MGE Energy (NASDAQ: MGEE) is a utilities company that distributes electricity, gas, and other non-regulated energy operations to the Wisconsin Area. The company has a service area covering a 316 square-mile area of Dane County, Wisconsin for its electric generation. Besides relying on traditional inputs such as coal, the company owns 30 MW consisting of 18 turbines in a wind-powered electric generating facility in Worth County, Iowa and 11 MW consisting of 17 turbines in a wind-powered electric generating facility in Kewaunee County, Wisconsin. As both gas and electricity share similar inputs, MGEE is highly dependent upon pricing schemes of certain key commodities.
MGE Energy operates in five segments:
Because over 50% of MGEE's revenues is derived from the commercial sphere, the securing of long-term contracts is critical for MGEE's growth. After suffering from declining revenues of roughly 10.4% decline, and posting a -0.2% revenue growth the past FY2010, MGEE is back in positive sales growth in the last 12 months. As the company continues to move toward to move toward profitability, the company plans to contribute toward higher dividend growth.
As a large part of MGEE's business is centered in electricity generation for the commercial sphere, with both residential and commercial adding up to over 80% of revenues, customer growth and unemployment rates influence the amount of demand required tor those regions. A lower level of economic activity that changes discretionary spending thereby increases conservation efforts by customers to go out shopping and results in a decline in energy consumption. A decline in businesses from commercial spaces thereby puts pressure on MGEE's customers to pay on a timely basis, and ensuing bankruptcies make it difficult to collect.
Inland regions such as Iowa and Wisconsin contain more extreme temperatures than coastal regions. As such, air conditioning is heavily used in the summer time (requiring electricity), and heating is heavily used in the winter (requiring natural gas). Because MGEE is heavily invested in both natural gas and electricity as a utilities company, the combination of two operating segments tend to smooth out earnings better than companies that focus solely on one or the other. Regardless, both sources are heavily dependent upon several key inputs such as Natural Gas, Coal and Oil. The price at which MGEE may acquire these inputs determine how much the company may charge to its customers. For example, coal remains to satisfy at roughly 50% of customers' electric demand with internal generation and purchased power.
Energy saving appliances and general implementation of EE Standards will reduce energy consumption for MGEE's retail customers. The ability for customers to install alternative energy technologies and even conventional generation units reduce their reliance on MGEE's services. The suppliers of these technologies include: