenues
$ 47,704,774 $ 0 $ 65,905 $ 47,770,679
Depreciation
4,281,702 0 0 4,281,702
Operating income (loss)
12,788,574 (153,142 ) 45,381 12,680,813
Equity in earnings
0 1,352,886 0 1,352,886
Interest expense
1,411,862 615,731 0 2,027,593
Income before income taxes
11,986,004 592,045 45,631 12,623,680

March 31, 2022

Gas Utility

Investment in Affiliates(1)

Parent and Other

Consolidated Total

Total assets
$ 240,934,602 $ 27,465,020 $ 19,958,863 $ 288,358,485

⁽¹⁾ ~~Decrease in total assets resulted from the MVP and Southgate impairment. See Note~~ 6 ~~for additional information.~~

September 30, 2021

Gas Utility

Investment in Affiliates

Parent and Other

Consolidated Total

Total assets
$ 231,737,427 $ 65,686,376 $ 12,685,390 $ 310,109,193

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	December 31, 2022
	Gas Utility		Investment in Affiliates		Parent and Other		Consolidated Total
Total assets	$	270,030,140	$	15,277,600	$	22,644,422	$	307,952,162

	September 30, 2022
	Gas Utility		Investment in Affiliates		Parent and Other		Consolidated Total
Total assets	$	258,519,230	$	13,838,108	$	17,951,905	$	290,309,243

~~16.~~15.

Regulatory Assets and Liabilities

The Company’s regulated operations follow the accounting and reporting requirements of ~~FASB~~ ASC~~No.~~ 980, Regulated Operations. The economic effects of regulation can result in a regulated company deferring costs that have been or are expected to be recovered from customers in a period different from the period in which the costs would ordinarily be charged to expense by an unregulated enterprise. When this situation occurs, costs are deferred as assets in the condensed consolidated balance sheet (regulatory assets) and amortized into expense over periods when such amounts are reflected in rates. Additionally, regulators can impose liabilities upon a regulated company for amounts previously collected from customers and for current collection in rates of costs that are expected to be incurred in the future (regulatory liabilities). In the event the provisions of ~~FASB~~ ASC~~No.~~ 980 no longer apply to any or all regulatory assets or liabilities, the Company would write off such amounts and include the effects in the condensed consolidated statements of income and comprehensive income in the period which ~~FASB~~ ASC~~No.~~ 980 no longer applied.

Regulatory assets included in the Company’s accompanying balance sheets are as follows:

	March 31, 2022		September 30, 2021		December 31, 2022		September 30, 2022
Assets:
Current Assets:
Regulatory assets:
WNA revenues	$	1,808,525	$	8,104
Accrued WNA revenues					$	6,870	$	193,518
Under-recovery of gas costs		0		5,048,164		—		1,316,580
Under-recovery of SAVE Plan revenues		0		305,502
Accrued pension and postretirement medical		103,340		206,679		178,433		237,911
Other deferred expenses		85,211		88,004		129,459		129,459
Total current		1,997,076		5,656,453		314,762		1,877,468
Utility Property:
In service:
Other		11,945		11,945		11,945		11,945
Construction work in progress:
AFUDC		386,189		386,189		565,113		461,342
Other Assets:
Other Non-Current Assets:
Regulatory assets:
Premium on early retirement of debt		1,427,340		1,484,433		1,341,699		1,370,246
Accrued pension and postretirement medical		5,154,713		5,154,713		3,894,561		3,894,561
Other deferred expenses		123,962		130,613		184,408		181,740
Total non-current		6,706,015		6,769,759		5,420,668		5,446,547

Total regulatory assets	$	9,101,225	$	12,824,346	$	6,312,488	$	7,797,302

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Regulatory liabilities included in the Company’s accompanying balance sheets are as follows:

	March 31, 2022		September 30, 2021		December 31, 2022		September 30, 2022
Liabilities and Stockholders' Equity:
Current Liabilities:
Regulatory liabilities:
Over-recovery of gas costs	$	98,776	$	0	$	4,447,378	$	—
Over-recovery of SAVE Plan revenues		102,879		0		136,010		158,847
Deferred income taxes		332,361		329,959		363,297		363,297
Supplier refunds		2,661,043		0		1,802,357		2,484,992
Other deferred liabilities						164,377		160,930
Total current		3,195,059		329,959		6,913,419		3,168,066
Deferred Credits and Other Liabilities:
Deferred Credits and Other Non-Current Liabilities:
Asset retirement obligations		7,876,084		7,628,958		10,329,950		10,204,079
Regulatory cost of retirement obligations		14,126,243		13,640,567		12,520,934		12,277,796
Regulatory Liabilities:
Regulatory liabilities:
Deferred income taxes		12,706,518		12,891,242		13,037,430		13,193,006
Other						30,118		30,118
Total non-current		34,708,845		34,160,767		35,918,432		35,704,999

Total regulatory liabilities	$	37,903,904	$	34,490,726	$	42,831,851	$	38,873,065

As of ~~March~~December 31, 2022 and September 30, ~~2021~~2022, the Company had regulatory assets in the amount of ~~$9,089,280~~$6,300,543 and ~~$12,812,401,~~$7,785,357, respectively, on which the Company did not earn a return during the recovery period.

~~17.~~16.

Subsequent Events

On ~~April 1, 2022,~~ ~~Roanoke Gas received a $5 million advance associated with its $10 million unsecured delayed draw note payable. The remaining $5 million is expected to be drawn on or about~~ ~~October 1, 2022.~~ ~~See Note~~ 9 ~~for additional information.~~

The Company has evaluated subsequent events through the date the financial statements were issued. There were no items not otherwise disclosed which would have materially impacted the Company’s condensed consolidated financial statements.

~~RGC RESOURCES, INC. AND SUBSIDIARIES~~

ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

This report contains forward-looking statements that relate to future transactions, events or expectations. In addition, Resources may publish forward-looking statements relating to such matters as anticipated financial performance, business prospects, technological developments, new products, research and development activities, operational impacts and similar matters. These statements are based on management’s current expectations and information available at the time of such statements and are believed to be reasonable and are made in good faith. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. In order to comply with the terms of the safe harbor, the Company notes that a variety of factors could cause the Company’s actual results and experience to differ materially from the anticipated results or other expectations expressed in the Company’s forward-looking statements. The risks and uncertainties that may affect the operations, performance, development and results of the Company’s business include, but are not limited to those set forth in the following discussion and within Item 1A “Risk Factors” in the Company’s ~~2021~~2022 Annual Report on Form ~~10-K and this Form 10-Q.~~10-K. All of these factors are difficult to predict and many are beyond the Company’s control. Accordingly, while the Company believes its forward-looking statements to be reasonable, there can be no assurance that they will approximate actual experience or that the expectations derived from them will be realized. When used in the Company’s documents or news releases, the words, “anticipate,” “believe,” “intend,” “plan,” “estimate,” “expect,” “objective,” “projection,” “forecast,” “budget,” “assume,” “indicate” or similar words or future or conditional verbs such as “will,” “would,” “should,” “can,” “could” or “may” are intended to identify forward-looking statements.

Forward-looking statements reflect the Company’s current expectations only as of the date they are made. The Company assumes no duty to update these statements should expectations change or actual results differ from current expectations except as required by applicable laws and regulations.

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The three-month ~~and six-month~~ earnings presented herein should not be considered as reflective of the Company’s consolidated financial results for the fiscal year ending September 30, ~~2022.~~2023. The total revenues and margins realized during the first ~~six~~three months reflect higher billings due to the weather sensitive nature of the natural gas business.

~~COVID-19~~

As discussed under Item 1A "Risk Factors" in the Company’s 2021 Annual Report on Form 10-K, COVID-19 and the resulting pandemic continues to have a lingering impact on local, state, national and global economies. Supply chain disruptions, labor shortages and inflation, compounded by other world events, have continued as the primary examples of matters impacting economic conditions. Significant portions of the population have been vaccinated, which has contributed to a return to mostly normal operating conditions. Most restrictions implemented as a result of the pandemic have been eased, including Virginia’s state of emergency, allowing for increased business, recreational and travel activities. Natural gas consumption by the Company’s commercial customers has returned to pre-pandemic levels. However, the easing of restrictions and the evolution of variant strains of COVID-19 may lead to a rise in infections nationally and throughout the Company’s service territory. Management continues to monitor current conditions to ensure the continuation of safe and reliable service to customers and to maintain the safety of the Company's employees.

The extent to which the COVID-19 pandemic will continue to impact the Company depends on future developments, which are highly uncertain and cannot be reasonably predicted, including the increase or reduction in governmental restrictions to businesses and individuals, the potential resurgence of the virus, including variants, as well as efficacy of the vaccines.

~~RGC RESOURCES, INC. AND SUBSIDIARIES~~

Overview

Resources is an energy services company primarily engaged in the regulated sale and distribution of natural gas to approximately ~~63,000~~62,900 residential, commercial and industrial customers in Roanoke, Virginia and surrounding localities through its Roanoke Gas subsidiary. As a wholly-owned subsidiary of Resources, Midstream is a more than 1% investor in MVP and a less than 1% investor in Southgate.

~~Due primarily to decisions in January~~As a result of prior rulings and ~~February 2022~~actions by the Fourth Circuit vacating and remanding certain permits necessary for the completion of MVP, ~~construction and commercial operation, and~~progress on completing the ~~greater uncertainty that now exists given the Court’s actions, as well~~pipeline remains on hold as the ~~consequent actions by project partners~~LLC continues to ~~impair their respective investments and revocation~~pursue resolution of the previously noted summer 2022 in-service target date, Midstream determined that its investment in the LLC experienced an other-than-temporary decline in value. Accordingly, management recorded a $39.8 million write-down of the value of its investments in the second quarter of fiscal 2022. As of March 31, 2022, the total investment in the LLC was $27 million. More information regarding the investment in the LLC is provided underthese items. See the Equity Investment in Mountain Valley Pipeline section ~~below.~~for more information.

The utility operations of Roanoke Gas are regulated by the SCC, which oversees the terms, conditions, and rates charged to customers for natural gas service, safety standards, extension of service and depreciation. Nearly all of the Company’s revenues ~~excluding equity in earnings of MVP,~~ are derived from the sale and delivery of natural gas to Roanoke Gas customers based on rates and fees authorized by the SCC. These rates are designed to provide the Company with the opportunity to recover its gas and non-gas expenses and to earn a reasonable rate of return ~~for shareholders~~on investment based on normal weather. These rates are determined based on the filing of a formal non-gas rate application with the SCC. Generally, investments related to extending service to new customers are recovered through the additional revenues generated by the non-gas base rates in place at that time. The investment in replacing and upgrading existing infrastructure, as well as recovering increases in non-gas expenses due to inflationary pressures, regulatory requirements or operation needs, are generally not recoverable until a formal rate application is filed to include the additional investment and higher costs, and new non-gas base rates are approved. On December 5, 2022, primarily in response to increasing operating costs, Roanoke Gas filed for a non-gas base rate increase. The new non-gas base rate increase included in its rate application became effective for gas usage beginning January 1, 2023. These additional revenues are subject to refund pending audit, hearing and final order by the SCC later in 2023. See the Regulatory section below for additional information.

The Company is also subject to federal regulation from the Department of Transportation in regard to the construction, operation, maintenance, safety and integrity of its transmission and distribution pipelines. FERC regulates the prices for the transportation and delivery of natural gas to the Company’s distribution system and underground storage services. In addition, Roanoke Gas is subject to other regulations which are not necessarily industry specific.

As the Company’s business is seasonal in nature, volatility in winter weather and the commodity price of natural gas can impact the effectiveness of the Company’s rates in recovering its costs and providing a reasonable return for its shareholders. In order to mitigate the effect of weather variations and other factors not provided for in the Company's base rates, Roanoke Gas has certain approved rate mechanisms in place that help provide stability in earnings, adjust for volatility in the price of natural gas and provide a return on qualified infrastructure investment. These mechanisms include the SAVE Rider, WNA, ICC and PGA.

The Company’s non-gas base rates provide for the recovery of non-gas related expenses and a reasonable return to shareholders. These rates are determined based on the filing of a formal non-gas rate application with the SCC. Generally, investments related to extending service to new customers are recovered through the additional revenues generated by the non-gas base rates currently in place. The investment in replacing and upgrading existing infrastructure is generally not recoverable until a formal rate application is filed to include the additional investment, and new non-gas base rates are approved. The SAVE Rider provides the Company with a mechanism through which it recovers costs related to SAVE qualified infrastructure investments on a prospective basis, until a formal rate application is filed to incorporate these investments in non-gas base rates. The SAVE Plan and Rider were ~~last~~previously reset effective January 2019, when the recovery of all prior SAVE Plan investment was incorporated into the then current non-gas rates. Accordingly, SAVE Plan revenues increased by approximately ~~$193,000 and $416,000~~$322,000 for the three ~~and six~~ month ~~periods~~period ended ~~March~~December 31, 2022 compared to the same ~~periods~~period last year, reflecting the Company's cumulative investment in qualified SAVE Plan ~~infrastructure.~~infrastructure since 2019. With the implementation of the new non-gas base rates, the SAVE Plan and Rider reset effective January 1, 2023 as the total qualified SAVE Plan investment was incorporated into the rate base upon which the new non-gas base rates were determined.

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The WNA ~~model~~mechanism reduces the volatility in earnings due to the variability in temperatures during the heating season. The WNA is based on the most recent 30-year temperature average and provides the Company with a level of earnings protection when weather is warmer than normal and provides its customers with price protection when weather is colder than normal. The WNA allows the Company to recover from its customers the lost margin (excluding gas costs) from the impact of weather that is warmer than normal and correspondingly requires the Company to refund the excess margin earned for weather that is colder than normal. The WNA mechanism used by the Company is based on a linear regression model that determines the value of a single heating degree day and thereby estimates the revenue adjustment based on weather variance from normal. Any billings or refunds related to the WNA are completed following each WNA year, which extends for the 12-month period from April to March. For the three ~~and six~~ months ended ~~March~~December 31, 2022, the Company accrued refunds of approximately $556,000 and $1,800,000 in additional revenues under the WNA model for weather that was 7% and 13% warmer than normal, respectively, compared to approximately $249,000 and $1,196,000 in additional revenue$187,000 for weather that was 3% ~~and 9%~~colder than normal compared to approximately $1,244,000 in additional revenues for weather that was 22% warmer than normal ~~during~~for the corresponding ~~periods~~period last year. ~~The current WNA year ended on March 31, 2022 and the 12 month cumulative WNA balance will be collected from customers beginning in May 2022.~~

~~RGC RESOURCES, INC. AND SUBSIDIARIES~~

The Company also has an approved rate structure in place that mitigates the impact of the financing costs of its natural gas inventory. Under this rate structure, Roanoke Gas recognizes revenue by applying the ICC factor, based on the Company’s weighted-average cost of capital, including interest rates on short-term and long-term debt, and the Company’s authorized return on equity, to the average cost of natural gas inventory during the period. Total ICC revenues increased by approximately ~~$33,000 and $84,000, respectively,~~$194,000 for the three month ~~and six month periods~~period ended ~~March~~December 31, 2022, compared to the corresponding ~~periods~~period last year, as ~~rising~~much higher natural gas commodity prices ~~in 2021 resulted in a higher~~more than doubled the average ~~cost~~price of ~~natural~~ gas in storage. ~~As natural~~Natural gas commodity futures prices have ~~experienced a significant increase during March and April 2022,~~declined significantly, which should result in smaller increases in ICC revenues for the ~~cost~~remainder of ~~natural gas~~the current fiscal year compared to the corresponding periods in ~~storage is expected to be higher at September 30, 2022.~~the prior year.

The cost of natural gas is a pass-through cost and is independent of the non-gas rates of the Company. Accordingly, the Company's approved billing rates include a component designed to allow for the recovery of the cost of natural gas used by its customers. This rate component, referred to as the PGA, allows the Company to pass along to its customers increases and decreases in natural gas costs based on a quarterly filing, or more frequent if necessary, with the SCC. Once administrative approval is received, the Company adjusts the gas cost component of its rates to reflect the approved amount. As actual costs will differ from the projections used in establishing the PGA rate, the Company will either over-recover or under-recover its actual gas costs during the period. The difference between actual costs incurred and costs recovered through the application of the PGA is recorded as a regulatory asset or liability. At the end of the annual deferral period, the balance is amortized over an ensuing 12-month period as amounts are reflected in customer billings.

Prior to January 2021, the Company has recognized significant non-cash income from equity in earnings of MVP through recording of AFUDC. Due to various legal and regulatory challenges, construction on the pipeline has been halted as has the recognition of AFUDC. If or when the permits are reinstated, construction on MVP could resume and AFUDC would again be recognized until such time as MVP is placed in service. Once in service, cash earnings will be derived from fees charged by the LLC to transport natural gas on the pipeline.

Results of Operations

The analysis on the results of operations is based on the consolidated operations of the Company, which is primarily associated with the utility segment. Additional segment analysis is provided when Midstream's investment in affiliates represents a significant component of the comparison.

The Company's operating revenues are affected by the cost of natural gas, as reflected in the consolidated income statement under ~~the line item~~ cost of gas - utility. The cost of natural gas, which includes commodity price, transportation, storage, injection and withdrawal fees with any increase or decrease offset by a correlating change in revenue through the PGA, is passed through to customers at cost. Accordingly, management believes that gross utility margin, a non-GAAP financial measure defined as utility revenues less cost of gas, is a more useful and relevant measure to analyze financial performance. The term gross utility margin is not intended to represent or replace operating income, the most comparable GAAP financial measure, as an indicator of operating performance and is not necessarily comparable to similarly titled measures reported by other companies. The following results of operations analyses will reference gross utility margin.

~~Three Months Ended March 31, 2022:~~

~~Net income decreased by $29,261,907 for the three months ended March 31, 2022, compared to the same period last year, primarily due to the impairment of the Company's investment in the LLC.~~

2625

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Three Months Ended December 31, 2022:

Net income decreased by $328,124 for the three months ended December 31, 2022, compared to the same period last year, as higher operating and interest expense more than offset increased SAVE and ICC revenues.

The tables below reflect operating revenues, volume activity and heating degree-days.

	Three Months Ended March 31,				Increase/						Three Months Ended December 31,				Increase/
	2022		2021		(Decrease)			Percentage			2022		2021		(Decrease)			Percentage
Operating Revenues
Gas Utility	$	29,499,219	$	28,221,274	$	1,277,945			5	%	$	33,252,767	$	23,231,655	$	10,021,112			43	%
Non Utility		30,464		32,388		(1,924	)		(6	)%		29,568		31,425		(1,857	)		(6	)%
Total Operating Revenues	$	29,529,683	$	28,253,662	$	1,276,021			5	%	$	33,282,335	$	23,263,080	$	10,019,255			43	%
Delivered Volumes
Regulated Natural Gas (DTH)
Residential and Commercial		3,221,562		3,212,413		9,149			0	%		2,433,239		1,910,730		522,509			27	%
Transportation and Interruptible		1,020,460		806,981		213,479			26	%		875,301		777,441		97,860			13	%
Total Delivered Volumes		4,242,022		4,019,394		222,628			6	%		3,308,540		2,688,171		620,369			23	%
HDD		1,918		1,997		(79	)		(4	)%		1,523		1,161		362			31	%

Total operating revenues for the three months ended ~~March~~December 31, 2022, compared to the same period last year, increased by 5%43% due to ~~a combination~~sharply higher natural gas commodity prices, increased natural gas deliveries and higher SAVE and ICC revenues. Natural gas commodity prices averaged more than $7.00 per dekatherm during the quarter compared to $3.80 per dekatherm for the corresponding quarter last year. To keep pace with the rising commodity prices, the Company increased the PGA component of ~~an increase~~its rates during the quarter, resulting in ~~SAVE revenues, WNA~~higher revenues and higher transportation volume deliveries. SAVE Plan revenues increased by approximately $193,000 due to the continuing investment in qualified SAVE infrastructure projects. Although the three months ended March 31, 2022 had 4% fewercustomer bills. Additionally, total heating degree days ~~than~~increased by 31% over the same period last year resulting in a 27% increase in the weather sensitive residential and commercial ~~volumes were nearly unchanged.~~deliveries. The ~~improvement~~Company continued to benefit from an increase in natural gas deliveries is reflective of increased economic activity in the post-pandemic environment. As described above, the WNA model provided $307,000 in additional revenues as the current period was 7% warmer than normal compared to weather that was 3% warmer than normal for the same period last year. Transportationtransportation and interruptible volumes ~~primarily driven by business activity rather than weather, increased by 26%~~ due to a single, multi-fuel customer that ~~increased~~has continued its ~~utilization of~~higher natural gas ~~from an alternate energy source~~utilization during the quarter. Excluding ~~the multi-fuel~~this customer's usage from both periods, total transportation and interruptible volumes would have been nearly ~~unchanged.~~unchanged between periods. SAVE Plan revenues continued their upward trend as Roanoke Gas continues to invest in qualified SAVE infrastructure projects. ICC revenues increased due to higher commodity prices of gas in storage. After accounting for the application of the WNA model for the effect of weather variation from normal, the WNA adjusted residential and commercial volumes would have only increased by approximately 1% compared to the WNA adjusted volumes for the same period last year.

	Three Months Ended March 31,									Three Months Ended December 31,
	2022		2021		Increase		Percentage			2022		2021		Increase		Percentage
Gross Utility Margin
Gas Utility Revenues	$	29,499,219	$	28,221,274	$	1,277,945		5	%	$	33,252,767	$	23,231,655	$	10,021,112		43	%
Cost of Gas - Utility		14,923,575		14,447,057		476,518		3	%		20,804,153		11,316,405		9,487,748		84	%
Gross Utility Margin	$	14,575,644	$	13,774,217	$	801,427		6	%	$	12,448,614	$	11,915,250	$	533,364		4	%

Gross utility margin increased from the same period last year primarily as a result of the aforementioned higher SAVE ~~revenues, WNA~~ and ~~transportation volumes as well as~~ ICC revenues. ~~ICC revenues~~Although total residential and commercial natural gas deliveries increased ~~by approximately $33,000~~substantially over last year due to ~~higher natural gas inventory balances attributable to rising natural gas commodity prices.~~ the colder weather, the WNA adjusted margin reflects only a small increase as the WNA mechanism normalized the impact of weather on the delivered volumes for both periods as reflected in the table below.

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The components of and the change in gas utility margin are summarized below:

	Three Months Ended March 31,							Three Months Ended December 31,					Increase/
	2022		2021		Increase		2022			2021		(Decrease)
Customer Base Charge	$	3,666,318	$	3,652,055	$	14,263	$	3,590,557		$	3,636,677	$	(46,120	)
Carrying Cost		98,511		65,446		33,065		371,539			177,331		194,208
SAVE Plan		743,992		550,847		193,145		1,049,310			727,373		321,937
Volumetric		9,470,897		9,226,891		244,006		7,573,398			6,083,354		1,490,044
WNA		556,404		249,330		307,074		(186,647	)		1,244,017		(1,430,664	)
Other Revenues		39,522		29,648		9,874		50,457			46,498		3,959
Total	$	14,575,644	$	13,774,217	$	801,427	$	12,448,614		$	11,915,250	$	533,364

Operations and maintenance expenses increased by ~~$310,537,~~$230,199, or 8%6%, over the same period last year primarily due to higher compensation costs, contracted services, bad ~~debt expense,~~debts and corporate insurance premiums, ~~professional~~net of higher capitalized overheads. Compensation costs and contracted services increased by approximately $424,000 due to the effects of inflation on salary and ~~compensation~~contractor costs. Bad debt expense increased by ~~$194,000 for the quarter~~approximately $56,000 due to significantly higher ~~billings related to rising natural gas prices and delinquent balances.~~customer billings. Corporate insurance premiums related to property and liability insurance increased by nearly ~~$43,000, or 17%,~~$38,000 due to insurance market conditions. ~~Professional services~~Total capitalized overheads increased by ~~$44,000 primarily~~approximately $267,000 due to ~~costs~~higher direct construction expenditures related to ~~determining the fair value~~Roanoke Gas capital projects and ~~impairment~~timing of ~~the LLC investment.~~LNG production.

General taxes ~~increased~~decreased by ~~$4,428,~~$14,159, or 1%2%, primarily due to ~~higher~~lower property taxes ~~related to ongoing investments~~associated with reductions in ~~infrastructure replacement, system reinforcements and customer growth, net~~the assessed values of ~~greater capitalization of payroll and~~ property ~~taxes.~~reported by the SCC more than offsetting an increase in gross utility property.

Depreciation expense increased by ~~$140,400,~~$148,847, or ~~nearly~~ 7%, on a comparable increase in utility ~~plant~~property balances.

Equity in ~~loss~~earnings of unconsolidated affiliate ~~was nearly unchanged as no growth~~decreased by $70,895 due to the absence of construction activities ~~occurred and no AFUDC was recorded. All earnings or losses~~ during the ~~respective quarters relate to income earned on available cash balances, net of expenses.~~quarter. See Equity Investment in Mountain Valley Pipeline section below for additional information.

Impairment of unconsolidated affiliates includes $39,822,213 for an other-than-temporary write down of the Company's investment in the LLC. See Critical Accounting Policies and Estimates and Equity Investment in Mountain Valley Pipeline sections below for further details of the impairment.

Other income, net ~~increased~~decreased by ~~$56,962,~~$247,833, or ~~20%~~77%, primarily due to an increase of approximately ~~$86,000 decrease~~$377,000 in the non-service cost components of net periodic benefit costs ~~partially offset by a reduction~~arising from the effect of much higher interest rates on the actuarial expense calculation. Roanoke Gas also recognized approximately $82,000 in ~~the utilization fee. The reduction in the non-service cost component is attributable~~AFUDC related to the ~~reduction in~~RNG project during the amortization of the actuarial losses due to the improved funding position of the defined benefit plans. The utilization fee under the revenue sharing agreement declined per the terms of the asset management agreement with Sequent Energy.current period.

Interest expense increased by ~~$96,080,~~$264,308, or ~~10%~~24%, as the weighted-average interest rate on total debt increased from 2.93% during the first quarter of fiscal 2022 to 3.78% during the first quarter of fiscal 2023, while total daily average debt outstanding ~~increased~~declined by ~~20% between quarters.~~3%. The ~~higher borrowing levels, derived from the ongoing investment~~increase in the ~~LLC and financing expenditures in support of~~weighted average interest rate was associated with Roanoke Gas' ~~capital budget, were offset by a 9% reduction in the weighted-average interest~~variable rate ~~on the Company's debt.~~line-of-credit and Midstream's credit facility.

Roanoke Gas' interest expense increased by ~~$43,506~~$57,703 primarily due to ~~a $17.2 million~~the increase in ~~total daily average debt outstanding for~~ the ~~period, net of a reduction in the average~~ interest rate ~~from 3.73% to 3.23% primarily driven by~~on the ~~issuance of the $15 million note on October 1, 2021 with a 2.00% swap adjusted rate.~~

~~RGC RESOURCES, INC. AND SUBSIDIARIES~~

variable rate line-of-credit.

Midstream's interest expense increased by ~~$52,574 primarily~~$206,605 due to ~~a $8.2 million increase in total average debt outstanding for the period and slight increase in the average~~rising interest ~~rate from 2.28% to 2.32% associated with the an increase in the average variable interest rate of Midstream's~~rates on its credit facility.

~~Income tax moved from an expense of $1,607,935 to a benefit of $8,644,175 corresponding to~~ Total average outstanding debt during the recognition of the impairment of the Company's investment in the LLC. The effective tax rate was 26.1% and 25.2% for the three month periods ended March 31, 2022 and 2021, respectively. Excluding the effect of the impairment, the effective tax rate would have been 24.0% compared to 25.2% for the same period last year. The reduction in the adjusted effective tax rate is attributable to the amortization of the deferred R&D tax credit associated with the tax credit study.

~~Six Months Ended March 31, 2022:~~

~~Net income decreased~~quarter declined by ~~$30,400,641 from $9,490,741 to a net loss of $20,909,900 for the six months ended March 31, 2022, compared to the same period last year,~~$4.1 million due to the ~~impairment of the Company's investment~~equity infusion from Resources in ~~the LLC.~~

~~The tables below reflect operating revenues, volume activity and heating degree-days.~~

Six Months Ended March 31, Increase/

2022

2021

(Decrease)

Percentage

Operating Revenues

Gas Utility
$ 52,730,874 $ 47,704,774 $ 5,026,100 11 %
Non Utility
61,889 65,905 (4,016 ) (6 )%
Total Operating Revenues
$ 52,792,763 $ 47,770,679 $ 5,022,084 11 %
Delivered Volumes

Regulated Natural Gas (DTH)

Residential and Commercial
5,132,292 5,262,636 (130,344 ) (2 )%
Transportation and Interruptible
1,797,901 1,623,637 174,264 11 %
Total Delivered Volumes
6,930,193 6,886,273 43,920 1 %
HDD
3,079 3,245 (166 ) (5 )%

~~Total operating revenues for the six months ended~~ March ~~31,~~ 2022, compared to the same period last year, increased by 11% due to a combination of higher natural gas commodity prices and pipeline and storage fees and an increase in SAVE and WNA revenues. During the first quarter of fiscal 2022, the Company experienced both rising natural gas prices over the comparable period last year, with the average commodity price declining slightly during the second fiscal quarter and rate increases implemented in the second quarter of fiscal 2021 from the interstate pipelines and underground natural gas storage operators who deliver and store natural gas. These higher costs are passed on to customers through the PGA. SAVE Plan revenues increased by approximately $416,000 due to the continuing investment in qualified SAVE infrastructure projects. The six months ended March 31, 2022 had 5% fewer heating degree daysmore than the same period last year, which resulted in a corresponding 2% reduction in the weather sensitive residential and commercial volumes. If adjusted for the WNA effect of the shortfall in heating degree days, the residential and commercial volumes would have been nearly 2% higher than the WNA adjusted volumes in the prior year, reflecting improved economic activity in a post-pandemic environment.

Six Months Ended March 31,

2022

2021

Increase

Percentage

Gross Utility Margin

Gas Utility Revenues
$ 52,730,874 $ 47,704,774 $ 5,026,100 11 %
Cost of Gas - Utility
26,239,980 22,147,756 4,092,224 18 %
Gross Utility Margin
$ 26,490,894 $ 25,557,018 $ 933,876 4 %

Gross utility margin increased from the same period last year as a result of the higher SAVE revenues and WNA in addition to the increase in ICC revenues as reflected in the table below. ICC revenues increased by approximately $84,000 due to higher natural gas inventory balances attributable to rising natural gas commodity prices.

~~RGC RESOURCES, INC. AND SUBSIDIARIES~~

~~The components of and the change in gas utility margin are summarized below:~~

Six Months Ended March 31, Increase/

2022

2021

(Decrease)

Customer Base Charge
$ 7,302,995 $ 7,274,520 $ 28,475
Carrying Cost
275,842 192,202 83,640
SAVE Plan
1,471,365 1,055,545 415,820
Volumetric
15,554,251 15,774,483 (220,232 )
WNA
1,800,421 1,196,301 604,120
Other Revenues
86,020 63,967 22,053
Total
$ 26,490,894 $ 25,557,018 $ 933,876

Operations and maintenance expenses increased by $498,729, or 7%, over the same period last year primarily due to higher bad debt expense, corporate insurance premiums and professional services. Bad debt expense increased by $267,000 due to higher billings related to rising natural gas prices and delinquencies. Corporate insurance premiums increased by $91,000 due to insurance market conditions. Professional services increased by $60,000 primarily related to costs related to evaluating the Company's investment in the LLC and assessing the level of impairment. Natural gas distribution system maintenance and cyber security enhancements accounted for much of the remaining increase.

~~General taxes increased by $33,613, or 3%, primarily due to higher property taxes related to ongoing investments in infrastructure replacement, system reinforcements and customer growth.~~

~~Depreciation expense increased by $257,696, or 6%, on a comparable increase in utility plant balances.~~

Equity in earnings of unconsolidated affiliate decreased by $1,281,204, as no growth construction activities occurred. See Equity Investment in Mountain Valley Pipeline section below for additional information.

Impairment of unconsolidated affiliates includes the $39,822,213 other-than-temporary write down of the Company's investment in the LLC as discussed further in the Equity Investment in Mountain Valley Pipeline section below.

Other income, net increased by $49,375, or 8%, primarily due to an approximately $173,000 decrease in the non-service cost components of net periodic benefit costs partially offset by the absence of the equity portion of AFUDC on the two gate stations that will interconnect MVP with Roanoke Gas' distribution system and reduction in the utilization fee. Roanoke Gas ceased the recognition of AFUDC on these stations effective January 2021 until such time construction activities resume. The utilization fee under the revenue sharing agreement declined per the terms of the asset management agreement with Sequent Energy.

~~Interest expense increased by $181,107, or 9%, as the total daily average debt outstanding increased by 18% between periods. The higher borrowing levels, derived from~~offsetting the ongoing ~~investment in the LLC~~funding of MVP and ~~financing expenditures in support of Roanoke Gas' capital budget, were offset by an 8% reduction in the weighted-average interest rate on the Company's debt.~~

Roanoke Gas' interest expense increased by $104,039 primarily due to a $16 million increase in total average debt outstanding for the period, net of a reduction in the average interest rate from 3.63% to 3.23% associated with the issuance of the $15 million note on October 1, 2021 with a 2.00% swap adjusted rate.

Midstream's interest expense increased by $77,068 primarily due to a $7.7 million increase in total average debt outstanding for the period net of a slight decrease in the average interest rate from 2.34% to 2.30%.Southgate.

Income tax expense decreased by ~~$10,693,510~~$88,850, or 8%, corresponding to a ~~net tax benefit of $7,560,571, corresponding to the recognition of the impairment of the Company's investment~~similar reduction in ~~the LLC.~~taxable income. The effective tax rate was ~~26.6%~~23.4% and ~~24.8%~~23.2% for the ~~six~~three month periods ended ~~March~~December 31, 2022 and 2021, respectively. ~~Excluding the effect of the impairment, the effective tax rate would have been 23.7% compared to 24.8% for the same period last year.~~ The ~~reduction in the adjusted~~ effective tax rate is ~~attributable~~below the combined statutory state and federal rate due to the amortization of ~~the~~excess deferred taxes and R&D tax ~~credit associated with the tax credit study conducted in fiscal 2021.~~credits.

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Critical Accounting Policies and Estimates

The consolidated financial statements of Resources are prepared in accordance with GAAP. The amounts of assets, liabilities, revenues and expenses reported in the Company’s consolidated financial statements are affected by accounting policies, estimates and assumptions that are necessary to comply with generally accepted accounting principles. Estimates used in the financial statements are derived from prior experience, statistical analysis and management judgments. Actual results may differ significantly from these estimates and assumptions.

~~Under the provisions of ASC 323 -~~ ~~Investments - Equity Method and Joint Ventures~~, the Company is required to evaluate its investment in the LLC to determine if the fair value of the investments are below the carrying amount and if this decline in fair value is considered other-than-temporary. If the results of the evaluation indicate that the decline in fair value is other-than-temporary, then the recognition of an impairment is required. The following events or circumstances would indicate the potential of an other-than-temporary decline in the fair value of the investment in the LLC:

~~• a prolonged period of time that the fair value is below the investor’s carrying value;~~

~~• the current expected financial performance is significantly worse than anticipated when the investor originally invested in the investee;~~

~~• adverse regulatory action is expected to substantially reduce the investee’s product demand or profitability;~~

~~• the investee has lost significant customers or suppliers with no immediate prospects for replacement;~~

~~• the investee’s discounted or undiscounted cash flows are below the investor’s carrying amount; and~~

~~• the investee’s industry is declining and significantly lags the performance of the economy as a whole.~~

The determination of fair value of the Company's investment in the LLC is a significant estimate. Management has conducted quarterly evaluations of its investment in the LLC, with the assistance of a valuation specialist, to determine the fair value utilizing an income approach and probability scenarios of discounted cash flows. In conducting these evaluations, management made a variety of assumptions that it believes to be reasonable. Variations in many of these assumptions could have a significant impact on the calculation of the fair value and the resulting level of impairment recorded. Furthermore, these assumptions are based on the facts and circumstances at the date of the evaluations and are subject to change. See the Equity Investment in Mountain Valley Pipeline section for additional information regarding the LLC valuation and impairment.

There have been no ~~other~~ significant changes to the critical accounting policies as reflected in the Company’s Annual Report on Form 10-K for the year ended September 30, ~~2021.~~2022.

Asset Management

Roanoke Gas uses a third-party asset manager to oversee its pipeline transportation, storage rights and gas supply inventories and deliveries. In return for being able to utilize the excess capacities of the transportation and storage rights, the asset manager pays Roanoke Gas a monthly utilization fee. In accordance with an SCC order issued in 2018, a portion of the utilization fee is retained by the Company with the balance passed through to customers through reduced gas costs. The current asset ~~manager~~management agreement ends on March 31, ~~2023.~~2025.

Equity Investment in Mountain Valley Pipeline, LLC

In October 2017, FERC issued the CPCN for the MVP project. In the first quarter of 2018, the LLC received limited notice from FERC to proceed with certain construction activities and commenced construction.

Recent construction activity has been limited ~~bas~~edbased on legal and regulatory challenges. Although certain permits and authorizations were received, in the ~~first quarter of fiscal 2022, there remain pending~~MVP project has been subject to repeated, significant delays and cost increases resulting from legal challenges and ~~authorization requests impacting current progress including actions by~~regulatory setbacks, particularly in respect to litigation in the Fourth Circuit, ~~in January and February 2022.~~

~~Following a comprehensive review of all outstanding stream and wetland crossings across the approximately 300-mile MVP route,~~including, on February 19, 2021, the LLC submitted (i) a joint application package to each of the Huntington, Pittsburgh and Norfolk Districts of the U.S. Army Corps of Engineers (Army Corps) that requests an individual permit from the Army Corps to cross certain streams and wetlands utilizing open cut techniques (the Army Corps Individual Permit) and (ii) an application to amend the MVP's CPCN that sought FERC authority to cross certain streams and wetlands utilizing alternative trenchless construction methods. On April 8, 2022, the FERC authorized the amended CPCN.

~~RGC RESOURCES, INC. AND SUBSIDIARIES~~

Related to seeking the Army Corps Individual Permit, on March 4, 2021, the LLC submitted applications to each of the West Virginia Department of Environmental Protection (WVDEP) and the Virginia Department of Environmental Quality (VADEQ) seeking Section 401 water quality certification approvals or waivers (such approvals or waivers, the State 401 Approvals). The State 401 Approvals were both issued in December 2021. On January 25, 2022, the ~~LLC’s~~Fourth Circuit’s vacatur and remanding on specific issues of the LLC's authorizations related to the Jefferson National Forest (JNF) received from the Bureau of Land Management and the U.S. Forest Service ~~were vacated~~ and ~~remanded~~ on ~~specific issues by the Fourth Circuit. On~~ February 3, 2022, the Fourth ~~Circuit vacated~~Circuit’s vacatur and ~~remanded~~remanding on specific issues of the Biological Opinion and Incidental Take Statement issued by the United States Department of the ~~Interior’s~~Interior's Fish and Wildlife Service for ~~MVP. On May 3,~~the MVP project.

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Given ongoing litigation and regulatory matters, the LLC filed a request on June 24, 2022 ~~the operator for MVP announced that after evaluating legal options and consulting~~ with the ~~relevant federal agencies,~~FERC for an extension of time to complete the project for an additional four years (relative to a prior obtained extension) through October 13, 2026. The request was granted on August 23, 2022.

The LLC ~~plans to pursue~~has sought new authorizations relating to the JNF, ~~and~~a new Biological Opinion and Incidental Take ~~Statement;~~Statement, and ~~as a result,~~an Individual Permit from the ~~operator is targeting a full in-service date for MVP during the second half of 2023 at a target total project cost of approximately $6.6 billion (excluding AFUDC).~~

~~In addition to timely receiving,~~Huntington, Pittsburgh and ~~subsequently maintaining, new authorizations in respect~~Norfolk Districts of the ~~JNF and~~U.S. Army Corps of Engineers to effect approximately 300 water crossings utilizing open cut techniques. In April 2022, the ~~Biological Opinion and Incidental Take Statement,~~MVP obtained the ~~LLC must, in~~FERC’s authorization to amend the Certificate to utilize alternative trenchless construction methods to effect approximately 120 water crossings. In order to complete ~~MVP, among~~the project, in addition to the authorizations with respect to water crossings and other ~~things, timely receive~~relevant regulatory matters, the ~~Army Corps Individual Permit (as well as timely receive, as necessary, certain other state-level approvals), as well as any necessary extensions from FERC~~LLC needs to ~~complete MVP. The LLC also must (i)~~ continue to have available the orders previously issued by the FERC ~~which~~that are ~~subject to ongoing litigation, modifying its prior stop work orders and extending the LLC’s prescribed time~~necessary to complete ~~MVP;~~the MVP project and ~~(ii) timely~~ receive authorization from the FERC to complete construction work in the portion of the project route currently remaining subject to the ~~FERC's~~FERC’s previous stop work order and in the JNF. InThe LLC is also participating in the defense of Section 401 water quality certification approvals received in December 2021 from each ~~case, any such foregoing or other authorizations must remain in effect notwithstanding any pending or future challenge thereto. Failure to achieve any one~~ of the ~~above items could lead to additional delays and higher project costs.~~

~~Resources' earnings from MVP are primarily attributable to AFUDC income generated by the LLC. The LLC temporarily suspended the accrual~~West Virginia Department of ~~AFUDC on the project from January 1, 2021 (due to a temporary reduction in growth construction activities) through March 31, 2021. Limited growth construction activities resumed in April 2021,~~Environmental Protection (WVDEP) and the LLC began accruing AFUDC associated with those activities. In November 2021, the LLC suspended the accrual of AFUDC for the winter curtailment period until such time as growth construction activities may resume. Additionally, Roanoke Gas continues the suspension of AFUDC accruals on its two gate stations that will interconnect with MVP until such time as construction activities resume on the respective gate stations.

In April 2018, the LLC announced the Southgate project and submitted Southgate's certificate application to the FERC in November 2018. The Final Environmental Impact Statement for the project was issued on February 14, 2020. In June 2020, the FERC issued the CPCN for Southgate; however, the FERC, while authorizing the project, directed the Office of Energy Projects not to issue a notice to proceed with construction until necessary federal permits are received for MVP and the Director of the Office of Energy Projects lifts the stop work order and authorizes the LLC to continue constructing MVP. On August 11, 2020, the North CarolinaVirginia Department of Environmental Quality ~~(NCDEQ) denied Southgate's application for a Clean Water Act Section~~(VADEQ) (the State 401 ~~Individual Water Quality Certification and Jordan Lake Riparian Buffer Authorization due to uncertainty surrounding MVP's completion. On March 11, 2021,~~Approvals), which are the subject of ongoing litigation in the Fourth Circuit ~~pursuant~~and the LLC is awaiting rulings from the Fourth Circuit.

On October 25, 2022, oral argument was held in the Fourth Circuit relating to ~~an appeal filed~~the State 401 Approvals, which oral argument was conducted by the ~~LLC, vacated the NCDEQ's denial~~same panel of Fourth Circuit judges as have appeared, and ~~remanded the matter~~overruled permitting agencies, in numerous prior matters relating to the ~~NCDEQ~~MVP. The project operator perceives continued hostility to and risk posed by the Fourth Circuit panel to the LLC’s State 401 Approvals (based upon the oral arguments, particularly with respect to the WVDEP State 401 Approval) and more generally to those potential future authorizations and permits within the Fourth Circuit’s jurisdiction, including any new authorizations for ~~additional review. On April 29, 2021,~~ the NCDEQ reissued its denial of Southgate's application. On December 3, 2021, the Virginia State Air Pollution Control Board denied the permit for Southgate's Lambert compressor station, which decision the LLC initially appealed before withdrawing its request to review the denial. JNF and new Biological Opinion and Incidental Take Statement.

~~Given the continually evolving regulatory~~However, notwithstanding prior setbacks and ~~legal environment, for greenfield pipeline construction projects, as well as factors specific to MVP and Southgate, including the December 2021 compressor station state air permit denial,~~ongoing risks, the LLC continues to ~~evaluate Southgate including engaging~~engage in ~~discussions with Dominion Energy North Carolina regarding options with respect to Southgate, including potentially refining the project's design and timing in lieu of~~ pursuing the ~~project as originally contemplated. Dominion Energy North Carolina's obligations~~requisite authorizations necessary under applicable law from the ~~precedent agreement in support of~~relevant agencies to complete the ~~original project are subject to certain conditions, including~~MVP project. The LLC understands that the ~~LLC complete construction~~agencies are working to issue such authorizations in the first half of calendar 2023 and to produce authorizations, for the ~~project facilities~~third time in certain cases, that address points raised by ~~June 1, 2022, which deadline is subject to extension by virtue~~the Fourth Circuit and exceed legal and regulatory standards for the issuance of ~~previously declared events of force majeure.~~such authorizations. The project operator ~~has announced~~previously indicated that itthe best path to complete the MVP project in accordance with the previously communicated targeted full in-service date during the second half of calendar 2023 and at a targeted total project cost of approximately $6.6 billion (excluding AFUDC) is ~~unable~~for the United States Congress to ~~predict~~expeditiously pass, and there to be enacted, federal energy infrastructure permitting reform legislation that specifically requires the ~~results of the discussions between the LLC and Dominion Energy North Carolina, including any potential modifications to the project, or ultimate undertaking or~~ completion of the ~~project.~~MVP project, similar to MVP-specific aspects of legislation proposed in September 2022 by each of United States Senators Joseph Manchin and Shelley Moore Capito. However, while as of the date of the filing of this Quarterly Report on Form 10-Q, the LLC is cognizant that attempts to enact such legislation have failed and that differences between and within the Republican and Democratic parties continue to exist as to the scope and terms of any such reform. Such differences could impede the prospect of legislation being enacted in sufficient time for the LLC to complete construction in 2023.

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RGC RESOURCES, INC. AND SUBSIDIARIES

Management conducted an assessment of its investment in the LLC in accordance with the provisions of ASC 323, Investments - Equity Method and Joint Ventures. This assessment included a third-party valuation. As a result of its ~~evaluation,~~evaluations in fiscal 2022, management ~~has~~ concluded that the investment in the LLC sustained an other-than-temporary ~~decline~~declines in fair value as of February 22, 2022 and as of September 30, 2022 and recorded a pre-tax impairment ~~loss~~losses of approximately $39.8 million and $15.3 million in its second and fourth quarter operating results, ~~as discussed in Note 6 to the consolidated financial statements.~~respectively. Management re-evaluated its investment as of ~~March~~December 31, 2022 and concluded that its investment was fairly ~~stated.~~stated and no additional impairment was required. Management will continue monitoring the status of MVP ~~and Southgate~~ for circumstances that may lead to future impairments, including ~~any significant~~further delays or denials of necessary permits and approvals. If necessary, the amount and timing of any further impairment would be dependent on the specific circumstances, including changes to probabilities of completion, and changes in the assumed future cash flows, and discount rate at the time of evaluation.

Midstream has utilized the $23 million of borrowing capacity under its non-revolving credit facility, which matures in December 2023. Effective November 1, 2021, the borrowing capacity under this credit facility was reduced to $33 million as $8 million of the outstanding balance was re-financed through a separate unsecured promissory note. Effective March 31, 2022, the borrowing capacity under the credit facility was further reduced to its current $23 million level as $10 million of the outstanding balance was paid. See Note 7 for more information. Due to ongoing delays, additional financing will be required. Management is evaluating various options to secure the necessary capital, including discussions with Midstream's current lenders and additional equity capital.

If the legal and regulatory challenges, including any future challenges, are not resolved in a timely manner and/or restrictions are imposed that impact future construction, the cost of the MVP and Midstream's capital contributions may further increase. See Investment in Mountain Valley Pipeline, LLC Risk Factor under Item 1A of the Company's Form 10-K for the year ended September 30, 2022.

Regulatory

On December 2, 2022, Roanoke Gas filed an application with the SCC seeking an increase in its base rates. The Company is seeking an increase in base rate of $8.55 million, of which $4.05 million was being recovered through the SAVE Rider. Since the Company is proposing to recover the costs associated with its SAVE plan through interim base rates effective January 1, 2023, the Company proposed discontinuing its SAVE Plan and Rider for the remainder of the current fiscal year.

On December 21, 2022, the SCC issued its Order for Notice and Hearing, which authorized the Company to put its proposed rates into effect, on an interim basis, on January 1, 2023, and set the matter for hearing. The Company expects final resolution of the rate case to occur in late calendar 2023 or early 2024.

In the final order from the last non-gas base rate increase, the SCC allowed Roanoke Gas to defer the related financing costs of two gate stations that would interconnect to MVP for possible future recovery. As a result, the Company began recognizing AFUDC during the second quarter of fiscal 2020 to capitalize both the equity and debt financing costs incurred during the construction phases. Beginning January 2021, Roanoke Gas temporarily ceased recording AFUDC on its related MVP interconnect construction projects until such time as construction activities resume. The Company is seeking rate recovery of the MVP related assets in its base rate filing and, if approved, will permanently stop accruing AFUDC on these assets.

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The Company expects to file for a new SAVE Plan and SAVE Rider in the third quarter of fiscal 2023 for recovery of SAVE eligible investments beginning October 1, 2023.

~~Regulatory~~

On May 16, 2022, Roanoke Gas announced a cooperative agreement under which Roanoke Gas and the Western Virginia Water Authority will produce commercial quality RNG from biogas produced at the regional water pollution control plant. In August 2022, Roanoke Gas filed an application with the SCC seeking approval of a rate adjustment clause under which the Company will recover the costs associated with constructing, owning, operating and maintaining the renewable natural gas facility. The application was filed under Chapter 30 of Title 56 of the Code of Virginia. Chapter 30 allows the Company to accrue AFUDC on the RNG project. In connection with the RNG project, Roanoke Gas began accruing AFUDC in fiscal 2022 associated with construction of the facility. As of December 31, 2022, the Company has recognized approximately of $179,000 in AFUDC since inception of the RNG project. The Company received a final order from the Commission on January 23, 2023 approving the Company’s application. The Company expects to start commissioning the RNG facility in the third quarter of fiscal 2023 and cease recording AFUDC on the project.

On June 2, 2022, Roanoke Gas filed an application with the SCC to acquire certain natural gas distribution assets from a local housing authority. Under this application, the Company requested the approval to acquire such facilities at five separate apartment complexes, located in the Company’s service territory, that were under housing authority management. Under the proposed plan, the housing authority would renew existing natural gas distribution facilities to include mains, services and meter installations and then transfer ownership of these facilities to Roanoke Gas. In turn, Roanoke Gas would assume responsibility for the operation and maintenance of these assets and recognize a gain related to the asset acquisition equal to the cost associated with the renewal.

On July 19, 2022, the SCC approved the application and on August 4, 2022, the housing authority transferred the assets from two apartment complexes to Roanoke Gas. Roanoke Gas recorded these assets and recognized a pre-tax gain of approximately $219,000 during the Company’s fourth quarter of fiscal 2022. The housing authority expects to complete the upgrade and subsequent asset transfer at one more apartment complex in fiscal 2023. The authority is awaiting future funding to complete the two remaining apartment complexes. The timing of funding and the completion of the asset renewals for these two complexes is unknown at this time.

In November 2021, Roanoke Gas received ~~$858,556~~$859,000 in ARPA funds ~~to assist customers with growing past due balances based on arrearage balances as of August 31, 2021. The Company was able to apply~~and applied the full amount ~~of these funds~~ to customer ~~accounts~~arrearages in December 2021.

In April 2020, the SCC issued an order allowing regulated utilities in Virginia to defer certain incremental, prudently incurred costs associated with the COVID-19 pandemic and to apply for recovery at a future date. Roanoke Gas deferred certain COVID-19 related costs during the first two quarters of fiscal 2022.

Roanoke Gas continues to recover the costs of its infrastructure replacement program through its SAVE Rider. In May 2021, the Company filed its most recent SAVE application with the SCC to update the SAVE Plan and Rider for the period October 2021 through September 2022. The updated SAVE Rider is designed to collect approximately $3.45 million in annual revenues, an increase of approximately $1.1 million from the SAVE Rider in effect during fiscal 2021. The Company received a final order on August 25, 2021, in which the SCC approved the Company’s requested revenue requirement. The Company anticipates filing an application during the third quarter with the SCC to update the SAVE Plan and Rider for the period October 2022 through September 2023 to implement new SAVE Plan rates.

Capital Resources and Liquidity

Due to the capital intensive nature of the utility business, as well as the impact of weather variability, the Company’s primary capital needs are the funding of its capital projects, investment in the LLC, the seasonal funding of its natural gas inventories and accounts ~~receivable~~receivables and the payment of dividends. To meet these needs, the Company ~~relies on~~anticipates funding these items through its operating cash flows, credit availability under short-term and long-term debt agreements and proceeds from the sale of its common stock.

Cash and cash equivalents ~~increased~~decreased by ~~$7,913,673 and $435,483~~$1,664,722 for the ~~six-month periods~~three-month period ended ~~March~~December 31, 2022 ~~and 2021, respectively.~~compared to an increase of $233,557 for the three-month period ended December 31, 2021. The following table summarizes the sources and uses of cash:

	Six Months Ended March 31,						Three Months Ended December 31,
Cash Flow Summary	2022			2021			2022			2021
Net cash provided by operating activities	$	12,992,906		$	9,611,402
Net cash used in operating activities							$	(2,424,401	)	$	(3,544,766	)
Net cash used in investing activities		(14,278,880	)		(11,691,440	)		(8,348,589	)		(7,832,913	)
Net cash provided by financing activities		9,199,647			2,515,521			9,108,268			11,611,236
Increase in cash and cash equivalents	$	7,913,673		$	435,483
Increase (decrease) in cash and cash equivalents							$	(1,664,722	)	$	233,557

Cash Flows ~~Provided by~~Used in Operating Activities:

The seasonal nature of the natural gas business causes operating cash flows to fluctuate significantly during the year as well as from year to year. ~~Several factors,~~Factors, including weather, energy prices, natural gas storage levels and customer collections, all contribute to working capital levels and related cash flows. Generally, operating cash flows are positive during the second and third fiscal quarters as a combination of earnings, declining storage gas levels and collections on customer accounts all contribute to higher cash levels. During the first and fourth fiscal quarters, operating cash flows generally decrease due to increases in natural gas storage levels and rising customer receivable balances.

Cash flows from operating activities for the three months ended December 31, 2022 increased by $1,120,365 compared to the same period last year. The table below summarizes the significant components of operating cash flows:

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	Three Months Ended December 31,						Increase/
Cash Flow From Operating Activities:	2022			2021			(Decrease)
Net income (loss)	$	3,256,405		$	3,584,529		$	(328,124	)
Non-cash adjustments:
Depreciation		2,477,084			2,329,409			147,675
Equity in earnings		(1,232	)		(72,127	)		70,895
AFUDC		(103,771	)		—			(103,771	)
Changes in working capital and regulatory assets and liabilities:
Accounts receivable		(15,967,191	)		(7,105,030	)		(8,862,161	)
Over-recovery of gas cost		5,763,958			823,059			4,940,899
Accounts payable		3,220,632			(1,320,430	)		4,541,062
WNA		186,648			(1,244,017	)		1,430,665
Supplier refunds		(682,636	)		388,786			(1,071,422	)
Other		(574,298	)		(928,945	)		354,647
Net cash used in operating activities	$	(2,424,401	)	$	(3,544,766	)	$	1,120,365

~~Cash flows from operating activities for the six months ended March 31, 2022 increased by $3,381,504~~

A combination of significantly higher natural gas commodity prices combined with colder weather compared to the same period last ~~year. The increase was primarily driven by storage gas withdrawals~~year resulted in much higher accounts receivable and ~~receipt of supplier refunds from the pipelines.~~

~~The table below summarizes the significant operating cash flow components:~~

Six Months Ended March 31, Increase/
Cash Flow From Operating Activities:

2022

2021

(Decrease)

Net income
$ (20,909,900 ) $ 9,490,741 $ (30,400,641 )
Non-cash adjustments:

Depreciation
4,656,829 4,405,956 250,873
Equity in earnings
(71,682 ) (1,352,886 ) 1,281,204
AFUDC
— (55,981 ) 55,981
Impairment of unconsolidated affiliates
39,822,213 — 39,822,213
Changes in working capital and regulatory assets and liabilities:

Accounts receivable
(6,517,364 ) (6,571,491 ) 54,127
Gas in storage
5,803,496 4,424,994 1,378,502
WNA
(1,800,421 ) (1,185,323 ) (615,098 )
Supplier refunds
2,660,147 (66,156 ) 2,726,303
Deferred taxes
(10,052,645 ) 757,623 (10,810,268 )
Other
(597,767 ) (236,075 ) (361,692 )
Net cash provided by operating activities
$ 12,992,906 $ 9,611,402 $ 3,381,504

accounts payable balances. Due to ~~rising~~the higher commodity prices, the Company adjusted the PGA factor included in its billing rates to keep pace with these higher commodity prices. However, December commodity prices experienced a significant decline even in consideration of the colder weather, which resulted in a significant over-recovery of gas costs during the month. The PGA rate was subsequently reduced in January 2023 to reflect the lower natural gas ~~commodity prices during~~prices. Likewise, the ~~fiscal 2021 summer storage fill period,~~colder weather resulted in a significant change in the ~~average price of natural gas when storage withdrawals began was 42% higher than during~~WNA balances as the prior year fiscal ~~year. As a result, the value of the natural gas draw downs was more than $1.3 million greater resulting in~~quarter reflected an increase in ~~operating cash. Furthermore, significant~~WNA receivable due to the weather being 22% warmer than normal, while the current fiscal quarter reflected a reduction in the WNA receivable related to weather that was 3% colder than normal. The current quarter also included the refunding of approximately $683,000 in supplier refunds resulting from rate case settlements, were received from the interstate pipelines that supply the Company with natural gas as a result of settlement of rate cases. These refunds will be passed through to Roanoke Gas' customers over the next twelve months, starting in July 2022. The Company experienced a significant decrease in net deferred tax liabilities relatedbalances compared to the ~~$10.2 million deferred tax asset recognized as a result~~same period last year, which included the receipt from suppliers of ~~the impairment~~approximately $414,000 of ~~the investment in the LLC. When netted against the non-cash impairment charge, the combined amounts offset the decline in net income year-over-year.~~said refunds.

Cash Flows Used in Investing Activities:

Investing activities primarily consist of expenditures related to investment in Roanoke Gas' utility ~~plant,~~property, which includes replacing aging natural gas pipe with new plastic or coated steel pipe, improvements to the LNG plant and gas distribution system facilities and expansion of its natural gas system to meet the demands of customer growth, as well as Midstream's continued investment in the LLC. The Company ~~is continuing~~continued its focus on SAVE infrastructure replacement projects, including the replacement of pre-1973 first generation plastic pipe and extending the natural gas distribution system to unserved developments within its existing service territory. Roanoke Gas' total capital expenditures for the ~~six-months~~three-months ended ~~March~~December 31, 2022 were approximately ~~$10.8~~$7.5 million compared to ~~$9.0~~$5.7 million during the same period last year. Capital expenditures for fiscal ~~2022~~2023 are expected to ~~increase~~be in the $20 million range. Midstream's investment in the LLC declined by approximately $5$1.3 million ~~over~~as no active construction activities occurred during the ~~prior year due to a one-time gas supply infrastructure project. Midstream~~current fiscal year. The Company will continue its ~~investments in~~funding of the LLC for the purposes of ~~maintaining the system currently in place~~maintenance and monitoring until such time as construction activities resume and the pipeline is placed in service. ~~The investment for the balance of the current fiscal year is expected to be below the corresponding investment during the same period last year.~~

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Cash Flows Provided by Financing Activities:

Financing activities generally consist of borrowings and repayments under credit agreements, issuance of stock and the payment of dividends. Net cash flows provided by financing activities were ~~$9.2~~$9.1 million for the ~~six~~three months ended ~~March~~December 31, 2022, compared to ~~$2.5~~$11.6 million for the same period last year. The ~~increase~~reduction in financing cash flows is primarily attributable to ~~Resources' $27 million equity offering in March 2022 of which $12 million was invested in Roanoke Gas and $10 million in Midstream. In part due to these cash injections and due to~~ Roanoke Gas' issuance of a $15 million ~~note and Midstream's $8~~in unsecured notes, net of the retirement of $7 million ~~note,~~in matured notes during the first quarter of fiscal 2022. Roanoke Gas ~~was able to pay down~~also increased net borrowing under its line-of-credit ~~balance and maturing $7~~by $7.4 million ~~note and Midstream applied $18 million against its credit facility~~ during the current fiscal ~~year.~~

~~On September 24, 2021, Roanoke Gas entered into an unsecured Delayed Draw Term Note in the principal amount~~quarter to provide additional working capital needs and provide bridge financing for its construction activities. Additionally, Resources issued a total of $10 million with an interest rate based on 30-day LIBOR plus 100 basis points maturing on October 1, 2028. Related to this note, the Company also entered into an interest rate swap agreement that effectively converts the variable rate note into a fixed rate instrument with an effective annual interest rate of 2.49%. Roanoke Gas received the first installment of $5 million on April 1, 2022 with the remaining $5 million to be received on or about October 1, 2022.

On August 20, 2021, Roanoke Gas entered into an unsecured Delayed Draw Term Note in the principal amount of $15 million with an interest rate of 1.20% above the 30-day SOFR Average per annum maturing on August 20, 2026. Related to this note, the Company also entered into an interest rate swap agreement that effectively converts the variable rate note into a fixed rate instrument with an effective annual interest rate of 2.00%. The term note funded on October 1, 2021.

On November 1, 2021 Midstream entered into an unsecured promissory note in the principal amount of $8 million with an interest rate based on 30-day LIBOR plus 115 basis points maturing January 1, 2028. Related to this note, Midstream also entered into an interest rate swap agreement that effectively converts the variable rate note into a fixed rate instrument with an effective annual interest rate of 2.443%. The loan will convert into an installment loan with principal pay-down beginning in fiscal 2023. In addition, this note reduces the borrowing capacity defined by the Third Amendment to Credit Agreement and related Promissory Notes. The total borrowing capacity declined from $41 million to $33 million effective with the new promissory note. All other terms of the Third Amendment to Credit Agreement remain unchanged.

On March 31, 2022, Roanoke Gas entered into an unsecured line-of-credit agreement replacing the line-of-credit agreement dated March 25, 2021. The agreement provides for a variable interest rate based upon Daily Simple SOFR plus 1.10% and multiple tier borrowing limits to accommodate seasonal borrowing demands. The Company's total available borrowing limits during the term of the line-of-credit agreement range from $21 million to $33 million. Unlike the prior two year line-of-credit agreement, the current line-of-credit agreement is for one year and will expire on March 31, 2023, unless extended. The Company anticipates being able to extend or replace the credit line upon expiration. As of March 31, 2022, the Company had no outstanding balance under its line-of-credit agreement.

In connection with the line-of-credit, the Company also entered into the Seventh Amendment to Credit Agreement as of March 31, 2022, which amends the original Credit Agreement dated March 31, 2016 and all subsequent amendments. The Amendment aligns the termination date, maximum principal amount available under the line-of-credit, amends certain financial conditions required of Resources, and retains all other terms and requirements of prior credit agreements. This Amendment modifies the interest coverage ratio calculation to exclude the effect of non-cash impairments on the investment in the LLC up to the total investment balance as of December 31, 2021.

~~RGC RESOURCES, INC. AND SUBSIDIARIES~~

~~In March 2022, the Company issued 1,350,000~~31,245 shares of common stock during the quarter, including 17,199 shares through the ATM program in ~~an equity offering resulting in~~which Resources received $377,000, net ~~proceeds~~ of ~~nearly $27 million. The Company issued~~fees.

Notes 7 and 8 provide details on the common stock to strengthen its balance sheet by increasing the equity component of its total capitalization ratio. The net proceeds were invested in Roanoke Gas to supplement the funding of its infrastructure improvementCompany's line-of-credit and ~~replacement program and in Midstream to reduce its~~ outstanding debt. ~~An additional 64,803 shares of common stock have been issued during fiscal 2022 related to the DRIP, Restricted Stock, stock option exercises and ATM activity.~~

~~On March 31, 2022, Midstream applied $10 million from a cash infusion received from Resources related~~The rise in interest rates will continue to ~~the $27 million equity issue to pay down a corresponding amount on the non-revolving credit facility, which~~result in turn further reduced the total borrowing capacity to $23 million with an outstanding balance of $19.3 million as of March 31, 2022. Currently, Midstream's credit facility matures on December 29, 2022. Management is in discussionshigher interest expense associated with the ~~lenders regarding~~Company's variable rate debt or the ~~extension~~issuance of any new debt in the ~~due date related to these notes. As of the date of this filing, no extension has been finalized.~~future.

Management regularly evaluates the Company’s liquidity through a review of its available financing resources onand its cash flows. Resources’ maintains the ability to raise equity capital through its ATM program, private placement or other public offerings. Management believes itRoanoke Gas has ~~positioned the Company with~~ access to sufficient financing resources to meet its cash requirements for the next year, including the line-of-credit and the two private shelf facilities. Roanoke Gas may also adjust capital spending as necessary.

Based on the LLC's projected cash requirements for MVP, which includes MVP construction resuming in 2023, Midstream will need between $15 million and $18 million in additional capital over the next ~~year. The line-of-credit agreement will continue~~12 to ~~provide the needed working capital~~24 months. Various debt and ~~the ATM program will allow for potential supplemental~~ equity funding as market conditions allow. Furthermore, the Company can draw funds under one of Roanoke Gas' two private shelf facility credit agreements or adjust capital spending to reduce funding requirements if necessary.options are being evaluated.

As of ~~March~~December 31, 2022, Resources' long-term capitalization ratio was ~~46%~~41% equity and ~~54%~~59% debt.

ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4 – CONTROLS AND PROCEDURES

The Company maintains disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to be effective in providing reasonable assurance that information required to be disclosed in reports under the Exchange Act are identified, recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to management to allow for timely decisions regarding required disclosure.

Through ~~March~~December 31, 2022, the Company has evaluated, under the supervision and with the participation of management, including the chief executive officer and the chief financial officer, the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based upon that evaluation, the chief executive officer and chief financial officer concluded that the Company’s disclosure controls and procedures were effective at the reasonable assurance level as of ~~March~~December 31, 2022.

Management routinely reviews the Company’s internal control over financial reporting and makes changes, as necessary, to enhance the effectiveness of the internal controls. There were no control changes during the fiscal quarter ended ~~March~~December 31, 2022, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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Part II – Other Information

ITEM 1 – LEGAL PROCEEDINGS

No material proceedings.

ITEM 1A – RISK FACTORS

~~The Company has updated~~There have been no material changes to the ~~following~~ risk ~~factor as~~factors previously disclosed in Resources' Annual Report on Form 10-K for the year ended September 30, ~~2021 and subsequent revision on the Form 10-Q for the quarter ended December 31, 2021.~~2022.

~~Investment in Mountain Valley Pipeline, LLC.~~

On January 25, 2022, the Fourth Circuit vacated and remanded on specific issues certain permits issued by the Bureau of Land Management and the U.S. Forest Service to the LLC in respect to the Jefferson National Forest. On February 3, 2022, the Fourth Circuit vacated and remanded on specific issues the Biological Opinion and Incidental Take Statement issued by the U.S. Fish and Wildlife Service for MVP. Due to the greater uncertainty of the ultimate completion and commercial operation of MVP, the in-service target of summer 2022 was withdrawn. Additionally, the Company, after assessing the fair value of its investment in the project, using probability-weighted scenarios of ultimate completion and commercial operation, including discounted future cash flows, concluded that an other-than-temporary decline in fair value existed as of February 22, 2022. The resulting impairment loss was recorded in the Company’s second quarter 2022 financial statements. Future circumstances, including but not limited to significant construction delays, further denials of necessary permits and approvals, changes in the probability of ultimate completion, changes in future cash flow assumptions or changes in the discount rate could lead to further and possibly full impairment of the Company's investment in the LLC.

The success of the Company's investment in the LLC is predicated on several key factors including but not limited to the ability of all investors to meet their capital calls when due, timely state and federal approvals and resolving legal challenges to same and completing the construction of the pipeline. Any significant delay, cost over-run or the failure to receive the requisite approvals on a timely basis, or at all, could have a significant effect on the Company's earnings and financial position.

Although the LLC initially received the necessary federal and state permits to construct the pipeline, progress on MVP has been hindered by several legal and regulatory obstacles as the Fourth Circuit, FERC and other governmental agencies have vacated certain agency actions and issued stays, stop orders or delayed authorizations affecting portions or all of the project pending resolution of issues or concerns raised as the project has progressed. In addition to needing to address the matters referenced above regarding the Jefferson National Forest and Biological Opinion and Incidental Take Statement, other regulatory and legal matters continue to affect the project.

~~RGC RESOURCES, INC. AND SUBSIDIARIES~~

Ongoing obstacles as discussed above have in the past caused, and may (or possible future obstacles) in the future cause, delays in construction and have resulted, and may further result, in significantly higher projected costs and an extended targeted in-service date for the pipeline. These cost overruns may not be approved for recovery or be recovered through other regulatory mechanisms, and the LLC could be obligated to make delay or termination payments or be responsible for other contractual damages. The LLC could also experience the loss of tax incentives, or delayed or diminished returns, and could be required to write-off all or a portion of its investment in the project. New or extended regulatory, legislative or judicial actions or challenges could lead to additional delays and even higher costs, which could affect future returns for the LLC and materially impact Resources consolidated financial position and results of operations, including Resources ability to pay shareholder dividends at the current level or remain in compliance with credit agreement covenants. There is no guarantee that the LLC will ultimately (or timely) receive all necessary authorizations or that such authorizations will be maintained in effect following challenge, or even after MVP is placed in service.

In addition, there are numerous risks facing the LLC, which can adversely affect the Company's earnings and financial performance through its investment. The LLC's ability to retain contract crews to complete construction of the pipeline, the inability to obtain or renew ancillary licenses, rights-of-way, permits or other approvals and opposition from pipeline opponents and environmental groups could all influence the successful completion of the pipeline. Should the LLC be unable to adequately address these issues, the LLC’s business, financial condition, results of operations and prospects could be adversely affected, which could materially impact the financial condition and results of operations of the Company. Any failure to negotiate successful project development agreements for new facilities with third parties could have similar results.

Once in operation, the LLC’s gas infrastructure facilities are subject to many operational risks. Operational risks could result in, among other things, lost revenues due to prolonged outages, increased expenses due to monetary penalties or fines for compliance failures, liability to third parties for property and personal injury damage, a failure to perform under applicable sales agreements and associated loss of revenues from terminated agreements or liability for liquidated damages under continuing agreements. The consequences of these risks could have a material adverse effect on the LLC’s business, financial condition, results of operations and prospects. Uncertainties and risks inherent in operating and maintaining the LLC's facilities include, but are not limited to, risks associated with facility start-up operations, such as whether the facility will achieve projected operating performance on schedule and otherwise as planned. The LLC’s business, financial condition, results of operations and prospects can be materially adversely affected by weather conditions, including, but not limited to, the impact of severe weather. Threats of terrorism and catastrophic events resulting from terrorism, cyber-attacks, or individuals and/or groups attempting to disrupt the LLC’s business, or the businesses of third parties, may materially adversely affect the LLC’s business, financial condition, results of operations and prospects.

~~RGC RESOURCES, INC. AND SUBSIDIARIES~~

ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3 – DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4 – MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5 – OTHER INFORMATION

None.

ITEM 6 – EXHIBITS

Number						Description
~~3(b)~~						~~Amended and Restated Bylaws of RGC Resources, Inc. (incorporated by reference to Exhibit 3(b) to the Registrant's current Report of Form 8-K filed on April 8, 2022)~~
10.1						~~FTS-1 Service~~Third Amendment to Private Shelf Agreement ~~by and between Columbia Gulf Transmission, LLC and Roanoke Gas Company (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on March 11, 2022)~~
~~10.2~~						~~Negotiated Rate Letter Agreement (incorporated by reference to Exhibit 10.2 to the Registrant's Current Report on Form 8-K filed on March 11, 2022)~~
~~10.3~~						~~Revolving Line~~dated as of ~~Credit Note in the original principal amount of $33,000,000 by Roanoke Gas Company with Wells Fargo Bank, N.A. dated March 31,~~December 6, 2022 (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on ~~April 1,~~December 7, 2022)
~~10.4~~						Seventh Amendment to Credit Agreement by and between Roanoke Gas Company and Wells Fargo Bank, N.A. dated March 31, 2022 (incorporated by reference to Exhibit 10.2 to the Registrant's Current Report on Form 8-K filed on April 1, 2022)
~~10.5~~						~~Form of Purchase Agreement (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on March 28, 2022).~~
~~10.6~~						~~Form of Purchase Agreement (incorporated by reference to Exhibit 99.1 to the Registrant's Current Report on Form 8-K filed on March 30, 2022).~~
31.1						Rule 13a–14(a)/15d–14(a) Certification of Principal Executive Officer
31.2						Rule 13a–14(a)/15d–14(a) Certification of Principal Financial Officer
32.1*						Section 1350 Certification of Principal Executive Officer
32.2*						Section 1350 Certification of Principal Financial Officer
101.INS						Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)
101.SCH						Inline XBRL Taxonomy Extension Schema Document
101.CAL						Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF						Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB						Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE						Inline XBRL Taxonomy Extension Presentation Linkbase Document
104						Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

These certifications are being furnished solely to accompany this quarterly report pursuant to 18 U.S.C. Section 1350, and are not being filed for purposes of Section 18 of the Securities Exchange Act of 1934 and are not to be incorporated by reference into any filing of the Registrant, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		RGC Resources, Inc.

Date: ~~May 6, 2022~~February 8, 2023	By:	/s/ Jason A. Field
		Jason A. Field
		Vice President, Chief Financial Officer and Treasurer
		(Principal Financial Officer)

4035

	Three Months Ended March 31, 2022						Three Months Ended March 31, 2021
	Gas utility		Non utility		Total operating revenues		Gas utility		Non utility		Total operating revenues
Natural Gas (Billed and Unbilled):
Residential	$	18,104,512	$	0	$	18,104,512	$	17,402,552	$	0	$	17,402,552
Commercial		9,487,312		0		9,487,312		9,264,611		0		9,264,611
Industrial and Transportation		1,352,161		0		1,352,161		1,252,343		0		1,252,343
Other		138,035		30,464		168,499		95,092		32,388		127,480
Total contracts with customers		29,082,020		30,464		29,112,484		28,014,598		32,388		28,046,986
Alternative Revenue Programs		417,199		0		417,199		206,676		0		206,676
Total operating revenues	$	29,499,219	$	30,464	$	29,529,683	$	28,221,274	$	32,388	$	28,253,662

	Fiscal Year-to-Date Contributions		Remaining Fiscal Year Contributions
Pension plan	$	0	$	500,000
Postretirement plan		0		400,000
Total	$	0	$	900,000

	March 31, 2022
	Gas Utility		Investment in Affiliates(1)		Parent and Other		Consolidated Total
Total assets	$	240,934,602	$	27,465,020	$	19,958,863	$	288,358,485