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:

Indicate by check mark whether the registrants have submitted electronically every Interactive Data File required to be submitted 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):

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.

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.

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

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.

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, and words relating to goals, targets and projections, 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' ~~2020~~2021 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 16, as updated by Part I, Item 1. Financial Statements – Note 8 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~~undertake 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.

We file annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K and other information with the SEC. The ~~public may read~~SEC maintains an internet site at www.sec.gov that contains reports, proxy and ~~copy any~~information statements, and other information regarding issuers that file electronically with the SEC.

MGE Energy maintains a website at mgeenergy.com, and MGE maintains a website at mge.com. Copies of the reports orand other information that ~~MGE Energy and MGE~~we 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.

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.

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

Summary of Significant Accounting Policies – MGE Energy and MGE.

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 ~~2020~~2021 Annual Report on Form 10-K (the ~~2020~~2021 Annual Report on Form ~~10-K)~~10-K).

The accompanying consolidated financial statements as of September 30, ~~2021,~~2022, and during 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 ~~2020~~2021 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 6261 through 115 of the ~~2020~~2021 Annual Report on Form ~~10-K.~~10-K.

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				MGE Energy				MGE
	September 30,		December 31,		September 30,		December 31,		September 30,		December 31,		September 30,		December 31,
(In thousands)	2021		2020		2021		2020		2022		2021		2022		2021
Cash and cash equivalents	$	70,454	$	44,738	$	57,003	$	4,103	$	10,615	$	17,438	$	4,475	$	6,401
Restricted cash		641		644		641		644		651		847		651		847
Receivable - margin account		550		1,657		550		1,657		1,969		550		1,969		550
Cash, cash equivalents, and restricted cash	$	71,645	$	47,039	$	58,194	$	6,404	$	13,235	$	18,835	$	7,095	$	7,798

Cash Equivalents

All highly liquid investments purchased with an original maturity of three months or less are considered to be cash equivalents.

Restricted Cash

MGE has certain cash accounts that are restricted to uses other than current operations and designated for a specific purpose. MGE's restricted cash accounts include cash held by trustees for certain employee benefits and cash deposits held by third parties. These are included in "Other current assets" on the consolidated balance sheets.

Receivable – Margin Account

Cash amounts held by counterparties as margin collateral for certain financial transactions are recorded as Receivable – margin account in "Other current assets" on the consolidated balance sheets. The costs being hedged are fuel for electric generation, purchased power, and cost of gas sold.

Property, Plant, and Equipment.

Columbia.

An asset that will be retired in the near future and substantially in advance of its previously expected retirement date is subject to abandonment accounting. In the second quarter of 2021, the operator of Columbia received approval from MISO to retire Columbia Units 1 and 2. The co-owners ~~intend~~initially intended to retire Unit 1 by the end of 2023 and Unit 2 by the end of 2024. In June 2022, the target retirement date for both Units was updated to June 2026 after consideration by the owners of supply chain disruptions impacting the completion dates of current and planned renewable generation projects and the impact of those delays upon energy supply availability, reliability and cost. The postponement is not expected to affect MGE's goal to achieve 80% carbon reduction by 2030. Final timing and retirement dates ~~for Units 1 and 2~~ are subject to ~~PSCW~~change depending on operational, regulatory, and ~~regional reviews, including identification and approval of energy and capacity resources to replace Columbia.~~other factors. As of September 30, ~~2021,~~2022, early retirement of Columbia was probable.

The net book value of our ownership share of this generating unit was $~~161.6~~150.9 million as of September 30, ~~2021.~~2022. This amount was classified as plant to be retired within "Property, plant, and equipment, net" on the consolidated balance sheets. Assets for Columbia Unit 1 and Unit 2 are currently included in rate base, and MGE continues to depreciate them on a straight-line basis using the composite depreciation rates approved by the PSCW that included retirement dates of 2029 for Unit 1 and 2038 for Unit 2. MGE is currently seeking approval from the PSCW in its 2023 electric rate case limited reopener to revise the depreciation schedule for Columbia Unit 2 to 2029 to align with Unit 1. See Footnote 9 for further details on MGE's rate proceedings.

If it becomes probable that regulators will disallow full recovery or a return on the remaining net book value of a generating unit that is either abandoned or probable of being abandoned, an impairment loss would be required. An impairment loss would be recorded ~~for~~to the ~~difference of~~extent that the remaining net book value of the generating unit ~~that is greater than~~exceeds the present value of the amount expected to be recovered from ratepayers. ~~NaN~~No impairment was recorded as of September 30, ~~2021.~~2022.

2. New Accounting Standards - MGE Energy and MGE.

MGE Energy and MGE reviewed FASB authoritative guidance recently issued, none of which are expected to have a material impact on ~~the~~their consolidated results of operations, financial condition, or cash flows.

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, a subsidiary of 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 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 amounts related to its investment in ATC:


	Three Months Ended				Nine Months Ended				Three Months Ended				Nine Months Ended
	September 30,				September 30,				September 30,				September 30,
(In thousands)	2021		2020		2021		2020		2022		2021		2022		2021
Equity earnings from investment in ATC	$	2,500	$	2,319	$	7,333	$	7,724	$	1,473	$	2,500	$	6,543	$	7,333
Dividends from investments		1,942		2,349		5,842		6,620
Dividends received from ATC										2,005		1,942		5,964		5,842
Capital contributions to ATC		0		359		0		892		536		—		2,319		—

ATC Holdco was formed in December 2016. ATC Holdco's transmission development activities have been suspended for the near term.

In October 2022, MGE Transco made a $0.4 million capital contribution to ATC.

ATC's summarized financial data is as follows:


	Three Months Ended						Nine Months Ended						Three Months Ended						Nine Months Ended
	September 30,						September 30,						September 30,						September 30,
(In thousands)	2021			2020			2021			2020			2022			2021			2022			2021
Operating revenues	$	186,785		$	187,833		$	561,379		$	577,705		$	169,779		$	186,785		$	552,383		$	561,379
Operating expenses		(91,340	)		(92,975	)		(278,828	)		(285,697	)		(97,629	)		(91,340	)		(288,376	)		(278,828	)
Other income, net		123			643			1,164			1,924			272			123			1,020			1,164
Interest expense, net		(28,674	)		(28,801	)		(86,337	)		(83,947	)		(34,794	)		(28,674	)		(92,293	)		(86,337	)
Earnings before members' income taxes	$	66,894		$	66,700		$	197,378		$	209,985		$	37,628		$	66,894		$	172,734		$	197,378

MGE receives transmission and other related services from ATC. During the three and nine months ended September 30, ~~2021,~~2022, MGE recorded $7.9 million and $23.6 million, respectively, for transmission services compared to $8.0 million and $24.0 million ~~respectively,~~ for ~~transmission services received compared to $7.7~~ ~~million and $23.0~~ ~~million for the~~ comparable periods in ~~2020.~~2021. MGE also provides a variety of operational, maintenance, and project management work for ATC, which is reimbursed by ATC. As of September 30, ~~2021,~~2022, and December 31, ~~2020,~~2021, MGE had a receivable due from ATC of $~~4.7~~4.6 million and $~~2.6~~7.0 million, respectively. The receivable is primarily related to transmission interconnection activities at Badger Hollow I and ~~II.~~Paris solar generation sites. MGE iswill be reimbursed for these costs after the new generation assets are placed into service.

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				MGE Energy								MGE
Three Months Ended September 30,	2021		2020		2021			2020		2022				2021				2022				2021
Statutory federal income tax rate	21.0	%	21.0	%	21.0		%	21.0	%		21.0		%		21.0		%		21.0		%		21.0		%
State income taxes, net of federal benefit	6.2		6.3		6.2			6.2			6.2				6.2				6.2				6.2
Amortized investment tax credits	(1.2)		(0.1)		(1.3)			(0.1)			(0.6	)			(1.2	)			(0.7	)			(1.3	)
Credit for electricity from wind energy	(4.8)		(5.0)		(5.2)			(5.4)			(4.9	)			(4.8	)			(5.2	)			(5.2	)
AFUDC equity, net	(1.1)		(1.1)		(1.2)			(1.2)			(0.4	)			(1.1	)			(0.4	)			(1.2	)
Amortization of utility excess deferred tax - tax reform(a)	(12.4)		(2.0)		(13.5)			(2.2)			(1.7	)			(12.4	)			(1.8	)			(13.5	)
Other, net, individually insignificant	(0.4)		(0.4)		(0.3)			(0.4)			(0.1	)			(0.4	)			(0.2	)			(0.3	)
Effective income tax rate	7.3	%	18.7	%	5.7		%	17.9	%		19.5		%		7.3		%		18.9		%		5.7		%


	MGE Energy					MGE				MGE Energy								MGE
Nine Months Ended September 30,	2021		2020		2021			2020		2022				2021				2022				2021
Statutory federal income tax rate	21.0	%	21.0	%	21.0		%	21.0	%		21.0		%		21.0		%		21.0		%		21.0		%
State income taxes, net of federal benefit	6.2		6.3		6.2			6.2			6.2				6.2				6.2				6.2
Amortized investment tax credits	(1.4)		(0.1)		(1.5)			(0.1)			(0.7	)			(1.4	)			(0.7	)			(1.5	)
Credit for electricity from wind energy	(6.0)		(6.1)		(6.6)			(6.6)			(5.3	)			(6.0	)			(5.7	)			(6.6	)
AFUDC equity, net	(1.0)		(1.3)		(1.1)			(1.4)			(0.4	)			(1.0	)			(0.5	)			(1.1	)
Amortization of utility excess deferred tax - tax reform(a)	(14.5)		(2.4)		(15.9)			(2.6)			(1.8	)			(14.5	)			(1.9	)			(15.9	)
Other, net, individually insignificant	(0.1)		(0.1)		0			0			(0.1	)			(0.1	)			(0.2	)			—
Effective income tax rate	4.2	%	17.3	%	2.1		%	16.5	%		18.9		%		4.2		%		18.2		%		2.1		%

(a)

Included are impacts of the 2017 Tax Act for the regulated utility for excess deferred taxes recognized using a normalization method of accounting in recognition of IRS rules that restrict the rate at which the excess deferred taxes may be returned to utility customers. For the three months ended September 30, ~~2021~~2022 and ~~2020,~~2021, MGE recognized $1.0 million and $0.7 ~~million.~~million, respectively. For the nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, MGE recognized $2.9 million and $2.0 ~~million.~~million, respectively. Included in the 2021 rate settlement was a one-time return to customers of the electric portion of excess deferred taxes related to the 2017 Tax Act not restricted by IRS normalization rules. For the three and nine months ended September 30, 2021, MGE recognized $3.3 million and $9.9 million, respectively. Included in the 2022 and 2023 rate settlement was a net collection from customers of the gas portion of deficient deferred taxes related to the 2017 Tax Act not restricted by IRS normalization rules. For the three and nine months ended September 30, 2022, MGE recognized $0.3 million and $1.0 million, respectively.

Pension and Other Postretirement Plans - MGE Energy and MGE.

MGE maintains qualified and nonqualified pension plans, health care, and life insurance benefits and defined contribution 401(k) benefit plans for its employees and retirees.

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. 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						Three Months Ended						Nine Months Ended
	September 30,						September 30,						September 30,						September 30,
(In thousands)	2021			2020			2021			2020			2022			2021			2022			2021
Pension Benefits
Components of net periodic benefit cost:
Service cost	$	1,432		$	1,324		$	4,296		$	3,972		$	1,266		$	1,432		$	3,798		$	4,296
Interest cost		2,280			3,052			6,840			9,157			2,791			2,280			8,371			6,840
Expected return on assets		(7,372	)		(6,807	)		(22,115	)		(20,422	)		(7,848	)		(7,372	)		(23,543	)		(22,115	)
Amortization of:
Prior service credit		(31	)		(31	)		(93	)		(93	)		(5	)		(31	)		(15	)		(93	)
Actuarial loss		1,662			1,339			4,985			4,018			604			1,662			1,812			4,985
Net periodic benefit (credit) cost	$	(2,029	)	$	(1,123	)	$	(6,087	)	$	(3,368	)	$	(3,192	)	$	(2,029	)	$	(9,577	)	$	(6,087	)

Postretirement Benefits
Components of net periodic benefit cost:
Service cost	$	362		$	316		$	1,086		$	948		$	323		$	362		$	970		$	1,086
Interest cost		387			570			1,161			1,709			485			387			1,455			1,161
Expected return on assets		(819	)		(789	)		(2,457	)		(2,366	)		(842	)		(819	)		(2,524	)		(2,457	)
Amortization of:
Transition obligation		1			1			2			2			1			1			2			2
Prior service credit		(379	)		(667	)		(1,138	)		(2,001	)		(74	)		(379	)		(223	)		(1,138	)
Actuarial loss		123			55			370			165			37			123			109			370
Net periodic benefit (credit) cost	$	(325	)	$	(514	)	$	(976	)	$	(1,543	)	$	(70	)	$	(325	)	$	(211	)	$	(976	)

As approved by the PSCW, MGE is allowed to defer differences between actual employee benefit plan costs and costs reflected in current rates. The deferred costs may be recovered or refunded in MGE's next rate filing. During the three and nine months ended September 30, ~~2021,~~2022, MGE recovered $~~0.3~~0.2 million and $~~3.9~~0.8 million of pension and other postretirement costs, respectively, compared to approximately $~~0.2~~0.3 million and $~~0.7~~3.9 million for the comparable periods in ~~2020.~~2021. The recovery of these costs reduced the amount previously deferred and has not been reflected in the table above.

During the three and nine months ended September 30, ~~2021,~~2022, MGE deferred and recorded as a regulatory liability $0.3 million and $1.1 million, respectively, of savings from employee benefit plan costs compared to $2.8 million and $5.4 million for the comparable periods in 2021. During the three and nine months ended September 30, 2022, MGE refunded in rates $1.0 million and $3.1 million, respectively, of savings from 2021 employee benefit plan ~~costs and recorded as a regulatory liability.~~costs. The deferred savings has not been reflected in the table above.

Equity and Financing Arrangements.

Common Stock - MGE Energy.

MGE Energy sells shares of its common stock through its Direct Stock Purchase and Dividend Reinvestment Plan (the Stock Plan). Those shares may be newly issued shares or shares that are purchased in the open market by an independent agent for participants in the Stock Plan. ~~All sales~~Sales of newly issued shares under the Stock Plan are covered by a shelf registration statement that MGE Energy filed with the SEC.

During the three and nine months ended September 30, 2022 and 2021, MGE Energy issued 0no new shares of common stock under the Stock Plan.

~~In May 2020, MGE Energy issued~~ ~~1.5~~ ~~million shares of its common stock in an underwritten offering. MGE Energy received proceeds, net of underwriter fees and issuance costs, of $79.6~~ ~~million from the issuance and sale of those shares. The net proceeds are being used for general corporate purposes, including funding capital expenditures being made by MGE.~~

Dilutive Shares Calculation - MGE Energy.

As of September 30, ~~2021,~~2022, ~~13,021~~10,331 shares were included in the calculation of diluted earnings per share related to nonvested equity awards. See Footnote 7 for additional information on ~~shared-based~~share-based compensation awards.

~~Long-term~~Long-Term Debt Issuance - MGE Energy and MGE.

~~In May 2021,~~On November 1, 2022, MGE entered into a private placement Note Purchase Agreement in which it committed to issue $6025 million of new long-term debt (Series A), carrying an interest rate of ~~2.48~~5.43% per annum over its 10~~-year~~10-year life, ~~and~~ $4015 million of new long-term debt (Series B), carrying an interest rate of ~~2.63~~5.43% per annum over its 10-year life, and $1235~~-year~~ million of new long-term debt (Series C), carrying an interest rate of 5.53% per annum over its 12-year life. Funding ~~occurred~~will occur on ~~June 15, 2021,~~December 1, 2022 for Series A and on February 28, 2023 for Series B and ~~August 27, 2021, for~~ Series A.C. The proceeds of the debt financing will be used to assist with capital expenditures and other corporate obligations. The covenants of this debt are substantially consistent with MGE's existing unsecured long-term debt.

Share-Based Compensation - MGE Energy and MGE.

During the three and nine months ended September 30, ~~2021,~~2022, MGE recorded $~~0.3~~0.6 million in compensation benefit and $~~1.6~~0.1 million ~~respectively,~~ in compensation expense, respectively, related to share-based compensation awards under the 2006 Performance Unit Plan, the 2020 Performance Unit Plan, the 2013 Director Incentive Plan, and the 2021 Long-Term Incentive Plan (2021 Plan) compared to $~~0.2~~0.3 million and $~~0.3~~1.6 million in compensation expense for the comparable periods in ~~2020.~~2021.

In January ~~2021,~~2022, cash payments of $~~1.9~~1.8 million were distributed related to awards that were granted in ~~2018, for~~2019 under the 2013 Director Incentive Plan, and in ~~2016, for~~2017 under the 2006 Performance Unit Plan.

In February ~~2021,~~2022, MGE issued ~~10,187~~10,395 performance units and ~~16,267~~15,931 restricted stock units under the 2021 Plan to eligible employees and non-employee directors.

MGE recognizes stock-based compensation expense on a straight-line basis over the requisite service period. Awards classified as equity awards are measured based on their grant-date fair value. Awards classified as liability awards are recorded at fair value each reporting period. The performance units can be paid out in either cash, shares of common stock or a combination of cash and stock and are classified as a liability award. The restricted stock units will be paid out in shares of common stock, and therefore are classified as equity awards.

Commitments and Contingencies.

Environmental - MGE Energy and MGE.

In February 2021, MGE and the other co-owners of Columbia announced plans to retire that facility. The co-owners intend to retire Unit 1 ~~by the end of 2023~~ and Unit 2 by ~~the end of 2024.~~June 2026. Final timing and retirement dates ~~for Units 1 and 2~~ are subject to ~~PSCW~~change depending on operational, regulatory, and ~~regional regulatory reviews, including identification and approval of energy and capacity resources to replace Columbia.~~other factors. Effects of environmental compliance requirements discussed below will depend upon the final retirement dates approved and compliance requirement dates.

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 operations are conducted, the costs of 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 could 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 promulgated water Effluent Limitations Guidelines (ELG) 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. ~~The standards were finalized in August 2020.~~

In July 2021, the PSCW approved a Certificate of Authority (CA) application filed by MGE and the other owners of Columbia. The CA application commits to close ~~Columbia's~~Columbia's wet pond system ~~to comply with the Coal Combustions Residuals (CCR) Rule as~~(as described in further detail in the CCR section ~~below.~~below). By committing to close the wet pond system, Columbia will be in compliance with ELG requirements.

The Elm Road Units must satisfy the ELG rule's requirements no later than December ~~31,~~ 2023, as determined by the permitting authority. ~~The operator of~~In December 2021, the Elm Road Units has been evaluating the rule impacts and has conducted an analysis of compliance obligations, pollution prevention technologies, and their associated costs. In February 2021, MGE and the other co-owners of the Elm Road Units filedPSCW approved a CA application for installation of additional wastewater treatment equipment to comply with the ~~PSCW. If approved,~~ELG Rule. MGE's share of the ~~estimated~~ costs to comply with the rule is estimated to be approximately $4 million. ~~Subject to approval from the PSCW, construction is expected to begin~~Construction began in ~~2022.~~March 2022 and will extend into 2023.

•

The EPA's cooling water intake rules require cooling water intake structures at electric power plants to meet best technology available (BTA) standards to reduce the mortality from entrainment (drawing aquatic life into a plant's cooling system) and impingement (trapping aquatic life on screens).

Blount's ~~Wisconsin Pollution Discharge Elimination System~~WPDES permit assumes that the plant meets BTA standards for the duration of the permit, which expires in 2023. ~~However,~~Before the next permit renewal, MGE ~~must conduct studies of its Blount plant~~is required to complete an entrainment study and recommend a BTA along with alternative technologies considered. MGE completed the entrainment study in 2021 and submitted the results to the WDNR. The WDNR will make the final BTA determination and include any BTA requirements in Blount's next permit renewal, which is expected to be completed by the end of ~~2021 to help regulators determine BTA.~~2022 and effective in 2023. Management believes that the BTA determination at Blount will not be material for MGE.

Columbia's river intakes are subject to this rule. Columbia's operator received a permit in 2019 requiring studies of intake structures to be submitted to the WDNR by November 2023 to help determine BTA. BTA improvements may not be required given that ~~Columbia could be fully retired before~~ the ~~issuance~~owners are planning to retire both units by June of ~~the next permit, which is expected to be issued in 2023 or later.~~2026. MGE will continue to work with Columbia's operator to evaluate all regulatory requirements applicable to the planned retirements.

MGE does not expect this rule to have a material effect on its existing plants.

•

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

In ~~January~~October 2021, as part of the ~~U.S. Court of Appeals for the District of Columbia Circuit (D.C. Circuit) vacated and remanded to~~Biden administration's Unified Agenda, the EPA ~~the Affordable Clean Energy Rule (ACE Rule) and the repeal of the predecessor Clean Power Plan Rule (CPP Rule), both of which regulated~~announced its intention to issue a new rule to reduce greenhouse gas emissions from existing ~~electric generation units pursuant to Section 111(d) of~~fossil fuel-fired EGUs. In June 2022, the U.S. Supreme Court held that the Clean Air ~~Act. As a result of these legal proceedings, neither~~Act does not authorize the ~~CPP nor ACE rules are currently in effect.~~EPA to regulate GHG emissions using generation shifting (e.g., shifting from coal to natural gas and/or renewable generation sources). MGE will continue to evaluate ~~the~~greenhouse gas rule developments, including any new EPA actions towards rule development, and ~~monitor ongoing and potential legal proceedings.~~any further court decisions on the EPA's authority to regulate greenhouse gases.

•

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

~~In May 2021, the EPA published a final rule that expands several nonattainment areas in Wisconsin to include all of Milwaukee County where MGE's~~19

The Elm Road Units are ~~located.~~located in Milwaukee County, Wisconsin, a nonattainment area. In October 2022, the EPA reclassified Milwaukee County from "marginal" to "moderate" nonattainment under the 2015 ozone NAAQS. The Wisconsin Department of Natural Resources (WDNR) ~~will need to~~must develop a State

Implementation Plan (SIP) for the area, ~~which~~and this reclassification will ~~likely~~ result in more stringent SIP requirements for both constructing new development and modifying or expanding existing plants in the area. The deadline for moderate classified areas to meet attainment standards is August 2024. MGE will continue to monitor the WDNR's SIP development and the extent to which the requirements will impact the Elm Road Units. At this time, ~~MGE~~the operator of the Elm Road Units does not expect that the 2015 Ozone NAAQS will 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.

The EPA's CSAPR and its progeny are a suite of interstate air pollution transport rules designed to reduce ozone and fine particulate (PM2.5) ambient air levels in areas that the EPA has determined as being significantly impacted by pollution from upwind states. This is accomplished in the CSAPR through a reduction in SO2 and NOx from qualifying fossil-fuel fired power plants in upwind "contributing" states. NOx and SO2 contribute to fine particulate pollution and NOx contributes to ozone formation in downwind areas. Reductions are generally achieved through a cap-and-trade system. Individual plants can meet their caps through reducing emissions and/or buying allowances on the market.

In ~~September 2019,~~April 2022, the ~~D.C. Circuit remanded~~EPA published a proposed Federal Implementation Plan (FIP) to address state obligations under the Clean Air Act "good neighbor" provisions for the 2015 Ozone NAAQS. This proposed rule impacts 26 states, including Wisconsin, and is designed to both revise the current NOx CSAPR ozone season cap-and-trade obligations for fossil-fuel generated power plants and add NOx limitations for certain industries in specified states. For Wisconsin, the proposed rule includes revisions to the ~~EPA holding~~current obligations for fossil-fuel power generation as well as the new limitations for certain industries.

If finalized, the proposed rule would be effective beginning with the 2023 ozone season and start with emissions budgets that ~~the rule improperly provided only a partial remedy for addressing interstate transport of pollutants from upwind to downwind states. In March 2021,~~can be achieved with what the EPA ~~addressed~~has defined as immediately available measures, including consistently operating emissions controls already installed at power plants. In 2026, additional obligations would go into effect, including potential daily emissions limits and technology upgrades to coal-fired power plants without existing emission controls. Wisconsin would need to submit a SIP to meet its obligations or accept the ~~remand by finalizing its revised CSAPR Update Rule. The revised rule does not require further emission reductions from Wisconsin stationary sources beyond those under the original CSAPR.~~ EPA's proposed FIP.

MGE has met its current CSAPR obligations through a combination of reduced emissions through pollution control (e.g., SCR installation at Columbia), and owned, received, and purchased allowances. MGE expects the rule, if finalized as written, to ~~meet ongoing CSAPR obligations for~~impact our fossil-fueled generation assets. However, we will not know the ~~foreseeable future. MGE~~impact of this rule with any certainty until it is finalized. We will continue to monitor ~~legal developments and any future updates to this rule.~~rule developments.

•

The EPA's Coal Combustion Residuals ~~Rule~~ (CCR)~~, which~~ Rule.

The CCR rule regulates as a solid waste coal ash from burning coal for the purpose of generating electricity 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. ~~In August 2020, the EPA revised the~~The CCR rule ~~to require~~requires owners or operators of coal-fired power plants to stop transporting CCR and non-CCR wastewater to unlined surface impoundments. In addition, regulated entities must initiate impoundment closure as soon as feasible and in no event later than April 2021, unless the EPA grants an extension. ~~Columbia requested an~~A site-specific extension to ~~comply~~initiate closure of the primary ash pond at Columbia by ~~October 2022.~~December 31, 2022 was requested. The EPA has not formally approved the extension. The reviews have been put on hold pending an overall review of rules promulgated in the final year of the previous administration. The Columbia owners anticipate that the EPA will approve the extension request. However, we will not know the extension request outcome with any certainty until the EPA completes their rules review.

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 its system and has developed a compliance plan.

In July 2021, the PSCW approved a CA application filed by MGE and the other owners of Columbia to install technology required to cease bottom ash transport water discharges rather than extend the longevity of the ash ponds. ~~MGE's share~~Construction of the ~~estimated costs of~~coal combustion residuals system that will replace the ~~project will be approximately $~~4 ~~million.~~unlined surface impoundment is undergoing final testing. Construction is expected to be completed by the end of 2022. MGE's share of the costs of the project is expected to be approximately $4 million.

Review of the Elm Road Units has indicated that the costs to comply with the CCR rule are not expected to be significant.

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 accrues for 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.

~~In January 2021, certain~~Certain environmental groups filed ~~a petition~~petitions against the PSCW regarding MGE's ~~2021~~two most recent rate ~~settlement.~~settlements. MGE has intervened in the ~~petition~~petitions in cooperation with the PSCW. See Footnote 9.a. for more information regarding this matter.

~~Purchase~~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, ~~2021:~~2022:


(In thousands)	2021		2022		2023		2024		2025		Thereafter		2022		2023		2024		2025		2026		Thereafter
Coal(a)	$	5,050	$	12,400	$	6,447	$	1,617	$	894	$	0	$	11,461	$	26,323	$	18,216	$	9,043	$	2,922	$	—
Natural gas
Transportation and storage(b)		6,665		23,305		23,919		23,919		23,919		25,210		9,069		31,660		31,660		31,660		18,265		14,449
Supply(c)		21,432		20,033		0		0		0		0		24,959		25,682		—		—		—		—
Other		3,897		3,192		1,676		890		104		892
Renewable energy(d)														5,847		3,108		2,025		2,040		2,056		28,529
	$	37,044	$	58,930	$	32,042	$	26,426	$	24,917	$	26,102	$	51,336	$	86,773	$	51,901	$	42,743	$	23,243	$	42,978

(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)

Operational commitments for solar and wind facilities.

Rate Matters - MGE Energy and MGE.

Rate Proceedings.


	Rate increase	Return on Common Equity	Common Equity Component of Regulatory Capital Structure	Effective Date
Approved 2021 settlement(a)
Electric	—%	9.8%	55.8%	1/1/2021
Gas	4.00%	9.8%	55.8%	1/1/2021
Approved 2022/2023 settlement(b)
Electric	8.81%	9.8%	55.6%	1/1/2022
Gas	2.15%	9.8%	55.6%	1/1/2022
Gas	0.96%	9.8%	55.6%	1/1/2023
Proposed limited 2023 reopener(c)
Electric	4.38%	9.8%	55.6%	1/1/2023

~~In September 2021, MGE filed with the PSCW a proposed settlement agreement for its pending 2022 rate case. The settlement agreement proposes a~~

~~5.16~~(a)

~~% increase to electric rates and a~~ ~~2.15~~% increase to gas rates for 2022. The proposed electric and gas rate increases are driven by an increase in rate base including our investments in Badger Hollow I and a new customer information system. Also driving the requested electric increase is the completion in 2021 of the one-time return of the electric excess deferred tax credit related to the 2017 Tax Act not restricted by IRS normalization rules. Included in the proposed electric residential rate is a reduction in the customer charge. As part of the settlement agreement for 2023, MGE is proposing a ~~0.96% increase in gas rates and to address a potential electric rate change through a limited rate case re-opener. The proposed return on common stock equity for 2022 is~~ ~~9.8% based on a proposed capital structure consisting of~~ ~~55.6% common equity in 2022. PSCW approval of the settlement agreement is pending. A final order is expected before the end of the year.~~

~~In December 2020, the PSCW approved a settlement agreement for MGE's 2021 rate case. The settlement agreement provides for a~~ 0 ~~percent increase for electric rates and an approximately~~ 4~~% increase for gas rates in 2021.~~ The electric rate settlement ~~includes~~included an increase in rate base but the associated rate increase iswas primarily offset by lower fuel and ~~purchase~~purchased power costs and a one-time $18.2 million return to customers of the portion of excess deferred taxes related to the 2017 Tax Act not restricted by IRS normalization rules. ~~As part of the settlement, the fuel rules bandwidth is set at plus or minus~~ 1~~% for 2021. When compared to the 2020 rate case, the settlement included lower forecasted electric sales for 2021 to reflect changes to customer usage during the COVID-19 pandemic.~~ The gas rate increase ~~covers~~covered infrastructure costs and technology improvements. The settlement agreement also ~~includes~~included escrow accounting treatment for pension and other postretirement benefit costs, bad debt expense, and customer credit card fees. Escrow accounting treatment allows MGE to defer any difference between estimated costs in rates and actual costs incurred until ~~its next~~a future rate filing. Any difference would be recorded as a regulatory asset or regulatory liability.

(b)

The electric and gas rate increases were driven by an increase in rate base including our investments in Badger Hollow I and a new customer information system. Also driving the requested electric increase were higher fuel and purchased power costs as well as the completion in 2021 of the one-time return ~~on common stock equity~~of the electric excess deferred tax credit related to the 2017 Tax Act not restricted by IRS normalization rules. Included in the electric residential rate is a reduction in the customer charge.

(c)

The electric rate increase is driven by generation assets including our investments in Badger Hollow II (solar), Paris (solar and battery), Red Barn (wind), and West Riverside (natural gas). In addition, the reopener request includes a reduction in fuel costs, which MGE has partially offset with the recovery of deferred 2021 fuel costs. Changes in the fuel forecast are updated in the limited reopener filing prior to the final PSCW approval. The reopener also revises the depreciation schedule for ~~2021~~Columbia Unit 2 and shared equipment to 2029 to align with the depreciation schedule for Columbia Unit 1. PSCW approval of the 2023 limited reopener is ~~9.8% based on a capital structure~~pending. A final order is expected before the end of the year.

~~55.8% common equity in 2021.~~

~~On January 27, 2021,~~ Sierra Club and Vote Solar have filed ~~a petition~~petitions with the Dane County Circuit Court seeking review of the PSCW decision approving ~~the~~MGE's two most recent rate ~~settlement in MGE's 2021 rate case.~~settlements (2021 and 2022/2023). The PSCW is named as the responding party; MGE is not named as a party. The ~~petition challenges~~petitions challenge the process the PSCW used to approve the portion of the ~~settlement~~settlements relating to electric rates and the electric customer fixed charge that does not vary with usage. The requested relief is unclear. The revenue requirement

approved by the PSCW in the ~~settlement has~~settlements have not been challenged. The PSCW is expected to vigorously defend its approval of the rate case ~~settlement.~~settlements. MGE has intervened in the proceedings to further defend the PSCW's decision. ~~This litigation is currently stayed pending MGE's 2022 rate case proceedings.~~

~~In December 2018, the PSCW approved a settlement agreement between MGE and intervening parties in the then pending rate case. The settlement decreased electric rates by~~ ~~2.24%, or $9.2~~ million, in 2019. The decrease in electric rates reflected the ongoing impacts of the 2017 Tax Act. Lower fuel costs and an increase in rate base from renewable generation assets further impacted the rate change. In 2020, electric rates decreased a further ~~0.84%, or $3.4~~ ~~million, as approved by the PSCW in December 2019 in MGE's 2020 Fuel Cost Plan, which reflected lower fuel costs. The settlement agreement increased gas rates by~~ ~~1.06%, or $1.7~~ ~~million, in 2019 and~~ ~~1.46%, or $2.4~~ ~~million, in 2020. The gas increase covered infrastructure costs. It also reflected the impacts of the 2017 Tax Act. The return on common stock equity for 2019 and 2020 was~~ ~~9.8% based on a capital structure consisting of~~ ~~56.6% common equity in 2019 and~~ ~~56.1% common equity in 2020.~~

~~Fuel~~Fuel Rules.

Fuel rules require 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- or 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 set at plus or minus ~~1% in 2021. Under fuel rules, MGE defers~~1%. The electric fuel-related costs ~~less any~~are subject to an excess revenues ~~if its actual electric fuel costs exceed~~ ~~101% of the electric fuel costs allowed in its latest rate order.~~test. 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 recovery of under-collected electric fuel-related costs would be reduced by the ~~benefit of lower costs if actual electric fuel costs were less than~~ 99~~% of~~amount that exceeds the ~~electric fuel costs allowed in that order. In 2020 the fuel rules bandwidth was set at plus or minus~~ 2%.excess revenue test. These costs are subject to the PSCW's annual review of fuel costs completed in the year following the deferral. The following table summarized deferred electric fuel-related costs:

~~The PSCW issued a final decision in the 2019 fuel rules proceedings regarding $~~22~~1.5~~ ~~million of deferred savings giving MGE the option either to use the $1.5~~


	Fuel Costs (in millions)	Refund or Recovery Period
2019 deferred fuel savings	$(1.5)(a)	January 2021 through December 2021
2020 deferred fuel savings	$(3.2)(a)	October 2021
2021 deferred fuel costs	3.3(a)	January 2023 through December 2023(b)
2022 deferred fuel costs	$4.4	(c)

million as part of the settlement to MGE's 2021 rate case or to refund the balance to customers in October 2020. MGE elected to include the savings as part of the 2021 rate change settlement as described above, reducing electric retail rates as opposed to a one-time credit back to retail customers.

(a)

There was no change to the ~~refund~~recovery (refund) in the fuel rules proceedings from the amount MGE deferred ~~in the previous year.~~

(b)

In ~~September 2021,~~August 2022, the PSCW issued a final decision in the ~~2020~~2021 fuel rules proceedings for MGE to ~~refund $3.2~~ ~~million~~include the recovery of ~~additional fuel savings realized during 2020 plus accrued interest to its retail~~these costs as part of the 2023 electric ~~customers over a one-month period in October 2021. There was no change~~limited reopener.

(c)

These costs will be subject to the ~~refund~~PSCW's annual review of 2022 fuel costs, expected to be completed in ~~the fuel rules proceedings from the amount MGE deferred in the previous year.~~

~~As of September 30, 2021, MGE had~~ 0 ~~deferred 2021 fuel savings or costs.~~

2023.

10.

Derivative and Hedging Instruments - MGE Energy and MGE.

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.

Notional Amounts.

The gross notional volume of open derivatives is as follows:


	September 30, 2021			December 31, 2020			September 30, 2022			December 31, 2021
Commodity derivative contracts		290,520	MWh		259,080	MWh		293,200	MWh		278,000	MWh
Commodity derivative contracts		9,050,000	Dth		6,030,000	Dth		8,235,000	Dth		5,735,000	Dth
FTRs		3,280	MW		2,869	MW		3,015	MW		2,127	MW
PPA		400	MW		850	MW		—	MW		250	MW

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, ~~2021,~~2022, and December 31, ~~2020,~~2021, the fair value of exchange traded derivatives and FTRs exceeded their cost basis by $~~13.8~~5.2 million and $~~0.2~~2.8 million, respectively.

MGE iswas a party to a purchased power agreement that ~~provides~~provided MGE with firm capacity and energy during a base term from June 1, 2012, through May 31, 2022. The agreement iswas accounted for as a derivative contract and iswas recognized at its fair value on the consolidated balance sheets. However,

the derivative ~~qualifies~~qualified for regulatory deferral and iswas recognized with a corresponding regulatory asset or liability depending on whether the fair value iswas in a loss or gain position. The ~~fair value of the contract as of September 30, 2021, and December 31, 2020, reflected a loss position of $0.2~~ ~~million and $14.1~~ ~~million, respectively. The~~ actual cost ~~will be~~was 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.


	Derivative		Derivative			Derivative		Derivative
(In thousands)	Assets		Liabilities		Balance Sheet Location	Assets		Liabilities		Balance Sheet Location
September 30, 2021
September 30, 2022
Commodity derivative contracts(a)	$	13,426	$	375	Other current assets	$	8,793	$	4,533	Other current assets
Commodity derivative contracts(a)		559		0	Other deferred charges		932		81	Other deferred charges
FTRs		225		0	Other current assets		102		—	Other current assets
PPA	N/A			160	Derivative liability (current)
PPA	N/A			0	Derivative liability (long-term)

December 31, 2020
December 31, 2021
Commodity derivative contracts(b)	$	617	$	593	Other current assets	$	2,959	$	811	Other current assets
Commodity derivative contracts(b)		189		39	Other deferred charges		420		38	Other deferred charges
FTRs		0		23	Other current liabilities		227		—	Other current assets
PPA	N/A			10,160	Derivative liability (current)	N/A			2,140	Derivative liability (current)
PPA	N/A			3,980	Derivative liability (long-term)

(a)

No collateral was posted against derivative positions as of September 30, 2022.

(b)

As of ~~September 30,~~December 31, 2021, MGE received collateral of $~~9.2~~1.3 million from counterparties under a master netting agreement for outstanding exchange traded derivative positions. The fair value of the derivative asset disclosed in this table has not been reduced for the collateral received.

~~(b)~~

N~~o collateral was posted against derivative positions as of December 31, 2020.~~

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		Gross Amounts		Gross Amounts Offset in Balance Sheets			Collateral Posted Against Derivative Positions			Net Amount Presented in Balance Sheets
September 30, 2021
September 30, 2022
Commodity derivative contracts	$	13,985	$	(375	)	$	(9,235	)	$	4,375	$	9,725	$	(4,614	)	$	—		$	5,111
FTRs		225		0			0		$	225		102		—			—			102

December 31, 2020
December 31, 2021
Commodity derivative contracts	$	806	$	(632	)	$	0		$	174	$	3,379	$	(849	)	$	(1,254	)	$	1,276
FTRs												227		—			—			227

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		Gross Amounts		Gross Amounts Offset in Balance Sheets			Collateral Posted Against Derivative Positions		Net Amount Presented in Balance Sheets
September 30, 2021
September 30, 2022
Commodity derivative contracts										$	4,614	$	(4,614	)	$	—	$	—

December 31, 2021
Commodity derivative contracts	$	375	$	(375	)	$	0	$	0	$	849	$	(849	)	$	—	$	—
PPA		160		0			0		160		2,140		—			—		2,140

December 31, 2020
Commodity derivative contracts	$	632	$	(632	)	$	0	$	0
FTRs		23		0			0		23
PPA		14,140		0			0		14,140

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.


	2021						2020						2022						2021
(In thousands)	Current and Long-Term Regulatory Asset (Liability)			Other Current Assets			Current and Long-Term Regulatory Asset (Liability)			Other Current Assets			Current and Long-Term Regulatory Asset (Liability)			Other Current Assets			Current and Long-Term Regulatory Asset (Liability)			Other Current Assets
Three Months Ended September 30:
Balance as of July 1,	$	2,581		$	520		$	20,400		$	940		$	(8,484	)	$	(161	)	$	2,581		$	520
Unrealized gain		(18,677	)		0			(4,695	)		0			(4,385	)		—			(18,677	)		—
Realized gain (loss) reclassified to a deferred account		65			(65	)		(207	)		207			1,122			(1,122	)		65			(65	)
Realized gain (loss) reclassified to income statement		2,356			311			(1,481	)		(164	)
Realized gain reclassified to income statement														6,534			1,916			2,356			311
Balance as of September 30,	$	(13,675	)	$	766		$	14,017		$	983		$	(5,213	)	$	633		$	(13,675	)	$	766

Nine Months Ended September 30:
Balance as of January 1,	$	13,989		$	1,162		$	26,875		$	1,100		$	(617	)	$	770		$	13,989		$	1,162
Unrealized gain		(30,314	)		0			(8,032	)		0			(21,706	)		—			(30,314	)		—
Realized (loss) gain reclassified to a deferred account		(351	)		351			(1,999	)		1,999
Realized gain (loss) reclassified to a deferred account														3,952			(3,952	)		(351	)		351
Realized gain (loss) reclassified to income statement		3,001			(747	)		(2,827	)		(2,116	)		13,158			3,815			3,001			(747	)
Balance as of September 30,	$	(13,675	)	$	766		$	14,017		$	983		$	(5,213	)	$	633		$	(13,675	)	$	766


	Realized Losses (Gains)									Realized Losses (Gains)
	2021					2020				2022						2021
(In thousands)	Fuel for Electric Generation/ Purchased Power			Cost of Gas Sold		Fuel for Electric Generation/ Purchased Power		Cost of Gas Sold		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	$	(1,586	)	$	0	$	680	$	28	$	(8,698	)	$	36		$	(1,586	)	$	—
FTRs		(132	)		0		184		0		212			—			(132	)		—
PPA		(949	)		0		753		0		—			—			(949	)		—

Nine Months Ended September 30:
Commodity derivative contracts	$	(2,107	)	$	1,055	$	2,303	$	1,682	$	(14,343	)	$	(800	)	$	(2,107	)	$	1,055
FTRs		(443	)		0		78		0		812			—			(443	)		—
PPA		(759	)		0		880		0		(2,642	)		—			(759	)		—

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 treatment described above, 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, 2021,~~ 0 ~~collateral was required to be, or had been, posted.~~ Certain counterparties extend MGE a credit limit. If MGE exceeds these limits, the counterparties may require collateral to be posted. As of September 30, ~~2021,~~2022, and December 31, ~~2020,~~2021, 0no counterparties were in a net liability position.

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, ~~2021,~~2022, 0no counterparties had defaulted.

11.

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.

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 of financial instruments are as follows:

September 30, 2021

December 31, 2020

(In thousands)

Carrying Amount

Fair Value

Carrying Amount

Fair Value

MGE Energy

Assets:

Cash and cash equivalents

$
70,454

$
70,454

$
44,738

$
44,738

Liabilities:

Short-term debt - commercial paper

0

0

52,500

52,500

Long-term debt(a)

624,653

692,987

528,220

639,271

MGE

Assets:

Cash and cash equivalents

$
57,003

$
57,003

$
4,103

$
4,103

Liabilities:

Short-term debt - commercial paper

0

0

52,500

52,500

Long-term debt(a)

624,653

692,987

528,220

639,271


	September 30, 2022				December 31, 2021
(In thousands)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Long-term debt(a)	$	619,794	$	549,585	$	623,449	$	729,914

(a)

Includes long-term debt due within one year. Excludes debt issuance costs and unamortized discount of $~~4.5~~3.9 million and $~~4.1~~4.3 million as of September 30, ~~2021,~~2022, and December 31, ~~2020,~~2021, respectively.

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, 2021								Fair Value as of September 30, 2022
(In thousands)	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
MGE Energy
Assets:
Derivatives, net(b)	$	14,210	$	10,451	$	0	$	3,759	$	9,827	$	5,446	$	—	$	4,381
Exchange-traded investments		1,124		1,124		0		0		1,504		1,504		—		—
Total Assets	$	15,334	$	11,575	$	0	$	3,759	$	11,331	$	6,950	$	—	$	4,381
Liabilities:
Derivatives, net	$	535	$	365	$	0	$	170
Derivatives, net(b)									$	4,614	$	4,087	$	—	$	527
Deferred compensation		3,496		0		3,496		0		3,782		—		3,782		—
Total Liabilities	$	4,031	$	365	$	3,496	$	170	$	8,396	$	4,087	$	3,782	$	527

MGE
Assets:
Derivatives, net(b)	$	14,210	$	10,451	$	0	$	3,759	$	9,827	$	5,446	$	—	$	4,381
Exchange-traded investments		244		244		0		0		99		99		—		—
Total Assets	$	14,454	$	10,695	$	0	$	3,759	$	9,926	$	5,545	$	—	$	4,381
Liabilities:
Derivatives, net	$	535	$	365	$	0	$	170
Derivatives, net(b)									$	4,614	$	4,087	$	—	$	527
Deferred compensation		3,496		0		3,496		0		3,782		—		3,782		—
Total Liabilities	$	4,031	$	365	$	3,496	$	170	$	8,396	$	4,087	$	3,782	$	527


	Fair Value as of December 31, 2020								Fair Value as of December 31, 2021
(In thousands)	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
MGE Energy
Assets:
Derivatives, net(b)	$	806	$	436	$	0	$	370
Derivatives, net(c)									$	3,606	$	1,170	$	—	$	2,436
Exchange-traded investments		1,750		1,750		0		0		1,296		1,296		—		—
Total Assets	$	2,556	$	2,186	$	0	$	370	$	4,902	$	2,466	$	—	$	2,436
Liabilities:
Derivatives, net(b)	$	14,795	$	370	$	0	$	14,425
Derivatives, net									$	2,989	$	731	$	—	$	2,258
Deferred compensation		3,509		0		3,509		0		3,653		—		3,653		—
Total Liabilities	$	18,304	$	370	$	3,509	$	14,425	$	6,642	$	731	$	3,653	$	2,258

MGE
Assets:
Derivatives, net(b)	$	806	$	436	$	0	$	370
Derivatives, net(c)									$	3,606	$	1,170	$	—	$	2,436
Exchange-traded investments		603		603		0		0		230		230		—		—
Total Assets	$	1,409	$	1,039	$	0	$	370	$	3,836	$	1,400	$	—	$	2,436
Liabilities:
Derivatives, net(b)	$	14,795	$	370	$	0	$	14,425
Derivatives, net									$	2,989	$	731	$	—	$	2,258
Deferred compensation		3,509		0		3,509		0		3,653		—		3,653		—
Total Liabilities	$	18,304	$	370	$	3,509	$	14,425	$	6,642	$	731	$	3,653	$	2,258

(b)

AsNo collateral was posted against derivative positions as of September 30, 2022.

(c)

As of December 31, 2021 MGE received collateral of $~~9.2~~1.3 million from counterparties under a master netting agreement for outstanding exchange traded derivative positions. The fair value of the derivative asset disclosed in this table has not been reduced for the collateral received.~~NaN~~ ~~collateral was posted against derivative positions owed to counterparties under a master netting agreement on the consolidated balance sheet as of December 31, 2020.~~

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, with a term ended May 2022, (see Footnote ~~10)~~10) was valued using an internal pricing model and therefore iswas classified as Level 3. ~~The~~See the 2021 Annual Report on Form 10-K for details on the internal pricing 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.unobservable inputs.

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

September 30,

December 31,
Significant Unobservable Inputs

2021

2020
Basis adjustment:

On peak

95.5%

94.2%
Off peak

96.4%

94.5%
Counterparty fuel mix:

Internal generation - range

41%-66%

46%-65%
Internal generation - weighted average

54.2%

56.5%
Purchased power - range

59%-34%

54%-35%
Purchased power - weighted average

45.8%

43.5%

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						Three Months Ended				Nine Months Ended
	September 30,						September 30,						September 30,				September 30,
(In thousands)	2021			2020			2021			2020			2022		2021		2022		2021
Beginning balance	$	(4,533	)	$	(21,023	)	$	(14,055	)	$	(26,456	)	$	8,959	$	(4,533)	$	178	$	(14,055)
Realized and unrealized gains (losses):
Included in regulatory assets		0			5,296			0			10,729
Included in regulatory liability		8,122			0			17,644			0			(5,105)		8,122		3,675		17,644
Included in other comprehensive income		0			0			0			0			—		—		—		—
Included in earnings		2,476			(1,524	)		2,686			(4,687	)		6,609		2,476		13,607		2,686
Included in current assets		0			(37	)		175			(101	)		(73)		—		45		175
Purchases		6,638			5,505			18,899			15,837			108		6,638		11,911		18,899
Sales		0			0			0			0			—		—		—		—
Issuances		0			0			0			0			—		—		—		—
Settlements		(9,114	)		(3,944	)		(21,760	)		(11,049	)		(6,644)		(9,114)		(25,562)		(21,760)
Balance as of September 30,	$	3,589		$	(15,727	)	$	3,589		$	(15,727	)	$	3,854	$	3,589	$	3,854	$	3,589
Total gains (losses) included in earnings attributed to the change in unrealized gains (losses) related to assets and liabilities held as of September 30,(c)	$	0		$	0		$	0		$	0
Total gains (losses) included in earnings attributed to the change in unrealized gains (losses) related to assets and liabilities held as of September 30,(d)													$	—	$	—	$	—	$	—

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)~~(d).


	Three Months Ended					Nine Months Ended						Three Months Ended				Nine Months Ended
	September 30,					September 30,						September 30,				September 30,
(In thousands)	2021		2020			2021			2020			2022		2021		2022		2021
Purchased power expense	$	2,476	$	(1,496	)	$	3,113		$	(4,343	)	$	6,644	$	2,476	$	13,805	$	3,113
Cost of gas sold expense		0		(28	)		(427	)		(344	)		(35)		—		(198)		(427)
Total	$	2,476	$	(1,524	)	$	2,686		$	(4,687	)	$	6,609	$	2,476	$	13,607	$	2,686

~~(c)~~(d)

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.

12.

Joint Plant Construction Project Ownership - MGE Energy and MGE

MGE currently has ongoing jointly-owned solar generation construction projects, as shown in the following table. Incurred costs are reflected in "Construction work in progress" on the consolidated balance sheets.

Ownership

Share of

Share of

Costs incurred
as of September 30,

Date of
Commercial
Project

Interest

Generation

Estimated Costs

2021(a)

Operation
Badger Hollow I(b)

33
%

50

MW

$
65

million

$
57.8

million

Q4 2021(c)
Badger Hollow II(b)

33
%

50

MW

$
65

million

$
11.5

million

December 2022(c)


	Ownership	Share of	Share of	Costs incurred as of September 30,	Estimated Date of Commercial
Project	Interest	Generation	Estimated Costs(a)	2022(a)	Operation
Red Barn(b)	10%	9.16 MW	$18 million	$0.6 million	Early 2023
Badger Hollow II(c)	33%	50 MW	$76 million(e)	$46.8 million(f)	First Half of 2023
Paris(d)	10%	31 MW	$51 million(e)	$21.8 million	2023(g)

(a)

Excluding AFUDC.

(b)

The ~~Badger Hollow I~~Red Barn Wind Farm is located in the Towns of Wingville and Clifton in Grant County, Wisconsin.

(c)

The Badger Hollow II solar ~~farms are~~farm is located in southwestern Wisconsin in Iowa County, near the villages of Montfort and Cobb.

~~(c)~~(d)

~~Estimated date~~Paris Solar-Battery Park is located in the Town of ~~commercial operation.~~Paris in Kenosha County, Wisconsin.

(e)

(f)

Includes an allocation of common facilities at Badger Hollow placed in service in November 2021.

(g)

Battery storage timing to be determined.

MGE received specific approval to recover 100% AFUDC on ~~each of these projects.~~Badger Hollow II and Paris. During the three and nine months ended September 30, ~~2021,~~2022, MGE recognized $~~1.3~~1.1 million and $~~3.6~~2.1 million, respectively, after

tax, in AFUDC for ~~Badger Hollow I and II~~these projects compared to $~~0.9~~0.2 million and $~~1.8~~0.4 million for the comparable ~~periods in 2020.~~

~~13.~~ ~~Asset Retirement Obligations~~ ~~- MGE Energy and MGE~~

~~A liability is recorded for the fair value of an asset retirement obligation (ARO) to be 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, 2021, MGE recorded an obligation of $3.9~~ ~~million for the fair value of its legal liability for AROs associated with completed renewable projects and $3.5~~ million for the revision of its ARO legal liability with Columbia ash pond. 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.2021.

~~14.~~ 13.

Revenue - MGE Energy and MGE.

Revenues disaggregated by revenue source were as follows:


	Three Months Ended				Nine Months Ended				Three Months Ended				Nine Months Ended
(In thousands)	September 30,				September 30,				September 30,				September 30,
Electric revenues	2021		2020		2021		2020		2022		2021		2022		2021
Residential	$	44,398	$	45,009	$	117,229	$	113,311	$	45,154	$	44,398	$	123,183	$	117,229
Commercial		60,996		57,822		161,270		152,844		65,468		60,996		177,877		161,270
Industrial		3,380		3,234		9,469		8,797		3,912		3,380		10,535		9,469
Other-retail/municipal		9,478		8,620		26,340		24,874		10,010		9,478		28,215		26,340
Total retail		118,252		114,685		314,308		299,826		124,544		118,252		339,810		314,308
Sales to the market		3,071		1,554		8,854		2,604		7,858		3,071		13,938		8,854
Other revenues		316		115		948		660
Other										474		316		1,167		948
Total electric revenues		121,639		116,354		324,110		303,090		132,876		121,639		354,915		324,110

Gas revenues
Residential		14,643		12,436		72,286		61,328		17,167		14,643		97,498		72,286
Commercial/Industrial		8,069		5,052		42,972		32,961		11,490		8,069		66,913		42,972
Total retail		22,712		17,488		115,258		94,289		28,657		22,712		164,411		115,258
Gas transportation		1,256		1,152		4,589		4,179		1,588		1,256		4,804		4,589
Other revenues		52		3		97		100
Other										65		52		90		97
Total gas revenues		24,020		18,643		119,944		98,568		30,310		24,020		169,305		119,944

Non-regulated energy revenues		214		214		464		466		214		214		466		464
Total Operating Revenue	$	145,873	$	135,211	$	444,518	$	402,124	$	163,400	$	145,873	$	524,686	$	444,518

~~Performance Obligations~~14.

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 contracts have a single performance obligation.

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

Providing electric and gas utility service to retail customers represents MGE's core business activity. 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 customers are subsequently billed for services received. At the end of the month, MGE accrues an estimate for unbilled 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- or 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 9.b. for further information.

MGE also 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 it provides gas transportation services to customers who have elected to purchase gas from a third party. MGE delivers this gas via pipelines within its 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 standard terms and conditions, including pricing terms.

~~15.~~ 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 ~~2020~~2021 Annual Report on Form 10-K for additional discussion of each of these segments.


(In thousands)			Nonregulated	Transmission	All	Consolidation/	Consolidated
MGE Energy	Electric	Gas	Energy	Investment	Others	Elimination	Total
Three Months Ended September 30, 2021
Operating revenues from external customers	$121,639	$24,020	$214	$0	$0	$—	$145,873
(In thousands) MGE Energy								Electric		Gas			Non-Regulated Energy		Transmission Investment		All Others			Consolidation/ Elimination			Consolidated Total
Three Months Ended September 30, 2022
Operating revenues								$	132,876	$	30,310		$	214	$	—	$	—		$	—		$	163,400
Interdepartmental revenues	89	6,689	10,224	0	0	(17,002)	—		24		12,465			10,405		—		—			(22,894	)		—
Total operating revenues	121,728	30,709	10,438	0	0	(17,002)	145,873		132,900		42,775			10,619		—		—			(22,894	)		163,400
Equity in earnings of investments	0	0	0	2,532	0	0	2,532		—		—			—		1,499		—			—			1,499
Net income (loss)	27,833	(218)	5,386	1,842	74	0	34,917		27,619		(394	)		5,576		1,091		(172	)		—			33,720

Three Months Ended September 30, 2020
Operating revenues from external customers	$116,354	$18,643	$214	$0	$0	$—	$135,211
Three Months Ended September 30, 2021
Operating revenues								$	121,639	$	24,020		$	214	$	—	$	—		$	—		$	145,873
Interdepartmental revenues	209	3,494	10,102	0	0	(13,805)	—		89		6,689			10,224		—		—			(17,002	)		—
Total operating revenues	116,563	22,137	10,316	0	0	(13,805)	135,211		121,728		30,709			10,438		—		—			(17,002	)		145,873
Equity in earnings of investments	0	0	0	2,353	0	0	2,353		—		—			—		2,532		—			—			2,532
Net income (loss)	24,761	221	5,251	1,710	(149)	0	31,794		27,833		(218	)		5,386		1,842		74			—			34,917

Nine Months Ended September 30, 2022
Operating revenues								$	354,915	$	169,305		$	466	$	—	$	—		$	—		$	524,686
Interdepartmental revenues									76		26,645			31,073		—		—			(57,794	)		—
Total operating revenues									354,991		195,950			31,539		—		—			(57,794	)		524,686
Equity in earnings of investments									—		—			—		6,626		—			—			6,626
Net income									55,248		12,782			16,451		4,821		599			—			89,901

Nine Months Ended September 30, 2021
Operating revenues from external customers	$324,110	$119,944	$464	$0	$0	$—	$444,518
Operating revenues								$	324,110	$	119,944		$	464	$	—	$	—		$	—		$	444,518
Interdepartmental revenues	316	14,377	30,595	0	0	(45,288)	—		316		14,377			30,595		—		—			(45,288	)		—
Total operating revenues	324,426	134,321	31,059	0	0	(45,288)	444,518		324,426		134,321			31,059		—		—			(45,288	)		444,518
Equity in earnings of investments	0	0	0	7,440	0	0	7,440		—		—			—		7,440		—			—			7,440
Net income (loss)	59,979	11,615	15,935	5,413	(241)	0	92,701		59,979		11,615			15,935		5,413		(241	)		—			92,701

Nine Months Ended September 30, 2020
Operating revenues from external customers	$303,090	$98,568	$466	$0	$0	$—	$402,124
Interdepartmental revenues	584	9,300	30,248	0	0	(40,132)	—
Total operating revenues	303,674	107,868	30,714	0	0	(40,132)	402,124
Equity in earnings of investments	0	0	0	7,780	0	0	7,780
Net income (loss)	46,439	9,216	15,536	5,659	(228)	0	76,622


(In thousands) MGE	Electric		Gas			Non-Regulated Energy		Consolidation/ Elimination			Consolidated Total
Three Months Ended September 30, 2022
Operating revenues	$	132,876	$	30,310		$	214	$	—		$	163,400
Interdepartmental revenues		24		12,465			10,405		(22,894	)		—
Total operating revenues		132,900		42,775			10,619		(22,894	)		163,400
Net income (loss) attributable to MGE		27,619		(394	)		5,576		(5,603	)		27,198

Three Months Ended September 30, 2021
Operating revenues	$	121,639	$	24,020		$	214	$	—		$	145,873
Interdepartmental revenues		89		6,689			10,224		(17,002	)		—
Total operating revenues		121,728		30,709			10,438		(17,002	)		145,873
Net income (loss) attributable to MGE		27,833		(218	)		5,386		(5,627	)		27,374

Nine Months Ended September 30, 2022
Operating revenues	$	354,915	$	169,305		$	466	$	—		$	524,686
Interdepartmental revenues		76		26,645			31,073		(57,794	)		—
Total operating revenues		354,991		195,950			31,539		(57,794	)		524,686
Net income attributable to MGE		55,248		12,782			16,451		(15,947	)		68,534

Nine Months Ended September 30, 2021
Operating revenues	$	324,110	$	119,944		$	464	$	—		$	444,518
Interdepartmental revenues		316		14,377			30,595		(45,288	)		—
Total operating revenues		324,426		134,321			31,059		(45,288	)		444,518
Net income attributable to MGE		59,979		11,615			15,935		(16,755	)		70,774

3130

(In thousands)

Nonregulated

Consolidation/

Consolidated
MGE

Electric

Gas

Energy

Elimination

Total
Three Months Ended September 30, 2021

Operating revenues from external
   customers

$121,639

$24,020

$214

$—

$145,873
Interdepartmental revenues

89

6,689

10,224

(17,002)

  —
Total operating revenues

121,728

30,709

10,438

(17,002)

145,873
Net income (loss) attributable to MGE

27,833

(218)

5,386

(5,627)

27,374

Three Months Ended September 30, 2020

Operating revenues from external
   customers

$116,354

$18,643

$214

$—

$135,211
Interdepartmental revenues

209

3,494

10,102

(13,805)

  —
Total operating revenues

116,563

22,137

10,316

(13,805)

135,211
Net income attributable to MGE

24,761

221

5,251

(5,493)

24,740

Nine Months Ended September 30, 2021

Operating revenues from external
   customers

$324,110

$119,944

$464

$—

$444,518
Interdepartmental revenues

316

14,377

30,595

(45,288)

  —
Total operating revenues

324,426

134,321

31,059

(45,288)

444,518
Net income attributable to MGE

59,979

11,615

15,935

(16,755)

70,774

Nine Months Ended September 30, 2020

Operating revenues from external
   customers

$303,090

$98,568

$466

$—

$402,124
Interdepartmental revenues

584

9,300

30,248

(40,132)

  —
Total operating revenues

303,674

107,868

30,714

(40,132)

402,124
Net income attributable to MGE

46,439

9,216

15,536

(16,754)

54,437

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, purchases, and distributes electricity to approximately ~~157,000~~159,000 customers in Dane County, Wisconsin, including the city of Madison, and purchases and distributes natural gas to approximately ~~166,000~~169,000 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 works on meeting this challenge by investing in more efficient generation projects, including renewable energy sources. As we work toward achieving 80% carbon reduction by 2030 (from 2005 levels), MGE continues to examine and pursue opportunities to reduce the proportion that coal generation represents in its generation mix, as evidenced by its most recent ~~announcement~~announcements of the retirement of Columbia (a coal generation plant), the planned change in the Elm Road Units fuel source from coal to natural gas, and its growing ownership of renewable ~~wind and solar~~ generation sources. MGE will continue to focus on growing earnings while controlling operating and fuel costs. MGE's goal is to provide safe and efficient operations in addition to providing customer value. We believe it is critical to maintain a strong credit ~~standing~~rating consistent with financial strength in MGE ~~as well as the parent company~~ in order to accomplish these goals.

We principally earn 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,

•

~~Governmental efforts to address the~~Impacts on activity arising from COVID-19 ~~pandemic,~~and its variants, including government restrictions on activity,

increased employee health and welfare costs, ~~and~~ precautions for dealing with members of the public, and supply chain disruptions, and

•

Other factors listed in "Item 1A. Risk Factors" in our ~~2020~~2021 Annual Report on Form ~~10-K.~~10-K.

During the three months ended September 30, ~~2021,~~2022, MGE Energy's earnings were ~~$34.9~~$33.7 million or ~~$0.97~~$0.93 per share compared to ~~$31.8~~$34.9 million or ~~$0.88~~$0.97 per share during the same period in the prior year. MGE's earnings during the three months ended September 30, ~~2021,~~2022, were ~~$27.4~~$27.2 million compared to ~~$24.7~~$27.4 million during the same period in the prior year.

During the nine months ended September 30, ~~2021,~~2022, MGE Energy's earnings were ~~$92.7~~$89.9 million or ~~$2.56~~$2.49 per share compared to ~~$76.6~~$92.7 million or ~~$2.16~~$2.56 per share during the same period in the prior year. MGE's earnings during the nine months ended September 30, ~~2021,~~2022, were ~~$70.8~~$68.5 million compared to ~~$54.4~~$70.8 million during 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						Three Months Ended				Nine Months Ended
(In millions)	September 30,						September 30,						September 30,				September 30,
Business Segment:	2021			2020			2021			2020			2022		2021		2022		2021
Electric Utility	$	27.8		$	24.7		$	60.0		$	46.4		$	27.6	$	27.8	$	55.2	$	60.0
Gas Utility		(0.2	)		0.2			11.6			9.2			(0.4)		(0.2)		12.8		11.6
Nonregulated Energy		5.4			5.2			15.9			15.5			5.6		5.4		16.5		15.9
Transmission Investments		1.8			1.8			5.4			5.7			1.1		1.8		4.8		5.4
All Other		0.1			(0.1	)		(0.2	)		(0.2	)		(0.2)		0.1		0.6		(0.2)
Net Income	$	34.9		$	31.8		$	92.7		$	76.6		$	33.7	$	34.9	$	89.9	$	92.7

Our net income during the three and nine months ended September 30, ~~2021,~~2022, compared to the same periods in the prior year primarily reflects the effects of the following factors:

Electric Utility

An increase in electric investments ~~included in rate base~~ contributed to ~~increased~~ earnings for ~~2021.~~2022. Timing of 2021 depreciation and other operations and maintenance costs ~~also~~ contributed to higher earnings in 2021. Depreciation and operations and maintenance costs ~~are expected to increase~~increased during the remainder of 2021 and into 2022 after significant capital projects ~~are~~were completed. The new customer information system went live in September 2021 and Badger Hollow I ~~is expected to be~~was completed in ~~the fourth quarter of~~November 2021. MGE received approval to recover 100% AFUDC during construction of these projects.

~~Higher electric retail sales resulting from warmer weather in the second quarter of~~ ~~2021~~ ~~contributed to higher earnings for the~~ ~~nine months ended September 30, 2021. Cooling degree days (a measure for determining the impact of weather during the cooling season) increased from 213 days in the second quarter of 2020 to 309 days in the second quarter of 2021.~~

Electric commercial retail sales increased approximately 5% and 3%, respectively, for the three and nine months ended September 30, 2021, compared to the same period in the prior year. The general economic recovery from the COVID-19 pandemic during 2021 contributed to higher electric commercial retail sales.

Gas Utility

An increase in gas investments ~~included in rate base~~ contributed to increased earnings for ~~2021.~~2022. Higher gas retail sales resulting from colder weather in the first ~~quarter~~half of ~~2021~~2022 contributed to higher earnings for the nine months ended September 30, ~~2021.~~2022. Heating degree days (a measure for determining the impact of weather during the heating season) increased by approximately ~~11%~~7% in the first ~~quarter 2021~~nine months of 2022 compared to the same period in the prior year.

Transmission Investments

In September 2022, our share of ATC's earnings reflected an estimated possible loss of approximately $0.8 million, inclusive of interest and net of tax, related to the August 2022 developments in the MISO transmission owners complaints on authorized return on equity. See additional information in "Other Matters" below.

The following developments affected the first nine months of ~~2021:~~2022:

~~2021~~2022/2023 Rate Settlement Agreement: In December ~~2020,~~2021, the PSCW approved a settlement agreement for MGE's ~~2021~~2022 rate case. The settlement agreement provides for ~~a zero percent~~an 8.81% increase ~~for~~to electric rates and ~~an approximately 4%~~a 2.15% increase ~~for~~to gas rates in 2021. The electric rate settlement includes an increase in rate base but the associated rate increase is primarily offset by lower fuel and purchase power costs and a one-time $18.2 million return to customers of the portion of excess deferred taxes related to the 2017 Tax Act not restricted by IRS normalization rules.for 2022. As part of that settlement agreement, the ~~settlement,~~PSCW approved a 0.96% increase in 2023 gas rates and a potential 2023 electric rate change to be addressed through a limited rate case reopener. See "Other Matters" below for additional information on the ~~fuel rules bandwidth was set at plus or minus 1% for 2021. When compared to~~2022/2023 rate case settlement.

the 2020 rate case, the settlement includes lower forecasted electric sales for 2021 to reflect changes to customer usage during the COVID-19 pandemic. The gas rate increase covers infrastructure costs and technology improvements. The settlement agreement also includes escrow accounting treatment for pension and other postretirement benefit costs, bad debt expense, and customer credit card fees. Escrow accounting treatment allows MGE to defer any difference between estimated costs in rates and actual costs incurred until its next rate case filing. Any difference would be recorded as a regulatory asset or regulatory liability.

Utility Solar: Large solar generation projects were recently completed or are under construction, as shown in the following table. Incurred costs are reflected in "Property, plant, and ~~equipment"~~equipment, net" for projects placed in service, or "Construction work in progress" for projects under construction on the consolidated balance sheets. MGE has received specific approval to recover 100% AFUDC on Badger Hollow I and II. After tax, MGE recognized $4.6 million and $0.5 million of AFUDC equity through September 30, 2021, on Badger Hollow I and II, respectively, during construction.

Project

Ownership Interest

Share of Generation

Share of
Estimated Costs(a)

Costs Incurred as of
September 30, ~~2021~~2022(a)

Estimated Date of
Commercial
Operation

~~Badger Hollow I~~Red Barn

10%

~~33%~~

9.16MW

~~50 MW~~

$6518 million

$~~57.8~~0.6 million

~~Q4 2021(b)~~Early 2023

Badger Hollow II

33%

50 MW

$6576 million

$46.8 million(b)(c)

First Half of 2023

Paris

10%

31 MW

$~~11.5~~51 million

$21.8 million(b)

~~December 2022(b)~~

~~O'Brien~~

2023

~~100%~~

~~20 MW~~

~~$32 million~~

~~$28.8 million~~

~~May 2021~~(d)

(a)

Excluding ~~AFUDC~~AFUDC.

(b)

~~Estimated date~~MGE received specific approval to recover 100% AFUDC on Badger Hollow II and Paris. After tax, MGE recognized $1.9 million and $0.3 million of ~~commercial operation~~AFUDC equity through September 30, 2022, on Badger Hollow II and Paris, respectively, during construction. AFUDC has been excluded from the costs incurred in the table above.

(c)

Includes an allocation of common facilities at Badger Hollow placed in service in November 2021.

(d)

Battery storage timing to be determined.

Deferred Fuel Costs: MGE has under-recovered fuel costs through the nine months ended September 30, 2022. As of September 30, 2022, MGE had deferred $4.4 million of 2022 fuel costs. Coal transportation constraints resulted in reduced generation at Columbia, which required MGE to purchase power in the market at higher cost. We may continue to see increased fuel costs in the near term because of these coal transportation constraints. These costs will be subject to the PSCW's annual review of 2022 fuel costs, expected to be completed during 2023. See Footnote 9.b. of the Notes to Consolidated Financial Statements in this Report for further information regarding fuel cost proceedings.

Tax Reform: Pursuant to the 2017 Tax Act, deferred income tax balances as of December 31, 2017, were remeasured to reflect the decrease in the corporate tax rate. The approved rate settlement agreement for 2021 includes approximately $5.3 million of the benefit in base rates that is being returned to customers using a normalization method of accounting. IRS normalization rules limit the rate at which MGE can return the benefits to customers. The settlement agreement also includes $18.2 million of the benefit not subject to normalization restrictions in electric base rates. The collection of the remaining portion not subject to normalization restrictions related to gas will be addressed by the PSCW in a future rate case.

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

~~2022/2023 Rate Case Filing: In September~~ 2021 MGE filed with the PSCW a proposed settlement agreement for its pending 2022 rate case. The settlement agreement proposes a 5.16% increase to electric rates and a 2.15% increase to gas rates for 2022. As part of the settlement agreement for 2023, MGE is proposing a 0.96% increase in gas rates and to address a potential electric rate change through a limited rate case re-opener. See "Other Matters" below for additional information on the 2022/2023 rate case application.

~~2020~~ Annual Fuel Proceeding: MGE under-recovered fuel costs in 2021. As of December 31, 2021, MGE had deferred $3.3 million of 2021 fuel costs. In ~~September 2021,~~August 2022, the PSCW issued a final decision in the ~~2020~~2021 fuel rules proceedings for MGE to ~~refund $3.2 million~~include the recovery of ~~additional fuel savings realized during 2020 plus accrued interest to its retail~~these costs as part of the 2023 electric ~~customers over a one-month period in October 2021.~~limited rate case reopener. There was no change to the ~~refund~~costs to be recovered in the fuel ~~rules~~rule proceedings from the amount MGE deferred in the previous year.

2023 Electric Limited Rate Case Reopener: In April 2022, MGE filed with the PSCW a proposed electric limited rate case reopener. The limited rate case reopener proposes a 4.38% increase to electric rates for 2023. See "Other Matters" below for additional information on the 2023 electric limited rate case reopener.

ATC Return on Equity: As discussed in ~~"Other Matters"~~"Other Matters" below, ATC's authorized ROE, which is used in calculating its rates and revenues, is the subject of a challenge before FERC. A decrease in ATC's ROE could result in lower equity earnings and distributions from ATC in the future. We derived approximately ~~5.7%~~5.1% and ~~7.3%~~5.7% of our net income during the nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively, from our investment in 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, congressional,~~Legislation and ~~EPA administrations may affect existing, pending or new legislative or~~ rulemaking ~~proposals or regulatory initiatives, although it is likely that such proposals~~addressing climate change and ~~initiatives will be more stringent on fossil-fuel based generation. Such legislation and rulemaking~~related matters could significantly affect the costs of owning and operating fossil-fueled generating plants. 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 uncertainty as to the timing

and form of any legislation or rules, and the scope and time of the recovery of costs in rates, which may occur after those costs have been ~~incurred.~~incurred and paid.

Future Generation – 80% carbon reduction target by 2030 (from 2005 levels): MGE has outlined initiatives to achieve our raised target.

EPA's Affordable Clean Energy (ACE) Rule: In January 2021, the U.S. Court of Appeals for the District of Columbia Circuit (D.C. Circuit) vacated and remanded to the EPA the ACE Rule and the repeal of the predecessor Clean Power Plan Rule, both of which regulated greenhouse gas emissions

•

Transitioning away from existing electric generation units pursuant to Section 111(d) of the Clean Air Act. As a result of these legal proceedings, neither the CPP nor ACE rules are currently in effect. MGE will continue to evaluate the rule development and monitor ongoing and potential legal proceedings.coal.

Columbia: In February 2021, MGE, along with the other plant co-owners, announced plans to retire the two-unit coal-fired Columbia generating plant near Portage, Wisconsin. MGE currently owns 19% of the facility. The co-owners ~~intend~~initially intended to retire Unit 1 by the end of

2023 and Unit 2 by the end of 2024. In June 2022, the target retirement date for both Units was updated to June 2026 after consideration by the owners of supply chain disruptions impacting the completion dates of current and planned renewable generation projects and the impact of those delays upon energy supply availability, reliability and cost. The postponement is not expected to affect MGE's goal to achieve 80% carbon reduction by 2030. Final timing and retirement dates for Units 1 and 2 are subject to ~~PSCW~~change depending on operational, regulatory, and ~~regional regulatory reviews, including identification and approval of energy and capacity resources to replace Columbia.~~other factors. MGE continues to evaluate additional investments to replace the generation from Columbia while maintaining electric service reliability. These investments include cost-effective, clean energy projects to help achieve MGE's carbon reduction goals.

Future Generation – Renewable Energy: MGE is seeking approval from the PSCW to acquire a joint interest in the following renewable generation projects as shown in the following table. There is no certainty that these projects will be approved by the PSCW.


~~Project~~	~~Source~~	~~Ownership Interest~~	Share of Generation/ Battery Storage	Share of Estimated Costs~~(a)~~	Estimated Date of Commercial Operation
~~Darien~~	~~Solar/Battery~~	~~10%~~	~~25MW/7.5MW~~	~~$45 million(b)~~	~~December 31, 2023~~
~~Paris~~	~~Solar/Battery~~	~~10%~~	~~20MW/11MW~~	~~$43 million(b)~~	~~May 31, 2023~~
~~Red Barn~~	~~Wind~~	~~10%~~	~~9.16MW~~	~~$17 million~~	~~December 31, 2022~~
~~Koshkonong~~	~~Solar/Battery~~	~~10%~~	~~30MW/16.5MW~~	~~$65 million(b)~~	~~2024(c)~~

~~(a)~~

~~Excluding AFUDC~~

~~(b)~~

~~Requested approval to recover 100% AFUDC.~~

~~(c)~~

~~Construction of the project is expected to be completed in phases ranging from May 2024 through December 2024.~~

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 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 was placed in service in May 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 during the option period. If MGE acquires 50 MW of capacity, the estimated cost would be approximately $50 million.

~~Future Generation –~~ Elm Road Units: OnIn November 3, 2021, MGE announced plans to end the use of coal as a primary fuel at the Elm Road Units and transition the plant to natural gas. MGE is a minority owner of Elm Road, owning 8.33%. The approximately 1,230 MW coal-fired plant is ~~owned~~co-owned by WEC Energy Group, whose subsidiary serves as operator, and by WPPI Energy, Inc. ~~This transition is expected to reduce the use of coal at Elm Road substantially by 2030 and to eliminate coal as an energy source at Elm Road by 2035.~~ Transition plans and costs will be subject to PSCW approval. MGE's remaining use of coal is expected to be further reduced as the Elm Road Units transition to natural gas. By the end of 2030, MGE expects coal to be used only as a backup fuel at the Elm Road Units. This transition will help MGE meet its 2030 carbon reduction goals. By 2035, MGE expects that the Elm Road Units will be fully transitioned away from coal, which will eliminate coal as an internal generation source for MGE.

•

Growing renewable generation. MGE is seeking to acquire a joint interest in several renewable generation projects. See the 2022-2025 capital expenditures forecast included under "Liquidity and Capital Resources" below for information on these projects.

•

Natural gas as a fuel source. West Riverside: MGE is seeking approval for a sale and purchase of ownership interest in West Riverside. See the 2022-2025 capital expenditures forecast included under "Liquidity and Capital Resources" below for information on West Riverside.

Solar Procurement Disruptions – Import Regulations: In June 2021, the U.S. Customs and Border Protection (CBP) issued a Withhold Release Order (WRO) against silica-based products made by Hoshine Silicon Industry Co. Ltd., a company located in China's Xinjiang Uyghur Autonomous Region. As a result of this WRO, CBP is holding many solar panels imported into the United States until importers can prove that the panels do not contain materials originating from this region. The Uyghur Forced Labor Protection Act, a federal law that became effective on June 21, 2022, further established that all goods mined, produced, or manufactured wholly or in part in Xinjiang or by certain defined entities are prohibited from U.S. importation. MGE is currently assessing the potential impact of these disruptions on current and future solar projects which may result in an increase in costs or delays in construction timelines. In the event that such disruptions cause costs to exceed the levels approved for specific projects, we expect to file a notification with the PSCW and expect to request recovery of any increases in MGE’s next rate proceeding.

Solar Procurement Disruptions – Solar Tariff Investigation: In March 2022, the U.S. Department of Commerce (USDOC) announced a solar tariff investigation on solar panels from four Southeast Asian countries. This investigation could result in additional tariffs on solar panels. In June 2022, the USDOC issued a 24-month exemption from tariffs for solar panel and module imports from these four countries. MGE is currently assessing the potential impact of these disruptions on current and future solar projects which may result in an increase in costs or delays in construction timelines. In the event that such disruptions cause costs to exceed the levels approved for specific projects, we expect to file a notification with the PSCW and expect to request recovery of any increases in MGE’s next rate proceeding.

COVID-19 ~~Update~~

Update: MGE Energy continues to provide safe and reliable service to our customers despite the challenges presented by the ~~Coronavirus Disease 2019 (COVID-19) pandemic.~~COVID-19 and its variants. We have operated continuously throughout the pandemic and suffered no material disruptions in service or employment.

We ~~discuss various COVID-19-related events and their effects below:~~



~~Governmental and Regulatory Actions. State and local governments issued orders and regulations to restrict or manage business and individual activity. In June 2021 the majority of COVID-related orders~~

~~were lifted, although certain counties~~ continue to ~~impose mask mandates. Additionally, the PSCW ordered changes~~monitor potential disruptions or constraints in materials and supplies from key suppliers and as well as macroeconomic trends, such as inflation. We could experience increased costs and delays in our ability to ~~the tariff provisions on March 24, 2020, in response to the COVID-19 pandemic. All restrictions were lifted by November 1, 2020.~~



~~Liquidity: We remain focused on maintaining strong credit quality. Subject to the duration and severity of the COVID-19 pandemic, we believe we have adequate liquidity on hand to support future operations~~perform certain maintenance and capital expenditures over the next twelve months. As of September 30, 2021, MGE Energy and MGE had $70.5 million and $57.0 million, respectively, in cash and cash equivalents and $50.0 million and $99.3 million, respectively, of available borrowing capacity under revolving credit facilities.

See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources – Credit Facilities" in the 2020 Annual Report on Form 10-K for more information about our credit facilities.



~~Customer Impacts~~: Governmental regulations limiting community activity began impacting customer sales in late March 2020. While the total expected impact of COVID-19 on future sales is currently unknown, MGE experienced higher electric residential sales and lower electric commercial and industrial sales due to pandemic-related regulations. The general economic recovery that followed the lifting of these regulations during the second quarter of 2021 contributed to higher electric commercial and industrial sales.



~~Capital Expenditures & Operations~~: MGE does not currently expect any material changes to its construction expenditures plans disclosed in "Liquidity and Capital Resources" in the 2020 Annual Report on Form 10-K and updated in "Liquidity and Capital Resources" below resulting from COVID-19. To date, MGE Energy has experienced no material disruptions in utility operations. Our administrative personnel have been working largely remotely, and our field operations have not been materially affected.

project activities. We cannot ~~reasonably~~ estimate with any degree of certainty the actual impact of COVID-19 and associated governmental regulations may have on future results of operations, financial position, and liquidity. See Item 1A. "Risk Factors" "Pandemic virus or diseases, including COVID-19, could have a material adverse effect on our business, financial condition and liquidity" in our ~~2020~~2021 Annual Report on Form 10-K for a description of risk.

The following discussion is based on the business segments as discussed in Footnote 1514 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, ~~2021~~2022 and ~~2020~~2021

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

Three Months Ended September 30,

(In millions)

2021

2020

$ Change

Electric revenues

$
121.7

$
116.4

$
5.3

Fuel for electric generation

(18.5
)

(13.0
)

(5.5
)
Purchased power

(8.6
)

(10.7
)

2.1

Total Electric Margins

94.6

92.7

1.9

Gas revenues

24.0

18.6

5.4

Cost of gas sold

(8.8
)

(3.8
)

(5.0
)
Total Gas Margins

15.2

14.8

0.4

Other operating revenues

0.2

0.2

—

Other operations and maintenance

(48.5
)

(45.8
)

(2.7
)
Depreciation and amortization

(19.0
)

(18.6
)

(0.4
)
Other general taxes

(4.9
)

(5.0
)

0.1

Operating Income

$
37.6

$
38.3

$
(0.7
)

~~Operating income during the three months ended September 30, 2021, compared to the same period in the prior year, primarily reflects the effects of the following factors:~~



~~Electric revenues and fuel costs~~

~~A $5.3 million increase in electric revenues primarily driven by higher electric retail sales due to economic recovery in MGE's service territory from the COVID-19 pandemic.~~

~~A $5.5 million increase in fuel for electric generation reflecting higher internal generation and market costs.~~



~~Gas revenues and cost of gas sold~~

~~A $5.4 million increase in gas revenue driven by higher cost of gas, which is recovered on a pass-through basis in revenues.~~

A $5.0 million increase in cost of gas sold driven by higher cost per therm of gas. Payments for natural gas increased due to a significant increase in the price of natural gas throughout the central United States in February 2021. The increase in the price of natural gas is related to extreme weather conditions. MGE expects these costs to be recovered by the end of 2021 through our existing recovery mechanism (pass-through basis in customer rates).



~~A $2.7 million increase in other operations and maintenance. See consolidated operations and maintenance expenses section below for a description of the factors contributing to the decrease.~~

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)

Three Months Ended September 30,

Three Months Ended September 30,

(In thousands, except cooling degree days)

2021

2020

% Change

2021

2020

% Change

Residential

$
44,398

$
45,009

(1.4
)%

263,833

274,676

(3.9
)%
Commercial

60,996

57,822

5.5
%

500,434

478,816

4.5
%
Industrial

3,380

3,234

4.5
%

42,400

43,257

(2.0
)%
Other-retail/municipal

9,478

8,620

10.0
%

106,919

97,493

9.7
%
Total retail

118,252

114,685

3.1
%

913,586

894,242

2.2
%
Sales to the market

3,071

1,554

97.6
%

67,536

49,039

37.7
%
Other revenues

316

115

n.m.%

—

—

—
%
Total

$
121,639

$
116,354

4.5
%

$
981,122

$
943,281

4.0
%

Cooling degree days (normal 494)

511

519

(1.5
)%


	Revenues					Sales (kWh)
	Three Months Ended September 30,					Three Months Ended September 30,
(In thousands, except CDD)	2022		2021		% Change	2022	2021	% Change
Residential	$	45,154	$	44,398	1.7%	252,457	263,833	(4.3)%
Commercial		65,468		60,996	7.3%	495,135	500,434	(1.1)%
Industrial		3,912		3,380	15.7%	41,304	42,400	(2.6)%
Other-retail/municipal		10,010		9,478	5.6%	104,548	106,919	(2.2)%
Total retail		124,544		118,252	5.3%	893,444	913,586	(2.2)%
Sales to the market		7,858		3,071	n.m.%	48,632	67,536	(28.0)%
Other		474		316	50.0%	—	—	—%
Total	$	132,876	$	121,639	9.2%	942,076	981,122	(4.0)%

Cooling degree days (normal 500)						507	511	(0.8)%

n.m. not meaningful

Electric ~~margin, a non-GAAP measure,~~revenue increased ~~$1.9~~$11.2 million during the three months ended September 30, ~~2021,~~2022, compared to the same period in ~~2020,~~2021, due to the following:


(In millions)
Rate changes				$	7.8
Sales to the market					4.8
Revenue subject to refund, net	$	2.3			0.4
Increase in commercial, industrial and other-retail/municipal volume		1.5
Rate changes		1.1
Other		0.2			0.4
Increased fuel costs		(1.5	)
Decrease in residential volume		(1.3	)		(1.6	)
Customer fixed and demand charges		(0.4	)
Net decrease in commercial, industrial and other-retail/municipal volume					(0.6	)
Total	$	1.9		$	11.2

•

Rate changes. In December 2021, the PSCW authorized MGE to increase 2022 rates for retail electric customers by approximately 8.81%. Rates charged to retail customers during the three months ended September 30, 2022 were $7.8 million higher than those charged during the same period in the prior year. See Footnote 9 of the Notes to Consolidated Financial Statements in this Report for further information on rate increase. Any increase in rates associated with fuel or purchase power costs are generally offset in fuel and purchased power costs and do not have a significant impact on net income.

•

Sales to the market. Sales to the market typically occur when MGE has more generation and purchases in the MISO market than are needed for its customer demand. The excess electricity is then sold to other utilities or power marketers in the MISO market. During the three months ended September 30, 2022, sales were made at higher market prices and partially offset by decreased market volume compared to the same period in the prior year, reflecting a decrease in sales. The revenue generated from these sales is included in fuel rules monitored costs. See fuel rules discussion in Footnote 9 of the Notes to Consolidated Financial Statements.

•

subject to refund. There is no ~~margin~~net income impact in the year the costs are refunded. ~~The largest driver is related to return of excess deferred taxes related to the 2017 Tax Act in 2021. See Footnote 5 for additional information.~~

•

~~Commercial, industrial, and other-retail/municipal~~Residential volume. During the three months ended September 30, 2021, there was an approximately 5% increase in commercial sales compared to the same period in the prior year driven. This increase was driven by economic recovery from the COVID-19 pandemic and the lifting of associated governmental regulations and restrictions on activity.



~~Rate changes.~~ MGE's PSCW-approved 2020 Fuel Cost Plan resulted in a fuel credit that decreased rates by 0.84% in 2020. Rates charged to retail customers during the three months ended September 30, 2021, were $1.1 million higher than those charged during the same period in the prior year as a result of the fuel credit from 2020 ending.



~~Fuel costs.~~ Fuel costs increased during the three months ended September 30, 2021, primarily as a result of higher costs to generate and purchase electricity in the market. Renewable owned resources have no generation costs and the delay in the commercial operation of Badger Hollow I solar farm has contributed to higher replacement energy costs for MGE.



~~Residential volume.~~ ~~During the three months ended September 30, 2021,~~2022, residential sales decreased by approximately 4% compared to the same period in the prior year. This decrease was driven by a shift in usage patterns reflecting a reduction in remote work associated with the ~~recovery from the~~ COVID-19 ~~pandemic and a return to traditional work environments.~~pandemic.

Electric fuel and purchased power


	Three Months Ended September 30,
(In millions)	2022		2021		$ Change
Fuel for electric generation	$	21.0	$	18.5	$	2.5
Purchased power		9.6		8.6		1.0

The $2.5 million increase in fuel for electric generation was due to an approximately 29% increase in the average cost offset by an approximately 12% decrease in internal generation. Coal transportation constraints resulted in reduced generation at Columbia, which required MGE to purchase power in the market at higher cost.

The $1.0 million increase in purchased power was due to an approximately 40% increase in market purchases as a result of lower internal generation.

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:

Revenues

Therms Delivered

(In thousands, except HDD and average rate

Three Months Ended September 30,

Three Months Ended September 30,

per therm of retail customer)

2021

2020

% Change

2021

2020

% Change

Residential

$
14,643

$
12,436

17.7
%

5,987

6,537

(8.4
)%
Commercial/Industrial

8,069

5,052

59.7
%

8,889

9,368

(5.1
)%
Total retail

22,712

17,488

29.9
%

14,876

15,905

(6.5
)%
Gas transportation

1,256

1,152

9.0
%

15,212

16,092

(5.5
)%
Other revenues

52

3

n.m.%

—

—

—
%
Total

$
24,020

$
18,643

28.8
%

$
30,088

$
31,997

(6.0
)%

Heating degree days (normal 148)

50

175

(71.4
)%
Average rate per therm of

retail customer

$
1.527

$
1.100

38.8
%


	Revenues					Therms Delivered
(In thousands, except HDD and average	Three Months Ended September 30,					Three Months Ended September 30,
rate per therm of retail customer)	2022		2021		% Change	2022	2021	% Change
Residential	$	17,167	$	14,643	17.2%	6,166	5,987	3.0%
Commercial/Industrial		11,490		8,069	42.4%	9,555	8,889	7.5%
Total retail		28,657		22,712	26.2%	15,721	14,876	5.7%
Gas transportation		1,588		1,256	26.4%	15,183	15,212	(0.2)%
Other		65		52	25.0%	—	—	—%
Total	$	30,310	$	24,020	26.2%	30,904	30,088	2.7%

Heating degree days (normal 134)						135	50	170.0%

Average rate per therm of retail customer	$	1.823	$	1.527	19.4%

~~n.m. not meaningful~~

Gas ~~margin, a non-GAAP measure,~~revenue increased ~~$0.4~~$6.3 million during the three months ended September 30, ~~2021,~~2022, compared to the same period in ~~2020,~~2021, due to the following:


(In millions)
Rate changes	$	0.4		$	3.9
Increase in volume					2.0
Other		0.2			0.4
Revenue subject to refund, net		(0.2	)
Total	$	0.4		$	6.3

•

Rate changes. In December ~~2020,~~2021, the PSCW authorized MGE to increase ~~2021~~2022 rates for retail gas customers by approximately ~~4.0%~~2.15%.

affect revenues but do not change net ~~income.~~income in view of the pass-through treatment of the costs. Payments for natural gas increased ~~due to the significant increase in natural gas costs seen throughout the central part of the country in February 2021 related to extreme weather conditions~~ driving higher rates during the three months ended September 30, ~~2021. MGE expects~~2022.

The average retail rate per therm for the three months ended 2022, increased approximately 19% compared to 2021, reflecting a $5.7 million increase in natural gas commodity costs ~~from February 2021 to be recovered by the end of 2021~~(recovered through the ~~PGA.~~PGA).

•

~~Revenue subject to refund.~~Volume. For ~~cost recovery mechanisms, any over-collection of revenues resulting from~~2022, retail gas deliveries increased approximately 6% compared to the ~~amount of costs authorized to be collected from customers in rates exceeding actual costs is recorded as a reduction of revenue~~same period in the ~~period incurred, as the over-collection is expected~~prior year primarily related to ~~be refunded to customers~~favorable weather conditions in ~~a subsequent period.~~September 2022.

Cost of gas sold

A $5.7 million increase in cost of gas sold driven by higher cost per therm of gas. Average cost per therm increased approximately 62%. MGE recovers the cost of natural gas in its gas segment through the PGA as described under gas deliveries and revenue above.

Consolidated operations and maintenance expenses

During the three months ended September 30, ~~2021,~~2022, operations and maintenance expenses increased ~~$2.7~~$0.7 million, compared to the same period in the prior year. The following contributed to the net change:


(In millions)
Increased customer accounts costs	$	0.5
Increased electric production expenses		0.4
Increased transmission costs		0.3
Decreased other expenses		(0.5	)
Total	$	0.7

Consolidated depreciation expense

(In millions)

Increased electric production expenses

$
1.5

Increased customer accounts costs

0.9

Increased administrative and general costs

0.5

Increased transmission costs

0.4

Increased customer services

0.3

Decreased electric distribution expenses

(0.6
)
Decreased gas distribution expenses

(0.3
)
Total

$
2.7



~~Increased~~Electric depreciation expense increased $1.7 million and gas depreciation expense increased $0.7 million during the three months ended September 30, 2022, compared to the same period in the prior year. MGE placed Badger Hollow I in service in November 2021. The timing of the in-service date contributed to the increase in electric ~~production expenses are related to increased maintenance costs for Saratoga and Two Creeks.~~



~~Increased customer accounts costs are related to increased costs associated with the~~depreciation expense. The new customer information system ~~which~~ went live in September ~~2021.~~

2021, which increased depreciation expense for both electric and gas in 2022.

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. During the three months ended September 30, ~~2021~~2022 and ~~2020,~~2021, net income at the nonregulated energy operations segment was ~~$5.4~~$5.6 million and ~~$5.3~~$5.4 million, respectively.

Transmission Investment Operations - MGE Energy

three months ended September 30, ~~2021~~2022 and ~~2020,~~2021, other income at the transmission investment segment primarily reflects ATC's operations and was ~~$2.5~~$1.5 million and ~~$2.4~~$2.5 million, respectively. In ~~May 2020,~~August 2022, the U.S. Court of Appeals for the D.C. Circuit vacated the underlying FERC ~~issued an opinion further refining the~~orders regarding methodology for setting ~~the ROE that electric utilities are~~ authorized ~~to earn, which adjusted ATC's ROE to 10.02%.~~return on equity resulting in an additional estimated possible loss. See Footnote 3 of the Notes to Consolidated Financial Statements in this Report and ~~"Other Matters"~~"Other Matters" below for additional information concerning ATC and summarized financial information regarding ATC.

Consolidated Income Taxes - MGE Energy and MGE

In ~~2021,~~2022, the effective electric tax rate ~~decreased~~increased as a result of the return of electric excess deferred taxes related to the 2017 Tax Act not governed by IRS normalization rules in 2021. These costs were recorded as a regulatory liability in the year of remeasurement. See Footnote 4 of the Notes to Consolidated Financial Statements in this Report for the effective tax rate reconciliation.

Noncontrolling Interest, Net of Tax - MGE

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. They are not owned by MGE. 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				Three Months Ended
	September 30,				September 30,
(In millions)	2021		2020		2022		2021
MGE Power Elm Road	$	3.8	$	3.7	$	3.8	$	3.8
MGE Power West Campus		1.8		1.8		1.8		1.8

Nine Months Ended September 30, ~~2021~~2022 and ~~2020~~2021

~~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:~~

Nine Months Ended September 30,

(In millions)

2021

2020

$ Change

Electric revenues

$
324.1

$
303.1

$
21.0

Fuel for electric generation

(42.6
)

(31.3
)

(11.3
)
Purchased power

(28.9
)

(32.0
)

3.1

Total Electric Margins

252.6

239.8

12.8

Gas revenues

119.9

98.6

21.3

Cost of gas sold

(57.7
)

(41.0
)

(16.7
)
Total Gas Margins

62.2

57.6

4.6

Other operating revenues

0.5

0.5

—

Other operations and maintenance

(144.6
)

(136.5
)

(8.1
)
Depreciation and amortization

(56.0
)

(55.2
)

(0.8
)
Other general taxes

(14.7
)

(14.9
)

0.2

Operating Income

$
100.0

$
91.3

$
8.7

~~Operating income during the nine months ended September 30, 2021, compared to the same period in the prior year primarily reflects the effects of the following factors:~~



~~Electric revenues and fuel costs~~

A $21.0 million increase in electric revenues primarily driven by an increase in electric retail sales due to warmer weather and economic recovery in MGE's service territory from the COVID-19 pandemic.

~~An $11.3 million increase in fuel for electric generation reflecting higher internal generation and market costs.~~

~~A $3.1 million decrease in purchased power costs driven by lower market purchases as a result of higher internal generation.~~



~~Gas revenues and cost of gas sold~~

A $21.3 million increase in gas revenue driven by higher customer demand resulting from colder weather in the first quarter of 2021 and higher rates reflecting a higher cost of gas, which is recovered on a pass-through basis in revenues.

A $16.7 million increase in cost of gas sold driven by higher cost per therm of gas. Average cost per therm increased approximately 37%. Payments for natural gas increased due to a significant increase in the price of natural gas throughout the central United States in February 2021. The increase in the price of natural gas is related to extreme weather conditions. MGE expects these costs to be recovered by the end of 2021 through our existing recovery mechanism (pass-through basis in customer rates). An increase in volume of approximately 3% also contributed to the increased cost.



~~An $8.1 million increase in other operations and maintenance. See consolidated operations and maintenance expenses section below for a description of the factors contributing to the increase.~~



~~A $0.8 million increase in depreciation and amortization expense.~~

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)					Revenues				Sales (kWh)
	Nine Months Ended September 30,					Nine Months Ended September 30,					Nine Months Ended September 30,				Nine Months Ended September 30,
(In thousands, except cooling degree days)	2021	2020	% Change		2021		2020	% Change
(In thousands, except CDD)											2022		2021	% Change	2022	2021	% Change
Residential	$117,229	$113,311	3.5	%	693,739		684,585	1.3	%	$	123,183	$	117,229	5.1%	679,308	693,739	(2.1)%
Commercial	161,270	152,844	5.5	%	1,352,091		1,308,511	3.3	%		177,877		161,270	10.3%	1,368,060	1,352,091	1.2%
Industrial	9,469	8,797	7.6	%	122,493		122,106	0.3	%		10,535		9,469	11.3%	120,827	122,493	(1.4)%
Other-retail/municipal	26,340	24,874	5.9	%	276,950		263,029	5.3	%		28,215		26,340	7.1%	276,843	276,950	—%
Total retail	314,308	299,826	4.8	%	2,445,273		2,378,231	2.8	%		339,810		314,308	8.1%	2,445,038	2,445,273	—%
Sales to the market	8,854	2,604	n.m.	%	201,902		92,539	n.m.	%		13,938		8,854	57.4%	121,848	201,902	(39.6)%
Other revenues	948	660	43.6	%	—		—	-	%		1,167		948	23.1%	—	—	—%
Total	$324,110	$303,090	6.9	%	2,647,175		2,470,770	7.1	%	$	354,915	$	324,110	9.5%	2,566,886	2,647,175	(3.0)%

Cooling degree days (normal 678)					820		732	12.0	%
Cooling degree days (normal 690)															784	820	(4.4)%

~~n.m. not meaningful~~

Electric ~~margin, a non-GAAP measure,~~revenue increased ~~$12.8~~$30.8 million during the nine months ended September 30, ~~2021,~~2022, compared to the same period in ~~2020,~~2021, due to the following:

(In millions)

Revenue subject to refund, net
$
7.3
Rate changes

3.2
Increase in commercial, industrial and other-retail/municipal volume

3.0
Increase in residential volume

1.0
Other

0.3
Customer fixed and demand charges

(1.5)
Increased fuel costs

(0.5)
Total
$
12.8


(In millions)
Rate changes	$	27.7
Sales to the market		5.1
Customer fixed and demand charges		2.2
Net increase in commercial, industrial and other-retail/municipal volume		0.7
Other		0.2
Revenue subject to refund, net		(3.2	)
Decrease in residential volume		(1.9	)
Total	$	30.8

•

See Footnote 9 of the Notes to Consolidated Financial Statements in this Report for further information on rate increase. Any increase in rates associated with fuel or purchase power costs are generally offset in fuel and purchased power costs and do not have a significant impact on net income.

•

Sales to the market. Sales to the market typically occur when MGE has more generation and purchases in the MISO market than are needed for its customer demand. The excess electricity is then sold to other utilities or power marketers in the MISO market. During the nine months ended September 30, 2022, sales were made at higher market prices and partially offset by decreased market volume compared to the same period in the prior year, reflecting a decrease in sales. The revenue generated from these sales is included in fuel rules monitored costs. See fuel rules discussion in Footnote 9 of the Notes to Consolidated Financial Statements.

•

Customer fixed and demand charges. During the nine months ended September 30, 2022, fixed and demand charges increased $2.2 million primarily attributable to the increase in demand charges for commercial customers.

•

Revenue subject to refund. For cost recovery mechanisms, any over-collection of revenues resulting from ~~the amount of~~ costs authorized to be collected from customers in rates exceeding actual costs is recorded as a reduction of revenue in the period incurred, as the over-collection is expected to be refunded to customers in a subsequent period. In the year the over-collection is refunded, rates are reduced and offset as revenue subject to refund. There is no ~~margin~~net income impact in the year the costs are refunded. ~~The largest driver is related to return of excess deferred taxes related to the 2017 Tax Act in 2021. See Footnote 5 for additional information.~~



~~Rate changes.~~ ~~MGE's PSCW-approved 2020 Fuel Cost Plan resulted in a fuel credit that decreased rates by 0.84% in 2020. Rates charged to retail customers during the nine months ended September 30, 2021, were~~

~~$3.2 million higher than those charged during the same period in the prior year as a result of the fuel credit from 2020 ending.~~



~~Commercial, industrial, and other-retail/municipal volume.~~ During the nine months ended September 30, 2021, there was an approximately 3% increase in commercial sales compared to the same period in the prior year. This increase was driven by economic recovery from the COVID-19 pandemic and the lifting of associated governmental regulations and restrictions on activity.

•

Residential volume. During thenine months ended September 30, ~~2021,~~2022, there was an approximately ~~1% increase in residential sales driven by favorable weather conditions in the first half of 2021. The weather impact was partially offset by a~~2% decrease in residential volume driven by a shift in usage patterns reflecting a reduction in remote work associated with the ~~recovery from~~COVID-19 pandemic.

Electric fuel and purchased power


	Nine Months Ended September 30,
(In millions)	2022		2021		$ Change
Fuel for electric generation	$	48.4	$	42.6	$	5.8
Purchased power		35.8		28.9		6.9

The $5.8 million increase in fuel for electric generation was due to an approximately 31% increase in the ~~COVID-19 pandemic and a return to traditional work environments, which has occurred throughout 2021.~~



~~Customer fixed and demand charges.~~ ~~During the nine months ended September 30, 2021, fixed and demand charges decreased $1.5 million primarily attributable to the~~average cost offset by an approximately 13% decrease in ~~demand charges~~internal generation. Coal transportation constraints resulted in reduced generation at Columbia, which required MGE to purchase power in the market at higher cost.

The $6.9 million increase in purchased power was due to an approximately 43% increase in market purchases as a result of lower internal generation.

Fuel and purchased power costs are generally offset by electric revenue and do not have a significant impact on net income. MGE expects to seek and receive recovery of fuel and purchased power costs outside the fuel rules bandwidth in customer rates. See Footnote 9 of the Notes to Consolidated Financial Statements in this Report for ~~commercial customers. The COVID-19 pandemic and associated governmental regulations and restrictions~~further information on ~~activity impacted commercial business operations leading to reduced sales.~~the fuel rules bandwidth.

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:


	Revenues							Therms Delivered								Revenues				Therms Delivered
(In thousands, except HDD and average rate per	Nine Months Ended September 30,							Nine Months Ended September 30,
therm of retail customer)	2021		2020		% Change			2021		2020		% Change
(In thousands, except HDD and average																Nine Months Ended September 30,				Nine Months Ended September 30,
rate per therm of retail customer)																2022		2021	% Change	2022	2021	% Change
Residential	$	72,286	$	61,328		17.9	%		68,791		68,394		0.6	%	$	97,498	$	72,286	34.9%	77,091	68,791	12.1%
Commercial/Industrial		42,972		32,961		30.4	%		64,179		62,582		2.6	%		66,913		42,972	55.7%	73,349	64,179	14.3%
Total retail		115,258		94,289		22.2	%		132,970		130,976		1.5	%		164,411		115,258	42.6%	150,440	132,970	13.1%
Gas transportation		4,589		4,179		9.8	%		55,150		55,002		0.3	%		4,804		4,589	4.7%	58,059	55,150	5.3%
Other revenues		97		100		(3.0	)%		—		—		—	%		90		97	(7.2)%	—	—	—%
Total	$	119,944	$	98,568		21.7	%		188,120		185,978		1.2	%	$	169,305	$	119,944	41.2%	208,499	188,120	10.8%

Heating degree days (normal 4,497)									4,404		4,315		2.1	%
Heating degree days (normal 4,479)																				4,723	4,404	7.2%

Average rate per therm of retail customer	$	0.867	$	0.720		20.4	%								$	1.093	$	0.867	26.1%

Gas ~~margin, a non-GAAP measure,~~revenue increased ~~$4.6~~$49.4 million during the nine months ended September 30, ~~2021,~~2022, compared to the same period in ~~2020,~~2021, due to the following:


(In millions)
Rate changes	$	4.0		$	38.2
Increase in volume					9.9
Other		0.7			1.3
Increase in volume		0.5
Revenue subject to refund, net		(0.6	)
Total	$	4.6		$	49.4

•

Rate changes. In December ~~2020,~~2021, the PSCW authorized MGE to increase ~~2021~~2022 rates for retail gas customers by ~~4.0%~~approximately 2.15%.

MGE recovers the cost of natural gas in its gas 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. Changes in PGA recoveries affect revenues but do not change net ~~income.~~income in view of the pass-through treatment of the costs. Payments for natural gas increased ~~due to the significant increase in natural gas costs seen throughout the central part of the country in February 2021 related to extreme weather conditions~~ driving higher rates during the nine months ended September 30, ~~2021. MGE expects~~2022.

The average retail rate per therm for the nine months ended 2022, increased approximately 26% compared to 2021, reflecting a $42.9 million increase in natural gas commodity costs ~~from February 2021 to be recovered by the end of 2021~~(recovered through the ~~PGA.~~PGA).

•

~~Revenue subject to refund.~~Volume. For ~~cost recovery mechanisms, any over-collection of~~2022, retail gas deliveries increased approximately 13% compared to the same period in the prior year primarily related to favorable weather conditions in the current year.

•

Other. Other revenues ~~resulting from the amount of costs authorized~~increased primarily related to ~~be collected from~~increase in gas customers in ~~rates exceeding actual costs is~~2022 increasing revenue recorded ~~as a reduction of revenue~~for fixed customer charge compared to the same period in the ~~period incurred, as the over-collection is expected to be refunded to customers in a subsequent period.~~prior year.

Cost of gas sold

The $42.9 million increase in cost of gas sold was driven by higher cost per therm of gas. Average cost per therm increased approximately 56%. An increase in volume of approximately 12% also contributed to the increase in cost.MGE recovers the cost of natural gas in its gas segment through the PGA as described under gas deliveries and revenue above.

Consolidated operations and maintenance expenses

During the nine months ended September 30, ~~2021,~~2022, operations and maintenance expenses increased ~~$8.1~~$6.1 million, compared to the same period in the prior year. The following contributed to the net change:

(In millions)

Increased electric production expenses

$
5.9

Increased transmission costs

3.1

Increased customer accounts costs

1.1

Increased customer services

0.7

Decreased administrative and general costs

(1.0
)
Decreased electric distribution expenses

(1.0
)
Decreased gas distribution expenses

(0.6
)
Decreased other expenses

(0.1
)
Total

$
8.1


(In millions)
Increased administrative and general costs	$	4.2
Increased customer accounts costs		2.6
Increased electric distribution expenses		0.5
Increased other expenses		0.5
Decreased electric production expenses		(1.3	)
Decreased customer services		(0.4	)
Total	$	6.1

•

Increased ~~electric production expenses~~administration and general costs are primarily related to ~~increased maintenance costs for Saratoga, Two Creeks,~~increase in pension and Columbia. The 2021 scheduled maintenance outage for Columbia was completed in the spring. The outage for 2020 was rescheduled for the fall of 2020. Also contributing to the increase is $2.6 million additional expense recorded for Columbia inventory obsolescence and employee severance reserves. MGE anticipates requesting PSCW approval for regulatory recovery of these costs at a future date.OPEB service costs.



Increased transmission costs are related to higher transmission rates in 2021 compared to rates in 2020. The 2020 transmission rates reflect adjustments from a lower return on equity, ordered in FERC proceedings, for prior year rates.

•

Increased customer accounts costs are related to increased ~~operation~~ costs associated with the new customer information system, which went live in September 2021.



~~Decreased administrative and general costs are primarily related to timing of the collection of deferred pension and other postretirement service costs in customer rates.~~

•

Decreased electric ~~distribution~~production expenses are primarily related to lower Columbia costs. A $2.6 million additional expense was recorded in 2021 for Columbia inventory obsolescence and employee severance reserves associated with the Columbia retirement. MGE expects to request PSCW approval for regulatory recovery of these costs at a future date. The decrease in ~~locating services.~~costs is offset by increased maintenance costs for Blount, Saratoga, Two Creeks, and Badger Hollow I.

Consolidated depreciation expense

Electric depreciation expense increased $5.7 million and gas depreciation expense increased $2.2 million during the nine months ended September 30, 2022, compared to the same period in the prior year. MGE placed Badger Hollow I in service in November 2021. The timing of the in-service date contributed to the increase in electric depreciation expense. The new customer information system went live in September 2021, which increased depreciation expense for both electric and gas in 2022.

Electric and gas other income

Electric other income increased $2.3 million and gas other income ~~decreased $1.6~~increased $3.7 million ~~and $3.0 million, respectively,~~ during the nine months ended September 30, ~~2021,~~2022, compared to the same period in the prior year, primarily related to the collection in 2021 of the deferred pension and other postretirement other than service costs from 2019.

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. During the nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, net income at the nonregulated energy operations segment was ~~$15.9~~$16.5 million and ~~$15.5~~$15.9 million, respectively.

Transmission Investment Operations - MGE Energy

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 to pursue transmission development opportunities ~~which~~that typically have long development and investment lead times before becoming operational. ATC Holdco's transmission development activities have been suspended for the near term. During the nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, other income at the transmission investment segment primarily reflects ATC's operations and was ~~$7.4~~$6.6 million and ~~$7.8~~$7.4 million, respectively. In ~~May 2020,~~August 2022, the U.S. Court of Appeals for the D.C. Circuit vacated the underlying FERC ~~issued an opinion further refining the~~orders regarding methodology for setting ~~the ROE that electric utilities are~~ authorized ~~to earn, which adjusted ATC's ROE to 10.02%.~~return on equity resulting in an additional estimated possible loss. See Footnote 3 of the Notes to Consolidated Financial Statements in this Report and ~~"Other Matters"~~"Other Matters" below for additional information concerning ATC and summarized financial information regarding ATC.

4441

Consolidated Income Taxes - MGE Energy and MGE

Noncontrolling Interest, Net of Tax - MGE

~~The noncontrolling~~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~~Campus. They are not owned by MGE. 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				Nine Months Ended
	September 30,				September 30,
(In millions)	2021		2020		2022		2021
MGE Power Elm Road	$	11.4	$	11.4	$	10.5	$	11.4
MGE Power West Campus		5.4		5.4		5.4		5.4

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, ~~2021,~~2022, except as noted below. Further discussion of the contractual obligations and commercial commitments is included in Footnote 16 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 the ~~2020~~2021 Annual Report on Form ~~10-K.~~10-K.

Purchase Contracts – MGE Energy and MGE

See ~~item c. within~~ Footnote 88.c. of Notes to Consolidated Financial Statements in this Report for a description of commitments as of September 30, ~~2021,~~2022, 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.

Long-term Debt -– MGE Energy and MGE

In ~~May 2021,~~November 2022, MGE entered into a private placement Note Purchase Agreement in which it committed to issue ~~$60~~$75 million of new long-term ~~debt (Series A), carrying an interest rate~~debt. See Footnote 6.c. of 2.48% per annum over its 10-year life, and $40 million of new long-term debt (Series B), carrying an interest rate of 2.63% per annum over its 12-year life. Funding occurred on June 15, 2021, for Series B and August 27, 2021, for Series A. See Footnote 6 of the Notes to Consolidated Financial Statements in this Report for further ~~discussion of these~~information on long-term debt ~~issuances.~~issuance.

Liquidity and Capital Resources

~~Subject to the duration and severity of the COVID-19 pandemic,~~ MGE Energy and MGE expect to have adequate liquidity to support future operations and capital expenditures over the next twelve months. Available resources include cash and cash equivalents, operating cash flows, liquid assets, borrowing working capacity under revolving credit facilities, and access to equity and debt capital markets. MGE Energy expects to generate funds from operations and both long-term ~~debt financing,~~and short-term debt ~~financing, and if needed, could issue new shares through our Direct Stock Purchase and Dividend Reinvestment Plan.~~financing. 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 the ~~2020~~2021 Annual Report on Form 10-K ~~and "Liquidity" under "COVID-19 Update" above~~ 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, ~~2021~~2022 and ~~2020:~~2021:


	MGE Energy						MGE						MGE Energy				MGE
(In thousands)	2021			2020			2021			2020			2022		2021		2022		2021
Cash provided by (used for):
Operating activities	$	141,297		$	136,011		$	135,451		$	131,871		$	144,282	$	141,297	$	141,786	$	135,451
Investing activities		(118,347	)		(144,360	)		(115,591	)		(140,567	)		(137,219)		(118,347)		(134,089)		(115,591)
Financing activities		1,656			36,627			31,930			9,372			(12,663)		1,656		(8,400)		31,930

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 during the nine months ended September 30, ~~2021,~~2022, was ~~$141.3~~$144.3 million, an increase of ~~$5.3~~$3.0 million when compared to the same period in the prior year.

MGE Energy's net income ~~increased $16.1~~decreased $2.8 million during the nine months ended September 30, ~~2021,~~2022, when compared to the same period in the prior year.

MGE Energy's federal and state taxes paid decreased ~~$2.1~~$3.0 million during the nine months ended September 30, ~~2021~~2022, when compared to the ~~same period in the~~ prior ~~year~~.year.

Working capital accounts (excluding prepaid and accrued taxes) resulted in $17.7 million in cash used for operating activities during the nine months ended September 30, 2022. Working capital accounts were impacted by increased gas inventory driven by the increase in cost of gas and decreased other current liabilities, partially offset by decreased unbilled revenues.

Working capital accounts (excluding prepaid and accrued taxes) resulted in $9.1 million in cash used for operating activities during the nine months ended September 30, 2021. Actual ~~purchase~~purchased gas costs were $6.3 million higher than the amount collected in rates primarily due to the extreme cold weather experienced in the U.S. in February 2021. These costs were deferred as a regulatory asset and ~~will be~~ recovered ~~in a future period.~~throughout 2021. In addition, working capital accounts were impacted by increased accounts receivable and increased inventories, partially offset by increased other current liabilities, decreased unbilled revenues, and increased accounts payable.

Hosted software asset expenditures during the nine months ended September 30, 2022, were $0.5 million. This amount represents a decrease of $2.5 million of cash used when compared to the prior year.

MGE

Cash provided by operating activities during the nine months ended September 30, 2022, was $141.8 million, an increase of $6.3 million when compared to the same period in the prior year.

Net income decreased $3.0 million during the nine months ended September 30, 2022, when compared to the same period in the prior year.

MGE's federal and state taxes paid decreased $4.2 million during the nine months ended September 30, 2022, when compared to the prior year.

Working capital accounts (excluding prepaid and accrued taxes) resulted in ~~$8.3~~$15.3 million in cash used for operating activities during the nine months ended September 30, ~~2020, primarily due to~~2022. Working capital accounts were impacted by increased gas inventory driven by the increase in cost of gas and decreased ~~other~~ current liabilities, ~~increased inventories, and increased accounts receivable,~~ partially offset by decreased unbilled ~~revenues and increased accounts payable.~~revenues.

~~Hosted software asset expenditures during the nine months ended September 30, 2021, were $3.0 million. This amount represents an increase of $1.5 million of cash used when compared to the prior year.~~

~~MGE~~

~~Cash provided by operating activities during the nine months ended September 30, 2021, was $135.5 million, an increase of $3.6 million when compared to the same period in the prior year.~~

~~Net income increased $16.3 million during the nine months ended September 30, 2021, when compared to the same period in the prior year.~~

~~MGE's federal and state taxes paid decreased $1.2 million during the~~ ~~nine months ended September 30, 2021 when compared to the same period in the prior year~~.

2021. These costs were deferred as a regulatory asset and ~~will be~~ recovered ~~in a future period.~~throughout 2021. In addition, working capital accounts were impacted by increased accounts receivable and increased inventories, partially offset by increased other current liabilities, decreased unbilled revenues, and increased accounts payable.

Working capital accounts (excluding prepaid and accrued taxes) resulted in $6.1 million in cash used for operating activities during the nine months ended September 30, 2020, primarily due to decreased other current liabilities, increased inventories, and increased accounts receivable, partially offset by decreased unbilled revenues and increased accounts payable.

Hosted software asset expenditures during the nine months ended September 30, ~~2021,~~2022, were ~~$3.0~~$0.5 million. This amount represents ~~an increase~~a decrease of ~~$1.5~~$2.5 million of cash used when compared to the prior year.

Capital Requirements and Investing Activities

MGE Energy

MGE Energy's cash used for investing activities ~~decreased $26.0~~increased $18.9 million during the nine months ended September 30, ~~2021,~~2022, when compared to the same period in the prior year.

Capital expenditures during the nine months ended September 30, ~~2021,~~2022, were ~~$114.1~~$133.4 million. This amount represents ~~a decrease~~an increase of ~~$24.9~~$19.3 million from the expenditures made in the same period in the prior year. This ~~decrease~~increase primarily reflects the ~~reduction~~increase of expenditures ~~on the construction of~~for Badger Hollow ~~I due to timing of expenditures.~~II and Paris.

Proceeds from the sale of investments ~~increased $1.1~~decreased $0.8 million during the nine months ended September 30, ~~2021,~~2022, when compared to the same period in the prior year.

MGE

MGE's cash used for investing activities ~~decreased $25.0~~increased $18.5 million during the nine months ended September 30, ~~2021,~~2022, when compared to the same period in the prior year.

II and Paris.

Capital ~~expenditures~~Expenditures

The following table shows MGE Energy's ~~actual capital expenditures for both 2020 and 2019, and~~ forecasted capital expenditures for ~~2021~~2022 through ~~2024:~~2025:


	Actual				Forecasted								Forecasted
(In thousands)	2019		2020		2021		2022		2023		2024		2022(a)		2023		2024		2025
Electric	$	125,086	$	162,210	$	133,700	$	164,400	$	174,100	$	162,400	$	138,200	$	181,000	$	185,100	$	174,400
Gas		36,193		36,906		33,700		33,600		28,300		29,900		25,300		26,200		25,600		23,200
Utility plant total		161,279		199,116		167,400		198,000		202,400		192,300		163,500		207,200		210,700		197,600
Nonregulated		2,757		4,023		4,100		5,300		8,100		6,800		7,700		7,900		7,800		6,100
MGE Energy total	$	164,036	$	203,139	$	171,500	$	203,300	$	210,500	$	199,100	$	171,200	$	215,100	$	218,500	$	203,700

(a)

Includes actual capital expenditures already incurred in 2022 and estimated capital expenditures for the remainder of the year.

MGE's Energy 2030 framework details our plan for growth in generation for renewables. This growth is expected to continue as legacy fossil fuel-fired facilities are retired and replaced with renewables, such as wind and solar assets, and battery storage solutions are developed and implemented. Beyond 2030, MGE is targeting net-zero carbon electricity by 2050. These solar, wind, and battery storage projects are a major step toward deep decarbonization and greater use of clean energy sources in pursuit of our goal. MGE is seeking to address new generation needs through additional investments in renewable generation. MGE continues to evaluate solar, wind, and battery storage projects that align with its goals.

Forecasted capital expenditures are based upon management's assumptions with respect to future events, including the timing and amount of expenditures associated with environmental compliance initiatives, legislative and regulatory action, supply chain and market disruptions, customer demand and support for electrification and renewable energy resources, energy conservation programs, load growth, the timing of any required regulatory approvals, and the adequacy of rate recovery. Actual events may differ materially from these assumptions and result in material changes to those forecasted amounts.

~~Internal~~MGE is targeting at least 80% carbon reduction from electric generation by 2030 (from 2005 levels) and net-zero carbon electricity by 2050. Solar, wind, and battery storage projects are a major step toward deep decarbonization and greater use ~~software incurred~~of clean energy sources in a hosting arrangement and preliminary construction costs related to renewable generation assets pending regulatory approvals are accounted for as an operating cash flow in accordance with applicable accounting policies. These costs are therefore excluded from the table above. For ratemaking purposes, they are included in forecasted utility capital expenditures. These costs are forecasted to be $5 million, $3 million, and $1 million for 2021, 2022, and 2023, respectively.

~~Generation Projects for Replacement~~pursuit of ~~Columbia: In February 2021, MGE, along with its co-owners, announced plans to retire Columbia Unit 1 by the end of 2023 and Unit 2 by the end of 2024.~~our goal. MGE continues to evaluate ~~additional investments to replace the generation from~~solar, wind, and battery

storage projects that align with its goals as legacy fossil fuel-fired facilities are retired. The target early retirement date for Columbia ~~while maintaining electric service reliability. These investments include cost-effective, clean energy projects to help achieve MGE's carbon reduction goals. Approximately $200 million~~is June 2026. MGE has ~~been~~ included in forecasted capital expenditures for the years ~~2021~~2022 through ~~2024~~2025 for projects to replace Columbia's ~~generation,~~generation. Additional replacement capital expenditures are expected to continue beyond ~~2024.~~2025.

Our forecasted capital expenditures reflect the following significant renewable projects that are proposed or currently under construction:


Project	Source	Ownership Interest	Share of Generation/ Battery Storage	Share of Estimated Costs(c)	Estimated Date of Commercial Operation
Red Barn(a)	Wind	10%	9.16MW	$18 million(e)	Early 2023
Badger Hollow II(a)	Solar	33%	50 MW	$76 million(d)(e)	First Half of 2023
Paris(a)	Solar/Battery	10%	31 MW	$51 million(d)(e)	2023(f)
Darien(b)	Solar/Battery	10%	25MW/7.5MW	$45 million(d)	2024(f)
Koshkonong(b)	Solar/Battery	10%	30MW/16.5MW	$65 million(d)	2025(f)

(a)

Approved by the PSCW.

(b)

Pending approval by the PSCW. There is no certainty that this project will be approved by the PSCW.

(c)

Excluding AFUDC.

(d)

Requested, in the case of projects pending PSCW approval, or received, in the case of Badger Hollow II and Paris, approval to recover 100% AFUDC.

(e)

See Footnote 12 of Notes to Consolidated Financial Statements in the Report for information on costs incurred.

(f)

Battery storage timing to be determined.

In 2022, MGE notified the PSCW of increases in projected costs at Badger Hollow II and Paris. The main drivers were increases in the costs of key commodities, labor, and solar modules resulting from supply chain and market disruptions. See Footnote 12 of Notes to Consolidated Financial Statements in this Report for more information on these projects. Furthermore, solar procurement disruptions have also shifted construction timelines for Darien and Koshkonong. Projected completion dates of these projects are one year later than originally anticipated. MGE continues to assess the potential impact of these disruptions on current and future solar projects which may result in an increase in costs or delays in construction timelines. See further information on procurement disruptions discussed earlier under "Executive Overview."

West 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 constructed by WPL at its West Riverside Energy Center in Beloit, Wisconsin, during the five-year period following the in-service date of the plant. The plant was placed in service in May 2020. In January 2022, MGE, along with joint applicants, filed an application with the PSCW requesting approval for a sale and purchase of ownership interests in West Riverside. If approved, MGE's share of West Riverside will be 25 MW at a purchase price of approximately $25 million. The closing and actual transfer of ownership is expected to occur in March 2023. MGE also retains the option to purchase an additional 25 MW of capacity from West Riverside until May 2025. MGE currently expects to exercise this option in a future period.

Electric and Gas Distribution: In 2022 through 2025, electric and gas capital expenditures include investment in enhanced metering solutions to provide customers with more timely and detailed energy use information. Investments in advanced metering infrastructure will provide additional benefits including outage and demand response and automated meter reading capabilities. Forecasted capital expenditures in those years is approximately $24 million.

Cash Used for/Provided by Financing Activities

MGE Energy

Cash ~~provided by~~used for MGE Energy's financing activities was ~~$1.7~~$12.7 million during the nine months ended September 30, ~~2021,~~2022, compared to ~~$36.6~~cash proceeds of $1.7 million for the same period in the prior year.

During the nine months ended September 30, ~~2021,~~2022, dividends paid were ~~$40.8~~$42.8 million compared to ~~$38.3~~$40.8 million in the prior year. The increase reflected a higher dividend rate per share ($~~1.128~~1.183 vs. ~~$1.075) and a greater number of outstanding shares since the completion of the public offering of shares in May 2020.~~$1.128).

During the nine months ended September 30, 2020, MGE Energy issued common stock for net proceeds of $79.6 million, which are being used for general corporate purposes including funding capital expenditures at MGE, such as Two Creeks, Badger Hollow I and II, Renewable Energy Rider solar projects, and other capital projects.45

During the nine months ended September 30, 2021, MGE borrowed $100.0 million of senior unsecured notes which was used to assist with financing additional capital expenditures and other corporate obligations. During the nine months ended September 30, 2020, MGE borrowed $19.3 million through the issuance of Industrial Development Revenue Refunding Bonds which was used to refinance $19.3 million of existing Industrial Development Revenue Refunding Bonds at a lower interest rate.

~~During the nine months ended September 30, 2021, net short-term debt repayments were $52.5 million.~~ There were no ~~net short-term~~long-term debt borrowings during the nine months ended September 30, ~~2020.~~2022.

~~MGE~~

During the nine months ended September 30, ~~2021,~~2022, net short-term debt borrowings were $34.5 million, compared to $52.5 million of repayments in the same period in the prior year.

MGE

During the nine months ended September 30, 2022, cash ~~provided by~~used for MGE's financing activities was ~~$31.9~~$8.4 million, compared to ~~$9.4~~cash proceeds of $31.9 million for the same period in the prior year.

~~Capital contributions made by MGE Energy~~Cash dividends to ~~MGE~~parent (MGE Energy) were ~~$30.0~~$21.0 million during the nine months ended September 30, ~~2020.~~2022. There were no ~~capital contributions made by MGE Energy~~cash dividends to ~~MGE during~~parent in the ~~nine months ended September 30, 2021.~~same period in the prior year.

Distributions to parent from noncontrolling interest, which represent distributions from MGE Power Elm Road and MGE Power West Campus to MGE Energy, were ~~$10.5~~$17.5 million during the nine months ended September 30, ~~2021,~~2022, compared to ~~$16.0~~$10.5 million in the same period in the prior year.

During the nine months ended September 30, 2022, net short-term debt borrowings were $34.5 million, compared to $52.5 million of repayments in the same period in the prior year.

Capitalization Ratios

MGE Energy's capitalization ratios were as follows:


	MGE Energy		MGE Energy
	September 30, 2021	December 31, 2020	September 30, 2022	December 31, 2021
Common shareholders' equity	62.4%	62.9%	62.1%	62.2%
Long-term debt(a)	37.6%	33.7%	35.6%	37.5%
Short-term debt	0.0%	3.4%	2.3%	0.3%

(a)

Includes the current portion of long-term debt.

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~~borrowing is subject to default or prepayment as a result of a downgrading of credit ratings, although a downgrading of MGE's credit ratings ~~could~~would 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~~See the ~~nine months ended September 30, 2021. Further~~ discussion of environmental matters is included in the ~~2020~~2021 Annual Report on Form 10-K ~~and~~ , as updated by Footnote 8.a. of Notes to Consolidated Financial Statements in this Report.

~~Ozone National Ambient Air Quality Standards (NAAQS)~~46

In May 2021, the EPA published a final rule that expands several nonattainment areas in Wisconsin to include all of Milwaukee County where MGE's Elm Road Units are located. The WDNR will need to develop a State Implementation Plan (SIP) for the area, which will likely result in more stringent requirements for both new development and existing plants in the area. MGE will monitor the WDNR's SIP development and the extent to which the requirements will impact the Elm Road Units. At this time, MGE does not expect that the 2015 Ozone NAAQS will have a material effect on its existing plants based on final designations.

Other Matters

Rate Matters

In ~~September~~December 2021, ~~MGE filed with~~ the PSCW approved a ~~proposed~~ settlement agreement for ~~its pending~~MGE's 2022 rate case. The settlement agreement ~~proposes a 5.16%~~provides for an 8.81% increase to electric rates and a 2.15% increase to gas rates for 2022. The proposed electric and gas rate increases are driven by an increase in rate base including our investments in Badger Hollow I and a new customer information system. Also driving the requested electric increase is the completion in 2021 of the one-time return of the electric excess deferred tax credit related to the 2017 Tax Act not restricted by IRS normalization rules. Included in the proposed electric residential rate is a reduction in the customer charge. As part of ~~the~~that settlement agreement, ~~for 2023, MGE is proposing~~the PSCW approved a 0.96% increase in 2023 gas rates

and ~~to address~~ a potential 2023 electric rate change to be addressed through a limited rate case ~~re-opener. PSCW approval of the settlement agreement is pending. A final order is expected before the end of the year.~~

reopener.

In April 2022, MGE filed with the PSCW a limited rate reopener proposing a 4.38% increase to electric rates for 2023.

Details related to MGE's 2022/2023 ~~proposed~~approved settlement ~~agreement:~~agreement and pending electric limited reopener:


(Dollars in thousands)	Proposed Average Rate Base(a)		Proposed Average CWIP(b)		Proposed Return on Common Equity(c)			Proposed Common Equity Component of Regulatory Capital Structure			Authorized Average Rate Base(a)		Authorized Average CWIP(b)		Authorized Return on Common Equity(c)	Common Equity Component of Regulatory Capital Structure	Effective Date
Electric (2022 Test Period)		1,044,362		19,976		9.8	%		55.63	%	$	1,044,362	$	19,976	9.8%	55.63%	1/1/2022
Gas (2022 Test Period)		299,319		11,410		9.8	%		55.63	%	$	299,319	$	11,410	9.8%	55.63%	1/1/2022
Electric (2023 Test Period)(d)											$	1,159,155	$	19,976	9.8%	55.63%	1/1/2023
Gas (2023 Test Period)											$	312,270	$	8,228	9.8%	55.63%	1/1/2023

(a)

Average rate base amounts reflect MGE's allocated share of rate base and do not include construction work in progress (CWIP) or a cash working capital allowance and were calculated using a forecasted 13-month average for the test periods. The PSCW provides a return on selected CWIP and a cash working capital allowance by adjusting the percentage return on rate base.

(b)

50% of the forecasted 13-month average CWIP for the test periods which earns an AFUDC return. Projects eligible to earn 100% AFUDC are excluded from this balance and discussed further in the Management Discussion and Analysis of Financial Condition and Results of Operations - Executive Overview section.

(c)

Authorized returns on common equity may not be indicative of actual returns earned or projections of future returns, as actual returns will be affected by the volume of electricity or gas sold.

(d)

Pending approval by the PSCW.

See Footnote 9 of Notes to Consolidated Financial Statements in this Report for further discussion of rate proceedings.

Proposed electric (2023 Test Period) average rate base will be subject to a limited reopener expected to be filed in 2022 and proposed gas (2023 Test Period) average rate base is $312.3 million. MGE has proposed to maintain 2022 levels for return on common stock equity and capital structure for electric and gas rates in 2023.

ATC

~~2013 FERC Complaint -~~ ~~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. The~~ATC, are involved in two complaints filed at FERC by several parties challenging that the base ROE in effect for MISO transmission owners, including ATC, was no longer just and reasonable. Each complaint provided for a 15-month statutory refund ~~period of~~period: November 12, 2013 through February ~~2015. The complaint asserted that the MISO ROE should not exceed 9.15%, that the equity components of hypothetical capital structures should be restricted to 50%,~~11, 2015 (the "First Complaint Period") and ~~that 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,~~February 12, 2015 through May 11, 2016 ~~FERC issued an order, for the period November 2013 through February 2015, reducing ATC's base ROE to 10.32%~~(the "Second Complaint Period"). ~~In November 2019, FERC issued an order to further reduce ATC's base ROE to 9.88%.~~

In May 2020, ~~the~~ FERC issued an order further refining the methodology for setting ~~the ROE that electric utilities are~~ authorized ~~to earn.~~ROE. This refined methodology increased the authorized ROE from 9.88% to 10.02%. This base ROE is effective for the ~~2013 FERC complaint period~~First Complaint Period and for all periods following September 2016. This order also dismissed the second complaint. Accordingly, no refunds were ordered for the Second Complaint Period.

~~2015 FERC Complaint -~~ In February 2015, several parties filed a complaint with the FERC seeking to reduce the base ROE used by MISO transmission owners, including ATC, to 8.67%. The complaint provided for a statutory refund period of February 2015 through May 2016 with a refund effective date retroactive to the complaint filing date. In June 2016, an administrative law judge issued an initial decision for the complaint that would reduce the transmission owner's base ROE to 9.7%. In November 2019, FERC issued an order dismissing the complaint with the determination that the ROE was reasonable. As a result of this order and the methodology FERC used to determine the applicable ROE in the 2013 FERC complaint, several parties have requested a rehearing by FERC. If FERC denies these requests, the complainants are likely to file an appeal with the appellate court. Any downward change to ATC's ROE could result in lower equity earnings and distributions from ATC in the future.

As of December 31, 2018, our share of the estimated refund recorded was $2.5 million, including interest. Following the November 2019 FERC order, our share of ATC's earnings reflects a pre-tax adjustment of $2.0 million, including interest, related to the 2013 complaint refund period and from September 28, 2016 through December 31, 2019. As a result of the May 2020 FERC order, our share of ATC's earnings ~~reflects~~reflected a $0.6 million reduction of our reserve. Additionally, our share of ATC's earnings ~~reflects~~reflected the derecognition of a possible refund related to the ~~2015 complaint~~Second Complaint Period as ATC ~~considers~~considered such a refund to be no longer ~~considered probable due to FERC's November 2019 dismissal of that complaint.~~probable. However, due to pending requests for rehearing, a loss related to the 2015 complaint remains possible. Our share of the estimated refund for the ~~2015 complaint~~Second Complaint Period is approximately $2.3 million. MGE has not recorded a possible loss for the Second Complaint Period.

Several petitions for review of FERC’s prior orders were filed with the U.S. Court of Appeals for the D.C. Circuit (the "Court") and an oral argument was held in November 2021. In August 2022, the Court ruled that four of the five

~~million. As of December 31, 2020,~~arguments made by the complaining parties were unpersuasive. However, the Court agreed that FERC’s decision to reintroduce a risk-premium model into its ROE methodology was arbitrary and capricious. The Court vacated the underlying orders for the First Complaint Period and remanded to FERC for further proceedings. In September 2022, our share of ~~the estimated refund amount reflected a net increase in~~ ATC's earnings ~~with a pre-tax adjustment~~reflected an estimated possible loss of ~~$0.6~~approximately $0.8 million, inclusive of ~~interest.~~interest and net of tax, for a possible additional refund for the First Complaint Period and for the period following the Second Complaint Period. Although the Court agreed that FERC was correct to use the base ROE established in the first complaint to adjudicate the second, and that FERC was right to dismiss the second complaint, the second complaint was also remanded for FERC to reopen proceedings. Any reduction in ATC's ROE could result in lower equity earnings and distributions from ATC in the future.

We derived approximately ~~5.7%~~5.1% and ~~7.3%~~5.7% of our net income during the nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively, from our investment in ATC.

Inflation Reduction Act

In August 2022, the Inflation Reduction Act (IRA) was signed into law. Among other provisions, the IRA: extends current PTC and ITC for renewable technologies (e.g., wind and solar); restores full value of the PTC and ITC for qualifying facilities placed into service after 2021 that satisfy prevailing wage and apprenticeship requirements; creates a PTC for solar, clean hydrogen and nuclear; establishes an ITC for energy storage, microgrids, and interconnection facilities; and allows companies to monetize or sell credits to unrelated parties. In addition, the IRA created a new corporate alternative minimum tax (AMT). MGE Energy does not expect to be subject to the AMT in the near term. Implementation of IRA provisions is subject to the issuance of additional guidance by the U.S. Treasury Department. While the final impact cannot be determined at this time, the IRA is not expected to have a material impact on MGE Energy and MGE for the year ending December 31, 2022.

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~~There were no material changes 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 reduce the market risks ~~associated with changing commodity prices. MGE's commodity risks are substantially mitigated by the current ratemaking process~~disclosed in ~~place for recovering electric fuel cost, purchased energy costs,~~Item 7A. Quantitative and ~~the cost of natural gas.~~Qualitative Disclosures About Market Risk in our 2021 Annual Report on Form 10-K, except as noted below.

The recovery of MGE's electric fuel costs is subject to fuel rules established by the PSCW. Fuel rules require Wisconsin utilities to defer electric fuel-related costs that fall outside a symmetrical cost tolerance band. Any over or under recovery of the actual costs is determined in the following year and is then reflected in future billings to electric retail customers. Under the electric fuel rules, MGE would 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. Beginning in 2021, MGE is subject to a plus or minus 1% range. Prior to 2021, the range was set at 2%. MGE assumes the risks and benefits of variances that are within the cost tolerance band. For 2021, $64.1 million in fuel and purchased power costs will be recovered in rates and are subject to this rule and included in MGE's fuel monitoring level rates. See Footnote 9 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. If the commodity costs of gas exceed a monthly benchmark amount, the excess amount is subject to a prudence review and approval by the PSCW before it can be passed through to customers.

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, 2021, the fair value of exchange traded derivatives and FTRs exceeded their cost basis by $13.8 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 or benefits are recoverable, the related unrealized loss or gain has been deferred on the consolidated balance sheets as a regulatory asset or liability, respectively.~~

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, 2021, reflected a loss position of $0.2 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 our 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 third-party investment managers. Changes in the market value of these investments can have an impact on the future expenses related to these liabilities. The value of employee benefit plan assets has ~~increased~~declined by approximately ~~9.5%~~23% during the nine months ended September 30, ~~2021.~~2022.

~~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 credit risk, which include an established credit approval process, counterparty limits, 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 could include: the loss in value of mark-to-market contracts, the amount owed for settled transactions, and additional payments to settle unrealized losses. As of September 30, 2021, no counterparties had defaulted.

MGE is obligated to provide service to all electric and gas customers within its 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, 2020, 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.

Item 4. Controls and Procedures.

During the third quarter of ~~2021,~~2022, 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. The evaluations take into account changes in the internal and external operating environments that may impact those controls and procedures. 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, ~~2021,~~2022, 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.

InDuring the quarter ended September ~~of 2021, the registrants implemented a new customer information and billing system~~30, 2022, there were no changes in either registrant's internal controls over financial reporting that materially affected, ~~the registrants'~~or are reasonably likely to affect materially, that registrant's internal control over financial reporting. The implementation involved replacing multiple legacy systems which house all customer records and process metering, billing and payment transactions. We have made changes to our internal controls over financial reporting during the implementation of the new system and will continue to evaluate the operating effectiveness of related controls during subsequent periods.

5349

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 8.a. and 8.b. of Notes to Consolidated Financial Statements in this Report for more information.

Item 1A Risk Factors.

There were no material changes from the risk factors disclosed in Item 1A. Risk Factors in our 2021 Annual Report on Form 10-K.

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, 2021

9,437

$

75.74

—

—
August 1-31, 2021

6,945

80.47

—

—
September 1-30, 2021

38,526

78.40

—

—
Total

54,908

$

78.20

—

—

~~(a)~~

Under the MGE Energy, Inc. Direct Stock Purchase and Dividend Reinvestment Plan (Stock Plan), common stock shares ~~deliverable to~~purchased by plan participants may be either ~~newly~~shares issued ~~shares~~by MGE Energy or shares purchased on the open market, as determined from time to time by MGE Energy. ~~During 2021,~~Shares issued by MGE ~~Energy's~~Energy are covered by an existing registration statement. Shares purchased in the open market are purchased at the direction of the plan participants by MGE Energy's transfer agent ~~used~~'s securities broker-dealer for the accounts of those plan participants. Subject to the plan's restrictions, the timing and amount of open market purchases ~~to provide shares to meet obligations to~~is determined by the plan participants inand the ~~Stock Plan. The shares are purchased on~~broker-dealer. MGE Energy is not involved in the open market ~~through the transfer agent's securities broker-dealer and then are reissued~~purchases. During 2022, shares purchased under the Stock Plan ~~as needed to meet share delivery requirements. The volume and timing of share repurchases~~have been purchased 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 open market purchases, are sold pursuant to a registration statement that was filed with the SEC and is currently effective.

market.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable to MGE Energy and MGE.

Item 5. Other Information.

Expected Issuance of Notes

~~None.~~

On November 1, 2022, MGE entered into a private placement Note Purchase Agreement in which it committed to issue $25 million of 5.43% senior notes, Series A, due December 1, 2032, $15 million of 5.43% senior notes, Series B, due February 15, 2033, and $35 million of 5.53% senior notes, Series C, due February 15, 2035. Funding will occur on December 1, 2022 for Series A notes and on February 28, 2023 for Series B notes and Series C notes. The proceeds of the notes will be used to assist with capital expenditures and other corporate obligations.

The Series A, Series B, and Series C notes are redeemable at any time at MGE's option at a redemption price equal to 100% of the principal amount of the Notes to be redeemed, plus accrued interest to the redemption date and a make-whole premium (not less than zero) equal to the excess, if any, of the discounted present value of the remaining scheduled payments of principal and interest on the notes to be redeemed over the principal amount of the notes to be redeemed, except that no make-whole premium is due on a note that is redeemed during the 90-day period immediately preceding and ending on its maturity date. Following a change in control event, MGE must offer to prepay the notes at a price equal to 100% of the principal amount of the notes, plus accrued interest to the date of prepayment, but without any make-whole premium. The prepayment offer expires if not accepted by a holder of notes within a defined period. A change in control event is deemed to have occurred if MGE does not have an investment grade rating for its senior, unsecured, long-term indebtedness from at least two of Standard & Poor's Rating Services, Moody's Investors Service or any other nationally recognized statistical rating agency, within 90 days after an acquisition of beneficial ownership of 30% or more of the outstanding voting stock of MGE Energy, Inc. by one person, or two or more persons acting in concert.

Events of default under the Note Purchase Agreement include failures to pay principal, make-whole premium or interest on the notes; defaults in the performance of various covenants; cross-defaults to specified other indebtedness; failure to pay specified judgments; and certain bankruptcy-related events; subject to any applicable cure periods. The Note Purchase Agreement requires MGE to maintain a ratio of its consolidated indebtedness to consolidated total capitalization not to exceed a maximum of 65%. Both consolidated indebtedness and consolidated total capitalization are determined in accordance with generally accepted accounting principles, except that amounts included within MGE's indebtedness and capitalization from "variable interest entities" as a result of the application of FASB Interpretation No. 46, Consolidation of Variable Interest Entities – an Interpretation of ARB No. 51, as modified, are excluded.

The Note Purchase Agreement also restricts MGE from issuing "Priority Debt" in an amount exceeding 20% of its consolidated assets. MGE has agreed not to use the capacity to issue Priority Debt to grant a lien to secure its principal credit facility indebtedness without simultaneously providing that the notes be equally and ratably secured with the principal credit facility indebtedness so long as such indebtedness is so secured. Priority Debt is defined as any indebtedness of MGE secured by liens other than specified liens permitted by the Note Purchase Agreement and certain unsecured indebtedness of certain subsidiaries. Principal credit facility indebtedness means the indebtedness under MGE's Amended and Restated Credit Agreements dated as of February 7, 2019, with the lenders party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent, and with the lenders party thereto and US Bank National Association, as Administrative Agent, or, in each case, any replacement credit agreement, including amendments and restatements.

Item 6. Exhibits.



Ex. No.		Exhibit Description
4.1		Note Purchase Agreement dated November 1, 2022, among MGE and the purchasers named therein, including form of 5.43% Senior Notes, Series A, due December 1, 2032; form of 5.43% Senior Notes, Series B, due February 15, 2033; and form of 5.53% Senior Notes, Series C, due February 15, 2035.

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 Jared J. Bushek 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 Jared J. Bushek 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 Jared J. Bushek 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 Jared J. Bushek 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
104.1		Included in the cover page, formatted in Inline XBRL

*		Filed herewith.
**		Furnished herewith.

5552

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 ~~4, 2021~~3, 2022	/s/ Jeffrey M. Keebler
	Jeffrey M. Keebler Chairman, President and Chief Executive Officer (Duly Authorized Officer)



Date: November ~~4, 2021~~3, 2022	/s/ Jared J. Bushek
	Jared J. Bushek Vice President - Finance, Chief Information Officer and Treasurer (Chief Financial Officer)



Date: November ~~4, 2021~~3, 2022	/s/ Tamara J. Johnson
	Tamara J. Johnson Vice President - Accounting and Controller (Chief Accounting Officer)

5653

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



Date: November ~~4, 2021~~3, 2022	/s/ Jeffrey M. Keebler
	Jeffrey M. Keebler Chairman, President and Chief Executive Officer (Duly Authorized Officer)



Date: November ~~4, 2021~~3, 2022	/s/ Jared J. Bushek
	Jared J. Bushek Vice President - Finance, Chief Information Officer and Treasurer (Chief Financial Officer)



Date: November ~~4, 2021~~3, 2022	/s/ Tamara J. Johnson
	Tamara J. Johnson Vice President - Accounting and Controller (Chief Accounting Officer)

5754


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, ~~2021~~2022 ☐ 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


	Large Accelerated Filer	Accelerated Filer	Non-accelerated Filer	Smaller Reporting Company	Emerging Growth Company
MGE Energy, Inc.	☒	☐	☐	☐	☐
Madison Gas and Electric Company	☐	☐	☒	☐	☐


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, ~~2021~~2022
MGE Energy, Inc.	Common stock, $1.00 par value, 36,163,370 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.).


PART I. FINANCIAL INFORMATION	3
Filing Format	3
Forward-Looking Statements	3
Where to Find More Information	3
Definitions, Abbreviations, and Acronyms Used in the Text and Notes of this Report	4
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 Company	10
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 Company - Notes to Consolidated Financial Statements (unaudited)	14
1. Summary of Significant Accounting Policies.	14
2. New Accounting Standards.	15
3. Investment in ATC and ATC Holdco.	15
4. Taxes.	16
5. Pension and Other Postretirement Plans.	1617
6. Equity and Financing Arrangements.	17
7. Share-Based Compensation.	18
8. Commitments and Contingencies.	18
9. Rate Matters.	2122
10. Derivative and Hedging Instruments.	2223
11. Fair Value of Financial Instruments.	25
12. Joint Plant Construction Project Ownership.	2928
13. ~~Asset Retirement Obligations.~~Revenue.	29
14. ~~Revenue.~~	29
~~15.~~ Segment Information.	3130
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.	3331
Item 3. Quantitative and Qualitative Disclosures About Market Risk.	5149
Item 4. Controls and Procedures.	5349
PART II. OTHER INFORMATION.	5450
Item 1. Legal Proceedings.	5450
Item 1A. Risk Factors.	50
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.	5450
Item 3. Defaults Upon Senior Securities.	5450
Item 4. Mine Safety Disclosures.	5450
Item 5. Other Information.	5450
Item 6. Exhibits.	5552
Signatures - MGE Energy, Inc.	5653
Signatures - Madison Gas and Electric Company	5754


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


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


MGE Energy and Subsidiaries:

CWDC	Central Wisconsin Development Corporation
MAGAEL	MAGAEL, LLC
MGE	Madison Gas and Electric Company
MGE Energy	MGE Energy, Inc.
MGE Power	MGE Power, LLC
MGE Power Elm Road	MGE Power Elm Road, LLC
MGE Power West Campus	MGE Power West Campus, LLC
MGE Services	MGE Services, LLC
MGE State Energy Services	MGE State Energy Services, LLC
MGE Transco	MGE Transco Investment, LLC
MGEE Transco	MGEE Transco, LLC
North Mendota	North Mendota Energy & Technology Park, LLC

Other Defined Terms:

2017 Tax Act	Tax Cut and Jobs Act of 2017
2021 Annual Report on Form 10-K	MGE Energy's and MGE's Annual Report on Form 10-K for the year ended December 31, 2021
2021 Plan	MGE Energy's 2021 Long-Term Incentive Plan
~~ACE Rule~~	~~Affordable Clean Energy Rule~~
AFUDC	Allowance for Funds Used During Construction
~~ARO~~	~~Asset retirement obligation~~
ATC	American Transmission Company LLC
ATC Holdco	ATC Holdco, LLC
Badger Hollow I	Badger Hollow I Solar Farm
Badger Hollow II	Badger Hollow II Solar Farm
Blount	Blount Station
BTA	Best technology available
CA	Certificate of Authority
CBP	U.S. Customs and Border Protection
CCR	Coal Combustion Residual
Columbia	Columbia Energy Center
cooling degree days (CDD)	Measure 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
COVID-19	Coronavirus Disease 2019
~~CPP Rule~~	~~Clean Power Plan Rule~~
CSAPR	Cross-State Air Pollution Rule
Dth	Dekatherms, a quantity measure for natural gas
EGU	Electric generating unit
ELG	Effluent Limitations Guidelines
~~electric margin~~	~~Electric revenues less fuel for electric generation and purchase power costs, a non-GAAP measure~~
Elm Road Units	Elm Road Generating Station
EPA	United States Environmental Protection Agency
FERC	Federal Energy Regulatory Commission
FIP	Federal Implementation Plan
FTR	Financial Transmission Rights
GAAP	Generally Accepted Accounting Principles
~~gas margin~~	~~Gas revenues less cost of gas sold, a non-GAAP measure~~
GHG	Greenhouse 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


IRS	Internal Revenue Service
kWh	Kilowatt-hour, a measure of electric energy produced
MISO	Midcontinent Independent System Operator (a regional transmission organization)
MW	Megawatt, a measure of electric energy generating capacity
MWh	Megawatt-hour, a measure of electric energy produced
NAAQS	National Ambient Air Quality Standards
NOx	Nitrogen oxide
~~O'Brien~~	~~O'Brien Solar Fields~~
PGA	Purchased Gas Adjustment clause, a regulatory mechanism used to reconcile natural gas costs recovered in rates to actual costs


PPA	Purchased Power Agreement
PSCW	Public Service Commission of Wisconsin
~~Riverside~~	~~Riverside Energy Center~~
ROE	Return on equity
Saratoga	Saratoga Wind Farm
SCR	Selective Catalytic Reduction
SEC	Securities and Exchange Commission
SIP	State Implementation Plan
SO2	Sulfur dioxide
Stock Plan	Direct Stock Purchase and Dividend Reinvestment Plan of MGE Energy
Two Creeks	Two Creeks Solar Farm
USDOC	U.S. Department of Commerce
WCCF	West Campus Cogeneration Facility
WDNR	Wisconsin Department of Natural Resources
WEPCO	Wisconsin Electric Power Company, a subsidiary of WEC Energy Group, Inc.
West Riverside	West Riverside Energy Center in Beloit, Wisconsin
working capital	Current assets less current liabilities
WPL	Wisconsin Power and Light Company, a subsidiary of Alliant Energy Corporation
WRO	Withhold Release Order
XBRL	eXtensible Business Reporting Language


										Accumulated														Accumulated
					Additional					Other									Additional					Other
	Common Stock				Paid-in		Retained			Comprehensive					Common Stock				Paid-in		Retained			Comprehensive
	Shares		Value		Capital		Earnings			Income/(Loss)		Total
Three Months Ended September 30, 2020
Beginning Balance		36,163	$	36,163	$	394,408	$	524,600		$	0	$	955,171
Net income								31,794					31,794
Common stock dividends declared ($0.370 per share)								(13,381	)				(13,381	)
Ending Balance - September 30, 2020		36,163	$	36,163	$	394,408	$	543,013		$	0	$	973,584
															Shares		Value		Capital		Earnings			Income/(Loss)		Total
Three Months Ended September 30, 2021
Beginning Balance		36,163	$	36,163	$	394,686	$	576,452		$	0	$	1,007,301			36,163	$	36,163	$	394,686	$	576,452		$	—	$	1,007,301
Net income								34,917					34,917									34,917					34,917
Common stock dividends declared ($0.388 per share)								(14,013	)				(14,013	)								(14,013	)				(14,013	)
Equity-based compensation plans and other						80							80							80							80
Ending Balance - September 30, 2021		36,163	$	36,163	$	394,766	$	597,356		$	0	$	1,028,285			36,163	$	36,163	$	394,766	$	597,356		$	—	$	1,028,285
														��
Nine Months Ended September 30, 2020
Three Months Ended September 30, 2022
Beginning Balance		34,668	$	34,668	$	316,268	$	504,740		$	0	$	855,676			36,163	$	36,163	$	395,338	$	624,556		$	—	$	1,056,057
Net income								76,622					76,622									33,720					33,720
Common stock dividends declared ($1.075 per share)								(38,349	)				(38,349	)
Common stock issued, net		1,495		1,495		78,140							79,635
Ending Balance - September 30, 2020		36,163	$	36,163	$	394,408	$	543,013		$	0	$	973,584
Common stock dividends declared ($0.408 per share)																						(14,736	)				(14,736	)
Equity-based compensation plans and other																				159							159
Ending Balance - September 30, 2022																36,163	$	36,163	$	395,497	$	643,540		$	—	$	1,075,200

Nine Months Ended September 30, 2021
Beginning Balance		36,163	$	36,163	$	394,408	$	545,429		$	0	$	976,000			36,163	$	36,163	$	394,408	$	545,429		$	—	$	976,000
Net income								92,701					92,701									92,701					92,701
Common stock dividends declared ($1.128 per share)								(40,774	)				(40,774	)								(40,774	)				(40,774	)
Equity-based compensation plans and other						358							358							358							358
Ending Balance - September 30, 2021		36,163	$	36,163	$	394,766	$	597,356		$	0	$	1,028,285			36,163	$	36,163	$	394,766	$	597,356		$	—	$	1,028,285

Nine Months Ended September 30, 2022
Beginning Balance																36,163	$	36,163	$	394,903	$	596,402		$	—	$	1,027,468
Net income																						89,901					89,901
Common stock dividends declared ($1.183 per share)																						(42,763	)				(42,763	)
Equity-based compensation plans and other																				594							594
Ending Balance - September 30, 2022																36,163	$	36,163	$	395,497	$	643,540		$	—	$	1,075,200


	Model Input
	September 30,	December 31,
Significant Unobservable Inputs	2021	2020
Basis adjustment:
On peak	95.5%	94.2%
Off peak	96.4%	94.5%
Counterparty fuel mix:
Internal generation - range	41%-66%	46%-65%
Internal generation - weighted average	54.2%	56.5%
Purchased power - range	59%-34%	54%-35%
Purchased power - weighted average	45.8%	43.5%


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, 2021		9,437	$		75.74	—	—
August 1-31, 2021		6,945			80.47	—	—
September 1-30, 2021		38,526			78.40	—	—
Total		54,908	$		78.20	—	—


	Three Months Ended						Nine Months Ended						Three Months Ended						Nine Months Ended
	September 30,						September 30,						September 30,						September 30,
	2021			2020			2021			2020			2022			2021			2022			2021
Operating Revenues:
Electric revenues	$	121,853		$	116,568		$	324,574		$	303,556		$	133,090		$	121,853		$	355,381		$	324,574
Gas revenues		24,020			18,643			119,944			98,568			30,310			24,020			169,305			119,944
Total Operating Revenues		145,873			135,211			444,518			402,124			163,400			145,873			524,686			444,518

Operating Expenses:
Fuel for electric generation		18,486			12,945			42,570			31,343			21,045			18,486			48,410			42,570
Purchased power		8,646			10,708			28,914			32,050			9,593			8,646			35,757			28,914
Cost of gas sold		8,780			3,812			57,728			40,950			14,523			8,780			100,638			57,728
Other operations and maintenance		48,494			45,819			144,563			136,412			49,194			48,494			150,714			144,563
Depreciation and amortization		18,991			18,592			55,968			55,193			21,447			18,991			63,780			55,968
Other general taxes		4,878			5,010			14,730			14,892			5,111			4,878			15,579			14,730
Total Operating Expenses		108,275			96,886			344,473			310,840			120,913			108,275			414,878			344,473
Operating Income		37,598			38,325			100,045			91,284			42,487			37,598			109,808			100,045

Other income, net		6,164			6,534			14,353			19,131			6,068			6,164			20,736			14,353
Interest expense, net		(6,079	)		(5,765	)		(17,591	)		(17,740	)		(6,652	)		(6,079	)		(19,686	)		(17,591	)
Income before income taxes		37,683			39,094			96,807			92,675			41,903			37,683			110,858			96,807
Income tax provision		(2,766	)		(7,300	)		(4,106	)		(16,053	)		(8,183	)		(2,766	)		(20,957	)		(4,106	)
Net Income	$	34,917		$	31,794		$	92,701		$	76,622		$	33,720		$	34,917		$	89,901		$	92,701

Earnings Per Share of Common Stock
Basic	$	0.97		$	0.88		$	2.56		$	2.16		$	0.93		$	0.97		$	2.49		$	2.56
Diluted	$	0.97		$	0.88		$	2.56		$	2.16		$	0.93		$	0.97		$	2.49		$	2.56

Dividends per share of common stock	$	0.388		$	0.370		$	1.128		$	1.075		$	0.408		$	0.388		$	1.183		$	1.128

Weighted Average Shares Outstanding
Basic		36,163			36,163			36,163			35,427			36,163			36,163			36,163			36,163
Diluted		36,170			36,163			36,176			35,427			36,176			36,170			36,174			36,176


	September 30,		December 31,		September 30,		December 31,
ASSETS	2021		2020		2022		2021
Current Assets:
Cash and cash equivalents	$	70,454	$	44,738	$	10,615	$	17,438
Accounts receivable, less reserves of $4,937 and $5,787, respectively		43,162		41,384
Other accounts receivable, less reserves of $1,257 and $1,290, respectively		12,950		7,300
Accounts receivable, less reserves of $7,633 and $6,940, respectively						44,460		46,205
Other accounts receivable, less reserves of $1,069 and $1,364, respectively						13,863		16,094
Unbilled revenues		22,973		27,511		22,975		34,812
Materials and supplies, at average cost		31,179		32,513		32,208		29,863
Fuel for electric generation, at average cost		3,724		6,356		7,021		6,429
Stored natural gas, at average cost		15,624		8,396		36,167		15,668
Prepaid taxes		12,983		15,179		13,106		20,214
Regulatory assets - current		8,060		14,748		3,685		1,465
Other current assets		12,976		11,394		15,747		11,183
Total Current Assets		234,085		209,519		199,847		199,371
Other long-term receivables		982		1,435		574		1,155
Regulatory assets		135,603		142,504		110,807		107,547
Pension benefit asset		25,594		13,873		71,104		58,757
Other deferred assets and other		27,868		22,259		24,888		27,548
Property, Plant, and Equipment:
Property, plant, and equipment, net		1,743,447		1,630,286		1,848,053		1,828,171
Construction work in progress		103,919		139,099		106,451		50,603
Total Property, Plant, and Equipment		1,847,366		1,769,385		1,954,504		1,878,774
Investments		99,236		94,676		103,962		98,754
Total Assets	$	2,370,734	$	2,253,651	$	2,465,686	$	2,371,906

LIABILITIES AND CAPITALIZATION
Current Liabilities:
Long-term debt due within one year	$	4,859	$	4,771	$	54,282	$	4,889
Short-term debt		0		52,500		40,000		5,500
Accounts payable		57,431		54,642		60,227		64,149
Accrued interest and taxes		7,769		8,539		7,819		10,385
Accrued payroll related items		12,109		12,635		10,464		12,951
Regulatory liabilities - current		31,293		41,664		14,611		9,365
Derivative liabilities		160		10,160		—		2,140
Other current liabilities		9,922		6,015		7,390		8,468
Total Current Liabilities		123,543		190,926		194,793		117,847
Other Credits:


	Three Months Ended						Nine Months Ended						Three Months Ended						Nine Months Ended
	September 30,						September 30,						September 30,						September 30,
	2021			2020			2021			2020			2022			2021			2022			2021
Operating Revenues:
Electric revenues	$	121,853		$	116,568		$	324,574		$	303,556		$	133,090		$	121,853		$	355,381		$	324,574
Gas revenues		24,020			18,643			119,944			98,568			30,310			24,020			169,305			119,944
Total Operating Revenues		145,873			135,211			444,518			402,124			163,400			145,873			524,686			444,518

Operating Expenses:
Fuel for electric generation		18,486			12,945			42,570			31,343			21,045			18,486			48,410			42,570
Purchased power		8,646			10,708			28,914			32,050			9,593			8,646			35,757			28,914
Cost of gas sold		8,780			3,812			57,728			40,950			14,523			8,780			100,638			57,728
Other operations and maintenance		48,315			45,591			143,978			135,634			48,989			48,315			150,024			143,978
Depreciation and amortization		18,991			18,592			55,968			55,193			21,447			18,991			63,780			55,968
Other general taxes		4,878			5,010			14,730			14,892			5,106			4,878			15,573			14,730
Total Operating Expenses		108,096			96,658			343,888			310,062			120,703			108,096			414,182			343,888
Operating Income		37,777			38,553			100,630			92,062			42,697			37,777			110,504			100,630

Other income, net		3,306			4,093			6,375			11,005			4,430			3,306			12,467			6,375
Interest expense, net		(6,089	)		(5,802	)		(17,623	)		(17,848	)		(6,662	)		(6,089	)		(19,709	)		(17,623	)
Income before income taxes		34,994			36,844			89,382			85,219			40,465			34,994			103,262			89,382
Income tax provision		(1,993	)		(6,611	)		(1,853	)		(14,028	)		(7,664	)		(1,993	)		(18,781	)		(1,853	)
Net Income	$	33,001		$	30,233		$	87,529		$	71,191		$	32,801		$	33,001		$	84,481		$	87,529
Less: Net Income Attributable to Noncontrolling
Interest, net of tax		(5,627	)		(5,493	)		(16,755	)		(16,754	)
Less: Net Income Attributable to Noncontrolling Interest, net of tax														(5,603	)		(5,627	)		(15,947	)		(16,755	)
Net Income Attributable to MGE	$	27,374		$	24,740		$	70,774		$	54,437		$	27,198		$	27,374		$	68,534		$	70,774


	September 30,		December 31,		September 30,		December 31,
ASSETS	2021		2020		2022		2021
Current Assets:
Cash and cash equivalents	$	57,003	$	4,103	$	4,475	$	6,401
Accounts receivable, less reserves of $4,937 and $5,787, respectively		43,162		41,384
Accounts receivable, less reserves of $7,633 and $6,940, respectively						44,460		46,205
Affiliate receivables		532		532		542		558
Other accounts receivable, less reserves of $1,257 and $1,290, respectively		12,947		7,295
Other accounts receivable, less reserves of $1,069 and $1,364, respectively						13,862		16,092
Unbilled revenues		22,973		27,511		22,975		34,812
Materials and supplies, at average cost		31,179		32,513		32,208		29,863
Fuel for electric generation, at average cost		3,724		6,356		7,021		6,429
Stored natural gas, at average cost		15,624		8,396		36,167		15,668
Prepaid taxes		13,210		14,848		13,488		19,379
Regulatory assets - current		8,060		14,748		3,685		1,465
Other current assets		12,884		11,326		15,679		11,071
Total Current Assets		221,298		169,012		194,562		187,943
Affiliate receivable long-term		1,721		2,118		1,191		1,589
Regulatory assets		135,603		142,504		110,807		107,547
Pension benefit asset		25,594		13,873		71,104		58,757
Other deferred assets and other		27,839		22,448		24,995		27,907
Property, Plant, and Equipment:
Property, plant, and equipment, net		1,743,475		1,630,314		1,848,081		1,828,199
Construction work in progress		103,919		139,099		106,451		50,603
Total Property, Plant, and Equipment		1,847,394		1,769,413		1,954,532		1,878,802
Investments		244		603		99		230
Total Assets	$	2,259,693	$	2,119,971	$	2,357,290	$	2,262,775

LIABILITIES AND CAPITALIZATION
Current Liabilities:
Long-term debt due within one year	$	4,859	$	4,771	$	54,282	$	4,889
Short-term debt		0		52,500		40,000		5,500
Accounts payable		57,404		54,576		60,206		64,130
Accrued interest and taxes		7,723		10,405		7,774		10,649
Accrued payroll related items		12,109		12,635		10,464		12,951
Regulatory liabilities - current		31,293		41,664		14,611		9,365
Derivative liabilities		160		10,160		—		2,140
Other current liabilities		9,922		6,042		7,389		5,968
Total Current Liabilities		123,470		192,753		194,726		115,592