Good morning. I'm Paul Nester, President and CEO of RGC Resources, Inc. With me today are Randy Burton, our Chief Financial Officer; and David Garcia, our Director of Financial Reporting and Analysis. Welcome, and thank you for joining us as we discuss RGC Resources' Fiscal 2021 First Quarter Results. First, a few administrative items.

We have muted all lines and ask that all participants remain muted. After the presentation is completed, we will take questions. The link to today's presentation is available on the Investor & Financial Information page of our website at www.rgcresources.com. Let's begin.

Slide 1 contains our forward-looking statements disclaimer this presentation contains forecasts and projections. As outlined on Slide 2, we will review first quarter operational and financial results. Followed by our thoughts on the remainder of the fiscal year, and we will wrap up with an opportunity for you to ask questions.

As noted on Slide 3, our first quarter customer growth built on the fiscal 2020 results by adding an additional 170 new customers. Of note, this quarter, we have installed 1.6 miles of new main. As a comparison for all of fiscal 2020, we added 2.3 miles, excluding the Blue Ridge main extension.

We expect to exceed 2020's total in the second quarter of fiscal 2021. Let's move on to Slide 4. First quarter volumes were down from the prior year, though not in correlation with the weather, which was 13% warmer than normal.

Randy will discuss COVID impacts in more detail when he reviews the financial statements, but we continue to see weakness in some commercial sectors that we believe is attributable to the pandemic with the hospitality sector best example.

However, other commercial sectors are particularly strong year-over-year, building supplies and CNG power delivery fleet being 2 good examples. Let's review first quarter capital spending on Slide 5. We are right where we to be with our 2021 capital investment plan, but down slightly from 2020.

You may recall that the first quarter of 2020 had about $0.5 million of carryover spending related to the LNG generator project. Randy will now walk us through our financial results..

Thanks, Paul, and good morning. I would like to take this opportunity to encourage everyone to visit our website using the link provided at the bottom of this slide to learn more about our ESG activities. We recently added this page to highlight the many things we have been doing surrounding the ESG initiatives.

As indicated here on Slide 6, resources completed its first quarter of fiscal 2021, with earnings of $0.58 per diluted share, increasing approximately 18% over the same quarter of the prior year.

This increase reflects continued improvements in Roanoke Gas' utility margins, driven by our infrastructure improvement programs, customer growth and overall lower operating expenses. Additionally, noncash equity and earnings for RGC Midstream's investment in the Mountain Valley pipeline contributed to the increased earnings.

At this time, I would like to preface the additional review with a few comments regarding the pandemic. First, these results mark the final comparison to a completely COVID-free historical period as the effects of COVID-19 and the state of emergency was declared in our service territory in March of 2020.

This is worthy of highlighting as our company has been extremely fortunate to have had minimal impacts on operations, including our ability to safely and own an uninterrupted basis deliver service to our customers.

I am very proud of all our team, as they have done an exceptional job of remaining diligent in their activities to ensure safety for our customers and themselves while providing essential services. Next, we continually monitor the impact we make on our customers.

And accordingly, we see the economic impact of certain customers in the form of delinquent payments and aged receivable balances. We are working with our customers to establish reasonable payment terms and/or to apply the Cares Act funding to their arrearages, if eligible. We have also updated our allowance for potential bad debts as appropriate.

Now let's turn to Slide 7, and I will review our operating results in more detail. To aid in this discussion, we have included our condensed consolidated statements of income on Slide 7. Let's start with our quarter-over-quarter results. For the current quarter, operating income of $19.5 million reflects the volume declines mentioned earlier by Paul.

However, operating income of $5.6 million reflects an increase over the same quarter of the prior year by approximately $500,000 due to favorable improvements in our Roanoke Gas utility margins and the lower operating expenses.

As a reminder, the prior year quarter included a $317,000 write-down of certain regulatory assets per the SEC's final order in our general rate case. The noncash equity and earnings of RGC Midstream investment in the Mountain Valley pipeline increased 24% to approximately $1.4 million for the current quarter.

Other income net and lower interest expense added approximately $237,000 in pretax earnings due to -- due primarily to capitalization of AFUDC on Roanoke Gas' 2 gate stations that will interconnect with the Mountain Valley pipeline.

Lower pension expense and postretirement benefits expense and the favorable interest rate environment of the current quarter. Now let's review the trailing 12 months at December 31, 2020. Operating income increased -- I'm sorry, operating income decreased approximately 3% to $13 million.

Favorable increases from higher non-gas rates and increased transportation and interruptible volumes during the current 12 months were offset primarily by higher expenses from accelerated recovery of certain regulatory assets and required increases in our allowance for bad debts, driving the overall decrease.

Noncash equity in the earnings on RGC midstream investments in MVP increased by approximately $1.5 million, reflecting continued application of AFUDC on the project's construction spend.

Other income net increase primarily reflects the recognition of AFUDC on the 2 gate station projects discussed above and in the prior quarters and lower interest -- I'm sorry, lower expense for the retirement benefits.

Increased borrowings resulted in an approximate 4% increase in interest expense, while borrowing levels slowed over the current 12-month period due to the reduced requirements for cash investment in the MVP, cumulative borrowing levels still increased over the same period of the prior year.

The increased debt levels are reflective of the incremental MVP investments and the funding of Roanoke Gas' capital projects. The favorable interest rate environment reduced the interest expense that would have otherwise been incurred due to these additional borrowings. Income tax expense increased due primarily to the increase in pretax income.

And finally, on an after-tax basis, the aforementioned increase in the noncash operating expenses primarily offset the increase in the noncash equity and earnings on the MVP investment, resulting in increased net income of $1 million or an approximate 10% for the trailing 12 months at December 31, 2020, compared to the same period of December 2019.

As this concludes our review of the financial results. I will now end the presentation back over to Paul..

Thank you, Randy. We did have an outstanding first quarter. Let's discuss the remainder of fiscal 2021. We want to take that in 3 steps, as shown on Slide 8. We like the picture here on Slide 8, if you can see it. If you're joining us online, it's a beautiful gas light here in the Raleigh Court neighborhood of Roanoke. Moving to Slide 9.

We are still on target to spend $21.1 million this fiscal year. As we continue to renew, strengthen and expand Roanoke Gas distribution system for some main extension and new customer additions have spilled over from the first quarter into the second quarter, and we expect that trend to continue into the warmer construction season.

I would like to highlight a couple of projects that we will start this coming spring. First, we will renew another of our older gate stations at approximately $0.75 million of investment. And this, in fact, will be our fifth such gate station renewal through the SAVE plan. As you recall, the SAVE plans, our infrastructure rider program.

Second, if you joined us in 2020 on these calls or at our annual meeting last year, we discussed our Blue Ridge expansion project, which was approximately an 8,000-foot main extension into a previously unserved area, the largest by dollar value main extension project in the company's history.

We're moving into Phase II in Blue Ridge at approximately $1 million this year, planning to run about 6,800 feet more main, and that's going to give us a significant residential conversion opportunity. Moving on to the Mountain Valley pipeline. We're on Slide 10.

Been a lot of discussion on that in the last few months and a lot of press, and we want to take a few minutes to discuss some of that. As the slide shows, the project is roughly 92% complete. That includes all 3 compressor stations, the 3 original certificated interconnects and more than 264 miles of pipe welded and in place.

It's also worth noting approximately half of the 303-mile right-of-way is fully restored. We'd also like to take a moment and talk a little bit about the recent announcement of changing from the nationwide Permit 12 to the individual stream crossing permits. The project announced this on January 26, just a few days ago.

And maybe we'll just I answer a few frequently asked questions on that action.

The first question, of course, why is the project taking that action? Under the totality of the circumstances, MVP believes that pursuing the individual permit process, along with an associated FERC amendment process is the most efficient regulatory path to completing the remaining components of the project.

Sort of a follow-on question to that, how many stream crossings actually remained? There are approximately 430 crossings. It's worth noting those crossings make up less than 10 miles of the actual pipeline path.

How will shifting to the individual permit process affect the project's current budgeted -- current budget and targeted late 2021 in-service date? We believe that an efficient permitting process, including all the required public participation can be completed in a timely manner.

The project also believes that approvals for the biological opinion and permits for the Jefferson National Forest will continue to be upheld. And that work can progress in a manner that would allow Mountain Valley to maintain its current budget estimate of $5.8 billion to $6 billion of cash cost and achieve its late 2021 targeted in-service.

Said simply, the budget and the in-service date are still the same despite this fairly significant regulatory change. We do want to take a minute and talk about AFUDC and that cash cost components. And we've added a new bar chart on Slide 10 here, showing our cumulative investment in the project.

And as you can see on the chart, we bifurcate the investment by cash investment signified by the green bars and AFUDC by the blue bars. As many of you know, we've been recording AFUDC income up through December 31, 2020, on the project. AFUDC is allowance for fund used during construction.

We give more thorough explanation of that, of course, in our 10-Q and previously in our 10-K. But it's essentially a FERC mechanism that allows a substantial or significant infrastructure project of this type to recognize its financing cost. And AFUDC has been used for decades, really, in these large, again, infrastructure type projects.

It does add to the cumulative investment of the project. So -- and as you can see, it's become a little more significant as the project has been delayed and worked through its regulatory and legal challenges.

As we noted in our 10-Q, which was filed yesterday in our subsequent Events footnote, the project will temporarily cease recording AFUDC as it's proper based on FERC accounting guidance, since there's not going to be really meaningful forward construction on the project in the near-term while they work through this individual permitting process.

We'll see in a moment on the next slide, that will have some impact to our consolidated earnings per share, but we'll, again, talk about that on Slide 11. I did want to highlight one other question that we're frequently hearing relative to the project.

Can the current administration stop Mountain Valley, similar to what happened with the Keystone project in January? We'll give a little bit of a longer answer on that. The regulatory review and approval process for the Mount Valley project has input from agencies in both Democrat and Republican administrations. We think that's important to note.

The project's ultimate approval was based on the best interest of our national security and energy policy and has with scrutiny, by being upheld in both the United States Court of Appeals or the United States Court of Appeals for the district of Columbia Circuit.

So again, we think the need and approval for it has withstand legal channels at this point. We don't believe that the current administration has the legal standing to stop the project, similar to the Keystone project. All right. Let's move over to Slide 11.

Many of you may recall that we halted our earnings guidance with the onset of the pandemic in March 2020, as Randy mentioned earlier, we do think it's an appropriate time now to reinstate earnings guidance, particularly with this AFUDC change by the Mountain Valley project. Slide 11 gives a nice picture.

We thought it was important to delineate our earnings between essentially, the Roanoke Gas utility, which is really represented in blue. And the red bar portion of the bars are our midstream earnings, primarily from the Mountain Valley project. And again, those midstream earnings are noncash. Obviously, the project is not in service.

It's not flowing gas, it's not producing cash flows. As you can see, and as we've discussed now for several years, the Roanoke Gas utility has just really performed very well. We've had nice economic development and customer growth in the Roanoke Valley and in our service territory. We foresee that continuing to be robust throughout 2021.

And we, in fact, expect a 7% to 8% lift in our cash earnings from the utility. Could -- you can see we provided a range there to $1.12. Could be a little better than that, but we feel pretty comfortable with the $1.8 of cash earnings there. We've essentially netted midstream earnings to 0 for the 2021 period.

We do have AFUDC in the fiscal first quarter, as Randy discussed. We will, of course, continue to have financing costs on the Mountain Valley project. For the remainder of the fiscal year, we believe those essentially offset each other. Could the project record AFUDC in fiscal 2020 -- our fiscal 2021? Yes, that's certainly possible.

Right now, we're just taking a conservative approach here and assuming no AFUDC through September 3, 2021. One other thing we would like to highlight is the dividend payout ratio. That's a frequently concern of investors when we go around the country and meet with people who own the company.

As you can see, we've applied the current annualized dividend, $0.74, to these cash earnings. And you see our payout ratio is still well under 70%, certainly within Board policy and guidelines there. So we feel very comfortable with the dividend payout based on our Roanoke Gas earnings. That concludes our prepared remarks. .

Yes. The listen, I wanted to circle on my always favorite topic, MVP and the strategy change from the partners. So I'm wondering, has the stream crossing -- like you mentioned in your comments, 430 crossings remain.

So by -- does the change in strategy bifurcate the process so that x amount of the streams fall under FERC and x amount fall under the Army core? Or do you still kind of need FERC for all of it?.

Yes. That's a great question. So the Army Corp. and FERC, in addition to the West Virginia Department of Environmental Protection and the Virginia Department of Environmental Quality will all be involved in the permitting process.

And that's also the same as it was with the Nationwide 12, instead of, of course, approving a blanket permit, which is what the Nationwide 12 performed as. They'll just be reviewing and approving individual permits..

So in essence, they're taking this attack stream by stream..

They really are taking it stream by stream. And they feel really good that from a construction standpoint, nothing's changed. In other words, the project still going to complete those stream by stream crossings in an environmentally responsible and protective manner.

And in fact, by moving to this individual permit process, it really does respond to the fourth circuit opinion on the Nationwide 12, and really a lot -- frankly, a lot of the opposition's thoughts and comments on the stream crossings..

Okay.

And then just wondering, is there any update on the disposition of the ConEd stake?.

No. We've not heard anything on that at this time. Do we have any other questions? [Operator Instructions].

Paul, I've got one more, if there's -- if there are none others. You had mentioned on the AFUDC that, that could start back up at some point in the future. So since we're taking this stream by stream.

I would guess that once that process of crossing the stream starts, it might be minor in terms of the accounting policy to go back to AFUDC, would there be a potential for like one big catch-up AFUDC that encompassed all the stream work at the end of the construction of the project instead of the kind of the regular cadence that we've had of every quarter?.

Yes. So our understanding, Mike, how the accounting for the AFUDC will occur is going to be very specific to the construction activities in the field.

And so at the point in time when the project feels like it's at a place with its individual permit approvals and other regulatory processes that they will, in fact, mobilize meaningful crew count to the field. At that point in time, it would, I think, follow the proper practice there that the AFUDC would reinitiate.

Said slightly differently, there'll be meaningful construction activity, of course, from both the labor and material and productivity standpoint that would justify the AFUDC attaching to that activity..

And Mike, the mechanism there allows for the capitalization of those financing or carrying costs during the period of time in which there are those substantial construction activities that Paul mentioned. So that would result in a calculation of those only at that time..

Okay. All right. I think I got it. A lot of -- this is an educational process with MVP, for sure..

It is. And the AFUDC is a -- it's a fairly unique accounting process specific to FERC projects and utility in nature of projects. Anyone else have any other questions? Okay. Well, if there are no more questions, this does conclude our first quarter earnings call.

Thank you for joining us, and we look forward to speaking with you again, in May, to review our second quarter results. We hope you all have a safe and happy weekend. Thank you..

Thank you..