RGC Resources RGCO Form 10-Q filing Q3 FY2026

Overview

Resources is an energy services company primarily engaged in the regulated sale and distribution of natural gas to approximately 63,800 residential, commercial and industrial customers in Roanoke, Virginia and surrounding localities through its Roanoke Gas subsidiary. Midstream, a wholly owned subsidiary of Resources, is a less than 1% investor in the MVP, Southgate and Boost. 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. The Company is also subject to regulation from the United States 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, the Company is subject to other regulations which are not necessarily industry specific.

Nearly all of the Company’s revenues 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 based on normal weather. These rates are determined based on various rate applications filed 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 non-SAVE infrastructure, as well as recovering increases in non-gas expenses due to inflationary pressures, regulatory requirements or operational 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 implemented.

In response to continued inflationary pressures, the Company filed an expedited rate application on December 2, 2025 with the SCC seeking to increase its non-gas base rates by $4.3 million annually. The SCC permitted the Company to implement its new rates on an interim basis for service rendered on or after January 1, 2026, subject to refund. On July 1, 2026, the Company reached a settlement with the SCC Staff on all outstanding issues in the case. Under the terms of the settlement, the Company agreed to an annual increase in revenues of $3.85 million. The Company began billing the stipulated rates effective August 1, 2026, as approved by the Hearing Examiner. The Company has recorded a provision for refund, including interest, associated with customer billings for the difference between the interim rates and the stipulated rates. The terms of the settlement stipulate that updates to future SAVE and RNG Riders will utilize a capital structure containing a 59% equity ratio and a 9.9% return on equity. Based on the Commission's procedural schedule, the Company expects final resolution of the case in the first quarter of fiscal 2027.

RGC RESOURCES, INC. AND SUBSIDIARIES

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, RNG Rider and PGA.

The SAVE Plan and Rider provides the Company with a mechanism through which it recovers costs related to qualified SAVE infrastructure investments on a prospective basis, until a rate application is filed incorporating these investments in non-gas base rates. Roanoke Gas filed and received approval from the SCC for an updated annual SAVE Rider rate which became effective October 1, 2025. As a result of the updated SAVE Rider, SAVE Plan revenues increased by approximately $242,000 and $774,000, respectively, for the three-month and nine-month periods ended June 30, 2026 compared to the same periods last year. The updated SAVE Rider is expected to result in approximately $2.61 million of annualized SAVE-related revenues during fiscal 2026. On June 30, 2026, Roanoke Gas filed for approval of an updated annual SAVE Rider to become effective October 1, 2026. The proposed SAVE Rider revenue requirement of $3.79 million is designed to recover the costs associated with prior years' SAVE-eligible investments that occurred under the current SAVE Plan and an estimated $9.26 million of SAVE-eligible investment during fiscal 2027. The revenue requirement also included an adjustment for under-recovered costs incurred during the prior year. The Company expects final resolution from the SCC in September 2026. Additional information regarding the SAVE Plan and Rider is provided in Note 4 of the condensed consolidated financial statements.

The WNA 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 warmer-than-normal weather and correspondingly requires the Company to refund the excess margin earned for colder-than-normal weather. 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 nine months ended June 30, 2026, the Company accrued approximately $383,000 and $361,000, respectively, in additional revenues under the WNA model for weather that was 18% and 1% warmer than normal, compared to approximately $493,000 and $966,000 in additional revenues for weather that was 22% and 4% warmer than normal for the corresponding periods last year. The adjusted WNA balance for the 12-month period ended March 31, 2026 was approximately $481,000, and was collected from customers during May 2026.

The Company has an approved rate structure to mitigate 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 decreased nominally for both the three-month and nine-month periods ended June 30, 2026 compared to the corresponding periods last year. While the average price of gas in storage fluctuated nominally for the nine-month period ended June 30, 2026 compared to the same period in the prior year, the average price of gas in storage decreased by 8% during the third quarter of fiscal 2026 compared to the third quarter of fiscal 2025. If natural gas prices remain at or continue to decline as compared to the prior year, coupled with reduced storage levels at the LNG facility, the average dollar balance of gas in storage is expected to decrease, leading to lower ICC revenues in fiscal 2026 and 2027.

Roanoke Gas operates an RNG facility, through a cooperative agreement with the Western Virginia Water Authority, to produce commercial quality RNG for delivery into its distribution system. Roanoke Gas is allowed to recover the costs associated with the investment in its RNG facility and the related operating costs through an RNG Rider added to customer bills that was approved by the SCC in 2023 and updated annually. Customers receive the benefit of environmental credits generated through the production of RNG. Roanoke Gas recognized approximately $462,000 and $1,396,000, respectively, in RNG revenue for the three and nine months ended June 30, 2026 compared to approximately $479,000 and $1,296,000 for the corresponding periods in the prior year.

The cost of natural gas, which is a pass-through cost, is independent of the Company's non-gas rates. Accordingly, the Company's approved billing rates include a component designed to allow for the recovery of the cost of natural gas. This rate component, referred to as the PGA, allows the Company to pass through to its customers increases and decreases in natural gas costs through a quarterly filing, or more frequent if necessary, once SCC staff approval is received. 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 a succeeding 12-month period through the ensuing non-gas rate component.

RGC RESOURCES, INC. AND SUBSIDIARIES

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 condensed consolidated statements of income under 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 useful and relevant measure to analyze financial performance. The term gross utility margin is not intended to represent or replace gross margin, 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. A reconciliation between gross utility margin and gross margin is presented under the Gross Utility Margin section below. The following results of operations analyses will reference gross utility margin.

Three Months Ended June 30, 2026:

Net income increased by $20,488 for the three months ended June 30, 2026, compared to the same period last year.

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

Total operating revenues for the three months ended June 30, 2026, compared to the same period last year, decreased slightly primarily due to weather-related normalization and lower natural gas commodity prices more than offsetting the implementation of a non-gas base rate increase and increases in SAVE revenues. Weather-sensitive residential and commercial volumes decreased, despite the increase in HDD, as weather for the whole quarter was 18% warmer compared to the 30-year norm. Transportation and interruptible volumes increased by 27% primarily driven by increased business activity of a single, multi-fuel customer that has been utilizing natural gas as its primary fuel source. Additionally, total natural gas costs decreased by 12% compared to the same period last year, primarily due to pipeline capacity charges decreasing over $350,000. The average commodity price per dekatherm during the current quarter was $3.10 compared to $3.60 per dekatherm for the corresponding quarter in the prior year. Roanoke Gas placed new non-gas rates into effect for natural gas service rendered on or after January 1, 2026, subject to refund, and when coupled with the increase in delivered volumes, contributed an additional $643,000 to revenues in the current quarter compared to the same period in the prior year. SAVE Plan revenues increased by approximately $242,000 compared to the same period in the prior year as Roanoke Gas continues to invest in qualified SAVE infrastructure projects.

RGC RESOURCES, INC. AND SUBSIDIARIES

Gross utility margin increased 8% from the same period last year primarily as a result of the aforementioned increases in non-gas base rates, delivered volumes and SAVE revenues. The WNA model calculates what the corresponding volumes would be if temperatures were equivalent to the 30-year normal during each period and adjusts for the difference in margin from normal. In applying the WNA model to both the current and prior periods, the volumetric margin, inclusive of the WNA, increased by approximately $533,000 due to weather that was 18% warmer than normal.

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

The tables below provide a reconciliation between gross utility margin and gross margin:

RGC RESOURCES, INC. AND SUBSIDIARIES

Operations and maintenance expenses increased $534,328, or 12%. The Company continues to experience inflation over the 2% level historically targeted by the Federal Reserve. Inflation levels in health care benefits, certain types of insurance, professional services and IT service costs, as well as other items, continue to put upward pressure on the Company's expenses. Personnel costs increased by approximately $180,000 due to increased staffing and the inflationary impact on salaries and benefits. Capitalized overheads declined by approximately $125,000 as there was no capitalization associated with LNG liquefaction during the quarter. See Note 14 of the consolidated financial statements for additional information related to the LNG facility. Higher corporate insurance premiums and professional services expenses accounted for much of the remaining cost increase.

Taxes other than income taxes increased by $83,060, or 11%, due to higher property taxes associated with growth in utility property and increased tax rates.

Depreciation expense increased by $161,761, or 6%, corresponding to a similar increase in investments in depreciable utility property. Increases over the last year in capitalized software, with shorter useful lives, resulted in depreciation expense increasing slightly more than the 5% increase in the average gross utility property balance from the prior year quarter.

Other income, net increased by $84,965, or 35%, primarily due to actuarially determined postretirement benefit plan income.

Interest expense increased by $38,996, or 3%, as the average debt outstanding for the quarter increased by approximately 5% compared to the same period in the prior year. Midstream's interest expense decreased by $66,044, or 10%, as the total average debt outstanding decreased by approximately $1,197,000 as a result of principal payments made on term notes, along with the weighted-average interest rate decreasing from 5.10% during the third quarter of fiscal 2025 to 4.72% in the current quarter. Roanoke Gas' interest expense increased by $105,040, or 13%, as total average debt outstanding increased by approximately $7,573,000 associated with higher net borrowings under the Company's line-of-credit. Roanoke Gas' weighted-average interest rate increased from 3.82% in the third quarter of fiscal 2025 to 3.96% in the current quarter. See Notes 6 and 7 of the consolidated financial statements for more information on the Company's debt.

RGC RESOURCES, INC. AND SUBSIDIARIES

Nine Months Ended June 30, 2026:

Net income increased by $701,946 for the nine months ended June 30, 2026, compared to the same period last year, primarily due to the aforementioned implementation of higher non-gas base rates in January 1, 2026, lower interest expense and income taxes, slightly offset by continued inflationary pressures on operating costs.

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

Total operating revenues for the nine months ended June 30, 2026, compared to the same period last year, increased by approximately 15% primarily due to higher natural gas commodity prices, the implementation of a non-gas base rate increase and increased SAVE revenues. Total natural gas costs increased by 26% compared to the same period last year, primarily due to pipeline capacity charges increasing over $1.9 million, which corresponds to a 29% increase in the gas cost component included in the total customer billing rate. The average commodity price per dekatherm for the first nine months of fiscal 2026 was $4.84 compared to $3.67 per dekatherm for the same period in the prior year. Commodity prices during the second quarter of fiscal 2026 included the effect of Winter Storm Fern. The non-gas base rate increase implemented in January 2026, which will generate approximately $3.85 million in additional annual revenues, have contributed an additional $2.0 million to non-gas volumetric revenues during the current year compared to the same period in the prior year. Weather-sensitive residential and commercial volumes declined 1%, while transportation and interruptible volumes increased by 3% primarily driven by business activity of a single, multi-fuel customer that has been utilizing natural gas as its primary fuel source. SAVE Plan revenues increased by approximately $774,000 compared to the same period in the prior year as Roanoke Gas continues to invest in qualified SAVE infrastructure projects.

Gross utility margin increased 5% from the same period last year primarily as a result of the aforementioned increases in non-gas base rates and SAVE revenues.

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

RGC RESOURCES, INC. AND SUBSIDIARIES

The tables below provide a reconciliation between gross utility margin and gross margin:

Operations and maintenance expenses increased $1,363,913, or 9%. The Company continues to experience inflation over the 2% level historically targeted by the Federal Reserve. Inflation levels in health care benefits, certain types of insurance, contracted services and IT service costs, as well as other items, continue to put upward pressure on the Company's expenses. Personnel costs increased by approximately $327,000 due to increased staffing and the inflationary impact on salaries and benefits. Contracted services increased by approximately $166,000 also due to inflationary pressures as well as increased customer turn-ons. Capitalized overheads declined by approximately $436,000 as there was no capitalization associated with LNG liquefaction during the current year. See Note 14 of the consolidated financial statements for additional information related to the LNG facility. Higher corporate insurance premiums and RNG-related costs accounted for much of the remaining increase, which were slightly offset by a decrease in professional services expenses.

RGC RESOURCES, INC. AND SUBSIDIARIES

Taxes other than income taxes increased by $242,687, or 11%, due to higher property taxes associated with growth in utility property and increased tax rates, as well as increases in payroll taxes.

Depreciation expense increased by $603,843, or 7%, corresponding to a similar increase in investments in depreciable utility property. Increases over the last year in capitalized software, with shorter useful lives, resulted in depreciation expense increasing slightly more than the 5% increase in the average gross utility property balance.

Equity in earnings of unconsolidated affiliate increased by $67,769, or 3%. See Note 5 of the consolidated financial statements for additional information related to the MVP.

Other income, net increased by $345,406, or 29%, primarily due to interest income and increased postretirement benefit plan income, partially offset by a decrease in revenue sharing related to the asset management agreement.

Interest expense decreased by $114,221, or 2%, as the weighted-average interest rate on total debt decreased from 4.36% during the first nine months of fiscal 2025 to 4.12% in the current year. Midstream's interest expense decreased by $276,339, or 13%, as the total average debt outstanding decreased by approximately $1,372,000 as a result of principal payments made on term notes, along with the weighted-average interest rate decreasing from 5.18% during the first nine months of fiscal 2025 to 4.62 % in the current year. Roanoke Gas' interest expense increased by $162,118, or 6%, as total average debt outstanding increased by approximately $4,342,000 associated with net borrowings under the Company's line-of-credit. Roanoke Gas' weighted-average interest rate remained relatively flat from the first nine months of fiscal 2025 to the current year. See Notes 6 and 7 of the consolidated financial statements for more information on the Company's debt.

Income tax expense decreased by $92,516, or 2%. The effective tax rate was 22.1% and 23.4% for the nine-month periods ended June 30, 2026 and 2025, respectively. The effective tax rate is below the combined statutory state and federal rate due to the amortization of excess deferred taxes and tax credits. R&D tax credit amortization and certain restricted stock-related tax deductions further reduced the effective tax rate during the current period.

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.

There have been no 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, 2025.

Asset Management and Gas Supply

Roanoke Gas relies on multiple interstate pipelines and gas storage to transport natural gas from production and storage fields into the Company's distribution system. Roanoke Gas is currently served directly by three primary pipelines and uses a third-party asset manager to oversee its pipeline transportation, storage rights and gas supply inventories and deliveries in order to provide a secure and reliable source of natural gas to its customers. In return for utilizing 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 management contract is for a three-year term, expiring in March 2028.

RGC RESOURCES, INC. AND SUBSIDIARIES

In addition, the Company produces commercial quality RNG for delivery into its distribution system and operates and maintains an LNG liquefaction, vaporization and storage tank facility to supplement heating season gas supply requirements on the coldest days (the LNG peak shaving facility). During a routine inspection in the second quarter of fiscal 2026, the Company noted damage to its LNG facility, and more specifically, to the LNG tank. The Company has hired subject-matter experts to help assess the cause(s), the scope of the damage and to design possible workarounds, replacement or remediation. The Company has confirmed that the LNG facility will not be available in the 2026-2027 winter heating season. Although no natural or liquified natural gas was discovered outside of the LNG tank, analysis shows the LNG tank underwent significant stress. Further damage investigation costs could exceed $1 million, could be partially destructive in nature, and may or may not be determinative. Accordingly, the Company is considering alternatives and has not finalized its long-term plans for the LNG tank or the LNG facility, but has taken several actions to add natural gas supply to its distribution system, including (1) installing additional steel pipe to increase the gas flows from MVP farther into the Roanoke system, (2) contracting for additional daily supply from TCO from November 2026 through March 2027, and (3) procuring trucked LNG. Currently, the Company is unable to estimate the total cost associated with this event. The Company has fully engaged with its insurer but does not yet know what portion, if any, of its spending will be covered by insurance. The Company has held numerous discussions with the SCC Staff, and continues to keep them apprised of significant developments. The Company has established a regulatory asset for costs to safely empty the LNG tank and evaluate future options, and will seek recovery of the regulatory asset in a future regulatory proceeding.

Equity Investment in Mountain Valley Pipeline

The Company owns a less than 1% interest in the LLC that owns and operates the MVP, Southgate and Boost, as defined in the respective operating agreements. The Company accounts for its interest in the LLC under the equity method of accounting given the LLC maintains specific ownership accounts for each investor, and also considering the Company's rights under the LLC management agreement and the Company's involvement as a stakeholder of the MVP. The Company has been using the equity method since the inception of its investment in fiscal 2016.

The Company recognizes its share of earnings from the LLC, favorably adjusted for a basis difference between the Company's proportional share of assets and its carrying value that arose when the Company recorded an other-than-temporary impairment of its investment in 2022. This basis difference amortization is a favorable non-cash adjustment over the operational life of the MVP, or 40 years. For the third quarter of fiscal 2026 and 2025, the Company recorded equity in earnings of consolidated affiliates of approximately $764,000 and $772,000, respectively. For the first nine months of fiscal 2026 and 2025, the Company recorded equity in earnings of consolidated affiliates of approximately $2.5 million and $2.4 million, respectively. The Company received a quarterly cash distribution of its share from the LLC totaling approximately $971,000 and $874,000 during the third quarter of fiscal 2026 and 2025, respectively, which was a return on its invested capital, and expects future quarterly distributions to be of a similar magnitude. For the first nine months of fiscal 2026 and 2025, quarterly cash distributions totaled $2.4 million and $2.7 million, respectively. The Company is using this cash to pay interest and other expenditures related to Midstream. The Company refinanced all of the debt supporting its investment in the MVP in September 2025, as described in the liquidity section.

Regulatory

See Note 4 of the condensed consolidated financial statements for discussion on Regulatory matters.

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, the seasonal funding of its natural gas inventories and accounts receivables, debt service and payments of dividends to shareholders. The Company 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.

The following table summarizes the sources and uses of cash for the nine-month periods ended June 30, 2026 and 2025:

RGC RESOURCES, INC. AND SUBSIDIARIES

Cash Flows Provided by 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. Factors including weather, energy prices, natural gas storage levels and customer collections 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 contribute to higher cash inflows. During the first and fourth fiscal quarters, operating cash flows are generally moderate and decrease due to increases in natural gas storage levels and rising customer receivable balances.

Cash flows from operating activities for the nine months ended June 30, 2026 decreased by $5,864,403 compared to the same period last year. Under-recovered gas costs increased approximately $2.4 million during the nine months ended June 30, 2026 compared to a $4.1 million increase in over-recovered gas cost during the same period in the prior year. The fluctuation from a liability position to an asset position resulted in a decline of approximately $6.5 million in operating cash flows between periods. Additionally, due to the extended and extreme cold weather experienced across the eastern half of the United States during Winter Storm Fern, natural gas prices spiked from less than $4 per DTH to well over $30 per DTH at the end of January and into February 2026. As a result, total commodity costs increased from $3.67 per DTH during the first nine months of fiscal 2025 to $4.84 per DTH in the first nine months of fiscal 2026. Although incurred by the Company during the second quarter of fiscal 2026, the recovery of these costs will be collected from customers over the ensuing 12 months. The colder weather and increased gas costs also resulted in higher accounts receivable balances. WNA revenues for the first nine months of fiscal 2026 declined by approximately $605,000 from the same period last year, corresponding to a 3% increase in the number of heating degree days between periods. This decline in the WNA receivable contributed approximately $387,000 in operating cash.

Cash Flows Used in Investing Activities:

Investing activities primarily consist of expenditures related to Roanoke Gas' utility property, which includes replacing aging natural gas pipe with new plastic or coated steel pipe, improvements to the LNG plant, separate from the repairs previously discussed, and gas distribution system facilities and expansion of its natural gas system to meet new customer demand. The Company is continuing its focus on SAVE infrastructure replacement projects, including the replacement of pre-1973 first generation plastic pipe. New customer demand for natural gas continues to be steady and therefore extending the natural gas distribution system within its service territory is also a priority. Roanoke Gas' total capital expenditures for the nine-month period ended June 30, 2026 were approximately $16.1 million compared to $15.7 million during the same period last year. Total fiscal 2026 capital expenditures are expected to be approximately $22 million.

Investing cash flows also include the Company's participation in Southgate and Boost, with a total cash investment of approximately $1 million for the nine months ended June 30, 2026, which are being funded by dedicated revolving credit facilities as described below. Upon receiving FERC approval and the Notice to Proceed, construction activities began in Virginia on the Southgate extension in March 2026. In June 2026, work began in North Carolina after the project received all necessary permits and authorizations for construction. While the Boost expansion is pending FERC approval, work has continued with federal and state regulators as they review project plans and permit applications, and investments have been made for materials related to the construction of the pipeline and other pre-constructions costs. Midstream will incur periodic future capital investment related to ongoing MVP operations requirements and system improvements.

Cash Flows Used in Financing Activities:

Financing activities generally consist of borrowings and repayments under credit agreements, issuance of common stock and the payment of dividends. Net cash flows used in financing activities were approximately $5.2 million for the nine months ended June 30, 2026, compared to approximately $11.3 million for the same period last year. The $6.1 million reduction in financing cash flows is primarily attributable to a decrease in net repayments under Roanoke Gas' line-of-credit, slightly offset by an increase in net payments under Midstream's notes payable. The Company's net borrowings on Roanoke Gas' line-of-credit during the first nine months of fiscal 2026 were approximately $895,000 compared to net payments of $6.2 million in the same period last year. Additionally, during the first nine months of fiscal 2026, Midstream repaid a net $1.1 million compared to $255,000 during the same period in the prior year. Notes 6 and 7 provide details on the Company's line-of-credit and borrowing activity.

Resources issued a total of 79,947 shares of common stock resulting in net proceeds of approximately $1.7 million during the first nine months of fiscal 2026, compared to issuing 74,057 shares of common stock resulting in net proceeds of approximately $1.5 million during the first nine months of fiscal 2025. The ATM program was not utilized during either period.

Management regularly evaluates the Company’s liquidity through a review of its available financing resources and its cash flows. On June 2, 2026, Roanoke Gas entered into an unsecured delayed-draw promissory note in the principal amount of $15 million. Under the provisions of the loan agreement, Roanoke Gas can draw the funds at any time through September 20, 2026. The Company intends to draw the full amount on August 20, 2026 and the proceeds will be used to repay a maturing note of equal amount. Management believes Roanoke Gas has access to sufficient financing resources to meet its cash requirements for the next year, including cash from operations, the line of credit and a private shelf facility. Roanoke Gas may also adjust capital spending as necessary, if such a need would arise.

RGC RESOURCES, INC. AND SUBSIDIARIES

Midstream's future cash requirements will relate to regular monthly operating expenses, debt service and capital contributions. Since MVP became operational, the Company has received quarterly Excess Cash Distributions, as defined in the agreements, that have averaged from $800,000 to $900,000. The Company expects future distributions to be of a similar magnitude. On September 5, 2025, Midstream established new amortizing term notes with two banks in the initial amounts of $38.6 million and $15 million, which refinanced and replaced all of Midstream's outstanding debt. The term notes mature on September 5, 2032. Also on September 5, 2025, Midstream entered into a new loan agreement for the MVP Southgate extension and MVP Boost expansion that can be drawn to principal amounts of $1.85 million and $3.65 million, respectively. These loans mature on September 5, 2030, at which time the outstanding principal balance on each note is due. Management believes that it will be able to meet Midstream's cash requirements over the ensuing 12-month period with availability on the Southgate and Boost revolving credit facilities and its quarterly cash distributions from MVP.

Resources expects to amortize debt totaling $2,846,018 in the ensuing 12 months.

As of June 30, 2026, Resources' long-term capitalization ratio was 45% equity and 55% debt.

ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4 – CONTROLS AND PROCEDURES

Disclosure 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 June 30, 2026, 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 June 30, 2026.

Changes in Internal Control over Financial Reporting

On April 6, 2026, the Company implemented a new system of record for revenue transactions with customers. In connection with this implementation, the Company has enhanced its processes and procedures, which has resulted in changes to internal control over financial reporting, to align with the upgraded system functionality. The Company will continue to monitor and evaluate the operating effectiveness of the related controls during subsequent periods.

Management routinely reviews the Company’s internal control over financial reporting and makes changes, as necessary, to enhance the effectiveness of the internal controls. Except for the implementation of the new revenue system, there were no other changes in internal control over financial reporting that occurred during the three months ended June 30, 2026, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Limitations on the Effectiveness of Controls

Because of the inherent limitations in an effective internal control system, any control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that it will prevent or detect all misstatements, due to error or fraud, from occurring in the consolidated financial statements. Additionally, management is required to use judgment in evaluating controls and procedures.

RGC RESOURCES, INC. AND SUBSIDIARIES

Part II – Other Information

ITEM 1 – LEGAL PROCEEDINGS

None.

ITEM 1A – RISK FACTORS

There have been no material changes to the risk factors previously disclosed in Resources' Annual Report on Form 10-K for the year ended September 30, 2025 and on the March 31, 2026 Form 10-Q.

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.

RGC RESOURCES, INC. AND SUBSIDIARIES

ITEM 6 – EXHIBITS

* 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.

RGC RESOURCES, INC. AND SUBSIDIARIES

SIGNATURES

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