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, 2024
☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from _______________ to _______________
Commission
File No.
Name of Registrant, State of Incorporation, Address
of Principal Executive Offices, and Telephone No.
IRS Employer
Identification No.
000-49965
MGE Energy, Inc.
(a Wisconsin Corporation)
133 South Blair Street
Madison, Wisconsin 53788
(608) 252-7000 | mgeenergy.com
39-2040501
000-1125
Madison Gas and Electric Company
(608) 252-7000 | mge.com
39-0444025
Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days:
MGE Energy, Inc. Yes ☒ No ☐
Madison Gas and Electric Company Yes ☒ No ☐
Indicate by check mark whether the registrants have submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrants were required to submit such files):
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
Accelerated
Filer
Non-accelerated Filer
Smaller Reporting Company
Emerging Growth Company
☒
☐
If an emerging growth company, indicate by check mark if the registrants have elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
MGE Energy, Inc. ☐
Madison Gas and Electric Company ☐
Indicate by check mark whether the registrants are shell companies (as defined in Rule 12b-2 of the Exchange Act):
MGE Energy, Inc. Yes ☐ No ☒
Madison Gas and Electric Company Yes ☐ No ☒
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 30, 2024
Common stock, $1.00 par value, 36,207,529 shares outstanding.
Common stock, $1.00 par value, 17,347,894 shares outstanding (all of which are owned beneficially and of record by MGE Energy, Inc.).
1
Table of Contents
PART I. FINANCIAL INFORMATION
3
Filing Format
Forward-Looking Statements
Where to Find More Information
Definitions, Abbreviations, and Acronyms Used in the Text and Notes of this Report
4
Item 1. Financial Statements.
6
Consolidated Statements of Income (unaudited)
Consolidated Statements of Cash Flows (unaudited)
7
Consolidated Balance Sheets (unaudited)
8
Consolidated Statements of Common Equity (unaudited)
9
10
11
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.
2. New Accounting Standards.
15
3. Investment in ATC and ATC Holdco.
4. Taxes.
16
5. Pension and Other Postretirement Plans.
17
6. Equity and Financing Arrangements.
7. Share-Based Compensation.
18
8. Commitments and Contingencies.
9. Rate Matters.
21
10. Derivative and Hedging Instruments.
22
11. Fair Value of Financial Instruments.
24
12. Joint Plant Construction Project Ownership.
27
13. Revenue.
28
14. Segment Information.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
30
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
46
Item 4. Controls and Procedures.
PART II. OTHER INFORMATION.
47
Item 1. Legal Proceedings.
Item 1A. Risk Factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 3. Defaults Upon Senior Securities.
Item 4. Mine Safety Disclosures.
Item 5. Other Information.
Item 6. Exhibits.
48
Signatures - MGE Energy, Inc.
49
Signatures - Madison Gas and Electric Company
50
2
PART I. FINANCIAL INFORMATION.
This combined Form 10-Q is being filed separately by MGE Energy, Inc. (MGE Energy) and Madison Gas and Electric Company (MGE). MGE is a wholly owned subsidiary of MGE Energy and represents a majority of its assets, liabilities, revenues, expenses, and operations. Thus, all information contained in this report relates to, and is filed by, MGE Energy. Information that is specifically identified in this report as relating solely to MGE Energy, such as its financial statements and information relating to its nonregulated business, does not relate to, and is not filed by, MGE. MGE makes no representation as to that information. The terms "we" and "our," as used in this report, refer to MGE Energy and its consolidated subsidiaries, unless otherwise indicated.
This report, and other documents filed by MGE Energy and MGE with the Securities and Exchange Commission (SEC) from time to time, contain forward-looking statements that reflect management's current assumptions and estimates regarding future performance and economic conditions—especially as they relate to economic conditions, future load growth, revenues, expenses, capital expenditures and rate recovery, 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," "commit," "target," and other similar words, and words relating to goals, targets and projections, generally identify forward-looking statements. Both MGE Energy and MGE caution investors that these forward-looking statements are subject to known and unknown risks and uncertainties that may cause actual results to differ materially from those projected, expressed, or implied.
The factors that could cause actual results to differ materially from the forward-looking statements made by a registrant include: (a) those factors discussed in the registrants' 2023 Annual Report on Form 10-K: Item 1A. Risk Factors, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, as updated by Part I, Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations in this report, and Item 8. Financial Statements and Supplementary Data – Note 16, as updated by Part I, Item 1. Financial Statements – Note 8 in this report, and (b) other factors discussed herein and in other filings made by that registrant with the SEC.
Readers are cautioned not to place undue reliance on these forward-looking statements, which apply only as of the date of this report. MGE Energy and MGE undertake no obligation to release publicly any revision to these forward-looking statements to reflect events or circumstances after the date of this report, except as required by law.
We file annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K and other information with the SEC. The SEC maintains an internet site at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.MGE Energy maintains a website at mgeenergy.com, and MGE maintains a website at mge.com. Copies of the reports and other information that we file with the SEC 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.
Abbreviations, acronyms, and definitions used in the text and notes of this report are defined below.
MGE Energy and Subsidiaries:
CWDC
Central Wisconsin Development Corporation
MAGAEL
MAGAEL, LLC
MGE
MGE Energy
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:
2023 Annual Report on Form 10-K
MGE Energy's and MGE's Annual Report on Form 10-K for the year ended December 31, 2023
2021 Incentive Plan
MGE Energy's 2021 Long-Term Incentive Plan
AFUDC
Allowance for Funds Used During Construction
ATC
American Transmission Company LLC
ATC Holdco
ATC Holdco, LLC
Badger Hollow II
Badger Hollow II Solar Farm
Blount
Blount Station
BTA
Best technology available
CA
Certificate of Authority
CBP
U.S. Customs and Border Protection
CCR
Coal Combustion Residual
Codification
Financial Accounting Standards Board Accounting Standards Codification
Columbia
Columbia Energy Center
Cooling degree days (CDD)
Measure of the extent to which the average daily temperature is above 65 degrees Fahrenheit, which is considered an indicator of possible increased demand for energy to provide cooling
CSAPR
Cross-State Air Pollution Rule
Darien
Darien Solar Energy Center
Dth
Dekatherms, a quantity measure for natural gas
ELG
Effluent Limitations Guidelines
Elm Road Units
Elm Road Generating Station
EPA
United States Environmental Protection Agency
FERC
Federal Energy Regulatory Commission
FIP Rule
Federal Implementation Plan
FTR
Financial Transmission Rights
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
High Noon
High Noon Solar Project
IRS
Internal Revenue Service
Koshkonong
Koshkonkong Solar Energy Center
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
Nasdaq
The Nasdaq Stock Market
NOx
Nitrogen oxide
Paris
Paris Solar and Battery Park
The Petition
Petition for Judicial Review of Agency Action
PGA
Purchased Gas Adjustment clause, a regulatory mechanism used to reconcile natural gas costs recovered in rates to actual costs
PM
Particulate Matter
PSCW
Public Service Commission of Wisconsin
ROE
Return on equity
SEC
Securities and Exchange Commission
SO2
Sulfur dioxide
Stock Plan
Direct Stock Purchase and Dividend Reinvestment Plan of MGE Energy
Sunnyside
Sunnyside Solar and Battery Project
UFLPA
Uyghur Forced Labor Protection Act
VIE
Variable Interest Entity
WCCF
West Campus Cogeneration Facility
WDNR
Wisconsin Department of Natural Resources
West Riverside
West Riverside Energy Center in Beloit, Wisconsin
Working capital
Current assets less current liabilities
WPDES
Wisconsin Pollutant Discharge Elimination System
WRO
Withhold Release Order
XBRL
eXtensible Business Reporting Language
5
(In thousands, except per share amounts)
Three Months Ended
Nine Months Ended
September 30,
2024
2023
Operating Revenues:
Electric revenues
$
148,004
139,104
384,768
378,102
Gas revenues
20,476
21,424
120,761
147,677
Total Operating Revenues
168,480
160,528
505,529
525,779
Operating Expenses:
Fuel for electric generation
17,252
19,712
41,193
47,118
Purchased power
8,127
7,021
26,419
28,252
Cost of gas sold
4,628
5,160
52,798
80,296
Other operations and maintenance
57,129
53,997
167,833
156,004
Depreciation and amortization
27,104
25,241
80,636
74,971
Other general taxes
6,100
5,605
18,030
16,922
Total Operating Expenses
120,340
116,736
386,909
403,563
Operating Income
48,140
43,792
118,620
122,216
Other income, net
4,839
10,549
12,576
20,841
Interest expense, net
(8,396
)
(7,654
(24,725
(22,901
Income before income taxes
44,583
46,687
106,471
120,156
Income tax provision
(3,644
(8,830
(7,924
(22,540
Net Income
40,939
37,857
98,547
97,616
Earnings Per Share of Common Stock
Basic
1.13
1.05
2.72
2.70
Diluted
Dividends per share of common stock
0.450
0.428
1.305
1.243
Weighted Average Shares Outstanding
36,181
36,163
36,176
36,211
36,189
36,202
36,185
The accompanying notes are an integral part of the above unaudited consolidated financial statements.
(In thousands)
Operating Activities:
Net income
Items not affecting cash:
Deferred income taxes
170
16,326
Provision for doubtful receivables
6,600
1,323
Employee benefit plan cost (credit)
424
(2,976
Equity earnings in investments
(8,427
(7,930
Other items
1,247
(2,502
Changes in working capital items:
Current assets
27,544
33,976
Accounts payable
(11,699
(16,586
7,146
—
Other current liabilities
2,120
(3,714
Dividends from investments
6,414
6,305
Cash contributions to pension and other postretirement plans
(5,511
(5,290
Other noncurrent items, net
4,625
2,519
Cash Provided by Operating Activities
209,836
194,038
Investing Activities:
Capital expenditures
(164,064
(150,298
Capital contributions to investments
(4,348
(5,986
Other
801
(206
Cash Used for Investing Activities
(167,611
(156,490
Financing Activities:
Issuance of common stock, net
2,591
Cash dividends paid on common stock
(47,210
(44,933
Repayments of long-term debt
(3,847
(53,048
Issuance of long-term debt
109,300
Proceeds from (repayments of) short-term debt
10,500
(48,500
(879
(2,128
Cash Used for Financing Activities
(38,845
(39,309
Change in cash, cash equivalents, and restricted cash
3,380
(1,761
Cash, cash equivalents, and restricted cash at beginning of period
15,026
17,968
Cash, cash equivalents, and restricted cash at end of period
18,406
16,207
Supplemental disclosures of cash flow information:
Significant noncash investing activities:
Accrued capital expenditures
9,194
17,716
December 31,
ASSETS
Current Assets:
Cash and cash equivalents
14,875
11,140
Accounts receivable, less reserves of $5,565 and $6,537, respectively
44,626
46,734
Other accounts receivable, less reserves of $1,976 and $1,561, respectively
14,744
15,618
Unbilled revenues
25,925
33,181
Materials and supplies, at average cost
34,993
33,385
Fuel for electric generation, at average cost
11,295
13,423
Stored natural gas, at average cost
23,126
25,840
Prepaid taxes
13,674
22,310
Regulatory assets - current
12,291
20,979
Other current assets
14,776
15,587
Total Current Assets
210,325
238,197
Regulatory assets
66,186
81,589
Pension benefit asset
101,584
93,896
Other deferred assets and other
22,273
20,741
Property, Plant, and Equipment:
Property, plant, and equipment, net
2,077,104
2,018,121
Construction work in progress
155,448
110,091
Total Property, Plant, and Equipment
2,232,552
2,128,212
Investments
116,405
112,823
Total Assets
2,749,325
2,675,458
LIABILITIES AND CAPITALIZATION
Current Liabilities:
Long-term debt due within one year
5,250
5,146
Short-term debt
48,500
38,000
45,710
65,451
Accrued interest and taxes
10,479
9,372
Accrued payroll related items
14,739
15,888
Regulatory liabilities - current
16,465
15,296
8,462
8,003
Total Current Liabilities
149,605
157,156
Other Credits:
299,728
279,029
Investment tax credit - deferred
45,464
46,892
Regulatory liabilities
151,657
162,316
Accrued pension and other postretirement benefits
56,363
55,058
Asset retirement obligations
72,226
54,430
Other deferred liabilities and other
63,749
61,682
Total Other Credits
689,187
659,407
Capitalization:
Common shareholders' equity
1,195,265
1,140,073
Long-term debt
715,268
718,822
Total Capitalization
1,910,533
1,858,895
Commitments and contingencies (see Footnote 8)
Total Liabilities and Capitalization
Accumulated
Additional
Common Stock
Paid-in
Retained
Comprehensive
Shares
Value
Capital
Earnings
Income/(Loss)
Total
Three Months Ended September 30, 2023
Beginning Balance
396,281
680,140
1,112,584
Common stock dividends declared ($0.428 per share)
(15,460
Equity-based compensation plans and other
272
Ending Balance - September 30, 2023
396,553
702,537
1,135,253
Three Months Ended September 30, 2024
397,614
733,838
1,167,628
Common stock dividends declared ($0.450 per share)
(16,280
Direct Stock Purchase and Dividend Reinvestment Plan
29
2,562
387
Ending Balance - September 30, 2024
36,205
400,563
758,497
Nine Months Ended September 30, 2023
395,657
649,854
1,081,674
Common stock dividends declared ($1.243 per share)
896
Nine Months Ended September 30, 2024
396,750
707,160
Common stock dividends declared ($1.305 per share)
1,251
1,264
56,937
53,847
167,098
155,251
120,148
116,586
386,174
402,810
48,332
43,942
119,355
122,969
2,025
7,824
4,267
13,985
(8,527
(7,721
(25,036
(23,056
41,830
44,045
98,586
113,898
(2,720
(8,093
(5,522
(20,696
39,110
35,952
93,064
93,202
Less: Net Income Attributable to Noncontrolling Interest, net of tax
(5,777
(5,487
(17,140
(16,382
Net Income Attributable to MGE
33,333
30,465
75,924
76,820
15,218
1,911
(2,604
27,668
33,076
(11,697
(16,583
2,904
(1,809
3,171
1,840
206,703
190,368
(1,447
(1,338
(165,511
(151,636
Cash dividends paid to parent by MGE
(31,000
(30,000
Distributions to parent from noncontrolling interest
(16,000
(17,250
(41,226
(41,626
(34
(2,894
6,705
6,671
7,606
3,140
2,819
14,740
15,616
13,614
22,338
15,243
16,088
198,993
230,403
21,777
20,780
2,077,132
2,018,149
2,232,580
2,128,240
60
2,621,120
2,554,968
45,695
65,434
9,685
9,325
8,495
6,502
148,829
155,591
265,549
244,634
66,444
63,969
657,703
627,299
Common shareholder's equity
948,649
903,725
Noncontrolling interest
150,671
149,531
Total Equity
1,099,320
1,053,256
1,814,588
1,772,078
Non-
Controlling
Interest
Beginning balance
17,348
252,917
609,313
148,808
1,028,386
5,487
(9,000
(7,000
630,778
147,295
1,048,338
652,051
150,894
1,073,210
5,777
(6,000
678,384
583,958
148,163
1,002,386
16,382
633,460
17,140
MGE Energy, Inc., and Madison Gas and Electric Company
Notes to Consolidated Financial Statements (unaudited)
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 (VIE) 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 2023 Annual Report on Form 10-K (the 2023 Annual Report on Form 10-K).
The accompanying consolidated financial statements as of September 30, 2024, 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 2023 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 59 through 107 of the 2023 Annual Report on Form 10-K.
The following table presents the components of total cash, cash equivalents, and restricted cash on the consolidated balance sheets.
Restricted cash
639
858
Receivable - margin account
2,892
3,028
Cash, cash equivalents, and restricted cash
Cash Equivalents
All highly liquid investments purchased with an original maturity of three months or less are considered to be cash equivalents.
Restricted Cash
MGE has certain cash accounts that are restricted to uses other than current operations and designated for a specific purpose. MGE's restricted cash accounts include cash held by trustees for certain employee benefits and cash deposits held by third parties. These are included in "Other current assets" on the consolidated balance sheets.
Receivable – Margin Account
Cash amounts held by counterparties as margin collateral for certain financial transactions are recorded as Receivable – margin account in "Other current assets" on the consolidated balance sheets. The costs being hedged are fuel for electric generation, purchased power, and cost of gas sold.
Columbia.
An asset that will be retired in the near future and substantially in advance of its previously expected retirement date is subject to abandonment accounting. In the second quarter of 2021, the operator of Columbia received approval from Midcontinent Independent System Operator (MISO) to retire Columbia Units 1 and 2. Final timing and retirement dates continue to be evaluated and depend upon operational, regulatory, capacity needs and availability, and other factors impacting one or more of the Columbia co-owners. As of September 30, 2024, early retirement of Columbia Unit 1 and 2 was probable.
Our ownership share of Columbia assets 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 Public Service Commission of Wisconsin (PSCW) that include retirement dates of 2029 for both Units.
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 to the extent that the remaining net book value of the generating unit exceeds the present value of the amount expected to be recovered from ratepayers. No impairment was recorded as of September 30, 2024.
In November 2023, the Financial Accounting Standards Board modified authoritative guidance within the codification's Segment Reporting topic, which enhanced the disclosure requirements for significant segment expenses and other segment items. The authoritative guidance will become effective for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024. MGE will adopt the standard as of the effective date. The adoption of this standard will not have a material impact on MGE Energy's and MGE's financial statements.
In December 2023, the Financial Accounting Standards Board issued authoritative guidance within the codification's Income Taxes topic, which expanded the disclosure requirements over effective tax rate reconciliations and income taxes paid. For public business entities, the authoritative guidance will become effective for fiscal years beginning after December 15, 2024. MGE will adopt the standard as of the effective date. The adoption of this standard will not have a material impact on MGE Energy's and MGE's financial statements.
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:
Equity earnings from investment in ATC
2,868
2,662
8,338
7,844
Dividends received from ATC
2,176
2,057
Capital contributions to ATC
894
1,075
2,679
3,033
ATC's summarized financial data is as follows:
Operating revenues
221,434
206,197
651,584
610,399
Operating expenses
(110,043
(102,819
(324,082
(303,412
355
701
898
1,657
(36,838
(33,555
(108,296
(99,969
Earnings before members' income taxes
74,908
70,524
220,104
208,675
MGE receives transmission and other related services from ATC. During the three and nine months ended September 30, 2024, MGE recorded $9.1 million and $27.3 million, respectively, for transmission service compared to $8.5 million and $25.4 million for comparable periods in 2023. MGE also provides a variety of operational, maintenance, and project management work for ATC, which is reimbursed by ATC. As of September 30, 2024, and December 31, 2023, MGE had a receivable due from ATC of $2.2 million and $5.3 million, respectively. The receivable is primarily related to transmission interconnection activities at Badger Hollow and Paris solar generation sites. MGE will be reimbursed for these costs after the new generation assets are placed into service.
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:
Three Months Ended September 30,
Statutory federal income tax rate
21.0
%
State income taxes, net of federal benefit
6.2
Amortized investment tax credits
(2.0
(0.6
(2.2
Credit for electricity from renewable energy
(10.7
(4.9
(11.6
(5.2
AFUDC equity, net
(0.9
(1.0
Amortization of utility excess deferred tax - tax reform(a)
(5.7
(1.4
(6.2
(1.5
Other, net, individually insignificant
(0.5
(0.1
Effective income tax rate
8.2
18.9
6.5
18.4
Nine Months Ended September 30,
6.3
(0.7
(2.4
(10.8
(5.4
(11.7
(6.1
(1.6
(6.7
(1.7
(0.2
(0.3
7.4
18.8
5.6
18.2
The Inflation Reduction Act of 2022 allows the transfer of certain tax credits to third parties in exchange for cash. In September 2024, MGE sold transfer eligible tax credits generated in 2023 to a third party for $7.1 million. MGE elects to account for the transferred tax credits under the scope of ASC 740. The sale of tax credits is presented in the operating activities section of the consolidated statements of cash flows consistent with the presentation of cash taxes paid. MGE also plans to sell eligible credits generated in 2024. MGE includes any expected proceeds from the transfer of tax credits in the evaluation of realizability of deferred tax assets related to tax credits and records a valuation allowance for the difference
between the tax value of the credits and the expected proceeds. The PSCW approved the deferral by MGE of any differential between tax credit transfer proceeds and the tax value of credits reflected in rates to its next rate case filing.
MGE maintains qualified and nonqualified pension plans, health care, and life insurance benefits and defined contribution 401(k) benefit plans for its employees and retirees.
The components of net periodic benefit cost, other than the service cost component, are recorded in "Other income, net" on the consolidated statements of income. The service cost component is recorded in "Other operations and maintenance" on the consolidated statements of income. MGE has regulatory treatment and recognizes regulatory assets or liabilities for timing differences between when net periodic benefit costs are recovered and when costs are recognized.
The following table presents the components of net periodic benefit costs recognized.
Pension Benefits
Components of net periodic benefit cost:
Service cost
769
723
2,308
2,169
Interest cost
4,280
4,330
12,839
12,989
Expected return on assets
(7,149
(6,312
(21,448
(18,936
Amortization of:
Actuarial loss
215
440
644
1,320
Net periodic benefit (credit) cost
(1,885
(819
(5,657
(2,458
Postretirement Benefits(a)
214
195
642
585
778
827
2,354
2,481
(675
(649
(2,059
(1,946
Settlement cost
288
Transition obligation
Prior service credit
(234
(242
Actuarial loss (gain)
774
(48
568
(143
Net periodic benefit cost
1,146
326
1,553
979
As approved by the PSCW, MGE is allowed to defer differences between actual employee benefit plan costs and costs reflected in current rates. The deferred costs may be recovered or refunded in MGE's next rate filing. During the three and nine months ended September 30, 2024, MGE recovered $0.5 million and $3.1 million, respectively, of pension and other postretirement costs previously deferred. During the three and nine months ended September 30, 2023, MGE deferred $1.6 million and $2.4 million, respectively, of pension and other postretirement costs. These costs have not been reflected in the table above.
MGE Energy sells shares of its common stock through its Direct Stock Purchase and Dividend Reinvestment Plan (the Stock Plan). Those shares may be newly issued shares or shares that are purchased in the open market by an independent agent for participants in the Stock Plan. Sales of newly issued shares under the Stock Plan are covered by a shelf registration statement that MGE Energy filed with the SEC. During the three and nine months ended September 30, 2024, MGE Energy issued approximately 29,176 shares of common stock. The net proceeds from these issuances were approximately $2.6 million, which were used for general corporate purposes.
As of September 30, 2024, 26,302 shares were included in the calculation of diluted earnings per share related to nonvested equity awards. See Footnote 7 for additional information on share-based compensation awards.
On October 31, 2024, MGE entered into a private placement Note Purchase Agreement in which it committed to issue $25 million of 5.30% senior unsecured notes due 2039 and $25 million of 5.59% senior unsecured notes due 2054. Funding is expected to occur on December 4, 2024. The proceeds of the senior notes will be used to assist with capital expenditures and other corporate obligations. The covenants of these senior notes are substantially consistent with MGE's existing senior unsecured notes.
During the three and nine months ended September 30, 2024, MGE recorded $1.2 million and $3.1 million, respectively, in compensation expense related to share-based compensation awards compared to $0.1 million and $1.8 million for the comparable periods in 2023.
In the first quarter of 2024, cash payments of $2.5 million and 12,518 shares were distributed related to awards that were granted in 2021 under the 2021 Incentive Plan and cash-based awards granted in 2019 under the 2006 Performance Unit Plan.
In March 2024, MGE granted 16,414 performance units and 29,733 restricted stock units under the 2021 Incentive Plan to eligible employees and non-employee directors.
MGE recognizes share-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.
In February 2021, MGE and the other co-owners of Columbia announced plans to retire Units 1 and 2 at that facility. Effects of the environmental compliance requirements discussed below will depend upon the final Columbia retirement dates, applicable regulations at that time, and required compliance 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:
With the closure of the wet pond system in 2023 (as described in further detail in the CCR section below), Columbia complies with ELG requirements. With the installation of additional wastewater treatment equipment completed in 2023, the Elm Road Units comply with ELG requirements.
In May 2024, the EPA finalized the ELG rule that further regulates the wastewater discharges associated with coal-fired power plants. The rule focuses on wastewater discharges from flue gas desulfurization and bottom ash transport water. The rule includes a reduction in requirements for plants that have already installed pollution controls based on previous versions of the rule, and for plants that will be retiring or switching to natural gas by certain dates. The operator of the Elm Road Units believes that pollution prevention installed under previous versions of the rule and the planned fuel switching will qualify the Elm Road Units for the reduced requirements. MGE and the operator of the Elm Road Units currently are evaluating operational options for Elm Road with the requirements of the final rule.
Blount received its most recent Wisconsin Pollutant Discharge Elimination System (WPDES) permit from the Wisconsin Department of Natural Resources (WDNR) in October 2023. Blount's latest WPDES permit assumes that the plant meets BTA standards for entrainment for the duration of this permit, which expires in 2028. The WDNR included a requirement to conduct an impingement study in the latest permit that needs to be completed by the end of 2027. Once the WDNR determines the impingement requirements at Blount, MGE will be able to determine any compliance costs of meeting Blount's permit requirements.
Intakes at Columbia are subject to this rule. The Columbia operator's most recent permit required that studies of intake structures be submitted to the WDNR by November 2023 to help determine BTA. Columbia's permit renewal application is due in 2024 and in November 2023 the Columbia operator timely submitted its renewal application to the WDNR. BTA improvements required by the renewal permit will be coordinated with the owners' plan to retire both units by June of 2026. MGE will continue to work with Columbia's operator to evaluate regulatory requirements in light of the planned retirement. MGE does not expect this rule to have a material effect on Columbia.
In May 2024, the EPA published its final performance standards and emission guidelines under section 111(b) of the Clean Air Act for carbon dioxide emissions from new combustion turbines and existing fossil-fuel fired boilers used to produce electricity. The final rule grants some emissions flexibility for existing coal-fired units that retire and/or fuel switch by certain dates. For existing natural gas boiler units, the final rule establishes a process where states must submit plans to the EPA for establishing standards. States will have two years from the publication date of these rules to submit plans to the EPA for review and approval. The EPA has indicated that it is separately developing performance standards and emission guidelines for GHG emissions from existing natural gas-fired combustion turbines. Our preliminary evaluation of the final ruling shows that MGE meets the requirements for our gas-fired boilers at Blount. Furthermore, MGE will meet the requirements for our coal-fired units at Columbia through planned unit retirements and the Elm Road Units through its transition to natural gas. MGE will monitor for upcoming rulemaking planned for gas-fired combustion turbines.
The Elm Road Units are located in Milwaukee County, Wisconsin, a nonattainment area for the 2015 Ozone NAAQS. At this time, the operator of the Elm Road Units does not expect that the 2015 Ozone NAAQS or the Milwaukee County nonattainment designation will have a material effect on the Units.
In March 2024, the EPA published a final rule to lower the average annual PM2.5 NAAQS from 12 ug/m3 to 9 ug/m3 effective May 2024. The new annual PM2.5 NAAQS could impact Milwaukee County, where our Elm Road units are located, if the county is determined to be in nonattainment. A nonattainment designation would require the State of Wisconsin to develop a plan to get into attainment, which would likely include additional limitations for new and
19
modified plants in the county. With the planned transition of the Elm Road Units to natural gas, there is a low probability for the need of additional emission limitations. However, we will not know the impact of this rule until PM data from 2023 and 2024 is evaluated and approved, the EPA determines the attainment status of Wisconsin counties, and the State of Wisconsin develops an attainment implementation plan. MGE will continue to follow the rule's developments.
The EPA's CSAPR and its progeny are a suite of interstate air pollution transport rules designed to reduce ozone and PM2.5 ambient air levels in areas that the EPA has determined as being significantly impacted by pollution from upwind states. This is accomplished through a reduction in NOx and SO2 from qualifying fossil-fuel fired power plants and industrial boilers in upwind "contributing" states. NOx and SO2 contribute to fine particulate pollution and NOx contributes to ozone formation in downwind areas. Reductions are generally achieved through a cap-and-trade system. Individual plants can meet their caps through reducing emissions and/or buying allowances on the market.
In March 2023 (published June 2023), the EPA finalized its Federal Implementation Plan to address state obligations under the Clean Air Act "good neighbor" provisions for the 2015 Ozone NAAQS (FIP Rule). The FIP Rule impacts 23 states, including Wisconsin. For Wisconsin, the FIP Rule includes revisions to the current obligations for fossil-fuel power generation, which includes Blount, Columbia, the Elm Road Units, WCCF, West Riverside, and West Marinette. Emissions budgets can be met with planned retirements, fuel switching, and immediately available measures, including consistently operating emissions controls already installed at power plants. In 2026, additional obligations would go into effect, including a further reduction in emissions budgets. Wisconsin would need to submit a State Implementation Plan to meet its obligations or accept the EPA's FIP Rule. Legal challenges to the FIP Rule are pending in the United States Court of Appeals for the District of Columbia. In June 2024, the Supreme Court of the United States granted a request to stay the FIP Rule pending judicial review by the U.S. Court of Appeals for the District of Columbia on the merits of petitioner's challenges to implementation of the rule. Based on our current evaluation, if the FIP Rule were to go into effect, the 2026 additional emission reductions may impact the Elm Road Units and additional upgrades may be needed to comply, however, we will not know the final impact until final decisions are issued in the pending litigation.
The CCR rule regulates the disposal of solid waste coal ash and defines what ash use activities would be considered generally exempt beneficial reuse of coal ash. The CCR rule also regulates landfills, ash ponds, and other surface impoundments used for coal combustion residuals by regulating their design, location, monitoring, and operation. The CCR rule requires owners and operators of coal-fired power plants to stop transporting CCR and non-CCR wastewater to unlined surface impoundments. At Columbia, the coal combustion residuals system completed in 2023 replaced the unlined surface impoundment, and Columbia complies with this rule.
In May 2024, the EPA published its final CCR Legacy Rule. The CCR Legacy Rule applies to previous closed disposal sites. In June 2024, MGE recorded $23.7 million asset retirement obligation for its estimated share of the legal liability associated with the effect of the CCR Legacy Rule for remediation and groundwater compliance monitoring. Actual costs of compliance may be different than the amount recorded due to potential changes in compliance strategies that will be used, as well as other potential changes in cost estimate.
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.
Several environmental groups filed petitions against the PSCW challenging the fixed customer charge set in MGE's 2022/2023 rate settlement, 2023 electric limited reopener, and 2024/2025 rate order. MGE has intervened in the petitions in cooperation with the PSCW. See Footnote 9.a. for more information regarding this matter.
20
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, 2024:
2025
2026
2027
2028
Thereafter
Coal(a)
10,902
19,894
3,751
Natural gas(b)
18,695
39,937
15,492
2,546
11,224
29,597
59,831
19,243
Rate increase
Return on Common Equity
Common Equity Component of Regulatory Capital Structure
Effective Date
Approved 2022/2023 settlement
Gas
0.96%
9.8%
55.6%
1/1/2023
Approved limited 2023 reopener(a)
Electric
9.01%
Approved 2024/2025 rate proceeding(b)(c)
1.54%
9.7%
56.1%
1/1/2024
2.44%
Electric(d)
4.17%
1/1/2025
1.32%
Sierra Club and Vote Solar have filed petitions with the Dane County Circuit Court seeking review of the PSCW decisions approving MGE's electric and gas 2022/2023 rate settlement, 2023 electric limited reopener, and 2024/2025 rate order. The PSCW is named as the responding party; MGE is not named as a party. The Petitions challenge the amount of customer fixed charge that does not vary with usage. The requested relief is unclear. The revenue requirement approved by the PSCW in the settlement, limited reopener, and 2024/2025 rate order have not been challenged. The PSCW is expected to vigorously defend its approval of the rate case settlement, limited reopener, and the 2024/2025 rate order. MGE has intervened in the proceedings to further defend the PSCW's decision. The Dane County Circuit Court affirmed
the PSCW's decision to approve the 2022/2023 rate settlement, and Sierra Club and Vote Solar appealed that decision to the Wisconsin Court of Appeals. On August 6, 2024, the Wisconsin Court of Appeals denied Sierra Club and Vote Solar's appeal and affirmed the PSCW's approval of the 2022/2023 rate settlement. Sierra Club and Vote Solar have petitioned the Wisconsin Supreme Court for review of the Court of Appeals decision. The PSCW and MGE both filed responses asking the Wisconsin Supreme Court to deny the petition. All parties are awaiting the Wisconsin Supreme Court's decision on the petition. The petitions challenging the 2023 electric limited reopener and the 2024/2025 rate order remain stayed pending further proceedings.
Fuel rules require Wisconsin utilities to defer electric fuel-related costs that fall outside a symmetrical cost tolerance band around the amount approved for a utility in its annual fuel proceedings. Any over- or under-recovery of the actual costs is determined in the following year and is then reflected in future billings to electric retail customers. The fuel rules bandwidth is set at plus or minus 2% in 2024 and 2023. The electric fuel-related costs are subject to an excess revenues test. Excess revenues are defined as revenues in the year in question that provide MGE with a greater return on common equity than authorized by the PSCW in MGE's latest rate order. The recovery of under-collected electric fuel-related costs would be reduced by the amount that exceeds the excess revenue test. These costs are subject to the PSCW's annual review of fuel costs completed in the year following the deferral. The following table summarizes deferred electric fuel-related costs:
Fuel Costs (Savings) (in millions)
Refund or Recovery Period
2021
$3.3(a)
January 2023 through December 2023
2022
$8.8(a)
October 2023 through September 2024
($7.2)(a)
October 2024 through December 2024
As part of its regular operations, MGE enters into contracts, including options, swaps, futures, forwards, and other contractual commitments, to manage its exposure to commodity prices. To the extent that these contracts are derivatives, MGE assesses whether or not the normal purchases or normal sales exclusion applies. For contracts to which this exclusion cannot be applied, the derivatives are recognized in the consolidated balance sheets at fair value. MGE's financial commodity derivative activities are conducted in accordance with its electric and gas risk management program, which is approved by the PSCW and limits the volume MGE can hedge with specific risk management strategies. The maximum length of time over which cash flows related to energy commodities can be hedged is four years. If the derivative qualifies for regulatory deferral, the derivatives are marked to fair value and are offset with a corresponding regulatory asset or liability depending on whether the derivative is in a net loss or net gain position, respectively. The deferred gain or loss is recognized in earnings in the delivery month applicable to the instrument. Gains and losses related to hedges qualifying for regulatory treatment are refundable or recoverable in gas rates through the Purchased Gas Adjustment (PGA) or in electric rates as a component of the fuel rules mechanism.
The gross notional volume of open derivatives is as follows:
December 31, 2023
Commodity derivative contracts
269,120
392,000
7,900,000
7,180,000
FTRs
3,276
1,824
MGE purchases and sells exchange-traded and over-the-counter options, swaps, and future contracts. These arrangements are primarily entered into to help stabilize the price risk associated with gas or power purchases. These transactions are employed by both MGE's gas and electric segments. Additionally, as a result of the firm transmission agreements that MGE holds on electricity transmission paths in the MISO market, MGE holds financial transmission rights
(FTRs). An FTR is a financial instrument that entitles the holder to a stream of revenues or charges based on the differences in hourly day-ahead energy prices between two points on the transmission grid. The fair values of these instruments are offset with a corresponding regulatory asset/liability depending on whether the instruments are in a net loss/gain position. Depending on the nature of the instrument, the gain or loss associated with these transactions will be reflected as cost of gas sold, fuel for electric generation, or purchased power expense in the delivery month applicable to the instrument. As of September 30, 2024, and December 31, 2023, the cost basis of exchange traded derivatives and FTRs exceeded their fair value by $1.5 million and $5.2 million, respectively.
The following table summarizes the fair value of the derivative instruments on the consolidated balance sheets. All derivative instruments in this table are presented on a gross basis and are calculated prior to the netting of instruments with the same counterparty under a master netting agreement as well as the netting of collateral. For financial statement purposes, instruments are netted with the same counterparty under a master netting agreement as well as the netting of collateral.
Derivative
Assets
Liabilities
Balance Sheet Location
Commodity derivative contracts(a)
891
2,199
84
261
263
4,942
156
882
179
The following table shows the effect of netting arrangements for recognized derivative assets and liabilities that are subject to a master netting arrangement or similar arrangement on the consolidated balance sheets.
Offsetting of Derivative Assets and Liabilities
Gross Amounts
Gross Amounts Offset in Balance Sheets
Collateral Posted Against Derivative Positions
Net Amount Presented in Balance Sheets
975
(975
(17
2,460
(1,485
419
(419
5,824
(5,405
23
The following tables summarize the unrealized and realized gains/losses related to the derivative instruments on the consolidated balance sheets and the consolidated statements of income.
Current and Long-Term Regulatory Asset (Liability)
Other Current Assets
Three Months Ended September 30:
Balance as of July 1,
1,946
527
5,017
1,074
Unrealized loss
1,768
1,100
Realized (loss) gain reclassified to a deferred account
(639
(1,676
1,676
Realized loss reclassified to income statement
(1,573
(707
(1,893
(2,155
Balance as of September 30,
1,502
459
2,548
595
Nine Months Ended September 30:
Balance as of January 1,
5,226
1,569
5,094
2,747
4,666
15,495
(3,333
3,333
(10,581
10,581
(5,057
(4,443
(7,460
(12,733
Realized Losses (Gains)
Fuel for Electric Generation/ Purchased Power
Cost of Gas Sold
1,969
4,179
311
(131
5,723
3,265
14,566
6,451
512
(824
MGE's commodity derivative contracts and FTRs are subject to regulatory deferral. These derivatives are marked to fair value and are offset with a corresponding regulatory asset or liability. Realized gains and losses are deferred on the consolidated balance sheets and are recognized in earnings in the delivery month applicable to the instrument. As a result of the treatment described above, there are no unrealized gains or losses that flow through earnings.
Certain counterparties extend MGE a credit limit. If MGE exceeds these limits, the counterparties may require collateral to be posted. As of September 30, 2024, and December 31, 2023, no counterparties were in a net liability position.
Nonperformance of counterparties to the non-exchange traded derivatives could expose MGE to credit loss. However, MGE enters into transactions only with companies that meet or exceed strict credit guidelines, and it monitors these counterparties on an ongoing basis to mitigate nonperformance risk in its portfolio. As of September 30, 2024, no 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.
The carrying amount of cash, cash equivalents, and outstanding commercial paper approximates fair market value due to the short maturity of those investments and obligations. The estimated fair market value of long-term debt is based on quoted market prices for similar financial instruments. Since long-term debt is not traded in an active market, it is classified as Level 2. The estimated fair market value of financial instruments are as follows:
Carrying Amount
Fair Value
Long-term debt(a)
724,699
682,359
728,546
675,922
The following table presents the balances of assets and liabilities measured at fair value on a recurring basis.
Fair Value as of September 30, 2024
Level 1
Level 2
Level 3
Assets:
Derivatives, net(b)
920
55
Exchange-traded investments
Liabilities:
2,477
1,290
1,187
Deferred compensation
6,108
Total Liabilities
8,585
25
Fair Value as of December 31, 2023
598
352
246
2,034
2,632
2,386
2,974
2,850
5,246
11,070
658
412
Exchange-traded Investments. Investments include exchange-traded investment securities valued using quoted prices on active exchanges and are therefore classified as Level 1.
Deferred Compensation. The deferred compensation plans allow participants to defer certain cash compensation into notional investment accounts. These amounts are included within "Other deferred liabilities and other" in the consolidated balance sheets. The value of certain deferred compensation obligations is based on the market value of the participants' notional investment accounts. The underlying notional investments are comprised primarily of equities, mutual funds, and fixed income securities that are based on directly and indirectly observable market prices. Since the deferred compensation obligations themselves are not exchanged in an active market, they are classified as Level 2.
The value of legacy deferred compensation obligations is based on notional investments that earn interest based upon the semiannual rate of U.S. Treasury Bills having a 26-week maturity increased by 1% compounded monthly with a minimum annual rate of 7%, compounded monthly. The notional investments are based upon observable market data, however, since the deferred compensation obligations themselves are not exchanged in an active market, they are classified as Level 2.
Derivatives. Derivatives include exchange-traded derivative contracts, over-the-counter transactions 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.
26
The following table summarizes the changes in Level 3 commodity derivative assets and liabilities measured at fair value on a recurring basis.
(1,432)
(2,892)
(2,604)
(866)
Realized and unrealized gains (losses):
Included in regulatory assets
300
1,472
(258)
Included in earnings
(1,572)
(2,016)
(5,174)
(7,590)
Settlements
1,572
2,016
5,174
7,590
(1,132)
(1,124)
The following table presents total realized and unrealized gains (losses) included in income for Level 3 assets and liabilities measured at fair value on a recurring basis(c).
Purchased power expense
MGE has ownership interests in generation projects with other co-owners, some of which are under construction, as shown in the following table. Incurred costs are reflected in "Property, plant, and equipment, net" or "Construction work in progress" on the consolidated balance sheets.
Project
Ownership Interest
Source
Share of Generation
Share of Estimated Costs(a)
Costs incurred as of September 30, 2024(a)
Estimated Date of Commercial Operation
Paris(b)
10%
Solar/Battery
20 MW/11 MW
$61 million(d)
$48.6 million
2024 Solar2025 Battery
Darien(c)
25 MW/7.5 MW
$63 million(d)
$41.9 million
2025 Solar 2026 Battery
Koshkonong(e)
30 MW/16.5 MW
$104 million(d)
$6.6 million
2026 Solar2027 Battery
3.5%
Natural Gas
25 MW
$25 million
$25.2 million
(f)
MGE received specific approval to recover 100% AFUDC on Paris, Darien, and Koshkonong. During the three and nine months ended September 30, 2024, MGE recognized $1.9 million and $4.7 million, respectively, after tax, in AFUDC for these projects compared to $0.8 million and $1.9 million for the comparable periods in 2023.
Revenues disaggregated by revenue source were as follows:
Residential
52,834
50,008
134,296
131,552
Commercial
73,517
70,795
197,541
193,760
Industrial
3,459
3,715
10,314
10,578
Other-retail/municipal
11,346
10,991
31,439
30,853
Total retail
141,156
135,509
373,590
366,743
Sales to the market
5,799
3,305
8,394
9,617
835
77
2,314
1,267
Total electric revenues
147,790
138,891
384,298
377,627
13,069
13,719
72,057
86,131
Commercial/Industrial
5,892
6,016
43,292
55,726
18,961
19,735
115,349
141,857
Gas transportation
1,417
1,587
5,003
5,354
98
102
409
466
Total gas revenues
Non-regulated energy revenues
213
470
475
Total Operating Revenue
MGE Energy operates in the following business segments: electric utility, gas utility, nonregulated energy, transmission investment, and all other. See the 2023 Annual Report on Form 10-K for additional discussion of each of these segments.
(In thousands)MGE Energy
Non-Regulated Energy
Transmission Investment
All Others
Consolidation/Elimination
Consolidated Total
Interdepartmental revenues
(44
4,207
11,052
(15,215
Total operating revenues
147,746
24,683
11,266
Equity in earnings of investments
2,901
Net income (loss)
35,035
(2,026
6,101
2,112
(283
3,547
10,398
(14,457
139,403
24,971
10,611
2,690
31,126
(801
5,627
1,957
(52
(154
11,591
32,825
(44,262
384,144
132,352
33,295
8,427
66,458
8,638
6,130
(647
653
12,978
31,143
(44,774
378,280
160,655
31,618
7,930
65,996
10,539
16,667
5,770
(1,356
(In thousands)MGE
Net income attributable to MGE
General
MGE Energy is an investor-owned public utility holding company operating through subsidiaries in five business segments:
MGE will continue to focus on growing earnings while controlling operating and fuel costs. MGE's goal is to provide safe and efficient operations in addition to providing customer value. We believe it is critical to maintain a strong credit rating consistent with financial strength in MGE in order to accomplish these goals.
The ownership/leasing structure for our nonregulated energy operations 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 University of Wisconsin-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
We principally earn revenue and generate cash from operations by providing electric and natural gas utility services, including electric power generation and electric power and gas distribution. The earnings and cash flows from the utility business are sensitive to various external factors, including:
During the three months ended September 30, 2024, MGE Energy's earnings were $40.9 million or $1.13 per share compared to $37.9 million or $1.05 per share during the same period in the prior year. MGE's earnings during the three months ended September 30, 2024, were $33.3 million compared to $30.5 million during the same period in the prior year.
During the nine months ended September 30, 2024, MGE Energy's earnings were $98.5 million or $2.72 per share compared to $97.6 million or $2.70 per share during the same period in the prior year. MGE's earnings during the nine months ended September 30, 2024, were $75.9 million compared to $76.8 million during the same period in the prior year.
MGE Energy's net income was derived from our business segments as follows:
(In millions)
Business Segment:
Electric Utility
35.0
31.1
66.5
66.0
Gas Utility
(2.0)
(0.8)
8.6
10.5
Nonregulated Energy
6.1
18.0
16.7
Transmission Investments
2.1
2.0
5.8
All Other
(0.3)
(0.7)
(1.4)
40.9
37.9
98.5
97.6
Our net income during the three and nine months ended September 30, 2024, compared to the same periods in the prior year primarily reflects the effects of the following factors:
An increase in electric investments, as part of the 2024 rate case, contributed to earnings for the three and nine months ended September 30, 2024. Unfavorable weather contributed to lower electric residential sales for the nine months ended September 30, 2024, compared to the same period in the prior year. Electric residential sales remained flat for the three months ended September 30, 2024, compared to the same period in the prior year. Also contributing to higher third quarter electric earnings is lower fuel costs during the three months ended September 30, 2024, compared to the 2024 fuel cost plan approved by the PSCW.
Lower gas retail sales resulting from warmer than normal weather in the first quarter of 2024 contributed to lower gas earnings for the nine months ended September 30, 2024. Gas retail sales decreased approximately 7%. Heating degree days (a measure for determining the impact of weather during the heating season) decreased by approximately 9% in the first nine months of 2024 compared to the same period in the prior year.
Significant Events
The following events affected the first nine months of 2024:
2024/2025 Rate Proceeding: In December 2023, the PSCW approved a 1.54% increase to electric rates and 2.44% increase to gas rates for 2024. The PSCW also approved a 4.17% increase to electric rates and 1.32% increase to gas rates in 2025. MGE filed a 2025 Fuel Cost Plan with the PSCW in June 2024. The plan would lower the 2025 increase in electric rates to 2.47%, reflecting lower expected fuel costs. MGE expects a final decision from the PSCW on the Fuel Cost Plan by the end of 2024. See "Other Matters" below for additional information on the 2024/2025 rate proceeding.
The 2024/2025 rate order includes an earnings sharing mechanism, under which, if MGE earns above the 9.7% ROE authorized in the rate order: (i) the utility will retain 100% of earnings for the first 15 basis points above the authorized ROE; (ii) 50% of the next 60 basis points will be required to be deferred and returned to customers; and (iii) 100% of any remaining excess earnings will be required to be refunded to customers. The earnings calculation excludes fuel rules adjustments.
31
Large Scale Utility Projects: Large scale generation projects under construction, are shown in the following table. Incurred costs are reflected in "Construction work in progress" for projects under construction on the consolidated balance sheets.
Share ofEstimated Costs(a)
$61 million(c)
$48.6 million(b)
$63 million(c)
$41.9 million(b)
2025 Solar2026 Battery
$104 million(c)
High Noon(d)
$99 million
$1.0 million
2027 Solar 2027 Battery
Sunnyside(d)
100%
20MW/40MW
$112 million
$0.9 million
In the near term, several items may affect us, including:
2023 Annual Fuel Proceeding: MGE had fuel savings in 2023. As of December 31, 2023, MGE had deferred $7.2 million of 2023 fuel savings. The PSCW has completed the annual review of 2023 fuel costs and approved MGE's return of these savings over a three-month period from October 2024 through December 2024. There was no change to the costs to be refunded as a result of the fuel rule proceedings from the amount MGE deferred in 2023.
ATC ROE: As discussed in "Other Matters" below, ATC's authorized ROE, which is used in calculating its rates and revenues, is the subject of a challenge before the Federal Energy Regulatory Commission (FERC). A decrease in ATC's ROE could result in lower equity earnings and distributions from ATC in the future. We derived approximately 6.0% and 5.7% of our net income during the nine months ended September 30, 2024 and 2023, 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. Legislation and rulemaking addressing climate change and related matters could significantly affect the costs of owning and operating fossil-fueled generating plants. We would expect to seek and receive recovery of any such costs in rates. However, it is difficult to estimate the amount of such costs due to the uncertainty as to the timing and form of any legislation or rules, the timing and effects of any judicial review, and the scope and time of the recovery of costs in rates, which may occur after those costs have been incurred and paid.
Future Generation – 80% carbon reduction target by 2030 (from 2005 levels): MGE has outlined initiatives to achieve our raised target.
Elm Road Units: MGE, along with the plant co-owners, announced plans to end the use of coal as a primary fuel at the Elm Road Units and transition the plant to natural gas. Transition plans and costs will be subject to PSCW approval. MGE's remaining use of coal is expected to be further reduced as the Elm Road Units transition to natural gas. By the end of 2030, MGE expects coal to be used only as a backup fuel at the Elm Road Units. This transition will help MGE meet its 2030 carbon reduction goals. By the end of 2032, MGE expects that the Elm Road Units will be fully transitioned away from coal, which will eliminate coal as an internal generation source for MGE.
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Environmental Initiatives – Natural gas distribution: Building upon our long-standing commitment to providing affordable, sustainable energy, MGE has set a goal to achieve net-zero methane emissions from its natural gas distribution system by 2035. If MGE can accelerate plans to achieve net-zero methane emissions from its natural gas system—through the evolution of new technologies, such as renewable natural gas—it will. MGE is working to reduce overall emissions from its natural gas distribution system cost-effectively. For customers who want to reduce their footprint further, MGE introduced a renewable natural gas program which was made effective starting May 2024 after approval by the PSCW. MGE purchases renewable thermal credits on behalf of customers who voluntarily elect in the program to offset the emissions associated with the customer's monthly natural gas usage.
Solar Procurement Disruptions: MGE is monitoring import regulations under the Uyghur Forced Labor Protection Act and the U.S. Department of Commerce new solar tariffs. These disruptions have a potential to impact current and future solar projects which may result in an increase in costs or delays in construction timelines. In the event that such disruptions cause costs to exceed the levels approved for specific projects, we have filed, and expect to continue to file, notifications with the PSCW and expect to request recovery of any increases in MGE's future rate proceedings. See "Other Matters" below for additional information on the solar procurement disruptions.
Equity Issuance Plans: In September 2024, MGE Energy began issuing new shares of common stock to participants in our Direct Stock Purchase and Dividend Reinvestment Plan.
The following discussion is based on the business segments as discussed in Footnote 14 of the Notes to Consolidated Financial Statements in this Report.
Results of Operations
Three Months Ended September 30, 2024 and 2023
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 CDD)
% Change
5.7
265,632
264,678
0.4
3.8
495,402
496,161
)%
(6.9
36,666
39,908
(8.1
3.2
104,915
102,400
2.5
4.2
902,615
903,147
75.5
103,552
72,916
42.0
n.m.%
6.4
1,006,167
976,063
3.1
Cooling degree days (normal 503)
505
549
(8.0
n.m. not meaningful
33
Electric revenue increased $8.9 million during the three months ended September 30, 2024, compared to the same period in the prior year, due to the following:
Revenue subject to refund, net
Rate changes
Customer fixed and demand charges
0.6
Increase in residential volume
0.2
8.9
Electric fuel and purchased power
$ Change
17.3
19.7
8.1
7.0
1.1
The $2.4 million decrease in fuel for electric generation was due to an approximately 16% decrease in the average cost primarily driven by lower market prices. Internal generation increased approximately 5%.
Excluding deferred fuel costs, purchased power decreased $0.5 million. The decrease in purchased power was due to an approximately 10% decrease in average cost. The decrease was partially offset by an approximately 2% increase in market purchases as a result of higher customer sales. Deferred fuel cost recovered during the three months ended September 30, 2024, was $2.4 million compared to $0.8 million in the same period of the prior year.
Fuel and purchased power costs are generally offset by electric revenue and do not have a significant impact on net income. MGE expects to seek and receive recovery of fuel and purchased power costs that exceed the fuel rules bandwidth in customer rates. See Footnote 9 of the Notes to Consolidated Financial Statements in this Report for further information on the fuel rules bandwidth.
34
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:
Therms Delivered
(In thousands, except HDD and average
rate per therm of retail customer)
(4.7)%
6,067
6,202
(2.2)%
(2.1)%
9,145
9,335
(2.0)%
(3.9)%
15,212
15,537
(10.7)%
15,393
15,014
2.5%
—%
(4.4)%
30,605
30,551
0.2%
Heating degree days (normal 132)
70
(14.3)%
Average rate per therm of retail customer
1.246
1.270
(1.9)%
Gas revenue decreased $0.9 million during the three months ended September 30, 2024, compared to the same period in the prior year, due to the following:
Decrease in volume
0.7
MGE recovers the cost of natural gas in its gas segment through the 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 in view of the pass-through treatment of the costs. Payments for natural gas decreased driving lower rates during the three months ended September 30, 2024.
The average retail rate per therm for the three months ended September 30, 2024, decreased approximately 2% compared to the same period in the prior year, reflecting a decrease in natural gas commodity costs (recovered through the PGA).
Cost of gas sold decreased $0.5 million during the three months ended September 30, 2024, compared to the same period in the prior year. Average cost per therm decreased approximately 10% and therms delivered decreased approximately 1%. MGE recovers the cost of natural gas in its gas segment through the PGA as described under gas deliveries and revenue above.
Consolidated operations and maintenance expenses
During the three months ended September 30, 2024, operations and maintenance expenses increased $3.1 million, compared to the same period in the prior year. The following contributed to the net change:
Increased customer accounts costs
2.4
Increased transmission costs
1.5
Increased electric production expenses
Increased other expenses
Decreased administrative and general costs
(1.8
35
Consolidated depreciation expense
Electric depreciation expense increased $1.5 million and gas depreciation expense increased $0.3 million during the three months ended September 30, 2024, compared to the same period in the prior year. Badger Hollow II was placed in service in December 2023. The timing of the in-service dates contributed to the increase in electric depreciation expense.
Electric and gas other income
Electric other income decreased $4.3 million and gas other income decreased $1.5 million during the three months ended September 30, 2024, compared to the same period in the prior year, primarily related to pension and other postretirement excluding service costs.
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, 2024 and 2023, net income at the nonregulated energy operations segment was $6.1 million and $5.6 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 that typically have long development and investment lead times before becoming operational. During the three months ended September 30, 2024 and 2023, other income at the transmission investment segment primarily reflects ATC's operations and was $2.9 million and $2.7 million, respectively. In October 2024, FERC issued a ruling eliminating the risk premium in the ROE calculation resulting in a 4-basis point reduction in the base ROE from 10.02% to 9.98%. See Footnote 3 of the Notes to Consolidated Financial Statements in this Report for summarized financial information regarding ATC and "Other Matters" below for additional information concerning ATC and FERC ruling on ROE.
Consolidated Income Taxes - MGE Energy and MGE
See Footnote 4 of the Notes to Consolidated Financial Statements in this Report for the effective tax rate reconciliation.
Noncontrolling Interest, Net of Tax - MGE
Noncontrolling interest, net of tax, reflects the accounting required for MGE Energy's interest in MGE Power Elm Road (the Elm Road Units) and MGE Power West Campus (WCCF). MGE Energy owns 100% of MGE Power Elm Road and MGE Power West Campus. They are not owned by MGE. Due to the contractual agreements for these projects with MGE, the entities are considered VIEs with respect to MGE and their results are consolidated with those of MGE, the primary beneficiary of the VIEs. The following table shows MGE Energy's noncontrolling interest, net of tax, reflected on MGE's consolidated statement of income:
3.9
3.7
1.8
36
Nine Months Ended September 30, 2024 and 2023
2.1%
659,210
672,760
2.0%
1,356,345
1,356,286
0.0%
(2.5)%
110,936
114,514
(3.1)%
1.9%
285,410
274,875
3.8%
2,411,901
2,418,435
(0.3)%
(12.7)%
165,239
126,739
30.4%
Other revenues
82.6%
1.8%
2,577,140
2,545,174
1.3%
Cooling degree days (normal 700)
712
754
(5.6)%
Electric revenue increased $6.7 million during the nine months ended September 30, 2024, compared to the same period in the prior year, due to the following:
5.3
2.3
Decrease in residential volume
(2.2)
(1.2)
6.7
37
41.2
47.1
(5.9)
26.4
28.3
(1.9)
The $5.9 million decrease in fuel for electric generation was due to an approximately 19% decrease in the average cost partially offset by an approximately 9% increase in internal generation. Renewable generation increased approximately 29% driven by new generation sources including Badger Hollow II.
Excluding deferred fuel costs, purchased power decreased $5.9 million. The decrease in purchased power was due to an approximately 22% decrease in market purchases as a result of lower customer sales and increased internal generation. In addition, there was an approximately 1% decrease in average cost. Deferred fuel cost recovered during the nine months ended September 30, 2024, was $6.5 million compared to $2.5 million in the same period of the prior year.
(16.3)%
61,696
66,948
(7.8)%
(22.3)%
62,193
66,584
(6.6)%
(18.7)%
123,889
133,532
(7.2)%
51,648
53,319
(12.2)%
(18.2)%
175,537
186,851
(6.1)%
Heating degree days (normal 4,496)
3,640
3,999
(9.0)%
0.931
1.062
(12.3)%
Gas revenue decreased $26.9 million during the nine months ended September 30, 2024, compared to the same period in the prior year, due to the following:
(15.1)
(9.7)
(2.1)
(26.9)
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 in view of the pass-through treatment of the costs. Payments for natural gas decreased driving lower rates during the nine months ended September 30, 2024.
The average retail rate per therm excluding customer fixed charges for the nine months ended September 30, 2024, decreased approximately 12% compared to the same period in the prior year, reflecting a decrease in natural gas commodity costs (recovered through the PGA).
38
Cost of gas sold decreased $27.5 million during the nine months ended September 30, 2024, compared to the same period in the prior year. Cost per therm decreased approximately 30% and therms delivered decreased approximately 7%. MGE recovers the cost of natural gas in its gas segment through the PGA as described under gas deliveries and revenues above.
During the nine months ended September 30, 2024, operations and maintenance expenses increased $11.8 million, compared to the same period in the prior year. The following contributed to the net change:
4.4
Increased electric distribution expenses
1.6
(3.2)
Decreased other expenses
(0.1)
11.8
Electric depreciation expense increased $4.7 million and gas depreciation expense increased $0.9 million during the nine months ended September 30, 2024, compared to the same period in the prior year. MGE purchased West Riverside in March 2023 and Badger Hollow II was placed in service in December 2023. The timing of the in-service dates contributed to the increase in electric depreciation expense.
Electric other income decreased $5.6 million and gas other income decreased $4.1 million during the nine months ended September 30, 2024, compared to the same period in the prior year, primarily related to pension and other postretirement excluding service costs.
39
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, 2024 and 2023, net income at the nonregulated energy operations segment was $18.0 million and $16.7 million, respectively.
The transmission investment segment holds our interest in ATC and ATC Holdco, and its income reflects our equity in the earnings of those investments. ATC Holdco was formed in December 2016 to pursue transmission development opportunities that typically have long development and investment lead times before becoming operational. During the nine months ended September 30, 2024 and 2023, other income at the transmission investment segment primarily reflects ATC's operations and was $8.4 million and $7.9 million, respectively. In October 2024, FERC issued a ruling eliminating the risk premium in the ROE calculation resulting in a 4-basis point reduction in the base ROE from 10.02% to 9.98%. See Footnote 3 of the Notes to Consolidated Financial Statements in this Report for summarized financial information regarding ATC and "Other Matters" below for additional information concerning ATC and FERC ruling on ROE.
All Other Operations - MGE Energy
Other income
The increase of $1.0 million in other income from all other operations during the nine months ended September 30, 2024, primarily results from decreased investment distribution losses from our venture capital funds compared to the same period in the prior year. These venture capital investments support early-stage companies working to advance smart technologies, the customer experience, distributed energy resources, electrification, cybersecurity, and other priorities for utility companies such as greater sustainability.
11.7
11.0
5.5
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, 2024, 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 Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations in the 2023 Annual Report on Form 10-K.
Purchase Contracts – MGE Energy and MGE
See Footnote 8.c. of Notes to Consolidated Financial Statements in this Report for a description of commitments as of September 30, 2024, 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.
40
Long-term Debt – MGE Energy and MGE
In October 2024, MGE entered into a private placement Note Purchase Agreement in which it committed to issue $50 million of senior unsecured notes. See Footnote 6.c. of Notes to Consolidated Financial Statements in this Report for further information on the senior note issuance.
Liquidity and Capital Resources
MGE Energy and MGE expect to have adequate liquidity to support future operations and capital expenditures over the next twelve months. Available resources include cash and cash equivalents, operating cash flows, liquid assets, borrowing working capacity under revolving credit facilities, and access to equity and debt capital markets. In September 2024, MGE Energy began issuing new shares of common stock to participants in our Direct Stock Purchase and Dividend Reinvestment Plan. MGE Energy also expects to generate funds from operations and both long-term and short-term debt financing. See "Credit Facilities" under Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources in the 2023 Annual Report on Form 10-K for information regarding MGE Energy's and MGE's credit facilities.
Cash Flows
The following summarizes cash flows for MGE Energy and MGE during the nine months ended September 30, 2024 and 2023:
Cash provided by (used for):
Operating activities
Investing activities
(167,611)
(156,490)
(165,511)
(151,636)
Financing activities
(38,845)
(39,309)
(41,226)
(41,626)
Cash flows from operating activities for MGE Energy and MGE principally reflect the receipt of customer payments for electric and gas service and outflows related to fuel for electric generation, purchased power, gas, and operation and maintenance expenditures.
The principal increases (decreases) in cash flows from operating activities during the nine months ended September 30, 2024, compared to the same period in 2023, were as follows:
Lower payments for fuel and purchased power at our generation plants, as well as lower natural gas costs to our customers, primarily driven by a decrease in the price of natural gas
51.4
Changes in income taxes paid/received - includes $7.1 million proceeds from renewable tax credits transferred to other corporate taxpayers during the nine months ended September 30, 2024
11.3
13.5
Lower overall collections from customers, driven by lower purchased gas costs adjusted through the PGA customer rate
(34.2)
Higher payments for other operation and maintenance expenses
(8.7)
(10.3)
Higher payments for interest, driven by MGE's issuance of long-term debt during the second half of 2023
(4.1)
Other operating activities
0.1
Increase in cash provided by operating activities
15.8
16.3
Capital Requirements and Investing Activities
MGE Energy's cash used for investing activities increased $11.1 million during the nine months ended September 30, 2024, when compared to the same period in the prior year.
Capital expenditures during the nine months ended September 30, 2024, were $164.1 million. This amount represents an increase of $13.8 million from the expenditures made in the same period in the prior year. This increase primarily reflects an increase in electric and gas utility expenditures.
41
Proceeds from the sale of investments increased $1.3 million during the nine months ended September 30, 2024, when compared to the same period in the prior year.
Capital contributions in ATC and other investments decreased $1.6 million during the nine months ended September 30, 2024, when compared to the same period in the prior year.
MGE's cash used for investing activities increased $13.9 million during the nine months ended September 30, 2024, when compared to the same period in the prior year.
Capital Expenditures
The following table shows MGE Energy's forecasted capital expenditures for 2024 through 2029:
Forecasted
2024(a)
2029
181,000
203,000
229,000
247,000
256,000
276,000
28,000
30,000
29,000
27,000
Utility plant total
219,000
231,000
257,000
277,000
285,000
303,000
Nonregulated
7,000
9,000
11,000
MGE Energy total
226,000
240,000
266,000
286,000
296,000
312,000
Forecasted capital expenditures are based upon management's assumptions with respect to future events, including the timing and amount of expenditures associated with environmental compliance initiatives, legislative and regulatory action, supply chain and market disruptions, customer demand and support for electrification and renewable energy resources, energy conservation programs, load growth, the timing of any required regulatory approvals, and the adequacy of rate recovery. Actual events may differ materially from these assumptions and result in material changes to those forecasted amounts.
MGE is targeting at least 80% carbon reduction from electric generation by 2030 (from 2005 levels) and net-zero carbon electricity by 2050. Solar, wind, and battery storage projects are a major step toward deep decarbonization and greater use of clean energy sources in pursuit of our goal. In addition, natural gas generation projects help enable MGE's clean energy transition and ensure reliability for customers as the energy supply is decarbonized. MGE continues to evaluate solar, wind, battery storage, and natural gas generation projects that align with its goals as legacy fossil fuel-fired facilities are retired.
The following table provides further detail of MGE Energy's forecasted capital expenditures, separating spending into capital project categories for 2025 through 2029:
For the years ended December 31,
Electric renewables(a)
131,000
128,000
174,000
182,000
202,000
Electric production
36,000
8,000
Electric distribution
65,000
66,000
Gas distribution
42
Our forecasted capital expenditures reflect the following significant renewable projects that are currently under construction or pending regulatory approval:
Share ofGeneration/Battery Storage
Share ofEstimatedCosts(b)
Paris(a)
$61 million(c)(d)(f)
Strix
Solar
6 MW
$12 million
Darien(a)
$63 million(c)(d)(f)
Koshkonong(a)
$104 million(c)(d)(f)
Sunnyside(e)
20 MW/40 MW
High Noon(e)
2027 Solar2027 Battery
Ursa(e)
20 MW
$46 million
Badger Hollow(e)
Wind
11.2 MW
$36 million
Whitetail(e)
6.7 MW
$23 million
Dawn Harvest(e)
15 MW
$34 million
Good Oak(e)
9.8 MW
$22 million
Gristmill(e)
$15 million
Saratoga(e)
15 MW/5 MW
2028 Solar2028 Battery
MGE continues to assess the potential impact of procurement disruptions on current and future solar projects that may result in an increase in costs or delays in construction timelines. In the event that such disruptions cause costs to exceed the levels approved for specific projects, we have filed, and expect to continue to file, notifications with the PSCW and expect to request recovery of any increases in MGE's future rate proceedings. See further information on procurement disruptions discussed under "Other Matters" section below.
Columbia Energy Storage Project: In August 2024, MGE was included in a Joint Application to develop an Energy Dome closed-loop gas-to-liquid solution. This project would use vaporized liquid carbon dioxide to power an electric generating turbine. MGE holds a 19% ownership interest in this project.
West Riverside: In June 2024, MGE purchased an additional 25 MW of capacity of West Riverside for approximately $25 million. After purchase, MGE owns 50 MW of capacity of West Riverside. West Riverside is a natural gas-fired generating plant.
Electric and Gas Distribution: In 2024 through 2029, electric and gas capital expenditures include investment in enhanced metering solutions to provide customers with more timely and detailed energy use information. Investments in advanced metering infrastructure will provide additional benefits including outage and demand response and automated meter reading capabilities. Forecasted total capital expenditures for those years is approximately $57 million.
The principal sources and uses of cash are related to short-term and long-term borrowings and repayments and the payment of cash dividends.
43
The principal increases (decreases) in cash flows from financing activities during the nine months ended September 30, 2024, compared to the same period in 2023, were as follows:
Issuance of common stock
2.6
Higher cash dividends paid, dividend rate per share ($1.305 vs. $1.243)
(2.3)
Higher cash dividends to parent (MGE Energy)
(1.0)
Lower distributions to parent (MGE Energy) from noncontrolling interest, representing distributions from MGE Power Elm Road and MGE Power West Campus(a)
1.3
Change in long-term debt(b)
(60.1)
Change in short-term debt borrowings, net
59.0
Other financing activities
1.2
Increase in cash flows from financing activities
Capitalization Ratios
MGE Energy's capitalization ratios were as follows:
60.8%
59.9%
36.7%
38.1%
Credit Ratings
MGE Energy's and MGE's access to the capital markets, including, in the case of MGE, the commercial paper market, and their respective financing costs in those markets, may depend on the credit ratings of the entity that is accessing the capital markets.
None of MGE Energy's or MGE's borrowing is subject to default or prepayment as a result of a downgrading of credit ratings, although a downgrading of MGE's credit ratings would increase fees and interest charges under both MGE Energy's and MGE's credit agreements.
Environmental Matters
See the discussion of environmental matters included in the 2023 Annual Report on Form 10-K, as updated by Footnote 8.a. of Notes to Consolidated Financial Statements in this Report.
Other Matters
Rate Matters
In December 2023, the PSCW approved the 2024/2025 rate application for an increase of 1.54% for electric rates and a 2.44% increase for gas rates in 2024. The PSCW also approved a 4.17% increase for electric rates and a 1.32% increase to gas rates for 2025. MGE filed a 2025 Fuel Cost Plan with the PSCW in June 2024. The plan would lower the 2025 increase in electric rates to 2.47%, reflecting lower expected fuel costs. MGE expects a final decision from the PSCW on the Fuel Cost Plan by the end of 2024.
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Details related to MGE's 2024/2025 rate proceeding are shown in the table below:
(Dollars in thousands)
Authorized Average Rate Base(a)
Authorized Average CWIP(b)
Authorized Return on Common Equity(c)
Electric (2024 Test Period)
1,185,550
10,727
56.13%
Gas (2024 Test Period)
335,533
7,160
Electric (2025 Test Period)
1,241,502
7,106
56.06%
Gas (2025 Test Period)
341,369
See Footnote 9 of Notes to Consolidated Financial Statements in this Report for further discussion of rate proceedings and an earnings sharing mechanism if MGE earns above the authorized return on common equity in the rate order.
MISO transmission owners, including ATC, are involved in two complaints filed at FERC by several parties challenging that the base ROE in effect for MISO transmission owners, including ATC, was no longer just and reasonable. Each complaint provided for a 15-month statutory refund period: November 12, 2013 through February 11, 2015 (the "First Complaint Period") and February 12, 2015 through May 11, 2016 (the "Second Complaint Period").
In May 2020, FERC issued an order further refining the methodology for setting authorized ROE. This refined methodology increased the authorized ROE from 9.88% to 10.02%. This base ROE is effective for the First Complaint Period and for all periods following September 2016. This order also dismissed the second complaint. Accordingly, no refunds were ordered for the Second Complaint Period.
Several petitions for review of FERC’s prior orders were filed with the United States Court of Appeals for the District of Columbia Circuit (the "Court") and an oral argument was held in November 2021. In August 2022, the Court ruled that four of the five arguments made by the complaining parties were unpersuasive. However, the Court agreed that FERC’s decision to reintroduce a risk-premium model into its ROE methodology was arbitrary and capricious. The Court vacated the underlying orders for the First Complaint Period and remanded to FERC for further proceedings. In October 2024, FERC issued a ruling eliminating the risk premium in the ROE calculation resulting in a 4-basis point reduction in the base ROE from 10.02% to 9.98%. FERC also affirmed its prior decision to dismiss the second complaint. ATC must provide refunds, with interest, by December 2025 covering the First Complaint Period and all periods following September 2016. Prior to the ruling, our share of ATC’s earnings reflected a possible loss of approximately $1.2 million, inclusive of interest and net of tax, for a possible additional refund for the First Complaint Period and for the period following the Second Complaint Period. As a result of the October 2024 ruling, during the fourth quarter 2024 our earnings in ATC will reflect an approximately $0.8 million reduction of our reserve.
We derived approximately 6.0% and 5.7% of our net income during the nine months ended September 30, 2024 and 2023, respectively, from our investment in ATC.
In June 2021, the U.S. Customs and Border Protection (CBP) issued a Withhold Release Order (WRO) against silica-based products made by Hoshine Silicon Industry Co. Ltd., a company located in China's Xinjiang Uyghur Autonomous Region. As a result of this WRO, CBP is holding many solar panels imported into the United States until importers can prove that the panels do not contain materials originating from this region. The Uyghur Forced Labor Protection Act (UFLPA), a federal law that became effective on June 21, 2022, further established that all goods mined, produced, or manufactured wholly or in part in Xinjiang or by certain defined entities are prohibited from U.S. importation. Suppliers for MGE's current solar projects were able to provide the CBP sufficient documentation to meet WRO compliance requirements, and MGE expects the same will be true for UFLPA purposes, however we
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cannot currently predict what, if any, impact the UFLPA will have on the overall supply of solar panels into the United States and the related impact to timing and cost of solar projects included in our capital plan. In the event that such disruptions cause costs to exceed the levels approved for specific projects, we have filed and expect to continue to file a notification with the PSCW and expect to request recovery of any cost increases in MGE's future rate proceedings.
U.S. Department of Commerce - Solar Cells and Modules
In August 2023, the U.S. Department of Commerce issued its final determination on a solar tariff investigation that began in 2022, finding that Chinese manufacturers were circumventing tariffs on solar panels by shipping them through four Southeast Asian countries. A 24-month exemption from tariffs for solar panel and module imports from these four countries was in effect from June 2022 until June 6, 2024. In May 2024, the Biden Administration announced that bifacial solar panels would be subject to safeguard tariffs under Section 201 of the Trade Act of 1974, of which they were previously excluded. President Biden also directed U.S. Trade Representatives to increase tariffs under Section 301 from 25% to 50% on solar cells and modules. MGE continues to assess the potential impact of these tariffs on current and future solar projects which may result in an increase in costs or delays in construction timelines. In the event that such disruptions cause costs to exceed the levels approved for specific projects, we have filed and expect to continue to file a notification with the PSCW and expect to request recovery of any cost increases in MGE's future rate proceedings.
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.
There were no material changes to the market risks disclosed in Item 7A. Quantitative and Qualitative Disclosures About Market Risk in our 2023 Annual Report on Form 10-K, except as noted below.
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 13% during the nine months ended September 30, 2024.
During the third quarter of 2024, 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, 2024, each registrant's principal executive officer and principal financial officer concluded that its disclosure controls and procedures were effective. Each registrant intends to strive continually to improve its disclosure controls and procedures to enhance the quality of its financial reporting.
During the quarter ended September 30, 2024, there were no changes in either registrant's internal controls over financial reporting that materially affected, or are reasonably likely to affect materially, that registrant's internal control over financial reporting.
MGE Energy and its subsidiaries, including MGE, from time to time are involved in various legal proceedings that are handled and defended in the ordinary course of business. See Footnote 8.a. and 8.b. of Notes to Consolidated Financial Statements in this Report for more information.
Item 1A Risk Factors.
There were no material changes from the risk factors disclosed in Item 1A. Risk Factors in our 2023 Annual Report on Form 10-K.
Under the MGE Energy, Inc. Stock Plan, common stock shares purchased by plan participants may be either shares issued by MGE Energy or shares purchased on the open market, as determined from time to time by MGE Energy. Shares issued by MGE Energy are covered by an existing registration statement. Shares purchased in the open market are purchased at the direction of the plan participants by MGE Energy's transfer agent's securities broker-dealer for the accounts of those plan participants. Subject to the plan's restrictions, the timing and amount of open market purchases is determined by the plan participants and the broker-dealer. MGE Energy is not involved in the open market purchases. During 2024 through August 31, 2024, shares purchased under the Stock Plan have been purchased in the open market. MGE Energy began issuing new shares of common stock to participants in its Direct Stock Purchase and Dividend Reinvestment Plan in September 2024.
None.
Not applicable to MGE Energy and MGE.
During the three months ended September 30, 2024, no director or officer of MGE Energy or MGE adopted or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement, as defined in Item 408(a) of Regulation S-K.
Ex. No.
Exhibit Description
*
Certifications Pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934 filed by Jeffrey M. Keebler for MGE Energy, Inc.
31.2
Certifications Pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934 filed by Jared J. Bushek for MGE Energy, Inc.
31.3
Certifications Pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934 filed by Jeffrey M. Keebler for Madison Gas and Electric Company
31.4
Certifications Pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934 filed by Jared J. Bushek for Madison Gas and Electric Company
32.1
**
Certifications Pursuant to Section 1350 of Chapter 63 of Title 18 United States Code (Sarbanes-Oxley Act of 2002) filed by Jeffrey M. Keebler for MGE Energy, Inc.
32.2
Certifications Pursuant to Section 1350 of Chapter 63 of Title 18 United States Code (Sarbanes-Oxley Act of 2002) filed by Jared J. Bushek for MGE Energy, Inc.
32.3
Certifications Pursuant to Section 1350 of Chapter 63 of Title 18 United States Code (Sarbanes-Oxley Act of 2002) filed by Jeffrey M. Keebler for Madison Gas and Electric Company
32.4
Certifications Pursuant to Section 1350 of Chapter 63 of Title 18 United States Code (Sarbanes-Oxley Act of 2002) filed by Jared J. Bushek for Madison Gas and Electric Company
101.INS
XBRL Instance
101.SCH
XBRL Taxonomy Extension Schema With Embedded Linkbases Document
104.1
Included in the cover page, formatted in Inline XBRL
Filed herewith.
Furnished herewith.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
MGE ENERGY, INC.
Date: November 6, 2024
/s/ Jeffrey M. Keebler
Jeffrey M. Keebler
Chairman, President and Chief Executive Officer
(Duly Authorized Officer)
/s/ Jared J. Bushek
Jared J. Bushek
Vice President - Chief Financial Officer and Treasurer
(Chief Financial Officer)
/s/ Jenny L. Lagerwall
Jenny L. Lagerwall
Assistant Vice President - Accounting and Controller
(Chief Accounting Officer)
Signatures – Madison Gas and Electric Company
MADISON GAS AND ELECTRIC