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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form10-Q
(Mark One)
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended June 30, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For Transition Period From
to
Commission File Number 000-26591
RGC Resources, Inc.
(Exact name of Registrant as Specified in its Charter)
Virginia 54-1909697
(State or Other Jurisdiction of
Incorporation or Organization)
 (I.R.S. Employer
Identification No.)
519 Kimball Ave., N.E.,Roanoke,VA 24016
(Address of Principal Executive Offices) (Zip Code)
(540) 777-4427
(Registrant’s Telephone Number, Including Area Code)
None
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Title of Each Class
Trading Symbol
Name of Each Exchange on Which Registered
Common Stock, $5 Par ValueRGCONASDAQ Global Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated-filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer   Accelerated filer 
Non-accelerated filer   Smaller reporting company 
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)    Yes      No  
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class Outstanding at July 31, 2020
Common Stock, $5 Par Value 8,149,985



GLOSSARY OF TERMS
AFUDCAllowance for Funds Used During Construction
AOCI/AOCLAccumulated Other Comprehensive Income (Loss)
AROAsset Retirement Obligation
ARPAlternative Revenue Program, regulatory or rate recovery mechanisms approved by the SCC that allow for the adjustment of revenues for certain broad, external factors, or for additional billings if the entity achieves certain performance targets
ASCAccounting Standards Codification
ASUAccounting Standards Update as issued by the FASB
CompanyRGC Resources, Inc. or Roanoke Gas Company
COVID-19 or CoronavirusA pandemic disease that causes respiratory illness similar to the flu with symptoms such as coughing, fever, and in more severe cases, difficulty in breathing
CPCNCertificate of Public Convenience and Necessity
Diversified EnergyDiversified Energy Company, a wholly-owned subsidiary of Resources
DRIPDividend Reinvestment and Stock Purchase Plan of RGC Resources, Inc.
DTHDecatherm (a measure of energy used primarily to measure natural gas)
EPSEarnings Per Share
ERISAEmployee Retirement Income Security Act of 1974
ESACEligible Safety Activity Costs, a Virginia natural gas utility’s operation and maintenance expenditures that are related to the development, implementation, or execution of the utility’s integrity management plan or programs and measures implemented to comply with regulations issued by the SCC or a federal regulatory body with jurisdiction over pipeline safety
FASBFinancial Accounting Standards Board
FDICFederal Deposit Insurance Corporation
FERCFederal Energy Regulatory Commission
Fourth CircuitU.S. Fourth Circuit Court of Appeals
GAAPU.S. Generally Accepted Accounting Principles
HDDHeating degree day, a measurement designed to quantify the demand for energy. It is the number of degrees that a day’s average temperature falls below 65 degrees Fahrenheit
ICCInventory carrying cost revenue, an SCC approved rate structure that mitigates the impact of financing costs on natural gas inventory
IRSInternal Revenue Service
KEYSOPRGC Resources, Inc. Key Employee Stock Option Plan
LDILiability Driven Investment approach, a strategy which reduces the volatility in the pension and postretirement plans’ funded status and expense by matching the duration of the fixed income investments with the duration of the corresponding pension liabilities
LIBORLondon Inter-Bank Offered Rate
LLCMountain Valley Pipeline, L.L.C., a joint venture established to design, construct and operate the Mountain Valley Pipeline and MVP Southgate
LNGLiquefied natural gas, the cryogenic liquid form of natural gas. Roanoke Gas operates and maintains a plant capable of producing and storing up to 200,000 dth of liquefied natural gas
MGPManufactured gas plant
MidstreamRGC Midstream, L.L.C., a wholly-owned subsidiary of Resources created to invest in pipeline projects including MVP and Southgate
MVPMountain Valley Pipeline, a FERC-regulated natural gas pipeline project intended to connect the Equitran's gathering and transmission system in northern West Virginia to the Transco interstate pipeline in south central Virginia with a planned interconnect to Roanoke Gas’ natural gas distribution system
Normal WeatherThe average number of heating degree days over the most recent 30-year period
PBGCPension Benefit Guaranty Corporation
Pension PlanDefined benefit plan that provides pension benefits to employees hired prior to January 1, 2017 who meet certain years of service criteria
PGAPurchased Gas Adjustment, a regulatory mechanism, which adjusts natural gas customer rates to reflect changes in the forecasted cost of gas and actual gas costs
Postretirement PlanDefined benefit plan that provides postretirement medical and life insurance benefits to eligible employees hired prior to January 1, 2000 who meet years of service and other criteria
ResourcesRGC Resources, Inc., parent company of Roanoke Gas, Midstream and Diversified Energy
RGCOTrading symbol for RGC Resources, Inc. on the NASDAQ Global Stock Market
Roanoke GasRoanoke Gas Company, a wholly-owned subsidiary of Resources
RSPDRGC Resources, Inc. Restricted Stock Plan for Outside Directors
RSPORGC Resources, Inc. Restricted Stock Plan
SAVESteps to Advance Virginia's Energy, a regulatory mechanism per Chapter 26 of Title 56 of the Code of Virginia that allows natural gas utilities to recover the investment in eligible infrastructure replacement projects without the filing of a formal base rate application
SAVE PlanSteps to Advance Virginia's Energy Plan, a regulatory mechanism to recover the related depreciation and expenses and provide return on rate base of eligible infrastructure replacement projects on a prospective basis without the filing of a formal application
SAVE RiderSteps to Advance Virginia's Energy Plan Rider, the rate component of the SAVE Plan as approved by the SCC that is billed monthly to the Company’s customers to recover the costs associated with eligible infrastructure projects including the related depreciation and expenses and return on rate base of the investment
SCCVirginia State Corporation Commission, the regulatory body with oversight responsibilities of the utility operations of Roanoke Gas
SECU.S. Securities and Exchange Commission
SouthgateMountain Valley Pipeline, LLC’s Southgate project, which extends from the MVP in south central Virginia to central North Carolina, of which Midstream holds less than a 1% investment
S&P 500 IndexStandard & Poor’s 500 Stock Index
TCJATax Cuts and Jobs Act of 2017
WNAWeather Normalization Adjustment, an ARP mechanism which adjusts revenues for the effects of weather temperature variations as compared to the 30-year average
Some of the terms above may not be included in this filing


RGC RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS


Unaudited
June 30, 2020
September 30,
2019
ASSETS
CURRENT ASSETS:
Cash and cash equivalents$1,201,205  $1,631,348  
Accounts receivable (less allowance for uncollectibles of $562,698 and $110,743, respectively)3,296,251  3,870,211  
Materials and supplies1,001,929  1,021,882  
Gas in storage3,451,588  6,448,307  
Prepaid income taxes  1,157,980  
Regulatory assets2,298,890  1,521,939  
Other1,295,649  733,525  
Total current assets12,545,512  16,385,192  
UTILITY PROPERTY:
In service247,110,539  237,786,964  
Accumulated depreciation and amortization(70,898,572) (67,207,334) 
In service, net176,211,967  170,579,630  
Construction work in progress17,837,998  11,423,326  
Utility plant, net194,049,965  182,002,956  
OTHER ASSETS:
Regulatory assets11,604,142  12,178,853  
Investment in unconsolidated affiliates54,856,710  47,375,459  
Other284,429  411,236  
Total other assets66,745,281  59,965,548  
TOTAL ASSETS$273,340,758  $258,353,696  
1

RGC RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

Unaudited
June 30, 2020
September 30,
2019
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Dividends payable$1,426,247  $1,339,522  
Accounts payable4,150,305  4,483,233  
Capital contributions payable2,427,398  5,024,824  
Customer credit balances1,133,566  880,295  
Income taxes payable352,325    
Customer deposits1,652,387  1,432,031  
Accrued expenses2,578,809  3,448,000  
Interest rate swaps531,698  147,556  
Regulatory liabilities817,437  4,877,603  
Total current liabilities15,070,172  21,633,064  
LONG-TERM DEBT:
Notes payable113,810,200  95,512,200  
Line-of-credit2,858,130  8,172,473  
Less unamortized debt issuance costs(321,363) (313,315) 
Long-term debt, net116,346,967  103,371,358  
DEFERRED CREDITS AND OTHER LIABILITIES:
Interest rate swaps1,817,424  746,785  
Asset retirement obligations7,038,745  6,788,683  
Regulatory cost of retirement obligations12,563,824  11,892,352  
Benefit plan liabilities5,761,734  6,912,105  
Deferred income taxes13,742,696  12,978,523  
Regulatory liabilities10,748,044  10,934,434  
Total deferred credits and other liabilities51,672,467  50,252,882  
STOCKHOLDERS’ EQUITY:
Common stock, $5 par value; authorized 20,000,000 and 10,000,000 shares; issued and outstanding 8,147,437 and 8,073,264 shares, respectively40,737,185  40,366,320  
Preferred stock, no par, authorized 5,000,000 shares; no shares issued and outstanding    
Capital in excess of par value15,586,761  14,397,072  
Retained earnings37,446,071  30,821,917  
Accumulated other comprehensive loss(3,518,865) (2,488,917) 
Total stockholders’ equity90,251,152  83,096,392  
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY$273,340,758  $258,353,696  
See notes to condensed consolidated financial statements.

2

RGC RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND NINE-MONTH PERIODS ENDED JUNE 30, 2020 AND 2019
UNAUDITED
 
 Three Months Ended June 30,Nine Months Ended June 30,
 2020201920202019
OPERATING REVENUES:
Gas utility$10,856,453  $11,534,948  $52,757,778  $57,630,278  
Non utility215,465  148,002  537,324  544,378  
Total operating revenues11,071,918  11,682,950  53,295,102  58,174,656  
OPERATING EXPENSES:
Cost of gas - utility3,680,408  4,132,871  20,531,211  28,810,668  
Cost of sales - non utility113,693  85,872  269,029  320,818  
Operations and maintenance3,426,231  3,426,717  11,453,850  10,662,800  
General taxes527,418  494,958  1,658,528  1,559,183  
Depreciation and amortization1,988,505  1,905,475  5,965,226  5,716,425  
Total operating expenses9,736,255  10,045,893  39,877,844  47,069,894  
OPERATING INCOME1,335,663  1,637,057  13,417,258  11,104,762  
Equity in earnings of unconsolidated affiliate1,205,574  777,193  3,488,253  2,038,417  
Other income (expense), net52,556  (5,967) 528,091  241,628  
Interest expense986,203  925,698  3,109,681  2,635,129  
INCOME BEFORE INCOME TAXES1,607,590  1,482,585  14,323,921  10,749,678  
INCOME TAX EXPENSE401,012  344,030  3,430,091  2,506,871  
NET INCOME$1,206,578  $1,138,555  $10,893,830  $8,242,807  
BASIC EARNINGS PER COMMON SHARE$0.15  $0.14  $1.34  $1.03  
DILUTED EARNINGS PER COMMON SHARE$0.15  $0.14  $1.34  $1.02  
DIVIDENDS DECLARED PER COMMON SHARE$0.175  $0.165  $0.525  $0.495  
See notes to condensed consolidated financial statements.
3

RGC RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE THREE AND NINE-MONTH PERIODS ENDED JUNE 30, 2020 AND 2019
UNAUDITED
 
 Three Months Ended June 30,Nine Months Ended June 30,
 2020201920202019
NET INCOME$1,206,578  $1,138,555  $10,893,830  $8,242,807  
Other comprehensive income (loss), net of tax:
Interest rate swaps(126,800) (457,899) (1,080,321) (583,423) 
Defined benefit plans16,791  (1,913) 50,373  (5,739) 
OTHER COMPREHENSIVE LOSS, NET OF TAX(110,009) (459,812) (1,029,948) (589,162) 
COMPREHENSIVE INCOME$1,096,569  $678,743  $9,863,882  $7,653,645  
See notes to condensed consolidated financial statements.
4

RGC RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE AND NINE-MONTH PERIODS ENDED JUNE 30, 2020 AND 2019
UNAUDITED
Nine Months Ended June 30, 2020
Common StockCapital in Excess of Par ValueRetained EarningsAccumulated Other Comprehensive Income (Loss)Total Stockholders' Equity
Balance - September 30, 2019$40,366,320  $14,397,072  $30,821,917  $(2,488,917) $83,096,392  
Net Income—  —  4,006,936  —  4,006,936  
Other comprehensive income—  —  —  279,844  279,844  
Cash dividends declared ($0.175 per share)—  —  (1,419,236) —  (1,419,236) 
Issuance of common stock (18,053 shares)90,265  304,934  —  —  395,199  
Balance - December 31, 2019$40,456,585  $14,702,006  $33,409,617  $(2,209,073) $86,359,135  
Net Income—  —  5,680,316  —  5,680,316  
Other comprehensive loss—  —  —  (1,199,783) (1,199,783) 
Cash dividends declared ($0.175 per share)—  —  (1,424,192) —  (1,424,192) 
Issuance of common stock (45,628 shares)228,140  673,731  —  —  901,871  
Balance - March 31, 2020$40,684,725  $15,375,737  $37,665,741  $(3,408,856) $90,317,347  
Net Income—  —  1,206,578  —  1,206,578  
Other comprehensive loss—  —  —  (110,009) (110,009) 
Stock option grants—  40,692  —  —  40,692  
Cash dividends declared ($0.175 per share)—  —  (1,426,248) —  (1,426,248) 
Issuance of common stock (10,492 shares)52,460  170,332  —  —  222,792  
Balance - June 30, 2020$40,737,185  $15,586,761  $37,446,071  $(3,518,865) $90,251,152  
5

RGC RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE AND NINE-MONTH PERIODS ENDED JUNE 30, 2020 AND 2019
UNAUDITED
Nine Months Ended June 30, 2019
Common StockCapital in Excess of Par ValueRetained EarningsAccumulated Other Comprehensive Income (Loss)Total Stockholders' Equity
Balance - September 30, 2018$39,973,075  $13,043,656  $27,438,049  $(871,668) $79,583,112  
Net Income—  —  2,434,162  —  2,434,162  
Other comprehensive loss—  —  —  (83,316) (83,316) 
Cash dividends declared ($0.165 per share)—  —  (1,322,335) —  (1,322,335) 
Issuance of common stock (17,035 shares)85,175  262,942  —  —  348,117  
Balance - December 31, 2018$40,058,250  $13,306,598  $28,549,876  $(954,984) $80,959,740  
Net income—  —  4,670,090  —  4,670,090  
Other comprehensive loss—  —  —  (46,034) (46,034) 
Cash dividends declared ($0.165 per share)—  —  (1,329,178) —  (1,329,178) 
Issuance of common stock (31,622 shares)158,110  561,789  —  —  719,899  
Balance - March 31, 2019$40,216,360  $13,868,387  $31,890,788  $(1,001,018) $84,974,517  
Net income—  —  1,138,555  —  1,138,555  
Other comprehensive loss—  —  —  (459,812) (459,812) 
Cash dividends declared ($0.165 per share)—  —  (1,330,739) —  (1,330,739) 
Issuance of common stock (20,685 shares)103,425  310,989  —  —  414,414  
Balance - June 30, 2019$40,319,785  $14,179,376  $31,698,604  $(1,460,830) $84,736,935  
See notes to condensed consolidated financial statements.

6

RGC RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE-MONTH PERIODS ENDED JUNE 30, 2020 AND 2019
UNAUDITED
 
 Nine Months Ended June 30,
 20202019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income$10,893,830  $8,242,807  
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization6,143,085  5,821,417  
Cost of retirement of utility plant, net(391,297) (285,489) 
Stock option grants40,692    
Equity in earnings of unconsolidated affiliate(3,488,253) (2,038,417) 
Allowance for funds used during construction(272,108)   
Changes in assets and liabilities which provided (used) cash, exclusive of changes and noncash transactions shown separately(99,850) 4,846,199  
Net cash provided by operating activities12,826,099  16,586,517  
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for utility property(16,969,559) (16,646,978) 
Investment in unconsolidated affiliates(6,590,424) (16,650,944) 
Proceeds from disposal of utility property53,921  1,819  
Net cash used in investing activities(23,506,062) (33,296,103) 
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of unsecured notes18,298,000  51,559,000  
Retirement of notes payable  (24,000,000) 
Borrowings under line-of-credit14,096,520  23,308,642  
Repayments under line-of-credit(19,410,863) (30,669,659) 
Debt issuance expenses(70,750) (92,856) 
Proceeds from issuance of stock1,519,862  1,482,430  
Cash dividends paid(4,182,949) (3,887,037) 
Net cash provided by financing activities10,249,820  17,700,520  
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS(430,143) 990,934  
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR1,631,348  247,411  
CASH AND CASH EQUIVALENTS AT END OF YEAR$1,201,205  $1,238,345  
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest$3,357,737  $2,725,248  
Income taxes985,000  1,951,000  
See notes to condensed consolidated financial statements.
7

RGC RESOURCES, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED

1.Basis of Presentation

Resources is an energy services company primarily engaged in the sale and distribution of natural gas. The condensed consolidated financial statements include the accounts of Resources and its wholly-owned subsidiaries: Roanoke Gas, Diversified Energy and Midstream.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to fairly present Resources' financial position as of June 30, 2020, cash flows for the nine months ended June 30, 2020 and 2019, and the results of its operations, comprehensive income, and changes in stockholders' equity for the three and nine months ended June 30, 2020 and 2019. The results of operations for the three and nine months ended June 30, 2020 are not indicative of the results to be expected for the fiscal year ending September 30, 2020 as quarterly earnings are affected by the highly seasonal nature of the business and weather conditions generally result in greater earnings during the winter months.

The unaudited condensed consolidated financial statements and condensed notes are presented as permitted under the rules and regulations of the SEC. Pursuant to those rules, certain information and note disclosures normally included in the annual financial statements prepared in accordance with GAAP have been condensed or omitted, although the Company believes that the disclosures are adequate to make the information not misleading. Therefore, the condensed consolidated financial statements and condensed notes should be read in conjunction with the financial statements and notes contained in the Company’s Form 10-K for the year ended September 30, 2019. The September 30, 2019 consolidated balance sheet was included in the Company’s audited financial statements included in Form 10-K.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and 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.

The Company’s significant accounting policies are described in Note 1 to the consolidated financial statements contained in the Company's Form 10-K for the year ended September 30, 2019.

On March 12, 2020, the SEC adopted amendments to the Exchange Act that, among other things, revised the definition of an accelerated filer. As a result, Resources now qualifies as both a smaller reporting company and a non-accelerated filer.
Recently Issued or Adopted Accounting Standards

In February 2016, the FASB issued ASU 2016-02, Leases. This ASU leaves the accounting for leases mostly unchanged for lessors, with the exception of targeted improvements for consistency; however, the new guidance requires lessees to recognize assets and liabilities for leases with terms of more than 12 months. The ASU also revises the definition of a lease as a contract, or part of a contract, that conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration. Under prior GAAP, the presentation and cash flows arising from a lease by a lessee primarily depended on its classification as a finance or operating lease. The new ASU requires both types of leases to be recognized on the balance sheet. In addition, the new guidance includes quantitative and qualitative disclosure requirements to aid financial statement users in better understanding the amount, timing and uncertainty of cash flows arising from leases. In January 2018, the FASB issued ASU 2018-01, which provides a practical expedient that allows entities the option of not evaluating existing land easements under the new lease standard for those easements that were entered into prior to adoption. New or modified land easements will require evaluation on a prospective basis. The new guidance is effective for the Company for the annual reporting period ending September 30, 2020 and interim periods within that annual period.

The Company adopted ASU 2016-02 and related guidance effective October 1, 2019. At the time of adoption, the Company had one operating lease. This lease calls for quarterly payments in the amount of $3,240 and is set to expire in September 2021. As the value of this lease obligation was determined to be de minimis and the Company has not entered into any additional lease obligations, this new guidance does not have a material effect on the Company's financial position, results of operations or cash flows.

8

RGC RESOURCES, INC. AND SUBSIDIARIES

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging: Targeted Improvements to Accounting For Hedging Activities. The ASU is meant to simplify recognition and presentation guidance in an effort to improve financial reporting of cash flow and fair value hedging relationships to better portray the economic results of an entity's risk management activities. This is achieved through changes to both the designation and measurement guidance for qualifying hedging relationships, as well as changes to the presentation of hedge results. The Company adopted the new guidance effective October 1, 2019. As the Company currently has only cash flow hedges and no portion of these hedges were deemed ineffective during the periods presented, this new guidance does not have a material effect on the Company's financial position, results of operations or cash flows.

In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs incurred in a Cloud Computing Arrangement that is a Service Contract. This ASU reduces the complexity of accounting for costs of implementing a cloud computing service arrangement and aligns the following requirements to capitalize implementation costs: 1) those incurred in a hosting arrangement that is a service contract, and 2) those incurred to develop or obtain internal-use software, including hosting arrangements that include an internal software license. The Company adopted the new guidance effective October 1, 2019. The new guidance did not have a material effect on the Company's consolidated financial statements.

In August 2018, the FASB issued ASU 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20) - Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans. This ASU modifies disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The new guidance is effective for the Company for the annual reporting period ending September 30, 2021. Early adoption is permitted. Management has not completed its evaluation of the new guidance; however, the ASU only modifies disclosure requirements and will not effect financial position, results of operations or cash flows.

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. This 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, 2022. Management has not yet completed its evaluation of the new guidance; however, as the Company has several contracts and hedging relationships that currently reference LIBOR, this new guidance could result in a significant impact on the Company's financial position, results of operations, and cash flows for the period through which the ASU is effective.

Other accounting standards that have been issued by the FASB or other standard-setting bodies are not currently applicable to the Company or are not expected to have a material impact on the Company’s financial position, results of operations or cash flows.

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.















9

RGC RESOURCES, INC. AND SUBSIDIARIES

The following tables summarize revenue by customer, product and income statement classification:
Three months ended June 30, 2020Three months ended June 30, 2019
Gas utilityNon utilityTotal operating revenuesGas utilityNon utilityTotal operating revenues
Natural Gas (Billed and Unbilled):
Residential$6,682,586  $  $6,682,586  $5,798,846  $  $5,798,846  
Commercial3,157,873    3,157,873  4,116,695    4,116,695  
Industrial and Transportation1,401,775    1,401,775  1,098,393    1,098,393  
Other56,723  215,465  272,188  86,714  148,002  234,716  
Total contracts with customers11,298,957  215,465  11,514,422  11,100,648  148,002  11,248,650  
Alternative Revenue Programs(442,504)   (442,504) 434,300    434,300  
Total operating revenues$10,856,453  $215,465  $11,071,918  $11,534,948  $148,002  $11,682,950  
Nine months ended June 30, 2020Nine months ended June 30, 2019
Gas utilityNon utilityTotal operating revenuesGas utilityNon utilityTotal operating revenues
Natural Gas (Billed and Unbilled):
Residential$31,859,828  $  $31,859,828  $34,263,845  $  $34,263,845  
Commercial15,260,652    15,260,652  19,772,433    19,772,433  
Industrial and Transportation3,972,444    3,972,444  3,563,505    3,563,505  
Revenue reductions (TCJA) (1)
      (523,881)   (523,881) 
Other390,184  537,324  927,508  421,624  544,378  966,002  
Total contracts with customers51,483,108  537,324  52,020,432  57,497,526  544,378  58,041,904  
Alternative Revenue Programs1,274,670    1,274,670  132,752    132,752  
Total operating revenues$52,757,778  $537,324  $53,295,102  $57,630,278  $544,378  $58,174,656  
(1) Accrued refund associated with excess revenue collected in tariff rates associated with the reduction in federal income tax rates.

Gas utility revenues

Substantially all Roanoke Gas revenues are derived from rates authorized by the SCC as reflected in 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 created under these tariff-based sales include commodity (the cost of natural gas sold to customers) and delivery (transporting 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. 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.

Unbilled revenue is included in residential and commercial revenues above. 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 industrial 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. Non-utility (unregulated) activities provided by the Company include contract paving and other services. Regarding these activities, the customer is invoiced monthly based on services
10

RGC RESOURCES, INC. AND SUBSIDIARIES

provided. 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, and the SAVE Plan over/under collection mechanism, which adjusts revenues for the differences between SAVE Plan revenues billed to customers and the revenue earned, as calculated based on the timing and extent of infrastructure replacement completed during the period. These amounts are ultimately collected from, or returned to, customers through future rate changes as approved by the SCC.

Customer Accounts Receivable

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 provi