How MGE Buys Gas

Purchasing natural gas

• MGE purchases gas on the open market from more than 25 marketers and producers.
• Traditional natural gas supplies are produced in the Texas and Oklahoma panhandle region, the Gulf of Mexico and in Canada.
• In recent years, new technologies in horizontal drilling have allowed producers to develop natural gas in shale basins in parts of North Dakota, the northeastern United States, Texas and in the Rocky Mountains.
• 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 determination 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.
• Cost and benefit of the protection is passed directly to customers.