You will now be placed into conference..

Good morning. I'm Paul Nestor, President and CEO of RGC Resources. Thank you for taking time on this Friday to join us for our Fourth Quarter and 2021 Fiscal Year Earnings Call. It's a beautiful day here in Roanoke, Virginia, and I hope you are enjoying the same wherever you are. First, a few administrative items.

We've muted all lines and asked 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 and Financial Information page of our website at www. rgcresources.com. All right let's get started. Slide 1.

As our forward-looking statements disclaimer, this presentation does have forecasts and projections. Our agenda for today's call is on Slide 2. As we said, we're going to review our operational and financial highlights. And I failed to mention that with me today are Tommy Oliver, our CFO, and David Garcia, our Director of Finance.

As you all know, Tommy and David join us for each call. We'll also go through our 2022 outlook and again, we'll take questions at the very end. Moving onto Slide 3, our customer growth results in the runner gas utility were outstanding in fiscal 2021.

We added approximately 600 customers, I think the actual number was 597, in the fiscal year, which was 8% better than 2020. We've been talking about our main extension miles in the previous calls.

We did another 2.5 miles in the fourth quarter, including Phase 2 of the Blue Ridge expansion, bringing the year-to-date total to 7 miles outstanding results, 71% increase over 2020. Moving onto Slide 4, fourth quarter volumes were really pretty good. The residential volume shows a decline of 5%.

We did have a much warmer September 2021 and September 2020. In fact, there was a 77% decline in heating degree days in September. But the absolute dekatherm change on those residential volumes was only 9,000, so the 5% is a little misleading, it really wasn't too bad.

Our overall industrial volumes continued to be down in this fourth quarter primarily due to the large customer that fuel switched natural gas in 2020. As we've discussed previously, this customer switched back to coal in 2021. Our year-to-date volumes are up and stronger, and we've talked about that as we've gone through the fiscal year.

The large customer we just mentioned really has weighed on the year-to-date industrial volumes. But if you analyze our top 10 customers, which are primarily a mix of both industrial and commercial, 8 out of those top 10 customers, have increased their gas consumption in 2021.

Building suppliers, auto parts manufacturing, and consumer products manufacturing continue to have noticeable year-over-year increases. Moving onto our capital spending on Slide 6. We ended up about $3 million lower than 2020. That is due to project timing as we've discussed in prior calls, as well as our project mix.

We'll see in a few moments that this $3 million will roll into our 2022 capital projection or capital budget. We talked a lot, both last year and this year, about our signature project in 2020, the Blue Ridge main extension.

We did get Phase 2 of Blue Ridge kicked off in July, and that actually just wrapped up a couple of weeks ago in the middle of November, which is outstanding.

2 of our key projects for 2021, the Carilion expansion support project, where we invested about $1 million, and our Mason Station renewal, which went through our SAVE rider at $0.75 million, were completed in the fourth quarter. We've already discussed our customer growth and main extensions.

The dollars related to those statistics we saw just a moment ago, $5.9 million, which is a 70% increase from 2020. That 5.9 million does exclude the Blue Ridge projects. Tommy will now take a few minutes and walk us through our fourth-quarter and fiscal 2021 income statement..

Well, thank you, Paul. And good morning, everybody. Our condensed consolidated statements of income are presented on Slide 7. And I'm going to separately review the financial results from our 2 operating segments, Roanoke Gas Utility and RGC Midstream, and I wanted to start with the fourth quarter results for Roanoke Gas.

Operating income for the fourth quarter of 2021 was approximately $1.5 million higher compared to the prior year's quarterly results. As we noted in prior earnings calls, we had a number of large expenses recorded in the fourth quarter of 2020. Those were namely bad debt and the accelerated recovery of certain regulatory assets.

We also noted that our utilities in Virginia were operating under a moratorium on disconnections of customers for nonpayment. We're pleased to report that the moratorium and the uncertainty it created ended in late August 2021.

Along with the end of the moratorium in October, the Company was awarded $858,000 in ARPA funds by the Virginia State Corporation Commission. These funds were specifically designated, and I might add, were used to help our customers with their arrearage balances. Our fourth quarter 2021 results were favorably impacted by these ARPA funds.

In fact, these funds lifted earnings by $0.06 per share. Absent the ARPA funds, we would've reported a loss in the fourth quarter of 2021 as we accelerated the recovery of our deferred COVID-related expenses, and we incurred other sizeful expenses related to outside professional services among others.

It is worth noting that with the write-down of the COVID related deferrals, we no longer have regulatory assets on our books subject to the earnings test as of September 30th, 2021. Now, I'll turn to RGC midstream. Midstream continued with its significant quarterly year-over-year decline in equity and earnings from the Mountain Valley partnership.

Equity and earnings declined by over $1.1 million quarter-over-quarter. Despite this decline, earnings per share for the fourth quarter of 2021 were flat compared to a loss of $0.04 per share for the fourth quarter of 2020.

For the 2021 fiscal year, operating income increased by 18% year-over-year, largely attributable to SAVE revenues and customer growth, which Paul reviewed in an earlier slide related to our main extensions and new customer addition.

In addition to the impact of the ARPA funds on earnings we recorded in the fourth quarter, the Company also received $400,000 of CARES Act money earlier in the fiscal year, which also dramatically reduced our bad debt expense.

The strong Roanoke Gas fiscal year earnings were offset by year-over-year $3.1 million decline in equity and earnings from the Midstream's investment in the MVP, resulting in a $1.22 earnings per share on a consolidated basis..

Thank you, Tommy. We really did have outstanding financial results in 2021. Last year at this time, there was just so much uncertainty still around the pandemic in particular, and the vaccine, of course, was not available, as we all know, until the early part of 2022.

But in this fiscal year, that earnings range just speaks well of our employees and their dedication to our Company and our customers. We're really, really happy with the $1.22 number. All right. Looking at -- let's talk about 2022 a little bit and we've got 4 things we really want to hit on here. We'll start with capital.

Again, capital continues to be the growth driver for our earnings. We'll give you an MVP update. I think it's appropriate. Tommy is going to give us a little bit of information about some of our ESG initiatives and what we've been doing there.

We think this is a good time to apprise you of that and then we'll conclude with our earnings per share forecast. All right. $25.4 million, as you can see, is our capital plan for 2022. It's the largest capital budget in the Company's history. The momentum on main extensions and new customer additions is continuing.

I think we just talked about Phase 2 already wrapping up over in Blue Ridge. We've started Phase 3 and we've budgeted almost $6 million in that category. That's the largest amount we've ever budgeted for main extensions and new customers.

We have 1 gate station left to renew and we hope to get that completed in 2022, that will be through our SAVE Plan, and it's really something again for the Company and our customers and our shareholders to be proud of.

Beginning in 2014, we started the process of renewing our gate stations through the SAVE Plan and this last one's called [Indiscernible] that we're going to complete this year will be just that, our last one. And we'll have all of our gate stations renewed and modernized. We're really happy about that. We're proceeding with Phase 3 in Blue Ridge.

That's going to be about a $1 million investment to run approximately another mile -and-a-half to 2 miles of main through that area. And then finally, we have a large special project that approximates about $5 million in this capital budget. We hope to make a public announcement on that in the coming weeks.

We think it's just a wonderful, wonderful opportunity and project. It's got an ESG angle to it and we look forward, when the time is right, to make an announcement on that. But it's also included in this number. All right. Let's talk about the Mountain Valley pipeline for a few minutes. Mountain Valley has wrapped up their 2021 construction.

They demobilized from the field. Of course, they are still monitoring environmental impacts in the right of way as required, but they really had a good or great 2021 in terms of construction and progress and executing their plan for the year. We're really happy with what they've done. The overall project is really about 94% complete.

You can see we used over 90 on the slide, that's true too. But it's really in that 94% range when you include the compressor stations, all of the interconnects, and the actual pipe itself. We look forward to Mountain Valley getting wrapped up in 2022. It's so close to being wrapped up.

We look forward to that and the gas that it will provide to the Roanoke Valley. Tommy, tell us a little bit about ESG..

Yeah, Paul. I'm going to go back a little bit in our history. 1992, we were the first utility in the state to have an infrastructure rider approved, under which we recovered the cost of replacing bare steel and cast-iron mains and services outside of a rate case. Business rider and the subsequent SAVE rider are still in place.

In 2016, we completed the renewal of all our bare steel and cast-iron mains and services. This has dramatically reduced our greenhouse gas emissions while making our system much safer and more reliable. During 2021 or the 2021 fiscal year, we continued our methane reduction efforts.

Through our SAVE program, we renewed nearly 8 miles of main, over 600 services, and another of our city gate transfer stations, as Paul mentioned. It is worth noting that our solar facility recently reached its 1-year milestone of operation.

Since it was put in place or in service, the Company has produced over 106 megawatt hours of electricity, which has eliminated 63 tons of CO2 emission. And we also recently joined ONE Future.

Those not familiar with ONE Future, it's a group of 50 natural gas companies that are working together to reduce methane emissions across the natural gas value chain. You can see our website for more information on these and other ESG initiatives..

Yeah. Thank you, Tommy. This Company is -- as Tommy started out, I'm glad he went back in time a little bit. We've had a long history of doing the right things and going the extra mile to make sure that we're limiting environmental impact or again, doing good things for the community.

And we want to continue that of course, and I'm really happy with what we've done in the last 12 months. And again, we've got some initiatives we're working on over the next 12 to 24 months. Okay. Let's wrap up by again, reviewing our earnings per share. Again, the 2021 number was outstanding.

And you can see in particular the change in the blue bars there, which really was driven by the Roanoke Gas Utility. And as Tommy talked about the -- we did have pretty significant one-time impact from the pandemic stimulus money.

We do not expect to have that relief or impact in 2022, so we have lowered in particular the Roanoke Gas utility earnings just slightly year-over-year. If you remove the one-time impact of the stimulus funds, we're still growing Roanoke Gas, of course.

And in a conservative fashion, we've done the earnings from our midstream investments at essentially breakeven. Again, we're expecting a fantastic 2022 and the Board's happy with that earnings projection. That concludes our prepared remarks. We'd be happy to entertain any questions. [Operator Instructions].

Morning, everyone..

Hey, Mike. Good morning.

How are you?.

Doing fine.

So, are yourselves?.

We're doing wonderful. It feels like Florida in Roanoke today. It's already 60 degrees and want to be close to 70 degrees..

Well, that's not good for gas volumes though..

No, it's good for construction, but not good for throughput. That's right..

Just 1 question, guys. I had read an article in S&P Global, which said MVP Southgate was having some permitting issues in the Carolinas.

Thought maybe you could add a little color to that and what's your -- what the thoughts are among the partners on that topic?.

Thank you for the question, Mike. And just a reminder for the other folks on the call, Southgate is the extension from Station 165 off of the MVP mainlines, traversing the Virginia and North Carolina border, and essentially making a dog leg back to the greater Greensboro area. It's approximately a 70-mile project.

The pipe is a little smaller, 24 inches and 16 inches versus the 42 inches of the mainline, but it's really a great project and if anyone's familiar with that part of North Carolina in particular, it's a high-growth area from an economic development standpoint.

I think the -- maybe the simple answer to your question, Mike, is that obviously as the NVP mainline has experienced some delay, particularly over the last 24 months, the Southgate delays have been commensurate with that. I think the project is still working through the permitting on Southgate.

I don't think there's anything that's called great alarm at this point. I think what we've all seen over the last 5 years in terms of pipeline projects, it's challenging to cross the permitting hurdles, but I think they're going to ultimately be successful there..

Okay. Well, that's certainly good news. That's a needed project. That's all I had, gentlemen. Thank you..

Thank you, Mike. Does anyone else have a question? [Operator Instructions]..

Hi, Paul..

Hey, good morning..

Hey, it's Jack..

Hey Jack.

How are you?.

I'm okay. Two questions.

One, what is the -- what debt level -- what's the debt level incurred through MVP?.

Yeah, that's a good question, Jack. Right now, if you look back at the slide where we show our MVP investment, we have funded that investment entirely with debt at this point in time. I think David has got us there back on Slide Number 10. At the end of 2021, our cash investment capital calls we've made to the project sits at just over $50 million.

Presently, all of those capital calls have been made with debt..

Okay.

Can you comment on, I guess, the regulatory challenges for the MVP overall?.

Yeah, I'd be glad to give a little color to that on where we sit. Today it's December 3rd, so the next scheduled events are the Virginia State Water Control Board hearing on December 14th where they're going to consider the application for water crossing permits in the State of Virginia.

Tommy and I, as well as 2 or 3 others from our Company, we participated in the public hearings for those permits.

Actually, in the fourth quarter of 2021, we conveyed our thoughts and facts, I would add, on the necessity of the Mountain Valley for the Roanoke region, and, in fact, for Roanoke Gas Company it's -- Jack, to your good question there, the customer growth that we're having here and the economic development that we're having here in the Greater Roanoke Valley is meaningful, and we're so happy to support that, but we really do need the Mountain Valley to continue to support that.

We think we'll add another 600 customers and it could be higher than that in 2022. Again, there's so much momentum coming out of 2021. The need for the Mountain Valley is more critical than ever. But I think, as publicly disclosed, not only by us but the other project members, the water crossing permits are a significant hurdle right now.

Again, we should find out more about those over the next 60 days as Virginia and West Virginia do their scheduled work on it. The Army Corps is right behind Virginia and West Virginia in terms of further approval. And then ultimately the FERC has to also issue approvals related to the water crossing. Hope that answered your question..

Okay. Thank you..

You're welcome. Any other questions at this time? [Operator Instructions] Well, again, thank you so much for taking time this morning to be on the call. And from all of us here at the Company and on behalf of our boys and customers, I want to wish you a happy holiday season and a very merry Christmas.

And we look forward to being with you again to review our first quarter results near the end of January or in early February. Hope everyone has a safe and pleasant weekend. Thank you..