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.