Gary J. Wolter, MGE Energy Chairman, President and Chief Executive Officer
Chairman's Letter
We are preparing for the challenges of tomorrow as we work to meet the energy needs of today.
Choosing the next generation of technology to serve our community requires both careful planning and strategic innovation.
Today, we are investing in state-of-the-art control technologies that turn traditional electric power plants into facilities with world-class efficiency and environmental performance.
At the same time, we have spent the last decade deploying distributed technologies to capture energy sources right here in our own backyard.
These community energy sources include the sun, the wind and even our garbage. We now have more than 200 installations throughout our community that produce energy locally to help serve all customers.
We distribute these home-grown resources along with our traditional power sources. Together they create a community grid of dependable, yet innovative, generation that meets our needs today and prepares us for the future.
Strong Financial Performance
MGE Energy continues to focus on its core utility business and on long-term shareholder value.
Our stock price, over the last 10 years, has outpaced the major national indices. From year end 2000 to 2010, MGE Energy stock grew 89% in part due to significant utility investments to help meet our customers' energy needs.
In addition, MGE Energy's three-year total return ranks 2nd highest in the EEI Index of 58 U.S. shareholder-owned electric utilities. Our three-year stock price appreciation, with dividends reinvested, was 36.9%. A $1,000 investment in MGE Energy in 2008 would have grown to $1,370.
We also remain committed to paying dividends. In 2010, your Board of Directors increased the dividend for the 35th consecutive year. Our annual dividends paid per share reached $1.49 in 2010.
MGE Energy is one of only five U.S. investor-owned gas and electric utilities to increase dividend payments for 35 consecutive years. We have been recognized as a Dividend Achiever by Mergent. In its analysis, only 7.3% of 3,700 dividend-paying common stocks were in this elite group.
This also was a strong year for earnings. In 2010, MGE Energy produced earnings of $2.50 per share.
Earnings benefitted from an increase in electric retail sales volumes due to much warmer summer weather compared to the same period in 2009. The weather in the third quarter of 2010 was the warmest in recent history. The Elm Road Generating Station began commercial operation in February 2010, which also improved earnings.
Madison Gas and Electric (MGE), our main subsidiary, has maintained the highest credit rating of any investor-owned combination utility in the nation from both Standard & Poor's (S&P) and from Moody's. In giving its rating, S&P cited MGE's "solid operational performance, a cost-conscious management team and a focus on a straightforward electric and gas utility business model."
In addition, MGE Energy's financial performance was ranked among the top 40 gas and electric companies in the nation and as No. 1 in Wisconsin by Public Utilities Fortnightly. This industry journal evaluated shareholder value from 2006 to 2009. Their review also recognized our disciplined financial management.
Cleaner, Reliable Energy
Over the last decade, MGE has steadily modernized its generation fleet to increase efficiencies and reduce air emissions. We have built state-of-the-art, coal-fired generating units, switched some generation from coal to cleaner-burning natural gas and brought more renewable energy online.
MGE has an 8.33% ownership interest in the Elm Road Generating Station in Oak Creek. After five years of construction, the plant began energy production in 2010.
In 2010, we began receiving energy from the new Elm Road Generating Station in Oak Creek. Unit 1 came online February 2010. Unit 2 came online January 2011. Emission test results from the Elm Road units show outstanding environmental performance. Removal rates for key pollutants include nitrogen oxides, 85%; mercury, 90%; and sulfur dioxide, 97%.
Electricity from this world-class plant will allow MGE to stop burning coal at its older, less efficient Blount Generating Station in downtown Madison. Earlier in 2010, we switched to natural gas as the primary fuel at Blount, with coal as the secondary fuel. We plan to stop burning all coal at Blount by the end of 2011.
In addition, we have increased our wind energy. We have 12 times the wind capacity that we had in 2005. MGE owns two wind farms and has long-term energy contracts with three other wind farms.
Community Energy Grid
We depend on larger generation facilities to provide the bulk of our power. However, we also are actively taking advantage of the energy located in our backyards. MGE owns small-scale generation projects throughout its service area ranging from backup generators to solar photovoltaic panels. In addition, we have developed partnership programs that encourage customers to install renewable energy systems and sell the electricity back to us.
Through our leadership efforts, more than 200 distributed energy projects throughout our community allow everyone to benefit from resources here at home. These local resources, together with our traditional power sources, form a community grid to meet our customers' needs.
The Next Generation
Technological advancements are bringing changes for all businesses—including utilities. At MGE, we carefully test, evaluate and incorporate new technologies when they can effectively serve our customers.
MGE is taking the next step with three new technologies. The U.S. Department of Energy is providing a $5.5 million grant, and MGE is matching the grant to implement this technology. Our application was one of 100 projects chosen from a list of nearly 400 proposals nationwide.
Our projects, which are already underway, will benefit customers by improving efficiency, reliability and service.
They are:
- New distribution grid software to upgrade our electric system management. The software will receive information from various remote sensors, diagnose disturbances and improve electric service restoration on our local grid.
- Advanced meters with two-way communication capabilities.
- A network of public charging stations and in-home vehicle charging systems for plug-in hybrid and electric vehicles. Time magazine has named these Coulomb Technologies charging stations one of the 50 best inventions of 2010. The first mass-produced electric vehicles are now entering the U.S. market. Our network of stations is part of an MGE pilot project to study how electric vehicle charging affects the grid.
MGE is piloting new technology as it installs a network of 24 public charging stations throughout the Madison area. Owners of electric vehicles, such as this Chevy Volt, can plug in to recharge their cars.
The charging stations serve today's electric vehicle owners. But, tomorrow, they may help supply our community energy grid. This developing technology allows electric vehicles to not only draw power from the grid but to send energy back into the grid. Vehicle batteries may become an energy source for times when demand for electricity is high. This developing technology could help meet future needs for energy.
Strong Local Economy
Our energy helps fuel one of the strongest economies in the United States. The independent research firm Policom Corp. ranked Madison's economy ninth out of 366 metropolitan areas. The study evaluated 23 indicators, such as income per capita and job growth. The study noted that the top economies have successfully weathered the recession that began in 2008. Money magazine also recognized Madison—naming it among the top 20 most recession-proof economies in the nation.
Board of Directors
Mark D. Bugher was elected to the MGE Energy Board of Directors in August 2010. As a community energy company, we recruit board members with strong ties to the greater Madison area. Mr. Bugher is Director of the University Research Park, University of Wisconsin-Madison. Prior to joining the Research Park in 1999, he served the State of Wisconsin as Secretary of Administration and as Secretary of Revenue.
Ready for the Next Generation
We are committed to the next generation of technologies, innovations and investments to move your company forward and continue to build shareholder value. Thank you for your confidence in MGE Energy.
Gary J. Wolter
Chairman, President and Chief Executive Officer