MGE Energy, Inc. — Q2 2022 Form 10-Q
Business context and reporting period. This unaudited quarterly report covers the three and six months ended June 30, 2022, and compares results with 2021. MGE Energy is a Wisconsin utility holding company; its wholly owned subsidiary, Madison Gas and Electric (MGE), provides regulated electric and natural gas service. Unless stated otherwise, financial results below are for consolidated MGE Energy.
Financial performance and position
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Operating revenue | $152.3 million | $130.7 million | $361.3 million | $298.6 million |
| Operating income | $25.5 million | $23.4 million | $67.3 million | $62.4 million |
| Net income | $21.8 million | $22.9 million | $56.2 million | $57.8 million |
| Diluted EPS | $0.60 | $0.63 | $1.55 | $1.60 |
| Dividend per share | $0.388 | $0.370 | $0.775 | $0.740 |
- Revenue growth reflected higher electric rates and higher natural-gas costs passed through to customers, along with increased gas deliveries. Six-month electric and gas margins—company-defined non-GAAP measures—were $168.5 million and $52.9 million, respectively, versus $158.1 million and $47.0 million.
- For the six months, operating cash flow was $111.3 million (up from $78.5 million); capital expenditures were $66.0 million, and cash used in financing was $36.6 million. Cash, cash equivalents, and restricted cash totaled $24.5 million at June 30.
- At June 30, total assets were $2.44 billion, current assets $194.6 million, and current liabilities $160.7 million. Long-term debt was $592.7 million, with $24.3 million due within one year and no short-term debt outstanding. Long-term debt represented 36.9% of capitalization, including current maturities.
Changes, outlook, and key risks
- Net income declined year over year despite higher revenue and operating income. The six-month effective tax rate rose to 18.5% from 2.3%, largely because 2021 included a larger benefit from amortization/return of excess deferred taxes. Higher depreciation, operating and maintenance costs, and interest expense also affected results.
- Management expects adequate liquidity for operations and capital spending over the next 12 months. No earnings or EPS guidance is provided in the supplied filing text.
- The PSCW approved 2022 rate increases of 8.81% for electric and 2.15% for gas; a 0.96% gas increase is approved for 2023. MGE’s proposed 4.38% electric increase for 2023 remains pending. Environmental groups have petitioned for review of the two recent rate settlements, challenging the approval process; the approved revenue requirements themselves were not challenged.
- Management reports $4.1 million of 2022 deferred electric fuel costs, partly associated with coal-transport constraints reducing Columbia generation and requiring higher-cost market purchases. Recovery is subject to PSCW review. The $3.3 million deferred for 2021 fuel costs is also subject to review.
- The planned Columbia coal-unit retirements were moved to June 2026 from earlier target dates because of supply-chain delays affecting replacement generation. Management says the change is not expected to affect its 80% carbon-reduction goal by 2030. MGE also plans to transition the Elm Road units away from coal by 2035, subject to approvals and further planning.
- Solar projects face higher projected costs and potential delays from commodity, labor, module, and import-related disruptions. Badger Hollow II and Paris cost increases were attributed to market and supply-chain pressures; MGE expects to seek recovery of incremental costs through rates. Darien and Koshkonong timelines have also shifted.
- Other exposures include changing environmental requirements, possible additional costs for coal-plant compliance, pension-asset market declines (approximately 18% in the first half), and potential lower ATC earnings if its authorized return on equity is reduced. Management says ordinary-course legal matters are not expected to materially adversely affect results, financial condition, or cash flows.
Important facts for investors to verify
- PSCW decisions and timing for the proposed 2023 electric rate reopener and deferred fuel-cost recovery.
- Final Columbia retirement dates, related depreciation and rate recovery, and the status of environmental approvals and compliance costs.
- Updated cost estimates and construction schedules for Badger Hollow II, Paris, and other renewable projects, including any further procurement or import disruptions.
- Whether fuel, purchased-power, operating, and depreciation costs continue to outpace rate recovery, and whether the higher effective tax rate persists.
- Developments in the ATC return-on-equity proceedings and potential effects on MGE Energy’s equity earnings and distributions.