2021 Annual Report
Form 10-K
Proxy

Your community energy company, Madison Gas and Electric (MGE), is charting a more sustainable path forward, investing in renewable energy and new technologies to reach shared energy goals for the benefit of all our customers, communities, investors and future generations. MGE is building a cleaner, smarter and more resilient grid to fulfill its ongoing commitment to safe, reliable, affordable and sustainable energy for all.

 

MGE Energy, Inc.

MGE Energy is an investor-owned public utility holding company headquartered in the state capital of Madison, Wis. MGE Energy is the parent company of Madison Gas and Electric Co. The utility provides natural gas and electric service in south-central and western Wisconsin. Assets total approximately $2.4 billion. In 2021, revenue was approximately $607 million. See the Corporate Profile.
 

MGE Energy (MGEE)

Year at a Glance (Thousands, except per share amounts and shares outstanding)	2021	2020	Increase / (Decrease)	% Change
Total Market Value (Dec. 31)	$ 2,974,437	$ 2,532,521	$ 441,916	17.4%
Market Price Per Share (Dec. 31)	$ 82.25	$ 70.03	$ 12.22	17.4%
Book Value Per Share	$ 28.41	$ 27.41	$ 1.00	3.6%
Average Shares Outstanding	36,163,370	35,611,936	551,434	1.5%
Shares Outstanding at Year-End	36,163,370	36,163,370	-	-
Operating Revenues	$ 606,584	$ 538,633	$ 67,951	12.6%
Net Income	$ 105,761	$ 92,418	$ 13,343	14.4%
Basic and Diluted Earnings Per Share	$ 2.92	$ 2.60	$ 0.32	12.3%
Dividends Declared Per Share	$ 1.52	$ 1.45	$ 0.07	4.8%
Dividend Payout Ratio	52.1%	55.8%	(3.7%)	(6.6%)
Total Assets	$ 2,371,906	$ 2,253,651	$ 118,255	5.2%
Total Retail Electric Sales (kWh)	3,199,530	3,100,968	98,562	3.2%
Total Gas Deliveries (therms)	268,944	271,382	(2,438)	(0.9%)

For detailed financial information, see the 2021 MGE Energy Form 10-K.

 

Financial strength 

MGE Energy's solid bottom line allows the company to grow and to make strategic investments that deliver long-term shareholder value. In 2021, your Board of Directors increased the dividend for the 46th consecutive year. The company has paid dividends for more than 110 years.

The board increased the annual dividends paid per share by approximately 5% to $1.52. In the last five years, shareholders have seen a compound annual growth rate in dividends of nearly 5%. The financial publisher Mergent continues to recognize MGE Energy as a “Dividend Achiever” for our commitment to dividend growth. No other major utility in Wisconsin can match our history of consistent dividend increases.

Many shareholders reinvest their dividends to grow their value. The total return on your investment combines stock price appreciation with reinvested dividends. In 2021, MGE Energy’s total return grew almost 20%.

Looking at the last 10 years, MGE Energy’s annualized total return was almost 13%—outperforming the EEI Index. A $1,000 investment in MGE Energy, with dividends reinvested, would have grown to $3,364 during the 10 years ending Dec. 31, 2021.

The company continues to earn national recognition for its consistently strong performance. Value Line gives MGE Energy top marks for investment safety and its highest grades for financial strength. MGE also continues to maintain the highest credit ratings of any investor-owned combination utility in the nation from Standard & Poor’s (S&P) and Moody’s. MGE consistently maintains high credit ratings.
 

Steady asset growth

The company’s strong financial profile has allowed MGE Energy to achieve steady asset growth. In the last 10 years, MGE Energy has grown its asset base from approximately $1.5 billion to almost $2.4 billion.

Our transition toward greater use of cost-effective renewable energy is helping to fuel this growth. Almost half of the company’s projected capital expenditures in the next few years will support investments in wind, solar and battery storage as MGE works toward reducing its use of coal about 75% by 2025 and reducing carbon emissions at least 80% by 2030.

Investors also continue to see stable earnings growth. The Two Creeks Solar project was completed in November 2020, and the first phase of the Badger Hollow Solar Farm was completed in November 2021. Both projects and economic recovery in our service territory contributed to increased electric earnings in 2021. MGE Energy’s GAAP (Generally Accepted Accounting Principles) earnings for the full year of 2021 were $105.8 million, or $2.92 per share, compared to $92.4 million, or $2.60 per share, in 2020.

During 2021, electric retail kilowatt-hour sales increased approximately 3% compared to the prior year. Electricity use by commercial customers was approximately 4% higher while residential consumption increased by approximately 2%.

In addition, the company grew its customer base. By year-end 2021, MGE was serving approximately 2,000 more electric customers and 3,000 more natural gas customers than the year prior.

Local clean energy

Since announcing our goal of net-zero carbon electricity almost three years ago, MGE Energy has been delivering on its deep decarbonization strategy and growing our use of renewable energy. MGE’s 20-megawatt (MW) O’Brien Solar Fields came online in spring 2021 to serve several large customers. The local project helps both MGE and participating customers achieve their sustainability goals. Adjacent to the Badger State Trail, the highly visible project also serves as a community resource to passersby and to students interested in renewable energy.

It is one of two solar arrays to become operational in 2021. In fall, phase one of the Badger Hollow Solar Farm in Iowa County, Wis., began serving our customers. MGE owns 50 MW of phase one. When completed, phase two will deliver another 50 MW. Both projects are part of an estimated $645 million in renewable energy investment between 2015 and 2024. These investments reflect a commitment to advancing a cleaner energy future as quickly and cost-effectively as we can while ensuring all our customers benefit from this ongoing transition.

We announced in early 2021 plans to purchase part of the output from several new wind, solar and battery storage projects in Wisconsin. If approved, these projects will deliver nearly 120 MW of clean energy to serve all MGE electric customers. They also will help to meet future energy and capacity needs with the planned retirement of the coal-fired Columbia Energy Center by 2025.

Todd Montevideo, MGE Manager of Renewable and Distributed Energy Engineering, speaks with Edgewood College students studying climate change during their visit to the O’Brien Solar Fields in Fitchburg, Wis. The 20-megawatt array features bifacial panels, which capture sunlight from both sides of the panels to increase energy production. Adjacent to a popular bike trail, the 160-acre project also will feature an educational kiosk.

Transition away from coal

With the planned retirement of both units at Columbia and with the Elm Road Generating Station expected to begin its transition from coal to natural gas within the next couple of years, MGE expects to eliminate approximately 75% of the company’s current coal use by 2025. MGE’s remaining use of coal is expected to be reduced substantially by 2030, and by 2035, MGE expects to eliminate coal as an energy source.

Investment in renewable generation will replace much of the capacity needed due to the retirement of Columbia, which provides about 200 MW of capacity to serve MGE. To help ensure continued reliability, MGE also plans to invest in 25 MW from the state-of-the-art West Riverside Energy Center, with an option to purchase an additional 25 MW. A 50-MW share of this new, highly efficient gas plant in southern Wisconsin is expected to produce less than 10% of the emissions of MGE’s share of the Columbia plant.

Jeffrey M. Keebler
Chairman, President and Chief Executive Officer

We are partnering with customers in many ways to advance sustainability. Tribe 9 Foods, a specialty foods manufacturer on the city of Madison’s east side, has a motto of “improving lives through food.” Sustainability is part of the local company’s mission.

Tribe 9 Foods’ operations are served by MGE’s O’Brien Solar Fields in Fitchburg, Wis. The 20-megawatt (MW) project—currently Dane County’s largest solar project—came online in spring 2021 to serve Tribe 9 Foods and several other large customers who participate through Renewable Energy Rider (RER) contracts with MGE.

The growing five-year-old company also has been one of more than 10,000 electric customers participating in MGE’s long-standing Green Power Tomorrow (GPT) program. At a penny more per kilowatt-hour, GPT offers an easy way for residential and commercial customers to support local and regional renewable energy from MGE to reduce their carbon footprint cost-effectively.

Our RER program gives MGE and larger customers—like businesses and educational and other public institutions—the opportunity to partner to grow locally generated renewable energy with customized renewable energy solutions. MGE has built nearly 40 MW of local solar capacity under RER agreements since we began offering this clean energy option in 2017. MGE owns the generating facility while participating customers pay for the costs of the project and for the carbon-free energy it provides.

MGE leases the solar project’s roughly 160 acres from Tom and Patrick O’Brien, former dairy producers who have owned and farmed the land that has been in the family for more than 120 years. In addition to energy generation, their land hosts pollinator plantings underneath the solar panels in areas throughout the project. The plants help to create habitat for dwindling monarch and honeybee populations and improve soil health throughout the lifetime of the project. The O’Briens say the partnership with MGE helps to keep the property in the family for generations to come.

Another local farm, Hermsdorf Family Farms, will be harvesting energy from the sun. In 2021, MGE began construction of the 8-MW Hermsdorf Solar Fields on the far east side of Madison. The project, also built under RER contracts, will serve the City of Madison and the Madison Metropolitan School District, both of which have clean energy goals. By working together, MGE is helping the capital city and Madison schools deliver on their sustainability commitments.

Like our RER program, MGE’s community solar program, Shared Solar, provides local solar at an affordable cost to participating customers. MGE’s Morey Field Solar project at the Middleton Municipal Airport serves more than 2,000 residential and small business customers who participate in this solar option from MGE. A share of the project also serves the City of Middleton and the Middleton-Cross Plains Area School District through separate RER contracts.

Seventy percent of the 5-MW Morey Field project is allocated to the Shared Solar program, which is fully subscribed. The program gives participants the opportunity to add solar to their energy mix at a level they select, helping to meet their clean energy needs or preferences and advancing MGE’s goal of net-zero carbon electricity.

A foundational objective in our ongoing clean energy transition is ensuring our use of newer, more sustainable technologies benefits all customers. As we work to tailor programs to meet the unique needs of our customers, we also are working to transition our energy supply cost-effectively for the benefit of all those we serve.

In late 2021, the first phase of the 300-MW Badger Hollow Solar Farm in Iowa County, Wis., came online. MGE purchased a 50-MW share of the first phase. When phase two is complete, MGE’s 100-MW total purchase of the utility-scale project will meet the electricity needs of more than 30,000 MGE electric customers.

 

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Minutes west of the Badger Hollow Solar Farm, another clean energy project is expected to take shape. In early 2022, MGE received regulatory approval to purchase a 10% share of the 92-MW Red Barn Wind Farm in Grant County, Wis. Our investment in the Red Barn project further builds MGE-owned wind capacity, following the company’s purchase of the 66-MW Saratoga Wind Farm, which came online in early 2019 in Saratoga, Iowa.

MGE’s share of the Red Barn Wind Farm will power about 4,000 households with cost-effective, carbon-free energy. It is one of a series of proposed new and efficient renewable energy investments that will meet MGE’s future energy and capacity needs with the planned retirement of the coal-fired Columbia Energy Center by 2025.

MGE’s investments in wind and solar generate environmental as well as economic benefits. Our growth of wind and solar energy helps us to manage costs for all customers long-term by avoiding future fuel costs. Energy affordability, sustainability and reliability are fundamental in our mission to serve our customers equitably.

In addition to our Saratoga Wind Farm (pictured), which came online in early 2019, MGE plans to grow its wind capacity with the planned purchase of part of the Red Barn Wind Farm in Grant County, Wis.

Our community partnerships help put technology in action. Working with our customers to advance new technologies is key to achieving shared sustainability goals. Throughout the years, MGE has worked with the City of Madison on a number of electric transportation initiatives, including helping to electrify the City’s fleet and partnering to bring all-electric buses to Metro Transit.

In 2021, the Madison Fire Department welcomed its first electric fire truck with help from MGE. Firefighters at Station 8 on the city’s east side respond to emergencies with the new Volterra Electric Pumper™ from Pierce Manufacturing in Oshkosh, Wis. It is cleaner and quieter, and the station’s DC fast charger from MGE helps to keep the new truck charged and ready to serve the community.

The chief says the truck—which is the first of its kind in North America—serves as a model for other fire departments.

From the city’s east side to downtown, where MGE’s new fast-charging hub will offer the latest charging technology to electric vehicle (EV) drivers just blocks from the Capitol Square. The hub features some of the most powerful EV charging stations in the region to help drivers charge fast while on the go.

“With the hub along a major thoroughfare to downtown, it’s a convenient option for commuters, taxi and ridesharing services, and fleet vehicles as well as nearby apartment and condo residents,” says MGE Manager of Electrification Debbie Branson.

The hub, located along East Washington Avenue, features eight MGE fast-charger stalls and, through a partnership with Tesla, eight Superchargers. With EVs growing in popularity and variety, the hub’s fast chargers are capable of serving EVs with increasingly larger batteries and greater driving ranges.

Electrification is a key strategy for reducing carbon emissions and achieving net-zero carbon electricity by mid-century. MGE’s leadership in offering fast, convenient EV charging powered by renewable energy is helping to enable the growth of cleaner, more sustainable transportation options.

“MGE is committed to supporting the growth of electric vehicles, both to achieve shared goals and to enable market growth,” says Branson. “The charging hub also complements ongoing commercial and residential redevelopment in the Capitol East District.”

 

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West of the Capitol, on the edge of downtown Madison, is Bayview, a vibrant and diverse residential community. The 50-year-old affordable housing complex is part of the “Triangle” neighborhood, which is bordered by three main thoroughfares in Madison.

Built in 1971, Bayview’s buildings have been in need of an upgrade. The nonprofit Bayview Foundation, which manages the complex and provides essential services and support, turned to its residents like Nina Okwali, who has lived at Bayview for almost 20 years and raised her two children there, to help inform how to rebuild Bayview to meet modern standards. Invested in her community, Okwali participated in the community engagement and redevelopment planning, saying the Bayview community is like a family.

Inspired by MGE’s goal of net-zero carbon electricity, London asked MGE Senior Multifamily Services Manager Brian Driscoll for guidance on achieving net-zero for their redevelopment. With financial support from the MGE Foundation and technical assistance from MGE residential energy engineers and local energy nonprofit Slipstream, Bayview plans to become a model of super-efficient energy performance.

When completed, a sustainably built Bayview will incorporate areas of cultural importance to residents, including garden plots to grow food, artwork, outdoor gathering spaces and a new community center. London expects the apartments to open in 2022, followed by the townhomes and community center in the next couple of years.

With representatives who cultivate and maintain partnerships with hundreds of local organizations and our diverse communities, MGE’s Residential and Community Services team helps MGE meet customers “where they are.” This includes working to identify ways to help ensure vulnerable populations have the resources they need to be more energy efficient.

In 2021, the team worked with our statewide energy efficiency partner, FOCUS ON ENERGY^®, to deliver immediate energy savings to customers by distributing energy-efficient LED light bulbs at community events. The team exceeded its goal of handing out 10,000 bulbs to vulnerable customers and partner organizations.

Energy efficiency is another key strategy for reducing carbon emissions and achieving net-zero carbon electricity. Helping our customers and communities use energy wisely is fundamental to our mission to serve as your community energy company.

MGE is connecting with customers to help manage a more dynamic electric grid. With rooftop solar, the Lowery home on Madison’s west side was ready for MGE to test the use of residential battery storage. The couple’s solar system charges the exterior battery, which can be used by MGE as a tool for grid management and by the couple as a backup source of power for the household.

Dr. Birl Lowery is a retired professor emeritus from the University of Wisconsin-Madison, Department of Soil Science. With a long career in sustainability research, Lowery was eager to participate in and supportive of the multiyear project with MGE.

MGE is collaborating with several customers and the Electric Power Research Institute (EPRI) to better understand the role of residential batteries as part of an advanced distribution grid. Battery storage holds the potential to help manage customer demand during peak periods and to provide greater resiliency and reliability as we continue to transition to greater use of renewable resources.

“This technology demonstration project is providing MGE with valuable insight into how these batteries perform during Wisconsin winters and how we might be able to deploy them in the future to manage our collective use of energy and our grid resources,” says Cheri Salmon, MGE Manager of New Products and Services.

The distribution grid is a shared resource, providing all our customers with safe, reliable and sustainable energy. As conductor of the grid, MGE is investing in a modern, efficient grid that enables and supports new technologies, like battery storage, and that meets the needs of all customers cost-effectively for future generations. As a public utility, MGE takes seriously its responsibility to ensure a more sustainable and advanced grid benefits all those we serve.

Leah and Scott Haman enjoy the convenience of their electric vehicle (EV). The couple charges their Tesla at home, which is where most EV drivers prefer to fuel their vehicle. As Tesla drivers, the Hamans were eligible to participate in MGE’s Charge Ahead project. The innovative project from MGE uses vehicle telematics to manage charging of customers’ EVs remotely, shifting charging to lower-cost periods.

Scott and Leah Haman charge their Tesla Model Y at their home in Madison. They signed up to help MGE test how smart charging using vehicle telematics can help MGE plan for the impact of EVs on the grid.

“MGE uses the vehicle’s onboard communications system to gain access to charging data,” says Debbie Branson, MGE Manager of Electrification. “MGE is able to view and manage charging remotely, which can help us to manage costs to all customers in the long run by shifting charging to lower-cost periods when the grid is less busy.”

Charge Ahead participants specify when they need a full charge, and the software optimizes charging. The project also offers flexibility, which is key to a positive customer experience. Customers can opt out of a managed charging event and start charging if they need their vehicle charged earlier than scheduled.

During the first phase of the project, MGE was able to shift about 93% of customer charging to off-peak periods when there’s less overall demand on the grid. MGE plans to expand the project to include other vehicle manufacturers in the future.

MGE’s new Smart Water Heater Rewards project offers similar benefits for grid optimization. By partnering with residents at a Fitchburg, Wis., condominium and rental community, we are testing technology that allows MGE to shift water heating without impacting customer comfort.

“The units at Whispering Pines have electric water heaters, which made it an optimal test site,” says MGE Senior Engineer Dave Toso. “We worked with residents to install smart devices on the water heaters. The devices will help us shift heating to when renewable resources are generating the most electricity or to off-peak times.”

 

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MGE’s Commercial and Industrial Marketing team partners with MGE’s largest energy users to help them reduce peak demand through our On Demand Savings (ODS) program. Through an online dashboard, the ODS program gives customers near real-time energy usage information to help them cut costs and reduce their environmental footprints. The seven-year-old program has proven successful—a third-party evaluation in 2021 found an average 4% reduction in energy use across participating sites.

A partner in advancing renewable energy and electric transportation, Dane County participates in the program to get a more detailed picture of energy consumption at its facilities. In 2021, MGE worked with the County to install new metering technology at two of its facilities. The new equipment allows the County to monitor energy usage for specific areas, including HVAC equipment, lighting and electronics.

MGE Senior Account Manager in Commercial and Industrial Marketing Matthew Matenaer shows Dane County Director of Facilities and Services Amanda DePagter how new submetering technology will help the County more accurately track and manage energy consumption at the Dane County Job Center in Madison.

MGE partners to help improve the quality of life for everyone we serve. In 2021, MGE marked its 125th anniversary of serving the community as Madison Gas and Electric Co. A history of the company’s roots dating back to 1855 notes how rapidly MGE expanded in its first 20 years. By 1917, MGE served 10,000 electric customers and almost the same number of gas customers, according to the record.

Today, your community energy company serves the fastest-growing county—and the fastest-growing metropolitan area—in Wisconsin. According to 2020 census results, Dane County’s population grew by 15% throughout the past decade. The Madison metro area also set the pace statewide, reporting a population increase of more than 12%.

As a critical services provider and community partner, MGE works across our service territory to address the needs of our customers as our communities grow and evolve. Affordable housing continues to be a challenge facing many communities nationwide, including the Madison area.

MGE is an investor in the Dane Workforce Housing Fund. The fund seeks to provide relief by bringing together partners to accelerate the establishment of affordable housing. Its goal is to create 500 affordable units within the span of a few years.

Kestrel apartments, conveniently located near vibrant downtown Middleton, Wis., and close to public transportation, is the fund’s first property. The building’s 39 units serve working households with income below 80% of the area median income threshold.

Mary Wright is president of the nonprofit Wisconsin Housing Preservation Corp., which received support from the Dane Workforce Housing Fund to build and manage the Kestrel property. She says Kestrel helps to provide economic stability to individuals and families.

“By investing in affordable housing, we’re investing in our community’s future, and I thank local organizations like MGE for their support of the Dane Workforce Housing Fund,” Wright says.

With its continued growth, the Madison area continues to become more richly diverse. MGE is committed to ensuring all our customers experience us as “their community energy company.”

MGE’s team in Residential and Community Services engages customers in energy by meeting customers “where they are” and in ways that meet their needs, preferences and energy goals. For example, in fall 2021, the annual MGE Día de Fútbol returned to Breese Stevens Field. The collaboration among MGE, Spanish-language La Movida Radio and Madison’s professional soccer team, Forward Madison FC, took a break in 2020 due to COVID-19.

The free, family-friendly event welcomes soccer fans to the historic stadium in downtown Madison. Children have the opportunity to participate in soccer clinics and scrimmages and to meet the pros. Families can enjoy music and food and engage with MGE energy experts in Spanish and English to learn about energy efficiency, renewable energy and new technologies, such as electric vehicles.

Meaningful engagement with customers in many different and in culturally relevant ways is at the core of MGE’s mission. It is how we continue to build your community energy company for the future and how we will achieve our sustainability goals while ensuring all customers benefit from our clean energy transition.

Local youth returned in fall 2021 to downtown Madison’s landmark Breese Stevens Field for the annual MGE Día de Fútbol. The free, family-friendly event gives MGE energy experts the opportunity to engage directly with customers.