United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended:
September 30, 2017
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from _______________ to _______________
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: March 31, 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, Wisconsin53788
| mgeenergy.com | 39-2040501 | ||
000-1125 | Madison Gas and Electric Company (a Wisconsin Corporation) 133 South Blair Street Madison, Wisconsin53788
| mge.com | 39-0444025 |
Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant wasregistrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days: Yes [X] No [ ]
MGE Energy, Inc.Yes ☒ No ☐ | Madison Gas and Electric CompanyYes ☒ No ☐ |
Indicate by check mark whether the registrants have submitted electronically and posted on their corporate Web sites, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrants were required to submit and post such files):
MGE Energy, Inc.Yes ☒ No ☐ | Madison Gas and Electric CompanyYes ☒ No ☐ |
Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer | Accelerated Filer | Non-accelerated Filer | Smaller Reporting Company | Emerging Growth Company | |
MGE Energy, Inc. |
| ☐ | ☐ | ☐ | ☐ |
Madison Gas and Electric Company | ☐ | ☐ |
| ☐ | ☐ |
If an emerging growth company, indicate by check mark if the registrant hasregistrants have elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
MGE Energy, Inc. ☐ | Madison Gas and Electric Company ☐ |
Indicate by check mark whether the registrant is aregistrants are shell companycompanies (as defined in Rule 12b-2 of the Exchange Act):
MGE Energy, Inc. and Madison Gas and Electric Company: Yes [ ] No [X]
MGE Energy, Inc. Yes ☐ No ☒ | Madison Gas and Electric Company Yes ☐ No ☒ |
Securities registered pursuant to Section 12(b) of the Act:
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 | |
MGE Energy, Inc. | Common stock, $1.00 par value, |
Madison Gas and Electric Company | Common stock, $1.00 par value, 17,347,894 shares outstanding (all of which are owned beneficially and of record by MGE Energy, Inc.). |
1
Table of Contents
2
Table of Contents
PART I. FINANCIAL INFORMATION.
Where to Find More Information
Definitions, Abbreviations, and Acronyms Used in the Text and Notes of this Report
Consolidated Statements of Income (unaudited)
Consolidated Statements of Comprehensive Income (unaudited)
Consolidated Statements of Cash Flows (unaudited)
Consolidated Balance Sheets (unaudited)
Consolidated Statements of Common Equity (unaudited)
Madison Gas and Electric Company
Consolidated Statements of Income (unaudited)
Consolidated Statements of Comprehensive Income (unaudited)
Consolidated Statements of Cash Flows (unaudited)
Consolidated Balance Sheets (unaudited)
Consolidated Statements of Common Equity (unaudited)
MGE Energy, Inc., and Madison Gas and Electric Company
Notes to Consolidated Financial Statements (unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 4. Mine Safety Disclosures.
Signatures - Madison Gas and Electric Company
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PART I. FINANCIAL INFORMATION.
Filing Format
This combined Form 10-Q is being filed separately by MGE Energy, Inc. (MGE Energy) and Madison Gas and Electric Company (MGE). MGE is a wholly owned subsidiary of MGE Energy and represents a majority of its assets, liabilities, revenues, expenses, and operations. Thus, all information contained in this report relates to, and is filed by, MGE Energy. Information that is specifically identified in this report as relating solely to MGE Energy, such as its financial statements and information relating to its nonregulated business, does not relate to, and is not filed by, MGE. MGE makes no representation as to that information. The terms "we" and "our," as used in this report, refer to MGE Energy and its consolidated subsidiaries, unless otherwise indicated.
Forward-Looking Statements
This report, and other documents filed by MGE Energy and MGE with the Securities and Exchange Commission (SEC) from time to time, contain forward-looking statements that reflect management's current assumptions and estimates regarding future performance and economic conditions—especially as they relate to economic conditions, future load growth, revenues, expenses, capital expenditures, financial resources, regulatory matters, and the scope and expense associated with future environmental regulation. These forward-looking statements are made pursuant to the provisions of the Private Securities Litigation Reform Act of 1995. Words such as "believe," "expect," "anticipate," "estimate," "could," "should," "intend," "will," and other similar words, 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 includeinclude: (a) those factors discussed in the registrants' 20162021 Annual Report on Form 10-K:10-K: Item 1A. Risk Factors, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, as updated by Part I, Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations in this report, and Item 8. Financial Statements and Supplementary Data – Note 17,16, as updated by Part I, Item 1. Financial Statements – Note 78 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 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.
Where to Find More Information
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 readSEC maintains an internet site at www.sec.gov that contains reports, proxy and copy anyinformation 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 MGEwe 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 atsec.gov, MGE Energy's website atmgeenergy.com, and MGE's website atmge.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.
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3
Definitions, Abbreviations, and Acronyms Used in the Text and Notes of this Report
Abbreviations, acronyms, and definitions used in the text and notes of this report are defined below.
MGE Energy and Subsidiaries: | |
| |
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 |
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Other Defined Terms: | |
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|
| Tax Cut and Jobs Act of 2017 |
2021 Annual Report on Form 10-K | MGE Energy’s and MGE’s Annual Report of Form 10-K for the year ended December 31, 2021 |
2021 Plan | MGE Energy's 2021 Long-Term Incentive Plan |
AFUDC | Allowance for Funds Used During Construction |
ATC | American Transmission Company LLC |
ATC Holdco | ATC Holdco, LLC |
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| Coal Combustion Residual |
Columbia | Columbia Energy Center |
COVID-19 | Coronavirus Disease 2019 |
CSAPR | Cross-State Air Pollution Rule |
Dth | Dekatherms, a quantity measure |
| Electric |
ELG | Effluent Limitations Guidelines |
electric margin | Electric revenues less fuel for electric generation and purchased power costs, a non-GAAP measure |
Elm Road Units | Elm Road Generating Station |
EPA | United States Environmental Protection Agency |
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| Federal Energy Regulatory Commission |
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| Financial Transmission Rights |
GAAP | Generally Accepted Accounting Principles |
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| 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 |
| Nitrogen |
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| Purchased Gas Adjustment clause, a regulatory mechanism used to reconcile natural gas costs recovered in rates to actual costs |
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| Purchased Power Agreement |
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4
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5
Item 1. Financial Statements.
Consolidated Statements of Income (unaudited)
(In thousands, except per-shareper share amounts)
|
| Three Months Ended |
| Nine Months Ended |
| Three Months Ended |
| |||||||||
|
| September 30, |
| September 30, |
| March 31, |
| |||||||||
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| 2017 |
| 2016 |
| 2017 |
| 2016 |
| 2022 |
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| 2021 |
| ||
Operating Revenues: |
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Electric revenues | $ | 120,761 | $ | 119,147 | $ | 321,540 | $ | 313,452 |
| $ | 110,127 |
| $ | 100,645 |
| |
Gas revenues |
| 18,778 |
| 17,570 |
| 101,285 |
| 92,368 |
|
| 98,811 |
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|
| 67,270 |
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Total Operating Revenues |
| 139,539 |
| 136,717 |
| 422,825 |
| 405,820 |
|
| 208,938 |
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| 167,915 |
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Operating Expenses: |
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Fuel for electric generation |
| 15,829 |
| 20,505 |
| 39,938 |
| 47,567 |
| 13,485 |
| 13,171 |
| |||
Purchased power |
| 15,984 |
| 9,167 |
| 48,058 |
| 38,698 |
| 12,543 |
| 9,355 |
| |||
Cost of gas sold |
| 5,094 |
| 4,314 |
| 50,109 |
| 43,247 |
| 64,802 |
| 37,444 |
| |||
Other operations and maintenance |
| 41,529 |
| 40,146 |
| 128,143 |
| 123,839 |
| 49,994 |
| 45,682 |
| |||
Depreciation and amortization |
| 13,372 |
| 11,212 |
| 39,606 |
| 33,358 |
| 21,046 |
| 18,382 |
| |||
Other general taxes |
| 4,730 |
| 4,846 |
| 14,509 |
| 14,841 |
|
| 5,205 |
|
|
| 4,827 |
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Total Operating Expenses |
| 96,538 |
| 90,190 |
| 320,363 |
| 301,550 |
|
| 167,075 |
|
|
| 128,861 |
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Operating Income |
| 43,001 |
| 46,527 |
| 102,462 |
| 104,270 |
|
| 41,863 |
|
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| 39,054 |
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Other income, net |
| 3,939 |
| 2,105 | �� | 9,004 |
| 6,726 |
| 6,972 |
| 2,078 |
| |||
Interest expense, net |
| (4,727) |
| (5,038) |
| (14,507) |
| (14,995) |
|
| (6,571 | ) |
|
| (5,740 | ) |
Income before income taxes |
| 42,213 |
| 43,594 |
| 96,959 |
| 96,001 |
| 42,264 |
| 35,392 |
| |||
Income tax provision |
| (15,584) |
| (15,714) |
| (35,487) |
| (34,943) |
|
| (7,844 | ) |
|
| (459 | ) |
Net Income | $ | 26,629 | $ | 27,880 | $ | 61,472 | $ | 61,058 |
| $ | 34,420 |
|
| $ | 34,933 |
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Earnings Per Share of Common Stock |
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(basic and diluted) | $ | 0.77 | $ | 0.80 | $ | 1.77 | $ | 1.76 | ||||||||
Basic |
| $ | 0.95 |
| $ | 0.97 |
| |||||||||
Diluted |
| $ | 0.95 |
| $ | 0.97 |
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Dividends per share of common stock | $ | 0.323 | $ | 0.308 | $ | 0.938 | $ | 0.898 |
| $ | 0.388 |
| $ | 0.370 |
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Weighted Average Shares Outstanding |
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(basic and diluted) |
| 34,668 |
| 34,668 |
| 34,668 |
| 34,668 | ||||||||
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The accompanying notes are an integral part of the above unaudited consolidated financial statements. | ||||||||||||||||
Basic |
| 36,163 |
| 36,163 |
| |||||||||||
Diluted |
| 36,171 |
| 36,165 |
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The accompanying notes are an integral part of the above unaudited consolidated financial statements.
6
MGE Energy, Inc.
Consolidated Statements of Comprehensive Income (unaudited)
(In thousands)
|
| Three Months Ended |
| Nine Months Ended | ||||
|
| September 30, |
| September 30, | ||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
Net Income | $ | 26,629 | $ | 27,880 | $ | 61,472 | $ | 61,058 |
Other comprehensive income, net of tax: |
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Unrealized gain (loss) on available-for-sale |
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securities, net of tax (($40) and ($8), and ($127) and |
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$96, respectively) |
| 60 |
| 11 |
| 189 |
| (143) |
Comprehensive Income | $ | 26,689 | $ | 27,891 | $ | 61,661 | $ | 60,915 |
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The accompanying notes are an integral part of the above unaudited consolidated financial statements. |
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MGE Energy, Inc.
Consolidated Statements of Cash Flows (unaudited)
(In thousands)
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|
| Nine Months Ended |
| ||
|
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| September 30, |
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| 2017 |
| 2016 |
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| Operating Activities: |
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| Net income | $ | 61,472 | $ | 61,058 |
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| Items not affecting cash: |
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| Depreciation and amortization |
| 39,606 |
| 33,358 |
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| Deferred income taxes |
| 4,810 |
| 15,041 |
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| Provision for doubtful receivables |
| 650 |
| 583 |
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| Employee benefit plan cost |
| 778 |
| 165 |
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| Equity earnings in ATC |
| (7,432) |
| (6,023) |
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| Gain on sale of property |
| (1,581) |
| - |
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| Other items |
| 1,071 |
| 693 |
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| Changes in working capital items: |
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| Decrease in current assets |
| 18,161 |
| 33,740 |
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| Decrease in current liabilities |
| (17,615) |
| (3,147) |
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| Dividends from ATC |
| 6,142 |
| 4,214 |
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| Cash contributions to pension and other postretirement plans |
| (9,717) |
| (13,134) |
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| Other noncurrent items, net |
| 2,671 |
| 2,644 |
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| Cash Provided by Operating Activities |
| 99,016 |
| 129,192 |
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| Investing Activities: |
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| Capital expenditures |
| (66,286) |
| (62,273) |
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| Capital contributions to investments |
| (6,863) |
| (2,036) |
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| Proceeds from sale of property |
| 2,399 |
| - |
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| Other |
| (364) |
| (310) |
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| Cash Used for Investing Activities |
| (71,114) |
| (64,619) |
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| Financing Activities: |
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| Cash dividends paid on common stock |
| (32,502) |
| (31,115) |
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| Repayment of long-term debt |
| (33,260) |
| (3,192) |
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| Issuance of long-term debt |
| 40,000 |
| - |
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| Proceeds from short-term debt |
| 7,000 |
| - |
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| Other |
| (366) |
| (65) |
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| Cash Used for Financing Activities |
| (19,128) |
| (34,372) |
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| Change in cash and cash equivalents |
| 8,774 |
| 30,201 |
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| Cash and cash equivalents at beginning of period |
| 95,959 |
| 81,384 |
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| Cash and cash equivalents at end of period | $ | 104,733 | $ | 111,585 |
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| Supplemental disclosures of cash flow information: |
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| Significant noncash investing activities: |
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| Accrued capital expenditures | $ | 12,469 | $ | 10,603 |
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| The accompanying notes are an integral part of the unaudited consolidated financial statements. |
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| Three Months Ended |
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| March 31, |
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| 2022 |
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| 2021 |
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Operating Activities: |
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Net income |
| $ | 34,420 |
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| $ | 34,933 |
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Items not affecting cash: |
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Depreciation and amortization |
|
| 21,046 |
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| 18,382 |
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Deferred income taxes |
|
| 5,606 |
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| (796 | ) |
Provision for doubtful receivables |
|
| 441 |
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| 388 |
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Employee benefit plan cost (credit) |
|
| (1,678 | ) |
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| 1,461 |
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Equity earnings in investments |
|
| (2,504 | ) |
|
| (2,444 | ) |
Other items |
|
| (486 | ) |
|
| (277 | ) |
Changes in working capital items: |
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Decrease (increase) in current assets |
|
| 12,332 |
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|
| (2,851 | ) |
Decrease in current liabilities |
|
| (7,115 | ) |
|
| (4,213 | ) |
Dividends from investments |
|
| 2,001 |
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| 1,967 |
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Cash contributions to pension and other postretirement plans |
|
| (1,660 | ) |
|
| (1,552 | ) |
Other noncurrent items, net |
|
| (304 | ) |
|
| (1,115 | ) |
Cash Provided by Operating Activities |
|
| 62,099 |
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| 43,883 |
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Investing Activities: |
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Capital expenditures |
|
| (30,778 | ) |
|
| (34,746 | ) |
Capital contributions to investments |
|
| (1,546 | ) |
|
| (670 | ) |
Other |
|
| 155 |
|
|
| (419 | ) |
Cash Used for Investing Activities |
|
| (32,169 | ) |
|
| (35,835 | ) |
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Financing Activities: |
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Cash dividends paid on common stock |
|
| (14,013 | ) |
|
| (13,380 | ) |
Repayments of long-term debt |
|
| (1,211 | ) |
|
| (1,182 | ) |
(Repayments of) proceeds from short-term debt |
|
| (5,500 | ) |
|
| 1,500 |
|
Other |
|
| (492 | ) |
|
| (523 | ) |
Cash Used for Financing Activities |
|
| (21,216 | ) |
|
| (13,585 | ) |
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Change in cash, cash equivalents, and restricted cash |
|
| 8,714 |
|
|
| (5,537 | ) |
Cash, cash equivalents, and restricted cash at beginning of period |
|
| 18,835 |
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|
| 47,039 |
|
Cash, cash equivalents, and restricted cash at end of period |
| $ | 27,549 |
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| $ | 41,502 |
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Supplemental disclosures of cash flow information: |
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Significant noncash investing activities: |
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Accrued capital expenditures |
| $ | 6,735 |
|
| $ | 8,843 |
|
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The accompanying notes are an integral part of the above unaudited consolidated financial statements.
7
MGE Energy, Inc.
Consolidated Balance Sheets (unaudited)
(In thousands)
|
| September 30, | December 31, |
| March 31, |
|
| December 31, |
| |||
ASSETS |
| 2017 |
| 2016 |
| 2022 |
|
| 2021 |
| ||
Current Assets: |
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Cash and cash equivalents | $ | 104,733 | $ | 95,959 |
| $ | 26,374 |
|
| $ | 17,438 |
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Accounts receivable, less reserves of $2,950 and $3,017, respectively |
| 38,129 |
| 39,887 | ||||||||
Other accounts receivable, less reserves of $372 and $426, respectively |
| 7,588 |
| 8,530 | ||||||||
Accounts receivable, less reserves of $8,952 and $6,940, respectively |
| 50,167 |
|
|
| 46,205 |
| |||||
Other accounts receivable, less reserves of $1,213 and $1,364, respectively |
| 15,244 |
|
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| 16,094 |
| |||||
Unbilled revenues |
| 21,764 |
| 29,846 |
| 30,839 |
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| 34,812 |
| |
Materials and supplies, at average cost |
| 21,835 |
| 18,561 |
| 30,951 |
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| 29,863 |
| |
Fossil fuel, at average cost |
| 10,017 |
| 9,757 | ||||||||
Fuel for electric generation, at average cost |
| 6,331 |
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|
| 6,429 |
| |||||
Stored natural gas, at average cost |
| 14,758 |
| 12,819 |
| 5,580 |
|
|
| 15,668 |
| |
Prepaid taxes |
| 12,406 |
| 26,636 |
| 15,487 |
|
|
| 20,214 |
| |
Regulatory assets - current |
| 7,377 |
| 6,414 |
| 2,205 |
|
|
| 1,465 |
| |
Assets held for sale |
| 6,707 |
| 14,813 | ||||||||
Other current assets |
| 10,043 |
| 12,293 |
|
| 11,255 |
|
|
| 11,183 |
|
Total Current Assets |
| 255,357 |
| 275,515 |
|
| 194,433 |
|
|
| 199,371 |
|
Other long-term receivables |
| 691 |
|
|
| 1,155 |
| |||||
Regulatory assets |
| 146,006 |
| 158,485 |
| 108,271 |
|
|
| 107,547 |
| |
Pension and other postretirement benefit asset |
| 3,471 |
| 2,020 | ||||||||
Pension benefit asset |
| 62,806 |
|
|
| 58,757 |
| |||||
Other deferred assets and other |
| 6,311 |
| 6,691 |
| 26,697 |
|
|
| 27,548 |
| |
Property, Plant, and Equipment: |
|
|
|
|
|
|
|
|
| |||
Property, plant, and equipment, net |
| 1,270,124 |
| 1,245,269 |
| 1,843,122 |
|
|
| 1,828,171 |
| |
Construction work in progress |
| 42,276 |
| 36,790 |
|
| 40,156 |
|
|
| 50,603 |
|
Total Property, Plant, and Equipment |
| 1,312,400 |
| 1,282,059 |
|
| 1,883,278 |
|
|
| 1,878,774 |
|
Investments |
| 86,455 |
| 76,290 |
|
| 101,365 |
|
|
| 98,754 |
|
Total Assets | $ | 1,810,000 | $ | 1,801,060 |
| $ | 2,377,541 |
|
| $ | 2,371,906 |
|
|
|
|
|
|
|
|
|
|
| |||
LIABILITIES AND CAPITALIZATION |
|
|
|
|
|
|
|
|
| |||
Current Liabilities: |
|
|
|
|
|
|
|
|
| |||
Long-term debt due within one year | $ | 4,428 | $ | 4,333 |
| $ | 4,920 |
|
| $ | 4,889 |
|
Short-term debt |
| 7,000 |
| - |
| 0 |
|
|
| 5,500 |
| |
Accounts payable |
| 31,519 |
| 47,799 |
| 44,690 |
|
|
| 64,149 |
| |
Accrued interest and taxes |
| 4,750 |
| 5,495 |
| 9,265 |
|
|
| 10,385 |
| |
Accrued payroll related items |
| 9,981 |
| 11,892 |
| 9,296 |
|
|
| 12,951 |
| |
Regulatory liabilities - current |
| 6,353 |
| 6,910 |
| 24,557 |
|
|
| 9,365 |
| |
Derivative liabilities |
| 8,288 |
| 7,620 |
| 130 |
|
|
| 2,140 |
| |
Other current liabilities |
| 12,263 |
| 19,456 |
|
| 5,246 |
|
|
| 8,468 |
|
Total Current Liabilities |
| 84,582 |
| 103,505 |
|
| 98,104 |
|
|
| 117,847 |
|
Other Credits: |
|
|
|
|
|
|
|
|
| |||
Deferred income taxes |
| 389,179 |
| 383,813 |
| 233,146 |
|
|
| 231,149 |
| |
Investment tax credit - deferred |
| 885 |
| 947 |
| 48,773 |
|
|
| 44,836 |
| |
Regulatory liabilities |
| 28,253 |
| 22,173 |
| 155,096 |
|
|
| 154,298 |
| |
Accrued pension and other postretirement benefits |
| 65,616 |
| 74,347 |
| 72,881 |
|
|
| 73,085 |
| |
Derivative liabilities |
| 34,890 |
| 42,970 | ||||||||
Finance lease liabilities |
| 16,920 |
|
|
| 17,322 |
| |||||
Other deferred liabilities and other |
| 63,942 |
| 66,426 |
|
| 91,363 |
|
|
| 91,690 |
|
Total Other Credits |
| 582,765 |
| 590,676 |
|
| 618,179 |
|
|
| 612,380 |
|
Capitalization: |
|
|
|
|
|
|
|
|
| |||
Common shareholders' equity |
| 753,247 |
| 724,088 |
| 1,048,153 |
|
|
| 1,027,468 |
| |
Long-term debt |
| 389,406 |
| 382,791 |
|
| 613,105 |
|
|
| 614,211 |
|
Total Capitalization |
| 1,142,653 |
| 1,106,879 |
|
| 1,661,258 |
|
|
| 1,641,679 |
|
Commitments and contingencies (see Footnote 7) |
|
|
|
| ||||||||
Commitments and contingencies (see Footnote 8) |
|
|
|
|
|
| ||||||
Total Liabilities and Capitalization | $ | 1,810,000 | $ | 1,801,060 |
| $ | 2,377,541 |
|
| $ | 2,371,906 |
|
|
|
|
|
| ||||||||
The accompanying notes are an integral part of the above unaudited consolidated financial statements. |
|
The accompanying notes are an integral part of the above unaudited consolidated financial statements.
8
MGE Energy, Inc.
Consolidated Statements of Common Equity (unaudited)
(In thousands, except per-shareper share amounts)
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
|
|
| Additional |
|
|
| Other |
|
|
|
|
| Common Stock |
| Paid-in |
| Retained |
| Comprehensive |
|
|
| ||
|
| Shares |
| Value |
| Capital |
| Earnings |
| Income/(Loss) |
| Total |
|
| 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
| Beginning balance - December 31, 2015 | 34,668 | $ | 34,668 | $ | 316,268 | $ | 339,165 | $ | 357 | $ | 690,458 |
|
| Net income |
|
|
|
|
|
| 61,058 |
|
|
| 61,058 |
|
| Other comprehensive loss |
|
|
|
|
|
|
|
| (143) |
| (143) |
|
| Common stock dividends declared |
|
|
|
|
|
|
|
|
|
|
|
|
| ($0.898 per share) |
|
|
|
|
|
| (31,115) |
|
|
| (31,115) |
|
| Ending balance - September 30, 2016 | 34,668 | $ | 34,668 | $ | 316,268 | $ | 369,108 | $ | 214 | $ | 720,258 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
| Beginning balance - December 31, 2016 | 34,668 | $ | 34,668 | $ | 316,268 | $ | 372,950 | $ | 202 | $ | 724,088 |
|
| Net income |
|
|
|
|
|
| 61,472 |
|
|
| 61,472 |
|
| Other comprehensive income |
|
|
|
|
|
|
|
| 189 |
| 189 |
|
| Common stock dividends declared |
|
|
|
|
|
|
|
|
|
|
|
|
| ($0.938 per share) |
|
|
|
|
|
| (32,502) |
|
|
| (32,502) |
|
| Ending balance - September 30, 2017 | 34,668 | $ | 34,668 | $ | 316,268 | $ | 401,920 | $ | 391 | $ | 753,247 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| The accompanying notes are an integral part of the above unaudited consolidated financial statements. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
| ||||||
|
|
|
|
|
|
|
|
| Additional |
|
|
|
|
| Other |
|
|
|
| ||||||
|
| Common Stock |
|
| Paid-in |
|
| Retained |
|
| Comprehensive |
|
|
|
| ||||||||||
|
| Shares |
|
|
| Value |
|
| Capital |
|
| Earnings |
|
| Income/(Loss) |
|
| Total |
| ||||||
Three Months Ended March 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Beginning Balance |
|
| 36,163 |
|
|
| $ | 36,163 |
|
| $ | 394,408 |
|
| $ | 545,429 |
|
| $ | 0 |
|
| $ | 976,000 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
| 34,933 |
|
|
|
|
|
| 34,933 |
| ||||
Common stock dividends declared |
|
|
|
|
|
|
|
|
|
|
|
| (13,380 | ) |
|
|
|
|
| (13,380 | ) | ||||
Equity-based compensation plans and other |
|
|
|
|
|
|
|
|
| 158 |
|
|
|
|
|
|
|
|
| 158 |
| ||||
Ending Balance - March 31, 2021 |
|
| 36,163 |
|
|
| $ | 36,163 |
|
| $ | 394,566 |
|
| $ | 566,982 |
|
| $ | 0 |
|
| $ | 997,711 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Three Months Ended March 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Beginning Balance |
|
| 36,163 |
|
|
| $ | 36,163 |
|
| $ | 394,903 |
|
| $ | 596,402 |
|
| $ | 0 |
|
| $ | 1,027,468 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
| 34,420 |
|
|
|
|
|
| 34,420 |
| ||||
Common stock dividends declared |
|
|
|
|
|
|
|
|
|
|
|
| (14,013 | ) |
|
|
|
|
| (14,013 | ) | ||||
Equity-based compensation plans and other |
|
|
|
|
|
|
|
|
| 278 |
|
|
|
|
|
|
|
|
| 278 |
| ||||
Ending Balance - March 31, 2022 |
|
| 36,163 |
|
|
| $ | 36,163 |
|
| $ | 395,181 |
|
| $ | 616,809 |
|
| $ | 0 |
|
| $ | 1,048,153 |
|
|
The accompanying notes are an integral part of the above unaudited consolidated financial statements.
9
Madison Gas and Electric Company
Consolidated Statements of Income (unaudited)
(In thousands)
|
| Three Months Ended |
| Nine Months Ended | ||||
|
| September 30, |
| September 30, | ||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
Operating Revenues: |
|
|
|
|
|
|
|
|
Electric revenues | $ | 120,760 | $ | 119,152 | $ | 321,543 | $ | 313,470 |
Gas revenues |
| 18,779 |
| 17,576 |
| 101,294 |
| 92,390 |
Total Operating Revenues |
| 139,539 |
| 136,728 |
| 422,837 |
| 405,860 |
|
|
|
|
|
|
|
|
|
Operating Expenses: |
|
|
|
|
|
|
|
|
Fuel for electric generation |
| 15,828 |
| 20,507 |
| 39,939 |
| 47,574 |
Purchased power |
| 15,985 |
| 9,171 |
| 48,061 |
| 38,709 |
Cost of gas sold |
| 5,094 |
| 4,320 |
| 50,117 |
| 43,269 |
Other operations and maintenance |
| 41,327 |
| 40,003 |
| 127,355 |
| 123,117 |
Depreciation and amortization |
| 13,372 |
| 11,212 |
| 39,606 |
| 33,334 |
Other general taxes |
| 4,730 |
| 4,846 |
| 14,509 |
| 14,841 |
Income tax provision |
| 14,059 |
| 14,934 |
| 32,080 |
| 32,488 |
Total Operating Expenses |
| 110,395 |
| 104,993 |
| 351,667 |
| 333,332 |
Operating Income |
| 29,144 |
| 31,735 |
| 71,170 |
| 72,528 |
|
|
|
|
|
|
|
|
|
Other Income and Deductions: |
|
|
|
|
|
|
|
|
AFUDC - equity funds |
| 310 |
| 253 |
| 875 |
| 777 |
Equity earnings in MGE Transco |
| - |
| 1,451 |
| - |
| 5,451 |
Income tax provision |
| (663) |
| (606) |
| (754) |
| (2,315) |
Other expense, net |
| 1,488 |
| (62) |
| 1,301 |
| (298) |
Total Other Income and Deductions |
| 1,135 |
| 1,036 |
| 1,422 |
| 3,615 |
Income before interest expense |
| 30,279 |
| 32,771 |
| 72,592 |
| 76,143 |
|
|
|
|
|
|
|
|
|
Interest Expense: |
|
|
|
|
|
|
|
|
Interest on long-term debt |
| 4,995 |
| 5,079 |
| 15,051 |
| 15,284 |
Other interest, net |
| 54 |
| 112 |
| 150 |
| 163 |
AFUDC - borrowed funds |
| (123) |
| (82) |
| (295) |
| (253) |
Net Interest Expense |
| 4,926 |
| 5,109 |
| 14,906 |
| 15,194 |
Net Income | $ | 25,353 | $ | 27,662 | $ | 57,686 | $ | 60,949 |
Less: Net Income Attributable to Noncontrolling |
|
|
|
|
|
|
|
|
Interest, net of tax |
| (5,439) |
| (5,695) |
| (16,224) |
| (17,899) |
Net Income Attributable to MGE | $ | 19,914 | $ | 21,967 | $ | 41,462 | $ | 43,050 |
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the above unaudited consolidated financial statements. |
|
| Three Months Ended |
| |||||
|
| March 31, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Operating Revenues: |
|
|
|
|
|
| ||
Electric revenues |
| $ | 110,127 |
|
| $ | 100,645 |
|
Gas revenues |
|
| 98,811 |
|
|
| 67,270 |
|
Total Operating Revenues |
|
| 208,938 |
|
|
| 167,915 |
|
|
|
|
|
|
|
| ||
Operating Expenses: |
|
|
|
|
|
| ||
Fuel for electric generation |
|
| 13,485 |
|
|
| 13,171 |
|
Purchased power |
|
| 12,543 |
|
|
| 9,355 |
|
Cost of gas sold |
|
| 64,802 |
|
|
| 37,444 |
|
Other operations and maintenance |
|
| 49,746 |
|
|
| 45,538 |
|
Depreciation and amortization |
|
| 21,046 |
|
|
| 18,382 |
|
Other general taxes |
|
| 5,205 |
|
|
| 4,827 |
|
Total Operating Expenses |
|
| 166,827 |
|
|
| 128,717 |
|
Operating Income |
|
| 42,111 |
|
|
| 39,198 |
|
|
|
|
|
|
|
| ||
Other income (expense), net |
|
| 3,519 |
|
|
| (104 | ) |
Interest expense, net |
|
| (6,577 | ) |
|
| (5,753 | ) |
Income before income taxes |
|
| 39,053 |
|
|
| 33,341 |
|
Income tax (provision) benefit |
|
| (7,000 | ) |
|
| 433 |
|
Net Income |
| $ | 32,053 |
|
| $ | 33,774 |
|
Less: Net Income Attributable to Noncontrolling Interest, net of tax |
|
| (4,756 | ) |
|
| (5,501 | ) |
Net Income Attributable to MGE |
| $ | 27,297 |
|
| $ | 28,273 |
|
The accompanying notes are an integral part of the above unaudited consolidated financial statements.
10
Madison Gas and Electric Company
Consolidated Statements of Comprehensive Income (unaudited)
(In thousands)
|
| Three Months Ended |
| Nine Months Ended | ||||
|
| September 30, |
| September 30, | ||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
Net Income | $ | 25,353 | $ | 27,662 | $ | 57,686 | $ | 60,949 |
Other comprehensive income, net of tax: |
|
|
|
|
|
|
|
|
Unrealized (loss) gain on available-for-sale |
|
|
|
|
|
|
|
|
securities, net of tax ($5 and ($5), and $26 and |
|
|
|
|
|
|
|
|
$21, respectively) |
| (7) |
| 8 |
| (38) |
| (31) |
Comprehensive Income | $ | 25,346 | $ | 27,670 | $ | 57,648 | $ | 60,918 |
Less: Comprehensive Income Attributable to |
|
|
|
|
|
|
|
|
Noncontrolling Interest, net of tax |
| (5,439) |
| (5,695) |
| (16,224) |
| (17,899) |
Comprehensive Income Attributable to MGE | $ | 19,907 | $ | 21,975 | $ | 41,424 | $ | 43,019 |
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the above unaudited consolidated financial statements. |
|
Madison Gas and Electric Company
Consolidated Statements of Cash Flows (unaudited)
(In thousands)
|
|
| Nine Months Ended |
| ||
|
|
| September 30, |
| ||
|
|
| 2017 |
| 2016 |
|
| Operating Activities: |
|
|
|
|
|
| Net income | $ | 57,686 | $ | 60,949 |
|
| Items not affecting cash: |
|
|
|
|
|
| Depreciation and amortization |
| 39,606 |
| 33,334 |
|
| Deferred income taxes |
| 2,255 |
| 13,997 |
|
| Provision for doubtful receivables |
| 650 |
| 583 |
|
| �� Employee benefit plan cost |
| 778 |
| 165 |
|
| Equity earnings in MGE Transco |
| - |
| (5,451) |
|
| Gain on sale of property |
| (1,581) |
| - |
|
| Other items |
| 1,344 |
| 1,056 |
|
| Changes in working capital items: |
|
|
|
|
|
| Decrease in current assets |
| 17,536 |
| 32,557 |
|
| Decrease in current liabilities |
| (16,670) |
| (1,783) |
|
| Dividends from MGE Transco |
| - |
| 4,214 |
|
| Cash contributions to pension and other postretirement plans |
| (9,717) |
| (13,134) |
|
| Other noncurrent items, net |
| 2,479 |
| 2,472 |
|
| Cash Provided by Operating Activities |
| 94,366 |
| 128,959 |
|
|
|
|
|
|
|
|
| Investing Activities: |
|
|
|
|
|
| Capital expenditures |
| (66,286) |
| (62,273) |
|
| Capital contributions to investments |
| - |
| (1,598) |
|
| Proceeds from sale of property |
| 1,751 |
| - |
|
| Other |
| (570) |
| (536) |
|
| Cash Used for Investing Activities |
| (65,105) |
| (64,407) |
|
|
|
|
|
|
|
|
| Financing Activities: |
|
|
|
|
|
| Cash dividends paid to parent by MGE |
| (35,000) |
| (40,000) |
|
| Distributions to parent from noncontrolling interest |
| (16,500) |
| (18,113) |
|
| Equity contribution received from noncontrolling interest |
| - |
| 1,598 |
|
| Repayment of long-term debt |
| (33,260) |
| (3,192) |
|
| Issuance of long-term debt |
| 40,000 |
| - |
|
| Proceeds from short-term debt |
| 7,000 |
| - |
|
| Other |
| (315) |
| (47) |
|
| Cash Used for Financing Activities |
| (38,075) |
| (59,754) |
|
|
|
|
|
|
|
|
| Change in cash and cash equivalents |
| (8,814) |
| 4,798 |
|
| Cash and cash equivalents at beginning of period |
| 10,768 |
| 26,760 |
|
| Cash and cash equivalents at end of period | $ | 1,954 | $ | 31,558 |
|
|
|
|
|
|
|
|
| Supplemental disclosures of cash flow information: |
|
|
|
|
|
| Significant noncash investing activities: |
|
|
|
|
|
| Accrued capital expenditures | $ | 12,469 | $ | 10,603 |
|
|
|
|
|
|
|
|
| The accompanying notes are an integral part of the unaudited consolidated financial statements. |
| ||||
|
|
|
|
|
|
|
|
| Three Months Ended |
| |||||
|
| March 31, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Operating Activities: |
|
|
|
|
|
| ||
Net income |
| $ | 32,053 |
|
| $ | 33,774 |
|
Items not affecting cash: |
|
|
|
|
|
| ||
Depreciation and amortization |
|
| 21,046 |
|
|
| 18,382 |
|
Deferred income taxes |
|
| 5,230 |
|
|
| (1,766 | ) |
Provision for doubtful receivables |
|
| 441 |
|
|
| 388 |
|
Employee benefit plan cost (credit) |
|
| (1,678 | ) |
|
| 1,461 |
|
Other items |
|
| 587 |
|
|
| (252 | ) |
Changes in working capital items: |
|
|
|
|
|
| ||
Decrease (increase) in current assets |
|
| 11,810 |
|
|
| (3,037 | ) |
Decrease in current liabilities |
|
| (4,648 | ) |
|
| (4,037 | ) |
Cash contributions to pension and other postretirement plans |
|
| (1,660 | ) |
|
| (1,552 | ) |
Other noncurrent items, net |
|
| (500 | ) |
|
| (1,380 | ) |
Cash Provided by Operating Activities |
|
| 62,681 |
|
|
| 41,981 |
|
|
|
|
|
|
|
| ||
Investing Activities: |
|
|
|
|
|
| ||
Capital expenditures |
|
| (30,778 | ) |
|
| (34,746 | ) |
Other |
|
| (164 | ) |
|
| (462 | ) |
Cash Used for Investing Activities |
|
| (30,942 | ) |
|
| (35,208 | ) |
|
|
|
|
|
|
| ||
Financing Activities: |
|
|
|
|
|
| ||
Cash dividends paid to parent by MGE |
|
| (5,000 | ) |
|
| 0 |
|
Distributions to parent from noncontrolling interest |
|
| (9,000 | ) |
|
| (5,000 | ) |
Repayments of long-term debt |
|
| (1,211 | ) |
|
| (1,182 | ) |
(Repayments of) proceeds from short-term debt |
|
| (5,500 | ) |
|
| 1,500 |
|
Other |
|
| (492 | ) |
|
| (523 | ) |
Cash Used for Financing Activities |
|
| (21,203 | ) |
|
| (5,205 | ) |
|
|
|
|
|
|
| ||
Change in cash, cash equivalents, and restricted cash |
|
| 10,536 |
|
|
| 1,568 |
|
Cash, cash equivalents, and restricted cash at beginning of period |
|
| 7,798 |
|
|
| 6,404 |
|
Cash, cash equivalents, and restricted cash at end of period |
| $ | 18,334 |
|
| $ | 7,972 |
|
|
|
|
|
|
|
| ||
Supplemental disclosures of cash flow information: |
|
|
|
|
|
| ||
Significant noncash investing activities: |
|
|
|
|
|
| ||
Accrued capital expenditures |
| $ | 6,735 |
|
| $ | 8,843 |
|
|
The accompanying notes are an integral part of the above unaudited consolidated financial statements.
11
Madison Gas and Electric Company
Consolidated Balance Sheets (unaudited)
(In thousands)
|
| September 30, | December 31, |
| March 31, |
|
| December 31, |
| |||
ASSETS |
| 2017 |
| 2016 |
| 2022 |
|
| 2021 |
| ||
Current Assets: |
|
|
|
|
|
|
|
|
| |||
Cash and cash equivalents | $ | 1,954 | $ | 10,768 |
| $ | 17,159 |
|
| $ | 6,401 |
|
Accounts receivable, less reserves of $2,950 and $3,017, respectively |
| 38,129 |
| 39,887 | ||||||||
Accounts receivable, less reserves of $8,952 and $6,940, respectively |
| 50,167 |
|
|
| 46,205 |
| |||||
Affiliate receivables |
| 683 |
| 539 |
| 530 |
|
|
| 558 |
| |
Other accounts receivable, less reserves of $372 and $426, respectively |
| 7,529 |
| 6,363 | ||||||||
Other accounts receivable, less reserves of $1,213 and $1,364, respectively |
| 15,242 |
|
|
| 16,092 |
| |||||
Unbilled revenues |
| 21,764 |
| 29,846 |
| 30,839 |
|
|
| 34,812 |
| |
Materials and supplies, at average cost |
| 21,835 |
| 18,561 |
| 30,951 |
|
|
| 29,863 |
| |
Fossil fuel, at average cost |
| 10,017 |
| 9,757 | ||||||||
Fuel for electric generation, at average cost |
| 6,331 |
|
|
| 6,429 |
| |||||
Stored natural gas, at average cost |
| 14,758 |
| 12,819 |
| 5,580 |
|
|
| 15,668 |
| |
Prepaid taxes |
| 12,524 |
| 25,798 |
| 15,193 |
|
|
| 19,379 |
| |
Regulatory assets - current |
| 7,377 |
| 6,414 |
| 2,205 |
|
|
| 1,465 |
| |
Assets held for sale |
| 6,707 |
| 14,813 | ||||||||
Other current assets |
| 10,010 |
| 12,268 |
|
| 11,152 |
|
|
| 11,071 |
|
Total Current Assets |
| 153,287 |
| 187,833 |
|
| 185,349 |
|
|
| 187,943 |
|
Affiliate receivable long-term |
| 3,839 |
| 4,236 |
| 1,456 |
|
|
| 1,589 |
| |
Regulatory assets |
| 146,006 |
| 158,485 |
| 108,271 |
|
|
| 107,547 |
| |
Pension and other postretirement benefit asset |
| 3,471 |
| 2,020 | ||||||||
Pension benefit asset |
| 62,806 |
|
|
| 58,757 |
| |||||
Other deferred assets and other |
| 4,066 |
| 4,353 |
| 26,806 |
|
|
| 27,907 |
| |
Property, Plant, and Equipment: |
|
|
|
|
|
|
|
|
| |||
Property, plant, and equipment, net |
| 1,270,153 |
| 1,244,648 |
| 1,843,150 |
|
|
| 1,828,199 |
| |
Construction work in progress |
| 42,276 |
| 36,790 |
|
| 40,156 |
|
|
| 50,603 |
|
Total Property, Plant, and Equipment |
| 1,312,429 |
| 1,281,438 |
|
| 1,883,306 |
|
|
| 1,878,802 |
|
Investments |
| 423 |
| 487 |
|
| 177 |
|
|
| 230 |
|
Total Assets | $ | 1,623,521 | $ | 1,638,852 |
| $ | 2,268,171 |
|
| $ | 2,262,775 |
|
|
|
|
|
|
|
|
|
| ||||
LIABILITIES AND CAPITALIZATION |
|
|
|
|
|
|
|
|
| |||
Current Liabilities: |
|
|
|
|
|
|
|
|
| |||
Long-term debt due within one year | $ | 4,428 | $ | 4,333 |
| $ | 4,920 |
|
| $ | 4,889 |
|
Short-term debt |
| 7,000 |
| - |
| 0 |
|
|
| 5,500 |
| |
Accounts payable |
| 31,508 |
| 47,790 |
| 44,672 |
|
|
| 64,130 |
| |
Accrued interest and taxes |
| 5,717 |
| 5,440 |
| 9,417 |
|
|
| 10,649 |
| |
Accrued payroll related items |
| 9,981 |
| 11,892 |
| 9,296 |
|
|
| 12,951 |
| |
Regulatory liabilities - current |
| 6,353 |
| 6,910 |
| 24,557 |
|
|
| 9,365 |
| |
Derivative liabilities |
| 8,288 |
| 7,620 |
| 130 |
|
|
| 2,140 |
| |
Other current liabilities |
| 12,079 |
| 19,347 |
|
| 5,324 |
|
|
| 5,968 |
|
Total Current Liabilities |
| 85,354 |
| 103,332 |
|
| 98,316 |
|
|
| 115,592 |
|
Other Credits: |
|
|
|
|
|
|
|
|
| |||
Deferred income taxes |
| 346,278 |
| 343,117 |
| 200,507 |
|
|
| 198,885 |
| |
Investment tax credit - deferred |
| 885 |
| 947 |
| 48,773 |
|
|
| 44,836 |
| |
Regulatory liabilities |
| 28,253 |
| 22,173 |
| 155,096 |
|
|
| 154,298 |
| |
Accrued pension and other postretirement benefits |
| 65,616 |
| 74,347 |
| 72,881 |
|
|
| 73,085 |
| |
Derivative liabilities |
| 34,890 |
| 42,970 | ||||||||
Finance lease liabilities |
| 16,920 |
|
|
| 17,322 |
| |||||
Other deferred liabilities and other |
| 63,942 |
| 66,426 |
|
| 92,126 |
|
|
| 92,152 |
|
Total Other Credits |
| 539,864 |
| 549,980 |
|
| 586,303 |
|
|
| 580,578 |
|
Capitalization: |
|
|
|
|
|
|
|
|
| |||
Common shareholder's equity |
| 493,508 |
| 487,084 |
| 826,104 |
|
|
| 803,807 |
| |
Noncontrolling interest |
| 115,389 |
| 115,665 |
|
| 144,343 |
|
|
| 148,587 |
|
Total Equity |
| 608,897 |
| 602,749 |
|
| 970,447 |
|
|
| 952,394 |
|
Long-term debt |
| 389,406 |
| 382,791 |
|
| 613,105 |
|
|
| 614,211 |
|
Total Capitalization |
| 998,303 |
| 985,540 |
|
| 1,583,552 |
|
|
| 1,566,605 |
|
Commitments and contingencies (see Footnote 7) |
|
|
|
| ||||||||
Commitments and contingencies (see Footnote 8) |
|
|
|
|
|
| ||||||
Total Liabilities and Capitalization | $ | 1,623,521 | $ | 1,638,852 |
| $ | 2,268,171 |
|
| $ | 2,262,775 |
|
|
|
|
| |||||||||
The accompanying notes are an integral part of the above unaudited consolidated financial statements. |
|
The accompanying notes are an integral part of the above unaudited consolidated financial statements.
12
Madison Gas and Electric Company
Consolidated Statements of Common Equity (unaudited)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
| |||||||
|
|
|
|
|
|
|
| Additional |
|
|
|
|
| Other |
|
| Non- |
|
|
|
| |||||||
|
| Common Stock |
|
| Paid-in |
|
| Retained |
|
| Comprehensive |
|
| Controlling |
|
|
|
| ||||||||||
|
| Shares |
|
| Value |
|
| Capital |
|
| Earnings |
|
| Income/(Loss) |
|
| Interest |
|
| Total |
| |||||||
Three Months Ended March 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Beginning balance |
|
| 17,348 |
|
| $ | 17,348 |
|
| $ | 252,917 |
|
| $ | 460,151 |
|
| $ | 0 |
|
| $ | 141,196 |
|
| $ | 871,612 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
| 28,273 |
|
|
|
|
|
| 5,501 |
|
|
| 33,774 |
| ||||
Distributions to parent from |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (5,000 | ) |
|
| (5,000 | ) | |||||
Ending Balance - March 31, 2021 |
|
| 17,348 |
|
| $ | 17,348 |
|
| $ | 252,917 |
|
| $ | 488,424 |
|
| $ | 0 |
|
| $ | 141,697 |
|
| $ | 900,386 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Three Months Ended March 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Beginning balance |
|
| 17,348 |
|
| $ | 17,348 |
|
| $ | 252,917 |
|
| $ | 533,542 |
|
| $ | 0 |
|
| $ | 148,587 |
|
| $ | 952,394 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
| 27,297 |
|
|
|
|
|
| 4,756 |
|
|
| 32,053 |
| ||||
Cash dividends paid to parent by MGE |
|
|
|
|
|
|
|
|
|
|
| (5,000 | ) |
|
|
|
|
|
|
|
| (5,000 | ) | |||||
Distributions to parent from |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (9,000 | ) |
|
| (9,000 | ) | |||||
Ending Balance - March 31, 2022 |
|
| 17,348 |
|
| $ | 17,348 |
|
| $ | 252,917 |
|
| $ | 555,839 |
|
| $ | 0 |
|
| $ | 144,343 |
|
| $ | 970,447 |
|
|
The accompanying notes are an integral part of the above unaudited consolidated financial statements.
13
MGE Energy, Inc., and Madison Gas and Electric Company
Notes to Consolidated Financial Statements (unaudited)
September 30, 2017March 31, 2022
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 The accompanying consolidated financial statements as of The following table presents the components of total cash, cash equivalents, and restricted cash on the consolidated balance sheets. MGE Energy MGE March 31, December 31, March 31, December 31, (In thousands) 2022 2021 2022 2021 Cash and cash equivalents $ 26,374 $ 17,438 $ 17,159 $ 6,401 Restricted cash 641 847 641 847 Receivable - margin account 534 550 534 550 Cash, cash equivalents, and restricted cash $ 27,549 $ 18,835 $ 18,334 $ 7,798 Cash Equivalents Restricted Cash MGE has certain cash accounts that are restricted to uses other than current operations and Receivable – Margin Account The net book value of our ownership share of this generating unit was $156.7 million as of March 31, 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 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 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, MGE Transco and MGEE Transco have accounted for their Three Months Ended Nine Months Ended September 30, September 30, (In thousands) 2017 2016 2017 2016 Equity earnings from investment in ATC $ 2,338 $ 2,023 $ 7,432 $ 6,023 Dividends from ATC(a) 2,070 1,486 4,070 4,214 Capital contributions to ATC 710 888 3,018 1,598 Three Months Ended March 31, (In thousands) 2022 2021 Equity earnings from investment in ATC $ 2,478 $ 2,420 Dividends received from ATC 2,001 1,967 Capital contributions to ATC 1,243 0 In April 2022, MGE Transco ATC's summarized financial data Three Months Ended Nine Months Ended September 30, September 30, (In thousands) 2017 2016 2017 2016 Operating revenues $ 171,123 $ 158,126 $ 522,402 $ 476,591 Operating expenses (85,063) (80,271) (250,116) (241,034) Other income, net 796 1,128 1,615 2,563 Interest expense, net (28,273) (24,624) (81,188) (73,714) Earnings before members' income taxes $ 58,583 $ 54,359 $ 192,713 $ 164,406 Three Months Ended March 31, (In thousands) 2022 2021 Operating revenues $ 190,999 $ 188,694 Operating expenses (95,491 ) (95,104 ) Other income, net 404 378 Interest expense, net (28,440 ) (28,871 ) Earnings before members' income taxes $ 67,472 $ 65,097 MGE receives transmission and other related services from ATC. During the three The consolidated income tax provision differs from the amount computed by applying the statutory federal income tax rate to income before income taxes, as follows: MGE Energy MGE Three Months Ended March 31, 2022 2021 2022 2021 Statutory federal income tax rate 21.0 % 21.0 % 21.0 % 21.0 % State income taxes, net of federal benefit 6.3 6.3 6.3 6.3 Amortized investment tax credits (0.7 ) (1.6 ) (0.8 ) (1.8 ) Credit for electricity from wind energy (5.4 ) (7.1 ) (6.0 ) (7.8 ) AFUDC equity, net (0.5 ) (0.6 ) (0.5 ) (0.6 ) Amortization of utility excess deferred tax - tax reform(a) (1.9 ) (16.7 ) (1.8 ) (18.3 ) Other, net, individually insignificant (0.2 ) 0 (0.3 ) (0.1 ) Effective income tax rate 18.6 % 1.3 % 17.9 % (1.3 ) % March 31, 2022, MGE recognized $ MGE maintains qualified and nonqualified pension plans, health care, and life insurance 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. 16 The following table presents the components of net periodic benefit costs Three Months Ended March 31, (In thousands) 2022 2021 Pension Benefits Components of net periodic benefit cost: Service cost $ 1,337 $ 1,422 Interest cost 2,796 2,272 Expected return on assets (7,851 ) (7,375 ) Amortization of: Prior service credit (5 ) (31 ) Actuarial loss 724 1,580 Net periodic benefit (credit) cost $ (2,999 ) $ (2,132 ) Postretirement Benefits Components of net periodic benefit cost: Service cost $ 333 $ 351 Interest cost 491 384 Expected return on assets (843 ) (817 ) Amortization of: Transition obligation 1 1 Prior service credit (74 ) (380 ) Actuarial loss 48 109 Net periodic benefit (credit) cost $ (44 ) $ (352 ) 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 During the three months ended March 31, 2022, MGE returned $1.0 million of savings from 2021 employee benefit Three Months Ended Nine Months Ended September 30, September 30, (In thousands) 2017 2016 2017 2016 Pension Benefits Components of net periodic benefit cost: Service cost $ 1,351 $ 1,413 $ 4,043 $ 4,358 Interest cost 3,168 3,161 9,481 9,744 Expected return on assets (5,762) (5,724) (17,244) (17,646) Amortization of: Prior service (credit) cost (4) 3 (12) 8 Actuarial loss 1,594 1,388 4,769 4,278 Net periodic benefit cost $ 347 $ 241 $ 1,037 $ 742 Postretirement Benefits Components of net periodic benefit cost: Service cost $ 315 $ 361 $ 944 $ 1,084 Interest cost 678 753 2,034 2,258 Expected return on assets (722) (787) (2,165) (2,360) Amortization of: Transition obligation 1 1 2 3 Prior service credit (667) (744) (2,001) (2,233) Actuarial loss 190 178 570 533 Net periodic benefit credit $ (205) $ (238) $ (616) $ (715) As of March 31, 2022, 7,492 shares were included in the calculation of diluted earnings per share related to nonvested equity awards. See Footnote 7 for additional information on share-based compensation awards. During the three 17 In January In February 2022, MGE issued 10,395 performance units and 15,931 restricted stock units under the MGE recognizes stock-based compensation expense on a straight-line basis over the 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 These initiatives, proposed rules, and court challenges include: In July 2021, the The Elm Road Blount's WPDES permit assumes that the plant meets BTA standards for the duration of the permit, which expires in 2023. Before the next permit renewal, MGE 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 18 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 2022 and effective in 2023. Management believes that the BTA determination at Blount will not be material for MGE. Columbia's river intakes are In October 2021, as part of the The Elm Road Units are located in Milwaukee County, Wisconsin, a nonattainment area. The Wisconsin Department of Natural Resources (WDNR) must develop a State 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) air levels in areas that the If finalized, the proposed rule would be effective beginning with the 2023 ozone season and start with emissions budgets that can be achieved with what the EPA 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. 19 Wisconsin would need to submit a State Implementation Plan (SIP) to meet its obligations or accept the EPA's proposed FIP. MGE is currently evaluating the proposed rule to determine potential impacts to our business. MGE expects the rule, if finalized as written, to impact our fossil-fueled generation assets. However, we will not know the impact of this rule with any certainty until it is finalized. We will continue to monitor rule developments. 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 to meet ongoing CSAPR obligations for the foreseeable future. Review of MGE is involved in various legal matters that are being defended and handled in the normal course of business. MGE Certain environmental groups filed petitions against the PSCW regarding MGE's two most recent rate settlements. MGE has intervened in the petitions in cooperation with the PSCW. See Footnote 9.a. for more information regarding this matter. MGE (In thousands) 2017 2018 2019 2020 2021 Thereafter Coal(a) $ 6,402 $ 19,685 $ 13,497 $ 3,445 $ - $ - Natural gas Transportation & storage(b) 6,073 20,839 19,680 15,423 8,660 24,373 Supply(c) 11,243 11,817 - - - - $ 23,718 $ 52,341 $ 33,177 $ 18,868 $ 8,660 $ 24,373 (In thousands) 2022 2023 2024 2025 2026 Thereafter Coal(a) $ 17,825 $ 14,023 $ 8,299 $ 2,862 $ 0 $ 0 23 of Notes to Consolidated Financial Statements under Item 8, Financial Statements and Supplementary Data, of MGE Energy's and MGE's 20162021 Annual Report on Form 10-K (the 20162021 Annual Report on Form 10-K).Prior to December 1, 2016, MGE Transco was jointly owned by MGE Energy and MGE. MGE's ownership interest in MGE Transco declined below a majority in July 2016. As a result of the change in majority ownership in MGE Transco in July 2016, MGE deconsolidated MGE Energy's proportionate share of the equity in MGE Transco. The change in consolidation was applied prospectively by reducing its investment and noncontrolling interest on MGE's consolidated financial statements. On December 1, 2016, MGE's ownership interest in MGE Transco was transferred to MGE Energy. See Footnote 3 for further discussion.September 30, 2017,March 31, 2022, and forduring the three and nine months ended March 31, 2022, 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 20162021 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 5461 through 104115 of the 20162021 Annual Report on Form 10-K.EquityAll highly liquid investments purchased with an original maturity of three months or less are considered to be cash equivalents.Financing Arrangements - MGE Energy.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.
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.a.14Common Stock.Columbia.MGE Energy sells sharesAn asset that will be retired in the near future and substantially in advance of its common stock throughpreviously 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 to retire Unit 1 by the end of 2023 and Unit 2 by the end of 2024. Final timing and retirement dates are subject to change depending on operational, regulatory, and other factors. As of March 31, 2022, early retirement of Columbia was probable.Stock Plan. Those shares may2023 electric 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.newly issued shares or sharesrequired. An impairment loss would be recorded for the difference of the remaining net book value of the generating unit that MGE Energy has purchased inis greater than the open market for resalepresent value of the amount expected to participants in the Stock Plan. All sales under the Stock Plan are covered by a shelf registration statement that MGE Energy filed with the SEC. For both the three and nine months ended September 30, 2017 and 2016, MGE Energy did not issue any new sharesbe recovered from ratepayers. NaN impairment was recorded as of common stock under the Stock Plan.March 31, 2022.b.Dilutive Shares Calculation.MGE Energy does not have any stock option or stock award programs or any dilutive securities.c.Long-term DebtOn January 13, 2017, MGE Energy and MGE reviewed FASB authoritative guidance recently issued, $40 millionnone of 3.76% senior unsecured notes due January 15, 2052. MGE used the net proceeds from the salewhich are expected to have a material impact on their consolidated results of senior notes to refinance $30 million of medium-term notes, which matured in January 2017, and assist with the financing of additional capital expenditures. The long-term debt carries an interest rate of 3.76% per annum over its 35-year term. The covenants of this debt are substantially consistent with MGE's existing unsecured long-term debt.On October 2, 2017, MGE issued $30 million of 3.11% senior unsecured notes due October 1, 2027. MGE will use the net proceeds from the sale of senior notes to cover capital expenditures and other corporate obligations. The long-term debt carries an interest rate of 3.11% per annum over its 10-year term. The covenants of this debt are substantially consistent with MGE's existing unsecured long-term debt.
operations, financial condition, or cash flows.14which, asa subsidiary of December 1, 2016, is owned solely by MGE Energy. ATC Holdco was formed by several members of ATC, including MGE Energy, to pursue electric transmission development and investments outside of Wisconsin. The ownership interest in ATC Holdco is held by MGEE Transco, a wholly-owned subsidiary of MGE Energy.investmentinvestments in ATC and ATC Holdco, respectively, under the equity method of accounting. Equity earnings from investments are recorded as "Other income" on MGE Energy'sthe consolidated statements of income. For the three and nine months ended September 30, 2017 and 2016,income of MGE Energy. MGE Transco recorded the following:following amounts related to its investment in ATC:As ofATC Holdco was formed in December 31, 2016,2016. ATC Holdco's transmission development activities have been suspended for the near term.recordedmade a $2.1$0.5 million receivable from ATC for a cash dividend received in January 2017.capital contribution to ATC.
15ATC Holdco's activities commenced in late December 2016 and had an immaterial impact on results of operations, cash flows, and financial condition.At September 30, 2017, and December 31, 2016, MGE Transco held a 3.6% ownership interest in ATC. At September 30, 2017, and December 31, 2016, MGEE Transco held a 4.4% and 4.0% ownership interest in ATC Holdco, respectively.In June 2016, the PSCW required MGE to transfer its interest in ATC to MGE Energy, which was to be completed by December 31, 2022. The requirement arose in the context of requests for regulatory approvals by several owners of ATC in connection with a reorganization of ATC. MGE's ownership interest in ATC, held through MGE Transco, was transferred net of deferred tax liabilities to MGE Energy by way of a dividend in kind of $15.8 million as of December 1, 2016. As a result of the transfer, MGE's ownership interest in MGE Transco was completely eliminated in favor of MGE Energy. The change had no effect on MGE Energy's consolidated financial statements.for the three and nine months ended September 30, 2017 and 2016, is as follows:and nine months ended September 30, 2017,March 31, 2022 and 2021, MGE recorded $7.3$7.9 million and $21.9$8.0 million, respectively, for transmission services received compared to $7.4 million and $22.1 million for the comparable periods in 2016.services. MGE also provides a variety of operational, maintenance, and project management serviceswork for ATC, which is reimbursed by ATC. As of September 30, 2017,March 31, 2022, and December 31, 2016,2021, MGE had a receivable due from ATC of $0.1 million.
$8.1 million and $7.0 million, respectively. The receivable is primarily related to Badger Hollow I and II. MGE is reimbursed for these costs after the new generation assets are placed into service.15
Effective Tax Rate.MGE Energy's effectiveSeptember 30,March 31, 2022 and 2021, MGE recognized $1.0 million and $0.7 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 and 2016, was 36.9% and 36.1%, respectively. MGE's effective income tax rate forTax Act not restricted by IRS normalization rules. For the three months ended September 30, 2017 and 2016, was 36.7% and 36.0%, respectively. For bothMarch 31, 2021, MGE Energy and MGE, the increaserecognized $3.3 million. Included in the effective tax2022 and 2023 rate is due in partsettlement was a net collection from customers of the gas portion of deficient deferred taxes related to lower estimated federal tax credits.MGE Energy's effective income tax rate for the nine2017 Tax Act not restricted by IRS normalization rules. For the three months ended September 30, 2017 and 2016, was 36.6% and 36.4%, respectively. MGE's effective income tax rate for the nine months ended September 30, 2017 and 2016, was 36.3% and 36.4%, respectively.benefits. Additionally, MGE hasbenefits and defined contribution 401(k) benefit plans.plans for its employees and retirees.recognized forrecognized.and nine months ended September 30, 2017March 31, 2022 and 2016. A portion2021, MGE recovered $0.3 million and $3.4 million of pension and other postretirement costs, respectively. The recovery of these costs reduced the net periodicamount previously deferred and has not been reflected in the table above.cost is capitalized withinplan costs. The deferred savings has not been reflected in the consolidated balance sheets.table above.
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 under the Stock Plan are covered by a shelf registration statement that MGE Energy filed with the SEC. During the three months ended March 31, 2022 and 2021, MGE Energy issued 0 new shares of common stock under the Stock Plan.CompensationCompensation - MGE Energy and MGE.Under MGE Energy's Director Incentive Plan and its Performance Unit Plan, non-employee directors and eligible employees may receive performance units that entitle the holder to receive a cash payment equal to the value of a designated number of shares of MGE Energy's common stock, plus dividend equivalent payments thereon, at the end of the set performance period.In January 2017, 4,032 units were granted under the Director Incentive Plan and are subject to a three-year graded vesting schedule. In March 2017, 14,704 units were granted under the Performance Unit Plan and are subject to a five-year graded vesting schedule. On the grant date, MGE Energy and MGE measure the cost of the director or employee services received in exchange for a performance unit award based on the current market value of MGE Energy common stock. The fair value of the awards is re-measured quarterly, including at September 30, 2017, as required by applicable accounting standards. Changes in fair value as well as the original grant are recognized as compensation cost. Since this amount is re-measured throughout the vesting period, the compensation cost is subject to variability.16For nonretirement eligible employees under the Performance Unit Plan, stock based compensation costs are accrued and recognized using the graded vesting method. Compensation cost for retirement eligible employees or employees that will become retirement eligible during the vesting schedule are recognized on an abridged horizon.and nine months ended September 30, 2017,March 31, 2022 and 2021, MGE recorded $0.3$0.4 million and $1.0$0.7 million, respectively, in compensation expense as a result ofrelated to share-based compensation awards under the plans compared to $0.2 million2006 Performance Unit Plan, the 2020 Performance Unit Plan, the 2013 Director Incentive Plan, and $2.0 million for the comparable periods in 2016. 2021 Long-Term Incentive Plan (2021 Plan).2017,2022, cash payments of $2.0$1.8 million were distributed accordingrelated to awards that were granted in 2019, for the terms of2013 Director Incentive Plan, and in 2017, for the awards granted earlier2006 Performance Unit Plan.plans that had reached their payment dates. No forfeitures of units occurred during2021 Plan to eligible employees and non-employee directors.three and nine months ended September 30, 2017 and 2016. At September 30, 2017, $5.1 million of outstandingrequisite service period. Awards classified as equity awards are vested,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 this amount, no cash settlements have occurred.common stock, and therefore are classified as equity awards.Commitments
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. Final timing and retirement dates are subject to change depending on operational, regulatory, and other factors. Effects of environmental compliance requirements discussed below will depend upon the final retirement dates approved and compliance requirement dates.they conduct their operations are conducted, the costs of those operations, as well as capital and operating expenditures. Several of these environmental rules are subject to legal challenges, reconsideration and/or other uncertainties. Regulatory initiatives, proposed rules, and court challenges to adopted rules have the potential tocould have a material effect on our capital expenditures and operating costs. Management believes compliance costs will be recovered in future rates based on previous treatment of environmental compliance projects.publishedpromulgated water effluent limitations guidelinesEffluent 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, such asplants.coal-burning plants at ColumbiaPSCW approved a Certificate of Authority (CA) application filed by MGE and the other owners of Columbia. The CA application commits to close Columbia's wet pond system (as described in further detail in the CCR section below). By committing to close the wet pond system, Columbia will be in compliance with ELG requirements.Units.Units must satisfy the ELG rule's requirements no later than December 2023, as determined by the permitting authority. In December 2021, the PSCW approved a CA application for installation of additional wastewater treatment equipment to comply with the ELG Rule. MGE's share of the estimated costs to comply with the rule is estimated to be approximately $4 million. Construction began in March 2022. which require cooling water intake structures at electric power plants such as our WCCF, Blount, and Columbia plants,to meet best technology available technology(BTA) standards so thatto reduce the mortality from entrainment (drawing aquatic life into a plant's cooling system) and impingement (trapping aquatic life on screens).reduced.subject to this rule. BTA improvements may not be required given that the owners are planning to retire both units by the end of 2024. 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.existing fossil fuel-fired electric generating units (EGUs), including existing and systems (the Clean Power Plan,proposed regulations governing existing, new or CPP). Implementationmodified fossil-fuel generating units.rule is expected to have a direct impact on existing coal and natural gas fired generating units, including possible changes in dispatch and additional operating costs. In May 2017,Biden administration's Unified Agenda, the EPA requested the U.S. Court of Appeals for the D.C. Circuit to put on hold, indefinitely, any ongoing challenges to the rules while the EPA reviews the rule and undertakes any potential rulemaking. In October 2017, the EPA published a proposed rule announcing the EPA'sannounced their intention to repeal the CPPintroduce a new set of emission guidelines for states to follow in submitting state plans to establish and has sought public comment on whether to replace the rule, and if so how. Given the pending legal proceedings, and the EPA's recent proposal, the nature and timingimplement standards of any final requirements to control GHGperformance for greenhouse gas emissions from existing fossil fuel-fired EGUs is subjectEGUs. In late 2021, the US Supreme Court agreed to uncertainty. If a rule is implemented substantially in its present form, it is expectedhear arguments regarding the extent of EPA's authority to have a material impact on MGE.regulate greenhouse gases from electric generation units under the Clean Air Act. MGE will continue to monitorevaluate greenhouse gas rule developments, with this proposed rule.including any further Supreme Court decisions on the EPA's authority to regulate greenhouse gases.Federal and state air quality regulations impose restrictions on various emissions including emissions of sulfur dioxide (SO2), nitrogen dioxide (NO2), and other pollutants, and may require permits for operation of emission sources.•a pollutantozone through the 2015 Ozone National Ambient Air Quality Standards (NAAQS).of Wisconsin has joined a lawsuit filed by several states challengingImplementation Plan (SIP) for the EPA'sarea, which will likely result in more stringent requirements for both constructing new ozone standard, alleging thatdevelopment and modifying or expanding existing plants in the new standard is not attainable and the EPA is not properly considering background levels in setting its ozone attainment levels. Oral arguments in this case were delayed following a request by the EPA. The EPA missed its regulatory deadline to17designate areas as attainment or nonattainment under the 2015 standard.area. MGE will continue to monitor the EPA's progress on attainment designationsWDNR's SIP development and the extent to assess potential impacts at our facilities, particularly ourwhich 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.SOsulfur dioxide (SO2) emissions, including the Cross State Air Pollution Rule (CSAPR) and Clean Air Visibility Rule (CAVR). At this time, regulatory obligations, compliance strategies, and costs remain uncertain due to uncertainties surrounding the ongoing implementation of Phase II ofRule.continued legal challenges surroundingEPA has determined as being significantly impacted by pollution from upwind states. This is accomplished in the CSAPR through a reduction in SO2and CAVR.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 April 2022, the 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 current obligations for fossil-fuel power generation as well as the new limitations for certain industries. coal ash 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. The CCR rule 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 extension to initiate closure by October 2022. The EPA has not formally approved the extension. The Columbia owners anticipate that the EPA will approve the extension request. However, we will not know the outcome of the extension request with any certainty until the EPA makes a final decision on this request.In the interim, the EPA determined that the extension demonstration is complete and confirmed that the deadline to cease placement of CCR and non-CCR wastewaters in the primary pond is tolled pending a final decision.ourthe Elm Road Units has indicated that the costs to comply with thisthe CCR rule are not expected to be significant. Columbia's operator has developedIn July 2021, the PSCW approved a preliminary implementation schedule for meetingCA application filed by MGE and the various deadlines spelled out inother owners of Columbia to install technology required to cease bottom ash transport water discharges rather than extend the rule. Costslongevity of the ash ponds. Pending the EPA’s final approval of closure plans at Columbia, MGE's share of the estimated costs of the project will be dependent on whatapproximately $4 million. Construction is determined duringexpected to be completed by the evaluation stage.The matters in the bullet points above are discussed further in Footnote 17.c. in the Financial Statementsend of the 2016 Annual Report on Form 10-K.2022.maintains accrualsaccrues for such costs that are probable of being incurred and subject to reasonable estimation. The accrued amount for these matters is not material to the financial statements. MGE does not expect the resolution of these matters to have a material adverse effect on its consolidated results of operations, financial condition, or cash flows.c.hasEnergy and MGE have entered into various commodity supply, transportation, and storage contracts to meet its obligationtheir obligations to deliver electricity and natural gas to customers. Management expects to recover these costs in future customer rates. As of September 30, 2017, theThe following table shows future commitments related to these purchase contracts were as follows:of March 31, 2022:
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.
These commitments include market-based pricing.
d.
Other Commitments - MGE Energy.
In May 2017, MGE Energy entered into a subscription agreement to invest in a nonpublic venture capital fund. From time to time, this entity will require capital infusions from its investors. MGE Energy has committed to contribute $5 million in capital for such infusions. The timing of these infusions is dependent on the needs of the investee and is therefore uncertain at this time.
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In April 2022, MGE filed with the PSCW a proposed electric limited 2023 rate case reopener. The limited reopener proposes a 4.38% increase for electric rates in 2023. 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. The reopener also revises the depreciation schedule for 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 pending. A final order is expected before the end of the year.
In December 2016,2021, the PSCW authorized MGE, effective January 1, 2017, to decrease 2017 ratesapproved a settlement agreement for retail electric customers by 0.8% or $3.3 million onMGE's 2022 rate case. The settlement agreement provides for an annual basis and to8.81% increase rates for retail gas customers by 1.9% or $3.1 million on an annual basis. The decrease in retail electric rates is attributable to decliningand a 2.15% increase for gas rates in 2022. 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. Thecosts as well as 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 electric residential rate is a reduction in the customer charge. As part of the settlement agreement, for 2023, the PSCW approved a 0.96% increase in retail gas rates covers costs associated with MGE's natural gas system infrastructure improvements.and to address a potential electric rate change through a limited rate case reopener. The authorized return on common stock equity for 20172022 and 2023 is 9.8%9.8% based on a capital structure consisting of 57.2%55.6% common equity.
In December 2020, the PSCW approved a settlement agreement for MGE's 2021 rate case. The PSCWsettlement agreement provided for a 0 percent increase for electric rates and an approximately 4% increase for gas rates in 2021. The electric rate settlement included an increase in rate base but the associated rate increase was primarily offset by lower fuel and 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 was 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 covered infrastructure costs and technology improvements. The settlement agreement also approved MGE's request to extend the currentincluded escrow accounting treatment for transmission relatedpension and other postretirement benefit costs, through 2018. Thisbad debt expense, and customer credit card fees. Escrow accounting treatment allows MGE to reflectdefer any differentialdifference between transmissionestimated costs reflected in rates and actual costs incurred until a future rate filing. Any difference would be recorded as a regulatory asset or regulatory liability. The return on common stock equity for 2021 was 9.8% based on a capital structure of 55.8% common equity in 2021.
Sierra Club and Vote Solar have filed petitions with the Dane County Circuit Court seeking review of the PSCW decision approving MGE's two most recent rate settlements (2021 and 2022/2023). The PSCW is named as the responding party; MGE is not named as a party. The petitions challenge the process the PSCW used to approve the portion of the 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 settlements have not been challenged. The PSCW is expected to vigorously defend its nextapproval of the rate case filing.
In July 2015,settlements. MGE has intervened in the PSCW approved MGE's requestproceedings to extendfurther defend the current accounting treatment for transmission related costs through 2016, conditioned upon MGE not filing a base rate case for 2016. MGE did not file a base rate case for 2016.PSCW's decision.
Fuel rules require the PSCW and Wisconsin utilities to defer electric fuel-related costs that fall outside a symmetrical cost tolerance band around the amount approved for a utility in its annual fuel proceedings. Any over/under recoveryover- 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 currently set at plus or minus 2%1%. Under fuel rules, MGE would deferdefers costs, less any excess revenues, if its actual electric fuel costs exceeded 102%exceed 101% of the electric fuel costs allowed in its latest rate order. Excess revenues are defined as revenues in the year in question that provide MGE with a greater return on common equity than authorized by the PSCW in MGE's latest rate order. Conversely, MGE is required to defer the benefit of lower costs if actual electric
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fuel costs were less than 98%99% of the electric fuel costs allowed in that order. These costs are subject to the PSCW's annual review of fuel costs completed in the year following the deferral.
In August 2015,The PSCW issued a final decision in the PSCW approved a $0.00256/kWh2019 fuel credit that began on September 1, 2015, and continued throughout 2016. MGE returned $2.6rules proceedings regarding $1.5 million of electric fuel-relateddeferred savings giving MGE the option either to use the $1.5 million as part of the settlement to MGE's 2021 rate case or to refund the balance to customers through bill credits duringin October 2020. MGE elected to include the periodsavings 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. There was no change to the refund in the fuel rules proceedings from the amount MGE deferred in the previous year.
In September 1, 2015, through December 31, 2015. MGE returned $8.3 million of electric fuel-related savings during the year ended December 31, 2016.
In July 2016,2021, the PSCW issued a final orderdecision in the 2020 fuel rules proceedings requiringfor MGE to refund additional fuel savings realized during 2015 and 2016 to its retail electric customers over a one-month period. In September 2016, MGE returned $15.5 million to customers through bill credits.
In July 2017, the PSCW issued a final order in the fuel rules proceedings requiring MGE to refund $6.0$3.2 million of additional fuel savings realized during 2015 and 20162020 plus accrued interest to its retail electric customers over a one-month period in October 2017.2021. There was no change to the refund in the fuel rules proceedings from the amount MGE deferred in the previous year.
MGE has under recovered fuel costs in 2021. As of September 30, 2017,December 31, 2021, MGE hashad deferred $3.3$3.3 million of 20172021 fuel savings. The 2017 fuel savingscosts. These costs will be subject to the PSCW's annual review of 20172021 fuel costs, expected to be completed in 2018.2022. MGE has proposed to include these costs as part of the 2023 electric limited reopener.
9.As of March 31, 2022, MGE had 0 deferred 2022 fuel savings or costs.
Derivative
a.
Purpose.
As part of its regular operations, MGE enters into contracts, including options, swaps, futures, forwards, and other contractual commitments, to manage its exposure to commodity prices. To the extent that these contracts are derivatives, MGE assesses whether or not the normal purchases or normal sales exclusion applies. For contracts to which this exclusion cannot be applied, the derivatives are recognized in the consolidated balance sheets at fair value. MGE's financial commodity derivative activities are conducted in accordance with its electric and gas risk management program, which is approved by the PSCW and limits the volume MGE can hedge with specific risk management strategies. The maximum length of time over which cash flows related to energy commodities can be hedged is four years.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
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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.
The gross notional volume of open derivatives is as follows:
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| March 31, 2022 |
| December 31, 2021 | ||||||||
Commodity derivative contracts |
|
| 369,960 |
|
| MWh |
|
| 278,000 |
|
| MWh |
Commodity derivative contracts |
|
| 3,260,000 |
|
| Dth |
|
| 5,735,000 |
|
| Dth |
FTRs |
|
| 858 |
|
| MW |
|
| 2,127 |
|
| MW |
PPA |
|
| 100 |
|
| MW |
|
| 250 |
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| MW |
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 FTRs.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
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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. At September 30, 2017,As of March 31, 2022, and December 31, 2016,2021, the fair value of exchange traded derivatives and FTRs exceeded their cost basis by $0.9$9.8 million and $1.3$2.8 million, respectively.
MGE is a party to a purchased power agreement that provides MGE with firm capacity and energy during a base term from June 1, 2012, through May 31, 2022. The agreement also allows MGE an option to extend the contract after the base term. The agreement is accounted for as a derivative contract and is recognized at its fair value on the consolidated balance sheets. However, the derivative qualifies for regulatory deferral and is recognized with a corresponding regulatory asset or liability depending on whether the fair value is in a loss or gain position. The fair value of the contract at September 30, 2017,as of March 31, 2022, and December 31, 2016, reflects2021, reflected a loss position of $43.1$0.1 million and $50.6$2.1 million, respectively. The actual cost will be recognized in purchased power expense in the month of purchase.
The following table summarizes the fair value of the derivative instruments on the consolidated balance sheets.Allsheets. 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.
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| Derivative |
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| Derivative |
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(In thousands) |
| Assets |
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| Liabilities |
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| Balance Sheet Location | ||
March 31, 2022 |
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Commodity derivative contracts(a) |
| $ | 9,518 |
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| $ | 325 |
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| Other current assets |
Commodity derivative contracts(a) |
|
| 626 |
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|
| 32 |
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| Other deferred charges |
FTRs(a) |
|
| 0 |
|
|
| 16 |
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| Derivative liability (current) |
PPA |
| N/A |
|
|
| 130 |
|
| Derivative liability (current) | |
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December 31, 2021 |
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Commodity derivative contracts(a) |
| $ | 2,959 |
|
| $ | 811 |
|
| Other current assets |
Commodity derivative contracts(a) |
|
| 420 |
|
|
| 38 |
|
| Other deferred charges |
FTRs |
|
| 227 |
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|
| 0 |
|
| Other current assets |
PPA |
| N/A |
|
|
| 2,140 |
|
| Derivative liability (current) |
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| Derivative |
| Derivative |
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| (In thousands) |
| Assets |
| Liabilities |
| Balance Sheet Location |
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| September 30, 2017 |
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|
|
| Commodity derivative contracts(a) | $ | 857 | $ | 560 |
| Other current assets(b) |
|
| Commodity derivative contracts(a) |
| 112 |
| 122 |
| Other deferred charges |
|
| FTRs |
| 567 |
| - |
| Other current assets |
|
| PPA |
| N/A |
| 8,240 |
| Derivative liability (current) |
|
| PPA |
| N/A |
| 34,890 |
| Derivative liability (long-term) |
|
|
|
|
|
|
|
|
|
|
| December 31, 2016 |
|
|
|
|
|
|
|
| Commodity derivative contracts(a) | $ | 1,227 | $ | 164 |
| Other current assets |
|
| Commodity derivative contracts(a) |
| 157 |
| 54 |
| Other deferred charges |
|
| FTRs |
| 143 |
| - |
| Other current assets |
|
| PPA |
| N/A |
| 7,620 |
| Derivative liability (current) |
|
| PPA |
| N/A |
| 42,970 |
| Derivative liability (long-term) |
|
|
As of September 30, 2017, and December 31, 2016, no collateral was posted against and netted with derivative liability positions on the consolidated balance sheets.
As of September 30, 2017, $0.1 million was presented as current derivative liabilities on the consolidated balance sheets.
The following tables show the effect of netting arrangements for recognized derivative assets and liabilities that are subject to a master netting arrangement or similar arrangement on the consolidated balance sheets.
| Offsetting of Derivative Assets |
| ||||||||
| (In thousands) |
| Gross Amounts |
| Gross Amounts Offset in Balance Sheets |
| Collateral Posted Against Derivative Positions |
| Net Amount Presented in Balance Sheets |
|
| September 30, 2017 |
|
|
|
|
|
|
|
|
|
| Commodity derivative contracts | $ | 969 | $ | (634) | $ | - | $ | 335 |
|
| FTRs |
| 567 |
| - |
| - |
| 567 |
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2016 |
|
|
|
|
|
|
|
|
|
| Commodity derivative contracts | $ | 1,384 | $ | (218) | $ | - | $ | 1,166 |
|
| FTRs |
| 143 |
| - |
| - |
| 143 |
|
Offsetting of Derivative Assets
| Offsetting of Derivative Liabilities |
| ||||||||
| (In thousands) |
| Gross Amounts |
| Gross Amounts Offset in Balance Sheets |
| Collateral Posted Against Derivative Positions |
| Net Amount Presented in Balance Sheets |
|
| September 30, 2017 |
|
|
|
|
|
|
|
|
|
| Commodity derivative contracts | $ | 682 | $ | (634) | $ | - | $ | 48 |
|
| PPA |
| 43,130 |
| - |
| - |
| 43,130 |
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2016 |
|
|
|
|
|
|
|
|
|
| Commodity derivative contracts | $ | 218 | $ | (218) | $ | - | $ | - |
|
| PPA |
| 50,590 |
| - |
| - |
| 50,590 |
|
(In thousands) |
| Gross Amounts |
|
| Gross Amounts Offset in Balance Sheets |
|
| Collateral Posted Against Derivative Positions |
|
| Net Amount Presented in Balance Sheets |
| ||||
March 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Commodity derivative contracts |
| $ | 10,144 |
|
| $ | (357 | ) |
| $ | (6,911 | ) |
| $ | 2,876 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
December 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Commodity derivative contracts |
| $ | 3,379 |
|
| $ | (849 | ) |
| $ | (1,254 | ) |
| $ | 1,276 |
|
FTRs |
|
| 227 |
|
|
| 0 |
|
|
| 0 |
|
|
| 227 |
|
23
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 |
| ||||
March 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Commodity derivative contracts |
| $ | 357 |
|
| $ | (357 | ) |
| $ | 0 |
|
| $ | 0 |
|
FTRs |
|
| 16 |
|
|
| 0 |
|
|
| (16 | ) |
|
| 0 |
|
PPA |
|
| 130 |
|
|
| 0 |
|
|
| 0 |
|
|
| 130 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
December 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Commodity derivative contracts |
| $ | 849 |
|
| $ | (849 | ) |
| $ | 0 |
|
| $ | 0 |
|
PPA |
|
| 2,140 |
|
|
| 0 |
|
|
| 0 |
|
|
| 2,140 |
|
The following tables summarize the unrealized and realized gains (losses)gains/losses related to the derivative instruments on the consolidated balance sheets at September 30, 2017 and 2016, and the consolidated income statements for the three and nine months ended September 30, 2017 and 2016.of income.
|
| 2017 |
|
| 2016 | ||||
(In thousands) |
| Current and Long-Term Regulatory Asset |
| Other Current Assets |
|
| Current and Long-Term Regulatory Asset |
| Other Current Assets |
Three Months Ended September 30: |
|
|
|
|
|
|
|
|
|
Balance at July 1, | $ | 45,316 | $ | 618 |
| $ | 50,521 | $ | 659 |
Unrealized gain |
| (1,277) |
| - |
|
| (663) |
| - |
Realized (loss) gain reclassified to a deferred account |
| (313) |
| 313 |
|
| 17 |
| (17) |
Realized (loss) gain reclassified to income statement |
| (1,450) |
| (57) |
|
| (304) |
| 46 |
Balance at September 30, | $ | 42,276 | $ | 874 |
| $ | 49,571 | $ | 688 |
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30: |
|
|
|
|
|
|
|
|
|
Balance at January 1, | $ | 49,281 | $ | 230 |
| $ | 54,082 | $ | 1,208 |
Unrealized (gain) loss |
| (3,698) |
| - |
|
| 1,128 |
| - |
Realized (loss) gain reclassified to a deferred account |
| (935) |
| 935 |
|
| (1,417) |
| 1,417 |
Realized loss reclassified to income statement |
| (2,372) |
| (291) |
|
| (4,222) |
| (1,937) |
Balance at September 30, | $ | 42,276 | $ | 874 |
| $ | 49,571 | $ | 688 |
|
| 2022 |
|
| 2021 |
| ||||||||||
(In thousands) |
| Current and Long-Term Regulatory Asset (Liability) |
|
| Other Current Assets |
|
| Current and Long-Term Regulatory Asset (Liability) |
|
| Other Current Assets |
| ||||
Three Months Ended March 31: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Balance as of January 1, |
| $ | (617 | ) |
| $ | 770 |
|
| $ | 13,989 |
|
| $ | 1,162 |
|
Unrealized gain |
|
| (11,333 | ) |
|
| 0 |
|
|
| (3,588 | ) |
|
| 0 |
|
Realized gain (loss) reclassified to a deferred account |
|
| 1,279 |
|
|
| (1,279 | ) |
|
| (50 | ) |
|
| 50 |
|
Realized gain (loss) reclassified to income statement |
|
| 1,030 |
|
|
| 776 |
|
|
| 708 |
|
|
| (1,039 | ) |
Balance as of March 31, |
| $ | (9,641 | ) |
| $ | 267 |
|
| $ | 11,059 |
|
| $ | 173 |
|
|
| Realized Losses (Gains) |
| |||||||||||||
|
| 2022 |
|
| 2021 |
| ||||||||||
(In thousands) |
| Fuel for Electric Generation/ Purchased Power |
|
| Cost of Gas Sold |
|
| Fuel for Electric Generation/ Purchased Power |
|
| Cost of Gas Sold |
| ||||
Three Months Ended March 31: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Commodity derivative contracts |
| $ | (312 | ) |
| $ | (881 | ) |
| $ | (195 | ) |
| $ | 1,022 |
|
FTRs |
|
| 3 |
|
|
| 0 |
|
|
| (256 | ) |
|
| 0 |
|
PPA |
|
| (616 | ) |
|
| 0 |
|
|
| (240 | ) |
|
| 0 |
|
|
|
| Realized Losses (Gains) | |||||||
|
| 2017 |
|
| 2016 | ||||
(In thousands) |
| Fuel for Electric Generation/ Purchased Power |
| Cost of Gas Sold |
|
| Fuel for Electric Generation/ Purchased Power |
| Cost of Gas Sold |
Three Months Ended September 30: |
|
|
|
|
|
|
|
|
|
Commodity derivative contracts | $ | 362 | $ | 18 |
| $ | 45 | $ | - |
FTRs |
| (224) |
| - |
|
| (703) |
| - |
PPA |
| 1,351 |
| - |
|
| 916 |
| - |
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30: |
|
|
|
|
|
|
|
|
|
Commodity derivative contracts | $ | 764 | $ | 227 |
| $ | 1,469 | $ | 1,814 |
FTRs |
| (1,349) |
| - |
|
| (635) |
| - |
PPA |
| 3,021 |
| - |
|
| 3,511 |
| - |
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 abovetreatment described treatment,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$20.0 million to $40.0$40.0 million, depending on MGE's nominated capacity amount. As of September 30, 2017, noMarch 31, 2022, 0 collateral iswas required to be, or hashad 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, 2017, certainMarch 31, 2022 and December 31, 2021, 0 counterparties were in a net liability position of less than $0.1 million. As of December 31, 2016, no 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, 2017, noMarch 31, 2022, 0 counterparties havehad defaulted.
24
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 levelthree-level fair value hierarchy based upon the observability of the assumptions used and requires the use of observable market data when available. The levels are:
Level 1 - Pricing inputs are quoted prices within active markets for identical assets or liabilities.
Level 2 - Pricing inputs are quoted prices within active markets for similar assets or liabilities; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations that are correlated with or otherwise verifiable by observable market data.
Level 3 - Pricing inputs are unobservable and reflect management's best estimate of what market participants would use in pricing the asset or liability.
|
a.
At September 30, 2017, and December 31, 2016, theThe 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 at September 30, 2017, and December 31, 2016.instruments. Since long-term debt is not traded in an active market, it is classified as Level 2.The2.The estimated fair market valuesvalue of financial instruments are as follows:
|
|
| September 30, 2017 |
| December 31, 2016 |
| ||||
| (In thousands) |
| Carrying Amount |
| Fair Value |
| Carrying Amount |
| Fair Value |
|
| MGE Energy |
|
|
|
|
|
|
|
|
|
| Assets: |
|
|
|
|
|
|
|
|
|
| Cash and cash equivalents | $ | 104,733 | $ | 104,733 | $ | 95,959 | $ | 95,959 |
|
| Liabilities: |
|
|
|
|
|
|
|
|
|
| Short-term debt - commercial paper |
| 7,000 |
| 7,000 |
| - |
| - |
|
| Long-term debt(a) |
| 397,981 |
| 444,195 |
| 391,242 |
| 430,122 |
|
|
|
|
|
|
|
|
|
|
|
|
| MGE |
|
|
|
|
|
|
|
|
|
| Assets: |
|
|
|
|
|
|
|
|
|
| Cash and cash equivalents | $ | 1,954 | $ | 1,954 | $ | 10,768 | $ | 10,768 |
|
| Liabilities: |
|
|
|
|
|
|
|
|
|
| Short-term debt - commercial paper |
| 7,000 |
| 7,000 |
| - |
| - |
|
| Long-term debt(a) |
| 397,981 |
| 444,195 |
| 391,242 |
| 430,122 |
|
|
|
|
|
|
|
|
|
|
|
|
| (a) Includes long-term debt due within one year. Excludes debt issuance costs and unamortized discount of | |||||||||
| $4.1 million at September 30, 2017, and December 31, 2016. |
|
| March 31, 2022 |
|
| December 31, 2021 |
| ||||||||||
(In thousands) |
| Carrying Amount |
|
| Fair Value |
|
| Carrying Amount |
|
| Fair Value |
| ||||
Long-term debt(a) |
|
| 622,238 |
|
|
| 643,259 |
|
|
| 623,449 |
|
|
| 729,914 |
|
25
The following table presents the balances of assets and liabilities measured at fair value on a recurring basis.
|
|
| Fair Value as of September 30, 2017 |
| ||||||
| (In thousands) |
| Total |
| Level 1 |
| Level 2 |
| Level 3 |
|
| MGE Energy |
|
|
|
|
|
|
|
|
|
| Assets: |
|
|
|
|
|
|
|
|
|
| Derivatives | $ | 1,536 | $ | 673 | $ | - | $ | 863 |
|
| Exchange-traded investments |
| 816 |
| 816 |
| - |
| - |
|
| Total Assets | $ | 2,352 | $ | 1,489 | $ | - | $ | 863 |
|
| Liabilities: |
|
|
|
|
|
|
|
|
|
| Derivatives | $ | 43,812 | $ | 190 | $ | - | $ | 43,622 |
|
| Deferred compensation |
| 3,150 |
| - |
| 3,150 |
| - |
|
| Total Liabilities | $ | 46,962 | $ | 190 | $ | 3,150 | $ | 43,622 |
|
|
|
|
|
|
|
|
|
|
|
|
| MGE |
|
|
|
|
|
|
|
|
|
| Assets: |
|
|
|
|
|
|
|
|
|
| Derivatives | $ | 1,536 | $ | 673 | $ | - | $ | 863 |
|
| Exchange-traded investments |
| 78 |
| 78 |
| - |
| - |
|
| Total Assets | $ | 1,614 | $ | 751 | $ | - | $ | 863 |
|
| Liabilities: |
|
|
|
|
|
|
|
|
|
| Derivatives | $ | 43,812 | $ | 190 | $ | - | $ | 43,622 |
|
| Deferred compensation |
| 3,150 |
| - |
| 3,150 |
| - |
|
| Total Liabilities | $ | 46,962 | $ | 190 | $ | 3,150 | $ | 43,622 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Fair Value as of March 31, 2022 |
| |||||||||||||
(In thousands) |
| Total |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||
MGE Energy |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Derivatives, net(b) |
| $ | 10,144 |
|
| $ | 3,183 |
|
| $ | 0 |
|
| $ | 6,961 |
|
Exchange-traded investments |
|
| 1,443 |
|
|
| 1,443 |
|
|
| 0 |
|
|
| 0 |
|
Total Assets |
| $ | 11,587 |
|
| $ | 4,626 |
|
| $ | 0 |
|
| $ | 6,961 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Derivatives, net(b) |
| $ | 503 |
|
| $ | 321 |
|
| $ | 0 |
|
| $ | 182 |
|
Deferred compensation |
|
| 3,613 |
|
|
| 0 |
|
|
| 3,613 |
|
|
| 0 |
|
Total Liabilities |
| $ | 4,116 |
|
| $ | 321 |
|
| $ | 3,613 |
|
| $ | 182 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
MGE |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Derivatives, net(b) |
| $ | 10,144 |
|
| $ | 3,183 |
|
| $ | 0 |
|
| $ | 6,961 |
|
Exchange-traded investments |
|
| 177 |
|
|
| 177 |
|
|
| 0 |
|
|
| 0 |
|
Total Assets |
| $ | 10,321 |
|
| $ | 3,360 |
|
| $ | 0 |
|
| $ | 6,961 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Derivatives, net(b) |
| $ | 503 |
|
| $ | 321 |
|
| $ | 0 |
|
| $ | 182 |
|
Deferred compensation |
|
| 3,613 |
|
|
| 0 |
|
|
| 3,613 |
|
|
| 0 |
|
Total Liabilities |
| $ | 4,116 |
|
| $ | 321 |
|
| $ | 3,613 |
|
| $ | 182 |
|
|
| Fair Value as of December 31, 2021 |
| |||||||||||||
(In thousands) |
| Total |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||
MGE Energy |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Derivatives, net(b) |
| $ | 3,606 |
|
| $ | 1,170 |
|
| $ | 0 |
|
| $ | 2,436 |
|
Exchange-traded investments |
|
| 1,296 |
|
|
| 1,296 |
|
|
| 0 |
|
|
| 0 |
|
Total Assets |
| $ | 4,902 |
|
| $ | 2,466 |
|
| $ | 0 |
|
| $ | 2,436 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Derivatives, net(b) |
| $ | 2,989 |
|
| $ | 731 |
|
| $ | 0 |
|
| $ | 2,258 |
|
Deferred compensation |
|
| 3,653 |
|
|
| 0 |
|
|
| 3,653 |
|
|
| 0 |
|
Total Liabilities |
| $ | 6,642 |
|
| $ | 731 |
|
| $ | 3,653 |
|
| $ | 2,258 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
MGE |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Derivatives, net(b) |
| $ | 3,606 |
|
| $ | 1,170 |
|
| $ | 0 |
|
| $ | 2,436 |
|
Exchange-traded investments |
|
| 230 |
|
|
| 230 |
|
|
| 0 |
|
|
| 0 |
|
Total Assets |
| $ | 3,836 |
|
| $ | 1,400 |
|
| $ | 0 |
|
| $ | 2,436 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Derivatives, net(b) |
| $ | 2,989 |
|
| $ | 731 |
|
| $ | 0 |
|
| $ | 2,258 |
|
Deferred compensation |
|
| 3,653 |
|
|
| 0 |
|
|
| 3,653 |
|
|
| 0 |
|
Total Liabilities |
| $ | 6,642 |
|
| $ | 731 |
|
| $ | 3,653 |
|
| $ | 2,258 |
|
|
|
|
| Fair Value as of December 31, 2016 |
| ||||||
| (In thousands) |
| Total |
| Level 1 |
| Level 2 |
| Level 3 |
|
| MGE Energy |
|
|
|
|
|
|
|
|
|
| Assets: |
|
|
|
|
|
|
|
|
|
| Derivatives | $ | 1,527 | $ | 1,041 | $ | - | $ | 486 |
|
| Exchange-traded investments |
| 500 |
| 500 |
| - |
| - |
|
| Total Assets | $ | 2,027 | $ | 1,541 | $ | - | $ | 486 |
|
| Liabilities: |
|
|
|
|
|
|
|
|
|
| Derivatives | $ | 50,808 | $ | 16 | $ | - | $ | 50,792 |
|
| Deferred compensation |
| 3,039 |
| - |
| 3,039 |
| - |
|
| Total Liabilities | $ | 53,847 | $ | 16 | $ | 3,039 | $ | 50,792 |
|
|
|
|
|
|
|
|
|
|
|
|
| MGE |
|
|
|
|
|
|
|
|
|
| Assets: |
|
|
|
|
|
|
|
|
|
| Derivatives | $ | 1,527 | $ | 1,041 | $ | - | $ | 486 |
|
| Exchange-traded investments |
| 143 |
| 143 |
| - |
| - |
|
| Total Assets | $ | 1,670 | $ | 1,184 | $ | - | $ | 486 |
|
| Liabilities: |
|
|
|
|
|
|
|
|
|
| Derivatives | $ | 50,808 | $ | 16 | $ | - | $ | 50,792 |
|
| Deferred compensation |
| 3,039 |
| - |
| 3,039 |
| - |
|
| Total Liabilities | $ | 53,847 | $ | 16 | $ | 3,039 | $ | 50,792 |
|
No transfers were madeAs of March 31, 2022 and December 31, 2021 MGE received collateral of $6.9 million and $1.3 million, respectively, from counterparties under a master netting agreement for outstanding exchange traded derivative positions. The fair value of the derivative asset disclosed in or out of Level 1 or Level 2this table has not been reduced for the nine months ended September 30, 2017.collateral received.
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
26
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 tradedexchange-traded transactions. FTRs are priced based upon monthly auction results for identical or similar instruments in a closed market with limited data available and are therefore classified as Level 3.
The purchased power agreement (see Footnote 9)10) was valued using an internally-developedinternal pricing model and therefore is classified as Level 3. The model projects future market energy prices and compares those prices to the projected power costs to be incurred under the contract. Inputs to the model require significant management judgment and estimation. Future energy prices are based on a forward power pricing curve using exchange-traded contracts in the electric futures market. A basis adjustment is applied to the market energy price to reflect the price differential between the market price delivery point and the counterparty delivery point. The historical relationship between the delivery points is reviewed and a discount (below 100%) or premium (above 100%) is derived. This comparison is done for both peak times when demand is high and off peakoff-peak times when demand is low. If the basis adjustment is lowered, the fair value measurement will decrease, and if the basis adjustment is increased, the fair value measurement will increase.
The projected power costs anticipated to be incurred under the purchased power agreement are determined using many factors, including historical generating costs, future prices, and expected fuel mix of the counterparty. An increase in the projected fuel costs would result in a decrease in the fair value measurement of the purchased power agreement. A significant input that MGE estimates is the counterparty's fuel mix in determining the projected power cost. MGE also considers the assumptions that market participants would use in valuing the asset or liability. This consideration includes assumptions about market risk such as liquidity, volatility, and contract duration. The fair value model uses a discount rate that incorporates discounting, credit, and model risks.
|
The following table presents the significant unobservable inputs used in the pricing model.
|
|
| Model Input | ||
| Significant Unobservable Inputs |
| September 30, 2017 |
| December 31, 2016 |
| Basis adjustment: |
|
|
|
|
| On peak |
| 92.4% |
| 91.9% |
| Off peak |
| 94.2% |
| 93.4% |
| Counterparty fuel mix: |
|
|
|
|
| Internal generation |
| 55% - 75% |
| 55% - 75% |
| Purchased power |
| 45% - 25% |
| 45% - 25% |
|
| Model Input | ||
|
| March 31, |
| December 31, |
Significant Unobservable Inputs |
| 2022 |
| 2021 |
Basis adjustment: |
|
|
|
|
On peak |
| 92.1% |
| 94.1% |
Off peak |
| 90.0% |
| 92.4% |
Counterparty fuel mix: |
|
|
|
|
Internal generation - range |
| 41%-66% |
| 41%-66% |
Internal generation - weighted average |
| 49.5% |
| 56.6% |
Purchased power - range |
| 59%-34% |
| 59%-34% |
Purchased power - weighted average |
| 50.5% |
| 43.4% |
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.
27
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 | ||||||||
|
| September 30, |
| September 30, |
| March 31, | ||||||||
(In thousands) |
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| 2022 |
| 2021 | ||
Beginning balance | $ | (45,605) | $ | (51,883) | $ | (50,305) | $ | (53,501) |
| $ | 178 |
| $ | (14,055) |
Realized and unrealized gains (losses): |
|
|
|
|
|
|
|
|
|
|
|
| ||
Included in regulatory liabilities |
| 2,846 |
| 1,455 |
| 7,547 |
| 3,073 | ||||||
Included in regulatory assets |
| 0 |
|
| 2,688 | |||||||||
Included in regulatory liability |
| 6,600 |
|
| 0 | |||||||||
Included in other comprehensive income |
| - |
| - |
| - |
| - |
| 0 |
|
| 0 | |
Included in earnings |
| (1,478) |
| (278) |
| (2,614) |
| (4,250) |
| 855 |
|
| 307 | |
Included in current assets |
| (14) |
| - |
| (111) |
| - |
| 73 |
|
| 355 | |
Purchases |
| 6,299 |
| 5,814 |
| 18,481 |
| 16,751 |
| 7,026 |
|
| 5,884 | |
Sales |
| - |
| - |
| - |
| - |
| 0 |
|
| 0 | |
Issuances |
| - |
| - |
| - |
| - |
| 0 |
|
| 0 | |
Settlements |
| (4,807) |
| (5,537) |
| (15,757) |
| (12,502) |
|
| (7,953) |
|
| (6,546) |
Transfers in and/or out of Level 3 |
| - |
| - |
| - |
| - | ||||||
Balance as of September 30, | $ | (42,759) | $ | (50,429) | $ | (42,759) | $ | (50,429) | ||||||
Total gains (losses) included in earnings attributed to |
|
|
|
|
|
|
|
| ||||||
the change in unrealized gains (losses) related to |
|
|
|
|
|
|
|
| ||||||
assets and liabilities held at September 30,(b) | $ | - | $ | - | $ | - | $ | - | ||||||
Balance as of March 31, |
| $ | 6,779 |
| $ | (11,367) | ||||||||
Total gains (losses) included in earnings attributed to |
| $ | 0 |
| $ | 0 |
The following table presents total realized and unrealized lossesgains (losses) included in income for Level 3 assets and liabilities measured at fair value on a recurring basis(b)(c).
|
|
| Three Months Ended |
| Nine Months Ended |
| ||||
|
|
| September 30, |
| September 30, |
| ||||
| (In thousands) |
| 2017 |
| 2016 |
| 2017 |
| 2016 |
|
| Purchased Power Expense | $ | (1,460) | $ | (278) | $ | (2,377) | $ | (4,250) |
|
| Cost of Gas Sold Expense |
| (18) |
| - |
| (237) |
| - |
|
| Total | $ | (1,478) | $ | (278) | $ | (2,614) | $ | (4,250) |
|
|
| Three Months Ended | ||||
|
| March 31, | ||||
(In thousands) |
| 2022 |
| 2021 | ||
Purchased power expense |
| $ | 973 |
| $ | 702 |
Cost of gas sold expense |
|
| (118) |
|
| (395) |
Total |
| $ | 855 |
| $ | 307 |
|
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 | Estimated Date of | ||||||
Project | Interest | Generation | Estimated Costs(a) | 2022(a) | Operation | |||||
Red Barn(b) | 10% | 9.16 MW | $18 million | $0.6 million | December 2022 | |||||
Badger Hollow II(c) | 33% | 50 MW | $65 million | $23.8 million(d) | First Half of 2023 |
Columbia.MGE received specific approval to recover 100% AFUDC on Badger Hollow II. During the three months ended March 31, 2022 and 2021, MGE recognized $0.4 million and $0.1 million, respectively, after tax, in AFUDC for Badger Hollow II.
28
Revenues disaggregated by revenue source were as follows:
|
| Three Months Ended |
| |||||
(In thousands) |
| March 31, |
| |||||
Electric revenues |
| 2022 |
|
| 2021 |
| ||
Residential |
| $ | 40,474 |
|
| $ | 36,694 |
|
Commercial |
|
| 54,449 |
|
|
| 47,883 |
|
Industrial |
|
| 3,147 |
|
|
| 3,001 |
|
Other-retail/municipal |
|
| 8,829 |
|
|
| 8,170 |
|
Total retail |
|
| 106,899 |
|
|
| 95,748 |
|
Sales to the market |
|
| 2,882 |
|
|
| 4,639 |
|
Other |
|
| 308 |
|
|
| 222 |
|
Total electric revenues |
|
| 110,089 |
|
|
| 100,609 |
|
|
|
|
|
|
|
| ||
Gas revenues |
|
|
|
|
|
| ||
Residential |
|
| 56,683 |
|
|
| 39,758 |
|
Commercial/Industrial |
|
| 40,251 |
|
|
| 25,507 |
|
Total retail |
|
| 96,934 |
|
|
| 65,265 |
|
Gas transportation |
|
| 1,876 |
|
|
| 2,002 |
|
Other |
|
| 1 |
|
|
| 3 |
|
Total gas revenues |
|
| 98,811 |
|
|
| 67,270 |
|
|
|
|
|
|
|
| ||
Non-regulated energy revenues |
|
| 38 |
|
|
| 36 |
|
Total Operating Revenue |
| $ | 208,938 |
|
| $ | 167,915 |
|
Performance Obligations
In 2016, MGE and WPL negotiated an amendmentA performance obligation is a promise in a contract to transfer a distinct good or service to the existing Columbia joint operating agreement, that has beencustomer 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 under which MGE will havethrough a rate order and provide MGE's customers with the option to reduce itsstandard terms and conditions, including pricing terms. The performance obligation to pay certain capital expenditures (other than SCR-related expenditures) at Columbiadeliver 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 exchange for a proportional reductiongiven year is determined in MGE's ownershipthe following year and is then reflected in Columbia. On January 1future billings to electric retail customers. Over-collection of each year, beginning in 2017 and ending June 1, 2020,fuel-related costs that are outside the ownership percentageapproved range will be adjusted, throughrecognized as a partial sale, based onreduction of revenue. Under-collection of these costs will be recognized in "Purchased power" expense in the amountconsolidated statements of capital expenditures foregone. In June 2017, the FERC approved the ownership transferincome. The cumulative effects of these deferred amounts will be recorded in Columbia, effective January 1, 2017.
During 2016, MGE accrued $14.8 million of 2016 capital expenditures that MGE has forgone as part of the ownership transfer agreement with WPL. As of December 31, 2016, MGE classified $14.8 million of Columbia assets as held-for-sale"Regulatory assets" or "Regulatory liabilities" on the consolidated balance sheets. In January 2017, sheets until they are reflected in future billings to customers. See Footnote 9.b. for further information.
MGE reduced its ownership interestalso 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 Columbia from 22.0% to 20.4% through the partial sale of plant assets to WPL.period incurred.
During three and nine months ended September 30, 2017, MGE accrued $1.6 million and $6.7 million, respectively, of 2017 capital expenditures that MGE has forgone subject29
Sales to the ownership transfer agreement. As of September 30, 2017, MGE classified $6.7 million of Columbia assets as held-for-sale on the consolidated balance sheets. The assets recognized as held-for-sale are subject to a partial sale of plant assets to WPL, expected to occur in January 2018.Market
Adoption of Accounting Principles and Recently Issued Accounting Pronouncements - MGE Energy and MGE.
a.
Revenue from Contracts with Customers.
In May 2014, the FASB issued authoritative guidance within the Codification's Revenue Recognition topic that provides guidance on the recognition, measurement, and disclosure of revenue from contracts with customers. The new standard establishes a five step model for recognizing and measuring revenue from contracts with customers and replaces existing guidance on revenue recognition. The objective of the new standard is to provide a single, comprehensive revenue recognition model for all contracts with customers to improve comparability within industries, across industries and across capital markets. The underlying principle is that an entity will recognize revenue to depict the transfer of goods or services to customers at an amount that the entity expects to be entitled to in exchange for those goods or services.
MGE Energy and MGE have been assessing the impact of this guidance on revenue streams within the scope of the new standard. All retail electric and gas revenues are tariff rates approved by the PSCW. Based on our evaluation of the new standard, retail revenues will be recognized within the period in which utility service is provided to the customer and the performance obligation is fulfilled, consistent with our current revenue recognition model. Electric revenues for salesSales to the market representinclude 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. TheseMost of these sales may also include bilateral sales to other utilitiesare 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 power marketers. Revenues for sales todemand charges, and ancillary services are sold into MISO. MGE reports, on a net basis, transactions on the market will be recognized when the sale is completedMISO markets in which it buys and sells power within the market operated by MISO, similarsame hour to the recognitionmeet electric energy delivery requirements.
Transportation of Gas
MGE has contracts under our current revenue recognition model. In addition, revenues from thewhich it provides gas transportation of gas will continueservices to be recognized upon the performance of services for the respective customer. Based on our assessment of the new standard, revenue recognition for retail revenues, sales to the market, and transportation of gas will be materially consistent with our current revenue recognition model. However, additional disclosures regarding the nature, amount, timing, and uncertainty of these revenue streams and related cash flows arising from contracts with customers will be required as a result of the new standard. Management continues to analyze newly-released interpretative guidance and assess the related impacts to the current revenue recognition model.
This authoritative guidance will become effective January 1, 2018, and MGE Energy and MGE anticipate adopting the standard upon the effective date. Adoption of this standard is permitted under one of two methods: the full retrospective method or the modified retrospective method. MGE Energy and MGE are continuing to assess the permitted implementation methods and the impact on our financial statements.
|
b.
Financial Instruments.
In January 2016, the FASB issued authoritative guidance within the Codification's Financial Instruments topic that provides guidance on the recognition and measurement of financial instruments. This authoritative guidance will become effective January 1, 2018, and will require equity investments to be measured at fair value with changes in fair value recognized in net income rather than in other comprehensive income. As a result of this guidance, MGE Energy and MGE will no longer have any other comprehensive income related to equity investments. This standard will be applied using a modified retrospective approach, with a cumulative effect adjustment recorded to opening retained earnings as of the beginning of all prior periods presented. As of September 30, 2017, MGE Energy had $0.4 million and MGE had less than $0.1 million of accumulated other comprehensive income related to equity investments within the scope of this standard.
c.
Leases.
In February 2016, the FASB issued authoritative guidance within the Codification's Leases topic that provides guidance on the classification, recognition, measurement, and disclosure of leases. The new leasing standard establishes that a lease conveys the right to control the use of identified property, plant, or equipment for a period of time in exchange for consideration. Under the new guidance, lessees will be required to recognize all leases with terms greater than one year, including operating leases, on the consolidated balance sheet by recording a right-of-use asset and lease liability. Prior to the authoritative guidance, only capital leases were recognized on the balance sheet by lessees. The new accounting guidance as applied by lessors is materially consistent from that applied under current GAAP.
Management has begun utilizing a bottoms-up approach to analyze the impact of the standard on our lease portfolio. MGE Energy and MGE have been reviewing current accounting policies and procedures to identify potential differences in accounting treatment that would result from applying the requirements of the new standard to our existing lease portfolio. In addition, we are identifying appropriate changes to our business processes, systems, and controls to support recognition and disclosure requirements under the new standard. This authoritative guidance will become effective January 1, 2019, with early adoption permitted. MGE Energy and MGE anticipate adopting the standard upon the effective date. The new leasing standard requires entities to recognize and measure leases at the beginning of the earliest comparative period presented using a modified retrospective approach. MGE Energy and MGE are currently assessing the impact this pronouncement will have on our financial statements.
d.
Restricted Cash.
In November 2016, the FASB issued authoritative guidance within the Codification's Statement of Cash Flows topic that provides guidance on the classification and presentation of changes in restricted cash within the statement of cash flows. The new standard was issued to eliminate a current diversity in practice for the accounting treatment of restricted cash. Under the new guidance, reporting entities will be required to explain the changes in the total of restricted and unrestricted cash and cash equivalents when reconciling the beginning and ending balances on the statement of cash flows. Prior to the authoritative guidance, changes in restricted cash were presented as either cash flows from operating, investing, or financing activities within the statement of cash flows, as appropriate based on the nature of the restriction. Also under the new standard, reporting entities will be required to provide a reconciliation from the balance sheet to the statement of cash flows and disclose the nature of the restrictions of cash. This authoritative guidance will become effective January 1, 2018. Upon the effective date, MGE Energy and MGE will change the presentation of restricted cash to reflect this change in accounting guidance. MGE Energy and MGE will also retrospectively apply the guidance to all prior periods presented. As of September 30, 2017, and December 31, 2016, MGE Energy and MGE had $4.5 million and $5.1 million, respectively, of restricted cash classified within other current assets on the consolidated balance sheets.
|
e.
Pension and Other Postretirement Benefits.
In March 2017, the FASB issued authoritative guidance within the Compensation – Retirement Benefits topic that provides guidance on the presentation of net periodic pension cost and net periodic postretirement benefit cost (together, net benefit cost). This authoritative guidance will become effective January 1, 2018. Under the new guidance, the service cost component of net benefit cost is required to be recorded in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside of income from operations. A practical expedient within the standard permits an employer to use the amounts disclosed in its pension and other postretirement benefit plan footnote for prior comparative periods as the estimation basis for applying the retrospective presentation requirements. MGE Energy and MGEwho have elected to applypurchase 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 practical expedient. Operating income will decreasePSCW through a rate order and other income will increase $6.6 millionprovide gas transportation customers with standard terms and $5.0 million for the years ended December 31, 2016 and 2015, respectively. The standard also only allows the service cost component to be eligible for capitalization prospectively from the effective date of the pronouncement (whereas under current GAAP, all components of net benefit cost are eligible for capitalization). MGE Energy and MGE are currently evaluating the impact of how the change in components of net benefit cost eligible for capitalization will affect our financial statements.conditions, including pricing terms.
MGE Energy operates in the following business segments: electric utility, gas utility, nonregulated energy, transmission investment, and all other. See the 20162021 Annual Report on Form 10-K for additional discussion of each of these segments.
(In thousands) |
| Electric |
|
| Gas |
|
| Non-Regulated Energy |
|
| Transmission Investment |
|
| All Others |
|
| Consolidation/ |
|
| Consolidated Total |
| |||||||
Three Months Ended March 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Operating revenues |
| $ | 110,089 |
|
| $ | 98,811 |
|
| $ | 38 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | — |
|
| $ | 208,938 |
|
Interdepartmental revenues |
|
| 118 |
|
|
| 6,121 |
|
|
| 10,315 |
|
|
| 0 |
|
|
| 0 |
|
|
| (16,554 | ) |
|
| — |
|
Total operating revenues |
|
| 110,207 |
|
|
| 104,932 |
|
|
| 10,353 |
|
|
| 0 |
|
|
| 0 |
|
|
| (16,554 | ) |
|
| 208,938 |
|
Equity in earnings of investments |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 2,504 |
|
|
| 0 |
|
|
| 0 |
|
|
| 2,504 |
|
Net income |
|
| 14,617 |
|
|
| 12,084 |
|
|
| 5,352 |
|
|
| 1,822 |
|
|
| 545 |
|
|
| 0 |
|
|
| 34,420 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Three Months Ended March 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Operating revenues |
| $ | 100,609 |
|
| $ | 67,270 |
|
| $ | 36 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | — |
|
| $ | 167,915 |
|
Interdepartmental revenues |
|
| 273 |
|
|
| 4,811 |
|
|
| 10,173 |
|
|
| 0 |
|
|
| 0 |
|
|
| (15,257 | ) |
|
| — |
|
Total operating revenues |
|
| 100,882 |
|
|
| 72,081 |
|
|
| 10,209 |
|
|
| 0 |
|
|
| 0 |
|
|
| (15,257 | ) |
|
| 167,915 |
|
Equity in earnings of investments |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 2,444 |
|
|
| 0 |
|
|
| 0 |
|
|
| 2,444 |
|
Net income (loss) |
|
| 18,024 |
|
|
| 10,556 |
|
|
| 5,194 |
|
|
| 1,778 |
|
|
| (619 | ) |
|
| 0 |
|
|
| 34,933 |
|
(In thousands) |
| Electric |
|
| Gas |
|
| Non-Regulated Energy |
|
| Consolidation/ |
|
| Consolidated Total |
| |||||
Three Months Ended March 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Operating revenues |
| $ | 110,089 |
|
| $ | 98,811 |
|
| $ | 38 |
|
| $ | — |
|
| $ | 208,938 |
|
Interdepartmental revenues |
|
| 118 |
|
|
| 6,121 |
|
|
| 10,315 |
|
|
| (16,554 | ) |
|
| — |
|
Total operating revenues |
|
| 110,207 |
|
|
| 104,932 |
|
|
| 10,353 |
|
|
| (16,554 | ) |
|
| 208,938 |
|
Net income attributable to MGE |
|
| 14,617 |
|
|
| 12,084 |
|
|
| 5,352 |
|
|
| (4,756 | ) |
|
| 27,297 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Three Months Ended March 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Operating revenues |
| $ | 100,609 |
|
| $ | 67,270 |
|
| $ | 36 |
|
| $ | — |
|
| $ | 167,915 |
|
Interdepartmental revenues |
|
| 273 |
|
|
| 4,811 |
|
|
| 10,173 |
|
|
| (15,257 | ) |
|
| — |
|
Total operating revenues |
|
| 100,882 |
|
|
| 72,081 |
|
|
| 10,209 |
|
|
| (15,257 | ) |
|
| 167,915 |
|
Net income attributable to MGE |
|
| 18,024 |
|
|
| 10,556 |
|
|
| 5,194 |
|
|
| (5,501 | ) |
|
| 28,273 |
|
|
30
The following tables show segment information for MGE Energy's operations for the indicated periods:
|
The following tables show segment information for MGE's operations for the indicated periods:
|
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:
·
·
·
·
·
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 149,000159,000 customers in Dane County, Wisconsin, including the city of Madison, and purchases and distributes natural gas to approximately 154,000169,000 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 meetsworks 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, includingas evidenced by its most recent announcements of the announced reductionretirement of Columbia (a coal generation plant), the change in the Elm Road Units fuel source from coal to natural gas, and its growing ownership of Columbia.renewable generation sources. MGE will continue to focus on growing earnings while controlling operating and fuel costs. MGE maintainsMGE'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 standingrating consistent with financial strength in MGE as well as the parent company in order to accomplish these goals.
We principally earn our revenue and generate cash from operations by providing electric and natural gas utility services, including electric power generation and electric power and gas distribution. The earnings and cash flows from the utility business are sensitive to various external factors, including:
·
·
·
·
·
·
·
31
·
welfare costs, and precautions for dealing with members of the public, and
ForDuring the three months ended September 30, 2017,March 31, 2022, MGE Energy's earnings were $26.6$34.4 million or $0.77$0.95 per share compared to $27.9$34.9 million or $0.80$0.97 per share forduring the same period in the prior year. MGE's earnings forduring the three months ended September 30, 2017,March 31, 2022, were $19.9$27.3 million compared to $22.0$28.3 million forduring the same period in the prior year.
For the nine months ended September 30, 2017, MGE Energy's earnings were $61.5 million or $1.77 per share compared to $61.1 million or $1.76 per share for the same period in the prior year. MGE's earnings for the nine months ended September 30, 2017, were $41.5 million compared to $43.1 million for the same period in the prior year.
|
MGE Energy's net income was derived from our business segments as follows:
|
|
| Three Months Ended |
| Nine Months Ended |
| ||||
| (In thousands) |
| September 30, |
| September 30, |
| ||||
| Business Segment: |
| 2017 |
| 2016 |
| 2017 |
| 2016 |
|
| Electric Utility | $ | 19,902 | $ | 21,083 | $ | 36,508 | $ | 35,605 |
|
| Gas Utility |
| 684 |
| 972 |
| 7,000 |
| 7,789 |
|
| Nonregulated Energy |
| 4,767 |
| 4,735 |
| 14,178 |
| 14,293 |
|
| Transmission Investments |
| 1,343 |
| 1,198 |
| 4,324 |
| 3,588 |
|
| All Other |
| (67) |
| (108) |
| (538) |
| (217) |
|
| Net Income | $ | 26,629 | $ | 27,880 | $ | 61,472 | $ | 61,058 |
|
| Three Months Ended | ||||
(In millions) | March 31, | ||||
Business Segment: | 2022 |
| 2021 | ||
Electric Utility | $ | 14.6 |
| $ | 18.0 |
Gas Utility |
| 12.1 |
|
| 10.5 |
Nonregulated Energy |
| 5.4 |
|
| 5.2 |
Transmission Investments |
| 1.8 |
|
| 1.8 |
All Other |
| 0.5 |
|
| (0.6) |
Net Income | $ | 34.4 |
| $ | 34.9 |
Our net income during the three and nine months ended September 30, 2017,March 31, 2022, compared to the same periodperiods in the prior year primarily reflects the effects of the following factors:
Electric Utility
ForAn increase in electric investments contributed to earnings for 2022. Timing of 2021 depreciation and other operations and maintenance costs contributed to higher earnings in the first quarter of 2021. Depreciation and operations and maintenance costs increased during the remainder of 2021 after significant capital projects were completed. The new customer information system went live in September 2021 and Badger Hollow I was completed in November 2021. MGE received approval to recover 100% AFUDC during construction of these projects.
Gas Utility
An increase in gas investments contributed to increased earnings for 2022. Higher gas retail sales resulting from colder weather in the first quarter of 2022 contributed to higher earnings for the three months ended electric net income decreased primarily resulting from cooler weather. The average temperatureMarch 31, 2022. Heating degree days (a measure for determining the impact of weather during the heating season) increased by approximately 4% in August 2017 was 67 degreesthe first quarter 2022 compared to 73the same period in August 2016. For the nineprior year.
The following developments affected the first three months ended,of 2022:
2022/2023 Rate Settlement Agreement: In December 2021, the PSCW approved a settlement agreement for MGE's 2022 rate case. The settlement agreement provides for an 8.81% increase to electric net income increased primarily related to efforts to manage the level of operating and maintenance costs.
Transmission Investments
Transmission investment income reflects our share of ATC's earningsrates and a favorable comparison2.15% increase to 2016, which included an expense reflecting ATC's establishmentgas rates for 2022. As part of the settlement agreement for 2023, the PSCW approved a reserve covering its estimate of its refund liability associated with the return on equity complaint filed with FERC.0.96% increase in gas rates and to address a potential electric rate change through a limited rate case reopener. See "Other Matters" below for additional information concerning ATC.on the 2022/2023 rate case settlement.
During the first nine months ended of 2017,Utility Solar: Large solar generation projects were recently completed or are under construction, as shown in the following events occurred:table. Incurred costs are reflected in "Property, plant, and equipment, net" for projects placed in service or "Construction work in progress" for projects under construction on the consolidated balance sheets.
Project | Ownership Interest | Share of Generation | Share of | Costs Incurred as of | Estimated Date of | |||||
Red Barn | 10% | 9.16MW | $18 million | $0.6 million | December 2022 | |||||
Badger Hollow II | 33% | 50 MW | $65 million | $23.8 million(b)(c) | First Half of 2023 |
32
2017 Rate Case Order: On December 15, 2016,
In the PSCW authorizednear term, several items may affect us, including:
2021 Annual Fuel Proceeding: MGE effective January 1, 2017, to decrease 2017 rates for retail electric customers by 0.8% or $3.3 million on an annual basis and to increase rates for retail gas customers by 1.9% or $3.1 million on an annual basis. The decreaseunder recovered fuel costs in retail electric rates reflects declining fuel and purchased power costs. The increase in retail gas rates covers costs associated with MGE's natural gas system infrastructure improvements. The authorized return on common stock equity for 2017 is 9.8% based on a capital structure consisting of 57.2% common equity. The PSCW also approved MGE's request to extend the current accounting treatment for transmission related costs through 2018.
Deferred Fuel Costs:2021. As of September 30, 2017,December 31, 2021, MGE hashad deferred $3.3 million of 20172021 fuel savings.costs. These costs will be subject to the PSCW's annual review of 20172021 fuel costs, expected to be completed in 2018.during 2022. MGE has proposed to include these costs as part of the 2023 electric limited reopener.
Debt Issuance:2023 Electric Limited Rate Case Reopener: In April 2022, MGE issued $40 million of long-term unsecured debt in January 2017. The debt carries an interest rate of 3.76% per annum over its 35-year term. The proceeds of this debt financing were used to refinance $30 million of medium-term notes, which matured in January 2017, and assistfiled with the financing ofPSCW 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 capital expenditures. The covenants of this debt are substantially consistent with MGE's existing unsecured long-term debt.information on the 2023 electric limited reopener.
In the near term, several items may affect us, including:
2016 Annual Fuel Proceeding: In July 2017, the PSCW issued a final order in the fuel rules proceedings requiring MGE to refund $6.0 million of additional fuel savings realized during 2015 and 2016 to its retail electric customers over a one-month period in October 2017.
ATC Return on Equity: Several parties have filed complaints withAs discussed in "Other Matters" below, ATC's authorized ROE, which is used in calculating its rates and revenues, is the FERC seeking to reduce the ROE used by MISO transmission owners, including ATC. Any change tosubject 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 7.2%5.1% and 5.8%5.0% of our net income forduring the ninethree months ended September 30, 2017March 31, 2022 and 2016,2021, respectively, from our investment in ATC. See "Other Matters" below for additional information concerning ATC.
|
Environmental Initiatives: There are proposed legislative rules and initiatives involving matters related to air emissions, water effluent, hazardous materials, and greenhouse gases, all of which affect generation plant capital expenditures and operating costs as well as future operational planning. At present, it is unclear how the changes in the PresidentialLegislation and EPA administrations may affect existing, pending or new legislative or rulemaking proposals or regulatory initiatives. Such legislationaddressing climate change and rulemakingrelated matters could significantly affect the costs of owning and operating fossil-fueled generating plants, such as Columbia and the Elm Road Units, from which we derive approximately 43% of our electric generating capacity as of September 30, 2017.plants. We would expect to seek and receive recovery of any such costs in rates; however,rates. However, it is difficult to estimate the amount of such costs due to the uncertainty as to the timing and form of theany legislation andor rules, and the scope and time of the recovery of costs in rates, which may lagoccur after those costs have been incurred and paid.
Future Generation – 80% carbon reduction target by 2030: MGE has outlined initiatives to achieve our new target.
EPA's Clean Power Plan: In October 2015, the EPA finalized its Clean Power Plan (CPP) rule with an effective date of December 2015, setting guidelines and approval criteria for states to use in developingother plant co-owners, announced plans to control GHG emissions from existing fossil fuel-fired electricretire the two-unit coal-fired Columbia generating units (EGUs) and systems. Implementationplant near Portage, Wisconsin. MGE currently owns 19% of the rulefacility. The co-owners intend to retire Unit 1 by the end of 2023 and Unit 2 by the end of 2024. Final timing and retirement dates for Units 1 and 2 are subject to change depending on operational, regulatory, and 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.
Elm Road Units: In November 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 co-owned by WEC Energy Group, whose subsidiary serves as operator, and by WPPI Energy, Inc. Transition plans and costs will be subject to PSCW approval. MGE's remaining use of coal is expected to havebe further reduced as the Elm Road Units transition to natural gas. 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.
Project |
| Source |
| Ownership Interest |
| Share of |
| Share of |
| Estimated Date of |
Paris(a) |
| Solar/Battery |
| 10% |
| 20MW/11MW |
| $43 million |
| 2023 |
Darien(b) |
| Solar/Battery |
| 10% |
| 25MW/7.5MW |
| $45 million |
| 2023 |
Koshkonong(b) |
| Solar/Battery |
| 10% |
| 30MW/16.5MW |
| $65 million |
| 2024(e) |
33
Future Generation: During the first quarter offuel source.
Saratoga Wind Farm: In April 2017, MGEalong with joint applicants, filed an application with the PSCW to seekrequesting approval to construct, ownfor a sale and operate a 66MW wind farm, consistingpurchase of 33 turbines, located near Saratoga, Iowa.ownership interests in West Riverside. If approved, by the PSCW, constructionMGE's share of the projectWest Riverside will be 25 MW at a purchase price of approximately $25 million. The closing and actual transfer of ownership is expected to beginoccur in early 2018, with an estimated capital cost of $107 million.
Forward Wind: In October 2017,March 2023. MGE along with two other utilities, entered into an agreementalso 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.
Solar Procurement Disruptions – In June 2021, the Forward Wind Energy Center, which consists of 86 wind turbinesU.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 Wisconsin withChina's Xinjiang Uyghur Autonomous Region. As a total capacity of 129 MWs. The aggregate purchase price is approximately $174 million of which MGE's proportionate share is 12.8%, or approximately $23 million. MGE currently purchases 12.8% of the facility's energy output under a purchase power agreement. The transaction is subject to PSCW and FERC approvals and is expected to close in the spring of 2018.
Debt Issuance: In October 2017, MGE issued $30 million of long-term unsecured debt to cover capital expenditures and other corporate obligations. The debt carries an interest rate of 3.11% per annum, over its 10-year term. The covenantsresult of this debt are substantially consistentWRO, 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. Additionally, in March 2022, the U.S. Department of Commerce announced a solar tariff investigation on solar panels from four Southeast Asian countries. This investigation could result in additional tariffs on solar panels. 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. Any delays or increase in costs will be filed with MGE's existing unsecured long-term debt.the PSCW.
COVID-19 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. We have operated continuously throughout the pandemic and suffered no material disruptions in service or employment. We continue to 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 perform certain maintenance and capital project activities. We cannot 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 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 1314 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 purchased 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, purchased 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.
34
Three Months Ended September 30, 2017March 31, 2022 and 20162021
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 March 31, | |||||||
(In millions) | 2022 |
| 2021 |
| $ Change | |||
Electric revenues | $ | 110.1 |
| $ | 100.6 |
| $ | 9.5 |
Fuel for electric generation |
| (13.5) |
|
| (13.2) |
|
| (0.3) |
Purchased power |
| (12.5) |
|
| (9.4) |
|
| (3.1) |
Total Electric Margins (non-GAAP) |
| 84.1 |
|
| 78.0 |
|
| 6.1 |
|
|
|
|
|
|
|
|
|
Gas revenues |
| 98.8 |
|
| 67.3 |
|
| 31.5 |
Cost of gas sold |
| (64.8) |
|
| (37.4) |
|
| (27.4) |
Total Gas Margins (non-GAAP) |
| 34.0 |
|
| 29.9 |
|
| 4.1 |
|
|
|
|
|
|
|
|
|
Other operating revenues |
| — |
|
| 0.1 |
|
| (0.1) |
Other operations and maintenance |
| (50.0) |
|
| (45.7) |
|
| (4.3) |
Depreciation and amortization |
| (21.0) |
|
| (18.4) |
|
| (2.6) |
Other general taxes |
| (5.2) |
|
| (4.8) |
|
| (0.4) |
Operating Income | $ | 41.9 |
| $ | 39.1 |
| $ | 2.8 |
Operating income during the three months ended March 31, 2022, compared to the same period in the prior year, primarily reflects the effects of the following factors:
35
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 March 31, |
| Three Months Ended March 31, | ||||||||||
(In thousands) |
| 2022 |
| 2021 |
| % Change |
| 2022 |
| 2021 |
| % Change | ||
Residential |
| $ | 40,474 |
| $ | 36,694 |
| 10.3% |
| 221,884 |
| 219,770 |
| 1.0% |
Commercial |
|
| 54,449 |
|
| 47,883 |
| 13.7% |
| 426,529 |
| 414,337 |
| 2.9% |
Industrial |
|
| 3,147 |
|
| 3,001 |
| 4.9% |
| 39,261 |
| 39,005 |
| 0.7% |
Other-retail/municipal |
|
| 8,829 |
|
| 8,170 |
| 8.1% |
| 80,610 |
| 76,356 |
| 5.6% |
Total retail |
|
| 106,899 |
|
| 95,748 |
| 11.6% |
| 768,284 |
| 749,468 |
| 2.5% |
Sales to the market |
|
| 2,882 |
|
| 4,639 |
| (37.9)% |
| 51,152 |
| 95,872 |
| (46.6)% |
Other |
|
| 308 |
|
| 222 |
| 38.7% |
| — |
| — |
| —% |
Total |
| $ | 110,089 |
| $ | 100,609 |
| 9.4% |
| 819,436 |
| 845,340 |
| (3.1)% |
|
| Revenues |
| Sales (kWh) | ||||||||
(In thousands, except cooling degree days) |
| Three Months Ended September 30, |
| Three Months Ended September 30, | ||||||||
|
| 2017 |
| 2016 |
| % Change |
| 2017 |
| 2016 |
| % Change |
Residential | $ | 39,905 | $ | 40,120 |
| (0.5)% |
| 225,992 |
| 259,529 |
| (12.9)% |
Commercial |
| 64,036 |
| 55,232 |
| 15.9 % |
| 505,771 |
| 517,253 |
| (2.2)% |
Industrial |
| 4,555 |
| 4,122 |
| 10.5 % |
| 48,896 |
| 61,362 |
| (20.3)% |
Other-retail/municipal |
| 10,459 |
| 9,091 |
| 15.0 % |
| 119,979 |
| 114,097 |
| 5.2 % |
Total retail |
| 118,955 |
| 108,565 |
| 9.6 % |
| 900,638 |
| 952,241 |
| (5.4)% |
Sales to the market |
| 1,068 |
| 2,120 |
| (49.6)% |
| 27,581 |
| 52,278 |
| (47.2)% |
Deferral of fuel savings |
| - |
| 8,194 |
| (100.0)% |
| - |
| - |
| - % |
Adjustments to revenues |
| 626 |
| 54 |
| N/A% |
| - |
| - |
| - % |
Total | $ | 120,649 | $ | 118,933 |
| 1.4 % |
| 928,219 |
| 1,004,519 |
| (7.6)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cooling degree days (normal 473) |
|
|
|
|
|
|
| 398 |
| 570 |
| (30.2)% |
Electric operating revenuesmargin, a non-GAAP measure, increased $1.7$6.1 million or 1.4% forduring the three months ended September 30, 2017,March 31, 2022, compared to the same period in 2016,2021, due to the following:
| (In millions) |
|
|
|
| Deferral of fuel savings/fuel credit | $ | 9.6 |
|
| Adjustments to revenues |
| 0.6 |
|
| Volume |
| (5.9) |
|
| Sales to the market |
| (1.1) |
|
| Other |
| (0.8) |
|
| Rate changes |
| (0.7) |
|
| Total | $ | 1.7 |
|
(In millions) |
|
|
| |
Rate changes |
| $ | 11.3 |
|
Customer fixed and demand charges |
|
| 0.6 |
|
Increase in commercial, industrial and other-retail/municipal volume |
|
| 0.6 |
|
Increase in residential volume |
|
| 0.2 |
|
Other |
|
| 0.2 |
|
Increased fuel costs |
|
| (4.8 | ) |
Revenue subject to refund, net |
|
| (2.0 | ) |
Total |
| $ | 6.1 |
|
·
Deferral of fuel savings/fuel credit.During the three months ended September 30, 2016, customers received a fuel credit on their bill related to accumulated fuel savings of $17.8 million, which decreased electric revenues in the prior year. In January 2016, the PSCW lowered MGE's 2016 fuel rules monitored costs, which were deferred in revenue in the prior period, as a result of continued lower projected fuel costs in 2016.
·
Adjustments to revenue. MGE leases electric generating capacity from MGE Power Elm Road. MGE collects in rates the lease payments associated with the electric generating capacity as authorized by the PSCW. Any differential between estimated lease payments collected in rates and actual lease payments paid to MGE Power Elm Road are included in adjustments to revenues.
·
Volume.During the three months ended September 30, 2017, there was a 20.3% decrease in industrial retail sales volumes compared to the same period in the prior year as a result of a large industrial customer relocating its operations out of state. During the three months ended September 30, 2017, there was a 12.9% decrease in residential sales volumes compared to the same period in the prior year driven by decreased customer demand due, at least in part, to less favorable weather conditions, as evidenced by the lower number of cooling degree days.
·
Sales to the market.Sales to the market represent wholesale sales made to third parties who are not ultimate users of the electricity. These sales may include spot market transactions on the markets operated by MISO and PJM. These sales may also include bilateral sales to other utilities or power marketers. Generating units are dispatched by MISO based on cost considerations as well as reliability of the system. Sales to the market typically occur when MGE has more generation and purchases online than are needed for its own system demand. The excess electricity is then sold to others in the market. For the three months ended September 30, 2017, market volumes decreased compared to the same period in the prior year, reflecting decreased opportunities for sales and those sales were made at lower market prices. The revenue generated from these sales is included in fuel rules monitored costs. See fuel rules discussion in Footnote 8.b. of the Notes to the Consolidated Financial Statements.
|
·
• approximately 8.81%. Rates charged to retail customers Changes.changes. In December 2016,2021, the PSCW authorized MGE to decrease 2017increase 2022 rates for retail electric customers by 0.8% or $3.3 million on an annual basis.forduring the three months ended September 30, 2017,March 31, 2022, were 2.4% or $0.7$11.3 million lowerhigher than those charged during the same period in the prior year.
Electric fuel and purchased power
Electric fuel and purchased power
Fuel for electric generation
The expense for fuel for internal electric generation decreased $4.7 million during the three months ended September 30, 2017, compared to the same period in the prior year, due to the following:
| ||||
|
|
| ||
|
| |||
|
|
|
This decrease in expense reflects a 15.8% decrease in internal generation volume delivered to the systemMarch 31, 2022, primarily as a result of decreased generation at WCCF based on market prices and an 8.4% decrease in per-unit cost of internal electric generation.
Purchased power
Purchased power expense increased $6.8 million during the three months ended September 30, 2017, comparedhigher costs to the same periodgenerate electricity in the prior year, duemarket and higher customer demand.
| (In millions) |
|
|
|
| Change in fuel rule adjustments, net of recoveries | $ | 5.0 |
|
| Increase in volume |
| 2.2 |
|
| Decrease in per-unit cost |
| (0.4) |
|
| Total | $ | 6.8 |
|
Under fuel rules, MGE is required to defer electric fuel-related costs that fall outside a 2%refund.
The increase in expense (before fuel rules adjustments) reflects a 17.4% increaseoffset as revenue subject to refund. There is no margin impact in the volume of power purchased from third parties partially offset by a 2.5% decrease inyear the per-unit cost of purchased power.
Electric operating and maintenance expenses
For the three months ended September 30, 2017, electric operating and maintenance expenses increased $0.6 million, compared to the same period in the prior year. The following contributed to the net change:
| (In millions) |
|
|
|
| Increased transmission costs | $ | 1.3 |
|
| Increased customer accounts costs |
| 0.5 |
|
| Decreased production expenses |
| (0.5) |
|
| Decreased distribution expenses |
| (0.5) |
|
| Decreased administrative and general costs |
| (0.2) |
|
| Total | $ | 0.6 |
|
For the three months ended September 30, 2017, increased transmission costs are primarily due to an increase in transmission reliability enhancements.refunded.
|
36
Electric depreciation expense
Electric depreciation expense increased $1.9 million for the three months ended September 30, 2017, compared to the same period in the prior year as a result of new depreciation rates for Columbia, as approved by the PSCW.
Other electric income
Other electric income increased $1.3 million for the three months ended September 30, 2017, compared to the same period in the prior year, primarily due to the gain on sale of property assets.
Gas Utility Operations - MGE Energy and MGE
Gas deliveries and revenues
The following table compares MGE's gas revenues and gas therms delivered by customer class duringfor each of the periods indicated:
|
| Revenues |
| Therms Delivered |
| Revenues |
| Therms Delivered | ||||||||||||||||||
(In thousands, except HDD and average rate per therm of retail customer) |
| Three Months Ended September 30, |
| Three Months Ended September 30, | ||||||||||||||||||||||
|
| 2017 |
| 2016 |
| % Change |
| 2017 |
| 2016 |
| % Change | ||||||||||||||
(In thousands, except HDD and average |
| Three Months Ended March 31, |
| Three Months Ended March 31, | ||||||||||||||||||||||
rate per therm of retail customer) |
| 2022 |
| 2021 |
| % Change |
| 2022 |
| 2021 |
| % Change | ||||||||||||||
Residential | $ | 12,121 | $ | 11,440 |
| 6.0 % |
| 5,841 |
| 5,468 |
| 6.8 % |
| $ | 56,683 |
| $ | 39,758 |
| 42.6% |
| 55,661 |
| 50,305 |
| 10.6% |
Commercial/Industrial |
| 5,622 |
| 5,043 |
| 11.5 % |
| 8,847 |
| 8,488 |
| 4.2 % |
|
| 40,251 |
|
| 25,507 |
| 57.8% |
| 47,892 |
| 42,254 |
| 13.3% |
Total retail |
| 17,743 |
| 16,483 |
| 7.6 % |
| 14,688 |
| 13,956 |
| 5.2 % |
| 96,934 |
| 65,265 |
| 48.5% |
| 103,553 |
| 92,559 |
| 11.9% | ||
Gas transportation |
| 944 |
| 997 |
| (5.3)% |
| 14,606 |
| 15,982 |
| (8.6)% |
| 1,876 |
| 2,002 |
| (6.3)% |
| 26,067 |
| 23,308 |
| 11.8% | ||
Other revenues |
| 91 |
| 90 |
| 1.1 % |
| - |
| - |
| - % | ||||||||||||||
Other |
|
| 1 |
|
| 3 |
| (66.7)% |
| — |
| — |
| —% | ||||||||||||
Total | $ | 18,778 | $ | 17,570 |
| 6.9 % |
| 29,294 |
| 29,938 |
| (2.2)% |
| $ | 98,811 |
| $ | 67,270 |
| 46.9% |
| 129,620 |
| 115,867 |
| 11.9% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Heating degree days (normal 158) |
|
|
|
|
|
|
| 138 |
| 49 |
| 181.6 % | ||||||||||||||
Average rate per therm of |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
retail customer | $ | 1.208 | $ | 1.181 |
| 2.3 % |
|
|
|
|
|
| ||||||||||||||
Heating degree days (normal 3,529) |
|
|
|
| 3,718 |
| 3,593 |
| 3.5% | |||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||
Average rate per therm |
| $ | 0.936 |
| $ | 0.705 |
| 32.8% |
|
|
|
|
Gas revenuesmargin, a non-GAAP measure, increased $1.2$4.1 million or 6.9% forduring the three months ended September 30, 2017,March 31, 2022, compared to the same period in 2016. These changes are2021, due to the following:
(In millions) |
|
|
| |
Increase in volume |
| $ | 1.9 |
|
Rate changes |
|
| 1.7 |
|
Other |
|
| 0.5 |
|
Total |
| $ | 4.1 |
|
| (In millions) |
|
|
|
| Rate/PGA changes | $ | 0.9 |
|
| Volume |
| 0.3 |
|
| Total | $ | 1.2 |
|
·
Rate/PGA changes.
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.
The average retail rate per therm Payments for natural gas increased driving higher rates during the three months ended September 30, 2017, increased 2.3% compared to the same period in 2016, reflecting a $0.5 million increase in natural gas commodity costs (recovered through the PGA)March 31, 2022.
Consolidated operations and an increase in fixed rate charges.maintenance expenses
·
Volume. ForDuring the three months ended September 30, 2017, retail gas deliveriesMarch 31, 2022, operations and maintenance expenses increased 5.2% compared to the same period in the prior year.
Cost of gas sold
For the three months ended September 30, 2017, cost of gas sold increased $0.8$4.3 million, compared to the same period in the prior year. The cost per therm of naturalfollowing contributed to the net change:
(In millions) |
|
|
| |
Increased administrative and general costs |
| $ | 2.3 |
|
Increased electric production expenses |
|
| 1.1 |
|
Increased customer accounts costs |
|
| 1.0 |
|
Increased other expenses |
|
| 0.1 |
|
Decreased electric distribution expenses |
|
| (0.2 | ) |
Total |
| $ | 4.3 |
|
37
Consolidated depreciation expense
Electric depreciation expense increased $2.0 million and gas depreciation expense increased 10.5%, which resulted in $0.5 million of increased expense. The volume of gas purchased increased 6.9%, which resulted in $0.3 million of increased expense.
|
Gas operating and maintenance expenses
Gas operating and maintenance expenses increased by $0.7 million forduring the three months ended September 30, 2017,March 31, 2022, compared to the same period in 2016.the prior year. MGE placed in service Badger Hollow I in November 2021. The followingtiming of the in-service date contributed to the net change:increase in electric depreciation expense. The new customer information system went live in September 2021 increasing depreciation costs for both electric and gas in 2022.
| (In millions) |
|
|
|
| Increased customer accounts costs | $ | 0.7 |
|
| Increased customer service costs |
| 0.2 |
|
| Increased other costs |
| 0.2 |
|
| Decreased administrative and general costs |
| (0.4) |
|
| Total | $ | 0.7 |
|
ForElectric and gas other income
Electric and gas other income increased $2.3 million and $1.3 million, respectively, during the three months ended September 30, 2017, increased customer accounts costs areMarch 31, 2022, compared to the same period in the prior year, primarily related to technology improvements.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. ForDuring the three months ended September 30, 2017March 31, 2022 and 2016,2021, net income at the nonregulated energy operations segment was $4.8$5.4 million and $4.7$5.2 million, respectively.
Transmission Investment Operations - MGE Energy and MGE
Transmission investment other income
For the three months ended September 30, 2017 and 2016, other income at the transmission investment segment was $2.3 million and $2.0 million, respectively. The transmission investment segment holds our interest in ATC and ATC Holdco, and its income reflects our equity in the earnings of thethose investments. ATC Holdco was formed in December 2016. In the near term, it is expected that ATC Holdco will be pursuing2016 to pursue transmission development opportunities 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 three months ended March 31, 2022 and 2021, other income at the transmission investment segment primarily reflects ATC's operations and was $2.5 million and $2.4 million, respectively. See Footnote 3 of the Notes to Consolidated Financial Statements in this Report and "Other Matters" below for additional information concerning ATC and summarized financial information regarding ATC.
Consolidated Income Taxes - MGE Energy and MGE
MGE Energy'sIn 2022, the effective incomeelectric tax rate forincreased as a result of the three months ended September 30,return of electric excess deferred taxes related to the 2017 and 2016, was 36.9% and 36.1%, respectively. MGE's effective income tax rateTax 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 three months ended September 30, 2017 and 2016, was 36.7% and 36.0%, respectively. For both MGE Energy and MGE, the increase in the effective tax rate is due in part to lower estimated federal tax credits.reconciliation.
Noncontrolling Interest, Net of Tax - MGE
The noncontrollingNoncontrolling 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, dueCampus. 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. Also included in noncontrolling interest, net of tax, for the three months ended September 30, 2016, was MGE Energy's interest in MGE Transco, which holds our investment in ATC.
|
The following table shows MGE Energy's noncontrolling interest, net of tax, reflected on MGE's consolidated statement of income:
|
|
| Three Months Ended |
| ||
|
|
| September 30, |
| ||
| (In millions) |
| 2017 |
| 2016 |
|
| MGE Power Elm Road | $ | 3.6 | $ | 3.7 |
|
| MGE Power West Campus |
| 1.8 |
| 1.8 |
|
| MGE Transco(a) |
| - |
| 0.2 |
|
|
| Three Months Ended |
| |||||
|
| March 31, |
| |||||
(In millions) |
| 2022 |
|
| 2021 |
| ||
MGE Power Elm Road |
| $ | 3.0 |
|
| $ | 3.7 |
|
MGE Power West Campus |
|
| 1.8 |
|
|
| 1.8 |
|
(a)
MGE Transco holds an ownership interest in ATC. In July 2016, MGE's ownership interest in MGE Transco declined below a majority, resulting in MGE Energy's investment in MGE Transco being deconsolidated from MGE's consolidated financial statements. In December 2016, MGE's ownership interest in MGE Transco was transferred to MGE Energy. See Footnote 3 of the Notes to Consolidated Financial Statements in this Report for additional information.
Nine Months Ended September 30, 2017 and 2016
Electric Utility Operations - MGE Energy and MGE
Electric sales and revenues
The following table compares MGE's electric revenues and electric kWh sales by customer class for each of the periods indicated:
|
| Revenues |
| Sales (kWh) | ||||||||
(In thousands, except cooling degree days) |
| Nine Months Ended September 30, |
| Nine Months Ended September 30, | ||||||||
|
| 2017 |
| 2016 |
| % Change |
| 2017 |
| 2016 |
| % Change |
Residential | $ | 104,892 | $ | 104,917 |
| -% |
| 601,310 |
| 641,551 |
| (6.3)% |
Commercial |
| 168,921 |
| 161,056 |
| 4.9 % |
| 1,389,036 |
| 1,420,769 |
| (2.2)% |
Industrial |
| 13,286 |
| 13,381 |
| (0.7)% |
| 153,759 |
| 178,535 |
| (13.9)% |
Other-retail/municipal |
| 29,141 |
| 26,498 |
| 10.0 % |
| 315,692 |
| 296,093 |
| 6.6 % |
Total retail |
| 316,240 |
| 305,852 |
| 3.4 % |
| 2,459,797 |
| 2,536,948 |
| (3.0)% |
Sales to the market |
| 3,090 |
| 5,281 |
| (41.5)% |
| 80,273 |
| 161,217 |
| (50.2)% |
Deferral of fuel savings |
| - |
| 1,125 |
| (100.0)% |
| - |
| - |
| - % |
Adjustments to revenues |
| 1,949 |
| 212 |
| N/A% |
| - |
| - |
| - % |
Total | $ | 321,279 | $ | 312,470 |
| 2.8 % |
| 2,540,070 |
| 2,698,165 |
| (5.9)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cooling degree days (normal 653) |
|
|
|
|
|
|
| 570 |
| 771 |
| (26.1)% |
Electric operating revenues increased $8.8 million or 2.8% for the nine months ended September 30, 2017, compared to the same period in 2016, due to the following:
| (In millions) |
|
|
|
| Deferral of fuel savings/fuel credit | $ | 20.7 |
|
| Adjustments to revenue |
| 1.8 |
|
| Volume |
| (8.8) |
|
| Rate changes |
| (2.5) |
|
| Sales to the market |
| (2.2) |
|
| Other |
| (0.2) |
|
| Total | $ | 8.8 |
|
·
Deferral of fuel savings/fuel credit.During the nine months ended September 30, 2016, customers received a fuel credit on their bill related to accumulated fuel savings of $21.8 million, which decreased electric revenues in the prior year. In January 2016, the PSCW lowered MGE's 2016 fuel rules monitored costs, which were deferred in revenue in the prior period, as a result of continued lower projected fuel costs in 2016.
|
38
·
Adjustments to revenue.MGE leases electric generating capacity from MGE Power Elm Road. MGE collects in rates the lease payments associated with the electric generating capacity as authorized by the PSCW. Any differential between estimated lease payments collected in rates and actual lease payments paid to MGE Power Elm Road are included in adjustments to revenues.
·
Volume.During the nine months ended September 30, 2017, there was a 13.9% decrease in industrial retail sales volumes compared to the same period in the prior year as a result of a large industrial customer relocating its operations out of state. During the nine months ended September 30, 2017, there was a 6.3% decrease in residential sales volumes compared to the same period in the prior year driven by decreased customer demand due, at least in part, to less favorable weather conditions, as evidenced by the lower number of cooling degree days.
·
Rate Changes.In December 2016, the PSCW authorized MGE to decrease 2017 rates for retail electric customers by 0.8% or $3.3 million on an annual basis.
Rates charged to retail customers for the nine months ended September 30, 2017, were 2.1% or $2.5 million lower than those charged during the same period in the prior year.
·
Sales to the market.Sales to the market represent wholesale sales made to third parties who are not ultimate users of the electricity. These sales may include spot market transactions on the markets operated by MISO and PJM. These sales may also include bilateral sales to other utilities or power marketers. Generating units are dispatched by MISO based on cost considerations as well as reliability of the system. Sales to the market typically occur when MGE has more generation and purchases online than are needed for its own system demand. The excess electricity is then sold to others in the market. For the nine months ended September 30, 2017, market volumes decreased compared to the same period in the prior year, reflecting decreased opportunities for sales and those sales were made at lower market prices. The revenue generated from these sales is included in fuel rules monitored costs. See fuel rules discussion in Footnote 8.b. of the Notes to the Consolidated Financial Statements.
Electric fuel and purchased power
Electric fuel and purchased power costs reflect an increase in the volume of purchased power offset by a decrease in internal generation volumes when compared to the prior period. Adjustments related to the regulatory recovery for fuel costs, known as fuel rules, increased purchased power expense. These items are explained below.
Fuel for electric generation
The expense for fuel for internal electric generation decreased $7.6 million during the nine months ended September 30, 2017, compared to the same period in the prior year, due to the following:
| ||||
|
|
| ||
|
| |||
|
|
|
This decrease in expense reflects a 13.0% decrease in internal generation volume delivered to the system primarily as a result of decreased generation at WCCF based on market prices and a 3.5% decrease in per-unit cost of internal electric generation.
Purchased power
Purchased power expense increased $9.4 million during the nine months ended September 30, 2017, compared to the same period in the prior year, due to the following:
| (In millions) |
|
|
|
| Change in fuel rule adjustments, net of recoveries | $ | 8.4 |
|
| Increase in volume |
| 5.4 |
|
| Decrease in per-unit cost |
| (4.4) |
|
| Total | $ | 9.4 |
|
Under fuel rules, MGE is required to defer electric fuel-related costs that fall outside a 2% cost tolerance band around the amount used in the most recent rate proceeding. Any fuel rules adjustments are reflected in purchased power expense, with potential refunds associated with fuel savings increasing that expense and potential recovery of excess fuel costs decreasing that expense.
|
The decrease in expense (before fuel rules adjustments) reflects a 12.2% increase in the volume of power purchased from third parties partially offset by a 9.0% decrease in the per-unit cost of purchased power.
Electric operating and maintenance expenses
Electric operating and maintenance expenses increased $2.5 million during the nine months ended September 30, 2017, compared to the same period in 2016. The following changes contributed to the net change:
| (In millions) |
|
|
|
| Increased transmission costs | $ | 3.8 |
|
| Increased customer accounts costs |
| 1.7 |
|
| Increased customer service costs |
| 0.3 |
|
| Decreased production expenses |
| (2.1) |
|
| Decreased administrative and general costs |
| (0.7) |
|
| Decreased distribution expenses |
| (0.5) |
|
| Total | $ | 2.5 |
|
For the nine months ended September 30, 2017, increased transmission costs are primarily due to an increase in transmission reliability enhancements and increased customer accounts costs are primarily related to technology improvements, partially offset by decreased production costs at Columbia and the Elm Road Units.
Electric depreciation expense
Electric depreciation expense increased $5.6 million for the nine months ended September 30, 2017, compared to the same period in the prior year as a result of new depreciation rates for Columbia, as approved by the PSCW.
Other electric income
Other electric income increased $1.3 million for the nine months ended September 30, 2017, compared to the same period in the prior year, primarily due to the gain on sale of property assets.
Gas Utility Operations - MGE Energy and MGE
Gas deliveries and revenues
The following table compares MGE's gas revenues and gas therms delivered by customer class during each of the periods indicated:
|
| Revenues |
| Therms Delivered | ||||||||
(In thousands, except HDD and average rate per therm of retail customer) |
| Nine Months Ended September 30, |
| Nine Months Ended September 30, | ||||||||
|
| 2017 |
| 2016 |
| % Change |
| 2017 |
| 2016 |
| % Change |
Residential | $ | 61,164 | $ | 56,344 |
| 8.6 % |
| 60,794 |
| 62,188 |
| (2.2)% |
Commercial/Industrial |
| 36,512 |
| 32,324 |
| 13.0 % |
| 58,865 |
| 58,812 |
| 0.1 % |
Total retail |
| 97,676 |
| 88,668 |
| 10.2 % |
| 119,659 |
| 121,000 |
| (1.1)% |
Gas transportation |
| 3,285 |
| 3,402 |
| (3.4)% |
| 50,828 |
| 53,957 |
| (5.8)% |
Other revenues |
| 324 |
| 298 |
| 8.7 % |
| - |
| - |
| - % |
Total | $ | 101,285 | $ | 92,368 |
| 9.7 % |
| 170,487 |
| 174,957 |
| (2.6)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Heating degree days (normal 4,477) |
|
|
|
|
|
|
| 4,025 |
| 4,135 |
| (2.7)% |
Average rate per therm of |
|
|
|
|
|
|
|
|
|
|
|
|
retail customer | $ | 0.816 | $ | 0.733 |
| 11.3 % |
|
|
|
|
|
|
|
Gas revenues increased $8.9 million or 9.7% for the nine months ended September 30, 2017, compared to the same period in 2016. These changes are related to the following factors:
| (In millions) |
|
|
|
| Rate/PGA changes | $ | 9.5 |
|
| Volume |
| (0.6) |
|
| Total | $ | 8.9 |
|
·
Rate/PGA changes. In December 2016, the PSCW authorized MGE to increase 2017 rates for retail gas customers by 1.9% or $3.1 million on an annual basis.
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 impact net income.
The average retail rate per therm for the nine months ended September 30, 2017, increased 11.3% compared to the same period in 2016, reflecting a $7.2 million increase in natural gas commodity costs (recovered through the PGA) and an increase in fixed rate charges.
·
Volume. For the nine months ended September 30, 2017, retail gas deliveries decreased 1.1% compared to the same period in the prior year primarily resulting from unfavorable weather conditions.
Cost of gas sold
For the nine months ended September 30, 2017, cost of gas sold increased $6.9 million compared to the same period in the prior year. The cost per therm of natural gas increased 15.9%, which resulted in $6.9 million of increased expense.
Gas operating and maintenance expenses
Gas operating and maintenance expenses increased by $1.7 million for the nine months ended September 30, 2017, compared to the same period in 2016. The following changes contributed to the net change:
| (In millions) |
|
|
|
| Increased customer account costs | $ | 1.7 |
|
| Increased customer service costs |
| 0.8 |
|
| Decreased administrative and general costs |
| (0.8) |
|
| Total | $ | 1.7 |
|
For the nine months ended September 30, 2017, increased customer accounts costs are primarily related to technology improvements.
Nonregulated Energy Operations - MGE Energy and MGE
The nonregulated energy operations are conducted through MGE Energy's subsidiaries: MGE Power Elm Road (the Elm Road Units) and MGE Power West Campus (WCCF), which have been formed to own and lease electric generating capacity to assist MGE. For the nine months ended September 30, 2017 and 2016, net income at the nonregulated energy operations segment was $14.2 million and $14.3 million, respectively.
Transmission Investment Operations - MGE Energy and MGE
Transmission investment other income
For the nine months ended September 30, 2017 and 2016, other income at the transmission investment segment was $7.2 million and $6.0 million, respectively. The transmission investment segment holds our interest in ATC and ATC Holdco, and its income reflects our equity in the earnings of the investments. ATC Holdco was formed in December 2016. In the near term, it is expected that ATC Holdco will be pursuing transmission development opportunities that typically have long development and investment lead times before becoming operational. See Footnote 3 of the Notes to Consolidated Financial Statements in this Report and "Other Matters" below for additional information concerning ATC and summarized financial information regarding ATC.
|
Consolidated Income Taxes - MGE Energy and MGE
MGE Energy's effective income tax rate for the nine months ended September 30, 2017 and 2016, was 36.6% and 36.4%, respectively. MGE's effective income tax rate for the nine months ended September 30, 2017 and 2016, was 36.3% and 36.4%, respectively.
Noncontrolling Interest, Net of Tax - MGE
The noncontrolling interest, net of tax, reflects the accounting required for MGE Energy's interest in MGE Power Elm Road (the Elm Road Units) and MGE Power West Campus (WCCF). MGE Energy owns 100% of MGE Power Elm Road and MGE Power West Campus; however, due to the contractual agreements for these projects with MGE, the entities are considered VIEs with respect to MGE and their results are consolidated with those of MGE, the primary beneficiary of the VIEs. Also included in noncontrolling interest, net of tax, for the nine months ended September 30, 2016, is MGE Energy's interest in MGE Transco, which holds our investment in ATC. The following table shows MGE Energy's noncontrolling interest, net of tax, reflected on MGE's consolidated statement of income:
|
|
| Nine Months Ended |
| ||
|
|
| September 30, |
| ||
| (In millions) |
| 2017 |
| 2016 |
|
| MGE Power Elm Road | $ | 10.8 | $ | 11.1 |
|
| MGE Power West Campus |
| 5.4 |
| 5.4 |
|
| MGE Transco(a) |
| - |
| 1.4 |
|
(a)
MGE Transco holds an ownership interest in ATC. In July 2016, MGE's ownership interest in MGE Transco declined below a majority, resulting in MGE Energy's investment in MGE Transco being deconsolidated from MGE's consolidated financial statements. In December 2016, MGE's ownership interest in MGE Transco was transferred to MGE Energy. See Footnote 3 of the Notes to Consolidated Financial Statements in this Report for additional information.
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 ninethree months ended September 30, 2017,March 31, 2022, except as noted below. Further discussion of the contractual obligations and commercial commitments is included in Footnote 1716 of the Notes to Consolidated Financial Statements and "Contractual Obligations and Commercial Commitments for MGE Energy and MGE" under "Management's Discussion and Analysis of Financial Condition and Results of Operations" in MGE Energy's and MGE's 2016the 2021 Annual Report on Form 10-K.
Purchase Contracts -– MGE Energy and MGE
See item c. within Footnote 7.c.8 of Notes to Consolidated Financial Statements in this Report for a description of commitments at September 30, 2017,as of March 31, 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.
Liquidity and Capital Resources
Other Commitments - MGE Energy
In May 2017, MGE Energy entered a subscription agreementSubject to invest in a nonpublic venture capital fund. From time to time, this entity will require capital infusions from its investors. MGE Energy has committed to contribute $5 million in capital for such infusions. The timing of these infusions is dependent on the needsduration and severity of the investee and is therefore uncertain at this time.
Long-term Debt -COVID-19 pandemic, MGE Energy and MGE
MGE issued $40 million of long-term unsecured debt in January 2017. The proceeds of this debt financing were used expect to refinance $30 million of medium-term notes, which matured in January 2017, and assist with the financing of additional capital expenditures. In October 2017, MGE also issued an additional $30 million of long-term unsecured debt to cover capital expenditures and other corporate obligations. See Footnote 2 of the Notes to Consolidated Financial Statements in this Report for further discussion of these debt issuances.
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Liquidity and Capital Resources
MGE Energy and MGE have adequate liquidity to fundsupport 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 both long-term debt financing, short-term debt financing, and if needed, could issue new shares through our Direct Stock Purchase and Dividend Reinvestment Plan. See "Credit Facilities" under Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources in MGE Energy's and MGE's 2016the 2021 Annual Report on Form 10-K for information regarding MGE Energy's and MGE's credit facilities.
Cash Flows
The following summarizes cash flows for MGE Energy and MGE during the ninethree months ended September 30, 2017March 31, 2022 and 2016:2021:
|
|
| MGE Energy |
| MGE |
| |||||
| (In thousands) |
| 2017 |
| 2016 |
|
| 2017 |
| 2016 |
|
| Cash provided by/(used for): |
|
|
|
|
|
|
|
|
|
|
| Operating activities | $ | 99,016 | $ | 129,192 |
| $ | 94,366 | $ | 128,959 |
|
| Investing activities |
| (71,114) |
| (64,619) |
|
| (65,105) |
| (64,407) |
|
| Financing activities |
| (19,128) |
| (34,372) |
|
| (38,075) |
| (59,754) |
|
|
| MGE Energy |
| MGE | ||||||||
(In thousands) |
| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||
Cash provided by (used for): |
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities |
| $ | 62,099 |
| $ | 43,883 |
| $ | 62,681 |
| $ | 41,981 |
Investing activities |
|
| (32,169) |
|
| (35,835) |
|
| (30,942) |
|
| (35,208) |
Financing activities |
|
| (21,216) |
|
| (13,585) |
|
| (21,203) |
|
| (5,205) |
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 forduring the ninethree months ended September 30, 2017,March 31, 2022, was $99.0$62.1 million, a decreasean increase of $30.2$18.2 million when compared to the same period in the prior year, primarily reflecting changes in working capital items between the periods.year.
MGE Energy's net income increased $0.4decreased $0.5 million forduring the ninethree months ended September 30, 2017,March 31, 2022, when compared to the same period in the prior year.
In 2016, MGE received a $10.0 million refund from the IRS for the 2015 tax year. Excluding the 2016 refund, MGE Energy's federal and state taxes paid increased $10.2$1.0 million during the ninethree months ended September 30, 2017,March 31, 2022, when compared to the prior year.
Working capital accounts (excluding prepaid and accrued taxes) resulted in $0.2 million in cash provided by operating activities during the three months ended March 31, 2022. Actual purchased gas costs were $5.9 million
39
lower than the amount collected in rates. MGE Energy paid a $2.5 million contribution to the MGE Foundation in 2022. In addition, working capital accounts were impacted by decreased inventories and decreased unbilled revenues, partially offset by increased accounts receivable and decreased accounts payable.
Working capital accounts (excluding prepaid and accrued taxes) resulted in $11.4 million in cash used for operating activities during the three months ended March 31, 2021. Actual purchased gas costs were $13.0 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. In addition, working capital accounts were impacted by increased accounts receivable and decreased other current liabilities, partially offset by decreased gas inventories and decreased unbilled revenues.
Hosted software asset expenditures during the three months ended March 31, 2022, were $0.1 million. This amount represents a decrease of $1.2 million of cash used when compared to the prior year.
MGE
Cash provided by operating activities during the three months ended March 31, 2022, was $62.7 million, an increase of $20.7 million when compared to the same period in the prior year.
Net income decreased $1.7 million during the three months ended March 31, 2022, when compared to the same period in the prior year.
MGE's federal and state taxes paid increased $1.0 million during the three months ended March 31, 2022, when compared to the prior year.
Working capital accounts (excluding prepaid and accrued taxes) resulted in $13.9$2.8 million in cash used forprovided by operating activities forduring the ninethree months ended September 30, 2017, primarily due toMarch 31, 2022. Actual purchased gas costs were $5.9 million lower than the amount collected in rates. In addition, working capital accounts were impacted by decreased accounts payableinventories and increased inventories,decreased unbilled revenues, partially offset by increased accounts receivable and decreased unbilled revenues, decreased other current assets, and increased other current liabilities.accounts payable.
Working capital accounts (excluding prepaid and accrued taxes) resulted in $7.6$11.3 million in cash provided byused for operating activities forduring the ninethree months ended September 30, 2016,March 31, 2021. Actual purchased gas costs were $13.0 million higher than the amount collected in rates primarily due to decreased inventories, decreased unbilled revenues,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. In addition, working capital accounts were impacted by increased accounts payable,receivable and increaseddecreased other current liabilities, partially offset by increased receivables. The increase in current liabilities includes a fuel credit, that was approved in August 2015, of $6.3 million that customers received on their bill from January through September 2016decreased gas inventories and a one-time fuel credit, approved in July 2016, of $15.5 million that customers received on their bill in September 2016.decreased unbilled revenues.
A decrease in pension contribution resulted in an additional $3.4 million in cash provided by operating activities forHosted software asset expenditures during the ninethree months ended September 30, 2017,March 31, 2022, were $0.1 million. This amount represents a decrease of $1.2 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 $3.7 million during the three months ended March 31, 2022, when compared to the same period in the prior year. Pension contributions reflect amounts required by law and discretionary amounts.
MGE
Cash provided by operating activities forCapital expenditures during the ninethree months ended September 30, 2017, was $94.4 million, a decrease of $34.6 million when compared to the same period in the prior year, primarily reflecting changes in working capital items between the periods.
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Net income decreased $3.3 million for the nine months ended September 30, 2017, when compared to the same period in the prior year.
In 2016, MGE received a $10.0 million refund from the IRS for the 2015 tax year. Excluding the 2016 refund, MGE Energy's federal and state taxes paid increased $10.2 million during the nine months ended September 30, 2017, when compared to the same period in the prior year.
Working capital accounts (excluding prepaid and accrued taxes) resulted in $13.6 million in cash used for operating activities for the nine months ended September 30, 2017, primarily due to decreased accounts payable and increased inventories, partially offset by decreased unbilled revenues, decreased other current assets, and increased other current liabilities.
Working capital accounts (excluding prepaid and accrued taxes) resulted in $7.7 million in cash provided by operating activities for the nine months ended September 30, 2016, primarily due to decreased inventories, decreased unbilled revenues, increased accounts payable, and increased other current liabilities, partially offset by increased receivables. The increase in current liabilities includes a fuel credit, that was approved in August 2015, of $6.3 million that customers received on their bill from January through September 2016 and a one-time fuel credit, approved in July 2016, of $15.5 million that customers received on their bill in September 2016.
A decrease in pension contribution resulted in an additional $3.4 million in cash provided by operating activities for the nine months ended September 30, 2017, when compared to the same period in the prior year. Pension contributions reflect amounts required by law and discretionary amounts.
Cash Used for Investing Activities
MGE Energy
MGE Energy's cash used for investing activities increased $6.5 million for the nine months ended September 30, 2017, when compared to the same period in the prior year.
Capital expenditures for the nine months ended September 30, 2017,March 31, 2022, were $66.3$30.8 million. This amount represents an increasea decrease of $4.0 million from the expenditures made in the same period in the prior year. This increasedecrease primarily reflects increased expenditures on electric distribution assets.the reduction of utility expenditures.
Capital contributions in ATC and other investments increased $4.8MGE
MGE's cash used for investing activities decreased $4.3 million forduring the ninethree months ended September 30, 2017,March 31, 2022, when compared to the same period in the prior year.
MGE Energy received $2.4 million in proceeds from40
Capital expenditures during the sales of property for the ninethree months ended September 30, 2017.
MGE
MGE's cash used for investing activities increased $0.7 million for the nine months ended September 30, 2017, when compared to the same period in the prior year.
Capital expenditures for the nine months ended September 30, 2017,March 31, 2022, were $66.3$30.8 million. This amount represents an increasea decrease of $4.0 million from the expenditures made in the same period in the prior year. This increasedecrease primarily reflects increased expenditures on electric distribution assets.the reduction of utility expenditures.
MGE Energy's and MGE's Capital Requirements
Capital contributions in ATC
MGE Energy's and other investments decreased $1.6 million forMGE's liquidity are primarily affected by their capital expenditure requirements. During the ninethree months ended September 30, 2017, when comparedMarch 31, 2022, capital expenditures for MGE Energy and MGE totaled $30.8 million, which included $30.2 million of utility capital expenditures.
MGE does not currently expect any material changes resulting from the COVID-19 pandemic and associated governmental regulations to the same periodits construction plans as presented in the prior year. In December 2016, MGE transferred its ownership interest to MGE Energy. See Footnote 32022 through 2025 capital expenditure forecast included under Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources in the Notes to Consolidated Financial Statements in this2021 Annual Report for further details.on Form 10-K.
MGE received $1.8 million in proceeds from the sales of property for the nine months ended September 30, 2017.
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Cash Used for Financing Activities
MGE Energy
Cash used for MGE Energy's financing activities was $19.1$21.2 million forduring the ninethree months ended September 30, 2017, a decrease of $15.2March 31, 2022, compared to $13.6 million when compared tofor the same period in the prior year.
ForDuring the ninethree months ended September 30, 2017,March 31, 2022, dividends paid were $32.5$14.0 million compared to $31.1$13.4 million in the prior year. ThisThe increase was a result ofreflected a higher dividend rate per share ($0.9380.388 vs. $0.898)$0.370).
During the ninethree months ended September 30, 2017, MGE issued $40.0March 31, 2022, net short-term debt repayments were $5.5 million, compared to $1.5 million of senior unsecured notes, which was used to refinance $30.0 million of medium-term notes and assist with financing additional capital expenditures.net short-term debt borrowings in the prior year.
ForMGE
During the ninethree months ended September 30, 2017, short-term borrowings were $7.0 million. There were no short term borrowings for the nine months ended September 30, 2016.
MGE
During the nine months ended September 30, 2017,March 31, 2022, cash used for MGE's financing activities was $38.1$21.2 million, a decrease of $21.7compared to $5.2 million when compared tofor the same period in the prior year.
Dividends paid from MGECash dividends to MGE Energyparent (MGE Energy) were $35.0$5.0 million forduring the ninethree months ended September 30, 2017, comparedMarch 31, 2022. There were no cash dividends to $40.0 forparent in the nine months ended September 30, 2016.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 $16.5$9.0 million forduring the ninethree months ended September 30, 2017,March 31, 2022, compared to $18.1$5.0 million in the prior year.
ForDuring the ninethree months ended September 30, 2016, equity contributions received from noncontrolling interest, which represent contributionsMarch 31, 2022, net short-term debt repayments were $5.5 million, compared to MGE Transco, were $1.6 million. There were no equity contributions received from noncontrolling interest, which represent contributions to MGE Transco for the nine months ended September 30, 2017.
During the nine months ended September 30, 2017, MGE issued $40.0$1.5 million of senior unsecured notes, which was used to refinance $30.0 million of medium-term notes and assist with financing additional capital expenditures.net short-term debt borrowings in the prior year.
For the nine months ended September 30, 2017, short-term borrowings were $7.0 million. There were no short term borrowings for the nine months ended September 30, 2016.
Capitalization Ratios
MGE Energy's capitalization ratios were as follows:
|
| MGE Energy |
| ||
|
| September 30, 2017 |
| December 31, 2016 |
|
| Common shareholders' equity | 65.3 % |
| 65.2 % |
|
| Long-term debt(a) | 34.1 % |
| 34.8 % |
|
| Short-term debt | 0.6 % |
| -% |
|
|
| MGE Energy | ||
|
| March 31, 2022 |
| December 31, 2021 |
Common shareholders' equity |
| 62.9% |
| 62.2% |
Long-term debt(a) |
| 37.1% |
| 37.5% |
Short-term debt |
| —% |
| 0.3% |
MGE Energy's and MGE's Capital Requirements
MGE Energy's and MGE's liquidity are primarily affected by their capital requirements. During the nine months ended September 30, 2017, capital expenditures for MGE Energy and MGE totaled $66.3 million, which included $63.9 million of capital expenditures for utility operations.
|
41
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 areborrowing is subject to default or prepayment as a result of a downgrading of credit ratings, although a downgrading of MGE's credit ratings couldwould increase fees and interest charges under both MGE Energy's and MGE's credit agreements.
Environmental Matters
The following discussion is limited to updates or developments in environmental matters that occurred during the ninethree months ended September 30, 2017.March 31, 2022. Further discussion of environmental matters is included in MGE Energy's and MGE's 2016the 2021 Annual Report on Form 10-K and Footnote 7.a.8.a. of Notes to Consolidated Financial Statements in this Report.
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 Clean Power Plan
In October 2015,CSAPR and its progeny are a suite of interstate air pollution transport rules designed to reduce ozone and fine particulate (PM2.5) air levels in areas that the EPA finalized its Clean Power Plan (CPP) rule with an effective date of December 2015, setting guidelineshas determined as being significantly impacted by pollution from upwind states. This is accomplished in the CSAPR through a reduction in SO2 and approval criteria for statesNOx from qualifying fossil-fuel fired power plants in upwind "contributing" states. NOx and SO2 contribute to usefine particulate pollution and NOx contributes to ozone formation in developing plans to control GHG emissions from existing fossil fuel-fired electric generating units (EGUs) and systems. Implementation ofdownwind areas. Reductions are achieved through a cap-and-trade system. Individual plants can meet their caps through emission reductions and/or buying allowances on the rule is expected to have a direct impact on existing coal and natural gas fired generating units, including possible changes in dispatch and additional operating costs. market.
In October 2017,April 2022, the 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 announcingimpacts 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 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 can be achieved with what the EPA 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 State Implementation Plan (SIP) to meet its obligations or accept the EPA's intentionproposed FIP.
MGE is currently evaluating the proposed rule to repeal the CPP and has sought public comment on whetherdetermine potential impacts to replaceour business. MGE expects the rule, and if so how. Givenfinalized as written, to impact our fossil-fueled generation assets. However, MGE will not know the pending legal proceedings, andimpacts of this rule with any certainty until the EPA's proposal, the nature and timing of any final requirements to control GHG emissions from existing fossil fuel-fired EGUs is subject to uncertainty. If a rule is implemented substantially in its present form, it is expected to have a material impact on MGE. MGEfinalized. We will continue to monitor developmentsrule developments.
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 to meet ongoing CSAPR obligations for the foreseeable future.
Other Matters
Rate Matters
In December 2021, the PSCW approved a settlement agreement for MGE's 2022 rate case. The settlement agreement provides for an 8.81% increase to electric rates and a 2.15% increase to gas rates for 2022. The 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 electric increase are higher fuel and purchased power costs as well as the completion in 2021 of the one-time return of the electric excess deferred tax credit related to the 2017
42
Tax Act not restricted by IRS normalization rules. Included in the electric residential rate is a reduction in the customer charge. As part of the settlement agreement for 2023, the PSCW approved a 0.96% increase in gas rates and to address a potential electric rate change through a limited rate case reopener.
In April 2022, MGE filed a limited reopener with a proposed a 4.38% increase to electric rates for 2023. 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. The reopener also revises the depreciation schedule for Columbia Unit 2 and shared equipment to 2029 to align with the depreciation schedule for Columbia Unit 1. PSCW approval of the limited reopener is pending. A final order is expected before the end of the year.
Details related to MGE's 2022/2023 approved settlement agreement and pending electric limited reopener:
(Dollars in thousands) |
| 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% |
| 1/1/2022 |
Gas (2022 Test Period) |
| $ | 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 |
ATC
Other Matters
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, "due to changes in the capital markets."ATC. The complaint allegedprovided for a statutory refund period of November 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%, 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, 2016, FERC issued an order, for the period November 2013 through February 2015, reducing ATC's base ROE to 10.32%. 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. This increased the ROE from 9.88% to 10.02%. This base ROE is effective for the 2013 FERC complaint period and for all periods following September 2016.
2015 FERC Complaint - In February 2015, several parties filed a second complaint was filed for the period February 2015 through May 2015 with the FERC requesting a reduction inseeking 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 of the complaint.date. In June 2016, an administrative law judge issued an initial decision for the second complaint that would reduce the transmission owner's base ROE to 9.7%. The initial decision will be reviewed by FERC. It is anticipated FERC will issue an order on this issue in the beginning of 2018. On September 28, 2016,In November 2019, FERC issued an order ondismissing the first complaint forwith the period November 2013 through February 2015, reducingdetermination that the base ROE was reasonable. As a result of this order and the methodology FERC used to 10.32%. This basedetermine the applicable ROE also became effective September 28, 2016, and will apply to future periods until FERC rules in the second2013 FERC complaint, at which timeseveral parties have requested a rehearing by FERC. If FERC denies these requests, the base ROE ordered by FERC incomplainants are likely to file an appeal with the second complaint will prospectively become the authorized base ROE.
In January 2015, FERC accepted the transmission owner's request for a 50 basis-point incentive ROE adder for participating in MISO. The adder became effective January 6, 2015.
appellate court. Any downward change to ATC's ROE could result in lower equity earnings and distributions from ATC in the future. Our
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 expenseadjustment of $0.7 $2.0
43
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 a $0.6 million reduction of our reserve. Additionally, our share of ATC's earnings reflects the derecognition of a possible refund related to the 2015 complaint as ATC considers such a refund to be no longer considered probable due to FERC's November 2019 dismissal of that complaint. 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 is approximately $2.3 million. As of December 31, 2020, our share of the estimated refund amount reflected a net increase in ATC's earnings with a pre-tax adjustment of $0.6 million, inclusive of interest.
We derived approximately 5.1% and 5.0% of our net income during the three months ended September 30, 2016,March 31, 2022 and a pre-tax expense of $0.2 million and $1.8 million for the nine months ended September 30, 2017 and 2016, respectively, recorded by ATC for this matter representing its estimate of its refund liability. There was not a pre-tax expense for the three months ended September 30, 2017. We derived approximately 7.2% and 5.8% of our net income for the nine months ended September 30, 2017 and 2016,2021, respectively, from our investment in ATC.
Adoption of Accounting Principles and Recently Issued Accounting Pronouncements
See Footnote 122 of Notes to Consolidated Financial Statements in this Report for discussion of new accounting pronouncements.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk.
MGE Energy and MGE are potentially exposed to market risk associated with interest rates, commodity prices, and equity returns. MGE currently has no exposure to foreign currency risk. MGE manages some risk exposure through risk management policies and the use of derivative instruments. MGE's risk management policy prohibits speculative trading transactions.
Commodity Price Risk
MGE has commodity price risk exposure with respect to the price of natural gas, electricity, coal, emission credits, and oil. MGE's electric operations burn natural gas in several of its peaking power plants and, in many cases, the cost of purchased power is tied to the cost of natural gas. MGE employs established policies and procedures to reduce the market risks associated with changing commodity prices. MGE's commodity risks are somewhatsubstantially mitigated by the current ratemaking process in place for recovering electric fuel cost, purchased energy costs, and the cost of natural gas.
The recovery of MGE's electric fuel costs areis subject to fuel rules established by the PSCW. The fuelFuel rules require the PSCW and Wisconsin utilities to defer electric fuel-related costs that fall outside a symmetrical cost tolerance band. Any over/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 is required towould defer the benefit of lower costs if the actual electric fuel costs fall outside the lower end of the range and is required to defer costs, less any excess revenues, if the actual electric fuel costs exceed the upper end of the range. Excess revenues are defined as revenues in the year in question that provide MGE with a greater return on common equity than authorized by the PSCW in MGE's latest rate order. The range is defined by the PSCW and has been modified throughout the years based on market conditions and other relevant factors. Currently, MGE is subject to a plus or minus 2%1% range. MGE assumes the risks and benefits of variances that are within the cost tolerance band. For 2017,2022, $82.7 million in fuel and purchased power costs will be recovered in rates and are subject to this rule and included in MGE's base fuel rates are $101.9 million.monitoring level rates. See Footnote 8.b.9.b. of the Notes to Consolidated Financial Statements in this Report for additional information.
MGE recovers the cost of natural gas in its gas utility segment through the purchased gas adjustment clause (PGA). Under the PGA, MGE is able to pass through to its gas customers the cost of gas. 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
44
also holds FTRs,financial transmission rights (FTRs), which are used to hedge the risk of increased transmission congestion charges. At September 30, 2017,As of March 31, 2022, the fair value of these instrumentsexchange traded derivatives and FTRs exceeded their cost basis by $0.9$9.8 million. Under the PGA clause and electric fuel rules, MGE may include in the costs of fuel (natural gas or power) the costs and benefits of the aforementioned fuel price risk management tools.tools in the costs of fuel (natural gas or power). Because these costs/costs or benefits are recoverable, the related unrealized loss/loss or gain has been deferred on the consolidated balance sheets as a regulatory asset/liability.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 agreement also allows MGE an option to extend the contract after that base term.2022 (the "base term"). The agreement is considered a derivative contract and is recognized at its fair value on the consolidated balance sheet.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 at September 30, 2017, reflectsas of March 31, 2022, reflected a loss position of $43.1$0.1 million.
Interest Rate Risk
Both MGE Energy and MGE may have short termshort-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 itsour 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.
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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 declined by approximately 7% during the three months ended March 31, 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 its credit risk, which include utilizing an established credit approval process, monitoring counterparty limits, employing credit mitigation measures such as collateral or prepayment arrangements, and using netting agreements.
Due to the possibility of extreme volatility in the prices of energy commodities and derivatives, the market value of contractual positions with individual counterparties could exceed established credit limits or collateral provided by those counterparties. If such a counterparty were then to fail to perform its obligations under its contract (for example, fail to deliver the electricity MGE originally contracted for), MGE could sustain a loss that could have a material impact on its financial results.
Additionally, if a counterparty were to default and MGE were to liquidate all contracts with that entity, MGE's credit loss would includecould include: the loss in value of mark-to-market contracts;contracts, the amount owed for settled transactions;transactions, and additional payments if any, to settle unrealized losses on accrual contracts.losses. As of September 30, 2017,March 31, 2022, no counterparties havehad defaulted.
MGE is obligated to provide service to all electric and gas customers within its respective franchised territories. MGE's franchised electric territory includes a 316264 square-mile area in Dane County, Wisconsin, and MGE's franchised gas territory includes a service area covering 1,6821,684 square miles in Wisconsin. Based on results for the year ended December 31, 2016,2021, 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
45
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.
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46
Item 4.Controls4. Controls and Procedures.
During the thirdfirst quarter of 2017,2022, 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, 2017,March 31, 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.
During the quarter ended September 30, 2017,March 31, 2022, there were no changes in either registrant's internal controls over financial reporting that materially affected, or are reasonably likely to affect materially, that registrant's internal control over financial reporting.
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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 7.a.8.a. and 7.b.8.b. of Notes to Consolidated Financial Statements in this Report for more information.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Issuer Purchases of Equity Securities
Period |
| Total Number of Shares Purchased |
| Average Price Paid per Share |
| Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs* |
| Maximum number (or Approximate Dollar Value) of Shares That May Yet Be Purchased Under the Plans or Programs* |
July 1-31, 2017 |
| 23,072 | $ | 64.34 |
| - |
| - |
August 1-31, 2017 |
| 9,975 |
| 65.54 |
| - |
| - |
September 1-30, 2017 |
| 49,666 |
| 65.21 |
| - |
| - |
Total |
| 82,713 | $ | 65.01 |
| - |
| - |
Period |
| Total Number |
|
| Average Price |
|
| Total Number of |
| Maximum number (or | |||
January 1-31, 2022 |
|
| 7,264 |
|
| $ |
| 79.44 |
|
| — |
| — |
February 1-28, 2022 |
|
| 7,020 |
|
|
|
| 74.05 |
|
| — |
| — |
March 1-31, 2022 |
|
| 39,234 |
|
|
|
| 76.76 |
|
| — |
| — |
Total |
|
| 53,518 |
|
| $ |
| 76.77 |
|
| — |
| — |
*
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable to MGE Energy and MGE.
Item 5. Other Information.
None.
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Item 6. Exhibits.
12
Statement regarding computation of ratio of earnings to fixed charges for Madison Gas and Electric Company.
Certifications Pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities and Exchange Act of 1934 as to the Quarterly Report on Form 10-Q for the quarter ended September 30, 2017, filed by the following officers for the following companies:
31.1
Filed by Jeffrey M. Keebler for MGE Energy, Inc.
31.2
Filed by Jeffrey C. Newman for MGE Energy, Inc.
31.3
Filed by Jeffrey M. Keebler for Madison Gas and Electric Company
31.4
Filed by Jeffrey C. Newman for Madison Gas and Electric Company
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Certifications Pursuant to Section 1350 of Chapter 63 of Title 18 United States Code (Sarbanes-Oxley Act of 2002) as to the Quarterly Report on Form 10-Q for the quarter ended September 30, 2017, filed by the following officers for the following companies:
32.1
Filed by Jeffrey M. Keebler for MGE Energy, Inc.
32.2
Filed by Jeffrey C. Newman for MGE Energy, Inc.
32.3
Filed by Jeffrey M. Keebler for Madison Gas and Electric Company
32.4
Filed by Jeffrey C. Newman for Madison Gas and Electric Company
101
Interactive Data Files:
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
| Exhibit Description | |
* | 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. | |
* | 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. | |
* | 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 | |
* | 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 | |
** | 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. | |
** | 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. | |
** | 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 | |
** | 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. |
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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.
| |
Date: May 5, 2022 | /s/ Tamara J. Johnson |
Tamara J. Johnson Vice President - Accounting and Controller (Chief Accounting Officer) |
50
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: | /s/ Jeffrey M. Keebler |
Jeffrey M. Keebler Chairman, President and Chief Executive Officer (Duly Authorized Officer) | |
Date: | /s/ |
(Chief Financial Officer) | |
Date: May 5, 2022 | /s/ Tamara J. Johnson |
Tamara J. Johnson Vice President - Accounting and Controller (Chief Accounting Officer) |
51
|