How MGE Buys Gas

Madison Gas and Electric Company Natural Gas Pipelines, Storage Facilities and Supply Regions

Purchasing natural gas

  • MGE purchases gas on the open market from more than 25 marketers and producers.
  • Natural gas supplies are produced in Canada, the Texas and Oklahoma panhandle region and the Gulf Coast of Louisiana.
  • It is transported to MGE’s distribution system through two pipelines: ANR Pipeline Co. and Northern Natural Gas Co.

Storing natural gas for higher demand in winter

MGE:

  • Purchases gas year-round to meet customer demand.
  • Purchases extra natural gas during the summer when use and prices are traditionally lower.
  • Injects the extra natural gas into underground storage reservoirs connected to the ANR pipeline.
  • Withdraws the gas from storage and delivers it to MGE customers during the winter when demand and price volatility are traditionally higher.

During the winter:

  • About 1/3 of MGE's gas will come from storage.
  • 1/3 from market supply.
  • 1/3 from market supply with protection from extreme price.

Pricing

  • MGE purchases natural gas under a gas cost incentive mechanism approved by the Public Service Commission of Wisconsin.
  • Under this pricing method, MGE charges customers for gas at a Commission-approved benchmark rate, based on fluctuating market prices.
  • During the winter, the benchmark rate is a combination of current market prices for purchased gas and the cost of gas used from storage.

Risk Management Program protects from extreme prices

  • Allows MGE to hedge a portion of natural gas supplies for our customers.
  • A hedge is a financial tool, similar to insurance, which provides some protection from extreme price increases during the winter.
  • Provides price protection only if prices reach historically high or historically low levels.
  • Cost and benefit of the protection is passed directly to customers.