RGC Resources (RGCO) Q4 2025: Customer Additions Rise 11%, Rate Case and MVP Projects Set 2026 Tone
RGC Resources closed fiscal 2025 with record gas deliveries and an 11% increase in new customer additions, while laying groundwork for 2026 through a fresh $4.3 million rate case and advancing investments in the Mountain Valley Pipeline (MVP) and regional expansion projects. Management signaled a more challenging year ahead, citing inflation, nonrecurring gains, and prudent delivery assumptions, but highlighted ongoing capital discipline and a focus on regional growth drivers, including the Google data center announcement and healthcare sector expansion. With rate relief pending and regulatory credits returning to customers, RGCO’s 2026 will hinge on balancing cost pressures, volume variability, and execution on strategic infrastructure initiatives.
Summary
- Customer Growth Momentum: New service connections climbed, reflecting persistent residential and industrial demand in the Roanoke Valley.
- Regulatory and CapEx Levers: New expedited rate case and $22 million capital plan target both system renewal and expansion.
- 2026 Headwinds and Offsets: Inflation and nonrecurring gains pressure earnings, but MVP cash flow and tax credits offer partial mitigation.
Performance Analysis
Fiscal 2025 saw RGCO deliver record gas volumes, driven by colder weather and increased consumption from both residential and a key industrial customer, resulting in a 14% year-over-year delivery increase. Customer additions reached over 700, up from 630 in 2024 and 550 in 2023, marking a sustained upward trajectory. However, the fourth quarter reflected typical seasonality and expense pressure, with a modest net loss of $204,000 as inflation persisted and nonrecurring gains from housing authority conversions, which contributed six cents per share in both 2024 and 2025, will not repeat in 2026.
Operating margins improved for the full year, but were partially offset by higher costs and reduced equity earnings from MVP. Capital expenditures totaled $20.7 million, down 6% due to the absence of prior-year one-time MVP interconnection spend. The balance sheet strengthened through a refinancing that pushed MVP-related debt maturities to 2032, positioning RGCO for long-term project returns as Southgate and BOOST come online.
- Volume Record Driven by Weather and Industrial Demand: Colder weather and fuel-switching industrial customer activity delivered all-time high gas volumes, outpacing 2021’s previous record.
- Expense and Margin Dynamics: Inflationary costs and lower MVP equity earnings compressed margins in Q4, but annual profitability rose 15% year-over-year.
- CapEx Moderation Post-MVP Spend: Lower 2025 capex reflects normalization after last year’s MVP interconnection investment, with ongoing focus on main renewal and system upgrades.
The company’s ability to add and reconnect customers, maintain system reliability, and flex capital allocation underpins its steady but modest growth profile, even as it faces a more uncertain 2026 backdrop.
Executive Commentary
"We continue to have momentum with new housing here in the greater Roanoke Valley... We're very optimistic about in that regard. We continue to have expansion in our healthcare and medical sector and complex here in the Roanoke Valley. It's really one of the shining stars, both scientifically and economically, but we are seeing more real estate there, more footprint, which is hopefully going to result or translate into additional natural gas usage."
Paul Nestor, President and CEO
"We were pleased to extend the maturity of all the debt supporting our MVP investment to 2032 with reasonable amortization. During the intervening years, we expect cash flows will be enhanced by the Southgate and Boost projects at MVP, and we have addressed our share of funding these projects as well. With these projects generating cash flow, our investment will be more valuable."
Tim Mulvaney, Chief Financial Officer
Strategic Positioning
1. Rate Case and Regulatory Strategy
RGCO filed an expedited rate case seeking a $4.3 million revenue increase, leveraging its 9.9% authorized return on equity (ROE). The timing sets up new rates for January 2026, subject to refund pending commission review. The company also negotiated tax credit returns to customers, partially offsetting the rate increase and smoothing regulatory risk. This dual-track approach aims to balance cost recovery with customer affordability, a critical lever as inflation and depreciation persist.
2. Infrastructure and Expansion Investment
Capital allocation remains disciplined, with a $22 million 2026 budget focused on main renewal (SAVE program) and targeted expansion in growth corridors, including Franklin and Montgomery Counties. Management emphasized flexibility, ready to shift capital as new opportunities—such as the Google data center and business park developments—materialize. This approach provides optionality to capture incremental demand while maintaining system reliability.
3. MVP and Affiliate Project Participation
The company’s long-term partnership in the Mountain Valley Pipeline (MVP) and related Southgate and BOOST projects is central to future cash flow growth. Recent refinancing extends debt maturity to 2032, with $4 to $5 million of incremental investment planned over several years. As these projects ramp, RGCO expects enhanced returns and regional supply reliability, positioning the business for broader industrial and economic development tailwinds.
4. Customer Growth and Regional Demand Drivers
Residential and commercial additions remain steady, averaging 1% annual growth, supported by Roanoke Valley’s housing market and expanding healthcare sector. The Google data center announcement, while still in early stages, elevates the region’s profile and signals potential for future large-load industrial customers. Management is actively engaged with local and state partners to convert these prospects into tangible volume growth.
5. Cost Discipline Amid Inflationary Pressures
Expense management is a renewed focus for 2026, as nonrecurring income fades and inflation remains sticky. The SAVE rider and regulatory tools provide partial offset, but management is planning for lower top-line volumes to ensure prudent cost control and earnings resilience.
Key Considerations
This quarter’s narrative reflects RGCO’s commitment to measured growth, regulatory agility, and capital stewardship, with a clear-eyed view of both tailwinds and headwinds for 2026.
Key Considerations:
- Regulatory Timing and Rate Relief: The outcome and timing of the pending rate case will be pivotal for margin stability and cost recovery as inflationary pressures linger.
- MVP and Affiliate Project Execution: Successful completion and ramp of Southgate and BOOST projects are necessary to realize forecasted cash flow and long-term value from MVP participation.
- Customer Growth and Economic Development: Sustained residential demand and potential large-load wins (e.g., Google data center) could drive upside, but remain contingent on project execution and local economic trends.
- Expense and Margin Management: Nonrecurring gains will not repeat in 2026, heightening the importance of disciplined cost control and efficient capital deployment.
- Weather and Volume Variability: Record 2025 volumes benefited from favorable weather; 2026 guidance assumes normalization, introducing forecast conservatism and potential volatility.
Risks
RGCO faces several risks in 2026, including regulatory uncertainty around the rate case outcome and timing, inflationary cost escalation, and the absence of nonrecurring income from prior housing authority projects. Weather-driven volume swings and delayed or underperforming MVP affiliate projects could further pressure financial results. Management’s guidance incorporates these uncertainties, but execution and macro conditions will ultimately determine the earnings trajectory.
Forward Outlook
For fiscal 2026, RGCO guided to:
- Earnings per share in a wider-than-normal range, reflecting volume, weather, and regulatory variables.
- Capital expenditures of $22 million focused on main renewal and system enhancement, with flexibility for expansion opportunities.
For full-year 2026, management highlighted:
- Pending $4.3 million rate case, with expected rate implementation by January 2026, subject to commission approval.
- Return of tax credits to customers, offsetting some rate increase impact.
- Incremental investment in MVP affiliate projects, with $1 to $1.5 million planned for 2026.
Management noted that 2026 is already proving more challenging than 2025, but expects colder weather and ongoing economic development to provide some offset.
Takeaways
RGCO enters 2026 with a strong balance sheet, regulatory levers in motion, and a disciplined capital plan, but faces headwinds from inflation, nonrecurring income loss, and weather-driven volume variability.
- Regulatory and Capital Discipline: Timely rate relief and prudent capex allocation are critical to offsetting cost pressures and sustaining earnings growth.
- Growth Optionality: Regional economic development, especially around data centers and healthcare, could drive upside if prospects convert to firm demand.
- Execution Watchpoint: Investors should monitor MVP project milestones, rate case progress, and customer growth trends for early signals on 2026 performance.
Conclusion
RGC Resources delivered record 2025 results and is positioned for steady infrastructure-led growth, but 2026 will test the company’s ability to manage through cost, regulatory, and volume uncertainty while pursuing long-term regional expansion opportunities.
Industry Read-Through
RGCO’s results reinforce the importance of regulatory agility, disciplined capex, and local economic engagement for small and mid-cap utilities. The company’s experience with nonrecurring gains, rate case timing, and weather-driven volume swings highlights sector-wide margin volatility and the need for diversified demand drivers. Data center and healthcare expansion in secondary markets are emerging as material growth catalysts, while pipeline partnerships and affiliate projects like MVP remain critical for long-term supply reliability and earnings resilience across the regulated gas utility sector.