RGC RESOURCES INC 10-K

Item 8. Financial Statements and Supplementary Data . 26 Table of Contents RGC Resources, Inc. and Subsidiaries Consolidated Financial Statements for the Years Ended September 30, 2024 and 2023 and Reports of Independent Registered Public Accounting Firms 27 Table of Contents RGC RESOURCES, INC. AND SUBSIDIARIES TABLE OF CONTENTS Page Reports of Independent Registered Public Accounting Firms (PCAOB IDs 34 and 423) 29 Consolidated Financial Statements for the Years Ended September 30, 2024 and 2023: Consolidated Balance Sheets 32 Consolidated Statements of Income 34 Consolidated Statements of Comprehensive Income (Loss) 35 Consolidated Statements of Stockholders ’ Equity 36 Consolidated Statements of Cash Flows 37 Notes to Consolidated Financial Statements 38 28 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the stockholders and the Board of Directors of RGC Resources, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheet of RGC Resources, Inc. and subsidiaries (the “Company”) as of September 30, 2024, the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows, for the year ended September 30, 2024, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2024, and the results of its operations and its cash flows for the year ended September 30, 2024, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Rate Regulated Basis of Accounting and Regulatory Matters — Refer to Notes 1 and 4, respectively, to the financial statements Critical Audit Matter Description The Company, through its regulated natural gas distribution utility subsidiary, is subject to rate regulation by the Virginia State Corporation Commission (the “SCC”) and follows the accounting and reporting requirements of ASC 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 be charged to expense by an unregulated enterprise. When this situation occurs, costs are deferred as assets in the consolidated balance sheet and recorded as expenses when such amounts are reflected in rates. Similarly, 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. In the event the provisions of ASC 980 no longer apply to any or all regulatory assets or liabilities, the Company would write off such amounts and include them in the consolidated statements of income and comprehensive income in the period which ASC 980 no longer applied. 29 Table of Contents We identified the impact of rate regulation as a critical audit matter due to the judgments made by management to support its assertions about impacted account balances and disclosures and the subjectivity involved in assessing the potential impact of future regulatory orders on the financial statements. Management judgments include assessing the likelihood of (1) recovery of regulatory assets through future rates, and (2) whether a regulatory liability is due to customers. Given that management’s accounting judgments are based on assumptions about the outcome of future decisions by the SCC, auditing these judgments requires specialized knowledge of accounting for rate regulation and the rate setting process due to its inherent complexities. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures to evaluate the accounting for the effects of cost-based rate regulation, including the probable recovery or refund of regulatory assets and liabilities, included the following, among others: ● We obtained and evaluated an analysis from management describing the orders and filings that support management’s assertions regarding the probability of recovery for certain regulatory assets or refund or future reduction in rates for certain regulatory liabilities to assess management’s assertion that amounts are probable of recovery or a future reduction in rates. ● We read and evaluated relevant regulatory orders issued by the SCC for the Company, regulatory statutes, interpretations, procedural memorandums, filings made by intervenors, and other publicly available information to assess whether this information was properly considered by management in concluding upon the financial statement impacts of rate regulation. ● For regulatory matters in process, we inspected associated documents and testimony filed with the SCC for any evidence that might contradict management’s assertions. ● We read and evaluated the minutes of the Board of Directors of the Company for discussions of changes in legal, regulatory, or business factors which could impact management’s conclusions with respect to the impact of rate regulation. ● We evaluated the Company’s disclosures related to the impacts of rate regulation, including regulatory developments. /s/ Deloitte & Touche LLP Richmond, Virginia December 4, 2024 We have served as the Company's auditor since 2024. 30 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and Stockholders RGC Resources, Inc. Roanoke, Virginia Opinion on the Financial Statements We have audited the accompanying consolidated balance sheet of RGC Resources, Inc. and Subsidiaries (“the Company”) as of September 30, 2023, and the related consolidated statement of income, comprehensive income, stockholders' equity, and cash flows for the year ended September 30, 2023, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2023, and the results of its operations and its cash flows for the year ended September 30, 2023, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. Critical Audit Matters Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there were no critical audit matters. /s/ Brown Edwards & Company, L.L.P. CERTIFIED PUBLIC ACCOUNTANTS We have served as the Company's auditor from 2006 to 2023. Roanoke, Virginia December 1, 2023 31 Table of Contents RGC RESOURCES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AS OF September 30, 2024 AND 2023 2024 2023 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 894,185 $ 1,512,431 Accounts receivable, net 4,483,739 4,194,934 Inventories 1,799,631 1,674,462 Gas in storage 8,491,490 11,185,601 Prepaid income taxes 2,362,069 3,227,544 Regulatory assets 5,103,910 2,854,276 Interest rate swaps 871,026 1,533,057 Other 1,066,251 612,957 Total current assets 25,072,301 26,795,262 UTILITY PROPERTY: In service 345,864,008 318,369,891 Accumulated depreciation and amortization ( 92,462,376 ) ( 85,752,798 ) In service, net 253,401,632 232,617,093 Construction work in progress 8,639,822 14,966,458 Utility property, net 262,041,454 247,583,551 OTHER NON-CURRENT ASSETS: Regulatory assets 4,445,044 5,389,445 Investment in unconsolidated affiliates 21,057,222 17,187,093 Benefit plan assets 5,416,536 1,901,902 Deferred income taxes 771,746 1,163,594 Interest rate swaps 1,191,526 3,084,398 Other 703,394 624,095 Total other non-current assets 33,585,468 29,350,527 TOTAL ASSETS $ 320,699,223 $ 303,729,340 (Continued) 32 Table of Contents RGC RESOURCES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AS OF September 30, 2024 AND 2023 2024 2023 LIABILITIES AND STOCKHOLDERS’ EQUITY CURRENT LIABILITIES: Current maturities of long-term debt $ 800,000 $ 10,975,000 Line-of-credit 11,166,181 4,353,572 Dividends payable 2,050,286 1,978,400 Accounts payable 5,429,703 5,838,643 Customer credit balances 1,915,859 1,972,132 Customer deposits 1,488,113 1,476,321 Accrued expenses 4,988,281 4,661,722 Regulatory liabilities 834,278 1,632,716 Other 25,729 30,281 Total current liabilities 28,698,430 32,918,787 LONG-TERM DEBT: Notes payable 136,955,000 126,100,000 Unamortized debt issuance costs ( 282,092 ) ( 255,272 ) Long-term debt, net 136,672,908 125,844,728 DEFERRED CREDITS AND OTHER NON-CURRENT LIABILITIES: Asset retirement obligations 11,142,095 10,792,831 Regulatory cost of retirement obligations 14,409,847 13,029,376 Benefit plan liabilities 113,600 47,674 Deferred income taxes 1,890,562 2,008,458 Regulatory liabilities 19,326,567 18,031,693 Other 308,439 323,168 Total deferred credits and other non-current liabilities 47,191,110 44,233,200 COMMITMENTS AND CONTINGENCIES (Note 14) STOCKHOLDERS' EQUITY: Common stock, $ 5 par value; authorized 20,000,000 shares; issued and outstanding 10,249,899 and 10,015,254 shares in 2024 and 2023, respectively 51,249,495 50,076,270 Preferred stock, no par; authorized 5,000,000 shares; no shares issued and outstanding in 2024 and 2023 — — Capital in excess of par value 47,988,270 44,430,786 Retained earnings 7,572,439 3,972,280 Accumulated other comprehensive income 1,326,571 2,253,289 Total stockholders’ equity 108,136,775 100,732,625 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 320,699,223 $ 303,729,340 See notes to consolidated financial statements. 33 Table of Contents RGC RESOURCES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED September 30, 2024 AND 2023 2024 2023 OPERATING REVENUES: Gas utility $ 84,533,101 $ 97,325,307 Non utility 108,131 114,458 Total operating revenues 84,641,232 97,439,765 OPERATING EXPENSES: Cost of gas - utility 35,967,987 51,742,718 Cost of sales - non utility 24,003 25,603 Operations and maintenance 18,354,736 15,903,972 Taxes other than income taxes 2,694,652 2,324,314 Depreciation and amortization 10,518,094 9,764,678 Total operating expenses 67,559,472 79,761,285 OPERATING INCOME 17,081,760 17,678,480 Equity in earnings of unconsolidated affiliate 3,851,871 2,084,990 Other income, net 1,028,761 646,528 Interest expense 6,504,885 5,618,805 INCOME BEFORE INCOME TAXES 15,457,507 14,791,193 INCOME TAX EXPENSE 3,696,611 3,491,911 NET INCOME $ 11,760,896 $ 11,299,282 EARNINGS PER COMMON SHARE: Basic $ 1.16 $ 1.14 Diluted $ 1.16 $ 1.14 WEIGHTED AVERAGE SHARES OUTSTANDING: Basic 10,152,909 9,922,701 Diluted 10,156,480 9,927,157 See notes to consolidated financial statements. 34 Table of Contents RGC RESOURCES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) YEARS ENDED September 30, 2024 AND 2023 2024 2023 NET INCOME $ 11,760,896 $ 11,299,282 Other comprehensive income (loss), net of tax: Interest rate swaps ( 1,897,273 ) ( 134,419 ) Defined benefit plans 970,555 423,344 OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX ( 926,718 ) 288,925 COMPREHENSIVE INCOME $ 10,834,178 $ 11,588,207 See notes to consolidated financial statements. 35 Table of Contents RGC RESOURCES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS ’ EQUITY YEARS ENDED September 30, 2024 AND 2023 Accumulated Capital in Other Total Common Excess of Retained Comprehensive Stockholders’ Stock Par Value Earnings Income (Loss) Equity BALANCE - SEPTEMBER 30, 2022 $ 49,102,675 $ 41,479,459 $ 544,158 $ 1,964,364 $ 93,090,656 Net income — — 11,299,282 — 11,299,282 Other comprehensive income — — — 288,925 288,925 Exercise of stock options ( 12,500 shares) 62,500 137,500 — — 200,000 Stock-based compensation — 21,560 — — 21,560 Cash dividends declared ($ 0.79 per share) — — ( 7,871,160 ) — ( 7,871,160 ) Issuance costs — ( 221,618 ) — — ( 221,618 ) Issuance of common stock ( 182,219 shares) 911,095 3,013,885 — — 3,924,980 BALANCE - SEPTEMBER 30, 2023 $ 50,076,270 $ 44,430,786 $ 3,972,280 $ 2,253,289 $ 100,732,625 Net income — — 11,760,896 — 11,760,896 Other comprehensive loss — — — ( 926,718 ) ( 926,718 ) Stock-based compensation — 51,500 — — 51,500 Cash dividends declared ($ 0.80 per share) — — ( 8,160,737 ) — ( 8,160,737 ) Issuance costs — ( 82,793 ) — — ( 82,793 ) Issuance of common stock ( 234,645 shares) 1,173,225 3,588,777 — — 4,762,002 BALANCE - SEPTEMBER 30, 2024 $ 51,249,495 $ 47,988,270 $ 7,572,439 $ 1,326,571 $ 108,136,775 See notes to consolidated financial statements. 36 Table of Contents RGC RESOURCES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED September 30, 2024 AND 2023 2024 2023 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 11,760,896 $ 11,299,282 Adjustments to reconcile net income to net cash provided by operations: Depreciation and amortization 10,518,094 9,993,206 Cost of retirement of utility property ( 576,771 ) ( 824,637 ) Stock-based compensation 711,924 21,560 Equity in earnings of unconsolidated affiliate ( 3,851,871 ) ( 2,084,990 ) Donated property ( 781,990 ) ( 311,473 ) Allowance for funds used during construction — ( 362,685 ) Deferred income taxes ( 121,781 ) 38,241 Other noncash items, net 516,836 244,207 Changes in assets and liabilities which provided (used) cash: Accounts receivable and customer deposits, net ( 275,196 ) 1,393,153 Inventories and gas in storage 2,568,942 5,285,142 Regulatory and other assets ( 2,765,027 ) ( 891,152 ) Regulatory liabilities ( 1,006,472 ) 88,368 Other 736,041 ( 91,522 ) Net cash provided by operating activities 17,433,625 23,796,700 CASH FLOWS FROM INVESTING ACTIVITIES: Additions to utility property ( 22,094,406 ) ( 25,306,524 ) Investment in unconsolidated affiliates ( 18,258 ) ( 2,133,534 ) Proceeds from disposal of utility property 79,032 37,940 Net cash used in investing activities ( 22,033,632 ) ( 27,402,118 ) CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings under line-of-credit 45,388,194 33,172,013 Repayments under line-of-credit ( 38,575,585 ) ( 28,818,441 ) Proceeds from issuance of unsecured notes 10,855,000 1,103,800 Retirement of notes payable ( 10,175,000 ) ( 1,300,000 ) Debt issuance expenses ( 101,206 ) ( 33,722 ) Proceeds from issuance of stock 4,679,209 3,903,362 Cash dividends paid ( 8,088,851 ) ( 7,808,077 ) Net cash provided by financing activities 3,981,761 218,935 NET DECREASE IN CASH AND CASH EQUIVALENTS ( 618,246 ) ( 3,386,483 ) BEGINNING CASH AND CASH EQUIVALENTS 1,512,431 4,898,914 ENDING CASH AND CASH EQUIVALENTS $ 894,185 $ 1,512,431 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the year for: Interest $ 6,273,144 $ 5,299,959 Income taxes 2,940,000 1,775,145 Significant noncash investing activities: Accrued capital expenditures 1,257,734 1,132,621 See notes to consolidated financial statements. 37 Table of Contents RGC RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED September 30, 2024 AND 2023 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation —RGC Resources, Inc. is an energy services company primarily engaged in the sale and distribution of natural gas. The consolidated financial statements include the accounts of Resources and its wholly owned subsidiaries: Roanoke Gas and Midstream. Roanoke Gas is a natural gas utility, which distributes and sells natural gas to approximately 62,500 residential, commercial and industrial customers within its service areas in Roanoke, Virginia and the surrounding localities. The Company’s business is seasonal in nature as a majority of natural gas sales are for space heating during the winter season. Roanoke Gas is regulated by the SCC. Midstream is a wholly owned subsidiary created primarily to invest in the LLC. The Company follows accounting and reporting standards established by the FASB and the SEC, including certain provisions allowed under the smaller reporting company exceptions. Rate Regulated Basis of Accounting —The Company’s regulated operations follow the accounting and reporting requirements of ASC 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 be charged to expense by an unregulated enterprise. When this situation occurs, costs are deferred as assets in the consolidated balance sheet (regulatory assets) and recorded as expenses 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 ASC 980 no longer apply to any or all regulatory assets or liabilities, the Company would write off such amounts and include them in the consolidated statements of income and comprehensive income in the period which ASC 980 no longer applied. 38 Table of Contents Regulatory assets and liabilities included in the Company’s consolidated balance sheets as of September 30, 2024 and 2023 are as follows: September 30 2024 2023 Assets: Current Assets: Regulatory assets: Accrued WNA revenues $ 919,375 $ 414,689 Under-recovery of gas costs 2,690,247 1,383,340 Under-recovery of RNG revenues 1,331,064 797,804 Under-recovery of SAVE Plan revenues 107,678 — Accrued pension 42,785 243,017 Other deferred expenses 12,761 15,426 Total current 5,103,910 2,854,276 Other Non-Current Assets: Regulatory assets: Premium on early retirement of debt 1,141,872 1,256,059 Accrued pension 2,998,881 3,786,265 Other deferred expenses 304,291 347,121 Total non-current 4,445,044 5,389,445 Total regulatory assets $ 9,548,954 $ 8,243,721 Liabilities and Stockholders' Equity: Current Liabilities: Regulatory liabilities: Over-recovery of SAVE Plan revenues $ — $ 146,861 Rate refund 37,500 652,018 Deferred income taxes 591,764 527,034 Supplier refunds 30,556 275,649 Other deferred liabilities 174,458 31,154 Total current 834,278 1,632,716 Deferred Credits and Non-Current Other Liabilities: Regulatory cost of retirement obligations 14,409,847 13,029,376 Regulatory liabilities: Deferred income taxes 15,468,096 16,249,776 Deferred postretirement medical 3,858,471 1,781,917 Total non-current 33,736,414 31,061,069 Total regulatory liabilities $ 34,570,692 $ 32,693,785 Amortization of $ 116,085 and $ 213,450 of regulatory assets for the years ended September 30, 2024 and 2023 , respectively, is included in operations and maintenance expense on the consolidated statements of income. Amortization of $ 211,863 and $ 237,911 of regulatory assets for the years ended September 30, 2024 and 2023, respectively, is included in other income, net on the consolidated statements of income. Amortization of $ 114,187 of regulatory assets for both years ended September 30, 2024 and 2023 is included in interest expense on the consolidated statements of income. As of September 30, 2024 , the Company had regulatory assets in the amount of $ 9,548,954 on which the Company did not earn a return during the recovery period. 39 Table of Contents Utility Property and Depreciation —Utility property is stated at original cost and includes direct labor and materials, contractor costs, and all allocable overhead charges. The Company applies the group method of accounting, where the costs of like assets are aggregated and depreciated by applying a rate based on the average expected useful life of the assets. In accordance with Company policy, expenditures for depreciable assets with a life greater than one year are capitalized, along with any upgrades or improvements to existing assets, when such upgrades or improvements significantly improve or extend the original expected useful life. Expenditures for maintenance, repairs, and minor renewals and betterments are expensed as incurred. The original cost of depreciable property retired is removed from utility property and charged to accumulated depreciation. The cost of asset removals, less salvage, is charged to “regulatory cost of retirement obligations” or “asset retirement obligations” as explained under Asset Retirement Obligations below. Utility property is composed of the following major classes of assets: September 30 2024 2023 Distribution and transmission $ 312,999,348 $ 286,200,652 LNG storage 15,437,447 15,407,053 General and miscellaneous 17,427,213 16,762,186 Total utility property in service $ 345,864,008 $ 318,369,891 Provisions for depreciation are computed principally at composite straight-line rates over a range of periods. Rates are determined by depreciation studies, which are required to be performed at least every 5 years on the regulated utility assets of Roanoke Gas. The most recent depreciation study was completed and approved by the SCC staff in fiscal 2024. The composite weighted-average depreciation rate was 3.26 % and 3.30 % for the years ended September 30, 2024 and 2023 , respectively. The composite rates are composed of two components, one based on average service life and one based on cost of retirement. As a result, the Company accrues the estimated cost of retirement of long-lived assets through depreciation expense. These retirement costs are not a legal obligation but rather the result of cost-based regulation and are accounted for under the provisions of ASC 980. Such amounts are classified as a regulatory liability. The Company reviews long-lived assets and certain identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. These reviews have not identified any impairments which would have a material effect on the results of operations or financial condition. In fiscal 2020, Roanoke Gas implemented the application of AFUDC related to infrastructure investments associated with two gate stations that interconnect with the MVP. Both gate stations were placed in service in fiscal 2024 upon MVP becoming operational. In fiscal 2022, the SCC approved the application of AFUDC on the RNG project during its construction phase. This treatment allowed capitalizing both the equity and debt financing costs during the construction phases. For the year ended September 30, 2023, the Company capitalized $ 76,785 of debt financing costs and $ 285,900 of equity financing costs related to the RNG project thereby affecting interest expense and other income, net on the consolidated statements of income. The RNG project was completed and placed in service in March 2023, thus the Company did not capitalize any financing costs related to these projects for the year ended September 30, 2024. See Note 4 for further information. Asset Retirement Obligations —ASC 410, Asset Retirement and Environmental Obligations , requires entities to record the fair value of a liability for an ARO when there exists a legal obligation for the retirement of the asset. When the liability is initially recorded, the entity capitalizes the cost, thereby increasing the carrying amount of the underlying asset. In subsequent periods, the liability is accreted, and the capitalized cost is depreciated over the useful life of the underlying asset. The Company has recorded AROs for its future regulatory obligations related to purging and capping its distribution mains and services upon retirement, although the timing of such retirements is uncertain. 40 Table of Contents The following is a summary of the AROs: Years Ended September 30 2024 2023 Beginning balance $ 10,792,831 $ 10,204,079 Liabilities incurred 86,483 91,670 Liabilities settled ( 168,913 ) ( 180,865 ) Accretion 582,383 677,947 Revisions to estimates and other ( 150,689 ) — Ending balance $ 11,142,095 $ 10,792,831 Cash, Cash Equivalents and Short-Term Investments —From time to time, the Company will have balances on deposit at banks in excess of the amount insured by the FDIC. The Company has not experienced any losses on these accounts and does not consider these amounts to be at risk. For purposes of the consolidated statements of cash flows, the Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. Customer Receivables and Allowance for Credit Losses —Accounts receivable include amounts billed to customers for natural gas sales and related services and gas sales occurring subsequent to normal billing cycles but before the end of the period. The Company provides an estimate for losses on these receivables by utilizing historical information, current account balances, account aging and current economic conditions. Customer accounts are charged off annually when deemed uncollectible or when turned over to a collection agency for action. A reconciliation of changes in the allowance for credit losses is as follows: Years Ended September 30 2024 2023 Beginning balance $ 155,164 $ 371,271 Provision for credit losses 110,676 54,211 Recoveries of accounts written off 173,660 181,676 Accounts written off ( 286,153 ) ( 451,994 ) Ending balance $ 153,347 $ 155,164 Lease Accounting —The Company leases certain assets including office space and land classified as operating leases. The Company determines if an arrangement is a lease at inception of the agreement based on the terms and conditions in the contract. The operating lease ROU assets and operating lease liabilities are recognized as the present value of the future minimum lease payments over the lease term at commencement date. As most of the leases do not provide an implicit rate, the Company uses an estimate of its secured incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. The incremental borrowing rate is determined by management aided by inquiries of a third party. The operating lease ROU asset also is adjusted for any lease payments made and excludes lease incentives and initial direct costs incurred. The Company’s lease terms may include options to extend or terminate the lease at certain dates, typically at the Company’s own discretion. The Company regularly evaluates the renewal options and when they are reasonably certain of exercise, the Company includes the renewal period in its lease term. Lease expense for minimum lease payments is recognized on a straight-line basis over the term of the agreement. The Company made an accounting policy election that payments under agreements with an initial term of 12 months or less will not be included on the consolidated balance sheet but will be recognized in the consolidated statements of operations on a straight-line basis over the term of the agreement. Financing Receivables —Financing receivables represent a contractual right to receive money either on demand, or on fixed or determinable dates, and are recognized as assets on the entity’s balance sheet. Trade receivables, resulting from the sale of natural gas and other services to customers, are the Company's primary type of financing receivables. These receivables are short-term in nature with a provision for credit losses included in the consolidated financial statements. Inventories —Natural gas in storage and materials and supplies inventories are recorded at average cost. Natural gas storage injections are priced at the purchase cost at the time of injection and storage withdrawals are priced at the weighted average cost of gas in storage. Materials and supplies are removed from inventory at average cost. 41 Table of Contents Unbilled Revenues —The Company bills its natural gas customers on a monthly cycle; however, the billing cycle for most firm customers does not coincide with the accounting periods used for financial reporting. As the Company recognizes revenue when gas is delivered, an accrual is made to estimate revenues for natural gas delivered to customers but not billed during the accounting period. The amounts of unbilled revenue receivable included in accounts receivable on the consolidated balance sheets at September 30, 2024 and 2023 were $ 1,294,798 and $ 1,240,097 , respectively. Income Taxes —Income taxes are accounted for using the asset and liability method. Under the asset and liability method, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the years in which those temporary differences are expected to be recovered or settled. A valuation allowance against deferred tax assets is provided if it is more likely than not the deferred tax asset will not be realized. The Company and its subsidiaries file consolidated state and federal income tax returns. Debt Expenses —Debt issuance expenses are deferred and amortized over the lives of the debt instruments. The unamortized balances are offset against the carrying value of long-term debt. Over/Under-Recovery of Natural Gas Costs —Pursuant to the provisions of the Company’s PGA clause, the SCC provides the Company with a method of passing along to its customers increases or decreases in natural gas costs incurred by its regulated operations, including gains and losses on natural gas derivative hedging instruments, if utilized. On at least a quarterly basis, the Company files a PGA rate adjustment request with the SCC to increase or decrease the gas cost component of its rates, based on projected price and activity. Once administrative approval is received, the Company adjusts the gas cost component of its rates to reflect the approved amount. As actual costs and usage will differ from the projections used in establishing the PGA rate, the Company may either over-recover or under-recover its actual gas costs during the period. Any 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 deferral period, the balance of the net deferred charge or credit is amortized over an ensuing 12 -month period as amounts are reflected in customer bills. Fair Value —Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between willing market participants at the measurement date. The Company determines fair value based on the following fair value hierarchy which prioritizes each input to the valuation methods into one of the following three broad 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. • 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 which require the Company to develop its own assumptions. 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 ). All fair value disclosures are categorized within one of the three categories in the hierarchy based on the lowest level that is significant to the valuation. See fair value disclosures below and in Notes 8 and 12. Use of Estimates —The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent 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. Excise and Sales Taxes —Certain excise and sales taxes imposed by the state and local governments in the Company’s service territory are collected by the Company from its customers. These taxes are passed through to the state and local governments and included within accounts payable on the Company's consolidated balance sheets. 42 Table of Contents Earnings Per Share —Basic EPS and diluted EPS are calculated by dividing net income by the weighted-average common shares outstanding during the period and the weighted-average common shares outstanding during the period plus potential dilutive common shares, respectively. Potential dilutive common shares are calculated in accordance with the treasury stock method, which assumes that proceeds from the exercise of all options are used to repurchase common stock at market value. The amount of shares remaining after the proceeds are exhausted represents the potentially dilutive effect of the securities. The computation of diluted EPS for the years ended September 30, 2024 and 2023 excludes potentially dilutive shares of 2,542 and 1,880 , respectively, because to include them would be antidilutive for the period. However, these shares could potentially dilute EPS in the future. A reconciliation of basic and diluted EPS is presented below: Years Ended September 30 2024 2023 Net income $ 11,760,896 $ 11,299,282 Weighted-average common shares 10,152,909 9,922,701 Effect of dilutive securities: Options to purchase common stock 3,571 4,456 Diluted average common shares 10,156,480 9,927,157 Earnings per share of common stock: Basic $ 1.16 $ 1.14 Diluted $ 1.16 $ 1.14 Business and Credit Concentrations —The primary business of the Company is the distribution of natural gas to residential, commercial and industrial customers in its service territories. No sales to individual customers accounted for more than 5 % of total revenue in any period. No individual customer amounted to more than 5 % of total accounts receivable at September 30, 2024 and 2023. Roanoke Gas currently holds the only franchises and/or CPCNs to distribute natural gas in its service area. These franchises generally extend for multi-year periods, are renewable by the municipalities and are intended for perpetual duration, including exclusive franchises in the cities of Roanoke, Salem and the Town of Vinton. All franchises are set to expire December 31, 2035. Roanoke Gas is currently served by three primary pipelines that provide the natural gas supplied to the Company’s customers. Depending upon weather conditions and the level of customer demand, failure of one or all of these transmission pipelines could have a major adverse impact on the Company. Derivative and Hedging Activities —ASC 815, Derivatives and Hedging , requires the recognition of all derivative instruments as assets or liabilities in the Company’s consolidated balance sheet and measurement of those instruments at fair value. The Company’s hedging and derivatives policy allows management to enter into derivatives for the purpose of managing the commodity and financial market risks of its business operations. The Company’s hedging and derivatives policy specifically prohibits the use of derivatives for speculative purposes. The key market risks that the Company may hedge against include the price of natural gas and the cost of borrowed funds. From time to time, the Company has entered into collars, swaps and caps for the purpose of hedging the price of natural gas in order to provide price stability during the winter months. The fair value of these instruments is recorded in the consolidated balance sheets with the offsetting entry to either under- or over-recovery of gas costs. Net income and other comprehensive income are not affected by the change in market value as any cost incurred or benefit received from these instruments is recoverable or refunded through the PGA as the SCC allows for full recovery of prudent costs associated with natural gas purchases. At September 30, 2024 and 2023 , the Company had no outstanding derivative instruments for the purchase of natural gas. 43 Table of Contents The Company has four interest rate swaps associated with certain of its variable rate debt. Roanoke Gas has two 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. Midstream has two swap agreements corresponding to the $ 14 million and $ 8 million variable rate term notes. The swap agreements convert these two notes into fixed rate instruments with effective interest rates of 3.24 % and 2.443 %, respectively. 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. See Notes 7 and 8 for additional information on the swaps and fair value. Other Comprehensive Income (Loss) —A summary of other comprehensive income is provided below: Tax Before Tax (Expense) Net of Tax Amount or Benefit Amount Year Ended September 30, 2024: Interest rate swaps: Unrealized losses $ ( 554,778 ) $ 142,800 $ ( 411,978 ) Transfer of realized gains to interest expense ( 2,000,126 ) 514,831 ( 1,485,295 ) Net interest rate swaps ( 2,554,904 ) 657,631 ( 1,897,273 ) Defined benefit plans: Net gains arising during period 1,233,462 ( 317,492 ) 915,970 Amortization of actuarial losses 73,505 ( 18,920 ) 54,585 Net defined benefit plans 1,306,967 ( 336,412 ) 970,555 Other comprehensive loss $ ( 1,247,937 ) $ 321,219 $ ( 926,718 ) Year Ended September 30, 2023: Interest rate swaps: Unrealized gains $ 1,560,426 $ ( 401,652 ) $ 1,158,774 Transfer of realized gains to interest expense ( 1,741,437 ) 448,244 ( 1,293,193 ) Net interest rate swaps ( 181,011 ) 46,592 ( 134,419 ) Defined benefit plans: Net gains arising during period 491,270 ( 126,453 ) 364,817 Amortization of actuarial losses 78,813 ( 20,286 ) 58,527 Net defined benefit plans 570,083 ( 146,739 ) 423,344 Other comprehensive income $ 389,072 $ ( 100,147 ) $ 288,925 The amortization of actuarial gains or losses are included as a component of net periodic pension and postretirement benefit costs under other income, net in the consolidated statements of income. Composition of AOCI: Interest Rate Swaps Defined Benefit Plans Accumulated Other Comprehensive Income (Loss) Balance September 30, 2022 $ 3,563,341 $ ( 1,598,977 ) $ 1,964,364 Other comprehensive income (loss) ( 134,419 ) 423,344 288,925 Balance September 30, 2023 3,428,922 ( 1,175,633 ) 2,253,289 Other comprehensive income (loss) ( 1,897,273 ) 970,555 ( 926,718 ) Balance September 30, 2024 $ 1,531,649 $ ( 205,078 ) $ 1,326,571 44 Table of Contents Recently Issued 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, 2024. The Intercontinental Exchange 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 would cease publication in June 2023 and that no new financial contracts may use LIBOR after December 31, 2021. Subsequent to June 30, 2023, the one -day, one -month, six -month, and one -year LIBOR settings will continue to be published under an unrepresentative synthetic methodology until the end of September 2024 in order to bridge the transition to other reference rates. The Company has transitioned all LIBOR-based variable rate note to a new reference rate as of September 30, 2024. Each of the revised notes has a corresponding swap that was also transitioned to align with the related notes. See Note 7 and 8 for more information. In November 2023, the FASB issued ASU 2023 - 07, Segment Reporting (Topic 280 ) - Improvements to Reportable Segment Disclosures . The new guidance is designed to provide users of financial statements with enhanced disclosures regarding the information provided to the chief operating decision maker (CODM) and how the CODM uses the information in assessing the performance of each segment. The new guidance is effective for the Company for fiscal year beginning October 1, 2024 and interim periods within fiscal year beginning October 1, 2025. The Company is currently evaluating the new standard and determining the additional disclosure requirements. In December 2023, the FASB issued ASU 2023 - 09, Income Taxes (Topic 740 ): Improvements to Income Tax Disclosures . The new guidance requires that on an annual basis public business entities disclose specific categories in the rate reconciliation table and provide additional information for reconciling items that meet a quantitative threshold (items equal to or greater than 5 percent of the amount computed by multiplying pretax income or loss by the applicable statutory rate). The required disclosures will provide more granularity regarding the payment of income taxes to federal, state and foreign entities. The Company does not expect certain requirements of this ASU to have a significant impact to its current disclosures as all of its operations are domestic and reside in two states. Changes to the rate reconciliation table will result in additional disclosure. The new guidance is effective for the Company for annual periods beginning October 1, 2025. In March 2024, the SEC issued its final rule that requires registrants to provide climate disclosures in their annual reports and registration statements. The new guidance requires that registrants provide information about specified financial statement effects of severe weather events and other natural conditions, certain carbon offsets and renewable energy certificates, and material impacts on financial estimates and assumptions in the footnotes to financial statements. The rule also requires additional disclosures outside of the financial statements including governance and oversight of material climate-related risks, the material impact of climate risks on the company's strategy, business model and outlook, risk management processes for material climate-related risks and material climate targets and goals. The Company is currently evaluating the new rule and determining the impact of the additional disclosure requirements, as well as the data needed and the source of that data to comply with required disclosures. The new rule is currently effective for fiscal years beginning in 2027 for smaller reporting companies. The final rule was scheduled to become effective May 28, 2024; however, the SEC has voluntarily stayed the rule's effective date pending judicial review. Depending on when the legal challenges are resolved, the mandatory compliance date may be retained or delayed. In November 2024, the SEC issued ASU 2024 - 03, Income Statement - Reporting Comprehensive Income (Topic 220 ): Expense Disaggregation Disclosur es. The new guidance requires public business entities to disclose certain additional detail about expenses including, among other items, purchases of inventory, employee compensation, depreciation and intangible asset amortization included within each income statement expense line items within continuing operations. The guidance also requires disclosure of the total amount of selling expenses and the Company’s definition of selling expenses. Such disclosures must be made on an annual and interim basis and integrated with existing disclosure requirements in a tabular format in the footnotes to the financial statements. The new guidance is effective for the Company for fiscal year beginning October 1, 2027 and interim periods within fiscal year beginning October 1, 2028. The Company is currently assessing the impacts of the new guidance on its financial statement disclosures. Other accounting standards that have been issued or proposed by the FASB or other standard–setting bodies are not currently applicable to the Company or are not expected to have a significant impact on the Company’s financial position, results of operations and cash flows. Reclassification Certain prior year amounts have been reclassified to conform to current year presentations. 45 Table of Contents 2. 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 for the years ended September 30: 2024 Gas utility Non utility Total operating revenues Natural Gas (Billed and Unbilled): Residential $ 46,472,676 $ — $ 46,472,676 Commercial 27,659,507 — 27,659,507 Transportation and Interruptible 5,414,157 — 5,414,157 Other 879,186 108,131 987,317 Total contracts with customers 80,425,526 108,131 80,533,657 Alternative revenue programs 4,107,575 — 4,107,575 Total operating revenues $ 84,533,101 $ 108,131 $ 84,641,232 2023 Gas utility Non utility Total operating revenues Natural Gas (Billed and Unbilled): Residential $ 54,342,435 $ — $ 54,342,435 Commercial 33,083,485 — 33,083,485 Transportation and Interruptible 5,730,726 — 5,730,726 Other 1,122,710 114,458 1,237,168 Total contracts with customers 94,279,356 114,458 94,393,814 Alternative revenue programs 3,045,951 — 3,045,951 Total operating revenues $ 97,325,307 $ 114,458 $ 97,439,765 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 include the procurement and transport of natural gas through the Company's distribution system to customers. 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 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. 46 Table of Contents 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 transportation and interruptible 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. Customers are invoiced monthly based on services 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. 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; the SAVE Plan over/under collection mechanism, which adjusts revenues for the differences between SAVE Plan revenues billed to customers and the revenues earned, as calculated based on the timing and extent of infrastructure replacement completed during the period; and the RNG over/under collection mechanism, which adjusts revenues similar to the SAVE Plan, but is calculated based on the timing and costs associated with owning, operating and maintaining the RNG facility. These amounts are ultimately collected from, or returned to, customers through future rate changes approved by the SCC. Customer accounts receivable and 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 September 30, 2023 $ 2,782,025 $ 1,240,097 $ 1,972,132 $ 1,476,321 September 30, 2024 3,080,140 1,294,798 1,915,859 1,488,113 Increase (decrease) $ 298,115 $ 54,701 $ ( 56,273 ) $ 11,792 ( 1 ) Included in "Accounts receivable, net" in the consolidated balance sheet. Amounts shown net of reserve for bad debts. The Company did not incur any significant costs to obtain contracts during the period. Certain customers elect to pay even amounts monthly, giving rise to assets and liabilities that are in the table above. All amounts clear annually. 47 Table of Contents 3. 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 executive management 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. The reportable segments disclosed herein are defined as follows: Gas Utility - The natural gas distribution segment of the Company generates revenue from its tariff rates and other regulatory mechanisms through which it provides for 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. Information related to the segments of the Company are provided below: Gas Utility Investment in Affiliates Consolidated Total For the Year Ended September 30, 2024: Operating revenues $ 84,533,101 $ — $ 84,533,101 Corporate and other — — 108,131 Total revenues 84,533,101 — 84,641,232 Depreciation and amortization 10,518,094 — 10,518,094 Operating income (loss) 17,130,480 ( 136,840 ) 16,993,640 Corporate and other — — 88,120 Total operating income (loss) 17,130,480 ( 136,840 ) 17,081,760 Equity in earnings — 3,851,871 3,851,871 Interest expense 3,700,674 2,804,211 6,504,885 Income before income taxes 14,459,009 910,490 15,369,499 Corporate and other — — 88,008 Total income before income taxes $ 14,459,009 $ 910,490 $ 15,457,507 As of September 30, 2024: Assets $ 280,508,989 $ 21,324,361 $ 301,833,350 Corporate and other — — 18,865,873 Total assets 280,508,989 21,324,361 320,699,223 Gross additions to utility property 22,094,406 — 22,094,406 Gross investment in affiliates $ — $ 18,258 $ 18,258 48 Table of Contents Gas Utility Investment in Affiliates Consolidated Total For the Year Ended September 30, 2023: Operating revenues $ 97,325,307 $ — $ 97,325,307 Corporate and other — — 114,458 Total revenues 97,325,307 — 97,439,765 Depreciation and amortization 9,764,678 — 9,764,678 Operating income (loss) 17,827,485 ( 233,067 ) 17,594,418 Corporate and other — — 84,062 Total operating income (loss) 17,827,485 ( 233,067 ) 17,678,480 Equity in earnings — 2,084,990 2,084,990 Interest expense 3,216,220 2,402,585 5,618,805 Income (loss) before income taxes 15,260,605 ( 553,378 ) 14,707,227 Corporate and other — — 83,966 Total income (loss) before income taxes $ 15,260,605 $ ( 553,378 ) $ 14,791,193 As of September 30, 2023: Assets $ 268,664,460 $ 17,882,108 $ 286,546,568 Corporate and other — — 17,182,772 Total assets 268,664,460 17,882,108 303,729,340 Gross additions to utility property 25,306,524 — 25,306,524 Gross investment in affiliates $ — $ 2,133,534 $ 2,133,534 4. 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. In response to continued inflationary pressures, Roanoke Gas filed a general rate application on February 2, 2024 with the SCC seeking to increase its non-gas base rates by $ 4.33 million and its permitted return on equity from 9.44 % to 10.35 % reflecting its higher cost of capital, including higher interest expense. The SCC permitted the Company to implement its new rates on an interim basis for customer billings on or after July 1, 2024, subject to refund. On October 16, 2024, 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 incremental revenue requirement increase of $ 4.08 million based on a return on equity of 9.90 %. The Company expects a final decision from the Commission by the second quarter of fiscal 2025. The SCC requires regulated utilities within the state to perform a depreciation study every five years and to submit the study for SCC approval. The Company's prior depreciation rates were based on the last depreciation study approved by the SCC in 2019. As part of the general rate application filed in February 2024, the Company submitted its requisite depreciation study and proposed new depreciation rates. In July 2024, the Company received administrative approval from the SCC staff that authorized the new depreciation rates and instructed the Company to implement the new rates retroactive to October 1, 2023. As a result, in the fourth quarter the Company recorded an approximate $ 226,000 reduction in annual depreciation expense for the fiscal year ended September 30, 2024. On December 2, 2022, Roanoke Gas filed an expedited rate application with the SCC seeking an $ 8.55 million annual increase in its non-gas base rates, of which $ 4.05 million was being recovered through the SAVE Rider. The proposed interim rates went into effect January 1, 2023, subject to refund. In the fourth quarter of fiscal 2023, 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 incremental revenue requirement of $ 7.45 million. The Company began billing the approved rates effective October 1, 2023. The SCC issued its Final Order in the matter on December 19, 2023 in which it approved the settlement agreement in its entirety. Refunds, which had previously been accrued, were made to customers in February 2024. 49 Table of Contents On August 31, 2023, the SCC approved the Company's new SAVE Plan and Rider with rates effective October 1, 2023. Under this plan, Roanoke Gas recovers costs associated with an estimated $ 8.5 million in SAVE eligible investment in fiscal 2024 and an estimated cumulative investment of $ 49.5 million over the proposed five -year plan period ending September 30, 2028. The plan was approved with a revenue requirement of approximately $ 366,000 for fiscal 2024. On June 28, 2024, Roanoke Gas filed for approval of an updated annual SAVE Rider rate to become effective October 1, 2024. The proposed SAVE rate is based on an estimated $ 9.13 million of SAVE eligible investment during fiscal 2025 and a revenue requirement of $ 1.53 million that reflects the cost of capital settled in the 2024 rate case. The Commission approved the Company’s updated SAVE Rider on September 24, 2024, which contained a lower revenue requirement of $ 1.39 million, largely attributable to SCC Staff’s reliance on the overall cost of capital approved in the 2022 rate case. The difference in the revenue requirements will be trued-up in subsequent SAVE Rider updates to the overall cost of capital settled in the 2024 rate case. By Order dated September 1, 2023, the SCC approved the Company’s RNG Rider effective for the period October 1, 2023 through September 30, 2024. In its Order, the SCC directed the Company to file an application to update the RNG Rider by May 30, 2024. In compliance with the SCC’s directive, on May 30, 2024, Roanoke Gas filed for an update to become effective October 1, 2024. The revenue requirement associated with the proposed RNG Rider is $ 1.56 million, offset by the sale of environmental credits in the amount of $ 1.11 million, as well as credits for the over-recovery of costs during the prior year of approximately $ 35,000 , resulting in a net revenue requirement of approximately $ 415,000 reflecting the overall cost of capital proposed in the 2024 rate case. The Commission approved the Company’s updated RNG Rider on September 4, 2024, which contained a lower net revenue requirement of approximately $ 356,000 , largely attributable to SCC Staff’s reliance on the overall cost of capital approved in the 2022 rate case. The difference in the revenue requirements will be trued-up in subsequent RNG Rider updates at the overall cost of capital approved in the 2024 rate case. 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. The SCC approved the application in July 2022. The housing authority completed the transfer of two apartment complexes to Roanoke Gas in fiscal 2022, one complex in fiscal 2023 and one complex in fiscal 2024. The housing authority has notified Roanoke Gas that it intends to complete the remaining complex in fiscal 2025. Roanoke Gas recorded these assets and recognized pre-tax income of approximately $ 219,000 , $ 311,000 and $ 782,000 in fiscal 2022, 2023 and 2024, respectively, by analogy to ASC 958. The assets are included under utility property, in service on the consolidated balance sheets and the income is recorded in other income, net on the consolidated statements of income. There are no ongoing obligations between the parties for the properties already transferred. 5. OTHER INVESTMENTS Midstream owns a less than 1 % equity investment in the LLC that owns and operates the MVP. 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 customer of the MVP. The Company has been using the equity method since the inception of its investment in fiscal 2016. Following receipt of authorization from the FERC, the MVP entered commercial operation on June 14, 2024 and became available for interruptible or short-term firm transportation service. On July 1, 2024, the MVP commenced long-term firm capacity obligations. Midstream is also a less than 1 % investor, accounted for under the cost method, in Southgate, which is in the design and permitting phase. Completion of the Southgate pipeline is targeted for June 2028. While under construction, AFUDC provided the majority of the income recognized by Midstream. The amount of AFUDC recognized during the current and prior year is included in the equity in earnings of unconsolidated affiliate in the tables below. AFUDC ceased in June 2024 when the pipeline went into commercial operation. The Company participates in the earnings of the LLC proportionate to its level of investment. With the MVP now in operation, 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 to income over the operational life of the MVP, which is 40 years. The Company's share of earnings from the LLC and the basis difference amortization are presented under equity in earnings of unconsolidated affiliate on the consolidated statements of income. The Company participates in quarterly cash distributions by the LLC, the first of which was in October 2024. The Company's share was approximately $ 800,000 . 50 Table of Contents Midstream assesses the value of its investment in the LLC on at least a quarterly basis, and no impairment indicators were identified in fiscal 2024 or 2023. Funding for Midstream's investments has been provided through equity contributions from Resources and unsecured promissory notes as detailed in Note 7. The investments in the LLC are included in the consolidated balance sheets as follows: September 30 Balance Sheet location: 2024 2023 Other Assets: MVP $ 20,948,347 $ 17,096,476 Southgate 108,875 90,617 Investment in unconsolidated affiliates $ 21,057,222 $ 17,187,093 The change in the investment in unconsolidated affiliates is provided below: September 30 2024 2023 Cash investment $ 18,258 $ 2,133,534 Change in accrued capital calls — ( 804,506 ) Equity in earnings of unconsolidated affiliate 3,851,871 2,084,990 Change in investment in unconsolidated affiliates $ 3,870,129 $ 3,414,018 Summary unaudited financial statements of MVP are presented below. Southgate financial statements, which are accounted for under the cost method, are not included: Income Statements Years Ended September 30 2024 2023 Revenue $ 143,052,597 $ — Operating expenses ( 78,822,028 ) — AFUDC 343,922,690 203,721,584 Other income, net 9,900,128 2,091,886 Net income $ 418,053,387 $ 205,813,470 Balance Sheets September 30 2024 2023 Assets: Current assets $ 263,966,727 $ 795,787,358 Construction work in progress 1,568,267 7,499,128,254 Property, plant and equipment, net 9,522,815,742 — Other assets 13,732,299 11,639,586 Total assets $ 9,802,083,035 $ 8,306,555,198 Liabilities and Equity: Current liabilities $ 168,645,751 $ 236,947,158 Noncurrent liabilities 68,965 — Capital 9,633,368,319 8,069,608,040 Total liabilities and equity $ 9,802,083,035 $ 8,306,555,198 51 Table of Contents 6. LINE-OF-CREDIT On March 24, 2023, Roanoke Gas entered into an unsecured Revolving Note in the principal amount of $ 25 million. On March 31, 2024, the Revolving Note was amended to extend the maturity date to March 31, 2025. Other key terms and requirements of the Revolving Note were retained. The Revolving Note's variable interest rate is based upon Term SOFR plus 110 basis points and provides multiple tier borrowing limits to accommodate seasonal borrowing demands. The Company's total borrowing limits during the term of the Revolving Note range from $ 15 million to $ 25 million. As of September 30, 2024, the Company had an outstanding balance of $ 11,166,181 under the Revolving Note. The Company's total available borrowing limits for the remaining term are as follows: Available As of Line-of-Credit September 30, 2024 $ 20,000,000 October 1, 2024 25,000,000 March 1, 2025 15,000,000 A summary of the line-of-credit follows: September 30 2024 2023 Available line-of-credit at year-end $ 20,000,000 $ 13,000,000 Outstanding balance at year-end 11,166,181 4,353,572 Average rate of interest during year on outstanding balances 6.39 % 5.16 % Interest rate at year-end 6.29 % 6.43 % Interest rate on unused line-of-credit 0.15 % 0.15 % 52 Table of Contents 7. LONG-TERM DEBT Long-term debt consisted of the following: September 30 2024 2023 Principal Unamortized Debt Issuance Costs Principal Unamortized Debt Issuance Costs Roanoke Gas: Unsecured senior note payable at 4.26 %, due September 18, 2034 $ 30,500,000 $ 96,541 $ 30,500,000 $ 106,195 Unsecured term note payable at 3.58 %, due October 2, 2027 8,000,000 14,448 8,000,000 19,264 Unsecured term note payable at 4.41 %, due March 28, 2031 10,000,000 20,362 10,000,000 23,495 Unsecured term note payable at 3.60 %, due December 6, 2029 10,000,000 18,494 10,000,000 22,017 Unsecured term note payable at 30-day SOFR plus 1.20 %, due August 20, 2026 (swap rate at 2.00 %) 15,000,000 — 15,000,000 — Unsecured term note payable at Term SOFR plus 1.00 %, due October 1, 2028 (swap rate at 2.49 %) 10,000,000 27,044 10,000,000 33,666 Midstream: Unsecured term note payable at Term SOFR plus 1.75 % ( 1.55 % beginning November 1, 2024), due December 31, 2025 24,855,000 32,299 23,000,000 23,386 Unsecured term note payable at Daily Simple SOFR plus 1.26448 %, due June 12, 2026 (swap rate at 3.24 %) 14,000,000 4,213 14,000,000 6,621 Unsecured term note payable at Daily Simple SOFR plus 1.26448 %, due January 1, 2028 with quarterly principal installments of $ 400,000 that began April 1, 2023, were suspended April 1, 2024, and will resume April 1, 2025 (swap rate at 2.443 % on designated principal) 6,400,000 21,406 7,200,000 19,057 Revolving credit facility at Daily Simple SOFR plus 2.215 %, due May 2, 2026 9,000,000 47,285 — — Unsecured term note payable at 30-day LIBOR plus 1.20 %, matured June 1, 2024 with monthly principal installments of $ 41,667 that began July 1, 2022 (swap rate at 3.14 %) — — 9,375,000 1,571 Total long-term debt $ 137,755,000 $ 282,092 $ 137,075,000 $ 255,272 Less: current maturities of long-term debt ( 800,000 ) — ( 10,975,000 ) — Total long-term debt, net current maturities $ 136,955,000 $ 282,092 $ 126,100,000 $ 255,272 53 Table of Contents On March 6, 2024, Midstream entered into the Sixth Amendment to Credit Agreement and related Promissory Notes on the non-revolving credit facility. The Sixth Amendment revised the interest rate from Term SOFR plus 2.00 % to Term SOFR plus 2.00 % subject to adjustment to Term SOFR plus 1.75 % and Term SOFR plus 1.55 % upon meeting certain milestones. The Sixth Amendment also consolidated the Promissory Notes to one Promissory Note with one lender, increased the available non-revolving credit facility to $ 25 million, and extended the maturity date to December 31, 2025. All other terms and requirements remain unchanged. On May 2, 2024, Midstream established a new $ 9 million line of credit facility. The interest rate on the borrowings under the facility is SOFR plus 2.215%; the arrangement included a 0.40 % upfront fee and 0.125 % unused line fee. The facility matures on May 2, 2026. On May 29, 2024, Midstream paid in full the remaining $ 9 million term note payable that was set to mature June 1, 2024 with proceeds from the new line of credit. On June 28, 2023, Midstream amended and restated its $ 14 million and $ 8 million Term Notes initially entered into on June 12, 2019 and November 1, 2021, respectively. The amendments revised each of the original Term Note's interest rate from LIBOR plus 115 basis points to Daily Simple SOFR plus 126.448 basis points, effective July 1, 2023. On March 6, 2024, Midstream further amended and restated its $ 8 million Term Note. The amendment suspended quarterly principal payments beginning April 1, 2024 through January 1, 2025. Principal payments will commence again on April 1, 2025. All other terms and requirements of the Term Notes were retained. In conjunction with the original amendment of the Term Notes in June 2023, Midstream also amended the corresponding interest rate swaps associated with the Term Notes. The amendments provided for the floating rates on the interest rate swaps to continue to match the rate of the associated notes as well as retain the overall fixed interest rates of 3.24 % and 2.443 %, respectively. The interest rate swap related to the $ 8 million Term Note was not amended on March 6, 2024. On March 24, 2023, Roanoke Gas amended and restated the $ 10 million Term Note originally entered into on September 24, 2021. The amendment revised the original Term Note's interest rate from LIBOR plus 100 basis points to Term SOFR plus 100 basis points. All other terms and requirements of the original Term Note were retained. The effective date of the Amended Term Note was April 1, 2023. In addition, on April 3, 2023, the interest rate swap was amended to align with the Amended Term Note and retained the fixed interest rate of 2.49 %. In connection with the Revolving Note and Amended Term Note, Roanoke Gas also amended and restated the Loan Agreement dated September 24, 2021. The amendment provides for borrowing limits on the Revolving Note and amends certain financial conditions required of Roanoke Gas and Resources. All other terms and requirements of the original Loan Agreement were retained. See Note 1 for additional information regarding the interest rate swap. Debt issuance costs are amortized over the life of the related debt. As of September 30, 2024 and 2023 , the Company also had an unamortized loss on the early retirement of debt of $ 1,141,872 and $ 1,256,059 , respectively, which has been deferred as a regulatory asset and is being amortized over a 20 -year period. 54 Table of Contents All of the 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 provide for Priority Indebtedness (defined in the debt agreements) to not exceed 15 % of consolidated total assets. The $ 15 million and $ 10 million notes, as well as the line-of-credit, have an interest coverage ratio requirement of not less than 1.5 to 1, which excludes the effect of a 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 $ 9 million revolving line of credit facility also has an interest coverage ratio of not less than 1.5 to 1. The Company was in compliance with all debt covenants as of September 30, 2024 and 2023. The aggregate annual maturities of long-term debt for the next five years ending after September 30, 2024 are as follows: Year Ending September 30 Maturities 2025 $ 800,000 2026 64,455,000 2027 1,600,000 2028 10,400,000 2029 10,000,000 Thereafter 50,500,000 Total $ 137,755,000 8. FAIR VALUE The following table summarizes the Company’s financial assets and liabilities that are measured at fair value on a recurring basis and the fair value measurements by level within the fair value hierarchy as defined in Note 1 as of September 30, 2024 and 2023 , respectively. There have been no changes to the Company's valuation techniques during fiscal years ended September 30, 2024 and 2023. Fair Value Measurements - September 30, 2024 Quoted Prices in Active Markets Significant Other Observable Inputs Significant Unobservable Inputs Fair Value Level 1 Level 2 Level 3 Assets: Interest rate swaps $ 2,062,551 $ — $ 2,062,551 $ — Total $ 2,062,551 $ — $ 2,062,551 $ — Liabilities: Natural gas purchases $ 761,020 $ — $ 761,020 $ — Total $ 761,020 $ — $ 761,020 $ — Fair Value Measurements - September 30, 2023 Quoted Prices in Active Markets Significant Other Observable Inputs Significant Unobservable Inputs Fair Value Level 1 Level 2 Level 3 Assets: Interest rate swaps $ 4,617,455 $ — $ 4,617,455 $ — Total $ 4,617,455 $ — $ 4,617,455 $ — Liabilities: Natural gas purchases $ 1,022,662 $ — $ 1,022,662 $ — Total $ 1,022,662 $ — $ 1,022,662 $ — 55 Table of Contents The fair value of the interest rate swaps are determined by using the counterparty's proprietary models that include observable quoted market interest rates and interest rate futures as well as 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 the weighted average first of the month index prices corresponding to the month of the scheduled payment. At September 30, 2024 and 2023 , the Company had recorded in accounts payable the estimated fair value of the liability based on the corresponding first of month quoted index prices for which the liability was expected to be settled. The Company’s non-financial assets and liabilities that are 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 to settle the obligation. The carrying value of cash and cash equivalents, accounts receivable, borrowings under line-of-credit, accounts payable, 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 consolidated financial statements as of September 30, 2024 and 2023 . Fair Value Measurements - September 30, 2024 Carrying Quoted Prices in Active Markets Significant Other Observable Inputs Significant Unobservable Inputs Amount Level 1 Level 2 Level 3 Liabilities: Current maturities of long-term debt $ 800,000 $ — $ — $ 800,000 Notes payable 136,955,000 — — 135,471,275 Total $ 137,755,000 $ — $ — $ 136,271,275 Fair Value Measurements - September 30, 2023 Carrying Quoted Prices in Active Markets Significant Other Observable Inputs Significant Unobservable Inputs Amount Level 1 Level 2 Level 3 Liabilities: Current maturities of long-term debt $ 10,975,000 $ — $ — $ 10,975,000 Notes payable 126,100,000 — — 120,298,658 Total $ 137,075,000 $ — $ — $ 131,273,658 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 instrument with a corresponding maturity period and estimated credit spread extrapolated based on market conditions since the issuance of the debt. 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. The Company maintains certain credit standards with its customers and requires a customer deposit if such evaluation warrants. 56 Table of Contents 9. INCOME TAXES Under the provisions of ASC 740, the deferred tax assets and liabilities of the Company were revalued in fiscal 2018 to reflect the reduction in the corporate federal income tax rate. As a result of the revaluation, the excess deferred income taxes of the regulated operations of Roanoke Gas were reclassified to a regulatory liability. The excess deferred taxes related to the depreciable property are being returned to customers over the remaining weighted average useful life of the property with a corresponding reduction in income tax expense. The excess deferred taxes related to the other regulatory basis differences were being collected from customers over a five -year period, which concluded in December 2023. The details of income tax expense (benefit) are as follows: Years Ended September 30 2024 2023 Current income taxes: Federal $ 3,128,721 $ 2,935,052 State 689,671 650,238 Total current income taxes 3,818,392 3,585,290 Deferred income taxes: . Federal ( 398,588 ) ( 223,862 ) State 276,807 262,103 Total deferred income taxes ( 121,781 ) 38,241 Amortization of R&D tax credits: Federal — ( 129,600 ) State — ( 2,020 ) Total amortization of R&D tax credits — ( 131,620 ) Total income tax expense $ 3,696,611 $ 3,491,911 Income tax expense for the years ended September 30, 2024 and 2023 differed from amounts computed by applying the U.S. federal income tax rate to earnings before income taxes due to the following: Years Ended September 30 2024 2023 Income before income taxes $ 15,457,507 $ 14,791,193 Corporate federal income tax rate 21 % 21 % Income tax expense computed at the federal statutory rate $ 3,246,076 $ 3,106,151 State income taxes, net of federal income tax expense 763,518 720,749 Net amortization of excess deferred taxes on regulated operations ( 315,708 ) ( 162,228 ) Amortization of R&D tax credits — ( 131,620 ) Net amortization of RNG tax credits ( 100,649 ) ( 58,669 ) Reserve for unrecognized tax benefits 82,000 — Other, net 21,374 17,528 Total income tax expense $ 3,696,611 $ 3,491,911 During fiscal 2022, the Company engaged an outside firm to conduct a study of its activities that would qualify for the Research and Development ("R&D") credit under 26 U.S. Code § 41 - Credit for increasing research activities. Upon completion of the 2022 study, the Company filed for the R&D tax credit on its fiscal 2021 federal income tax return. The total credits claimed on the fiscal 2021 income tax return amounted to $ 659,920 . The Company deferred the tax credits as a regulatory liability because they related to utility plant. These credits are being amortized over the 20 -year tax-life of the related utility plant. The Company recognized $ 129,600 of amortization as reduction of income tax expense on the consolidated statement of income in fiscal 2023 related to the federal R&D tax credits. No amortization was recognized in fiscal 2024 as discussed below. The Company has not yet completed a study of R&D activities for fiscal 2023 or 2024 given the IRS audits in process, as discussed further below. Additionally, during fiscal 2023, the Company received refunds for the 2020 and 2021 tax years, neither of which are subject to the IRS audits. 57 Table of Contents During fiscal 2022, the Company also applied for a Virginia State tax credit related to the R&D study for its fiscal 2021 tax year. The total credits claimed on the fiscal 2022 tax return were $ 58,065 . Consistent with the treatment of the federal tax credits, the Company deferred the tax credits as a regulatory liability, which are being amortized over the 20 -year tax-life of the related utility plant. The Company recognized $ 2,020 of amortization as a reduction of income tax expense on the consolidated statement of income in fiscal 2023 related to the state R&D tax credits. No amortization was recognized in fiscal 2024 as discussed below. The Company did not apply for a Virginia State tax credit related to R&D for fiscal 2023 or 2024 given the IRS audits in process, as discussed further below. In accordance with the SCC settlement agreement in relation to the Company’s non-gas rate application, the amortization of the R&D tax credit was halted effective August 1, 2023. As such, no amortization was recognized associated with the R&D tax credits in fiscal 2024. After resolution of the IRS audits, the Company will proceed with refunding the R&D tax credits, net of related fees, to customers through a mechanism to be approved by the SCC. As part of the settlement, the Company grossed up the tax credit consistent with treatment of the excess deferred taxes, thereby creating a deferred tax asset of $ 990,219 as of September 30, 2023. During fiscal 2023, the Company engaged an outside firm to conduct a study of its RNG facility to determine eligibility for the Federal Energy Investment Tax Credit under 26 U.S. Code § 48 – Energy credit (“RNG tax credit”). Upon completion of the study, the Company determined a credit in the amount of $ 1,892,164 to be claimed on the fiscal 2023 tax return. Similar to the treatment of the R&D tax credits, the Company deferred the RNG tax credit as a regulatory liability, which is being amortized over the 20 -year tax-life of the related asset. Further, as part of the SCC order approving the RNG project and corresponding rates charged to customers, any tax credits attributable to the RNG project are to be used to reduce the cost to customers through the RNG Rider. Accordingly, the Company grossed up the RNG tax credit consistent with treatment of the excess deferred taxes, thereby creating a deferred tax asset of $ 655,862 , which is also being amortized over the 20 -year tax-life of the related asset. The Company recognized $ 127,404 and $ 74,265 of amortization as part of income tax expense on the consolidated statements of income in fiscal 2024 and 2023, respectively, related to the federal RNG tax credit. The tax effects of temporary differences that give rise to the deferred tax assets and deferred tax liabilities are as follows: September 30 2024 2023 Deferred tax assets: Accrued pension and postretirement medical benefits $ 512,778 $ 591,841 Regulatory effect of change in federal income tax rate 2,553,086 2,655,951 Cost of gas held in storage 835,094 752,989 Deferred compensation 1,166,850 1,020,512 Impairment of unconsolidated affiliate 14,077,357 14,180,759 Regulatory effect on tax credits 1,437,670 1,662,400 Other 641,300 452,996 Total gross deferred tax assets 21,224,135 21,317,448 Deferred tax liabilities: Utility property 19,879,747 19,426,513 MVP investment 1,586,837 1,288,104 Interest rate swaps 530,903 1,188,533 Accrued gas cost 345,464 259,162 Total gross deferred tax liabilities 22,342,951 22,162,312 Net deferred tax asset 771,746 1,163,594 Net deferred tax liability $ 1,890,562 $ 2,008,458 Deferred tax assets and liabilities are recorded on the consolidated balance sheets on a net basis by taxing jurisdictions. As of September 30, 2024 and 2023, the Company's consolidated balance sheets included net deferred tax liabilities of $ 1,890,562 and $ 2,008,458 , respectively, in deferred credits and other non-current liabilities and net deferred tax assets of $ 771,746 and $ 1,163,594 , respectively, in other non-current assets. 58 Table of Contents ASC 740 provides for the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recognized in the financial statements. The Company has evaluated its tax positions and recorded a reserve for unrecognized tax benefits of $ 273,936 as of September 30, 2024. These unrecognized tax benefits relate to tax positions taken in the Company's prior tax returns. A reconciliation of the Company's unrecognized tax benefits is as follows: September 30 2024 Beginning balance $ — Increase resulting from prior period tax positions 273,936 Ending Balance $ 273,936 The Company’s policy is to classify interest associated with uncertain tax positions as interest expense in the financial statements. Tax penalties, if any, are netted against other income. 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 focus of the exam relates to research and development credits, and the results of its exam have not been presented to the Company. The Company believes its income tax assets and liabilities are fairly stated as of September 30, 2024 and 2023; however, these assets and liabilities could be adjusted as a result of this examination. The Company's federal returns for fiscal 2018 and 2019 remain open related to the exam. Aside from these exceptions, the federal returns and the state returns for Virginia and West Virginia for the tax years ended prior to September 30, 2021 are no longer subject to examination. 10. COMMON STOCK OPTIONS The KEYSOP provides for the issuance of common stock options to officers and certain other full-time salaried employees to acquire shares of the Company’s common stock. As of September 30, 2024 , the number of shares available for future grants was 16,000 . ASC 718, Compensation - Stock Compensation, requires that compensation expense be recognized for the issuance of equity instruments to employees. During the fiscal year ended September 30, 2024, the Board approved stock option grants to certain officers. As required by the KEYSOP, each option's exercise price per share equaled the fair value of the Company's common stock on the grant date. Pursuant to the plan, the options vest over a six -month period and are exercisable over a ten -year period from the date of issuance. No options were granted during the fiscal year ended September 30, 2023. As the Company's stock options are not traded on the open market, the fair value of each grant is estimated on the date of grant using the Black-Scholes option pricing model including the following assumptions: Years Ended September 30 2024 2023 Expected volatility 32.07 % N/A Expected dividends 2.84 % N/A Expected exercise term (years) 7 N/A Risk-free interest rate 4.95 % N/A 59 Table of Contents The underlying methods regarding each assumption are as follows: Expected volatility is based on the historical volatility of the daily closing price of the Company's common stock. Expected dividend rate is based on historical dividend payout trends. Expected exercise term is based on the average time historical option grants were outstanding before being exercised. Risk-free interest rate is based on the 7 -year Treasury rate on the date of option grant. Forfeitures are recognized when they occur. Stock option transactions under the Company's plans are summarized below. Number of Shares Weighted- Average Exercise Price Weighted- Average Remaining Contractual Terms (years) Aggregate Intrinsic Value1 Options outstanding, September 30, 2022 34,500 $ 18.69 5.7 $ 121,278 Options exercised ( 12,500 ) 16.00 Options outstanding, September 30, 2023 22,000 $ 20.23 5.6 $ 18,388 Options granted 10,000 16.62 Options forfeited ( 4,000 ) 19.90 Options outstanding, September 30, 2024 28,000 $ 18.98 5.8 $ 127,988 Vested and exercisable at September 30, 2024 28,000 $ 18.98 5.8 $ 127,988 ( 1 ) Aggregate intrinsic value includes only those options where the exercise price is below the market price. Years Ended September 30 2024 2023 Weighted-average grant date option fair value $ 5.15 $ — Stock-based compensation 51,500 21,560 Intrinsic value of options exercised — 46,921 Proceeds from exercise of stock options — 200,000 Stock-based compensation related to stock options disclosed in the table above is included within operations and maintenance expense on the consolidated statements of income. 11. OTHER STOCK PLANS Dividend Reinvestment and Stock Purchase Plan The Company offers a DRIP plan to shareholders of record for the reinvestment of dividends and the opportunity to purchase of up to $ 100,000 per year in additional shares of common stock of the Company. Under the DRIP, the Company issued 33,226 and 32,805 shares in 2024 and 2023 , respectively. After taking into account the activity discussed above and dividends reinvested, as of September 30, 2024 , the Company had 232,398 shares of stock available for issuance under the DRIP. 60 Table of Contents Restricted Stock Plan for Outside Directors The Board of Directors of the Company implemented the RSPD in 1997. Under the RSPD, each director may elect annually to have up to 100 % of his or her fees paid in shares of common stock ("Director Restricted Stock"); however, a minimum of 40 % of the monthly retainer fee must be paid to each non-employee director of Resources in shares of Director Restricted Stock until such time as the director has accumulated at least 10,000 shares. The number of shares of Director Restricted Stock awarded each month is determined based on the closing sales price of Resources' common stock on the NASDAQ Global Market on the first business day of the month. The Director Restricted Stock issued under the Plan vests only in the case of a participant's death, disability, retirement, or in the event of a change in control of Resources. The Director Restricted Stock may not be sold, transferred, assigned or pledged by the participant until the shares have vested under the terms of the Plan. The shares of Director Restricted Stock will be forfeited to Resources by a participant's voluntary resignation during his or her term on the Board or removal for cause as a director. The Company assumes all directors will complete their term and there will be no forfeiture of the Director Restricted Stock. Since the inception of the RSPD, no director has forfeited any shares of Director Restricted Stock. The Company recognizes as compensation the market value of the Director Restricted Stock in the period it is issued. The following table reflects the director compensation activity pursuant to the Plan: 2024 2023 Shares Weighted-Average Fair Value on Date of Grant Shares Weighted-Average Fair Value on Date of Grant Beginning of year balance 122,207 $ 16.84 108,127 $ 16.27 Granted 15,557 19.23 14,080 21.25 End of year balance 137,764 $ 17.11 122,207 $ 16.84 The fair market value of the Director Restricted Stock included as compensation was $ 299,200 during fiscal years ended September 30, 2024 and 2023 , and included within operations and maintenance expense on the consolidated statements of income. No Director Restricted Stock was forfeited during fiscal years ended September 30, 2024 or 2023 . During fiscal year ended September 30, 2023, an additional 200,000 shares were registered and added to the RSPD, as authorized and approved by shareholders at the Annual Shareholder meeting on January 23, 2023. After taking into account the activity discussed above and dividends reinvested, as of September 30, 2024 , the Company had 173,298 shares available for issuance under the RSPD. RGC Resources, Inc. Restricted Stock Plan The Board of Directors of the Company implemented the RSPO in 2017 as approved by shareholders. Under the RSPO, the Compensation Committee of the Board of Directors may grant shares of common stock ("Officer Restricted Stock") that vest over time to key employees and officers for the purpose of attracting and retaining those individuals essential to the operation and growth of the Company. The RSPO provides for certain restrictions and non-transferability requirements until minimum levels of ownership are obtained. Such restrictions may continue beyond the vesting period. The Company assumes all officers will complete their requirements and there will be no forfeiture of the Officer Restricted Stock. 61 Table of Contents The following table reflects the officer compensation activity pursuant to the RSPO: 2024 2023 Shares Weighted-Average Fair Value on Date of Grant Shares Weighted-Average Fair Value on Date of Grant Beginning of year balance 8,966 $ 23.19 22,539 $ 23.44 Granted 45,723 20.12 — — Vested ( 23,207 ) 21.35 ( 13,573 ) 23.61 End of year balance 31,482 $ 20.09 8,966 $ 23.19 The fair market value of the Officer Restricted Stock included as compensation during fiscal years ended September 30, 2024 and 2023 was $ 660,424 and $ 169,879 , respectively, and included within operations and maintenance expense on the consolidated statements of income. As of September 30, 2024 and 2023, there was $ 285,683 and $ 25,989 , respectively, of unamortized compensation expense related to unvested Officer Restricted Stock. No Officer Restricted Stock was forfeited during fiscal years ended September 30, 2024 or 2023 . After taking into account the activity discussed above and dividends reinvested, as of September 30, 2024 , the Company had 319,313 shares available for issuance under the RSPO. Stock Bonus Plan Shares from the Stock Bonus Plan may be issued to certain employees and management personnel in recognition of their performance and service. Under the Stock Bonus Plan, the Company issued 1,562 and 105 shares valued at $ 24,841 and $ 2,500 , respectively, during the fiscal years ended September 30, 2024 and 2023 . As of September 30, 2024 , the Company had 3,118 shares of stock available for issuance under the Stock Bonus Plan. 12. EMPLOYEE BENEFIT PLANS The Company sponsors both a noncontributory pension plan and a postretirement plan. The pension plan covers all employees hired prior to January 2017 and benefits fully vest after 5 years of credited service. Benefits paid to retirees are based on age at retirement, years of service and average compensation. Effective January 1, 2017, a "soft freeze" to the pension plan was implemented, and employees hired on or after that date are no longer eligible to participate. Commensurate with the "soft freeze" in the pension plan, the Company amended its 401 (k) Plan, allowing management to authorize a discretionary contribution to the 401 (k) account for those employees hired on or after January 1, 2017. The amount, if any, of this discretionary contribution would be determined each year and would be applied to the eligible employees in the following calendar year. This Company contribution would be in addition to any employee elected deferrals and employer match as provided for under the 401 (k) Plan. The postretirement plan provides certain health care, supplemental retirement and life insurance benefits to retired employees who meet specific age and service requirements. Employees hired prior to January 1, 2000 are eligible to participate in the postretirement plan. Employees must have a minimum of 10 years of service and retire after attaining the age of 55 in order to vest in the postretirement plan. Retiree contributions to the plan are based on the number of years of service to the Company as determined under the pension plan. 62 Table of Contents Employers who sponsor defined benefit plans must recognize the funded status of defined benefit pension and other postretirement plans as an asset or liability in their statements of financial position and recognize changes in that funded status in the year in which the changes occur through comprehensive income. For pension plans, the benefit obligation is the projected benefit obligation, and for other postretirement plans, the benefit obligation is the accumulated benefit obligation. The Company established a regulatory asset for the portion of the obligation expected to be recovered through rates in future periods. The regulatory asset is adjusted for the recognition of actuarial gains and losses. The portion of the obligation attributable to the unregulated operations of the holding company is recognized in other comprehensive income, with actuarial gains and losses recognized using the corridor method. The following table sets forth the benefit obligation, fair value of plan assets, the funded status of the plans, and amounts recognized in the Company’s consolidated financial statements: Pension Plan Postretirement Plan 2024 2023 2024 2023 Accumulated benefit obligation $ 26,859,162 $ 24,449,856 $ 10,842,455 $ 11,248,448 Change in benefit obligation: Benefit obligation at beginning of year $ 26,747,624 $ 27,268,456 $ 11,248,448 $ 12,416,546 Service cost 324,265 366,537 30,398 45,897 Interest cost 1,468,822 1,372,098 613,477 620,622 Actuarial loss (gain) 2,613,621 ( 1,031,160 ) ( 540,914 ) ( 1,331,541 ) Benefit payments, net of retiree contributions ( 1,280,904 ) ( 1,228,307 ) ( 508,954 ) ( 503,076 ) Benefit obligation at end of year $ 29,873,428 $ 26,747,624 $ 10,842,455 $ 11,248,448 Change in fair value of plan assets: Fair value of plan assets at beginning of year $ 26,878,661 $ 28,017,797 $ 13,019,313 $ 12,138,119 Actual return on plan assets, net of taxes 5,456,381 89,171 2,567,922 1,384,270 Employer contributions — — — — Benefit payments, net of retiree contributions ( 1,280,904 ) ( 1,228,307 ) ( 508,954 ) ( 503,076 ) Fair value of plan assets at end of year $ 31,054,138 $ 26,878,661 $ 15,078,281 $ 13,019,313 Funded status $ 1,180,710 $ 131,037 $ 4,235,826 $ 1,770,865 Amounts recognized in the consolidated balance sheet consist of: Benefit plan assets under other non-current assets $ 1,180,710 $ 131,037 $ 4,235,826 $ 1,770,865 Benefit plan liabilities under deferred credits and other non-current liabilities — — — — Amounts recognized in accumulated other comprehensive income: Net actuarial loss (gain), net of tax $ 432,149 $ 1,168,687 $ ( 227,071 ) $ 6,946 Total amounts included in accumulated other comprehensive income, net of tax $ 432,149 $ 1,168,687 $ ( 227,071 ) $ 6,946 Amounts deferred to a regulatory asset (liability): Net actuarial loss (gain) $ 3,041,666 $ 4,029,282 $ ( 4,032,929 ) $ ( 1,813,071 ) Amounts recognized as regulatory assets (liabilities) $ 3,041,666 $ 4,029,282 $ ( 4,032,929 ) $ ( 1,813,071 ) 63 Table of Contents The Company expects that approximately $ 41,000 , before tax, of AOCI will be recognized in net periodic benefit costs in fiscal 2025 and approximately $ 43,000 of amounts deferred as regulatory assets and approximately $ 174,000 of amounts deferred as regulatory liabilities will be amortized and recognized in net periodic benefit costs in fiscal 2025. The changes in the benefit obligations for both the pension plan and postretirement plan was primarily attributed to actuarial gains and losses associated with the discount rate used to calculate the benefit obligations. The following table details the actuarial assumptions used in determining the projected benefit obligations and net benefit cost of the pension plan and the accumulated benefit obligations and net benefit cost of the postretirement plan: Pension Plan Postretirement Plan 2024 2023 2024 2023 Assumptions used to determine benefit obligations: Discount rate 4.83 % 5.63 % 4.83 % 5.63 % Expected rate of compensation increase 4.00 % 4.00 % N/A N/A Assumptions used to determine benefit costs: Discount rate 5.63 % 5.15 % 5.63 % 5.16 % Expected long-term rate of return on plan assets 4.50 % 4.50 % 4.21 % 3.95 % Expected rate of compensation increase 4.00 % 4.00 % N/A N/A To develop the expected long-term rate of return on plan assets assumption, the Company, with input from the Plans' actuaries and investment advisors, considered the historical returns and the future expectations for returns for each asset class, as well as the target asset allocation of each plan’s portfolio. Components of net periodic benefit cost are as follows: Pension Plan Postretirement Plan 2024 2023 2024 2023 Service cost $ 324,265 $ 366,537 $ 30,398 $ 45,897 Interest cost 1,468,822 1,372,098 613,477 620,622 Expected return on plan assets ( 1,179,830 ) ( 1,232,597 ) ( 533,249 ) ( 464,046 ) Recognized loss (gain) 316,522 316,724 ( 40,597 ) — Net periodic benefit cost $ 929,779 $ 822,762 $ 70,029 $ 202,473 Service cost is included in operations and maintenance expense in the consolidated statements of income. All other components of net periodic benefit costs are included in other income, net in the consolidated statements of income. The assumed health care cost trend rates used in measuring the accumulated benefit obligation for the postretirement plan are presented below: Pre 65 Post 65 2024 2023 2024 2023 Health care cost trend rate assumed for next year 7.00 % 6.30 % 5.60 % 5.20 % Rate to which the cost trend is assumed to decline (the ultimate trend rate) 4.00 % 3.94 % 4.00 % 3.94 % Year that the rate reaches the ultimate trend rate 2075 2075 2075 2075 The health care cost trend rate assumptions could have a significant effect on the amounts reported. A change of 1% would have the following effects: 1% Increase 1% Decrease Effect on total service and interest cost components $ 71,000 $ ( 61,000 ) Effect on accumulated postretirement benefit obligation 1,204,000 ( 1,031,000 ) 64 Table of Contents The primary objectives of both plans' investment policies are to maintain investment portfolios that diversify risk through prudent asset allocation parameters, achieve asset returns that meet or exceed the corresponding actuarial assumptions and will provide for future benefits. The Company's pension plan allocation approach seeks to match the duration of the fixed income portion of the portfolio with the duration of the plan's liabilities. Such allocation is designed to reduce the overall volatility in the pension plan relative to the funded status. The equity allocations in both plans provide for potential returns to offset growth in the corresponding liabilities. Based on its most recent evaluation of returns for the asset classes within each plan's investment portfolio, the Company set the expected long-term rate of return for both the pension plan and the postretirement plan for fiscal 2025 at 4.95 %. The Company’s ultimate target and actual asset allocation in the pension and postretirement plans as of September 30, 2024 and 2023 were: Pension Plan Postretirement Plan Target 2024 2023 Target 2024 2023 Asset category: Equity securities 25 % 25 % 27 % 30 % 48 % 43 % Debt securities 75 % 75 % 72 % 70 % 36 % 37 % Cash — % — % 1 % — % 16 % 20 % The Company uses the fair value hierarchy described in Note 1 to classify these assets. The mutual funds are included under Level 1 in the fair value hierarchy as their fair values are based on quoted net asset values of the shares held in the investments in the plans. The bond funds are included under Level 2 as these investments have observable Level 2 pricing inputs, including quoted prices for similar assets in active or non-active markets. While the underlying asset values are quoted prices, the net asset value of a unit in these funds is not publicly quoted. The following tables contain the fair value classifications of the plans' assets: Pension Plan Fair Value Measurements - September 30, 2024 Fair Value Level 1 Level 2 Level 3 Asset Class: Cash $ 142,921 $ 142,921 $ — $ — Common and Collective Trust and Pooled Funds: Bond Funds 19,505,237 — 19,505,237 — Mutual Funds: Domestic Fixed Income 3,791,697 3,791,697 — — Equities Domestic Large Cap Growth 2,073,092 2,073,092 — — Domestic Large Cap Value 2,469,045 2,469,045 — — Domestic Small/Mid Cap Core 1,297,579 1,297,579 — — Foreign Large Cap Growth 498,732 498,732 — — Foreign Large Cap Value 482,222 482,222 — — Foreign Large Cap Core 793,613 793,613 — — Total $ 31,054,138 $ 11,548,901 $ 19,505,237 $ — 65 Table of Contents Pension Plan Fair Value Measurements - September 30, 2023 Fair Value Level 1 Level 2 Level 3 Asset Class: Cash $ 202,218 $ 202,218 $ — $ — Common and Collective Trust and Pooled Funds: Bond Funds 16,446,813 — 16,446,813 — Mutual Funds: Domestic Fixed Income 3,000,525 3,000,525 — — Equities Domestic Large Cap Growth 2,256,767 2,256,767 — — Domestic Large Cap Value 2,222,733 2,222,733 — — Domestic Small/Mid Cap Core 1,082,801 1,082,801 — — Foreign Large Cap Growth 481,309 481,309 — — Foreign Large Cap Value 463,907 463,907 — — Foreign Large Cap Core 721,588 721,588 — — Total $ 26,878,661 $ 10,431,848 $ 16,446,813 $ — Postretirement Plan Fair Value Measurements - September 30, 2024 Fair Value Level 1 Level 2 Level 3 Asset Class: Cash $ 2,381,909 $ 2,381,909 $ — $ — Mutual Funds: Bonds Domestic Fixed Income 5,457,976 5,457,976 — — Equities Domestic Large Cap Growth 2,412,824 2,412,824 — — Domestic Large Cap Value 1,996,262 1,996,262 — — Domestic Small/Mid Cap Core 738,393 738,393 — — Foreign Large Cap Growth 532,391 532,391 — — Foreign Large Cap Value 652,023 652,023 — — Foreign Large Cap Core 906,503 906,503 — — Total $ 15,078,281 $ 15,078,281 $ — $ — 66 Table of Contents Postretirement Plan Fair Value Measurements - September 30, 2023 Fair Value Level 1 Level 2 Level 3 Asset Class: Cash $ 2,640,622 $ 2,640,622 $ — $ — Mutual Funds: Bonds Domestic Fixed Income 4,841,048 4,841,048 — — Foreign Fixed Income — — — — Equities Domestic Large Cap Growth 1,693,422 1,693,422 — — Domestic Large Cap Value 1,570,538 1,570,538 — — Domestic Small/Mid Cap Growth — — — — Domestic Small/Mid Cap Value — — — — Domestic Small/Mid Cap Core 588,898 588,898 — — Foreign Large Cap Growth 433,886 433,886 — — Foreign Large Cap Value 526,364 526,364 — — Foreign Large Cap Core 724,535 724,535 — — Total $ 13,019,313 $ 13,019,313 $ — $ — Each mutual fund or common collective trust fund has been categorized based on its primary investment strategy. Annual funding contributions to the pension plan and postretirement plan are made under advisement from the Company's actuaries and investment advisor based upon ERISA funding requirements. For the years ended September 30, 2024 and 2023, no contributions were made to the pension plan or postretirement plan. At this time, the Company is not currently anticipating making any funding contributions to the pension plan or postretirement plan in fiscal 2025. The following table reflects expected future benefit payments: Pension Postretirement Fiscal year ending September 30 Plan Plan 2025 $ 1,361,000 $ 682,000 2026 1,446,000 698,000 2027 1,554,000 730,000 2028 1,639,000 734,000 2029 1,712,000 766,000 2030 - 2034 9,483,000 3,830,000 The Company established an NQDC Plan in fiscal 2021. The NQDC Plan is an unfunded, nonqualified benefit plan offered to select members of senior management not eligible to participate in the pension plan. Under the NQDC Plan, participants have the right to defer a percentage of base salary as well as receive discretionary credits from the Company. The Company's discretionary credits vest over time. Any benefits distributed from the NQDC Plan are paid from the general assets of the Company. As the plan is unfunded, the balance reflected in the table below is a noncurrent liability included in benefit plan liabilities on the consolidated balance sheet. 2024 2023 Beginning deferred compensation balance $ 47,674 $ 59,108 Employer contributions 52,400 — Earnings 13,526 6,787 Forfeitures — ( 18,221 ) Ending deferred compensation balance $ 113,600 $ 47,674 67 Table of Contents The Company sponsors a 401 (k) Plan covering all eligible employees who elect to participate. Employees may contribute from 1 % to 50 % of their annual compensation to the 401 (k) Plan, either on a pre-tax or post-tax basis, limited to a maximum annual amount as set periodically by the IRS. The Company matches 100 % of the participant’s first 4 % of contributions and 50 % of the next 2 % of contributions. The 401 (k) Plan also provides for discretionary contributions for employees hired on or after January 1, 2017. The following table reflects the Company's contributions: Years Ended September 30 2024 2023 Matching contribution $ 427,022 $ 388,616 Discretionary contribution 112,207 75,899 13. LEASES During 2023, the Company entered into a land lease in conjunction with its RNG facility that has a 20 -year term with two five -year Company renewal options that are not considered part of the ROU asset and liability as it was not reasonably certain that the Company would exercise these options. The Company also has three other operating leases with original terms ranging from 3 to 6 years. The operating lease ROU assets of $ 331,275 are reflected in other non-current assets in the consolidated balance sheets. The current operating lease liabilities of $ 25,729 and non-current lease liabilities of $ 308,439 are included in other current liabilities and deferred credits and other non-current liabilities , respectively, in the consolidated balance sheets. The cost components of the Company’s operating leases are included under operations and maintenance expense in the consolidated statements of income and were less than $ 50,000 for each period presented. Other information related to leases were as follows: 2024 2023 Supplemental Cash Flow Information: Cash paid on operating leases $ 37,900 $ 48,900 Right of use obtained in exchange for operating lease obligations N/A 325,688 Weighted-average remaining term (in years) 17.4 17.4 Weighted-average discount rate 5.65 % 5.65 % On September 30, 2024, the future minimum rental payments under non-cancelable operating leases were as follows: 2025 $ 54,230 2026 30,038 2027 30,038 2028 26,400 2029 26,400 Thereafter 343,200 Total minimum lease payments 510,306 Less imputed interest ( 176,138 ) Total $ 334,168 68 Table of Contents 14. COMMITMENTS AND CONTINGENCIES Long-Term Contracts Due to the nature of the natural gas distribution business, Roanoke Gas enters into agreements with suppliers and pipelines to contract for natural gas commodity purchases, storage capacity and pipeline delivery capacity. Roanoke Gas obtains most of its natural gas supply through third -party asset management contracts. Roanoke Gas utilizes two asset managers to optimize the use of its transportation, storage rights and gas supply inventories, which helps to ensure a secure and reliable source of natural gas. Under one of the current asset management contracts, Roanoke Gas has designated the asset manager to act as agent for its storage capacity and all gas balances in storage. Roanoke Gas retains ownership of gas in storage. Under provisions of this contract, Roanoke Gas is obligated to purchase its winter storage requirements from the asset manager during the spring and summer injection periods at market price. The volumetric obligation as of September 30, 2024 for the remainder of the contract period is 295,000 DTHs. This asset management contract was renewed in September 2022 for a two -year period which will expire in March 2025. The contract was renewed at essentially the same terms and conditions as the prior agreement, except the utilization fee retained by Roanoke Gas increased. Roanoke Gas entered into a second asset management contract in July 2024, whereby the asset manager acts as agent for the purchase of gas transported by the MVP. This second asset management contract is currently month-to-month with no gas purchase or storage obligations and will expire in March 2025. In addition to the volumetric commitment, the Company also has fixed price agreements to purchase approximately 1.82 million DTH, from October 2024 to March 2025, at prices ranging from $ 2.36 to $ 3.50 per DTH. Roanoke Gas also has contracts for pipeline and storage capacity which extend for various periods. These capacity costs and related fees are valued at tariff rates in place as of September 30, 2024 . These rates may increase in the future based upon rate filings and rate orders granting a rate change to the pipeline or storage operator. Roanoke Gas expended approximate ly $ 30,880,000 and $ 44,253,000 under the asset management, pipeline and storage contracts in fiscal years 2024 and 2023, respectively, including approximately $ 1,048,000 in fiscal year 2024 related to the MVP in which the Company has an investment. The table below details the pipeline and storage capacity commitments as of September 30, 2024 for the remainder of the contract period. Pipeline and Year Storage Capacity 2024 - 2025 $ 20,252,594 2025 - 2026 20,252,594 2026 - 2027 18,783,146 2027 - 2028 14,526,463 2028 - 2029 12,057,956 Thereafter 65,712,396 Total $ 151,585,149 Roanoke Gas maintains franchise agreements granted by the local cities and towns served by the Company. Roanoke Gas renewed its franchise agreements with the City of Roanoke, the City of Salem and the Town of Vinton in 2016 for 20 -year terms to expire in December 2035. Per these agreements, franchise fees increase at a rate of 3 % annually. As of September 30, 2024 , $ 1,818,339 in future obligations remain under the franchise agreements. 69 Table of Contents Other Contracts The Company maintains other agreements in the ordinary course of business covering various maintenance, equipment, user fees and service contracts. These agreements currently extend through December 2031 and are not material to the Company. Environmental Matters Roanoke Gas operated an MGP as a source of fuel for lighting and heating until the early 1950’s. A by-product of operating the MGP was coal tar, and the potential exists for tar waste contaminants at the former plant site. While the Company does not currently recognize any commitments or contingencies related to environmental costs, should the Company ever be required to remediate the site, it will pursue all prudent and reasonable means to recover any related costs, including the use of insurance claims and regulatory approval for rate case recognition of expenses associated with any work required. 15. SUBSEQUENT EVENTS The Company has evaluated subsequent events through the date the financial statements were issued. There were no other items not otherwise disclosed which would have materially impacted the Company’s consolidated financial statements. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . None.