United States

SECURITIES ~~AND~~AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

~~[X]~~☒ QuarterlyReport Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended:

June 30, ~~2018~~2019

~~[ ]~~☐ TransitionReport 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 (608) 252-7000 \| mgeenergy.com	39-2040501
000-1125	Madison Gas and Electric Company (a Wisconsin Corporation) 133 South Blair Street Madison, Wisconsin53788 (608) 252-7000 \| mge.com	39-0444025

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

MGE Energy, Inc. Yes ~~[X]~~☒ No ~~[ ]~~☐Madison Gas and Electric Company Yes ☒ 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 ~~[X]~~☒ No ~~[ ]~~☐Madison Gas and Electric Company Yes ☒ No ☐

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


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

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

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

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

MGE Energy, Inc. ~~and~~ Yes ☐ No ☒Madison Gas and Electric ~~Company:~~Company Yes ~~[ ]~~☐ No ~~[X]~~☒

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 July 31, ~~2018~~2019
MGE Energy, Inc.	Common stock, $1.00 par value, 34,668,370 shares outstanding.
Madison Gas and Electric Company	Common stock, $1.00 par value, 17,347,894 shares outstanding (all of which are owned beneficially and of record by MGE Energy, Inc.).

PART I. FINANCIAL INFORMATION.

Filing Format

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

Forward-Looking Statements

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

The factors that could cause actual results to differ materially from the forward-looking statements made by a registrant ~~include~~include: (a) those factors discussed in the registrants' ~~2017~~2018 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, as updated by Part I, Item 1. Financial Statements – Note 9 in this report, and (b) other factors discussed herein and in other filings made by that registrant with the SEC.

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

Where to Find More Information

The public may read and copy any reports or other information that MGE Energy and MGE file with the SEC at the SEC's public reference room at 100 F Street, NE, Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. These documents also are available to the public from commercial document retrieval services, the website maintained by the SEC 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.

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

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

MGE Energy and Subsidiaries:

CWDCCentral Wisconsin Development Corporation

MAGAELMAGAEL, LLC

MGEMadison Gas and Electric Company

MGE EnergyMGE Energy, Inc.

MGE PowerMGE Power, LLC

MGE Power Elm RoadMGE Power Elm Road, LLC

MGE Power West CampusMGE Power West Campus, LLC

MGE ServicesMGE Services, LLC

MGE State Energy ServicesMGE State Energy Services, LLC

MGE TranscoMGE Transco Investment, LLC

MGEE TranscoMGEE Transco, LLC

North MendotaNorth Mendota Energy & Technology Park, LLC

Other Defined Terms:

ACEAffordable Clean Energy

AFUDCAllowance for Funds Used During Construction

AROAsset Retirement Obligation

ATCAmerican Transmission Company LLC

ATC HoldcoATC Holdco, LLC

BARTBest Available Retrofit Technology

BlountBlount Station

BSERBest System of Emissions Reductions

CAAClean Air Act

CAVRClean Air Visibility Rule

CCRCoal Combustion Residual

codificationFinancial Accounting Standards Board Accounting Standards Codification

ColumbiaColumbia Energy Center

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

CPPClean Power Plan

CSAPRCross-State Air Pollution Rule

DthDekatherms, a quantity measure used in respect of natural gas

EGUsElectric Generating Units

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

Elm Road UnitsElm Road Generating Station

EPAUnited States Environmental Protection Agency

FASBFinancial Accounting Standards Board

FERCFederal Energy Regulatory Commission

Forward WindForward Wind Energy Center

FTRFinancial Transmission Rights

GAAPGenerally Accepted Accounting Principles

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

GHGGreenhouse Gas

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

IRSInternal Revenue Service

kWhKilowatt-hour, a measure of electric energy produced

MISOMidcontinent Independent System Operator (a regional transmission organization)

MWMegawatt, a measure of electric energy generating capacity

MWhMegawatt-hour, a measure of electric energy produced

NAAQSNational Ambient Air Quality Standards

NOxNitrogen Oxides

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

PPAPurchased Power Agreement

PSCWPublic Service Commission of Wisconsin

RiversideRiverside Energy Center

ROEReturn on Equity

SaratogaSaratoga Wind Farm

SCRSelective Catalytic Reduction

SECSecurities and Exchange Commission

SO2Sulfur Dioxide

Stock PlanDirect Stock Purchase and Dividend Reinvestment Plan of MGE Energy

Tax ActTax Cuts and Jobs Act

UWUniversity of Wisconsin at Madison

VIEVariable Interest Entity

WCCFWest Campus Cogeneration Facility

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

working capitalCurrent assets less current liabilities

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

XBRLeXtensible Business Reporting Language

Item 1. Financial Statements.

MGE Energy, Inc.

Consolidated Statements of Income (unaudited)

(In thousands, except per share amounts)

		Three Months Ended				Six Months Ended
		June 30,				June 30,
		2019		2018		2019		2018
Operating Revenues:
Electric revenues	$	97,077	$	99,282	$	194,546	$	194,149
Gas revenues		25,070		24,980		95,170		87,745
Total Operating Revenues		122,147		124,262		289,716		281,894

Operating Expenses:
Fuel for electric generation		10,403		15,251		24,320		27,151
Purchased power		11,036		12,979		21,887		30,012
Cost of gas sold		8,875		9,562		52,128		49,188
Other operations and maintenance		48,974		43,453		95,910		87,846
Depreciation and amortization		18,091		13,872		35,230		27,495
Other general taxes		4,985		4,914		9,948		9,783
Total Operating Expenses		102,364		100,031		239,423		231,475
Operating Income		19,783		24,231		50,293		50,419

Other income, net		5,019		4,731		9,870		9,650
Interest expense, net		(5,749)		(4,783)		(11,396)		(9,522)
Income before income taxes		19,053		24,179		48,767		50,547
Income tax provision		(3,505)		(5,828)		(9,213)		(12,195)
Net Income	$	15,548	$	18,351	$	39,554	$	38,352

Earnings Per Share of Common Stock
(basic and diluted)	$	0.45	$	0.53	$	1.14	$	1.11

Dividends per share of common stock	$	0.338	$	0.323	$	0.675	$	0.645

Weighted Average Shares Outstanding
(basic and diluted)		34,668		34,668		34,668		34,668

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

MGE Energy, Inc.

Consolidated Statements of Cash Flows (unaudited)

(In thousands)


		Six Months Ended
		June 30,
		2019		2018
Operating Activities:
Net income	$	39,554	$	38,352
Items not affecting cash:
Depreciation and amortization		35,230		27,495
Deferred income taxes		2,306		(664)
Provision for doubtful receivables		732		354
Employee benefit plan credit		(1,920)		(1,076)
Equity earnings in ATC		(4,515)		(4,441)
Other items		(717)		160
Changes in working capital items:
Decrease in current assets		15,349		29,120
Decrease in current liabilities		(951)		(1,333)
Dividends from ATC		3,745		3,905
Cash contributions to pension and other postretirement plans		(2,319)		(2,640)
Other noncurrent items, net		(610)		2,386
Cash Provided by Operating Activities		85,884		91,618

Investing Activities:
Capital expenditures		(79,092)		(100,389)
Capital contributions to investments		(3,386)		(3,280)
Other		(156)		598
Cash Used for Investing Activities		(82,634)		(103,071)

Financing Activities:
Cash dividends paid on common stock		(23,401)		(22,361)
Repayments of long-term debt		(2,263)		(2,213)
Proceeds from short-term debt		10,500		24,200
Other		(1,193)		-
Cash Used for Financing Activities		(16,357)		(374)

Change in cash, cash equivalents, and restricted cash		(13,107)		(11,827)
Cash, cash equivalents, and restricted cash at beginning of period		84,929		112,094
Cash, cash equivalents, and restricted cash at end of period	$	71,822	$	100,267

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

MGE Energy, Inc.

Consolidated Balance Sheets (unaudited)

(In thousands)

		June 30,	December 31,
ASSETS		2019		2018
Current Assets:
Cash and cash equivalents	$	69,913	$	83,102
Accounts receivable, less reserves of $2,800 and $2,614, respectively		35,606		43,593
Other accounts receivable, less reserves of $478 and $540, respectively		7,573		6,262
Unbilled revenues		21,759		28,243
Materials and supplies, at average cost		25,540		24,093
Fuel for electric generation, at average cost		8,171		6,599
Stored natural gas, at average cost		6,871		11,303
Prepaid taxes		15,478		16,215
Regulatory assets - current		11,748		9,477
Assets held for sale		-		3,080
Other current assets		8,941		8,593
Total Current Assets		211,600		240,560
Other long-term receivables		2,319		2,709
Regulatory assets		147,507		145,424
Other deferred assets and other		15,232		12,488
Property, Plant, and Equipment:
Property, plant, and equipment, net		1,502,475		1,367,585
Finance lease assets, net		16,700		2,181
Construction work in progress		47,576		139,671
Total Property, Plant, and Equipment		1,566,751		1,509,437
Investments		82,677		78,000
Total Assets	$	2,026,086	$	1,988,618

LIABILITIES AND CAPITALIZATION
Current Liabilities:
Long-term debt due within one year	$	4,605	$	4,553
Short-term debt		23,500		13,000
Accounts payable		40,957		46,158
Accrued interest and taxes		6,661		7,384
Accrued payroll related items		10,723		13,044
Regulatory liabilities - current		20,762		13,826
Derivative liabilities		10,670		8,550
Other current liabilities		10,347		14,113
Total Current Liabilities		128,225		120,628
Other Credits:
Deferred income taxes		235,984		231,952
Investment tax credit - deferred		772		818
Regulatory liabilities		162,564		165,638
Accrued pension and other postretirement benefits		65,347		67,483
Derivative liabilities		21,900		23,980
Finance lease liabilities		17,720		1,771
Other deferred liabilities and other		69,560		66,361
Total Other Credits		573,847		558,003
Capitalization:
Common shareholders' equity		832,797		816,644
Long-term debt		491,217		493,343
Total Capitalization		1,324,014		1,309,987
Commitments and contingencies (see Footnote 9)
Total Liabilities and Capitalization	$	2,026,086	$	1,988,618

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

MGE Energy, Inc.

Consolidated Statements of Common Equity (unaudited)

(In thousands, except per share amounts)


									Accumulated
					Additional				Other
	Common Stock				Paid-in		Retained		Comprehensive
	Shares		Value		Capital		Earnings		Income/(Loss)		Total
Three Months Ended June 30, 2018
Beginning Balance	34,668	$	34,668	$	316,268	$	436,071	$	-	$	787,007
Net income							18,351				18,351
Common stock dividends declared
($0.323 per share)							(11,180)				(11,180)
Ending balance - June 30, 2018	34,668	$	34,668	$	316,268	$	443,242	$	-	$	794,178

Three Months Ended June 30, 2019
Beginning Balance	34,668	$	34,668	$	316,268	$	478,014	$	-	$	828,950
Net income							15,548				15,548
Common stock dividends declared
($0.338 per share)							(11,701)				(11,701)
Ending balance - June 30, 2019	34,668	$	34,668	$	316,268	$	481,861	$	-	$	832,797


Six Months Ended June 30, 2018
Beginning Balance	34,668	$	34,668	$	316,268	$	426,874	$	377	$	778,187
Cumulative effect of new accounting principle							377		(377)		-
Beginning balance - adjusted							427,251		-		778,187
Net income							38,352				38,352
Common stock dividends declared
($0.645 per share)							(22,361)				(22,361)
Ending balance - June 30, 2018	34,668	$	34,668	$	316,268	$	443,242	$	-	$	794,178

Six Months Ended June 30, 2019
Beginning Balance	34,668	$	34,668	$	316,268	$	465,708	$	-	$	816,644
Net income							39,554				39,554
Common stock dividends declared
($0.675 per share)							(23,401)				(23,401)
Ending balance - June 30, 2019	34,668	$	34,668	$	316,268	$	481,861	$	-	$	832,797

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

Madison Gas and Electric Company

Consolidated Statements of Income (unaudited)

(In thousands)


		Three Months Ended				Six Months Ended
		June 30,				June 30,
		2019		2018		2019		2018
Operating Revenues:
Electric revenues	$	97,077	$	99,282	$	194,546	$	194,149
Gas revenues		25,070		24,980		95,170		87,745
Total Operating Revenues		122,147		124,262		289,716		281,894

Operating Expenses:
Fuel for electric generation		10,403		15,251		24,320		27,151
Purchased power		11,036		12,979		21,887		30,012
Cost of gas sold		8,875		9,562		52,128		49,188
Other operations and maintenance		48,673		43,001		95,335		87,188
Depreciation and amortization		18,091		13,872		35,230		27,495
Other general taxes		4,985		4,914		9,948		9,783
Total Operating Expenses		102,063		99,579		238,848		230,817
Operating Income		20,084		24,683		50,868		51,077

Other income, net		2,958		2,314		5,165		4,811
Interest expense, net		(6,133)		(5,173)		(12,128)		(10,227)
Income before income taxes		16,909		21,824		43,905		45,661
Income tax provision		(2,966)		(5,221)		(7,892)		(10,802)
Net Income	$	13,943	$	16,603	$	36,013	$	34,859
Less: Net Income Attributable to Noncontrolling
Interest, net of tax		(5,621)		(5,505)		(11,111)		(11,311)
Net Income Attributable to MGE	$	8,322	$	11,098	$	24,902	$	23,548

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

Madison Gas and Electric Company

Consolidated Statements of Cash Flow (unaudited)

(In thousands)


		Six Months Ended
		June 30,
		2019		2018
Operating Activities:
Net income	$	36,013	$	34,859
Items not affecting cash:
Depreciation and amortization		35,230		27,495
Deferred income taxes		1,231		(2,574)
Provision for doubtful receivables		732		354
Employee benefit plan credit		(1,920)		(1,076)
Other items		(181)		707
Changes in working capital items:
Decrease in current assets		15,845		28,686
Increase in current liabilities		1,096		1,943
Cash contributions to pension and other postretirement plans		(2,319)		(2,640)
Other noncurrent items, net		(441)		2,293
Cash Provided by Operating Activities		85,286		90,047

Investing Activities:
Capital expenditures		(79,092)		(100,389)
Other		(271)		(422)
Cash Used for Investing Activities		(79,363)		(100,811)

Financing Activities:
Distributions to parent from noncontrolling interest		(11,500)		(13,500)
Repayments of long-term debt		(2,263)		(2,213)
Proceeds from short-term debt		10,500		24,200
Other		(1,038)		-
Cash (Used for) Provided by Financing Activities		(4,301)		8,487

Change in cash, cash equivalents, and restricted cash		1,622		(2,277)
Cash, cash equivalents, and restricted cash at beginning of period		6,670		10,093
Cash, cash equivalents, and restricted cash at end of period	$	8,292	$	7,816

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

Madison Gas and Electric Company

Consolidated Balance Sheets (unaudited)

(In thousands)

		June 30,	December 31,
ASSETS		2019		2018
Current Assets:
Cash and cash equivalents	$	6,383	$	4,843
Accounts receivable, less reserves of $2,800 and $2,614, respectively		35,606		43,593
Affiliate receivables		542		621
Other accounts receivable, less reserves of $478 and $540, respectively		7,511		6,111
Unbilled revenues		21,759		28,243
Materials and supplies, at average cost		25,540		24,093
Fuel for electric generation, at average cost		8,171		6,599
Stored natural gas, at average cost		6,871		11,303
Prepaid taxes		14,586		15,790
Regulatory assets - current		11,748		9,477
Assets held for sale		-		3,080
Other current assets		8,906		8,541
Total Current Assets		147,623		162,294
Affiliate receivable long-term		2,912		3,177
Regulatory assets		147,507		145,424
Other deferred assets and other		16,311		14,142
Property, Plant, and Equipment:
Property, plant, and equipment, net		1,502,504		1,367,614
Finance lease assets, net		16,700		2,181
Construction work in progress		47,576		139,671
Total Property, Plant, and Equipment		1,566,780		1,509,466
Investments		533		388
Total Assets	$	1,881,666	$	1,834,891

LIABILITIES AND CAPITALIZATION
Current Liabilities:
Long-term debt due within one year	$	4,605	$	4,553
Short-term debt		23,500		13,000
Accounts payable		40,935		46,165
Accrued interest and taxes		9,171		10,319
Accrued payroll related items		10,723		13,044
Regulatory liabilities - current		20,762		13,826
Derivative liabilities		10,670		8,550
Other current liabilities		10,347		11,614
Total Current Liabilities		130,713		121,071
Other Credits:
Deferred income taxes		207,575		204,616
Investment tax credit - deferred		772		818
Regulatory liabilities		162,564		165,638
Accrued pension and other postretirement benefits		65,347		67,483
Derivative liabilities		21,900		23,980
Finance lease liabilities		17,720		1,771
Other deferred liabilities and other		69,535		66,361
Total Other Credits		545,413		530,667
Capitalization:
Common shareholder's equity		573,258		548,356
Noncontrolling interest		141,065		141,454
Total Equity		714,323		689,810
Long-term debt		491,217		493,343
Total Capitalization		1,205,540		1,183,153
Commitments and contingencies (see Footnote 9)
Total Liabilities and Capitalization	$	1,881,666	$	1,834,891

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

Madison Gas and Electric Company

Consolidated Statements of Equity (unaudited)

(In thousands)

								Accumulated
					Additional				Other		Non-
	Common Stock				Paid-in		Retained	Comprehensive			Controlling
	Shares		Value		Capital		Earnings	Income/(Loss)			Interest		Total
Three Months Ended June 30, 2018
Beginning balance	17,348	$	17,348	$	192,417	$	294,557	$	-	$	139,208	$	643,530
Net income							11,098				5,505		16,603
Distributions to parent from
noncontrolling interest											(6,000)		(6,000)
Ending balance - June 30, 2018	17,348	$	17,348	$	192,417	$	305,655	$	-	$	138,713	$	654,133

Three Months Ended June 30, 2019
Beginning balance	17,348	$	17,348	$	192,417	$	355,171	$	-	$	139,444	$	704,380
Net income							8,322				5,621		13,943
Distributions to parent from
noncontrolling interest											(4,000)		(4,000)
Ending balance - June 30, 2019	17,348	$	17,348	$	192,417	$	363,493	$	-	$	141,065	$	714,323


Six Months Ended June 30, 2018
Beginning balance	17,348	$	17,348	$	192,417	$	282,135	$	(28)	$	140,902	$	632,774
Cumulative effect of new accounting principle							(28)		28				-
Beginning balance - adjusted							282,107		-				632,774
Net income							23,548				11,311		34,859
Distributions to parent from
noncontrolling interest											(13,500)		(13,500)
Ending balance - June 30, 2018	17,348	$	17,348	$	192,417	$	305,655	$	-	$	138,713	$	654,133

Six Months Ended June 30, 2019
Beginning balance	17,348	$	17,348	$	192,417	$	338,591	$	-	$	141,454	$	689,810
Net income							24,902				11,111		36,013
Distributions to parent from
noncontrolling interest											(11,500)		(11,500)
Ending balance - June 30, 2019	17,348	$	17,348	$	192,417	$	363,493	$	-	$	141,065	$	714,323

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

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

Notes to Consolidated Financial Statements (unaudited)

June 30, ~~2018~~2019

Summary of Significant Accounting Policies.

Basis of Presentation - MGE Energy and MGE.

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 23 of Notes to Consolidated Financial Statements under Item 8, Financial Statements and Supplementary Data, of MGE Energy's and MGE's ~~2017~~2018 Annual Report on Form 10-K (the ~~2017~~2018 Annual Report on Form 10-K).

The accompanying consolidated financial statements as of June 30, ~~2018,~~2019, and for the three and six months ended, are unaudited but include all adjustments that MGE Energy and MGE management consider necessary for a fair statement of their respective financial statements. All adjustments are of a normal, recurring nature except as otherwise disclosed. The year-end consolidated balance sheet information was derived from the audited balance sheet appearing in the ~~2017~~2018 Annual Report on Form 10-K, but does not include all disclosures required by accounting principles generally accepted in the United States of America. These notes should be read in conjunction with the financial statements and the notes on pages 5462 through ~~103~~106 of the ~~2017~~2018 Annual Report on Form 10-K.

b.Cash, Cash Equivalents, and Restricted Cash – MGE Energy and MGE.

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

~~Cash Equivalents~~

~~MGE Energy and MGE consider all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.~~

		MGE Energy				MGE
		June 30,		December 31,		June 30,		December 31,
(In thousands)		2019		2018		2019		2018
Cash and cash equivalents	$	69,913	$	83,102	$	6,383	$	4,843
Restricted cash		605		634		605		634
Receivable - margin account		1,304		1,193		1,304		1,193
Cash, cash equivalents, and restricted cash	$	71,822	$	84,929	$	8,292	$	6,670

~~Restricted Cash~~2.

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

~~Receivable – Margin Account~~

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

~~The following table presents the retrospective adjustments to cash flow amounts on MGE Energy's and MGE's consolidated statements of cash flows in accordance with the adoption of~~~~ASU 2016-18, Restricted Cash.~~

New Accounting Standards - MGE Energy and MGE.

Recently Adopted

~~Revenue from Contracts with Customers.~~Leases.

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 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.

This authoritative guidance became effective January 1, 2018, and MGE Energy and MGE adopted 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 implemented the standard using the modified retrospective method. The cumulative impact of this guidance on our financial statements is not material, except for additional footnote disclosures. See Footnote 3 for further information.

~~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 became effective January 1, 2018, and required 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 other comprehensive income related to equity investments. This standard was applied using a modified retrospective approach, with a cumulative effect adjustment recorded to opening retained earnings as of the beginning of the fiscal year of adoption. As of January 1, 2018, MGE Energy recorded a $0.4 million increase in retained earnings and a corresponding decrease in accumulated other comprehensive income, and MGE recorded less than a $0.1 million decrease in retained earnings and a corresponding increase in accumulated other comprehensive income, related to equity investments within the scope of this standard.

~~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. Under the new guidance, reporting entities are 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 are 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 became effective January 1, 2018. Upon the effective date, MGE Energy and MGE changed the presentation of restricted cash on the consolidated statements of cash flows to reflect the new accounting guidance retrospectively to all periods presented. See Footnote 1.b. for further information.

~~Pension and Other Postretirement Benefits.~~

In March 2017, the FASB issued authoritative guidance within the codification's 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 became 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 MGE have elected to apply the practical expedient. Upon the effective date, MGE Energy and MGE changed the presentation of net benefit cost on the consolidated statements of income to reflect the new accounting guidance retrospectively to all periods presented. For both MGE Energy and MGE, "Other operations and maintenance expense" increased and "Other income, net" increased $0.9 million and $2.0 million for the three and six months ended June 30, 2017, 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 previous GAAP, all components of net benefit cost were eligible for capitalization). See Footnote 6 for further information.

~~Recently Issued~~

~~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~~are required to recognize all leases with terms greater than one year, including operating leases, on the balance sheet by recording a right-of-use asset and lease liability. Prior to the authoritative guidance, only capital leases were recognized on the balance sheet by lessees. The new accounting guidance, as applied by lessors, is materially consistent with current GAAP. In January 2018, the FASB issued authoritative guidance which

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

~~Management has begun utilizing a bottoms-up approach to analyze the impact of the standard on our~~The lease ~~portfolio.~~authoritative guidance became effective January 1, 2019. 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 adoptingadopted 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.~~In compliance with authorized transition guidance, MGE Energy and MGE ~~are currently assessing~~began applying the new standard on January 1, 2019, but will continue to present periods prior to that date according to the previous authoritative standard. There was no material impact ~~this pronouncement will have~~ on ~~our financial statements.~~the consolidated net income or cash flows. See Footnote 3 for further lease information.

~~Revenue~~Leases - MGE Energy and MGE.

~~Revenues disaggregated by revenue source were as follows:~~

~~(a)~~

~~In 2017,~~As part of its regular operations, MGE ~~had less than $0.1 million of revenues~~enters into various contracts related to ~~CNG vehicle fuel servicing. No revenue was recognized~~IT equipment, substations, cell towers, land, wind easements, and other property in use for ~~fuel servicing by MGE Energy~~operations. A contract is or contains a lease if the contract conveys the right to control the use of identified property, plant, or equipment for a period of time in ~~2017.~~

~~Performance Obligations~~

~~A performance obligation~~exchange for consideration. Determination as to whether an arrangement is or contains a ~~promise in a contract to transfer a distinct good~~lease is completed at inception. Leases with an initial term of 12 months or service to the customer and is the unit of account. A contract's transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The majority of MGE Energy's and MGE's contracts have a single performance obligation.

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

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

~~Utility Cost Recovery Mechanisms~~

MGE's tariff rates include a provision for fuel cost recovery. The PSCW allows Wisconsin utilities to defer electric fuel-related costs, less excess revenues, that fall outside a symmetrical cost tolerance band. Any over/under recovery of the actual costs in a given year is determined in the following year and is then reflected in future billings to electric retail customers. Over-collection of fuel-related costs that are outside the approved range will be recognized as a reduction of revenue. Prior to adoption of the new revenue recognition guidance, effective January 1, 2018, over-collected fuel-related costs were reflected in "Purchased power" expense. Under-collection of these costs will continue to be recognized in "Purchased power" expense in the consolidated statements of income of MGE Energy and MGE. The cumulative effects of these deferred amounts will benot recorded ~~in "Regulatory assets" or "Regulatory liabilities"~~ on the consolidated balance ~~sheets~~sheets; lease expense for these leases are recognized on a straight-line basis over the lease term. Leases with initial terms in excess of 12 months are recorded as operating or financing leases on the consolidated balance sheets.

Operating lease assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. For leases that do not provide an implicit rate, a collateralized incremental borrowing rate based on the information available at commencement date, including lease term, is used in determining the present value of future payments. The operating lease asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the option will be exercised. Operating lease expense is recognized on a straight-line basis over the lease term. MGE ~~Energy~~has regulatory treatment and recognizes regulatory assets or liabilities for timing differences between when net lease costs are recorded and when costs are recognized. As of June 30, 2019, MGE ~~until they are reflected in~~has no significant leases not yet commenced that would create significant future ~~billings to customers. See Footnote 10.b.~~rights and obligations.

The following table shows lease expense for ~~further information.~~the three and six months ended June 30, 2019:

(In thousands)		Three Months Ended		Six Months Ended	Income Statement Location
Finance lease expense:
Amortization of leased assets	$	437	$	870	Depreciation and amortization
Interest on lease liabilities		200		398	Interest expense, net
Operating lease expense		33		60	Other operations and maintenance
Total lease expense	$	670	$	1,328

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

(In thousands)			Balance Sheet Location
Lease assets:
Finance lease assets	$	16,700	Finance lease assets
Operating lease assets		216	Other deferred assets and other
Total lease assets	$	16,916
Lease liabilities:
Finance lease liabilities - current	$	1,007	Other current liabilities
Finance lease liabilities - long-term		17,720	Finance lease liabilities
Operating lease liabilities - current		104	Other current liabilities
Operating lease liabilities - long-term		144	Other deferred liabilities and other
Total lease liabilities	$	18,975

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

(In thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Finance leases - Financing cash flows	$	643
Finance leases - Operating cash flows		398
Operating leases - Operating cash flows		71
Lease assets obtained in exchange for lease liabilities:
Finance leases		12,081
Operating leases		125

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

	Weighted-average remaining lease terms (in years):
17	Finance leases	38
	Operating leases	6
	Weighted-average discount rates:
	Finance leases	4.36	%
	Operating leases	3.97	%

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

~~MGE received a PSCW order~~

(In thousands)		Finance		Operating
2019	$	876	$	54
2020		1,644		113
2021		1,428		46
2022		1,309		13
2023		1,228		2
Thereafter		41,316		52
Subtotal		47,801		280
Less: Present value discount		(29,074)		(32)
Lease Liability	$	18,727	$	248

Future minimum rental payments as of December 31, 2018, under agreements classified as operating leases with noncancelable terms in ~~January 2018 to defer the over-collection~~excess of ~~income tax expense collected in customer rates~~one year are as ~~a result of the Tax Cuts and Jobs Act (the Tax Act) reduction in the income tax rate to 21 percent. See Footnote 5 for further information.~~follows:

	(In thousands)		2019		2020		2021		2022		2023		Thereafter
	Minimum lease payments	$	1,646	$	1,371	$	1,095	$	989	$	975	$	22,707

MGE has other cost recovery mechanisms, any over-collection of the difference between actual costs incurred and the amount of costs collected from customers is recorded as a reduction of revenue in the period incurred.4.

~~Sales to the Market~~

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

~~Transportation of Gas~~

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

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

ATC owns and operates electric transmission facilities primarily in Wisconsin. MGE received an interest in ATC when it, like other Wisconsin electric utilities, contributed its electric transmission facilities to ATC as required by Wisconsin law. That interest is presently held by MGE Transco, which, since December 1, 2016,

is owned by MGE Energy. ATC Holdco was formed by several members of ATC, including MGE Energy, to pursue electric transmission development and investments outside of Wisconsin. The ownership interest in ATC Holdco is held by MGEE Transco, a wholly-owned subsidiary of MGE Energy.

~~At June 30, 2018, and December 31, 2017, MGE Transco held a 3.6% ownership interest in ATC. At June 30, 2018, and December 31, 2017, MGEE Transco held a 4.4% ownership interest in ATC Holdco.~~

MGE Transco and MGEE Transco have accounted for their ~~investment~~investments in ATC and ATC Holdco, respectively, under the equity method of accounting. Equity earnings from investments are recorded as ~~"Other income"~~"Other income" on ~~MGE Energy's~~the consolidated statements of ~~income. For the three and six months ended June 30, 2018 and 2017,~~income of MGE Energy. MGE Transco recorded the following:

Three Months Ended

Six Months Ended

June 30,

June 30,

(In thousands)

2018

2017

2018

2017

Equity earnings from investment in ATC
$
1,990
$
2,486
$
4,441
$
5,094

Dividends from ATC^(a)

2,959

2,000

2,959

2,000

Capital contributions to ATC

1,065

888

1,775

2,308

~~(a)~~

		Three Months Ended				Six Months Ended
		June 30,				June 30,
(In thousands)		2019		2018		2019		2018
Equity earnings from investment in ATC	$	2,297	$	1,990	$	4,515	$	4,441
Dividends from ATC^(a)		1,733		2,959		3,745		2,959
Capital contributions to ATC		1,065		1,065		1,243		1,775

(a)MGE Transco recorded a $2.3 ~~million and $2.1~~ million dividend receivable from ATC as of December 31, ~~2017 and 2016, respectively.~~2017. A cash dividend was received in January of ~~each of~~ the proceeding ~~years.~~year. MGE Transco recorded a $1.4 million dividend receivable from ATC as of June 30, 2018. A cash dividend was received in July 2018.

ATC Holdco was formed in December 2016. In the near term, it is expected that ATC Holdco will be pursuing transmission development opportunities that typically have long development and investment lead times before becoming operational. During the three and six months ended June 30, 2018, MGEE Transco recorded capital contributions of $0.1 million and $0.2 million, respectively, to ATC Holdco compared to $0.5 million and $0.7 million for the comparable periods in 2017.

In July ~~2018,~~2019, MGE Transco made a ~~$0.5~~$0.9 million capital contribution to ~~ATC and MGEE Transco made a $0.1 million contribution to ATC Holdco.~~ATC.

~~ATC's~~ATC's summarized financial data ~~for the three and six months ended June 30, 2018 and 2017,~~ is as follows:

Three Months Ended

Six Months Ended

June 30,

June 30,

(In thousands)

2018

2017

2018

2017

Operating revenues
$
165,506
$
176,610
$
330,935
$
351,279

Operating expenses

(91,474)

(82,974)

(176,367)

(165,670)

Other income, net

1,520

1,088

1,631

1,771

Interest expense, net

(26,895)

(26,466)

(54,657)

(53,250)

Earnings before members' income taxes
$
48,657
$
68,258
$
101,542
$
134,130

		Three Months Ended				Six Months Ended
		June 30,				June 30,
(In thousands)		2019		2018		2019		2018
Operating revenues	$	182,212	$	165,506	$	359,927	$	330,935
Operating expenses		(93,573)		(91,474)		(183,960)		(176,367)
Other income, net		287		1,520		547		1,631
Interest expense, net		(28,838)		(26,895)		(57,956)		(54,657)
Earnings before members' income taxes	$	60,088	$	48,657	$	118,558	$	101,542

MGE receives transmission and other related services from ATC. During the three and six months ended June 30, ~~2018,~~2019, MGE recorded ~~$7.2~~$7.6 million and ~~$14.4~~$15.2 million, respectively, for transmission services received compared to ~~$7.3~~$7.2 million and ~~$14.6~~$14.4 million for the comparable periods in ~~2017.~~2018. MGE also provides a variety of operational, maintenance, and project management services for ATC, which is reimbursed by ATC. As of June 30, ~~2018,~~2019, and December 31, ~~2017,~~2018, MGE had a receivable due from ATC of $0.6 million and $0.1 million, ~~and $0.2 million,~~ respectively.

Taxes - MGE Energy and MGE.

Effective Tax Rate.

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act. The Tax Act makes broad and complex changes to the U.S. tax code, including the reduction in the U.S. federal corporate tax rate from 35 percent to 21 percent, effective January 1, 2018. MGE Energy and MGE recorded a provisional decrease in deferred tax assets and deferred tax liabilities as of December 31, 2017. In accordance with Staff Accounting Bulletin 118, any subsequent adjustment to these amounts will be recorded in the quarter of 2018 when the analysis is complete. No adjustments have been recorded in the first half of 2018. Beginning January 1, 2018, MGE began amortization of the regulated utility excess deferred taxes recognized using a normalization method of accounting. For the three and six months ended June 30, 2018, MGE recognized $0.6 million and $1.2 million, respectively, of excess deferred taxes as a reduction of revenue and a corresponding increase in a regulatory liability. The amount and timing of the cash impacts will depend on the period over which certain income tax benefits are provided to customers, which will be determined by the PSCW.

Customer rates approved for 2018 reflect an income tax rate of 35 percent. In January 2018, the PSCW issued an order directing Wisconsin investor-owned utilities to defer the over-collection of income tax expense as a result of the decrease in tax rate to 21 percent. The PSCW issued an order in May 2018 to return to customers the estimated 2018 over-collection of income tax expense. The decision includes a one-time bill credit on customer bills to reflect the estimate of the over-collection for January through June 2018. A monthly volumetric bill credit will begin in July 2018 and continue through the remainder of 2018 for the estimated remaining annual amount. In June 2018, customers received a $4.1 million bill credit. Any over/under recovery of the actual costs will be subject to the PSCW's review in a future rate case. As of June 30, 2018, MGE has deferred $1.7 million as a regulatory liability and recorded a corresponding reduction in operating revenues for over-collection of income tax expense (net of customer bill credits).

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 June 30,
2018

2017

2018

2017

Statutory federal income tax rate
21.0 %

35.0 %

21.0 %

35.0 %

State income taxes, net of federal benefit
6.3 %

5.2 %

6.2 %

5.1 %

Amortized investment tax credits
(0.1)%

(0.3)%

(0.1)%

(0.4)%

Credit for electricity from wind energy
(0.4)%

(1.5)%

(0.4)%

(1.6)%

Domestic manufacturing deduction
-%

(1.9)%

-%

(2.0)%

AFUDC equity, net
(1.1)%

(0.3)%

(1.1)%

(0.3)%

Amortization of utility excess deferred tax - tax reform^(a)
(1.9)%

-%

(1.9)%

(0.1)%

Other, net, individually insignificant
0.3 %

(0.2)%

0.2 %

(0.2)%

Effective income tax rate
24.1 %

36.0 %

23.9 %

35.5 %

MGE Energy

MGE

Six Months Ended June 30,
2018

2017

2018

2017

Statutory federal income tax rate
21.0 %

35.0 %

21.0 %

35.0 %

State income taxes, net of federal benefit
6.3 %

5.2 %

6.2 %

5.1 %

Amortized investment tax credits
(0.1)%

(0.3)%

(0.1)%

(0.4)%

Credit for electricity from wind energy
(0.3)%

(1.4)%

(0.3)%

(1.6)%

Domestic manufacturing deduction
-%

(1.7)%

-%

(1.8)%

AFUDC equity, net
(0.9)%

(0.3)%

(1.0)%

(0.3)%

Amortization of utility excess deferred tax - tax reform^(a)
(1.9)%

-%

(2.1)%

-%

Other, net, individually insignificant
-%

(0.1)%

-%

(0.1)%

Effective income tax rate
24.1 %

36.4 %

23.7 %

35.9 %

~~(a)~~

	MGE Energy		MGE
Three Months Ended June 30,	2019	2018	2019	2018
Statutory federal income tax rate	21.0%	21.0%	21.0%	21.0%
State income taxes, net of federal benefit	6.3%	6.3%	6.2%	6.2%
Amortized investment tax credits	(0.1%)	(0.1%)	(0.1%)	(0.1%)
Credit for electricity from wind energy^(a)	(6.2%)	(0.4%)	(6.8%)	(0.4%)
AFUDC equity, net	(0.2%)	(1.1%)	(0.2%)	(1.1%)
Amortization of utility excess deferred tax - tax reform^(b)	(2.4%)	(1.9%)	(2.6%)	(1.9%)
Other, net, individually insignificant	-%	0.3%	0.1%	0.2%
Effective income tax rate	18.4%	24.1%	17.6%	23.9%

	MGE Energy		MGE
Six Months Ended June 30,	2019	2018	2019	2018
Statutory federal income tax rate	21.0%	21.0%	21.0%	21.0%
State income taxes, net of federal benefit	6.3%	6.3%	6.2%	6.2%
Amortized investment tax credits	(0.1%)	(0.1%)	(0.1%)	(0.1%)
Credit for electricity from wind energy^(a)	(6.1%)	(0.3%)	(6.7%)	(0.3%)
AFUDC equity, net	(0.2%)	(0.9%)	(0.2%)	(1.0%)
Amortization of utility excess deferred tax - tax reform^(b)	(2.4%)	(1.9%)	(2.6%)	(2.1%)
Other, net, individually insignificant	0.4%	-%	0.4%	-%
Effective income tax rate	18.9%	24.1%	18.0%	23.7%

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

(b)Included are impacts of the Tax Cuts and Jobs Act for the regulated utility for excess deferred taxes recognized using a normalization method of accounting. For the three and six months ended June 30, 2019, MGE recognized $0.5 million and $1.1 million, respectively, compared to $0.4 million and $0.9 million for the comparable periods in 2018. The amount and timing of the cash impacts will depend on the period over which certain income tax benefits are provided to customers, determined by the PSCW.

Pension and Other Postretirement Plans - MGE Energy and MGE.

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

The components of net periodic benefit cost, other than the service cost component, are recorded in ~~"Other~~"Other income, ~~net"~~net" on the consolidated statements of income. The service cost component is recorded in ~~"Other~~"Other operations and ~~maintenance"~~ maintenance" on the consolidated statements of income. ~~Prior to January 1, 2018, a portion of all net periodic benefit cost components were capitalized within the consolidated balance sheets.~~ The ~~FASB issued authoritative guidance within the codification's Compensation-Retirement Benefits topic that, beginning January 1, 2018, only allows the~~ service cost component of net periodic benefit cost ~~to be~~is eligible for capitalization within the consolidated balance sheets. MGE has regulatory treatment and recognizes regulatory assets or liabilities for timing differences between when net periodic benefit costs are recovered and when costs are recognized.

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

		Three Months Ended				Six Months Ended
		June 30,				June 30,
(In thousands)		2019		2018		2019		2018
Pension Benefits
Components of net periodic benefit cost:
Service cost	$	1,221	$	1,404	$	2,362	$	2,861
Interest cost		3,742		3,222		7,194		6,430
Expected return on assets		(5,922)		(6,552)		(11,469)		(13,120)
Amortization of:
Prior service credit		(31)		(11)		(59)		(22)
Actuarial loss		1,985		1,341		3,714		2,639
Net periodic benefit (credit) cost	$	995	$	(596)	$	1,742	$	(1,212)

Postretirement Benefits
Components of net periodic benefit cost:
Service cost	$	334	$	310	$	553	$	642
Interest cost		865		648		1,442		1,306
Expected return on assets		(676)		(814)		(1,357)		(1,616)
Amortization of:
Transition obligation		1		-		2		1
Prior service credit		(662)		(667)		(1,330)		(1,334)
Actuarial loss		94		116		200		244
Net periodic benefit (credit) cost	$	(44)	$	(407)	$	(490)	$	(757)

As a result of lower investment returns in the fourth quarter of 2018, pension and postretirement benefit costs increased in 2019. In July 2019, the PSCW approved MGE’s request to defer the difference between estimated pension and other postretirement costs included in the 2019 and 2020 rate settlement and actual expense incurred up to $5.9 million. MGE expects that the deferred cost for employee benefit plans will be factored into future rate actions starting in 2021. For the three and six months ended June 30, ~~2018~~2019, MGE has deferred approximately $3million of pension and ~~2017.~~other postretirement costs. This amount is not reflected in the table above.

Three Months Ended

Six Months Ended

June 30,

June 30,

(In thousands)

2018

2017

2018

2017

Pension Benefits

Components of net periodic benefit cost:

    Service cost
$
1,404
$
1,360
$
2,861
$
2,692

    Interest cost

3,222

3,194

6,430

6,313

    Expected return on assets

(6,552)

(5,740)

(13,120)

(11,482)

Amortization of:

    Prior service credit

(11)

(4)

(22)

(8)

    Actuarial loss

1,341

1,711

2,639

3,175

Net periodic benefit (credit) cost
$
(596)
$
521
$
(1,212)
$
690

Postretirement Benefits

Components of net periodic benefit cost:

    Service cost
$
310
$
423
$
642
$
629

    Interest cost

648

912

1,306

1,356

    Expected return on assets

(814)

(971)

(1,616)

(1,443)

Amortization of:

    Transition obligation

-

1

1

1

    Prior service credit

(667)

(898)

(1,334)

(1,334)

    Actuarial loss

116

251

244

380

Net periodic benefit (credit) cost
$
(407)
$
(282)
$
(757)
$
(411)

Equity and Financing Arrangements - MGE Energy.

Common Stock.

MGE Energy sells shares of its common stock through its Stock Plan. Those shares may be newly issued shares or shares that MGE Energy has purchased in the open market for resale to participants in the Stock Plan. All sales under the Stock Plan are covered by a shelf registration statement that MGE Energy filed with the SEC. For both the three and six months ended June 30, ~~2018~~2019 and ~~2017,~~2018, MGE Energy didnotissueany new shares of common stock under the Stock Plan.

b.Dilutive Shares Calculation.

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

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

In July 2018, MGE issued $20 million of new long-term unsecured debt carrying an interest rate of 4.24% per annum over its 35-year term and $20 million of new long-term unsecured debt carrying an interest rate of 4.34% per annum over its 40-year term. MGE has also committed to issue $60 million of new long-term unsecured debt that will carry an interest rate of 4.19% per annum over its 30-year life with funding expected to occur in September 2018. The proceeds of these debt financings will be used to assist with capital expenditures, such as the Saratoga Wind Farm, and to refinance $20 million of long-term debt at its maturity in September 2018. The covenants of this debt are substantially consistent with MGE's existing unsecured long-term debt. In accordance with applicable accounting guidance, MGE has classified the $20 million of maturing unsecured debt as long-term debt on the consolidated balance sheets for the quarter ended June 30, 2018.

Share-Based Compensation - MGE Energy and MGE.

Under MGE ~~Energy's~~Energy's Director Incentive Plan and its Performance Unit Plan, non-employee directors and eligible employees, respectively, may receive performance units that entitle the holder to receive a cash payment equal to the value of a designated number of shares of MGE Energy's common stock, plus dividend equivalent payments thereon, at the end of the performance period set in the award.

In ~~2018, 5,810~~2019, 5,175 units were granted under the Director Incentive Plan and are subject to a ~~three-year~~three-year graded vesting schedule, and ~~17,830~~17,022 units were granted under the Performance Unit Plan and are subject to a ~~five-year~~five-year graded vesting schedule. On the grant date, the cost of the director or employee services received in exchange for a performance unit award is measured based on the current market value of MGE Energy common stock. The fair value of the awards is ~~re-measured~~remeasured quarterly, including atas of June 30, ~~2018,~~2019, as

required by applicable accounting standards. Changes in fair value as well as the original grant are recognized as compensation cost. Since this amount is ~~re-measured~~remeasured throughout the vesting period, the compensation cost is subject to variability.

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

During the three and six months ended June 30, ~~2018,~~2019, MGE recorded ~~$0.8~~$0.7 million and ~~$1.0~~$1.9 million, respectively, in compensation expense as a result of awards under the plans compared to ~~$0.2~~$0.8 million and ~~$0.7~~$1.0 million for the comparable periods in ~~2017.~~2018. In January ~~2018,~~2019, cash payments of ~~$1.6~~$1.5 million were distributed relating to awards that were granted in a prior year under the plans. No ~~forfeitures of~~ forfeitures of unitsoccurredduring the three and six months ended June 30, ~~2018~~2019 and ~~2017. At~~2018. As of June 30, ~~2018, $5.4~~2019, $5.7 million of outstanding awards are ~~vested, and of~~vested. Of this amount, no cash settlements have occurred as cash payments are only made at the end of the period covered by the awards.

Commitments and Contingencies.

Environmental - MGE Energy and MGE.

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

•

The EPA's published water effluent limitations guidelines and standards for steam electric power plants, which focus on the reduction of metals and other pollutants in wastewater from new and existing power plants, such as the coal-burning plants at Columbia and the Elm Road Units. The operators of the Columbia and the Elm Road Units have indicated that equipment upgrades may be necessary to comply with the new discharge standards. Management believes that any compliance costs will be recovered in future rates based on previous treatment of environmental compliance projects.

•

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

•

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

In 2015, the EPA finalized the Clean Power Plan ~~or CPP). Implementation~~(CPP), which directed states to submit plans to reduce GHG emissions from the electric generation sector. The CPP applies the statutory requirements for the "best system of emission reduction" (BSER) broadly so as to encompass GHG emission reduction strategies that extend "beyond the fenceline" of existing EGUs and requires a shift in the energy generation mix at the grid level. In February 2016, the U.S. Supreme Court stayed implementation of the CPP ~~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,~~while the ~~EPA requested the U.S.~~United States Court of Appeals for the D.C. Circuit reviews the rule. The D.C. Circuit agreed to ~~put on~~ hold ~~indefinitely, any ongoing challenges to~~its review of the CPP in abeyance while the EPA ~~reviews~~reconsidered the ~~rule~~CPP. The stay and ~~undertakes any potential rulemaking.~~ abeyance

order remain in effect. If ultimately upheld, the CPP could have a material effect on MGE’s operations.

In ~~October 2017,~~July 2019, the EPA published a ~~proposed~~final rule ~~announcing the EPA's intention to repeal~~repealing the CPP and creating the replacement Affordable Clean Energy (ACE) rule to reduce greenhouse gas emissions from existing EGUs. The ACE rule applies to EGUs greater than 25 MW. Based upon these criteria, the ACE rule will likely apply to Columbia and the Elm Road Units. EGUs that burn fossil fuels other than coal, such as Blount, WCCF, and smaller natural gas- and diesel-fueled units are not subject to the ACE rule.

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

States will have three years to ~~replace~~develop and submit compliance plans to the EPA. The EPA will have a year to review and approve the plans. The states are given 24 months from the approval date to implement the rule and ~~if so how. In December 2017,~~can extend the compliance schedule for units that meet progress milestones. EGU’s compliance with the ACE rule may not be required until 2024 or later. MGE is currently evaluating how this rule may impact operations. Until the State of Wisconsin develops a plan that is accepted by the EPA, ~~published an Advance Notice~~MGE will not be able to determine the final impact of ~~Public Rulemaking (ANPR) to solicit information from~~ the ~~public as it considers a future rule to limit GHG emissions from electric generating units.~~

Given the pending legal proceedings, and the ANPR, the nature and timing of any final requirements to control GHG emissions is subject to uncertainty. If the CPP remains substantially in its present form, it is expected to have a material impact on MGE.rule. MGE will continue to evaluate the rule and monitor ~~developments~~ongoing and potential legal proceedings associated with ~~this proposed rule.~~the CPP and ACE rules.

•

The EPA's rule to regulate ambient levels of ~~a pollutant~~ozone through the 2015 Ozone National Ambient Air Quality Standards (NAAQS). ~~The~~In May 2018, the EPA issued a final ~~designations on May 1, 2018,~~rule which designated the northeast portion of Milwaukee County as ~~nonattainment.~~being in nonattainment with this NAAQS. The Elm Road Units are located in Milwaukee County, outside the designated nonattainment area. In August 2018, several environmental groups, the City of Chicago, and the State of Illinois filed federal lawsuits challenging several of the EPA's attainment designation decisions, including the partial Milwaukee County designation as being too narrow and not sufficiently protective. MGE is monitoring the outcome of this lawsuit and how it may affect our Elm Road Units in Milwaukee County. At this time, MGE expects that the 2015 Ozone NAAQS will not have a material effect on its existing plants based on final designations.

The State of Wisconsin has joined a lawsuit filed by several states challenging the EPA's new ozone standard, alleging that the new standard is not attainable and the EPA is not properly considering background levels in setting its ozone attainment levels. The lawsuit is ongoing; however, the significance of the challenge, as it might relate to MGE, is now diminished with the final ozone designations.

•

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

MGE has met our CSAPR obligations in 2018 and 2017 through a combination of reduced emissions through pollution control (e.g. SCR installation at Columbia), as well as owned, received, and purchased allowances. There remains uncertainty around CSAPR due to legal challenges, however, MGE expects that we will meet ongoing CSAPR obligations for the foreseeable future. MGE will continue to monitor developments and litigation to this rule.

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

•

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

Review of ~~our~~the Elm Road Units has indicated that the costs to comply with this rule are not expected to be significant. Columbia's operator has completed a review of their system and has determined that an onsite ash pond will need to be closed ~~by 2023~~ and ~~replace it~~replaced with a dry ash handling system. The dry ash handling system installation is planned for 2020-2021.

In ~~2015, MGE recorded~~July 2018, the EPA published a final rule that included amendments to the CCR (which include the allowance of alternative performance standards for landfills and surface impoundments, revised risk-based groundwater protection standards, and an ~~asset retirement obligation for its share~~extension of the ~~legal liability associated with~~deadline by which certain facilities must cease the ~~effect~~placement of waste in CCR units). In August 2018, the Court of Appeals for the D.C. Circuit vacated parts of the CCR ~~rule. Actual costs~~for not being sufficiently protective of ~~compliance may be different than~~ the ~~amount recorded due~~environment. It is unclear how the EPA will respond to that decision. MGE will continue to monitor potential ~~changes in compliance strategies that will be used, as well as other~~rule modifications to assess potential ~~cost estimate changes.~~impacts on operations.

b.Legal Matters - MGE Energy and MGE.

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

c.Purchase Contracts - MGE Energy and MGE.

MGE Energy and MGE have entered into various commodity supply, transportation, and storage contracts to meet their obligations to deliver electricity and natural gas to customers. Management expects to recover these costs in future customer rates. The following table shows future commitments related to purchase contracts as of June 30, ~~2018:~~2019:

(In thousands)

2018

2019

2020

2021

2022

Thereafter

Coal^(a)
$
13,301
$
17,831
$
5,297
$
-
$
-
$
-

Natural gas supply^(b)

11,624

12,587

-

-

-

-

Saratoga wind^(c)

1,038

858

2,266

1,775

1,784

4,429

Other

1,772

502

502

502

502

502

$
27,735
$
31,778
$
8,065
$
2,277
$
2,286
$
4,931

~~(a)~~

~~Total coal commitments~~

(In thousands)		2019		2020		2021		2022		2023		Thereafter
Natural gas
Transportation and storage^(a)		10,102		21,700		21,432		21,432		21,432		54,663
Supply^(b)		8,822		10,280		-		-		-		-
Solar farms^(c)		74		147		2,572		156		160		10,474
Other		92		928		929		97		99		1,079
	$	19,090	$	33,055	$	24,933	$	21,685	$	21,691	$	66,216

(a) 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 ~~Columbia~~transportation and ~~Elm Road Units, including transportation. Fuel procurement for MGE's jointly owned Columbia and Elm Road Units is handled~~storage contracts are established by ~~WPL and WEPCO, respectively, who are the operators of those facilities.~~FERC but may be subject to change.

(b)

These commitments include market-based pricing.

(c)In July 2019 MGE entered into additional commitments related to operations of the Badger Hollow Solar Farm. The total of these commitments by year are as follows: $0.5 million in 2019, $0.2 million in 2020, $0.5 million in 2021, $0.6 million in 2022, $0.6 million in 2023, and $22.0 million thereafter.

~~In December 2017,~~

d.Capital Purchase Commitments - MGE Energy and MGE.

Various contractual obligations contain minimum future commitments related to capital expenditures for certain construction projects, including the ~~PSCW authorized construction of a 66MW wind farm, consisting of 33 turbines, located near Saratoga, Iowa. MGE received specific approval to recover 100% AFUDC on~~Two Creeks solar project and the ~~project.~~Badger Hollow Solar Farm. As of June 30, ~~2018,~~2019, the Two Creeks future minimum construction commitment is $52.8 million. In July 2019 MGE ~~has incurred $42.6~~entered into an additional future minimum construction commitment of $59.9 million ~~of capital expenditures. Construction of the project is expected~~

related to ~~be completed by the end of 2018, with an estimated capital cost of $108 million.~~Badger Hollow. See Footnote 14 for more information.

~~10.~~

10.

Rate Matters - MGE Energy and MGE.

Rate Proceedings.

In ~~July~~December 2018, ~~MGE filed an application with~~ the PSCW ~~to decrease electric rates and increase gas rates in 2019 and 2020. MGE filed its application through a~~approved the settlement agreement between MGE and intervening parties in the rate ~~case, subject to PSCW approval.~~case. The settlement ~~proposal would decrease~~decreases electric rates by ~~1.94%~~2.24%, or $9.2 million, in 2019. ~~This amount is subject to change based on the final outcome of MGE's 2019 Fuel Cost Plan.~~ MGE will maintain this rate level for 2020, with the exception that MGE will file a 2020 Fuel Cost Plan in 2019 and MGE's electric rates will ~~decrease or increase~~be adjusted accordingly. The decrease reflects the ongoing tax impacts of the Tax ~~Act~~Act. Lower fuel costs and ~~the addition of lower-cost~~increase in rate base from renewable generation ~~capacity.~~assets are additional items impacting the rate change. The settlement ~~proposal would increase~~agreement increases gas rates by 1.06%, or $1.7million, in 2019 and 1.46%, or $2.4million, in 2020. The ~~requested~~gas increase covers infrastructure costs. It also reflects the impacts of the Tax Act. The ~~proposed~~ return on common stock equity for 2019 and 2020 ~~will be 9.8% based on a capital structure consisting of56.6% common equity in 2019 and 56.1% common equity in 2020.~~

In December 2016, the PSCW authorized 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 decrease in retail electric rates was attributable to 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 was is 9.8% based on a capital structure consisting of ~~57.2%~~

56.6% common ~~equity. The PSCW also approved MGE's request to extend the current accounting treatment for transmission related costs through 2018. This accounting treatment allows~~ equity in 2019

and 56.1% common equity in 2020.

MGE ~~to reflect any differential between transmission costs reflected in rates and actual costs incurred in its next~~did not file a base rate case ~~filing.~~for 2018.

b.Fuel Rules.

Fuel rules require the PSCW and Wisconsin utilities to defer electric fuel-related costs that fall outside a symmetrical cost tolerance band around the amount approved for a utility in its annual fuel proceedings. Any over/under recovery of the actual costs is determined in the following year and is then reflected in future billings to electric retail customers. The fuel rules bandwidth is currently set at plus or minus 2%. Under fuel rules, MGE would defer costs, less any excess revenues, if its actual electric fuel costs exceeded 102% of the electric fuel costs allowed in its latest rate order. Excess revenues are defined as revenues in the year in question that provide MGE with a greater return on common equity than authorized by the PSCW in MGE's latest rate order. Conversely, MGE is required to defer the benefit of lower costs if actual electric fuel costs were less than 98% of the electric fuel costs allowed in that order.

~~In July 2017,~~ These costs will be subject to the ~~PSCW issued a final order~~PSCW's annual review of fuel costs completed in the fuel rules proceedings requiring MGE to refund additional fuel savings realized during 2015 and 2016 to its retail electric customers over a one-month period. In October 2017, MGE returned $6.2 million to customers through bill credits.year following the deferral.

In December 2017, the PSCW approved a surcharge for 2018 electric fuel-related costs. The surcharge ~~will increase~~increased electric retail revenue in 2018 by $0.5 million, or ~~0.1%~~0.13%.

In July ~~2018,~~2019, the PSCW issued a ~~preliminary~~final decision in the 2018 fuel rules proceedings for MGE to refund ~~$4.2 million of~~ additional fuel savings ~~realized during 2017~~incurred to its retail electric customers over a one-month ~~period~~period. MGE will return $9.5 million plus accrued interest in ~~the second half of 2018.~~October 2019. There was no change to the refund in the fuel rules proceedings from the amount MGE deferred ~~as of December 31, 2017.~~in the previous year.

As of June 30, 2019, MGE had no 2019 fuel savings deferred. As of December 31, 2018, MGE ~~has~~had deferred ~~$5.2~~$9.5 million of 2018 fuel ~~savings. The 2018 fuel~~ savings ~~will be subject to the PSCW's annual review of 2018 fuel costs, expected to be completed in 2019. As of June 30, 2017, MGE had deferred $1.8 million of 2017 fuel savings.~~.

~~11.~~

11.

Derivative and Hedging Instruments - MGE Energy and MGE.

a.Purpose.

~~Purpose.~~

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

net loss or net gain position, respectively. The deferred gain or loss is recognized in earnings in the delivery month applicable to the instrument. Gains and losses related to hedges qualifying for regulatory treatment are recoverable in gas rates through the PGA or in electric rates as a component of the fuel rules mechanism.

b.Notional Amounts.

The gross notional volume of open derivatives is as follows:


	June 30, ~~2018~~2019	December 31, ~~2017~~2018
Commodity derivative contracts	~~525,570~~507,720 MWh	~~552,310~~386,440 MWh
Commodity derivative contracts	~~6,002,500~~7,140,000 Dth	~~5,460,000~~5,260,000 Dth
FTRs	~~5,326~~5,853 MW	~~2,226~~2,252 MW
PPA	~~2,350~~1,750 MW	~~2,650~~2,050 MW

c.Financial Statement Presentation.

MGE purchases and sells exchange-traded and over-the-counter options, swaps, and future contracts. These arrangements are primarily entered into to help stabilize the price risk associated with gas or power purchases. These transactions are employed by both MGE's gas and electric segments. Additionally, as a result of the firm transmission agreements that MGE holds on electricity transmission paths in the MISO market,MGE holdsfinancial transmission rights (FTRs). An FTR is a financial instrument that entitles the holder to a stream of revenues or charges based on the differences in hourly day-ahead energy prices between two points on the transmission grid. The fair values of these instruments are offset with a corresponding regulatory asset/liability depending on whether they are in a net loss/gain position. Depending on the nature of the instrument, the gain or loss associated with these transactions will be reflected as cost of gas sold, fuel for electric generation, or purchased power expense in the delivery month applicable to the instrument. AtAs of June 30, ~~2018,~~2019, the cost basis of exchange traded derivatives and FTRs exceeded their fair value by $0.9 million. As of December 31, ~~2017,~~2018, the fair value of exchange traded derivatives and FTRs exceeded their cost basis by ~~$1.8 million~~ and ~~$0.2 million, respectively.~~$0.7 million.

MGE is a party to a purchased power agreement that provides MGE with firm capacity and energy during a base term from June 1, 2012, through May 31, 2022. The agreement also allows MGE an option to extend the contract after the base term. The agreement is accounted for as a derivative contract and is recognized at its fair value on the consolidated balance sheets. However, the derivative qualifies for regulatory deferral and is recognized with a corresponding regulatory asset or liability depending on whether the fair value is in a loss or gain position. The fair value of the contract atas of June 30, ~~2018,~~2019, and December 31, ~~2017,~~2018, reflects a loss position of ~~$38.8~~$32.6 million and ~~$42.2~~$32.5 million, respectively. The actual cost will be recognized in purchased power expense in the month of purchase.

The following table summarizes the fair value of the derivative instruments on the consolidated balance ~~sheets.All~~sheets. All derivative instruments in this table are presented on a gross basis and are calculated prior to the netting of instruments with the same counterparty under a master netting agreement as well as the netting of collateral. For financial statement purposes, instruments are netted with the same counterparty under a master netting agreement as well as the netting of collateral. As of June 30, ~~2018,~~2019, and December 31, ~~2017,~~2018, the receivable margin account balance of ~~$1.2~~$1.3 million and ~~$2.5~~$1.2 million, respectively, is shown net of any collateral posted against derivative positions.

Derivative

Derivative

(In thousands)

Assets

Liabilities

Balance Sheet Location

June 30, 2018

Commodity derivative contracts^(a)
$
1,109
$
209

Other current assets

Commodity derivative contracts^(a)

71

86

Other deferred charges

FTRs

941

-

Other current assets

PPA

N/A

8,860

Derivative liability (current)

PPA

N/A

29,890

Derivative liability (long-term)

December 31, 2017

Commodity derivative contracts^(a)
$
566
$
603

Derivative liability (current)^(b)

Commodity derivative contracts^(a)

110

190

Derivative liability (long-term)

FTRs

329

-

Other current assets

PPA

N/A

8,180

Derivative liability (current)

PPA

N/A

33,990

Derivative liability (long-term)

~~(a)~~

		Derivative		Derivative
(In thousands)		Assets		Liabilities	Balance Sheet Location
June 30, 2019
Commodity derivative contracts	$	578	$	1,322	Other current assets^(a)
Commodity derivative contracts		81		713	Other deferred charges^(a)
FTRs		430		-	Other current assets
PPA		N/A		10,670	Derivative liability (current)
PPA		N/A		21,900	Derivative liability (long-term)

December 31, 2018
Commodity derivative contracts	$	727	$	270	Other current assets
Commodity derivative contracts		74		72	Other deferred charges
FTRs		241		-	Other current assets
PPA		N/A		8,550	Derivative liability (current)
PPA		N/A		23,980	Derivative liability (long-term)

(a)As of ~~December 31, 2017,~~June 30, 2019, collateral of ~~$0.1~~$0 million was posted against and netted with derivative liability positions on the consolidated balance sheets. No collateral was posted against derivative positions as of ~~June 30, 2018.~~

~~(b)~~

~~As of~~ December 31, ~~2017, MGE presented $0.1 million as other current assets on the consolidated balance sheets.~~2018.

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

Offsetting of Derivative Assets

(In thousands)

Gross Amounts

Gross Amounts Offset in Balance Sheets

Collateral Posted Against Derivative Positions

Net Amount Presented in Balance Sheets

June 30, 2018

Commodity derivative contracts
$
1,180
$
(295)
$
-
$
885

FTRs

941

-

-

941

December 31, 2017

Commodity derivative contracts
$
676
$
(654)
$
-
$
22

FTRs

329

-

-

329

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

June 30, 2018

Commodity derivative contracts
$
295
$
(295)
$
-
$
-

PPA

38,750

-

-

38,750

December 31, 2017

Commodity derivative contracts
$
793
$
(654)
$
(139)
$
-

PPA

42,170

-

-

42,170

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
June 30, 2019
Commodity derivative contracts	$	659	$	(343)	$	-	$	316
FTRs		430		-		-		430

December 31, 2018
Commodity derivative contracts	$	801	$	(342)	$	-	$	459
FTRs		241		-		-		241

Offsetting of Derivative Liabilities
(In thousands)		Gross Amounts		Gross Amounts Offset in Balance Sheets		Collateral Posted Against Derivative Positions		Net Amount Presented in Balance Sheets
June 30, 2019
Commodity derivative contracts	$	2,035	$	(343)	$	(1,692)	$	-
PPA		32,570		-		-		32,570

December 31, 2018
Commodity derivative contracts	$	342	$	(342)	$	-	$	-
PPA		32,530		-		-		32,530

The following tables summarize the unrealized and realized gains (losses) related to the derivative instruments on the consolidated balance sheets ~~at June 30, 2018 and 2017,~~ and the consolidated ~~income~~ statements ~~for the three and six months ended June 30, 2018 and 2017.~~of income.

2018

2017
(In thousands)

Current and Long-Term Regulatory Asset

Other Current Assets

Current and Long-Term Regulatory Asset

Other Current Assets
Three Months Ended June 30:

Balance at April 1,
$
41,241
$
319

$
48,073
$
142
Unrealized gain

(4,027)

-

(1,731)

-
Realized (loss) gain reclassified to a deferred account

(363)

363

(544)

544
Realized gain (loss) reclassified to income statement

73

(42)

(482)

(68)
Balance at June 30,
$
36,924
$
640

$
45,316
$
618

Six Months Ended June 30:

Balance at January 1,
$
41,958
$
806

$
49,281
$
230
Unrealized gain

(3,899)

-

(2,420)

-
Realized (loss) gain reclassified to a deferred account

(521)

521

(622)

622
Realized loss reclassified to income statement

(614)

(687)

(923)

(234)
Balance at June 30,
$
36,924
$
640

$
45,316
$
618

Realized Losses (Gains)

2018

2017
(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 June 30:

Commodity derivative contracts
$
(190)
$
22

$
17
$
63
FTRs

(300)

-

(439)

-
PPA

437

-

909

-

Six Months Ended June 30:

Commodity derivative contracts
$
184
$
637

$
402
$
209
FTRs

(475)

-

(1,124)

-
PPA

955

-

1,670

-

		2019				2018
(In thousands)		Current and Long-Term Regulatory Asset		Other Current Assets		Current and Long-Term Regulatory Asset		Other Current Assets
Three Months Ended June 30:
Balance at April 1,	$	31,023	$	259	$	41,241	$	319
Unrealized gain		3,228		-		(4,027)		-
Realized (loss) gain reclassified to a deferred account		(731)		731		(363)		363
Realized (loss) gain reclassified to income statement		(4)		(112)		73		(42)
Balance as of June 30,	$	33,516	$	878	$	36,924	$	640

Six Months Ended June 30:
Balance at January 1,	$	31,830	$	377	$	41,958	$	806
Unrealized gain		2,306		-		(3,899)		-
Realized (loss) gain reclassified to a deferred account		(991)		991		(521)		521
Realized (loss) gain reclassified to income statement		371		(490)		(614)		(687)
Balance as of June 30,	$	33,516	$	878	$	36,924	$	640

		Realized Losses (Gains)
		2019				2018
(In thousands)		Fuel for Electric Generation/ Purchased Power		Cost of Gas Sold		Fuel for Electric Generation/ Purchased Power		Cost of Gas Sold
Three Months Ended June 30:
Commodity derivative contracts	$	299	$	99	$	(190)	$	22
FTRs		61		-		(300)		-
PPA		(343)		-		437		-

Six Months Ended June 30:
Commodity derivative contracts	$	568	$	377	$	184	$	637
FTRs		(74)		-		(475)		-
PPA		(752)		-		955		-

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

The PPA has a provision that may require MGE to post collateral if MGE's debt rating falls below investment grade (i.e., below BBB-). The amount of collateral that it may be required to post varies from $20.0 million to $40.0 million, depending on MGE's nominated capacity amount. As of June 30, ~~2018,~~ 2019, no collateral is required to be, or has been, posted. Certain counterparties extend MGE a credit limit. If MGE exceeds these limits, the counterparties may require collateral to be posted. ~~As of June 30, 2018, no~~ Nocounterparties were in a net liability ~~position. As~~position as of June 30, 2019 and December 31, ~~2017, certain counterparties were in a net liability of $0.1 million.~~2018.

Nonperformance of counterparties to the non-exchange traded derivatives could expose MGE to credit loss. However, MGE enters into transactions only with companies that meet or exceed strict credit guidelines, and it monitors these counterparties on an ongoing basis to mitigate nonperformance risk in its portfolio. As of June 30, ~~2018,~~ 2019, no counterparties have defaulted.

~~12.~~

12.

Fair Value of Financial Instruments - MGE Energy and MGE.

Fair value is defined as the price that would be received to sell an asset or would be paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. The accounting standard clarifies that fair value should be based on the assumptions market participants would use when pricing the asset or

liability including assumptions about risk. The standard also establishes a ~~three level~~three-level fair value hierarchy based upon the observability of the assumptions used and requires the use of observable market data when available. The levels are:

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

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

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

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

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

June 30, 2018

December 31, 2017

(In thousands)

Carrying Amount

Fair Value

Carrying Amount

Fair Value

MGE Energy

Assets:

    Cash and cash equivalents
$
95,579
$
95,579
$
107,952
$
107,952

Liabilities:

    Short-term debt - commercial paper

28,200

28,200

4,000

4,000

    Long-term debt^(a)

424,670

464,428

426,883

475,282

MGE

Assets:

    Cash and cash equivalents
$
3,128
$
3,128
$
5,951
$
5,951

Liabilities:

    Short-term debt - commercial paper

28,200

28,200

4,000

4,000

    Long-term debt^(a)

424,670

464,428

426,883

475,282

~~(a)~~

		June 30, 2019				December 31, 2018
(In thousands)		Carrying Amount		Fair Value		Carrying Amount		Fair Value
MGE Energy
Assets:
Cash and cash equivalents	$	69,913	$	69,913	$	83,102	$	83,102
Liabilities:
Short-term debt - commercial paper		23,500		23,500		13,000		13,000
Long-term debt^(a)		500,168		562,969		502,431		518,811

MGE
Assets:
Cash and cash equivalents	$	6,383	$	6,383	$	4,843	$	4,843
Liabilities:
Short-term debt - commercial paper		23,500		23,500		13,000		13,000
Long-term debt^(a)		500,168		562,969		502,431		518,811

(a) Includes long-term debt due within one year. Excludes debt issuance costs and unamortized discount of ~~$4.1~~ $4.3million and ~~$4.3~~ $4.5million atas of June 30, ~~2018,~~2019, and December 31, ~~2017,~~2018, respectively.

Recurring Fair Value Measurements.

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

Fair Value as of June 30, 2018

(In thousands)

Total

Level 1

Level 2

Level 3

MGE Energy

Assets:

    Derivatives, net
$
2,121
$
502
$
-
$
1,619

    Exchange-traded investments

902

902

-

-

    Total Assets
$
3,023
$
1,404
$
-
$
1,619

Liabilities:

    Derivatives, net
$
39,045
$
94
$
-
$
38,951

    Deferred compensation

3,065

-

3,065

-

    Total Liabilities
$
42,110
$
94
$
3,065
$
38,951

MGE

Assets:

    Derivatives, net
$
2,121
$
502
$
-
$
1,619

    Exchange-traded investments

77

77

-

-

    Total Assets
$
2,198
$
579
$
-
$
1,619

Liabilities:

    Derivatives, net
$
39,045
$
94
$
-
$
38,951

    Deferred compensation

3,065

-

3,065

-

    Total Liabilities
$
42,110
$
94
$
3,065
$
38,951

Fair Value as of December 31, 2017

(In thousands)

Total

Level 1

Level 2

Level 3

MGE Energy

Assets:

    Derivatives, net
$
1,005
$
278
$
-
$
727

    Exchange-traded investments

792

792

-

-

    Total Assets
$
1,797
$
1,070
$
-
$
727

Liabilities:

    Derivatives, net^(b)
$
42,963
$
210
$
-
$
42,753

    Deferred compensation

3,065

-

3,065

-

    Total Liabilities
$
46,028
$
210
$
3,065
$
42,753

MGE

Assets:

    Derivatives, net
$
1,005
$
278
$
-
$
727

    Exchange-traded investments

64

64

-

-

    Total Assets
$
1,069
$
342
$
-
$
727

Liabilities:

    Derivatives, net^(b)
$
42,963
$
210
$
-
$
42,753

    Deferred compensation

3,065

-

3,065

-

    Total Liabilities
$
46,028
$
210
$
3,065
$
42,753

		Fair Value as of June 30, 2019
(In thousands)		Total		Level 1		Level 2		Level 3
MGE Energy
Assets:
Derivatives, net^(b)	$	1,089	$	342	$	-	$	747
Exchange-traded investments		1,079		1,079		-		-
Total Assets	$	2,168	$	1,421	$	-	$	747
Liabilities:
Derivatives, net	$	34,605	$	521	$	-	$	34,084
Deferred compensation		3,131		-		3,131		-
Total Liabilities	$	37,736	$	521	$	3,131	$	34,084

MGE
Assets:
Derivatives, net^(b)	$	1,089	$	342	$	-	$	747
Exchange-traded investments		189		189		-		-
Total Assets	$	1,278	$	531	$	-	$	747
Liabilities:
Derivatives, net	$	34,605	$	521	$	-	$	34,084
Deferred compensation		3,131		-		3,131		-
Total Liabilities	$	37,736	$	521	$	3,131	$	34,084

		Fair Value as of December 31, 2018
(In thousands)		Total		Level 1		Level 2		Level 3
MGE Energy
Assets:
Derivatives, net	$	1,042	$	296	$	-	$	746
Exchange-traded investments		848		848		-		-
Total Assets	$	1,890	$	1,144	$	-	$	746
Liabilities:
Derivatives, net	$	32,872	$	124	$	-	$	32,748
Deferred compensation		3,078		-		3,078		-
Total Liabilities	$	35,950	$	124	$	3,078	$	32,748

MGE
Assets:
Derivatives, net	$	1,042	$	296	$	-	$	746
Exchange-traded investments		43		43		-		-
Total Assets	$	1,085	$	339	$	-	$	746
Liabilities:
Derivatives, net	$	32,872	$	124	$	-	$	32,748
Deferred compensation		3,078		-		3,078		-
Total Liabilities	$	35,950	$	124	$	3,078	$	32,748

~~(b)~~

(b) These amounts are shown gross and exclude ~~$0.1~~$0 million of collateral that was posted against derivative positions with counterparties as of ~~December 31, 2017.~~June 30, 2019.

No transfers were made in or out of Level 1 or Level 2 for the six months ended June 30, ~~2018.~~2019.

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

Derivatives include exchange-traded derivative contracts, over-the-counter transactions, a purchased power agreement, and ~~financial transmission rights (FTRs).~~FTRs. Most exchange-traded derivative contracts are valued based on unadjusted quoted prices in active markets and are therefore classified as Level 1. A small number of exchange-traded derivative contracts are valued using quoted market pricing in markets with insufficient volumes and are therefore considered unobservable and classified as Level 3. Transactions done with an over-the-counter party are on inactive markets and are therefore classified as Level 3. These transactions are valued based on quoted prices from markets with similar exchange-traded

transactions. FTRs are priced based upon monthly auction results for identical or similar instruments in a closed market with limited data available and are therefore classified as Level 3.

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

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

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

Model Input

Significant Unobservable Inputs

June 30, 2018

December 31, 2017

Basis adjustment:

    On peak

91.1%

92.3%

    Off peak

93.1%

94.1%

Counterparty fuel mix:

    Internal generation

50% - 75%

55% - 75%

    Purchased power

50% - 25%

45% - 25%

	Model Input
Significant Unobservable Inputs	June 30, 2019	December 31, 2018
Basis adjustment:
On peak	92.2%	92.1%
Off peak	92.7%	92.8%
Counterparty fuel mix:
Internal generation	40.0% - 60.0%	50.0% - 75.0%
Purchased power	60.0% - 40.0%	50.0% - 25.0%

The 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 of MGE Energy and MGE.~~sheets. The notional investments earn interest based upon the semiannual rate of U.S. Treasury Bills having a ~~26-week~~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.

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

Six Months Ended

June 30,

June 30,
(In thousands)

2018

2017

2018

2017
Beginning balance
$
(41,463)
$
(48,354)
$
(42,026)
$
(50,305)
Realized and unrealized gains (losses):

    Included in regulatory assets

4,130

2,748

4,693

4,701
    Included in other comprehensive income

-

-

-

-
    Included in earnings

82

(550)

(460)

(1,136)
    Included in current assets

(297)

(222)

(470)

(97)
Purchases

6,032

6,186

11,866

12,182
Sales

-

-

-

-
Issuances

-

-

-

-
Settlements

(5,816)

(5,413)

(10,935)

(10,950)
Transfers in and/or out of Level 3

-

-

-

-
Balance as of June 30,
$
(37,332)
$
(45,605)
$
(37,332)
$
(45,605)
Total gains (losses) included in earnings attributed to

the change in unrealized gains (losses) related to

assets and liabilities held at June 30,^(c)
$
-
$
-
$
-
$
-

		Three Months Ended				Six Months Ended
		June 30,				June 30,
(In thousands)		2019		2018		2019		2018
Beginning balance	$	(31,283)	$	(41,463)	$	(32,002)	$	(42,026)
Realized and unrealized gains (losses):
Included in regulatory assets		(2,054)		4,130		(1,335)		4,693
Included in other comprehensive income		-		-		-		-
Included in earnings		(792)		82		(1,436)		(460)
Included in current assets		(376)		(297)		(203)		(470)
Purchases		5,858		6,032		11,623		11,866
Sales		-		-		-		-
Issuances		-		-		-		-
Settlements		(4,690)		(5,816)		(9,984)		(10,935)
Transfers in and/or out of Level 3		-		-		-		-
Balance as of June 30,	$	(33,337)	$	(37,332)	$	(33,337)	$	(37,332)
Total gains (losses) included in earnings attributed to
the change in unrealized gains (losses) related to
assets and liabilities held at June 30,^(c)	$	-	$	-	$	-	$	-

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

Three Months Ended

Six Months Ended

June 30,

June 30,

(In thousands)

2018

2017

2018

2017

Purchased Power Expense
$
60
$
(487)
$
(663)
$
(918)

Cost of Gas Sold Expense

22

(63)

203

(218)

Total
$
82
$
(550)
$
(460)
$
(1,136)

		Three Months Ended				Six Months Ended
		June 30,				June 30,
(In thousands)		2019		2018		2019		2018
Purchased Power Expense	$	(693)	$	60	$	(1,249)	$	(663)
Cost of Gas Sold Expense		(99)		22		(187)		203
Total	$	(792)	$	82	$	(1,436)	$	(460)

~~(c)~~

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

13.

~~Joint Plant Ownership~~Asset Retirement Obligation - MGE Energy and MGE.

~~Columbia.~~

In 2016, MGE and WPL negotiated an amendment to the existing Columbia joint operating agreement, that has been approved by the PSCW, under which MGE will have the option to reduce its obligation to pay certain capital expenditures (other than SCR-related expenditures) at Columbia in exchange for a proportional reduction in MGE's ownership in Columbia. On January 1 of each year, that began in 2017 and will end June 1, 2020, the ownership percentage is adjusted, through a partial sale, based on the amount of capital expenditures foregone. In June 2017, the FERC approved the ownership transfer in Columbia, effective January 1, 2017.

During 2017, MGE accrued $8.8 million of 2017 foregone capital expenditures as part of the ownership transfer agreement with WPL. As of December 31, 2017, MGE classified $8.8 million of Columbia assets as held-for-sale on the consolidated balance sheets. In January 2018, MGE reduced its ownership interest in Columbia from 20.4% to 19.4% as a result of the partial sale of plant assets to WPL.

During the three and six months ended June 30, 2018, MGE accrued less than $0.1 million and $1.4 million, respectively, of 2018 foregone capital expenditures as part of the ownership transfer agreement. As of June 30, 2018, MGE classified $1.4 million of Columbia assets as held-for-sale on the consolidated balance sheets. The assets recognized as held-for-sale are the ownership transfer agreement covering the sale of plant assets to WPL, expected to occur in January 2019.

~~Forward Wind.~~

In April 2018, MGE, along with two other utilities, purchased the Forward Wind Energy Center (Forward Wind), which consists of 86 wind turbines located in Wisconsin with a total capacity of 129 MWs. The aggregate purchase price was approximately $174 million of which MGE's proportionate share is 12.8%, or approximately $23 million. The purchase of Forward Wind replaced an existing purchase power agreement, under which MGE purchased 12.8% of the facility's energy output.

~~MGE Energy and MGE are required to record a~~A liability for the fair value of an asset retirement obligation (ARO) ~~to be~~is recognized in the period in which it is incurred if it can be reasonably estimated. The offsetting associated asset retirement costs are capitalized as a long-lived asset and depreciated over the asset's useful ~~life. As~~life.As of June 30, ~~2018,~~2019, MGE recorded an obligation of ~~$1.6~~$1.5 million for the fair value of its legal liability for ~~AROs~~an ARO associated with ~~Forward Wind.~~the Saratoga Wind Farm. MGE has regulatory treatment and recognizes regulatory assets or liabilities for the timing differences between when we recover legal AROs in rates and when those costs would actually be recognized.

~~14.~~

14.

Joint Plant Ownership - MGE Energy and MGE.

a. Two Creeks.

In May

2019,

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

As of June 30, 2019, $16.5 million (excluding capitalized interest) related to this project is reflected in "Construction work in progress" on the consolidated balance sheets. The project is anticipated to be completed by the end of 2020.

b. Badger Hollow.

In July

2019,

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

As of June 30, 2019, $1.0 million (excluding capitalized interest) related to this project is reflected in "Construction work in progress" on the consolidated balance sheets. The project is anticipated to be completed by the end of 2020.

15.

Revenue - MGE Energy and MGE.

Revenues disaggregated by revenue source were as follows:

		Three Months Ended				Six Months Ended
(In thousands)		June 30,				June 30,
Electric revenues		2019		2018		2019		2018
Residential	$	30,749	$	32,217	$	65,330	$	65,476
Commercial		52,762		50,174		102,015		97,626
Industrial		3,322		4,630		6,253		7,525
Other-retail/municipal		8,946		8,527		17,185		16,814
Total retail		95,779		95,548		190,783		187,441
Sales to the market		790		2,795		2,751		4,829
Other revenues		294		724		745		1,188
Total electric revenues		96,863		99,067		194,279		193,458

Gas revenues
Residential		16,000		15,620		56,317		52,171
Commercial/Industrial		7,883		8,206		36,008		33,158
Total retail		23,883		23,826		92,325		85,329
Gas transportation		1,094		1,053		2,630		2,189
Other revenues		93		101		215		227
Total gas revenues		25,070		24,980		95,170		87,745

Non-regulated energy revenues		214		215		267		691
Total Operating Revenue	$	122,147	$	124,262		289,716	$	281,894

Performance Obligations

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

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

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

Utility Cost Recovery Mechanisms

MGE's tariff rates include a provision for fuel cost recovery. The PSCW allows Wisconsin utilities to defer

electric fuel-related costs, less excess revenues, that fall outside a symmetrical cost tolerance band. Any over/under recovery of the actual costs in a given year is determined in the following year and is then reflected in future billings to electric retail customers. Over-collection of fuel-related costs that are outside the approved range will be recognized as a reduction of revenue. Under-collection of these costs will be recognized in "Purchased power" expense in the consolidated statements of income. The cumulative effects of these deferred amounts will be recorded in "Regulatory assets" or "Regulatory liabilities" on the consolidated balance sheets until they are reflected in future billings to customers. See Footnote 10.b. for further information.

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

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

Sales to the Market

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

Transportation of Gas

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

16.

Segment Information - MGE Energy and MGE.

MGE Energy operates in the following business segments: electric utility, gas utility, nonregulated energy, transmission investment, and all other. See the ~~2017~~2018 Annual Report on Form 10-K for additional discussion of each of these segments.

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

(In thousands)
MGE Energy

Electric

Gas

Nonregulated Energy

Transmission Investment

All Others

Consolidation/ Elimination Entries

Consolidated Total
Three Months Ended June 30, 2018

Operating revenues
$
99,067
$
24,980
$
215
$
-
$
-
$
-
$
124,262
Interdepartmental revenues

(245)

3,493

9,847

-

-

(13,095)

-
Total operating revenues

98,822

28,473

10,062

-

-

(13,095)

124,262
Depreciation and amortization

(9,575)

(2,445)

(1,852)

-

-

-

(13,872)
Other operating expenses

(74,535)

(24,232)

(34)

(5)

(448)

13,095

(86,159)
Operating income (loss)

14,712

1,796

8,176

(5)

(448)

-

24,231
Other income, net

1,562

752

-

1,916

501

-

4,731
Interest (expense) income, net

(2,952)

(887)

(1,334)

-

390

-

(4,783)
Income before taxes

13,322

1,661

6,842

1,911

443

-

24,179
Income tax provision

(2,986)

(372)

(1,864)

(522)

(84)

-

(5,828)
Net income
$
10,336
$
1,289
$
4,978
$
1,389
$
359
$
-
$
18,351

Three Months Ended June 30, 2017

Operating revenues
$
102,306
$
24,081
$
76
$
-
$
-
$
-
$
126,463
Interdepartmental revenues

(119)

3,422

11,107

-

-

(14,410)

-
Total operating revenues

102,187

27,503

11,183

-

-

(14,410)

126,463
Depreciation and amortization

(9,185)

(2,232)

(1,858)

-

-

-

(13,275)
Other operating expenses^(a)

(78,202)

(23,522)

(62)

-

(217)

14,410

(87,593)
Operating income (loss)

14,800

1,749

9,263

-

(217)

-

25,595
Other income (deductions), net^(a)

778

361

-

2,506

(75)

-

3,570
Interest (expense) income, net

(2,801)

(805)

(1,392)

-

112

-

(4,886)
Income (loss) before taxes

12,777

1,305

7,871

2,506

(180)

-

24,279
Income tax (provision) benefit

(4,124)

(521)

(3,158)

(1,006)

73

-

(8,736)
Net income (loss)
$
8,653
$
784
$
4,713
$
1,500
$
(107)
$
-
$
15,543

Six Months Ended June 30, 2018

Operating revenues
$
193,458
$
87,745
$
691
$
-
$
-
$
-
$
281,894
Interdepartmental revenues

(214)

7,840

19,667

-

-

(27,293)

-
Total operating revenues

193,244

95,585

20,358

-

-

(27,293)

281,894
Depreciation and amortization

(18,953)

(4,840)

(3,702)

-

-

-

(27,495)
Other operating expenses

(151,110)

(79,427)

(77)

(8)

(651)

27,293

(203,980)
Operating income (loss)

23,181

11,318

16,579

(8)

(651)

-

50,419
Other income, net

3,292

1,518

-

4,288

552

-

9,650
Interest (expense) income, net

(5,819)

(1,726)

(2,682)

-

705

-

(9,522)
Income before taxes

20,654

11,110

13,897

4,280

606

-

50,547
Income tax provision

(4,186)

(2,830)

(3,786)

(1,170)

(223)

-

(12,195)
Net income
$
16,468
$
8,280
$
10,111
$
3,110
$
383
$
-
$
38,352

Six Months Ended June 30, 2017

Operating revenues
$
200,630
$
82,507
$
149
$
-
$
-
$
-
$
283,286
Interdepartmental revenues

(224)

7,816

22,177

-

-

(29,769)

-
Total operating revenues

200,406

90,323

22,326

-

-

(29,769)

283,286
Depreciation and amortization

(18,085)

(4,445)

(3,704)

-

-

-

(26,234)
Other operating expenses^(a)

(154,208)

(74,493)

(103)

-

(586)

29,769

(199,621)
Operating income (loss)

28,113

11,385

18,519

-

(586)

-

57,431
Other income (deductions), net^(a)

1,648

760

-

4,984

(297)

-

7,095
Interest (expense) income, net

(5,577)

(1,604)

(2,799)

-

200

-

(9,780)
Income (loss) before taxes

24,184

10,541

15,720

4,984

(683)

-

54,746
Income tax (provision) benefit

(7,578)

(4,225)

(6,309)

(2,003)

212

-

(19,903)
Net income (loss)
$
16,606
$
6,316
$
9,411
$
2,981
$
(471)
$
-
$
34,843

~~(a)~~

~~Reflects retrospective application of new accounting pronouncement related to pension and other postretirement benefits, see Footnote 2 for further information.~~

(In thousands) MGE Energy		Electric		Gas		Non-regulated Energy		Transmission Investment		All Others		Consolidation/ Elimination Entries		Consolidated Total
Three Months Ended June 30, 2019
Operating revenues	$	96,863	$	25,070	$	214	$	-	$	-	$	-	$	122,147
Interdepartmental revenues		198		1,929		9,995		-		-		(12,122)		-
Total operating revenues		97,061		26,999		10,209		-		-		(12,122)		122,147
Depreciation and amortization		(13,379)		(2,843)		(1,869)		-		-		-		(18,091)
Other operating expenses		(73,130)		(22,931)		(33)		-		(301)		12,122		(84,273)
Operating income (loss)		10,552		1,225		8,307		-		(301)		-		19,783
Other income (deductions), net		1,788		1,170		-		2,267		(206)		-		5,019
Interest (expense) income, net		(3,826)		(1,032)		(1,275)		-		384		-		(5,749)
Income (loss) before taxes		8,514		1,363		7,032		2,267		(123)		-		19,053
Income tax (provision) benefit		(638)		(412)		(1,916)		(619)		80		-		(3,505)
Net income (loss)	$	7,876	$	951	$	5,116	$	1,648	$	(43)	$	-	$	15,548

Three Months Ended June 30, 2018
Operating revenues	$	99,067	$	24,980	$	215	$	-	$	-	$	-	$	124,262
Interdepartmental revenues		(245)		3,493		9,847		-		-		(13,095)		-
Total operating revenues		98,822		28,473		10,062		-		-		(13,095)		124,262
Depreciation and amortization		(9,575)		(2,445)		(1,852)		-		-		-		(13,872)
Other operating expenses		(74,535)		(24,232)		(34)		(5)		(448)		13,095		(86,159)
Operating income (loss)		14,712		1,796		8,176		(5)		(448)		-		24,231
Other income, net		1,562		752		-		1,916		501		-		4,731
Interest (expense) income, net		(2,952)		(887)		(1,334)		-		390		-		(4,783)
Income before taxes		13,322		1,661		6,842		1,911		443		-		24,179
Income tax provision		(2,986)		(372)		(1,864)		(522)		(84)		-		(5,828)
Net income	$	10,336	$	1,289	$	4,978	$	1,389	$	359	$	-	$	18,351

Six Months Ended June 30, 2019
Operating revenues	$	194,279	$	95,170	$	267	$	-	$	-	$	-	$	289,716
Interdepartmental revenues		397		6,891		19,968		-		-		(27,256)		-
Total operating revenues		194,676		102,061		20,235		-		-		(27,256)		289,716
Depreciation and amortization		(25,888)		(5,603)		(3,739)		-		-		-		(35,230)
Other operating expenses		(146,424)		(84,369)		(81)		-		(575)		27,256		(204,193)
Operating income (loss)		22,364		12,089		16,415		-		(575)		-		50,293
Other income, net		3,441		1,724		-		4,436		269		-		9,870
Interest (expense) income, net		(7,491)		(2,072)		(2,565)		-		732		-		(11,396)
Income before taxes		18,314		11,741		13,850		4,436		426		-		48,767
Income tax provision		(1,088)		(3,031)		(3,773)		(1,210)		(111)		-		(9,213)
Net income	$	17,226	$	8,710	$	10,077	$	3,226	$	315	$	-	$	39,554

Six Months Ended June 30, 2018
Operating revenues	$	193,458	$	87,745	$	691	$	-	$	-	$	-	$	281,894
Interdepartmental revenues		(214)		7,840		19,667		-		-		(27,293)		-
Total operating revenues		193,244		95,585		20,358		-		-		(27,293)		281,894
Depreciation and amortization		(18,953)		(4,840)		(3,702)		-		-		-		(27,495)
Other operating expenses		(151,110)		(79,427)		(77)		(8)		(651)		27,293		(203,980)
Operating income (loss)		23,181		11,318		16,579		(8)		(651)		-		50,419
Other income, net		3,292		1,518		-		4,288		552		-		9,650
Interest (expense) income, net		(5,819)		(1,726)		(2,682)		-		705		-		(9,522)
Income before taxes		20,654		11,110		13,897		4,280		606		-		50,547
Income tax provision		(4,186)		(2,830)		(3,786)		(1,170)		(223)		-		(12,195)
Net income	$	16,468	$	8,280	$	10,111	$	3,110	$	383	$	-	$	38,352

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


(In thousands) MGE		Electric		Gas		Nonregulated Energy		Consolidation/ Elimination Entries		Consolidated Total		Electric		Gas		Non-regulated Energy		Consolidation/ Elimination Entries		Consolidated Total
Three Months Ended June 30, 2019											Three Months Ended June 30, 2019
Operating revenues											$	96,863	$	25,070	$	214	$	-	$	122,147
Interdepartmental revenues												198		1,929		9,995		(12,122)		-
Total operating revenues												97,061		26,999		10,209		(12,122)		122,147
Depreciation and amortization												(13,379)		(2,843)		(1,869)		-		(18,091)
Other operating expenses												(73,130)		(22,931)		(33)		12,122		(83,972)
Operating income												10,552		1,225		8,307		-		20,084
Other income, net												1,788		1,170		-		-		2,958
Interest expense, net												(3,826)		(1,032)		(1,275)		-		(6,133)
Income before taxes												8,514		1,363		7,032		-		16,909
Income tax provision												(638)		(412)		(1,916)		-		(2,966)
Net income												7,876		951		5,116		-		13,943
Less: Net income attributable to
noncontrolling interest, net of tax												-		-		-		(5,621)		(5,621)
Net income attributable to MGE											$	7,876	$	951	$	5,116	$	(5,621)	$	8,322
*Three Months Ended June 30, 2018*	*Three Months Ended June 30, 2018*										Three Months Ended June 30, 2018
Operating revenues	$	99,067	$	24,980	$	215	$	-	$	124,262	$	99,067	$	24,980	$	215	$	-	$	124,262
Interdepartmental revenues		(245)		3,493		9,847		(13,095)		-		(245)		3,493		9,847		(13,095)		-
Total operating revenues		98,822		28,473		10,062		(13,095)		124,262		98,822		28,473		10,062		(13,095)		124,262
Depreciation and amortization		(9,575)		(2,445)		(1,852)		-		(13,872)		(9,575)		(2,445)		(1,852)		-		(13,872)
Other operating expenses^(b)		(77,475)		(24,558)		(1,898)		13,095		(90,836)
Operating income^(b)		11,772		1,470		6,312		-		19,554
Other income, net^(b)		1,516		706		-		-		2,222
Other operating expenses												(74,535)		(24,232)		(35)		13,095		(85,707)
Operating income												14,712		1,796		8,175		-		24,683
Other income, net												1,561		753		-		-		2,314
Interest expense, net		(2,952)		(887)		(1,334)		-		(5,173)		(2,952)		(887)		(1,334)		-		(5,173)
Income before taxes												13,321		1,662		6,841		-		21,824
Income tax provision												(2,985)		(373)		(1,863)		-		(5,221)
Net income		10,336		1,289		4,978		-		16,603		10,336		1,289		4,978		-		16,603
Less: Net income attributable to
noncontrolling interest, net of tax		-		-		-		(5,505)		(5,505)		-		-		-		(5,505)		(5,505)
Net income attributable to MGE	$	10,336	$	1,289	$	4,978	$	(5,505)	$	11,098	$	10,336	$	1,289	$	4,978	$	(5,505)	$	11,098

*Three Months Ended June 30, 2017*
Six Months Ended June 30, 2019											Six Months Ended June 30, 2019
Operating revenues	$	102,306	$	24,080	$	76	$	-	$	126,462	$	194,279	$	95,170	$	267	$	-	$	289,716
Interdepartmental revenues		(119)		3,423		11,107		(14,411)		-		397		6,891		19,968		(27,256)		-
Total operating revenues		102,187		27,503		11,183		(14,411)		126,462		194,676		102,061		20,235		(27,256)		289,716
Depreciation and amortization		(9,185)		(2,232)		(1,858)		-		(13,275)		(25,888)		(5,603)		(3,739)		-		(35,230)
Other operating expenses^{(a), (b)}		(82,289)		(24,033)		(3,220)		14,411		(95,131)
Operating income^(b)		10,713		1,238		6,105		-		18,056
Other income, net^{(a), (b)}		741		351		-		-		1,092
Other operating expenses												(146,424)		(84,369)		(81)		27,256		(203,618)
Operating income												22,364		12,089		16,415		-		50,868
Other income, net												3,441		1,724		-		-		5,165
Interest expense, net		(2,801)		(805)		(1,392)		-		(4,998)		(7,491)		(2,072)		(2,565)		-		(12,128)
Income before taxes												18,314		11,741		13,850		-		43,905
Income tax provision												(1,088)		(3,031)		(3,773)		-		(7,892)
Net income		8,653		784		4,713		-		14,150		17,226		8,710		10,077		-		36,013
Less: Net income attributable to
noncontrolling interest, net of tax		-		-		-		(5,396)		(5,396)		-		-		-		(11,111)		(11,111)
Net income attributable to MGE	$	8,653	$	784	$	4,713	$	(5,396)	$	8,754	$	17,226	$	8,710	$	10,077	$	(11,111)	$	24,902

*Six Months Ended June 30, 2018*	*Six Months Ended June 30, 2018*										Six Months Ended June 30, 2018
Operating revenues	$	193,458	$	87,745	$	691	$	-	$	281,894	$	193,458	$	87,745	$	691	$	-	$	281,894
Interdepartmental revenues		(214)		7,840		19,667		(27,293)		-		(214)		7,840		19,667		(27,293)		-
Total operating revenues		193,244		95,585		20,358		(27,293)		281,894		193,244		95,585		20,358		(27,293)		281,894
Depreciation and amortization		(18,953)		(4,840)		(3,702)		-		(27,495)		(18,953)		(4,840)		(3,702)		-		(27,495)
Other operating expenses^(b)		(155,206)		(82,199)		(3,863)		27,293		(213,975)
Operating income^(b)		19,085		8,546		12,793		-		40,424
Other income, net^(b)		3,202		1,460		-		-		4,662
Other operating expenses												(151,110)		(79,427)		(78)		27,293		(203,322)
Operating income												23,181		11,318		16,578		-		51,077
Other income, net												3,292		1,519		-		-		4,811
Interest expense, net		(5,819)		(1,726)		(2,682)		-		(10,227)		(5,819)		(1,726)		(2,682)		-		(10,227)
Income before taxes												20,654		11,111		13,896		-		45,661
Income tax provision												(4,186)		(2,831)		(3,785)		-		(10,802)
Net income		16,468		8,280		10,111		-		34,859		16,468		8,280		10,111		-		34,859
Less: Net income attributable to
noncontrolling interest, net of tax		-		-		-		(11,311)		(11,311)		-		-		-		(11,311)		(11,311)
Net income attributable to MGE	$	16,468	$	8,280	$	10,111	$	(11,311)	$	23,548	$	16,468	$	8,280	$	10,111	$	(11,311)	$	23,548

*Six Months Ended June 30, 2017*
Operating revenues	$	200,634	$	82,515	$	149	$	-	$	283,298
Interdepartmental revenues		(228)		7,808		22,177		(29,757)		-
Total operating revenues		200,406		90,323		22,326		(29,757)		283,298
Depreciation and amortization		(18,085)		(4,445)		(3,704)		-		(26,234)
Other operating expenses^{(a), (b)}		(161,715)		(78,698)		(6,412)		29,757		(217,068)
Operating income^(b)		20,606		7,180		12,210		-		39,996
Other income, net^{(a), (b)}		1,577		740		-		-		2,317
Interest expense, net		(5,577)		(1,604)		(2,799)		-		(9,980)
Net income		16,606		6,316		9,411		-		32,333
Less: Net income attributable to
noncontrolling interest, net of tax		-		-		-		(10,785)		(10,785)
Net income attributable to MGE	$	16,606	$	6,316	$	9,411	$	(10,785)	$	21,548

~~(a)~~

~~Reflects retrospective application of new accounting pronouncement related to pension and other postretirement benefits, see Footnote 2 for further information.~~

~~(b)~~

~~Amounts are shown net of the related tax expense, consistent with the presentation on the MGE Consolidated Statements of Income.~~

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

Utility

Consolidated
(In thousands)
MGE Energy

Electric

Gas

Assets not Allocated

Nonregulated Energy

Transmission Investment

All Others

Consolidation/ Elimination Entries

Total
Assets:

June 30, 2018
$
1,112,411
$
333,621
$
17,648

$
266,154
$
64,135
$
477,257
$
(377,781)
$
1,893,445
December 31, 2017

1,043,181

344,337

26,345

270,384

61,783

485,548

(376,396)

1,855,182
Capital Expenditures:

Six Months Ended June 30, 2018
$
82,148
$
14,774
$
-

$
3,467
$
-
$
-
$
-
$
100,389
Year ended Dec. 31, 2017

77,353

26,847

-

3,931

-

-

-

108,131

Utility

Consolidated
(In thousands)
MGE

Electric

Gas

Assets not Allocated

Nonregulated Energy

Elimination Entries

Total
Assets:

June 30, 2018
$
1,112,411
$
333,621
$
17,648

$
266,104
$
(883)
$
1,728,901
December 31, 2017

1,043,181

344,337

26,345

270,334

(156)

1,684,041
Capital Expenditures:

Six Months Ended June 30, 2018
$
82,148
$
14,774
$
-

$
3,467
$
-
$
100,389
Year ended Dec. 31, 2017

77,353

26,847

-

3,931

-

108,131

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

		Utility				Consolidated
(In thousands) MGE Energy		Electric		Gas		Non-regulated Energy		Transmission Investment		All Others		Consolidation/ Elimination Entries		Total
Assets:
June 30, 2019	$	1,250,755	$	369,467	$	261,707	$	68,350	$	453,604	$	(377,797)	$	2,026,086
December 31, 2018		1,193,083		377,005		265,301		66,366		465,661		(378,798)		1,988,618
Capital Expenditures:
Six months ended June 30, 2019	$	62,281	$	15,028	$	1,783	$	-	$	-	$	-	$	79,092
Year ended Dec. 31, 2018		176,399		30,497		5,301		-		-		-		212,197

		Utility				Consolidated
(In thousands) MGE		Electric		Gas		Non-regulated Energy		Elimination Entries		Total
Assets:
June 30, 2019	$	1,250,755	$	369,467	$	261,657	$	(213)	$	1,881,666
December 31, 2018		1,193,083		377,005		265,251		(448)		1,834,891
Capital Expenditures:
Six months ended June 30, 2019	$	62,281	$	15,028	$	1,783	$	-	$	79,092
Year ended Dec. 31, 2018		176,399		30,497		5,301		-		212,197

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

General

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

Regulated electric utility operations, conducted through MGE,

Regulated gas utility operations, conducted through MGE,

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

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

All other, which includes corporate operations and services.

Our principal subsidiary is MGE, which generates and distributes electric energy, distributes natural gas, and represents a majority portion of our assets, liabilities, revenues, and expenses. MGE generates and distributes electricity to approximately ~~151,000~~153,000 customers in Dane County, Wisconsin, including the city of Madison, and purchases and distributes natural gas to approximately ~~158,000~~161,000 customers in the Wisconsin counties of Columbia, Crawford, Dane, Iowa, Juneau, Monroe, and Vernon.

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

Executive Overview

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

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

Weather, and its impact on customer sales,

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

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

Energy commodity prices, including natural gas prices,

Equity price risk pertaining to pension related assets,

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

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

Other factors listed in "Item 1A. Risk Factors" in our ~~2017~~2018 Annual Report on Form 10-K.

For the three months ended June 30, ~~2018,~~2019, MGE Energy's earnings were ~~$18.4~~$15.5 million or ~~$0.53~~$0.45 per share compared to ~~$15.5~~$18.4 million or ~~$0.45~~$0.53 per share for the same period in the prior year. MGE's earnings for the three months ended June 30, ~~2018,~~2019, were ~~$11.1~~$8.3 million compared to ~~$8.8~~$11.1 million for the same period in the prior year.

For the six months ended June 30, ~~2018,~~2019, MGE Energy's earnings were ~~$38.4~~$39.6 million or ~~$1.11~~$1.14 per share compared to ~~$34.8~~$38.4 million or ~~$1.01~~$1.11 per share for the same period in the prior year. MGE's earnings for the six months ended June 30, ~~2018,~~2019, were ~~$23.5~~$24.9 million compared to ~~$21.5~~$23.5 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

Six Months Ended

(In millions)

June 30,

June 30,

Business Segment:

2018

2017

2018

2017

    Electric Utility
$
10.3
$
8.6
$
16.5
$
16.6

    Gas Utility

1.3

0.8

8.3

6.3

    Nonregulated Energy

5.0

4.7

10.1

9.4

    Transmission Investments

1.4

1.5

3.1

3.0

    All Other

0.4

(0.1)

0.4

(0.5)

    Net Income
$
18.4
$
15.5
$
38.4
$
34.8

		Three Months Ended				Six Months Ended
(In millions)		June 30,				June 30,
Business Segment:		2019		2018		2019		2018
Electric Utility	$	7.9	$	10.3	$	17.2	$	16.5
Gas Utility		0.9		1.3		8.7		8.3
Nonregulated Energy		5.1		5.0		10.1		10.1
Transmission Investments		1.6		1.4		3.3		3.1
All Other		-		0.4		0.3		0.4
Net Income	$	15.5	$	18.4	$	39.6	$	38.4

Our net income during the three and six months ended June 30, ~~2018,~~2019, compared to the same period in the prior year primarily reflects the effects of the following factors:

Electric Utility

~~For~~An increase in owned generation assets included in rate base contributed to increased earnings for the three months ended June 30, 2018, electric operating income increased primarily as a result of more favorable weather conditions in the current year. For the six months ended June 30, 2018, electric operating income was relatively flat.

~~Gas Utility~~

~~For the~~ three and six months ended June 30, ~~2018,~~2019, as a result of the completion of the Saratoga Wind Farm. Earnings from electric retail sales decreased reflecting lower customer demand resulting from cooler weather experienced in June compared to the same period in the prior year.

Gas Utility

For the three months ended June 30, 2019, gas operating income decreased primarily related to a decrease in gas retail sales resulting from cooler weather in April 2018. For the six months ended June 30, 2019, gas operating income increased primarily related to an increase in gas retail sales reflecting higher customer demand resulting from colder weather experienced ~~in April 2018~~during the first quarter compared to the same period in the prior year and an increase in retail customers. ~~The average temperature~~Heating degree days (a measure for determining the impact of weather during the heating season) increased by 7.3% in ~~April 2018 was 38 degrees~~the first quarter compared to ~~50 degrees~~the comparable period in ~~April 2017.~~the prior year.

During the first six months of ~~2018,~~2019, the following events occurred:

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

Pension and Other Postretirement Benefit Costs: Costs for pension and other postretirement benefits are affected by actual investment returns on the assets held for those benefits and by the discount rate, which is sensitive to interest rates, used to calculate those benefits. Volatility in interest rates and investment returns could affect the value of the pension and postretirement benefit obligations. These changes may affect benefit costs in future years. As a result of lower investment returns in the fourth quarter of 2018, pension and postretirement benefit costs increased in 2019. In July 2019, the PSCW approved MGE’s request to defer the difference between estimated pension and other postretirement costs included in the 2019 and 2020 rate settlement and actual expense incurred up to $5.9 million. MGE expects that the deferred cost for employee benefit plans will be factored into future rate actions starting in 2021. For the three and six months ended June 30, 2019, MGE has deferred approximately $3 million of pension and other postretirement costs.

Saratoga Wind Farm: In December ~~22,~~ 2017, the ~~U.S. government enacted comprehensive~~PSCW authorized construction of a 66 MW wind farm, consisting of 33 turbines, located near Saratoga, Iowa. Construction of the project was completed in February 2019 for approximately $112 million. MGE received specific approval to recover 100% AFUDC on the project. After tax, ~~legislation commonly referred~~MGE has recognized $0.8 million in AFUDC equity related to asthis project for the ~~Tax Cuts~~three and ~~Jobs Act. The Tax Act makes broad~~six months ended June 30,2019.

Columbia: MGE and ~~complex changes~~WPL negotiated an amendment to the ~~U.S. tax code, including the reduction in the U.S. federal corporate tax rate from 35 percent to 21 percent,~~existing Columbia joint operating agreement, effective January 1, ~~2018.~~2017, under which MGE reduced its obligation to pay certain capital expenditures (other than SCR-related expenditures) at Columbia in exchange for a proportional reduction in MGE's ownership in Columbia. On January 1 of each year from 2017 through 2019 and then on June 1, 2020, the ownership percentage is adjusted through a partial sale based on the amount of capital expenditures foregone. As of December 31, 2018, MGE classified $3.1 million of Columbia assets as held-for-sale on the consolidated balance sheets. In January 2019, MGE reduced its ownership interest in Columbia from 19.4% to 19.1% as a result of the partial sale of plant assets to WPL.

Utility Solar – Two Creeks: In May 2019, MGE a acquired a 33% ownership interest in a 150 MW solar generation array in the Town of Two Creeks and the City of Two Rivers in Manitowoc and Kewanee Counties, Wisconsin. MGE's sole principal asset will be the 33% undivided ownership interest in the solar generation facility, which is being constructed. The estimated share of capital costs for that ownership interest is approximately $65 million (excluding capitalized interest). As of June 30, 2019, $16.5 million (excluding capitalized interest) related to this project is reflected in "Construction work in progress" on the consolidated balance sheets. The project is anticipated to be completed by the end of 2020.

Utility Solar – Badger Hollow: In July 2019, MGE a acquired a 33% ownership interest in a 150 MW solar generation array in southwestern Wisconsin in Iowa County, near the villages of Montfort and Cobb. MGE's sole principal asset will be the 33% undivided ownership interest in the solar generation facility which is being constructed. The estimated share of capital costs for that ownership interest is approximately $65 million (excluding capitalized interest). As of June 30, 2019, $1.0 million (excluding capitalized interest) related to this project is reflected in "Construction work in progress" on the consolidated balance sheets. The project is anticipated to be completed by the end of 2020.

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

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

2018 Tax Reform: Customer rates approved for 2018 reflect an income tax rate of 35 percent. In January 2018, the PSCW issued an order directing Wisconsin investor-owned utilities to defer the over-collection of income tax expense as a result of the decrease in tax rate to 21 percent. The PSCW issued an order in May 2018 to return to customers the estimated 2018 over-collection of income tax expense. The decision includes a one-time bill credit on customer bills to reflect the estimate of the over-collection for January through June 2018. A monthly volumetric bill credit will begin in July 2018 and continue through the remainder of 2018 for the estimated remaining annual amount. In June 2018, customers received a $4.1 million bill credit. Any over/under recovery of the actual costs will be subject to the PSCW's review in a future rate case. As of ~~June 30,~~December 31, 2018, MGE has deferred ~~$1.7~~$3.1 million as a regulatory liability and recorded a corresponding reduction in operating revenues for over-collection of income tax expense (net of customer bill credits).

~~Saratoga Wind Farm: In December 2017, the PSCW authorized construction of a 66MW wind farm, consisting of 33 turbines, located near Saratoga, Iowa. MGE received specific approval~~ The amount to recover 100% AFUDC on the project. As of June 30, 2018, MGE has incurred $42.2 million of capital expenditures. MGE has recognized $0.7 million (after tax) in AFUDC equity related to this project for the six months ended June 30, 2018. Construction of the project is expected to be completed by the end of 2018, with an estimated capital cost of $108 million.

Forward Wind: In April 2018, MGE, along with two other utilities, purchased the Forward Wind Energy Center, which consists of 86 wind turbines located in Wisconsin with a total capacity of 129 MWs. The aggregate purchase price was approximately $174 million of which MGE's proportionate share is 12.8%, or approximately $23 million. The purchase of the Forward Wind Energy Center replaced an existing purchase power agreement, under which MGE purchased 12.8% of the facility's energy output.

Deferred Fuel Costs – Subject to Refund: As of June 30, 2018, MGE has deferred $5.2 million of 2018 fuel savings. These costs will be subject to the PSCW's annual review of 2018 fuel costs, expected to be completed in 2019.

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

2017 Annual Fuel Proceeding: In July 2018, the PSCW issued a preliminary decision in the fuel rules proceedings for MGE to refund $4.2 million of additional fuel savings realized during 2017 to its retail electric customers over a one-month period in the second half of 2018. There was no change to the refund in the fuel rules proceedings from the amount MGE deferred as of December 31, 2017.

2019/2020 Rate Change Settlement: In July 2018, MGE filed an application with the PSCW to decrease electric rates and increase gas rates in 2019 and 2020. MGE filed its application through a settlement agreement between MGE and intervening parties in the rate case, subject to PSCW approval. The settlement proposal would decrease electric rates by 1.94% in 2019. This amountreturn is subject to ~~change based on the final outcome of MGE's 2019 Fuel Cost Plan. MGE will maintain this rate level for 2020, with the exception that MGE will file a 2020 Fuel Cost Plan~~PSCW's review, expected to occur in 2019 and MGE's rates will decrease or increase accordingly. The decrease reflects the ongoing tax impacts of the Tax Act and the addition of lower-cost renewable generation capacity. The settlement proposal would increase gas rates by 1.06% in 2019 and 1.46% in 2020. The requested increase covers infrastructure costs. It also reflects the impacts of the Tax Act.2019.

Tax Reform: Pursuant to the Tax Act, deferred income tax balances as of December 31, 2017, were remeasured to reflect the decrease in corporate tax rate. A $130.5 million regulatory liability was recorded given that changes in income taxes are generally passed through in customer rates for the regulated utility. The amount and timing of the cash impacts will depend on the period over which certain income tax benefits are provided to customers, which will be determined by the PSCW. A portion of the regulatory liability ~~will be~~is being returned to customers using a normalization method of accounting.

Debt Issuance: MGE issued $40 million of long-term unsecured debt and committed to $60 million of long-term unsecured debt in July 2018. The proceeds of these debt financings will be used to assist with the financing of additional capital expenditures, such as the Saratoga Wind Farm, and refinance $20 million of long-term debt, upon its maturity in September 2018. The covenants of this debt are substantially consistent with MGE's existing unsecured long-term debt.

ATC Return on Equity: Several parties have filed complaints with the FERC seeking to reduce the ROE used by MISO transmission owners, including ATC. Any change to ATC's ROE could result in lower equity earnings and distributions from ATC in the future. We derived approximately ~~7.5%~~8.0% and ~~8.7%~~7.5% of our net income for the six months ended June 30, ~~2018~~2019 and ~~2017,~~2018, respectively, from our investment in ATC. See "Other Matters" below for

additional information concerning ATC.

Environmental Initiatives: There are proposed legislative rules and initiatives involving matters related to air emissions, water effluent, hazardous materials, and greenhouse gases, all of which affect generation plant capital expenditures and operating costs as well as future operational planning. At present, it is unclear how the changes in the Presidential and EPA administrations may affect existing, pending or new legislative or rulemaking proposals or regulatory initiatives. Such legislation and rulemaking could significantly affect the costs of owning and operating fossil-fueled generating plants, such as Columbia and the Elm Road Units, from which we derive approximately ~~44%~~43% of our electric generating capacity as of June 30, ~~2018.~~2019. We would expect to seek and receive recovery of any such costs in rates; however, it is difficult to estimate the amount of such costs due to the uncertainty as to the timing and form of the legislation and rules, and the scope and time of the recovery of costs in rates, which may lag the incurrence of those costs.

EPA's Clean Power ~~Plan:~~Plan and Affordable Clean Energy Rule: In ~~October~~ 2015, the EPA finalized ~~its~~the Clean Power Plan (CPP) ~~rule with an effective date of December 2015, setting guidelines and approval criteria for~~, which directed states to ~~use in developing~~submit plans to ~~control~~reduce GHG emissions from ~~existing fossil fuel-fired~~the electric ~~generating units (EGUs) and systems.~~generation sector. Implementation of the rule is ~~expected~~currently stayed by order to the U.S. Supreme Court. If ultimately upheld, the CPP could have a ~~direct impact~~material effect on ~~existing coal and natural gas fired generating units, including possible changes in dispatch and additional operating costs.~~MGE’s operations. In ~~October 2017,~~July 2019, the EPA published a ~~proposed~~final rule ~~announcing the EPA's intention to repeal~~which repeals the CPP and ~~has sought public comment on whether~~creates the replacement Affordable Clean Energy (ACE) rule to ~~replace the rule, and if so how. Given the pending legal proceedings, and the EPA's proposal, the nature and timing of any final requirements to control GHG~~reduce greenhouse gas emissions from existing ~~fossil fuel-fired EGUs~~EGUs. The ACE Rule will apply to Columbia and the Elm Road Units. MGE is ~~subject~~currently evaluating how this rule may impact operations. Until the State of Wisconsin develops a plan that is accepted by the EPA, MGE will not be able to ~~uncertainty. If a rule is implemented substantially in its present form, it is expected to have a material~~determine the final impact ~~on MGE.~~of the rule. MGE will continue to evaluate the rule and monitor ~~developments~~ongoing and potential legal proceedings associated with ~~this proposed rule.~~the CPP and ACE rules.

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

Future ~~Generation: During the first quarter of~~Generation - Riverside: In 2016, MGE entered into an agreement with WPL under which MGE may acquire up to 50 MW of capacity in a gas-fired generating plant to be constructed by WPL at its Riverside Energy Center in Beloit, Wisconsin, during the five-year period following the in-service date of the plant. The plant is expected to be completed by early 2020. MGE ~~and WPL have negotiated an amendment to the existing Columbia joint operating agreement, effective January 1, 2017, under which MGE~~has not yet determined whether it will ~~reduce~~exercise its ~~obligation to pay certain capital expenditures (other than SCR-related expenditures) at Columbia prior to the expected in-service date of~~option in the Riverside ~~gas-fired generating plant in exchange for a proportional reduction in MGE's ownership in Columbia. On January 1 of each year, that began in 2017 and will end June 1, 2020, the ownership percentage~~plant. A determination will be ~~adjusted, through a partial sale,~~made based on ~~the amount~~a variety of capital expenditures foregone. During the three and six months ended June 30, 2018, MGE accrued less than $0.1 million and $1.4 million, respectively, of 2018 foregone capital expenditures as part of the ownership transfer agreement with WPL. During 2017, MGE accrued $8.8 million of 2017 foregone capital expenditures. As of June 30, 2018, and December 31, 2017, MGE classified $1.4 million and $8.8 million, respectively, of Columbia assets as held-for-sale on the consolidated balance sheets. In January 2018, MGE reduced its ownership interestfactors in Columbia from 20.4% to 19.4% as a result of the partial sale of plant assets to WPL. By June 2020, MGE's ownership in Columbia is forecasted to be approximately 19%, a decrease of 3% from the 22% ownership interest held by MGE on January 1, 2016.future years.

Future Generation -– Utility Solar: In ~~May 2018,~~August 2019, MGE and ~~Wisconsin Public Service Corporation~~WEPCO filed a joint application with the PSCW ~~to seek~~for the approval to acquire ~~300~~150 MW of solar generating capacity ~~from two large~~for a solar ~~projects~~project in ~~Wisconsin.~~Wisconsin, Badger Hollow Solar Farm II. MGE's ~~combined~~ ownership share of the ~~two projects~~project is expected to be ~~100~~50 MW. If approved by the PSCW, construction of the ~~projects~~project is expected to begin in ~~2019.~~2020. MGE's share of the ~~total~~construction cost is expected to be approximately ~~$130~~$65 million.

Financing Plans: MGE has regulatory authority to issue up to $50 million of new long-term debt to finance authorized utility capital expenditures, including the recently authorized solar farm projects Two Creeks and Badger Hollow.

The following discussion is based on the business segments as discussed in Footnote 1416 of the Notes to Consolidated Financial Statements in this Report.

Results of Operations

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

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

Three Months Ended June 30, ~~2018~~2019 and ~~2017~~2018

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

Three Months Ended June 30,

(In millions)

2018

2017

$ Change

Electric revenues
$
99.1
$
102.3
$
(3.2)

Fuel for electric generation

15.3

11.9

3.4

Purchased power

13.0

16.7

(3.7)

Total Electric Margins

70.8

73.7

(2.9)

Gas revenues

25.0

24.1

0.9

Cost of gas sold

9.6

9.2

0.4

Total Gas Margins

15.4

14.9

0.5

Other operating revenues

0.2

0.1

0.1

Other operations and maintenance

43.4

44.9

(1.5)

Depreciation and amortization

13.9

13.3

0.6

Other general taxes

4.9

4.9

-

Operating Income
$
24.2
$
25.6
$
(1.4)

		Three Months Ended June 30,
(In millions)		2019		2018		$ Change
Electric revenues	$	96.9	$	99.1	$	(2.2)
Fuel for electric generation		(10.4)		(15.3)		4.9
Purchased power		(11.0)		(13.0)		2.0
Total Electric Margins		75.5		70.8		4.7

Gas revenues		25.1		25.0		0.1
Cost of gas sold		(8.9)		(9.6)		0.7
Total Gas Margins		16.2		15.4		0.8

Other operating revenues		0.2		0.2		-
Other operations and maintenance		(49.0)		(43.4)		(5.6)
Depreciation and amortization		(18.1)		(13.9)		(4.2)
Other general taxes		(5.0)		(4.9)		(0.1)
Operating Income	$	19.8	$	24.2	$	(4.4)

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

A $2.2 million decrease in electric revenue driven by a decrease in residential sales as a result of cooler weather.

A $4.9 million decrease in fuel for electric generation driven by lower costs from the generation of Saratoga (construction was completed in February 2019) and lower internal generation as a result of timing of scheduled plant outages at Columbia and the Elm Road units.

A $2.0 million decrease in purchased power costs driven by lower costs in the market.

A $0.7 million decrease in cost of gas sold driven by decreased gas sales.

A $5.6 million increase in other operations and maintenance. See consolidated operations and maintenance expenses section below.

A $4.2 million increase in depreciation and amortization expense driven by accelerated depreciation expense for specified electric assets as discussed in the consolidated depreciation expense section below.

Electric sales and revenues

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

Revenues

Sales (kWh)
(In thousands, except cooling degree days)

Three Months Ended June 30,

Three Months Ended June 30,

2018

2017

% Change

2018

2017

% Change
Residential
$
32,217
$
31,634

1.8 %

200,224

177,644

12.7 %
Commercial

50,174

54,721

(8.3)%

470,504

449,876

4.6 %
Industrial

4,630

4,516

2.5 %

46,237

53,098

(12.9)%
Other-retail/municipal

8,527

9,661

(11.7)%

98,147

103,626

(5.3)%
Total retail

95,548

100,532

(5.0)%

815,112

784,244

3.9 %
Sales to the market

2,795

1,050

*n.m.%

85,937

16,830

*n.m.%
Other revenues

454

562

(19.2)%

-

-

- %
Adjustments to revenues

270

162

66.7 %

-

-

- %
Total
$
99,067
$
102,306

(3.2)%

901,049

801,074

12.5 %

Cooling degree days (normal 184)

247

172

43.6 %

~~(*n.m.: not meaningful)~~37

		Revenues				Sales (kWh)
(In thousands)		Three Months Ended June 30,				Three Months Ended June 30,
(In thousands)		2019		2018	% Change	2019	2018	% Change
Residential	$	30,749	$	32,217	(4.6)%	173,125	200,224	(13.5)%
Commercial		52,762		50,174	5.2 %	445,437	470,504	(5.3)%
Industrial		3,322		4,630	(28.3)%	44,314	46,237	(4.2)%
Other-retail/municipal		8,946		8,527	4.9 %	97,004	98,147	(1.2)%
Total retail		95,779		95,548	0.2 %	759,880	815,112	(6.8)%
Sales to the market		790		2,795	(71.7)%	21,614	85,937	(74.8)%
Other revenues		294		724	(59.4)%	-	-	- %
Total	$	96,863	$	99,067	(2.2)%	781,494	901,049	(13.3)%

Cooling degree days (normal 187)						118	247	(52.2)%

Electric margin, a non-GAAP measure, ~~decreased $2.9~~increased $4.7 million for the three months ended June 30, ~~2018,~~2019, compared to the same period in ~~2017,~~2018, due to the following:


~~(In millions)~~
~~Revenue subject to refund, net~~	$	~~(8.8)~~
~~Increase in volume~~		~~3.0~~
~~Decreased fuel costs~~		~~2.4~~
~~Other~~		~~0.5~~
~~Total~~	$	~~(2.9)~~

(In millions)
Revenue subject to refund, net	$	9.2
Decreased fuel costs		3.5
Decrease in volume		(4.4)
Rate changes		(2.2)
Other		(1.4)
Total	$	4.7

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

Tax Act. MGE received a PSCW order in January 2018 to defer the over-collection of income tax expense collected in customer rates as a result of the Tax Act reduction in federal income tax rate to 21 percent. During the three months ended June 30, 2018, MGE returned $3.1 million to electric customers ~~received a credit on their~~through bill ~~of $3.1 million~~credits related to the tax credit.

Fuel-related costs.MGE's fuel-related costs subject to refund ~~decreased $3.1~~in 2018 was $3.8 million. There were no fuel-related costs subject to refund in 2019. 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. Beginning in 2018, over-collection of fuel-related costs outside the tolerance band are reflected as a reduction of revenue in the period incurred. Under-collection of costs outside the tolerance band is reflected as a reduction of purchase power expense in the period incurred. Any potential recovery of excess fuel costs will be recorded in the period received. Prior to adoption of the new revenue recognition guidance, effective January 1, 2018, deferred fuel-related costs were 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.

Transmission.MGE's transmission costs subject to refund decreased revenue $0.6 million in 2019. In 2018, MGE recorded a $1.8 million reduction in retail electric revenues primarily related to a one-time refund received in June 2018.

Operating Costs. ~~MGE's~~ MGE recognized revenue for electric plant operating costs subject to refund ~~decreased~~from previous years of $0.4 million in 2019. In 2018, MGE recorded a $1.4 million reduction in retail electric revenues primarily related to lower leased generation costs due to the reduction in tax rate.

oFuel costs. Fuel costs decreased during the three months ended June 30, 2019, primarily as a result of a scheduled plant outage in 2019 and a reduction in purchased power. The commercial operation of the Saratoga Wind Farm in February 2019 decreased the need for purchased power contributing to the reduction in fuel costs in the current quarter.

~~Other.~~ ~~MGE has other cost recovery mechanisms subject to refund.~~

Volume.During the three months ended June 30, ~~2018,~~2019, there was a ~~12.7% increase~~13.5% decrease in residential electric sales volumes compared to the same period in the prior year driven by ~~favorable~~decreased customer demand as a result of cooler weather ~~conditions.~~in 2019.

Rate changes. Rates charged to retail customers during the three months ended June 30, 2019, were $2.2 million lower than those charged during the same period in the prior year.

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

Other. During the three months ended June 30, ~~2018, there was~~2019, other items affecting electric operating revenues decreased $1.4 million primarily attributable to a ~~12.9%~~ decrease in ~~industrial retail electric 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.~~demand charges.

~~Fuel costs.~~Fuel costs decreased during the three months ended June 30, 2018, primarily as a result of a scheduled plant outage in 2017 and a reduction in purchased power. The purchase of the Forward Wind Energy Center in April 2018 replaced an existing purchase power agreement that was previously recorded as purchased power expense in fuel costs.

Gas deliveries and revenues

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


		Revenues				Therms Delivered				Revenues				Therms Delivered
(In thousands, except HDD and average rate per therm of retail customer)		Three Months Ended June 30,				Three Months Ended June 30,				Three Months Ended June 30,				Three Months Ended June 30,
		2018		2017	% Change	2018	2017	% Change
(In thousands, except HDD and average rate per therm of retail customer)										2019		2018	% Change	2019	2018	% Change
	$	15,620	$	15,140	3.2 %	15,344	11,915	28.8 %	$	16,000	$	15,620	2.4 %	14,804	15,344	(3.5)%
Commercial/Industrial		8,206		7,842	4.6 %	15,649	12,842	21.9 %		7,883		8,206	(3.9)%	14,723	15,649	(5.9)%
Total retail		23,826		22,982	3.7 %	30,993	24,757	25.2 %		23,883		23,826	0.2 %	29,527	30,993	(4.7)%
Gas transportation		1,053		991	6.3 %	16,534	15,186	8.9 %		1,094		1,053	3.9 %	16,144	16,534	(2.4)%
Other revenues		101		108	(6.5)%	-	-	- %		93		101	(7.9)%	-	-	- %
Total	$	24,980	$	24,081	3.7 %	47,527	39,943	19.0 %	$	25,070	$	24,980	0.4 %	45,671	47,527	(3.9)%

Heating degree days (normal 803)						939	757	24.0 %
Heating degree days (normal 809)														873	939	(7.0)%
Average rate per therm of
retail customer	$	0.769	$	0.928	(17.1)%				$	0.809	$	0.769	5.2 %

Gas margin, a non-GAAP measure, increased ~~$0.5~~$0.8 million for the three months ended June 30, ~~2018,~~2019, compared to the same period in ~~2017,~~2018, due to the following:

(In millions)
Revenue subject to refund, net	$	0.5
Other		0.3
Rate changes		0.2
Decrease in volume		(0.2)
Total	$	0.8

~~Volume~~. For the three months ended June 30, 2018, retail gas deliveries increased 25.2% compared to the same period in the prior year primarily related to customer growth and more favorable weather conditions in the current year.

Revenue subject to ~~refund/tax credit~~refund - Tax Act. MGE received a PSCW order in January 2018 to defer the over-collection of income tax expense collected in customer rates as a result of the Tax Act reduction in federal income tax rate to 21 percent. Any over-collection of the difference between actual costs incurred and the amount of costs collected from customers is recorded as a reduction of revenue in the period incurred. During the three months ended June 30, 2018, MGE returned $1.0 million to gas customers ~~received a credit on their~~through bill ~~of $1.0 million~~credits related to the tax credit.

Consolidated operations and maintenance expenses

For the three months ended June 30, ~~2018,~~2019, operations and maintenance expenses ~~decreased $1.5~~increased $5.6 million, compared to the same period in the prior year. The following contributed to the net change:


~~(In millions)~~
~~Decreased transmission costs~~	$	~~(1.7)~~
~~Increased other costs~~		~~0.2~~
~~Total~~	$	~~(1.5)~~

(In millions)
Increased electric production expenses	$	1.9
Increased transmission costs		1.2
Increased administrative and general costs		0.9
Increased gas distribution expenses		0.7
Increased customer accounts costs		0.3
Increased customer services		0.3
Increased other costs		0.3
Total	$	5.6

~~For~~Increased electric production expenses are primarily related to the ~~three months ended June 30,~~timing of Columbia maintenance costs

completed during a scheduled plant outage. The 2018 ~~decreased~~outage was completed in the first quarter.

Increased transmission costs are primarily related to ~~a decrease~~an increase in transmission rates as a result of a one-time refund received in June 2018. The lower transmission rate is reflected in customer revenue as revenue subject to refund.

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

Consolidated depreciation expense

Electric depreciation expense increased $3.8 million and gas depreciation expense increased $0.4 million for the three months ended June 30, 2019, compared to the same period in the prior year. MGE accelerated depreciation for combustion turbines and Columbia Unit 1 in 2019, as approved in the December 2018 rate settlement, increasing electric depreciation expense compared to the prior period. Also approved in the December 2018 rate settlement were new depreciation rates for Columbia, further contributing to the increase in electric depreciation expense.

Nonregulated Energy Operations - MGE Energy and MGE

The nonregulated energy operations are conducted through MGE Energy's subsidiaries: MGE Power Elm Road (the Elm Road Units) and MGE Power West Campus (WCCF), which have been formed to own and lease electric generating capacity to assist MGE. For the three months ended June 30, ~~2018~~2019 and ~~2017,~~2018, net income at the nonregulated energy operations segment was $5.1 million and $5.0 million, ~~and $4.7 million,~~ respectively. The decrease in tax rate from 35% to 21%, effective January 1, 2018, lowered lease revenues and income tax expense for the three months ended 2018. Income tax expense is a factor used in the formula to calculate lease rates.

Transmission Investment Operations - MGE Energy

~~Transmission investment other income~~

For the three months ended June 30, ~~2018~~2019 and ~~2017,~~2018, other income at the transmission investment segment was $2.3 million and $1.9 million, ~~and $2.5 million,~~ respectively. The decrease in tax rate from 35% to 21%, effective January 1, 2018, lowered earnings from ATC and income tax expense for the three months ended 2018. Income tax expense is a factor used in the calculation of ATC's transmission rates. The transmission investment segment holds our interest in ATC and ATC Holdco, and its income reflects our equity in the earnings of those investments. ATC Holdco was formed in December 2016. In the near term, it is expected that ATC Holdco will be pursuing transmission development opportunities that typically have long development and investment lead times before becoming operational. See Footnote 4 of the Notes to Consolidated Financial Statements in this Report and ~~"Other Matters"~~"Other Matters" below for additional information concerning ATC and summarized financial information regarding ATC.

Consolidated Income Taxes - MGE Energy and MGE

~~Although~~In 2019, the effective electric tax ~~rates have been lowered~~rate decreased as a result of a tax credit from the ~~Tax Act, regulated revenues have been affected as tax expense is a factor in~~commercial operation of the ~~determination of rates for electric and gas service, and rates held by our investment in transmission.~~Saratoga Wind Farm. See Footnote 5 of the Notes to Consolidated Financial Statements in this Report for effective tax rate reconciliation.

Noncontrolling Interest, Net of Tax - MGE

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

		Three Months Ended
		June 30,
(In millions)		2019		2018
MGE Power Elm Road	$	3.8	$	3.8
MGE Power West Campus		1.8		1.7

Six Months Ended June 30, ~~2018~~2019 and ~~2017~~2018

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

		Six Months Ended June 30,
(In millions)		2019		2018		$ Change
Electric revenues	$	194.3	$	193.5	$	0.8
Fuel for electric generation		(24.3)		(27.2)		2.9
Purchased power		(21.9)		(30.0)		8.1
Total Electric Margins		148.1		136.3		11.8

Gas revenues		95.2		87.7		7.5
Cost of gas sold		(52.2)		(49.2)		(3.0)
Total Gas Margins		43.0		38.5		4.5

Other operating revenues		0.3		0.7		(0.4)
Other operations and maintenance		(95.9)		(87.8)		(8.1)
Depreciation and amortization		(35.2)		(27.5)		(7.7)
Other general taxes		(10.0)		(9.8)		(0.2)
Operating Income	$	50.3	$	50.4	$	(0.1)

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

A $0.8 million increase in electric revenue driven by timing of deferred revenue collected in rates.

A $2.9 million decrease in fuel for electric generation driven by lower costs from the generation of Saratoga (construction was completed in February 2019) and lower internal generation as a result of scheduled outages at Columbia and the Elm Road units.

An $8.1 million decrease in purchased power costs driven by the purchase of the Forward Wind Energy Center in April 2018, which replaced an existing purchased power agreement and increased internal generation.

A $7.5 million increase in gas revenues reflecting higher customer demand resulting from colder weather in the first quarter.

A $3.0 million increase in cost of gas sold driven by increased gas sales.

An $8.1 million increase in other operations and maintenance. See consolidated operations and maintenance expenses section below.

A $7.7 million increase in depreciation and amortization expense driven by accelerated depreciation expense for specified electric assets as discussed in the consolidated depreciation expense section below.

Electric sales and revenues

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

~~(*n.m.: not meaningful)~~41

		Revenues				Sales (kWh)
(In thousands, except cooling degree days)		Six Months Ended June 30,				Six Months Ended June 30,
(In thousands, except cooling degree days)		2019		2018	% Change	2019	2018	% Change
Residential	$	65,330	$	65,476	(0.2)%	385,804	407,375	(5.3)%
Commercial		102,015		97,626	4.5 %	890,540	911,395	(2.3)%
Industrial		6,253		7,525	(16.9)%	85,423	89,104	(4.1)%
Other-retail/municipal		17,185		16,814	2.2 %	177,740	187,392	(5.2)%
Total retail		190,783		187,441	1.8 %	1,539,507	1,595,266	(3.5)%
Sales to the market		2,751		4,829	(43.0)%	73,138	118,496	(38.3)%
Other revenues		745		1,188	(37.3)%	-	-	- %
Total	$	194,279	$	193,458	0.4 %	1,612,645	1,713,762	(5.9)%

Cooling degree days (normal 187)						118	247	(52.2)%

Electric margin, a non-GAAP measure, ~~decreased $8.1~~increased $11.8 million for the six months ended June 30, ~~2018,~~2019, compared to the same period in ~~2017,~~2018, due to the following:

(In millions)
Revenue subject to refund, net	$	14.0
Decreased fuel costs		7.5
Rate changes		(4.9)
Decrease in volume		(3.7)
Other		(1.1)
Total	$	11.8

Tax Act. MGE received a PSCW order in January 2018 to defer the over-collection of income tax expense collected in customer rates as a result of the Tax Act reduction in federal income tax rate to 21 percent. During the six months ended June 30, 2018, MGE recorded a $2.0 million reduction in retail electric revenues and recorded a corresponding regulatory liability. During the six months ended June 30, 2018, MGE returned $3.1 million to electric customers ~~received a credit on their~~through bill ~~of $3.1 million~~credits related to the tax credit.

Fuel-related costs.MGE's fuel-related costs subject to refund ~~decreased $3.4~~in 2018 was $5.2 million. There were no fuel-related costs subject to refund in 2019. 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. Beginning in 2018, over-collection of fuel-related costs outside the tolerance band are reflected as a reduction of revenue in the period incurred. Under-collection of costs outside the tolerance band is reflected as a reduction of purchase power expense in the period incurred. Any potential recovery of excess fuel costs will be recorded in the period received. Prior to adoption of the new revenue recognition guidance, effective January 1, 2018, deferred fuel-related costs were 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.

Transmission.MGE's transmission costs subject to refund decreased revenue $1.4 million in 2019. In 2018, MGE recorded a $2.2 million reduction in retail electric revenues primarily related to a one-time refund received in June 2018.

Operating Costs. ~~MGE's~~ MGE recognized revenue for electric plant operating costs subject to refund ~~decreased~~from previous years of $0.7 million in 2019. In 2018, MGE recorded a reduction of $2.3 million in retail electric revenues primarily related to lower leased generation costs due to the reduction in tax rate.

~~Other.~~ ~~MGE has other cost recovery mechanisms subject to refund.~~

~~Volume.~~During the six months ended June 30, 2018, there was an 8.5% increase in residential sales volumes compared to the same period in the prior year driven by favorable weather conditions. During the six months ended June 30, 2018, there was a 15.0% 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.

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

Rate changes. Rates charged to retail customers during the six months ended June 30, 2019, were $4.9 million lower than those charged during the same period in the prior year.

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

Volume. During the six months ended June 30, 2019, there was a 5.3% decrease in residential sales volumes compared to the same period in the prior year driven by less favorable weather conditions.

Other. During the six months ended June 30, 2019, other items affecting electric operating revenues decreased $1.1 million primarily attributable to a decrease in demand charges.

Gas deliveries and revenues

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

(In millions)
Revenue subject to refund/tax credit	$	1.9
Increase in volume		1.1
Rate changes		0.9
Other		0.6
Total	$	4.5

~~Volume~~. For the six months ended June 30, 2018, retail gas deliveries increased 17.2% compared to the same period in the prior year primarily related to customer growth and more favorable weather conditions in the current year.

Revenue subject to refund/tax credit. MGE received a PSCW order in January 2018 to defer the over-collection of income tax expense collected in customer rates as a result of the Tax Act reduction in federal income tax rate to 21 percent. ~~During~~Any over-collection of the difference between actual costs incurred and the amount of costs collected from customers is recorded as a reduction of revenue in the period incurred. For the six months ended June 30, 2018 ~~gas customers received a credit on their bill of $1.0 million related to the tax credit. For the six months ended June 30, 2018,~~, MGE recorded a $1.0 million reduction in retail gas revenues and recorded a corresponding regulatory liability. During the six months ended June 30, 2018, MGE returned $1.0 million to gas customers through bill credits related to the tax credit.

Volume. For the six months ended June 30, 2019, retail gas deliveries increased 5.8% compared to the same period in the prior year primarily related to customer growth and more favorable weather conditions in the current year.

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

Consolidated operations and maintenance expenses

For the six months ended June 30, ~~2018,~~2019, operations and maintenance expenses ~~decreased $0.8~~increased $8.1 million, compared to the same period in the prior year. The following contributed to the net change:

~~(In millions)~~

~~Decreased transmission costs~~

~~(2.1)~~

~~Increased other costs~~

~~0.4~~

(In millions)
Increased administrative and general costs	$	3.4
Increased electric production expenses		1.5
Increased gas distribution expenses		1.0
Increased transmission costs		0.9
Increased customer accounts costs		0.8
Increased other costs		0.5
Total	$	8.1

Increased administrative and general ~~costs~~

~~0.3~~

~~Increased customer accounts costs~~

~~0.3~~

~~Increased electric production expenses~~

~~0.3~~

~~Total~~

~~(0.8)~~

~~For the six months ended June 30, 2018, decreased transmission~~ costs are primarily related to increased technology related costs associated with the multi-year Enterprise Forward project, which includes a ~~decrease in transmission rates as a result of a one-time refund received in June 2018. The lower transmission rate is reflected in~~new customer ~~revenue as revenue subject~~information system.

Increased electric production expenses are primarily related to ~~refund.~~increased operations and maintenance costs at the Elm Road Units.

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

Consolidated depreciation expense

~~Depreciation~~Electric depreciation expense increased ~~$1.3~~$6.9 million and gas depreciation expense increased $0.8 million for the six months ended June 30, ~~2018,~~2019, compared to the same period in the prior ~~year primarily related~~year. MGE accelerated depreciation for combustion turbines and Columbia Unit 1 in 2019, as approved in the December 2018 rate settlement, increasing electric depreciation expense compared to anthe prior period. Also approved in the December 2018 rate settlement were new depreciation rates for Columbia, further contributing to the increase in ~~depreciable assets.~~electric depreciation expense.

Nonregulated Energy Operations - MGE Energy and MGE

The nonregulated energy operations are conducted through MGE Energy's subsidiaries: MGE Power Elm Road (the Elm Road Units) and MGE Power West Campus (WCCF), which have been formed to own and lease electric generating capacity to assist MGE. For both the six months ended June 30, ~~2018~~2019 and ~~2017,~~2018, net income at the nonregulated energy operations segment was $10.1 million and $9.4 million, respectively. The decrease in tax rate from 35% to 21%, effective January 1, 2018, lowered lease revenues and income tax expense for the six months ended 2018. Income tax expense is a factor used in the formula to calculate lease rates.million.

Transmission Investment Operations - MGE Energy

~~Transmission investment other income~~

For the six months ended June 30, ~~2018~~2019 and ~~2017,~~2018, other income at the transmission investment segment was $4.4 million and $4.3 million, ~~and $5.0 million,~~ respectively. The decrease in tax rate from 35% to 21%, effective January 1, 2018, lowered earnings from ATC and income tax expense for the six months ended 2018. Income tax expense is a factor used in the calculation of ATC's transmission rates. The transmission investment segment holds our interest in ATC and ATC Holdco, and its income reflects our equity in the earnings of those investments. ATC Holdco was formed in December 2016. In the near term, it is expected that ATC Holdco will be pursuing transmission development opportunities that typically have long development and investment lead times before becoming operational. See Footnote 4 of the Notes to Consolidated Financial Statements in this Report and ~~"Other Matters"~~"Other Matters" below for additional information concerning ATC and summarized financial information regarding ATC.

Consolidated Income Taxes - MGE Energy and MGE

Noncontrolling Interest, Net of Tax - MGE

reflected on ~~MGE's~~MGE's consolidated statement of income:

		Six Months Ended
		June 30,
(In millions)		2019		2018
MGE Power Elm Road	$	7.5	$	7.8
MGE Power West Campus		3.6		3.5

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 six months ended June 30, ~~2018,~~2019, except as noted below. Further discussion of the contractual obligations and commercial commitments is included in Footnote 17 of 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 ~~2017~~2018 Annual Report on Form 10-K.

Purchase Contracts - MGE Energy and MGE

See items c. and d. within Footnote ~~9.c.~~9 of Notes to Consolidated Financial Statements in this Report for a description of commitments at June 30, ~~2018,~~2019, that MGE Energy and MGE have entered with respect to various commodity supply and transportation contracts to meet their obligations to deliver electricity and natural gas to customers and the ~~Saratoga wind project.~~solar farm construction and operating contracts.

~~Long-term Debt - MGE Energy and MGE~~

MGE issued $40 million of long-term unsecured debt and committed to $60 million of long-term unsecured debt in July 2018. The proceeds of these debt financings will be used to assist with the financing of additional capital expenditures, such as the Saratoga Wind Farm, and refinance $20 million of long-term debt upon its maturity in September 2018. See Footnote 7 of the Notes to Consolidated Financial Statements in this Report for further discussion of these debt issuances.

Liquidity and Capital Resources

MGE Energy and MGE have adequate liquidity to fund future operations and capital expenditures over the next twelve months. Available resources include cash and cash equivalents, operating cash flows, liquid assets, borrowing capacity under revolving credit facilities, and access to equity and debt capital markets. See ~~"Credit Facilities"~~"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 ~~2017~~2018 Annual Report on Form 10-K for information regarding MGE Energy's and MGE's credit facilities.

Cash Flows

The following summarizes cash flows for MGE Energy and MGE during the six months ended June 30, ~~2018~~2019 and ~~2017:~~2018:

		MGE Energy				MGE
(In thousands)		2019		2018		2019		2018
Cash provided by (used for):
Operating activities	$	85,884	$	91,618	$	85,286	$	90,047
Investing activities		(82,634)		(103,071)		(79,363)		(100,811)
Financing activities		(16,357)		(374)		(4,301)		8,487

Cash Provided by Operating Activities

MGE Energy

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

Cash provided by operating activities for the six months ended June 30, ~~2018,~~2019, was ~~$91.6~~$85.9 million, ~~an increase~~a decrease of ~~$24.6~~$5.7 million when compared to the same period in the prior ~~year, primarily reflecting changes in working capital items between periods.~~year.

MGE Energy's net income increased ~~$3.5~~$1.2 million for the six months ended June 30, ~~2018,~~2019, when compared to the same period in the prior year.

MGE Energy's federal and state taxes paid ~~decreased $6.0~~increased $5.4 million for the six months ended June 30, ~~2018,~~2019, when compared to the same period in the prior year.

Working capital accounts (excluding prepaid and accrued taxes) resulted in $14.4 million in cash provided by operating activities for the six months ended June 30, 2019, primarily due to decreased unbilled revenues, decreased accounts receivable, and decreased gas inventories, partially offset by decreased other current liabilities.

Working capital accounts (excluding prepaid and accrued taxes) resulted in $17.6 million in cash provided by operating activities for the six months ended June 30, 2018, primarily due to decreased unbilled revenues, decreased accounts receivable, decreased gas inventories, and increased other current liabilities, partially offset by decreased accounts payable.

~~Working capital accounts (excluding prepaid and accrued taxes)~~An increase in hosted software asset expenditures resulted in ~~$2.0~~additional $4.1 million in cash used for operating activities for the six months ended June 30, ~~2017, primarily due~~2019, when compared to ~~decreased~~the prior year.

MGE

Cash provided by operating activities for the six months ended June 30, 2019, was $85.3 million, a decrease of $4.8 million when compared to the same period in the prior year.

Net income increased $1.2 million for the six months ended June 30, 2019, when compared to the same period in the prior year.

MGE's federal and state taxes paid increased $5.4 million for the six months ended June 30, 2019, when compared to the same period in the prior year.

Working capital accounts ~~payable~~(excluding prepaid and ~~decreased other current liabilities, partially offset by decreased unbilled and decreased accounts receivable.~~

~~A decrease in pension contribution~~accrued taxes) resulted in ~~an additional $5.6~~$16.9 million in cash provided by operating activities for the six months ended June 30, ~~2018, when compared~~2019, primarily due to ~~the same period in the prior year. Pension contributions reflect amounts required~~decreased unbilled revenues, decreased accounts receivable, and decreased gas inventories, partially offset by ~~law and discretionary amounts.~~decreased other current liabilities.

~~MGE~~

Cash provided by operating activities for the six months ended June 30, 2018, was $90.0 million, an increase of $26.0 million when compared to the same period in the prior year, primarily reflecting changes in working capital items between periods.

~~Net income increased $2.5 million for the six months ended June 30, 2018, when compared to the same period in the prior year.~~

~~MGE's federal and state taxes paid decreased $6.0 million for the six months ended June 30, 2018, when compared to the same period in the prior year.~~

Working capital accounts (excluding prepaid and accrued taxes) resulted in $19.7 million in cash provided by operating activities for the six months ended June 30, 2018, primarily due to decreased unbilled revenues, decreased accounts receivable, decreased gas inventories, and increased other current liabilities, partially offset by decreased accounts payable.

~~Working capital accounts (excluding prepaid and accrued taxes)~~An increase in hosted software asset expenditures resulted in ~~$2.1~~additional $4.1 million in cash used for operating activities for the six months ended June 30, ~~2017, primarily due~~2019, when compared to the prior year.

Cash Used for Investing Activities

MGE Energy

MGE Energy's cash used for investing activities decreased ~~accounts payable and decreased other current liabilities, partially offset by decreased unbilled revenues and decreased accounts receivable.~~

~~A decrease in pension contribution resulted in an additional $5.6~~$20.4 million ~~in cash provided by operating activities~~ for the six months ended June 30, ~~2018,~~2019, 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 $56.2 million for the six months ended June 30, 2018, when compared to the same period in the prior year.~~

Capital expenditures for the six months ended June 30, ~~2018,~~2019, were ~~$100.4~~$79.1 million. This amount represents ~~an increase~~a decrease of ~~$58.2~~$21.3 million from the expenditures made in the same period in the prior year. This ~~increase~~decrease primarily reflects expenditures on the construction of the Saratoga wind project in the prior year. 2019 capital expenditures include $9.2 million related to the Two Creeks and Badger Hollow solar construction projects. Total cost of the ~~purchase~~two projects is expected to be approximately $130 million. The projects are anticipated to be completed by the end of ~~Forward Wind.~~2020.

MGE

~~Capital contributions to ATC and other investments~~

MGE's cash used for investing activities decreased ~~$2.3~~$21.4 million for the six months ended June 30, ~~2018,~~2019, when compared to the same period in the prior year.

~~MGE~~

~~MGE's cash used for investing activities increased $58.7 million for the six months ended June 30, 2018, when compared to the same period in the prior year.~~

Cash Provided by/(Used for) Financing Activities

MGE Energy

Cash used for MGE Energy's financing activities was ~~$0.4~~$16.4 million for the six months ended June 30, ~~2018,~~2019, compared to ~~$13.8~~$0.4 million of cash used for MGE Energy's financing activities for the same period in the prior year.

For the six months ended June 30, ~~2018,~~2019, dividends paid were ~~$22.4~~$23.4 million compared to ~~$21.3~~$22.4 million in the prior year. This increase was a result of a higher dividend per share ($~~0.645~~0.675 vs. ~~$0.615)~~$0.645).

For the six months ended June 30, 2019, net short-term debt borrowings were $10.5 million compared to $24.2 million for the six months ended June 30, 2018.

MGE

During the six months ended June 30, ~~2017, MGE issued $40.0 million of senior unsecured notes, which was~~2019, cash used ~~to refinance $30.0 million of maturing medium-term notes and assist with financing additional capital expenditures.~~

~~For the six months ended June 30, 2018, net short-term borrowings were $24.2 million. There were no short-term borrowings~~ for ~~the six months ended June 30, 2017. The increase in net short-term borrowings primarily reflects expenditures on the construction of the Saratoga wind project and the purchase of Forward Wind.~~

~~MGE~~

~~During the six months ended June 30, 2018, cash provided by~~ MGE's financing activities was ~~$8.5~~$4.3 million, compared to ~~$27.5~~$8.5 million of cash ~~used for~~provided by MGE's financing activities for the same period in the prior year.

~~Dividends paid from MGE to MGE Energy were $25.0 million for the six months ended June 30, 2017. There were no dividends from MGE to MGE Energy for the six months ended June 30, 2018.~~

Distributions to parent from noncontrolling interest, which represent distributions from MGE Power Elm Road and MGE Power West Campus to MGE Energy, were $11.5 million for the six months ended June 30, 2019, compared to $13.5 million in the prior year.

For the six months ended June 30, 2019, net short-term debt borrowings were $10.5 million compared to $24.2 million for the six months ended June 30, ~~2018, compared to $10.0 million in the prior year.~~2018.

During the six months ended June 30, 2017, MGE issued $40.0 million of senior unsecured notes, which was used to refinance $30.0 million of maturing medium-term notes and assist with financing additional capital expenditures.

For the six months ended June 30, 2018, net short-term borrowings were $24.2 million. There were no short-term borrowings for the six months ended June 30, 2017. The increase in net short-term borrowings primarily reflects expenditures on the construction of the Saratoga wind project and the purchase of Forward Wind.

Capitalization Ratios

MGE Energy's capitalization ratios were as follows:

	MGE Energy
	June 30, 2019	December 31, 2018
Common shareholders' equity	61.6 %	61.5 %
Long-term debt^(a)	36.7 %	37.5 %
Short-term debt	1.7 %	1.0 %

(a)

Includes the current portion of long-term debt.

MGE ~~Energy's~~Energy's and ~~MGE's~~MGE's Capital Requirements

MGE ~~Energy's~~Energy's and ~~MGE's~~MGE's liquidity are primarily affected by their capital expenditure requirements. During the six months ended June 30, ~~2018,~~2019, capital expenditures for MGE Energy and MGE totaled ~~$100.4~~$79.1 million, which included ~~$96.9~~$77.3 million of utility capital expenditures. Included in the utility capital expenditures ~~primarily related to~~are costs associated with the Two Creeks and Badger Hollow solar construction ~~of the Saratoga wind project and the purchase of Forward Wind.~~projects.

Credit Ratings

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

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

Environmental Matters

~~There were no material~~The following discussion is limited to updates or developments in environmental matters that occurred during the six months ended June 30, ~~2018.~~2019. Further discussion of environmental matters is included in MGE Energy's and MGE's ~~2017~~2018 Annual Report on Form 10-K and Footnote 9.a. of Notes to Consolidated Financial Statements in this Report.

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

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

Other Matters

ATC

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

In February 2015, a second complaint was filed for the period February 2015 through May 2015 with the FERC requesting a reduction in the base ROE used by MISO transmission owners, including ATC, to 8.67%, with a refund effective date retroactive to the filing date of the complaint. In June 2016, an administrative law judge issued an initial decision for the second complaint that would reduce the transmission owner's base ROE to 9.7%. The initial decision will be reviewed by FERC. It is anticipated FERC will issue an order on this issue in 2019. On September 28, 2016, FERC issued an order on the first complaint, for the period November 2013 through February 2015, reducing the base ROE to 10.32%. This base ROE also became effective September 28, 2016, and will apply to future periods until FERC rules in the second complaint, at which time the base ROE ordered by FERC in the second complaint will prospectively become the authorized base ROE. Any change to ATC's ROE could result in lower equity earnings and distributions from ATC in the future.

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.

Our share of ATC's earnings reflects a pre-tax adjustment of $0.1 million and $0.2 million for the three and six months ended June 30, 2017, respectively, recorded by ATC for these matters representing its estimate of its refund liability. We derived approximately ~~7.5%~~8.0% and ~~8.7%~~7.5% of our net income for the six months ended June 30, ~~2018~~2019 and ~~2017,~~2018, respectively, from our investment in ATC. Any change to ATC's ROE could result in lower equity earnings and distributions from ATC in the future.

Adoption of Accounting Principles and Recently Issued Accounting Pronouncements

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

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

Commodity Price Risk

MGE has commodity price risk exposure with respect to the price of natural gas, electricity, coal, emission credits, and oil. MGE's electric operations burn natural gas in several of its peaking power plants and, in many cases, the cost of purchased power is tied to the cost of natural gas. MGE employs established policies and procedures to reduce the market risks associated with changing commodity prices. MGE's commodity risks are somewhat mitigated by the current ratemaking process in place for recovering electric fuel cost, purchased energy costs, and the cost of natural gas.

MGE's electric fuel costs are subject to fuel rules established by the PSCW. The fuel rules require the PSCW and Wisconsin utilities to defer electric fuel-related costs that fall outside a symmetrical cost tolerance band. Any over/under recovery of the actual costs in a year outside of the symmetrical cost tolerance band is determined in the following year and is then reflected in future billings to electric retail customers.Under the electric fuel rules, MGE is required to defer the benefit of lower costs if the actual electric fuel costs fall outside the lower end of the range and is required to defer costs, less any excess revenues, if the actual electric fuel costs exceed the upper end of the range. Excess revenues are defined as revenues in the year in question that provide MGE with a greater return on common equity than authorized by the PSCW in ~~MGE's~~MGE's latest rate order. The range is defined by the PSCW and has been modified throughout the years based on market conditions and other relevant factors. Currently, MGE is subject to a plus or minus 2% range. MGE assumes the risks and benefits of variances that are within the cost tolerance band. For ~~2018,~~2019, fuel and purchased power costs included in MGE's fuel monitoring level rates are ~~$102.4~~$77.3 million. See Footnote 10.b. of the Notes to Consolidated Financial Statements in this Report for additional information.

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

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

MGE has financial gas and electric commodity contracts to hedge commodity price risk in the gas and electric utility segments. These contracts are primarily comprised of exchange-traded option and future contracts. MGE also holds financial transmission rights (FTRs), which are used to hedge the risk of increased transmission congestion charges. AtAs of June 30, ~~2018,~~2019, the ~~fair value~~cost basis of these instruments exceeded their ~~cost basis~~fair value by ~~$1.8~~$0.9 million. Under the PGA clause and electric fuel rules, MGE may include the costs and benefits of the aforementioned fuel price risk management tools in the costs of fuel (natural gas or power). Because these costs/benefits are recoverable, the related unrealized loss/gain has been deferred on the consolidated balance sheets as a regulatory asset/liability.

MGE has also entered into a purchased power agreement that provides MGE with firm capacity and energy that began on June 1, 2012, and ends on May 31, 2022 (the ~~"base term"~~"base term"). The agreement also allows MGE an option to extend the contract after the base term. The agreement is considered a derivative contract and is recognized at its fair value on the consolidated balance sheets. However, the derivative qualifies for regulatory deferral and is recognized with a corresponding regulatory asset or liability depending on whether the fair value is in a loss or gain position. The fair value of the contract atas of June 30, ~~2018,~~2019, reflects a loss position of ~~$38.8~~$32.6 million.

Interest Rate Risk

Both MGE Energy and MGE may have short term borrowings at varying interest rates. MGE issues commercial

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

Equity Price Risk - Pension-Related Assets

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

Credit Risk - Counterparty

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

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

Additionally, if a counterparty were to default and MGE were to liquidate all contracts with that entity, MGE's credit loss would include the loss in value of mark-to-market contracts; the amount owed for settled transactions; and additional payments, if any, to settle unrealized losses. As of June 30, ~~2018,~~2019, no counterparties have defaulted.

MGE is obligated to provide service to all electric and gas customers within its respective franchised territories. MGE's franchised electric territory includes a ~~316~~264 square-mile area in Dane County, Wisconsin, and MGE's franchised gas territory includes a service area covering ~~1,682~~1,684 square miles in Wisconsin. Based on results for the year ended December 31, ~~2017,~~2018, no one customer constituted more than 10% of total operating revenues for MGE Energy and MGE. Credit risk for electric and gas is managed by MGE's credit and collection policies, which are consistent with state regulatory requirements.

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

Item ~~4.Controls~~4. Controls and Procedures.

During the second quarter of ~~2018,~~2019, each registrant's management, including the principal executive officer and principal financial officer, evaluated its disclosure controls and procedures related to the recording, processing, summarization, and reporting of information in its periodic reports that it files with the SEC. These disclosure controls and procedures have been designed to ensure that material information relating to that registrant, including its subsidiaries, is accumulated and made known to that registrant's management, including these officers, by other employees of that registrant and its subsidiaries as appropriate to allow timely decisions regarding required disclosure, and that this information is recorded, processed, summarized, evaluated, and reported, as applicable, within the time periods specified in the SEC's rules and forms. Due to the inherent limitations of control systems, not all misstatements may be detected. These inherent limitations include the realities that judgments in decision making can be faulty and breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. Also, MGE Energy does not control or manage certain of its unconsolidated entities and thus, its access and ability to apply its procedures to those entities is more limited than is the case for its consolidated subsidiaries.

As of June 30, ~~2018,~~2019, each registrant's principal executive officer and principal financial officer concluded that its disclosure controls and procedures were effective. Each registrant intends to strive continually to improve its disclosure controls and procedures to enhance the quality of its financial reporting.

During the quarter ended June 30, ~~2018,~~2019, there were no changes in either ~~registrant's~~registrant’s internal controls over financial reporting that materially affected, or are reasonably likely to affect materially, that ~~registrant's~~registrant’s internal control over financial reporting.

PART II. OTHER INFORMATION.

Item 1. Legal Proceedings.

MGE Energy and MGE

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

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

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

Issuer Purchases of Equity Securities

Period	Total Number of Shares Purchased		Average Price Paid per Share	Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs^(a)	Maximum number (or Approximate Dollar Value) of Shares That May Yet Be Purchased Under the Plans or Programs^(a)
April 1-30, 2019	8,873	$	67.51	-	-
May 1-31, 2019	6,553		68.02	-	-
June 1-30, 2019	40,700		70.09	-	-
Total	56,127	$	69.44	-	-

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

Item 4. Mine Safety Disclosures.

Not applicable to MGE Energy and MGE.

Signatures - MGE Energy, Inc.

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


	MGE ENERGY, INC.



Date: August 7, ~~2018~~2019	/s/ Jeffrey M. Keebler
	Jeffrey M. Keebler Chairman, President and Chief Executive Officer (Duly Authorized Officer)



Date: August 7, ~~2018~~2019	/s/ Jeffrey C. Newman
	Jeffrey C. Newman Executive Vice President, Chief Financial Officer, Secretary and Treasurer (Chief Financial and Accounting Officer)

Signatures - Madison Gas and Electric Company

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


	MADISON GAS AND ELECTRIC COMPANY



Date: August 7, ~~2018~~2019	/s/ Jeffrey M. Keebler
	Jeffrey M. Keebler Chairman, President and Chief Executive Officer (Duly Authorized Officer)



Date: August 7, ~~2018~~2019	/s/ Jeffrey C. Newman
	Jeffrey C. Newman Executive Vice President, Chief Financial Officer, Secretary and Treasurer (Chief Financial and Accounting Officer)


~~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~~

~~Other Defined Terms:~~

~~AFUDC~~	~~Allowance for Funds Used During Construction~~
~~ANPR~~	~~Advance Notice of Public Rulemaking~~
~~ARO~~	~~Asset Retirement Obligation~~
~~ASU~~	~~Accounting Standard Update~~
~~ATC~~	~~American Transmission Company LLC~~
~~ATC Holdco~~	~~ATC Holdco, LLC~~
~~Blount~~	~~Blount Station~~
~~CAVR~~	~~Clean Air Visibility Rule~~
~~CCR~~	~~Coal Combustion Residual~~
~~CNG~~	~~Compressed Natural Gas~~
~~codification~~	~~Financial Accounting Standards Board Accounting Standards Codification~~
~~Columbia~~	~~Columbia Energy Center~~
~~cooling degree days~~	~~Measure of the extent to which the average daily temperature is above 65 degrees Fahrenheit, which is considered an indicator of possible increased demand for energy to provide cooling~~
~~CPP~~	~~Clean Power Plan~~
~~CSAPR~~	~~Cross-State Air Pollution Rule~~
~~Dth~~	~~Dekatherms, a quantity measure used in respect of natural gas~~
~~EGUs~~	~~Electric Generating Units~~
~~electric margin~~	~~Electric revenues less fuel for electric generation and purchase power costs, a non-GAAP measure~~
~~Elm Road Units~~	~~Elm Road Generating Station~~
~~EPA~~	~~United States Environmental Protection Agency~~
~~FASB~~	~~Financial Accounting Standards Board~~
~~FERC~~	~~Federal Energy Regulatory Commission~~
~~Forward Wind~~	~~Forward Wind Energy Center~~
~~FTR~~	~~Financial Transmission Rights~~
~~GAAP~~	~~Generally Accepted Accounting Principles~~
~~gas margin~~	~~Gas revenues less cost of gas sold, a non-GAAP measure~~
~~GHG~~	~~Greenhouse Gas~~
~~heating degree days (HDD)~~	~~Measure of the extent to which the average daily temperature is below 65 degrees Fahrenheit, which is considered an indicator of possible increased demand for energy to provide heating~~
~~IRS~~	~~Internal Revenue Service~~
~~kWh~~	~~Kilowatt-hour, a measure of electric energy produced~~


~~MISO~~	~~Midcontinent Independent System Operator (a regional transmission organization)~~
MW	~~Megawatt, a measure of electric energy generating capacity~~
~~MWh~~	~~Megawatt-hour, a measure of electric energy produced~~
~~NAAQS~~	~~National Ambient Air Quality Standards~~
NOx	~~Nitrogen Oxides~~
~~PGA~~	~~Purchased Gas Adjustment clause, a regulatory mechanism used to reconcile natural gas costs recovered in rates to actual costs~~
~~PPA~~	~~Purchased Power Agreement~~
~~PSCW~~	~~Public Service Commission of Wisconsin~~
~~Riverside~~	~~Riverside Energy Center~~
~~ROE~~	~~Return on Equity~~
~~SCR~~	~~Selective Catalytic Reduction~~
~~SEC~~	~~Securities and Exchange Commission~~
SO2	~~Sulfur Dioxide~~
~~Stock Plan~~	~~Direct Stock Purchase and Dividend Reinvestment Plan of MGE Energy~~
~~Tax Act~~	~~Tax Cuts and Jobs Act~~
UW	~~University of Wisconsin at Madison~~
~~VIE~~	~~Variable Interest Entity~~
~~WCCF~~	~~West Campus Cogeneration Facility~~
~~WEPCO~~	~~Wisconsin Electric Power Company, a subsidiary of WEC Energy Group, Inc.~~
~~working capital~~	~~Current assets less current liabilities~~
~~WPL~~	~~Wisconsin Power and Light Company, a subsidiary of Alliant Energy Corporation~~
~~XBRL~~	~~eXtensible Business Reporting Language~~


MGE Energy, Inc.
Consolidated Balance Sheets (unaudited)
(In thousands)
		June 30,	December 31,
ASSETS		2018		2017
Current Assets:
Cash and cash equivalents	$	95,579	$	107,952
Accounts receivable, less reserves of $2,434 and $2,840, respectively		35,473		42,299
Other accounts receivable, less reserves of $588 and $335, respectively		7,808		9,440
Unbilled revenues		24,031		31,400
Materials and supplies, at average cost		24,595		22,614
Fuel for electric generation, at average cost		9,451		8,256
Stored natural gas, at average cost		7,763		12,923
Prepaid taxes		16,042		26,535
Regulatory assets - current		7,462		7,888
Assets held for sale		1,392		8,817
Other current assets		12,714		12,507
Total Current Assets		242,310		290,631
Other long-term receivables		4,188		4,788
Regulatory assets		137,267		142,567
Pension and other postretirement benefit asset		11,956		7,336
Other deferred assets and other		5,379		731
Property, Plant, and Equipment:
Property, plant, and equipment, net		1,345,255		1,283,313
Construction work in progress		75,007		58,044
Total Property, Plant, and Equipment		1,420,262		1,341,357
Investments		72,083		67,772
Total Assets	$	1,893,445	$	1,855,182

LIABILITIES AND CAPITALIZATION
Current Liabilities:
Long-term debt due within one year	$	4,502	$	24,452
Short-term debt		28,200		4,000
Accounts payable		37,498		47,645
Accrued interest and taxes		5,350		5,602
Accrued payroll related items		10,449		12,244
Regulatory liabilities - current		9,110		5,633
Derivative liabilities		8,860		8,180
Other current liabilities		14,457		18,758
Total Current Liabilities		118,426		126,514
Other Credits:
Deferred income taxes		226,300		225,130
Investment tax credit - deferred		868		918
Regulatory liabilities		166,316		154,153
Accrued pension and other postretirement benefits		69,249		69,088
Derivative liabilities		29,890		33,990
Other deferred liabilities and other		72,120		69,041
Total Other Credits		564,743		552,320
Capitalization:
Common shareholders' equity		794,178		778,187
Long-term debt		416,098		398,161
Total Capitalization		1,210,276		1,176,348
Commitments and contingencies (see Footnote 9)
Total Liabilities and Capitalization	$	1,893,445	$	1,855,182

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


Madison Gas and Electric Company
Consolidated Balance Sheets (unaudited)
(In thousands)
		June 30,	December 31,
ASSETS		2018		2017
Current Assets:
Cash and cash equivalents	$	3,128	$	5,951
Accounts receivable, less reserves of $2,434 and $2,840, respectively		35,473		42,299
Affiliate receivables		592		668
Other accounts receivable, less reserves of $588 and $335, respectively		6,297		6,984
Unbilled revenues		24,031		31,400
Materials and supplies, at average cost		24,595		22,614
Fuel for electric generation, at average cost		9,451		8,256
Stored natural gas, at average cost		7,763		12,923
Prepaid taxes		15,073		25,073
Regulatory assets - current		7,462		7,888
Assets held for sale		1,392		8,817
Other current assets		12,709		12,484
Total Current Assets		147,966		185,357
Affiliate receivable long-term		3,442		3,707
Regulatory assets		137,267		142,567
Pension and other postretirement benefit asset		11,956		7,336
Other deferred assets and other		7,558		3,280
Property, Plant, and Equipment:
Property, plant, and equipment, net		1,345,283		1,283,341
Construction work in progress		75,007		58,044
Total Property, Plant, and Equipment		1,420,290		1,341,385
Investments		422		409
Total Assets	$	1,728,901	$	1,684,041

LIABILITIES AND CAPITALIZATION
Current Liabilities:
Long-term debt due within one year	$	4,502	$	24,452
Short-term debt		28,200		4,000
Accounts payable		37,498		47,614
Accrued interest and taxes		6,551		5,558
Accrued payroll related items		10,449		12,244
Regulatory liabilities - current		9,110		5,633
Derivative liabilities		8,860		8,180
Other current liabilities		14,448		16,749
Total Current Liabilities		119,618		124,430
Other Credits:
Deferred income taxes		200,609		201,486
Investment tax credit - deferred		868		918
Regulatory liabilities		166,316		154,153
Accrued pension and other postretirement benefits		69,249		69,088
Derivative liabilities		29,890		33,990
Other deferred liabilities and other		72,120		69,041
Total Other Credits		539,052		528,676
Capitalization:
Common shareholder's equity		515,420		491,872
Noncontrolling interest		138,713		140,902
Total Equity		654,133		632,774
Long-term debt		416,098		398,161
Total Capitalization		1,070,231		1,030,935
Commitments and contingencies (see Footnote 9)
Total Liabilities and Capitalization	$	1,728,901	$	1,684,041

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


MGE Energy, Inc.
Consolidated Statements of Income (unaudited)
(In thousands, except per-share amounts)

		Three Months Ended				Six Months Ended
		June 30,				June 30,
		2018		2017		2018		2017
Operating Revenues:
Electric revenues	$	99,282	$	102,382	$	194,149	$	200,779
Gas revenues		24,980		24,081		87,745		82,507
Total Operating Revenues		124,262		126,463		281,894		283,286

Operating Expenses:
Fuel for electric generation		15,251		11,910		27,151		24,109
Purchased power		12,979		16,720		30,012		32,074
Cost of gas sold		9,562		9,231		49,188		45,015
Other operations and maintenance		43,453		44,880		87,846		88,644
Depreciation and amortization		13,872		13,275		27,495		26,234
Other general taxes		4,914		4,852		9,783		9,779
Total Operating Expenses		100,031		100,868		231,475		225,855
Operating Income		24,231		25,595		50,419		57,431

Other income, net		4,731		3,570		9,650		7,095
Interest expense, net		(4,783)		(4,886)		(9,522)		(9,780)
Income before income taxes		24,179		24,279		50,547		54,746
Income tax provision		(5,828)		(8,736)		(12,195)		(19,903)
Net Income	$	18,351	$	15,543	$	38,352	$	34,843

Earnings Per Share of Common Stock
(basic and diluted)	$	0.53	$	0.45	$	1.11	$	1.01

Dividends per share of common stock	$	0.323	$	0.308	$	0.645	$	0.615

Weighted Average Shares Outstanding
(basic and diluted)		34,668		34,668		34,668		34,668

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


MGE Energy, Inc.
Consolidated Statements of Comprehensive Income (unaudited)
(In thousands)

		Three Months Ended				Six Months Ended
		June 30,				June 30,
		2018		2017		2018		2017
Net Income	$	18,351	$	15,543	$	38,352	$	34,843
Other comprehensive income, net of tax:
Unrealized gain on available-for-sale
securities, net of tax ($- and ($21), and $- and
($86), respectively)		-		32		-		129
Comprehensive Income	$	18,351	$	15,575	$	38,352	$	34,972

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


		Six Months Ended
(In thousands)		June 30, 2017
Cash provided by operating activities	$	(694)
Cash used for investing activities		74
Change in cash, cash equivalents, and restricted cash		(620)
Cash, cash equivalents, and restricted cash at beginning of period		5,674
Cash, cash equivalents, and restricted cash at end of period	$	5,054


		June 30, 2018				December 31, 2017
(In thousands)		Carrying Amount		Fair Value		Carrying Amount		Fair Value
MGE Energy
Assets:
Cash and cash equivalents	$	95,579	$	95,579	$	107,952	$	107,952
Liabilities:
Short-term debt - commercial paper		28,200		28,200		4,000		4,000
Long-term debt^(a)		424,670		464,428		426,883		475,282

MGE
Assets:
Cash and cash equivalents	$	3,128	$	3,128	$	5,951	$	5,951
Liabilities:
Short-term debt - commercial paper		28,200		28,200		4,000		4,000
Long-term debt^(a)		424,670		464,428		426,883		475,282


		Fair Value as of June 30, 2018
(In thousands)		Total		Level 1		Level 2		Level 3
MGE Energy
Assets:
Derivatives, net	$	2,121	$	502	$	-	$	1,619
Exchange-traded investments		902		902		-		-
Total Assets	$	3,023	$	1,404	$	-	$	1,619
Liabilities:
Derivatives, net	$	39,045	$	94	$	-	$	38,951
Deferred compensation		3,065		-		3,065		-
Total Liabilities	$	42,110	$	94	$	3,065	$	38,951

MGE
Assets:
Derivatives, net	$	2,121	$	502	$	-	$	1,619
Exchange-traded investments		77		77		-		-
Total Assets	$	2,198	$	579	$	-	$	1,619
Liabilities:
Derivatives, net	$	39,045	$	94	$	-	$	38,951
Deferred compensation		3,065		-		3,065		-
Total Liabilities	$	42,110	$	94	$	3,065	$	38,951

		Fair Value as of December 31, 2017
(In thousands)		Total		Level 1		Level 2		Level 3
MGE Energy
Assets:
Derivatives, net	$	1,005	$	278	$	-	$	727
Exchange-traded investments		792		792		-		-
Total Assets	$	1,797	$	1,070	$	-	$	727
Liabilities:
Derivatives, net^(b)	$	42,963	$	210	$	-	$	42,753
Deferred compensation		3,065		-		3,065		-
Total Liabilities	$	46,028	$	210	$	3,065	$	42,753

MGE
Assets:
Derivatives, net	$	1,005	$	278	$	-	$	727
Exchange-traded investments		64		64		-		-
Total Assets	$	1,069	$	342	$	-	$	727
Liabilities:
Derivatives, net^(b)	$	42,963	$	210	$	-	$	42,753
Deferred compensation		3,065		-		3,065		-
Total Liabilities	$	46,028	$	210	$	3,065	$	42,753


(In thousands) MGE Energy		Electric		Gas		Nonregulated Energy		Transmission Investment		All Others		Consolidation/ Elimination Entries		Consolidated Total
*Three Months Ended June 30, 2018*
Operating revenues	$	99,067	$	24,980	$	215	$	-	$	-	$	-	$	124,262
Interdepartmental revenues		(245)		3,493		9,847		-		-		(13,095)		-
Total operating revenues		98,822		28,473		10,062		-		-		(13,095)		124,262
Depreciation and amortization		(9,575)		(2,445)		(1,852)		-		-		-		(13,872)
Other operating expenses		(74,535)		(24,232)		(34)		(5)		(448)		13,095		(86,159)
Operating income (loss)		14,712		1,796		8,176		(5)		(448)		-		24,231
Other income, net		1,562		752		-		1,916		501		-		4,731
Interest (expense) income, net		(2,952)		(887)		(1,334)		-		390		-		(4,783)
Income before taxes		13,322		1,661		6,842		1,911		443		-		24,179
Income tax provision		(2,986)		(372)		(1,864)		(522)		(84)		-		(5,828)
Net income	$	10,336	$	1,289	$	4,978	$	1,389	$	359	$	-	$	18,351

*Three Months Ended June 30, 2017*
Operating revenues	$	102,306	$	24,081	$	76	$	-	$	-	$	-	$	126,463
Interdepartmental revenues		(119)		3,422		11,107		-		-		(14,410)		-
Total operating revenues		102,187		27,503		11,183		-		-		(14,410)		126,463
Depreciation and amortization		(9,185)		(2,232)		(1,858)		-		-		-		(13,275)
Other operating expenses^(a)		(78,202)		(23,522)		(62)		-		(217)		14,410		(87,593)
Operating income (loss)		14,800		1,749		9,263		-		(217)		-		25,595
Other income (deductions), net^(a)		778		361		-		2,506		(75)		-		3,570
Interest (expense) income, net		(2,801)		(805)		(1,392)		-		112		-		(4,886)
Income (loss) before taxes		12,777		1,305		7,871		2,506		(180)		-		24,279
Income tax (provision) benefit		(4,124)		(521)		(3,158)		(1,006)		73		-		(8,736)
Net income (loss)	$	8,653	$	784	$	4,713	$	1,500	$	(107)	$	-	$	15,543

*Six Months Ended June 30, 2018*
Operating revenues	$	193,458	$	87,745	$	691	$	-	$	-	$	-	$	281,894
Interdepartmental revenues		(214)		7,840		19,667		-		-		(27,293)		-
Total operating revenues		193,244		95,585		20,358		-		-		(27,293)		281,894
Depreciation and amortization		(18,953)		(4,840)		(3,702)		-		-		-		(27,495)
Other operating expenses		(151,110)		(79,427)		(77)		(8)		(651)		27,293		(203,980)
Operating income (loss)		23,181		11,318		16,579		(8)		(651)		-		50,419
Other income, net		3,292		1,518		-		4,288		552		-		9,650
Interest (expense) income, net		(5,819)		(1,726)		(2,682)		-		705		-		(9,522)
Income before taxes		20,654		11,110		13,897		4,280		606		-		50,547
Income tax provision		(4,186)		(2,830)		(3,786)		(1,170)		(223)		-		(12,195)
Net income	$	16,468	$	8,280	$	10,111	$	3,110	$	383	$	-	$	38,352

*Six Months Ended June 30, 2017*
Operating revenues	$	200,630	$	82,507	$	149	$	-	$	-	$	-	$	283,286
Interdepartmental revenues		(224)		7,816		22,177		-		-		(29,769)		-
Total operating revenues		200,406		90,323		22,326		-		-		(29,769)		283,286
Depreciation and amortization		(18,085)		(4,445)		(3,704)		-		-		-		(26,234)
Other operating expenses^(a)		(154,208)		(74,493)		(103)		-		(586)		29,769		(199,621)
Operating income (loss)		28,113		11,385		18,519		-		(586)		-		57,431
Other income (deductions), net^(a)		1,648		760		-		4,984		(297)		-		7,095
Interest (expense) income, net		(5,577)		(1,604)		(2,799)		-		200		-		(9,780)
Income (loss) before taxes		24,184		10,541		15,720		4,984		(683)		-		54,746
Income tax (provision) benefit		(7,578)		(4,225)		(6,309)		(2,003)		212		-		(19,903)
Net income (loss)	$	16,606	$	6,316	$	9,411	$	2,981	$	(471)	$	-	$	34,843


		Three Months Ended				Six Months Ended
(In millions)		June 30,				June 30,
Business Segment:		2018		2017		2018		2017
Electric Utility	$	10.3	$	8.6	$	16.5	$	16.6
Gas Utility		1.3		0.8		8.3		6.3
Nonregulated Energy		5.0		4.7		10.1		9.4
Transmission Investments		1.4		1.5		3.1		3.0
All Other		0.4		(0.1)		0.4		(0.5)
Net Income	$	18.4	$	15.5	$	38.4	$	34.8


		Revenues				Sales (kWh)
(In thousands, except cooling degree days)		Three Months Ended June 30,				Three Months Ended June 30,
		2018		2017	% Change	2018	2017	% Change
Residential	$	32,217	$	31,634	1.8 %	200,224	177,644	12.7 %
Commercial		50,174		54,721	(8.3)%	470,504	449,876	4.6 %
Industrial		4,630		4,516	2.5 %	46,237	53,098	(12.9)%
Other-retail/municipal		8,527		9,661	(11.7)%	98,147	103,626	(5.3)%
Total retail		95,548		100,532	(5.0)%	815,112	784,244	3.9 %
Sales to the market		2,795		1,050	*n.m.%	85,937	16,830	*n.m.%
Other revenues		454		562	(19.2)%	-	-	- %
Adjustments to revenues		270		162	66.7 %	-	-	- %
Total	$	99,067	$	102,306	(3.2)%	901,049	801,074	12.5 %

Cooling degree days (normal 184)						247	172	43.6 %


~~(In millions)~~
~~Revenue subject to refund, net~~	$	~~(12.9)~~
~~Other~~		~~(0.4)~~
~~Increase in volume~~		~~4.0~~
~~Decreased fuel costs~~		~~1.2~~
~~Total~~	$	~~(8.1)~~



Ex. No.		Exhibit Description
~~4.1~~31.1^*	~~Indenture of Mortgage and Deed of Trust between Madison Gas and Electric Company and U.S. Bank, N.A. (successor to First Wisconsin Trust Company), as Trustee~~
*
~~10.5~~^*	~~Joint Power Supply Agreement (Exclusive of Exhibits) with Wisconsin Power and Light Company and Wisconsin Public Service Corporation.~~

~~12.1~~^*	~~Statements regarding computation of ratio of earnings to fixed charges for MGE Energy, Inc.~~

~~12.2~~^*	~~Statements regarding computation of ratio of earnings to fixed charges for Madison Gas and Electric Company.~~

~~31.1~~^*	Certifications Pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934 filed by Jeffrey M. Keebler for MGE Energy, Inc.

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

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

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

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

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

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

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

101.INS^*	*	XBRL Instance
101.SCH^*	*	XBRL Taxonomy Extension Schema
101.CAL^*	*	XBRL Taxonomy Extension Calculation
101.DEF^*	*	XBRL Taxonomy Extension Definition
101.LAB^*	*	XBRL Taxonomy Extension Labels
101.PRE^*	*	XBRL Taxonomy Extension Presentation

*	~~Filed herewith.~~
**	~~Furnished~~	Filed herewith.