RGC RESOURCES INC Commitments Disclosure
| 14. | COMMITMENTS AND CONTINGENCIES |
Long-Term Contracts
Due to the nature of the natural gas distribution business, Roanoke Gas enters into agreements with suppliers and pipelines to contract for natural gas commodity purchases, storage capacity and pipeline delivery capacity. Roanoke Gas obtains most of its natural gas supply through third-party asset management contracts. Through March 31, 2025, the Company utilized two asset managers to optimize the use of its transportation, storage rights and gas supply inventories, which helps to ensure a secure and reliable source of natural gas. Those services were consolidated to one asset manager as of April 1, 2025. Under the current asset management contract, Roanoke Gas has designated the asset manager to act as agent for its storage capacity and all gas balances in storage. Roanoke Gas retains ownership of gas in storage. Under provisions of this contract, Roanoke Gas is obligated to purchase its winter storage requirements from the asset manager during the spring and summer injection periods at market price. The current asset management contract was signed for a year period which will expire in March 2028. The volumetric obligation as of September 30, 2025 for the remainder of the contract period is 2,071,061 DTH for fiscal years 2026 and 2027 and 295,721 DTH for fiscal year 2028.
In addition to the volumetric commitment, the Company also has fixed price agreements to purchase approximately 1.36 million DTH, from October 2025 to March 2026, at prices ranging from $2.92 to $4.13 per DTH.
Roanoke Gas also has contracts for pipeline and storage capacity which extend for various periods. These capacity costs and related fees are valued at tariff rates in place as of September 30, 2025. These rates may increase in the future based upon rate filings and rate orders granting a rate change to the pipeline or storage operator. Subsequent to year end, one contract price increased materially effective November 1, 2025, as a result of the supplier filing a rate case; however, this rate has not yet been finalized. Roanoke Gas expended approximately $40,843,000 and $30,880,000 under the asset management, pipeline and storage contracts in fiscal years 2025 and 2024, respectively, including approximately $4,180,000 and $1,048,000 in fiscal years 2025 and 2024, respectively, related to the MVP in which the Company has an investment. The table below details the pipeline and storage capacity commitments as of September 30, 2025 for the remainder of the contract period.
| Pipeline and | ||||
| Year | Storage Capacity | |||
| 2025 - 2026 | $ | 21,214,051 | ||
| 2026 - 2027 | 19,808,347 | |||
| 2027 - 2028 | 16,077,977 | |||
| 2028 - 2029 | 13,930,198 | |||
| 2029 - 2030 | 9,276,138 | |||
| Thereafter | 57,469,500 | |||
| Total | $ | 137,776,211 | ||
Roanoke Gas maintains franchise agreements granted by the local cities and towns served by the Company. Roanoke Gas renewed its franchise agreements with the City of Roanoke, the City of Salem and the Town of Vinton in 2016 for 20-year terms to expire in December 2035. Per these agreements, franchise fees increase at a rate of 3% annually. As of September 30, 2025, $1,690,215 in future obligations remain under the franchise agreements.
Other Contracts
The Company maintains other agreements in the ordinary course of business covering various maintenance, equipment, user fees and service contracts. These agreements currently extend through December 2031 and are not material to the Company.
Environmental Matters
Roanoke Gas operated an MGP as a source of fuel for lighting and heating until the early 1950’s. A by-product of operating the MGP was coal tar, and the potential exists for tar waste contaminants at the former plant site. While the Company does not currently recognize any commitments or contingencies related to environmental costs, should the Company ever be required to remediate the site, it will pursue all prudent and reasonable means to recover any related costs, including the use of insurance claims and regulatory approval for rate case recognition of expenses associated with any work required.
About Commitments Disclosures
Commitments and contingencies disclosures catalog a company's off-balance-sheet obligations and legal exposures — purchase commitments, guarantee arrangements, pending litigation, and regulatory proceedings. These items represent potential future cash outflows that may not appear as liabilities on the balance sheet until they become probable and estimable.
Key signals: litigation reserves and disclosed loss ranges quantify management's estimate of legal exposure, but unquantified "reasonably possible" losses often represent the larger risk. Watch for changes in language around pending cases — shifts from "remote" to "reasonably possible" or increases in estimated loss ranges signal deteriorating outcomes. Unconditional purchase obligations and take-or-pay contracts create fixed cost structures that reduce operational flexibility. Guarantee arrangements for subsidiaries or joint ventures can create cascading obligations. Compare the total commitment schedule against projected free cash flow to assess whether the company can meet its obligations without additional financing.