MGE Energy Inc. · NASDAQ:MGEE
MGE Energy — Q3 2015 Earnings Presentation
37 slides from MGE Energy's earnings presentation, Nov 5, 2015
Slide 1: Third Quarter Financial Update, November 5, 2015
First Quarter v FINANCIAL UPDATE 3rd Quarter November 5 2015
Slide 2: Disclaimer
Disclaimer v 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 ac
Slide 3: MGEE Investment Profile
MGEE Investment Profile v Financial Strength: High Credit Quality: Strong Asset Base S&P Rating AA‐ Stable Strong Capital Structure Moody’s Rating A1 Stable Strong Liquidity & Cash Flows Cost Conscious Management Highest rated combination utility in the nation Supportive Regulation: Strong Dividend
Slide 4: Organizational Structure
Organizational Structure v Exchange: NASDAQ Ticker: MGEE Organized: 2001 MGE Other MGE Transco Madison Gas Power, LLC Investment, LLC and Electric Co. (Est. 2002) (Est. 2005) (Est. 1896) MAGAEL, LLC (Est. 1973) Central Wisconsin Development Corp. MGE Power MGE Power (Est. 1986) West Campus, LLC Elm
Slide 5: Service Territory
Service Territory v Economic Outlook • Madison – Best place to live • Livability, 2015 – 4th best small metro college area • American Inst. for Econ. Research 2014‐15 – Low unemployment (Sept. 2015): 2.6% • Dane County – Population growth through 2035 predicted to be the highest of any county in Wis
Slide 6: Public Utilities Fortnightly Ranking
Public Utilities Fortnightly Ranking v MGEE named 8th Best Energy Company by Public Utilities Fortnightly MGEE achieved Top 10 honors for 3 consecutive years and was in the Top 40 for 8 consecutive years Public Utilities Fortnightly describes MGEE as one of the “Old Reliables” – companies with
Slide 7: Industry Leader
Industry Leader v Value Line, Inc. • MGEE given top ratings for financial strength • MGEE is one of four investor‐owned utilities to receive the highest investment safety ranking among 18 central US utilities Target Rock Advisors, LLC • MGEE named one of the nation’s top three sustainable small cap
Slide 8: Electric Reliability
Electric Reliability v • MGE recognized as the most reliable electric utility in the United States, based on national industry survey results • MGE ranked number 1 in reliability with the fewest and shortest power interruptions based on average customer outages in 2013 • MGE consistently placed in t
Slide 9: Investment Fundamentals - Growth through Utility Investments
Investment Fundamentals ‐ Growth through Utility vInvestments Investing in Our Utility Environmental Controls • Installing a selective catalytic reduction system (SCR) at the Columbia Energy Center Electric and Gas Maintenance CapEx • Gas Main Expansion • Electric Distribution and Metering Com
Slide 10: Segment Capital Expenditure versus Depreciation
Investment Fundamentals ‐ Growth through Utility vInvestments Segment Capital Expenditure versus Depreciation $140 $120 $100 $ Millions $80 $60 $40 Depreciation Depreciation Depreciation Depreciation Depreciation $20 $0 2010 2011 2012 2013 2014 2015 Est. Depreciation Electric Enviromental Gas Non‐ut
Slide 11: Growth through Utility Investments - Environmental
Growth through Utility Investments ‐ Environmental v Columbia Environmental Controls Expenditures $19‐29 M 2014 2015 2016 2017 2018 Cumulative Expenditures • PSCW approved a Certificate of Authority to install a SCR system at the Columbia Energy Center 11
Slide 12: Growth through Utility Investments - Gas Main Expansion
Growth through Utility Investments ‐ Gas Mainv 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
Slide 13: Growth through Transmission Investments
Investment Fundamentals ‐ Growth through Transmission Investments v • Approximately 6% of MGE Energy’s earnings come from its $70 million transmission investment in ATC • ATC forecasted CapEx of $3.7 to $4.5 billion over the next 10 years, this excludes potential transmission investments outside its
Slide 14: Growth through Transmission Investments
Investment Fundamentals ‐ Growth through Transmission Investments v DATC – Joint Venture between Duke and ATC • Zephyr Power Transmission Project • San Luis Transmission Project • Other transmission projects throughout the US 14
Slide 15: Financial Strength - Investing in Our Core Utility
Financial Strength Investing in Our Corev Utility Total Asset Growth Dec. 2009 Dec. 2014 $1,296 M $930 M $977 $674 $319 $256 Electric Gas 15
Slide 16: Financial Strength - Electric Utility Revenue
Financial Strength v Electric Utility Revenue Actual Cooling Degree Days QTR Ended Sept. 30 QTR Ended Sept. 30 $121 M (5% above normal and 30% above 2014) $113 M 7.6% increase 504 478 387 2014 2015 Electric Retail Sales (MWh) 2014 2015 Normal QTR Ended Sept. 30 Total electric revenues and retail 922
Slide 17: Financial Strength - Gas Utility Revenue
Financial Strength v Gas Utility Revenue Actual Heating Degree Days Y-T-D Ended Sept. 30 Y-T-D Ended Sept. 30 (2.9% above normal and decreased 11.2% from 2014) $163 M $108 M 33.9% decrease 5,240 4,653 4,523 2014 2015 Gas Retail Deliveries 2014 2015 Normal Y-T-D Ended Sept. 30 (Therms, 000’s) Gas rev
Slide 18: Regulated Revenue
Regulated Revenue v Low exposure to economically sensitive industrial customers Electric Retail Revenue, 2014 Gas Revenue, 2014 5% 9% 11% 2% 33% 34% 53% 53% Residential Residential Commercial Commercial Industrial Industrial Public authorities (including UW) Transportation & other 18
Slide 19: Solid Earnings Per Share Growth
Solid Earnings Per Share Growth v $2.50 $2.32 $2.16 $2.00 $1.86 $1.76 $1.66 $1.50 $1.00 $0.50 $0.00 2010 2011 2012 2013 2014 19
Slide 20: Segment Earning Per Share - Three Months
Segment Earning Per Share Three Months Ended Sept. 30 v 20
Slide 21: Segment Earning Per Share - Year to Date
Segment Earning Per Share Y‐T‐D Ended Sept. 30 v 21
Slide 22: Strong Asset Base
Strong Asset Base v Asset and Market Value Growth ($ Millions) $1,698 $1,714 $1,587 $1,579 $1,459 $1,318 $1,581 $1,268 $1,282 $1,428 $1,112 $1,334 $982 $1,178 $917 $1,081 $988 $767 $779 $826 $756 $693 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Q3 2015 Assets Market Cap. 22
Slide 23: Strong Balance Sheet
Strong Balance Sheet v MGEE’s Low Leverage Manageable Debt Maturities Total Debt/ Total Capitalization (%) ($ Millions) 50.0% 45.0% 43.5% $34.4 40.0% 38.1% $24.5 35.0% 30.0% $4.2 $4.3 $4.6 25.0% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 23
Slide 24: Investment Profile - Financially Strong: Liquidity
Investment Profile ‐ Financially Strong v Strong Liquidity Lines of Credit ($ Millions) Outstanding Short‐Term Debt ($ Millions) $160.0 $140.0 $150.0 $150.0 $150.0 $120.0 $100.0 $115.0 $115.0 $115.0 $80.0 $60.0 $40.0 $22.5 $20.0 $7.0 $0.0 $0.0 $0.0 $0.0 $0.0 2010 2011 2012 2013 2014 Q3 2015 24
Slide 25: Investment Profile - Financially Strong: Capital Structure
Investment Profile ‐ Financially Strong v Strong Capital Structure 120% 100% 7% 3% 1% 80% 38% 40% 38% 40% 37% 37% 36% 60% 40% 56% 59% 60% 62% 60% 62% 63% 20% 0% 2009 2010 2011 2012 2013 2014 Q3 2015 CSE LTD STD 25
Slide 26: Investment Profile - High Credit
Investment Profile ‐ High Credit v Highest Rated Investor‐Owned Electric and Gas Utility S&P (Utility Ratings) Moody’s (Utility Ratings) • Corporate credit AA‐ • Secured Aa2 • Business risk Excellent • Unsecured A1 • Commercial paper P‐1 • Commercial paper A‐1+ • Outlook Stable • Outlook Stable Ra
Slide 27: Investment Profile - Strong Cash Flows
Investment Profile ‐ Financially Strong v ($ Millions) Strong Cash Flows $160.0 $146 $140 $140.0 $131 $129 $130 $118 $124 $119 $120.0 $98 $93 $100.0 $78 $79 $80.0 $65 $60 $60.0 $40.0 $20.0 $0.0 2009 2010 2011 2012 2013 2014 TTM Operating Cash Flow Capital Expenditure Sept. 2015 27
Slide 28: Investment Fundamentals - Growth through Dividends
Investment Fundamentals ‐ Growth through Dividends v $1.14 ($ / share) $1.20 Dividend CAGR = 3.6% TTM Sept 2015 $1.00 (1909 to Sept 2015) $0.80 $0.60 $0.40 $0.20 $0.00 1907 1919 1931 1943 1955 1967 1979 1991 2003 2015 MGE has paid Sept. 2015 2015 was our 40th dividend dividends annually Dividend Yie
Slide 29: Investment Fundamentals - Growth through Dividends
Investment Fundamentals ‐ Growth through Dividends v • Dividend Growth has been around 4% – Recent dividend payout ratio has been around 50‐60% – No dividend payout range targeted – Flexibility with dividend • Dividend Considerations – Capital investment growth opportunities – Balance sheet and cred
Slide 30: Dividend Payout Ratios: MGEE versus Industry
Investment Fundamentals ‐ Growth through Dividends v MGEE versus Industry Range (EEI) Dividend Payout Ratios 100% 90% 87% 80% 77% 70% 67% 66% 62% 60% 59% Industry Range 60% 58% 56% 50% 48% 50% 40% 30% 20% 10% 0% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 MGEE EEI 30
Slide 31: Delivering Competitive Shareholder Returns
Delivering Competitive Shareholder Returns* v Three Year Five Year Ten Year MGEE Energy 16.98% 17.72% 10.69% Dow Jones Utility Average 14.38% 13.78% 10.50% Dow Jones Industrial Average 16.29% 14.22% 7.91% SNL Electric Company 13.92% 14.06% 8.66% * December 31, 2014, Annualized Total Returns 31
Slide 32: Investment Profile - Supportive Regulation
Investment Profile ‐ Supportive Regulationv Wisconsin’s regulatory ranking is Regulatory Research Association’s (RRA’s) highest 32
Slide 33: 2015 Rate Proceedings
2015 Rate Proceedings v • In July 2015, the PSCW extended MGE’s current transmission cost accounting into 2016, and allowed cost differentials in the next rate case, as a condition of not seeking a base rate case in 2016. • In August 2015, the PSCW approved on an interim basis MGE’s fuel credit appl
Slide 34: Environmental Steward
Environmental Steward v • 1st utility in Wisconsin to participate in the State of Wisconsin Department of Natural Resources’ (DNR) highest level (Tier 2), Green Tier environmental leadership program • 5th company in Wisconsin to achieve Tier 2 status • Voluntarily committed to continuously improve e
Slide 35: Environmental Steward
Environmental Steward v • Attained the highest level of the Wisconsin Sustainable Business Council’s Green Masters Program • The only utility in Wisconsin to be recognized as a Green Master • MGE’s steps to use less energy, cut waste and become generally more sustainable in operations and supply cha
Slide 36: Environmental Steward
Environmental Steward v • 4th highest green pricing participation rate of any investor‐owned utility (NREL) • Total renewable generation capacity of approximately 140 MW: – Wind (ownership) 41 MW – Wind (PPAs) 97 MW • Early compliance with renewable portfolio standards 36
Slide 37: Questions
Questions v Contact: Ken Frassetto Director ‐ Shareholder Services and Treasury Management P. O. Box 1231 Madison, WI 53701‐1231 Phone: 608‐252‐4723 Cell: 608‐843‐6166 E‐mail: kfrassetto@mge.com 37