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Note 4 - Rates and Regulatory Matters

9 Months Ended

Jun. 30, 2024

Public Utilities Disclosure [Text Block]

4.	Rates and 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. The SCC’s review of Roanoke Gas’ filing is underway and a hearing has been set for November 7, 2024.

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 current depreciation rates are 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. The new depreciation rates will result in a small decrease in depreciation expense for fiscal 2024, as the new depreciation rates are effective retroactive to October 1, 2023. This adjustment to depreciation expense will be reflected in the fourth quarter of fiscal 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 can recover 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 which results in a revenue requirement of $1.53 million. The Company expects a Final Order from the SCC in September 2024.

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 its annual RNG Rider 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. The Company expects a Final Order from the SCC in September 2024.

Roanoke Gas is authorized by the SCC to acquire certain natural gas distribution assets from a local housing authority at five separate apartment complexes, located in the Company’s service territory. The housing authority renews existing natural gas distribution facilities to include mains and services then transfers ownership of these facilities to Roanoke Gas. In turn, Roanoke Gas assumes responsibility for the operation and maintenance of these assets and recognizes a gain related to the asset acquisition equal to the cost associated with the renewal.

The assets of two complexes were transferred to Roanoke Gas in fiscal 2022. On September 29, 2023, the housing authority transferred the assets from one additional apartment complex to Roanoke Gas and the Company recorded a pre-tax gain of approximately $311,000 during the fourth quarter of fiscal 2023. The authority is substantially complete with renewing the fourth complex, which may be transferred to Roanoke Gas before the end of this fiscal year. The timing of funding and the completion of the asset renewals for the final complex is uncertain at this time.