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Madison Gas and Electric Company Seeks Rate Adjustment with Proposed Return on Equity Increase

Strategic Insights

— 1 min read

The Public Service Commission of Wisconsin (PSCW) is reviewing Madison Gas and Electric Company's (MGE) request to adjust its rates, including a proposed increase in the return on equity (ROE). In direct testimony, Michael Bates, Manager of Financial Planning for MGE, presented evidence and recommendations for the appropriate ROE. The proposed increase from 9.7 percent to 10.0 percent aims to balance the interests of customers and investors while considering the economic requirements for continuous access to capital at a reasonable cost.

Key Takeaways:

  • MGE recommends an increase in ROE from 9.7 percent to 10.0 percent to balance the interests of customers and investors.
  • The proposed ROE is supported by factors such as the need to attract capital, maintain financial strength, and account for material and relevant differences in risk.
  • The analyses considered the regulatory, business, and financial risk profile of MGE relative to the selected proxy group.
  • The estimated cost of equity for MGE relies on forward-looking inputs and assumptions, incorporating current and projected economic and capital market conditions.
  • The authorization of the proposed ROE will send a signal to investors that Wisconsin utilities are operating in a stable regulatory environment.
  • MGE's planned capital investment program of approximately $1.4 billion over five years increases its risk profile from the perspective of investors and rating agencies.
  • Authorizing an adequate ROE is necessary to attract the needed capital to fund these investments at reasonable cost while keeping MGE financially healthy.

Statistics:

  • The proposed increase in ROE is from 9.7 percent to 10.0 percent.
  • MGE plans to invest approximately $1.4 billion over five years.
  • The selected proxy group of publicly traded electric and natural gas utility companies includes companies with business profiles and fundamental risk and return characteristics comparably similar to MGE.
  • The estimated cost of equity for MGE relies on forward-looking inputs and assumptions, incorporating current and projected economic and capital market conditions.
  • The analyses considered the regulatory, business, and financial risk profile of MGE relative to the selected proxy group.

Sources:

  • Public Service Commission of Wisconsin (PSCW)
  • Madison Gas and Electric Company (MGE)
  • Hope v. Pelz (United States Supreme Court case decisions)
  • Bluefield Water Works & Improvement Company v. Public Service Commission of West Virginia (United States Supreme Court case decisions)

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