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United States

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended:

September 30, 2019

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from _______________ to _______________

 

Commission

File No.

 

Name of Registrant, State of Incorporation, Address

of Principal Executive Offices, and Telephone No.

 

IRS Employer

Identification No.

000-49965

 

MGE Energy, Inc.

(a Wisconsin Corporation)

133 South Blair Street

Madison, Wisconsin 53788

(608) 252-7000 | mgeenergy.com

 

39-2040501

000-1125

 

Madison Gas and Electric Company

(a Wisconsin Corporation)

133 South Blair Street

Madison, Wisconsin 53788

(608) 252-7000 | mge.com

 

39-0444025

Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days:

MGE Energy, Inc. Yes ☒ No Madison Gas and Electric Company Yes ☒ No

Indicate by check mark whether the registrants have submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrants were required to submit such files):

MGE Energy, Inc. Yes ☒ No Madison Gas and Electric Company Yes ☒ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

 

Large Accelerated Filer

Accelerated Filer

Non-accelerated Filer

Smaller Reporting Company

Emerging Growth Company

MGE Energy, Inc.

Madison Gas and Electric Company

If an emerging growth company, indicate by check mark if the registrants have elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

MGE Energy, Inc. Madison Gas and Electric Company

Indicate by check mark whether the registrants are shell companies (as defined in Rule 12b-2 of the Exchange Act):

MGE Energy, Inc. Yes ☐ No Madison Gas and Electric Company Yes ☐ No

Title of each class

 

Trading symbol(s)

 

Name of each exchange on which registered

Common Stock, $1 Par Value Per Share

 

MGEE

 

The NASDAQ Stock Market

Number of Shares Outstanding of Each Class of Common Stock as of October 31, 2019

MGE Energy, Inc.

Common stock, $1.00 par value, 34,668,370 shares outstanding.

Madison Gas and Electric Company

Common stock, $1.00 par value, 17,347,894 shares outstanding (all of which are owned beneficially and of record by MGE Energy, Inc.).

 

1


 

Table of Contents

 

 

PART I. FINANCIAL INFORMATION3

Filing Format3

Forward-Looking Statements3

Where to Find More Information3

Definitions, Abbreviations, and Acronyms Used in the Text and Notes of this Report4

Item 1. Financial Statements.6

MGE Energy, Inc.6

Consolidated Statements of Income (unaudited)6

Consolidated Statements of Cash Flows (unaudited)7

Consolidated Balance Sheets (unaudited)8

Consolidated Statements of Common Equity (unaudited)9

Madison Gas and Electric Company10

Consolidated Statements of Income (unaudited)10

Consolidated Statements of Cash Flows (unaudited)11

Consolidated Balance Sheets (unaudited)12

Consolidated Statements of Equity (unaudited)13

MGE Energy, Inc., and Madison Gas and Electric Company14

Notes to Consolidated Financial Statements (unaudited)14

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.37

Item 3. Quantitative and Qualitative Disclosures About Market Risk.53

Item 4. Controls and Procedures.56

PART II. OTHER INFORMATION.57

Item 1. Legal Proceedings.57

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.57

Item 4. Mine Safety Disclosures.57

Item 6. Exhibits.58

Signatures - MGE Energy, Inc.59

Signatures - Madison Gas and Electric Company60

2


 

PART I. FINANCIAL INFORMATION.

 

Filing Format

 

This combined Form 10-Q is being filed separately by MGE Energy, Inc. (MGE Energy) and Madison Gas and Electric Company (MGE). MGE is a wholly owned subsidiary of MGE Energy and represents a majority of its assets, liabilities, revenues, expenses, and operations. Thus, all information contained in this report relates to, and is filed by, MGE Energy. Information that is specifically identified in this report as relating solely to MGE Energy, such as its financial statements and information relating to its nonregulated business, does not relate to, and is not filed by, MGE. MGE makes no representation as to that information. The terms "we" and "our," as used in this report, refer to MGE Energy and its consolidated subsidiaries unless otherwise indicated.

 

Forward-Looking Statements

 

This report, and other documents filed by MGE Energy and MGE with the Securities and Exchange Commission (SEC) from time to time, contain forward-looking statements that reflect management's current assumptions and estimates regarding future performance and economic conditions—especially as they relate to economic conditions, future load growth, revenues, expenses, capital expenditures, financial resources, regulatory matters, and the scope and expense associated with future environmental regulation. These forward-looking statements are made pursuant to the provisions of the Private Securities Litigation Reform Act of 1995. Words such as "believe," "expect," "anticipate," "estimate," "could," "should," "intend," "will," and other similar words generally identify forward-looking statements. Both MGE Energy and MGE caution investors that these forward-looking statements are subject to known and unknown risks and uncertainties that may cause actual results to differ materially from those projected, expressed, or implied.

 

The factors that could cause actual results to differ materially from the forward-looking statements made by a registrant include: (a) those factors discussed in the registrants' 2018 Annual Report on Form 10-K: Item 1A. Risk Factors, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, as updated by Part I, Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations in this report, and Item 8. Financial Statements and Supplementary Data – Note 17, as updated by Part I, Item 1. Financial Statements – Note 9 in this report, and (b) other factors discussed herein and in other filings made by that registrant with the SEC.

 

Readers are cautioned not to place undue reliance on these forward-looking statements, which apply only as of the date of this report. MGE Energy and MGE assume no obligation to release publicly any revision to these forward-looking statements to reflect events or circumstances after the date of this report, except as required by law.

 

Where to Find More Information

 

The public may read and copy any reports or other information that MGE Energy and MGE file with the SEC at the SEC's public reference room at 100 F Street, NE, Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. These documents also are available to the public from commercial document retrieval services, the website maintained by the SEC at sec.gov, MGE Energy's website at mgeenergy.com, and MGE's website at mge.com. Copies may be obtained from our websites free of charge. Information contained on MGE Energy's and MGE's websites shall not be deemed incorporated into, or to be a part of, this report.

3


 

Definitions, Abbreviations, and Acronyms Used in the Text and Notes of this Report

 

Abbreviations, acronyms, and definitions used in the text and notes of this report are defined below.

 

MGE Energy and Subsidiaries:

CWDCCentral Wisconsin Development Corporation

MAGAELMAGAEL, LLC

MGEMadison Gas and Electric Company

MGE EnergyMGE Energy, Inc.

MGE PowerMGE Power, LLC

MGE Power Elm RoadMGE Power Elm Road, LLC

MGE Power West CampusMGE Power West Campus, LLC

MGE ServicesMGE Services, LLC

MGE State Energy ServicesMGE State Energy Services, LLC

MGE TranscoMGE Transco Investment, LLC

MGEE TranscoMGEE Transco, LLC

North MendotaNorth Mendota Energy & Technology Park, LLC

Other Defined Terms:

ACEAffordable Clean Energy

AFUDCAllowance for Funds Used During Construction

AROAsset Retirement Obligation

ATCAmerican Transmission Company LLC

ATC HoldcoATC Holdco, LLC

BARTBest Available Retrofit Technology

BlountBlount Station

BSERBest System of Emissions Reductions

CAAClean Air Act

CAVRClean Air Visibility Rule

CCRCoal Combustion Residual

codificationFinancial Accounting Standards Board Accounting Standards Codification

ColumbiaColumbia Energy Center

cooling degree daysMeasure of the extent to which the average daily temperature is above 65 degrees Fahrenheit, which is considered an indicator of possible increased demand for energy to provide cooling

CPPClean Power Plan

CSAPRCross-State Air Pollution Rule

DthDekatherms, a quantity measure used in respect of natural gas

EGUsElectric Generating Units

electric marginElectric revenues less fuel for electric generation and purchase power costs, a non-GAAP measure

Elm Road UnitsElm Road Generating Station

EPAUnited States Environmental Protection Agency

FASBFinancial Accounting Standards Board

FERCFederal Energy Regulatory Commission

Forward WindForward Wind Energy Center

FTRFinancial Transmission Rights

GAAPGenerally Accepted Accounting Principles

gas marginGas revenues less cost of gas sold, a non-GAAP measure

GHGGreenhouse Gas

heating degree days (HDD)Measure of the extent to which the average daily temperature is below 65 degrees Fahrenheit, which is considered an indicator of possible increased demand for energy to provide heating

IRSInternal Revenue Service

kWhKilowatt-hour, a measure of electric energy produced

4


 

MISOMidcontinent Independent System Operator (a regional transmission organization)

MWMegawatt, a measure of electric energy generating capacity

MWhMegawatt-hour, a measure of electric energy produced

NAAQSNational Ambient Air Quality Standards

NOxNitrogen Oxides

PGAPurchased Gas Adjustment clause, a regulatory mechanism used to reconcile natural gas costs recovered in rates to actual costs

PPAPurchased Power Agreement

PSCWPublic Service Commission of Wisconsin

RiversideRiverside Energy Center

ROEReturn on Equity

SaratogaSaratoga Wind Farm

SCRSelective Catalytic Reduction

SECSecurities and Exchange Commission

SO2Sulfur Dioxide

Stock PlanDirect Stock Purchase and Dividend Reinvestment Plan of MGE Energy

Tax ActTax Cuts and Jobs Act

UWUniversity of Wisconsin at Madison

VIEVariable Interest Entity

WCCFWest Campus Cogeneration Facility

WEPCOWisconsin Electric Power Company, a subsidiary of WEC Energy Group, Inc.

working capitalCurrent assets less current liabilities

WPLWisconsin Power and Light Company, a subsidiary of Alliant Energy Corporation

XBRLeXtensible Business Reporting Language

 

5


 

Item 1. Financial Statements.

MGE Energy, Inc.

Consolidated Statements of Income (unaudited)

(In thousands, except per share amounts)

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30,

 

September 30,

 

 

2019

 

2018

 

2019

 

2018

Operating Revenues:

 

 

 

 

 

 

 

 

Electric revenues

$

120,821

$

119,388

$

315,367

$

313,537

Gas revenues

 

17,377

 

18,407

 

112,547

 

106,152

Total Operating Revenues

 

138,198

 

137,795

 

427,914

 

419,689

 

 

 

 

 

 

 

 

 

Operating Expenses:

 

 

 

 

 

 

 

 

Fuel for electric generation

 

15,901

 

16,793

 

40,221

 

43,944

Purchased power

 

9,126

 

13,024

 

31,013

 

43,036

Cost of gas sold

 

3,092

 

4,921

 

55,220

 

54,109

Other operations and maintenance

 

48,070

 

44,130

 

143,979

 

131,976

Depreciation and amortization

 

18,193

 

14,259

 

53,423

 

41,754

Other general taxes

 

5,078

 

4,870

 

15,026

 

14,653

Total Operating Expenses

 

99,460

 

97,997

 

338,882

 

329,472

Operating Income

 

38,738

 

39,798

 

89,032

 

90,217

 

 

 

 

 

 

 

 

 

Other income, net

 

5,204

 

4,330

 

15,074

 

13,980

Interest expense, net

 

(5,831)

 

(5,025)

 

(17,227)

 

(14,547)

Income before income taxes

 

38,111

 

39,103

 

86,879

 

89,650

Income tax provision

 

(7,454)

 

(9,597)

 

(16,667)

 

(21,792)

Net Income

$

30,657

$

29,506

$

70,212

$

67,858

 

 

 

 

 

 

 

 

 

Earnings Per Share of Common Stock

 

 

 

 

 

 

 

 

(basic and diluted)

$

0.88

$

0.85

$

2.03

$

1.96

 

 

 

 

 

 

 

 

 

Dividends per share of common stock

$

0.353

$

0.338

$

1.028

$

0.983

 

 

 

 

 

 

 

 

 

Weighted Average Shares Outstanding

 

 

 

 

 

 

 

 

(basic and diluted)

 

34,668

 

34,668

 

34,668

 

34,668

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of the above unaudited consolidated financial statements.

6


 

MGE Energy, Inc.

Consolidated Statements of Cash Flows (unaudited)

(In thousands)

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

 

September 30,

 

 

 

 

2019

 

2018

 

 

Operating Activities:

 

 

 

 

 

 

Net income

$

70,212

$

67,858

 

 

Items not affecting cash:

 

 

 

 

 

 

Depreciation and amortization

 

53,423

 

41,754

 

 

Deferred income taxes

 

4,864

 

2,352

 

 

Provision for doubtful receivables

 

978

 

642

 

 

Employee benefit plan credit

 

(2,866)

 

(1,544)

 

 

Equity earnings in ATC

 

(6,879)

 

(6,113)

 

 

Other items

 

692

 

31

 

 

Changes in working capital items:

 

 

 

 

 

 

Decrease in current assets

 

14,307

 

25,530

 

 

Increase (decrease) in current liabilities

 

(24,088)

 

6,026

 

 

Dividends from ATC

 

5,526

 

5,336

 

 

Cash contributions to pension and other postretirement plans

 

(3,707)

 

(3,967)

 

 

Other noncurrent items, net

 

(760)

 

527

 

 

Cash Provided by Operating Activities

 

111,702

 

138,432

 

 

 

 

 

 

 

 

 

Investing Activities:

 

 

 

 

 

 

Capital expenditures

 

(128,389)

 

(149,001)

 

 

Capital contributions to investments

 

(5,894)

 

(4,801)

 

 

Other

 

(248)

 

368

 

 

Cash Used for Investing Activities

 

(134,531)

 

(153,434)

 

 

 

 

 

 

 

 

 

Financing Activities:

 

 

 

 

 

 

Cash dividends paid on common stock

 

(35,622)

 

(34,062)

 

 

Repayments of long-term debt

 

(3,405)

 

(23,330)

 

 

Issuance of long-term debt

 

-

 

100,000

 

 

Proceeds from (repayments of) short-term debt

 

41,500

 

(4,000)

 

 

Other

 

(1,331)

 

(659)

 

 

Cash Provided by Financing Activities

 

1,142

 

37,949

 

 

 

 

 

 

 

 

 

Change in cash, cash equivalents, and restricted cash

 

(21,687)

 

22,947

 

 

Cash, cash equivalents, and restricted cash at beginning of period

 

84,929

 

112,094

 

 

Cash, cash equivalents, and restricted cash at end of period

$

63,242

$

135,041

 

 

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

Significant noncash investing activities:

 

 

 

 

 

 

Accrued capital expenditures

$

16,819

$

10,991

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of the above unaudited consolidated financial statements.

 

7


 

MGE Energy, Inc.

Consolidated Balance Sheets (unaudited)

(In thousands)

 

 

September 30,

December 31,

ASSETS

 

2019

 

2018

Current Assets:

 

 

 

 

Cash and cash equivalents

$

61,112

$

83,102

Accounts receivable, less reserves of $2,683 and $2,614, respectively

 

35,805

 

43,593

Other accounts receivable, less reserves of $456 and $540 , respectively

 

7,867

 

6,262

Unbilled revenues

 

20,926

 

28,243

Materials and supplies, at average cost

 

28,019

 

24,093

Fuel for electric generation, at average cost

 

8,339

 

6,599

Stored natural gas, at average cost

 

11,402

 

11,303

Prepaid taxes

 

11,518

 

16,215

Regulatory assets - current

 

10,777

 

9,477

Assets held for sale

 

-

 

3,080

Other current assets

 

8,631

 

8,593

Total Current Assets

 

204,396

 

240,560

Other long-term receivables

 

2,343

 

2,709

Regulatory assets

 

144,482

 

145,424

Other deferred assets and other

 

17,096

 

12,488

Property, Plant, and Equipment:

 

 

 

 

Property, plant, and equipment, net

 

1,524,925

 

1,369,766

Construction work in progress

 

88,050

 

139,671

Total Property, Plant, and Equipment

 

1,612,975

 

1,509,437

Investments

 

85,681

 

78,000

Total Assets

$

2,066,973

$

1,988,618

 

 

 

 

 

LIABILITIES AND CAPITALIZATION

 

 

 

 

Current Liabilities:

 

 

 

 

Long-term debt due within one year

$

4,632

$

4,553

Short-term debt

 

54,500

 

13,000

Accounts payable

 

39,139

 

46,158

Accrued interest and taxes

 

5,570

 

7,384

Accrued payroll related items

 

11,090

 

13,044

Regulatory liabilities - current

 

15,606

 

13,826

Derivative liabilities

 

10,390

 

8,550

Other current liabilities

 

11,124

 

14,113

Total Current Liabilities

 

152,051

 

120,628

Other Credits:

 

 

 

 

Deferred income taxes

 

239,433

 

231,952

Investment tax credit - deferred

 

786

 

818

Regulatory liabilities

 

162,088

 

165,638

Accrued pension and other postretirement benefits

 

64,274

 

67,483

Derivative liabilities

 

18,600

 

23,980

Finance lease liabilities

 

17,657

 

1,771

Other deferred liabilities and other

 

70,691

 

66,361

Total Other Credits

 

573,529

 

558,003

Capitalization:

 

 

 

 

Common shareholders' equity

 

851,234

 

816,644

Long-term debt

 

490,159

 

493,343

Total Capitalization

 

1,341,393

 

1,309,987

Commitments and contingencies (see Footnote 9)

 

 

 

 

Total Liabilities and Capitalization

$

2,066,973

$

1,988,618

 

 

 

 

 

The accompanying notes are an integral part of the above unaudited consolidated financial statements.

8


 

MGE Energy, Inc.

Consolidated Statements of Common Equity (unaudited)

(In thousands, except per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

Additional

 

 

 

Other

 

 

 

 

 

Common Stock

 

Paid-in

 

Retained

 

Comprehensive

 

 

 

 

 

Shares

 

Value

 

Capital

 

Earnings

 

Income/(Loss)

 

Total

 

 

Three Months Ended September 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning Balance

34,668

$

34,668

$

316,268

$

443,242

$

-

$

794,178

 

 

Net income

 

 

 

 

 

 

29,506

 

 

 

29,506

 

 

Common stock dividends declared

 

 

 

 

 

 

 

 

 

 

 

 

 

($0.338 per share)

 

 

 

 

 

 

(11,701)

 

 

 

(11,701)

 

 

Ending balance - September 30, 2018

34,668

$

34,668

$

316,268

$

461,047

$

-

$

811,983

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning Balance

34,668

$

34,668

$

316,268

$

481,861

$

-

$

832,797

 

 

Net income

 

 

 

 

 

 

30,657

 

 

 

30,657

 

 

Common stock dividends declared

 

 

 

 

 

 

 

 

 

 

 

 

 

($0.353 per share)

 

 

 

 

 

 

(12,220)

 

 

 

(12,220)

 

 

Ending balance - September 30, 2019

34,668

$

34,668

$

316,268

$

500,298

$

-

$

851,234

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning Balance

34,668

$

34,668

$

316,268

$

426,874

$

377

$

778,187

 

 

Cumulative effect of new accounting principle

 

 

 

 

 

 

377

 

(377)

 

-

 

 

Beginning balance - adjusted

 

 

 

 

 

 

427,251

 

-

 

778,187

 

 

Net income

 

 

 

 

 

 

67,858

 

 

 

67,858

 

 

Common stock dividends declared

 

 

 

 

 

 

 

 

 

 

 

 

 

($0.983 per share)

 

 

 

 

 

 

(34,062)

 

 

 

(34,062)

 

 

Ending balance - September 30, 2018

34,668

$

34,668

$

316,268

$

461,047

$

-

$

811,983

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning Balance

34,668

$

34,668

$

316,268

$

465,708

$

-

$

816,644

 

 

Net income

 

 

 

 

 

 

70,212

 

 

 

70,212

 

 

Common stock dividends declared

 

 

 

 

 

 

 

 

 

 

 

 

 

($1.028 per share)

 

 

 

 

 

 

(35,622)

 

 

 

(35,622)

 

 

Ending balance - September 30, 2019

34,668

$

34,668

$

316,268

$

500,298

$

-

$

851,234

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of the above unaudited consolidated financial statements.

 

9


 

Madison Gas and Electric Company

Consolidated Statements of Income (unaudited)

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30,

 

September 30,

 

 

2019

 

2018

 

2019

 

2018

Operating Revenues:

 

 

 

 

 

 

 

 

Electric revenues

$

120,821

$

119,388

$

315,367

$

313,537

Gas revenues

 

17,377

 

18,407

 

112,547

 

106,152

Total Operating Revenues

 

138,198

 

137,795

 

427,914

 

419,689

 

 

 

 

 

 

 

 

 

Operating Expenses:

 

 

 

 

 

 

 

 

Fuel for electric generation

 

15,901

 

16,793

 

40,221

 

43,944

Purchased power

 

9,126

 

13,024

 

31,013

 

43,036

Cost of gas sold

 

3,092

 

4,921

 

55,220

 

54,109

Other operations and maintenance

 

47,947

 

43,987

 

143,282

 

131,175

Depreciation and amortization

 

18,193

 

14,259

 

53,423

 

41,754

Other general taxes

 

5,078

 

4,870

 

15,026

 

14,653

Total Operating Expenses

 

99,337

 

97,854

 

338,185

 

328,671

Operating Income

 

38,861

 

39,941

 

89,729

 

91,018

 

 

 

 

 

 

 

 

 

Other income, net

 

2,672

 

2,592

 

7,837

 

7,402

Interest expense, net

 

(6,095)

 

(5,500)

 

(18,223)

 

(15,727)

Income before income taxes

 

35,438

 

37,033

 

79,343

 

82,693

Income tax provision

 

(6,687)

 

(9,117)

 

(14,579)

 

(19,918)

Net Income

$

28,751

$

27,916

$

64,764

$

62,775

Less: Net Income Attributable to Noncontrolling

 

 

 

 

 

 

 

 

Interest, net of tax

 

(5,614)

 

(5,629)

 

(16,725)

 

(16,940)

Net Income Attributable to MGE

$

23,137

$

22,287

$

48,039

$

45,835

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of the above unaudited consolidated financial statements.

10


 

Madison Gas and Electric Company

Consolidated Statements of Cash Flows (unaudited)

(In thousands)

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

 

September 30,

 

 

 

 

2019

 

2018

 

 

Operating Activities:

 

 

 

 

 

 

Net income

$

64,764

$

62,775

 

 

Items not affecting cash:

 

 

 

 

 

 

Depreciation and amortization

 

53,423

 

41,754

 

 

Deferred income taxes

 

3,653

 

(580)

 

 

Provision for doubtful receivables

 

978

 

642

 

 

Employee benefit plan credit

 

(2,866)

 

(1,544)

 

 

Other items

 

1,653

 

768

 

 

Changes in working capital items:

 

 

 

 

 

 

Decrease in current assets

 

14,236

 

24,864

 

 

Increase (decrease) in current liabilities

 

(22,234)

 

9,941

 

 

Cash contributions to pension and other postretirement plans

 

(3,707)

 

(3,967)

 

 

Other noncurrent items, net

 

(880)

 

374

 

 

Cash Provided by Operating Activities

 

109,020

 

135,027

 

 

 

 

 

 

 

 

 

Investing Activities:

 

 

 

 

 

 

Capital expenditures

 

(128,389)

 

(149,001)

 

 

Other

 

(477)

 

(680)

 

 

Cash Used for Investing Activities

 

(128,866)

 

(149,681)

 

 

 

 

 

 

 

 

 

Financing Activities:

 

 

 

 

 

 

Distributions to parent from noncontrolling interest

 

(17,000)

 

(19,000)

 

 

Repayments of long-term debt

 

(3,405)

 

(23,330)

 

 

Issuance of long-term debt

 

-

 

100,000

 

 

Proceeds from (repayments of) short-term debt

 

41,500

 

(4,000)

 

 

Other

 

(1,133)

 

(659)

 

 

Cash Provided by Financing Activities

 

19,962

 

53,011

 

 

 

 

 

 

 

 

 

Change in cash, cash equivalents, and restricted cash

 

116

 

38,357

 

 

Cash, cash equivalents, and restricted cash at beginning of period

 

6,670

 

10,093

 

 

Cash, cash equivalents, and restricted cash at end of period

$

6,786

$

48,450

 

 

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

Significant noncash investing activities:

 

 

 

 

 

 

Accrued capital expenditures

$

16,819

$

10,991

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of the above unaudited consolidated financial statements.

 

 

 

 

 

 

 

 

11


 

Madison Gas and Electric Company

Consolidated Balance Sheets (unaudited)

(In thousands)

 

 

September 30,

December 31,

ASSETS

 

2019

 

2018

Current Assets:

 

 

 

 

Cash and cash equivalents

$

4,656

$

4,843

Accounts receivable, less reserves of $2,683 and $2,614, respectively

 

35,805

 

43,593

Affiliate receivables

 

540

 

621

Accounts receivable, less reserves of $456 and $540 , respectively

 

7,863

 

6,111

Unbilled revenues

 

20,926

 

28,243

Materials and supplies, at average cost

 

28,019

 

24,093

Fuel for electric generation, at average cost

 

8,339

 

6,599

Stored natural gas, at average cost

 

11,402

 

11,303

Prepaid taxes

 

11,211

 

15,790

Regulatory assets - current

 

10,777

 

9,477

Assets held for sale

 

-

 

3,080

Other current assets

 

8,522

 

8,541

Total Current Assets

 

148,060

 

162,294

Affiliate receivable long-term

 

2,780

 

3,177

Regulatory assets

 

144,482

 

145,424

Other deferred assets and other

 

18,178

 

14,142

Property, Plant, and Equipment:

 

 

 

 

Property, plant, and equipment, net

 

1,524,954

 

1,369,795

Construction work in progress

 

88,050

 

139,671

Total Property, Plant, and Equipment

 

1,613,004

 

1,509,466

Investments

 

523

 

388

Total Assets

$

1,927,027

$

1,834,891

 

 

 

 

 

LIABILITIES AND CAPITALIZATION

 

 

 

 

Current Liabilities:

 

 

 

 

Long-term debt due within one year

$

4,632

$

4,553

Short-term debt

 

54,500

 

13,000

Accounts payable

 

39,104

 

46,165

Accrued interest and taxes

 

7,901

 

10,319

Accrued payroll related items

 

11,090

 

13,044

Regulatory liabilities - current

 

15,606

 

13,826

Derivative liabilities

 

10,390

 

8,550

Other current liabilities

 

11,125

 

11,614

Total Current Liabilities

 

154,348

 

121,071

Other Credits:

 

 

 

 

Deferred income taxes

 

210,886

 

204,616

Investment tax credit - deferred

 

786

 

818

Regulatory liabilities

 

162,088

 

165,638

Accrued pension and other postretirement benefits

 

64,274

 

67,483

Derivative liabilities

 

18,600

 

23,980

Finance lease liabilities

 

17,657

 

1,771

Other deferred liabilities and other

 

70,655

 

66,361

Total Other Credits

 

544,946

 

530,667

Capitalization:

 

 

 

 

Common shareholder's equity

 

596,395

 

548,356

Noncontrolling interest

 

141,179

 

141,454

Total Equity

 

737,574

 

689,810

Long-term debt

 

490,159

 

493,343

Total Capitalization

 

1,227,733

 

1,183,153

Commitments and contingencies (see Footnote 9)

 

 

 

 

Total Liabilities and Capitalization

$

1,927,027

$

1,834,891

 

 

 

 

The accompanying notes are an integral part of the above unaudited consolidated financial statements.

12


 

Madison Gas and Electric Company

Consolidated Statements of Equity (unaudited)

(In thousands)

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

Additional

 

 

 

Other

 

Non-

 

 

 

Common Stock

 

Paid-in

 

Retained

Comprehensive

Controlling

 

 

 

Shares

 

Value

 

Capital

 

Earnings

Income/(Loss)

Interest

 

Total

Three Months Ended September 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

17,348

$

17,348

$

192,417

$

305,655

$

-

$

138,713

$

654,133

Net income

 

 

 

 

 

 

22,287

 

 

 

5,629

 

27,916

Distributions to parent from

 

 

 

 

 

 

 

 

 

 

 

 

 

noncontrolling interest

 

 

 

 

 

 

 

 

 

 

(5,500)

 

(5,500)

Ending balance - September 30, 2018

17,348

$

17,348

$

192,417

$

327,942

$

-

$

138,842

$

676,549

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

17,348

$

17,348

$

192,417

$

363,493

$

-

$

141,065

$

714,323

Net income

 

 

 

 

 

 

23,137

 

 

 

5,614

 

28,751

Distributions to parent from

 

 

 

 

 

 

 

 

 

 

 

 

 

noncontrolling interest

 

 

 

 

 

 

 

 

 

 

(5,500)

 

(5,500)

Ending balance - September 30, 2019

17,348

$

17,348

$

192,417

$

386,630

$

-

$

141,179

$

737,574

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

17,348

$

17,348

$

192,417

$

282,135

$

(28)

$

140,902

$

632,774

Cumulative effect of new accounting principle

 

 

 

 

 

 

(28)

 

28

 

 

 

-

Beginning balance - adjusted

 

 

 

 

 

 

282,107

 

-

 

 

 

632,774

Net income

 

 

 

 

 

 

45,835

 

 

 

16,940

 

62,775

Distributions to parent from

 

 

 

 

 

 

 

 

 

 

 

 

 

noncontrolling interest

 

 

 

 

 

 

 

 

 

 

(19,000)

 

(19,000)

Ending balance - September 30, 2018

17,348

$

17,348

$

192,417

$

327,942

$

-

$

138,842

$

676,549

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

17,348

$

17,348

$

192,417

$

338,591

$

-

$

141,454

$

689,810

Net income

 

 

 

 

 

 

48,039

 

 

 

16,725

 

64,764

Distributions to parent from

 

 

 

 

 

 

 

 

 

 

 

 

 

noncontrolling interest

 

 

 

 

 

 

 

 

 

 

(17,000)

 

(17,000)

Ending balance - September 30, 2019

17,348

$

17,348

$

192,417

$

386,630

$

-

$

141,179

$

737,574

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of the above unaudited consolidated financial statements.

13


 

MGE Energy, Inc., and Madison Gas and Electric Company

Notes to Consolidated Financial Statements (unaudited)

September 30, 2019

 

 

1.

Summary of Significant Accounting Policies – MGE Energy and MGE.

 

a.Basis of Presentation.

 

This report is a combined report of MGE Energy and MGE. References in this report to "MGE Energy" are to MGE Energy, Inc. and its subsidiaries. References in this report to "MGE" are to Madison Gas and Electric Company.

 

MGE Power Elm Road and MGE Power West Campus own electric generating assets and lease those assets to MGE. Both entities are variable interest entities under applicable authoritative accounting guidance. MGE is considered the primary beneficiary of these entities as a result of contractual agreements. As a result, MGE has consolidated MGE Power Elm Road and MGE Power West Campus. See Footnote 3 of Notes to Consolidated Financial Statements under Item 8, Financial Statements and Supplementary Data, of MGE Energy's and MGE's 2018 Annual Report on Form 10-K (the 2018 Annual Report on Form 10-K).

 

The accompanying consolidated financial statements as of September 30, 2019, and for the three and nine months ended, are unaudited but include all adjustments that MGE Energy and MGE management consider necessary for a fair statement of their respective financial statements. All adjustments are of a normal, recurring nature except as otherwise disclosed. The year-end consolidated balance sheet information was derived from the audited balance sheet appearing in the 2018 Annual Report on Form 10-K, but does not include all disclosures required by accounting principles generally accepted in the United States of America. These notes should be read in conjunction with the financial statements and the notes on pages 62 through 106 of the 2018 Annual Report on Form 10-K.

 

b.Cash, Cash Equivalents, and Restricted Cash.

 

The following table presents the components of total cash, cash equivalents, and restricted cash on the consolidated balance sheets.

 

 

 

 

MGE Energy

 

MGE

 

 

 

 

September 30,

 

December 31,

 

September 30,

 

December 31,

 

 

(In thousands)

 

2019

 

2018

 

2019

 

2018

 

 

Cash and cash equivalents

$

61,112

$

83,102

$

4,656

$

4,843

 

 

Restricted cash

 

532

 

634

 

532

 

634

 

 

Receivable - margin account

 

1,598

 

1,193

 

1,598

 

1,193

 

 

Cash, cash equivalents, and restricted cash

$

63,242

$

84,929

$

6,786

$

6,670

 

 

2.

New Accounting Standards - MGE Energy and MGE.

 

Recently Adopted

 

Leases.

 

In February 2016, the FASB issued authoritative guidance within the codification's Leases topic that provides guidance on the classification, recognition, measurement, and disclosure of leases. The new leasing standard establishes that a lease conveys the right to control the use of identified property, plant, or equipment for a period of time in exchange for consideration. Under the new guidance, lessees are required to recognize all leases with terms greater than one year, including operating leases, on the balance sheet by recording a right-of-use asset and lease liability. Prior to the authoritative guidance, only capital leases were recognized on the balance sheet by lessees. The new accounting guidance, as applied by lessors, did not change materially. In January 2018, the FASB issued authoritative guidance which provided an optional

14


 

practical expedient to grandfather the accounting for existing and expired land easements not accounted for as a lease under the new authoritative guidance. MGE Energy and MGE adopted this practical expedient.

 

The lease authoritative guidance became effective January 1, 2019. MGE Energy and MGE adopted the standard upon the effective date. In compliance with authorized transition guidance, MGE Energy and MGE began applying the new standard on January 1, 2019, but will continue to present periods prior to that date according to the previous authoritative standard. There was no material impact on the consolidated net income or cash flows. See Footnote 3 for further lease information.

 

3.

Leases - MGE Energy and MGE.

 

As part of its regular operations, MGE enters into various contracts related to IT equipment, substations, cell towers, land, wind easements, and other property in use for operations. A contract is or contains a lease if the contract conveys the right to control the use of identified property, plant, or equipment for a period of time in exchange for consideration. Determination as to whether an arrangement is or contains a lease is completed at inception. Leases with an initial term of 12 months or less are not recorded on the consolidated balance sheets; lease expense for these leases are recognized on a straight-line basis over the lease term. Leases with initial terms in excess of 12 months are recorded as operating or financing leases on the consolidated balance sheets.

 

Operating lease assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. For leases that do not provide an implicit rate, a collateralized incremental borrowing rate based on the information available at commencement date, including lease term, is used in determining the present value of future payments. The operating lease asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the option will be exercised. Operating lease expense is recognized on a straight-line basis over the lease term. MGE has regulatory treatment and recognizes regulatory assets or liabilities for timing differences between when net lease costs are recorded and when costs are recognized. As of September 30, 2019, MGE has no significant leases not yet commenced that would create significant future rights and obligations.

 

The following table shows lease expense for the three and nine months ended September 30, 2019:

 

 

(In thousands)

 

Three Months Ended

 

Nine Months Ended

 

Income Statement Location

 

 

Finance lease expense:

 

 

 

 

 

 

 

 

Amortization of leased assets

$

425

$

1,295

 

Depreciation and amortization

 

 

Interest on lease liabilities

 

199

 

597

 

Interest expense, net

 

 

Operating lease expense

 

32

 

92

 

Other operations and maintenance

 

 

Total lease expense

$

656

$

1,984

 

 

 

 

The following table shows the lease assets and liabilities on the consolidated balance sheet as of September 30, 2019:

 

15


 

 

(In thousands)

 

 

 

Balance Sheet Location

 

 

Lease assets:

 

 

 

 

 

 

Finance lease assets

$

16,275

 

Property, plant, and equipment, net

 

 

Operating lease assets

 

300

 

Other deferred assets and other

 

 

Total lease assets

$

16,575

 

 

 

 

Lease liabilities:

 

 

 

 

 

 

Finance lease liabilities - current

$

932

 

Other current liabilities

 

 

Finance lease liabilities - long-term

 

17,657

 

Finance lease liabilities

 

 

Operating lease liabilities - current

 

143

 

Other current liabilities

 

 

Operating lease liabilities - long-term

 

185

 

Other deferred liabilities and other

 

 

Total lease liabilities

$

18,917

 

 

 

 

The following table shows other financial lease information for the nine months ended September 30, 2019:

 

 

(In thousands)

 

 

 

 

Cash paid for amounts included in the measurement of lease liabilities:

 

 

 

 

Finance leases - Financing cash flows

$

781

 

 

Finance leases - Operating cash flows

 

597

 

 

Operating leases - Operating cash flows

 

108

 

 

Lease assets obtained in exchange for lease liabilities:

 

 

 

 

Finance leases

 

12,081

 

 

Operating leases

 

239

 

 

The following table shows the weighted average remaining lease terms and discounts as of September 30, 2019:

 

 

Weighted-average remaining lease terms (in years):

 

 

 

 

 

Finance leases

 

38

 

 

 

Operating leases

 

5

 

 

 

Weighted-average discount rates:

 

 

 

 

 

Finance leases

 

4.36

%

 

 

Operating leases

 

3.58

%

 

 

The following table shows maturities of lease liabilities as of September 30, 2019:

 

 

(In thousands)

 

Finance

 

Operating

 

 

2019

$

539

$

37

 

 

2020

 

1,644

 

152

 

 

2021

 

1,428

 

86

 

 

2022

 

1,309

 

33

 

 

2023

 

1,228

 

2

 

 

Thereafter

 

41,317

 

52

 

 

Subtotal

 

47,465

 

362

 

 

Less: Present value discount

 

(28,876)

 

(34)

 

 

Lease Liability

$

18,589

$

328

 

 

Future minimum rental payments as of December 31, 2018, under agreements classified as operating leases with noncancelable terms in excess of one year are as follows:

 

 

(In thousands)

 

2019

 

2020

 

2021

 

2022

 

2023

 

Thereafter

 

 

Minimum lease payments

$

1,646

$

1,371

$

1,095

$

989

$

975

$

22,707

 

 

4.

Investment in ATC and ATC Holdco - MGE Energy and MGE.

 

ATC owns and operates electric transmission facilities primarily in Wisconsin. MGE received an interest in

16


 

ATC when it, like other Wisconsin electric utilities, contributed its electric transmission facilities to ATC as required by Wisconsin law. That interest is presently held by MGE Transco, which, since December 1, 2016, is owned by MGE Energy. ATC Holdco was formed by several members of ATC, including MGE Energy, to pursue electric transmission development and investments outside of Wisconsin. The ownership interest in ATC Holdco is held by MGEE Transco, a wholly-owned subsidiary of MGE Energy.

 

MGE Transco and MGEE Transco have accounted for their investments in ATC and ATC Holdco, respectively, under the equity method of accounting. Equity earnings from investments are recorded as "Other income" on the consolidated statements of income of MGE Energy. MGE Transco recorded the following:

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

 

September 30,

 

September 30,

 

 

(In thousands)

 

2019

 

2018

 

2019

 

2018

 

 

Equity earnings from investment in ATC

$

2,364

$

1,672

$

6,879

$

6,113

 

 

Dividends from ATC(a)

 

1,781

 

1,581

 

5,526

 

4,540

 

 

Capital contributions to ATC

 

888

 

533

 

2,131

 

2,308

 

 

(a)MGE Transco recorded a $2.3 million dividend receivable from ATC as of December 31, 2017. A cash dividend was received in January of the following year. MGE Transco recorded a $1.6 million dividend receivable from ATC as of September 30, 2018. A cash dividend was received in October 2018.

 

ATC Holdco was formed in December 2016. In the near term, it is expected that ATC Holdco will be pursuing transmission development opportunities that typically have long development and investment lead times before becoming operational.

 

In October 2019, MGE Transco made a $0.9 million capital contribution to ATC.

 

ATC's summarized financial data is as follows:

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

 

September 30,

 

September 30,

 

 

(In thousands)

 

2019

 

2018

 

2019

 

2018

 

 

Operating revenues

$

184,833

$

170,341

$

544,760

$

501,276

 

 

Operating expenses

 

(94,713)

 

(87,959)

 

(278,673)

 

(264,326)

 

 

Other income, net

 

484

 

439

 

1,031

 

2,070

 

 

Interest expense, net

 

(29,165)

 

(27,754)

 

(87,121)

 

(82,411)

 

 

Earnings before members' income taxes

$

61,439

$

55,067

$

179,997

$

156,609

 

 

MGE receives transmission and other related services from ATC. During the three and nine months ended September 30, 2019, MGE recorded $7.6 million and $22.8 million, respectively, for transmission services received compared to $7.2 million and $21.7 million for the comparable periods in 2018. MGE also provides a variety of operational, maintenance, and project management services for ATC, which is reimbursed by ATC. As of September 30, 2019, and December 31, 2018, MGE had a receivable due from ATC of $1.6 million and $0.1 million, respectively.

 

5.

Taxes - MGE Energy and MGE.

 

Effective Tax Rate.

The consolidated income tax provision differs from the amount computed by applying the statutory federal income tax rate to income before income taxes, as follows:

 

 

17


 

 

 

MGE Energy

 

MGE

 

 

Three Months Ended September 30,

2019

 

2018

 

2019

 

2018

 

 

Statutory federal income tax rate

21.0

%

 

21.0

%

 

21.0

%

 

21.0

%

 

 

State income taxes, net of federal benefit

6.3

 

 

6.3

 

 

6.2

 

 

6.2

 

 

 

Amortized investment tax credits

(0.1)

 

 

(0.1)

 

 

(0.1)

 

 

(0.1)

 

 

 

Credit for electricity from wind energy(a)

(4.8)

 

 

(0.3)

 

 

(5.2)

 

 

(0.2)

 

 

 

AFUDC equity, net

(0.4)

 

 

(0.6)

 

 

(0.4)

 

 

(0.6)

 

 

 

Amortization of utility excess deferred tax - tax reform(b)

(1.9)

 

 

(1.8)

 

 

(2.1)

 

 

(1.8)

 

 

 

Other, net, individually insignificant

(0.5)

 

 

-

 

 

(0.5)

 

 

0.1

 

 

 

Effective income tax rate

19.6

%

 

24.5

%

 

18.9

%

 

24.6

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

MGE Energy

 

MGE

 

 

Nine Months Ended September 30,

2019

 

2018

 

2019

 

2018

 

 

Statutory federal income tax rate

21.0

%

 

21.0

%

 

21.0

%

 

21.0

%

 

 

State income taxes, net of federal benefit

6.3

 

 

6.3

 

 

6.2

 

 

6.2

 

 

 

Amortized investment tax credits

(0.1)

 

 

(0.1)

 

 

(0.1)

 

 

(0.1)

 

 

 

Credit for electricity from wind energy(a)

(5.6)

 

 

(0.3)

 

 

(6.1)

 

 

(0.3)

 

 

 

AFUDC equity, net

(0.3)

 

 

(0.8)

 

 

(0.3)

 

 

(0.8)

 

 

 

Amortization of utility excess deferred tax - tax reform(b)

(2.2)

 

 

(1.8)

 

 

(2.4)

 

 

(2.0)

 

 

 

Other, net, individually insignificant

0.1

 

 

-

 

 

0.1

 

 

0.1

 

 

 

Effective income tax rate

19.2

%

 

24.3

%

 

18.4

%

 

24.1

%

 

 

(a)Saratoga Wind Farm became operational in February 2019.

 

(b)Included are impacts of the Tax Cuts and Jobs Act for the regulated utility for excess deferred taxes recognized using a normalization method of accounting. For the three and nine months ended September 30, 2019, MGE recognized $0.6 million and $1.7 million, respectively, compared to $0.5 million and $1.4 million for the comparable periods in 2018. The amount and timing of the cash impacts will depend on the period over which certain income tax benefits are provided to customers, as determined by the PSCW.

 

6.

Pension and Other Postretirement Plans - MGE Energy and MGE.

 

MGE maintains qualified and nonqualified pension plans, health care, and life insurance benefits. Additionally, MGE has defined contribution 401(k) benefit plans.

 

The components of net periodic benefit cost, other than the service cost component, are recorded in "Other income, net" on the consolidated statements of income. The service cost component is recorded in "Other operations and maintenance" on the consolidated statements of income. The service cost component of net periodic benefit cost is eligible for capitalization within the consolidated balance sheets. MGE has regulatory treatment and recognizes regulatory assets or liabilities for timing differences between when net periodic benefit costs are recovered and when costs are recognized.

 

The following table presents the components of net periodic benefit costs recognized.

 

18


 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

 

September 30,

 

September 30,

 

 

(In thousands)

 

2019

 

2018

 

2019

 

2018

 

 

Pension Benefits

 

 

 

 

 

 

 

 

 

 

Components of net periodic benefit cost:

 

 

 

 

 

 

 

 

 

 

Service cost

$

1,040

$

1,431

$

3,402

$

4,292

 

 

Interest cost

 

3,170

 

3,215

 

10,364

 

9,645

 

 

Expected return on assets

 

(5,054)

 

(6,560)

 

(16,523)

 

(19,680)

 

 

Amortization of:

 

 

 

 

 

 

 

 

 

 

Prior service credit

 

(26)

 

(11)

 

(85)

 

(33)

 

 

Actuarial loss

 

1,637

 

1,319

 

5,351

 

3,958

 

 

Net periodic benefit (credit) cost

$

767

$

(606)

$

2,509

$

(1,818)

 

 

 

 

 

 

 

 

 

 

 

 

 

Postretirement Benefits

 

 

 

 

 

 

 

 

 

 

Components of net periodic benefit cost:

 

 

 

 

 

 

 

 

 

 

Service cost

$

276

$

320

$

829

$

962

 

 

Interest cost

 

721

 

653

 

2,164

 

1,959

 

 

Expected return on assets

 

(677)

 

(808)

 

(2,034)

 

(2,424)

 

 

Amortization of:

 

 

 

 

 

 

 

 

 

 

Transition obligation

 

1

 

1

 

2

 

2

 

 

Prior service credit

 

(664)

 

(667)

 

(1,994)

 

(2,001)

 

 

Actuarial loss

 

100

 

122

 

300

 

366

 

 

Net periodic benefit (credit) cost

$

(243)

$

(379)

$

(733)

$

(1,136)

 

 

As a result of lower investment returns in the fourth quarter of 2018, pension and postretirement benefit costs increased in 2019. In August 2019, the PSCW approved MGE's request to defer the difference between estimated pension and other postretirement costs included in the 2019 and 2020 rate settlement and actual expense incurred. MGE expects that the deferred cost for employee benefit plans will be factored into future rate actions starting in 2021. For the three and nine months ended September 30, 2019, MGE has deferred approximately $1.3 million and $4.6 million of pension and other postretirement costs, respectively. The impact of the deferral has not been reflected in the table above.

 

7.

Equity and Financing Arrangements.

 

a.Common Stock - MGE Energy.

 

MGE Energy sells shares of its common stock through its Stock Plan. Those shares may be newly issued shares or shares that MGE Energy has purchased in the open market for resale to participants in the Stock Plan. All sales under the Stock Plan are covered by a shelf registration statement that MGE Energy filed with the SEC. For both the three and nine months ended September 30, 2019 and 2018, MGE Energy did not issue and new shares of common stock under the Stock Plan.

 

b.Dilutive Shares Calculation - MGE Energy.

 

MGE Energy does not have any stock option or stock award programs or any dilutive securities.

 

c.Long-term Debt - MGE Energy and MGE.

 

In August 2019, MGE entered into a Note Purchase Agreement for $50 million of new long-term unsecured debt carrying an interest rate of 2.94% per annum over its 10-year life. Funding occurred on November 5, 2019. The proceeds of the debt financing will be used to assist with capital expenditures, maturing short-term debt, and other corporate obligations. The covenants of this debt are substantially consistent with MGE's existing unsecured long-term debt.

 

8.

Share-Based Compensation - MGE Energy and MGE.

 

Under MGE Energy's Director Incentive Plan and its Performance Unit Plan, non-employee directors and eligible employees, respectively, may receive performance units that entitle the holder to receive a cash

19


 

payment equal to the value of a designated number of shares of MGE Energy's common stock, plus dividend equivalent payments thereon, at the end of the performance period set in the award.

 

In 2019, 5,175 units were granted under the Director Incentive Plan and are subject to a three-year graded vesting schedule, and 17,022 units were granted under the Performance Unit Plan and are subject to a five-year graded vesting schedule. On the grant date, the cost of the director or employee services received in exchange for a performance unit award is measured based on the current market value of MGE Energy common stock. The fair value of the awards is remeasured quarterly, including as of September 30, 2019, as required by applicable accounting standards. Changes in fair value as well as the original grant are recognized as compensation cost. Since this amount is remeasured throughout the vesting period, the compensation cost is subject to variability.

 

For nonretirement eligible employees under the Performance Unit Plan, stock-based compensation costs are accrued and recognized using the graded vesting method. Compensation cost for retirement eligible employees or employees that will become retirement eligible during the vesting schedule are recognized on an abridged horizon as retirement eligibility accelerates vesting.

 

During the three and nine months ended September 30, 2019, MGE recorded $0.9 million and $2.8 million, respectively, in compensation expense as a result of awards under the plans compared to $0.3 million and $1.3 million for the comparable periods in 2018. In January 2019, cash payments of $1.5 million were distributed relating to awards that were granted in a prior year under the plans. No forfeitures of units occurred during the three and nine months ended September 30, 2019 and 2018. As of September 30, 2019, $6.2 million of outstanding awards are vested. Of this amount, no cash settlements have occurred as cash payments are only made at the end of the period covered by the awards.

 

9.

Commitments and Contingencies.

 

a.Environmental - MGE Energy and MGE.

 

MGE Energy and MGE are subject to frequently changing local, state, and federal regulations concerning air quality, water quality, land use, threatened and endangered species, hazardous materials handling, and solid waste disposal. These regulations affect the manner in which they conduct their operations, the costs of those operations, as well as capital and operating expenditures. Several of these environmental rules are subject to legal challenges, reconsideration and/or other uncertainties. Regulatory initiatives, proposed rules, and court challenges to adopted rules have the potential to have a material effect on capital expenditures and operating costs. Management believes compliance costs will be recovered in future rates based on previous treatment of environmental compliance projects. These initiatives, proposed rules, and court challenges include:

 

The EPA's published water effluent limitations guidelines and standards for steam electric power plants, which focus on the reduction of metals and other pollutants in wastewater from new and existing power plants, such as the coal-burning plants at Columbia and the Elm Road Units. The operators of the Columbia and the Elm Road Units have indicated that equipment upgrades may be necessary to comply with the new discharge standards.

 

The EPA's cooling water intake rules, which require cooling water intake structures at electric power plants, such as our Blount and Columbia plants, to meet best available technology standards so that mortality from entrainment (drawing aquatic life into a plant's cooling system) and impingement (trapping aquatic life on screens) are reduced. MGE expects that the rule will not have a material effect on its existing plants.

 

Greenhouse Gas (GHG) reduction guidelines and approval criteria established under the Clean Air Act (CAA) for states to use in developing plans to control GHG emissions from existing fossil fuel-fired electric generating units (EGUs).

 

In 2015, the EPA finalized the Clean Power Plan (CPP), which directed states to submit plans to reduce GHG emissions from the electric generation sector. The CPP applied the statutory

20


 

requirements for the "best system of emission reduction" (BSER) broadly so as to encompass GHG emission reduction strategies that extend "beyond the fenceline" of existing EGUs and required a shift in the energy generation mix at the grid level.

 

In July 2019, the EPA published a final rule repealing the CPP and creating the replacement Affordable Clean Energy (ACE) rule to reduce greenhouse gas emissions from existing coal-fired EGUs. The ACE rule applies to EGUs greater than 25 MW. Based upon these criteria, the ACE rule will likely apply to Columbia and the Elm Road Units. EGUs that burn fossil fuels other than coal, such as Blount, WCCF, and smaller natural gas- and diesel-fueled units are not subject to the ACE rule.

 

In contrast to the CPP, the ACE rule limits BSER to only "inside the fenceline" heat rate improvement technologies or systems that can be applied at an affected coal-fired EGU. Under ACE, states have the primary role in developing standards of performance that result from the application of BSER. The EPA has not provided a standard of performance that it will deem presumptively acceptable in a state plan, but urges states to provide full justification for each component of their plans so that the EPA can evaluate BSER on a unit-by-unit basis. The ACE rule is subject to a legal challenge pending in the United States District Court of the District of Columbia.

 

States will have three years to develop and submit compliance plans to the EPA. The EPA will have a year to review and approve the plans. The states are given 24 months from the approval date to implement the rule and can extend the compliance schedule for units that meet progress milestones. EGU's compliance with the ACE rule may not be required until 2024 or later. MGE is currently evaluating how this rule may impact operations. Until the State of Wisconsin develops a plan that is accepted by the EPA, MGE will not be able to determine the final impact of the rule. MGE will continue to evaluate the rule and monitor ongoing and potential legal proceedings associated with the CPP and ACE rules.

 

The EPA's rule to regulate ambient levels of ozone through the 2015 Ozone National Ambient Air Quality Standards (NAAQS).

 

In May 2018, the EPA issued a final rule which designated the northeast portion of Milwaukee County as being in nonattainment with this NAAQS. The Elm Road Units are located in Milwaukee County, outside the designated nonattainment area. In August 2018, several environmental groups, the City of Chicago, and the State of Illinois filed federal lawsuits challenging several of the EPA's attainment designation decisions, including the partial Milwaukee County designation as being too narrow and not sufficiently protective. MGE is monitoring the outcome of this lawsuit and how it may affect our Elm Road Units in Milwaukee County. At this time, MGE expects that the 2015 Ozone NAAQS will not have a material effect on its existing plants based on final designations.

 

Rules regulating nitrogen oxide (NOx) and sulfur dioxide (SO2) emissions, including the Cross State Air Pollution Rule (CSAPR) and Clean Air Visibility Rule (CAVR).

 

MGE has met its CSAPR obligations in 2018 and 2017 through a combination of reduced emissions through pollution control (e.g. SCR installation at Columbia), as well as owned, received, and purchased allowances. CSAPR has been subject to ongoing legal challenges. In September 2019, the U.S. Court of Appeals upheld the legal argument that the EPA cannot provide a partial remedy to the Clean Air Act's "Good Neighbor Provision" which addresses interstate transport of pollutants from upwind states to downwind states. Under the current rule, the EPA was not holding upwind states to the same attainment deadlines as the downwind states that they impacted. The court indicated that this leniency on the upwind states effectively causes downwind states to miss attainment deadlines or over comply to meet deadlines. The court remanded the rule to the EPA without vacating it. No deadline has been set for the EPA to revise the rule. Wisconsin is considered an upwind state under CSAPR and is potentially impacted by rules that the EPA will develop to address this remand.

21


 

MGE will not be able to determine impacts to our operations until rules are promulgated. MGE will continue to monitor developments.

 

Columbia is subject to the best available retrofit technology (BART) regulations, a subsection of the EPA's CAVR, which may require pollution control retrofits. Columbia's existing pollution control upgrades, and the EPA's stance that compliance with the CSAPR equals compliance with BART, should mean that Columbia will not need to do additional work to meet BART requirements. At this time, however, the BART regulatory obligations, compliance strategies, and costs remain uncertain in Wisconsin due to the continued legal challenges surrounding CSAPR and CAVR. MGE will continue to monitor developments to this rule.

 

The EPA's Coal Combustion Residuals Rule (CCR), which regulates coal ash from burning coal for the purpose of generating electricity as a solid waste, and defines what ash use activities would be considered generally exempt beneficial reuse of coal ash. The CCR rule also regulates landfills, ash ponds, and other surface impoundments used for coal combustion residuals by regulating their design, location, monitoring, and operation.

 

Review of the Elm Road Units has indicated that the costs to comply with this rule are not expected to be significant. Columbia's operator has completed a review of their system and has developed a compliance plan. Columbia's operator is also exploring alternative compliance options to meet the rule requirements by the rule's deadline. MGE will continue to monitor the operator's plans for compliance to assess potential impacts on operations.

 

In July 2018, the EPA published a final rule that included amendments to the CCR (which include the allowance of alternative performance standards for landfills and surface impoundments, revised risk-based groundwater protection standards, and an extension of the deadline by which certain facilities must cease the placement of waste in CCR units). In August 2018, the Court of Appeals for the D.C. Circuit vacated parts of the CCR for not being sufficiently protective of the environment. In August 2019, the EPA introduced a proposed rule that if final would revise some monitoring, corrective action, beneficial reuse, and storage requirements. The revised rule as proposed would not have material impact on MGE. MGE will continue to monitor potential rule modifications to assess potential impacts on operations.

 

b.Legal Matters - MGE Energy and MGE.

 

MGE is involved in various legal matters that are being defended and handled in the normal course of business. MGE maintains accruals for such costs that are probable of being incurred and subject to reasonable estimation. The accrued amount for these matters is not material to the financial statements. MGE does not expect the resolution of these matters to have a material adverse effect on its consolidated results of operations, financial condition, or cash flows.

 

c.Purchase Contracts - MGE Energy and MGE.

 

MGE Energy and MGE have entered into various commodity supply, transportation, and storage contracts to meet their obligations to deliver electricity and natural gas to customers. Management expects to recover these costs in future customer rates. The following table shows future commitments related to purchase contracts as of September 30, 2019:

 

22


 

 

(In thousands)

 

2019

 

2020

 

2021

 

2022

 

2023

 

Thereafter

 

 

Coal(a)

$

7,293

 

13,120

 

5,647

 

2,313

 

-

 

-

 

 

Natural gas

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Transportation and storage(b)

 

6,258

 

21,997

 

21,728

 

21,728

 

21,728

 

55,460

 

 

Supply(c)

 

8,773

 

10,600

 

-

 

-

 

-

 

-

 

 

Solar farms(d)

 

509

 

310

 

3,024

 

726

 

743

 

32,474

 

 

Other

 

92

 

928

 

929

 

97

 

99

 

1,079

 

 

 

$

22,925

$

46,955

$

31,328

$

24,864

$

22,570

$

89,013

 

 

(a)Total coal commitments for the Columbia and Elm Road Units, including transportation. Fuel procurement for MGE’s jointly owned Columbia and Elm Road Units is handled by WPL and WEPCO, respectively, who are the operators of those facilities.

 

(b)MGE’s natural gas transportation and storage contracts require fixed monthly payments for firm supply pipeline transportation and storage capacity. The pricing components of the fixed monthly payments for the transportation and storage contracts are established by FERC but may be subject to change.

 

(c)These commitments include market-based pricing.

 

(d)In 2019, MGE entered into commitments related to operations of the Two Creeks and Badger Hollow Solar Farms. See Footnote 14 for further information on the solar farm construction.

 

d.Capital Purchase Commitments - MGE Energy and MGE.

 

Various contractual obligations contain minimum future commitments related to capital expenditures for certain construction projects, including the Two Creeks solar project and the Badger Hollow Solar Farm. As of September 30, 2019, the Two Creeks and Badger Hollow future minimum construction commitment is $20.5 million and $53.2 million, respectively.

 

e.Other Commitments - MGE Energy.

 

In September 2019, MGE Energy entered into a subscription agreement to invest in a nonpublic venture capital fund. From time to time, the fund makes capital calls to its investors. MGE Energy has committed to contribute $10 million in capital for such capital calls. The timing of these capital calls is dependent on the needs of the funds and is therefore uncertain at this time.

 

10.

Rate Matters - MGE Energy and MGE.

 

a.Rate Proceedings.

 

In December 2018, the PSCW approved the settlement agreement between MGE and intervening parties in the rate case. The settlement decreases electric rates by 2.24%, or $9.2 million, in 2019. MGE will maintain this rate level for 2020, with the exception that MGE will file a 2020 Fuel Cost Plan in 2019 and MGE's electric rates will be adjusted accordingly. The decrease reflects the ongoing tax impacts of the Tax Act. Lower fuel costs and increase in rate base from renewable generation assets are additional items impacting the rate change. The settlement agreement increases gas rates by 1.06%, or $1.7 million, in 2019 and 1.46%, or $2.4 million, in 2020. The gas increase covers infrastructure costs. It also reflects the impacts of the Tax Act. The return on common stock equity for 2019 and 2020 is 9.8% based on a capital structure consisting of 56.6% common equity in 2019 and 56.1% common equity in 2020.

 

MGE did not file a base rate case for 2018.

 

b.Fuel Rules.

 

Fuel rules require the PSCW and Wisconsin utilities to defer electric fuel-related costs that fall outside a symmetrical cost tolerance band around the amount approved for a utility in its annual fuel proceedings. Any over/under recovery of the actual costs is determined in the following year and is then reflected in future billings to electric retail customers. The fuel rules bandwidth is currently set at plus or minus 2%. Under fuel rules, MGE would defer costs, less any excess revenues, if its actual electric fuel costs exceeded 102% of the electric fuel costs allowed in its latest rate order. Excess revenues are defined as revenues in the year in question that provide MGE with a greater return on

23


 

common equity than authorized by the PSCW in MGE's latest rate order. Conversely, MGE is required to defer the benefit of lower costs if actual electric fuel costs were less than 98% of the electric fuel costs allowed in that order. These costs will be subject to the PSCW's annual review of fuel costs completed in the year following the deferral.

 

In December 2017, the PSCW approved a surcharge for 2018 electric fuel-related costs. The surcharge increased electric retail revenue in 2018 by $0.5 million, or 0.13%.

 

In July 2019, the PSCW issued a final decision in the 2018 fuel rules proceedings for MGE to refund $9.5 million of additional fuel savings realized during 2018 plus accrued interest to its retail electric customers in October 2019. There was no change to the refund in the fuel rules proceedings from the amount MGE deferred in the previous year.

 

As of September 30, 2019, MGE had deferred $0.5 million in 2019 fuel savings. As of December 31, 2018, MGE had deferred $9.5 million of 2018 fuel savings.

 

c.2018 Tax Reform.

 

Customer rates approved for 2018 reflected an income tax rate of 35 percent. In January 2018, the PSCW issued an order directing Wisconsin investor-owned utilities to defer the over-collection of income tax expense as a result of the decrease in tax rate to 21 percent.

 

The PSCW issued an order in May 2018 to return to customers the estimated 2018 over-collection of income tax expense. The decision included a one-time bill credit on customer bills to reflect the estimate of the over-collection for January through June 2018, along with a volumetric bill credit which began in July 2018 and continued through the remainder of 2018 for the estimated remaining annual amount. MGE returned $8.2 million to customers through bill credits as of December 31, 2018.

 

In August 2019, the PSCW issued a decision on the 2018 tax reform proceedings for MGE to refund the remaining 2018 overcollection of income tax expense to its retail customers as a one-time bill credit. MGE returned $3.2 million in September 2019. There was no change to the refund order from the amount MGE deferred as of December 31, 2018.

 

11.

Derivative and Hedging Instruments - MGE Energy and MGE.

 

a.Purpose.

 

As part of its regular operations, MGE enters into contracts, including options, swaps, futures, forwards, and other contractual commitments, to manage its exposure to commodity prices. To the extent that these contracts are derivatives, MGE assesses whether or not the normal purchases or normal sales exclusion applies. For contracts to which this exclusion cannot be applied, the derivatives are recognized in the consolidated balance sheets at fair value. MGE's financial commodity derivative activities are conducted in accordance with its electric and gas risk management program, which is approved by the PSCW and limits the volume MGE can hedge with specific risk management strategies. The maximum length of time over which cash flows related to energy commodities can be hedged is four years. If the derivative qualifies for regulatory deferral, the derivatives are marked to fair value and are offset with a corresponding regulatory asset or liability depending on whether the derivative is in a net loss or net gain position, respectively. The deferred gain or loss is recognized in earnings in the delivery month applicable to the instrument. Gains and losses related to hedges qualifying for regulatory treatment are recoverable in gas rates through the PGA or in electric rates as a component of the fuel rules mechanism.

 

b.Notional Amounts.

 

The gross notional volume of open derivatives is as follows:

 

24


 

 

 

September 30, 2019

 

December 31, 2018

 

 

Commodity derivative contracts

466,760

MWh

 

386,440

MWh

 

 

Commodity derivative contracts

9,190,000

Dth

 

5,260,000

Dth

 

 

FTRs

4,282

MW

 

2,252

MW

 

 

PPA

1,600

MW

 

2,050

MW

 

 

c.Financial Statement Presentation.

 

MGE purchases and sells exchange-traded and over-the-counter options, swaps, and future contracts. These arrangements are primarily entered into to help stabilize the price risk associated with gas or power purchases. These transactions are employed by both MGE's gas and electric segments. Additionally, as a result of the firm transmission agreements that MGE holds on electricity transmission paths in the MISO market, MGE holds financial transmission rights (FTRs). An FTR is a financial instrument that entitles the holder to a stream of revenues or charges based on the differences in hourly day-ahead energy prices between two points on the transmission grid. The fair values of these instruments are offset with a corresponding regulatory asset/liability depending on whether they are in a net loss/gain position. Depending on the nature of the instrument, the gain or loss associated with these transactions will be reflected as cost of gas sold, fuel for electric generation, or purchased power expense in the delivery month applicable to the instrument. As of September 30, 2019, the cost basis of exchange traded derivatives and FTRs exceeded their fair value by $0.2 million. As of December 31, 2018, the fair value of exchange traded derivatives and FTRs exceeded their cost basis by $0.7 million.

 

MGE is a party to a purchased power agreement that provides MGE with firm capacity and energy during a base term from June 1, 2012, through May 31, 2022. The agreement also allows MGE an option to extend the contract after the base term. The agreement is accounted for as a derivative contract and is recognized at its fair value on the consolidated balance sheets. However, the derivative qualifies for regulatory deferral and is recognized with a corresponding regulatory asset or liability depending on whether the fair value is in a loss or gain position. The fair value of the contract as of September 30, 2019, and December 31, 2018, reflects a loss position of $29.0 million and $32.5 million, respectively. The actual cost will be recognized in purchased power expense in the month of purchase.

 

The following table summarizes the fair value of the derivative instruments on the consolidated balance sheets. All derivative instruments in this table are presented on a gross basis and are calculated prior to the netting of instruments with the same counterparty under a master netting agreement as well as the netting of collateral. For financial statement purposes, instruments are netted with the same counterparty under a master netting agreement as well as the netting of collateral. As of September 30, 2019, and December 31, 2018, the receivable margin account balance of $1.6 million and $1.2 million, respectively, is shown net of any collateral posted against derivative positions.

 

 

 

 

 

Derivative

 

Derivative

 

 

 

 

(In thousands)

 

Assets

 

Liabilities

 

Balance Sheet Location

 

 

September 30, 2019

 

 

 

 

 

 

 

 

Commodity derivative contracts

$

668

$

996

 

Other current assets(a)

 

 

Commodity derivative contracts

 

81

 

289

 

Other deferred charges(a)

 

 

FTRs

 

344

 

-

 

Other current assets

 

 

PPA

 

N/A

 

10,390

 

Derivative liability (current)

 

 

PPA

 

N/A

 

18,600

 

Derivative liability (long-term)

 

 

 

 

 

 

 

 

 

 

 

December 31, 2018

 

 

 

 

 

 

 

 

Commodity derivative contracts

$

727

$

270

 

Other current assets

 

 

Commodity derivative contracts

 

74

 

72

 

Other deferred charges

 

 

FTRs

 

241

 

-

 

Other current assets

 

 

PPA

 

N/A

 

8,550

 

Derivative liability (current)

 

 

PPA

 

N/A

 

23,980

 

Derivative liability (long-term)

 

 

(a)As of September 30, 2019, collateral of $0.7 million was posted against and netted with derivative liability positions on the consolidated balance sheets. No collateral was posted against derivative positions as of December 31, 2018.

 

25


 

 

The following tables show the effect of netting arrangements for recognized derivative assets and liabilities that are subject to a master netting arrangement or similar arrangement on the consolidated balance sheets.

 

 

Offsetting of Derivative Assets

 

 

(In thousands)

 

Gross Amounts

 

Gross Amounts Offset in Balance Sheets

 

Collateral Posted Against Derivative Positions

 

Net Amount Presented in Balance Sheets

 

 

September 30, 2019

 

 

 

 

 

 

 

 

 

 

Commodity derivative contracts

$

749

$

(561)

$

-

$

188

 

 

FTRs

 

344

 

-

 

-

 

344

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2018

 

 

 

 

 

 

 

 

 

 

Commodity derivative contracts

$

801

$

(342)

$

-

$

459

 

 

FTRs

 

241

 

-

 

-

 

241

 

 

 

Offsetting of Derivative Liabilities

 

 

(In thousands)

 

Gross Amounts

 

Gross Amounts Offset in Balance Sheets

 

Collateral Posted Against Derivative Positions

 

Net Amount Presented in Balance Sheets

 

 

September 30, 2019

 

 

 

 

 

 

 

 

 

 

Commodity derivative contracts

$

1,285

$

(561)

$

(724)

$

-

 

 

PPA

 

28,990

 

-

 

-

 

28,990

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2018

 

 

 

 

 

 

 

 

 

 

Commodity derivative contracts

$

342

$

(342)

$

-

$

-

 

 

PPA

 

32,530

 

-

 

-

 

32,530

 

 

The following tables summarize the unrealized and realized gains (losses) related to the derivative instruments on the consolidated balance sheets and the consolidated statements of income.

 

 

 

2019

 

 

2018

(In thousands)

 

Current and Long-Term Regulatory Asset

 

Other Current Assets

 

 

Current and Long-Term Regulatory Asset

 

Other Current Assets

Three Months Ended September 30:

 

 

 

 

 

 

 

 

 

Balance at July 1,

$

33,515

$

878

 

$

36,924

$

640

Unrealized gain

 

(4,560)

 

-

 

 

(2,007)

 

-

Realized (loss) gain reclassified to a deferred account

 

(411)

 

411

 

 

(316)

 

316

Realized gain (loss) reclassified to income statement

 

638

 

(258)

 

 

29

 

(62)

Balance as of September 30,

$

29,182

$

1,031

 

$

34,630

$

894

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30:

 

 

 

 

 

 

 

 

 

Balance at January 1,

$

31,830

$

377

 

$

41,958

$

806

Unrealized gain

 

(2,256)

 

-

 

 

(5,906)

 

-

Realized (loss) gain reclassified to a deferred account

 

(1,402)

 

1,402

 

 

(837)

 

837

Realized gain (loss) reclassified to income statement

 

1,010

 

(748)

 

 

(585)

 

(749)

Balance as of September 30,

$

29,182

$

1,031

 

$

34,630

$

894

 

26


 

 

 

Realized Losses (Gains)

 

 

2019

 

 

2018

(In thousands)

 

Fuel for Electric Generation/ Purchased Power

 

Cost of Gas Sold

 

 

Fuel for Electric Generation/ Purchased Power

 

Cost of Gas Sold

Three Months Ended September 30:

 

 

 

 

 

 

 

 

 

Commodity derivative contracts

$

471

$

83

 

$

(145)

$

-

FTRs

 

(429)

 

-

 

 

(150)

 

-

PPA

 

(505)

 

-

 

 

328

 

-

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30:

 

 

 

 

 

 

 

 

 

Commodity derivative contracts

$

1,038

$

460

 

$

39

$

637

FTRs

 

(503)

 

-

 

 

(625)

 

-

PPA

 

(1,257)

 

-

 

 

1,283

 

-

 

MGE's commodity derivative contracts, FTRs, and PPA are subject to regulatory deferral. These derivatives are marked to fair value and are offset with a corresponding regulatory asset or liability. Realized gains and losses are deferred on the consolidated balance sheets and are recognized in earnings in the delivery month applicable to the instrument. As a result of the above described treatment, there are no unrealized gains or losses that flow through earnings.

 

The PPA has a provision that may require MGE to post collateral if MGE's debt rating falls below investment grade (i.e., below BBB-). The amount of collateral that it may be required to post varies from $20.0 million to $40.0 million, depending on MGE's nominated capacity amount. As of September 30, 2019, no collateral is required to be, or has been, posted. Certain counterparties extend MGE a credit limit. If MGE exceeds these limits, the counterparties may require collateral to be posted. No counterparties were in a net liability position as of September 30, 2019, and December 31, 2018.

 

Nonperformance of counterparties to the non-exchange traded derivatives could expose MGE to credit loss. However, MGE enters into transactions only with companies that meet or exceed strict credit guidelines, and it monitors these counterparties on an ongoing basis to mitigate nonperformance risk in its portfolio. As of September 30, 2019, no counterparties have defaulted.

 

12.

Fair Value of Financial Instruments - MGE Energy and MGE.

 

Fair value is defined as the price that would be received to sell an asset or would be paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. The accounting standard clarifies that fair value should be based on the assumptions market participants would use when pricing the asset or liability including assumptions about risk. The standard also establishes a three-level fair value hierarchy based upon the observability of the assumptions used and requires the use of observable market data when available. The levels are:

 

Level 1 - Pricing inputs are quoted prices within active markets for identical assets or liabilities.

 

Level 2 - Pricing inputs are quoted prices within active markets for similar assets or liabilities; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations that are correlated with or otherwise verifiable by observable market data.

 

Level 3 - Pricing inputs are unobservable and reflect management's best estimate of what market participants would use in pricing the asset or liability.

 

a.Fair Value of Financial Assets and Liabilities Recorded at the Carrying Amount.

 

The carrying amount of cash, cash equivalents, and outstanding commercial paper approximates fair market value due to the short maturity of those investments and obligations. The estimated fair market value of long-term debt is based on quoted market prices for similar financial instruments. Since long-term debt is not traded in an active market, it is classified as Level 2.

27


 

The estimated fair market value offinancial instruments are as follows:

 

 

 

 

September 30, 2019

 

December 31, 2018

 

 

(In thousands)

 

Carrying Amount

 

Fair Value

 

Carrying Amount

 

Fair Value

 

 

MGE Energy

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

$

61,112

$

61,112

$

83,102

$

83,102

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

Short-term debt - commercial paper

 

54,500

 

54,500

 

13,000

 

13,000

 

 

Long-term debt(a)

 

499,027

 

578,229

 

502,431

 

518,811

 

 

 

 

 

 

 

 

 

 

 

 

 

MGE

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

$

4,656

$

4,656

$

4,843

$

4,843

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

Short-term debt - commercial paper

 

54,500

 

54,500

 

13,000

 

13,000

 

 

Long-term debt(a)

 

499,027

 

578,229

 

502,431

 

518,811

 

 

(a) Includes long-term debt due within one year. Excludes debt issuance costs and unamortized discount of $4.2million and $4.5million as of September 30, 2019, and December 31, 2018, respectively.

 

b.Recurring Fair Value Measurements.

 

The following table presents the balances of assets and liabilities measured at fair value on a recurring basis.

 

28


 

 

 

 

Fair Value as of September 30, 2019

 

 

(In thousands)

 

Total

 

Level 1

 

Level 2

 

Level 3

 

 

MGE Energy

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

Derivatives, net(b)

$

1,093

$

525

$

-

$

568

 

 

Exchange-traded investments

 

1,001

 

1,001

 

-

 

-

 

 

Total Assets

$

2,094

$

1,526

$

-

$

568

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

Derivatives, net

$

30,275

$

687

$

-

$

29,588

 

 

Deferred compensation

 

3,025

 

-

 

3,025

 

-

 

 

Total Liabilities

$

33,300

$

687

$

3,025

$

29,588

 

 

 

 

 

 

 

 

 

 

 

 

 

MGE

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

Derivatives, net(b)

$

1,093

$

525

$

-

$

568

 

 

Exchange-traded investments

 

178

 

178

 

-

 

-

 

 

Total Assets

$

1,271

$

703

$

-

$

568

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

Derivatives, net

$

30,275

$

687

$

-

$

29,588

 

 

Deferred compensation

 

3,025

 

-

 

3,025

 

-

 

 

Total Liabilities

$

33,300

$

687

$

3,025

$

29,588

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value as of December 31, 2018

 

 

(In thousands)

 

Total

 

Level 1

 

Level 2

 

Level 3

 

 

MGE Energy

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

Derivatives, net

$

1,042

$

296

$

-

$

746

 

 

Exchange-traded investments

 

848

 

848

 

-

 

-

 

 

Total Assets

$

1,890

$

1,144

$

-

$

746

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

Derivatives, net

$

32,872

$

124

$

-

$

32,748

 

 

Deferred compensation

 

3,078

 

-

 

3,078

 

-

 

 

Total Liabilities

$

35,950

$

124

$

3,078

$

32,748

 

 

 

 

 

 

 

 

 

 

 

 

 

MGE

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

Derivatives, net

$

1,042

$

296

$

-

$

746

 

 

Exchange-traded investments

 

43

 

43

 

-

 

-

 

 

Total Assets

$

1,085

$

339

$

-

$

746

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

Derivatives, net

$

32,872

$

124

$

-

$

32,748

 

 

Deferred compensation

 

3,078

 

-

 

3,078

 

-

 

 

Total Liabilities

$

35,950

$

124

$

3,078

$

32,748

 

 

 

 

 

 

 

 

 

 

 

 

 

(b) These amounts are shown gross and exclude $0.7 million of collateral that was posted against derivative positions with counterparties as of September 30, 2019.

 

No transfers were made in or out of Level 1 or Level 2 for the nine months ended September 30, 2019.

 

Investments include exchange-traded investment securities valued using quoted prices on active exchanges and are therefore classified as Level 1.

 

The deferred compensation plan allows participants to defer certain cash compensation into a notional investment account. These amounts are included within other deferred liabilities in the consolidated balance sheets. The notional investments earn interest based upon the semiannual rate of U.S. Treasury Bills having a 26-week maturity increased by 1% compounded monthly with a minimum annual rate of 7%, compounded monthly. The notional investments are based upon observable market data, however, since the deferred compensation obligations themselves are not exchanged in an active market, they are classified as Level 2.

29


 

 

Derivatives include exchange-traded derivative contracts, over-the-counter transactions, a purchased power agreement, and FTRs. Most exchange-traded derivative contracts are valued based on unadjusted quoted prices in active markets and are therefore classified as Level 1. A small number of exchange-traded derivative contracts are valued using quoted market pricing in markets with insufficient volumes and are therefore considered unobservable and classified as Level 3. Transactions done with an over-the-counter party are on inactive markets and are therefore classified as Level 3. These transactions are valued based on quoted prices from markets with similar exchange-traded transactions. FTRs are priced based upon monthly auction results for identical or similar instruments in a closed market with limited data available and are therefore classified as Level 3.

 

The purchased power agreement (see Footnote 11) was valued using an internally-developed pricing model and therefore is classified as Level 3. The model projects future market energy prices and compares those prices to the projected power costs to be incurred under the contract. Inputs to the model require significant management judgment and estimation. Future energy prices are based on a forward power pricing curve using exchange-traded contracts in the electric futures market. A basis adjustment is applied to the market energy price to reflect the price differential between the market price delivery point and the counterparty delivery point. The historical relationship between the delivery points is reviewed and a discount (below 100%) or premium (above 100%) is derived. This comparison is done for both peak times when demand is high and off-peak times when demand is low. If the basis adjustment is lowered, the fair value measurement will decrease, and if the basis adjustment is increased, the fair value measurement will increase.

 

The projected power costs anticipated to be incurred under the purchased power agreement are determined using many factors, including historical generating costs, future prices, and expected fuel mix of the counterparty. An increase in the projected fuel costs would result in a decrease in the fair value measurement of the purchased power agreement. A significant input that MGE estimates is the counterparty's fuel mix in determining the projected power cost. MGE also considers the assumptions that market participants would use in valuing the asset or liability. This consideration includes assumptions about market risk such as liquidity, volatility, and contract duration. The fair value model uses a discount rate that incorporates discounting, credit, and model risks.

 

The following table presents the significant unobservable inputs used in the pricing model.

 

 

 

 

Model Input

 

Significant Unobservable Inputs

 

September 30, 2019

 

December 31, 2018

 

Basis adjustment:

 

 

 

 

 

 

 

On peak

 

92.2

%

 

92.1

%

 

Off peak

 

92.8

%

 

92.8

%

 

Counterparty fuel mix:

 

 

 

 

 

 

 

Internal generation

 

40.0% - 60.0

%

 

50.0% - 75.0

%

 

Purchased power

 

60.0% - 40.0

%

 

50.0% - 25.0

%

 

The following table summarizes the changes in Level 3 commodity derivative assets and liabilities measured at fair value on a recurring basis.

 

30


 

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30,

 

September 30,

(In thousands)

 

2019

 

2018

 

2019

 

2018

Beginning balance

$

(33,337)

$

(37,332)

$

(32,002)

$

(42,026)

Realized and unrealized gains (losses):

 

 

 

 

 

 

 

 

Included in regulatory assets

 

4,317

 

2,018

 

2,982

 

6,711

Included in other comprehensive income

 

-

 

-

 

-

 

-

Included in earnings

 

(492)

 

26

 

(1,928)

 

(434)

Included in current assets

 

4

 

(25)

 

(198)

 

(496)

Purchases

 

5,205

 

5,736

 

16,827

 

17,602

Sales

 

-

 

-

 

-

 

-

Issuances

 

-

 

-

 

-

 

-

Settlements

 

(4,717)

 

(5,737)

 

(14,701)

 

(16,671)

Transfers in and/or out of Level 3

 

-

 

-

 

-

 

-

Balance as of September 30,

$

(29,020)

$

(35,314)

$

(29,020)

$

(35,314)

Total gains (losses) included in earnings attributed to

 

 

 

 

 

 

 

 

the change in unrealized gains (losses) related to

 

 

 

 

 

 

 

 

assets and liabilities held at September 30,(c)

$

-

$

-

$

-

$

-

 

The following table presents total realized and unrealized gains (losses) included in income for Level 3 assets and liabilities measured at fair value on a recurring basis (c).

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

 

September 30,

 

September 30,

 

 

(In thousands)

 

2019

 

2018

 

2019

 

2018

 

 

Purchased Power Expense

$

(409)

$

26

$

(1,658)

$

(637)

 

 

Cost of Gas Sold Expense

 

(83)

 

-

 

(270)

 

203

 

 

Total

$

(492)

$

26

$

(1,928)

$

(434)

 

 

(c) MGE's exchange-traded derivative contracts, over-the-counter party transactions, purchased power agreement, and FTRs are subject to regulatory deferral. These derivatives are therefore marked to fair value and are offset in the financial statements with a corresponding regulatory asset or liability.

 

13.

Asset Retirement Obligation - MGE Energy and MGE.

 

A liability for the fair value of an asset retirement obligation (ARO) is recognized in the period in which it is incurred if it can be reasonably estimated. The offsetting associated asset retirement costs are capitalized as a long-lived asset and depreciated over the asset's useful life.As of September 30, 2019, MGE recorded an obligation of $1.5 million for the fair value of its legal liability for an ARO associated with the Saratoga Wind Farm. MGE has regulatory treatment and recognizes regulatory assets or liabilities for the timing differences between when we recover legal AROs in rates and when those costs would actually be recognized.

 

14.

Joint Plant Ownership - MGE Energy and MGE.

 

a. Two Creeks.

 

In May 2019, MGE acquired a 33% ownership interest in a 150 MW solar generation array in the Town of Two Creeks and the City of Two Rivers in Manitowoc and Kewaunee Counties, Wisconsin. MGE's sole principal asset will be the 33% undivided ownership interest in the solar generation facility, which is being constructed. The estimated share of capital costs for MGE's ownership interest is approximately $65 million (excluding capitalized interest).

 

As of September 30, 2019, $42.1 million (excluding capitalized interest) related to this project is reflected in "Construction work in progress" on the consolidated balance sheets. The project is anticipated to be completed by the end of 2020.

 

b. Badger Hollow.

 

31


 

In July 2019, MGE acquired a 33% ownership interest in a 150 MW solar generation array in southwestern Wisconsin in Iowa County, near the villages of Montfort and Cobb. MGE's sole principal asset will be the 33% undivided ownership interest in the solar generation facility which is being constructed. The estimated share of capital costs for MGE's ownership interest is approximately $65 million (excluding capitalized interest).

 

As of September 30, 2019, $10.0 million (excluding capitalized interest) related to this project is reflected in "Construction work in progress" on the consolidated balance sheets. The project is anticipated to be completed by the end of 2020.

 

15.

Revenue - MGE Energy and MGE.

 

Revenues disaggregated by revenue source were as follows:

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

(In thousands)

 

September 30,

 

September 30,

 

 

Electric revenues

 

2019

 

2018

 

2019

 

2018

 

 

Residential

$

42,442

$

42,371

$

107,772

$

107,847

 

 

Commercial

 

63,466

 

61,638

 

165,481

 

159,264

 

 

Industrial

 

3,760

 

3,668

 

10,013

 

11,193

 

 

Other-retail/municipal

 

9,543

 

9,431

 

26,728

 

26,245

 

 

Total retail

 

119,211

 

117,108

 

309,994

 

304,549

 

 

Sales to the market

 

1,163

 

1,505

 

3,914

 

6,334

 

 

Other revenues

 

233

 

562

 

978

 

1,750

 

 

Total electric revenues

 

120,607

 

119,175

 

314,886

 

312,633

 

 

 

 

 

 

 

 

 

 

 

 

 

Gas revenues

 

 

 

 

 

 

 

 

 

 

Residential

 

11,342

 

11,916

 

67,659

 

64,087

 

 

Commercial/Industrial

 

4,825

 

5,570

 

40,833

 

38,728

 

 

Total retail

 

16,167

 

17,486

 

108,492

 

102,815

 

 

Gas transportation

 

1,126

 

829

 

3,756

 

3,018

 

 

Other revenues

 

84

 

92

 

299

 

319

 

 

Total gas revenues

 

17,377

 

18,407

 

112,547

 

106,152

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-regulated energy revenues

 

214

 

213

 

481

 

904

 

 

Total Operating Revenue

$

138,198

$

137,795

 

427,914

$

419,689

 

 

Performance Obligations

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account. A contract's transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The majority of MGE Energy's and MGE's contracts have a single performance obligation.

 

Retail Revenue (Residential, Commercial, Industrial, and Other Retail/Municipal)

Retail revenue of electric and gas utility service represent MGE's core business activities. Tariffs are approved by the PSCW through a rate order and provide MGE's customers with the standard terms and conditions, including pricing terms. The performance obligation to deliver electricity or gas is satisfied over time as the customer simultaneously receives and consumes the commodities provided by MGE. MGE recognizes revenues as the commodity is delivered to customers. Meters are read on a systematic basis throughout the month based on established meter-reading schedules and the customer is subsequently billed for their services. At the end of the month, MGE accrues an estimate for the unbilled amount of commodities delivered to customers. The unbilled revenue estimate is based on daily system demand volumes, weather factors, estimated line losses, estimated customer usage by class, and applicable customer rates.

 

Utility Cost Recovery Mechanisms

MGE's tariff rates include a provision for fuel cost recovery. The PSCW allows Wisconsin utilities to defer electric fuel-related costs, less excess revenues, that fall outside a symmetrical cost tolerance band. Any over/under recovery of the actual costs in a given year is determined in the following year and is then

32


 

reflected in future billings to electric retail customers. Over-collection of fuel-related costs that are outside the approved range will be recognized as a reduction of revenue. Under-collection of these costs will be recognized in "Purchased power" expense in the consolidated statements of income. The cumulative effects of these deferred amounts will be recorded in "Regulatory assets" or "Regulatory liabilities" on the consolidated balance sheets until they are reflected in future billings to customers. See Footnote 10.b. for further information.

MGE received a PSCW order in January 2018 to defer the over-collection of income tax expense collected in customer rates during 2018 as a result of the Tax Cuts and Jobs Act (the Tax Act) reduction in the income tax rate to 21 percent. See Footnote 10.c. for further information.

 

MGE has other cost recovery mechanisms. For example, any over-collection of the difference between actual costs incurred and the amount of costs collected from customers is recorded as a reduction of revenue in the period incurred.

 

Sales to the Market

Sales to the market include energy charges, capacity or demand charges, and ancillary charges represented by wholesale sales of electricity made to third parties who are not ultimate users of the electricity. Most of these sales are spot market transactions on the markets operated by MISO. Each transaction is considered a performance obligation and revenue is recognized in the period in which energy charges, capacity or demand charges, and ancillary services are sold into MISO. MGE reports, on a net basis, transactions on the MISO markets in which it buys and sells power within the same hour to meet electric energy delivery requirements.

 

Transportation of Gas

MGE has contracts under which MGE provides gas transportation services to customers who have elected to purchase gas from a third party and have the gas delivered via pipelines within MGE's service territory. Revenue is recognized as service is rendered or gas is delivered to customers. Tariffs are approved by the PSCW through a rate order and provide gas transportation customers with the standard terms and conditions, including pricing terms.

 

16.

Segment Information - MGE Energy and MGE.

 

MGE Energy operates in the following business segments: electric utility, gas utility, nonregulated energy, transmission investment, and all other. See the 2018 Annual Report on Form 10-K for additional discussion of each of these segments.

 

The following tables show segment information for MGE Energy's operations for the indicated periods:

 

33


 

(In thousands)

MGE Energy

 

Electric

 

Gas

 

Non-regulated Energy

 

Transmission Investment

 

All Others

 

Consolidation/ Elimination Entries

 

Consolidated Total

Three Months Ended September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

Operating revenues

$

120,607

$

17,377

$

214

$

-

$

-

$

-

$

138,198

Interdepartmental revenues

 

225

 

5,679

 

10,019

 

-

 

-

 

(15,923)

 

-

Total operating revenues

 

120,832

 

23,056

 

10,233

 

-

 

-

 

(15,923)

 

138,198

Depreciation and amortization

 

(13,441)

 

(2,879)

 

(1,873)

 

-

 

-

 

-

 

(18,193)

Other operating expenses

 

(76,817)

 

(20,217)

 

(33)

 

-

 

(123)

 

15,923

 

(81,267)

Operating income (loss)

 

30,574

 

(40)

 

8,327

 

-

 

(123)

 

-

 

38,738

Other income, net

 

1,817

 

855

 

-

 

2,372

 

160

 

-

 

5,204

Interest (expense) income, net

 

(3,762)

 

(1,059)

 

(1,274)

 

-

 

264

 

-

 

(5,831)

Income (loss) before taxes

 

28,629

 

(244)

 

7,053

 

2,372

 

301

 

-

 

38,111

Income tax (provision) benefit

 

(4,948)

 

183

 

(1,922)

 

(646)

 

(121)

 

-

 

(7,454)

Net income (loss)

$

23,681

$

(61)

$

5,131

$

1,726

$

180

$

-

$

30,657

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 

Operating revenues

$

119,175

$

18,407

$

213

$

-

$

-

$

-

$

137,795

Interdepartmental revenues

 

(20)

 

4,219

 

9,912

 

-

 

-

 

(14,111)

 

-

Total operating revenues

 

119,155

 

22,626

 

10,125

 

-

 

-

 

(14,111)

 

137,795

Depreciation and amortization

 

(9,864)

 

(2,534)

 

(1,861)

 

-

 

-

 

-

 

(14,259)

Other operating expenses

 

(77,847)

 

(19,824)

 

(36)

 

(4)

 

(138)

 

14,111

 

(83,738)

Operating income (loss)

 

31,444

 

268

 

8,228

 

(4)

 

(138)

 

-

 

39,798

Other income, net

 

1,763

 

829

 

-

 

1,620

 

118

 

-

 

4,330

Interest (expense) income, net

 

(3,217)

 

(963)

 

(1,320)

 

-

 

475

 

-

 

(5,025)

Income before taxes

 

29,990

 

134

 

6,908

 

1,616

 

455

 

-

 

39,103

Income tax (provision) benefit

 

(7,306)

 

42

 

(1,852)

 

(441)

 

(40)

 

-

 

(9,597)

Net income

$

22,684

$

176

$

5,056

$

1,175

$

415

$

-

$

29,506

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

Operating revenues

$

314,886

$

112,547

$

481

$

-

$

-

$

-

$

427,914

Interdepartmental revenues

 

622

 

12,571

 

29,987

 

-

 

-

 

(43,180)

 

-

Total operating revenues

 

315,508

 

125,118

 

30,468

 

-

 

-

 

(43,180)

 

427,914

Depreciation and amortization

 

(39,330)

 

(8,482)

 

(5,611)

 

-

 

-

 

-

 

(53,423)

Other operating expenses

 

(223,242)

 

(104,587)

 

(113)

 

-

 

(697)

 

43,180

 

(285,459)

Operating income (loss)

 

52,936

 

12,049

 

24,744

 

-

 

(697)

 

-

 

89,032

Other income, net

 

5,258

 

2,579

 

-

 

6,808

 

429

 

-

 

15,074

Interest (expense) income, net

 

(11,253)

 

(3,132)

 

(3,838)

 

-

 

996

 

-

 

(17,227)

Income before taxes

 

46,941

 

11,496

 

20,906

 

6,808

 

728

 

-

 

86,879

Income tax provision

 

(6,036)

 

(2,848)

 

(5,695)

 

(1,856)

 

(232)

 

-

 

(16,667)

Net income

$

40,905

$

8,648

$

15,211

$

4,952

$

496

$

-

$

70,212

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 

Operating revenues

$

312,633

$

106,152

$

904

$

-

$

-

$

-

$

419,689

Interdepartmental revenues

 

(234)

 

12,059

 

29,579

 

-

 

-

 

(41,404)

 

-

Total operating revenues

 

312,399

 

118,211

 

30,483

 

-

 

-

 

(41,404)

 

419,689

Depreciation and amortization

 

(28,817)

 

(7,374)

 

(5,563)

 

-

 

-

 

-

 

(41,754)

Other operating expenses

 

(228,957)

 

(99,251)

 

(113)

 

(12)

 

(789)

 

41,404

 

(287,718)

Operating income (loss)

 

54,625

 

11,586

 

24,807

 

(12)

 

(789)

 

-

 

90,217

Other income, net

 

5,055

 

2,347

 

-

 

5,908

 

670

 

-

 

13,980

Interest (expense) income, net

 

(9,036)

 

(2,689)

 

(4,002)

 

-

 

1,180

 

-

 

(14,547)

Income before taxes

 

50,644

 

11,244

 

20,805

 

5,896

 

1,061

 

-

 

89,650

Income tax provision

 

(11,492)

 

(2,788)

 

(5,638)

 

(1,611)

 

(263)

 

-

 

(21,792)

Net income

$

39,152

$

8,456

$

15,167

$

4,285

$

798

$

-

$

67,858

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

34


 

The following tables show segment information for MGE's operations for the indicated periods:

 

(In thousands)

MGE

 

Electric

 

Gas

 

Non-regulated Energy

 

Consolidation/ Elimination Entries

 

Consolidated Total

 

Three Months Ended September 30, 2019

 

 

 

 

 

 

 

 

 

 

Operating revenues

$

120,607

$

17,377

$

214

$

-

$

138,198

 

Interdepartmental revenues

 

225

 

5,679

 

10,019

 

(15,923)

 

-

 

Total operating revenues

 

120,832

 

23,056

 

10,233

 

(15,923)

 

138,198

 

Depreciation and amortization

 

(13,441)

 

(2,879)

 

(1,873)

 

-

 

(18,193)

 

Other operating expenses

 

(76,817)

 

(20,217)

 

(33)

 

15,923

 

(81,144)

 

Operating income (loss)

 

30,574

 

(40)

 

8,327

 

-

 

38,861

 

Other income, net

 

1,817

 

855

 

-

 

-

 

2,672

 

Interest expense, net

 

(3,762)

 

(1,059)

 

(1,274)

 

-

 

(6,095)

 

Income (loss) before taxes

 

28,629

 

(244)

 

7,053

 

-

 

35,438

 

Income tax (provision) benefit

 

(4,948)

 

183

 

(1,922)

 

-

 

(6,687)

 

Net income (loss)

 

23,681

 

(61)

 

5,131

 

-

 

28,751

 

Less: Net income attributable to

 

 

 

 

 

 

 

 

 

 

 

noncontrolling interest, net of tax

 

-

 

-

 

-

 

(5,614)

 

(5,614)

 

Net income (loss) attributable to MGE

$

23,681

$

(61)

$

5,131

$

(5,614)

$

23,137

 

Three Months Ended September 30, 2018

 

 

 

 

 

 

 

 

 

 

Operating revenues

$

119,175

$

18,407

$

213

$

-

$

137,795

 

Interdepartmental revenues

 

(20)

 

4,219

 

9,912

 

(14,111)

 

-

 

Total operating revenues

 

119,155

 

22,626

 

10,125

 

(14,111)

 

137,795

 

Depreciation and amortization

 

(9,864)

 

(2,534)

 

(1,861)

 

-

 

(14,259)

 

Other operating expenses

 

(77,847)

 

(19,824)

 

(35)

 

14,111

 

(83,595)

 

Operating income

 

31,444

 

268

 

8,229

 

-

 

39,941

 

Other income, net

 

1,763

 

829

 

-

 

-

 

2,592

 

Interest expense, net

 

(3,217)

 

(963)

 

(1,320)

 

-

 

(5,500)

 

Income before taxes

 

29,990

 

134

 

6,909

 

-

 

37,033

 

Income tax provision

 

(7,306)

 

42

 

(1,853)

 

-

 

(9,117)

 

Net income

 

22,684

 

176

 

5,056

 

-

 

27,916

 

Less: Net income attributable to

 

 

 

 

 

 

 

 

 

 

 

noncontrolling interest, net of tax

 

-

 

-

 

-

 

(5,629)

 

(5,629)

 

Net income attributable to MGE

$

22,684

$

176

$

5,056

$

(5,629)

$

22,287

 

Nine Months Ended September 30, 2019

 

 

 

 

 

 

 

 

 

 

Operating revenues

$

314,886

$

112,547

$

481

$

-

$

427,914

 

Interdepartmental revenues

 

622

 

12,571

 

29,987

 

(43,180)

 

-

 

Total operating revenues

 

315,508

 

125,118

 

30,468

 

(43,180)

 

427,914

 

Depreciation and amortization

 

(39,330)

 

(8,482)

 

(5,611)

 

-

 

(53,423)

 

Other operating expenses

 

(223,242)

 

(104,587)

 

(113)

 

43,180

 

(284,762)

 

Operating income

 

52,936

 

12,049

 

24,744

 

-

 

89,729

 

Other income, net

 

5,258

 

2,579

 

-

 

-

 

7,837

 

Interest expense, net

 

(11,253)

 

(3,132)

 

(3,838)

 

-

 

(18,223)

 

Income before taxes

 

46,941

 

11,496

 

20,906

 

-

 

79,343

 

Income tax provision

 

(6,036)

 

(2,848)

 

(5,695)

 

-

 

(14,579)

 

Net income

 

40,905

 

8,648

 

15,211

 

-

 

64,764

 

Less: Net income attributable to

 

 

 

 

 

 

 

 

 

 

 

noncontrolling interest, net of tax

 

-

 

-

 

-

 

(16,725)

 

(16,725)

 

Net income attributable to MGE

$

40,905

$

8,648

$

15,211

$

(16,725)

$

48,039

 

Nine Months Ended September 30, 2018

 

 

 

 

 

 

 

 

 

 

Operating revenues

$

312,633

$

106,152

$

904

$

-

$

419,689

 

Interdepartmental revenues

 

(234)

 

12,059

 

29,579

 

(41,404)

 

-

 

Total operating revenues

 

312,399

 

118,211

 

30,483

 

(41,404)

 

419,689

 

Depreciation and amortization

 

(28,817)

 

(7,374)

 

(5,563)

 

-

 

(41,754)

 

Other operating expenses

 

(228,957)

 

(99,251)

 

(113)

 

41,404

 

(286,917)

 

Operating income

 

54,625

 

11,586

 

24,807

 

-

 

91,018

 

Other income, net

 

5,055

 

2,347

 

-

 

-

 

7,402

 

Interest expense, net

 

(9,036)

 

(2,689)

 

(4,002)

 

-

 

(15,727)

 

Income before taxes

 

50,644

 

11,244

 

20,805

 

-

 

82,693

 

Income tax provision

 

(11,492)

 

(2,788)

 

(5,638)

 

-

 

(19,918)

 

Net income

 

39,152

 

8,456

 

15,167

 

-

 

62,775

 

Less: Net income attributable to

 

 

 

 

 

 

 

 

 

 

 

noncontrolling interest, net of tax

 

-

 

-

 

-

 

(16,940)

 

(16,940)

 

Net income attributable to MGE

$

39,152

$

8,456

$

15,167

$

(16,940)

$

45,835

 

 

35


 

The following table shows segment information for assets and capital expenditures:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Utility

 

 

Consolidated

(In thousands)

MGE Energy

 

Electric

 

Gas

 

 

Non-regulated Energy

 

Transmission Investment

 

All Others

 

Consolidation/ Elimination Entries

 

Total

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2019

$

1,288,752

$

379,160

 

$

259,542

$

69,829

$

447,307

$

(377,617)

$

2,066,973

December 31, 2018

 

1,193,083

 

377,005

 

 

265,301

 

66,366

 

465,661

 

(378,798)

 

1,988,618

Capital Expenditures:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine months ended September 30, 2019

$

101,609

$

24,551

 

$

2,229

$

-

$

-

$

-

$

128,389

Year ended Dec. 31, 2018

 

176,399

 

30,497

 

 

5,301

 

-

 

-

 

-

 

212,197

 

 

 

Utility

 

 

Consolidated

(In thousands)

MGE

 

Electric

 

Gas

 

 

Non-regulated Energy

 

Elimination Entries

 

Total

Assets:

 

 

 

 

 

 

 

 

 

 

 

September 30, 2019

$

1,288,752

$

379,160

 

$

259,492

$

(377)

$

1,927,027

December 31, 2018

 

1,193,083

 

377,005

 

 

265,251

 

(448)

 

1,834,891

Capital Expenditures:

 

 

 

 

 

 

 

 

 

 

 

Nine months ended September 30, 2019

$

101,609

$

24,551

 

$

2,229

$

-

$

128,389

Year ended Dec. 31, 2018

 

176,399

 

30,497

 

 

5,301

 

-

 

212,197

36


 

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

 

General

 

MGE Energy is an investor-owned public utility holding company operating through subsidiaries in five business segments:

 

Regulated electric utility operations, conducted through MGE,

Regulated gas utility operations, conducted through MGE,

Nonregulated energy operations, conducted through MGE Power and its subsidiaries,

Transmission investments, representing our equity investment in ATC and ATC Holdco, and

All other, which includes corporate operations and services.

 

Our principal subsidiary is MGE, which generates and distributes electric energy, distributes natural gas, and represents a majority portion of our assets, liabilities, revenues, and expenses. MGE generates and distributes electricity to approximately 153,000 customers in Dane County, Wisconsin, including the city of Madison, and purchases and distributes natural gas to approximately 161,000 customers in the Wisconsin counties of Columbia, Crawford, Dane, Iowa, Juneau, Monroe, and Vernon.

 

Our nonregulated energy operations own interests in electric generating capacity that is leased to MGE. The ownership/leasing structure was adopted under applicable state regulatory guidelines for MGE's participation in these generation facilities, consisting principally of a stable return on the equity investment in the new generation facilities over the term of the related leases. The nonregulated energy operations include an ownership interest in two coal-fired generating units in Oak Creek, Wisconsin and a partial ownership of a cogeneration project on the UW-Madison campus. A third party operates the units in Oak Creek, and MGE operates the cogeneration project. Due to the nature of MGE's participation in these facilities, the results of MGE Energy's nonregulated operations are also consolidated into MGE's consolidated financial position and results of operations under applicable accounting standards.

 

Executive Overview

 

Our primary focus today and for the foreseeable future is our core utility customers at MGE as well as creating long-term value for our shareholders. MGE continues to face the challenge of providing its customers with reliable power at competitive prices. MGE meets this challenge by investing in more efficient generation projects, including renewable energy sources. MGE continues to examine and pursue opportunities to reduce the proportion that coal generation represents in its generation mix, including the reduction in its ownership of Columbia and its growing ownership of renewable generation sources. MGE will continue to focus on growing earnings while controlling operating and fuel costs. MGE maintains safe and efficient operations in addition to providing customer value. We believe it is critical to maintain a strong credit standing consistent with financial strength in MGE as well as the parent company in order to accomplish these goals.

 

We earn our revenue and generate cash from operations by providing electric and natural gas utility services, including electric power generation and electric power and gas distribution. The earnings and cash flows from the utility business are sensitive to various external factors, including:

 

Weather, and its impact on customer sales,

Economic conditions, including current business activity and employment and their impact on customer demand,

Regulation and regulatory issues, and their impact on the timing and recovery of costs,

Energy commodity prices, including natural gas prices,

Equity price risk pertaining to pension related assets,

Credit market conditions, including interest rates and our debt credit rating,

Environmental laws and regulations, including adopted and pending environmental rule changes, and

Other factors listed in "Item 1A. Risk Factors" in our 2018 Annual Report on Form 10-K.

 

 

37


 

For the three months ended September 30, 2019, MGE Energy's earnings were $30.7 million or $0.88 per share compared to $29.5 million or $0.85 per share for the same period in the prior year. MGE's earnings for the three months ended September 30, 2019, were $23.1 million compared to $22.3 million for the same period in the prior year.

 

For the nine months ended September 30, 2019, MGE Energy's earnings were $70.2 million or $2.03 per share compared to $67.9 million or $1.96 per share for the same period in the prior year. MGE's earnings for the nine months ended September 30, 2019, were $48.0 million compared to $45.8 million for the same period in the prior year.

 

MGE Energy's net income was derived from our business segments as follows:

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

(In millions)

 

September 30,

 

September 30,

 

 

Business Segment:

 

2019

 

2018

 

2019

 

2018

 

 

Electric Utility

$

23.7

$

22.6

$

40.9

$

39.1

 

 

Gas Utility

 

-

 

0.2

 

8.6

 

8.5

 

 

Nonregulated Energy

 

5.1

 

5.1

 

15.2

 

15.2

 

 

Transmission Investments

 

1.7

 

1.2

 

5.0

 

4.3

 

 

All Other

 

0.2

 

0.4

 

0.5

 

0.8

 

 

Net Income

$

30.7

$

29.5

$

70.2

$

67.9

 

 

Our net income during the three and nine months ended September 30, 2019, compared to the same period in the prior year primarily reflects the effects of the following factors:

 

Electric Utility

An increase in owned generation assets included in rate base contributed to increased earnings for the three and nine months ended September 30, 2019, as a result of the completion of the Saratoga Wind Farm.

 

During the first nine months of 2019, the following events occurred:

 

2019/2020 Rate Settlement: In December 2018, the PSCW approved the settlement agreement between MGE and intervening parties in the rate case. The settlement decreases electric rates by 2.24% or $9.2 million in 2019. MGE will maintain this rate level for 2020, with the exception that MGE will file a 2020 Fuel Cost Plan in 2019 and MGE's electric rates will be adjusted accordingly. The decrease reflects the ongoing tax impacts of the Tax Act. Lower fuel costs and increase in rate base from renewable generation assets are additional items impacting the rate change. The settlement agreement increases gas rates by 1.06% or $1.7 million in 2019 and 1.46% or $2.4 million in 2020. The increase covers infrastructure costs. It also reflects the impacts of the Tax Act.

 

Pension and Other Postretirement Benefit Costs: Costs for pension and other postretirement benefits are affected by actual investment returns on the assets held for those benefits and by the discount rate, which is sensitive to interest rates, used to calculate those benefits. Volatility in interest rates and investment returns could affect the value of the pension and postretirement benefit obligations. These changes may affect benefit costs in future years. As a result of lower investment returns in the fourth quarter of 2018, pension and postretirement benefit costs increased in 2019. In August 2019, the PSCW approved MGE's request to defer the difference between estimated pension and other postretirement costs included in the 2019 and 2020 rate settlement and actual expense incurred. MGE expects that the deferred cost for employee benefit plans will be factored into future rate actions starting in 2021. For the three and nine months ended September 30, 2019, MGE has deferred approximately $1.3 million and $4.6 million of pension and other postretirement costs, respectively.

 

Saratoga Wind Farm: In December 2017, the PSCW authorized construction of a 66 MW wind farm, consisting of 33 turbines, located near Saratoga, Iowa. Construction of the project was completed in February 2019 for approximately $112 million. MGE received specific approval to recover 100% AFUDC on the project. After tax, MGE has recognized $0.8 million in AFUDC equity related to this project for the nine months ended September 30, 2019.

 

Columbia: MGE and WPL negotiated an amendment to the existing Columbia joint operating agreement, effective January 1, 2017, under which MGE reduced its obligation to pay certain capital expenditures (other than

38


 

SCR-related expenditures) at Columbia in exchange for a proportional reduction in MGE's ownership in Columbia. On January 1 of each year from 2017 through 2019 and then on June 1, 2020, the ownership percentage is adjusted through a partial sale based on the amount of capital expenditures foregone. As of December 31, 2018, MGE classified $3.1 million of Columbia assets as held-for-sale on the consolidated balance sheets. In January 2019, MGE reduced its ownership interest in Columbia from 19.4% to 19.1% as a result of the partial sale of plant assets to WPL.

 

Utility Solar – Two Creeks: In May 2019, MGE acquired a 33% ownership interest in a 150 MW solar generation array in the Town of Two Creeks and the City of Two Rivers in Manitowoc and Kewaunee Counties, Wisconsin. MGE's sole principal asset will be the 33% undivided ownership interest in the solar generation facility, which is being constructed. The estimated share of capital costs for that ownership interest is approximately $65 million (excluding capitalized interest). As of September 30, 2019, $42.1 million (excluding capitalized interest) related to this project is reflected in "Construction work in progress" on the consolidated balance sheets. The project is anticipated to be completed by the end of 2020.

 

Utility Solar – Badger Hollow: In July 2019, MGE acquired a 33% ownership interest in a 150 MW solar generation array in southwestern Wisconsin in Iowa County, near the villages of Montfort and Cobb. MGE's sole principal asset will be the 33% undivided ownership interest in the solar generation facility which is being constructed. The estimated share of capital costs for that ownership interest is approximately $65 million (excluding capitalized interest). As of September 30, 2019, $10.0 million (excluding capitalized interest) related to this project is reflected in "Construction work in progress" on the consolidated balance sheets. The project is anticipated to be completed by the end of 2020.

 

2018 Tax Reform: In August 2019, the PSCW issued a decision on the 2018 tax reform proceedings for MGE to refund the remaining 2018 overcollection of income tax expense to its retail customers as a one-time bill credit. MGE returned $3.2 million in September 2019. There was no change to the refund order from the amount MGE deferred as of December 31, 2018.

 

In the near term, several items may affect us, including:

 

2018 Annual Fuel Proceeding: In July 2019, the PSCW issued a final decision in the 2018 fuel rules proceedings for MGE to refund $9.5 million of additional fuel savings realized during 2018 plus accrued interest to its retail electric customers in October 2019. There was no change to the refund in the fuel rules proceedings from the amount MGE deferred as of December 31, 2018.

 

Tax Reform: Pursuant to the Tax Act, deferred income tax balances as of December 31, 2017, were remeasured to reflect the decrease in corporate tax rate. Approximately $131 million of regulatory liability was recorded given that changes in income taxes are generally passed through in customer rates for the regulated utility. The amount and timing of the cash impacts will depend on the period over which certain income tax benefits are provided to customers. Approximately $117 million of the regulatory liability is being returned to customers using a normalization method of accounting. The return of the remaining portion will be determined by the PSCW in MGE's next rate case.

 

ATC Return on Equity: Several parties have filed complaints with the FERC seeking to reduce the ROE used by MISO transmission owners, including ATC. Any change to ATC's ROE could result in lower equity earnings and distributions from ATC in the future. We derived approximately 6.8% and 6.3% of our net income for the nine months ended September 30, 2019 and 2018, respectively, from our investment in ATC. See "Other Matters" below for additional information concerning ATC.

 

Environmental Initiatives: There are proposed legislative rules and initiatives involving matters related to air emissions, water effluent, hazardous materials, and greenhouse gases, all of which affect generation plant capital expenditures and operating costs as well as future operational planning. At present, it is unclear how the changes in the Presidential and EPA administrations may affect existing, pending or new legislative or rulemaking proposals or regulatory initiatives. Such legislation and rulemaking could significantly affect the costs of owning and operating fossil-fueled generating plants, such as Columbia and the Elm Road Units, from which we derive approximately 43% of our electric generating capacity as of September 30, 2019. We would expect to seek and receive recovery of any such costs in rates; however, it is difficult to estimate the amount of such costs due to the

39


 

uncertainty as to the timing and form of the legislation and rules, and the scope and time of the recovery of costs in rates, which may lag the incurrence of those costs.

 

EPA's Clean Power Plan and Affordable Clean Energy Rule: In 2015, the EPA finalized the Clean Power Plan (CPP), which directed states to submit plans to reduce GHG emissions from the electric generation sector. Implementation of the rule is currently stayed by order to the U.S. Supreme Court. If ultimately upheld, the CPP could have a material effect on MGE's operations. In July 2019, the EPA published a final rule which repeals the CPP and creates the replacement Affordable Clean Energy (ACE) rule to reduce greenhouse gas emissions from existing coal-fired EGUs. The ACE Rule will apply to Columbia and the Elm Road Units. MGE is currently evaluating how this rule may impact operations. Until the State of Wisconsin develops a plan that is accepted by the EPA, MGE will not be able to determine the final impact of the rule. MGE will continue to evaluate the rule and monitor ongoing and potential legal proceedings associated with the CPP and ACE rules.

 

Columbia: MGE will reduce further its obligation to pay certain capital expenditures (other than SCR-related expenditures) at Columbia in exchange for a proportional reduction in MGE's ownership in Columbia. By June 2020, MGE's ownership in Columbia is forecasted to be approximately 19%, a decrease of 3% from the 22% ownership interest held by MGE on January 1, 2016.

 

Future Generation - Riverside: In 2016, MGE entered into an agreement with WPL under which MGE may acquire up to 50 MW of capacity in a gas-fired generating plant being constructed by WPL at its Riverside Energy Center in Beloit, Wisconsin, during the five-year period following the in-service date of the plant. The plant is expected to be completed by early 2020. MGE has not yet determined whether it will exercise its option in the Riverside plant. A determination will be made based on a variety of factors in future years.

 

Future Generation – Utility Solar: In August 2019, MGE and WEPCO filed a joint application with the PSCW for the approval to acquire 150 MW of solar generating capacity for a solar project in Wisconsin, Badger Hollow Solar Farm II. MGE's ownership share of the project is expected to be 50 MW. If approved by the PSCW, construction of the project is expected to begin in 2020. MGE's share of the construction cost is expected to be approximately $65 million.

 

Debt Issuance: MGE committed to $50 million of long-term unsecured debt in August 2019. Funding occurred on November 5, 2019. The proceeds of the debt financing will be used to assist with additional capital expenditures, such as Two Creeks and Badger Hollow, maturing short-term debt, and other corporate obligations.

 

The following discussion is based on the business segments as discussed in Footnote 16 of the Notes to Consolidated Financial Statements in this Report.

 

Results of Operations

 

Results of operations include financial information prepared in accordance with GAAP and electric and gas margins, both which are non-GAAP measures. Electric margin (electric revenues less fuel for electric generation and purchase power costs) and gas margin (gas revenues less cost of gas sold) are non-GAAP measures because they exclude items used in the calculation of the most comparable GAAP measure, operating income. These exclusions consist of nonregulated operating revenues, other operations and maintenance expense, depreciation and amortization expense, and other general taxes expense. Thus, electric and gas margin are not measures determined in accordance with GAAP.

 

Management believes that electric and gas margins provide a meaningful basis for evaluating and managing utility operations since fuel for electric generation, purchase power costs, and cost of gas sold are passed through without mark-up to customers in current rates. As a result, management uses electric and gas margins internally when assessing the operating performance of our segments. The presentation of utility electric and gas margins herein is intended to provide supplemental information for investors regarding operating performance. These electric and gas margins may not be comparable to how other entities calculate utility electric and gas margin or similar measures. Furthermore, these measures are not intended to replace operating income as determined in accordance with GAAP as an indicator of operating performance.

 

Three Months Ended September 30, 2019 and 2018

40


 

 

The following table provides a calculation of electric and gas margins (non-GAAP), along with a reconciliation to the most comparable GAAP measure, operating income:

 

 

 

 

Three Months Ended September 30,

 

 

(In millions)

 

2019

 

2018

 

$ Change

 

 

Electric revenues

$

120.6

$

119.2

$

1.4

 

 

Fuel for electric generation

 

(15.9)

 

(16.8)

 

0.9

 

 

Purchased power

 

(9.1)

 

(13.0)

 

3.9

 

 

Total Electric Margins

 

95.6

 

89.4

 

6.2

 

 

 

 

 

 

 

 

 

 

 

Gas revenues

 

17.4

 

18.4

 

(1.0)

 

 

Cost of gas sold

 

(3.1)

 

(4.9)

 

1.8

 

 

Total Gas Margins

 

14.3

 

13.5

 

0.8

 

 

 

 

 

 

 

 

 

 

 

Other operating revenues

 

0.2

 

0.2

 

-

 

 

Other operations and maintenance

 

(48.1)

 

(44.1)

 

(4.0)

 

 

Depreciation and amortization

 

(18.2)

 

(14.3)

 

(3.9)

 

 

Other general taxes

 

(5.1)

 

(4.9)

 

(0.2)

 

 

Operating Income

$

38.7

$

39.8

$

(1.1)

 

 

Operating income for the three months ended September 30, 2019, compared to the same period in the prior year primarily reflects the effects of the following factors:

 

A $1.4 million increase in electric revenue driven by the timing of deferred revenue collected in rates.

A $0.9 million decrease in fuel for electric generation driven by lower costs from the wind generation of Saratoga (construction was completed in February 2019).

A $3.9 million decrease in purchased power costs driven by increased internal generation and lower costs in the market.

A $1.0 million decrease in gas revenue driven by a decrease in gas retail sales.

A $1.8 million decrease in cost of gas sold driven by decreased gas sales.

A $4.0 million increase in other operations and maintenance. See consolidated operations and maintenance expenses section below.

A $3.9 million increase in depreciation and amortization expense driven by accelerated depreciation expense for specified electric assets as discussed in the consolidated depreciation expense section below.

 

Electric sales and revenues

 

The following table compares MGE's electric revenues and electric kWh sales by customer class for each of the periods indicated:

 

 

 

Revenues

 

Sales (kWh)

(In thousands, except cooling degree days)

 

Three Months Ended September 30,

 

Three Months Ended September 30,

 

2019

 

2018

 

% Change

 

2019

 

2018

 

% Change

Residential

$

42,442

$

42,371

 

0.2 %

 

252,786

 

256,820

 

(1.6)%

Commercial

 

63,466

 

61,638

 

3.0 %

 

519,820

 

520,827

 

(0.2)%

Industrial

 

3,760

 

3,668

 

2.5 %

 

45,772

 

47,381

 

(3.4)%

Other-retail/municipal

 

9,543

 

9,431

 

1.2 %

 

99,055

 

106,953

 

(7.4)%

Total retail

 

119,211

 

117,108

 

1.8 %

 

917,433

 

931,981

 

(1.6)%

Sales to the market

 

1,163

 

1,505

 

(22.7)%

 

37,108

 

33,090

 

12.1 %

Other revenues

 

233

 

562

 

(58.5)%

 

-

 

-

 

- %

Total

$

120,607

$

119,175

 

1.2 %

 

954,541

 

965,071

 

(1.1)%

 

 

 

 

 

 

 

 

 

 

 

 

 

Cooling degree days (normal 486)

 

 

 

 

 

 

 

535

 

536

 

(0.2)%

 

Electric margin, a non-GAAP measure, increased $6.2 million for the three months ended September 30, 2019, compared to the same period in 2018, due to the following:

 

41


 

 

(In millions)

 

 

 

 

Revenue subject to refund, net

$

4.9

 

 

Decreased fuel costs

 

4.1

 

 

Rate changes

 

(1.4)

 

 

Decrease in volume

 

(0.7)

 

 

Other

 

(0.7)

 

 

Total

$

6.2

 

 

Revenue subject to refund. For cost recovery mechanisms, any over-collection of the difference between actual costs incurred and the amount of costs collected from customers is recorded as a reduction of revenue in the period incurred.

 

oTax Act. MGE received a PSCW order in January 2018 to defer the over-collection of income tax expense collected in customer rates as a result of the Tax Act reduction in federal income tax rate to 21 percent. In September 2019, MGE returned $2.2 million to electric customers through bill credits related to the tax credit. The 2019 bill credit was deducted from revenues in previous years and held in a regulatory liability pending the refund to customers. As a result, the refund did not affect reported revenues in the current periods, although it did reduce cash and the corresponding regulatory liability. During the three months ended September 30, 2018, MGE recorded a $1.1 million reduction in retail electric revenues and recorded a corresponding regulatory liability. During the three months ended September 30, 2018, MGE returned $1.8 million to electric customers through bill credits related to the tax credit.

 

oFuel-related costs. MGE's fuel-related costs subject to refund in 2019 was $0.5 million. MGE's fuel-related costs subject to refund in 2018 was $2.0 million. Under fuel rules, MGE is required to defer electric fuel-related costs that fall outside a 2% cost tolerance band around the amount used in the most recent rate proceeding.

 

oTransmission. MGE's transmission costs subject to refund decreased revenue $0.1 million in 2019. In 2018, MGE recorded a $0.4 million increase in retail electric revenues.

 

oOperating Costs. MGE recognized revenue for electric plant operating costs subject to refund from previous years of $0.1 million in 2019. In 2018, MGE recorded a $0.9 million reduction in retail electric revenues primarily related to lower leased generation costs due to the reduction in tax rate.

 

Fuel costs. Fuel costs decreased during the three months ended September 30, 2019, primarily as a result of the commencement of commercial operations at the Saratoga Wind Farm in February 2019. Electrical generation at Saratoga reduced the need for purchased power and contributed to lower fuel costs in the current quarter.

 

Rate changes. Rates charged to retail customers during the three months ended September 30, 2019, were $1.4 million lower than those charged during the same period in the prior year.

 

In December 2018, the PSCW authorized MGE to decrease 2019 rates for electric retail customers by 2.24%.

 

Gas deliveries and revenues

 

The following table compares MGE's gas revenues and gas therms delivered by customer class for each of the periods indicated:

 

42


 

 

 

Revenues

 

Therms Delivered

(In thousands, except HDD and average rate per therm of retail customer)

 

Three Months Ended September 30,

 

Three Months Ended September 30,

 

2019

 

2018

 

% Change

 

2019

 

2018

 

% Change

Residential

$

11,342

$

11,916

 

(4.8)%

 

5,707

 

5,694

 

0.2 %

Commercial/Industrial

 

4,825

 

5,570

 

(13.4)%

 

9,195

 

9,657

 

(4.8)%

Total retail

 

16,167

 

17,486

 

(7.5)%

 

14,902

 

15,351

 

(2.9)%

Gas transportation

 

1,126

 

829

 

35.8 %

 

15,514

 

15,784

 

(1.7)%

Other revenues

 

84

 

92

 

(8.7)%

 

-

 

-

 

- %

Total

$

17,377

$

18,407

 

(5.6)%

 

30,416

 

31,135

 

(2.3)%

 

 

 

 

 

 

 

 

 

 

 

 

 

Heating degree days (normal 154)

 

 

 

 

 

 

 

57

 

125

 

(54.4)%

Average rate per therm of

 

 

 

 

 

 

 

 

 

 

 

 

retail customer

$

1.085

$

1.139

 

(4.7)%

 

 

 

 

 

 

 

Gas margin, a non-GAAP measure, increased $0.8 million for the three months ended September 30, 2019, compared to the same period in 2018, due to the following:

 

 

(In millions)

 

 

 

 

Revenue subject to refund, net

$

0.5

 

 

Other

 

0.3

 

 

Total

$

0.8

 

 

Revenue subject to refund. For cost recovery mechanisms, any over-collection of the difference between actual costs incurred and the amount of costs collected from customers is recorded as a reduction of revenue in the period incurred.

 

oTax Act. MGE received a PSCW order in January 2018 to defer the over-collection of income tax expense collected in customer rates as a result of the Tax Act reduction in federal income tax rate to 21 percent. In September 2019, MGE returned $1.0 million to gas customers through bill credits related to the tax credit. The 2019 bill credit was deducted from revenues in previous years and held in a regulatory liability pending the refund to customers. As a result, the refund did not affect reported revenues in the current periods, although it did reduce cash and the corresponding regulatory liability. During the three months ended September 30, 2018, MGE recorded a $0.3 million reduction in retail gas revenues and recorded a corresponding regulatory liability. During the three months ended September 30, 2018, MGE returned $0.2 million to electric customers through bill credits related to the tax credit.

 

Consolidated operations and maintenance expenses

 

For the three months ended September 30, 2019, operations and maintenance expenses increased $4.0 million, compared to the same period in the prior year. The following contributed to the net change:

 

 

(In millions)

 

 

 

 

Increased administrative and general costs

$

2.8

 

 

Increased electric production expenses

 

0.8

 

 

Increased gas distribution expenses

 

0.3

 

 

Increased other costs

 

0.5

 

 

Decreased transmission costs

 

(0.4)

 

 

Total

$

4.0

 

 

Increased administrative and general costs are primarily related to increased technology costs associated with the multi-year Enterprise Forward project, which includes a new customer information system.

 

Consolidated depreciation expense

 

Electric depreciation expense increased $3.6 million and gas depreciation expense increased $0.3 million for the three months ended September 30, 2019, compared to the same period in the prior year. MGE accelerated depreciation for combustion turbines and Columbia Unit 1 in 2019, as approved in the December 2018 rate

43


 

settlement, increasing electric depreciation expense compared to the prior period. Also approved in the December 2018 rate settlement were new depreciation rates for Columbia, further contributing to the increase in electric depreciation expense.

 

Nonregulated Energy Operations - MGE Energy and MGE

 

The nonregulated energy operations are conducted through MGE Energy's subsidiaries: MGE Power Elm Road (the Elm Road Units) and MGE Power West Campus (WCCF), which have been formed to own and lease electric generating capacity to assist MGE. For both the three months ended September 30, 2019 and 2018, net income at the nonregulated energy operations segment was $5.1 million.

 

Transmission Investment Operations - MGE Energy

 

For the three months ended September 30, 2019 and 2018, other income at the transmission investment segment was $2.4 million and $1.6 million, respectively. The transmission investment segment holds our interest in ATC and ATC Holdco, and its income reflects our equity in the earnings of those investments. ATC Holdco was formed in December 2016. In the near term, it is expected that ATC Holdco will be pursuing transmission development opportunities that typically have long development and investment lead times before becoming operational. See Footnote 4 of the Notes to Consolidated Financial Statements in this Report and "Other Matters" below for additional information concerning ATC and summarized financial information regarding ATC.

 

Consolidated Income Taxes - MGE Energy and MGE

 

In 2019, the effective electric tax rate decreased as a result of a tax credit generated by the Saratoga Wind Farm. See Footnote 5 of the Notes to Consolidated Financial Statements in this Report for the effective tax rate reconciliation.

 

Noncontrolling Interest, Net of Tax - MGE

 

The noncontrolling interest, net of tax, reflects the accounting required for MGE Energy's interest in MGE Power Elm Road (the Elm Road Units) and MGE Power West Campus (WCCF). MGE Energy owns 100% of MGE Power Elm Road and MGE Power West Campus; however, due to the contractual agreements for these projects with MGE, the entities are considered VIEs with respect to MGE and their results are consolidated with those of MGE, the primary beneficiary of the VIEs. The following table shows MGE Energy's noncontrolling interest, net of tax, reflected on MGE's consolidated statement of income:

 

 

 

 

Three Months Ended

 

 

 

 

September 30,

 

 

(In millions)

 

2019

 

2018

 

 

MGE Power Elm Road

$

3.8

$

3.8

 

 

MGE Power West Campus

 

1.8

 

1.8

 

 

 

Nine Months Ended September 30, 2019 and 2018

 

The following table provides a calculation of electric and gas margins (non-GAAP), along with a reconciliation to the most comparable GAAP measure, operating income:

 

44


 

 

 

 

Nine Months Ended September 30,

 

 

(In millions)

 

2019

 

2018

 

$ Change

 

 

Electric revenues

$

314.9

$

312.6

$

2.3

 

 

Fuel for electric generation

 

(40.2)

 

(43.9)

 

3.7

 

 

Purchased power

 

(31.0)

 

(43.0)

 

12.0

 

 

Total Electric Margins

 

243.7

 

225.7

 

18.0

 

 

 

 

 

 

 

 

 

 

 

Gas revenues

 

112.5

 

106.2

 

6.3

 

 

Cost of gas sold

 

(55.2)

 

(54.1)

 

(1.1)

 

 

Total Gas Margins

 

57.3

 

52.1

 

5.2

 

 

 

 

 

 

 

 

 

 

 

Other operating revenues

 

0.5

 

0.9

 

(0.4)

 

 

Other operations and maintenance

 

(144.0)

 

(132.0)

 

(12.0)

 

 

Depreciation and amortization

 

(53.4)

 

(41.8)

 

(11.6)

 

 

Other general taxes

 

(15.1)

 

(14.7)

 

(0.4)

 

 

Operating Income

$

89.0

$

90.2

$

(1.2)

 

 

Operating income for the nine months ended September 30, 2019, compared to the same period in the prior year primarily reflects the effects of the following factors:

 

A $2.3 million increase in electric revenue driven by timing of deferred revenue collected in rates.

A $3.7 million decrease in fuel for electric generation driven by lower costs from the wind generation of Saratoga (construction was completed in February 2019).

A $12.0 million decrease in purchased power costs driven by the purchase of the Forward Wind Energy Center in April 2018, which replaced an existing purchased power agreement and increased internal generation.

A $6.3 million increase in gas revenues reflecting higher customer demand resulting from colder weather in the first quarter and an increase in rates to cover infrastructure costs.

A $1.1 million increase in cost of gas sold driven by increased gas sales.

A $12.0 million increase in other operations and maintenance. See consolidated operations and maintenance expenses section below.

An $11.6 million increase in depreciation and amortization expense driven by accelerated depreciation expense for specified electric assets as discussed in the consolidated depreciation expense section below.

 

Electric sales and revenues

 

The following table compares MGE's electric revenues and electric kWh sales by customer class for each of the periods indicated:

 

 

 

Revenues

 

Sales (kWh)

(In thousands, except cooling degree days)

 

Nine Months Ended September 30,

 

Nine Months Ended September 30,

 

2019

 

2018

 

% Change

 

2019

 

2018

 

% Change

Residential

$

107,772

$

107,847

 

(0.1)%

 

638,590

 

664,195

 

(3.9)%

Commercial

 

165,481

 

159,264

 

3.9 %

 

1,410,360

 

1,432,222

 

(1.5)%

Industrial

 

10,013

 

11,193

 

(10.5)%

 

131,195

 

136,485

 

(3.9)%

Other-retail/municipal

 

26,728

 

26,245

 

1.8 %

 

276,795

 

294,345

 

(6.0)%

Total retail

 

309,994

 

304,549

 

1.8 %

 

2,456,940

 

2,527,247

 

(2.8)%

Sales to the market

 

3,914

 

6,334

 

(38.2)%

 

110,246

 

151,586

 

(27.3)%

Other revenues

 

978

 

1,750

 

(44.1)%

 

-

 

-

 

- %

Total

$

314,886

$

312,633

 

0.7 %

 

2,567,186

 

2,678,833

 

(4.2)%

 

 

 

 

 

 

 

 

 

 

 

 

 

Cooling degree days (normal 673)

 

 

 

 

 

 

 

653

 

783

 

(16.6)%

 

Electric margin, a non-GAAP measure, increased $18.0 million for the nine months ended September 30, 2019, compared to the same period in 2018, due to the following:

 

45


 

 

(In millions)

 

 

 

 

Revenue subject to refund, net

$

18.9

 

 

Decreased fuel costs

 

11.6

 

 

Rate changes

 

(6.2)

 

 

Decrease in volume

 

(4.4)

 

 

Other

 

(1.9)

 

 

Total

$

18.0

 

 

Revenue subject to refund. For cost recovery mechanisms, any over-collection of the difference between actual costs incurred and the amount of costs collected from customers is recorded as a reduction of revenue in the period incurred.

 

oTax Act. MGE received a PSCW order in January 2018 to defer the over-collection of income tax expense collected in customer rates as a result of the Tax Act reduction in federal income tax rate to 21 percent. In September 2019, MGE returned $2.2 million to electric customers through bill credits related to the tax credit. The 2019 bill credit was deducted from revenues in previous years and held in a regulatory liability pending the refund to customers. As a result, the refund did not affect reported revenues in the current periods, although it did reduce cash and the corresponding regulatory liability. During the nine months ended September 30, 2019 and 2018, MGE recorded a $0.2 million and $3.2 million reduction in retail electric revenues and recorded a corresponding regulatory liability, respectively. During the nine months ended September 30, 2018, MGE returned $4.8 million to electric customers through bill credits related to the tax credit.

 

oFuel-related costs. MGE's fuel-related costs subject to refund in 2019 and 2018 was $0.5 million and $7.2 million, respectively. Under fuel rules, MGE is required to defer electric fuel-related costs that fall outside a 2% cost tolerance band around the amount used in the most recent rate proceeding.

 

oTransmission. MGE's transmission costs subject to refund decreased revenue $1.5 million in 2019. In 2018, MGE recorded a $1.8 million reduction in retail electric revenues primarily related to a one-time refund received in June 2018.

 

oOperating Costs. MGE recognized revenue for electric plant operating costs subject to refund from previous years of $0.9 million in 2019. In 2018, MGE recorded a reduction of $3.2 million in retail electric revenues primarily related to lower leased generation costs due to the reduction in tax rate.

 

Fuel costs. Fuel costs decreased during the nine months ended September 30, 2019, primarily as a result of a reduction in purchased power. The purchase of the Forward Wind Energy Center in April 2018 replaced an existing purchase power agreement that was previously recorded as purchased power expense in fuel costs. The commencement of commercial operations at the Saratoga Wind Farm in February 2019 further decreased the need for purchased power contributing to the reduction in fuel costs in the current year.

 

Rate changes. Rates charged to retail customers during the nine months ended September 30, 2019, were $6.2 million lower than those charged during the same period in the prior year.

 

In December 2018, the PSCW authorized MGE to decrease 2019 rates for electric retail customers by 2.24%.

 

Volume. During the nine months ended September 30, 2019, there was a 3.9% decrease in residential sales volumes compared to the same period in the prior year driven by less favorable weather conditions.

 

Other. During the nine months ended September 30, 2019, other items affecting electric operating revenues decreased $1.9 million primarily attributable to adjustments to revenue and a decrease in demand charges. MGE leases electric generating capacity from MGE Power Elm Road. MGE collects in rates the lease payments associated with the electric generating capacity as authorized by the PSCW. Any differential between estimated lease payments collected in rates and actual lease payments paid to MGE Power Elm Road are included in other revenues.

 

Gas deliveries and revenues

 

46


 

The following table compares MGE's gas revenues and gas therms delivered by customer class for each of the periods indicated:

 

 

 

Revenues

 

Therms Delivered

(In thousands, except HDD and average rate per therm of retail customer)

 

Nine Months Ended September 30,

 

Nine Months Ended September 30,

 

2019

 

2018

 

% Change

 

2019

 

2018

 

% Change

Residential

$

67,659

$

64,087

 

5.6 %

 

74,769

 

70,750

 

5.7 %

Commercial/Industrial

 

40,833

 

38,728

 

5.4 %

 

70,255

 

67,613

 

3.9 %

Total retail

 

108,492

 

102,815

 

5.5 %

 

145,024

 

138,363

 

4.8 %

Gas transportation

 

3,756

 

3,018

 

24.5 %

 

54,129

 

54,259

 

(0.2)%

Other revenues

 

299

 

319

 

(6.3)%

 

-

 

-

 

- %

Total

$

112,547

$

106,152

 

6.0 %

 

199,153

 

192,622

 

3.4 %

 

 

 

 

 

 

 

 

 

 

 

 

 

Heating degree days (normal 4,471)

 

 

 

 

 

 

 

4,777

 

4,650

 

2.7 %

Average rate per therm of

 

 

 

 

 

 

 

 

 

 

 

 

retail customer

$

0.748

$

0.743

 

0.7 %

 

 

 

 

 

 

 

Gas margin, a non-GAAP measure, increased $5.2 million for the nine months ended September 30, 2019, compared to the same period in 2018, due to the following:

 

 

(In millions)

 

 

 

 

Revenue subject to refund, net

$

2.4

 

 

Increase in volume

 

1.0

 

 

Rate changes

 

0.9

 

 

Other

 

0.9

 

 

Total

$

5.2

 

 

Revenue subject to refund. For cost recovery mechanisms, any over-collection of the difference between actual costs incurred and the amount of costs collected from customers is recorded as a reduction of revenue in the period incurred.

 

oTax Act. MGE received a PSCW order in January 2018 to defer the over-collection of income tax expense collected in customer rates as a result of the Tax Act reduction in federal income tax rate to 21 percent. In September 2019, MGE returned $1.0 million to gas customers through bill credits related to the tax credit. The 2019 bill credit was deducted from revenues in previous years and held in a regulatory liability pending the refund to customers. As a result, the refund did not affect reported revenues in the current periods, although it did reduce cash and the corresponding regulatory liability. During the nine months ended September 30, 2019 and 2018, MGE recorded a $0.1 million and a $1.3 million reduction in retail gas revenues and recorded a corresponding regulatory liability, respectively. During the nine months ended September 30, 2018, MGE returned $1.1 million to gas customers through bill credits related to the tax credit.

 

Volume. For the nine months ended September 30, 2019, retail gas deliveries increased 4.8% compared to the same period in the prior year primarily related to customer growth and more favorable weather conditions in the current year.

 

Rate changes. In December 2018, the PSCW authorized MGE to increase 2019 rates for retail gas customers by 1.06%.

 

Other. During the nine months ended September 30, 2019, other items affecting gas operating revenues increased $0.9 million primarily attributable to an increase in fixed charges as a result of an increase in customers.

 

Consolidated operations and maintenance expenses

 

For the nine months ended September 30, 2019, operations and maintenance expenses increased $12.0 million, compared to the same period in the prior year. The following contributed to the net change:

 

47


 

 

(In millions)

 

 

 

 

Increased administrative and general costs

$

6.2

 

 

Increased electric production expenses

 

2.3

 

 

Increased gas distribution expenses

 

1.3

 

 

Increased customer accounts costs

 

1.0

 

 

Increased other costs

 

0.7

 

 

Increased transmission costs

 

0.5

 

 

Total

$

12.0

 

 

Increased administrative and general costs and customer account costs are primarily related to increased technology costs associated with the multi-year Enterprise Forward project, which includes a new customer information system. In addition, higher administrative and general costs are related to an increase in stock price driving up the costs associated with the performance unit awards. See Footnote 8 of the Notes to Consolidated Financial Statements in this Report for additional information on performance unit awards.

 

Increased electric production expenses are primarily related to increased operations and maintenance costs at the Elm Road Units and Forward Wind facility.

 

Increased gas distribution expenses are primarily related to increased costs for maintenance on equipment and locator services.

 

Consolidated depreciation expense

 

Electric depreciation expense increased $10.5 million and gas depreciation expense increased $1.1 million for the nine months ended September 30, 2019, compared to the same period in the prior year. MGE accelerated depreciation for combustion turbines and Columbia Unit 1 in 2019, as approved in the December 2018 rate settlement, increasing electric depreciation expense compared to the prior period. Also approved in the December 2018 rate settlement were new depreciation rates for Columbia, further contributing to the increase in electric depreciation expense.

 

Nonregulated Energy Operations - MGE Energy and MGE

 

The nonregulated energy operations are conducted through MGE Energy's subsidiaries: MGE Power Elm Road (the Elm Road Units) and MGE Power West Campus (WCCF), which have been formed to own and lease electric generating capacity to assist MGE. For both the nine months ended September 30, 2019 and 2018, net income at the nonregulated energy operations segment was $15.2 million.

 

Transmission Investment Operations - MGE Energy

 

For the nine months ended September 30, 2019 and 2018, other income at the transmission investment segment was $6.8 million and $5.9 million, respectively. The transmission investment segment holds our interest in ATC and ATC Holdco, and its income reflects our equity in the earnings of those investments. ATC Holdco was formed in December 2016. In the near term, it is expected that ATC Holdco will be pursuing transmission development opportunities that typically have long development and investment lead times before becoming operational. See Footnote 4 of the Notes to Consolidated Financial Statements in this Report and "Other Matters" below for additional information concerning ATC and summarized financial information regarding ATC.

 

Consolidated Income Taxes - MGE Energy and MGE

 

In 2019, the effective electric tax rate decreased as a result of a tax credit generated by the Saratoga Wind Farm. See Footnote 5 of the Notes to Consolidated Financial Statements in this Report for the effective tax rate reconciliation.

 

Noncontrolling Interest, Net of Tax - MGE

 

The noncontrolling interest, net of tax, reflects the accounting required for MGE Energy's interest in MGE Power Elm Road (the Elm Road Units) and MGE Power West Campus (WCCF). MGE Energy owns 100% of MGE Power Elm

48


 

Road and MGE Power West Campus; however, due to the contractual agreements for these projects with MGE, the entities are considered VIEs with respect to MGE and their results are consolidated with those of MGE, the primary beneficiary of the VIEs. The following table shows MGE Energy's noncontrolling interest, net of tax, reflected on MGE's consolidated statement of income:

 

 

 

 

Nine Months Ended

 

 

 

 

September 30,

 

 

(In millions)

 

2019

 

2018

 

 

MGE Power Elm Road

$

11.3

$

11.6

 

 

MGE Power West Campus

 

5.4

 

5.3

 

 

Contractual Obligations and Commercial Commitments - MGE Energy and MGE

 

There were no material changes, other than from the normal course of business, to MGE Energy's and MGE's contractual obligations (representing cash obligations that are considered to be firm commitments) and commercial commitments (representing commitments triggered by future events) during the nine months ended September 30, 2019, except as noted below. Further discussion of the contractual obligations and commercial commitments is included in Footnote 17 of the Notes to Consolidated Financial Statements and "Contractual Obligations and Commercial Commitments for MGE Energy and MGE" under "Management's Discussion and Analysis of Financial Condition and Results of Operations" in MGE Energy's and MGE's 2018 Annual Report on Form 10-K.

 

Purchase Contracts - MGE Energy and MGE

 

See items c. and d. within Footnote 9 of Notes to Consolidated Financial Statements in this Report for a description of commitments as of September 30, 2019, that MGE Energy and MGE have entered with respect to various commodity supply and transportation contracts to meet their obligations to deliver electricity and natural gas to customers and the solar farm construction and operating contracts.

 

Other Commitments - MGE Energy

 

In September 2019, MGE Energy entered a subscription agreement to invest in a nonpublic venture capital fund. From time to time, the fund makes capital calls to its investors. MGE Energy has committed to contribute $10 million in capital for such capital calls. The timing of these infusions is dependent on the needs of the investee and is therefore uncertain at this time.

 

Long-term Debt - MGE Energy and MGE

 

MGE committed to $50 million of long-term unsecured debt in August 2019. Funding occurred on November 5, 2019. The proceeds of the debt financing will be used to assist with capital expenditures, maturing short-term debt, and other corporate obligations. See Footnote 7 of the Notes to Consolidated Financial Statements in this Report for further discussion of these debt issuances.

 

Liquidity and Capital Resources

 

MGE Energy and MGE have adequate liquidity to fund future operations and capital expenditures over the next twelve months. Available resources include cash and cash equivalents, operating cash flows, liquid assets, borrowing capacity under revolving credit facilities, and access to equity and debt capital markets. See "Credit Facilities" under Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources in MGE Energy's and MGE's 2018 Annual Report on Form 10-K for information regarding MGE Energy's and MGE's credit facilities.

 

Cash Flows

 

The following summarizes cash flows for MGE Energy and MGE during the nine months ended September 30, 2019 and 2018:

49


 

 

 

 

 

MGE Energy

 

MGE

 

 

(In thousands)

 

2019

 

2018

 

 

2019

 

2018

 

 

Cash provided by (used for):

 

 

 

 

 

 

 

 

 

 

 

Operating activities

$

111,702

$

138,432

 

$

109,020

$

135,027

 

 

Investing activities

 

(134,531)

 

(153,434)

 

 

(128,866)

 

(149,681)

 

 

Financing activities

 

1,142

 

37,949

 

 

19,962

 

53,011

 

 

Cash Provided by Operating Activities

 

MGE Energy

 

MGE Energy's consolidated net cash provided by operating activities is derived mainly from the electric and gas operations of its principal subsidiary, MGE.

 

Cash provided by operating activities for the nine months ended September 30, 2019, was $111.7 million, a decrease of $26.7 million when compared to the same period in the prior year.

 

MGE Energy's net income increased $2.4 million for the nine months ended September 30, 2019, when compared to the same period in the prior year.

 

MGE Energy's federal and state taxes paid increased $3.3 million for the nine months ended September 30, 2019, when compared to the same period in the prior year.

 

Working capital accounts (excluding prepaid and accrued taxes) resulted in $14.2 million in cash used for operating activities for the nine months ended September 30, 2019, primarily due to decreased accounts payable, decreased other current liabilities, and increased inventories, partially offset by decreased unbilled revenues and decreased accounts receivable. The decrease in other current liabilities is attributable to a $3.2 million one-time tax bill credit to retail customers in 2019.

 

Working capital accounts (excluding prepaid and accrued taxes) resulted in $17.2 million in cash provided by operating activities for the nine months ended September 30, 2018, primarily due to decreased unbilled revenues and increased other current liabilities.

 

An increase in hosted software asset expenditures resulted in additional $4.6 million in cash used for operating activities for the nine months ended September 30, 2019, when compared to the prior year. This amount represents a decrease of $0.6 million of cash used when compared to the prior year.

 

MGE

 

Cash provided by operating activities for the nine months ended September 30, 2019, was $109.0 million, a decrease of $26.0 million when compared to the same period in the prior year.

 

Net income increased $2.0 million for the nine months ended September 30, 2019, when compared to the same period in the prior year.

 

MGE's federal and state taxes paid increased $3.3 million for the nine months ended September 30, 2019, when compared to the same period in the prior year.

 

Working capital accounts (excluding prepaid and accrued taxes) resulted in $11.7 million in cash used for operating activities for the nine months ended September 30, 2019, primarily due to decreased accounts payable, decreased other current liabilities, and increased gas inventories, partially offset by decreased unbilled revenues and decreased accounts receivable. The decrease in other current liabilities is attributable to a $3.2 million one-time tax bill credit to retail customers in 2019.

 

Working capital accounts (excluding prepaid and accrued taxes) resulted in $19.3 million in cash provided by operating activities for the nine months ended September 30, 2018, primarily due to decreased unbilled revenues

50


 

and increased other current liabilities.

 

An increase in hosted software asset expenditures resulted in additional $4.6 million in cash used for operating activities for the nine months ended September 30, 2019, when compared to the prior year. This amount represents a decrease of $0.6 million of cash used when compared to the prior year.

 

Cash Used for Investing Activities

 

MGE Energy

 

MGE Energy's cash used for investing activities decreased $18.9 million for the nine months ended September 30, 2019, when compared to the same period in the prior year.

 

Capital expenditures for the nine months ended September 30, 2019, were $128.4 million. This amount represents a decrease of $20.6 million from the expenditures made in the same period in the prior year. This decrease primarily reflects expenditures on the construction of the Saratoga wind project in the prior year. 2019 capital expenditures include $48.2 million related to the Two Creeks and Badger Hollow solar construction projects. Total cost of the two projects is expected to be approximately $130 million. The projects are anticipated to be completed by the end of 2020.

 

MGE

 

MGE's cash used for investing activities decreased $20.8 million for the nine months ended September 30, 2019, when compared to the same period in the prior year.

 

Capital expenditures for the nine months ended September 30, 2019, were $128.4 million. This amount represents a decrease of $20.6 million from the expenditures made in the same period in the prior year. This decrease primarily reflects expenditures on the construction of the Saratoga wind project in the prior year. 2019 capital expenditures include $48.2 million related to the Two Creeks and Badger Hollow solar construction projects. Total cost of the two projects is expected to be approximately $130 million. The projects are anticipated to be completed by the end of 2020.

 

Cash Provided by Financing Activities

 

MGE Energy

 

Cash provided by MGE Energy's financing activities was $1.1 million for the nine months ended September 30, 2019, compared to $37.9 million of provided by for MGE Energy's financing activities for the same period in the prior year.

 

For the nine months ended September 30, 2019, dividends paid were $35.6 million compared to $34.1 million in the prior year. This increase was a result of a higher dividend per share ($1.028 vs. $0.983).

 

During the nine months ended September 30, 2018, MGE issued $100.0 million of senior unsecured notes, which was used to refinance $20.0 million of maturing long-term notes and assist with financing additional capital expenditures. The increase in long-term debt primarily reflects expenditures on the construction of the Saratoga wind project.

 

For the nine months ended September 30, 2019, net short-term debt borrowings were $41.5 million compared to net short-term debt repayments of $4.0 million for the nine months ended September 30, 2018.

 

MGE

 

During the nine months ended September 30, 2019, cash provided by MGE's financing activities was $20.0 million, compared to $53.0 million of cash provided by MGE's financing activities for the same period in the prior year.

 

51


 

Distributions to parent from noncontrolling interest, which represent distributions from MGE Power Elm Road and MGE Power West Campus to MGE Energy, were $17.0 million for the nine months ended September 30, 2019, compared to $19.0 million in the prior year.

 

During the nine months ended September 30, 2018, MGE issued $100.0 million of senior unsecured notes, which was used to refinance $20.0 million of maturing long-term notes and assist with financing additional capital expenditures. The increase in long-term debt primarily reflects expenditures on the construction of the Saratoga wind project.

 

For the nine months ended September 30, 2019, net short-term debt borrowings were $41.5 million compared to net short-term debt repayments of $4.0 million for the nine months ended September 30, 2018.

 

Capitalization Ratios

 

MGE Energy's capitalization ratios were as follows:

 

 

 

MGE Energy

 

 

 

September 30, 2019

 

December 31, 2018

 

 

Common shareholders' equity

60.8 %

 

61.5 %

 

 

Long-term debt(a)

35.3 %

 

37.5 %

 

 

Short-term debt

3.9 %

 

1.0 %

 

 

(a)Includes the current portion of long-term debt.

 

MGE Energy's and MGE's Capital Requirements

 

MGE Energy's and MGE's liquidity are primarily affected by their capital expenditure requirements. During the nine months ended September 30, 2019, capital expenditures for MGE Energy and MGE totaled $128.4 million, which included $126.2 million of utility capital expenditures. Included in the utility capital expenditures are costs associated with the Two Creeks and Badger Hollow solar construction projects.

 

Credit Ratings

 

MGE Energy's and MGE's access to the capital markets, including, in the case of MGE, the commercial paper market, and their respective financing costs in those markets, may depend on the credit ratings of the entity that is accessing the capital markets.

 

None of MGE Energy's or MGE's borrowings are subject to default or prepayment as a result of a downgrading of credit ratings, although a downgrading of MGE's credit ratings could increase fees and interest charges under both MGE Energy's and MGE's credit agreements.

 

Environmental Matters

 

The following discussion is limited to updates or developments in environmental matters that occurred during the nine months ended September 30, 2019. Further discussion of environmental matters is included in MGE Energy's and MGE's 2018 Annual Report on Form 10-K and Footnote 9.a. of Notes to Consolidated Financial Statements in this Report.

 

EPA Affordable Clean Energy (ACE) Rule and Associated Rules Under Section 111(d) of the Clean Air Act (CAA)

In July 2019, the EPA published a final rule which repeals the CPP and creates the replacement Affordable Clean Energy (ACE) rule to reduce greenhouse gas emissions from existing coal-fired EGUs. The ACE rule will apply to Columbia and the Elm Road Units. MGE is currently evaluating how this rule may impact operations. Until the State of Wisconsin develops a plan that is accepted by the EPA, MGE will not be able to determine the final impact of the rule. MGE will continue to evaluate the rule and monitor ongoing and potential legal proceedings associated with the CPP and ACE rules.

 

U.S. Court of Appeals for the D.C. Circuit’s Remand of CSAPR

52


 

The EPA's final update to its Cross State Air Pollution Rule (CSAPR), which regulates interstate transport of the air pollutants sulfuric oxide (SO2) and nitrogen oxides (NOx), has been in place since 2016 and MGE has been complying with the provisions of the rule.

 

CSAPR has been subject to ongoing legal challenges. In September 2019, the U.S. Court of Appeals D.C. Circuit upheld the challenge to the CSAPR's approach to the Clean Air Act's "Good Neighbor Provision" and remanded the rule to the EPA without vacatur. The court indicated that the EPA's leniency on the upwind states by not holding them to the same deadlines as downwind states effectively causes downwind states to miss attainment deadlines or over comply to meet deadlines. No deadline has been set for the EPA to revise the rule. Wisconsin is considered an upwind state under CSAPR and is potentially impacted by rules that the EPA will develop to address this remand. MGE will continue to monitor developments to determine if our operations will be impacted by any rule revisions.

 

Other Matters

 

ATC

 

In 2013, several parties filed a complaint with the FERC seeking to reduce the base return on equity (ROE) used by MISO transmission owners, including ATC, "due to changes in the capital markets." The complaint alleged that the MISO ROE should not exceed 9.15%, the equity components of hypothetical capital structures should be restricted to 50%, and the relevant incentive ROE adders should be discontinued. At the time, MISO's base ROE was 12.38% and ATC's base ROE was 12.2%. On September 28, 2016, FERC issued an order on the 2013 complaint, for the period November 2013 through February 2015, reducing the base ROE to 10.32%. This base ROE also became effective September 28, 2016, and will apply to future periods until FERC rules in the second complaint described below, at which time the base ROE ordered by FERC in the second complaint will prospectively become the authorized base ROE.

 

In February 2015, a second complaint was filed for the period February 2015 through May 2015 with the FERC requesting a reduction in the base ROE used by MISO transmission owners, including ATC, to 8.67%, with a refund effective date retroactive to the filing date of the complaint. In June 2016, an administrative law judge issued an initial decision for the second complaint that would reduce the transmission owner's base ROE to 9.7%. The initial decision will be reviewed by FERC. It is anticipated FERC will issue an order on this issue in 2019.

 

In January 2015, FERC accepted the transmission owner's request for a 50 basis-point incentive ROE adder for participating in MISO. The adder became effective January 6, 2015.

 

We derived approximately 6.8% and 6.3% of our net income for the nine months ended September 30, 2019 and 2018, respectively, from our investment in ATC. Any change to ATC's ROE could result in lower equity earnings and distributions from ATC in the future.

 

Adoption of Accounting Principles and Recently Issued Accounting Pronouncements

 

See Footnote 2 of Notes to Consolidated Financial Statements in this Report for discussion of new accounting pronouncements.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

MGE Energy and MGE are potentially exposed to market risk associated with interest rates, commodity prices, and equity returns. MGE currently has no exposure to foreign currency risk. MGE manages some risk exposure through risk management policies and the use of derivative instruments. MGE's risk management policy prohibits speculative trading transactions.

 

Commodity Price Risk

 

MGE has commodity price risk exposure with respect to the price of natural gas, electricity, coal, emission credits, and oil. MGE's electric operations burn natural gas in several of its peaking power plants and, in many cases, the cost of purchased power is tied to the cost of natural gas. MGE employs established policies and procedures to

53


 

reduce the market risks associated with changing commodity prices. MGE's commodity risks are somewhat mitigated by the current ratemaking process in place for recovering electric fuel cost, purchased energy costs, and the cost of natural gas.

 

MGE's electric fuel costs are subject to fuel rules established by the PSCW. The fuel rules require the PSCW and Wisconsin utilities to defer electric fuel-related costs that fall outside a symmetrical cost tolerance band. Any over/under recovery of the actual costs in a year outside of the symmetrical cost tolerance band is determined in the following year and is then reflected in future billings to electric retail customers. Under the electric fuel rules, MGE is required to defer the benefit of lower costs if the actual electric fuel costs fall outside the lower end of the range and is required to defer costs, less any excess revenues, if the actual electric fuel costs exceed the upper end of the range. Excess revenues are defined as revenues in the year in question that provide MGE with a greater return on common equity than authorized by the PSCW in MGE's latest rate order. The range is defined by the PSCW and has been modified throughout the years based on market conditions and other relevant factors. Currently, MGE is subject to a plus or minus 2% range. MGE assumes the risks and benefits of variances that are within the cost tolerance band. For 2019, fuel and purchased power costs included in MGE's fuel monitoring level rates are $77.3 million. See Footnote 10.b. of the Notes to Consolidated Financial Statements in this Report for additional information.

 

MGE recovers the cost of natural gas in its gas utility segment through the purchased gas adjustment clause (PGA). Under the PGA, MGE is able to pass through to its gas customers the cost of gas.

 

MGE also reduces price risk caused by market fluctuations via physical contracts and financial derivative contracts, including futures, swaps, options, forwards, and other contractual commitments. The maximum length of time over which cash flows related to energy commodities can be hedged under applicable PSCW approvals is four years.

 

MGE has financial gas and electric commodity contracts to hedge commodity price risk in the gas and electric utility segments. These contracts are primarily comprised of exchange-traded option and future contracts. MGE also holds financial transmission rights (FTRs), which are used to hedge the risk of increased transmission congestion charges. As of September 30, 2019, the cost basis of these instruments exceeded their fair value by $0.2 million. Under the PGA clause and electric fuel rules, MGE may include the costs and benefits of the aforementioned fuel price risk management tools in the costs of fuel (natural gas or power). Because these costs/benefits are recoverable, the related unrealized loss/gain has been deferred on the consolidated balance sheets as a regulatory asset/liability.

 

MGE has also entered into a purchased power agreement that provides MGE with firm capacity and energy that began on June 1, 2012, and ends on May 31, 2022 (the "base term"). The agreement also allows MGE an option to extend the contract after the base term. The agreement is considered a derivative contract and is recognized at its fair value on the consolidated balance sheets. However, the derivative qualifies for regulatory deferral and is recognized with a corresponding regulatory asset or liability depending on whether the fair value is in a loss or gain position. The fair value of the contract as of September 30, 2019, reflects a loss position of $29.0 million.

 

Interest Rate Risk

 

Both MGE Energy and MGE may have short term borrowings at varying interest rates. MGE issues commercial paper for its short-term borrowings, while MGE Energy draws from its current credit facility to meet its short-term borrowing needs. Borrowing levels vary from period to period depending upon capital investments and other factors. Future short-term interest expense and payments will reflect both future short-term interest rates and borrowing levels. MGE Energy and MGE manage interest rate risk by limiting their variable rate exposure and continually monitoring the effects of market changes on interest rates. MGE is not exposed to changes in interest rates on a substantial portion of its long-term debt until that debt matures and is refinanced at market rates.

 

Equity Price Risk - Pension-Related Assets

 

MGE currently funds its liabilities related to employee benefits through trust funds. These funds, which include investments in debt and equity securities, are managed by various investment managers. Changes in market value of these investments can have an impact on the future expenses related to these liabilities.

54


 

 

Credit Risk - Counterparty

 

Credit risk is the loss that may result from counterparty nonperformance. MGE is exposed to credit risk primarily through its merchant energy business. MGE uses credit policies to manage its credit risk, which include utilizing an established credit approval process, monitoring counterparty limits, employing credit mitigation measures such as collateral or prepayment arrangements, and using netting agreements.

 

Due to the possibility of extreme volatility in the prices of energy commodities and derivatives, the market value of contractual positions with individual counterparties could exceed established credit limits or collateral provided by those counterparties. If such a counterparty were then to fail to perform its obligations under its contract (for example, fail to deliver the electricity MGE originally contracted for), MGE could sustain a loss that could have a material impact on its financial results.

 

Additionally, if a counterparty were to default and MGE were to liquidate all contracts with that entity, MGE's credit loss would include the loss in value of mark-to-market contracts; the amount owed for settled transactions; and additional payments, if any, to settle unrealized losses. As of September 30, 2019, no counterparties have defaulted.

 

MGE is obligated to provide service to all electric and gas customers within its respective franchised territories. MGE's franchised electric territory includes a 264 square-mile area in Dane County, Wisconsin, and MGE's franchised gas territory includes a service area covering 1,684 square miles in Wisconsin. Based on results for the year ended December 31, 2018, no one customer constituted more than 10% of total operating revenues for MGE Energy and MGE. Credit risk for electric and gas is managed by MGE's credit and collection policies, which are consistent with state regulatory requirements.

 

Cash, cash equivalents, and customer accounts receivable are the financial instruments that potentially subject MGE Energy and MGE to concentrations of credit risk. MGE Energy and MGE place their cash and cash equivalents with high credit-quality financial institutions. MGE has limited concentrations of credit risk from customer accounts receivable because of the large number of customers and relatively strong economy in its service territory.

55


 

Item 4. Controls and Procedures.

 

During the third quarter of 2019, each registrant's management, including the principal executive officer and principal financial officer, evaluated its disclosure controls and procedures related to the recording, processing, summarization, and reporting of information in its periodic reports that it files with the SEC. These disclosure controls and procedures have been designed to ensure that material information relating to that registrant, including its subsidiaries, is accumulated and made known to that registrant's management, including these officers, by other employees of that registrant and its subsidiaries as appropriate to allow timely decisions regarding required disclosure, and that this information is recorded, processed, summarized, evaluated, and reported, as applicable, within the time periods specified in the SEC's rules and forms. Due to the inherent limitations of control systems, not all misstatements may be detected. These inherent limitations include the realities that judgments in decision making can be faulty and breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. Also, MGE Energy does not control or manage certain of its unconsolidated entities and thus, its access and ability to apply its procedures to those entities is more limited than is the case for its consolidated subsidiaries.

 

As of September 30, 2019, each registrant's principal executive officer and principal financial officer concluded that its disclosure controls and procedures were effective. Each registrant intends to strive continually to improve its disclosure controls and procedures to enhance the quality of its financial reporting.

 

During the quarter ended September 30, 2019, there were no changes in either registrant's internal controls over financial reporting that materially affected, or are reasonably likely to affect materially, that registrant's internal control over financial reporting.

56


 

PART II. OTHER INFORMATION.

 

Item 1. Legal Proceedings.

 

MGE Energy and MGE

 

MGE Energy and its subsidiaries, including MGE, from time to time are involved in various legal proceedings that are handled and defended in the ordinary course of business.

 

See Footnote 9.a. and 9.b. of Notes to Consolidated Financial Statements in this Report for more information.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

Issuer Purchases of Equity Securities

 

Period

 

Total Number of Shares Purchased

 

Average Price Paid per Share

 

Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(a)

 

Maximum number (or Approximate Dollar Value) of Shares That May Yet Be Purchased Under the Plans or Programs(a)

July 1-31, 2019

 

6,556

$

73.42

 

-

 

-

August 1-31, 2019

 

8,676

 

76.90

 

-

 

-

September 1-30, 2019

 

36,436

 

75.41

 

-

 

-

Total

 

51,668

$

75.41

 

-

 

-

 

(a) Under the MGE Energy, Inc. Direct Stock Purchase and Dividend Reinvestment Plan (Stock Plan), common stock shares deliverable to plan participants may be either newly issued shares or shares purchased on the open market, as determined from time to time by MGE Energy. MGE Energy's transfer agent uses open market purchases to provide shares to meet obligations to participants in the Stock Plan. The shares are purchased on the open market through the transfer agent's securities broker-dealer and then are reissued under the Stock Plan as needed to meet share delivery requirements. The volume and timing of share repurchases in the open market depends upon the level of dividend reinvestment and optional share purchases being made from time to time by plan participants. As a result, there is no specified maximum number of shares to be repurchased and no specified termination date for the repurchases. All shares issued through the Stock Plan, whether newly issued or reissued following open market purchases, are issued and sold pursuant to a registration statement that was filed with the SEC and is currently effective.

 

Item 4. Mine Safety Disclosures.

 

Not applicable to MGE Energy and MGE.

57


 

Item 6. Exhibits.

 

 

 

 

Ex. No.

 

Exhibit Description

31.1

*

Certifications Pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934 filed by Jeffrey M. Keebler for MGE Energy, Inc.

 

 

 

31.2

*

Certifications Pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934 filed by Jeffrey C. Newman for MGE Energy, Inc.

 

 

 

31.3

*

Certifications Pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934 filed by Jeffrey M. Keebler for Madison Gas and Electric Company

 

 

 

31.4

*

Certifications Pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934 filed by Jeffrey C. Newman for Madison Gas and Electric Company

 

 

 

32.1

**

Certifications Pursuant to Section 1350 of Chapter 63 of Title 18 United States Code (Sarbanes-Oxley Act of 2002) filed by Jeffrey M. Keebler for MGE Energy, Inc.

 

 

 

32.2

**

Certifications Pursuant to Section 1350 of Chapter 63 of Title 18 United States Code (Sarbanes-Oxley Act of 2002) filed by Jeffrey C. Newman for MGE Energy, Inc.

 

 

 

32.3

**

Certifications Pursuant to Section 1350 of Chapter 63 of Title 18 United States Code (Sarbanes-Oxley Act of 2002) filed by Jeffrey M. Keebler for Madison Gas and Electric Company

 

 

 

32.4

**

Certifications Pursuant to Section 1350 of Chapter 63 of Title 18 United States Code (Sarbanes-Oxley Act of 2002) filed by Jeffrey C. Newman for Madison Gas and Electric Company

 

 

 

101.INS

*

XBRL Instance

101.SCH

*

XBRL Taxonomy Extension Schema

101.CAL

*

XBRL Taxonomy Extension Calculation

101.DEF

*

XBRL Taxonomy Extension Definition

101.LAB

*

XBRL Taxonomy Extension Labels

101.PRE

*

XBRL Taxonomy Extension Presentation

 

 

 

 

 

 

*

 

Filed herewith.

**

 

Furnished herewith.

 

58


 

Signatures - MGE Energy, Inc.

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

 

MGE ENERGY, INC.

 

 

 

 

 

 

Date: November 6, 2019

/s/ Jeffrey M. Keebler

 

Jeffrey M. Keebler

Chairman, President and Chief Executive Officer

(Duly Authorized Officer)

 

 

 

 

 

 

Date: November 6, 2019

/s/ Jeffrey C. Newman

 

Jeffrey C. Newman

Executive Vice President, Chief Financial Officer, Secretary and Treasurer

(Chief Financial and Accounting Officer)

 

59


 

Signatures - Madison Gas and Electric Company

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

 

MADISON GAS AND ELECTRIC COMPANY

 

 

 

 

 

 

Date: November 6, 2019

/s/ Jeffrey M. Keebler

 

Jeffrey M. Keebler

Chairman, President and Chief Executive Officer

(Duly Authorized Officer)

 

 

 

 

 

 

Date: November 6, 2019

/s/ Jeffrey C. Newman

 

Jeffrey C. Newman

Executive Vice President, Chief Financial Officer, Secretary and Treasurer

(Chief Financial and Accounting Officer)

60

Exhibit 31.1  

 

 

EXHIBIT 31.1

 

Certification Pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934

 

 

I, Jeffrey M. Keebler, certify that:

 

1.     I have reviewed this quarterly report on Form 10-Q of MGE Energy, Inc.;

 

2.     Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.     Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.     The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c)   Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d)   Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

 

5.     The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

 

(a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

 

(b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

 

 

 

1  


 

/s/ Jeffrey M. Keebler

Jeffrey M. Keebler

Chairman, President and Chief Executive Officer

 

Date: November 6, 2019

 

2  


Exhibit 31.2  

 

 

EXHIBIT 31.2

 

Certification Pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934

 

 

I, Jeffrey C. Newman, certify that:

 

1.     I have reviewed this quarterly report on Form 10-Q of MGE Energy, Inc.;

 

2.     Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.     Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.     The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c)   Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d)   Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

 

5.     The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

 

(a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

 

(b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

 

 

 

1  


 

/s/ Jeffrey C. Newman

Jeffrey C. Newman

Executive Vice President, Chief Financial Officer,

Secretary and Treasurer

 

Date: November 6, 2019

 

2  


Exhibit 31.3  

 

 

EXHIBIT 31.3

 

Certification Pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934

 

 

I, Jeffrey M. Keebler, certify that:

 

1.     I have reviewed this quarterly report on Form 10-Q of Madison Gas and Electric Company;

 

2.     Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.     Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.     The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c)   Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d)   Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

 

5.     The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

 

(a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

 

(b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

 

 

 

1  


 

/s/ Jeffrey M. Keebler

Jeffrey M. Keebler

Chairman, President and Chief Executive Officer

 

Date: November 6, 2019

 

2  


Exhibit 31.4  

 

 

EXHIBIT 31.4

 

Certification Pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934

 

 

I, Jeffrey C. Newman, certify that:

 

1.     I have reviewed this quarterly report on Form 10-Q of Madison Gas and Electric Company;

 

2.     Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.     Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.     The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c)   Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d)   Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

 

5.     The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

 

(a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

 

(b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

 

 

 

1  


 

/s/ Jeffrey C. Newman

Jeffrey C. Newman

Executive Vice President, Chief Financial Officer,

Secretary and Treasurer

 

Date: November 6, 2019

 

2  


Exhibit 32.1  

 

 

EXHIBIT 32.1

 

 

Certification Pursuant to 18 U.S.C. Section 1350,

as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

 

In connection with the quarterly report on Form 10-Q of MGE Energy, Inc. (the "Company"), for the period ended September 30, 2019, as filed with the Securities and Exchange Commission on the date hereof ("the Report"), I, Jeffrey M. Keebler, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

1.    The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and

 

2.    The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

 

 

/s/ Jeffrey M. Keebler

Jeffrey M. Keebler

Chairman, President and Chief Executive Officer

 

Date: November 6, 2019

 

1  


Exhibit 32.2  

 

 

EXHIBIT 32.2

 

 

Certification Pursuant to 18 U.S.C. Section 1350,

as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

 

In connection with the quarterly report on Form 10-Q of MGE Energy, Inc. (the "Company"), for the period ended September 30, 2019, as filed with the Securities and Exchange Commission on the date hereof ("the Report"), I, Jeffrey C. Newman, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

1.    The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and

 

2.    The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

 

 

/s/ Jeffrey C. Newman

Jeffrey C. Newman

Executive Vice President, Chief Financial Officer,

Secretary and Treasurer

 

Date: November 6, 2019

 

1  


Exhibit 32.3  

 

 

EXHIBIT 32.3

 

 

Certification Pursuant to 18 U.S.C. Section 1350,

as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

 

In connection with the quarterly report on Form 10-Q of Madison Gas and Electric Company (the "Company"), for the period ended September 30, 2019, as filed with the Securities and Exchange Commission on the date hereof ("the Report"), I, Jeffrey M. Keebler, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

1.    The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and

 

2.    The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

 

 

/s/ Jeffrey M. Keebler

Jeffrey M. Keebler

Chairman, President and Chief Executive Officer

 

Date: November 6, 2019

 

1  


Exhibit 32.4  

 

 

EXHIBIT 32.4

 

 

Certification Pursuant to 18 U.S.C. Section 1350,

as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

 

In connection with the quarterly report on Form 10-Q of Madison Gas and Electric Company (the "Company"), for the period ended September 30, 2019, as filed with the Securities and Exchange Commission on the date hereof ("the Report"), I, Jeffrey C. Newman, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

1.    The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and

 

2.    The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

 

 

/s/ Jeffrey C. Newman

Jeffrey C. Newman

Executive Vice President, Chief Financial Officer,

Secretary and Treasurer

 

Date: November 6, 2019

 

1  


v3.19.3
Commitments and Contingencies (Details-1)
Sep. 30, 2019
MW
Minimum [Member]  
EPA Greenhouse Gas Reduction Guidelines  
Standard of Performance Plan For EGUs Over Threshold 25
v3.19.3
Taxes (Details) - USD ($)
$ in Millions
3 Months Ended 9 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Sep. 30, 2019
Sep. 30, 2018
Reconciliation of tax provision to statutory federal income tax rate [Abstract]        
Statutory federal income tax rate 21.00% 21.00% 21.00% 21.00%
State income taxes, net of federal benefit 6.30% 6.30% 6.30% 6.30%
Amortized investment tax credits (0.10%) (0.10%) (0.10%) (0.10%)
Credit for electricity from wind energy (4.80%) [1] (0.30%) (5.60%) [1] (0.30%)
AFUDC equity, net (0.40%) (0.60%) (0.30%) (0.80%)
Amortization of utility excess deferred tax - tax reform [2] (1.90%) (1.80%) (2.20%) (1.80%)
Other, net, individually significant (0.50%) 0.00% 0.10% 0.00%
Effective income tax rate 19.60% 24.50% 19.20% 24.30%
Excess Deferred Taxes, Tax Cuts And Jobs Act [Member]        
Effects Of The Tax Cuts And Jobs Act [Abstract]        
Excess deferred tax - Income statement effect $ 0.6 $ 0.5 $ 1.7 $ 1.4
MGE [Member]        
Reconciliation of tax provision to statutory federal income tax rate [Abstract]        
Statutory federal income tax rate 21.00% 21.00% 21.00% 21.00%
State income taxes, net of federal benefit 6.20% 6.20% 6.20% 6.20%
Amortized investment tax credits (0.10%) (0.10%) (0.10%) (0.10%)
Credit for electricity from wind energy (5.20%) [1] (0.20%) (6.10%) [1] (0.30%)
AFUDC equity, net (0.40%) (0.60%) (0.30%) (0.80%)
Amortization of utility excess deferred tax - tax reform [2] (2.10%) (1.80%) (2.40%) (2.00%)
Other, net, individually significant (0.50%) 0.10% 0.10% 0.10%
Effective income tax rate 18.90% 24.60% 18.40% 24.10%
[1] Saratoga Wind Farm became operational in February 2019.
[2] Included are impacts of the Tax Cuts and Jobs Act for the regulated utility for excess deferred taxes recognized using a normalization method of accounting. For the three and nine months ended September 30, 2019, MGE recognized $0.6 million and $1.7 million, respectively, compared to $0.5 million and $1.4 million for the comparable periods in 2018. The amount and timing of the cash impacts will depend on the period over which certain income tax benefits are provided to customers, as determined by the PSCW.
v3.19.3
Leases (Details-5)
$ in Thousands
Sep. 30, 2019
USD ($)
Finance Lease Liabilities Payments Due [Abstract]  
2019 $ 539
2020 1,644
2021 1,428
2022 1,309
2023 1,228
Thereafter 41,317
Undiscounted finance lease liability 47,465
Less: Present value discount (28,876)
Finance lease liability 18,589
Operating Lease Liabilities Payments Due [Abstract]  
2019 37
2020 152
2021 86
2022 33
2023 2
Thereafter 52
Undiscounted operating lease liability 362
Less: Present value discount (34)
Operating lease liability $ 328
v3.19.3
Asset Retirement Obligation (Details)
$ in Millions
9 Months Ended
Sep. 30, 2019
USD ($)
Saratoga Wind Farm [Member]  
Asset Retirement Obligations [Roll Forward]  
Saratoga Wind Asset Retirement Obligation $ 1.5
v3.19.3
Fair Value of Financial Instruments
9 Months Ended
Sep. 30, 2019
Fair Value Disclosures [Abstract]  
Fair Value of Financial Instruments

Fair Value of Financial Instruments - MGE Energy and MGE.

 

Fair value is defined as the price that would be received to sell an asset or would be paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. The accounting standard clarifies that fair value should be based on the assumptions market participants would use when pricing the asset or liability including assumptions about risk. The standard also establishes a three-level fair value hierarchy based upon the observability of the assumptions used and requires the use of observable market data when available. The levels are:

 

Level 1 - Pricing inputs are quoted prices within active markets for identical assets or liabilities.

 

Level 2 - Pricing inputs are quoted prices within active markets for similar assets or liabilities; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations that are correlated with or otherwise verifiable by observable market data.

 

Level 3 - Pricing inputs are unobservable and reflect management's best estimate of what market participants would use in pricing the asset or liability.

 

a.Fair Value of Financial Assets and Liabilities Recorded at the Carrying Amount.

 

The carrying amount of cash, cash equivalents, and outstanding commercial paper approximates fair market value due to the short maturity of those investments and obligations. The estimated fair market value of long-term debt is based on quoted market prices for similar financial instruments. Since long-term debt is not traded in an active market, it is classified as Level 2.

The estimated fair market value offinancial instruments are as follows:

 

 

 

September 30, 2019

 

December 31, 2018

 

 

(In thousands)

 

Carrying Amount

 

Fair Value

 

Carrying Amount

 

Fair Value

 

 

MGE Energy

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

$

61,112

$

61,112

$

83,102

$

83,102

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

Short-term debt - commercial paper

 

54,500

 

54,500

 

13,000

 

13,000

 

 

Long-term debt(a)

 

499,027

 

578,229

 

502,431

 

518,811

 

 

 

 

 

 

 

 

 

 

 

 

 

MGE

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

$

4,656

$

4,656

$

4,843

$

4,843

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

Short-term debt - commercial paper

 

54,500

 

54,500

 

13,000

 

13,000

 

 

Long-term debt(a)

 

499,027

 

578,229

 

502,431

 

518,811

 

(a) Includes long-term debt due within one year. Excludes debt issuance costs and unamortized discount of $4.2million and $4.5million as of September 30, 2019, and December 31, 2018, respectively.

 

b.Recurring Fair Value Measurements.

 

The following table presents the balances of assets and liabilities measured at fair value on a recurring basis.

 

 

 

Fair Value as of September 30, 2019

 

 

(In thousands)

 

Total

 

Level 1

 

Level 2

 

Level 3

 

 

MGE Energy

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

Derivatives, net(b)

$

1,093

$

525

$

-

$

568

 

 

Exchange-traded investments

 

1,001

 

1,001

 

-

 

-

 

 

Total Assets

$

2,094

$

1,526

$

-

$

568

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

Derivatives, net

$

30,275

$

687

$

-

$

29,588

 

 

Deferred compensation

 

3,025

 

-

 

3,025

 

-

 

 

Total Liabilities

$

33,300

$

687

$

3,025

$

29,588

 

 

 

 

 

 

 

 

 

 

 

 

 

MGE

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

Derivatives, net(b)

$

1,093

$

525

$

-

$

568

 

 

Exchange-traded investments

 

178

 

178

 

-

 

-

 

 

Total Assets

$

1,271

$

703

$

-

$

568

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

Derivatives, net

$

30,275

$

687

$

-

$

29,588

 

 

Deferred compensation

 

3,025

 

-

 

3,025

 

-

 

 

Total Liabilities

$

33,300

$

687

$

3,025

$

29,588

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value as of December 31, 2018

 

 

(In thousands)

 

Total

 

Level 1

 

Level 2

 

Level 3

 

 

MGE Energy

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

Derivatives, net

$

1,042

$

296

$

-

$

746

 

 

Exchange-traded investments

 

848

 

848

 

-

 

-

 

 

Total Assets

$

1,890

$

1,144

$

-

$

746

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

Derivatives, net

$

32,872

$

124

$

-

$

32,748

 

 

Deferred compensation

 

3,078

 

-

 

3,078

 

-

 

 

Total Liabilities

$

35,950

$

124

$

3,078

$

32,748

 

 

 

 

 

 

 

 

 

 

 

 

 

MGE

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

Derivatives, net

$

1,042

$

296

$

-

$

746

 

 

Exchange-traded investments

 

43

 

43

 

-

 

-

 

 

Total Assets

$

1,085

$

339

$

-

$

746

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

Derivatives, net

$

32,872

$

124

$

-

$

32,748

 

 

Deferred compensation

 

3,078

 

-

 

3,078

 

-

 

 

Total Liabilities

$

35,950

$

124

$

3,078

$

32,748

 

 

 

 

 

 

 

 

 

 

 

 

(b) These amounts are shown gross and exclude $0.7 million of collateral that was posted against derivative positions with counterparties as of September 30, 2019.

 

No transfers were made in or out of Level 1 or Level 2 for the nine months ended September 30, 2019.

 

Investments include exchange-traded investment securities valued using quoted prices on active exchanges and are therefore classified as Level 1.

 

The deferred compensation plan allows participants to defer certain cash compensation into a notional investment account. These amounts are included within other deferred liabilities in the consolidated balance sheets. The notional investments earn interest based upon the semiannual rate of U.S. Treasury Bills having a 26-week maturity increased by 1% compounded monthly with a minimum annual rate of 7%, compounded monthly. The notional investments are based upon observable market data, however, since the deferred compensation obligations themselves are not exchanged in an active market, they are classified as Level 2.

 

Derivatives include exchange-traded derivative contracts, over-the-counter transactions, a purchased power agreement, and FTRs. Most exchange-traded derivative contracts are valued based on unadjusted quoted prices in active markets and are therefore classified as Level 1. A small number of exchange-traded derivative contracts are valued using quoted market pricing in markets with insufficient volumes and are therefore considered unobservable and classified as Level 3. Transactions done with an over-the-counter party are on inactive markets and are therefore classified as Level 3. These transactions are valued based on quoted prices from markets with similar exchange-traded transactions. FTRs are priced based upon monthly auction results for identical or similar instruments in a closed market with limited data available and are therefore classified as Level 3.

 

The purchased power agreement (see Footnote 11) was valued using an internally-developed pricing model and therefore is classified as Level 3. The model projects future market energy prices and compares those prices to the projected power costs to be incurred under the contract. Inputs to the model require significant management judgment and estimation. Future energy prices are based on a forward power pricing curve using exchange-traded contracts in the electric futures market. A basis adjustment is applied to the market energy price to reflect the price differential between the market price delivery point and the counterparty delivery point. The historical relationship between the delivery points is reviewed and a discount (below 100%) or premium (above 100%) is derived. This comparison is done for both peak times when demand is high and off-peak times when demand is low. If the basis adjustment is lowered, the fair value measurement will decrease, and if the basis adjustment is increased, the fair value measurement will increase.

 

The projected power costs anticipated to be incurred under the purchased power agreement are determined using many factors, including historical generating costs, future prices, and expected fuel mix of the counterparty. An increase in the projected fuel costs would result in a decrease in the fair value measurement of the purchased power agreement. A significant input that MGE estimates is the counterparty's fuel mix in determining the projected power cost. MGE also considers the assumptions that market participants would use in valuing the asset or liability. This consideration includes assumptions about market risk such as liquidity, volatility, and contract duration. The fair value model uses a discount rate that incorporates discounting, credit, and model risks.

 

The following table presents the significant unobservable inputs used in the pricing model.

 

 

 

Model Input

 

Significant Unobservable Inputs

 

September 30, 2019

 

December 31, 2018

 

Basis adjustment:

 

 

 

 

 

 

 

On peak

 

92.2

%

 

92.1

%

 

Off peak

 

92.8

%

 

92.8

%

 

Counterparty fuel mix:

 

 

 

 

 

 

 

Internal generation

 

40.0% - 60.0

%

 

50.0% - 75.0

%

 

Purchased power

 

60.0% - 40.0

%

 

50.0% - 25.0

%

The following table summarizes the changes in Level 3 commodity derivative assets and liabilities measured at fair value on a recurring basis.

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30,

 

September 30,

(In thousands)

 

2019

 

2018

 

2019

 

2018

Beginning balance

$

(33,337)

$

(37,332)

$

(32,002)

$

(42,026)

Realized and unrealized gains (losses):

 

 

 

 

 

 

 

 

Included in regulatory assets

 

4,317

 

2,018

 

2,982

 

6,711

Included in other comprehensive income

 

-

 

-

 

-

 

-

Included in earnings

 

(492)

 

26

 

(1,928)

 

(434)

Included in current assets

 

4

 

(25)

 

(198)

 

(496)

Purchases

 

5,205

 

5,736

 

16,827

 

17,602

Sales

 

-

 

-

 

-

 

-

Issuances

 

-

 

-

 

-

 

-

Settlements

 

(4,717)

 

(5,737)

 

(14,701)

 

(16,671)

Transfers in and/or out of Level 3

 

-

 

-

 

-

 

-

Balance as of September 30,

$

(29,020)

$

(35,314)

$

(29,020)

$

(35,314)

Total gains (losses) included in earnings attributed to

 

 

 

 

 

 

 

 

the change in unrealized gains (losses) related to

 

 

 

 

 

 

 

 

assets and liabilities held at September 30,(c)

$

-

$

-

$

-

$

-

The following table presents total realized and unrealized gains (losses) included in income for Level 3 assets and liabilities measured at fair value on a recurring basis (c).

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

 

September 30,

 

September 30,

 

 

(In thousands)

 

2019

 

2018

 

2019

 

2018

 

 

Purchased Power Expense

$

(409)

$

26

$

(1,658)

$

(637)

 

 

Cost of Gas Sold Expense

 

(83)

 

-

 

(270)

 

203

 

 

Total

$

(492)

$

26

$

(1,928)

$

(434)

 

(c) MGE's exchange-traded derivative contracts, over-the-counter party transactions, purchased power agreement, and FTRs are subject to regulatory deferral. These derivatives are therefore marked to fair value and are offset in the financial statements with a corresponding regulatory asset or liability.
v3.19.3
Segment Information
9 Months Ended
Sep. 30, 2019
Segment Reporting [Abstract]  
Segment Information

Segment Information - MGE Energy and MGE.

 

MGE Energy operates in the following business segments: electric utility, gas utility, nonregulated energy, transmission investment, and all other. See the 2018 Annual Report on Form 10-K for additional discussion of each of these segments.

The following tables show segment information for MGE Energy's operations for the indicated periods:

(In thousands)

MGE Energy

 

Electric

 

Gas

 

Non-regulated Energy

 

Transmission Investment

 

All Others

 

Consolidation/ Elimination Entries

 

Consolidated Total

Three Months Ended September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

Operating revenues

$

120,607

$

17,377

$

214

$

-

$

-

$

-

$

138,198

Interdepartmental revenues

 

225

 

5,679

 

10,019

 

-

 

-

 

(15,923)

 

-

Total operating revenues

 

120,832

 

23,056

 

10,233

 

-

 

-

 

(15,923)

 

138,198

Depreciation and amortization

 

(13,441)

 

(2,879)

 

(1,873)

 

-

 

-

 

-

 

(18,193)

Other operating expenses

 

(76,817)

 

(20,217)

 

(33)

 

-

 

(123)

 

15,923

 

(81,267)

Operating income (loss)

 

30,574

 

(40)

 

8,327

 

-

 

(123)

 

-

 

38,738

Other income, net

 

1,817

 

855

 

-

 

2,372

 

160

 

-

 

5,204

Interest (expense) income, net

 

(3,762)

 

(1,059)

 

(1,274)

 

-

 

264

 

-

 

(5,831)

Income (loss) before taxes

 

28,629

 

(244)

 

7,053

 

2,372

 

301

 

-

 

38,111

Income tax (provision) benefit

 

(4,948)

 

183

 

(1,922)

 

(646)

 

(121)

 

-

 

(7,454)

Net income (loss)

$

23,681

$

(61)

$

5,131

$

1,726

$

180

$

-

$

30,657

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 

Operating revenues

$

119,175

$

18,407

$

213

$

-

$

-

$

-

$

137,795

Interdepartmental revenues

 

(20)

 

4,219

 

9,912

 

-

 

-

 

(14,111)

 

-

Total operating revenues

 

119,155

 

22,626

 

10,125

 

-

 

-

 

(14,111)

 

137,795

Depreciation and amortization

 

(9,864)

 

(2,534)

 

(1,861)

 

-

 

-

 

-

 

(14,259)

Other operating expenses

 

(77,847)

 

(19,824)

 

(36)

 

(4)

 

(138)

 

14,111

 

(83,738)

Operating income (loss)

 

31,444

 

268

 

8,228

 

(4)

 

(138)

 

-

 

39,798

Other income, net

 

1,763

 

829

 

-

 

1,620

 

118

 

-

 

4,330

Interest (expense) income, net

 

(3,217)

 

(963)

 

(1,320)

 

-

 

475

 

-

 

(5,025)

Income before taxes

 

29,990

 

134

 

6,908

 

1,616

 

455

 

-

 

39,103

Income tax (provision) benefit

 

(7,306)

 

42

 

(1,852)

 

(441)

 

(40)

 

-

 

(9,597)

Net income

$

22,684

$

176

$

5,056

$

1,175

$

415

$

-

$

29,506

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

Operating revenues

$

314,886

$

112,547

$

481

$

-

$

-

$

-

$

427,914

Interdepartmental revenues

 

622

 

12,571

 

29,987

 

-

 

-

 

(43,180)

 

-

Total operating revenues

 

315,508

 

125,118

 

30,468

 

-

 

-

 

(43,180)

 

427,914

Depreciation and amortization

 

(39,330)

 

(8,482)

 

(5,611)

 

-

 

-

 

-

 

(53,423)

Other operating expenses

 

(223,242)

 

(104,587)

 

(113)

 

-

 

(697)

 

43,180

 

(285,459)

Operating income (loss)

 

52,936

 

12,049

 

24,744

 

-

 

(697)

 

-

 

89,032

Other income, net

 

5,258

 

2,579

 

-

 

6,808

 

429

 

-

 

15,074

Interest (expense) income, net

 

(11,253)

 

(3,132)

 

(3,838)

 

-

 

996

 

-

 

(17,227)

Income before taxes

 

46,941

 

11,496

 

20,906

 

6,808

 

728

 

-

 

86,879

Income tax provision

 

(6,036)

 

(2,848)

 

(5,695)

 

(1,856)

 

(232)

 

-

 

(16,667)

Net income

$

40,905

$

8,648

$

15,211

$

4,952

$

496

$

-

$

70,212

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 

Operating revenues

$

312,633

$

106,152

$

904

$

-

$

-

$

-

$

419,689

Interdepartmental revenues

 

(234)

 

12,059

 

29,579

 

-

 

-

 

(41,404)

 

-

Total operating revenues

 

312,399

 

118,211

 

30,483

 

-

 

-

 

(41,404)

 

419,689

Depreciation and amortization

 

(28,817)

 

(7,374)

 

(5,563)

 

-

 

-

 

-

 

(41,754)

Other operating expenses

 

(228,957)

 

(99,251)

 

(113)

 

(12)

 

(789)

 

41,404

 

(287,718)

Operating income (loss)

 

54,625

 

11,586

 

24,807

 

(12)

 

(789)

 

-

 

90,217

Other income, net

 

5,055

 

2,347

 

-

 

5,908

 

670

 

-

 

13,980

Interest (expense) income, net

 

(9,036)

 

(2,689)

 

(4,002)

 

-

 

1,180

 

-

 

(14,547)

Income before taxes

 

50,644

 

11,244

 

20,805

 

5,896

 

1,061

 

-

 

89,650

Income tax provision

 

(11,492)

 

(2,788)

 

(5,638)

 

(1,611)

 

(263)

 

-

 

(21,792)

Net income

$

39,152

$

8,456

$

15,167

$

4,285

$

798

$

-

$

67,858

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The following tables show segment information for MGE's operations for the indicated periods:

(In thousands)

MGE

 

Electric

 

Gas

 

Non-regulated Energy

 

Consolidation/ Elimination Entries

 

Consolidated Total

 

Three Months Ended September 30, 2019

 

 

 

 

 

 

 

 

 

 

Operating revenues

$

120,607

$

17,377

$

214

$

-

$

138,198

 

Interdepartmental revenues

 

225

 

5,679

 

10,019

 

(15,923)

 

-

 

Total operating revenues

 

120,832

 

23,056

 

10,233

 

(15,923)

 

138,198

 

Depreciation and amortization

 

(13,441)

 

(2,879)

 

(1,873)

 

-

 

(18,193)

 

Other operating expenses

 

(76,817)

 

(20,217)

 

(33)

 

15,923

 

(81,144)

 

Operating income (loss)

 

30,574

 

(40)

 

8,327

 

-

 

38,861

 

Other income, net

 

1,817

 

855

 

-

 

-

 

2,672

 

Interest expense, net

 

(3,762)

 

(1,059)

 

(1,274)

 

-

 

(6,095)

 

Income (loss) before taxes

 

28,629

 

(244)

 

7,053

 

-

 

35,438

 

Income tax (provision) benefit

 

(4,948)

 

183

 

(1,922)

 

-

 

(6,687)

 

Net income (loss)

 

23,681

 

(61)

 

5,131

 

-

 

28,751

 

Less: Net income attributable to

 

 

 

 

 

 

 

 

 

 

 

noncontrolling interest, net of tax

 

-

 

-

 

-

 

(5,614)

 

(5,614)

 

Net income (loss) attributable to MGE

$

23,681

$

(61)

$

5,131

$

(5,614)

$

23,137

 

Three Months Ended September 30, 2018

 

 

 

 

 

 

 

 

 

 

Operating revenues

$

119,175

$

18,407

$

213

$

-

$

137,795

 

Interdepartmental revenues

 

(20)

 

4,219

 

9,912

 

(14,111)

 

-

 

Total operating revenues

 

119,155

 

22,626

 

10,125

 

(14,111)

 

137,795

 

Depreciation and amortization

 

(9,864)

 

(2,534)

 

(1,861)

 

-

 

(14,259)

 

Other operating expenses

 

(77,847)

 

(19,824)

 

(35)

 

14,111

 

(83,595)

 

Operating income

 

31,444

 

268

 

8,229

 

-

 

39,941

 

Other income, net

 

1,763

 

829

 

-

 

-

 

2,592

 

Interest expense, net

 

(3,217)

 

(963)

 

(1,320)

 

-

 

(5,500)

 

Income before taxes

 

29,990

 

134

 

6,909

 

-

 

37,033

 

Income tax provision

 

(7,306)

 

42

 

(1,853)

 

-

 

(9,117)

 

Net income

 

22,684

 

176

 

5,056

 

-

 

27,916

 

Less: Net income attributable to

 

 

 

 

 

 

 

 

 

 

 

noncontrolling interest, net of tax

 

-

 

-

 

-

 

(5,629)

 

(5,629)

 

Net income attributable to MGE

$

22,684

$

176

$

5,056

$

(5,629)

$

22,287

 

Nine Months Ended September 30, 2019

 

 

 

 

 

 

 

 

 

 

Operating revenues

$

314,886

$

112,547

$

481

$

-

$

427,914

 

Interdepartmental revenues

 

622

 

12,571

 

29,987

 

(43,180)

 

-

 

Total operating revenues

 

315,508

 

125,118

 

30,468

 

(43,180)

 

427,914

 

Depreciation and amortization

 

(39,330)

 

(8,482)

 

(5,611)

 

-

 

(53,423)

 

Other operating expenses

 

(223,242)

 

(104,587)

 

(113)

 

43,180

 

(284,762)

 

Operating income

 

52,936

 

12,049

 

24,744

 

-

 

89,729

 

Other income, net

 

5,258

 

2,579

 

-

 

-

 

7,837

 

Interest expense, net

 

(11,253)

 

(3,132)

 

(3,838)

 

-

 

(18,223)

 

Income before taxes

 

46,941

 

11,496

 

20,906

 

-

 

79,343

 

Income tax provision

 

(6,036)

 

(2,848)

 

(5,695)

 

-

 

(14,579)

 

Net income

 

40,905

 

8,648

 

15,211

 

-

 

64,764

 

Less: Net income attributable to

 

 

 

 

 

 

 

 

 

 

 

noncontrolling interest, net of tax

 

-

 

-

 

-

 

(16,725)

 

(16,725)

 

Net income attributable to MGE

$

40,905

$

8,648

$

15,211

$

(16,725)

$

48,039

 

Nine Months Ended September 30, 2018

 

 

 

 

 

 

 

 

 

 

Operating revenues

$

312,633

$

106,152

$

904

$

-

$

419,689

 

Interdepartmental revenues

 

(234)

 

12,059

 

29,579

 

(41,404)

 

-

 

Total operating revenues

 

312,399

 

118,211

 

30,483

 

(41,404)

 

419,689

 

Depreciation and amortization

 

(28,817)

 

(7,374)

 

(5,563)

 

-

 

(41,754)

 

Other operating expenses

 

(228,957)

 

(99,251)

 

(113)

 

41,404

 

(286,917)

 

Operating income

 

54,625

 

11,586

 

24,807

 

-

 

91,018

 

Other income, net

 

5,055

 

2,347

 

-

 

-

 

7,402

 

Interest expense, net

 

(9,036)

 

(2,689)

 

(4,002)

 

-

 

(15,727)

 

Income before taxes

 

50,644

 

11,244

 

20,805

 

-

 

82,693

 

Income tax provision

 

(11,492)

 

(2,788)

 

(5,638)

 

-

 

(19,918)

 

Net income

 

39,152

 

8,456

 

15,167

 

-

 

62,775

 

Less: Net income attributable to

 

 

 

 

 

 

 

 

 

 

 

noncontrolling interest, net of tax

 

-

 

-

 

-

 

(16,940)

 

(16,940)

 

Net income attributable to MGE

$

39,152

$

8,456

$

15,167

$

(16,940)

$

45,835

 

The following table shows segment information for assets and capital expenditures:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Utility

 

 

Consolidated

(In thousands)

MGE Energy

 

Electric

 

Gas

 

 

Non-regulated Energy

 

Transmission Investment

 

All Others

 

Consolidation/ Elimination Entries

 

Total

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2019

$

1,288,752

$

379,160

 

$

259,542

$

69,829

$

447,307

$

(377,617)

$

2,066,973

December 31, 2018

 

1,193,083

 

377,005

 

 

265,301

 

66,366

 

465,661

 

(378,798)

 

1,988,618

Capital Expenditures:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine months ended September 30, 2019

$

101,609

$

24,551

 

$

2,229

$

-

$

-

$

-

$

128,389

Year ended Dec. 31, 2018

 

176,399

 

30,497

 

 

5,301

 

-

 

-

 

-

 

212,197

 

 

Utility

 

 

Consolidated

(In thousands)

MGE

 

Electric

 

Gas

 

 

Non-regulated Energy

 

Elimination Entries

 

Total

Assets:

 

 

 

 

 

 

 

 

 

 

 

September 30, 2019

$

1,288,752

$

379,160

 

$

259,492

$

(377)

$

1,927,027

December 31, 2018

 

1,193,083

 

377,005

 

 

265,251

 

(448)

 

1,834,891

Capital Expenditures:

 

 

 

 

 

 

 

 

 

 

 

Nine months ended September 30, 2019

$

101,609

$

24,551

 

$

2,229

$

-

$

128,389

Year ended Dec. 31, 2018

 

176,399

 

30,497

 

 

5,301

 

-

 

212,197

v3.19.3
Investment in ATC and ATC Holdco (Tables)
9 Months Ended
Sep. 30, 2019
Equity Method Investments and Joint Ventures [Abstract]  
Equity Method Investments Financial Data MGE Transco and MGEE Transco have accounted for their investments in ATC and ATC Holdco, respectively, under the equity method of accounting. Equity earnings from investments are recorded as "Other income" on the consolidated statements of income of MGE Energy. MGE Transco recorded the following:

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

 

September 30,

 

September 30,

 

 

(In thousands)

 

2019

 

2018

 

2019

 

2018

 

 

Equity earnings from investment in ATC

$

2,364

$

1,672

$

6,879

$

6,113

 

 

Dividends from ATC(a)

 

1,781

 

1,581

 

5,526

 

4,540

 

 

Capital contributions to ATC

 

888

 

533

 

2,131

 

2,308

 

(a)MGE Transco recorded a $2.3 million dividend receivable from ATC as of December 31, 2017. A cash dividend was received in January of the following year. MGE Transco recorded a $1.6 million dividend receivable from ATC as of September 30, 2018. A cash dividend was received in October 2018.ATC's summarized financial data is as follows:

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

 

September 30,

 

September 30,

 

 

(In thousands)

 

2019

 

2018

 

2019

 

2018

 

 

Operating revenues

$

184,833

$

170,341

$

544,760

$

501,276

 

 

Operating expenses

 

(94,713)

 

(87,959)

 

(278,673)

 

(264,326)

 

 

Other income, net

 

484

 

439

 

1,031

 

2,070

 

 

Interest expense, net

 

(29,165)

 

(27,754)

 

(87,121)

 

(82,411)

 

 

Earnings before members' income taxes

$

61,439

$

55,067

$

179,997

$

156,609

 

v3.19.3
Investment in ATC and ATC Holdco
9 Months Ended
Sep. 30, 2019
Equity Method Investments and Joint Ventures [Abstract]  
Investment in ATC and ATC Holdco

Investment in ATC and ATC Holdco - MGE Energy and MGE.

 

ATC owns and operates electric transmission facilities primarily in Wisconsin. MGE received an interest in

ATC when it, like other Wisconsin electric utilities, contributed its electric transmission facilities to ATC as required by Wisconsin law. That interest is presently held by MGE Transco, which, since December 1, 2016, is owned by MGE Energy. ATC Holdco was formed by several members of ATC, including MGE Energy, to pursue electric transmission development and investments outside of Wisconsin. The ownership interest in ATC Holdco is held by MGEE Transco, a wholly-owned subsidiary of MGE Energy.

 

MGE Transco and MGEE Transco have accounted for their investments in ATC and ATC Holdco, respectively, under the equity method of accounting. Equity earnings from investments are recorded as "Other income" on the consolidated statements of income of MGE Energy. MGE Transco recorded the following:

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

 

September 30,

 

September 30,

 

 

(In thousands)

 

2019

 

2018

 

2019

 

2018

 

 

Equity earnings from investment in ATC

$

2,364

$

1,672

$

6,879

$

6,113

 

 

Dividends from ATC(a)

 

1,781

 

1,581

 

5,526

 

4,540

 

 

Capital contributions to ATC

 

888

 

533

 

2,131

 

2,308

 

(a)MGE Transco recorded a $2.3 million dividend receivable from ATC as of December 31, 2017. A cash dividend was received in January of the following year. MGE Transco recorded a $1.6 million dividend receivable from ATC as of September 30, 2018. A cash dividend was received in October 2018.

 

ATC Holdco was formed in December 2016. In the near term, it is expected that ATC Holdco will be pursuing transmission development opportunities that typically have long development and investment lead times before becoming operational.

 

In October 2019, MGE Transco made a $0.9 million capital contribution to ATC.

ATC's summarized financial data is as follows:

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

 

September 30,

 

September 30,

 

 

(In thousands)

 

2019

 

2018

 

2019

 

2018

 

 

Operating revenues

$

184,833

$

170,341

$

544,760

$

501,276

 

 

Operating expenses

 

(94,713)

 

(87,959)

 

(278,673)

 

(264,326)

 

 

Other income, net

 

484

 

439

 

1,031

 

2,070

 

 

Interest expense, net

 

(29,165)

 

(27,754)

 

(87,121)

 

(82,411)

 

 

Earnings before members' income taxes

$

61,439

$

55,067

$

179,997

$

156,609

 

MGE receives transmission and other related services from ATC. During the three and nine months ended September 30, 2019, MGE recorded $7.6 million and $22.8 million, respectively, for transmission services received compared to $7.2 million and $21.7 million for the comparable periods in 2018. MGE also provides a variety of operational, maintenance, and project management services for ATC, which is reimbursed by ATC. As of September 30, 2019, and December 31, 2018, MGE had a receivable due from ATC of $1.6 million and $0.1 million, respectively.
v3.19.3
Share-Based Compensation
9 Months Ended
Sep. 30, 2019
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Share-Based Compensation

Share-Based Compensation - MGE Energy and MGE.

 

Under MGE Energy's Director Incentive Plan and its Performance Unit Plan, non-employee directors and eligible employees, respectively, may receive performance units that entitle the holder to receive a cash

payment equal to the value of a designated number of shares of MGE Energy's common stock, plus dividend equivalent payments thereon, at the end of the performance period set in the award.

 

In 2019, 5,175 units were granted under the Director Incentive Plan and are subject to a three-year graded vesting schedule, and 17,022 units were granted under the Performance Unit Plan and are subject to a five-year graded vesting schedule. On the grant date, the cost of the director or employee services received in exchange for a performance unit award is measured based on the current market value of MGE Energy common stock. The fair value of the awards is remeasured quarterly, including as of September 30, 2019, as required by applicable accounting standards. Changes in fair value as well as the original grant are recognized as compensation cost. Since this amount is remeasured throughout the vesting period, the compensation cost is subject to variability.

 

For nonretirement eligible employees under the Performance Unit Plan, stock-based compensation costs are accrued and recognized using the graded vesting method. Compensation cost for retirement eligible employees or employees that will become retirement eligible during the vesting schedule are recognized on an abridged horizon as retirement eligibility accelerates vesting.

 

During the three and nine months ended September 30, 2019, MGE recorded $0.9 million and $2.8 million, respectively, in compensation expense as a result of awards under the plans compared to $0.3 million and $1.3 million for the comparable periods in 2018. In January 2019, cash payments of $1.5 million were distributed relating to awards that were granted in a prior year under the plans. No forfeitures of units occurred during the three and nine months ended September 30, 2019 and 2018. As of September 30, 2019, $6.2 million of outstanding awards are vested. Of this amount, no cash settlements have occurred as cash payments are only made at the end of the period covered by the awards.

v3.19.3
Consolidated Statements of Cash Flows (Unaudited) - USD ($)
9 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Operating Activities:    
Net Income $ 70,212,000 $ 67,858,000
Items not affecting cash:    
Depreciation and amortization 53,423,000 41,754,000
Deferred income taxes 4,864,000 2,352,000
Provision for doubtful receivables 978,000 642,000
Employee benefit plan credit (2,866,000) (1,544,000)
Equity earnings in ATC (6,879,000) (6,113,000)
Other items 692,000 31,000
Changes in working capital items:    
Decrease in current assets 14,307,000 25,530,000
Increase (decrease) in current liabilities (24,088,000) 6,026,000
Dividends from ATC 5,526,000 5,336,000
Cash contributions to pension and other postretirement plans (3,707,000) (3,967,000)
Other noncurrent items, net (760,000) 527,000
Cash Provided by Operating Activities 111,702,000 138,432,000
Investing Activities:    
Capital expenditures (128,389,000) (149,001,000)
Capital contributions to investments (5,894,000) (4,801,000)
Other (248,000) 368,000
Cash Used for Investing Activities (134,531,000) (153,434,000)
Financing Activities:    
Cash dividends paid on common stock (35,622,000) (34,062,000)
Repayment of long-term debt (3,405,000) (23,330,000)
Issuance of long-term debt 0 100,000,000
Proceeds from (repayments of) short-term debt 41,500,000 (4,000,000)
Other (1,331,000) (659,000)
Cash Provided by Financing Activities 1,142,000 37,949,000
Change in cash, cash equivalents, and restricted cash (21,687,000) 22,947,000
Cash, cash equivalents, and restricted cash at beginning of period 84,929,000 112,094,000
Cash, cash equivalents, and restricted cash at end of period 63,242,000 135,041,000
Significant noncash investing activities:    
Accrued capital expenditures 16,819,000 10,991,000
MGE [Member]    
Operating Activities:    
Net Income 64,764,000 62,775,000
Items not affecting cash:    
Depreciation and amortization 53,423,000 41,754,000
Deferred income taxes 3,653,000 (580,000)
Provision for doubtful receivables 978,000 642,000
Employee benefit plan credit (2,866,000) (1,544,000)
Other items 1,653,000 768,000
Changes in working capital items:    
Decrease in current assets 14,236,000 24,864,000
Increase (decrease) in current liabilities (22,234,000) 9,941,000
Cash contributions to pension and other postretirement plans (3,707,000) (3,967,000)
Other noncurrent items, net (880,000) 374,000
Cash Provided by Operating Activities 109,020,000 135,027,000
Investing Activities:    
Capital expenditures (128,389,000) (149,001,000)
Other (477,000) (680,000)
Cash Used for Investing Activities (128,866,000) (149,681,000)
Financing Activities:    
Distributions to parent from noncontrolling interest (17,000,000) (19,000,000)
Repayment of long-term debt (3,405,000) (23,330,000)
Issuance of long-term debt 0 100,000,000
Proceeds from (repayments of) short-term debt 41,500,000 (4,000,000)
Other (1,133,000) (659,000)
Cash Provided by Financing Activities 19,962,000 53,011,000
Change in cash, cash equivalents, and restricted cash 116,000 38,357,000
Cash, cash equivalents, and restricted cash at beginning of period 6,670,000 10,093,000
Cash, cash equivalents, and restricted cash at end of period 6,786,000 48,450,000
Significant noncash investing activities:    
Accrued capital expenditures $ 16,819,000 $ 10,991,000
v3.19.3
Leases (Details-3)
$ in Thousands
9 Months Ended
Sep. 30, 2019
USD ($)
Lessee Disclosure [Abstract]  
Finance leases - Financing cash flows $ 781
Finance leases - Operating cash flows 597
Operating leases - operating cash flows 108
Lease assets obtained in exchange for lease liabilities - finance leases 12,081
Lease assets obtained in exchange for lease liabilities - operating leases $ 239
v3.19.3
Madison Gas and Electric Company Consolidated Statements of Common Equity (Unaudited) - USD ($)
shares in Thousands, $ in Thousands
Total
MGE [Member]
Common Stock [Member]
Common Stock [Member]
MGE [Member]
Additional Paid-In Capital [Member]
MGE [Member]
Retained Earnings [Member]
Retained Earnings [Member]
MGE [Member]
Accumulated Other Comprehensive Income/(Loss) [Member]
Accumulated Other Comprehensive Income/(Loss) [Member]
MGE [Member]
Noncontrolling Interest [Member]
MGE [Member]
Increase (Decrease) In Stockholders' Equity [Roll Forward]                    
Cumulative effect of new accounting principle $ 0 $ 0       $ 377 $ (28) $ (377) $ 28  
Beginning balance, shares at Dec. 31, 2017     34,668 17,348            
Beginning balance, value at Dec. 31, 2017   632,774   $ 17,348 $ 192,417   282,135   (28) $ 140,902
Beginning balance, value - Adjusted at Dec. 31, 2017 778,187 632,774       $ 427,251 282,107 $ 0 0  
Increase (Decrease) In Stockholders' Equity [Roll Forward]                    
Net Income 67,858 62,775         45,835     16,940
Distributions to parent from noncontrolling interest   (19,000)               (19,000)
Ending balance, shares at Sep. 30, 2018     34,668 17,348            
Ending balance, value at Sep. 30, 2018   676,549   $ 17,348 192,417   327,942   0 138,842
Beginning balance, shares at Jun. 30, 2018     34,668 17,348            
Beginning balance, value at Jun. 30, 2018   654,133   $ 17,348 192,417   305,655   0 138,713
Increase (Decrease) In Stockholders' Equity [Roll Forward]                    
Net Income 29,506 27,916         22,287     5,629
Distributions to parent from noncontrolling interest   (5,500)               (5,500)
Ending balance, shares at Sep. 30, 2018     34,668 17,348            
Ending balance, value at Sep. 30, 2018   676,549   $ 17,348 192,417   327,942   0 138,842
Beginning balance, shares at Dec. 31, 2018     34,668 17,348            
Beginning balance, value at Dec. 31, 2018   689,810   $ 17,348 192,417   338,591   0 141,454
Increase (Decrease) In Stockholders' Equity [Roll Forward]                    
Net Income 70,212 64,764         48,039     16,725
Distributions to parent from noncontrolling interest   (17,000)               (17,000)
Ending balance, shares at Sep. 30, 2019     34,668 17,348            
Ending balance, value at Sep. 30, 2019   737,574   $ 17,348 192,417   386,630   0 141,179
Beginning balance, shares at Jun. 30, 2019     34,668 17,348            
Beginning balance, value at Jun. 30, 2019   714,323   $ 17,348 192,417   363,493   0 141,065
Increase (Decrease) In Stockholders' Equity [Roll Forward]                    
Net Income $ 30,657 28,751         23,137     5,614
Distributions to parent from noncontrolling interest   (5,500)               (5,500)
Ending balance, shares at Sep. 30, 2019     34,668 17,348            
Ending balance, value at Sep. 30, 2019   $ 737,574   $ 17,348 $ 192,417   $ 386,630   $ 0 $ 141,179
v3.19.3
Segment Information (Tables)
9 Months Ended
Sep. 30, 2019
Segment Reporting [Abstract]  
Segment Information The following tables show segment information for MGE Energy's operations for the indicated periods:

(In thousands)

MGE Energy

 

Electric

 

Gas

 

Non-regulated Energy

 

Transmission Investment

 

All Others

 

Consolidation/ Elimination Entries

 

Consolidated Total

Three Months Ended September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

Operating revenues

$

120,607

$

17,377

$

214

$

-

$

-

$

-

$

138,198

Interdepartmental revenues

 

225

 

5,679

 

10,019

 

-

 

-

 

(15,923)

 

-

Total operating revenues

 

120,832

 

23,056

 

10,233

 

-

 

-

 

(15,923)

 

138,198

Depreciation and amortization

 

(13,441)

 

(2,879)

 

(1,873)

 

-

 

-

 

-

 

(18,193)

Other operating expenses

 

(76,817)

 

(20,217)

 

(33)

 

-

 

(123)

 

15,923

 

(81,267)

Operating income (loss)

 

30,574

 

(40)

 

8,327

 

-

 

(123)

 

-

 

38,738

Other income, net

 

1,817

 

855

 

-

 

2,372

 

160

 

-

 

5,204

Interest (expense) income, net

 

(3,762)

 

(1,059)

 

(1,274)

 

-

 

264

 

-

 

(5,831)

Income (loss) before taxes

 

28,629

 

(244)

 

7,053

 

2,372

 

301

 

-

 

38,111

Income tax (provision) benefit

 

(4,948)

 

183

 

(1,922)

 

(646)

 

(121)

 

-

 

(7,454)

Net income (loss)

$

23,681

$

(61)

$

5,131

$

1,726

$

180

$

-

$

30,657

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 

Operating revenues

$

119,175

$

18,407

$

213

$

-

$

-

$

-

$

137,795

Interdepartmental revenues

 

(20)

 

4,219

 

9,912

 

-

 

-

 

(14,111)

 

-

Total operating revenues

 

119,155

 

22,626

 

10,125

 

-

 

-

 

(14,111)

 

137,795

Depreciation and amortization

 

(9,864)

 

(2,534)

 

(1,861)

 

-

 

-

 

-

 

(14,259)

Other operating expenses

 

(77,847)

 

(19,824)

 

(36)

 

(4)

 

(138)

 

14,111

 

(83,738)

Operating income (loss)

 

31,444

 

268

 

8,228

 

(4)

 

(138)

 

-

 

39,798

Other income, net

 

1,763

 

829

 

-

 

1,620

 

118

 

-

 

4,330

Interest (expense) income, net

 

(3,217)

 

(963)

 

(1,320)

 

-

 

475

 

-

 

(5,025)

Income before taxes

 

29,990

 

134

 

6,908

 

1,616

 

455

 

-

 

39,103

Income tax (provision) benefit

 

(7,306)

 

42

 

(1,852)

 

(441)

 

(40)

 

-

 

(9,597)

Net income

$

22,684

$

176

$

5,056

$

1,175

$

415

$

-

$

29,506

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

Operating revenues

$

314,886

$

112,547

$

481

$

-

$

-

$

-

$

427,914

Interdepartmental revenues

 

622

 

12,571

 

29,987

 

-

 

-

 

(43,180)

 

-

Total operating revenues

 

315,508

 

125,118

 

30,468

 

-

 

-

 

(43,180)

 

427,914

Depreciation and amortization

 

(39,330)

 

(8,482)

 

(5,611)

 

-

 

-

 

-

 

(53,423)

Other operating expenses

 

(223,242)

 

(104,587)

 

(113)

 

-

 

(697)

 

43,180

 

(285,459)

Operating income (loss)

 

52,936

 

12,049

 

24,744

 

-

 

(697)

 

-

 

89,032

Other income, net

 

5,258

 

2,579

 

-

 

6,808

 

429

 

-

 

15,074

Interest (expense) income, net

 

(11,253)

 

(3,132)

 

(3,838)

 

-

 

996

 

-

 

(17,227)

Income before taxes

 

46,941

 

11,496

 

20,906

 

6,808

 

728

 

-

 

86,879

Income tax provision

 

(6,036)

 

(2,848)

 

(5,695)

 

(1,856)

 

(232)

 

-

 

(16,667)

Net income

$

40,905

$

8,648

$

15,211

$

4,952

$

496

$

-

$

70,212

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 

Operating revenues

$

312,633

$

106,152

$

904

$

-

$

-

$

-

$

419,689

Interdepartmental revenues

 

(234)

 

12,059

 

29,579

 

-

 

-

 

(41,404)

 

-

Total operating revenues

 

312,399

 

118,211

 

30,483

 

-

 

-

 

(41,404)

 

419,689

Depreciation and amortization

 

(28,817)

 

(7,374)

 

(5,563)

 

-

 

-

 

-

 

(41,754)

Other operating expenses

 

(228,957)

 

(99,251)

 

(113)

 

(12)

 

(789)

 

41,404

 

(287,718)

Operating income (loss)

 

54,625

 

11,586

 

24,807

 

(12)

 

(789)

 

-

 

90,217

Other income, net

 

5,055

 

2,347

 

-

 

5,908

 

670

 

-

 

13,980

Interest (expense) income, net

 

(9,036)

 

(2,689)

 

(4,002)

 

-

 

1,180

 

-

 

(14,547)

Income before taxes

 

50,644

 

11,244

 

20,805

 

5,896

 

1,061

 

-

 

89,650

Income tax provision

 

(11,492)

 

(2,788)

 

(5,638)

 

(1,611)

 

(263)

 

-

 

(21,792)

Net income

$

39,152

$

8,456

$

15,167

$

4,285

$

798

$

-

$

67,858

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The following tables show segment information for MGE's operations for the indicated periods:

(In thousands)

MGE

 

Electric

 

Gas

 

Non-regulated Energy

 

Consolidation/ Elimination Entries

 

Consolidated Total

 

Three Months Ended September 30, 2019

 

 

 

 

 

 

 

 

 

 

Operating revenues

$

120,607

$

17,377

$

214

$

-

$

138,198

 

Interdepartmental revenues

 

225

 

5,679

 

10,019

 

(15,923)

 

-

 

Total operating revenues

 

120,832

 

23,056

 

10,233

 

(15,923)

 

138,198

 

Depreciation and amortization

 

(13,441)

 

(2,879)

 

(1,873)

 

-

 

(18,193)

 

Other operating expenses

 

(76,817)

 

(20,217)

 

(33)

 

15,923

 

(81,144)

 

Operating income (loss)

 

30,574

 

(40)

 

8,327

 

-

 

38,861

 

Other income, net

 

1,817

 

855

 

-

 

-

 

2,672

 

Interest expense, net

 

(3,762)

 

(1,059)

 

(1,274)

 

-

 

(6,095)

 

Income (loss) before taxes

 

28,629

 

(244)

 

7,053

 

-

 

35,438

 

Income tax (provision) benefit

 

(4,948)

 

183

 

(1,922)

 

-

 

(6,687)

 

Net income (loss)

 

23,681

 

(61)

 

5,131

 

-

 

28,751

 

Less: Net income attributable to

 

 

 

 

 

 

 

 

 

 

 

noncontrolling interest, net of tax

 

-

 

-

 

-

 

(5,614)

 

(5,614)

 

Net income (loss) attributable to MGE

$

23,681

$

(61)

$

5,131

$

(5,614)

$

23,137

 

Three Months Ended September 30, 2018

 

 

 

 

 

 

 

 

 

 

Operating revenues

$

119,175

$

18,407

$

213

$

-

$

137,795

 

Interdepartmental revenues

 

(20)

 

4,219

 

9,912

 

(14,111)

 

-

 

Total operating revenues

 

119,155

 

22,626

 

10,125

 

(14,111)

 

137,795

 

Depreciation and amortization

 

(9,864)

 

(2,534)

 

(1,861)

 

-

 

(14,259)

 

Other operating expenses

 

(77,847)

 

(19,824)

 

(35)

 

14,111

 

(83,595)

 

Operating income

 

31,444

 

268

 

8,229

 

-

 

39,941

 

Other income, net

 

1,763

 

829

 

-

 

-

 

2,592

 

Interest expense, net

 

(3,217)

 

(963)

 

(1,320)

 

-

 

(5,500)

 

Income before taxes

 

29,990

 

134

 

6,909

 

-

 

37,033

 

Income tax provision

 

(7,306)

 

42

 

(1,853)

 

-

 

(9,117)

 

Net income

 

22,684

 

176

 

5,056

 

-

 

27,916

 

Less: Net income attributable to

 

 

 

 

 

 

 

 

 

 

 

noncontrolling interest, net of tax

 

-

 

-

 

-

 

(5,629)

 

(5,629)

 

Net income attributable to MGE

$

22,684

$

176

$

5,056

$

(5,629)

$

22,287

 

Nine Months Ended September 30, 2019

 

 

 

 

 

 

 

 

 

 

Operating revenues

$

314,886

$

112,547

$

481

$

-

$

427,914

 

Interdepartmental revenues

 

622

 

12,571

 

29,987

 

(43,180)

 

-

 

Total operating revenues

 

315,508

 

125,118

 

30,468

 

(43,180)

 

427,914

 

Depreciation and amortization

 

(39,330)

 

(8,482)

 

(5,611)

 

-

 

(53,423)

 

Other operating expenses

 

(223,242)

 

(104,587)

 

(113)

 

43,180

 

(284,762)

 

Operating income

 

52,936

 

12,049

 

24,744

 

-

 

89,729

 

Other income, net

 

5,258

 

2,579

 

-

 

-

 

7,837

 

Interest expense, net

 

(11,253)

 

(3,132)

 

(3,838)

 

-

 

(18,223)

 

Income before taxes

 

46,941

 

11,496

 

20,906

 

-

 

79,343

 

Income tax provision

 

(6,036)

 

(2,848)

 

(5,695)

 

-

 

(14,579)

 

Net income

 

40,905

 

8,648

 

15,211

 

-

 

64,764

 

Less: Net income attributable to

 

 

 

 

 

 

 

 

 

 

 

noncontrolling interest, net of tax

 

-

 

-

 

-

 

(16,725)

 

(16,725)

 

Net income attributable to MGE

$

40,905

$

8,648

$

15,211

$

(16,725)

$

48,039

 

Nine Months Ended September 30, 2018

 

 

 

 

 

 

 

 

 

 

Operating revenues

$

312,633

$

106,152

$

904

$

-

$

419,689

 

Interdepartmental revenues

 

(234)

 

12,059

 

29,579

 

(41,404)

 

-

 

Total operating revenues

 

312,399

 

118,211

 

30,483

 

(41,404)

 

419,689

 

Depreciation and amortization

 

(28,817)

 

(7,374)

 

(5,563)

 

-

 

(41,754)

 

Other operating expenses

 

(228,957)

 

(99,251)

 

(113)

 

41,404

 

(286,917)

 

Operating income

 

54,625

 

11,586

 

24,807

 

-

 

91,018

 

Other income, net

 

5,055

 

2,347

 

-

 

-

 

7,402

 

Interest expense, net

 

(9,036)

 

(2,689)

 

(4,002)

 

-

 

(15,727)

 

Income before taxes

 

50,644

 

11,244

 

20,805

 

-

 

82,693

 

Income tax provision

 

(11,492)

 

(2,788)

 

(5,638)

 

-

 

(19,918)

 

Net income

 

39,152

 

8,456

 

15,167

 

-

 

62,775

 

Less: Net income attributable to

 

 

 

 

 

 

 

 

 

 

 

noncontrolling interest, net of tax

 

-

 

-

 

-

 

(16,940)

 

(16,940)

 

Net income attributable to MGE

$

39,152

$

8,456

$

15,167

$

(16,940)

$

45,835

 

The following table shows segment information for assets and capital expenditures:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Utility

 

 

Consolidated

(In thousands)

MGE Energy

 

Electric

 

Gas

 

 

Non-regulated Energy

 

Transmission Investment

 

All Others

 

Consolidation/ Elimination Entries

 

Total

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2019

$

1,288,752

$

379,160

 

$

259,542

$

69,829

$

447,307

$

(377,617)

$

2,066,973

December 31, 2018

 

1,193,083

 

377,005

 

 

265,301

 

66,366

 

465,661

 

(378,798)

 

1,988,618

Capital Expenditures:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine months ended September 30, 2019

$

101,609

$

24,551

 

$

2,229

$

-

$

-

$

-

$

128,389

Year ended Dec. 31, 2018

 

176,399

 

30,497

 

 

5,301

 

-

 

-

 

-

 

212,197

 

 

Utility

 

 

Consolidated

(In thousands)

MGE

 

Electric

 

Gas

 

 

Non-regulated Energy

 

Elimination Entries

 

Total

Assets:

 

 

 

 

 

 

 

 

 

 

 

September 30, 2019

$

1,288,752

$

379,160

 

$

259,492

$

(377)

$

1,927,027

December 31, 2018

 

1,193,083

 

377,005

 

 

265,251

 

(448)

 

1,834,891

Capital Expenditures:

 

 

 

 

 

 

 

 

 

 

 

Nine months ended September 30, 2019

$

101,609

$

24,551

 

$

2,229

$

-

$

128,389

Year ended Dec. 31, 2018

 

176,399

 

30,497

 

 

5,301

 

-

 

212,197

v3.19.3
Commitments and Contingencies (Tables)
9 Months Ended
Sep. 30, 2019
Commitments and Contingencies Disclosure [Abstract]  
Purchase Contracts, Fiscal Year Maturity Schedule The following table shows future commitments related to purchase contracts as of September 30, 2019:

 

(In thousands)

 

2019

 

2020

 

2021

 

2022

 

2023

 

Thereafter

 

 

Coal(a)

$

7,293

 

13,120

 

5,647

 

2,313

 

-

 

-

 

 

Natural gas

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Transportation and storage(b)

 

6,258

 

21,997

 

21,728

 

21,728

 

21,728

 

55,460

 

 

Supply(c)

 

8,773

 

10,600

 

-

 

-

 

-

 

-

 

 

Solar farms(d)

 

509

 

310

 

3,024

 

726

 

743

 

32,474

 

 

Other

 

92

 

928

 

929

 

97

 

99

 

1,079

 

 

 

$

22,925

$

46,955

$

31,328

$

24,864

$

22,570

$

89,013

 

(a)Total coal commitments for the Columbia and Elm Road Units, including transportation. Fuel procurement for MGE’s jointly owned Columbia and Elm Road Units is handled by WPL and WEPCO, respectively, who are the operators of those facilities.

 

(b)MGE’s natural gas transportation and storage contracts require fixed monthly payments for firm supply pipeline transportation and storage capacity. The pricing components of the fixed monthly payments for the transportation and storage contracts are established by FERC but may be subject to change.

 

(c)These commitments include market-based pricing.

 

(d)In 2019, MGE entered into commitments related to operations of the Two Creeks and Badger Hollow Solar Farms. See Footnote 14 for further information on the solar farm construction.

v3.19.3
Commitments and Contingencies (Details-2)
9 Months Ended
Sep. 30, 2019
USD ($)
Operating expense purchase contracts [Abstract]  
Purchase obligation, 2019 $ 22,925,000
Purchase obligation, 2020 46,955,000
Purchase obligation, 2021 31,328,000
Purchase obligation, 2022 24,864,000
Purchase obligation, 2023 22,570,000
Purchase obligation, Thereafter 89,013,000
Coal [Member]  
Operating expense purchase contracts [Abstract]  
Purchase obligation, 2019 7,293,000 [1]
Purchase obligation, 2020 13,120,000 [1]
Purchase obligation, 2021 5,647,000 [1]
Purchase obligation, 2022 2,313,000 [1]
Purchase obligation, 2023 0 [1]
Purchase obligation, Thereafter 0 [1]
Natural Gas, Transportation and Storage [Member]  
Operating expense purchase contracts [Abstract]  
Purchase obligation, 2019 6,258,000 [2]
Purchase obligation, 2020 21,997,000 [2]
Purchase obligation, 2021 21,728,000 [2]
Purchase obligation, 2022 21,728,000 [2]
Purchase obligation, 2023 21,728,000 [2]
Purchase obligation, Thereafter 55,460,000 [2]
Natual Gas, Supply [Member]  
Operating expense purchase contracts [Abstract]  
Purchase obligation, 2019 8,773,000 [3]
Purchase obligation, 2020 10,600,000 [3]
Purchase obligation, 2021 0 [3]
Purchase obligation, 2022 0 [3]
Purchase obligation, 2023 0 [3]
Purchase obligation, Thereafter 0 [3]
Solar farms  
Operating expense purchase contracts [Abstract]  
Purchase obligation, 2019 509,000 [4]
Purchase obligation, 2020 310,000 [4]
Purchase obligation, 2021 3,024,000 [4]
Purchase obligation, 2022 726,000 [4]
Purchase obligation, 2023 743,000 [4]
Purchase obligation, Thereafter 32,474,000 [4]
Other [Member]  
Operating expense purchase contracts [Abstract]  
Purchase obligation, 2019 92,000
Purchase obligation, 2020 928,000
Purchase obligation, 2021 929,000
Purchase obligation, 2022 97,000
Purchase obligation, 2023 99,000
Purchase obligation, Thereafter 1,079,000
Two Creeks Construction Commitment [Member]  
Long Term Purchase Commitment [Line Items]  
Minimum future capital commitments 20,500,000
Badger Hollow Construction Commitment [Member]  
Long Term Purchase Commitment [Line Items]  
Minimum future capital commitments 53,200,000
MGE Energy [Member] | Venture Capital Funds [Member]  
Other Commitments [Line Items]  
Other commitment, initial agreed upon commitment total $ 10,000,000
[1] Total coal commitments for the Columbia and Elm Road Units, including transportation. Fuel procurement for MGE’s jointly owned Columbia and Elm Road Units is handled by WPL and WEPCO, respectively, who are the operators of those facilities.
[2] MGE’s natural gas transportation and storage contracts require fixed monthly payments for firm supply pipeline transportation and storage capacity. The pricing components of the fixed monthly payments for the transportation and storage contracts are established by FERC but may be subject to change.
[3] These commitments include market-based pricing.
[4] In 2019, MGE entered into commitments related to operations of the Two Creeks and Badger Hollow Solar Farms. See Footnote 14 for further information on the solar farm construction.
v3.19.3
Derivative and Hedging Instruments (Details-3) - USD ($)
$ in Thousands
Sep. 30, 2019
Dec. 31, 2018
Offsetting Liabilities [Line Items]    
Collateral posted against derivative positions $ (700)  
Commodity Derivative Contracts [Member]    
Offsetting Liabilities [Line Items]    
Gross amounts 1,285 $ 342
Gross amounts offset in balance sheet (561) (342)
Collateral posted against derivative positions (724) 0
Net amount presented in balance sheet 0 0
Financial Transmission Rights [Member]    
Offsetting Liabilities [Line Items]    
Collateral posted against derivative positions 0 0
Purchased Power Agreement [Member]    
Offsetting Liabilities [Line Items]    
Gross amounts 28,990 32,530
Gross amounts offset in balance sheet 0 0
Collateral posted against derivative positions 0 0
Net amount presented in balance sheet $ 28,990 $ 32,530
v3.19.3
Fair Value of Financial Instruments (Details-2) - USD ($)
$ in Thousands
Sep. 30, 2019
Dec. 31, 2018
Liabilities:    
Collateral posted against derivative positions $ 700  
Recurring [Member]    
Assets:    
Derivatives 1,093 [1] $ 1,042
Total Assets 2,094 1,890
Liabilities:    
Derivatives 30,275 32,872
Deferred compensation 3,025 3,078
Total liabilities 33,300 35,950
Recurring [Member] | Exchange Traded [Member]    
Assets:    
Available-for-sale securities 1,001 848
Recurring [Member] | Level 1 [Member]    
Assets:    
Derivatives 525 [1] 296
Total Assets 1,526 1,144
Liabilities:    
Derivatives 687 124
Deferred compensation 0 0
Total liabilities 687 124
Recurring [Member] | Level 1 [Member] | Exchange Traded [Member]    
Assets:    
Available-for-sale securities 1,001 848
Recurring [Member] | Level 2 [Member]    
Assets:    
Derivatives 0 [1] 0
Total Assets 0 0
Liabilities:    
Derivatives 0 0
Deferred compensation 3,025 3,078
Total liabilities 3,025 3,078
Recurring [Member] | Level 2 [Member] | Exchange Traded [Member]    
Assets:    
Available-for-sale securities 0 0
Recurring [Member] | Level 3 [Member]    
Assets:    
Derivatives 568 [1] 746
Total Assets 568 746
Liabilities:    
Derivatives 29,588 32,748
Deferred compensation 0 0
Total liabilities 29,588 32,748
Recurring [Member] | Level 3 [Member] | Exchange Traded [Member]    
Assets:    
Available-for-sale securities 0 0
MGE [Member]    
Liabilities:    
Collateral posted against derivative positions 700  
MGE [Member] | Recurring [Member]    
Assets:    
Derivatives 1,093 [1] 1,042
Total Assets 1,271 1,085
Liabilities:    
Derivatives 30,275 32,872
Deferred compensation 3,025 3,078
Total liabilities 33,300 35,950
MGE [Member] | Recurring [Member] | Exchange Traded [Member]    
Assets:    
Available-for-sale securities 178 43
MGE [Member] | Recurring [Member] | Level 1 [Member]    
Assets:    
Derivatives 525 [1] 296
Total Assets 703 339
Liabilities:    
Derivatives 687 124
Deferred compensation 0 0
Total liabilities 687 124
MGE [Member] | Recurring [Member] | Level 1 [Member] | Exchange Traded [Member]    
Assets:    
Available-for-sale securities 178 43
MGE [Member] | Recurring [Member] | Level 2 [Member]    
Assets:    
Derivatives 0 [1] 0
Total Assets 0 0
Liabilities:    
Derivatives 0 0
Deferred compensation 3,025 3,078
Total liabilities 3,025 3,078
MGE [Member] | Recurring [Member] | Level 2 [Member] | Exchange Traded [Member]    
Assets:    
Available-for-sale securities 0 0
MGE [Member] | Recurring [Member] | Level 3 [Member]    
Assets:    
Derivatives 568 [1] 746
Total Assets 568 746
Liabilities:    
Derivatives 29,588 32,748
Deferred compensation 0 0
Total liabilities 29,588 32,748
MGE [Member] | Recurring [Member] | Level 3 [Member] | Exchange Traded [Member]    
Assets:    
Available-for-sale securities $ 0 $ 0
[1] These amounts are shown gross and exclude $0.7 million of collateral that was posted against derivative positions with counterparties as of September 30, 2019.
v3.19.3
Taxes
9 Months Ended
Sep. 30, 2019
Income Tax Disclosure [Abstract]  
Taxes

Taxes - MGE Energy and MGE.

 

Effective Tax Rate.

The consolidated income tax provision differs from the amount computed by applying the statutory federal income tax rate to income before income taxes, as follows:

 

 

MGE Energy

 

MGE

 

 

Three Months Ended September 30,

2019

 

2018

 

2019

 

2018

 

 

Statutory federal income tax rate

21.0

%

 

21.0

%

 

21.0

%

 

21.0

%

 

 

State income taxes, net of federal benefit

6.3

 

 

6.3

 

 

6.2

 

 

6.2

 

 

 

Amortized investment tax credits

(0.1)

 

 

(0.1)

 

 

(0.1)

 

 

(0.1)

 

 

 

Credit for electricity from wind energy(a)

(4.8)

 

 

(0.3)

 

 

(5.2)

 

 

(0.2)

 

 

 

AFUDC equity, net

(0.4)

 

 

(0.6)

 

 

(0.4)

 

 

(0.6)

 

 

 

Amortization of utility excess deferred tax - tax reform(b)

(1.9)

 

 

(1.8)

 

 

(2.1)

 

 

(1.8)

 

 

 

Other, net, individually insignificant

(0.5)

 

 

-

 

 

(0.5)

 

 

0.1

 

 

 

Effective income tax rate

19.6

%

 

24.5

%

 

18.9

%

 

24.6

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

MGE Energy

 

MGE

 

 

Nine Months Ended September 30,

2019

 

2018

 

2019

 

2018

 

 

Statutory federal income tax rate

21.0

%

 

21.0

%

 

21.0

%

 

21.0

%

 

 

State income taxes, net of federal benefit

6.3

 

 

6.3

 

 

6.2

 

 

6.2

 

 

 

Amortized investment tax credits

(0.1)

 

 

(0.1)

 

 

(0.1)

 

 

(0.1)

 

 

 

Credit for electricity from wind energy(a)

(5.6)

 

 

(0.3)

 

 

(6.1)

 

 

(0.3)

 

 

 

AFUDC equity, net

(0.3)

 

 

(0.8)

 

 

(0.3)

 

 

(0.8)

 

 

 

Amortization of utility excess deferred tax - tax reform(b)

(2.2)

 

 

(1.8)

 

 

(2.4)

 

 

(2.0)

 

 

 

Other, net, individually insignificant

0.1

 

 

-

 

 

0.1

 

 

0.1

 

 

 

Effective income tax rate

19.2

%

 

24.3

%

 

18.4

%

 

24.1

%

 

(a)Saratoga Wind Farm became operational in February 2019.

 

(b)Included are impacts of the Tax Cuts and Jobs Act for the regulated utility for excess deferred taxes recognized using a normalization method of accounting. For the three and nine months ended September 30, 2019, MGE recognized $0.6 million and $1.7 million, respectively, compared to $0.5 million and $1.4 million for the comparable periods in 2018. The amount and timing of the cash impacts will depend on the period over which certain income tax benefits are provided to customers, as determined by the PSCW.

v3.19.3
Commitments and Contingencies
9 Months Ended
Sep. 30, 2019
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies

Commitments and Contingencies.

 

a.Environmental - MGE Energy and MGE.

 

MGE Energy and MGE are subject to frequently changing local, state, and federal regulations concerning air quality, water quality, land use, threatened and endangered species, hazardous materials handling, and solid waste disposal. These regulations affect the manner in which they conduct their operations, the costs of those operations, as well as capital and operating expenditures. Several of these environmental rules are subject to legal challenges, reconsideration and/or other uncertainties. Regulatory initiatives, proposed rules, and court challenges to adopted rules have the potential to have a material effect on capital expenditures and operating costs. Management believes compliance costs will be recovered in future rates based on previous treatment of environmental compliance projects. These initiatives, proposed rules, and court challenges include:

 

The EPA's published water effluent limitations guidelines and standards for steam electric power plants, which focus on the reduction of metals and other pollutants in wastewater from new and existing power plants, such as the coal-burning plants at Columbia and the Elm Road Units. The operators of the Columbia and the Elm Road Units have indicated that equipment upgrades may be necessary to comply with the new discharge standards.

 

The EPA's cooling water intake rules, which require cooling water intake structures at electric power plants, such as our Blount and Columbia plants, to meet best available technology standards so that mortality from entrainment (drawing aquatic life into a plant's cooling system) and impingement (trapping aquatic life on screens) are reduced. MGE expects that the rule will not have a material effect on its existing plants.

 

Greenhouse Gas (GHG) reduction guidelines and approval criteria established under the Clean Air Act (CAA) for states to use in developing plans to control GHG emissions from existing fossil fuel-fired electric generating units (EGUs).

 

In 2015, the EPA finalized the Clean Power Plan (CPP), which directed states to submit plans to reduce GHG emissions from the electric generation sector. The CPP applied the statutory

requirements for the "best system of emission reduction" (BSER) broadly so as to encompass GHG emission reduction strategies that extend "beyond the fenceline" of existing EGUs and required a shift in the energy generation mix at the grid level.

 

In July 2019, the EPA published a final rule repealing the CPP and creating the replacement Affordable Clean Energy (ACE) rule to reduce greenhouse gas emissions from existing coal-fired EGUs. The ACE rule applies to EGUs greater than 25 MW. Based upon these criteria, the ACE rule will likely apply to Columbia and the Elm Road Units. EGUs that burn fossil fuels other than coal, such as Blount, WCCF, and smaller natural gas- and diesel-fueled units are not subject to the ACE rule.

 

In contrast to the CPP, the ACE rule limits BSER to only "inside the fenceline" heat rate improvement technologies or systems that can be applied at an affected coal-fired EGU. Under ACE, states have the primary role in developing standards of performance that result from the application of BSER. The EPA has not provided a standard of performance that it will deem presumptively acceptable in a state plan, but urges states to provide full justification for each component of their plans so that the EPA can evaluate BSER on a unit-by-unit basis. The ACE rule is subject to a legal challenge pending in the United States District Court of the District of Columbia.

 

States will have three years to develop and submit compliance plans to the EPA. The EPA will have a year to review and approve the plans. The states are given 24 months from the approval date to implement the rule and can extend the compliance schedule for units that meet progress milestones. EGU's compliance with the ACE rule may not be required until 2024 or later. MGE is currently evaluating how this rule may impact operations. Until the State of Wisconsin develops a plan that is accepted by the EPA, MGE will not be able to determine the final impact of the rule. MGE will continue to evaluate the rule and monitor ongoing and potential legal proceedings associated with the CPP and ACE rules.

 

The EPA's rule to regulate ambient levels of ozone through the 2015 Ozone National Ambient Air Quality Standards (NAAQS).

 

In May 2018, the EPA issued a final rule which designated the northeast portion of Milwaukee County as being in nonattainment with this NAAQS. The Elm Road Units are located in Milwaukee County, outside the designated nonattainment area. In August 2018, several environmental groups, the City of Chicago, and the State of Illinois filed federal lawsuits challenging several of the EPA's attainment designation decisions, including the partial Milwaukee County designation as being too narrow and not sufficiently protective. MGE is monitoring the outcome of this lawsuit and how it may affect our Elm Road Units in Milwaukee County. At this time, MGE expects that the 2015 Ozone NAAQS will not have a material effect on its existing plants based on final designations.

 

Rules regulating nitrogen oxide (NOx) and sulfur dioxide (SO2) emissions, including the Cross State Air Pollution Rule (CSAPR) and Clean Air Visibility Rule (CAVR).

 

MGE has met its CSAPR obligations in 2018 and 2017 through a combination of reduced emissions through pollution control (e.g. SCR installation at Columbia), as well as owned, received, and purchased allowances. CSAPR has been subject to ongoing legal challenges. In September 2019, the U.S. Court of Appeals upheld the legal argument that the EPA cannot provide a partial remedy to the Clean Air Act's "Good Neighbor Provision" which addresses interstate transport of pollutants from upwind states to downwind states. Under the current rule, the EPA was not holding upwind states to the same attainment deadlines as the downwind states that they impacted. The court indicated that this leniency on the upwind states effectively causes downwind states to miss attainment deadlines or over comply to meet deadlines. The court remanded the rule to the EPA without vacating it. No deadline has been set for the EPA to revise the rule. Wisconsin is considered an upwind state under CSAPR and is potentially impacted by rules that the EPA will develop to address this remand.

MGE will not be able to determine impacts to our operations until rules are promulgated. MGE will continue to monitor developments.

 

Columbia is subject to the best available retrofit technology (BART) regulations, a subsection of the EPA's CAVR, which may require pollution control retrofits. Columbia's existing pollution control upgrades, and the EPA's stance that compliance with the CSAPR equals compliance with BART, should mean that Columbia will not need to do additional work to meet BART requirements. At this time, however, the BART regulatory obligations, compliance strategies, and costs remain uncertain in Wisconsin due to the continued legal challenges surrounding CSAPR and CAVR. MGE will continue to monitor developments to this rule.

 

The EPA's Coal Combustion Residuals Rule (CCR), which regulates coal ash from burning coal for the purpose of generating electricity as a solid waste, and defines what ash use activities would be considered generally exempt beneficial reuse of coal ash. The CCR rule also regulates landfills, ash ponds, and other surface impoundments used for coal combustion residuals by regulating their design, location, monitoring, and operation.

 

Review of the Elm Road Units has indicated that the costs to comply with this rule are not expected to be significant. Columbia's operator has completed a review of their system and has developed a compliance plan. Columbia's operator is also exploring alternative compliance options to meet the rule requirements by the rule's deadline. MGE will continue to monitor the operator's plans for compliance to assess potential impacts on operations.

 

In July 2018, the EPA published a final rule that included amendments to the CCR (which include the allowance of alternative performance standards for landfills and surface impoundments, revised risk-based groundwater protection standards, and an extension of the deadline by which certain facilities must cease the placement of waste in CCR units). In August 2018, the Court of Appeals for the D.C. Circuit vacated parts of the CCR for not being sufficiently protective of the environment. In August 2019, the EPA introduced a proposed rule that if final would revise some monitoring, corrective action, beneficial reuse, and storage requirements. The revised rule as proposed would not have material impact on MGE. MGE will continue to monitor potential rule modifications to assess potential impacts on operations.

b.Legal Matters - MGE Energy and MGE.

 

MGE is involved in various legal matters that are being defended and handled in the normal course of business. MGE maintains accruals for such costs that are probable of being incurred and subject to reasonable estimation. The accrued amount for these matters is not material to the financial statements. MGE does not expect the resolution of these matters to have a material adverse effect on its consolidated results of operations, financial condition, or cash flows.

c.Purchase Contracts - MGE Energy and MGE.

 

MGE Energy and MGE have entered into various commodity supply, transportation, and storage contracts to meet their obligations to deliver electricity and natural gas to customers. Management expects to recover these costs in future customer rates. The following table shows future commitments related to purchase contracts as of September 30, 2019:

 

(In thousands)

 

2019

 

2020

 

2021

 

2022

 

2023

 

Thereafter

 

 

Coal(a)

$

7,293

 

13,120

 

5,647

 

2,313

 

-

 

-

 

 

Natural gas

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Transportation and storage(b)

 

6,258

 

21,997

 

21,728

 

21,728

 

21,728

 

55,460

 

 

Supply(c)

 

8,773

 

10,600

 

-

 

-

 

-

 

-

 

 

Solar farms(d)

 

509

 

310

 

3,024

 

726

 

743

 

32,474

 

 

Other

 

92

 

928

 

929

 

97

 

99

 

1,079

 

 

 

$

22,925

$

46,955

$

31,328

$

24,864

$

22,570

$

89,013

 

(a)Total coal commitments for the Columbia and Elm Road Units, including transportation. Fuel procurement for MGE’s jointly owned Columbia and Elm Road Units is handled by WPL and WEPCO, respectively, who are the operators of those facilities.

 

(b)MGE’s natural gas transportation and storage contracts require fixed monthly payments for firm supply pipeline transportation and storage capacity. The pricing components of the fixed monthly payments for the transportation and storage contracts are established by FERC but may be subject to change.

 

(c)These commitments include market-based pricing.

 

(d)In 2019, MGE entered into commitments related to operations of the Two Creeks and Badger Hollow Solar Farms. See Footnote 14 for further information on the solar farm construction.

d.Capital Purchase Commitments - MGE Energy and MGE.

 

Various contractual obligations contain minimum future commitments related to capital expenditures for certain construction projects, including the Two Creeks solar project and the Badger Hollow Solar Farm. As of September 30, 2019, the Two Creeks and Badger Hollow future minimum construction commitment is $20.5 million and $53.2 million, respectively.

e.Other Commitments - MGE Energy.

 

In September 2019, MGE Energy entered into a subscription agreement to invest in a nonpublic venture capital fund. From time to time, the fund makes capital calls to its investors. MGE Energy has committed to contribute $10 million in capital for such capital calls. The timing of these capital calls is dependent on the needs of the funds and is therefore uncertain at this time.

v3.19.3
Revenue (Tables)
9 Months Ended
Sep. 30, 2019
Revenue from Contract with Customer [Abstract]  
Disaggregation of Revenue Revenues disaggregated by revenue source were as follows:

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

(In thousands)

 

September 30,

 

September 30,

 

 

Electric revenues

 

2019

 

2018

 

2019

 

2018

 

 

Residential

$

42,442

$

42,371

$

107,772

$

107,847

 

 

Commercial

 

63,466

 

61,638

 

165,481

 

159,264

 

 

Industrial

 

3,760

 

3,668

 

10,013

 

11,193

 

 

Other-retail/municipal

 

9,543

 

9,431

 

26,728

 

26,245

 

 

Total retail

 

119,211

 

117,108

 

309,994

 

304,549

 

 

Sales to the market

 

1,163

 

1,505

 

3,914

 

6,334

 

 

Other revenues

 

233

 

562

 

978

 

1,750

 

 

Total electric revenues

 

120,607

 

119,175

 

314,886

 

312,633

 

 

 

 

 

 

 

 

 

 

 

 

 

Gas revenues

 

 

 

 

 

 

 

 

 

 

Residential

 

11,342

 

11,916

 

67,659

 

64,087

 

 

Commercial/Industrial

 

4,825

 

5,570

 

40,833

 

38,728

 

 

Total retail

 

16,167

 

17,486

 

108,492

 

102,815

 

 

Gas transportation

 

1,126

 

829

 

3,756

 

3,018

 

 

Other revenues

 

84

 

92

 

299

 

319

 

 

Total gas revenues

 

17,377

 

18,407

 

112,547

 

106,152

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-regulated energy revenues

 

214

 

213

 

481

 

904

 

 

Total Operating Revenue

$

138,198

$

137,795

 

427,914

$

419,689

 

v3.19.3
Pension and Other Postretirement Plans (Tables)
9 Months Ended
Sep. 30, 2019
Compensation and Retirement Disclosure [Abstract]  
Schedule of Net Periodic Benefit Costs The following table presents the components of net periodic benefit costs recognized.

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

 

September 30,

 

September 30,

 

 

(In thousands)

 

2019

 

2018

 

2019

 

2018

 

 

Pension Benefits

 

 

 

 

 

 

 

 

 

 

Components of net periodic benefit cost:

 

 

 

 

 

 

 

 

 

 

Service cost

$

1,040

$

1,431

$

3,402

$

4,292

 

 

Interest cost

 

3,170

 

3,215

 

10,364

 

9,645

 

 

Expected return on assets

 

(5,054)

 

(6,560)

 

(16,523)

 

(19,680)

 

 

Amortization of:

 

 

 

 

 

 

 

 

 

 

Prior service credit

 

(26)

 

(11)

 

(85)

 

(33)

 

 

Actuarial loss

 

1,637

 

1,319

 

5,351

 

3,958

 

 

Net periodic benefit (credit) cost

$

767

$

(606)

$

2,509

$

(1,818)

 

 

 

 

 

 

 

 

 

 

 

 

 

Postretirement Benefits

 

 

 

 

 

 

 

 

 

 

Components of net periodic benefit cost:

 

 

 

 

 

 

 

 

 

 

Service cost

$

276

$

320

$

829

$

962

 

 

Interest cost

 

721

 

653

 

2,164

 

1,959

 

 

Expected return on assets

 

(677)

 

(808)

 

(2,034)

 

(2,424)

 

 

Amortization of:

 

 

 

 

 

 

 

 

 

 

Transition obligation

 

1

 

1

 

2

 

2

 

 

Prior service credit

 

(664)

 

(667)

 

(1,994)

 

(2,001)

 

 

Actuarial loss

 

100

 

122

 

300

 

366

 

 

Net periodic benefit (credit) cost

$

(243)

$

(379)

$

(733)

$

(1,136)

 

v3.19.3
Consolidated Statements of Income (Unaudited) - USD ($)
shares in Thousands, $ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Sep. 30, 2019
Sep. 30, 2018
Operating Revenues:        
Electric revenues $ 120,821 $ 119,388 $ 315,367 $ 313,537
Gas revenue 17,377 18,407 112,547 106,152
Total Operating Revenues 138,198 137,795 427,914 419,689
Operating Expenses:        
Fuel for electric generation 15,901 16,793 40,221 43,944
Purchased power 9,126 13,024 31,013 43,036
Cost of gas sold 3,092 4,921 55,220 54,109
Other operations and maintenance 48,070 44,130 143,979 131,976
Depreciation and amortization 18,193 14,259 53,423 41,754
Other general taxes 5,078 4,870 15,026 14,653
Total Operating Expenses 99,460 97,997 338,882 329,472
Operating Income 38,738 39,798 89,032 90,217
Other income, net 5,204 4,330 15,074 13,980
Interest expense, net (5,831) (5,025) (17,227) (14,547)
Income before income taxes 38,111 39,103 86,879 89,650
Income tax provision (7,454) (9,597) (16,667) (21,792)
Net Income Including Noncontrolling Interest 30,657 29,506 70,212 67,858
Net Income $ 30,657 $ 29,506 $ 70,212 $ 67,858
Earnings Per Share of Common Stock (basic and diluted) $ 0.88 $ 0.85 $ 2.03 $ 1.96
Dividends per share of common stock $ 0.353 $ 0.338 $ 1.028 $ 0.983
Weighted Average Shares Outstanding (basic and diluted) 34,668 34,668 34,668 34,668
MGE [Member]        
Operating Revenues:        
Electric revenues $ 120,821 $ 119,388 $ 315,367 $ 313,537
Gas revenue 17,377 18,407 112,547 106,152
Total Operating Revenues 138,198 137,795 427,914 419,689
Operating Expenses:        
Fuel for electric generation 15,901 16,793 40,221 43,944
Purchased power 9,126 13,024 31,013 43,036
Cost of gas sold 3,092 4,921 55,220 54,109
Other operations and maintenance 47,947 43,987 143,282 131,175
Depreciation and amortization 18,193 14,259 53,423 41,754
Other general taxes 5,078 4,870 15,026 14,653
Total Operating Expenses 99,337 97,854 338,185 328,671
Operating Income 38,861 39,941 89,729 91,018
Other income, net 2,672 2,592 7,837 7,402
Interest expense, net (6,095) (5,500) (18,223) (15,727)
Income before income taxes 35,438 37,033 79,343 82,693
Income tax provision (6,687) (9,117) (14,579) (19,918)
Net Income Including Noncontrolling Interest 28,751 27,916 64,764 62,775
Less Net Income Attributable to Noncontrolling Interest, net of tax (5,614) (5,629) (16,725) (16,940)
Net Income $ 23,137 $ 22,287 $ 48,039 $ 45,835
v3.19.3
Leases (Details-2) - USD ($)
$ in Thousands
Sep. 30, 2019
Dec. 31, 2018
Lessee Disclosure [Abstract]    
Finance lease assets, net, Property, plant, and equipment, net $ 16,275  
Operating lease assets, Other deferred assets and other 300  
Total lease assets 16,575  
Finance lease liabilities - current, Other current liabilities 932  
Finance lease liabilities - long term, Finance lease liabilities 17,657 $ 1,771
Operating lease liabilities - current, Other current liabilities 143  
Operating lease liabilities - long term, Other deferred liabilities and other 185  
Total lease liabilities $ 18,917  
v3.19.3
MGE Energy Inc Consolidated Statements of Common Equity (Unaudited) - USD ($)
shares in Thousands, $ in Thousands
Total
Common Stock [Member]
Additional Paid-In Capital [Member]
Retained Earnings [Member]
Accumulated Other Comprehensive Income/(Loss) [Member]
Increase (Decrease) In Stockholders' Equity [Roll Forward]          
Cumulative effect of new accounting principle $ 0     $ 377 $ (377)
Beginning balance, shares at Dec. 31, 2017   34,668      
Beginning balance, value at Dec. 31, 2017 778,187 $ 34,668 $ 316,268 426,874 377
Beginning balance, value - Adjusted at Dec. 31, 2017 778,187     427,251 0
Increase (Decrease) In Stockholders' Equity [Roll Forward]          
Net Income 67,858     67,858  
Common stock dividends declared (34,062)     (34,062)  
Ending balance, shares at Sep. 30, 2018   34,668      
Ending balance, value at Sep. 30, 2018 811,983 $ 34,668 316,268 461,047 0
Beginning balance, shares at Jun. 30, 2018   34,668      
Beginning balance, value at Jun. 30, 2018 794,178 $ 34,668 316,268 443,242 0
Increase (Decrease) In Stockholders' Equity [Roll Forward]          
Net Income 29,506     29,506  
Common stock dividends declared (11,701)     (11,701)  
Ending balance, shares at Sep. 30, 2018   34,668      
Ending balance, value at Sep. 30, 2018 811,983 $ 34,668 316,268 461,047 0
Beginning balance, shares at Dec. 31, 2018   34,668      
Beginning balance, value at Dec. 31, 2018 816,644 $ 34,668 316,268 465,708 0
Increase (Decrease) In Stockholders' Equity [Roll Forward]          
Net Income 70,212     70,212  
Common stock dividends declared (35,622)     (35,622)  
Ending balance, shares at Sep. 30, 2019   34,668      
Ending balance, value at Sep. 30, 2019 851,234 $ 34,668 316,268 500,298 0
Beginning balance, shares at Jun. 30, 2019   34,668      
Beginning balance, value at Jun. 30, 2019 832,797 $ 34,668 316,268 481,861 0
Increase (Decrease) In Stockholders' Equity [Roll Forward]          
Net Income 30,657     30,657  
Common stock dividends declared (12,220)     (12,220)  
Ending balance, shares at Sep. 30, 2019   34,668      
Ending balance, value at Sep. 30, 2019 $ 851,234 $ 34,668 $ 316,268 $ 500,298 $ 0
v3.19.3
Fair Value of Financial Instruments (Details-3)
9 Months Ended 12 Months Ended
Sep. 30, 2019
Dec. 31, 2018
Basis adjustment:    
Basis adjustment - on peak 92.20% 92.10%
Basis adjustment - off peak 92.80% 92.80%
US Treasury Bill Securities [Member]    
Deferred compensation plan [Abstract]    
Investment interest calculation, investment maturity period (26 weeks) 182 days  
Investment interest calculation, monthly compounding rate 1.00%  
Investment interest calculation, minimum annual rate compounded monthly 7.00%  
Minimum [Member]    
Counterparty fuel mix:    
Internal generation 40.00% 50.00%
Purchased power 40.00% 25.00%
Maximum [Member]    
Counterparty fuel mix:    
Internal generation 60.00% 75.00%
Purchased power 60.00% 50.00%
v3.19.3
Rate Matters (Details) - USD ($)
9 Months Ended 12 Months Ended
Sep. 30, 2019
Dec. 31, 2020
Dec. 31, 2018
Oct. 31, 2019
Tax Cuts and Jobs Act [Member]        
Effects Of The Tax Cuts And Jobs Act [Abstract]        
Return of tax credit $ 3,200,000   $ 8,200,000  
PSCW [Member] | MGE [Member]        
Rate Proceedings [Abstract]        
Authorized return on equity, percentage 9.80% 9.80%    
Approved equity capital structure, percentage 56.60% 56.10%    
Fuel Rules [Abstract]        
Fuel rules, bandwidth 2.00%      
Fuel rules, electric fuel deferred costs upper threshold 102.00%      
Fuel rules, electric fuel deferred costs lower threshold 98.00%      
Deferred fuel rules monitored costs $ 500,000   9,500,000  
Public Utilities Fuel Surcharge Amount     $ 500,000  
Public Utilities Fuel Surcharge Percentage     0.13%  
PSCW [Member] | MGE [Member] | Fuel Rules Refund, 2018 [Member] | Subsequent Event [Member]        
Fuel Rules [Abstract]        
Electric fuel credit ($)       $ 9,500,000
Electric Rate Proceeding [Member] | PSCW [Member] | MGE [Member]        
Rate Proceedings [Abstract]        
Authorized rate increase (decrease), percentage (2.24%) 0.00%    
Authorized rate increase (decrease), amount $ (9,200,000)      
Gas Rate Proceeding [Member] | PSCW [Member] | MGE [Member]        
Rate Proceedings [Abstract]        
Authorized rate increase (decrease), percentage 1.06% 1.46%    
Authorized rate increase (decrease), amount $ 1,700,000 $ 2,400,000    
v3.19.3
Derivative and Hedging Instruments (Details-4) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Sep. 30, 2019
Sep. 30, 2018
Current and Long-Term Regulatory Asset [Member]        
Change In Derivative Fair Value [Roll Forward]        
Beginning balance, $ 33,515 $ 36,924 $ 31,830 $ 41,958
Unrealized loss (gain) (4,560) (2,007) (2,256) (5,906)
Realized (loss) gain reclassified to a deferred account (411) (316) (1,402) (837)
Realized gain (loss) reclassified to income statement 638 29 1,010 (585)
Ending balance, 29,182 34,630 29,182 34,630
Other Current Assets [Member]        
Change In Derivative Fair Value [Roll Forward]        
Beginning balance, 878 640 377 806
Unrealized loss (gain) 0 0 0 0
Realized (loss) gain reclassified to a deferred account 411 316 1,402 837
Realized gain (loss) reclassified to income statement (258) (62) (748) (749)
Ending balance, $ 1,031 $ 894 $ 1,031 $ 894
v3.19.3
Investment in ATC and ATC Holdco (Details-2) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Sep. 30, 2019
Sep. 30, 2018
Dec. 31, 2018
ATC [Member]          
Schedule Of Equity Method Investments [Line Items]          
Operating revenues $ 184,833 $ 170,341 $ 544,760 $ 501,276  
Operating expenses (94,713) (87,959) (278,673) (264,326)  
Other income, net 484 439 1,031 2,070  
Interest expense, net (29,165) (27,754) (87,121) (82,411)  
Earnings before members' income taxes 61,439 55,067 179,997 156,609  
ATC [Member]          
Related Party Transaction [Line Items]          
Related party expenses 7,600 $ 7,200 22,800 $ 21,700  
Due from related parties $ 1,600   $ 1,600   $ 100
v3.19.3
Leases (Details-4)
Sep. 30, 2019
Lessee Disclosure [Abstract]  
Weighted average remaining lease term (years) finance leases 38 years
Weighted average remaining lease term (years) operating leases 5 years
Weighted average disocunt rate finance leases 4.36%
Weighted average disocunt rate operating leases 3.58%
v3.19.3
Share Based Compensation (Details) - Performance Units [Member] - USD ($)
$ in Millions
1 Months Ended 3 Months Ended 9 Months Ended
Jan. 31, 2019
Sep. 30, 2019
Sep. 30, 2018
Sep. 30, 2019
Sep. 30, 2018
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]          
Compensation expense   $ 0.9 $ 0.3 $ 2.8 $ 1.3
Cash payments distributed related to awards previously granted and now payable $ 1.5        
Awards forfeited during period, value   $ 0.0 $ 0.0 $ 0.0 $ 0.0
Awards forfeited during period, units   0 0 0 0
Outstanding awards vested during period       $ 6.2  
Director Incentive Agreement [Member]          
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]          
Awards granted during period (in units)       5,175  
Award vesting period       3 years  
Performance Unit Plan [Member]          
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]          
Awards granted during period (in units)       17,022  
Award vesting period       5 years  
v3.19.3
Joint Plant Ownership (Details) - MGE [Member]
Sep. 30, 2019
USD ($)
MW
Two Creeks Units [Member]  
Jointly Owned Utility Plant Interests [Line Items]  
Jointly owned utility plant, ownership interest 33.00%
Jointly owned utility plant, plant capacity (in MW) | MW 150
Projected Solar Farm Project Costs $ 65,000,000
Public Utilities Property Plant And Equipment Construction Work In Progress $ 42,100,000
Badger Hollow Units [Member]  
Jointly Owned Utility Plant Interests [Line Items]  
Jointly owned utility plant, ownership interest 33.00%
Jointly owned utility plant, plant capacity (in MW) | MW 150
Projected Solar Farm Project Costs $ 65,000,000
Public Utilities Property Plant And Equipment Construction Work In Progress $ 10,000,000.0
v3.19.3
Taxes (Tables)
9 Months Ended
Sep. 30, 2019
Income Tax Disclosure [Abstract]  
Effective Tax Rate Reconciliation

The consolidated income tax provision differs from the amount computed by applying the statutory federal income tax rate to income before income taxes, as follows:

 

 

MGE Energy

 

MGE

 

 

Three Months Ended September 30,

2019

 

2018

 

2019

 

2018

 

 

Statutory federal income tax rate

21.0

%

 

21.0

%

 

21.0

%

 

21.0

%

 

 

State income taxes, net of federal benefit

6.3

 

 

6.3

 

 

6.2

 

 

6.2

 

 

 

Amortized investment tax credits

(0.1)

 

 

(0.1)

 

 

(0.1)

 

 

(0.1)

 

 

 

Credit for electricity from wind energy(a)

(4.8)

 

 

(0.3)

 

 

(5.2)

 

 

(0.2)

 

 

 

AFUDC equity, net

(0.4)

 

 

(0.6)

 

 

(0.4)

 

 

(0.6)

 

 

 

Amortization of utility excess deferred tax - tax reform(b)

(1.9)

 

 

(1.8)

 

 

(2.1)

 

 

(1.8)

 

 

 

Other, net, individually insignificant

(0.5)

 

 

-

 

 

(0.5)

 

 

0.1

 

 

 

Effective income tax rate

19.6

%

 

24.5

%

 

18.9

%

 

24.6

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

MGE Energy

 

MGE

 

 

Nine Months Ended September 30,

2019

 

2018

 

2019

 

2018

 

 

Statutory federal income tax rate

21.0

%

 

21.0

%

 

21.0

%

 

21.0

%

 

 

State income taxes, net of federal benefit

6.3

 

 

6.3

 

 

6.2

 

 

6.2

 

 

 

Amortized investment tax credits

(0.1)

 

 

(0.1)

 

 

(0.1)

 

 

(0.1)

 

 

 

Credit for electricity from wind energy(a)

(5.6)

 

 

(0.3)

 

 

(6.1)

 

 

(0.3)

 

 

 

AFUDC equity, net

(0.3)

 

 

(0.8)

 

 

(0.3)

 

 

(0.8)

 

 

 

Amortization of utility excess deferred tax - tax reform(b)

(2.2)

 

 

(1.8)

 

 

(2.4)

 

 

(2.0)

 

 

 

Other, net, individually insignificant

0.1

 

 

-

 

 

0.1

 

 

0.1

 

 

 

Effective income tax rate

19.2

%

 

24.3

%

 

18.4

%

 

24.1

%

 

(a)Saratoga Wind Farm became operational in February 2019.

 

(b)Included are impacts of the Tax Cuts and Jobs Act for the regulated utility for excess deferred taxes recognized using a normalization method of accounting. For the three and nine months ended September 30, 2019, MGE recognized $0.6 million and $1.7 million, respectively, compared to $0.5 million and $1.4 million for the comparable periods in 2018. The amount and timing of the cash impacts will depend on the period over which certain income tax benefits are provided to customers, as determined by the PSCW.

v3.19.3
Asset Retirement Obligation
9 Months Ended
Sep. 30, 2019
Asset Retirement Obligation Disclosure [Abstract]  
Asset Retirement Obligation

Asset Retirement Obligation - MGE Energy and MGE.

 

A liability for the fair value of an asset retirement obligation (ARO) is recognized in the period in which it is incurred if it can be reasonably estimated. The offsetting associated asset retirement costs are capitalized as a long-lived asset and depreciated over the asset's useful life.As of September 30, 2019, MGE recorded an obligation of $1.5 million for the fair value of its legal liability for an ARO associated with the Saratoga Wind Farm. MGE has regulatory treatment and recognizes regulatory assets or liabilities for the timing differences between when we recover legal AROs in rates and when those costs would actually be recognized.

v3.19.3
Significant Accounting Policies (Policies)
9 Months Ended
Sep. 30, 2019
Accounting Policies [Abstract]  
Variable Interest Entities MGE Power Elm Road and MGE Power West Campus own electric generating assets and lease those assets to MGE. Both entities are variable interest entities under applicable authoritative accounting guidance. MGE is considered the primary beneficiary of these entities as a result of contractual agreements. As a result, MGE has consolidated MGE Power Elm Road and MGE Power West Campus.
New Accounting Pronouncements Disclosure

New Accounting Standards - MGE Energy and MGE.

 

Recently Adopted

 

Leases.

 

In February 2016, the FASB issued authoritative guidance within the codification's Leases topic that provides guidance on the classification, recognition, measurement, and disclosure of leases. The new leasing standard establishes that a lease conveys the right to control the use of identified property, plant, or equipment for a period of time in exchange for consideration. Under the new guidance, lessees are required to recognize all leases with terms greater than one year, including operating leases, on the balance sheet by recording a right-of-use asset and lease liability. Prior to the authoritative guidance, only capital leases were recognized on the balance sheet by lessees. The new accounting guidance, as applied by lessors, did not change materially. In January 2018, the FASB issued authoritative guidance which provided an optional

practical expedient to grandfather the accounting for existing and expired land easements not accounted for as a lease under the new authoritative guidance. MGE Energy and MGE adopted this practical expedient.

 

The lease authoritative guidance became effective January 1, 2019. MGE Energy and MGE adopted the standard upon the effective date. In compliance with authorized transition guidance, MGE Energy and MGE began applying the new standard on January 1, 2019, but will continue to present periods prior to that date according to the previous authoritative standard. There was no material impact on the consolidated net income or cash flows. See Footnote 3 for further lease information.

Leases

As part of its regular operations, MGE enters into various contracts related to IT equipment, substations, cell towers, land, wind easements, and other property in use for operations. A contract is or contains a lease if the contract conveys the right to control the use of identified property, plant, or equipment for a period of time in exchange for consideration. Determination as to whether an arrangement is or contains a lease is completed at inception. Leases with an initial term of 12 months or less are not recorded on the consolidated balance sheets; lease expense for these leases are recognized on a straight-line basis over the lease term. Leases with initial terms in excess of 12 months are recorded as operating or financing leases on the consolidated balance sheets.

 

Operating lease assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. For leases that do not provide an implicit rate, a collateralized incremental borrowing rate based on the information available at commencement date, including lease term, is used in determining the present value of future payments. The operating lease asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the option will be exercised. Operating lease expense is recognized on a straight-line basis over the lease term. MGE has regulatory treatment and recognizes regulatory assets or liabilities for timing differences between when net lease costs are recorded and when costs are recognized. As of September 30, 2019, MGE has no significant leases not yet commenced that would create significant future rights and obligations.

Investments - ATC and ATC Holdco MGE Transco and MGEE Transco have accounted for their investments in ATC and ATC Holdco, respectively, under the equity method of accounting.
Pension and Other Postretirement Benefit Plan Assets

MGE maintains qualified and nonqualified pension plans, health care, and life insurance benefits. Additionally, MGE has defined contribution 401(k) benefit plans.

 

The components of net periodic benefit cost, other than the service cost component, are recorded in "Other income, net" on the consolidated statements of income. The service cost component is recorded in "Other operations and maintenance" on the consolidated statements of income. The service cost component of net periodic benefit cost is eligible for capitalization within the consolidated balance sheets. MGE has regulatory treatment and recognizes regulatory assets or liabilities for timing differences between when net periodic benefit costs are recovered and when costs are recognized.

Common Stock MGE Energy sells shares of its common stock through its Stock Plan. Those shares may be newly issued shares or shares that MGE Energy has purchased in the open market for resale to participants in the Stock Plan. All sales under the Stock Plan are covered by a shelf registration statement that MGE Energy filed with the SEC.
Share-based Compensation

Under MGE Energy's Director Incentive Plan and its Performance Unit Plan, non-employee directors and eligible employees, respectively, may receive performance units that entitle the holder to receive a cash

payment equal to the value of a designated number of shares of MGE Energy's common stock, plus dividend equivalent payments thereon, at the end of the performance period set in the award.

 

In 2019, 5,175 units were granted under the Director Incentive Plan and are subject to a three-year graded vesting schedule, and 17,022 units were granted under the Performance Unit Plan and are subject to a five-year graded vesting schedule. On the grant date, the cost of the director or employee services received in exchange for a performance unit award is measured based on the current market value of MGE Energy common stock. The fair value of the awards is remeasured quarterly, including as of September 30, 2019, as required by applicable accounting standards. Changes in fair value as well as the original grant are recognized as compensation cost. Since this amount is remeasured throughout the vesting period, the compensation cost is subject to variability.

 

For nonretirement eligible employees under the Performance Unit Plan, stock-based compensation costs are accrued and recognized using the graded vesting method. Compensation cost for retirement eligible employees or employees that will become retirement eligible during the vesting schedule are recognized on an abridged horizon as retirement eligibility accelerates vesting.

Wisconsin Fuel Rules Fuel rules require the PSCW and Wisconsin utilities to defer electric fuel-related costs that fall outside a symmetrical cost tolerance band around the amount approved for a utility in its annual fuel proceedings. Any over/under recovery of the actual costs is determined in the following year and is then reflected in future billings to electric retail customers. The fuel rules bandwidth is currently set at plus or minus 2%. Under fuel rules, MGE would defer costs, less any excess revenues, if its actual electric fuel costs exceeded 102% of the electric fuel costs allowed in its latest rate order. Excess revenues are defined as revenues in the year in question that provide MGE with a greater return oncommon equity than authorized by the PSCW in MGE's latest rate order. Conversely, MGE is required to defer the benefit of lower costs if actual electric fuel costs were less than 98% of the electric fuel costs allowed in that order. These costs will be subject to the PSCW's annual review of fuel costs completed in the year following the deferral.
Derivative Hedging As part of its regular operations, MGE enters into contracts, including options, swaps, futures, forwards, and other contractual commitments, to manage its exposure to commodity prices. To the extent that these contracts are derivatives, MGE assesses whether or not the normal purchases or normal sales exclusion applies. For contracts to which this exclusion cannot be applied, the derivatives are recognized in the consolidated balance sheets at fair value. MGE's financial commodity derivative activities are conducted in accordance with its electric and gas risk management program, which is approved by the PSCW and limits the volume MGE can hedge with specific risk management strategies. The maximum length of time over which cash flows related to energy commodities can be hedged is four years. If the derivative qualifies for regulatory deferral, the derivatives are marked to fair value and are offset with a corresponding regulatory asset or liability depending on whether the derivative is in a net loss or net gain position, respectively. The deferred gain or loss is recognized in earnings in the delivery month applicable to the instrument. Gains and losses related to hedges qualifying for regulatory treatment are recoverable in gas rates through the PGA or in electric rates as a component of the fuel rules mechanism.
Derivative Netting All derivative instruments in this table are presented on a gross basis and are calculated prior to the netting of instruments with the same counterparty under a master netting agreement as well as the netting of collateral. For financial statement purposes, instruments are netted with the same counterparty under a master netting agreement as well as the netting of collateral.
Recurring Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or would be paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. The accounting standard clarifies that fair value should be based on the assumptions market participants would use when pricing the asset or liability including assumptions about risk. The standard also establishes a three-level fair value hierarchy based upon the observability of the assumptions used and requires the use of observable market data when available. The levels are:

 

Level 1 - Pricing inputs are quoted prices within active markets for identical assets or liabilities.

 

Level 2 - Pricing inputs are quoted prices within active markets for similar assets or liabilities; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations that are correlated with or otherwise verifiable by observable market data.

 

Level 3 - Pricing inputs are unobservable and reflect management's best estimate of what market participants would use in pricing the asset or liability.

The carrying amount of cash, cash equivalents, and outstanding commercial paper approximates fair market value due to the short maturity of those investments and obligations. The estimated fair market value of long-term debt is based on quoted market prices for similar financial instruments. Since long-term debt is not traded in an active market, it is classified as Level 2.

Investments include exchange-traded investment securities valued using quoted prices on active exchanges and are therefore classified as Level 1.

 

The deferred compensation plan allows participants to defer certain cash compensation into a notional investment account. These amounts are included within other deferred liabilities in the consolidated balance sheets. The notional investments earn interest based upon the semiannual rate of U.S. Treasury Bills having a 26-week maturity increased by 1% compounded monthly with a minimum annual rate of 7%, compounded monthly. The notional investments are based upon observable market data, however, since the deferred compensation obligations themselves are not exchanged in an active market, they are classified as Level 2.

 

Derivatives include exchange-traded derivative contracts, over-the-counter transactions, a purchased power agreement, and FTRs. Most exchange-traded derivative contracts are valued based on unadjusted quoted prices in active markets and are therefore classified as Level 1. A small number of exchange-traded derivative contracts are valued using quoted market pricing in markets with insufficient volumes and are therefore considered unobservable and classified as Level 3. Transactions done with an over-the-counter party are on inactive markets and are therefore classified as Level 3. These transactions are valued based on quoted prices from markets with similar exchange-traded transactions. FTRs are priced based upon monthly auction results for identical or similar instruments in a closed market with limited data available and are therefore classified as Level 3.

 

The purchased power agreement (see Footnote 11) was valued using an internally-developed pricing model and therefore is classified as Level 3. The model projects future market energy prices and compares those prices to the projected power costs to be incurred under the contract. Inputs to the model require significant management judgment and estimation. Future energy prices are based on a forward power pricing curve using exchange-traded contracts in the electric futures market. A basis adjustment is applied to the market energy price to reflect the price differential between the market price delivery point and the counterparty delivery point. The historical relationship between the delivery points is reviewed and a discount (below 100%) or premium (above 100%) is derived. This comparison is done for both peak times when demand is high and off-peak times when demand is low. If the basis adjustment is lowered, the fair value measurement will decrease, and if the basis adjustment is increased, the fair value measurement will increase.

 

The projected power costs anticipated to be incurred under the purchased power agreement are determined using many factors, including historical generating costs, future prices, and expected fuel mix of the counterparty. An increase in the projected fuel costs would result in a decrease in the fair value measurement of the purchased power agreement. A significant input that MGE estimates is the counterparty's fuel mix in determining the projected power cost. MGE also considers the assumptions that market participants would use in valuing the asset or liability. This consideration includes assumptions about market risk such as liquidity, volatility, and contract duration. The fair value model uses a discount rate that incorporates discounting, credit, and model risks.

 

The following table presents the significant unobservable inputs used in the pricing model.

 

 

 

Model Input

 

Significant Unobservable Inputs

 

September 30, 2019

 

December 31, 2018

 

Basis adjustment:

 

 

 

 

 

 

 

On peak

 

92.2

%

 

92.1

%

 

Off peak

 

92.8

%

 

92.8

%

 

Counterparty fuel mix:

 

 

 

 

 

 

 

Internal generation

 

40.0% - 60.0

%

 

50.0% - 75.0

%

 

Purchased power

 

60.0% - 40.0

%

 

50.0% - 25.0

%

Asset Retirement Obligations A liability for the fair value of an asset retirement obligation (ARO) is recognized in the period in which it is incurred if it can be reasonably estimated. The offsetting associated asset retirement costs are capitalized as a long-lived asset and depreciated over the asset's useful life.
Revenue Recognition

Performance Obligations

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account. A contract's transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The majority of MGE Energy's and MGE's contracts have a single performance obligation.

 

Retail Revenue (Residential, Commercial, Industrial, and Other Retail/Municipal)

Retail revenue of electric and gas utility service represent MGE's core business activities. Tariffs are approved by the PSCW through a rate order and provide MGE's customers with the standard terms and conditions, including pricing terms. The performance obligation to deliver electricity or gas is satisfied over time as the customer simultaneously receives and consumes the commodities provided by MGE. MGE recognizes revenues as the commodity is delivered to customers. Meters are read on a systematic basis throughout the month based on established meter-reading schedules and the customer is subsequently billed for their services. At the end of the month, MGE accrues an estimate for the unbilled amount of commodities delivered to customers. The unbilled revenue estimate is based on daily system demand volumes, weather factors, estimated line losses, estimated customer usage by class, and applicable customer rates.

 

Utility Cost Recovery Mechanisms

MGE's tariff rates include a provision for fuel cost recovery. The PSCW allows Wisconsin utilities to defer electric fuel-related costs, less excess revenues, that fall outside a symmetrical cost tolerance band. Any over/under recovery of the actual costs in a given year is determined in the following year and is then

reflected in future billings to electric retail customers. Over-collection of fuel-related costs that are outside the approved range will be recognized as a reduction of revenue. Under-collection of these costs will be recognized in "Purchased power" expense in the consolidated statements of income. The cumulative effects of these deferred amounts will be recorded in "Regulatory assets" or "Regulatory liabilities" on the consolidated balance sheets until they are reflected in future billings to customers. See Footnote 10.b. for further information.

MGE received a PSCW order in January 2018 to defer the over-collection of income tax expense collected in customer rates during 2018 as a result of the Tax Cuts and Jobs Act (the Tax Act) reduction in the income tax rate to 21 percent. See Footnote 10.c. for further information.

 

MGE has other cost recovery mechanisms. For example, any over-collection of the difference between actual costs incurred and the amount of costs collected from customers is recorded as a reduction of revenue in the period incurred.

 

Sales to the Market

Sales to the market include energy charges, capacity or demand charges, and ancillary charges represented by wholesale sales of electricity made to third parties who are not ultimate users of the electricity. Most of these sales are spot market transactions on the markets operated by MISO. Each transaction is considered a performance obligation and revenue is recognized in the period in which energy charges, capacity or demand charges, and ancillary services are sold into MISO. MGE reports, on a net basis, transactions on the MISO markets in which it buys and sells power within the same hour to meet electric energy delivery requirements.

 

Transportation of Gas

MGE has contracts under which MGE provides gas transportation services to customers who have elected to purchase gas from a third party and have the gas delivered via pipelines within MGE's service territory. Revenue is recognized as service is rendered or gas is delivered to customers. Tariffs are approved by the PSCW through a rate order and provide gas transportation customers with the standard terms and conditions, including pricing terms.

v3.19.3
Summary of Significant Accounting Principles (Details-1) - USD ($)
Sep. 30, 2019
Dec. 31, 2018
Sep. 30, 2018
Dec. 31, 2017
Cash Cash Equivalents And Restricted Cash [Line Items]        
Cash and cash equivalents $ 61,112,000 $ 83,102,000    
Restricted cash 532,000 634,000    
Receivable - margin account 1,598,000 1,193,000    
Cash, cash equivalents, and restricted cash 63,242,000 84,929,000 $ 135,041,000 $ 112,094,000
MGE [Member]        
Cash Cash Equivalents And Restricted Cash [Line Items]        
Cash and cash equivalents 4,656,000 4,843,000    
Restricted cash 532,000 634,000    
Receivable - margin account 1,598,000 1,193,000    
Cash, cash equivalents, and restricted cash $ 6,786,000 $ 6,670,000 $ 48,450,000 $ 10,093,000
v3.19.3
Consolidated Statements of Common Equity (Unaudited) (Parentheticals) - $ / shares
3 Months Ended 9 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Sep. 30, 2019
Sep. 30, 2018
Consolidated Statements of Common Equity        
Dividends per share of common stock $ 0.353 $ 0.338 $ 1.028 $ 0.983
v3.19.3
Derivative and Hedging Instruments (Tables)
9 Months Ended
Sep. 30, 2019
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Gross Notional Volume of Open Derivatives The gross notional volume of open derivatives is as follows:

 

 

September 30, 2019

 

December 31, 2018

 

 

Commodity derivative contracts

466,760

MWh

 

386,440

MWh

 

 

Commodity derivative contracts

9,190,000

Dth

 

5,260,000

Dth

 

 

FTRs

4,282

MW

 

2,252

MW

 

 

PPA

1,600

MW

 

2,050

MW

 

Fair Value of Derivative Instruments on the Balance Sheet The following table summarizes the fair value of the derivative instruments on the consolidated balance sheets. All derivative instruments in this table are presented on a gross basis and are calculated prior to the netting of instruments with the same counterparty under a master netting agreement as well as the netting of collateral. For financial statement purposes, instruments are netted with the same counterparty under a master netting agreement as well as the netting of collateral. As of September 30, 2019, and December 31, 2018, the receivable margin account balance of $1.6 million and $1.2 million, respectively, is shown net of any collateral posted against derivative positions.

 

 

 

Derivative

 

Derivative

 

 

 

 

(In thousands)

 

Assets

 

Liabilities

 

Balance Sheet Location

 

 

September 30, 2019

 

 

 

 

 

 

 

 

Commodity derivative contracts

$

668

$

996

 

Other current assets(a)

 

 

Commodity derivative contracts

 

81

 

289

 

Other deferred charges(a)

 

 

FTRs

 

344

 

-

 

Other current assets

 

 

PPA

 

N/A

 

10,390

 

Derivative liability (current)

 

 

PPA

 

N/A

 

18,600

 

Derivative liability (long-term)

 

 

 

 

 

 

 

 

 

 

 

December 31, 2018

 

 

 

 

 

 

 

 

Commodity derivative contracts

$

727

$

270

 

Other current assets

 

 

Commodity derivative contracts

 

74

 

72

 

Other deferred charges

 

 

FTRs

 

241

 

-

 

Other current assets

 

 

PPA

 

N/A

 

8,550

 

Derivative liability (current)

 

 

PPA

 

N/A

 

23,980

 

Derivative liability (long-term)

 

(a)As of September 30, 2019, collateral of $0.7 million was posted against and netted with derivative liability positions on the consolidated balance sheets. No collateral was posted against derivative positions as of December 31, 2018.
Offsetting Assets The following tables show the effect of netting arrangements for recognized derivative assets and liabilities that are subject to a master netting arrangement or similar arrangement on the consolidated balance sheets.

 

Offsetting of Derivative Assets

 

 

(In thousands)

 

Gross Amounts

 

Gross Amounts Offset in Balance Sheets

 

Collateral Posted Against Derivative Positions

 

Net Amount Presented in Balance Sheets

 

 

September 30, 2019

 

 

 

 

 

 

 

 

 

 

Commodity derivative contracts

$

749

$

(561)

$

-

$

188

 

 

FTRs

 

344

 

-

 

-

 

344

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2018

 

 

 

 

 

 

 

 

 

 

Commodity derivative contracts

$

801

$

(342)

$

-

$

459

 

 

FTRs

 

241

 

-

 

-

 

241

 

Offsetting Liabilities

 

Offsetting of Derivative Liabilities

 

 

(In thousands)

 

Gross Amounts

 

Gross Amounts Offset in Balance Sheets

 

Collateral Posted Against Derivative Positions

 

Net Amount Presented in Balance Sheets

 

 

September 30, 2019

 

 

 

 

 

 

 

 

 

 

Commodity derivative contracts

$

1,285

$

(561)

$

(724)

$

-

 

 

PPA

 

28,990

 

-

 

-

 

28,990

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2018

 

 

 

 

 

 

 

 

 

 

Commodity derivative contracts

$

342

$

(342)

$

-

$

-

 

 

PPA

 

32,530

 

-

 

-

 

32,530

 

Derivative Gains and Losses in Balance Sheet The following tables summarize the unrealized and realized gains (losses) related to the derivative instruments on the consolidated balance sheets and the consolidated statements of income.

 

 

2019

 

 

2018

(In thousands)

 

Current and Long-Term Regulatory Asset

 

Other Current Assets

 

 

Current and Long-Term Regulatory Asset

 

Other Current Assets

Three Months Ended September 30:

 

 

 

 

 

 

 

 

 

Balance at July 1,

$

33,515

$

878

 

$

36,924

$

640

Unrealized gain

 

(4,560)

 

-

 

 

(2,007)

 

-

Realized (loss) gain reclassified to a deferred account

 

(411)

 

411

 

 

(316)

 

316

Realized gain (loss) reclassified to income statement

 

638

 

(258)

 

 

29

 

(62)

Balance as of September 30,

$

29,182

$

1,031

 

$

34,630

$

894

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30:

 

 

 

 

 

 

 

 

 

Balance at January 1,

$

31,830

$

377

 

$

41,958

$

806

Unrealized gain

 

(2,256)

 

-

 

 

(5,906)

 

-

Realized (loss) gain reclassified to a deferred account

 

(1,402)

 

1,402

 

 

(837)

 

837

Realized gain (loss) reclassified to income statement

 

1,010

 

(748)

 

 

(585)

 

(749)

Balance as of September 30,

$

29,182

$

1,031

 

$

34,630

$

894

Derivative Gains and Losses in Income Statement

 

 

Realized Losses (Gains)

 

 

2019

 

 

2018

(In thousands)

 

Fuel for Electric Generation/ Purchased Power

 

Cost of Gas Sold

 

 

Fuel for Electric Generation/ Purchased Power

 

Cost of Gas Sold

Three Months Ended September 30:

 

 

 

 

 

 

 

 

 

Commodity derivative contracts

$

471

$

83

 

$

(145)

$

-

FTRs

 

(429)

 

-

 

 

(150)

 

-

PPA

 

(505)

 

-

 

 

328

 

-

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30:

 

 

 

 

 

 

 

 

 

Commodity derivative contracts

$

1,038

$

460

 

$

39

$

637

FTRs

 

(503)

 

-

 

 

(625)

 

-

PPA

 

(1,257)

 

-

 

 

1,283

 

-

v3.19.3
Consolidated Balance Sheets (Unaudited) - USD ($)
Sep. 30, 2019
Dec. 31, 2018
Current Assets:    
Cash and cash equivalents $ 61,112,000 $ 83,102,000
Accounts receivable, less reserves 35,805,000 43,593,000
Other accounts receivables, less reserves 7,867,000 6,262,000
Unbilled revenues 20,926,000 28,243,000
Materials and supplies, at average cost 28,019,000 24,093,000
Fuel for electric generation, at average cost 8,339,000 6,599,000
Stored natural gas, at average cost 11,402,000 11,303,000
Prepaid taxes 11,518,000 16,215,000
Regulatory assets - current 10,777,000 9,477,000
Assets held for sale 0 3,080,000
Other current assets 8,631,000 8,593,000
Total Current Assets 204,396,000 240,560,000
Other long-term receivables 2,343,000 2,709,000
Regulatory assets 144,482,000 145,424,000
Other deferred assets and other 17,096,000 12,488,000
Property, Plant, and Equipment:    
Property, plant, and equipment, net 1,524,925,000 1,369,766,000
Construction work in progress 88,050,000 139,671,000
Total Property, Plant, and Equipment 1,612,975,000 1,509,437,000
Investments 85,681,000 78,000,000
Total Assets 2,066,973,000 1,988,618,000
Current Liabilities:    
Long-term debt due within one year 4,632,000 4,553,000
Short-term debt 54,500,000 13,000,000
Accounts payable 39,139,000 46,158,000
Accrued interest and taxes 5,570,000 7,384,000
Accrued payroll related items 11,090,000 13,044,000
Regulatory liabilities - current 15,606,000 13,826,000
Derivative liabilities 10,390,000 8,550,000
Other current liabilities 11,124,000 14,113,000
Total Current Liabilities 152,051,000 120,628,000
Other Credits:    
Deferred income taxes 239,433,000 231,952,000
Investment tax credit - deferred 786,000 818,000
Regulatory liabilities 162,088,000 165,638,000
Accrued pension and other postretirement benefits 64,274,000 67,483,000
Derivative liabilities 18,600,000 23,980,000
Finance lease liabilities 17,657,000 1,771,000
Other deferred liabilities and other 70,691,000 66,361,000
Total Other Credits 573,529,000 558,003,000
Capitalization:    
Common shareholders equity 851,234,000 816,644,000
Long-term debt 490,159,000 493,343,000
Total Capitalization 1,341,393,000 1,309,987,000
Commitments and contingencies (see Footnote 9)
Total Liabilities and Capitalization 2,066,973,000 1,988,618,000
MGE [Member]    
Current Assets:    
Cash and cash equivalents 4,656,000 4,843,000
Accounts receivable, less reserves 35,805,000 43,593,000
Affiliate receivables 540,000 621,000
Other accounts receivables, less reserves 7,863,000 6,111,000
Unbilled revenues 20,926,000 28,243,000
Materials and supplies, at average cost 28,019,000 24,093,000
Fuel for electric generation, at average cost 8,339,000 6,599,000
Stored natural gas, at average cost 11,402,000 11,303,000
Prepaid taxes 11,211,000 15,790,000
Regulatory assets - current 10,777,000 9,477,000
Assets held for sale 0 3,080,000
Other current assets 8,522,000 8,541,000
Total Current Assets 148,060,000 162,294,000
Affiliate receivable long-term 2,780,000 3,177,000
Regulatory assets 144,482,000 145,424,000
Other deferred assets and other 18,178,000 14,142,000
Property, Plant, and Equipment:    
Property, plant, and equipment, net 1,524,954,000 1,369,795,000
Construction work in progress 88,050,000 139,671,000
Total Property, Plant, and Equipment 1,613,004,000 1,509,466,000
Investments 523,000 388,000
Total Assets 1,927,027,000 1,834,891,000
Current Liabilities:    
Long-term debt due within one year 4,632,000 4,553,000
Short-term debt 54,500,000 13,000,000
Accounts payable 39,104,000 46,165,000
Accrued interest and taxes 7,901,000 10,319,000
Accrued payroll related items 11,090,000 13,044,000
Regulatory liabilities - current 15,606,000 13,826,000
Derivative liabilities 10,390,000 8,550,000
Other current liabilities 11,125,000 11,614,000
Total Current Liabilities 154,348,000 121,071,000
Other Credits:    
Deferred income taxes 210,886,000 204,616,000
Investment tax credit - deferred 786,000 818,000
Regulatory liabilities 162,088,000 165,638,000
Accrued pension and other postretirement benefits 64,274,000 67,483,000
Derivative liabilities 18,600,000 23,980,000
Finance lease liabilities 17,657,000 1,771,000
Other deferred liabilities and other 70,655,000 66,361,000
Total Other Credits 544,946,000 530,667,000
Capitalization:    
Common shareholders equity 596,395,000 548,356,000
Noncontrolling interest 141,179,000 141,454,000
Total Equity 737,574,000 689,810,000
Long-term debt 490,159,000 493,343,000
Total Capitalization 1,227,733,000 1,183,153,000
Commitments and contingencies (see Footnote 9)
Total Liabilities and Capitalization $ 1,927,027,000 $ 1,834,891,000
v3.19.3
Leases
9 Months Ended
Sep. 30, 2019
Leases [Abstract]  
Leases

Leases - MGE Energy and MGE.

 

As part of its regular operations, MGE enters into various contracts related to IT equipment, substations, cell towers, land, wind easements, and other property in use for operations. A contract is or contains a lease if the contract conveys the right to control the use of identified property, plant, or equipment for a period of time in exchange for consideration. Determination as to whether an arrangement is or contains a lease is completed at inception. Leases with an initial term of 12 months or less are not recorded on the consolidated balance sheets; lease expense for these leases are recognized on a straight-line basis over the lease term. Leases with initial terms in excess of 12 months are recorded as operating or financing leases on the consolidated balance sheets.

 

Operating lease assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. For leases that do not provide an implicit rate, a collateralized incremental borrowing rate based on the information available at commencement date, including lease term, is used in determining the present value of future payments. The operating lease asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the option will be exercised. Operating lease expense is recognized on a straight-line basis over the lease term. MGE has regulatory treatment and recognizes regulatory assets or liabilities for timing differences between when net lease costs are recorded and when costs are recognized. As of September 30, 2019, MGE has no significant leases not yet commenced that would create significant future rights and obligations.

 

The following table shows lease expense for the three and nine months ended September 30, 2019:

 

(In thousands)

 

Three Months Ended

 

Nine Months Ended

 

Income Statement Location

 

 

Finance lease expense:

 

 

 

 

 

 

 

 

Amortization of leased assets

$

425

$

1,295

 

Depreciation and amortization

 

 

Interest on lease liabilities

 

199

 

597

 

Interest expense, net

 

 

Operating lease expense

 

32

 

92

 

Other operations and maintenance

 

 

Total lease expense

$

656

$

1,984

 

 

 

The following table shows the lease assets and liabilities on the consolidated balance sheet as of September 30, 2019:

 

(In thousands)

 

 

 

Balance Sheet Location

 

 

Lease assets:

 

 

 

 

 

 

Finance lease assets

$

16,275

 

Property, plant, and equipment, net

 

 

Operating lease assets

 

300

 

Other deferred assets and other

 

 

Total lease assets

$

16,575

 

 

 

 

Lease liabilities:

 

 

 

 

 

 

Finance lease liabilities - current

$

932

 

Other current liabilities

 

 

Finance lease liabilities - long-term

 

17,657

 

Finance lease liabilities

 

 

Operating lease liabilities - current

 

143

 

Other current liabilities

 

 

Operating lease liabilities - long-term

 

185

 

Other deferred liabilities and other

 

 

Total lease liabilities

$

18,917

 

 

 

The following table shows other financial lease information for the nine months ended September 30, 2019:

 

(In thousands)

 

 

 

 

Cash paid for amounts included in the measurement of lease liabilities:

 

 

 

 

Finance leases - Financing cash flows

$

781

 

 

Finance leases - Operating cash flows

 

597

 

 

Operating leases - Operating cash flows

 

108

 

 

Lease assets obtained in exchange for lease liabilities:

 

 

 

 

Finance leases

 

12,081

 

 

Operating leases

 

239

 

The following table shows the weighted average remaining lease terms and discounts as of September 30, 2019:

 

Weighted-average remaining lease terms (in years):

 

 

 

 

 

Finance leases

 

38

 

 

 

Operating leases

 

5

 

 

 

Weighted-average discount rates:

 

 

 

 

 

Finance leases

 

4.36

%

 

 

Operating leases

 

3.58

%

 

The following table shows maturities of lease liabilities as of September 30, 2019:

 

(In thousands)

 

Finance

 

Operating

 

 

2019

$

539

$

37

 

 

2020

 

1,644

 

152

 

 

2021

 

1,428

 

86

 

 

2022

 

1,309

 

33

 

 

2023

 

1,228

 

2

 

 

Thereafter

 

41,317

 

52

 

 

Subtotal

 

47,465

 

362

 

 

Less: Present value discount

 

(28,876)

 

(34)

 

 

Lease Liability

$

18,589

$

328

 

Future minimum rental payments as of December 31, 2018, under agreements classified as operating leases with noncancelable terms in excess of one year are as follows:

 

(In thousands)

 

2019

 

2020

 

2021

 

2022

 

2023

 

Thereafter

 

 

Minimum lease payments

$

1,646

$

1,371

$

1,095

$

989

$

975

$

22,707

 

v3.19.3
Equity and Financing Arrangements
9 Months Ended
Sep. 30, 2019
Equity and Financing Arrangements Disclosure [Abstract]  
Equity and Financing Arrangements

Equity and Financing Arrangements.

 

a.Common Stock - MGE Energy.

 

MGE Energy sells shares of its common stock through its Stock Plan. Those shares may be newly issued shares or shares that MGE Energy has purchased in the open market for resale to participants in the Stock Plan. All sales under the Stock Plan are covered by a shelf registration statement that MGE Energy filed with the SEC. For both the three and nine months ended September 30, 2019 and 2018, MGE Energy did not issue and new shares of common stock under the Stock Plan.

b.Dilutive Shares Calculation - MGE Energy.

 

MGE Energy does not have any stock option or stock award programs or any dilutive securities.

c.Long-term Debt - MGE Energy and MGE.

 

In August 2019, MGE entered into a Note Purchase Agreement for $50 million of new long-term unsecured debt carrying an interest rate of 2.94% per annum over its 10-year life. Funding occurred on November 5, 2019. The proceeds of the debt financing will be used to assist with capital expenditures, maturing short-term debt, and other corporate obligations. The covenants of this debt are substantially consistent with MGE's existing unsecured long-term debt.

v3.19.3
Derivative and Hedging Instruments
9 Months Ended
Sep. 30, 2019
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative and Hedging Instruments

Derivative and Hedging Instruments - MGE Energy and MGE.

 

a.Purpose.

 

As part of its regular operations, MGE enters into contracts, including options, swaps, futures, forwards, and other contractual commitments, to manage its exposure to commodity prices. To the extent that these contracts are derivatives, MGE assesses whether or not the normal purchases or normal sales exclusion applies. For contracts to which this exclusion cannot be applied, the derivatives are recognized in the consolidated balance sheets at fair value. MGE's financial commodity derivative activities are conducted in accordance with its electric and gas risk management program, which is approved by the PSCW and limits the volume MGE can hedge with specific risk management strategies. The maximum length of time over which cash flows related to energy commodities can be hedged is four years. If the derivative qualifies for regulatory deferral, the derivatives are marked to fair value and are offset with a corresponding regulatory asset or liability depending on whether the derivative is in a net loss or net gain position, respectively. The deferred gain or loss is recognized in earnings in the delivery month applicable to the instrument. Gains and losses related to hedges qualifying for regulatory treatment are recoverable in gas rates through the PGA or in electric rates as a component of the fuel rules mechanism.

b.Notional Amounts.

 

The gross notional volume of open derivatives is as follows:

 

 

September 30, 2019

 

December 31, 2018

 

 

Commodity derivative contracts

466,760

MWh

 

386,440

MWh

 

 

Commodity derivative contracts

9,190,000

Dth

 

5,260,000

Dth

 

 

FTRs

4,282

MW

 

2,252

MW

 

 

PPA

1,600

MW

 

2,050

MW

 

c.Financial Statement Presentation.

 

MGE purchases and sells exchange-traded and over-the-counter options, swaps, and future contracts. These arrangements are primarily entered into to help stabilize the price risk associated with gas or power purchases. These transactions are employed by both MGE's gas and electric segments. Additionally, as a result of the firm transmission agreements that MGE holds on electricity transmission paths in the MISO market, MGE holds financial transmission rights (FTRs). An FTR is a financial instrument that entitles the holder to a stream of revenues or charges based on the differences in hourly day-ahead energy prices between two points on the transmission grid. The fair values of these instruments are offset with a corresponding regulatory asset/liability depending on whether they are in a net loss/gain position. Depending on the nature of the instrument, the gain or loss associated with these transactions will be reflected as cost of gas sold, fuel for electric generation, or purchased power expense in the delivery month applicable to the instrument. As of September 30, 2019, the cost basis of exchange traded derivatives and FTRs exceeded their fair value by $0.2 million. As of December 31, 2018, the fair value of exchange traded derivatives and FTRs exceeded their cost basis by $0.7 million.

 

MGE is a party to a purchased power agreement that provides MGE with firm capacity and energy during a base term from June 1, 2012, through May 31, 2022. The agreement also allows MGE an option to extend the contract after the base term. The agreement is accounted for as a derivative contract and is recognized at its fair value on the consolidated balance sheets. However, the derivative qualifies for regulatory deferral and is recognized with a corresponding regulatory asset or liability depending on whether the fair value is in a loss or gain position. The fair value of the contract as of September 30, 2019, and December 31, 2018, reflects a loss position of $29.0 million and $32.5 million, respectively. The actual cost will be recognized in purchased power expense in the month of purchase.

 

The following table summarizes the fair value of the derivative instruments on the consolidated balance sheets. All derivative instruments in this table are presented on a gross basis and are calculated prior to the netting of instruments with the same counterparty under a master netting agreement as well as the netting of collateral. For financial statement purposes, instruments are netted with the same counterparty under a master netting agreement as well as the netting of collateral. As of September 30, 2019, and December 31, 2018, the receivable margin account balance of $1.6 million and $1.2 million, respectively, is shown net of any collateral posted against derivative positions.

 

 

 

 

Derivative

 

Derivative

 

 

 

 

(In thousands)

 

Assets

 

Liabilities

 

Balance Sheet Location

 

 

September 30, 2019

 

 

 

 

 

 

 

 

Commodity derivative contracts

$

668

$

996

 

Other current assets(a)

 

 

Commodity derivative contracts

 

81

 

289

 

Other deferred charges(a)

 

 

FTRs

 

344

 

-

 

Other current assets

 

 

PPA

 

N/A

 

10,390

 

Derivative liability (current)

 

 

PPA

 

N/A

 

18,600

 

Derivative liability (long-term)

 

 

 

 

 

 

 

 

 

 

 

December 31, 2018

 

 

 

 

 

 

 

 

Commodity derivative contracts

$

727

$

270

 

Other current assets

 

 

Commodity derivative contracts

 

74

 

72

 

Other deferred charges

 

 

FTRs

 

241

 

-

 

Other current assets

 

 

PPA

 

N/A

 

8,550

 

Derivative liability (current)

 

 

PPA

 

N/A

 

23,980

 

Derivative liability (long-term)

 

(a)As of September 30, 2019, collateral of $0.7 million was posted against and netted with derivative liability positions on the consolidated balance sheets. No collateral was posted against derivative positions as of December 31, 2018.

 

 

The following tables show the effect of netting arrangements for recognized derivative assets and liabilities that are subject to a master netting arrangement or similar arrangement on the consolidated balance sheets.

 

Offsetting of Derivative Assets

 

 

(In thousands)

 

Gross Amounts

 

Gross Amounts Offset in Balance Sheets

 

Collateral Posted Against Derivative Positions

 

Net Amount Presented in Balance Sheets

 

 

September 30, 2019

 

 

 

 

 

 

 

 

 

 

Commodity derivative contracts

$

749

$

(561)

$

-

$

188

 

 

FTRs

 

344

 

-

 

-

 

344

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2018

 

 

 

 

 

 

 

 

 

 

Commodity derivative contracts

$

801

$

(342)

$

-

$

459

 

 

FTRs

 

241

 

-

 

-

 

241

 

 

Offsetting of Derivative Liabilities

 

 

(In thousands)

 

Gross Amounts

 

Gross Amounts Offset in Balance Sheets

 

Collateral Posted Against Derivative Positions

 

Net Amount Presented in Balance Sheets

 

 

September 30, 2019

 

 

 

 

 

 

 

 

 

 

Commodity derivative contracts

$

1,285

$

(561)

$

(724)

$

-

 

 

PPA

 

28,990

 

-

 

-

 

28,990

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2018

 

 

 

 

 

 

 

 

 

 

Commodity derivative contracts

$

342

$

(342)

$

-

$

-

 

 

PPA

 

32,530

 

-

 

-

 

32,530

 

The following tables summarize the unrealized and realized gains (losses) related to the derivative instruments on the consolidated balance sheets and the consolidated statements of income.

 

 

2019

 

 

2018

(In thousands)

 

Current and Long-Term Regulatory Asset

 

Other Current Assets

 

 

Current and Long-Term Regulatory Asset

 

Other Current Assets

Three Months Ended September 30:

 

 

 

 

 

 

 

 

 

Balance at July 1,

$

33,515

$

878

 

$

36,924

$

640

Unrealized gain

 

(4,560)

 

-

 

 

(2,007)

 

-

Realized (loss) gain reclassified to a deferred account

 

(411)

 

411

 

 

(316)

 

316

Realized gain (loss) reclassified to income statement

 

638

 

(258)

 

 

29

 

(62)

Balance as of September 30,

$

29,182

$

1,031

 

$

34,630

$

894

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30:

 

 

 

 

 

 

 

 

 

Balance at January 1,

$

31,830

$

377

 

$

41,958

$

806

Unrealized gain

 

(2,256)

 

-

 

 

(5,906)

 

-

Realized (loss) gain reclassified to a deferred account

 

(1,402)

 

1,402

 

 

(837)

 

837

Realized gain (loss) reclassified to income statement

 

1,010

 

(748)

 

 

(585)

 

(749)

Balance as of September 30,

$

29,182

$

1,031

 

$

34,630

$

894

 

 

Realized Losses (Gains)

 

 

2019

 

 

2018

(In thousands)

 

Fuel for Electric Generation/ Purchased Power

 

Cost of Gas Sold

 

 

Fuel for Electric Generation/ Purchased Power

 

Cost of Gas Sold

Three Months Ended September 30:

 

 

 

 

 

 

 

 

 

Commodity derivative contracts

$

471

$

83

 

$

(145)

$

-

FTRs

 

(429)

 

-

 

 

(150)

 

-

PPA

 

(505)

 

-

 

 

328

 

-

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30:

 

 

 

 

 

 

 

 

 

Commodity derivative contracts

$

1,038

$

460

 

$

39

$

637

FTRs

 

(503)

 

-

 

 

(625)

 

-

PPA

 

(1,257)

 

-

 

 

1,283

 

-

MGE's commodity derivative contracts, FTRs, and PPA are subject to regulatory deferral. These derivatives are marked to fair value and are offset with a corresponding regulatory asset or liability. Realized gains and losses are deferred on the consolidated balance sheets and are recognized in earnings in the delivery month applicable to the instrument. As a result of the above described treatment, there are no unrealized gains or losses that flow through earnings.

 

The PPA has a provision that may require MGE to post collateral if MGE's debt rating falls below investment grade (i.e., below BBB-). The amount of collateral that it may be required to post varies from $20.0 million to $40.0 million, depending on MGE's nominated capacity amount. As of September 30, 2019, no collateral is required to be, or has been, posted. Certain counterparties extend MGE a credit limit. If MGE exceeds these limits, the counterparties may require collateral to be posted. No counterparties were in a net liability position as of September 30, 2019, and December 31, 2018.

 

Nonperformance of counterparties to the non-exchange traded derivatives could expose MGE to credit loss. However, MGE enters into transactions only with companies that meet or exceed strict credit guidelines, and it monitors these counterparties on an ongoing basis to mitigate nonperformance risk in its portfolio. As of September 30, 2019, no counterparties have defaulted.

v3.19.3
Derivative and Hedging Instruments (Details-2) - USD ($)
$ in Thousands
Sep. 30, 2019
Dec. 31, 2018
Commodity Derivative Contracts [Member]    
Offsetting Assets [Line Items]    
Gross amounts $ 749 $ 801
Gross amounts offset in balance sheet (561) (342)
Collateral posted against derivative positions 0 0
Net amount presented in balance sheet 188 459
Financial Transmission Rights [Member]    
Offsetting Assets [Line Items]    
Gross amounts 344 241
Gross amounts offset in balance sheet 0 0
Collateral posted against derivative positions 0 0
Net amount presented in balance sheet $ 344 $ 241
v3.19.3
Fair Value of Financial Instruments (Details-1) - USD ($)
$ in Thousands
Sep. 30, 2019
Dec. 31, 2018
Fair Value Measurement [Domain]    
Liabilities:    
Unamortized discount and debt issuance costs, net $ 4,200 $ 4,500
Carrying Amount [Member]    
Assets:    
Cash and cash equivalents 61,112 83,102
Liabilities:    
Short-term debt - commercial paper 54,500 13,000
Long-term debt [1] 499,027 502,431
Fair Value [Member]    
Assets:    
Cash and cash equivalents 61,112 83,102
Liabilities:    
Short-term debt - commercial paper 54,500 13,000
Long-term debt [1] 578,229 518,811
MGE [Member] | Fair Value Measurement [Domain]    
Liabilities:    
Unamortized discount and debt issuance costs, net 4,200 4,500
MGE [Member] | Carrying Amount [Member]    
Assets:    
Cash and cash equivalents 4,656 4,843
Liabilities:    
Short-term debt - commercial paper 54,500 13,000
Long-term debt [1] 499,027 502,431
MGE [Member] | Fair Value [Member]    
Assets:    
Cash and cash equivalents 4,656 4,843
Liabilities:    
Short-term debt - commercial paper 54,500 13,000
Long-term debt [1] $ 578,229 $ 518,811
[1] Includes long-term debt due within one year. Excludes debt issuance costs and unamortized discount of $4.2million and $4.5million as of September 30, 2019, and December 31, 2018, respectively.
v3.19.3
Fair Value of Financial Instruments (Details-5) - USD ($)
3 Months Ended 9 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Sep. 30, 2019
Sep. 30, 2018
Fair Value Disclosures [Abstract]        
Total gains (losses) included in earnings attributed to the change in unrealized gains (losses) related to assets and liabilities [1] $ 0 $ 0 $ 0 $ 0
Fair Value, Net Derivative Asset (Liability) Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]        
Included in earnings [1] (492,000) 26,000 (1,928,000) (434,000)
Purchased Power Expense [Member]        
Fair Value, Net Derivative Asset (Liability) Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]        
Included in earnings [1] (409,000) 26,000 (1,658,000) (637,000)
Cost Of Gas Sold Expense [Member]        
Fair Value, Net Derivative Asset (Liability) Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]        
Included in earnings [1] $ (83,000) $ 0 $ (270,000) $ 203,000
[1] MGE's exchange-traded derivative contracts, over-the-counter party transactions, purchased power agreement, and FTRs are subject to regulatory deferral. These derivatives are therefore marked to fair value and are offset in the financial statements with a corresponding regulatory asset or liability.
v3.19.3
Segment Information (Details) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended 12 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Sep. 30, 2019
Sep. 30, 2018
Dec. 31, 2018
Segment Reporting Information [Line Items]          
Operating revenues $ 138,198 $ 137,795 $ 427,914 $ 419,689  
Depreciation and amortization (18,193) (14,259) (53,423) (41,754)  
Other operating expenses (81,267) (83,738) (285,459) (287,718)  
Operating income (loss) 38,738 39,798 89,032 90,217  
Other income (deductions), net 5,204 4,330 15,074 13,980  
Interest (expense) income, net (5,831) (5,025) (17,227) (14,547)  
Income before income taxes 38,111 39,103 86,879 89,650  
Income tax (provision) benefit (7,454) (9,597) (16,667) (21,792)  
Net Income Including Noncontrolling Interest 30,657 29,506 70,212 67,858  
Net Income 30,657 29,506 70,212 67,858  
Segment Reporting Assets And Capital Expenditures [Abstract]          
Assets 2,066,973   2,066,973   $ 1,988,618
Capital expenditures     128,389 149,001 212,197
Electric [Member]          
Segment Reporting Information [Line Items]          
Operating revenues 120,607 119,175 314,886 312,633  
Gas [Member]          
Segment Reporting Information [Line Items]          
Operating revenues 17,377 18,407 112,547 106,152  
Non Regulated Energy [Member]          
Segment Reporting Information [Line Items]          
Operating revenues 214 213 481 904  
Transmission Investment [Member]          
Segment Reporting Information [Line Items]          
Operating revenues 0 0 0 0  
All Others [Member]          
Segment Reporting Information [Line Items]          
Operating revenues 0 0 0 0  
Operating Segments [Member]          
Segment Reporting Information [Line Items]          
Operating revenues 138,198 137,795 427,914 419,689  
Operating Segments [Member] | Electric [Member]          
Segment Reporting Information [Line Items]          
Operating revenues 120,832 119,155 315,508 312,399  
Depreciation and amortization (13,441) (9,864) (39,330) (28,817)  
Other operating expenses (76,817) (77,847) (223,242) (228,957)  
Operating income (loss) 30,574 31,444 52,936 54,625  
Other income (deductions), net 1,817 1,763 5,258 5,055  
Interest (expense) income, net (3,762) (3,217) (11,253) (9,036)  
Income before income taxes 28,629 29,990 46,941 50,644  
Income tax (provision) benefit (4,948) (7,306) (6,036) (11,492)  
Net Income 23,681 22,684 40,905 39,152  
Segment Reporting Assets And Capital Expenditures [Abstract]          
Assets 1,288,752   1,288,752   1,193,083
Capital expenditures     101,609   176,399
Operating Segments [Member] | Gas [Member]          
Segment Reporting Information [Line Items]          
Operating revenues 23,056 22,626 125,118 118,211  
Depreciation and amortization (2,879) (2,534) (8,482) (7,374)  
Other operating expenses (20,217) (19,824) (104,587) (99,251)  
Operating income (loss) (40) 268 12,049 11,586  
Other income (deductions), net 855 829 2,579 2,347  
Interest (expense) income, net (1,059) (963) (3,132) (2,689)  
Income before income taxes (244) 134 11,496 11,244  
Income tax (provision) benefit 183 42 (2,848) (2,788)  
Net Income (61) 176 8,648 8,456  
Segment Reporting Assets And Capital Expenditures [Abstract]          
Assets 379,160   379,160   377,005
Capital expenditures     24,551   30,497
Operating Segments [Member] | Non Regulated Energy [Member]          
Segment Reporting Information [Line Items]          
Operating revenues 10,233 10,125 30,468 30,483  
Depreciation and amortization (1,873) (1,861) (5,611) (5,563)  
Other operating expenses (33) (36) (113) (113)  
Operating income (loss) 8,327 8,228 24,744 24,807  
Other income (deductions), net 0 0 0 0  
Interest (expense) income, net (1,274) (1,320) (3,838) (4,002)  
Income before income taxes 7,053 6,908 20,906 20,805  
Income tax (provision) benefit (1,922) (1,852) (5,695) (5,638)  
Net Income 5,131 5,056 15,211 15,167  
Segment Reporting Assets And Capital Expenditures [Abstract]          
Assets 259,542   259,542   265,301
Capital expenditures     2,229   5,301
Operating Segments [Member] | Transmission Investment [Member]          
Segment Reporting Information [Line Items]          
Operating revenues 0 0 0 0  
Depreciation and amortization 0 0 0 0  
Other operating expenses 0 (4) 0 (12)  
Operating income (loss) 0 (4) 0 (12)  
Other income (deductions), net 2,372 1,620 6,808 5,908  
Interest (expense) income, net 0 0 0 0  
Income before income taxes 2,372 1,616 6,808 5,896  
Income tax (provision) benefit (646) (441) (1,856) (1,611)  
Net Income 1,726 1,175 4,952 4,285  
Segment Reporting Assets And Capital Expenditures [Abstract]          
Assets 69,829   69,829   66,366
Capital expenditures     0   0
Operating Segments [Member] | All Others [Member]          
Segment Reporting Information [Line Items]          
Operating revenues 0 0 0 0  
Depreciation and amortization 0 0 0 0  
Other operating expenses (123) (138) (697) (789)  
Operating income (loss) (123) (138) (697) (789)  
Other income (deductions), net 160 118 429 670  
Interest (expense) income, net 264 475 996 1,180  
Income before income taxes 301 455 728 1,061  
Income tax (provision) benefit (121) (40) (232) (263)  
Net Income 180 415 496 798  
Segment Reporting Assets And Capital Expenditures [Abstract]          
Assets 447,307   447,307   465,661
Capital expenditures     0   0
Consolidation Elimination Entries [Member]          
Segment Reporting Information [Line Items]          
Operating revenues (15,923) (14,111) (43,180) (41,404)  
Depreciation and amortization 0 0 0 0  
Other operating expenses 15,923 14,111 43,180 41,404  
Operating income (loss) 0 0 0 0  
Other income (deductions), net 0 0 0 0  
Interest (expense) income, net 0 0 0 0  
Income before income taxes 0 0 0 0  
Income tax (provision) benefit 0 0 0 0  
Net Income 0 0 0 0  
Segment Reporting Assets And Capital Expenditures [Abstract]          
Assets (377,617)   (377,617)   (378,798)
Capital expenditures     0   0
Consolidation Elimination Entries [Member] | Electric [Member]          
Segment Reporting Information [Line Items]          
Operating revenues 225 (20) 622 (234)  
Consolidation Elimination Entries [Member] | Gas [Member]          
Segment Reporting Information [Line Items]          
Operating revenues 5,679 4,219 12,571 12,059  
Consolidation Elimination Entries [Member] | Non Regulated Energy [Member]          
Segment Reporting Information [Line Items]          
Operating revenues 10,019 9,912 29,987 29,579  
Consolidation Elimination Entries [Member] | Transmission Investment [Member]          
Segment Reporting Information [Line Items]          
Operating revenues 0 0 0 0  
Consolidation Elimination Entries [Member] | All Others [Member]          
Segment Reporting Information [Line Items]          
Operating revenues 0 0 0 0  
MGE [Member]          
Segment Reporting Information [Line Items]          
Operating revenues 138,198 137,795 427,914 419,689  
Depreciation and amortization (18,193) (14,259) (53,423) (41,754)  
Other operating expenses (81,144) (83,595) (284,762) (286,917)  
Operating income (loss) 38,861 39,941 89,729 91,018  
Other income (deductions), net 2,672 2,592 7,837 7,402  
Interest (expense) income, net (6,095) (5,500) (18,223) (15,727)  
Income before income taxes 35,438 37,033 79,343 82,693  
Income tax (provision) benefit (6,687) (9,117) (14,579) (19,918)  
Net Income Including Noncontrolling Interest 28,751 27,916 64,764 62,775  
Less Net Income Attributable to Noncontrolling Interest, net of tax (5,614) (5,629) (16,725) (16,940)  
Net Income 23,137 22,287 48,039 45,835  
Segment Reporting Assets And Capital Expenditures [Abstract]          
Assets 1,927,027   1,927,027   1,834,891
Capital expenditures     128,389 149,001 212,197
MGE [Member] | Electric [Member]          
Segment Reporting Information [Line Items]          
Operating revenues 120,607 119,175 314,886 312,633  
MGE [Member] | Gas [Member]          
Segment Reporting Information [Line Items]          
Operating revenues 17,377 18,407 112,547 106,152  
MGE [Member] | Non Regulated Energy [Member]          
Segment Reporting Information [Line Items]          
Operating revenues 214 213 481 904  
MGE [Member] | Operating Segments [Member]          
Segment Reporting Information [Line Items]          
Operating revenues 138,198 137,795 427,914 419,689  
MGE [Member] | Operating Segments [Member] | Electric [Member]          
Segment Reporting Information [Line Items]          
Operating revenues 120,832 119,155 315,508 312,399  
Depreciation and amortization (13,441) (9,864) (39,330) (28,817)  
Other operating expenses (76,817) (77,847) (223,242) (228,957)  
Operating income (loss) 30,574 31,444 52,936 54,625  
Other income (deductions), net 1,817 1,763 5,258 5,055  
Interest (expense) income, net (3,762) (3,217) (11,253) (9,036)  
Income before income taxes 28,629 29,990 46,941 50,644  
Income tax (provision) benefit (4,948) (7,306) (6,036) (11,492)  
Net Income Including Noncontrolling Interest 23,681 22,684 40,905 39,152  
Less Net Income Attributable to Noncontrolling Interest, net of tax 0 0 0 0  
Net Income 23,681 22,684 40,905 39,152  
Segment Reporting Assets And Capital Expenditures [Abstract]          
Assets 1,288,752   1,288,752   1,193,083
Capital expenditures     101,609   176,399
MGE [Member] | Operating Segments [Member] | Gas [Member]          
Segment Reporting Information [Line Items]          
Operating revenues 23,056 22,626 125,118 118,211  
Depreciation and amortization (2,879) (2,534) (8,482) (7,374)  
Other operating expenses (20,217) (19,824) (104,587) (99,251)  
Operating income (loss) (40) 268 12,049 11,586  
Other income (deductions), net 855 829 2,579 2,347  
Interest (expense) income, net (1,059) (963) (3,132) (2,689)  
Income before income taxes (244) 134 11,496 11,244  
Income tax (provision) benefit 183 42 (2,848) (2,788)  
Net Income Including Noncontrolling Interest (61) 176 8,648 8,456  
Less Net Income Attributable to Noncontrolling Interest, net of tax 0 0 0 0  
Net Income (61) 176 8,648 8,456  
Segment Reporting Assets And Capital Expenditures [Abstract]          
Assets 379,160   379,160   377,005
Capital expenditures     24,551   30,497
MGE [Member] | Operating Segments [Member] | Non Regulated Energy [Member]          
Segment Reporting Information [Line Items]          
Operating revenues 10,233 10,125 30,468 30,483  
Depreciation and amortization (1,873) (1,861) (5,611) (5,563)  
Other operating expenses (33) (35) (113) (113)  
Operating income (loss) 8,327 8,229 24,744 24,807  
Other income (deductions), net 0 0 0 0  
Interest (expense) income, net (1,274) (1,320) (3,838) (4,002)  
Income before income taxes 7,053 6,909 20,906 20,805  
Income tax (provision) benefit (1,922) (1,853) (5,695) (5,638)  
Net Income Including Noncontrolling Interest 5,131 5,056 15,211 15,167  
Less Net Income Attributable to Noncontrolling Interest, net of tax 0 0 0 0  
Net Income 5,131 5,056 15,211 15,167  
Segment Reporting Assets And Capital Expenditures [Abstract]          
Assets 259,492   259,492   265,251
Capital expenditures     2,229   5,301
MGE [Member] | Consolidation Elimination Entries [Member]          
Segment Reporting Information [Line Items]          
Operating revenues (15,923) (14,111) (43,180) (41,404)  
Depreciation and amortization 0 0 0 0  
Other operating expenses 15,923 14,111 43,180 41,404  
Operating income (loss) 0 0 0 0  
Other income (deductions), net 0 0 0 0  
Interest (expense) income, net 0 0 0 0  
Income before income taxes 0 0 0 0  
Income tax (provision) benefit 0 0 0 0  
Net Income Including Noncontrolling Interest 0 0 0 0  
Less Net Income Attributable to Noncontrolling Interest, net of tax (5,614) (5,629) (16,725) (16,940)  
Net Income (5,614) (5,629) (16,725) (16,940)  
Segment Reporting Assets And Capital Expenditures [Abstract]          
Assets (377)   (377)   (448)
Capital expenditures     0   $ 0
MGE [Member] | Consolidation Elimination Entries [Member] | Electric [Member]          
Segment Reporting Information [Line Items]          
Operating revenues 225 (20) 622 (234)  
MGE [Member] | Consolidation Elimination Entries [Member] | Gas [Member]          
Segment Reporting Information [Line Items]          
Operating revenues 5,679 4,219 12,571 12,059  
MGE [Member] | Consolidation Elimination Entries [Member] | Non Regulated Energy [Member]          
Segment Reporting Information [Line Items]          
Operating revenues $ 10,019 $ 9,912 $ 29,987 $ 29,579  
v3.19.3
Pension and Other Postretirement Plans (Details) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Sep. 30, 2019
Sep. 30, 2018
Defined Benefit Plan Deferred Net Periodic Benefit Cost [Abstract]        
Deferred pension and OPRB costs $ 1,300   $ 4,600  
Pension Benefits [Member]        
Components of net periodic benefit cost:        
Service cost 1,040 $ 1,431 3,402 $ 4,292
Interest cost 3,170 3,215 10,364 9,645
Expected return on assets (5,054) (6,560) (16,523) (19,680)
Amortization of:        
Prior service credit (26) (11) (85) (33)
Actuarial loss 1,637 1,319 5,351 3,958
Net periodic benefit (credit) cost 767 (606) 2,509 (1,818)
Postretirement Benefits [Member]        
Components of net periodic benefit cost:        
Service cost 276 320 829 962
Interest cost 721 653 2,164 1,959
Expected return on assets (677) (808) (2,034) (2,424)
Amortization of:        
Transition obligation 1 1 2 2
Prior service credit (664) (667) (1,994) (2,001)
Actuarial loss 100 122 300 366
Net periodic benefit (credit) cost $ (243) $ (379) $ (733) $ (1,136)
v3.19.3
Leases (Details-6)
$ in Thousands
Dec. 31, 2018
USD ($)
Operating Leases Future Minimum Payments Due [Abstract]  
Minimum lease payments, 2019 $ 1,646
Minimum lease payments, 2020 1,371
Minimum lease payments, 2021 1,095
Minimum lease payments, 2022 989
Minimum lease payments, 2023 975
Minimum lease payments, Thereafter $ 22,707
v3.19.3
Revenue
9 Months Ended
Sep. 30, 2019
Revenue from Contract with Customer [Abstract]  
Revenue from Contract with Customer

Revenue - MGE Energy and MGE.

 

Revenues disaggregated by revenue source were as follows:

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

(In thousands)

 

September 30,

 

September 30,

 

 

Electric revenues

 

2019

 

2018

 

2019

 

2018

 

 

Residential

$

42,442

$

42,371

$

107,772

$

107,847

 

 

Commercial

 

63,466

 

61,638

 

165,481

 

159,264

 

 

Industrial

 

3,760

 

3,668

 

10,013

 

11,193

 

 

Other-retail/municipal

 

9,543

 

9,431

 

26,728

 

26,245

 

 

Total retail

 

119,211

 

117,108

 

309,994

 

304,549

 

 

Sales to the market

 

1,163

 

1,505

 

3,914

 

6,334

 

 

Other revenues

 

233

 

562

 

978

 

1,750

 

 

Total electric revenues

 

120,607

 

119,175

 

314,886

 

312,633

 

 

 

 

 

 

 

 

 

 

 

 

 

Gas revenues

 

 

 

 

 

 

 

 

 

 

Residential

 

11,342

 

11,916

 

67,659

 

64,087

 

 

Commercial/Industrial

 

4,825

 

5,570

 

40,833

 

38,728

 

 

Total retail

 

16,167

 

17,486

 

108,492

 

102,815

 

 

Gas transportation

 

1,126

 

829

 

3,756

 

3,018

 

 

Other revenues

 

84

 

92

 

299

 

319

 

 

Total gas revenues

 

17,377

 

18,407

 

112,547

 

106,152

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-regulated energy revenues

 

214

 

213

 

481

 

904

 

 

Total Operating Revenue

$

138,198

$

137,795

 

427,914

$

419,689

 

Performance Obligations

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account. A contract's transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The majority of MGE Energy's and MGE's contracts have a single performance obligation.

 

Retail Revenue (Residential, Commercial, Industrial, and Other Retail/Municipal)

Retail revenue of electric and gas utility service represent MGE's core business activities. Tariffs are approved by the PSCW through a rate order and provide MGE's customers with the standard terms and conditions, including pricing terms. The performance obligation to deliver electricity or gas is satisfied over time as the customer simultaneously receives and consumes the commodities provided by MGE. MGE recognizes revenues as the commodity is delivered to customers. Meters are read on a systematic basis throughout the month based on established meter-reading schedules and the customer is subsequently billed for their services. At the end of the month, MGE accrues an estimate for the unbilled amount of commodities delivered to customers. The unbilled revenue estimate is based on daily system demand volumes, weather factors, estimated line losses, estimated customer usage by class, and applicable customer rates.

 

Utility Cost Recovery Mechanisms

MGE's tariff rates include a provision for fuel cost recovery. The PSCW allows Wisconsin utilities to defer electric fuel-related costs, less excess revenues, that fall outside a symmetrical cost tolerance band. Any over/under recovery of the actual costs in a given year is determined in the following year and is then

reflected in future billings to electric retail customers. Over-collection of fuel-related costs that are outside the approved range will be recognized as a reduction of revenue. Under-collection of these costs will be recognized in "Purchased power" expense in the consolidated statements of income. The cumulative effects of these deferred amounts will be recorded in "Regulatory assets" or "Regulatory liabilities" on the consolidated balance sheets until they are reflected in future billings to customers. See Footnote 10.b. for further information.

MGE received a PSCW order in January 2018 to defer the over-collection of income tax expense collected in customer rates during 2018 as a result of the Tax Cuts and Jobs Act (the Tax Act) reduction in the income tax rate to 21 percent. See Footnote 10.c. for further information.

 

MGE has other cost recovery mechanisms. For example, any over-collection of the difference between actual costs incurred and the amount of costs collected from customers is recorded as a reduction of revenue in the period incurred.

 

Sales to the Market

Sales to the market include energy charges, capacity or demand charges, and ancillary charges represented by wholesale sales of electricity made to third parties who are not ultimate users of the electricity. Most of these sales are spot market transactions on the markets operated by MISO. Each transaction is considered a performance obligation and revenue is recognized in the period in which energy charges, capacity or demand charges, and ancillary services are sold into MISO. MGE reports, on a net basis, transactions on the MISO markets in which it buys and sells power within the same hour to meet electric energy delivery requirements.

 

Transportation of Gas

MGE has contracts under which MGE provides gas transportation services to customers who have elected to purchase gas from a third party and have the gas delivered via pipelines within MGE's service territory. Revenue is recognized as service is rendered or gas is delivered to customers. Tariffs are approved by the PSCW through a rate order and provide gas transportation customers with the standard terms and conditions, including pricing terms.

v3.19.3
Leases (Tables)
9 Months Ended
Sep. 30, 2019
Leases [Abstract]  
Lease Cost The following table shows lease expense for the three and nine months ended September 30, 2019:

 

(In thousands)

 

Three Months Ended

 

Nine Months Ended

 

Income Statement Location

 

 

Finance lease expense:

 

 

 

 

 

 

 

 

Amortization of leased assets

$

425

$

1,295

 

Depreciation and amortization

 

 

Interest on lease liabilities

 

199

 

597

 

Interest expense, net

 

 

Operating lease expense

 

32

 

92

 

Other operations and maintenance

 

 

Total lease expense

$

656

$

1,984

 

 

 

Lease Balance Sheet The following table shows the lease assets and liabilities on the consolidated balance sheet as of September 30, 2019:

 

(In thousands)

 

 

 

Balance Sheet Location

 

 

Lease assets:

 

 

 

 

 

 

Finance lease assets

$

16,275

 

Property, plant, and equipment, net

 

 

Operating lease assets

 

300

 

Other deferred assets and other

 

 

Total lease assets

$

16,575

 

 

 

 

Lease liabilities:

 

 

 

 

 

 

Finance lease liabilities - current

$

932

 

Other current liabilities

 

 

Finance lease liabilities - long-term

 

17,657

 

Finance lease liabilities

 

 

Operating lease liabilities - current

 

143

 

Other current liabilities

 

 

Operating lease liabilities - long-term

 

185

 

Other deferred liabilities and other

 

 

Total lease liabilities

$

18,917

 

 

 

Other Financial Information The following table shows other financial lease information for the nine months ended September 30, 2019:

 

(In thousands)

 

 

 

 

Cash paid for amounts included in the measurement of lease liabilities:

 

 

 

 

Finance leases - Financing cash flows

$

781

 

 

Finance leases - Operating cash flows

 

597

 

 

Operating leases - Operating cash flows

 

108

 

 

Lease assets obtained in exchange for lease liabilities:

 

 

 

 

Finance leases

 

12,081

 

 

Operating leases

 

239

 

Weighted Average And Discount Rate The following table shows the weighted average remaining lease terms and discounts as of September 30, 2019:

 

Weighted-average remaining lease terms (in years):

 

 

 

 

 

Finance leases

 

38

 

 

 

Operating leases

 

5

 

 

 

Weighted-average discount rates:

 

 

 

 

 

Finance leases

 

4.36

%

 

 

Operating leases

 

3.58

%

 

Lessee Operating Lease Liability Maturity The following table shows maturities of lease liabilities as of September 30, 2019:

 

(In thousands)

 

Finance

 

Operating

 

 

2019

$

539

$

37

 

 

2020

 

1,644

 

152

 

 

2021

 

1,428

 

86

 

 

2022

 

1,309

 

33

 

 

2023

 

1,228

 

2

 

 

Thereafter

 

41,317

 

52

 

 

Subtotal

 

47,465

 

362

 

 

Less: Present value discount

 

(28,876)

 

(34)

 

 

Lease Liability

$

18,589

$

328

 

Lessee Finance Lease Liability Maturity The following table shows maturities of lease liabilities as of September 30, 2019:

 

(In thousands)

 

Finance

 

Operating

 

 

2019

$

539

$

37

 

 

2020

 

1,644

 

152

 

 

2021

 

1,428

 

86

 

 

2022

 

1,309

 

33

 

 

2023

 

1,228

 

2

 

 

Thereafter

 

41,317

 

52

 

 

Subtotal

 

47,465

 

362

 

 

Less: Present value discount

 

(28,876)

 

(34)

 

 

Lease Liability

$

18,589

$

328

 

Operating Leases, Future Minimum Rental Payments Future minimum rental payments as of December 31, 2018, under agreements classified as operating leases with noncancelable terms in excess of one year are as follows:

 

(In thousands)

 

2019

 

2020

 

2021

 

2022

 

2023

 

Thereafter

 

 

Minimum lease payments

$

1,646

$

1,371

$

1,095

$

989

$

975

$

22,707

 

v3.19.3
Fair Value of Financial Instruments (Details-4) - USD ($)
3 Months Ended 9 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Sep. 30, 2019
Sep. 30, 2018
Fair Value, Net Derivative Asset (Liability) Measured on Recurring Basis, Unobservable Input Reconciliation [Roll Forward]        
Beginning balance, $ (33,337,000) $ (37,332,000) $ (32,002,000) $ (42,026,000)
Realized and unrealized gains (losses):        
Included in regulatory assets 4,317,000 2,018,000 2,982,000 6,711,000
Included in other comprehensive income 0 0 0 0
Included in earnings [1] (492,000) 26,000 (1,928,000) (434,000)
Included in current assets 4,000 (25,000) (198,000) (496,000)
Purchases 5,205,000 5,736,000 16,827,000 17,602,000
Sales 0 0 0 0
Issuances 0 0 0 0
Settlements (4,717,000) (5,737,000) (14,701,000) (16,671,000)
Transfers in and/or out of level 3 0 0 0 0
Ending balance, $ (29,020,000) $ (35,314,000) $ (29,020,000) $ (35,314,000)
[1] MGE's exchange-traded derivative contracts, over-the-counter party transactions, purchased power agreement, and FTRs are subject to regulatory deferral. These derivatives are therefore marked to fair value and are offset in the financial statements with a corresponding regulatory asset or liability.
v3.19.3
Revenue (Details-1) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Sep. 30, 2019
Sep. 30, 2018
Total Operating Revenue [Member]        
Disaggregation of Revenue [Line Items]        
Revenues recognized from contracts with customers $ 138,198 $ 137,795 $ 427,914 $ 419,689
Electric [Member]        
Disaggregation of Revenue [Line Items]        
Revenues recognized from contracts with customers 120,607 119,175 314,886 312,633
Electric [Member] | Residential [Member]        
Disaggregation of Revenue [Line Items]        
Revenues recognized from contracts with customers 42,442 42,371 107,772 107,847
Electric [Member] | Commercial [Member]        
Disaggregation of Revenue [Line Items]        
Revenues recognized from contracts with customers 63,466 61,638 165,481 159,264
Electric [Member] | Industrial [Member]        
Disaggregation of Revenue [Line Items]        
Revenues recognized from contracts with customers 3,760 3,668 10,013 11,193
Electric [Member] | Other-retail/municipal        
Disaggregation of Revenue [Line Items]        
Revenues recognized from contracts with customers 9,543 9,431 26,728 26,245
Electric [Member] | Total Retail [Member]        
Disaggregation of Revenue [Line Items]        
Revenues recognized from contracts with customers 119,211 117,108 309,994 304,549
Electric [Member] | Sales To The Market [Member]        
Disaggregation of Revenue [Line Items]        
Revenues recognized from contracts with customers 1,163 1,505 3,914 6,334
Electric [Member] | Other Revenues [Member]        
Disaggregation of Revenue [Line Items]        
Revenues recognized from contracts with customers 233 562 978 1,750
Gas [Member]        
Disaggregation of Revenue [Line Items]        
Revenues recognized from contracts with customers 17,377 18,407 112,547 106,152
Gas [Member] | Residential [Member]        
Disaggregation of Revenue [Line Items]        
Revenues recognized from contracts with customers 11,342 11,916 67,659 64,087
Gas [Member] | Commercial/Industrial [Member]        
Disaggregation of Revenue [Line Items]        
Revenues recognized from contracts with customers 4,825 5,570 40,833 38,728
Gas [Member] | Total Retail [Member]        
Disaggregation of Revenue [Line Items]        
Revenues recognized from contracts with customers 16,167 17,486 108,492 102,815
Gas [Member] | Gas Transportation [Member]        
Disaggregation of Revenue [Line Items]        
Revenues recognized from contracts with customers 1,126 829 3,756 3,018
Gas [Member] | Other Revenues [Member]        
Disaggregation of Revenue [Line Items]        
Revenues recognized from contracts with customers 84 92 299 319
Non Regulated Energy [Member]        
Disaggregation of Revenue [Line Items]        
Revenues recognized from contracts with customers $ 214 $ 213 $ 481 $ 904
v3.19.3
Equity and Financing Arrangements (Details) - USD ($)
3 Months Ended 9 Months Ended
Nov. 05, 2019
Sep. 30, 2019
Sep. 30, 2018
Sep. 30, 2019
Sep. 30, 2018
Common Stock [Abstract]          
Common stock issued during period   0 0 0 0
Dilutive Shares Calculation [Abstract]          
Dilutive securities       $ 0  
Future Debt Issuance, 2.94% due 2029 | Subsequent Event [Member]          
Debt Instrument [Line Items]          
Face amount $ 50,000,000        
Interest rate 2.94%        
Term 10 years        
v3.19.3
Investment in ATC and ATC Holdco (Details-1) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Oct. 31, 2019
Sep. 30, 2019
Sep. 30, 2018
Sep. 30, 2019
Sep. 30, 2018
Dec. 31, 2017
Schedule Of Equity Method Investments [Line Items]            
Equity earnings from investment in ATC   $ 2,364 $ 1,672 $ 6,879 $ 6,113  
Dividends from ATC   1,781 1,581 5,526 5,336  
Capital contributions to investments   888 533 5,894 4,801  
MGE Transco [Member] | ATC [Member]            
Schedule Of Equity Method Investments [Line Items]            
Equity earnings from investment in ATC   2,364 1,672 6,879 6,113  
Dividends from ATC   1,781 1,581 [1] 5,526 4,540 [1]  
Capital contributions to investments   $ 888 533 $ 2,131 2,308  
Dividend receivable from ATC     $ 1,600   $ 1,600 $ 2,300
MGE Transco [Member] | ATC [Member] | Subsequent Event [Member]            
Schedule Of Equity Method Investments [Line Items]            
Capital contributions to investments $ 900          
[1] MGE Transco recorded a $2.3 million dividend receivable from ATC as of December 31, 2017. A cash dividend was received in January of the following year. MGE Transco recorded a $1.6 million dividend receivable from ATC as of September 30, 2018. A cash dividend was received in October 2018.
v3.19.3
Joint Plant Ownership
9 Months Ended
Sep. 30, 2019
Regulated Operations [Abstract]  
Joint Plant Ownership

Joint Plant Ownership - MGE Energy and MGE.

 

a. Two Creeks.

 

In May 2019, MGE acquired a 33% ownership interest in a 150 MW solar generation array in the Town of Two Creeks and the City of Two Rivers in Manitowoc and Kewaunee Counties, Wisconsin. MGE's sole principal asset will be the 33% undivided ownership interest in the solar generation facility, which is being constructed. The estimated share of capital costs for MGE's ownership interest is approximately $65 million (excluding capitalized interest).

 

As of September 30, 2019, $42.1 million (excluding capitalized interest) related to this project is reflected in "Construction work in progress" on the consolidated balance sheets. The project is anticipated to be completed by the end of 2020.

b. Badger Hollow.

 

In July 2019, MGE acquired a 33% ownership interest in a 150 MW solar generation array in southwestern Wisconsin in Iowa County, near the villages of Montfort and Cobb. MGE's sole principal asset will be the 33% undivided ownership interest in the solar generation facility which is being constructed. The estimated share of capital costs for MGE's ownership interest is approximately $65 million (excluding capitalized interest).

 

As of September 30, 2019, $10.0 million (excluding capitalized interest) related to this project is reflected in "Construction work in progress" on the consolidated balance sheets. The project is anticipated to be completed by the end of 2020.

v3.19.3
Summary of Significant Accounting Principles (Tables)
9 Months Ended
Sep. 30, 2019
Cash, Cash Equivalents, And Restricted Cash [Abstract]  
Cash, Cash Equivalents, and Restricted Cash The following table presents the components of total cash, cash equivalents, and restricted cash on the consolidated balance sheets.

 

 

 

MGE Energy

 

MGE

 

 

 

 

September 30,

 

December 31,

 

September 30,

 

December 31,

 

 

(In thousands)

 

2019

 

2018

 

2019

 

2018

 

 

Cash and cash equivalents

$

61,112

$

83,102

$

4,656

$

4,843

 

 

Restricted cash

 

532

 

634

 

532

 

634

 

 

Receivable - margin account

 

1,598

 

1,193

 

1,598

 

1,193

 

 

Cash, cash equivalents, and restricted cash

$

63,242

$

84,929

$

6,786

$

6,670

 

v3.19.3
Document and Entity Information - shares
9 Months Ended
Sep. 30, 2019
Oct. 31, 2019
Document And Entity Information [Line Items]    
Entity Registrant Name MGE Energy, Inc.  
Entity Central Index Key 0001161728  
Document Type 10-Q  
Document Period End Date Sep. 30, 2019  
Amendment Flag false  
Trading Symbol MGEE  
Document Fiscal Year Focus 2019  
Document Fiscal Period Focus Q3  
Current Fiscal Year End Date --12-31  
Entity Current Reporting Status Yes  
Entity Filer Category Large Accelerated Filer  
Entity Common Stock Shares Outstanding   34,668,370
Entity Emerging Growth Company false  
Entity Small Business false  
Entity Shell Company false  
Security Exchange Name NASDAQ  
Security 12(b) Title Common Stock, $1 Par Value Per Share  
Entity Tax Identification Number 39-2040501  
Entity File Number 000-49965  
Entity Incorporation State Country Code WI  
Entity Address Address Line 1 133 South Blair Street  
EntityAddressCityOrTown Madison  
Entity Address State Or Province WI  
Entity Address Postal Zip Code 53788  
City Area Code 608  
Local Phone Number 252-7000  
Document Transition Report false  
Entity Interactive Data Current Yes  
Document Quarterly Report true  
MGE [Member]    
Document And Entity Information [Line Items]    
Entity Registrant Name Madison Gas and Electric Company  
Entity Central Index Key 0000061339  
Entity Current Reporting Status Yes  
Entity Filer Category Non-accelerated Filer  
Entity Common Stock Shares Outstanding   17,347,894
Entity Emerging Growth Company false  
Entity Small Business false  
Entity Shell Company false  
Entity Tax Identification Number 39-0444025  
Entity File Number 000-1125  
Entity Incorporation State Country Code WI  
Entity Address Address Line 1 133 South Blair Street  
EntityAddressCityOrTown Madison  
Entity Address State Or Province WI  
Entity Address Postal Zip Code 53788  
City Area Code 608  
Local Phone Number 252-7000  
Document Transition Report false  
Entity Interactive Data Current Yes  
Document Quarterly Report true  
v3.19.3
Consolidated Balance Sheets (Unaudited) (Parentheticals) - USD ($)
$ in Thousands
Sep. 30, 2019
Dec. 31, 2018
Receivables, Net    
Reserve for uncollectible accounts receivable $ 2,683 $ 2,614
Reserve for uncollectible other accounts receivable 456 540
MGE [Member]    
Receivables, Net    
Reserve for uncollectible accounts receivable 2,683 2,614
Reserve for uncollectible other accounts receivable $ 456 $ 540
v3.19.3
Leases (Details-1) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2019
Sep. 30, 2019
Lease Cost [Abstract]    
Amortization of leased assets, Depreciation and amortization $ 425 $ 1,295
Interest on lease liabilities, Interest expense, net 199 597
Operating lease expense, Other operations and maintenance 32 92
Total lease expense $ 656 $ 1,984
v3.19.3
Summary of Significant Accounting Principles
9 Months Ended
Sep. 30, 2019
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Basis of Presentation

Summary of Significant Accounting Policies – MGE Energy and MGE.

 

a.Basis of Presentation.

 

This report is a combined report of MGE Energy and MGE. References in this report to "MGE Energy" are to MGE Energy, Inc. and its subsidiaries. References in this report to "MGE" are to Madison Gas and Electric Company.

 

MGE Power Elm Road and MGE Power West Campus own electric generating assets and lease those assets to MGE. Both entities are variable interest entities under applicable authoritative accounting guidance. MGE is considered the primary beneficiary of these entities as a result of contractual agreements. As a result, MGE has consolidated MGE Power Elm Road and MGE Power West Campus. See Footnote 3 of Notes to Consolidated Financial Statements under Item 8, Financial Statements and Supplementary Data, of MGE Energy's and MGE's 2018 Annual Report on Form 10-K (the 2018 Annual Report on Form 10-K).

 

The accompanying consolidated financial statements as of September 30, 2019, and for the three and nine months ended, are unaudited but include all adjustments that MGE Energy and MGE management consider necessary for a fair statement of their respective financial statements. All adjustments are of a normal, recurring nature except as otherwise disclosed. The year-end consolidated balance sheet information was derived from the audited balance sheet appearing in the 2018 Annual Report on Form 10-K, but does not include all disclosures required by accounting principles generally accepted in the United States of America. These notes should be read in conjunction with the financial statements and the notes on pages 62 through 106 of the 2018 Annual Report on Form 10-K.

b.Cash, Cash Equivalents, and Restricted Cash.

 

The following table presents the components of total cash, cash equivalents, and restricted cash on the consolidated balance sheets.

 

 

 

MGE Energy

 

MGE

 

 

 

 

September 30,

 

December 31,

 

September 30,

 

December 31,

 

 

(In thousands)

 

2019

 

2018

 

2019

 

2018

 

 

Cash and cash equivalents

$

61,112

$

83,102

$

4,656

$

4,843

 

 

Restricted cash

 

532

 

634

 

532

 

634

 

 

Receivable - margin account

 

1,598

 

1,193

 

1,598

 

1,193

 

 

Cash, cash equivalents, and restricted cash

$

63,242

$

84,929

$

6,786

$

6,670

 

v3.19.3
Fair Value of Financial Instruments (Tables)
9 Months Ended
Sep. 30, 2019
Fair Value Disclosures [Abstract]  
Estimated Fair Market Value of Financial Instruments The estimated fair market value offinancial instruments are as follows:

 

 

 

September 30, 2019

 

December 31, 2018

 

 

(In thousands)

 

Carrying Amount

 

Fair Value

 

Carrying Amount

 

Fair Value

 

 

MGE Energy

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

$

61,112

$

61,112

$

83,102

$

83,102

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

Short-term debt - commercial paper

 

54,500

 

54,500

 

13,000

 

13,000

 

 

Long-term debt(a)

 

499,027

 

578,229

 

502,431

 

518,811

 

 

 

 

 

 

 

 

 

 

 

 

 

MGE

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

$

4,656

$

4,656

$

4,843

$

4,843

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

Short-term debt - commercial paper

 

54,500

 

54,500

 

13,000

 

13,000

 

 

Long-term debt(a)

 

499,027

 

578,229

 

502,431

 

518,811

 

(a) Includes long-term debt due within one year. Excludes debt issuance costs and unamortized discount of $4.2million and $4.5million as of September 30, 2019, and December 31, 2018, respectively.
Assets and Liabilities Measured at Fair Value on a Recurring Basis The following table presents the balances of assets and liabilities measured at fair value on a recurring basis.

 

 

 

Fair Value as of September 30, 2019

 

 

(In thousands)

 

Total

 

Level 1

 

Level 2

 

Level 3

 

 

MGE Energy

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

Derivatives, net(b)

$

1,093

$

525

$

-

$

568

 

 

Exchange-traded investments

 

1,001

 

1,001

 

-

 

-

 

 

Total Assets

$

2,094

$

1,526

$

-

$

568

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

Derivatives, net

$

30,275

$

687

$

-

$

29,588

 

 

Deferred compensation

 

3,025

 

-

 

3,025

 

-

 

 

Total Liabilities

$

33,300

$

687

$

3,025

$

29,588

 

 

 

 

 

 

 

 

 

 

 

 

 

MGE

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

Derivatives, net(b)

$

1,093

$

525

$

-

$

568

 

 

Exchange-traded investments

 

178

 

178

 

-

 

-

 

 

Total Assets

$

1,271

$

703

$

-

$

568

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

Derivatives, net

$

30,275

$

687

$

-

$

29,588

 

 

Deferred compensation

 

3,025

 

-

 

3,025

 

-

 

 

Total Liabilities

$

33,300

$

687

$

3,025

$

29,588

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value as of December 31, 2018

 

 

(In thousands)

 

Total

 

Level 1

 

Level 2

 

Level 3

 

 

MGE Energy

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

Derivatives, net

$

1,042

$

296

$

-

$

746

 

 

Exchange-traded investments

 

848

 

848

 

-

 

-

 

 

Total Assets

$

1,890

$

1,144

$

-

$

746

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

Derivatives, net

$

32,872

$

124

$

-

$

32,748

 

 

Deferred compensation

 

3,078

 

-

 

3,078

 

-

 

 

Total Liabilities

$

35,950

$

124

$

3,078

$

32,748

 

 

 

 

 

 

 

 

 

 

 

 

 

MGE

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

Derivatives, net

$

1,042

$

296

$

-

$

746

 

 

Exchange-traded investments

 

43

 

43

 

-

 

-

 

 

Total Assets

$

1,085

$

339

$

-

$

746

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

Derivatives, net

$

32,872

$

124

$

-

$

32,748

 

 

Deferred compensation

 

3,078

 

-

 

3,078

 

-

 

 

Total Liabilities

$

35,950

$

124

$

3,078

$

32,748

 

 

 

 

 

 

 

 

 

 

 

 

(b) These amounts are shown gross and exclude $0.7 million of collateral that was posted against derivative positions with counterparties as of September 30, 2019.
Significant Unobservable Inputs The following table presents the significant unobservable inputs used in the pricing model.

 

 

 

Model Input

 

Significant Unobservable Inputs

 

September 30, 2019

 

December 31, 2018

 

Basis adjustment:

 

 

 

 

 

 

 

On peak

 

92.2

%

 

92.1

%

 

Off peak

 

92.8

%

 

92.8

%

 

Counterparty fuel mix:

 

 

 

 

 

 

 

Internal generation

 

40.0% - 60.0

%

 

50.0% - 75.0

%

 

Purchased power

 

60.0% - 40.0

%

 

50.0% - 25.0

%

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis The following table summarizes the changes in Level 3 commodity derivative assets and liabilities measured at fair value on a recurring basis.

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30,

 

September 30,

(In thousands)

 

2019

 

2018

 

2019

 

2018

Beginning balance

$

(33,337)

$

(37,332)

$

(32,002)

$

(42,026)

Realized and unrealized gains (losses):

 

 

 

 

 

 

 

 

Included in regulatory assets

 

4,317

 

2,018

 

2,982

 

6,711

Included in other comprehensive income

 

-

 

-

 

-

 

-

Included in earnings

 

(492)

 

26

 

(1,928)

 

(434)

Included in current assets

 

4

 

(25)

 

(198)

 

(496)

Purchases

 

5,205

 

5,736

 

16,827

 

17,602

Sales

 

-

 

-

 

-

 

-

Issuances

 

-

 

-

 

-

 

-

Settlements

 

(4,717)

 

(5,737)

 

(14,701)

 

(16,671)

Transfers in and/or out of Level 3

 

-

 

-

 

-

 

-

Balance as of September 30,

$

(29,020)

$

(35,314)

$

(29,020)

$

(35,314)

Total gains (losses) included in earnings attributed to

 

 

 

 

 

 

 

 

the change in unrealized gains (losses) related to

 

 

 

 

 

 

 

 

assets and liabilities held at September 30,(c)

$

-

$

-

$

-

$

-

(c) MGE's exchange-traded derivative contracts, over-the-counter party transactions, purchased power agreement, and FTRs are subject to regulatory deferral. These derivatives are therefore marked to fair value and are offset in the financial statements with a corresponding regulatory asset or liability.
Gains and Losses Included in Income for Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis The following table presents total realized and unrealized gains (losses) included in income for Level 3 assets and liabilities measured at fair value on a recurring basis (c).

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

 

September 30,

 

September 30,

 

 

(In thousands)

 

2019

 

2018

 

2019

 

2018

 

 

Purchased Power Expense

$

(409)

$

26

$

(1,658)

$

(637)

 

 

Cost of Gas Sold Expense

 

(83)

 

-

 

(270)

 

203

 

 

Total

$

(492)

$

26

$

(1,928)

$

(434)

 

(c) MGE's exchange-traded derivative contracts, over-the-counter party transactions, purchased power agreement, and FTRs are subject to regulatory deferral. These derivatives are therefore marked to fair value and are offset in the financial statements with a corresponding regulatory asset or liability.
v3.19.3
Rate Matters
9 Months Ended
Sep. 30, 2019
Regulated Operations [Abstract]  
Rate Matters

Rate Matters - MGE Energy and MGE.

 

a.Rate Proceedings.

 

In December 2018, the PSCW approved the settlement agreement between MGE and intervening parties in the rate case. The settlement decreases electric rates by 2.24%, or $9.2 million, in 2019. MGE will maintain this rate level for 2020, with the exception that MGE will file a 2020 Fuel Cost Plan in 2019 and MGE's electric rates will be adjusted accordingly. The decrease reflects the ongoing tax impacts of the Tax Act. Lower fuel costs and increase in rate base from renewable generation assets are additional items impacting the rate change. The settlement agreement increases gas rates by 1.06%, or $1.7 million, in 2019 and 1.46%, or $2.4 million, in 2020. The gas increase covers infrastructure costs. It also reflects the impacts of the Tax Act. The return on common stock equity for 2019 and 2020 is 9.8% based on a capital structure consisting of 56.6% common equity in 2019 and 56.1% common equity in 2020.

 

MGE did not file a base rate case for 2018.

b.Fuel Rules.

 

Fuel rules require the PSCW and Wisconsin utilities to defer electric fuel-related costs that fall outside a symmetrical cost tolerance band around the amount approved for a utility in its annual fuel proceedings. Any over/under recovery of the actual costs is determined in the following year and is then reflected in future billings to electric retail customers. The fuel rules bandwidth is currently set at plus or minus 2%. Under fuel rules, MGE would defer costs, less any excess revenues, if its actual electric fuel costs exceeded 102% of the electric fuel costs allowed in its latest rate order. Excess revenues are defined as revenues in the year in question that provide MGE with a greater return on

common equity than authorized by the PSCW in MGE's latest rate order. Conversely, MGE is required to defer the benefit of lower costs if actual electric fuel costs were less than 98% of the electric fuel costs allowed in that order. These costs will be subject to the PSCW's annual review of fuel costs completed in the year following the deferral.

 

In December 2017, the PSCW approved a surcharge for 2018 electric fuel-related costs. The surcharge increased electric retail revenue in 2018 by $0.5 million, or 0.13%.

 

In July 2019, the PSCW issued a final decision in the 2018 fuel rules proceedings for MGE to refund $9.5 million of additional fuel savings realized during 2018 plus accrued interest to its retail electric customers in October 2019. There was no change to the refund in the fuel rules proceedings from the amount MGE deferred in the previous year.

 

As of September 30, 2019, MGE had deferred $0.5 million in 2019 fuel savings. As of December 31, 2018, MGE had deferred $9.5 million of 2018 fuel savings.

c.2018 Tax Reform.

 

Customer rates approved for 2018 reflected an income tax rate of 35 percent. In January 2018, the PSCW issued an order directing Wisconsin investor-owned utilities to defer the over-collection of income tax expense as a result of the decrease in tax rate to 21 percent.

 

The PSCW issued an order in May 2018 to return to customers the estimated 2018 over-collection of income tax expense. The decision included a one-time bill credit on customer bills to reflect the estimate of the over-collection for January through June 2018, along with a volumetric bill credit which began in July 2018 and continued through the remainder of 2018 for the estimated remaining annual amount. MGE returned $8.2 million to customers through bill credits as of December 31, 2018.

 

In August 2019, the PSCW issued a decision on the 2018 tax reform proceedings for MGE to refund the remaining 2018 overcollection of income tax expense to its retail customers as a one-time bill credit. MGE returned $3.2 million in September 2019. There was no change to the refund order from the amount MGE deferred as of December 31, 2018.

v3.19.3
Adoption of Accounting Principles and Recently Issued Accounting Pronouncements
9 Months Ended
Sep. 30, 2019
New Accounting Pronouncements and Changes in Accounting Principles [Abstract]  
New Accounting Pronouncements

New Accounting Standards - MGE Energy and MGE.

 

Recently Adopted

 

Leases.

 

In February 2016, the FASB issued authoritative guidance within the codification's Leases topic that provides guidance on the classification, recognition, measurement, and disclosure of leases. The new leasing standard establishes that a lease conveys the right to control the use of identified property, plant, or equipment for a period of time in exchange for consideration. Under the new guidance, lessees are required to recognize all leases with terms greater than one year, including operating leases, on the balance sheet by recording a right-of-use asset and lease liability. Prior to the authoritative guidance, only capital leases were recognized on the balance sheet by lessees. The new accounting guidance, as applied by lessors, did not change materially. In January 2018, the FASB issued authoritative guidance which provided an optional

practical expedient to grandfather the accounting for existing and expired land easements not accounted for as a lease under the new authoritative guidance. MGE Energy and MGE adopted this practical expedient.

 

The lease authoritative guidance became effective January 1, 2019. MGE Energy and MGE adopted the standard upon the effective date. In compliance with authorized transition guidance, MGE Energy and MGE began applying the new standard on January 1, 2019, but will continue to present periods prior to that date according to the previous authoritative standard. There was no material impact on the consolidated net income or cash flows. See Footnote 3 for further lease information.

v3.19.3
Pension and Other Postretirement Plans
9 Months Ended
Sep. 30, 2019
Compensation and Retirement Disclosure [Abstract]  
Pension and Other Postretirement Plans

Pension and Other Postretirement Plans - MGE Energy and MGE.

 

MGE maintains qualified and nonqualified pension plans, health care, and life insurance benefits. Additionally, MGE has defined contribution 401(k) benefit plans.

 

The components of net periodic benefit cost, other than the service cost component, are recorded in "Other income, net" on the consolidated statements of income. The service cost component is recorded in "Other operations and maintenance" on the consolidated statements of income. The service cost component of net periodic benefit cost is eligible for capitalization within the consolidated balance sheets. MGE has regulatory treatment and recognizes regulatory assets or liabilities for timing differences between when net periodic benefit costs are recovered and when costs are recognized.

 

The following table presents the components of net periodic benefit costs recognized.

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

 

September 30,

 

September 30,

 

 

(In thousands)

 

2019

 

2018

 

2019

 

2018

 

 

Pension Benefits

 

 

 

 

 

 

 

 

 

 

Components of net periodic benefit cost:

 

 

 

 

 

 

 

 

 

 

Service cost

$

1,040

$

1,431

$

3,402

$

4,292

 

 

Interest cost

 

3,170

 

3,215

 

10,364

 

9,645

 

 

Expected return on assets

 

(5,054)

 

(6,560)

 

(16,523)

 

(19,680)

 

 

Amortization of:

 

 

 

 

 

 

 

 

 

 

Prior service credit

 

(26)

 

(11)

 

(85)

 

(33)

 

 

Actuarial loss

 

1,637

 

1,319

 

5,351

 

3,958

 

 

Net periodic benefit (credit) cost

$

767

$

(606)

$

2,509

$

(1,818)

 

 

 

 

 

 

 

 

 

 

 

 

 

Postretirement Benefits

 

 

 

 

 

 

 

 

 

 

Components of net periodic benefit cost:

 

 

 

 

 

 

 

 

 

 

Service cost

$

276

$

320

$

829

$

962

 

 

Interest cost

 

721

 

653

 

2,164

 

1,959

 

 

Expected return on assets

 

(677)

 

(808)

 

(2,034)

 

(2,424)

 

 

Amortization of:

 

 

 

 

 

 

 

 

 

 

Transition obligation

 

1

 

1

 

2

 

2

 

 

Prior service credit

 

(664)

 

(667)

 

(1,994)

 

(2,001)

 

 

Actuarial loss

 

100

 

122

 

300

 

366

 

 

Net periodic benefit (credit) cost

$

(243)

$

(379)

$

(733)

$

(1,136)

 

As a result of lower investment returns in the fourth quarter of 2018, pension and postretirement benefit costs increased in 2019. In August 2019, the PSCW approved MGE's request to defer the difference between estimated pension and other postretirement costs included in the 2019 and 2020 rate settlement and actual expense incurred. MGE expects that the deferred cost for employee benefit plans will be factored into future rate actions starting in 2021. For the three and nine months ended September 30, 2019, MGE has deferred approximately $1.3 million and $4.6 million of pension and other postretirement costs, respectively. The impact of the deferral has not been reflected in the table above.
v3.19.3
Derivative and Hedging Instruments (Details-1)
9 Months Ended 12 Months Ended
Sep. 30, 2019
USD ($)
Dth
MWh
MW
Dec. 31, 2018
USD ($)
Dth
MWh
MW
Jun. 30, 2019
USD ($)
Sep. 30, 2018
USD ($)
Jun. 30, 2018
USD ($)
Dec. 31, 2017
USD ($)
Derivative fair values [Abstract]            
Receivable, margin account balance, net of collateral posted against derivative positions $ 1,598,000 $ 1,193,000        
Collateral posted against derivative positions 700,000          
Other Current Assets [Member]            
Derivative fair values [Abstract]            
Derivative fair value, net 1,031,000 377,000 $ 878,000 $ 894,000 $ 640,000 $ 806,000
Receivable, margin account balance, net of collateral posted against derivative positions 1,600,000 1,200,000        
Commodity Contracts And Financial Transimission Rights [Member]            
Derivative fair values [Abstract]            
Derivative fair value, net $ (200,000) $ 700,000        
Commodity Derivative Contracts [Member]            
Gross Notional Volume of Open Derivatives            
Notional amount, energy measure (in MWh) | MWh 466,760 386,440        
Notional amount, decatherm measure (in Dth) | Dth 9,190,000 5,260,000        
Derivative fair values [Abstract]            
Asset Derivatives, fair value, gross basis $ 749,000 $ 801,000        
Liability Derivatives, fair value, gross basis 1,285,000 342,000        
Collateral posted against derivative positions 724,000 0        
Commodity Derivative Contracts [Member] | Other Current Assets [Member]            
Derivative fair values [Abstract]            
Asset Derivatives, fair value, gross basis 668,000 727,000        
Liability Derivatives, fair value, gross basis 996,000 [1] 270,000        
Commodity Derivative Contracts [Member] | Other Deferred Charges [Member]            
Derivative fair values [Abstract]            
Asset Derivatives, fair value, gross basis 81,000 74,000        
Liability Derivatives, fair value, gross basis 289,000 [1] $ 72,000        
Commodity Derivative Contracts [Member] | Cash Flow Hedging [Member]            
Derivative fair values [Abstract]            
Collateral posted against derivative positions $ 700,000          
Energy Related Commodity Contract [Member] | Cash Flow Hedging [Member]            
Derivatives Fair Value [Line Items]            
Maximum term of derivative hedging contract 4 years          
Financial Transmission Rights [Member]            
Gross Notional Volume of Open Derivatives            
Notional amount, power measure (in MW) | MW 4,282 2,252        
Derivative fair values [Abstract]            
Asset Derivatives, fair value, gross basis $ 344,000 $ 241,000        
Collateral posted against derivative positions 0 0        
Financial Transmission Rights [Member] | Other Current Assets [Member]            
Derivative fair values [Abstract]            
Asset Derivatives, fair value, gross basis 344,000 241,000        
Liability Derivatives, fair value, gross basis $ 0 $ 0        
PPA [Member]            
Gross Notional Volume of Open Derivatives            
Notional amount, power measure (in MW) | MW 1,600 2,050        
Derivative fair values [Abstract]            
Derivative fair value, net $ (29,000,000.0) $ (32,500,000)        
Liability Derivatives, fair value, gross basis 28,990,000 32,530,000        
Collateral posted against derivative positions 0 0        
PPA [Member] | Derivative Liability (Current) [Member]            
Derivative fair values [Abstract]            
Liability Derivatives, fair value, gross basis 10,390,000 8,550,000        
PPA [Member] | Derivative Liability (Long-term) [Member]            
Derivative fair values [Abstract]            
Liability Derivatives, fair value, gross basis $ 18,600,000 $ 23,980,000        
[1] As of September 30, 2019, collateral of $0.7 million was posted against and netted with derivative liability positions on the consolidated balance sheets. No collateral was posted against derivative positions as of December 31, 2018.
v3.19.3
Derivative and Hedging Instruments (Details-5)
3 Months Ended 9 Months Ended
Sep. 30, 2019
USD ($)
counterparty
Sep. 30, 2018
USD ($)
Sep. 30, 2019
USD ($)
counterparty
Sep. 30, 2018
USD ($)
Dec. 31, 2018
USD ($)
Counterparties in net liability position or default [Abstract]          
Derivative, net liability position of counterparties $ 0   $ 0   $ 0
Number of counterparties in default | counterparty 0   0    
Commodity Derivative Contracts [Member] | Fuel For Electric Generation Purchased Power [Member]          
Realized losses (gains) on income statement [Line Items]          
Realized losses (gains) on income statement $ 471,000 $ (145,000) $ 1,038,000 $ 39,000  
Commodity Derivative Contracts [Member] | Cost Of Gas Sold Expense [Member]          
Realized losses (gains) on income statement [Line Items]          
Realized losses (gains) on income statement 83,000 0 460,000 637,000  
Financial Transmission Rights [Member] | Fuel For Electric Generation Purchased Power [Member]          
Realized losses (gains) on income statement [Line Items]          
Realized losses (gains) on income statement (429,000) (150,000) (503,000) (625,000)  
Financial Transmission Rights [Member] | Cost Of Gas Sold Expense [Member]          
Realized losses (gains) on income statement [Line Items]          
Realized losses (gains) on income statement 0 0 0 0  
Purchased Power Agreement [Member]          
Derivative collateral required to be posted for PPA [Abstract]          
Minimum collateral that may be required to be posted 20,000,000.0   20,000,000.0    
Maximum collateral that may be required to be posted 40,000,000.0   40,000,000.0    
Collateral posted 0   0    
Purchased Power Agreement [Member] | Fuel For Electric Generation Purchased Power [Member]          
Realized losses (gains) on income statement [Line Items]          
Realized losses (gains) on income statement (505,000) 328,000 (1,257,000) 1,283,000  
Purchased Power Agreement [Member] | Cost Of Gas Sold Expense [Member]          
Realized losses (gains) on income statement [Line Items]          
Realized losses (gains) on income statement $ 0 $ 0 $ 0 $ 0