RGC Resources narrows its 2026 earnings range as rate settlement falls short and LNG damage lingers

A rate case that settled $450,000 short of the ask and a 54-year-old liquefied natural gas tank with structural damage still awaiting repair assessment are the two facts that complicate an otherwise respectable nine-month earnings record at RGC Resources (NASDAQ: RGCO). The company reported fiscal third-quarter net income of approximately $550,000, or $0.05 per diluted share, while the nine-month total reached $1.37 per diluted share, a 4.6% gain over the comparable fiscal 2025 period, with a non-gas base rate increase doing most of the work. Management narrowed its fiscal 2026 earnings outlook to $1.29 to $1.32 per diluted share and expects a small loss in the fiscal fourth quarter.

What powered the nine-month outperformance

Director of Finance Kelsie Davenport attributed third-quarter margin support to interim rates effective January 1 and new stay revenues. Those items offset the weather impact and the previously disclosed loss of a large industrial customer. Operating expenses fell because of lower gas costs, though non-gas operations and maintenance expenses rose from the prior-year quarter; Davenport cited inflationary pressure on personnel costs, professional services and information technology support.

The volume picture and its limits

SVP of Regulatory and External Affairs Tommy Oliver said residential and commercial gas usage was flat in Q3 despite slightly colder conditions than the prior year. Cooler days fell unevenly, concentrated in May, and did not produce the typical uplift in consumption. That pattern triggered a weather normalization adjustment credit for customers. Industrial usage rose more than 25% in the quarter, led by the company's largest industrial customer. The read-through is less impressive than the headline: incremental industrial volumes are delivered at the company's lowest margin under the tiered rate structure, so the volume gain contributes less to earnings than comparable growth in the residential and commercial classes would.

Rate settlement and the open LNG question

Roanoke Gas settled its expedited rate case with Virginia State Corporation Commission staff on July 1. The company sought approximately $4.3 million in incremental annual revenue, based on an authorized 9.9% return on equity and 59% equity ratio; the settlement provided $3.85 million. Interim rates had run since January 1, and lower rates took effect August 1. As of June 30, RGC Resources had accrued $275,000 for customer refunds. Separately, the company refinanced a $15 million note at a fixed rate of 5.13% for three years.

The LNG facility remains unresolved. Winter Storm Fern in February caused icing around a tank that entered service in 1972, moving it slightly and producing structural damage. CEO Paul Nester said there were no leaks or unsafe conditions, but engineers are still evaluating repair options for the approximately 220,000-dekatherm vessel. The company is bridging the lost peak-shaving capacity through additional Columbia Gas Transmission capacity, more Mountain Valley Pipeline gas routed into its Roanoke distribution system, and procured trucked LNG. The target is to restore on-system storage for the 2027-2028 winter season. Costs from the structural event were excluded from the rate case and are expected to be sought in a future proceeding.

The counterargument

The risk is that the nine-month per-share gain flatters a thinner underlying picture. Residential and commercial delivered volumes declined year to date even as heating degree days rose 3%, because much of the cold was concentrated in Winter Storm Fern while other periods ran warm. The absence of a long-time top-ten customer that ceased operations in March added further pressure. New service connections totaled 464 and new main installations reached 3.5 miles through nine months, both below the prior-year pace.

On balance, the non-gas rate increase explains most of the fiscal 2026 per-share improvement, and that tailwind is real. The line to watch is what the company seeks in its next rate proceeding to recover the LNG facility costs and whether the 2027-2028 on-system storage target holds.