Business Context and Reporting Period
This Form 8-K, filed on May 12, 2020, by MGE Energy, Inc. and its subsidiary Madison Gas and Electric Company (MGE), reports preliminary operating data for the one-month period ended April 30, 2020. The filing provides a comparison to the same period in 2019, highlighting the impact of COVID-19 governmental restrictions and weather conditions on utility operations.
Key Financial Metrics
Electric Sales and Revenues
| Customer Class | 2020 Revenue ($000s) | 2019 Revenue ($000s) | % Change | 2020 Sales (kWh) | 2019 Sales (kWh) | % Change |
|---|---|---|---|---|---|---|
| Residential | 10,128 | 9,425 | 7.5% | 61,245 | 53,564 | 14.3% |
| Commercial | 13,113 | 15,801 | (17.0)% | 116,003 | 138,032 | (16.0)% |
| Industrial | 794 | 1,026 | (22.6)% | 11,987 | 14,351 | (16.5)% |
| Total Retail | 26,489 | 29,113 | (9.0)% | 215,443 | 236,007 | (8.7)% |
| Total Electric | 26,747 | 29,672 | (9.9)% | 226,936 | 247,462 | (8.3)% |
Note: Revenues were reduced by $1.0 million in 2020 due to over-collections primarily driven by lower transmission costs.
Gas Deliveries and Revenues
| Customer Class | 2020 Revenue ($000s) | 2019 Revenue ($000s) | % Change | 2020 Therms | 2019 Therms | % Change |
|---|---|---|---|---|---|---|
| Residential | 6,231 | 6,732 | (7.4)% | 8,327 | 7,934 | 5.0% |
| Commercial/Industrial | 2,933 | 3,716 | (21.1)% | 6,915 | 7,091 | (2.5)% |
| Total Retail | 9,164 | 10,448 | (12.3)% | 15,242 | 15,025 | 1.4% |
| Total Gas | 9,608 | 10,883 | (11.7)% | 21,221 | 20,989 | 1.1% |
Weather Context: Heating degree days were 595 in April 2020 versus 535 in April 2019 (normal 540). The average rate per therm for retail customers decreased 13.5% to $0.601 due to lower pass-through gas prices.
Profitability Estimate
Management estimates net income for April 2020 to be roughly in line with April 2019. This estimate reflects negative impacts from reduced economic activity offset by increased residential sales, higher allowance for funds used during construction (AFUDC) for solar projects, and timing differences in operating expenses.
Material Changes and Drivers
- Residential Increase: Electric sales and revenues rose significantly due to Wisconsin's "stay at home" order increasing residential consumption.
- Commercial/Industrial Decline: Sales and revenues dropped sharply in these segments due to governmental restrictions and reduced economic activity related to COVID-19.
- Gas Pricing: Despite higher usage (therms) in April 2020, total gas revenues declined because the price of supplied gas (a pass-through cost with no margin) was lower than in the prior year.
- Transmission Refund: A refund from American Transmission Company, LLC resulted in a $1.0 million over-collection adjustment, reducing reported electric revenues.
Outlook, Risks, and Contingencies
Forward-Looking Statements: Management cautions that April is a transition month and may not be representative of the remainder of the second quarter or 2020. Future results depend on the duration of governmental restrictions, customer behavior, and weather.
Unusual Items and Adjustments: The reported figures are preliminary and exclude nonregulated energy operations, transmission investments, and "all other" segments. They also omit operating and other expenses. Final results may differ materially after quarter-end closing procedures, including adjustments for cost recovery mechanisms, incentive compensation, and other accruals.
Risks: The filing references risk factors detailed in the 2019 Form 10-K and March 31, 2020 Form 10-Q, specifically regarding economic conditions, regulatory matters, and environmental regulations.
Investor Verification Checklist
- Verify the final Q2 2020 financial results once the quarter-end closing procedures are complete, as current figures are preliminary.
- Monitor the duration and scope of governmental restrictions on commercial and industrial activity to assess revenue recovery.
- Review the final impact of cost recovery mechanism adjustments and regulatory refunds on net income.
- Track the progress and AFUDC impact of the Two Creeks and Badger Hollow solar farm projects.
- Assess the volatility of pass-through gas prices and their effect on gas revenue stability despite usage trends.