Forward-Looking Statements

This report contains forward-looking statements that relate to future transactions, events or expectations. In addition, RGC Resources, Inc. ("Resources" or the "Company") may publish forward-looking statements relating to such matters as anticipated financial performance, business prospects, technological developments, new products, research and development activities and similar matters. These statements are based on management's current expectations and information available at the time of such statements and are believed to be reasonable and are made in good faith. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. In order to comply with the terms of the safe harbor, the Company notes that a variety of factors could cause the Company's actual results and experience to differ materially from the anticipated results or other expectations expressed in the Company's forward-looking statements. The risks and uncertainties that may affect the operations, performance, development and results of the Company's business include, but are not limited to, the following: (i) failure to earn on a consistent basis an adequate return on invested capital; (ii) ability to retain and attract professional and technical employees; (iii) the potential loss of large-volume industrial customers to alternate fuels, facility closings or production changes; (iv) volatility in the price and availability of natural gas; (v) uncertainty in the demand for natural gas in the Company's service area; (vi) general economic conditions both locally and nationally; (vii) increases in interest rates; (viii) increased customer delinquencies and conservation efforts resulting from high fuel costs, difficult economic conditions and/or colder weather; (ix) variations in winter heating degree-days from the 30-year average on which the Company's billing rates are set; (x) impact of potential climate change legislation regarding limitations on carbon dioxide emissions; (xi) impact of potential increased regulatory oversight and compliance requirements due to financial, environmental, safety and system integrity laws and regulations; (xii) failure to obtain timely rate relief for increasing operating or gas costs from regulatory authorities;
(xiii) capital market conditions and the availability of debt and equity financing; (xiv) impact of potential increases in corporate income tax rates and other taxes; (xv) volatility in actuarially determined benefit costs and plan asset performance; (xvi) effect of natural disasters on production and distribution facilities and the related effect on supply availability and price; and (xvii) changes in accounting regulations and practices, which could change the accounting treatment for certain transactions. All of these factors are difficult to predict and many are beyond the Company's control. Accordingly, while the Company believes its forward-looking statements to be reasonable, there can be no assurance that they will approximate actual experience or that the expectations derived from them will be realized. When used in the Company's documents or news releases, the words, "anticipate," "believe," "intend," "plan," "estimate," "expect," "objective," "projection," "forecast", "budget", "assume", "indicate" or similar words or future or conditional verbs such as "will," "would," "should," "can", "could" or "may" are intended to identify forward-looking statements.

Forward-looking statements reflect the Company's current expectations only as of the date they are made. The Company assumes no duty to update these statements should expectations change or actual results differ from current expectations except as required by applicable laws and regulations.

The three-month and nine-month earnings presented herein should not be considered as reflective of the Company's consolidated financial results for the fiscal year ending September 30, 2009. The total revenues and margins realized during the first nine months reflect higher billings due to the weather sensitive nature of the gas business. Improvement or decline in earnings for the balance of the fiscal year will depend primarily on the level of operating and maintenance costs, and to a lesser extent, weather.

Overview

Resources is an energy services company primarily engaged in the regulated sale and distribution of natural gas to approximately 56,100 residential, commercial and industrial customers in Roanoke, Virginia and the surrounding areas through its Roanoke Gas Company ("Roanoke Gas") subsidiary. Natural gas service is provided at rates and for terms and conditions set by the Virginia State Corporation Commission ("SCC").

Resources also provided regulated sale and distribution of natural gas to Bluefield, West Virginia, the Town of Bluefield, Virginia and surrounding areas through its Bluefield Gas Company ("Bluefield") subsidiary and the Bluefield division of Roanoke Gas (collectively called "Bluefield Operations"). Effective as of October 31, 2007, Resources closed on the sale of the stock of Bluefield to ANGD, LLC and Roanoke Gas completed the sale of the assets of its Bluefield division to Appalachian Natural Gas Company, a subsidiary of ANGD, LLC. The corresponding activities of the Bluefield Operations up to the effective date of the sale have been classified as discontinued operations. See Note 2 above for more information on these transactions.

Resources also provides certain unregulated services through Roanoke Gas Company and information system services to software providers in the utility industry through RGC Ventures, Inc. of Virginia, which operates as Application Resources. Such operations represent less than 3% of total revenues and margin of Resources on an annual basis.

Winter weather conditions and volatility in natural gas prices both have a direct influence on the quantity of natural gas sales to the Company's customers and management believes each factor has the potential to significantly impact earnings. A majority of natural gas sales are for heating during the winter season. Consequently, during warmer than normal (normal means average heating degree-days for a specified period) winters, customers may significantly reduce their consumption of natural gas. Furthermore, significant increases in natural gas commodity prices can affect customer usage by encouraging conservation or use of alternative fuels.

Because the SCC authorizes billing rates for the utility operations of Roanoke Gas based on normal weather, warmer than normal weather may result in the Company failing to earn its authorized rate of return. The Company has been able to mitigate a portion of the risk associated with warmer than normal winter weather by the inclusion of a weather normalization adjustment ("WNA") factor as part of its rate structure, which allows the Company to recover revenues equivalent to the margin that would be realized at approximately 6% warmer than the 30-year normal or refund revenues for any margin realized for weather greater the 6% colder than the 30-year

normal. For the WNA period ending March 31, 2009, the Company did not record a WNA adjustment as the number of heating degree-days (an industry measure by which the average daily temperature falls below 65 degrees Fahrenheit) fell within the 6% weather band during the measurement period running from April through March. The Company recorded approximately $363,000 in additional revenues for the nine-month period ended June 30, 2008 to reflect the impact of the WNA.

The current economic environment has had a negative impact on the local economy as construction activity has slowed significantly and industrial activity has declined. Natural gas consumption by the Company's industrial and transportation customers has declined by more than 14% from the same quarter last year and by nearly 12% year to date. Much of the decline appears to be related to reduced production activities by these customers and is expected to improve when the economy recovers. However, one industrial customer has closed its operations, which will result in the loss of approximately 65,000 decatherms, or $80,000 in margin, annually. A prolonged economic downturn could result in additional closings or lead to further reductions in industrial activity. Growing job losses may lead to an increase in customer payment delays and higher bad debt expense. Fortunately, low natural gas commodity prices have reduced customer billings during the current period, which contributed to a reduction in bad debt expense for the quarter. The current level of past due balances is at approximately the same level as last year. However, if economic conditions and employment levels continue to deteriorate over the succeeding months, customer delinquencies and bad debts will likely increase. Management continues to closely monitor accounts receivable activity.

Volatility in natural gas prices presents other issues for the Company. The commodity price of natural gas has declined from its peak of more than $13.00 per decatherm last summer to under $4.00 a decatherm in June. Futures prices for natural gas on the NYMEX (New York Mercantile Exchange) range between $4.00 and $7.00 per decatherm over the next 12 months. If natural gas prices remain at these levels, both the Company and its customers should benefit from relative stability in prices. A strong economic recovery that increases demand for natural gas could escalate natural gas prices and make natural gas a less attractive energy source.

The Company has an approved rate structure in place that mitigates the impact of financing costs of its natural gas inventory. Under this rate structure, Roanoke Gas recognizes revenue for the financing costs or "carrying costs" of its investment in natural gas inventory. The carrying cost revenue factor applied to inventory is based on the Company's weighted average cost of capital including interest rates on short-term and long-term debt and the Company's authorized return on equity. During times of rising gas costs and rising inventory levels, the Company recognizes revenues to offset higher financing costs associated with higher inventory balances. Conversely, during times of decreasing inventory costs and lower inventory balances, the Company recognizes less carrying cost revenue as financing costs are lower. The Company recognized approximately $379,000 and $1,825,000 in carrying cost revenues for the three-month and nine-month periods ended June 30, 2009, compared to approximately $453,000 and $1,544,000 for the same periods last year. The decline in carrying cost revenues for the quarter was primarily attributable to the much lower cost of natural gas delivered into storage in April, May and June of this year compared to the same period last year. The average price of natural gas delivered to storage during the current quarter was approximately $3.79 per decatherm compared to $11.89 per decatherm for the same period last year. As the NYMEX futures prices for the next several

months indicate much lower prices than last year, carrying cost revenues should continue to decline during the fourth quarter and into next year when compared to the prior periods as lower priced gas is used to refill storage levels.

In the short run, as investment in natural gas inventories increases so does the level of borrowing under the Company's line-of-credit. However, as the carrying cost factor used in determining the carrying cost revenues is based on the Company's weighted average cost of capital, carrying cost revenues do not directly correspond with the short-term incremental financing costs. Therefore, when inventory balances decline due to a reduction in commodity prices, net income will decline as carrying cost revenues decrease by a greater amount than short-term financing costs. The inverse occurs when inventory costs increase.

Results of Operations

Consolidated net income (loss) from continuing and discontinued operations is as
follows:



                                   Three Months Ended         Nine Months Ended
                                        June 30,                  June 30,
                                    2009        2008         2009          2008
       Net Income

       Continuing Operations     $  137,394   $ 351,378   $ 4,730,246   $ 4,335,995
       Discontinued Operations           -           -             -        (36,690 )


       Net Income                $  137,394   $ 351,378   $ 4,730,246   $ 4,299,305

RGC RESOURCES, INC. AND SUBSIDIARIES



Continuing Operations

Three Months Ended June 30, 2009:

The table below reflects operating revenues, volume activity and heating
degree-days.



                                               Three Months Ended
                                                    June 30,               Increase/
                                              2009            2008         (Decrease)        Percentage
Operating Revenues
Gas Utilities                             $ 10,355,122    $ 19,887,423    $ (9,532,301 )            -48 %
Other                                          351,867         265,211          86,656               33 %


Total Operating Revenues                  $ 10,706,989    $ 20,152,634    $ (9,445,645 )            -47 %


Delivered Volumes
Regulated Natural Gas (DTH)
Tariff Sales                                   820,708         868,078         (47,370 )             -5 %
Transportation                                 568,219         652,066         (83,847 )            -13 %


Total                                        1,388,927       1,520,144        (131,217 )             -9 %


Heating Degree Days (Unofficial)                   336             325              11                3 %

Total operating revenues for the three months ended June 30, 2009 compared to the same period last year decreased due to significantly lower natural gas prices and to a lesser extent a reduction in delivered natural gas volumes. During the same quarter last year, natural gas commodity prices increased rapidly and peaked at more than $13.00 per decatherm in early July. However, a combination of weaker demand from the current economic environment and a strong natural gas supply has resulted in much lower commodity prices this year and significantly lower billing rates. The decline in volumes corresponds to less demand from some industrial, large commercial and transportation customers due to the current economy.

                              Three Months Ended
                                   June 30,             Increase/
                              2009          2008        (Decrease)       Percentage
      Gross Margin
      Gas Utilities        $ 4,840,640   $ 4,891,445   $    (50,805 )            -1 %
      Other                    174,474       163,965         10,509               6 %


      Total Gross Margin   $ 5,015,114   $ 5,055,410   $    (40,296 )            -1 %

Regulated natural gas margins from utility operations decreased from the same period last year due to a reduction in delivered natural gas volumes and declining carrying cost revenues more than offsetting the implementation of a non-gas base rate increase in November. Tariff sales (consisting primarily of residential and commercial volumes) decreased primarily as a result of declines in commercial sales volumes that appear to be a result of the current unfavorable economic environment, while transportation volumes, which generally correspond to production activities of certain larger industrial customers, also declined significantly for the same reasons. As discussed above, carrying cost revenues associated with natural gas inventories declined from last year's levels corresponding with the decline of the cost of gas in storage. Carrying cost revenues declined by nearly $74,000 for the quarter and are expected to decline further in the fourth quarter as lower priced gas is delivered into storage. The Company placed increased non-gas base rates into effect in November. As a result of the higher rates, the Company realized approximately $127,000 in additional margin from customer base charges, which is a flat monthly fee billed to each natural gas customer. The total volumetric margin decreased by approximately $93,000 primarily due to lower volumes for the quarter.

The components of the gas utility margin decrease are summarized below:

Net Margin Decrease

            Customer Base Charge, including rate increase   $ 136,736
            WNA                                                (8,029 )
            Carrying Cost                                     (73,725 )
            Volumetric (volume decrease)                      (93,429 )
            Other                                             (12,358 )


            Total                                           $ (50,805 )

Other margins increased by $10,509 over last year primarily due to an increase in contract services in unregulated operations.

Operations expenses increased by $94,004, or 4%, over the same period last year, as a result of higher employee benefit costs, professional services and contractor and operations labor, partially offset by a reduction in bad debt expense. Contractor and company labor increased approximately $67,000 due to reduced capital activity and normal compensation adjustments. Total employee benefit costs also increased by approximately $67,000 over the same period last year due to increases in pension costs and higher health insurance premiums. Professional services increased by approximately $37,000 for the quarter primarily due to timing of internal control testing. Bad debt expense decreased by approximately $67,000 due to the significant decline in customer billings associated with much lower gas costs. The remaining difference is attributable to minor variances in other operating expense categories.

Maintenance expenses increased by $108,952, or 32%, primarily due to the repairs of pipeline leaks identified through annual leak surveys and other general facility maintenance.

General taxes increased by $11,346, or 4%, related to higher property taxes associated with increased investment in utility plant and higher payroll taxes.

Depreciation expense increased $68,216, or 6%, on a corresponding increase in utility plant associated with replacing cast iron and bare steel pipe and extending service to new customers.

Other income, net, decreased by $51,180 primarily due to lower interest rates on the Company's short-term cash investments.

Interest expense declined by $30,293, or 6%, due to the retirement of a $5,000,000 first mortgage note at 7.804% last July and the refinancing of the note with a variable rate note and interest rate swap that provides for a fixed interest rate of 5.79%. The remaining reduction is attributable to lower interest rate paid on customer deposits.

Income tax expense decreased by $129,717, or 62%, which corresponds to the decrease in pre-tax income from continuing operations for the quarter. The effective tax rate was 37% for both periods.

Nine Months Ended June 30, 2009:

The table below reflects operating revenues, volume activity and heating
degree-days.



                                              Nine Months Ended
                                                  June 30,               Increase/
                                             2009           2008        (Decrease)        Percentage
Operating Revenues
Gas Utilities                            $ 72,550,797   $ 84,791,998   $ (12,241,201 )           -14 %
Other                                         901,889        665,922         235,967              35 %


Total Operating Revenues                 $ 73,452,686   $ 85,457,920   $ (12,005,234 )           -14 %


Delivered Volumes
Regulated Natural Gas (DTH)
Tariff Sales                                6,278,882      5,955,536         323,346               5 %
Transportation                              1,907,393      2,124,641        (217,248 )           -10 %


Total                                       8,186,275      8,080,177         106,098               1 %


Heating Degree Days (Unofficial)                3,896          3,611             285               8 %

Total operating revenues from continuing operations for the nine months ended June 30, 2009 compared to the same period last year decreased due to reductions in the price of natural gas

more than offsetting a slight increase in natural gas sales volumes and the implementation of a non-gas cost rate increase. The average commodity price of gas delivered declined by more than 25% from last year. Total tariff natural gas sales volumes increased by 5% on an 8% rise in the number of heating degree-days. Reductions in commercial sales volumes, which management primarily attributes to the current economy, mitigated a portion of the effect of an 8% increase in heating degree days. Transportation volumes declined by 10% due to reduced production activities resulting primarily from the current economic climate. Other revenues increased by 35% related primarily to contract services provided in unregulated operations.

                                 Nine Months Ended
                                     June 30,              Increase/
                                2009           2008       (Decrease)    Percentage
       Gross Margin
       Gas Utilities        $ 21,971,598   $ 20,671,645   $ 1,299,953            6 %
       Other                     471,872        405,410        66,462           16 %


       Total Gross Margin   $ 22,443,470   $ 21,077,055   $ 1,366,415            6 %

Regulated natural gas margins increased due to a combination of 5% increase in the higher margin firm volumes, the implementation of a non-gas cost rate increase and higher carrying cost revenues for the period more than offsetting the absence of WNA revenues. Most of the increased margin was attributable to the non-gas cost rate increase designed to provide approximately $1.2 million in additional annual revenues and margin. The 5% increase in the tariff sales offset the absence of the WNA revenue. Carrying cost revenues increased by approximately $280,000 due to a higher average investment in natural gas storage during the period. The components of the regulated margin increase are summarized below:

Net Margin Increase



           Customer Base Charge, including rate increase   $   419,767
           WNA                                                (363,376 )
           Carrying Cost                                       280,255
           Volumetric (rate and volume increase)               995,554
           Other                                               (32,247 )


           Total                                           $ 1,299,953

Operations expenses increased by $371,103, or 5%, for the nine-month period ended June 30, 2009 compared to the same period last year due to higher employee benefit costs and contractor and operations labor and a reduction in capitalized overheads partially offset by reductions in professional services. A lower level of capital activity and the timing of annual leak survey work performed on the Company's natural gas distribution system resulted in increases to operations labor and contractor expense and reduced the amount of allocated overheads from operations to capital accounting by approximately $294,000. Total employee benefit costs increased by

approximately $126,000 over the same period last year due to increases in pension costs and higher health insurance premiums. Professional services declined by $47,000 primarily due to a reduction in costs related to management's decision to transfer benefit plan and actuarial services to a lower cost provider.

Maintenance expenses increased $219,807, or 22%, due to timing of pipeline leak repairs of the Company's distribution system identified through leak surveys.

General taxes increased $38,681, or 4%, for the nine-month period ended June 30, 2009 compared to the same period last year. Most of the increase was attributable to higher property taxes related to higher level utility plant combined with an increase in payroll taxes.

Depreciation expense increased $171,491, or 5%, due to the growth in utility plant associated with extending service to new customers and replacing cast iron and bare steel pipe.

Other income, net, decreased $56,557 due to reduced investment earnings on the Company's short-term investments as a result of significantly lower interest rates.

Interest expense decreased by $118,574, or 8%, due to significantly lower interest rates on the Company's line-of-credit and the refinancing of the Company's $5,000,000 first mortgage note, which matured on July 1, 2008.

Income tax expense increased $233,099, or 9%, which corresponds to the rise in pre-tax income from continuing operations. The effective tax rate was 38% for both periods.

Critical Accounting Policies and Estimates

The consolidated financial statements of Resources are prepared in accordance with accounting principles generally accepted in the United States of America. The amounts of assets, liabilities, revenues and expenses reported in the Company's financial statements are affected by accounting policies, estimates and assumptions that are necessary to comply with generally accepted accounting principles. Estimates used in the financial statements are derived from prior experience, statistical analysis and professional judgments. Actual results may differ significantly from these estimates and assumptions.

The Company considers an estimate to be critical if it requires assumptions to be made that were uncertain at the time the estimate was made and changes in the estimate are reasonably likely to occur from period to period. The Company considers the following accounting policies and estimates to be critical.

Regulatory accounting - The Company's regulated operations follow the accounting and reporting requirements of Statement of Financial Accounting Standards No. 71, Accounting for the Effects of Certain Types of Regulation (SFAS No. 71). The economic effects of regulation can result in a regulated company deferring costs that have been or are expected to be recovered from customers in a period different from the period in which the costs would be charged to