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Note 4 - Regulatory Matters | 12 Months Ended
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Sep. 30, 2024
Notes to Financial Statements |
Public Utilities Disclosure [Text Block] |
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. 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.

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