RGC Resources, Inc.

What they do

RGC Resources, incorporated in Virginia in 1998, operates through Roanoke Gas Company and RGC Midstream, LLC. Roanoke Gas distributes and sells natural gas to residential, commercial and industrial customers in Roanoke, Virginia and surrounding localities, and its regulated distribution business accounted for more than 99% of consolidated revenues in fiscal 2025 and 2024. Midstream holds a less than 1% investor interest in Mountain Valley Pipeline, Southgate and Boost. The utility is regulated by the Virginia State Corporation Commission (SCC), with the Department of Transportation and FERC also overseeing pipeline and transportation matters.

Revenue drivers

• Residential gas distribution — 91.3% of customers and 58.0% of fiscal 2025 revenue, but only 31.3% of delivered volume; represents 62.2% of margin because residential rates carry the highest non-gas component.
• Commercial distribution — 8.6% of customers, 27.9% of volume, 35.0% of fiscal 2025 revenue and 26.3% of margin; primarily heating-related and weather-sensitive like residential.
• Industrial and transportation customers — 0.1% of customers but 40.8% of volume and 6.2% of fiscal 2025 revenue; these customers buy gas directly from other suppliers and pay Roanoke Gas mainly for transportation, contributing roughly 10% of margin.
• Equity in pipeline affiliates (Midstream) — Less than 1% investor in MVP, Southgate and Boost; contributed $2,495,239 of equity in earnings of unconsolidated affiliates in the nine months ended June 30, 2026.

Recent performance

Third quarter fiscal 2026 net income was $559,000, or $0.05 per diluted share, versus $538,000, or $0.05, in the June 2025 quarter, with operating margin up $757,000 on higher non-gas base rates effective January 1, 2026. Operating expenses rose by a similar amount, leaving operating income roughly flat at $1,172,269. For the nine months ended June 30, 2026, net income was $14.2 million, or $1.39 basic per share, up 5.2% from $13.5 million, or $1.31, a year earlier, aided by stronger margins and lower interest expense. Third-quarter operating revenues were $17,105,393 versus $17,264,615 a year earlier. CEO Paul Nester cited improved margins from base rates and SAVE investment plus residential growth, offset by inflation and an industrial customer ceasing operations.

Strategy

The company is investing in SAVE-qualified infrastructure and recovering those costs through the SCC-approved SAVE Rider; SAVE revenues rose to about $1,588,000 in fiscal 2025 and an updated rider is expected to produce about $2,610,000 in fiscal 2026. It pursues non-gas base rate increases to recover infrastructure replacement and inflation-driven cost growth: a fiscal 2024 settlement yielded $4.08 million of annual revenue at a 9.90% authorized return on equity, and a December 2025 expedited filing led to a July 2026 settlement for $3.85 million annually. Rate mechanisms including the WNA, ICC, RNG Rider and PGA are used to stabilize margins against weather and gas-cost volatility. Growth is also directed at adding residential customers, cited as continuing in the third quarter of fiscal 2026.

Risks

• Regulatory rate recovery lag — Infrastructure replacement and inflation-driven non-gas costs are generally not recoverable until the SCC approves new base rates, as shown by the interim rates billed from January 2026 that were subject to refund until the July 2026 settlement.
• Weather sensitivity — About 76% of residential and commercial deliveries occur in the five months from November through March, so warm winters reduce volumes, with the WNA providing only partial margin protection.
• Industrial customer concentration in volumes — Industrial and transportation customers are 0.1% of customers but 40.8% of delivered volume, and management noted an industrial customer ceased operations in fiscal 2026.
• Pipeline and LNG operating hazards — The 10-K cites inherent risks including explosions, fires, equipment failure, third-party damage and upstream pipeline failure, with potential losses not fully covered by insurance and not guaranteed recoverable through rates.

Outlook

Management attributes first-nine-month fiscal 2026 improvement to stronger operating margins and lower interest expense, particularly early in the year, and says third-quarter delivered firm volumes were steady with higher interruptible industrial volumes at lower-tiered margins. The company is billing stipulated rates from the July 2026 SCC settlement effective August 1, 2026 and has recorded a refund provision, including interest, for the difference between interim and stipulated rates. The company cautions that nine-month results are not indicative of full-year fiscal 2026 results because of the seasonal nature of the gas business.