1. business and industrial
2. energy
3. electricity

November 2014
EEI Financial Conference
Dallas, Texas
1
Disclaimer
All statements in this presentation other than historical facts are forward-looking statements
that involve risks and uncertainties which are subject to change at any time.
Such statements are based upon management’s expectations at the time they are made.
Various factors could cause actual results to be significantly different than those
contemplated, estimated or projected in forward-looking statements. Those factors include the
assumptions and factors referred to in the statements themselves as well as risk factors
described in the company’s latest annual report on Form 10-K, subsequently filed quarterly
reports on Form 10-Q and other reports filed with the Securities and Exchange Commission.
The company assumes no responsibility to update any forward-looking statements for events
occurring after the date hereof.
This document does not constitute an offer to sell, or the solicitation of an offer to buy, any
securities of MGE Energy, Inc., or Madison Gas and Electric Company. A registration
statement relating to the common stock of MGE Energy, Inc., has been declared effective by
the Securities and Exchange Commission. Any offering of such common stock is being made
solely by means of a prospectus supplement and an accompanying prospectus, copies of which
may be obtained from MGE Energy, Inc., at 133 South Blair Street, Madison, Wisconsin
53788, attention: Shareholder Services, telephone no. (800) 356-6423.
2
Highlights
Financial Strength
Asset growth
Earnings growth
Regulatory Support
High Credit Quality
Strong Dividend
History
3
Service Territory
Economic Outlook
• Madison
– Best place to live
• Livability, 2015
– 4th best small metro college area
• American Inst. for Econ.
Research 2014-15
• Dane County
– Population’s growth predicted to
be the highest of any county in
Wisconsin through 2035
– Low unemployment (Sep. 2014):
• 3.3% (WI: 5.5%; U.S.: 5.9%)
4
Organizational Structure
Exchange:
Ticker:
Organized:
Madison Gas
and Electric Co.
(Est. 1896)
Current ROE:
10.3%
NASDAQ
MGEE
2001
MGE
Power LLC
(Est. 2002)
MGE Power
West Campus
LLC
(Est. 2003)
Fixed ROE: 12.1%
Debt: 47%
Equity: 53%
Investment: $110 M
Lease term: 30 years
MGE Transco
Investment LLC
(Est. 2005)
MGE Power
Elm Road LLC
(Est. 2003)
Fixed ROE: 12.7%
Debt: 45%
Equity: 55%
Other
MAGAEL, LLC
(Est. 1973)
Current ROE: 12.2%
Investment: $68 M
ATC investment
Central Wisconsin
Development Corp.
(Est. 1986)
North Mendota Energy &
Technology Park. LLC
(Est. 2013)
NGV Fueling Services
LLC
Investment: Est. $179 M
(Est. 2013)
Lease term: 30 years
MGE State Energy
Services LLC
(Est. 2014)
5
2014 Public Utilities Fortnightly
Ranking
 MGEE named 9th Best Energy
Company in the US by Public Utilities
Fortnightly
 MGEE achieved Top 40 honors for 7
consecutive years
 A quote from Michael Burr, Editor,
Public Utilities Fortnightly:
“The best players will be the ones that
continue delivering solid performance
for shareholders – even as they adapt to
market changes”
6
Investment Opportunities
Capital Expenditures
•
•
•
Environmental at Columbia Energy Center
Utility maintenance
Gas Main Expansion
American Transmission Company (ATC)
•
•
Growth
Duke – ATC Joint Venture
Dividend Growth/Flexibility
•
•
38 consecutive years of growth
Strong cash flows to support continued growth
State of WI Sale of Power Plants
•
•
UW-Madison heating and cooling facilities
Numerous other facilities within MGE service territory
Distributed Generation Expansion
•
•
Solar PV
Back-up / Emergency Generation
7
Investment Opportunities
Timeline
State of WI
Utility Asset Sale?
DATC?
Distributed Generation
ERGS Fuel
Flexibility
Columbia SCR
ATC
MG&E Maintenance Capital Expenditure
2014
2015
2016
2017
2018
2019
8
PSCW Approved Environmental
Capital Expenditure
• Installed Environmental Controls at Columbia Energy Center
Pollutant
Design Removal Rate
Control Technology
Sulfur Dioxide (SO2)
90% reduction
Scrubber, Fabric Filter
Mercury (Hg)
90% reduction
Carbon Injection, Fabric Filter
• Unit 2 placed into service in April 2014
• Unit 1 placed into service in July 2014
• Total Capitalized Project amounted to $139 M of which $10 M consisted
of AFUDC
• Wisconsin’s Commission approved construction in early 2011
9
Additional Environmental
Controls
Forecast
2014
2015
2016
2017
$30-40 M
2018
Cumulative Expenditures
• In July 2014, a Certificate of Authority was filed with the PSCW for
the installation of the selective catalytic reduction system (SCR)
• Estimated expenditures for the SCR at Columbia are about $30-40
million, subject to PSCW approval
10
Utility Maintenance CapEx
Maintenance capital over the last 5 years has averaged around $50-60 million
•
MGE Utility Rate Base:
–
$0.5 billion excluding the fixed return assets of WCCF and ERGS
Electric Distribution:
•
Electric overhead and underground lines and substations
–
•
$20-30 million per year
Electric transformers and meters
–
About $5 million per year
Gas meters, systems and street improvements
–
About $15 million per year
Common Expenditures
–
–
–
Area development projects
Operating center buildings
IT infrastructure
11
Natural Gas System Expansion
• Propane customers seeking a cheaper and more
reliable fuel option
– Propane shortages caused fuel rationing and price spikes
• MGE extending natural gas infrastructure to meet
growing demand
– $3 million / year of potential investment
– High usage agricultural and commercial customers driving
expansions to date
– WI Commission very supportive of expansion program
• Potential customers are willing to pay a surcharge
to bring natural gas service to their location
– Surcharges avoid subsidization by existing customers
12
Continued Growth in
Transmission Investments
ATC Investment in Plant
(Excludes DATC CapEx)
($ Billions)
$6
Projected
$5
$4
$3
$2
$1
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
$0
ROE for transmission companies is being
challenged
MGE Investment:
Current ROE:
Equity (2013):
MGE Ownership:
10-year CapEx forecast:
Regulator:
Moody’s debt rating:
S&P debt rating:
$67.5M
12.2%
45.6%
3.6%
$3.3 - $3.9 B
FERC
A1
A+
13
Duke American Transmission Co.
• DATC purchased a 72% ownership take in the Path 15 transmission line in
Central California
• DATC’s Midwest Project Portfolio is navigating the regulatory approval
process on an estimated $4.0 B of proposed projects:
 FERC approved 100% current return on CWIP
 FERC approved 12.2% ROE on 50% equity
 MISO is currently evaluating these projects
 Projects may require state-by-state approval
• DATC plans to begin Zephyr project permitting process
 Project connects Wyoming wind energy to load centers in the Southwest
14
Potential Sale of State Assets
•
Energy facilities potentially for sale state-wide
–
•
WI Department of Administration has awarded
contracts for services:
–
–
–
•
Loop Capital providing deal advisory services
JP Morgan providing financial broker services
Legal and engineering support service providers are selected
MGE impact?
–
–
•
Some of the power facilities are located within MGE’s service
territory
MGE co-owns with the State the West Campus Co-generation
Facility serving the UW Madison campus steam and chilled
water
The State and UW-Madison are already customers of MGE
MGE and WE Energies (WEC) have formed a
joint venture to cooperatively evaluate bidding on
these assets
15
Distributed Generation
• Solar PV
– Opportunity growing as installed costs continue to decline
– MGE service territory has strong support for renewable
technologies
– MGE has nearly 30 years of operational experience with
PV technologies
– Evaluating additional utility offerings
• Back-up / Emergency Generation
– Currently own and operate 54 units with 50MW of
dispatchable capacity (6.4% of net summer capacity)
– High tech customers looking for similar electrical back-up
solutions to achieve stringent reliability standards
16
Financial Flexibility
Strong Capital Structure
120%
100%
7%
3%
0%
0%
0%
0%
36%
38%
40%
38%
40%
38%
55%
57%
59%
60%
62%
60%
62%
2008
2009
2010
2011
2012
2013
Q3 2014
14%
80%
31%
60%
40%
20%
0%
CSE
LTD
STD
17
Financial Flexibility
Strong Cash Flow
($ Millions)
$180.0
$160.0
$146
$140.0
$120.0
$106
$100.0
$80.0
$75
$118
$124
$131
$140
$119
$98
$78
$60.0
$60
$65
2010
2011
$153
$93
$40.0
$20.0
$0.0
2008
2009
Operating Cash Flow
2012
2013
TTM
9/2014
Capital Expenditure
18
Financial Flexibility
Ample Liquidity
Lines of Credit ($ Millions)
$250.0
$200.0
Outstanding Short-Term Debt ($ Millions)
$195.0
$150.0
$100.0
$150.0
$114.5
$115.0
$115.0
$115.0
2011
2012
$150.0
$50.0
$22.5
$0.0
2009
2010
2013
Q3 2014
19
Strong Balance Sheet
MGEE’s Low Leverage
Manageable Debt Maturities
(39.5% total debt at year end 2013)
($ Millions)
Low Leverage
$34.4
50.0%
$24.5
45.4%
45.0%
40.0%
39.5%
35.0%
30.0%
$4.1
$4.2
$4.3
2014
2015
2016
25.0%
2008 2009 2010 2011 2012 2013
2017
2018
Total Debt/ Total Capitalization (%)
20
Dividend Flexibility
• Dividend Growth has been around 4%
– Recent dividend payout ratio 50-60%
– No dividend payout range targeted
• Dividend Considerations
–
–
–
–
Capital investment growth opportunities
Balance sheet and credit ratings
Projected cash generation and requirements
Dividend payout ratio / yield consistent with industry and peers
• Dividend decisions made by Board of Directors
21
Dividend Flexibility
MGEE versus Industry Average (EEI) Dividend Payout Ratios
100%
87%
90%
80%
70%
79%
77%
67%
62%
60%
60%
66%
59%
58%
56%
50%
Industry
average
50%
40%
30%
20%
10%
0%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
MGEE, Div. Payout Ratio
EEI, Div. Payout Ratio
22
Consistent Dividend Growth
Dividend History and Shareholder Value
*adjusted for 3-for-2 stock split, effective Feb. 7, 2014
($ / share)
Dividend CAGR = 3.6%
(1909 to September 2014)
$1.20
$1.10
TTM Sept. 2014
$1.00
$0.80
$0.60
$0.40
$0.20
$0.00
1909
1922
MGE has paid
dividends annually
since 1909
1935
1948
1961
1974
2014 was our 39th
dividend rate increase
1987
2000
2013
Sept. 2014
Dividend Yield =
2.9%
23
Supportive Regulatory
Environment
Wisconsin’s
regulatory
ranking is
Regulatory
Research
Association’s
(RRA’s)
highest
24
Cost Containment
• Proactive maintenance to strengthen system
• Strategic investment in capital to reduce long-term
O&M,
• Employee benefits program reductions, including
pension and healthcare
25
2014 Rate Freeze
• On July 26, 2013, the PSCW approved MGE’s request
of an electric and natural gas rate freeze through 2014
in an effort to provide rate stability to its customers
• The approval authorized the following adjustments:
 MGE generated fuel-related savings in 2012 of $6.2
million; these savings will be used to offset projected cost
increases in 2014
 Apply 100% AFUDC on the Columbia environmental
project
 Deferral of incremental ATC/MISO fees
• The authorized return on equity remains unchanged at
10.3%
26
2015 Rate Filing
• On April 17, 2014, MGE requested PSCW approval to
decrease 2015 natural gas rates by 2.3%, increase electric
rates by 2.8%, primarily driven by:
– Columbia Energy Center costs associated with the construction of
emission-reduction equipment
– State electric transmission system improvement and reliability costs
– A request for escrow accounting treatment for transmission related
costs starting in 2015
• Revisions adjusted the natural gas rates decrease to 1.4%
and electric rates increase to 4.3%, driven by:
– Increased coal delivery costs
– Lower transmission costs
– Increased pension and post-retirement benefit costs
• A PSCW decision is expected by the end of 2014
27
Solid Credit Quality
Highest Rated Investor-Owned Electric and Gas Utility
Moody’s (Utility Ratings)
S&P (Utility Ratings)
•
Corporate credit
AA-
•
Secured
Aa2
•
Business risk
Excellent
•
Unsecured
A1
•
Commercial paper
A-1+
•
Commercial paper
P-1
•
Outlook
Stable
•
Outlook
Stable
“…MG&E’s management team has effectively
executed its business strategy and operations, while
controlling costs. Management has considerable
experience and a record of success in operating its
electric and gas businesses [and] done an excellent
job managing regulatory risk .…”
“…The rating … reflects [Wisconsin’s] above
average regulatory environment,… MGE’s
constructive relationship with the PSCW,… MGE’s
ability to recover costs and generate returns,…and
the expectation that key metrics will remain
commensurate with the current rating… after
completion of … significant investments….”
Source: S&P, February 2014
Source: Moody’s, April 2014
28
Questions?
Contact:
Ken Frassetto
Director - Shareholder Services and Treasury Management
P. O. Box 1231
Madison, WI 53701-1231
Phone:
608-252-4723
Fax:
608-252-7098
E-mail:
[email protected]
29
Appendix
30
Solid Earnings Per Share Growth*
*adjusted for 3-for-2 stock split, effective Feb. 7, 2014
$2.50
$2.16
$2.00
$1.50
$1.47
$1.66
$1.76
$1.86
$1.00
$0.50
$0.00
2009
2010
2011
2012
2013
31
Strong Asset Base
Asset and Market Value Growth
($ millions)
$1,459
$1,587 $1,579 $1,620
$1,268 $1,282 $1,318
$1,112
$829
$917
$982
$988
$735
$693
2004
2005
$767
$779
$756
2006
2007
2008
Assets
$1,081
$1,178
$1,334 $1,292
$826
2009
2010
2011
2012
2013
Q3
2014
Market Cap.
32
Financial Strength
Electric Utility Revenue
Y-T-D Ended September 30
$310 M
Actual Cooling Degree Days
Y-T-D Ended September 30
$308 M
0.6%
decrease
2013
2013
707
620
659
2014
Normal
2014
Electric Retail Sales (MWh)
Y-T-D Ended September 30
2,524
(5.9% below normal and
decreased 12.3% from 2013)
2,511
0.5%
decrease
2013
Total retail sales volume
decrease was driven by cooler
than normal weather
2014
33
Financial Strength
Actual Heating Degree Days
Y-T-D Ended September 30
Gas Utility Revenue
Y-T-D Ended September 30
(16.1% above normal and
increased 9.2% from 2013)
$163 M
$121 M
2013
34.6%
increase
2013
5,240
4,512
2014
Gas Retail Deliveries
Y-T-D Ended September 30
(Therms, 000’s)
157,017
4,799
179,939
2014
14.6%
increase
2013
2014
Normal
Gas revenue increased due to:
•
Higher gas costs, under the purchased
gas adjustment clause
•
Increased gas deliveries, as a result of
colder winter weather
34
Regulated Revenue
MGEE’s Low Earnings Volatility
Low exposure to economically sensitive industrial customers
Electric Retail Revenue, 2013
5%
Gas Revenue, 2013
10% 2%
10%
33%
34%
54%
52%
Residential
Residential
Commercial
Commercial
Industrial
Industrial
Public authorities (including UW)
Transportation & other
35
Segment Earning Per Share*
Three Months Ended September 30
*adjusted for 3-for-2 stock split, effective Feb. 7, 2014
$0.15
$0.04
$0.70
$0.14
$0.51
$0.04
$0.67
$0.49
2013
2014
36
Segment Earning Per Share*
Y-T-D Ended September 30
*adjusted for 3-for-2 stock split, effective Feb. 7, 2014
$0.44
$0.12
$1.75
$0.41
$0.13
$1.88
$1.34
$1.19
2013
2014
37
Financial Strength
Investing in Our Core Utility
Total Asset Growth
Dec. 2008
$954 M
Dec. 2013
$1,178 M
$908
Capital Expenditures
($ Millions)
$120
$100
$80
$665
$60
$40
$20
$289
Electric
$270
$0
2008
2009
2010
2011
2012
2013
2014
Est.
Electric
$47
$37
$34
$47
$82
$100
$64
Gas
$8
$14
$14
$16
$14
$16
$20
Gas
38
Fixed Return Assets
(2001 Leased Generation Law)
West Campus Cogeneration Facility
Investment:
$110 M (MGE share)
Fixed ROE:
12.1%
Fixed Equity:
53%
Initial Lease Term:
30 years
Service Date:
April 2005
Electric Capacity:
150 MW
Location:
Madison, WI
Elm Road Generating Station
Investment:
$179 M (MGE share)
Fixed ROE:
12.7%
Fixed Equity:
55%
Initial Lease Term:
30 years
Service Dates:
Unit 1 - Feb. 2010
Unit 2 - Jan. 2011
Electric Capacity:
106 MW (MGE Share)
Location:
Oak Creek, WI
39
Environmental Steward
• 1st utility in Wisconsin to participate in the highest level (Tier 2)
of the DNR’s Green Tier environmental leadership program
• 5th company in Wisconsin to achieve Tier 2 status
• Voluntarily committed to continually improve environmental
performance by developing management strategies and adopting
new technologies and practices
40
Environmental Steward
• 3rd highest green pricing participation rate of any
investor-owned utility (NREL)
• 6th highest green power sales as a percentage of total
retail electricity sales (NREL)
• Total renewable generation capacity of approximately
140 MW:
– Wind (ownership)
41 MW
– Wind (PPAs)
97 MW
• Early compliance with renewable portfolio standards
• Solar Electric Power Association (SEPA) recognized
MGE as a utility leader for adding solar energy into its
generation portfolio
41
Delivering Competitive
Shareholder Returns
December 31, 2013
MGEE
10-yr. Total Return
10.48%
10.59%
8.33%
6.82%
MGEE
5-yr. Total Return
16.01%
11.17%
10.77%
17.61%
14.21%
11.88%
12.55%
12.61%
MGEE
3-yr. Total Return
DJUA
SNL Electric Company
DJIA
42