
United States SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended: September 30, ~~2020~~2021 ☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _______________ to _______________
Commission File No.	Name of Registrant, State of Incorporation, Address of Principal Executive Offices, and Telephone No.	IRS Employer Identification No.
000-49965	MGE Energy, Inc. (a Wisconsin Corporation) 133 South Blair Street ~~Madison, Wisconsin 53788~~ ~~(608)~~ Madison, Wisconsin53788 (608) 252-7000 \| mgeenergy.com	39-2040501
000-1125	Madison Gas and Electric Company (a Wisconsin Corporation) 133 South Blair Street ~~Madison, Wisconsin 53788~~ ~~(608)~~ 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 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 ~~Yes ☒ No ☐Madison Gas and Electric Company~~ ~~Yes~~ ☒ No ☐	Madison Gas and Electric CompanyYes ☒ No ☐

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


MGE Energy, Inc.Yes ~~Yes ☒ No ☐Madison Gas and Electric Company~~ ~~Yes~~ ☒ No ☐	Madison Gas and Electric CompanyYes ☒ 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	~~Accelerated Filer~~	Non-accelerated Filer	Smaller Reporting Company	Emerging Growth Company
MGE Energy, Inc.	☒	☐	☐	☐	☐
Madison Gas and Electric Company	☐	☐	☒	☐	☐

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

~~MGE Energy, Inc.~~ ☐


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

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


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

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common Stock, $1 Par Value Per Share	MGEE	The NASDAQ Stock Market


Number of Shares Outstanding of Each Class of Common Stock as of October 31, ~~2020~~2021
MGE Energy, Inc.	Common stock, $1.00 par value, 36,163,370 shares outstanding.
Madison Gas and Electric Company	Common stock, $1.00 par value, 17,347,894 shares outstanding (all of which are owned beneficially and of record by MGE Energy, Inc.).

Table of Contents


PART I. FINANCIAL INFORMATION	3
Filing Format	3
Forward-Looking Statements	3
Where to Find More Information	3
Definitions, Abbreviations, and Acronyms Used in the Text and Notes of this Report	4
Item 1. Financial Statements.	6
MGE Energy, Inc.	6
Consolidated Statements of Income (unaudited)	6
Consolidated Statements of Cash Flows (unaudited)	7
Consolidated Balance Sheets (unaudited)	8
Consolidated Statements of Common Equity (unaudited)	9
Madison Gas and Electric Company	10
Consolidated Statements of Income (unaudited)	10
Consolidated Statements of Cash Flows (unaudited)	11
Consolidated Balance Sheets (unaudited)	12
Consolidated Statements of Equity (unaudited)	13
MGE Energy, Inc., and Madison Gas and Electric Company - Notes to Consolidated Financial Statements (unaudited)	14
1. Summary of Significant Accounting Policies.	14
2. New Accounting Standards.	15
3. Investment in ATC and ATC Holdco.	15
4. Taxes.	16
5. Pension and Other Postretirement Plans.	16
6. Equity and Financing Arrangements.	17
7. Share-Based Compensation.	18
8. Commitments and Contingencies.	18
9. Rate Matters.	21
10. Derivative and Hedging Instruments.	22
11. Fair Value of Financial Instruments.	25
12. Joint Plant Construction Project Ownership.	29
13. Asset Retirement Obligations.	29
14. Revenue.	29
15. Segment Information.	31
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.	33
Item 3. Quantitative and Qualitative Disclosures About Market Risk.	51
Item 4. Controls and Procedures.	53
PART II. OTHER INFORMATION.	54
Item 1. Legal Proceedings.	54
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.	54
Item 3. Defaults Upon Senior Securities.	54
Item 4. Mine Safety Disclosures.	54
Item 5. Other Information.	54
Item 6. Exhibits.	55
Signatures - MGE Energy, Inc.	56
Signatures - Madison Gas and Electric Company	57

~~PART I. FINANCIAL INFORMATION~~3

~~Filing Format~~3

~~Forward-Looking Statements~~3

~~Where to Find More Information~~3

~~Definitions, Abbreviations, and Acronyms Used in the Text and Notes of this Report~~4

~~Item 1. Financial Statements~~.6

~~MGE Energy, Inc~~.62

~~Consolidated Statements of Income (unaudited)~~6

~~Consolidated Statements of Cash Flows (unaudited)~~7

~~Consolidated Balance Sheets (unaudited)~~8

~~Consolidated Statements of Common Equity (unaudited)~~9

~~Madison Gas and Electric Company~~10

~~Consolidated Statements of Income (unaudited)~~10

~~Consolidated Statements of Cash Flows (unaudited)~~11

~~Consolidated Balance Sheets (unaudited)~~12

~~Consolidated Statements of Equity (unaudited)~~13

~~MGE Energy, Inc., and Madison Gas and Electric Company~~14

~~Notes to Consolidated Financial Statements (unaudited)~~14

~~Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations~~.34

~~Item 3. Quantitative and Qualitative Disclosures About Market Risk.~~54

~~Item 4. Controls and Procedures~~.56

~~PART II. OTHER INFORMATION~~.57

~~Item 1. Legal Proceedings~~.57

~~Item1A. Risk Factors.~~57

~~Item 2. Unregistered Sales of Equity Securities and Use of Proceeds~~.58

~~Item 4. Mine Safety Disclosures~~.59

~~Item 5. Other Information.~~59

~~Item 6. Exhibits~~.59

~~Signatures - MGE Energy, Inc.~~60

~~Signatures - Madison Gas and Electric Company~~61

PART I. FINANCIAL INFORMATION.

Filing Format

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

Forward-Looking Statements

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

The factors that could cause actual results to differ materially from the forward-looking statements made by a registrant include: (a) those factors discussed in the registrants' ~~2019~~2020 Annual Report on Form 10-K: Item 1A. Risk Factors, ~~as updated by Part II, Item 1A. Risk Factors in this report,~~ Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, as updated by Part I, Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations in this report, and Item 8. Financial Statements and Supplementary Data – Note 16, as updated by Part I, Item 1. Financial Statements – Note 8 in this report, and (b) other factors discussed herein and in other filings made by that registrant with the SEC.

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

Where to Find More Information

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

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:~~

~~2006 PlanMGE Energy's 2006 Performance Unit Plan~~

~~2013 PlanMGE Energy's 2013 Director Incentive Plan~~

~~2020 PlanMGE Energy's 2020 Performance Unit Plan~~

~~ACEAffordable Clean Energy~~

~~AFUDCAllowance for Funds Used During Construction~~

~~ATCAmerican Transmission Company LLC~~

~~ATC HoldcoATC Holdco, LLC~~

~~Badger Hollow IBadger Hollow I Solar Farm~~

~~Badger Hollow IIBadger Hollow II Solar Farm~~

~~BARTBest Available Retrofit Technology~~

~~BATBest Available Technology~~

~~BlountBlount Station~~

~~BSERBest System of Emissions Reductions~~

~~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~~

~~COVID-19Coronavirus Disease 2019~~

~~CSAPRCross-State Air Pollution Rule~~

~~DthDekatherms, a quantity measure for 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~~

~~FERCFederal Energy Regulatory Commission~~

~~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~~


MGE Energy and Subsidiaries:

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

Other Defined Terms:

2017 Tax Act	Tax Cut and Jobs Act of 2017
2021 Plan	MGE Energy's 2021 Long-Term Incentive Plan
ACE Rule	Affordable Clean Energy Rule
AFUDC	Allowance for Funds Used During Construction
ARO	Asset retirement obligation
ATC	American Transmission Company LLC
ATC Holdco	ATC Holdco, LLC
Badger Hollow I	Badger Hollow I Solar Farm
Badger Hollow II	Badger Hollow II Solar Farm
Blount	Blount Station
BTA	Best technology available
CA	Certificate of Authority
CCR	Coal Combustion Residual
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
COVID-19	Coronavirus Disease 2019
CPP Rule	Clean Power Plan Rule
CSAPR	Cross-State Air Pollution Rule
Dth	Dekatherms, a quantity measure for natural gas
ELG	Effluent Limitations Guidelines
electric margin	Electric revenues less fuel for electric generation and purchase power costs, a non-GAAP measure
Elm Road Units	Elm Road Generating Station
EPA	United States Environmental Protection Agency
FERC	Federal Energy Regulatory Commission
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

~~IRSInternal Revenue Service~~4

~~kWhKilowatt-hour, a measure of electric energy produced~~

~~MISOMidcontinent Independent System Operator (a regional transmission organization)~~

MW~~Megawatt, a measure of electric energy generating capacity~~

~~MWhMegawatt-hour, a measure of electric energy produced~~

~~NAAQSNational Ambient Air Quality Standards~~

NO_x~~Nitrogen Oxide~~

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

~~PHMDCPublic Health Madison & Dane County~~

~~PHMDC DirectivesPublic Health Madison & Dane County's Forward Dane Plan and related emergency orders~~

~~PPAPurchased Power Agreement~~

~~PSCWPublic Service Commission of Wisconsin~~

~~RiversideRiverside Energy Center~~

~~ROEReturn on Equity~~

~~SaratogaSaratoga Wind Farm~~

~~SCRSelective Catalytic Reduction~~

~~SECSecurities and Exchange Commission~~

SO₂~~Sulfur Dioxide~~

~~Stock PlanDirect Stock Purchase and Dividend Reinvestment Plan of MGE Energy~~

~~Tax ActTax Cuts and Jobs Act~~

~~Two CreeksTwo Creeks Solar Farm~~

~~VIEVariable Interest Entity~~

~~WCCFWest Campus Cogeneration Facility~~

~~WDNRWisconsin Department of Natural Resources~~

~~working capitalCurrent assets less current liabilities~~

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

~~XBRLeXtensible Business Reporting Language~~


IRS	Internal Revenue Service
kWh	Kilowatt-hour, a measure of electric energy produced
MISO	Midcontinent Independent System Operator (a regional transmission organization)
MW	Megawatt, a measure of electric energy generating capacity
MWh	Megawatt-hour, a measure of electric energy produced
NAAQS	National Ambient Air Quality Standards
NOx	Nitrogen oxide
O'Brien	O'Brien Solar Fields
PGA	Purchased Gas Adjustment clause, a regulatory mechanism used to reconcile natural gas costs recovered in rates to actual costs
PPA	Purchased Power Agreement
PSCW	Public Service Commission of Wisconsin
Riverside	Riverside Energy Center
ROE	Return on equity
Saratoga	Saratoga Wind Farm
SCR	Selective Catalytic Reduction
SEC	Securities and Exchange Commission
SIP	State Implementation Plan
SO2	Sulfur dioxide
Stock Plan	Direct Stock Purchase and Dividend Reinvestment Plan of MGE Energy
Two Creeks	Two Creeks Solar Farm
WCCF	West Campus Cogeneration Facility
WDNR	Wisconsin Department of Natural Resources
working capital	Current assets less current liabilities
WPL	Wisconsin Power and Light Company, a subsidiary of Alliant Energy Corporation
XBRL	eXtensible Business Reporting Language

Item 1. Financial Statements.

MGE Energy, Inc.

Consolidated Statements of Income (unaudited)

(In thousands, except per share amounts)

Three Months Ended

Nine Months Ended

September 30,

September 30,

2020

2019

2020

2019
Operating Revenues:

Electric revenues
$
116,568
$
120,821
$
303,556
$
315,367
Gas revenues

18,643

17,377

98,568

112,547
Total Operating Revenues

135,211

138,198

402,124

427,914

Operating Expenses:

Fuel for electric generation

12,945

15,901

31,343

40,221
Purchased power

10,708

9,126

32,050

31,013
Cost of gas sold

3,812

3,092

40,950

55,220
Other operations and maintenance

45,819

48,070

136,412

143,979
Depreciation and amortization

18,592

18,193

55,193

53,423
Other general taxes

5,010

5,078

14,892

15,026
Total Operating Expenses

96,886

99,460

310,840

338,882
Operating Income

38,325

38,738

91,284

89,032

Other income, net

6,534

5,204

19,131

15,074
Interest expense, net

(5,765)

(5,831)

(17,740)

(17,227)
Income before income taxes

39,094

38,111

92,675

86,879
Income tax provision

(7,300)

(7,454)

(16,053)

(16,667)
Net Income
$
31,794
$
30,657
$
76,622
$
70,212

Earnings Per Share of Common Stock

(basic and diluted)
$
0.88
$
0.88
$
2.16
$
2.03

Dividends per share of common stock
$
0.370
$
0.353
$
1.075
$
1.028

Weighted Average Shares Outstanding

(basic and diluted)

36,163

34,668

35,427

34,668

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


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2021			2020			2021			2020
Operating Revenues:
Electric revenues	$	121,853		$	116,568		$	324,574		$	303,556
Gas revenues		24,020			18,643			119,944			98,568
Total Operating Revenues		145,873			135,211			444,518			402,124

Operating Expenses:
Fuel for electric generation		18,486			12,945			42,570			31,343
Purchased power		8,646			10,708			28,914			32,050
Cost of gas sold		8,780			3,812			57,728			40,950
Other operations and maintenance		48,494			45,819			144,563			136,412
Depreciation and amortization		18,991			18,592			55,968			55,193
Other general taxes		4,878			5,010			14,730			14,892
Total Operating Expenses		108,275			96,886			344,473			310,840
Operating Income		37,598			38,325			100,045			91,284

Other income, net		6,164			6,534			14,353			19,131
Interest expense, net		(6,079	)		(5,765	)		(17,591	)		(17,740	)
Income before income taxes		37,683			39,094			96,807			92,675
Income tax provision		(2,766	)		(7,300	)		(4,106	)		(16,053	)
Net Income	$	34,917		$	31,794		$	92,701		$	76,622

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

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

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

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)

Nine Months Ended

September 30,

2020

2019

Operating Activities:

Net income
$
76,622
$
70,212

Items not affecting cash:

Depreciation and amortization

55,193

53,423

Deferred income taxes

8,464

4,864

Provision for doubtful receivables

1,078

978

Employee benefit plan credit

(2,813)

(2,866)

Equity earnings in investments

(7,780)

(6,879)

Other items

382

692

Changes in working capital items:

Decrease in current assets

5,494

14,307

Decrease in current liabilities

(8,808)

(24,088)

Dividends from investments

6,929

5,526

Cash contributions to pension and other postretirement plans

(4,576)

(3,707)

Other noncurrent items, net

5,826

(760)

Cash Provided by Operating Activities

136,011

111,702

Investing Activities:

Capital expenditures

(139,055)

(128,389)

Capital contributions to investments

(4,007)

(5,894)

Other

(1,298)

(248)

Cash Used for Investing Activities

(144,360)

(134,531)

Financing Activities:

Issuance of common stock, net

79,635

0

Cash dividends paid on common stock

(38,349)

(35,622)

Repayments of long-term debt

(22,784)

(3,405)

Issuance of long-term debt

19,300

0

Net proceeds from short-term debt

0

41,500

Other

(1,175)

(1,331)

Cash Provided by Financing Activities

36,627

1,142

Change in cash, cash equivalents, and restricted cash

28,278

(21,687)

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

25,814

84,929

Cash, cash equivalents, and restricted cash at end of period
$
54,092
$
63,242

Supplemental disclosures of cash flow information:

Significant noncash investing activities:

Accrued capital expenditures
$
23,594
$
16,819

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


	Nine Months Ended
	September 30,
	2021			2020
Operating Activities:
Net income	$	92,701		$	76,622
Items not affecting cash:
Depreciation and amortization		55,968			55,193
Deferred income taxes		1,955			8,464
Provision for doubtful receivables		1,163			1,078
Employee benefit plan cost (credit)		(935	)		(2,813	)
Equity earnings in investments		(7,440	)		(7,780	)
Other items		(618	)		382
Changes in working capital items:
(Increase) decrease in current assets		(11,240	)		5,494
Increase (decrease) in current liabilities		4,429			(8,808	)
Dividends from investments		5,842			6,929
Cash contributions to pension and other postretirement plans		(4,823	)		(4,576	)
Other noncurrent items, net		4,295			5,826
Cash Provided by Operating Activities		141,297			136,011

Investing Activities:
Capital expenditures		(114,142	)		(139,055	)
Capital contributions to investments		(4,227	)		(4,007	)
Other		22			(1,298	)
Cash Used for Investing Activities		(118,347	)		(144,360	)

Financing Activities:
Issuance of common stock, net		0			79,635
Cash dividends paid on common stock		(40,774	)		(38,349	)
Repayments of long-term debt		(3,567	)		(22,784	)
Issuance of long-term debt		100,000			19,300
Net repayments of short-term debt		(52,500	)		0
Other		(1,503	)		(1,175	)
Cash Provided by Financing Activities		1,656			36,627

Change in cash, cash equivalents, and restricted cash		24,606			28,278
Cash, cash equivalents, and restricted cash at beginning of period		47,039			25,814
Cash, cash equivalents, and restricted cash at end of period	$	71,645		$	54,092

Supplemental disclosures of cash flow information:
Significant noncash investing activities:
Accrued capital expenditures	$	8,213		$	23,594

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

MGE Energy, Inc.

Consolidated Balance Sheets (unaudited)

(In thousands)

September 30,
December 31,
ASSETS

2020

2019
Current Assets:

Cash and cash equivalents
$
53,058
$
23,481
Accounts receivable, less reserves of $4,636 and $2,820, respectively

39,177

40,482
Other accounts receivable, less reserves of $1,248 and $438 , respectively

9,828

7,940
Unbilled revenues

20,029

25,899
Materials and supplies, at average cost

33,608

26,287
Fuel for electric generation, at average cost

5,793

8,358
Stored natural gas, at average cost

10,022

10,637
Prepaid taxes

11,759

16,892
Regulatory assets - current

7,845

11,432
Other current assets

8,814

10,233
Total Current Assets

199,933

181,641
Other long-term receivables

1,662

1,811
Regulatory assets

126,929

134,314
Pension benefit asset

21,848

13,630
Other deferred assets and other

18,087

19,093
Property, Plant, and Equipment:

Property, plant, and equipment, net

1,536,567

1,530,199
Construction work in progress

197,594

112,484
Total Property, Plant, and Equipment

1,734,161

1,642,683
Investments

93,106

88,492
Total Assets
$
2,195,726
$
2,081,664

LIABILITIES AND CAPITALIZATION

Current Liabilities:

Long-term debt due within one year
$
19,742
$
19,659
Accounts payable

56,054

55,161
Accrued interest and taxes

5,789

7,244
Accrued payroll related items

11,625

12,752
Regulatory liabilities - current

3,585

9,228
Derivative liabilities

9,640

10,100
Other current liabilities

9,045

14,676
Total Current Liabilities

115,480

128,820
Other Credits:

Deferred income taxes

253,411

243,302
Investment tax credit - deferred

2,692

763
Regulatory liabilities

171,637

164,965
Accrued pension and other postretirement benefits

68,632

68,665
Derivative liabilities

6,340

15,340
Finance lease liabilities

17,795

17,379
Other deferred liabilities and other

65,772

63,013
Total Other Credits

586,279

573,427
Capitalization:

Common shareholders' equity

973,584

855,676
Long-term debt

520,383

523,741
Total Capitalization

1,493,967

1,379,417
Commitments and contingencies (see Footnote 8)

Total Liabilities and Capitalization
$
2,195,726
$
2,081,664

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


	September 30,		December 31,
ASSETS	2021		2020
Current Assets:
Cash and cash equivalents	$	70,454	$	44,738
Accounts receivable, less reserves of $4,937 and $5,787, respectively		43,162		41,384
Other accounts receivable, less reserves of $1,257 and $1,290, respectively		12,950		7,300
Unbilled revenues		22,973		27,511
Materials and supplies, at average cost		31,179		32,513
Fuel for electric generation, at average cost		3,724		6,356
Stored natural gas, at average cost		15,624		8,396
Prepaid taxes		12,983		15,179
Regulatory assets - current		8,060		14,748
Other current assets		12,976		11,394
Total Current Assets		234,085		209,519
Other long-term receivables		982		1,435
Regulatory assets		135,603		142,504
Pension benefit asset		25,594		13,873
Other deferred assets and other		27,868		22,259
Property, Plant, and Equipment:
Property, plant, and equipment, net		1,743,447		1,630,286
Construction work in progress		103,919		139,099
Total Property, Plant, and Equipment		1,847,366		1,769,385
Investments		99,236		94,676
Total Assets	$	2,370,734	$	2,253,651

LIABILITIES AND CAPITALIZATION
Current Liabilities:
Long-term debt due within one year	$	4,859	$	4,771
Short-term debt		0		52,500
Accounts payable		57,431		54,642
Accrued interest and taxes		7,769		8,539
Accrued payroll related items		12,109		12,635
Regulatory liabilities - current		31,293		41,664
Derivative liabilities		160		10,160
Other current liabilities		9,922		6,015
Total Current Liabilities		123,543		190,926
Other Credits:
Deferred income taxes		241,731		231,471
Investment tax credit - deferred		31,011		21,821
Regulatory liabilities		149,028		142,239
Accrued pension and other postretirement benefits		77,406		78,168
Derivative liabilities		0		3,980
Finance lease liabilities		17,828		17,532
Other deferred liabilities and other		86,591		72,211
Total Other Credits		603,595		567,422
Capitalization:
Common shareholders' equity		1,028,285		976,000
Long-term debt		615,311		519,303
Total Capitalization		1,643,596		1,495,303
Commitments and contingencies (see Footnote 8)
Total Liabilities and Capitalization	$	2,370,734	$	2,253,651

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 September 30, 2019

Beginning Balance
34,668
$
34,668
$
316,268
$
481,861
$
0
$
832,797

Net income

30,657

30,657

Common stock dividends declared

($0.353 per share)

(12,220)

(12,220)

Ending Balance - September 30, 2019
34,668
$
34,668
$
316,268
$
500,298
$
0
$
851,234

Three Months Ended September 30, 2020

Beginning Balance
36,163
$
36,163
$
394,408
$
524,600
$
0
$
955,171

Net income

31,794

31,794

Common stock dividends declared

($0.3700 per share)

(13,381)

(13,381)

Ending Balance - September 30, 2020
36,163
$
36,163
$
394,408
$
543,013
$
0
$
973,584

Nine Months Ended September 30, 2019

Beginning Balance
34,668
$
34,668
$
316,268
$
465,708
$
0
$
816,644

Net income

70,212

70,212

Common stock dividends declared

($1.028 per share)

(35,622)

(35,622)

Ending Balance - September 30, 2019
34,668
$
34,668
$
316,268
$
500,298
$
0
$
851,234

Nine Months Ended September 30, 2020

Beginning Balance
34,668
$
34,668
$
316,268
$
504,740
$
0
$
855,676

Net income

76,622

76,622

Common stock dividends declared

($1.075 per share)

(38,349)

(38,349)

Common stock issued, net
1,495

1,495

78,140

79,635

Ending Balance - September 30, 2020
36,163
$
36,163
$
394,408
$
543,013
$
0
$
973,584

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


										Accumulated
					Additional					Other
	Common Stock				Paid-in		Retained			Comprehensive
	Shares		Value		Capital		Earnings			Income/(Loss)		Total
Three Months Ended September 30, 2020
Beginning Balance		36,163	$	36,163	$	394,408	$	524,600		$	0	$	955,171
Net income								31,794					31,794
Common stock dividends declared ($0.370 per share)								(13,381	)				(13,381	)
Ending Balance - September 30, 2020		36,163	$	36,163	$	394,408	$	543,013		$	0	$	973,584

Three Months Ended September 30, 2021
Beginning Balance		36,163	$	36,163	$	394,686	$	576,452		$	0	$	1,007,301
Net income								34,917					34,917
Common stock dividends declared ($0.388 per share)								(14,013	)				(14,013	)
Equity-based compensation plans and other						80							80
Ending Balance - September 30, 2021		36,163	$	36,163	$	394,766	$	597,356		$	0	$	1,028,285
														��
Nine Months Ended September 30, 2020
Beginning Balance		34,668	$	34,668	$	316,268	$	504,740		$	0	$	855,676
Net income								76,622					76,622
Common stock dividends declared ($1.075 per share)								(38,349	)				(38,349	)
Common stock issued, net		1,495		1,495		78,140							79,635
Ending Balance - September 30, 2020		36,163	$	36,163	$	394,408	$	543,013		$	0	$	973,584

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

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

Nine Months Ended

September 30,

September 30,

2020

2019

2020

2019
Operating Revenues:

Electric revenues
$
116,568
$
120,821
$
303,556
$
315,367
Gas revenues

18,643

17,377

98,568

112,547
Total Operating Revenues

135,211

138,198

402,124

427,914

Operating Expenses:

Fuel for electric generation

12,945

15,901

31,343

40,221
Purchased power

10,708

9,126

32,050

31,013
Cost of gas sold

3,812

3,092

40,950

55,220
Other operations and maintenance

45,591

47,947

135,634

143,282
Depreciation and amortization

18,592

18,193

55,193

53,423
Other general taxes

5,010

5,078

14,892

15,026
Total Operating Expenses

96,658

99,337

310,062

338,185
Operating Income

38,553

38,861

92,062

89,729

Other income, net

4,093

2,672

11,005

7,837
Interest expense, net

(5,802)

(6,095)

(17,848)

(18,223)
Income before income taxes

36,844

35,438

85,219

79,343
Income tax provision

(6,611)

(6,687)

(14,028)

(14,579)
Net Income
$
30,233
$
28,751
$
71,191
$
64,764
Less: Net Income Attributable to Noncontrolling

Interest, net of tax

(5,493)

(5,614)

(16,754)

(16,725)
Net Income Attributable to MGE
$
24,740
$
23,137
$
54,437
$
48,039

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


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2021			2020			2021			2020
Operating Revenues:
Electric revenues	$	121,853		$	116,568		$	324,574		$	303,556
Gas revenues		24,020			18,643			119,944			98,568
Total Operating Revenues		145,873			135,211			444,518			402,124

Operating Expenses:
Fuel for electric generation		18,486			12,945			42,570			31,343
Purchased power		8,646			10,708			28,914			32,050
Cost of gas sold		8,780			3,812			57,728			40,950
Other operations and maintenance		48,315			45,591			143,978			135,634
Depreciation and amortization		18,991			18,592			55,968			55,193
Other general taxes		4,878			5,010			14,730			14,892
Total Operating Expenses		108,096			96,658			343,888			310,062
Operating Income		37,777			38,553			100,630			92,062

Other income, net		3,306			4,093			6,375			11,005
Interest expense, net		(6,089	)		(5,802	)		(17,623	)		(17,848	)
Income before income taxes		34,994			36,844			89,382			85,219
Income tax provision		(1,993	)		(6,611	)		(1,853	)		(14,028	)
Net Income	$	33,001		$	30,233		$	87,529		$	71,191
Less: Net Income Attributable to Noncontrolling
Interest, net of tax		(5,627	)		(5,493	)		(16,755	)		(16,754	)
Net Income Attributable to MGE	$	27,374		$	24,740		$	70,774		$	54,437

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

Madison Gas and Electric Company

Consolidated Statements of Cash Flows (unaudited)

(In thousands)

Nine Months Ended

September 30,

2020

2019

Operating Activities:

Net income
$
71,191
$
64,764

Items not affecting cash:

Depreciation and amortization

55,193

53,423

Deferred income taxes

7,334

3,653

Provision for doubtful receivables

1,078

978

Employee benefit plan credit

(2,813)

(2,866)

Other items

1,234

1,653

Changes in working capital items:

Decrease in current assets

3,352

14,236

Decrease in current liabilities

(5,212)

(22,234)

Cash contributions to pension and other postretirement plans

(4,576)

(3,707)

Other noncurrent items, net

5,090

(880)

Cash Provided by Operating Activities

131,871

109,020

Investing Activities:

Capital expenditures

(139,055)

(128,389)

Other

(1,512)

(477)

Cash Used for Investing Activities

(140,567)

(128,866)

Financing Activities:

Distributions to parent from noncontrolling interest

(16,000)

(17,000)

Capital contribution from parent

30,000

0

Repayments of long-term debt

(22,784)

(3,405)

Issuance of long-term debt

19,300

0

Net proceeds from short-term debt

0

41,500

Other

(1,144)

(1,133)

Cash Provided by Financing Activities

9,372

19,962

Change in cash, cash equivalents, and restricted cash

676

116

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

5,529

6,670

Cash, cash equivalents, and restricted cash at end of period
$
6,205
$
6,786

Supplemental disclosures of cash flow information:

Significant noncash investing activities:

Accrued capital expenditures
$
23,594
$
16,819

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


	Nine Months Ended
	September 30,
	2021			2020
Operating Activities:
Net income	$	87,529		$	71,191
Items not affecting cash:
Depreciation and amortization		55,968			55,193
Deferred income taxes		1,375			7,334
Provision for doubtful receivables		1,163			1,078
Employee benefit plan cost (credit)		(935	)		(2,813	)
Other items		864			1,234
Changes in working capital items:
(Increase) decrease in current assets		(11,777	)		3,352
Increase (decrease) in current liabilities		2,528			(5,212	)
Cash contributions to pension and other postretirement plans		(4,823	)		(4,576	)
Other noncurrent items, net		3,559			5,090
Cash Provided by Operating Activities		135,451			131,871

Investing Activities:
Capital expenditures		(114,142	)		(139,055	)
Other		(1,449	)		(1,512	)
Cash Used for Investing Activities		(115,591	)		(140,567	)

Financing Activities:
Distributions to parent from noncontrolling interest		(10,500	)		(16,000	)
Capital contribution from parent		0			30,000
Repayments of long-term debt		(3,567	)		(22,784	)
Issuance of long-term debt		100,000			19,300
Net repayments of short-term debt		(52,500	)		0
Other		(1,503	)		(1,144	)
Cash Provided by Financing Activities		31,930			9,372

Change in cash, cash equivalents, and restricted cash		51,790			676
Cash, cash equivalents, and restricted cash at beginning of period		6,404			5,529
Cash, cash equivalents, and restricted cash at end of period	$	58,194		$	6,205

Supplemental disclosures of cash flow information:
Significant noncash investing activities:
Accrued capital expenditures	$	8,213		$	23,594

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)

September 30,
December 31,
ASSETS

2020

2019
Current Assets:

Cash and cash equivalents
$
5,171
$
3,196
Accounts receivable, less reserves of $4,636 and $2,820, respectively

39,177

40,482
Affiliate receivables

530

530
Other accounts receivable, less reserves of $1,248 and $438 , respectively

9,824

7,936
Unbilled revenues

20,029

25,899
Materials and supplies, at average cost

33,608

26,287
Fuel for electric generation, at average cost

5,793

8,358
Stored natural gas, at average cost

10,022

10,637
Prepaid taxes

12,373

15,463
Regulatory assets - current

7,845

11,432
Other current assets

8,746

10,065
Total Current Assets

153,118

160,285
Affiliate receivable long-term

2,251

2,648
Regulatory assets

126,929

134,314
Pension benefit asset

21,848

13,630
Other deferred assets and other

18,509

19,680
Property, Plant, and Equipment:

Property, plant, and equipment, net

1,536,595

1,530,227
Construction work in progress

197,594

112,484
Total Property, Plant, and Equipment

1,734,189

1,642,711
Investments

461

209
Total Assets
$
2,057,305
$
1,973,477

LIABILITIES AND CAPITALIZATION

Current Liabilities:

Long-term debt due within one year
$
19,742
$
19,659
Accounts payable

56,035

54,845
Accrued interest and taxes

8,602

8,754
Accrued payroll related items

11,625

12,752
Regulatory liabilities - current

3,585

9,228
Derivative liabilities

9,640

10,100
Other current liabilities

9,048

12,683
Total Current Liabilities

118,277

128,021
Other Credits:

Deferred income taxes

223,021

214,041
Investment tax credit - deferred

2,692

763
Regulatory liabilities

171,637

164,965
Accrued pension and other postretirement benefits

68,632

68,665
Derivative liabilities

6,340

15,340
Finance lease liabilities

17,795

17,379
Other deferred liabilities and other

65,748

62,973
Total Other Credits

555,865

544,126
Capitalization:

Common shareholder's equity

721,723

637,286
Noncontrolling interest

141,057

140,303
Total Equity

862,780

777,589
Long-term debt

520,383

523,741
Total Capitalization

1,383,163

1,301,330
Commitments and contingencies (see Footnote 8)

Total Liabilities and Capitalization
$
2,057,305
$
1,973,477

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


	September 30,		December 31,
ASSETS	2021		2020
Current Assets:
Cash and cash equivalents	$	57,003	$	4,103
Accounts receivable, less reserves of $4,937 and $5,787, respectively		43,162		41,384
Affiliate receivables		532		532
Other accounts receivable, less reserves of $1,257 and $1,290, respectively		12,947		7,295
Unbilled revenues		22,973		27,511
Materials and supplies, at average cost		31,179		32,513
Fuel for electric generation, at average cost		3,724		6,356
Stored natural gas, at average cost		15,624		8,396
Prepaid taxes		13,210		14,848
Regulatory assets - current		8,060		14,748
Other current assets		12,884		11,326
Total Current Assets		221,298		169,012
Affiliate receivable long-term		1,721		2,118
Regulatory assets		135,603		142,504
Pension benefit asset		25,594		13,873
Other deferred assets and other		27,839		22,448
Property, Plant, and Equipment:
Property, plant, and equipment, net		1,743,475		1,630,314
Construction work in progress		103,919		139,099
Total Property, Plant, and Equipment		1,847,394		1,769,413
Investments		244		603
Total Assets	$	2,259,693	$	2,119,971

LIABILITIES AND CAPITALIZATION
Current Liabilities:
Long-term debt due within one year	$	4,859	$	4,771
Short-term debt		0		52,500
Accounts payable		57,404		54,576
Accrued interest and taxes		7,723		10,405
Accrued payroll related items		12,109		12,635
Regulatory liabilities - current		31,293		41,664
Derivative liabilities		160		10,160
Other current liabilities		9,922		6,042
Total Current Liabilities		123,470		192,753
Other Credits:
Deferred income taxes		210,071		200,390
Investment tax credit - deferred		31,011		21,821
Regulatory liabilities		149,028		142,239
Accrued pension and other postretirement benefits		77,406		78,168
Derivative liabilities		0		3,980
Finance lease liabilities		17,828		17,532
Other deferred liabilities and other		86,927		72,173
Total Other Credits		572,271		536,303
Capitalization:
Common shareholder's equity		801,190		730,416
Noncontrolling interest		147,451		141,196
Total Equity		948,641		871,612
Long-term debt		615,311		519,303
Total Capitalization		1,563,952		1,390,915
Commitments and contingencies (see Footnote 8)
Total Liabilities and Capitalization	$	2,259,693	$	2,119,971

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 September 30, 2019

Beginning balance
17,348
$
17,348
$
192,417
$
363,493
$
0
$
141,065
$
714,323
Net income

23,137

5,614

28,751
Distributions to parent from

noncontrolling interest

(5,500)

(5,500)
Ending Balance - September 30, 2019
17,348
$
17,348
$
192,417
$
386,630
$
0
$
141,179
$
737,574

Three Months Ended September 30, 2020

Beginning balance
17,348
$
17,348
$
252,917
$
426,718
$
0
$
143,064
$
840,047
Net income

24,740

5,493

30,233
Distributions to parent from

noncontrolling interest

(7,500)

(7,500)
Ending Balance - September 30, 2020
17,348
$
17,348
$
252,917
$
451,458
$
0
$
141,057
$
862,780

Nine Months Ended September 30, 2019

Beginning balance
17,348
$
17,348
$
192,417
$
338,591
$
0
$
141,454
$
689,810
Net income

48,039

16,725

64,764
Distributions to parent from

noncontrolling interest

(17,000)

(17,000)
Ending Balance - September 30, 2019
17,348
$
17,348
$
192,417
$
386,630
$
0
$
141,179
$
737,574

Nine Months Ended September 30, 2020

Beginning balance
17,348
$
17,348
$
222,917
$
397,021
$
0
$
140,303
$
777,589
Net income

54,437

16,754

71,191
Capital contributions from parent

30,000

30,000
Distributions to parent from

noncontrolling interest

(16,000)

(16,000)
Ending Balance - September 30, 2020
17,348
$
17,348
$
252,917
$
451,458
$
0
$
141,057
$
862,780

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


									Accumulated
					Additional				Other		Non-
	Common Stock				Paid-in		Retained		Comprehensive		Controlling
	Shares		Value		Capital		Earnings		Income/(Loss)		Interest			Total
Three Months Ended September 30, 2020
Beginning balance		17,348	$	17,348	$	252,917	$	426,718	$	0	$	143,064		$	840,047
Net income								24,740				5,493			30,233
Distributions to parent from noncontrolling interest												(7,500	)		(7,500	)
Ending Balance - September 30, 2020		17,348	$	17,348	$	252,917	$	451,458	$	0	$	141,057		$	862,780

Three Months Ended September 30, 2021
Beginning balance		17,348	$	17,348	$	252,917	$	503,551	$	0	$	144,824		$	918,640
Net income								27,374				5,627			33,001
Distributions to parent from noncontrolling interest												(3,000	)		(3,000	)
Ending Balance - September 30, 2021		17,348	$	17,348	$	252,917	$	530,925	$	0	$	147,451		$	948,641

Nine Months Ended September 30, 2020
Beginning balance		17,348	$	17,348	$	222,917	$	397,021	$	0	$	140,303		$	777,589
Net income								54,437				16,754			71,191
Capital contributions from parent						30,000									30,000
Distributions to parent from noncontrolling interest												(16,000	)		(16,000	)
Ending Balance - September 30, 2020		17,348	$	17,348	$	252,917	$	451,458	$	0	$	141,057		$	862,780

Nine Months Ended September 30, 2021
Beginning balance		17,348	$	17,348	$	252,917	$	460,151	$	0	$	141,196		$	871,612
Net income								70,774				16,755			87,529
Distributions to parent from noncontrolling interest												(10,500	)		(10,500	)
Ending Balance - September 30, 2021		17,348	$	17,348	$	252,917	$	530,925	$	0	$	147,451		$	948,641

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)

September 30, ~~2020~~2021

Summary of ~~Significant~~Significant Accounting Policies – MGE Energy and MGE.

Basis of Presentation.

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

MGE Power Elm Road and MGE Power West Campus own electric generating assets and lease those assets to MGE. Both entities are variable interest entities under applicable authoritative accounting guidance. MGE is considered the primary beneficiary of these entities as a result of contractual agreements. As a result, MGE has consolidated MGE Power Elm Road and MGE Power West Campus. See Footnote 3 of Notes to Consolidated Financial Statements under Item 8, Financial Statements and Supplementary Data, of MGE Energy's and MGE's ~~2019~~2020 Annual Report on Form 10-K (the ~~2019~~2020 Annual Report on Form 10-K).

The accompanying consolidated financial statements as of September 30, ~~2020,~~2021, and during the three and nine months ended, are unaudited but include all adjustments that MGE Energy and MGE management consider necessary for a fair statement of their respective financial statements. All adjustments are of a normal, recurring nature except as otherwise disclosed. The year-end consolidated balance sheet information was derived from the audited balance sheet appearing in the ~~2019~~2020 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 ~~107~~115 of the ~~2019~~2020 Annual Report on Form 10-K.

b.~~COVID-19.~~

With the global outbreak of the Coronavirus Disease 2019 (COVID-19) and the declaration of a pandemic by the World Health Organization on March 11, 2020, U.S. governmental authorities have deemed electric and gas utilities to be critical infrastructure. MGE Energy therefore has an obligation to keep operating and maintaining our critical electric and gas infrastructure. Since then, MGE Energy has been subject to, and is following, local, state and federal public health and safety regulations and guidance to control the pandemic.

MGE Energy's and MGE's consolidated financial statements reflect estimates and assumptions made by management that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and reported amounts of revenue and expenses during the reporting periods presented. MGE Energy and MGE considered the impact of COVID-19 developments on the assumptions and estimates used in the preparation of these financial statements.

c.Cash, Cash Equivalents, and Restricted Cash.

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

MGE Energy

MGE

September 30,

December 31,

September 30,

December 31,

(In thousands)

2020

2019

2020

2019

Cash and cash equivalents
$
53,058
$
23,481
$
5,171
$
3,196

Restricted cash

484

619

484

619

Receivable - margin account

550

1,714

550

1,714

Cash, cash equivalents, and restricted cash
$
54,092
$
25,814
$
6,205
$
5,529


	MGE Energy				MGE
	September 30,		December 31,		September 30,		December 31,
(In thousands)	2021		2020		2021		2020
Cash and cash equivalents	$	70,454	$	44,738	$	57,003	$	4,103
Restricted cash		641		644		641		644
Receivable - margin account		550		1,657		550		1,657
Cash, cash equivalents, and restricted cash	$	71,645	$	47,039	$	58,194	$	6,404

Cash Equivalents

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

Restricted Cash

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

Receivable – Margin Account

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

d.14

~~Trade Receivables, Allowance for Credit Losses,~~c.

Property, Plant, and ~~Concentration Risk.~~Equipment.

Columbia.

~~Trade accounts receivable are recorded at~~An asset that will be retired in the ~~invoiced amount~~near future and ~~do not bear interest. A 1% late payment charge is normally recorded on all receivables unpaid after the due date. In late March 2020, the 1% late payment charge was suspended~~substantially in response to the PSCW's COVID-19 order. The order also suspended disconnection or refusal of services to any customer, with limited exceptions. The PSCW order was lifted on July 25, 2020; however, as permitted by regulatory action, MGE notified the PSCWadvance of its ~~election~~previously expected retirement date is subject to ~~continue~~abandonment accounting. In the second quarter of 2021, the operator of Columbia received approval from MISO to ~~waive late fees until December 31, 2020. See Footnote 9.c.~~retire Columbia Units 1 and 2. The co-owners intend to retire Unit 1 by the end of 2023 and Unit 2 by the end of 2024. Final timing and retirement dates for ~~further information.~~

~~The allowance for credit losses associated with these receivables represents MGE's best estimate~~Units 1 and 2 are subject to PSCW and regional reviews, including identification and approval of ~~the amount of probable credit losses for existing accounts receivable. MGE manages concentration of credit risk through its credit~~energy and collection policies, which are consistent with state regulatory requirements. The allowance for credit losses is estimated based on historical write-off experience, regional economic data, review of the accounts receivable aging, and reasonable and supportable forecasts that affect the collectability of the reported amount. MGE has considered the effects of COVID-19 developments and associated governmental regulations, including suspension of disconnections for non-payment, in its estimate of allowance for credit losses by applying data from historical recessions and other significant economic downturns.

capacity resources to replace Columbia. As of September 30, ~~2020, MGE had a reserve balance~~2021, early retirement of ~~$5.9~~Columbia was probable. The net book value of our ownership share of this generating unit was $161.6 million ~~against accounts receivable. During the three and nine months ended~~as of September 30, ~~2020,~~2021. This amount was classified as plant to be retired within "Property, plant, and equipment, net" on the consolidated balance sheets. Assets for Columbia Unit 1 and Unit 2 are currently included in rate base, and MGE continues to depreciate them on a straight-line basis using the composite depreciation rates approved by the PSCW that included retirement dates of 2029 for Unit 1 and 2038 for Unit 2. If it becomes probable that regulators will disallow full recovery or a return on the remaining net book value of a generating unit that is either abandoned or probable of being abandoned, an impairment loss would be required. An impairment loss would be recorded ~~$0.3 million and $0.9 million in write-offs, respectively. During~~for the ~~three and nine months ended September 30, 2020, MGE recorded $1.1 million and $3.5 million~~difference of ~~additional reserves, respectively, which include estimated impacts~~the remaining net book value of ~~COVID-19. The PSCW issued a deferral accounting order for deferral~~the generating unit that is greater than the present value of ~~incremental COVID-19-related costs. Recovery of these costs are~~the amount expected to be ~~addressed in future rate proceedings. As~~recovered from ratepayers. NaN impairment was recorded as of September 30, ~~2020, MGE had deferred $2.5 million of incremental COVID-19-related costs as a regulatory asset. See Footnote 9.c. for further information.~~

2021.

2.New Accounti

~~New Accounting~~ng Standards - MGE Energy and MGE.

~~Recently Adopted~~

~~Credit Losses.~~

~~In June 2016, the Financial Accounting Standards Board issued~~MGE Energy and MGE reviewed FASB authoritative guidance ~~within the codification's Credit Losses topic,~~recently issued, none of which ~~introduced a new model for recognizing credit losses on financial instruments based on an estimate of current~~are expected ~~credit losses. The authoritative guidance became effective January 1, 2020. MGE adopted the standard on the effective date. The adoption of this standard did not~~to have a material impact on ~~MGE Energy's and MGE's~~the consolidated results of operations, financial ~~statements. New disclosures are required under the new standard. See Footnote 1.d. for allowance for credit loss disclosures.~~condition, or cash flows.

3.Investme

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

ATC owns and operates electric transmission facilities primarily in Wisconsin. MGE received an interest in ATC when it, like other Wisconsin electric utilities, contributed its electric transmission facilities to ATC as required by Wisconsin law. That interest is presently held by MGE Transco, a subsidiary of MGE Energy. ATC Holdco was formed by several members of ATC, including MGE Energy, to pursue electric transmission development and investments outside of Wisconsin. The ownership interest in ATC Holdco is held by MGEE Transco, a subsidiary of MGE Energy.

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

Three Months Ended

Nine Months Ended

September 30,

September 30,

(In thousands)

2020

2019

2020

2019

Equity earnings from investment in ATC
$
2,319
$
2,364
$
7,724
$
6,879

Dividends from investments

2,349

1,781

6,620

5,526

Capital contributions to ATC

359

888

892

2,131


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

ATC Holdco was formed in December ~~2016 to pursue transmission development opportunities which typically have long development and investment lead times before becoming operational.~~2016. ATC Holdco's ~~future~~ transmission development activities have been suspended for the near term.

~~In October 2020, MGE Transco made a $0.4 million capital contribution to ATC.~~

~~ATC~~'sATC's summarized financial data is as follows:

Three Months Ended

Nine Months Ended

September 30,

September 30,

(In thousands)

2020

2019

2020

2019

Operating revenues
$
187,833
$
184,833
$
577,705
$
544,760

Operating expenses

(92,975)

(94,713)

(285,697)

(278,673)

Other income, net

643

484

1,924

1,031

Interest expense, net

(28,801)

(29,165)

(83,947)

(87,121)

Earnings before members' income taxes
$
66,700
$
61,439
$
209,985
$
179,997


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(In thousands)	2021			2020			2021			2020
Operating revenues	$	186,785		$	187,833		$	561,379		$	577,705
Operating expenses		(91,340	)		(92,975	)		(278,828	)		(285,697	)
Other income, net		123			643			1,164			1,924
Interest expense, net		(28,674	)		(28,801	)		(86,337	)		(83,947	)
Earnings before members' income taxes	$	66,894		$	66,700		$	197,378		$	209,985

MGE receives transmission and other related services from ATC. During the three and nine months ended September 30, ~~2020,~~2021, MGE recorded ~~$7.7~~$8.0 million and ~~$23.0~~$24.0 million, respectively, for transmission services received compared to ~~$7.6~~$7.7 million and ~~$22.8~~$23.0 million for the comparable periods in ~~2019.~~2020. MGE also provides a variety of operational, maintenance, and project management ~~services~~work for ATC, which ~~are~~is reimbursed by ATC. As of September 30, ~~2020,~~2021, and December 31, ~~2019,~~2020, MGE had a receivable due from ATC of ~~$2.7~~$4.7 million and ~~$1.6~~$2.6 million, respectively. The receivable ~~includes expenditures~~is primarily related to ~~fund transmission infrastructure upgrades at~~ Badger Hollow I and ~~II and Two Creeks.~~II. MGE ~~will be~~is reimbursed for these costs after the new

generation assets ~~have been~~are placed into service.

4.Taxes - MGE E

~~Taxes~~ ~~- MGE Energy~~nergy and MGE.

Effective Tax Rate.

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

MGE Energy

MGE

Three Months Ended September 30,
2020

2019

2020

2019

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
(5.0)

(4.8)

(5.4)

(5.2)

AFUDC equity, net
(1.1)

(0.4)

(1.2)

(0.4)

Amortization of utility excess deferred tax - tax reform^(a)
(2.0)

(1.9)

(2.2)

(2.1)

Other, net, individually insignificant
(0.4)

(0.5)

(0.4)

(0.5)

Effective income tax rate
18.7
%

19.6
%

17.9
%

18.9
%

MGE Energy

MGE

Nine Months Ended September 30,
2020

2019

2020

2019

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
(6.1)

(5.6)

(6.6)

(6.1)

AFUDC equity, net
(1.3)

(0.3)

(1.4)

(0.3)

Amortization of utility excess deferred tax - tax reform^(a)
(2.4)

(2.2)

(2.6)

(2.4)

Other, net, individually insignificant
(0.1)

0.1

0

0.1

Effective income tax rate
17.3
%

19.2
%

16.5
%

18.4
%


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


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

(a)

Included are impacts of the 2017 Tax ~~Cuts and Jobs~~ Act for the regulated utility for excess deferred taxes recognized using a normalization method of ~~accounting. During~~accounting in recognition of IRS rules that restrict the rate at which the excess deferred taxes may be returned to utility customers. For the three months ended September 30, 2021 and 2020, MGE recognized $0.7 million. For the nine months ended September 30, 2021 and 2020, MGE recognized $2.0 million. Included in the 2021 rate settlement was a one-time return to customers of the electric portion of excess deferred taxes related to the 2017 Tax Act not restricted by IRS normalization rules. For the three and nine months ended September 30, ~~2020,~~2021, MGE recognized ~~$0.7~~$3.3 million and ~~$2.0~~$9.9 million, respectively, compared to $0.6 million and $1.7 million for the comparable periods in 2019. The amount and timing of the cash impacts will depend on the period over which certain income tax benefits are provided to customers, as determined by the PSCW.respectively.

5.Pensi

~~Pension~~on and Other Postretirement Plans - MGE Energy and MGE.

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

The components of net periodic benefit cost, other than the service cost component, are recorded in "~~Other~~"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. MGE has regulatory treatment and recognizes regulatory assets or liabilities for timing differences between when net periodic benefit costs are recovered and when costs are recognized.

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

Three Months Ended

Nine Months Ended

September 30,

September 30,

(In thousands)

2020

2019

2020

2019

Pension Benefits

Components of net periodic benefit cost:

Service cost
$
1,324
$
1,040
$
3,972
$
3,402

Interest cost

3,052

3,170

9,157

10,364

Expected return on assets

(6,807)

(5,054)

(20,422)

(16,523)

Amortization of:

Prior service credit

(31)

(26)

(93)

(85)

Actuarial loss

1,339

1,637

4,018

5,351

Net periodic benefit (credit) cost
$
(1,123)
$
767
$
(3,368)
$
2,509

Postretirement Benefits

Components of net periodic benefit cost:

Service cost
$
316
$
276
$
948
$
829

Interest cost

570

721

1,709

2,164

Expected return on assets

(789)

(677)

(2,366)

(2,034)

Amortization of:

Transition obligation

1

1

2

2

Prior service credit

(667)

(664)

(2,001)

(1,994)

Actuarial loss

55

100

165

300

Net periodic benefit (credit) cost
$
(514)
$
(243)
$
(1,543)
$
(733)


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

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

As ~~a result of lower investment returns in the fourth quarter of 2018, pension and postretirement benefit costs increased in 2019. In August 2019,~~approved by the PSCW, ~~approved~~ MGE'~~s request~~ is allowed to defer ~~the difference~~differences between ~~estimated pension and other postretirement costs included in the 2019 and 2020 rate settlement and~~ actual ~~expense incurred. MGE expects that the deferred cost for~~ employee benefit ~~plans will~~plan costs and costs reflected in current rates. The deferred costs may be ~~factored into future~~recovered or refunded in MGE's next rate proceedings. During 2019, MGE deferred approximately $6.2 million of pension and other post-retirement costs. MGE expects actual costs will be lower than the amount included in the 2020 rate settlement, which will reduce the regulatory asset that MGE expects to be factored into future rate proceedings.filing. During the three and nine months ended September 30, ~~2020,~~2021, MGE ~~collected approximately $0.2~~recovered $0.3 million and ~~$0.7~~$3.9 million ~~respectively,~~ of pension and other postretirement costs, ~~which~~respectively, compared to $0.2 million and $0.7 million for the comparable periods in 2020. The recovery of these costs reduced the amount previously deferred and has not been reflected in ~~2019.~~ the table above.

During the three and nine months ended September 30, ~~2019,~~2021, MGE deferred ~~approximately $1.3~~$2.8 million and ~~$4.6~~$5.4 million, respectively, of ~~pension~~savings from 2021 employee benefit plan costs and ~~postretirement costs.~~recorded as a regulatory liability. The ~~impact of this deferral~~deferred savings has not been reflected in the table above.

Equity and ~~Financing~~Financing Arrangements.

Common Stock - MGE Energy.

MGE Energy sells shares of its common stock through its Direct Stock Purchase and Dividend Reinvestment Plan (the Stock Plan). Those shares may be newly issued shares or shares that are purchased in the open market by an independent agent for participants in the Stock Plan. All sales under the Stock Plan are covered by a shelf registration statement that MGE Energy filed with the SEC. During the three and nine months ended September 30, ~~2020 and 2019,~~2021, MGE Energy issued 0 new shares of common stock under the Stock Plan.

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

Dilutive Shares Calculation - MGE Energy.

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

~~MGE Energy has 0 dilutive securities issued.~~

Long-term Debt - MGE Energy and MGE.

In ~~April 2020,~~May 2021, MGE ~~borrowed $19.3~~entered into a private placement Note Purchase Agreement in which it committed to issue $60 million ~~from the City~~ of ~~Madison, Wisconsin's issuance of Industrial Development Revenue Refunding Bonds (Madison Gas and Electric Company Project)~~new long-term debt (Series A), ~~Series 2020A. The bonds carry~~carrying an interest rate of ~~2.05%~~2.48% per annum ~~with interest payable semi-annually on April 1~~over its 10-year life, and October 1 of each year, which commenced on October 1, 2020. The bonds require their holder to tender them on April 30, 2023, at which time the bonds will either be repriced and remarketed or redeemed and retired. MGE used the proceeds to redeem at par $19.3$40 million of ~~existing Industrial Development Revenue Refunding Bonds (Madison Gas~~new long-term debt (Series B), carrying an interest rate of 2.63% per annum over its 12-year life. Funding occurred on June 15, 2021, for Series B and ~~Electric Company Project),~~August 27, 2021, for Series ~~2002B due October 1, 2027.~~

A. The ~~funds for the loan were provided by a purchaser~~proceeds of the ~~bonds pursuant~~debt financing will be used to ~~a Bond Purchase~~assist with capital expenditures and ~~Covenants Agreement between that purchaser and MGE. That Agreement requires MGE to maintain a ratio~~other corporate obligations. The covenants of ~~consolidated indebtedness to consolidated total capitalization not to exceed a maximum of 65%. Both consolidated indebtedness and consolidated total capitalization~~this debt are ~~to be determined in accordance~~substantially consistent with ~~GAAP, except that amounts included within~~ MGE's indebtedness and capitalization from "variable interest entities" are excluded. A change of control constitutes a default under the Bond Purchase Agreement. Change in control events are defined as (i) a failure by MGE Energy to hold 100% of the outstanding voting equity interest in MGE or (ii) the acquisition of beneficial ownership of 30% or more of the outstanding voting stock of MGE Energy by one person or two or more persons acting in concert. The ratio, and its calculation, and the change of control provision reflect the provisions contained in MGE’s credit agreements.existing unsecured long-term debt.

7.Share-Based C

~~Share-Based Compensation~~ompensation - MGE Energy and MGE.

~~2013 Director Incentive Plan and 2006 Performance Unit Plan~~

~~Under MGE Energy~~'s 2013 Director Incentive Plan (the 2013 Plan) and its 2006 Performance Unit Plan (the 2006 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 accordance with the plans' provisions, these awards are subject to prescribed vesting schedules and must be settled in cash. Accordingly, 0 shares of common stock will be issued in connection with the plans.

~~In 2020, 5,048 units were granted under the 2013 Plan and are subject to a~~ ~~three-year graded vesting schedule.~~ NaN units were granted under the 2006 Plan in 2020 in view of the adoption of the 2020 Performance Unit Plan described below. On the grant date, the cost of the director or employee services received in exchange for a performance unit award is measured based on the current market value of MGE Energy common stock. The fair value of the awards is remeasured quarterly, including as of September 30, 2020, as required by applicable accounting standards. Changes in quarterly fair value as well as the original grant are recognized as compensation cost. Since this amount is remeasured throughout the vesting period, the compensation cost is subject to variability.

For nonretirement eligible employees under the 2006 Plan, stock-based compensation costs are accrued and recognized using the graded vesting method. Compensation cost for retirement eligible employees or employees that will become retirement eligible during the vesting schedule are recognized on an abridged horizon as retirement eligibility accelerates vesting.

During the three months ended September 30, 2020 and 2019, MGE recorded $0.1 million and $0.9 million, respectively, in compensation expense as a result of awards under the 2013 Plan and 2006 Plan. During the nine months ended September 30, 2020 and 2019, MGE recorded $0.3 million in compensation benefit and $2.8 million in compensation expense, respectively, as a result of awards under the 2013 Plan and 2006 Plan. In January 2020, cash payments of $2.0 million were distributed relating to awards that were granted in a prior year under the plans. NaN forfeitures of units occurred during the three and nine months ended September 30, 2020 and 2019. As of September 30, 2020, $3.4 million of outstanding awards are vested. Of this amount, no cash settlements have occurred as cash

~~payments are only made at the end of the period covered by the awards.~~

~~2020 Performance Unit Plan~~

The 2020 Performance Unit Plan (the 2020 Plan) was adopted in February 2020 for eligible employees. Plan participants may receive awards of performance units, restricted units, or both. Performance units 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, based upon achievement of specified performance goals during a performance period set by the Compensation Committee of MGE Energy's Board of Directors. Restricted units 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 a defined time period. Awards are subject to vesting provisions providing for 100% vesting at the end of the performance period, in the case of performance units, and at the end of the defined time period in the case of restricted units. The performance units and restricted units will be paid out in cash and are accounted for as a liability award. NaN shares of common stock will be issued in connection with the 2020 Plan.

In April 2020, 9,822 performance units and 9,822 restricted units were granted under the 2020 Plan. The 2020 performance units contain market and performance conditions. The market condition is based on total shareowner return relative to an investor-owned utility peer group. The performance condition is based on achievement of targets specified in the award agreement (such as an earnings growth target). The fair value of each performance unit is based on the fair value of the underlying common stock on the grant date and the probability of satisfying the market and performance conditions contained in the award agreement during the ~~three-year performance period. The actual payments upon vesting depends upon actual performance and may range from~~ ~~0 to 200% of the granted number of performance units. The 2020 restricted units will vest based on a~~ ~~three-year cliff vesting schedule.~~

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

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

8.In February 2021, MGE issued 10,187

~~Commitments~~ performance units and ~~Contingencies.~~16,267 restricted stock units under the 2021 Plan to eligible employees and non-employee directors.

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

Environmental - MGE Energy and MGE.

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

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

These initiatives, proposed rules, and court challenges include:



•

The EPA's promulgated water ~~effluent limitations guidelines~~Effluent Limitations Guidelines (ELG) and standards for steam electric power plants which focus on the reduction of metals and other pollutants in wastewater from new and existing power plants. The standards were finalized in August 2020.

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

The Elm Road Units must satisfy the rule's requirements no later than December 31, 2023, as determined by the permitting authority. The operator of the Elm Road Units ~~is analyzing~~has been evaluating the ~~rule's impact~~rule impacts and ~~expects to have cost estimates in early 2021.~~has conducted an analysis of compliance obligations, pollution prevention technologies, and their associated costs. In February 2021, MGE ~~expects to continue to work with~~and the other co-owners of the Elm Road ~~operator~~Units filed a CA application with the PSCW. If approved, MGE's share of the estimated costs to ~~determine~~comply with the rule is estimated to be approximately $4 million. Subject to approval from the PSCW, construction is expected ~~costs and timing of compliance. MGE does not expect this rule~~ to ~~have a material effect on Columbia.~~begin in 2022.

•

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

~~(trapping~~ (trapping aquatic life on screens).

Blount's Wisconsin Pollution Discharge Elimination System permit assumes that the plant meets BTA for the duration of the permit, which expires in 2023. However, MGE must conduct studies of its Blount plant by the end of 2021 to help regulators determine ~~BAT.~~ BTA.

Columbia's ~~operator must also conduct studies~~river intakes are subject to ~~help determine BAT. Future BAT requirements at Blount and~~this rule. BTA improvements may not be required given that Columbia ~~will~~could be ~~established by~~fully retired before the ~~WDNR based on the results~~issuance of ~~these intake studies and will be specified in~~ the next ~~facility discharge permits~~permit, which is expected to be issued in 2023 or later. MGE will continue to work with Columbia's operator to evaluate all regulatory requirements applicable to the planned retirements. MGE does not expect this rule to have a material effect on its existing plants.

•

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

In ~~2019,~~January 2021, the U.S. Court of Appeals for the District of Columbia Circuit (D.C. Circuit) vacated and remanded to the EPA ~~published a final rule creating~~ the Affordable Clean Energy ~~(ACE) rule to reduce~~Rule (ACE Rule) and the repeal of the predecessor Clean Power Plan Rule (CPP Rule), both of which regulated greenhouse gas emissions from existing ~~coal-fired EGUs. The ACE rule directs states~~electric generation units pursuant to submit plans to the EPA for approval that implement standards of performance (called Best System of Emissions Reductions, or BSER) for individual coal-fired EGUs over 25 MW. The ACE rule defines BSER as on-site "inside the fenceline," heat-rate efficiency improvements. Under the ACE rule, states have the primary role in developing standards of performance that result from the application of BSER. States have three years to develop and submit compliance plans to the EPA. The EPA will have a year to review and approve those plans. States are then given 24 months from the approval date to implement the plan and can extend the compliance schedule for units that meet progress milestones.

The ACE rule applies to Columbia and the Elm Road Units. The State of Wisconsin has begun to develop an implementation plan and has shared its preliminary work with Wisconsin utilities. MGE is actively monitoring state activity on BSER development. Until the State of Wisconsin completes a plan that is accepted by the EPA, MGE cannot conclusively determine the final impact of the rule. Additionally, the ACE rule and repealSection 111(d) of the Clean ~~Power Plan~~Air Act. As a result of these legal proceedings, neither the CPP nor ACE rules are ~~subject to a legal challenge pending~~currently in ~~the United States District Court of the District of Columbia.~~effect. MGE will continue to evaluate the ~~plan developments within the state~~rule development and monitor ongoing and potential legal ~~proceedings associated with the ACE rule.~~proceedings.

•

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

In May ~~2018,~~2021, the EPA ~~issued~~published a final rule that ~~designated the northeast portion~~expands several nonattainment areas in Wisconsin to include all of Milwaukee County ~~as being in nonattainment with this NAAQS. The~~where MGE's Elm Road Units are ~~located~~located. The Wisconsin Department of Natural Resources (WDNR) will need to develop a State

Implementation Plan (SIP) for the area, which will likely result in ~~Milwaukee County, outside~~more stringent requirements for both new development and existing plants in the ~~designated nonattainment~~ area. ~~In August 2018, several environmental groups,~~MGE will monitor the ~~City of Chicago,~~WDNR's SIP development and the ~~State of Illinois filed federal lawsuits challenging several of~~extent to which the ~~EPA's attainment designation decisions, including~~requirements will impact the partial Milwaukee County designation as being too narrow and not sufficiently protective. In July 2020, the United States District Court of the District of Columbia remanded the partial Milwaukee County attainment designation back to the EPA for further explanation. MGE is monitoring the outcome of the EPA’s remand analysis and how it may affect our Elm Road ~~Units in Milwaukee County.~~Units. At this time, MGE ~~expects~~does not expect that the 2015 Ozone NAAQS will ~~not~~ have a material effect on its existing plants based on final designations.

•

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

The EPA's CSAPR and its progeny are a suite of interstate air pollution transport rules designed to reduce ozone and fine particulate (PM2.5) air levels in areas that the EPA has determined as being significantly impacted by pollution from upwind states. In September 2019, the ~~U.S. Court of Appeals held~~D.C. Circuit remanded the rule to the EPA holding that the ~~EPA cannot provide~~rule improperly provided only a partial remedy ~~to the Clean Air Act's "Good Neighbor Provision," which addresses~~for addressing interstate transport of pollutants from upwind ~~states~~ to downwind states. ~~Wisconsin is considered an upwind and downwind state under CSAPR and is potentially impacted by rules that~~In March 2021, the EPA ~~will develop~~

~~to address this remand.~~addressed the remand by finalizing its revised CSAPR Update Rule. The revised rule does not require further emission reductions from Wisconsin stationary sources beyond those under the original CSAPR. MGE has met its current CSAPR obligations through a combination of reduced emissions through pollution control (e.g., SCR installation at Columbia), ~~as well as~~and owned, received, and purchased allowances. ~~While uncertainty remains around CSAPR due to legal challenges,~~ MGE expects to meet ongoing CSAPR obligations for the foreseeable future. MGE will continue to monitor legal developments ~~in EPA revisions after the remand~~ and any ~~ongoing litigation over 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 the continued legal challenges surrounding CSAPR and CAVR. MGE will continue to monitor developmentsfuture updates to this rule.

•

The EPA's Coal Combustion Residuals Rule (CCR), which regulates as a solid waste 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.

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

Review of the Elm Road Units has indicated that the costs to comply with this rule are not expected to be significant. Columbia's operator has completed a review of its system and has developed a compliance plan. ~~Columbia's operator~~In July 2021, the PSCW approved a CA application filed by MGE and the other owners of Columbia to install technology required to cease bottom ash transport water discharges rather than extend the longevity of the ash ponds. MGE's share of the estimated costs of the project will be approximately $4 million. Construction is ~~also exploring alternative compliance options~~expected to ~~meet the rule requirements~~be completed by the ~~rule's deadline. MGE will continue to monitor the operator's plans for compliance to assess potential impacts on operations.~~end of 2022.

In December 2019, the EPA introduced a proposed rule to revise some of the closure standards that are in the 2015 CCR Rule. If the proposed rule is finalized, MGE does not anticipate that it will have a material impact on our operations.

Legal Matters - MGE Energy and MGE.

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

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

Purchase Contracts - MGE Energy and MGE.

MGE Energy and MGE have entered into various commodity supply, transportation, and storage contracts to meet their obligations to deliver electricity and natural gas to customers. Management expects to recover these costs in future customer rates. The following table shows future commitments related to purchase contracts as of September 30, ~~2020:~~2021:

(In thousands)

2020

2021

2022

2023

2024

Thereafter

Coal^(a)
$
6,381
$
6,405
$
6,439
$
1,515
$
0
$
0

Natural gas

Transportation and storage^(b)

6,260

21,854

22,008

22,008

22,008

36,603

Supply^(c)

8,541

12,567

0

0

0

0

$
21,182
$
40,826
$
28,447
$
23,523
$
22,008
$
36,603


(In thousands)	2021		2022		2023		2024		2025		Thereafter
Coal(a)	$	5,050	$	12,400	$	6,447	$	1,617	$	894	$	0
Natural gas
Transportation and storage(b)		6,665		23,305		23,919		23,919		23,919		25,210
Supply(c)		21,432		20,033		0		0		0		0
Other		3,897		3,192		1,676		890		104		892
	$	37,044	$	58,930	$	32,042	$	26,426	$	24,917	$	26,102

(a)

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

(b)

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

(c)

These commitments include market-based pricing.

Rate Proceedings.

As of September 30, ~~2020,~~2021, MGE had ~~deferred~~ ~~$2.0 million~~ ~~of 2020 fuel savings.~~0 deferred 2021 fuel savings or costs.

Notional Amounts.

Financial Statement Presentation.

(a)

As of September 30, ~~2020,~~2021, MGE received collateral of ~~$0.7~~$9.2 million ~~was posted against derivative positions owed to~~from counterparties under a master netting agreement onfor outstanding exchange traded derivative positions. The fair value of the ~~consolidated balance sheet.~~derivative asset disclosed in this table has not been reduced for the collateral received.

(b)

NAso collateral was posted against derivative positions as of December 31, ~~2019, collateral of $1.5 million was posted against and netted with derivative liability positions on the consolidated balance sheets.~~2020.

Realized Losses (Gains)

2020

2019
(In thousands)

Fuel for Electric Generation/ Purchased Power

Cost of Gas Sold

Fuel for Electric Generation/ Purchased Power

Cost of Gas Sold
Three Months Ended September 30:

Commodity derivative contracts
$
680
$
28

$
471
$
83
FTRs

184

0

(429)

0
PPA

753

0

(505)

0

Nine Months Ended September 30:

Commodity derivative contracts
$
2,303
$
1,682

$
1,038
$
460
FTRs

78

0

(503)

0
PPA

880

0

(1,257)

0

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~~treatment described ~~treatment,~~above, there are no unrealized gains or losses that flow through earnings.

The PPA has a provision that may require MGE to post collateral if MGE's debt rating falls below investment grade (i.e., below BBB-). The amount of collateral that it may be required to post varies from ~~$20.0~~$20.0 million to ~~$40.0~~$40.0 million, depending on MGE's nominated capacity amount. As of September 30, ~~2020,~~ 2021, 0 collateral was required to be, or had been, posted. Certain counterparties extend MGE a credit limit. If MGE exceeds these limits, the counterparties may require collateral to be posted. As of September 30, ~~2020,~~2021, and December 31, ~~2019,~~2020, 0 counterparties were in a net liability position.

Nonperformance of counterparties to the non-exchange traded derivatives could expose MGE to credit loss. However, MGE enters into transactions only with companies that meet or exceed strict credit guidelines, and it monitors these counterparties on an ongoing basis to mitigate nonperformance risk in its portfolio. As of September 30, ~~2020,~~ 2021, 0 counterparties had defaulted.

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

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

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

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

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

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

The estimated fair market value ~~offinancial~~of financial instruments are as follows:

September 30, 2020

December 31, 2019

(In thousands)

Carrying Amount

Fair Value

Carrying Amount

Fair Value

MGE Energy

Assets:

Cash and cash equivalents
$
53,058
$
53,058
$
23,481
$
23,481

Liabilities:

Long-term debt^(a)

544,395

658,008

547,879

611,909

MGE

Assets:

Cash and cash equivalents
$
5,171
$
5,171
$
3,196
$
3,196

Liabilities:

Long-term debt^(a)

544,395

658,008

547,879

611,909


	September 30, 2021				December 31, 2020
(In thousands)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
MGE Energy
Assets:
Cash and cash equivalents	$	70,454	$	70,454	$	44,738	$	44,738
Liabilities:
Short-term debt - commercial paper		0		0		52,500		52,500
Long-term debt(a)		624,653		692,987		528,220		639,271

MGE
Assets:
Cash and cash equivalents	$	57,003	$	57,003	$	4,103	$	4,103
Liabilities:
Short-term debt - commercial paper		0		0		52,500		52,500
Long-term debt(a)		624,653		692,987		528,220		639,271

(a)

Includes long-term debt due within one year. Excludes debt issuance costs and unamortized discount of ~~$4.3~~$4.5 million and ~~$4.5~~$4.1 million as of September 30, ~~2020,~~2021, and December 31, ~~2019,~~2020, respectively.

Recurring Fair Value Measurements.

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

Fair Value as of September 30, 2020

(In thousands)

Total

Level 1

Level 2

Level 3

MGE Energy

Assets:

Derivatives, net^(b)
$
2,521
$
1,975
$
0
$
546

Exchange-traded investments

1,781

1,781

0

0

Total Assets
$
4,302
$
3,756
$
0
$
546

Liabilities:

Derivatives, net
$
16,538
$
265
$
0
$
16,273

Deferred compensation

3,349

0

3,349

0

Total Liabilities
$
19,887
$
265
$
3,349
$
16,273

MGE

Assets:

Derivatives, net^(b)
$
2,521
$
1,975
$
0
$
546

Exchange-traded investments

461

461

0

0

Total Assets
$
2,982
$
2,436
$
0
$
546

Liabilities:

Derivatives, net
$
16,538
$
265
$
0
$
16,273

Deferred compensation

3,349

0

3,349

0

Total Liabilities
$
19,887
$
265
$
3,349
$
16,273

Fair Value as of December 31, 2019

(In thousands)

Total

Level 1

Level 2

Level 3

MGE Energy

Assets:

Derivatives, net
$
303
$
189
$
0
$
114

Exchange-traded investments

1,271

1,271

0

0

Total Assets
$
1,574
$
1,460
$
0
$
114

Liabilities:

Derivatives, net^(c)
$
27,178
$
608
$
0
$
26,570

Deferred compensation

3,157

0

3,157

0

Total Liabilities
$
30,335
$
608
$
3,157
$
26,570

MGE

Assets:

Derivatives, net
$
303
$
189
$
0
$
114

Exchange-traded investments

209

209

0

0

Total Assets
$
512
$
398
$
0
$
114

Liabilities:

Derivatives, net^(c)
$
27,178
$
608
$
0
$
26,570

Deferred compensation

3,157

0

3,157

0

Total Liabilities
$
30,335
$
608
$
3,157
$
26,570


	Fair Value as of September 30, 2021
(In thousands)	Total		Level 1		Level 2		Level 3
MGE Energy
Assets:
Derivatives, net(b)	$	14,210	$	10,451	$	0	$	3,759
Exchange-traded investments		1,124		1,124		0		0
Total Assets	$	15,334	$	11,575	$	0	$	3,759
Liabilities:
Derivatives, net	$	535	$	365	$	0	$	170
Deferred compensation		3,496		0		3,496		0
Total Liabilities	$	4,031	$	365	$	3,496	$	170

MGE
Assets:
Derivatives, net(b)	$	14,210	$	10,451	$	0	$	3,759
Exchange-traded investments		244		244		0		0
Total Assets	$	14,454	$	10,695	$	0	$	3,759
Liabilities:
Derivatives, net	$	535	$	365	$	0	$	170
Deferred compensation		3,496		0		3,496		0
Total Liabilities	$	4,031	$	365	$	3,496	$	170


	Fair Value as of December 31, 2020
(In thousands)	Total		Level 1		Level 2		Level 3
MGE Energy
Assets:
Derivatives, net(b)	$	806	$	436	$	0	$	370
Exchange-traded investments		1,750		1,750		0		0
Total Assets	$	2,556	$	2,186	$	0	$	370
Liabilities:
Derivatives, net(b)	$	14,795	$	370	$	0	$	14,425
Deferred compensation		3,509		0		3,509		0
Total Liabilities	$	18,304	$	370	$	3,509	$	14,425

MGE
Assets:
Derivatives, net(b)	$	806	$	436	$	0	$	370
Exchange-traded investments		603		603		0		0
Total Assets	$	1,409	$	1,039	$	0	$	370
Liabilities:
Derivatives, net(b)	$	14,795	$	370	$	0	$	14,425
Deferred compensation		3,509		0		3,509		0
Total Liabilities	$	18,304	$	370	$	3,509	$	14,425

(b)

As of September 30, 2021, MGE received collateral of~~These amounts are shown gross and exclude~~ $~~0.7~~9.2 million from counterparties under a master netting agreement for outstanding exchange traded derivative positions. The fair value of the derivative asset disclosed in this table has not been reduced for the collateral received. NaN collateral was posted against derivative positions owed to counterparties under a master netting agreement on the consolidated balance sheet as of ~~September 30,~~December 31, 2020.

~~(c)~~ ~~These amounts are shown gross and exclude $1.5~~ ~~million of collateral that was posted against derivative positions with counterparties as December 31, 2019.~~

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

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

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

The purchased power agreement (see Footnote 10) was valued using an internal 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
	September 30,	December 31,
Significant Unobservable Inputs	2021	2020
Basis adjustment:
On peak	95.5%	94.2%
Off peak	96.4%	94.5%
Counterparty fuel mix:
Internal generation - range	41%-66%	46%-65%
Internal generation - weighted average	54.2%	56.5%
Purchased power - range	59%-34%	54%-35%
Purchased power - weighted average	45.8%	43.5%

Model Input

Significant Unobservable Inputs

September 30, 2020

December 31, 2019

Basis adjustment:

On peak

93.9
%

92.1
%

Off peak

93.7
%

92.7
%

Counterparty fuel mix:

Internal generation - range

46.0% - 65.0
%

40.0% - 60.0
%

Internal generation - weighted average

56.4
%

52.2
%

Purchased power - range

54.0% - 35.0
%

60.0% - 40.0
%

Purchased power - weighted average

43.6
%

47.8
%

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


		Three Months Ended				Nine Months Ended			Three Months Ended						Nine Months Ended
		September 30,				September 30,			September 30,						September 30,
(In thousands)		2020		2019		2020		2019	2021			2020			2021			2020
Beginning balance	$	(21,023)	$	(33,337)	$	(26,456)	$	(32,002)	$	(4,533	)	$	(21,023	)	$	(14,055	)	$	(26,456	)
Realized and unrealized gains (losses):
Included in regulatory assets		5,296		4,317		10,729		2,982		0			5,296			0			10,729
Included in regulatory liability										8,122			0			17,644			0
Included in other comprehensive income		0		0		0		0		0			0			0			0
Included in earnings		(1,524)		(492)		(4,687)		(1,928)		2,476			(1,524	)		2,686			(4,687	)
Included in current assets		(37)		4		(101)		(198)		0			(37	)		175			(101	)
Purchases		5,505		5,205		15,837		16,827		6,638			5,505			18,899			15,837
Sales		0		0		0		0		0			0			0			0
Issuances		0		0		0		0		0			0			0			0
Settlements		(3,944)		(4,717)		(11,049)		(14,701)		(9,114	)		(3,944	)		(21,760	)		(11,049	)
Transfers in and/or out of Level 3		0		0		0		0
Balance as of September 30,	$	(15,727)	$	(29,020)	$	(15,727)	$	(29,020)	$	3,589		$	(15,727	)	$	3,589		$	(15,727	)
Total gains (losses) included in earnings attributed to
the change in unrealized gains (losses) related to
assets and liabilities held as of September 30,^(d)	$	0	$	0	$	0	$	0
Total gains (losses) included in earnings attributed to the change in unrealized gains (losses) related to assets and liabilities held as of September 30,(c)									$	0		$	0		$	0		$	0

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^(d)(c).

Three Months Ended

Nine Months Ended

September 30,

September 30,

(In thousands)

2020

2019

2020

2019

Purchased Power Expense
$
(1,496)
$
(409)
$
(4,343)
$
(1,658)

Cost of Gas Sold Expense

(28)

(83)

(344)

(270)

Total
$
(1,524)
$
(492)
$
(4,687)
$
(1,928)


	Three Months Ended					Nine Months Ended
	September 30,					September 30,
(In thousands)	2021		2020			2021			2020
Purchased power expense	$	2,476	$	(1,496	)	$	3,113		$	(4,343	)
Cost of gas sold expense		0		(28	)		(427	)		(344	)
Total	$	2,476	$	(1,524	)	$	2,686		$	(4,687	)

~~(d)~~ (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.

12.Joint Plant Constr

~~Joint Plant~~uction Project Ownership - MGE Energy and MGE

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

Ownership

Share of

Share of

Costs incurred as of

Date of Commercial

Project

Interest

Generation

Estimated Costs

September 30, 2020^(a)

Operation

Two Creeks^(b)

33
%

50
MW

$65
million

$63.1
million

November 2, 2020

Badger Hollow I^(c)

33
%

50
MW

$65
million

$50.5
million

April 2021^(d)

Badger Hollow II^(c)

33
%

50
MW

$65
million

$5.0
million

December 2022^(d)


	Ownership			Share of			Share of			Costs incurred as of September 30,			Date of Commercial
Project	Interest			Generation			Estimated Costs			2021(a)			Operation
Badger Hollow I(b)		33	%		50	MW	$	65	million	$	57.8	million	Q4 2021(c)
Badger Hollow II(b)		33	%		50	MW	$	65	million	$	11.5	million	December 2022(c)

(a)

Excluding AFUDC.

(b)~~The Two Creeks solar generation array is located in the Town of Two Creeks and the City of Two Rivers in Manitowoc and Kewaunee Counties, Wisconsin.~~

~~(c)~~

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

(c)

~~(d)~~

Estimated date of commercial operation.

MGE received specific approval to recover 100% AFUDC on each of these projects. During the three and nine months ended September 30, ~~2020~~ ~~and~~ ~~2019,~~2021, MGE recognized ~~$1.9~~$1.3 million and ~~$0.7~~$3.6 million, respectively, after tax, in AFUDC for ~~Two Creeks and~~ Badger Hollow I and II compared to $. 0.9~~During the~~ ~~nine months ended September 30, 2020~~ ~~and~~ ~~2019,~~ ~~MGE recognized $4.5~~ million and ~~$0.8~~$1.8 million ~~respectively, after tax,~~for the comparable periods in ~~AFUDC for Two Creeks~~2020.

13. Asset Retirement Obligations - MGE Energy and ~~Badger Hollow I and II~~.MGE

~~13.~~A liability is recorded for the fair value of an asset retirement obligation (ARO) to be recognized in the period in which it is incurred if it can be reasonably estimated. The offsetting associated asset retirement costs are capitalized as a long-lived asset and depreciated over the asset's useful life. As of September 30, 2021, MGE recorded an obligation of $3.9 million for the fair value of its legal liability for AROs associated with completed renewable projects and $3.5 million for the revision of its ARO legal liability with Columbia ash pond. MGE has regulatory treatment and recognizes regulatory assets or liabilities for the timing differences between when we recover legal AROs in rates and when those costs would actually be recognized.

14. Reven

~~Revenue~~ue - MGE Energy and MGE.

Revenues disaggregated by revenue source were as follows:

Three Months Ended

Nine Months Ended

(In thousands)

September 30,

September 30,

Electric revenues

2020

2019

2020

2019

Residential
$
45,009
$
42,442
$
113,311
$
107,772

Commercial

57,822

63,466

152,844

165,481

Industrial

3,234

3,760

8,797

10,013

Other-retail/municipal

8,620

9,543

24,874

26,728

Total retail

114,685

119,211

299,826

309,994

Sales to the market

1,554

1,163

2,604

3,914

Other revenues

115

233

660

978

Total electric revenues

116,354

120,607

303,090

314,886

Gas revenues

Residential

12,436

11,342

61,328

67,659

Commercial/Industrial

5,052

4,825

32,961

40,833

Total retail

17,488

16,167

94,289

108,492

Gas transportation

1,152

1,126

4,179

3,756

Other revenues

3

84

100

299

Total gas revenues

18,643

17,377

98,568

112,547

Non-regulated energy revenues

214

214

466

481

Total Operating Revenue
$
135,211
$
138,198

402,124
$
427,914


	Three Months Ended				Nine Months Ended
(In thousands)	September 30,				September 30,
Electric revenues	2021		2020		2021		2020
Residential	$	44,398	$	45,009	$	117,229	$	113,311
Commercial		60,996		57,822		161,270		152,844
Industrial		3,380		3,234		9,469		8,797
Other-retail/municipal		9,478		8,620		26,340		24,874
Total retail		118,252		114,685		314,308		299,826
Sales to the market		3,071		1,554		8,854		2,604
Other revenues		316		115		948		660
Total electric revenues		121,639		116,354		324,110		303,090

Gas revenues
Residential		14,643		12,436		72,286		61,328
Commercial/Industrial		8,069		5,052		42,972		32,961
Total retail		22,712		17,488		115,258		94,289
Gas transportation		1,256		1,152		4,589		4,179
Other revenues		52		3		97		100
Total gas revenues		24,020		18,643		119,944		98,568

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

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 contracts have a single performance obligation.

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

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

Utility Cost Recovery Mechanisms

MGE's tariff rates include a provision for fuel cost recovery. The PSCW allows Wisconsin utilities to defer electric fuel-related costs, less excess revenues, that fall outside a symmetrical cost tolerance band. Any over- or under-recovery of the actual costs in a given year is determined in the following year and is then reflected in future billings to electric retail customers. Over-collection of fuel-related costs that are outside the approved range will be recognized as a reduction of revenue. Under-collection of these costs will be recognized in "Purchased power" expense in the consolidated statements of income. The cumulative effects of these deferred amounts will be recorded in "Regulatory assets" or "Regulatory liabilities" on the consolidated balance sheets until they are reflected in future billings to customers. See Footnote 9.b. for further information.

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

Sales to the Market

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

Transportation of Gas

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

~~14.~~15. Segment Infor

~~Segment Information~~mation - 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 ~~2019~~2020 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		Consolidated Total

(In thousands)																	Nonregulated	Transmission	All	Consolidation/	Consolidated
MGE Energy															Electric	Gas	Energy	Investment	Others	Elimination	Total
Three Months Ended September 30, 2021
Operating revenues from external customers															$121,639	$24,020	$214	$0	$0	$—	$145,873
Interdepartmental revenues															89	6,689	10,224	0	0	(17,002)	—
Total operating revenues															121,728	30,709	10,438	0	0	(17,002)	145,873
Equity in earnings of investments															0	0	0	2,532	0	0	2,532
Net income (loss)															27,833	(218)	5,386	1,842	74	0	34,917

Three Months Ended September 30, 2020	Three Months Ended September 30, 2020
Operating revenues from external customers	$	116,354	$	18,643	$	214	$	0	$	0	$	-	$	135,211	$116,354	$18,643	$214	$0	$0	$—	$135,211
Interdepartmental revenues		209		3,494		10,102		0		0		(13,805)		-	209	3,494	10,102	0	0	(13,805)	—
Total operating revenues		116,563		22,137		10,316		0		0		(13,805)		135,211	116,563	22,137	10,316	0	0	(13,805)	135,211
Equity in earnings of investments		0		0		0		2,353		0		0		2,353	0	0	0	2,353	0	0	2,353
Net income (loss)		24,761		221		5,251		1,710		(149)		0		31,794	24,761	221	5,251	1,710	(149)	0	31,794

Three Months Ended September 30, 2019
Nine Months Ended September 30, 2021
Operating revenues from external customers	$	120,607	$	17,377	$	214	$	0	$	0	$	-	$	138,198	$324,110	$119,944	$464	$0	$0	$—	$444,518
Interdepartmental revenues		225		5,679		10,019		0		0		(15,923)		-	316	14,377	30,595	0	0	(45,288)	—
Total operating revenues		120,832		23,056		10,233		0		0		(15,923)		138,198	324,426	134,321	31,059	0	0	(45,288)	444,518
Equity in earnings of investments		0		0		0		2,372		0		0		2,372	0	0	0	7,440	0	0	7,440
Net income (loss)		23,681		(61)		5,131		1,726		180		0		30,657	59,979	11,615	15,935	5,413	(241)	0	92,701

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

Nine Months Ended September 30, 2019
Operating revenues from external customers	$	314,886	$	112,547	$	481	$	0	$	0	$	-	$	427,914
Interdepartmental revenues		622		12,571		29,987		0		0		(43,180)		-
Total operating revenues		315,508		125,118		30,468		0		0		(43,180)		427,914
Equity in earnings of investments		0		0		0		6,808		0		0		6,808
Net income		40,905		8,648		15,211		4,952		496		0		70,212

~~The following tables show segment information for MGE's operations for the indicated periods:~~31

(In thousands) MGE		Electric		Gas		Nonregulated Energy		Consolidation/ Elimination		Consolidated Total

(In thousands)													Nonregulated	Consolidation/	Consolidated
MGE											Electric	Gas	Energy	Elimination	Total
Three Months Ended September 30, 2021
Operating revenues from external customers											$121,639	$24,020	$214	$—	$145,873
Interdepartmental revenues											89	6,689	10,224	(17,002)	—
Total operating revenues											121,728	30,709	10,438	(17,002)	145,873
Net income (loss) attributable to MGE											27,833	(218)	5,386	(5,627)	27,374

Three Months Ended September 30, 2020	Three Months Ended September 30, 2020
Operating revenues from external customers	$	116,354	$	18,643	$	214	$	-	$	135,211	$116,354	$18,643	$214	$—	$135,211
Interdepartmental revenues		209		3,494		10,102		(13,805)		-	209	3,494	10,102	(13,805)	—
Total operating revenues		116,563		22,137		10,316		(13,805)		135,211	116,563	22,137	10,316	(13,805)	135,211
Net income attributable to MGE		24,761		221		5,251		(5,493)		24,740	24,761	221	5,251	(5,493)	24,740

Three Months Ended September 30, 2019
Nine Months Ended September 30, 2021
Operating revenues from external customers	$	120,607	$	17,377	$	214	$	-	$	138,198	$324,110	$119,944	$464	$—	$444,518
Interdepartmental revenues		225		5,679		10,019		(15,923)		-	316	14,377	30,595	(45,288)	—
Total operating revenues		120,832		23,056		10,233		(15,923)		138,198	324,426	134,321	31,059	(45,288)	444,518
Net income (loss) attributable to MGE		23,681		(61)		5,131		(5,614)		23,137
Net income attributable to MGE											59,979	11,615	15,935	(16,755)	70,774

Nine Months Ended September 30, 2020	Nine Months Ended September 30, 2020
Operating revenues from external customers	$	303,090	$	98,568	$	466	$	-	$	402,124	$303,090	$98,568	$466	$—	$402,124
Interdepartmental revenues		584		9,300		30,248		(40,132)		-	584	9,300	30,248	(40,132)	—
Total operating revenues		303,674		107,868		30,714		(40,132)		402,124	303,674	107,868	30,714	(40,132)	402,124
Net income attributable to MGE		46,439		9,216		15,536		(16,754)		54,437	46,439	9,216	15,536	(16,754)	54,437

Nine Months Ended September 30, 2019
Operating revenues from external customers	$	314,886	$	112,547	$	481	$	-	$	427,914
Interdepartmental revenues		622		12,571		29,987		(43,180)		-
Total operating revenues		315,508		125,118		30,468		(43,180)		427,914
Net income attributable to MGE		40,905		8,648		15,211		(16,725)		48,039

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

General

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



Regulated electric utility operations, conducted through MGE,



Regulated gas utility operations, conducted through MGE,



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



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



All other, which includes corporate operations and services.

Our principal subsidiary is MGE, which generates and distributes electric energy, distributes natural gas, and represents a majority portion of our assets, liabilities, revenues, and expenses. MGE generates, purchases, and distributes electricity to approximately ~~155,000~~157,000 customers in Dane County, Wisconsin, including the city of Madison, and purchases and distributes natural gas to approximately ~~163,000~~166,000 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 ~~campus of the University of Wisconsin in Madison.~~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~~works on meeting 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~~as evidenced by its most recent announcement of the ~~reduction in its ownership~~retirement of Columbia (a ~~coal-fired generating facility)~~coal generation plant) and its growing ownership of renewable wind and solar generation sources. MGE will continue to focus on growing earnings while controlling operating and fuel costs. ~~MGE maintains~~MGE's goal is to provide safe and efficient operations in addition to providing customer value. We believe it is critical to maintain a strong credit standing 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,



Governmental efforts to address the COVID-19 pandemic, including restrictions on activity, increased employee health and welfare costs, and precautions for dealing with members of the public, and



Other factors listed in "Item 1A. Risk Factors" in our ~~2019~~2020 Annual Report on Form 10-K.

During the three months ended September 30, ~~2020,~~2021, MGE Energy's earnings were ~~$31.8~~$34.9 million or ~~$0.88~~$0.97 per share compared to ~~$30.7~~$31.8 million or $0.88 per share during the same period in the prior year. MGE's earnings during the three months ended September 30, ~~2020,~~2021, were ~~$24.7~~$27.4 million compared to ~~$23.1~~$24.7 million during the same period in the prior year.

During the nine months ended September 30, ~~2020,~~2021, MGE Energy's earnings were ~~$76.6~~$92.7 million or ~~$2.16~~$2.56 per share compared to ~~$70.2~~$76.6 million or ~~$2.03~~$2.16 per share during the same period in the prior year. MGE's earnings during the nine months ended September 30, ~~2020,~~2021, were ~~$54.4~~$70.8 million compared to ~~$48.0~~$54.4 million during the same period in the prior year.

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

Three Months Ended

Nine Months Ended

(In millions)

September 30,

September 30,

Business Segment:

2020

2019

2020

2019

Electric Utility
$
24.7
$
23.7
$
46.4
$
40.9

Gas Utility

0.2

-

9.2

8.6

Nonregulated Energy

5.2

5.1

15.5

15.2

Transmission Investments

1.8

1.7

5.7

5.0

All Other

(0.1)

0.2

(0.2)

0.5

Net Income
$
31.8
$
30.7
$
76.6
$
70.2


	Three Months Ended						Nine Months Ended
(In millions)	September 30,						September 30,
Business Segment:	2021			2020			2021			2020
Electric Utility	$	27.8		$	24.7		$	60.0		$	46.4
Gas Utility		(0.2	)		0.2			11.6			9.2
Nonregulated Energy		5.4			5.2			15.9			15.5
Transmission Investments		1.8			1.8			5.4			5.7
All Other		0.1			(0.1	)		(0.2	)		(0.2	)
Net Income	$	34.9		$	31.8		$	92.7		$	76.6

Our net income during the three and nine months ended September 30, ~~2020,~~2021, compared to the same ~~period~~periods in the prior year primarily reflects the effects of the following factors:

Electric Utility

~~Electric net income increased primarily due to AFUDC equity earned from the construction of Two Creeks and Badger Hollow I and II and savings in operating and maintenance costs.~~ An increase in ~~assets~~electric investments included in rate base ~~also~~ contributed to increased earnings for ~~2020. A reduction~~2021. Timing of 2021 depreciation and other operations and maintenance costs also contributed to higher earnings in 2021. Depreciation and operations and maintenance costs are expected to increase during the remainder of 2021 after significant capital projects are completed. The new customer information system went live in September 2021 and Badger Hollow I is expected to be completed in the fourth quarter of 2021. MGE received approval to recover 100% AFUDC during construction of these projects.

Higher electric retail sales ~~driven by~~resulting from warmer weather in the ~~impacts~~second quarter of ~~COVID-19 and associated governmental regulations affected electric~~2021 contributed to higher earnings ~~in 2020. For~~for the nine months ended September 30, 2021. Cooling degree days (a measure for determining the impact of weather during the cooling season) increased from 213 days in the second quarter of 2020 to 309 days in the second quarter of 2021.

Electric commercial retail sales increased approximately 5% and 3%, respectively, for the three and nine months ended September 30, ~~2020, commercial retail sales decreased approximately 8% and 7%, respectively,~~2021, compared to the same period in the prior year. ~~This decrease was partially mitigated by an increase in residential sales of approximately 9% and 7% for~~The general economic recovery from the ~~three and nine months ended September 30, 2020, respectively, compared~~COVID-19 pandemic during 2021 contributed to ~~the same period in the prior year. As businesses shifted their workforce to a remote work environment, residential sales increased.~~higher electric commercial retail sales.

Gas Utility

~~Gas net income increased primarily due to savings in operating and maintenance costs and customer growth.~~ An increase in ~~assets~~gas investments included in rate base ~~also~~ contributed to increased earnings for ~~2020. Colder than normal~~2021. Higher gas retail sales resulting from colder weather in the first quarter of ~~2019 and milder weather in~~2021 contributed to higher earnings for the ~~first quarter of 2020 partially offset this increase.~~nine months ended September 30, 2021. Heating degree days (a measure for determining the impact of weather during the heating season) ~~in 2020 decreased~~increased by approximately ~~10%~~11% in the first quarter 2021 compared to ~~2019.~~the same period in the prior year.

The following developments affected the first nine months of ~~2020:~~2021:

~~2019/2020~~2021 Rate ~~Change Settlement:~~Settlement Agreement: In December ~~2018,~~2020, the PSCW approved a settlement agreement between MGE and intervening parties in the then-pending rate case. The settlement decreased electric rates by 2.24%, or $9.2 million, in 2019. The decrease in electric rates reflected the ongoing impacts of the Tax Act. Lower fuel costs and an increase in rate base from renewable generation assets further impacted the rate change. In 2020, electric rates decreased a further 0.84%, or $3.4 million, as approved by the PSCW in December 2019 infor MGE's 2020 Fuel Cost Plan, which reflected lower fuel costs. The settlement agreement increased gas rates by 1.06%, or $1.7 million, in 2019 and 1.46%, or $2.4 million, in 2020. The gas increase covered infrastructure costs. It also reflected the impacts of the Tax Act.

PSCW Approval of Deferral of Pension and Other Postretirement Benefit Costs: As a result of lower investment returns in the fourth quarter of 2018, pension and postretirement benefit costs increased in 2019. In August 2019, the PSCW approved MGE's request to defer the difference between estimated pension and other postretirement

costs included in the 2019 and 2020 rate settlement and actual costs incurred. In the second quarter of 2019, upon receiving the PSCW decision, deferral of pension and other postretirement costs were recorded. No deferral of pension and other postretirement costs were recorded in the first quarter of 2019. During 2019, MGE deferred approximately $6.2 million of pension and other postretirement costs. MGE expects actual costs will be lower than the amount included in the 2020 rate settlement by approximately $0.9 million to $1.2 million. Net pension and other postretirement costs deferred over the two-year period is expected to be approximately $5 million by the end of 2020. The net deferred costs are expected to be factored into future rate proceedings. During the three and nine months ended September 30, 2020, MGE collected approximately $0.2 million and $0.7 million, respectively, of pension and other postretirement costs, which reduced the amount deferred in 2019. During the three and nine months ended September 30, 2019, MGE deferred approximately $1.3 million and $4.6 million of pension and postretirement costs.

Utility Solar: Three jointly-owned solar generation projects are under construction, as shown in the following table. Incurred costs are reflected in "Construction work in progress" on the consolidated balance sheets. MGE has received specific approval to recover 100% AFUDC on each project. After tax, MGE recognized $2.0 million, ~~$1.3~~ ~~million, and $0.1 million of AFUDC equity on Two Creeks and Badger Hollow I and II, respectively, during the nine months ended September 30, 2020.~~

~~Project~~	~~Share of Generation~~	~~Share of Estimated Costs~~	~~Costs Incurred as of September 30, 2020~~^(a)	~~Date of Commercial Operation~~
~~Two Creeks~~	~~50 MW~~	~~$65 million~~	~~$63.1 million~~	~~November 2, 2020~~
~~Badger Hollow I~~	~~50 MW~~	~~$65 million~~	~~$50.5 million~~	~~April 2021~~^(b)
~~Badger Hollow II~~	~~50 MW~~	~~$65 million~~	~~$ 5.0 million~~	~~December 2022~~^(b)

~~(a)Excluding AFUDC.~~

~~(b)Estimated date of commercial operation.~~

Equity Issuance: In May 2020, MGE Energy issued 1.5 million shares of common stock in an underwritten offering. The net proceeds of $79.6 million are being used for general corporate purposes including funding capital expenditures by MGE in projects such as Two Creeks, Badger Hollow I and II, Renewable Energy Rider solar projects, and other capital projects.

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

~~2021 Rate Change Settlement: In August 2020, MGE filed with the PSCW a proposed settlement agreement for its pending~~ 2021 rate case. The settlement agreement ~~proposes~~provides for a zero percent increase for electric rates and an approximately 4% increase for gas rates in 2021. The electric rate settlement includes an increase in rate base but the associated rate increase is primarily offset by lower fuel and purchase power costs and a one-time $18.2 million return to customers of the portion of excess deferred taxes related to the 2017 Tax Act not ~~governed~~restricted by IRS normalization rules. As part of the settlement, the fuel rules bandwidth ~~will be~~was set at plus or minus 1%. for 2021. When compared to

the 2020 rate case, the settlement includes lower forecasted electric sales for 2021 to reflect changes to customer usage during the COVID-19 pandemic. The gas rate increase covers infrastructure costs and technology improvements. The settlement agreement also ~~seeks~~includes escrow accounting treatment for pension and other postretirement benefit costs, bad debt expense, and customer credit card fees. Escrow accounting treatment ~~would allow~~allows MGE to defer ~~until its next rate filing~~ any difference between estimated costs in rates and actual costs ~~incurred.~~incurred until its next rate case filing. Any difference ~~if allowed,~~ would be recorded as a regulatory asset or regulatory liability. No change is proposed in the pending settlement agreement for 2021 from the 2020 authorized return on common equity or the financial capital structure. PSCW approval of the settlement agreement is pending. A final order is expected before the end of the year.

~~Pension~~Utility Solar: Large solar generation projects were recently completed or are under construction, as shown in the following table. Incurred costs are reflected in "Property, plant, and ~~Other Postretirement Benefit Costs: Costs~~equipment" for ~~pension and other postretirement benefits are affected by actual investment returns~~projects placed in service or "Construction work in progress" for projects under construction on the ~~assets held for those benefits~~consolidated balance sheets. MGE has received specific approval to recover 100% AFUDC on Badger Hollow I and ~~by the discount rate used to calculate those benefits. The discount rate is sensitive to changes in interest rates. Lower than expected employee benefit plan asset values could affect the value~~II. After tax, MGE recognized $4.6 million and $0.5 million of ~~pension~~AFUDC equity through September 30, 2021, on Badger Hollow I and ~~postretirement benefit obligations and may increase benefit costs in future years. As previously discussed, these costs are expected to be factored into future rate actions.~~II, respectively, during construction.


Project	Ownership Interest	Share of Generation	Share of Estimated Costs	Costs Incurred as of September 30, 2021(a)	Date of Commercial Operation
Badger Hollow I	33%	50 MW	$65 million	$57.8 million	Q4 2021(b)
Badger Hollow II	33%	50 MW	$65 million	$11.5 million	December 2022(b)
O'Brien	100%	20 MW	$32 million	$28.8 million	May 2021

(a)

Excluding AFUDC

(b)

Estimated date of commercial operation

Tax Reform: Pursuant to the 2017 Tax Act, deferred income tax balances as of December 31, 2017, were remeasured to reflect the decrease in the corporate tax rate. ~~A regulatory liability of~~The approved rate settlement agreement for 2021 includes approximately ~~$131 million was recorded to reflect the fact that changes in income taxes are generally passed through in customer rates for the regulated~~

~~utility. The amount and timing of the cash impact will depend on the period over which certain income tax benefits are provided to customers. Approximately $117~~$5.3 million of the ~~regulatory liability is a protected~~ benefit in base rates that is being returned to customers using a normalization method of accounting. IRS normalization rules limit the rate at which MGE can return the benefits to customers. ~~As determined in the rate~~The settlement agreement for 2019 and 2020, MGE has included approximately $8.3 million of the protected benefit in base rates. If approved by the PSCW, the proposed rate settlement agreement for 2021 would include approximately $5.3 million of the protected benefit in base rates andalso includes $18.2 million of the ~~unprotected~~ benefit not subject to normalization restrictions in electric base rates. The collection of the remaining ~~unprotected~~ portion not subject to normalization restrictions related to gas will be addressed by the PSCW in a future rate case.

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

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

2020 Annual Fuel Proceeding: In September 2021, the PSCW issued a final decision in the 2020 fuel rules proceedings for MGE to refund $3.2 million of additional fuel savings realized during 2020 plus accrued interest to its retail electric customers over a one-month period in October 2021. There was no change to the refund in the fuel rules proceedings from the amount MGE deferred in the previous year.

ATC Return on Equity: As discussed in "Other Matters" below, ~~ATC’s~~ATC's authorized ROE, which is used in calculating its rates and revenues, is the subject of a challenge before FERC. A decrease in ATC's ROE could result in lower equity earnings and distributions from ATC in the future. We derived approximately ~~7.3%~~5.7% and ~~6.8%~~7.3% of our net income during the nine months ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively, from our investment in ATC.

Environmental Initiatives: There are proposed legislative rules and initiatives involving matters related to air emissions, water effluent, hazardous materials, and greenhouse gases, all of which affect generation plant capital expenditures and operating costs as well as future operational planning.At present, it is unclear how ~~any~~the changes in the ~~Presidential, Congressional,~~presidential, congressional, and EPA administrations may affect existing, pending or new legislative or rulemaking proposals or regulatory ~~initiatives.~~initiatives, although it is likely that such proposals and initiatives will be more stringent on fossil-fuel based generation. Such legislation and rulemaking could significantly ~~increase~~affect the costs of owning and operating fossil-fueled generating ~~plants, such as Columbia and the Elm Road Units, from which we derived approximately 43% of our electric generating capacity as of September 30, 2020.~~plants. We would expect to seek and receive recovery of any such costs in ~~rates; however,~~rates. However, it is difficult to estimate the amount of such costs due to the uncertainty as to the timing

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

EPA's Affordable Clean Energy (ACE) Rule: In ~~July 2019,~~January 2021, the U.S. Court of Appeals for the District of Columbia Circuit (D.C. Circuit) vacated and remanded to the EPA ~~published a final~~the ACE ~~rule to reduce~~Rule and the repeal of the predecessor Clean Power Plan Rule, both of which regulated greenhouse gas emissions from existing ~~coal-fired EGUs. The ACE rule directs states~~electric generation units pursuant to submit plans to the EPA for approval that implement standards of performance (called Best System of Emissions Reductions, or BSER) for individual coal-fired EGUs over 25 MW. The ACE rule will apply to Columbia and the Elm Road Units. Compliance with the ACE rule may not be required until 2024 or later. Until the State of Wisconsin develops a plan that is accepted by the EPA, MGE will not be able to determine the final impactSection 111(d) of the ~~rule. Additionally,~~Clean Air Act. As a result of these legal proceedings, neither the CPP nor ACE ~~rule is subject to a legal challenge pending~~rules are currently in ~~the United States District Court of the District of Columbia.~~effect. MGE will continue to evaluate the rule development ~~within the state~~ and monitor ongoing and potential legal ~~proceedings associated with the rule.~~proceedings.

~~O'Brien Wind Farm:~~Columbia: In ~~October 2020,~~February 2021, MGE, ~~received~~along with the other plant co-owners, announced plans to retire the two-unit coal-fired Columbia generating plant near Portage, Wisconsin. MGE currently owns 19% of the facility. The co-owners intend to retire Unit 1 by the end of 2023 and Unit 2 by the end of 2024. Final timing and retirement dates for Units 1 and 2 are subject to PSCW and regional regulatory reviews, including identification and approval of energy and capacity resources to replace Columbia. MGE continues to evaluate additional investments to replace the generation from ~~the PSCW~~Columbia while maintaining electric service reliability. These investments include cost-effective, clean energy projects to construct a 20 MW solar array in Fitchburg, Wisconsin, as part of its Renewable Energy Rider program. Capital costs are expected to be approximately $32 million and the project is anticipated to be completed by mid-2021.help achieve MGE's carbon reduction goals.

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


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

(a)

Excluding AFUDC

(b)

Requested approval to recover 100% AFUDC.

(c)

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

Future Generation – Riverside: In 2016, MGE entered into an agreement with WPL under which MGE may acquire up to 50 MW of capacity in a gas-fired generating plant ~~being~~ constructed by WPL at its Riverside Energy Center in Beloit, Wisconsin, during the five-year period following the in-service date of the plant. The plant was placed in service in May 2020. MGE has not yet determined whether it will exercise its option in the Riverside plant. A determination will be made based on a variety of factors during the option period. If MGE acquires 50 MW of capacity, the estimated cost would be approximately $50 million.

Future Generation – Elm Road Units: On November 3, 2021, MGE announced plans to end the use of coal as a primary fuel at the Elm Road Units and transition the plant to natural gas. MGE is a minority owner of Elm Road, owning 8.33%. The approximately 1,230 MW coal-fired plant is owned by WEC Energy Group, whose subsidiary serves as operator, and by WPPI Energy, Inc. This transition is expected to reduce the use of coal at Elm Road substantially by 2030 and to eliminate coal as an energy source at Elm Road by 2035. Transition plans and costs will be subject to PSCW approval.

COVID-19 Update

~~With~~MGE Energy continues to provide safe and reliable service to our customers despite the ~~global outbreak of~~challenges presented by the Coronavirus Disease 2019 (COVID-19) ~~and the declaration of a pandemic by the World Health Organization on March 11, 2020, U.S. governmental authorities~~pandemic. We have deemed electric and gas utilities to be critical infrastructure. MGE Energy therefore has an obligation to keep operating and maintaining our critical electric and gas infrastructure. Since then, MGE Energy has been subject to, and is following, local, state and federal public health and safety regulations and guidance to control the pandemic. MGE Energy has operated continuously throughout the pandemic and suffered no material disruptions in service or employment.

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



Governmental and Regulatory Actions. ~~State and local governments and regulators have taken steps to address the~~

~~pandemic and its effects, which have affected levels of economic activity, revenues and expense.~~

o~~State and Local Governments~~: State and local governments issued orders and regulations to restrict or manage business and individual activity that continues to evolve in response to changing health metrics and safety and health guidance. A late March 2020 statewide Stay at Home order has given way to phased activity resumption driven by local governments and public health departments. Actions by Public Health Madison & Dane County (PHMDC) affect Dane County, which comprises aactivity. In June 2021 the majority of MGE's service area. PHMDC has issued several Emergency Orders and the Forward Dane plan (collectively, the PHMDC Directives) addressing activity during the pandemic. The PHMDC Directives provide for scaled re-opening of businesses and increased activity for residents based upon specific health metrics and consist of guidance and regulations concerning how and when residents can interact and conduct business. In general, the PHMDC Directives: identify "essential" and "non-essential" businesses; regulate how those entities may conduct business safely; restrict capacity inside businesses depending upon business type and sector; limit the size of private and public gatherings; and require masks for occupants of public and private buildings. The PHMDC Directives are subject to modification throughout the pandemic based upon current health metrics in the county.COVID-related orders

o~~Regulatory – PSCW Orders: On March 24, 2020,~~

were lifted, although certain counties continue to impose mask mandates. Additionally, the PSCW ordered changes to the tariff provisions ~~of all public utilities in Wisconsin~~on March 24, 2020, in response to the COVID-19 pandemic. The order prohibited late payment charges, service disconnections, service refusals, and cash deposits as a condition of service. The order also required utilities to offer deferred payment arrangements to customers. The order resulted in increased bad debt expense and foregone revenue from late payment charges. This order, as it pertained to the prohibitions on service disconnections for residential customers, was in effect until November 1, 2020, at which time the annual winter disconnection moratorium began and continues until April 15, 2021. All ~~other~~ restrictions were lifted ~~in July2020. As permitted~~ by regulatory action, MGE notified the PSCW on July 16, 2020, of its election to continue to waive late fees until December 31, 2020, for all customer classes and seek recovery in a future period. In October 2020, the PSCW issued a decision to allow utilities to extend the election to waive late fees until April 15, 2021, if the utility requests such waiver.

On March 24, 2020, the PSCW issued a further order authorizing deferral of expenditures incurred to ensure the provision of safe, reliable, and affordable access to utility services during the COVID-19 pandemic and late payment charges. Expenditures may include items such as bad debt expense and personal protective equipment. Foregone revenue from late payment charges and the potential delay in payments from customers is expected to impact the timing of cash inflows. Subject to PSCW approval of recovery, foregone late payment charges are expected to be recognized as revenue when they are collected from customers, and deferred expenditures are expected to be recognized as a regulatory asset as costs are incurred (meaning that those expenditures will affect cash flows when paid but will not affect income until recovery is permitted by the PSCW). Recovery of expenditures and late payment charges is expected to be addressed in future rate proceedings. While management believes that cost recovery is probable, the timing of collection from customers cannot be estimated at this time. Management will continue to assess the probability of recovery of deferred costs as the COVID-19 pandemic progresses.

November 1, 2020.



Liquidity: We remain focused on maintaining strong credit quality. Subject to the duration and severity of the COVID-19 pandemic, we believe we have adequate liquidity on hand to support future operations and capital expenditures over the next twelve months. As of September 30, ~~2020,~~2021, MGE Energy and MGE had ~~$53.1~~$70.5 million and ~~$5.2~~$57.0 million, respectively, in cash and cash equivalents and ~~had~~$50.0 million and $99.3 million, respectively, of available borrowing capacity under revolving credit ~~facilities as noted below.~~facilities.

Borrower

Aggregate Bank Commitments

Outstanding Commercial Paper and Borrowings

Available Capacity

Expiration Date

(Dollars in millions)

MGE Energy
$
50.0
$
-
$
50.0

February 7, 2024

MGE
$
100.0
$
-
$
100.0

February 7, 2024

The credit agreements require the borrower to maintain a ratio of consolidated debt to consolidated total capitalization not to exceed a maximum of 65%. In the case of MGE, the ratio calculation excludes assets, liabilities, revenues, and expenses included in MGE's financial statements as a result of the consolidation of VIEs, such as MGE Power Elm Road and MGE Power West Campus. The ratio of consolidated debt to consolidated total capitalization for each of MGE Energy and MGE, as calculated under the credit agreements' covenant, was 35.7% and 38.4%, respectively, as of September 30, 2020, and 39.0% and 43.9%, respectively, as of December 31, 2019. See ~~Item~~"Item 7. ~~Management’s~~Management's Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources – Credit ~~Facilities~~Facilities" in the ~~2019~~2020 Annual Report on Form 10-K for more information about our credit facilities.



~~Revenue and Expense~~Customer Impacts: ~~We expect that adverse effects of COVID-19 and associated governmental~~Governmental regulations will be partially mitigated due to three primary factors. First, MGE has a large representation of commercial customers in essential sectors, such as government and healthcare, which we expect to return to more normal usage sooner than customers in nonessential sectors. Second, industrial customers comprise a small proportion of MGE's total customers, and we expect these customers to have the largest risk of changes in energy usage. Third, we believe residentiallimiting community activity began impacting customer sales ~~will continue to increase due to the associated governmental regulations.~~

~~We began to see the impacts of COVID-19 and associated governmental regulations on customer demand~~ in late March ~~through~~2020. While the ~~third~~total expected impact of COVID-19 on future sales is currently unknown, MGE experienced higher electric residential sales and lower electric commercial and industrial sales due to pandemic-related regulations. The general economic recovery that followed the lifting of these regulations during the second quarter of 2021 contributed to higher electric commercial and ~~continue~~industrial sales.



Capital Expenditures & Operations: MGE does not currently expect any material changes to ~~see lower retail sales. Commercial sales were down approximately 8%~~its construction expenditures plans disclosed in "Liquidity and Capital Resources" in the ~~third quarter of~~ 2020 compared to the same period in the prior year. In the third quarter of 2020, the reduction in revenue due to COVID-19 and associated governmental regulations was partially offset by cost containment measures, and we expect this trend to continue for the remainder of 2020. Residential sales increased approximately 9% in the third quarter of 2020 compared to the same period in the prior year. This effect was driven by businesses shifting their workforces to a remote work environment. We will continue to assess the degree to which our discretionary operations and maintenance expenses and capital spending can be reduced. This reduction could consist of deferring nonessential spending and management efforts to control spending, which includes travel, conferences, and other discretionary costs.

~~Capital Expenditures~~: We have some meaningful ability to shift the timing of expenditures for capital projects during the next few years, should that become necessary. COVID-19 and associated governmental regulations did not significantly delay or disrupt the Two Creeks solar project, which entered commercial operation in November 2020. Badger Hollow I solar project was expected to be completed in 2020 and is now expected to be completed in April 2021. Badger Hollow II was expected to be completed in 2021 and is now expected to be completed in December 2022. The O'Brien solar project was expected to be completed by January 1, 2021 and is now expected to be completed in mid-2021. We have delayed other utility capital expenditures initially planned for 2020. No significant increase in costs is expected due to the delay. We will continue to monitor other capital project timelines as presented in the 2020-2022 capital expenditure forecast included under Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources in the 2019 Annual Report on Form ~~10-K.~~

~~Operations~~:10-K and updated in "Liquidity and Capital Resources" below resulting from COVID-19. To date, MGE Energy has experienced no material disruptions in utility operations. Our administrative personnel have been working largely remotely, and our field operations have not been materially affected. ~~We have seen some additional expenses associated with personal protective equipment and enhanced efforts to protect our personnel from the virus, which have been deferred as a regulatory asset.~~

~~As the duration of general economic disruption increases, so does the potential of a material adverse impact on~~

~~our business. For this reason, although we expect sales for the remainder of 2020 to be negatively impacted by COVID-19 and associated governmental regulations, we~~We cannot reasonably estimate with any degree of certainty the actual impact ~~they~~of COVID-19 and associated governmental regulations may have on future results of operations, financial position, and liquidity. See ~~Part II,~~ Item 1A. "Risk Factors" "Pandemic virus or diseases, including COVID-19, could have a material adverse effect on our business, financial condition and ~~liquidity."~~liquidity" in our 2020 Annual Report on Form 10-K for a description of risk.

The following discussion is based on the business segments as discussed in Footnote 1415 of the Notes to Consolidated Financial Statements in this Report.

Results of Operations

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

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

Three Months Ended September 30, ~~2020~~2021 and ~~2019~~2020

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

Three Months Ended September 30,

(In millions)

2020

2019

$ Change

Electric revenues
$
116.4
$
120.6
$
(4.2)

Fuel for electric generation

(13.0)

(15.9)

2.9

Purchased power

(10.7)

(9.1)

(1.6)

Total Electric Margins

92.7

95.6

(2.9)

Gas revenues

18.6

17.4

1.2

Cost of gas sold

(3.8)

(3.1)

(0.7)

Total Gas Margins

14.8

14.3

0.5

Other operating revenues

0.2

0.2

-

Other operations and maintenance

(45.8)

(48.1)

2.3

Depreciation and amortization

(18.6)

(18.2)

(0.4)

Other general taxes

(5.0)

(5.1)

0.1

Operating Income
$
38.3
$
38.7
$
(0.4)


	Three Months Ended September 30,
(In millions)	2021			2020			$ Change
Electric revenues	$	121.7		$	116.4		$	5.3
Fuel for electric generation		(18.5	)		(13.0	)		(5.5	)
Purchased power		(8.6	)		(10.7	)		2.1
Total Electric Margins		94.6			92.7			1.9

Gas revenues		24.0			18.6			5.4
Cost of gas sold		(8.8	)		(3.8	)		(5.0	)
Total Gas Margins		15.2			14.8			0.4

Other operating revenues		0.2			0.2			—
Other operations and maintenance		(48.5	)		(45.8	)		(2.7	)
Depreciation and amortization		(19.0	)		(18.6	)		(0.4	)
Other general taxes		(4.9	)		(5.0	)		0.1
Operating Income	$	37.6		$	38.3		$	(0.7	)

Operating income during the three months ended September 30, ~~2020,~~2021, compared to the same period in the prior year, primarily reflects the effects of the following factors:



Electric revenues and fuel costs

A ~~$4.2~~$5.3 million ~~decrease~~increase in electric ~~revenue~~revenues primarily driven by ~~lower commercial~~higher electric retail sales ~~as a result of~~due to economic recovery in MGE's service territory from the COVID-19 pandemic and associated governmental regulations and restrictions on activity, partially offset by increased residential sales. Commercial retail sales decreased by 7.9%, and residential sales increased by 8.7%, when compared to the prior year.

pandemic.

A ~~$2.9~~$5.5 million ~~decrease~~increase in fuel for electric generation reflecting ~~lower~~higher internal generation and market ~~costs and a decrease in customer demand.~~

o~~A $1.6 million increase in purchased power costs driven by higher costs in the market. Average cost per MWH increased 20%.~~

costs.



Gas revenues and cost of gas sold

A ~~$1.2~~$5.4 million increase in gas revenue driven by higher ~~residential retail sales.~~

cost of gas, which is recovered on a pass-through basis in revenues.

A ~~$0.7~~$5.0 million increase in cost of gas sold ~~reflecting~~driven by higher cost per therm of gas. ~~Average cost per therm~~Payments for natural gas increased ~~17%~~due to a significant increase in the price of natural gas throughout the central United States in February 2021. The increase in the price of natural gas is related to extreme weather conditions. MGE expects these costs to be recovered by the end of 2021 through our existing recovery mechanism (pass-through basis in customer rates).



A ~~$2.3~~$2.7 million ~~decrease~~increase in other operations and maintenance. See consolidated operations and maintenance expenses section below for a description of the factors contributing to the decrease.

~~A $0.4 million increase in depreciation and amortization expense.~~

Electric sales and revenues

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


	Revenues							Sales (kWh)
	Three Months Ended September 30,							Three Months Ended September 30,
(In thousands, except cooling degree days)	2021		2020		% Change			2021		2020		% Change
Residential	$	44,398	$	45,009		(1.4	)%		263,833		274,676		(3.9	)%
Commercial		60,996		57,822		5.5	%		500,434		478,816		4.5	%
Industrial		3,380		3,234		4.5	%		42,400		43,257		(2.0	)%
Other-retail/municipal		9,478		8,620		10.0	%		106,919		97,493		9.7	%
Total retail		118,252		114,685		3.1	%		913,586		894,242		2.2	%
Sales to the market		3,071		1,554		97.6	%		67,536		49,039		37.7	%
Other revenues		316		115	n.m.%				—		—		—	%
Total	$	121,639	$	116,354		4.5	%	$	981,122	$	943,281		4.0	%

Cooling degree days (normal 494)									511		519		(1.5	)%

n.m. not meaningful

Revenues

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

Three Months Ended September 30,

Three Months Ended September 30,

2020

2019

% Change

2020

2019

% Change
Residential
$
45,009
$
42,442

6.0 %

274,676

252,786

8.7 %
Commercial

57,822

63,466

(8.9)%

478,816

519,820

(7.9)%
Industrial

3,234

3,760

(14.0)%

43,257

45,772

(5.5)%
Other-retail/municipal

8,620

9,543

(9.7)%

97,493

99,055

(1.6)%
Total retail

114,685

119,211

(3.8)%

894,242

917,433

(2.5)%
Sales to the market

1,554

1,163

33.6 %

49,039

37,108

32.2 %
Other revenues

115

233

(50.6)%

-

-

- %
Total
$
116,354
$
120,607

(3.5)%

943,281

954,541

(1.2)%

��

Cooling degree days (normal 493)

519

535

(3.0)%

Electric margin, a non-GAAP measure, ~~decreased $2.9~~increased $1.9 million during the three months ended September 30, ~~2020~~,2021, compared to the same period in ~~2019~~,2020, due to the following:

~~(In millions)~~
~~Decrease in commercial, industrial and other volume~~	$	~~(2.4)~~
~~Revenue subject to refund, net~~		~~(1.7)~~
~~Rate changes~~		~~(1.4)~~
~~Customer fixed and demand charges~~		~~(1.0)~~
~~Other~~		~~(0.2)~~
~~Increase in residential volume~~		~~2.6~~
~~Decreased fuel costs~~		~~1.2~~
~~Total~~	$	~~(2.9)~~


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

~~Commercial, industrial, and other retail volume.~~ During the three months ended September 30, 2020, there was a 7.9% reduction in commercial sales compared to the same period in the prior year driven by impacts from the COVID-19 pandemic and associated governmental regulations and restrictions on activity.



Revenue subject to refund. For cost recovery mechanisms, any over-collection of revenues resulting from the amount of costs authorized to be collected from customers in rates exceeding actual costs is recorded as a reduction of revenue in the period incurred, as the over-collection is expected to be refunded to customers in a subsequent period. In ~~September 2019, MGE returned $2.2 million~~the year the over-collection is refunded, rates are reduced and offset as revenue subject to ~~electric customers through bill credits~~refund. There is no margin impact in the year the costs are refunded. The largest driver is related to ~~tax credits. The 2019 bill credit~~return of excess deferred taxes related to the 2017 Tax Act in 2021. See Footnote 5 for additional information.



Commercial, industrial, and other-retail/municipal volume. During the three months ended September 30, 2021, there was ~~deducted from revenues~~an approximately 5% increase in ~~previous years and held in a regulatory liability pending~~commercial sales compared to the ~~refund to customers. As a result, the refund did not affect reported revenues~~same period in the ~~current periods, although it did reduce cash~~prior year driven. This increase was driven by economic recovery from the COVID-19 pandemic and the ~~corresponding regulatory liability.~~lifting of associated governmental regulations and restrictions on activity.



Rate changes. MGE's PSCW-approved 2020 Fuel Cost Plan resulted in a fuel credit that decreased rates by 0.84% in 2020. Rates charged to retail customers during the three months ended September 30, ~~2020,~~2021, were ~~$1.4~~$1.1 million ~~lower~~higher than those charged during the same period in the prior ~~year. In December 2019,~~year as a result of the ~~PSCW approved the~~fuel credit from 2020 ~~Fuel Cost Plan, which reflected lower fuel costs and authorized MGE to decrease 2020 rates for electric retail customers by 0.84%.~~ending.

~~Customer fixed and demand charges.~~ During the three months ended September 30, 2020, fixed and demand charges decreased $1.0 million primarily attributable to the decrease in demand charges for commercial customers. The COVID-19 pandemic and associated governmental regulations and restrictions on activity impacted commercial business operations leading to reduced sales.

~~Residential volume.~~ During the three months ended September 30, 2020, there was an 8.7% increase in residential sales driven by the COVID-19 pandemic and associated governmental regulations and restrictions on activity. As businesses shifted their workforce to a remote work environment, residential sales increased.



Fuel costs. Fuel costs ~~decreased~~increased during the three months ended September 30, ~~2020,~~2021, primarily as a result of ~~lower~~higher costs to generate and purchase electricity in the ~~market~~market. Renewable owned resources have no generation costs and ~~lower customer demand.~~the delay in the commercial operation of Badger Hollow I solar farm has contributed to higher replacement energy costs for MGE.



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

Gas deliveries and revenues

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

		Revenues				Therms Delivered
(In thousands, except HDD and average rate per therm of retail customer)		Three Months Ended September 30,				Three Months Ended September 30,
		2020		2019	% Change	2020	2019	% Change
									Revenues							Therms Delivered
(In thousands, except HDD and average rate									Three Months Ended September 30,							Three Months Ended September 30,
per therm of retail customer)									2021		2020		% Change			2021		2020		% Change
Residential	$	12,436	$	11,342	9.6 %	6,537	5,707	14.5 %	$	14,643	$	12,436		17.7	%		5,987		6,537		(8.4	)%
Commercial/Industrial		5,052		4,825	4.7 %	9,368	9,195	1.9 %		8,069		5,052		59.7	%		8,889		9,368		(5.1	)%
Total retail		17,488		16,167	8.2 %	15,905	14,902	6.7 %		22,712		17,488		29.9	%		14,876		15,905		(6.5	)%
Gas transportation		1,152		1,126	2.3 %	16,092	15,514	3.7 %		1,256		1,152		9.0	%		15,212		16,092		(5.5	)%
Other revenues		3		84	(96.4)%	-	-	- %		52		3	n.m.%				—		—		—	%
Total	$	18,643	$	17,377	7.3 %	31,997	30,416	5.2 %	$	24,020	$	18,643		28.8	%	$	30,088	$	31,997		(6.0	)%

Heating degree days (normal 152)						175	57	207.0 %
Heating degree days (normal 148)																	50		175		(71.4	)%
Average rate per therm of
retail customer	$	1.100	$	1.085	1.4 %				$	1.527	$	1.100		38.8	%

n.m. not meaningful

Gas margin, a non-GAAP measure, increased ~~$0.5~~$0.4 million during the three months ended September 30, ~~2020~~,2021, compared to the same period in ~~2019~~,2020, due to the following:

(In millions)

Other
$
0.2

Increase in volume

0.1

Rate changes

0.1

Revenue subject to refund, net

0.1

Total
$
0.5


(In millions)
Rate changes	$	0.4
Other		0.2
Revenue subject to refund, net		(0.2	)
Total	$	0.4



Rate changes. In December ~~2018,~~2020, the PSCW authorized MGE to increase ~~2020~~2021 rates for retail gas customers by ~~1.46%~~approximately 4.0%.

MGE recovers the cost of natural gas in its gas segment through the purchased gas adjustment clause (PGA). Under the PGA, MGE is able to pass through to its gas customers the cost of gas. Changes in PGA recoveries affect revenues but do not change net income. Payments for natural gas increased due to the significant increase in natural gas costs seen throughout the central part of the country in February 2021 related to extreme weather conditions driving higher rates during the three months ended September 30, 2021. MGE expects the increase in natural gas costs from February 2021 to be recovered by the end of 2021 through the PGA.



Revenue subject to refund. For cost recovery mechanisms, any over-collection of revenues resulting from the amount of costs authorized to be collected from customers in rates exceeding actual costs is recorded as a reduction of revenue in the period incurred, as the over-collection is expected to be refunded to customers in a subsequent period. In September 2019, MGE returned $1.0 million to gas customers through bill credits related to tax credits. The 2019 bill credit was deducted from revenues in previous years and held in a regulatory liability pending the refund to customers. As a result, the refund did not affect reported revenues in the current periods, although it did reduce cash and the corresponding regulatory liability.

Consolidated operations and maintenance expenses

During the three months ended September 30, ~~2020,~~2021, operations and maintenance expenses ~~decreased $2.3~~increased $2.7 million, compared to the same period in the prior year. The following contributed to the net change:

~~(In millions)~~
~~Decreased administrative and general costs~~	$	~~(1.7)~~
~~Decreased transmission costs~~		~~(0.4)~~
~~Decreased other costs~~		~~(0.3)~~
~~Decreased electric production expenses~~		~~(0.2)~~
~~Increased gas distribution expenses~~		~~0.2~~
~~Increased electric distribution expenses~~		~~0.1~~
~~Total~~	$	~~(2.3)~~


(In millions)
Increased electric production expenses	$	1.5
Increased customer accounts costs		0.9
Increased administrative and general costs		0.5
Increased transmission costs		0.4
Increased customer services		0.3
Decreased electric distribution expenses		(0.6	)
Decreased gas distribution expenses		(0.3	)
Total	$	2.7

~~Decreased administrative~~

Increased electric production expenses are related to increased maintenance costs for Saratoga and ~~general~~Two Creeks.



Increased customer accounts costs are ~~primarily~~ related to ~~a decrease in stock price and number of performance unit awards reducing the fair value~~increased costs associated with the ~~performance unit awards,~~new customer information system, which ~~is remeasured quarterly. See Footnote 7 of the Notes to Consolidated Financial Statements~~went live in ~~this Report for additional information on performance unit awards~~. Other drivers include a reduction in nonessential spending driven by the COVID-19 pandemic and associated governmental regulations and management efforts to control spending, which includes training, travel expenses, and other discretionary spending.

~~Consolidated depreciation expense~~

~~Electric depreciation expense increased $0.3 million and gas depreciation expense increased $0.1 million during the three months ended~~ September ~~30, 2020, compared to the same period in the prior year.~~

~~Electric and gas other income~~

~~Electric other income increased $1.3 million during the~~ ~~three months ended September 30, 2020~~, compared to the same period in the prior year, primarily related to the AFUDC Equity from the construction of Two Creeks and Badger Hollow I and II. Gas other income decreased $0.1 million during the ~~three months ended September 30, 2020, compared to the same period in the prior year.~~

2021.

Nonregulated Energy Operations - MGE Energy and MGE

The nonregulated energy operations are conducted through MGE Energy's subsidiaries: MGE Power Elm Road (the Elm Road Units) and MGE Power West Campus (WCCF), which have been formed to own and lease electric generating capacity to assist MGE. During the three months ended September 30, ~~2020~~2021 and ~~2019,~~2020, net income at the nonregulated energy operations segment was ~~$5.3~~$5.4 million and ~~$5.1~~$5.3 million, respectively.

Transmission Investment Operations - MGE Energy

three months ended September 30, ~~2020~~2021 and ~~2019~~,2020, other income at the transmission investment segment was $2.5 million and $2.4 ~~million.~~million, respectively. In May 2020, the FERC issued an opinion further refining the methodology for setting the ROE that electric utilities are authorized to ~~earn.~~earn, which adjusted ATC's ROE to 10.02%. See Footnote 3 of the Notes to Consolidated Financial Statements in this Report and "~~Other Matters~~""Other Matters" below for additional information concerning ATC and summarized financial information regarding ATC.

Consolidated Income Taxes - MGE Energy and MGE

In ~~2020,~~2021, the effective electric tax rate decreased as a result of ~~higher AFUDC equity from Badger Hollow I and II and Two Creeks, which is~~the return of electric excess deferred taxes related to the 2017 Tax Act not ~~included~~governed by IRS normalization rules in ~~taxable income, and~~2021. These costs were recorded as a ~~tax credit generated by~~regulatory liability in the ~~Saratoga Wind Farm.~~year of remeasurement. See Footnote 4 of the Notes to Consolidated Financial Statements in this Report for the effective tax rate reconciliation.

Noncontrolling Interest, Net of Tax - MGE

Noncontrolling interest, net of tax, reflects the accounting required for MGE Energy's interest in MGE Power Elm Road (the Elm Road Units) and MGE Power West Campus (WCCF). MGE Energy owns 100% of MGE Power Elm Road and MGE Power West Campus. They are not owned by MGE. Due to the contractual agreements for these projects with MGE, the entities are considered VIEs with respect to MGE and their results are consolidated with those of MGE, the primary beneficiary of the VIEs. The following table shows MGE ~~Energy~~'sEnergy's noncontrolling interest, net of tax, reflected on ~~MGE~~'sMGE's consolidated statement of income:

Three Months Ended

September 30,

(In millions)

2020

2019

MGE Power Elm Road
$
3.7
$
3.8

MGE Power West Campus

1.8

1.8


	Three Months Ended
	September 30,
(In millions)	2021		2020
MGE Power Elm Road	$	3.8	$	3.7
MGE Power West Campus		1.8		1.8

Nine Months Ended September 30, ~~2020~~2021 and ~~2019~~2020

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

Nine Months Ended September 30,

(In millions)

2020

2019

$ Change

Electric revenues
$
303.1
$
314.9
$
(11.8)

Fuel for electric generation

(31.3)

(40.2)

8.9

Purchased power

(32.0)

(31.0)

(1.0)

Total Electric Margins

239.8

243.7

(3.9)

Gas revenues

98.6

112.5

(13.9)

Cost of gas sold

(41.0)

(55.2)

14.2

Total Gas Margins

57.6

57.3

0.3

Other operating revenues

0.5

0.5

-

Other operations and maintenance

(136.5)

(144.0)

7.5

Depreciation and amortization

(55.2)

(53.4)

(1.8)

Other general taxes

(14.9)

(15.1)

0.2

Operating Income
$
91.3
$
89.0
$
2.3


	Nine Months Ended September 30,
(In millions)	2021			2020			$ Change
Electric revenues	$	324.1		$	303.1		$	21.0
Fuel for electric generation		(42.6	)		(31.3	)		(11.3	)
Purchased power		(28.9	)		(32.0	)		3.1
Total Electric Margins		252.6			239.8			12.8

Gas revenues		119.9			98.6			21.3
Cost of gas sold		(57.7	)		(41.0	)		(16.7	)
Total Gas Margins		62.2			57.6			4.6

Other operating revenues		0.5			0.5			—
Other operations and maintenance		(144.6	)		(136.5	)		(8.1	)
Depreciation and amortization		(56.0	)		(55.2	)		(0.8	)
Other general taxes		(14.7	)		(14.9	)		0.2
Operating Income	$	100.0		$	91.3		$	8.7

Operating income during the nine months ended September 30, ~~2020,~~2021, compared to the same period in the prior year primarily reflects the effects of the following factors:



Electric revenues and fuel costs

o~~An $11.8~~

A $21.0 million ~~decrease~~increase in electric ~~revenue~~revenues primarily driven by ~~lower commercial~~an increase in electric retail sales ~~as a result of~~due to warmer weather and economic recovery in MGE's service territory from the COVID-19 pandemic and associated governmental regulations and restrictions on activity, partially offset by increased residential sales. Commercial retail sales decreased by 7.2% and residential sales increased by 7.2%, when compared to the prior year.

pandemic.

An ~~$8.9~~$11.3 million ~~decrease~~increase in fuel for electric generation reflecting ~~lower~~higher internal generation and market ~~costs and a decrease in customer demand.~~costs.

A ~~$1.0~~$3.1 million ~~increase~~decrease in purchased power costs ~~primarily due to higher~~driven by lower market purchases as a result of ~~lower~~higher internal generation.



Gas revenues and cost of gas sold

A ~~$13.9~~$21.3 million ~~decrease~~increase in gas revenue driven by ~~lower~~higher customer demand resulting from ~~milder~~colder weather in the first quarter of ~~2020~~2021 and ~~lower~~higher rates reflecting a ~~lower~~higher cost of gas, ~~being recovered.~~

which is recovered on a pass-through basis in revenues.

A ~~$14.2~~$16.7 million ~~decrease~~increase in cost of gas sold driven by ~~lower~~higher cost per therm of gas. Average cost per therm ~~decreased 18%~~increased approximately 37%.

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

~~A $7.5~~

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

increase.



A ~~$1.8~~$0.8 million increase in depreciation and amortization ~~expense driven by the timing of the commercial operation of Saratoga that took place in February 2019 as discussed in the consolidated depreciation expense section below.~~

expense.

Electric sales and revenues

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

		Revenues				Sales (kWh)
(In thousands, except cooling degree days)		Nine Months Ended September 30,				Nine Months Ended September 30,
(In thousands, except cooling degree days)									Revenues					Sales (kWh)
									Nine Months Ended September 30,					Nine Months Ended September 30,
(In thousands, except cooling degree days)		2020		2019	% Change	2020	2019	% Change	2021	2020	% Change		2021		2020	% Change
(In thousands, except cooling degree days)	$	113,311	$	107,772	5.1 %	684,585	638,590	7.2 %	td17,229	td13,311	3.5	%	693,739		684,585	1.3	%
Commercial		152,844		165,481	(7.6)%	1,308,511	1,410,360	(7.2)%	161,270	152,844	5.5	%	1,352,091		1,308,511	3.3	%
Industrial		8,797		10,013	(12.1)%	122,106	131,195	(6.9)%	9,469	8,797	7.6	%	122,493		122,106	0.3	%
Other-retail/municipal		24,874		26,728	(6.9)%	263,029	276,795	(5.0)%	26,340	24,874	5.9	%	276,950		263,029	5.3	%
Total retail		299,826		309,994	(3.3)%	2,378,231	2,456,940	(3.2)%	314,308	299,826	4.8	%	2,445,273		2,378,231	2.8	%
Sales to the market		2,604		3,914	(33.5)%	92,539	110,246	(16.1)%	8,854	2,604	n.m.	%	201,902		92,539	n.m.	%
Other revenues		660		978	(32.5)%	-	-	- %	948	660	43.6	%	—		—	-	%
Total	$	303,090	$	314,886	(3.7)%	2,470,770	2,567,186	(3.8)%	$324,110	$303,090	6.9	%	2,647,175		2,470,770	7.1	%

Cooling degree days (normal 674)						732	653	12.1 %
Cooling degree days (normal 678)													820		732	12.0	%

n.m. not meaningful

Electric margin, a non-GAAP measure, ~~decreased $3.9~~increased $12.8 million during the nine months ended September 30, ~~2020~~,2021, compared to the same period in ~~2019,~~2020, due to the following:

~~(In millions)~~
~~Decrease in commercial, industrial and other volume~~	$	~~(5.7)~~
~~Customer fixed and demand charges~~		~~(2.7)~~
~~Rate changes~~		~~(2.6)~~
~~Revenue subject to refund, net~~		~~(2.5)~~
~~Other~~		~~(0.3)~~
~~Increase in residential volume~~		~~5.1~~
~~Decreased fuel costs~~		~~4.8~~
~~Total~~	$	~~(3.9)~~

��

~~Commercial, industrial, and other retail volume.~~ During the nine months ended September 30, 2020, there was a 7.2% reduction in commercial sales compared to the same period in the prior year driven by impacts from the COVID-19 pandemic and associated governmental regulations and restrictions on activity.


(In millions)
Revenue subject to refund, net	$	7.3
Rate changes		3.2
Increase in commercial, industrial and other-retail/municipal volume		3.0
Increase in residential volume		1.0
Other		0.3
Customer fixed and demand charges		(1.5)
Increased fuel costs		(0.5)
Total	$	12.8

~~Customer fixed and demand charges.~~ During the nine months ended September 30, 2020, fixed and demand charges decreased $2.7 million primarily attributable to the decrease in demand charges for commercial customers. The COVID-19 pandemic and associated governmental regulations and restrictions on activity impacted commercial business operations leading to reduced sales.

~~Rate changes.~~ Rates charged to retail customers during the nine months ended September 30, 2020, were $2.6 million lower than those charged during the same period in the prior year. In December 2019, the PSCW approved the 2020 Fuel Cost Plan, which reflected lower fuel costs and authorized MGE to decrease 2020 rates for electric retail customers by 0.84%.



Revenue subject to refund. For cost recovery mechanisms, any over-collection of revenues resulting from the amount of costs authorized to be collected from customers in rates exceeding actual costs is recorded as a reduction of revenue in the period incurred, as the over-collection is expected to be refunded to customers in a subsequent period. In ~~September 2019, MGE returned $2.2 million~~the year the over-collection is refunded, rates are reduced and offset as revenue subject to ~~electric customers through bill credits~~refund. There is no margin impact in the year the costs are refunded. The largest driver is related to ~~tax credits. The 2019 bill~~return of excess deferred taxes related to the 2017 Tax Act in 2021. See Footnote 5 for additional information.



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

~~regulatory liability pending~~

$3.2 million higher than those charged during the ~~refund to customers. As~~same period in the prior year as a result of the ~~refund did not affect reported revenues~~fuel credit from 2020 ending.



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



Residential volume. During the nine months ended September 30, ~~2020,~~2021, there was ~~a 7.2%~~approximately 1% increase in residential sales driven by favorable weather conditions in the ~~impacts~~first half of 2021. The weather impact was partially offset by a decrease in residential usage associated with the recovery from the COVID-19 pandemic and a return to traditional work environments, which has occurred throughout 2021.



Customer fixed and demand charges. During the nine months ended September 30, 2021, fixed and demand charges decreased $1.5 million primarily attributable to the decrease in demand charges for commercial customers. The COVID-19 pandemic and associated governmental regulations and restrictions on ~~activity. As businesses shifted their workforce~~activity impacted commercial business operations leading to ~~a remote work environment, residential sales increased.~~reduced sales.

~~Fuel costs.~~ ~~Fuel costs decreased during the nine months ended September 30, 2020, primarily as a result of lower costs to generate and purchase electricity in the market and lower customer demand.~~

Gas deliveries and revenues

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

		Revenues				Therms Delivered
(In thousands, except HDD and average rate per therm of retail customer)		Nine Months Ended September 30,				Nine Months Ended September 30,
		2020		2019	% Change	2020	2019	% Change
									Revenues							Therms Delivered
(In thousands, except HDD and average rate per									Nine Months Ended September 30,							Nine Months Ended September 30,
therm of retail customer)									2021		2020		% Change			2021		2020		% Change
Residential	$	61,328	$	67,659	(9.4)%	68,394	74,769	(8.5)%	$	72,286	$	61,328		17.9	%		68,791		68,394		0.6	%
Commercial/Industrial		32,961		40,833	(19.3)%	62,582	70,255	(10.9)%		42,972		32,961		30.4	%		64,179		62,582		2.6	%
Total retail		94,289		108,492	(13.1)%	130,976	145,024	(9.7)%		115,258		94,289		22.2	%		132,970		130,976		1.5	%
Gas transportation		4,179		3,756	11.3 %	55,002	54,129	1.6 %		4,589		4,179		9.8	%		55,150		55,002		0.3	%
Other revenues		100		299	(66.6)%	-	-	- %		97		100		(3.0	)%		—		—		—	%
Total	$	98,568	$	112,547	(12.4)%	185,978	199,153	(6.6)%	$	119,944	$	98,568		21.7	%		188,120		185,978		1.2	%

Heating degree days (normal 4,530)						4,315	4,777	(9.7)%
Average rate per therm of
retail customer	$	0.720	$	0.748	(3.7)%
Heating degree days (normal 4,497)																	4,404		4,315		2.1	%
Average rate per therm of retail customer									$	0.867	$	0.720		20.4	%

Gas margin, a non-GAAP measure, increased ~~$0.3~~$4.6 million during the nine months ended September 30, ~~2020~~,2021, compared to the same period in ~~2019,~~2020, due to the following:

(In millions)

Rate changes
$
1.4

Other

0.7

Revenue subject to refund, net

0.5

Decrease in volume

(2.3)

Total
$
0.3


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



Rate changes. In December ~~2018,~~2020, the PSCW authorized MGE to increase ~~2020~~2021 rates for retail gas customers by ~~1.46%~~4.0%.

MGE recovers the cost of natural gas in its gas segment through the purchased gas adjustment clause (PGA). Under the PGA, MGE is able to pass through to its gas customers the cost of gas. Changes in PGA recoveries affect revenues but do not change net income. Payments for natural gas increased due to the significant increase in natural gas costs seen throughout the central part of the country in February 2021 related to extreme weather conditions driving higher rates during the nine months ended September 30, 2021. MGE expects the increase in natural gas costs from February 2021 to be recovered by the end of 2021 through the PGA.



In September 2019, MGE returned $1.0 million to gas customers through bill credits related to tax credits. The 2019 bill credit was deducted from revenues in previous years and held in a regulatory liability pending the refund to customers. As a result, the refund did not affect reported revenues in the current periods, although it did reduce cash and the corresponding regulatory liability.43

~~Volume~~. ~~During the~~ ~~nine months ended September 30, 2020, retail gas deliveries decreased 9.7% compared to the same period in the prior year primarily related to~~ ~~less favorable weather conditions in the first quarter of 2020.~~

Consolidated operations and maintenance expenses

During the nine months ended September 30, ~~2020,~~2021, operations and maintenance expenses ~~decreased $7.5~~increased $8.1 million, compared to the same period in the prior year. The following contributed to the net change:

~~(In millions)~~
~~Decreased administrative and general costs~~	$	~~(4.9)~~
~~Decreased electric production expenses~~		~~(2.4)~~
~~Decreased transmission costs~~		~~(1.1)~~
~~Decreased other costs~~		~~(0.6)~~
~~Increased gas distribution expenses~~		~~0.8~~
~~Increased electric distribution expenses~~		~~0.7~~
~~Total~~	$	~~(7.5)~~


(In millions)
Increased electric production expenses	$	5.9
Increased transmission costs		3.1
Increased customer accounts costs		1.1
Increased customer services		0.7
Decreased administrative and general costs		(1.0	)
Decreased electric distribution expenses		(1.0	)
Decreased gas distribution expenses		(0.6	)
Decreased other expenses		(0.1	)
Total	$	8.1

Decreased administrative and general costs are primarily related to a decrease in stock price and number of performance unit awards reducing the fair value associated with the performance unit awards, which is remeasured quarterly. See Footnote 7 of the Notes to Consolidated Financial Statements in this Report for additional information on performance unit awards. Other drivers include a reduction in nonessential spending driven by the COVID-19 pandemic and associated governmental regulations and management efforts to control spending, which includes training, travel expenses, and other discretionary spending.

~~Decreased~~

Increased electric production expenses are ~~primarily~~ related to ~~decreased operations and~~increased maintenance costs for Saratoga, Two Creeks, and Columbia. The 2021 scheduled maintenance outage for Columbia was completed in the spring. The outage for 2020 was rescheduled for the fall of 2020. Also contributing to the increase is $2.6 million additional expense recorded for Columbia inventory obsolescence and employee severance reserves. MGE anticipates requesting PSCW approval for regulatory recovery of these costs at ~~the Elm Road Units, Columbia, and Forward Wind facility. Scheduled maintenance outages have been delayed or reduced in 2020. The Columbia outage was delayed from spring to late 2020.~~

a future date.

~~Decreased~~

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



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



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



Decreased electric distribution expenses are primarily related to ~~refund.~~

~~Consolidated depreciation expense~~

~~Electric depreciation expense increased $1.3 million and gas depreciation expense increased $0.5 million during the nine months ended September 30, 2020, compared to the same period~~a decrease in ~~the prior year. MGE placed the Saratoga Wind Farm in service in February 2019. Timing of the in-service date contributed to the increase in electric depreciation expense.~~

locating services.

Electric and gas other income

Electric and gas other income ~~increased~~decreased $1.6 million and $3.0 million, respectively, during the nine months ended September 30, ~~2020~~,2021, compared to the same period in the prior year, primarily related to the ~~AFUDC Equity~~collection of the deferred pension and other postretirement other than service costs from ~~the construction of Two Creeks and Badger Hollow I and II. Gas other income increased $0.6 million during the~~ ~~nine months ended September 30, 2020, compared to the same period in the prior year.~~2019.

Nonregulated Energy Operations - MGE Energy and MGE

The nonregulated energy operations are conducted through MGE Energy's subsidiaries: MGE Power Elm Road (the Elm Road Units) and MGE Power West Campus (WCCF), which have been formed to own and lease electric generating capacity to assist MGE. During the nine months ended September 30, ~~2020~~2021 and ~~2019,~~2020, net income at the nonregulated energy operations segment was ~~$15.5~~$15.9 million and ~~$15.2~~$15.5 million, respectively.

Transmission Investment Operations - MGE Energy

The transmission investment segment holds our interest in ATC and ATC Holdco, and its income reflects our equity in the earnings of those investments. ATC Holdco was formed in December 2016 to pursue transmission development opportunities which typically have long development and investment lead times before becoming operational. ATC Holdco's ~~future~~ transmission development activities have been suspended for the near term. During the nine months ended September 30, ~~2020~~2021 and ~~2019~~,2020, other income at the transmission investment segment was ~~$7.8~~$7.4 million and ~~$6.8~~$7.8 million, respectively. In May 2020, the FERC issued an opinion further refining

the methodology for setting the ROE that electric utilities are authorized to ~~earn.~~earn, which adjusted ATC's ROE to 10.02%. See Footnote 3 of the Notes to Consolidated Financial Statements in this Report and "~~Other Matters~~""Other Matters" below for additional information concerning ATC and summarized financial information regarding ATC.

Consolidated Income Taxes - MGE Energy and MGE

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~~'sEnergy's noncontrolling interest, net of tax, reflected on ~~MGE~~'sMGE's consolidated statement of income:

Nine Months Ended

September 30,

(In millions)

2020

2019

MGE Power Elm Road
$
11.4
$
11.3

MGE Power West Campus

5.4

5.4


	Nine Months Ended
	September 30,
(In millions)	2021		2020
MGE Power Elm Road	$	11.4	$	11.4
MGE Power West Campus		5.4		5.4

Contractual Obligations and Commercial Commitments - MGE Energy and MGE

There were no material changes, other than from the normal course of business, to MGE Energy's and MGE's contractual obligations (representing cash obligations that are considered to be firm commitments) and commercial commitments (representing commitments triggered by future events) during the nine months ended September 30, ~~2020,~~2021, except as noted below. Further discussion of the contractual obligations and commercial commitments is included in Footnote 16 of the Notes to Consolidated Financial Statements and "Contractual Obligations and Commercial Commitments for MGE Energy and MGE" under "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the ~~2019~~2020 Annual Report on Form 10-K.

Purchase Contracts – MGE Energy and MGE

See item c. within Footnote 8 of Notes to Consolidated Financial Statements in this Report for a description of commitments as of September 30, ~~2020,~~2021, 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.

~~Capital Expenditures – MGE Energy and MGE~~

Various contractual obligations contain future minimum commitments related to capital expenditures for certain construction projects, including the Badger Hollow II and other service area renewable solar projects. As of September 30, 2020, MGE has additional future minimum construction commitments of $67.2 million. In October 2020, MGE entered into additional future minimum commitments of $3.4 million.

Long-term Debt - MGE Energy and MGE

In May 2021, MGE ~~borrowed $19.3~~entered into a private placement Note Purchase Agreement in which it committed to issue $60 million ~~from the issuance by the City~~ of ~~Madison, Wisconsin~~new long-term debt (Series A), carrying an interest rate of ~~Industrial Development Revenue Refunding Bonds in April 2020. The bonds bear interest at 2.05%~~2.48% per annum ~~for a term ending April 30, 2023, at which point they will either be repriced~~over its 10-year life, and ~~remarketed or redeemed and retired. The proceeds of these bonds were used to refund $19.3~~$40 million of ~~3.45% City~~new long-term debt (Series B), carrying an interest rate of ~~Madison, Wisconsin Industrial Development Revenue Refunding Bonds due October 2027, which had been issued to loan funds to MGE.~~2.63% per annum over its 12-year life. Funding occurred on June 15, 2021, for Series B and August 27, 2021, for Series A. See Footnote 6 of the Notes to Consolidated Financial Statements in this Report for further discussion of ~~the bond issuance.~~these debt issuances.

Liquidity and Capital Resources

Subject to the duration and severity of the COVID-19 pandemic, MGE Energy and MGE expect to have adequate liquidity to support future operations and capital expenditures over the next twelve months. Available resources include cash and cash equivalents, operating cash flows, liquid assets, borrowing capacity under revolving credit facilities, and access to equity and debt capital markets. MGE Energy expects to generate funds from both long-term debt financing, ~~including tax exempt debt,~~ short-term debt financing, orand if needed, could issue new shares through our Direct Stock Purchase and Dividend Reinvestment Plan. 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 the ~~2019~~2020 Annual Report on Form 10-K and "Liquidity" under "COVID-19 Update" above for information regarding MGE Energy's and MGE's credit facilities.

Cash Flows

The following summarizes cash flows for MGE Energy and MGE during the nine months ended September 30, ~~2020~~2021 and ~~2019:~~2020:

MGE Energy

MGE

(In thousands)

2020

2019

2020

2019

Cash provided by (used for):

Operating activities
$
136,011
$
111,702

$
131,871
$
109,020

Investing activities

(144,360)

(134,531)

(140,567)

(128,866)

Financing activities

36,627

1,142

9,372

19,962


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

Cash Provided by Operating Activities

MGE Energy

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

Cash provided by operating activities during the nine months ended September 30, ~~2020,~~2021, was ~~$136.0~~$141.3 million, an increase of ~~$24.3~~$5.3 million when compared to the same period in the prior year.

MGE Energy's net income increased ~~$6.4~~$16.1 million during the nine months ended September 30, ~~2020,~~2021, when compared to the same period in the prior year.

MGE Energy's federal and state taxes paid decreased ~~$6.2~~$2.1 million during the nine months ended September 30, ~~2020~~2021 when compared to the same period in the prior ~~year. The decrease~~year.

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

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

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

An increase in pension contribution resulted in an additional $0.9 million in cash used for operating activities for the nine months ended September 30, 2020, when compared to the same period in the prior year. Pension contributions reflect amounts required by law and discretionary amounts.

Hosted software asset expenditures during the nine months ended September 30, ~~2020~~2021, were ~~$1.5~~$3.0 million. This

amount represents ~~a decrease~~an increase of ~~$3.1~~$1.5 million of cash used when compared to the prior year.

MGE

Cash provided by operating activities during the nine months ended September 30, ~~2020,~~2021, was ~~$131.9~~$135.5 million, an increase of ~~$22.9~~$3.6 million when compared to the same period in the prior year.

Net income increased ~~$6.4~~$16.3 million during the nine months ended September 30, ~~2020,~~2021, when compared to the same period in the prior year.

MGE's federal and state taxes paid decreased ~~$6.2~~$1.2 million during the nine months ended September 30, ~~2020~~2021 when compared to the same period in the prior ~~year. The decrease~~year.

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

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

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

Hosted software asset expenditures during the nine months ended September 30, ~~2020~~2021, were ~~$1.5~~$3.0 million. This amount represents ~~a decrease~~an increase of ~~$3.1~~$1.5 million of cash used when compared to the prior year.

~~Cash Used for~~Capital Requirements and Investing Activities

MGE Energy

MGE Energy's cash used for investing activities ~~increased $9.8~~decreased $26.0 million during the nine months ended September 30, ~~2020,~~2021, when compared to the same period in the prior year.

Capital expenditures during the nine months ended September 30, ~~2020,~~2021, were ~~$139.1~~$114.1 million. This amount represents ~~an increase~~a decrease of ~~$10.7~~$24.9 million from the expenditures made in the same period in the prior year. This ~~increase~~decrease primarily reflects the reduction of expenditures on the construction of ~~the Two Creeks and~~ Badger Hollow I ~~and II solar construction projects. 2020 capital expenditures~~due to timing of expenditures.

Proceeds from the sale of investments increased ~~$15.2~~$1.1 million ~~over~~during the nine months ended September 30, 2021, when compared to the same period in the prior ~~year related to the Two Creeks and Badger Hollow I and II solar construction projects.~~year.

MGE

MGE's cash used for investing activities ~~increased $11.7~~decreased $25.0 million during the nine months ended September 30, ~~2020,~~2021, when compared to the same period in the prior year.

Capital expenditures

The following table shows MGE Energy's actual capital expenditures ~~increased $15.2 million over~~for both 2020 and 2019, and forecasted capital expenditures for 2021 through 2024:


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

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

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

Internal use software incurred in a hosting arrangement and preliminary construction costs related to renewable generation assets pending regulatory approvals are accounted for as an operating cash flow in accordance with applicable accounting policies. These costs are therefore excluded from the ~~Two Creeks~~table above. For ratemaking purposes, they are included in forecasted utility capital expenditures. These costs are forecasted to be $5 million, $3 million, and ~~Badger Hollow I~~$1 million for 2021, 2022, and ~~II solar construction projects.~~2023, respectively.

Generation Projects for Replacement of Columbia: In February 2021, MGE, along with its co-owners, announced plans to retire Columbia Unit 1 by the end of 2023 and Unit 2 by the end of 2024. MGE continues to evaluate additional investments to replace the generation from Columbia while maintaining electric service reliability. These investments include cost-effective, clean energy projects to help achieve MGE's carbon reduction goals. Approximately $200 million has been included in forecasted capital expenditures for the years 2021 through 2024 for projects to replace Columbia's generation, Additional capital expenditures are expected to continue beyond 2024.

Cash Provided by Financing Activities

MGE Energy

Cash provided by MGE Energy's financing activities was ~~$36.6~~$1.7 million during the nine months ended September 30, ~~2020,~~2021, compared to ~~$1.1~~$36.6 million for the same period in the prior year.

During the nine months ended September 30, ~~2020,~~2021, dividends paid were ~~$38.3~~$40.8 million compared to ~~$35.6~~$38.3 million in the prior year. The increase reflected a higher dividend rate per share ($~~1.075~~1.128 vs. ~~$1.028)~~$1.075) and a greater number of outstanding shares since the completion of the public offering of shares in May 2020.

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

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

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

MGE

During the nine months ended September 30, 2021, cash provided by MGE's financing activities was $31.9 million, compared to $9.4 million for the same period in the prior year.

Capital contributions made by MGE Energy to MGE were $30.0 million during the nine months ended September 30, 2020. There were no capital contributions made by MGE Energy to MGE during the nine months ended September 30, 2021.

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

During the nine months ended September 30, ~~2019,~~2021, net short-term debt ~~borrowings~~repayments were ~~$41.5 million. There were no net short-term debt borrowings during the nine months ended September 30, 2020.~~

~~MGE~~

~~During the nine months ended September 30, 2020, cash provided by MGE's financing activities was $9.4 million, compared to $20.0 million for the same period in the prior year.~~

~~Capital contributions made by MGE Energy to MGE were $30.0 million during the~~ ~~nine months ended September 30, 2020. There were no capital contributions made by MGE Energy to MGE during the~~ ~~nine months ended September 30, 2019.~~

~~Distributions to parent from noncontrolling interest, which represent distributions from MGE Power Elm Road and MGE Power West Campus to MGE Energy, were $16.0 million during the~~ ~~nine months ended September 30, 2020, compared to $17.0 million in the prior year.~~

~~During the~~ ~~nine months ended September 30, 2020~~, MGE borrowed $19.3 million through the issuance of Industrial Development Revenue Refunding Bonds which was used to refinance $19.3 million of existing Industrial Development Revenue Refunding Bonds at a lower interest rate.

~~During the nine months ended September 30, 2019, net short-term debt borrowings were $41.5~~$52.5 million. There were no net short-term debt borrowings during the nine months ended September 30, 2020.

Capitalization Ratios

MGE Energy's capitalization ratios were as follows:

MGE Energy

September 30, 2020

December 31, 2019

Common shareholders' equity
64.3 %

61.2 %

Long-term debt^(a)
35.7 %

38.8 %


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

(a)

Includes the current portion of long-term debt.

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

~~MGE Energy~~'~~s and MGE~~'s liquidity are primarily affected by their capital expenditure requirements. During the nine months ended September 30, 2020, capital expenditures for MGE Energy and MGE totaled $139.1 million, which included $136.7 million of utility capital expenditures. Included in the utility capital expenditures are costs

~~associated with the Two Creeks and Badger Hollow I and II solar construction projects.~~

The COVID-19 pandemic and associated governmental regulations did not significantly delay or disrupt the Two Creeks solar project, which entered commercial operation in November 2020. Badger Hollow I solar project was expected to be completed in 2020 and is now expected to be completed in April 2021. Badger Hollow II solar project was expected to be completed in December 2021 and is now expected to be completed in December 2022. The O'Brien solar project was expected to be completed by January 1, 2021 and is now expected to be completed in mid-2021. We have delayed other utility capital expenditures initially planned for 2020. No significant increase in costs is expected due to the delays. We will continue to monitor other capital project timelines as presented in the 2020-2022 capital expenditure forecast included under Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources in the 2019 Annual Report on Form 10-K.

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~~'sEnergy'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~~'sMGE's credit ratings could increase fees and interest charges under both MGE Energy's and MGE's credit agreements.

Environmental Matters

The following discussion is limited to updates or developments in environmental matters that occurred during the nine months ended September 30, ~~2020.~~2021. Further discussion of environmental matters is included in the ~~2019~~2020 Annual Report on Form 10-K and Footnote 8.a. of Notes to Consolidated Financial Statements in this Report.

~~Federal and State Environmental Compliance During the Current Pandemic~~

MGE was identified as an essential business under the State of Wisconsin's Safer at Home directive. It has been operating with full staff and has continued to prioritize its compliance with all applicable environmental regulations. MGE continues to follow local orders, as well as state department of health and Center for Disease Control guidance to operate in a manner to address potential spread of COVID-19 in order for the essential utility services to operate without interruptions. The EPA and the WDNR have both provided guidance for regulated entities if compliance with regulations becomes unfeasible due to the current outbreak of COVID-19. In late June 2020, the EPA announced that COVID-19 guidance sunset on August 31, 2020. MGE has developed contingencies for remaining in compliance during the pandemic and does not expect to rely on state or federal noncompliance relief. However, management cannot predict with certainty whether COVID-19 will disrupt these compliance activities. MGE will continue to build contingencies into compliance operations and communicate with regulators as needed during this unprecedented time.

Ozone National Ambient Air Quality Standards (NAAQS)~~: Remand of EPA's Decision to Give a Partial Attainment to Milwaukee County~~

In May ~~2018,~~2021, the EPA ~~issued~~published a final rule that ~~designated the northeast portion~~expands several nonattainment areas in Wisconsin to include all of Milwaukee County ~~as being in nonattainment with the Ozone NAAQS. All other portions of Milwaukee County were deemed in attainment with Ozone NAAQS. The~~where MGE's Elm Road Units are ~~located~~located. The WDNR will need to develop a State Implementation Plan (SIP) for the area, which will likely result in ~~Milwaukee County, outside~~more stringent requirements for both new development and existing plants in the ~~designated nonattainment~~ area. ~~In August 2018, several environmental groups,~~MGE will monitor the ~~City of Chicago,~~WDNR's SIP development and the ~~State of Illinois filed federal lawsuits challenging several of~~extent to which the ~~EPA's attainment designation decisions, including~~requirements will impact the partial Milwaukee County designation as being too narrow and not sufficiently protective. In July 2020, the United States District Court of the District of Columbia remanded the partial Milwaukee County attainment designation back to EPA for further explanation. MGE is monitoring the outcome of EPA's remand analysis and how it may affect our Elm Road ~~Units in Milwaukee County.~~Units. At this time, MGE ~~expects~~does not expect that the 2015 Ozone NAAQS will ~~not~~ have a material effect on its existing plants based on final designations.

~~EPA's Effluent Limitations Guidelines and Standards for Steam Electric Power Generating Point Source Category~~Other Matters

The EPA's promulgated 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. The standards were finalized in August 2020. The Elm Road Units must satisfy the rule's requirements no later than December 31, 2023, as determined by the permitting authority. The operator of the Elm Road Units is analyzing the rule's impact and expects to have cost estimates in early 2021. MGE will continue to work with the Elm Road operator to determine the expected costs and timing of compliance. MGE does not expect this rule to have a material effect on Columbia.Rate Matters

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

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

Details related to MGE's 2022/2023 proposed settlement agreement:


(Dollars in thousands)	Proposed Average Rate Base(a)		Proposed Average CWIP(b)		Proposed Return on Common Equity(c)			Proposed Common Equity Component of Regulatory Capital Structure
Electric (2022 Test Period)		1,044,362		19,976		9.8	%		55.63	%
Gas (2022 Test Period)		299,319		11,410		9.8	%		55.63	%

(a)

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

(b)

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

(c)

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

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

ATC

2013 FERC Complaint - In 2013, several parties filed a complaint with the FERC seeking to reduce the base return on equity (ROE) used by MISO transmission owners, including ATC. The complaint provided for a statutory refund period of November 2013 through February 2015. The complaint asserted that the MISO ROE should not exceed 9.15%, that the equity components of hypothetical capital structures should be restricted to 50%, and that the relevant incentive ROE adders should be discontinued. At the time, MISO's base ROE was 12.38% and ATC's base ROE was 12.2%. On September 28, 2016, FERC issued an order, for the period November 2013 through February 2015, reducing ATC's base ROE to 10.32%. In November 2019, FERC issued an order to further reduce ATC's base ROE to 9.88%. In May 2020, the FERC issued an order further refining the methodology for setting the ROE that electric utilities are authorized to earn. This increased the ROE from 9.88% to 10.02%. This base ROE is effective for the 2013 FERC complaint period and for all periods following September 2016.

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

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

As of December 31, 2018, our share of the estimated refund recorded was $2.5 million, including interest. Following the November 2019 FERC order, our share of ATC's earnings reflects a pre-tax adjustment of $2.0 million, including interest, related to the 2013 complaint refund period and from September 28, 2016 through December 31, 2019. As a result of the May 2020 FERC order, our share of ATC's earnings reflects a $0.6 million reduction of our reserve. Additionally, our share of ATC's earnings reflects the derecognition of a possible refund related to the 2015 complaint as ATC considers such a refund to be no longer considered probable due to FERC's November 2019 dismissal of that complaint. However, due to pending requests for rehearing, a loss related to the 2015 complaint remains possible. Our share of the estimated refund for the 2015 complaint is approximately ~~$2.4~~ $2.3

million. As of December 31, ~~2019,~~2020, our share of the estimated refund amount reflected a net increase in ATC's earnings with a pre-tax adjustment of $0.6 million, inclusive of interest.

We derived approximately ~~7.3%~~5.7% and ~~6.8%~~7.3% of our net income during the nine months ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively, from our investment in ATC.

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 substantially mitigated by the current ratemaking process in place for recovering electric fuel cost, purchased energy costs, and the cost of natural gas.

The recovery of MGE's electric fuel costs is subject to fuel rules established by the PSCW. ~~The fuel~~Fuel rules require ~~the PSCW and~~ Wisconsin utilities to defer electric fuel-related costs that fall outside a symmetrical cost tolerance band. Any over or under recovery of the actual costs ~~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~~would defer the benefit of lower costs if the actual electric fuel costs fall outside the lower end of the range and is required to defer costs, less any excess revenues, if the actual electric fuel costs exceed the upper end of the range. Excess revenues are defined as revenues in the year in question that provide MGE with a greater return on common equity than authorized by the PSCW in ~~MGE~~'sMGE'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,~~Beginning in 2021, MGE is subject to a plus or minus 1% range. Prior to 2021, the range was set at 2% ~~range.~~. MGE assumes the risks and benefits of variances that are within the cost tolerance band. For ~~2020, $73.9~~2021, $64.1 million in fuel and purchased power costs ~~are being~~will be recovered in rates and are subject to this rule and included in MGE's fuel monitoring level rates. See Footnote ~~9.b.~~9 of the Notes to Consolidated Financial Statements in this Report for additional information.

MGE recovers the cost of natural gas in its gas utility segment through the purchased gas adjustment clause (PGA). Under the PGA, MGE is able to pass through to its gas customers the cost of gas. If the commodity costs of gas exceed a monthly benchmark amount, the excess amount is subject to a prudence review and approval by the PSCW before it can be passed through to customers.

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

MGE has financial gas and electric commodity contracts to hedge commodity price risk in the gas and electric utility segments. These contracts are primarily comprised of exchange-traded option and future contracts. MGE also holds financial transmission rights (FTRs), which are used to hedge the risk of increased transmission congestion charges. As of September 30, ~~2020,~~2021, the fair value of exchange traded derivatives and FTRs exceeded their cost basis by ~~$2.0~~$13.8 million. Under the PGA clause and electric fuel rules, MGE may include the costs and benefits of the aforementioned fuel price risk management tools in the costs of fuel (natural gas or power).

Because these costs or benefits are recoverable, the related unrealized loss or gain has been deferred on the consolidated balance sheets as a regulatory asset or liability, respectively.

MGE has also entered into a purchased power agreement that provides MGE with firm capacity and energy that began on June 1, 2012, and ends on May 31, 2022 (the "~~base term~~""base term"). The agreement also allows MGE an option to extend the contract after the base term. The agreement is considered a derivative contract and is recognized at its fair value on the consolidated balance sheets. However, the derivative qualifies for regulatory deferral and is recognized with a corresponding regulatory asset or liability depending on whether the fair value is in a loss or gain position. The fair value of the contract as of September 30, ~~2020,~~2021, reflected a loss position of ~~$16.0~~$0.2 million.

Interest Rate Risk

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

Equity Price Risk - Pension-Related Assets

MGE currently funds its liabilities related to employee benefits through trust funds. These funds, which include investments in debt and equity securities, are managed by various third-party investment managers. Changes in the market value of these investments can have an impact on the future expenses related to these liabilities. The value of employee benefit plan assets has increased by approximately 3%9.5% during the nine months ended September 30, ~~2020.~~2021.

Credit Risk - Counterparty

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

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

Additionally, if a counterparty were to default and MGE were to liquidate all contracts with that entity, MGE's credit loss could include: the loss in value of mark-to-market contracts, the amount owed for settled transactions, and additional payments to settle unrealized losses. As of September 30, ~~2020,~~2021, no counterparties had defaulted.

MGE is obligated to provide service to all electric and gas customers within its franchised territories. MGE's franchised electric territory includes a 264 square-mile area in Dane County, Wisconsin, and MGE's franchised gas territory includes a service area covering 1,684 square miles in Wisconsin. Based on results for the year ended December 31, ~~2019,~~2020, no one customer constituted more than 10% of total operating revenues for MGE Energy and MGE. Credit risk for electric and gas is managed by MGE's credit and collection policies, which are consistent with state regulatory requirements.

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

Item 4. Controls and Procedures.

During the third quarter of ~~2020,~~2021, each registrant's management, including the principal executive officer and principal financial officer, evaluated its disclosure controls and procedures related to the recording, processing, summarization, and reporting of information in its periodic reports that it files with the SEC. These disclosure controls and procedures have been designed to ensure that material information relating to that registrant, including its subsidiaries, is accumulated and made known to that registrant's management, including these officers, by other employees of that registrant and its subsidiaries as appropriate to allow timely decisions regarding required disclosure, and that this information is recorded, processed, summarized, evaluated, and reported, as applicable, within the time periods specified in the SEC's rules and forms. The evaluations take into account changes in the internal and external operating environments that may impact those controls and procedures. Due to the inherent limitations of control systems, not all misstatements may be detected. These inherent limitations include the realities that judgments in decision making can be faulty and breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. Also, MGE Energy does not control or manage certain of its unconsolidated entities and thus, its access and ability to apply its procedures to those entities is more limited than is the case for its consolidated subsidiaries.

As of September 30, ~~2020,~~2021, 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~~In September of 2021, the ~~quarter ended September 30, 2020, there were no~~registrants implemented a new customer information and billing system that materially affected the registrants' internal control over financial reporting. The implementation involved replacing multiple legacy systems which house all customer records and process metering, billing and payment transactions. We have made changes ~~in either registrant's~~to our internal controls over financial reporting ~~that materially affected, or are reasonably likely~~during the implementation of the new system and will continue to ~~affect materially, that registrant's internal control over financial reporting.~~evaluate the operating effectiveness of related controls during subsequent periods.

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53

PART II. OTHER INFORMATION.

Item 1. Legal Proceedings.

MGE Energy and MGE

MGE Energy and its subsidiaries, including MGE, from time to time are involved in various legal proceedings that are handled and defended in the ordinary course of business. See Footnote 8.a. and 8.b. of Notes to Consolidated Financial Statements in this Report for more information.

~~Item 1A. Risk Factors.~~

~~Except as set forth below, during the~~ ~~nine months ended September 30,~~ ~~2020, there were no material changes to the Risk Factors disclosed in Item 1A – "Risk Factors" in the 2019 Annual Report on Form 10-K.~~

~~Pandemic virus or diseases, including COVID-19, could have a material adverse effect on our business, financial condition and liquidity.~~

The outbreak of the Coronavirus Disease 2019 (COVID-19), and the implemented and evolving steps being taken to address it, could adversely affect our service area, our business, our financial condition and our liquidity. Possible effects include:

~~Reduced economic activity impacting the use of electricity and gas services~~

The continued spread of COVID-19 may have a material adverse impact on the local economy in our service area, which could impact our business, results of operations, and financial condition. Federal, state, and local governments have implemented mitigation measures, including quarantines or closures or reduced operations of businesses, governmental agencies and other institutions. Reduced economic activity can lead to lower consumption of electricity and gas that may not be offset by residential consumption.

~~Delay in, and possible loss of, payments for utility service~~

During the first several months of the pandemic, the PSCW ordered Wisconsin utilities not to charge for late payments and not to disconnect customers for non-payment, which, in combination with the economic hardship caused by quarantine or stay-at-home orders, could result in losses as those payments are received late or not at all. Further, significant delays in those payments could affect our liquidity. Although the PSCW order was lifted in July 2020, we have undertaken to continue to waive late fees until December 31, 2020.

~~Regulatory delays~~

We operate in a regulated business. Delays in regulatory proceedings or the issuance of required permits or variances, due to limited operations, hours or ability to convene necessary meetings, could delay required approvals or permits and affect the timing of activities. The failure to get timely variances could expose us to fines and penalties.

~~Regulatory recovery of deferred costs~~

Certain incurred costs are being deferred as regulatory assets for future recovery and not being recognized in the statements of income, reflecting a March 24, 2020, PSCW Order. These costs can affect our cash, but are not presently recoverable in rates. If recovery of those regulatory assets in customer rates is not approved or is no longer deemed probable, these deferred costs would be recognized as a current period expense, which could be material in the period in which such recognition is required.

~~Employee and supplier disruptions~~

~~Employee absences and supply interruptions could affect our ability to operate and maintain our system.~~

~~Volatility in the capital markets~~

Concerns about COVID-19 and its effects have caused, and may continue to cause, significant volatility in the capital markets. Market volatility as a result of COVID-19 may have a material adverse impact on the value of our employee benefits trusts investments, which could impact our costs for those benefits. The price of our common stock has been volatile and has decreased significantly in recent months. The COVID-19 pandemic and the significant uncertainties it has caused for the global economy, business activity, and business confidence have had, and is likely to continue to have, a significant effect on the market price of securities generally, including our securities.

The situation around COVID-19 remains fluid and the potential for a material impact on the results of operations, financial condition, and liquidity increases the longer the virus disrupts the local economy. Although we expect sales for future periods in 2020 to be negatively impacted by the COVID-19 pandemic, we cannot reasonably estimate with any degree of certainty the actual impact COVID-19 may have on our results of operations, financial position, and liquidity. The extent to which the COVID-19 pandemic may impact our business, operating results, financial condition, or liquidity will depend on future developments, including the duration of the outbreak, business and workforce disruptions, and the effectiveness of actions taken to contain and treat the disease.

Moreover, the effects of the COVID-19 pandemic may heighten many of the other risks described in the section entitled "Risk Factors" in the 2019 Annual Report on Form 10-K including, but not limited to, interest rate changes, rating agency actions, governmental actions and market volatility.

~~We could be adversely affected by production disruptions at our wind generating facilities.~~

We own and operate wind generating facilities, which generate production tax credits used to reduce our federal tax obligations. Various operating and economic factors, including transmission constraints, unfavorable trends in pricing for wind energy, adverse weather conditions and the breakdown or failure of equipment, could significantly reduce the production tax credits generated by our wind farms, resulting in increased federal income tax expense. We could also be forced to replace lost wind generation capacity with additional power purchases from third parties, potentially leading to increased costs. These factors could have an adverse impact on our financial condition and results of operations, which could be material depending upon the cause of the disruption and its duration.

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

Issuer Purchases of Equity Securities

Period

Total Number of Shares Purchased

Average Price Paid per Share

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

Maximum number (or Approximate Dollar Value) of Shares That May Yet Be Purchased Under the Plans or Programs^(a)
July 1-31, 2020

8,392
$
65.21

-

-
August 1-31, 2020

9,312

66.22

-

-
September 1-30, 2020

42,953

65.07

-

-
Total

60,657
$
65.27

-

-


Period	Total Number of Shares Purchased			Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(a)	Maximum number (or Approximate Dollar Value) of Shares That May Yet Be Purchased Under the Plans or Programs(a)
July 1-31, 2021		9,437	$		75.74	—	—
August 1-31, 2021		6,945			80.47	—	—
September 1-30, 2021		38,526			78.40	—	—
Total		54,908	$		78.20	—	—

(a)

Under the MGE Energy, Inc. Direct Stock Purchase and Dividend Reinvestment Plan (Stock Plan), common stock shares deliverable to plan participants may be either newly issued shares or shares purchased on the open market, as determined from time to time by MGE Energy. During ~~2020,~~2021, MGE Energy's transfer agent used 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 open market purchases, are sold pursuant to a registration statement that was filed with the SEC and is currently effective.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable to MGE Energy and MGE.

Item 5. Other Information.

~~Not applicable to MGE Energy and MGE.~~None.

Item 6. Exhibits.



Ex. No.		Exhibit Description
31.1	*	Certifications Pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934 filed by Jeffrey M. Keebler for MGE Energy, Inc.

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

~~31.~~31.33	*	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.~~31.44	*	Certifications Pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934 filed by Jared J. Bushek for Madison Gas and Electric Company

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

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

~~32.~~32.33	**	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.~~32.44	**	Certifications Pursuant to Section 1350 of Chapter 63 of Title 18 United States Code (Sarbanes-Oxley Act of 2002) filed by Jared J. Bushek for Madison Gas and Electric Company

101.INS		XBRL Instance
101.SCH		XBRL Taxonomy Extension Schema
101.CAL		XBRL Taxonomy Extension Calculation
101.DEF		XBRL Taxonomy Extension Definition
101.LAB		XBRL Taxonomy Extension Labels
101.PRE		XBRL Taxonomy Extension Presentation
104.1		Included in the cover page, formatted in Inline XBRL

*		Filed herewith.
**		Furnished herewith.

Signatures - MGE Energy, Inc.

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


	MGE ENERGY, INC.



Date: November ~~5, 2020~~4, 2021	/s/ Jeffrey M. Keebler
	Jeffrey M. Keebler Chairman, President and Chief Executive Officer (Duly Authorized Officer)



Date: November ~~5, 2020~~4, 2021	/s/ Jared J. Bushek
	Jared J. Bushek Vice President - Finance, Chief Information Officer and Treasurer (Chief Financial Officer)



Date: November ~~5, 2020~~4, 2021	/s/ Tamara J. Johnson
	Tamara J. Johnson Vice President - Accounting and Controller (Chief Accounting Officer)

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56

Signatures – Madison Gas and Electric Company

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


	MADISON GAS AND ELECTRIC



Date: November ~~5, 2020~~4, 2021	/s/ Jeffrey M. Keebler
	Jeffrey M. Keebler Chairman, President and Chief Executive Officer (Duly Authorized Officer)



Date: November ~~5, 2020~~4, 2021	/s/ Jared J. Bushek
	Jared J. Bushek Vice President - Finance, Chief Information Officer and Treasurer (Chief Financial Officer)



Date: November ~~5, 2020~~4, 2021	/s/ Tamara J. Johnson
	Tamara J. Johnson Vice President - Accounting and Controller (Chief Accounting Officer)

Offsetting of Derivative Liabilities
(In thousands)		Gross Amounts		Gross Amounts Offset in Balance Sheets		Collateral Posted Against Derivative Positions		Net Amount Presented in Balance Sheets
September 30, 2020
Commodity derivative contracts	$	558	$	(558)	$	0	$	0
PPA		15,980		0		0		15,980

December 31, 2019
Commodity derivative contracts	$	1,738	$	(192)	$	(1,546)	$	0
PPA		25,440		0		0		25,440


		2020				2019			2021						2020
(In thousands)		Current and Long-Term Regulatory Asset		Other Current Assets		Current and Long-Term Regulatory Asset		Other Current Assets	Current and Long-Term Regulatory Asset (Liability)			Other Current Assets			Current and Long-Term Regulatory Asset (Liability)			Other Current Assets
Three Months Ended September 30:
Balance as of July 1,	$	20,400	$	940	$	33,515	$	878	$	2,581		$	520		$	20,400		$	940
Unrealized (gain) loss		(4,695)		0		(4,560)		0
Realized (loss) gain reclassified to a deferred account		(207)		207		(411)		411
Realized (loss) gain reclassified to income statement		(1,481)		(164)		638		(258)
Unrealized gain										(18,677	)		0			(4,695	)		0
Realized gain (loss) reclassified to a deferred account										65			(65	)		(207	)		207
Realized gain (loss) reclassified to income statement										2,356			311			(1,481	)		(164	)
Balance as of September 30,	$	14,017	$	983	$	29,182	$	1,031	$	(13,675	)	$	766		$	14,017		$	983

Nine Months Ended September 30:
Balance as of January 1,	$	26,875	$	1,100	$	31,830	$	377	$	13,989		$	1,162		$	26,875		$	1,100
Unrealized (gain) loss		(8,032)		0		(2,256)		0
Unrealized gain										(30,314	)		0			(8,032	)		0
Realized (loss) gain reclassified to a deferred account		(1,999)		1,999		(1,402)		1,402		(351	)		351			(1,999	)		1,999
Realized (loss) gain reclassified to income statement		(2,827)		(2,116)		1,010		(748)
Realized gain (loss) reclassified to income statement										3,001			(747	)		(2,827	)		(2,116	)
Balance as of September 30,	$	14,017	$	983	$	29,182	$	1,031	$	(13,675	)	$	766		$	14,017		$	983

		Derivative		Derivative
(In thousands)		Assets		Liabilities	Balance Sheet Location
September 30, 2020
Commodity derivative contracts^(a)	$	2,248	$	546	Other current assets
Commodity derivative contracts^(a)		253		12	Other deferred charges
FTRs		20		0	Other current assets
PPA		N/A		9,640	Derivative liability (current)
PPA		N/A		6,340	Derivative liability (long-term)

December 31, 2019
Commodity derivative contracts^(b)	$	157	$	1,521	Derivative liability (current)^(c)
Commodity derivative contracts^(b)		73		217	Derivative liability (long-term)
FTRs		73		0	Other current assets
PPA		N/A		10,100	Derivative liability (current)
PPA		N/A		15,340	Derivative liability (long-term)

Offsetting of Derivative Assets
(In thousands)		Gross Amounts		Gross Amounts Offset in Balance Sheets		Collateral Posted Against Derivative Positions		Net Amount Presented in Balance Sheets
September 30, 2020
Commodity derivative contracts	$	2,501	$	(558)	$	(650)	$	1,293
FTRs		20		0		0		20

December 31, 2019
Commodity derivative contracts	$	230	$	(192)	$	0	$	38
FTRs		73		0		0		73


	Realized Losses (Gains)
	2021					2020
(In thousands)	Fuel for Electric Generation/ Purchased Power			Cost of Gas Sold		Fuel for Electric Generation/ Purchased Power		Cost of Gas Sold
Three Months Ended September 30:
Commodity derivative contracts	$	(1,586	)	$	0	$	680	$	28
FTRs		(132	)		0		184		0
PPA		(949	)		0		753		0

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

		Fair Value as of September 30, 2020
(In thousands)		Total		Level 1		Level 2		Level 3
MGE Energy
Assets:
Derivatives, net^(b)	$	2,521	$	1,975	$	0	$	546
Exchange-traded investments		1,781		1,781		0		0
Total Assets	$	4,302	$	3,756	$	0	$	546
Liabilities:
Derivatives, net	$	16,538	$	265	$	0	$	16,273
Deferred compensation		3,349		0		3,349		0
Total Liabilities	$	19,887	$	265	$	3,349	$	16,273

MGE
Assets:
Derivatives, net^(b)	$	2,521	$	1,975	$	0	$	546
Exchange-traded investments		461		461		0		0
Total Assets	$	2,982	$	2,436	$	0	$	546
Liabilities:
Derivatives, net	$	16,538	$	265	$	0	$	16,273
Deferred compensation		3,349		0		3,349		0
Total Liabilities	$	19,887	$	265	$	3,349	$	16,273

		Fair Value as of December 31, 2019
(In thousands)		Total		Level 1		Level 2		Level 3
MGE Energy
Assets:
Derivatives, net	$	303	$	189	$	0	$	114
Exchange-traded investments		1,271		1,271		0		0
Total Assets	$	1,574	$	1,460	$	0	$	114
Liabilities:
Derivatives, net^(c)	$	27,178	$	608	$	0	$	26,570
Deferred compensation		3,157		0		3,157		0
Total Liabilities	$	30,335	$	608	$	3,157	$	26,570

MGE
Assets:
Derivatives, net	$	303	$	189	$	0	$	114
Exchange-traded investments		209		209		0		0
Total Assets	$	512	$	398	$	0	$	114
Liabilities:
Derivatives, net^(c)	$	27,178	$	608	$	0	$	26,570
Deferred compensation		3,157		0		3,157		0
Total Liabilities	$	30,335	$	608	$	3,157	$	26,570

Borrower		Aggregate Bank Commitments		Outstanding Commercial Paper and Borrowings		Available Capacity	Expiration Date
(Dollars in millions)
MGE Energy	$	50.0	$	-	$	50.0	February 7, 2024

MGE	$	100.0	$	-	$	100.0	February 7, 2024

Period	Total Number of Shares Purchased		Average Price Paid per Share	Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs^(a)	Maximum number (or Approximate Dollar Value) of Shares That May Yet Be Purchased Under the Plans or Programs^(a)
July 1-31, 2020	8,392	$	65.21	-	-
August 1-31, 2020	9,312		66.22	-	-
September 1-30, 2020	42,953		65.07	-	-
Total	60,657	$	65.27	-	-