United States
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended:
December 31,
2017
[ ] Transition report
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from
_______________ to _______________
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Commission
File No. |
Name of
Registrant, State of Incorporation, Address
of Principal Executive Offices, and Telephone
No. |
IRS Employer
Identification
No. |
|
000-49965 |
MGE Energy,
Inc.
(a Wisconsin Corporation)
133 South Blair Street
Madison, Wisconsin 53788
(608) 252-7000
mgeenergy.com |
39-2040501 |
|
000-1125 |
Madison Gas and
Electric Company
(a Wisconsin Corporation)
133 South Blair Street
Madison, Wisconsin 53788
(608) 252-7000
mge.com |
39-0444025 |
SECURITIES REGISTERED
PURSUANT TO SECTION 12(b) OF THE ACT:
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Title of Class |
Name of Each Exchange on which
Registered |
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MGE Energy, Inc. |
Common Stock, $1 Par Value Per
Share |
The Nasdaq Stock
Market |
SECURITIES REGISTERED
PURSUANT TO SECTION 12(g) OF THE ACT:
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Title of Class |
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Madison Gas and Electric Company |
Common Stock, $1 Par Value Per
Share |
Indicate by checkmark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities Act.
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MGE Energy, Inc. |
Yes [X] No [ ] |
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Madison Gas and Electric Company |
Yes [X] No [ ] |
Indicate by checkmark if the registrant is not required
to file reports pursuant to Section 13 or Section 15(d) of the Act.
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MGE Energy, Inc. |
Yes [ ] No [X] |
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Madison Gas and Electric Company |
Yes [ ] No [X] |
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. Yes [X] No [ ]
Indicate by check mark whether the registrants have
submitted electronically and posted on their corporate Web sites, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405
of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or
for such shorter period that the registrants were required to submit and post
such files): Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrants' knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [ ]
Indicate by check mark if the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, a smaller
reporting company or an emerging growth company. See definition of "large
accelerated filer," "accelerated filer," "smaller reporting company," and
"emerging growth company" in Rule 12b-2 of the Exchange Act:
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Large Accelerated
Filer |
Accelerated
Filer |
Non-accelerated
Filer |
Smaller Reporting
Company |
Emerging Growth
Company |
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MGE Energy, Inc. |
X |
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Madison Gas and Electric
Company |
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X |
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Indicate by checkmark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Exchange Act).
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MGE Energy, Inc. |
Yes [ ] No [X] |
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Madison Gas and Electric Company |
Yes [ ] No [X] |
The aggregate market value of the voting and nonvoting
common equity held by nonaffiliates of each registrant as of June 30, 2017,
was as follows:
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MGE Energy, Inc. |
$2,225,394,029 |
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Madison Gas and Electric Company |
$0 |
The number of shares outstanding of each registrant's
common stock as of February 1, 2018, were as follows:
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MGE Energy, Inc. |
34,668,370 |
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Madison Gas and Electric Company |
17,347,894 |
DOCUMENTS INCORPORATED BY
REFERENCE
Portions of MGE Energy, Inc.'s definitive proxy statement
to be filed on or before March 26, 2018, relating to its annual meeting of
shareholders, are incorporated by reference into Part III of this annual report
on Form 10-K.
Madison Gas and Electric Company meets the conditions set
forth in General Instruction (I)(1)(a) and (b) of Form 10-K and is therefore
omitting (i.) the information otherwise required by Item 601 of Regulation S-K
relating to a list of subsidiaries of the registrant as permitted by General
Instruction (I)(2)(b), (ii.) the information otherwise required by Item 6
relating to Selected Financial Data as permitted by General Instruction
(I)(2)(a), (iii.) the information otherwise required by Item 10 relating to
Directors and Executive Officers as permitted by General Instruction (I)(2)(c),
(iv.) the information otherwise required by Item 11 relating to executive
compensation as permitted by General Instruction (I)(2)(c), (v.) the information
otherwise required by Item 12 relating to Security Ownership of Certain
Beneficial Owners and Management as permitted by General Instruction (I)(2)(c),
and (vi.) the information otherwise required by Item 13 relating to Certain
Relationships and Related Transactions as permitted by General Instruction
(I)(2)(c).
Filing Format
This combined Form 10-K is being filed separately by MGE
Energy, Inc. (MGE Energy) and Madison Gas and Electric Company (MGE). MGE is a
wholly owned subsidiary of MGE Energy and represents a majority of its assets,
liabilities, revenues, expenses, and operations. Thus, all information contained
in this report relates to, and is filed by, MGE Energy. Information that is
specifically identified in this report as relating solely to MGE Energy, such as
its financial statements and information relating to its nonregulated business,
does not relate to, and is not filed by, MGE. MGE makes no representation as to
that information. The terms "we" and "our," as used in this report, refer to MGE
Energy and its consolidated subsidiaries, unless otherwise indicated.
Forward-Looking Statements
This report, and other documents filed by MGE Energy and
MGE with the Securities and Exchange Commission (SEC) from time to time, contain
forward-looking statements that reflect management's current assumptions and
estimates regarding future performance and economic conditions—especially as
they relate to economic conditions, future load growth, revenues, expenses,
capital expenditures, financial resources, regulatory matters, and the scope and
expense associated with future environmental regulation. These forward-looking
statements are made pursuant to the provisions of the Private Securities
Litigation Reform Act of 1995. Words such as "believe," "expect," "anticipate,"
"estimate," "could," "should," "intend," "will," and other similar words
generally identify forward-looking statements. Both MGE Energy and MGE caution
investors that these forward-looking statements are subject to known and unknown
risks and uncertainties that may cause actual results to differ materially from
those projected, expressed, or implied.
The factors that could cause actual results to differ
materially from the forward-looking statements made by a registrant include (a)
those factors discussed in Item 1A. Risk Factors, Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations, and
Item 8. Financial Statements and Supplementary Data, Footnote 17.
Commitments and Contingencies, and (b) other factors discussed herein and in
other filings made by that registrant with the SEC.
Readers are cautioned not to place undue reliance on
these forward-looking statements, which apply only as of the date of this
report. MGE Energy and MGE undertake no obligation to release publicly any
revision to these forward-looking statements to reflect events or circumstances
after the date of this report, except as required by law.
Where to Find More Information
The public may read and copy any reports or other
information that MGE Energy and MGE file with the SEC at the SEC's public
reference room at 100 F Street, NE, Washington, D.C. 20549. The public may
obtain information on the operation of the Public Reference Room by calling the
SEC at 1-800-SEC-0330. These documents also are available to the public from
commercial document retrieval services, the website maintained by the SEC at
sec.gov, MGE Energy's website at mgeenergy.com, and MGE's website
at mge.com. Copies may be obtained from our websites free of charge.
Information contained on MGE Energy's and MGE's websites shall not be deemed
incorporated into, or to be a part of, this report.
Definitions, Abbreviations,
and Acronyms Used in the Text and Notes of this Report
Abbreviations, acronyms, and definitions used in the text
and notes of this report are defined below.
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MGE Energy and Subsidiaries: |
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CWDC |
Central Wisconsin Development Corporation |
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MAGAEL |
MAGAEL, LLC |
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MGE |
Madison Gas and Electric Company |
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MGE Energy |
MGE Energy, Inc. |
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MGE Power |
MGE Power, LLC |
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MGE Power Elm Road |
MGE Power Elm Road, LLC |
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MGE Power West Campus |
MGE Power West Campus, LLC |
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MGE Services |
MGE Services, LLC |
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MGE State Energy Services |
MGE State Energy Services, LLC |
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MGE Transco |
MGE Transco Investment, LLC (which holds our
interest in ATC) |
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MGEE Transco |
MGEE Transco, LLC (which holds our interest in ATC
Holdco) |
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NGV Fueling Services |
NGV Fueling Services, LLC |
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Other Defined Terms: |
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AFUDC |
Allowance for Funds Used During
Construction |
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ANPR |
Advanced Notice of Proposed Rulemaking |
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ANR |
ANR Pipeline Company |
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ARO |
Asset Retirement Obligation |
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ATC |
American Transmission Company LLC |
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ATC Holdco |
ATC Holdco, LLC |
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BART |
Best Available Retrofit Technology |
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Blount |
Blount Station |
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BTA |
Best Technology Available |
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CAA |
Clean Air Act |
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CAVR |
Clean Air Visibility Rule |
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CCR |
Coal Combustion Residual |
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CO2 |
Carbon Dioxide |
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Codification |
Financial Accounting Standards Board Accounting
Standards Codification |
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Columbia |
Columbia Energy Center |
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Cooling degree days |
Measure of the extent to which the average daily
temperature is above 65 degrees Fahrenheit, which is considered an
indicator of possible increased demand for energy to provide
cooling |
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COSO |
Committee of Sponsoring Organizations |
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CPP |
Clean Power Plan |
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CSAPR |
Cross-State Air Pollution Rule |
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CWA |
Clean Water Act |
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DTA |
Deferred Tax Assets |
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Dth |
Dekatherms |
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DTL |
Deferred Tax Liabilities |
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EEI |
Edison Electric Institute |
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EGUs |
Electric Generating Units |
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ELG |
Effluent Limitations Guidelines |
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Elm Road Units |
Elm Road Generating Station |
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EPA |
United States Environmental Protection
Agency |
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FASB |
Financial Accounting Standards Board |
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FERC |
Federal Energy Regulatory Commission |
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FTR |
Financial Transmission Rights |
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GAAP |
Generally Accepted Accounting Principles |
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GHG |
Greenhouse Gas |
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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 |
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ICF |
Insurance Continuance Fund |
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IRS |
Internal Revenue Service |
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kVA |
Kilovolt Ampere |
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kWh |
Kilowatt-hour |
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MISO |
Midcontinent Independent System Operator Inc. (a
regional transmission organization) |
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MRO |
Midwest Reliability Organization |
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MW |
Megawatt |
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MWh |
Megawatt-hour |
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NAAQS |
National Ambient Air Quality Standards |
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Nasdaq |
The Nasdaq Stock Market |
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NERC |
North American Electric Reliability
Corporation |
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NGO |
Nongovernment Organizations |
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NNG |
Northern Natural Gas Company |
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NOV |
Notice of Violation |
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NOx |
Nitrogen Oxides |
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NYSE |
New York Stock Exchange |
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PCBs |
Polychlorinated Biphenyls |
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PGA |
Purchased Gas Adjustment clause |
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PJM |
PJM Interconnection, LLC (a regional transmission
organization) |
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PM |
Particulate Matter |
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PPA |
Purchased power agreement |
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ppb |
Parts Per Billion |
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PSCW |
Public Service Commission of Wisconsin |
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REC |
Renewable Energy Credit |
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Riverside |
Riverside Energy Center in Beloit,
Wisconsin |
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ROE |
Return on Equity |
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RTO |
Regional Transmission Organization |
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SCR |
Selective Catalytic Reduction |
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SEC |
Securities and Exchange Commission |
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SIP |
State Implementation Plan |
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SO2 |
Sulfur Dioxide |
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the State |
State of Wisconsin |
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Stock Plan |
Direct Stock Purchase and Dividend Reinvestment
Plan of MGE Energy |
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Tax Act |
Tax Cuts and Jobs Act |
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UW |
University of Wisconsin at Madison |
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VIE |
Variable Interest Entity |
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WCCF |
West Campus Cogeneration Facility |
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WDNR |
Wisconsin Department of Natural Resources |
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WEPCO |
Wisconsin Electric Power Company |
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Working capital |
Current assets less current liabilities |
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WPDES |
Wisconsin Pollutant Discharge Elimination
System |
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WPL |
Wisconsin Power and Light Company |
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WPSC |
Wisconsin Public Service Corporation |
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WRERA |
Worker, Retiree and Employer Recovery Act of
2008 |
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XBRL |
eXtensible Business Reporting Language |
PART
I.
Item 1. Business.
MGE Energy operates in the following business
segments:
·
Regulated electric
utility operations – generating, purchasing, and distributing electricity
through MGE.
·
Regulated gas
utility operations – purchasing and distributing natural gas through MGE.
·
Nonregulated
energy operations – owning and leasing electric generating capacity that assists
MGE through MGE Energy's wholly owned subsidiaries MGE Power Elm Road and MGE
Power West Campus.
·
Transmission
investments – representing our investment in American Transmission Company LLC,
a company engaged in the business of providing electric transmission services
primarily in Wisconsin, and our investment in ATC Holdco LLC, a company created
to facilitate out-of-state electric transmission development and
investments.
·
All other –
investing in companies and property that relate to the regulated operations and
financing the regulated operations, through its wholly owned subsidiaries CWDC,
MAGAEL, MGE State Energy Services, NGV Fueling Services, and Corporate
functions.
MGE's utility operations represent a majority of the
assets, liabilities, revenues, expenses, and operations of MGE Energy. MGE
Energy's nonregulated energy operations currently include an undivided interest
in two coal-fired generating units located in Oak Creek, Wisconsin, which we
refer to as the Elm Road Units, and an undivided interest in a cogeneration
facility located on the Madison campus of the University of Wisconsin, which we
refer to as the West Campus Cogeneration Facility or WCCF.
As a public utility, MGE is subject to regulation by the
PSCW and the FERC. The PSCW has authority to regulate most aspects of MGE's
business including rates, accounts, issuance of securities, and plant siting.
The PSCW also has authority over certain aspects of MGE Energy as a holding
company of a public utility. FERC has jurisdiction, under the Federal Power Act,
over certain accounting practices and certain other aspects of MGE's business.
MGE Energy's subsidiaries are also subject to regulation
under local, state, and federal laws regarding air and water quality and solid
waste disposal. See "Environmental" below.
MGE Energy was organized as a Wisconsin corporation in
2001. MGE was organized as a Wisconsin corporation in 1896. Their principal
offices are located at 133 South Blair Street, Madison, Wisconsin 53788, and
their telephone number is (608) 252-7000.
Electric Utility Operations
MGE distributes electricity in a service area covering a
316 square-mile area of Dane County, Wisconsin. The service area includes the
city of Madison, Wisconsin. It owns or leases ownership interests in electric
generation facilities located in Wisconsin and Iowa.
At December 31, 2017, MGE supplied electric service
to approximately 151,000 customers, with approximately 90% located in the cities
of Fitchburg, Madison, Middleton, and Monona and 10% in adjacent areas. Of the
total number of customers, approximately 87% were residential and 13% were
commercial or industrial. Electric retail revenues for 2017, 2016, and 2015 were
comprised of the following:
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Year Ended
December 31, |
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2017 |
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2016 |
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2015 |
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Residential |
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33.5% |
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33.9% |
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32.6% |
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Commercial |
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53.2% |
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52.9% |
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53.2% |
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Industrial |
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4.0% |
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4.4% |
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4.8% |
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Public authorities (including the
UW) |
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9.3% |
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8.8% |
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9.4% |
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Total |
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100.0% |
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100.0% |
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100.0% |
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Electric operations accounted for approximately 73.6%,
75.2%, and 74.2% of MGE's total 2017, 2016, and 2015 regulated revenues,
respectively.
See Item 2. Properties for a
description of MGE's electric utility plant.
MGE is registered with North American Electric
Reliability Corporation (NERC) and one regional entity, the Midwest Reliability
Organization (MRO). The essential purposes of these entities are the development
and implementation of regional and NERC reliability standards; and determining
compliance with those standards, including enforcement mechanisms.
Transmission
American Transmission Company LLC (ATC) was formed by
utilities who were required by Wisconsin law to contribute their transmission
facilities to it in 2001, and is owned by those utilities and their affiliates.
ATC's purpose is to provide reliable, economic transmission service to all
customers in a fair and equitable manner. ATC plans, constructs, operates,
maintains, and expands transmission facilities that it owns to provide adequate
and reliable transmission of power. ATC is regulated by FERC for all rate terms
and conditions of service, is regulated by the PSCW as to some aspects of its
governance and is a transmission-owning member of the MISO.
Regional Transmission Organizations
(RTO)
MISO
MGE is a nontransmission owning member of the MISO. MISO,
a FERC approved RTO, is responsible for monitoring the electric transmission
system that delivers power from generating plants to wholesale power
transmitters. MISO's role is to ensure equal access to the transmission system
and to maintain or improve electric system reliability in the Midwest.
MISO maintains a bid-based energy market. MGE offers
substantially all of its generation on the MISO market and purchases much of its
load requirement from the MISO market in accordance with the MISO Tariff. MGE
participates in the ancillary services market operated by MISO. That market is
an extension of the existing energy market in which MISO assumes the
responsibility of maintaining sufficient generation reserves. In the ancillary
services market, MISO provides the reserves for MGE's load, and MGE may offer to
sell reserves from its generating units.
MGE participates in the voluntary capacity auction, which
provides an optional monthly forum for buyers and sellers of aggregate planning
resource credits to interact. Load serving entities, such as MGE, may
participate in the voluntary capacity auction potentially to obtain the
necessary aggregate planning resource credits needed to meet their planning
reserve margin requirement established by the PSCW. Generator owners may
participate to sell any excess aggregate planning resource credits that are not
needed by them.
PJM
MGE is a member of PJM. PJM, an RTO, is a neutral and
independent party that coordinates and directs the operation of the transmission
grid within its area of coverage, administers a competitive wholesale
electricity market, and plans regional transmission expansion improvements to
maintain grid reliability and relieve congestion.
Fuel supply and generation
MGE satisfies its customers' electric demand with
internal generation and purchased power. Sources used depend on market prices,
generating unit availability, weather, and customer demand. During 2017, 2016,
and 2015, MGE's electric energy delivery requirements were satisfied from the
following fuel sources:
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Year Ended
December 31, |
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2017 |
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2016 |
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2015 |
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Coal |
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52.7% |
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48.3% |
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48.0% |
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Natural gas(a) |
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11.3% |
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18.6% |
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9.1% |
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Renewable
sources(b) |
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12.4% |
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10.8% |
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11.2% |
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Purchased power |
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23.6% |
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22.3% |
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31.7% |
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Total |
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100.0% |
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100.0% |
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100.0% |
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(a)
MGE's
electric operations burn natural gas in several of its peaking power plants. The
market price of natural gas decreased in 2016, which improved the economics of
natural gas-fueled generation over other types of generation.
(b)
Includes
both internal generation and purchased power.
Generation sources
MGE receives electric generation supply from coal-fired,
gas-fired, and renewable energy sources. These sources include owned facilities
as well as facilities leased from affiliates and accounted for under our
nonregulated energy operations. See Item 2. Properties for more information
regarding these generation sources, including location, capacity, ownership or
lease arrangement, and fuel source. See "Nonregulated Energy Operations" below
for more information regarding generating capacity leased to MGE by nonregulated
subsidiaries.
Purchased power
MGE enters into short and long-term purchase power
commitments with third parties to meet a portion of its anticipated electric
energy supply needs. The following table identifies purchase power commitments
at December 31, 2017, with unaffiliated parties for the next five
years.
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(Megawatts) |
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2018 |
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2019 |
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2020 |
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2021 |
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2022 |
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Purchase power commitments |
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102.5 |
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98.5 |
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98.5 |
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98.5 |
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48.5 |
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Gas Utility Operations
MGE transports and distributes natural gas in a service
area covering 1,682 square miles in seven south-central Wisconsin counties. The
service area includes the city of Madison, Wisconsin and surrounding areas.
At December 31, 2017, MGE supplied natural gas
service to approximately 158,000 customers in the cities of Elroy, Fitchburg,
Lodi, Madison, Middleton, Monona, Prairie du Chien, Verona, and Viroqua; 25
villages; and all or parts of 50 townships. Of the total number of customers,
approximately 90% were residential and 10% were commercial or industrial. Gas
revenues for 2017, 2016, and 2015 were comprised of the following:
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Year Ended
December 31, |
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2017 |
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2016 |
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2015 |
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Residential |
59.6% |
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60.2% |
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59.4% |
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Commercial |
35.8% |
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34.9% |
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35.7% |
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Industrial |
1.3% |
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1.1% |
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1.3% |
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Transportation service and
other |
3.3% |
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3.8% |
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3.6% |
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Total |
100.0% |
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100.0% |
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100.0% |
|
Gas operations accounted for approximately 26.4%, 24.8%,
and 25.8% of MGE's total 2017, 2016, and 2015 regulated revenues,
respectively.
MGE can curtail gas deliveries to its interruptible
customers. Approximately 4% of retail gas deliveries in 2017 and approximately
3% in 2016 and 2015 were to interruptible customers.
Gas supply
MGE has physical interconnections with ANR Pipeline
Company (ANR) and Northern Natural Gas Company (NNG). MGE's primary service
territory, which includes Madison and the surrounding area, receives deliveries
at one NNG and four ANR gate stations. MGE's outlying territory receives
deliveries at NNG gate stations located in Elroy, Prairie du Chien,
Viroqua, and Crawford County. Interconnections with two major pipelines provide
competition in interstate pipeline service and a more reliable and economical
gas supply mix, which includes gas from Canada and from the mid-continent and
Gulf/offshore regions in the United States.
During the winter months, when customer demand is high,
MGE is primarily concerned with meeting its obligation to firm customers. MGE
meets customer demand by using firm supplies under contracts finalized before
the heating season, supplies in storage (injected during the summer), and other
firm supplies purchased during the winter period.
By contract, a total of 5,911,240 Dth of gas can be
injected into ANR's storage fields in Michigan from April 1 through
October 31. These gas supplies are then available for withdrawal during the
subsequent heating season, November 1 through March 31. Using storage
allows MGE to buy gas supplies during the summer season, when prices are
normally lower, and withdraw these supplies during the winter season, when
prices are typically higher. Storage also gives MGE more flexibility in meeting
daily load fluctuations.
MGE's contracts for firm transportation service of gas
include winter maximum daily quantities of:
·
167,150 Dth
(including 106,078 Dth of storage withdrawals) on ANR.
·
65,828 Dth on
NNG.
Nonregulated
Energy Operations
MGE Energy, through its subsidiaries, has developed
generation sources that assist MGE in meeting the electricity needs of its
customers. These sources consist of the Elm Road Units and the WCCF, which
are leased by MGE Power Elm Road and MGE Power West Campus, respectively, to
MGE. See Item 2. Properties for a description of these facilities, their joint
owners, and the related lease arrangements.
Transmission Investments
ATC owns and operates electric transmission facilities
primarily in Wisconsin. MGE received an interest in ATC when it, like other
Wisconsin electric utilities, contributed its electric transmission facilities
to ATC as required by Wisconsin law. That interest is presently held by MGE
Transco, which is owned by MGE Energy. At December 31, 2017, MGE Transco
held a 3.6% ownership interest in ATC.
In 2016, ATC Holdco was formed by several of the members
of ATC, including MGE Energy, to facilitate electric transmission development
and investments outside of Wisconsin. MGE Energy's ownership interest in ATC
Holdco is held by MGEE Transco, a wholly-owned subsidiary. At December 31,
2017, MGEE Transco held a 4.4% ownership interest in ATC Holdco. In the near
term, it is expected that ATC Holdco will be pursuing transmission development
opportunities that typically have long development and investment lead times
before becoming operational.
Environmental
MGE Energy and MGE are subject to frequently changing
local, state, and federal regulations concerning air quality, water quality,
land use, threatened and endangered species, hazardous materials handling, and
solid waste disposal. These regulations affect the manner in which they conduct
their operations, the costs of those operations, as well as capital and
operating expenditures. Regulatory initiatives, proposed rules, and court
challenges to adopted rules, have the potential to have a material effect on our
capital expenditures and operating costs. In addition to the regulations
discussed below, MGE continues to track state and federal initiatives such as
potential changes to regulations governing polychlorinated biphenyl (PCB),
potential changes to air and water standards, and potential climate change
legislation.
Water Quality
EPA's Effluent Limitations Guidelines and Standards
for Steam Electric Power Generating Point Source Category
In November 2015, the EPA published its final rule
setting Effluent Limitations Guidelines (ELG) for the steam electric power
generating industry. The ELG rule establishes federal limits on the amount of
metals and other pollutants that can be discharged in wastewater from new and
existing steam electric generation plants. The rule will be applied to
Wisconsin-based power plants as they renew their WPDES permits, beginning in
2018 but no later than 2023. The operators of our Columbia and Elm Road
Units have indicated that equipment upgrades may be necessary to comply
with the new discharge standards. Management believes that any compliance costs
will be recovered in future rates based on previous treatment of environmental
compliance projects.
EPA Cooling Water Intake Rules (Section
316(b))
Section 316(b) of the Clean Water Act requires that the
cooling water intake structures at electric power plants meet best available
technology standards so that mortality from entrainment (drawing aquatic life
into a plant's cooling system) and impingement (trapping aquatic life on
screens) are reduced. The EPA finalized its Section 316(b) rule for existing
facilities in 2014. Section 316(b) requirements are implemented in Wisconsin
through modifications to plants' WPDES permits, which govern plant wastewater
discharges.
Our WCCF, Blount, and Columbia plants are considered
existing plants under this rule. Our WCCF facility already employs a system that
meets the Section 316(b) rule. Our Blount plant's WPDES permit assumes that
Blount meets best technology available (BTA) for the duration of the permit,
which expires in 2023. However, MGE needs to perform an entrainment study by the
end of 2021 to determine future BTA, which will be included with the next permit
renewal. Section 316(b) applies to river intakes at our Columbia plant. The
operator of our Columbia plant is conducting an intake study to demonstrate
compliance with the Section 316(b) rule and/or identify design criteria needed
to meet the new rule requirements prior to Columbia's WPDES permit renewal. The
results of this study will determine if Columbia will have additional
requirements in its WPDES renewal. The exact requirements at Blount and
Columbia, however, will remain unknown until those sites' WPDES permits are
modified to account for this rule. Nonetheless, MGE expects that the Section
316(b) rule will not have material effects on its existing plants.
Energy Efficiency and
Renewables
The Wisconsin Energy Efficiency and Renewables Act
requires that 10% of the state's electricity be generated from renewable
sources. MGE is in compliance with the requirement. The costs to comply with the
Act and its accompanying regulations are being recovered in rates.
Air Quality
Air quality regulations promulgated by the EPA and
Wisconsin Department of Natural Resources (WDNR) in accordance with the Federal
Clean Air Act and the Clean Air Act Amendments of 1990 impose restrictions on
emission of particulates, sulfur dioxide (SO2), nitrogen oxides
(NOx), hazardous air pollutants and other pollutants, and require
permits for operation of emission sources. These permits must be renewed
periodically. Various newly enacted and/or proposed federal and state
initiatives may result in additional operating and capital expenditure costs for
fossil-fueled electric generating units.
Ozone NAAQS
In October 2015, the EPA revised the primary and
secondary ozone NAAQS, lowering it to 70 ppb. In December 2017, the EPA
informed the Governor of Wisconsin of its proposal to designate Milwaukee
County, where MGE's Elm Road Units are located, as being in nonattainment
with this standard. If finalized by the EPA, a nonattainment designation may
have an effect on operations at our Elm Road Units, however, the NAAQS process
involves many steps and any effect on our generation units will not be fully
understood until the State of Wisconsin develops, receives approval for, and
finalizes an implementation plan for any counties found to be in nonattainment.
The State of Wisconsin has joined a lawsuit filed by
several states challenging the 2015 ozone standard. The lawsuit has been stayed
at the request of the EPA which is reviewing the 2015 standard and may repeal or
modify the standard. MGE will continue to monitor the EPA's progress on
attainment designations and related litigation to assess potential impacts at
our facilities, particularly our Elm Road Units.
EPA's Cross-State Air Pollution Rule: Proposed
Ozone Season Update based on 2008 Ozone NAAQS
In October 2016, the EPA finalized rulemaking for an
update to CSAPR that incorporated 2008 Ozone NAAQS standards into the rule (the
original CSAPR was based on 1997 Ozone NAAQS standards) and began further
reducing summertime ozone season NOx allowances in 2017. The update
affects 22 states, including Wisconsin, by further limiting statewide
NOx allowances in each of those states. The rule also includes
revisions to CSAPR that are designed to address issues remaining from the D.C.
Circuit remand of CSAPR, including Wisconsin's inclusion in the NOx
ozone season portion of the rule. The State of Wisconsin filed a legal challenge
to the CSAPR update rule asserting, among other things, that the rule
over-controls NOx emissions in Wisconsin.
MGE intends to meet the rule requirements through a
combination of reduced emissions through pollution control (e.g. SCR
installation at Columbia), as well as owned, received, and purchased allowances.
Until MGE fully understand our long-term costs associated with compliance, the
results of the pending litigation, the impact of the pollution controls
installed at Columbia, and the ozone season market stabilizes, there remains
some uncertainty about our future costs to comply. Depending on the cost of
allowances in future years, this requirement may or may not be material for
MGE.
Global Climate Change
MGE is a producer of greenhouse gas (GHG) emissions,
primarily from the fossil fuel generating facilities it uses to meet customers'
energy needs, as well as from its natural gas pipeline system and fleet
vehicles. Climate change and the regulatory response to it could significantly
affect our operations in a number of ways, including increased operating costs
and capital expenditures, restrictions on energy supply options, operational
limits on our fossil fuel fired plants, permitting difficulties, and emission
limits. MGE management would expect to seek and receive rate recovery of such
compliance costs, if and when required. MGE continues to monitor proposed
climate change legislation and regulation.
MGE has taken steps to address GHG emissions through
voluntary actions. In 2005, MGE implemented its Energy 2015 Plan, which
committed to ensuring a balanced, economic energy supply with reduced
environmental emissions. The Plan emphasized increased renewable energy, energy
efficiency, and new cleaner generation – three strategies that reduced GHG
emissions. Under the Plan and other actions, our CO2 emissions
declined from 2005 to 2015 by approximately 20% even though total system energy
increased. In 2015, MGE announced its Energy 2030 framework that continues steps
to reduce CO2 emissions. Subject to regulatory approvals and other
conditions, MGE aims to increase renewable energy to 25% of retail electric
sales by 2025 and to 30% by 2030. Under our Energy 2030 framework, we will also
work to reduce CO2 emissions by 40% from 2005 levels by 2030. MGE is
further committed to reducing carbon emissions by 80% from 2005 levels by
2050.
Greenhouse Gas
Regulation
EPA's Greenhouse Gas Reduction Guidelines under the
Clean Air Act 111d Rule
The EPA's Clean Power Plan (CPP) rule became effective in
December 2015, setting guidelines for states to use in developing plans to
control GHG emissions from existing fossil fuel-fired EGUs and systems. When
fully implemented in 2030, the CPP was projected to reduce GHG emissions from
this sector by 32% below 2005 levels. States were given up to three years to
submit a plan or be subject to a federal plan to meet the reduction goals, and
states were expected to meet interim goals starting in 2022 and the final goals
in 2030. Implementation of the rule was expected to have a direct impact on coal
and natural gas fired generating units, including possible changes in dispatch
and additional operating costs.
In October 2015, many states (including Wisconsin)
and other litigants filed petitions with the U.S. Court of Appeals for the
District of Columbia Circuit. On January 26, 2016, several parties filed a
request for a stay of the CPP with the U.S. Supreme Court; and in
February 2016, the U.S. Supreme Court issued an order staying the final CPP
rule. The stay will remain in effect until the D.C. Circuit Court reaches its
decision and the U.S. Supreme Court either declines to review the lower court's
decision or reaches a decision of its own. During the pendency of the stay,
states are not required to submit implementation plans and the EPA will not
enforce deadlines or issue a federal plan for any state.
In October 2017, the EPA published a proposed rule
announcing the EPA's intention to repeal the CPP and has sought public comment
on whether to replace the rule, and if so how. In December 2017, the EPA
published an Advanced Notice of Proposed Rulemaking (ANPR) to solicit
information from the public as it considers a future rule to limit greenhouse
gas emissions from electric generating units.
Given the pending legal proceedings, and the ANPR, the
nature and timing of any final requirements is subject to uncertainty. If the
rule remains substantially in its present form, it is expected to have a
material impact on MGE. MGE will continue to monitor developments with this
proposed rule.
Solid Waste
EPA's Coal Combustion Residuals Rule
EPA's Coal Combustion Residuals (CCR) rule regulates
landfills, ash ponds, and other surface impoundments used to manage coal
combustion residuals by regulating their design, location, monitoring, and
operation. The CCR rule is implemented in phases to allow for sites with onsite
storage and/or disposal to evaluate their compliance with the rule's design
criteria. Landfills, impoundments and ash storage systems, such as ash ponds,
that cannot meet design criteria will need to close formally within defined
timeframes.
Columbia's operator has completed a review of their
system and has determined that an onsite ash pond will need to be closed by
2023. Columbia's operator will install a dry ash handling system to replace the
ash pond. The dry ash handling system installation is planned for 2020-2021. In
2015, MGE recorded an asset retirement obligation for its share of the legal
liability associated with the effect of the CCR rule. 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 cost estimate changes.
Management believes compliance costs will be recovered in future rates based on
previous treatment of environmental compliance projects.
Columbia
Based upon current available information, compliance with
various environmental requirements and initiatives is expected to result in
significant additional operating and capital expenditures at Columbia as noted
below.
Columbia Clean Air Act Litigation
Columbia is a coal-fired generating station operated by
WPL in which WPL, WPSC, and MGE have ownership interests. In December 2009,
the EPA sent a Notice of Violation (NOV) to the co-owners, including MGE. The
NOV alleged that WPL and the Columbia co-owners failed to comply with
appropriate pre-construction review and permitting requirements and, as a
result, violated the Prevention of Significant Deterioration program
requirements, Title V Operating Permit requirements of the CAA, and the
Wisconsin SIP. In June 2013, the court approved and entered a consent
decree entered by the EPA, Sierra Club, and the co-owners of Columbia. One of
the requirements of the consent decree requires installation of an SCR system at
Columbia Unit 2 by December 31, 2018. Installation of the SCR has been
approved by the PSCW. The SCR project is currently under construction and is
expected to be placed in service in 2018. MGE's portion of capital expenditures
(past and future) for the SCR is expected to be approximately
$19-$24 million.
Employees
As of December 31, 2017, MGE had 712 employees. MGE
employs 228 employees who are covered by a collective bargaining agreement with
Local Union 2304 of the International Brotherhood of Electrical Workers and 90
employees who are covered by a collective bargaining agreement with Local Union
No. 39 of the Office and Professional Employees International Union. Both
of these collective bargaining agreements expire on April 30, 2018. There
are also 5 employees covered by a collective bargaining agreement with Local
Union No. 2006, Unit 6 of the United Steel, Paper and Forestry,
Rubber, Manufacturing, Energy, Allied Industrial, and Service Workers
International Union. This collective bargaining agreement expires on
October 31, 2018.
Financial Information About Segments
See Footnote 20 of the Notes to the Consolidated
Financial Statements for financial information relating to MGE Energy's and
MGE's business segments.
Executive Officers of the Registrants
As of December 31, 2017, the executive
officers of the registrants were as follows:
|
|
|
| |
|
Executive |
Title |
Effective
Date |
Service
Years as
an Officer |
|
Jeffrey M. Keebler(a)
Age: 46 |
President and Chief Executive Officer
Senior Vice President – Energy Supply and
Planning |
03/01/2017
07/23/2015 |
6 |
|
|
Assistant VP – Energy Supply and Customer
Service |
01/01/2012 |
|
|
|
|
|
|
|
Craig A. Fenrick(b) |
Executive Vice President – Energy Operations |
03/01/2017 |
11 |
|
Age: 58 |
Senior Vice President – Energy Operations |
07/23/2015 |
|
|
|
Vice President – Energy Delivery |
02/10/2015 |
|
|
|
Vice President – Electric Transmission and
Distribution |
01/01/2012 |
|
|
|
|
|
|
|
Lynn K. Hobbie(b) |
Executive Vice President – Marketing and
Communications |
03/01/2017 |
23 |
|
Age: 59 |
Senior Vice President – Marketing and
Communications |
02/01/2000 |
|
|
|
|
|
|
|
Jeffrey C. Newman(a) |
Executive Vice President, Chief Financial Officer,
Secretary |
03/01/2017 |
20 |
|
Age: 55 |
and Treasurer |
|
|
|
|
Senior Vice President, Chief Financial Officer,
Secretary |
07/23/2015 |
|
|
|
and Treasurer |
|
|
|
|
Vice President, Chief Financial Officer, Secretary
and Treasurer |
01/01/2009 |
|
|
|
|
|
|
|
Cari Anne Renlund(b)
Age: 44 |
Vice President and General Counsel
Dewitt Ross & Stevens S.C. (law firm) – Partner
|
11/02/2015
06/11 – 10/15 |
2 |
(a)
Executive
officer of MGE Energy and MGE.
(b)
Executive
officer of MGE.
·
Effective
March 1, 2017, Gary J. Wolter retired as President and Chief Executive
Officer.
·
Ages, years of
service, and positions as of December 31, 2017.
Item 1A. Risk Factors.
MGE Energy and its subsidiaries, including MGE, operate
in a market environment that involves significant risks, many of which are
beyond their control. The following risk factors may adversely affect their
results of operations, cash flows and market price for their publicly traded
securities. While MGE Energy and MGE believe they have identified and discussed
below the key risk factors affecting their business, there may be additional
risks and uncertainties that are not presently known or that are not currently
believed to be significant that may adversely affect their performance or
financial condition in the future.
Regulatory Risk
We are subject to extensive government regulation
in our business, which affects our costs and responsiveness to changing events
and circumstances.
Our business is subject to regulation at the State and
Federal levels. We are subject to regulation as a holding company by the PSCW.
MGE is regulated by the PSCW as to its rates, terms and conditions of service;
various business practices and transactions; financing; and transactions between
it and its affiliates, including MGE Energy. MGE is also subject to regulation
by the FERC, which regulates certain aspects of its business. The regulations
adopted by the State and Federal agencies affect the manner in which we do
business, our ability to undertake specified actions since pre-approval or
authorization may be required, the costs of operations, and the level of rates
charged to recover such costs. Our ability to attract capital is also dependent,
in part, upon our ability to obtain a fair return from the PSCW.
Our utility revenues are subject to regulatory
proceedings, which can affect our ability to recover, and the timing of recovery
of, costs that we incur in our operations.
Our utility customer rates have a material impact on our
financial condition, results of operations, and liquidity. Our ability to obtain
adjustments to those rates depends upon timely regulatory action under
applicable statues and regulations. Rate regulation is based on providing an
opportunity to recover costs that have been reasonably incurred and the ability
to earn a reasonable rate of return on invested capital. However, there is no
assurance that our regulators will consider all of our costs to have been
reasonably incurred. In addition, our rate proceedings may not always result in
rates that fully recover our costs or provide for a reasonable return on equity
(ROE). Certain costs and revenues are deferred as regulatory assets and
liabilities for future recovery or refund to customers, as authorized by our
regulators. If recovery of regulatory assets is not approved or is no longer
deemed probable, these costs would be recognized in current period expense and
could materially and adversely impact on our operations and financial
performance.
We could be subject to higher costs and potential
penalties resulting from mandatory reliability standards.
MGE must adhere in its electric distribution system to
mandatory reliability standards established by NERC. These standards cover areas
such as critical infrastructure protection, emergency preparedness, facility
design, and transmission operations, among others. The critical infrastructure
protection standards focus on physical and access security of cyber assets, as
well as incident response and recovery planning. Compliance with these standards
affects operating costs, and any noncompliance can result in sanctions,
including monetary penalties.
We are subject to changing environmental laws and
regulations that may affect our costs and business plans.
Our subsidiaries are subject to environmental laws and
regulations that affect the manner in which they conduct business, including
capital expenditures, operating costs and potential liabilities. Changes and
developments in these laws and evolving regulations may alter or limit our
business plans, make them more costly, or expose us to liabilities for past,
present or future operations.
Numerous environmental laws and regulations govern many
aspects of our present and future operations, including air emissions limits and
reporting; ambient air quality standards; water quality; water intake and
discharges; wetlands; solid and hazardous waste; handling and disposal of
hazardous substances; protection of endangered resources, such as threatened and
endangered species, protection of cultural resources and archaeological sites;
remediation and management of contaminated sites; and control of potential
pollution from electric and gas construction sites. These evolving regulations
affect us by:
·
Introducing
uncertainty into our planning and capital expenditures processes, as changes in
requirements may affect the timing and choice of compliance methods and require
costly revisions to prior plans and commitments.
·
Imposing or
modifying limits on the operations of our facilities in order to meet
restrictions on air emissions, water use or water discharges.
·
Requiring capital
expenditures and changes in operating procedures and costs as a result of the
need to install additional pollution controls or more advanced technology or
equipment at new or existing facilities.
·
Mandating
increasing purchases of renewable energy, which affects the use of existing
generation, and energy efficiency initiatives, which affect revenues.
In addition, we face costs
associated with site clean-up costs associated with prior operations. We also
face costs as a result of a settlement related to the operation of the Columbia
Plant, which will require additional capital expenditure and changes in
operations at that generating facility.
We may be subject to future laws, regulations, or
actions associated with public concern with fossil-fuel generation, greenhouse
gases and the effects of global climate change.
Our subsidiaries operate or co-own electric power plants
that burn fossil fuels, deliver natural gas, and deliver electricity to
customers. These business activities are subject to evolving public concern
regarding greenhouse gases (GHG), and legislative and regulatory action, and
possible litigation, in response to that public concern. The primary greenhouse
gas associated with our subsidiaries' combustion of fossil fuels, and the
largest emission in our system overall, is carbon dioxide (CO2).
Our subsidiaries could incur costs from the regulation of
GHG from power plants, natural gas delivery, greenhouse gases used in power
distribution, and efficiencies lost during power distribution. While the current
State and Federal governments are unlikely to pass comprehensive greenhouse gas
legislation or regulations in the immediate future, future legislation is
likely. In addition, litigation by environmental nongovernment organizations
(NGOs) targeting GHG emissions from the electric power industry is also likely
if the federal government fails to act on greenhouse gas initiatives. We may
also incur costs associated with actions taken due to investor interest in
reducing our subsidiaries' reliance on fossil fuel generation, and coal in
particular. Investors may also move away from investing in fossil fuel generated
electricity for reputational or perceived risk-related reasons. These matters
represent uncertainties in the operation and management of our business.
We face risks associated with the passing of the
new tax reform.
On December 22, 2017, President Trump signed the Tax
Cuts and Jobs Act (Tax Act) into law. The passing of the law significantly
lowers MGE's corporate tax rates and triggers a remeasurement of deferred taxes.
We have reflected estimates of the impact of the Tax Act in our year-end 2017
financial results; however, those estimates could be affected by, and require
subsequent adjustment as a result of, clarity and regulatory guidance that
develops around the Tax Act and its implementation during 2018. Furthermore,
while regulation allows us to incorporate changes in tax law into the
rate-setting process, there will most likely be timing delays before realization
of the changes.
We face risk for the recovery of fuel and purchased
power costs.
MGE has price risk exposure with respect to the price of
natural gas, electricity, coal, emission credits, and oil. MGE burns natural gas
in several of its peak electric generation facilities, and in many cases, the
cost of purchased power is tied to the cost of natural gas. In the event of an
unexpected interruption in energy supply, whether due to equipment problems,
transmission constraints or otherwise, we may incur additional costs to obtain
alternative sources of energy supply, in order to meet our contractual or
regulatory obligations to our customers. Under the electric fuel rules, MGE is
required to defer electric fuel-related costs that fall outside a symmetrical
cost tolerance band that is currently plus or minus 2% around the amount
approved in its most recent rate order. Any over/under recovery of the actual
costs in a year is determined in the following year and is then reflected in
future billings to electric retail customers. Under the electric fuel rules, MGE
is required to defer the benefit of lower costs, if its actual fuel costs fall
outside the lower end of the range, and is required to defer costs, less any
excess revenues, if its actual fuel costs exceed the upper end of the range.
Excess revenues are defined as revenues in the year in question that provide MGE
with a greater return on common equity than authorized by the PSCW in MGE's
latest rate order. MGE assumes the risks and benefits of variances that are
within the cost tolerance band.
Operating Risk
We are affected by weather, which affects customer
demand and can affect the operation of our facilities.
The demand for electricity and gas is affected by
weather. Very warm and very cold temperatures, especially for prolonged periods,
can dramatically increase the demand for electricity and gas for cooling and
heating, respectively, as opposed to the softening effect of more moderate
temperatures. Our electric revenues are sensitive to the summer cooling season
and, to a lesser extent, the winter heating season. Similarly, very cold
temperatures can dramatically increase the demand for gas for heating. A
significant portion of our gas system demand is driven by heating. Extreme
summer conditions or storms may stress electric transmission and distribution
systems, resulting in increased maintenance costs and limiting the ability to
meet peak customer demand.
We could be adversely
affected by changes in the development, and utilization by our customers, of
power generation, storage, and use technologies.
Our revenues and the timing of the recovery of our costs
could be adversely affected by improvements in power generation, storage, and
use technology.
Advancements in power generation technology, including
commercial and residential solar generation installations and commercial micro
turbine installations, are improving the cost-effectiveness of customer
self-supply of electricity. Improvements in energy storage technology, including
batteries and fuel cells, could also better position customers to meet their
around-the-clock electricity requirements. Improvements in the energy efficiency
of lighting, appliances, and equipment will also affect energy consumption by
customers. Such developments could reduce customer purchases of electricity, but
may not necessarily reduce our investment and operating requirements due to our
obligation to serve customers, including those self-supply customers whose
equipment has failed for any reason to provide the power they need whether due
to inadequate on-site resources, restricted operating hours, or equipment
failure. In addition, since a portion of our costs are recovered through charges
based upon the volume of power delivered, reductions in electricity deliveries
will affect the timing of our recovery of those costs and may require changes to
our rate structures.
Changes in power generation, storage, and use
technologies could have significant effects on customer behaviors and their
energy consumption. Customers could engage in individual conservation efforts by
voluntarily reducing their consumption of electricity through changes in energy
use and through the use of more energy efficient lighting, appliances, and
equipment. They could also change their consumption of electricity from us
through the installation of alternative energy sources, such as roof top solar
panels and micro turbines for self-supply. Customer energy conservation could
adversely affect our results of operations by reducing our revenues without
necessarily changing our operating costs due to our obligation to serve.
We are affected by economic activity within our
service area.
Higher levels of development and business activity
generally increase the numbers of customers and their use of electricity and
gas. Likewise, periods of recessionary economic conditions generally adversely
affect our results of operations.
Our ability to obtain an adequate supply of coal
could limit our ability to operate our coal-fired facilities.
The availability of coal and the means to transport coal
could:
·
Affect our
operating costs due to increased costs associated with lower levels of
generation or the need for alternate supply or alternate transportation,
·
Limit our ability
to generate electricity if we are unable to arrange adequate deliveries of coal,
and
·
Result in
potentially higher costs for replacement purchased power as well as potential
lost market sales opportunities.
A significant portion of our electric generating capacity
is dependent on coal. Demand for coal has been impacted by prevailing prices for
natural gas and may affect mine performance. Consequently, we are exposed to the
risk that counterparties to these contracts will not be able to fulfill their
obligations. Disruption in the delivery of fuel, including disruptions as a
result of transportation delays, weather, labor relations, force majeure events,
or environmental regulations affecting any of these fuel suppliers, could limit
our ability to generate electricity at our facilities at the desired level.
Should counterparties fail to perform, or other unplanned disruptions occur, we
may be forced to replace the underlying commitment at higher prices, or we may
be forced to reduce generation at our coal units and replace this lost
generation through additional power purchases from third parties. These factors
may also affect the terms under which any of our existing coal supply or
transportation agreements are renewed or replaced upon the expiration of their
current terms.
Our ability to manage our purchased power costs is
influenced by a number of uncontrollable factors.
We are exposed to additional purchased power costs to the
extent that our power needs cannot be fully covered by the supplies available
from our existing facilities and contractual arrangements. Those needs, and our
costs, could be affected by:
·
Increased demand
due to, for example, abnormal weather, customer growth, or customer
obligations,
·
The inability to
transmit our contracted power from its generation source to our customers due to
transmission line constraints, outages, or equipment failures,
·
Reductions in the
availability of power from our owned or contracted generation sources due to
equipment failures, shortages of fuel or environmental limitations on
operations, and
·
Failure to perform
on the part of any party from which we purchase capacity or energy, whether due
to equipment failures, transmission constraints or other causes.
An unexpected change in demand or the availability of
generation or transmission facilities can expose us to increased costs of
sourcing electricity in the short-term market where pricing may be more
volatile.
The equipment and facilities in our operational
system are subject to risks which may adversely affect our financial
performance.
Weather conditions, accidents, and catastrophic events
can result in damage or failures of equipment or facilities and disrupt or limit
our ability to generate, transmit, transport, purchase, or distribute
electricity and gas. Efforts to repair or replace equipment and facilities may
take prolonged periods or may be unsuccessful, or we may be unable to make the
necessary improvements to our operational system, causing service interruptions.
Furthermore, our electric generation facilities are interconnected with
third-party transmission providers. Damages or failures of equipment or
facilities, of these providers are out of MGE's control, but could also lead to
service interruptions. The resulting interruption of services would result in
lost revenues and additional costs. We are also exposed to the risk of accidents
or other incidents that could result in damage to or destruction of our
facilities or damage to persons or property. Such issues could adversely affect
revenues or increase costs to repair and maintain our systems.
Our operations and confidential information are
subject to the risk of cyber-attacks.
Our operations rely on sophisticated information
technology systems and networks. Cyber-attacks targeting our electronic control
systems used at our generating facilities and for electric and gas distribution
systems, including denial of service and ransomware attacks, could result in a
full or partial disruption of our operations. Any disruption of these operations
could result in a loss of service to customers and loss of revenue, as well as
significant expense to repair system damage and remedy security breaches.
Our business requires the collection and retention of
personally identifiable information of our customers, shareholders, and
employees, who expect that we will adequately protect such information. A
significant theft, loss, or fraudulent use of personally identifiable
information may cause our business reputation to be adversely impacted and could
lead to potentially large costs to notify and protect the impacted persons. The
occurrence of such an event may cause us to become subject to legal claims,
fines, or penalties, any of which could adversely impact our results of
operations.
The safeguards we have may not always be effective due to
the evolving nature of cyber-attacks. We cannot guarantee that such protections
will be completely successful in the event of a cyber-attack. If the technology
systems were to fail or be breached by a cyber-attack, and not be recovered in a
timely fashion, we may be unable to fulfill critical business functions and
confidential data could be compromised, adversely impacting our financial
condition and results of operations.
We rely on the performance of our information
technology systems, the failure of which could have an adverse effect on our
business and performance.
We operate in a highly engineered industry that requires
the continued operation of sophisticated information technology systems and
network infrastructure to manage our finances, to operate our control
facilities, to provide electric and gas service to our customers, and to enable
compliance with applicable regulatory requirements. Our computer-based systems
are vulnerable to interruption or failure due to the age of certain systems, the
introduction of viruses, malware, ransomware, security breaches, fire, power
loss, system malfunction, network outages and other events, which may be beyond
our control. System interruptions or failures, whether isolated or more
widespread, could impact our ability to provide service to our customers, which
could have a material adverse effect on our operations and financial
performance.
Acts of terrorism could materially and adversely
impact our operations and financial condition.
Facilities for electric generation, transmission, and gas
distribution are subject to the risk of being potential targets of terrorist
threats and activities. A terrorist act at our facilities could result in a
disruption of our ability to generate, transmit, transport, purchase, or
distribute electricity or natural gas. A possible attack would have additional
adverse effects, including environmental ramifications, increased security and
insurance costs, as well as general economic volatility or uncertainty within
our service territories. The inability to maintain operational continuity and
any additional costs incurred for repairing our facilities could materially and
adversely affect our financial condition and results of operations.
Failure to attract and
retain an appropriately qualified workforce could affect our
operations.
Events such as an aging workforce and retirement of key
employees without appropriate replacements may lead to operating challenges and
increased costs. Some of the challenges include lack of resources, loss of
knowledge, and length of time period associated with skill development. Failure
to identify qualified replacement employees could result in decreased
productivity and increased safety costs. If we are unable to attract and retain
an appropriately qualified workforce, our operations could be negatively
affected.
We face construction risk in connection with the
completion of the Saratoga Wind Farm project.
The 66-megawatt (MW) wind farm project is subject to
various risks that could cause costs to increase or delays in completion. These
risks include shortages of, the inability to obtain, the cost of, and the
consistency of, labor, materials and equipment; the inability of the contractors
to perform under their contracts; the inability to agree to terms of contracts
or disputes in contract terms; work stoppages; adverse weather conditions; the
inability to obtain necessary permits in a timely manner; changes in applicable
laws or regulations; adverse interpretation or enforcement of permit conditions;
governmental actions; legal action; and unforeseen engineering or technology
issues. If the project is over budget, we may not be able to recover those
excess costs. Inability to recover excess costs, or inability to complete the
project in a timely manner, could adversely impact our financial condition and
results of operations.
Failure to successfully manage the implementation
of our Enterprise Forward corporate initiative could adversely affect our
operations.
In 2017, MGE committed to undertake a multi-year project
aimed at transforming our foundational customer engagement capabilities and
enabling it to be flexible in delivering new products and services as outlined
in our energy 2030 framework. These objectives are expected to be accomplished
through the implementation of a new customer information system, enterprise
resource planning platform, along with other solutions that meet the goals of
the initiative. Integrating new systems is complex, costly and time consuming.
If the systems and related processes do not operate as intended, it could result
in disruptions to our business as well as unrecoverable excess costs. Inability
to recover excess costs, or inability to implement the project successfully and
in a timely manner, could adversely impact our financial condition and results
of operations.
Financial Risk
We are exposed to commodity price risk relating to
our purchases of natural gas, electricity, coal and oil.
We face commodity price risk exposure with respect to our
purchases of natural gas, electricity, coal, oil, and environmental allowances
and risk through our use of derivatives, such as futures, forwards and swaps, to
manage that commodity price risk. We could experience increased costs as a
result of volatility in the market values of those commodities. We could also
experience losses on our derivative contracts as a result of that market value
volatility or if a counterparty fails to perform under a contract. In the
absence of actively quoted market prices and pricing information from external
sources, the valuation of these derivative contracts involves our exercise of
judgment and use of estimates. As a result, changes in the underlying
assumptions or use of alternative valuation methods could affect the reported
fair value of these contracts.
Interest rate movements and market performance
affects our employee benefit plan costs.
Prevailing interest rates affect our assessment and
determination of discount rates that are a key assumption in the determination
of the costs and funding of our defined benefit pension plans and may impact the
amount of expense and timing of contributions to those plans. The performance of
the capital markets affects the values of the assets that are held in trust to
satisfy the future obligations under our pension and postretirement benefit
plans. We have significant obligations in these areas and hold significant
assets in these trusts. A decline in the market value of those assets may
increase our current and longer-term funding requirements for these obligations.
Changes in the value of trust fund assets may affect the level of required
contributions to these trusts to meet benefit obligations. Reduced benefit plan
assets could result in increased benefit costs in future years and may increase
the amount and accelerate the timing of required future funding contributions.
We are exposed to interest rate risk.
We are exposed to interest rate risk on our variable rate
financing. Borrowing levels under commercial paper arrangements vary from period
to period depending upon capital investments and other factors. Such interest
rate risk means that we are exposed to increased financing costs and associated
cash payments as a result of changes in the short-term interest rates.
We are exposed to credit
risk primarily through our regulated energy business.
Credit risk is the loss that may result from counterparty
nonperformance. We face credit risk primarily through MGE's regulated energy
business. Failure of contractual counterparties to perform their obligations
under purchase power agreements, commodity supply arrangements or other
agreements may result in increased expenses for MGE as a result of being forced
to cover the shortfall in the spot or short-term market, where prices may be
more volatile.
As a holding company, we are dependent on upstream
cash flows from our subsidiaries for the payment of dividends on our common
stock.
As a holding company, we have no operations of our own,
and our ability to pay dividends on our common stock is dependent on the
earnings and cash flows of our operating subsidiaries and their ability to pay
upstream dividends or to repay funds to us. Prior to funding us, our
subsidiaries have financial obligations that must be satisfied, including among
others, debt service and obligations to trade creditors, and are subject to
contractual and regulatory restrictions on the payment of dividends.
Disruptions in the financial markets or changes to
our credit ratings may affect our ability to finance at a reasonable cost and in
accordance with our planned schedule.
The credit markets have experienced disruption and
uncertainty in prior years. To the extent that such issues affect the ability or
willingness of credit providers or investors to participate in the credit
markets or particular types of investments, or affect their perception of the
risk associated with particular types of investments, our cost of borrowing
could be affected. We also rely on our strong credit ratings to access the
credit markets. If our credit ratings are downgraded for any reason, borrowing
costs could increase, potential investors could decrease, or we could be
required to provide additional credit assurance, including cash collateral, to
contract counterparties.
General economic conditions may affect our
operating revenues and our counterparty risks.
Operational
MGE Energy's and MGE's operations are affected by local,
national and worldwide economic conditions. The consequences of a prolonged
period of reduced economic activity may include lower demand for energy,
uncertainty regarding energy prices and the capital and commodity markets, and
increased credit risk. A decline in energy consumption may adversely affect our
revenues and future growth. Increased credit risk reflects the risk that our
retail customers will not pay their bills in a timely manner or at all, which
may lead to a reduction in liquidity and an eventual increase in bad debt
expense.
Counterparty creditworthiness
Credit risk also includes the risk that trading
counterparties that owe us money or product will breach their obligations. MGE's
risk management policy is to limit transactions to a group of high quality
counterparties. Should the counterparties to these arrangements fail to perform,
we may be forced to enter into alternative arrangements. In that event, our
financial results could be adversely affected and we could incur losses.
The stock market can be volatile, and various
factors, could cause our stock price to decline.
The stock market has experienced, and may continue to
experience, fluctuations that significantly impact the market prices of
securities issued by many companies. Many factors affect the volatility and
price of our common stock in addition to our operating results and prospects,
including changes locally and in the broader economy affecting levels of
economic activity, technological change, the level of interest rates and yields
on other investments, and the effects of the other risk factors discussed in
this report. Our stock price could fluctuate significantly in response to our
quarterly or annual results, as well as factors affecting the broader economy
that are beyond our control.
Item 1B. Unresolved Staff
Comments.
MGE Energy and MGE
None.
Item 2.
Properties.
Electric Generation
Net summer rated capacity in service at December 31,
2017, was as follows:
|
|
|
|
|
|
|
|
|
|
| |
|
Plants |
|
Location |
|
Commercial Operation
Date |
|
Fuel |
|
Net Summer Rated
Capacity (MW)(a) |
|
No. of
Units |
|
Steam plants: |
|
|
|
|
|
|
|
|
|
|
|
Columbia |
|
Portage, WI |
|
1975 & 1978 |
|
Low-sulfur coal |
|
221(b,c) |
|
2 |
|
Blount |
|
Madison, WI |
|
1957 & 1961 |
|
Gas |
|
102(g) |
|
2 |
|
WCCF |
|
Madison, WI |
|
2005 |
|
Gas/oil |
|
124(d) |
|
2 |
|
Elm Road
Units |
|
Oak Creek, WI |
|
2010 & 2011 |
|
Coal |
|
106(b,e) |
|
2 |
|
Combustion turbines |
|
Madison, WI |
|
1964-2000 |
|
Gas/oil |
|
147(f) |
|
6 |
|
|
|
Marinette, WI |
|
|
|
|
|
|
|
|
|
Portable generators |
|
Madison, WI |
|
1998-2001 |
|
Diesel |
|
49(g) |
|
54 |
|
Wind turbines |
|
Townships of Lincoln |
|
|
|
|
|
|
|
|
|
|
|
and Red River, WI |
|
1999 |
|
Wind |
|
1(g,h) |
|
17 |
|
|
|
Township of |
|
|
|
|
|
|
|
|
|
|
|
Brookfield, IA |
|
2008 |
|
Wind |
|
4(g,i) |
|
18 |
|
Total |
|
|
|
|
|
|
|
754 |
|
|
(a)
Net
summer rated capacity is determined by annual testing and may vary from year to
year due to, among other things, the operating and physical conditions of the
units.
(b)
Baseload
generation.
(c)
MGE's
share. See "Columbia" below.
(d)
Facility
is jointly owned. Based on the terms of the joint plant agreement between MGE
and the UW, the UW has the ability to reduce net capability of these units by
approximately 17 MW in the summer. The net summer rated capacity shown
reflects this decrease. See "WCCF" below.
(e)
MGE's
share. See "Elm Road" below.
(f)
Four
facilities are owned by MGE, and two facilities are leased. The leased
facilities are under an agreement ending July 2018.
(g)
These
facilities are owned by MGE.
(h)
Nameplate
capacity rating is 11 MW.
(i)
Nameplate
capacity rating is 30 MW.
Columbia
MGE and two other utilities jointly own Columbia, a
coal-fired generating facility consisting of two 512 MW units, which, at
December 31, 2017, accounts for 29% of MGE's net summer rated capacity.
Power from this facility is shared in proportion to each owner's ownership
interest. At December 31, 2017, MGE had a 20.4% ownership interest in
Columbia. The other owners are WPL, which operates Columbia, and WPSC. The
Columbia units burn low-sulfur coal obtained from the Powder River Basin coal
fields located in Wyoming. The coal inventory supply for the Columbia units
decreased from approximately 65 days on December 31, 2016, to approximately
61 days on December 31, 2017. See "Executive Overview" under Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations, for a discussion of the reduction in MGE's ownership share in
Columbia commencing January 2017 and continuing through June 2020.
Elm Road Units
MGE Power Elm Road and two other owners own undivided
interests in the Elm Road Units, consisting of two 615 MW units, which, at
December 31, 2017, account for 14% of MGE's net summer rated capacity.
Power from these units is shared in proportion to each owner's ownership
interest. MGE Power Elm Road owns an 8.33% ownership interest in the Elm Road
Units, and its interest in the Elm Road Units is leased to MGE. The other
owners are Wisconsin Energy Corporation, which operates the Units, and WPPI
Energy, Inc. The Elm Road Units burn bituminous coal obtained from northern
West Virginia and southwestern Pennsylvania, and Powder River Basin coal from
Wyoming. MGE's share of the coal inventory supply for the Elm Road
Units decreased from approximately 51 days on December 31, 2016, to
approximately 48 days on December 31, 2017.
MGE leases MGE Power Elm Road's ownership interest in the
Elm Road Units pursuant to two separate facility leases. The financial
terms of each facility lease include a capital structure of 55% equity and 45%
long-term debt, return on equity of 12.7%, and a lease term of 30 years. At the
end of the respective lease terms, MGE may, at its option, renew the facility
lease for an additional term, purchase the leased ownership interest at fair
market value, or allow the lease to end. The Unit 1 and Unit 2 leases
commenced with the commercial operation of each respective unit.
WCCF
MGE Power West Campus and the UW jointly own undivided
interests in a natural gas-fired cogeneration facility on the UW campus. The
facility has the capacity to produce 20,000 tons of chilled water, 500,000
pounds per hour of steam, and approximately 150 MW of electricity. The UW
owns 45% of the facility, which represents its interest in the chilled-water and
steam assets. These assets are used to meet a part of the UW's need for
air-conditioning and steam-heat capacity. MGE Power West Campus owns 55% of the
facility, which represents its interest in the electric generating assets. These
assets are used to provide electricity to MGE's customers. The UW's share of the
plant and portion of the earnings from the WCCF are not reflected in the
consolidated financial statements of MGE Energy or MGE. MGE Power West Campus'
share of the plant is reflected in property, plant, and equipment on MGE
Energy's and MGE's consolidated balance sheets.
MGE leases the electric generating assets owned by MGE
Power West Campus and is responsible for operating the entire facility. The
financial terms of the facility lease include a capital structure of 53% equity
and 47% long-term debt, return on equity of 12.1%, and a lease term of 30 years.
At the end of the lease term in 2035, MGE may, at its option, renew the facility
lease for an additional term, purchase the generating facility at fair market
value, or allow the lease contract to end.
Electric and Gas Distribution Facilities
At December 31, 2017, MGE owned 868 miles of
overhead electric distribution line and 1,261 miles of underground electric
distribution cable, all of which are located in Wisconsin. These electric
distribution facilities are connected by approximately 52 substations, installed
with a capacity of 1,202,500 kVA. MGE's gas facilities include 2,843 miles of
distribution mains, which are all owned by MGE.
A significant portion of MGE's electric and gas
distribution facilities are located above or underneath highways, streets, other
public places or property that others own. MGE believes that it has satisfactory
rights to use those places or property in the form of permits, grants,
easements, and licenses; however, it has not necessarily undertaken to examine
the underlying title to the land upon which the rights rest.
Encumbrances
The principal plants and properties of MGE are subject to
the lien of its Indenture of Mortgage and Deed of Trust dated as of
January 1, 1946, as amended and supplemented, under which MGE's first
mortgage bonds are issued. As of December 31, 2017, there were
$1.2 million of first mortgage bonds outstanding. See Footnote 9 of
the Notes to Consolidated Financial Statements for additional information
regarding MGE's first mortgage bonds.
MGE Power Elm Road has collaterally assigned its right to
lease payments from MGE for the Elm Road Units in order to secure the
repayment of $60.0 million of senior secured notes issued by MGE Power Elm
Road. See Footnote 9 of the Notes to Consolidated Financial Statements for
additional information regarding these senior notes.
MGE Power West Campus has collaterally assigned its right
to lease payments from MGE for the WCCF in order to secure the repayment of
$43.4 million of senior secured notes issued by MGE Power West Campus. See
Footnote 9 of the Notes to Consolidated Financial Statements for additional
information regarding these senior notes.
Item 3. Legal Proceedings.
MGE Energy and MGE
MGE Energy and its subsidiaries, including MGE, from time
to time are involved in various legal proceedings that are handled and defended
in the ordinary course of business.
See "Environmental" under Item 1. Business and
Footnote 17.c. of the Notes to Consolidated Financial Statements for a
description of several environmental proceedings involving MGE. See
Footnote 17.d. of the Notes to Consolidated Financial Statements for a
description of other legal matters.
Item 4. Mine Safety
Disclosures.
MGE Energy and MGE
Not applicable.
PART
II.
Item 5. Market for Registrants'
Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity
Securities.
Market for Common Equity
MGE Energy
MGE Energy common stock is traded on Nasdaq under the
symbol MGEE. On February 1, 2018, there were approximately 38,928
shareholders of record. The following table shows high and low sale prices for
the common stock on Nasdaq for each quarter over the past two years.
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
Common Stock Price
Range |
|
|
|
|
|
2017 |
|
|
2016 |
|
|
|
|
|
High |
|
Low |
|
|
High |
|
Low |
|
|
|
Fourth quarter |
$ |
68.10 |
$ |
61.40 |
|
$ |
66.85 |
$ |
53.48 |
|
|
|
Third quarter |
$ |
68.70 |
$ |
61.80 |
|
$ |
59.49 |
$ |
53.78 |
|
|
|
Second quarter |
$ |
68.60 |
$ |
62.60 |
|
$ |
56.54 |
$ |
47.90 |
|
|
|
First quarter |
$ |
67.20 |
$ |
60.30 |
|
$ |
53.48 |
$ |
44.83 |
|
MGE
As of February 1, 2018, there were 17,347,894
outstanding shares of common stock, all of which were held by MGE Energy. There
is no market for shares of common stock of MGE.
Dividends
MGE Energy
The following table sets forth MGE Energy's quarterly
cash dividends per share declared during 2017 and 2016:
|
|
|
|
|
|
| |
|
|
(Per share) |
|
2017 |
|
2016 |
|
|
|
Fourth quarter |
$ |
0.323 |
$ |
0.308 |
|
|
|
Third quarter |
$ |
0.323 |
$ |
0.308 |
|
|
|
Second quarter |
$ |
0.308 |
$ |
0.295 |
|
|
|
First quarter |
$ |
0.308 |
$ |
0.295 |
|
MGE
The following table sets forth MGE's quarterly cash
dividends declared during 2017 and 2016:
|
|
|
|
|
|
| |
|
|
(In thousands) |
|
2017 |
|
2016 |
|
|
|
Fourth quarter |
$ |
10,000 |
$ |
10,000 |
|
|
|
Third quarter |
$ |
10,000 |
$ |
15,000 |
|
|
|
Second quarter |
$ |
10,000 |
$ |
15,000 |
|
|
|
First quarter |
$ |
15,000 |
$ |
10,000 |
|
See discussion below for a description of restrictions
applicable to dividend payments by MGE.
Dividend Restrictions
Dividend payments by MGE to MGE Energy are subject to
restrictions arising under a PSCW rate order and, to a lesser degree, MGE's
first mortgage bonds. The PSCW order restricts any dividends, above the PSCW
authorized amount of $70.8 million, that MGE may pay MGE Energy if its
common equity ratio, calculated in the manner used in the rate proceeding, is
less than 55%. MGE's thirteen month rolling average common equity ratio at
December 31, 2017, is 58.5%, as determined under the calculation used in
the rate proceeding. This restriction did not impact MGE's payment of dividends
in 2017. Cash dividends of $45.0 million and $50.0 million were paid
by MGE to MGE Energy in 2017 and 2016, respectively. In 2016, MGE also
transferred its ownership interest in MGE Transco to MGE Energy in the form of a
dividend in kind of $15.8 million. The rate proceeding calculation includes
as indebtedness imputed amounts for MGE's outstanding purchase power capacity
payments and other PSCW adjustments, but does not include the indebtedness
associated with MGE Power Elm
Road and MGE Power West Campus, which are consolidated into MGE's financial
statements but are not direct obligations of MGE.
MGE has covenanted with the holders of its first mortgage
bonds not to declare or pay any dividend or make any other distribution on or
purchase any shares of its common stock unless, after giving effect thereto, the
aggregate amount of all such dividends and distributions and all amounts applied
to such purchases, after December 31, 1945, shall not exceed the earned
surplus (retained earnings) accumulated subsequent to December 31, 1945. As
of December 31, 2017, approximately $343.3 million was available for
the payment of dividends under this covenant.
Issuer Purchases of Equity Securities
MGE Energy
|
|
|
|
|
|
|
|
|
|
| |
|
|
Period |
|
Total Number of Shares
Purchased |
|
Average Price Paid per
Share |
|
Total Number of Shares
Purchased as Part of Publicly Announced Plans or
Programs* |
|
Maximum number (or
Approximate Dollar Value) of Shares That May Yet Be Purchased Under
the Plans or Programs* |
|
|
|
October 1-31, 2017 |
|
25,607 |
$ |
65.64 |
|
- |
|
- |
|
|
|
November 1-30, 2017 |
|
15,695 |
|
66.21 |
|
- |
|
- |
|
|
|
December 1-31, 2017 |
|
52,997 |
|
63.50 |
|
- |
|
- |
|
|
|
Total |
|
94,299 |
$ |
64.53 |
|
- |
|
- |
|
*
Under the MGE
Energy, Inc. Direct Stock Purchase and Dividend Reinvestment Plan (Stock Plan),
common stock shares deliverable to plan participants may be either newly issued
shares or shares purchased on the open market, as determined from time to time
by MGE Energy. MGE Energy's transfer agent uses open market purchases to provide
shares to meet obligations to participants in the Stock Plan. The shares are
purchased on the open market through their securities broker-dealer and then are
reissued under the Stock Plan as needed to meet share delivery requirements. The
volume and timing of share repurchases in the open market depends upon the level
of dividend reinvestment and optional share purchases being made from time to
time by plan participants. As a result, there is no specified maximum number of
shares to be repurchased and no specified termination date for the repurchases.
All shares issued through the Stock Plan, whether newly issued or reissued
following open market purchases, are issued and sold by MGE Energy pursuant to a
registration statement that was filed with the SEC and is currently effective.
MGE
None.
Stock Performance
Graph
The performance graph below illustrates a five-year
comparison of cumulative total returns based on an initial investment of $1,000
in MGE Energy common stock, as compared with the Russell 2000 and the EEI Index
for the period 2012 through 2017. The EEI Index reflects the consolidated
performance of Edison Electric Institute investor-owned electric utilities.
Cumulative Five-Year Total Return
Comparison
(assumes $1,000 invested on 12/31/2012
with dividends reinvested)
![[20171231-10k.gif]](/images/earnings-news/20171231-10k.gif)
Value of Investment at
December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
2012 |
|
2013 |
|
2014 |
|
2015 |
|
2016 |
|
2017 |
|
|
|
MGEE |
$ |
1,000 |
$ |
1,167 |
$ |
1,422 |
$ |
1,488 |
$ |
2,141 |
$ |
2,109 |
|
|
|
Russell 2000 |
|
1,000 |
|
1,388 |
|
1,456 |
|
1,392 |
|
1,688 |
|
1,936 |
|
|
|
EEI Index |
|
1,000 |
|
1,130 |
|
1,457 |
|
1,400 |
|
1,644 |
|
1,837 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Item 6.
Selected Financial Data.
MGE Energy, Inc.
(In thousands, except per share
amounts)
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
For the Years Ended
December 31, |
|
|
|
2017 |
|
2016 |
|
2015 |
|
2014 |
|
2013 |
|
Summary of Operations |
|
|
|
|
|
|
|
|
|
|
|
Operating revenues: |
|
|
|
|
|
|
|
|
|
|
|
Electric |
$ |
414,274 |
$ |
410,202 |
$ |
420,291 |
$ |
398,132 |
$ |
409,425 |
|
Gas |
|
148,825 |
|
134,543 |
|
143,737 |
|
221,720 |
|
181,462 |
|
Total
operating revenues |
|
563,099 |
|
544,745 |
|
564,028 |
|
619,852 |
|
590,887 |
|
Operating expenses |
|
415,069 |
|
396,455 |
|
419,894 |
|
462,102 |
|
444,293 |
|
Other general taxes |
|
19,294 |
|
20,062 |
|
19,879 |
|
19,652 |
|
18,607 |
|
Operating income |
|
128,736 |
|
128,228 |
|
124,255 |
|
138,098 |
|
127,987 |
|
Other income, net |
|
10,288 |
|
9,711 |
|
8,613 |
|
10,079 |
|
10,701 |
|
Interest expense, net |
|
(19,324) |
|
(19,866) |
|
(20,162) |
|
(19,673) |
|
(18,924) |
|
Income
before taxes |
|
119,700 |
|
118,073 |
|
112,706 |
|
128,504 |
|
119,764 |
|
Income tax
provision(a) |
|
(22,094) |
|
(42,513) |
|
(41,363) |
|
(48,185) |
|
(44,859) |
|
Net
income |
$ |
97,606 |
$ |
75,560 |
$ |
71,343 |
$ |
80,319 |
$ |
74,905 |
|
Average shares outstanding |
|
34,668 |
|
34,668 |
|
34,668 |
|
34,668 |
|
34,668 |
|
Basic and
diluted earnings per share |
$ |
2.82 |
$ |
2.18 |
$ |
2.06 |
$ |
2.32 |
$ |
2.16 |
|
Dividends
declared per share |
$ |
1.26 |
$ |
1.21 |
$ |
1.16 |
$ |
1.11 |
$ |
1.07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
Electric |
$ |
1,043,181 |
$ |
1,021,905 |
$ |
974,235 |
$ |
945,790 |
$ |
896,864 |
|
Gas |
|
344,337 |
|
318,603 |
|
298,435 |
|
306,106 |
|
264,099 |
|
Assets not allocated |
|
26,345 |
|
27,338 |
|
49,753 |
|
41,124 |
|
19,853 |
|
Nonregulated energy
operations |
|
270,384 |
|
271,277 |
|
277,858 |
|
280,542 |
|
287,042 |
|
Transmission
investments(a) |
|
61,783 |
|
74,535 |
|
69,470 |
|
67,697 |
|
64,504 |
|
All others |
|
485,548 |
|
465,202 |
|
434,868 |
|
438,898 |
|
431,436 |
|
Eliminations |
|
(376,396) |
|
(377,800) |
|
(378,216) |
|
(390,636) |
|
(389,800) |
|
Total
assets |
$ |
1,855,182 |
$ |
1,801,060 |
$ |
1,726,403 |
$ |
1,689,521 |
$ |
1,573,998 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalization including
Short-Term Debt |
|
|
|
|
|
|
|
|
|
|
|
Common shareholders' equity |
$ |
778,187 |
$ |
724,088 |
$ |
690,458 |
$ |
659,401 |
$ |
617,510 |
|
Long-term debt(b) |
|
422,613 |
|
387,124 |
|
391,010 |
|
394,775 |
|
398,454 |
|
Short-term debt |
|
4,000 |
|
- |
|
- |
|
7,000 |
|
- |
|
Total
capitalization and short-term debt |
$ |
1,204,800 |
$ |
1,111,212 |
$ |
1,081,468 |
$ |
1,061,176 |
$ |
1,015,964 |
(a)
In
December 2017, a one-time tax impact, as a result of the Tax Act, decreased
income tax provision and transmission investment $21.7 million and $20.4
million, respectively. See Footnote 12 of the Notes of the Consolidated
Financial Statements for further information.
(b)
Includes
long-term debt due within one year, debt issuance costs, and unamortized
discount.
Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
General
MGE Energy is an investor-owned public utility holding
company operating through subsidiaries in five business segments:
·
Regulated electric
utility operations, conducted through MGE,
·
Regulated gas
utility operations, conducted through MGE,
·
Nonregulated
energy operations, conducted through MGE Power and its subsidiaries,
·
Transmission
investments, representing our equity investment in ATC and ATC Holdco, and
·
All other, which
includes corporate operations and services.
Our principal subsidiary is MGE, which generates and
distributes electric energy, distributes natural gas, and represents a majority
portion of our assets, liabilities, revenues, and expenses. MGE generates and
distributes electricity to approximately 151,000 customers in Dane County,
Wisconsin, including the city of Madison, and purchases and distributes natural
gas to approximately 158,000 customers in the Wisconsin counties of Columbia,
Crawford, Dane, Iowa, Juneau, Monroe, and Vernon.
Our nonregulated energy operations own interests in
electric generating capacity that is leased to MGE. The ownership/leasing
structure was adopted under applicable state regulatory guidelines for MGE's
participation in these generation facilities, consisting principally of a stable
return on the equity investment in the new generation facilities over the term
of the related leases. The nonregulated energy operations include an ownership
interest in two coal-fired generating units in Oak Creek, Wisconsin and a
partial ownership of a cogeneration project on the UW-Madison campus. A third
party operates the units in Oak Creek, and MGE operates the cogeneration
project. Due to the nature of MGE's participation in these facilities, the
results of our nonregulated operations are also consolidated into MGE's
consolidated financial position and results of operations under applicable
accounting standards.
Executive Overview
Our primary focus today and for the foreseeable future is
our core utility customers at MGE as well as creating long-term value for our
shareholders. MGE continues to face the challenge of providing its customers
with reliable power at competitive prices. MGE meets this challenge by investing
in more efficient generation projects, including renewable energy sources. MGE
continues to examine and pursue opportunities to reduce the proportion that coal
generation represents in its generation mix, including the announced reduction
in its ownership of Columbia. MGE will continue to focus on growing earnings
while controlling operating and fuel costs. MGE maintains safe and efficient
operations in addition to providing customer value. We believe it is critical to
maintain a strong credit standing consistent with financial strength in MGE as
well as the parent company in order to accomplish these goals.
We earn our revenue and generate cash from operations by
providing electric and natural gas utility services, including electric power
generation and electric power and gas distribution. The earnings and cash flows
from the utility business are sensitive to various external factors,
including:
·
Weather, and its
impact on customer sales,
·
Economic
conditions, including current business activity and employment and their impact
on customer demand,
·
Regulation and
regulatory issues, and their impact on the timing and recovery of costs,
·
Energy commodity
prices, including natural gas prices,
·
Equity price risk
pertaining to pension related assets,
·
Credit market
conditions, including interest rates and our debt credit rating,
·
Environmental laws
and regulations, including adopted and pending environmental rule changes,
and
·
Other factors
listed in Item 1A. Risk Factors.
For the year ended December 31, 2017, MGE Energy's
earnings were $97.6 million or $2.82 per share compared to
$75.6 million or $2.18 per share for the same period in the prior year.
MGE's earnings for the year ended December 31, 2017, were
$49.8 million compared to $51.2 million for the same period in the
prior year.
MGE Energy's net income was
derived from our business segments as follows:
|
|
|
|
|
|
|
|
| |
|
|
(In millions) |
|
Year Ended
December 31, |
|
|
|
Business Segment: |
|
2017 |
|
2016 |
|
2015 |
|
|
|
Electric
Utility |
$ |
41.4 |
$ |
40.6 |
$ |
36.4 |
|
|
|
Gas
Utility |
|
11.1 |
|
10.6 |
|
10.4 |
|
|
|
Nonregulated
Energy |
|
40.5 |
|
19.1 |
|
20.1 |
|
|
|
Transmission
Investments |
|
5.9 |
|
5.6 |
|
4.6 |
|
|
|
All
Others |
|
(1.3) |
|
(0.3) |
|
(0.2) |
|
|
|
Net
Income |
$ |
97.6 |
$ |
75.6 |
$ |
71.3 |
|
Our net income during 2017 compared to 2016 primarily
reflects the effects of the following factors:
Electric and Gas Utility
Electric and gas net income increased primarily related
to a $1.5 million (pre-tax) gain on sale of property assets in 2017,
customer growth, and cooler weather in the fourth quarter of 2017 compared to
2016.
Nonregulated Energy
Nonregulated Energy income increased due to a
$21.6 million one-time tax impact as a result of lower federal income tax
rates associated with the passage of the Tax Cuts and Jobs Act, as discussed
below. The new law reduced the federal tax rate from 35% to 21%. See "Tax
Reform" below for additional information.
All Others
The decrease in all other income primarily results from a
$2 million (pre-tax) voluntary contribution to the Madison Gas and Electric
Foundation.
Our net income during 2016 compared to 2015 primarily
reflects the effects of the following factors:
Electric Utility
Electric net income increased due to a 5.4% increase in
residential electric retail sales as the result of more favorable weather
conditions in 2016 compared to 2015. Electric utility operations experienced an
increase in operating and maintenance costs partially offsetting the increase in
net income compared to the same period in the prior year.
Nonregulated Energy
Carrying costs incurred during construction of the Elm
Road Units and WCCF were recognized by MGE Power Elm Road and MGE Power
West Campus over the period allowed for recovery in rates. The recovery period
ended in 2015, contributing to a reduction in nonregulated earnings in 2016. The
reduction in earnings was partially offset by an increase in lease revenue.
Transmission Investments
Transmission investment income reflects our share of
ATC's earnings. ATC's earnings for 2015 reflected a charge representing its
estimate of its refund liability covering 2015, 2014, and a portion of 2013
associated with a complaint filed with FERC challenging ATC's return on equity
in its transmission rates. See "Other Matters" below for additional information
concerning ATC.
During 2017, the following events occurred:
Tax Reform: On December 22, 2017, President Trump
signed into law the Tax Cuts and Jobs Act (the Tax Act). Pursuant to the Tax
Act, deferred income tax balances as of December 31, 2017, were remeasured
to reflect the decrease in the corporate income tax rate from 35 percent to 21
percent beginning January 1, 2018. The one-time 2017 impacts of the Tax Act
include a decrease in deferred income taxes of $176.9 million and
$156.5 million for MGE Energy and MGE, respectively. MGE Energy recorded a
corresponding decrease in its investment in ATC of $20.4 million. MGE
Energy and MGE recorded a corresponding decrease in income tax expense of
$21.7 million, a decrease in regulatory assets of $4.3 million, and an
increase in regulatory liabilities of $130.5 million, given that changes in
income taxes are generally passed through in customer rates for the regulated
utility. The amount and timing of the cash impacts will depend on the period
over which certain income tax benefits are provided to customers, which will be
subject to review by the PSCW in future rate cases. A portion of the regulatory
liability will be returned to customers based on a mandated timeframe dictated
by applicable tax laws. See Footnote 12 of the Notes to Consolidated
Financial Statements in this Report for additional information.
2017 Rate Case Order: In
December 2016, the PSCW authorized MGE, effective January 1, 2017, to
decrease 2017 rates for retail electric customers by 0.8% or $3.3 million
on an annual basis and to increase rates for retail gas customers by 1.9% or
$3.1 million on an annual basis. The decrease in retail electric rates was
attributable to declining fuel and purchased power costs. The increase in retail
gas rates covered costs associated with MGE's natural gas system infrastructure
improvements. The authorized return on common stock equity for 2017 is 9.8%
based on a capital structure consisting of 57.2% common equity. The PSCW also
approved MGE's request to extend the current accounting treatment for
transmission related costs through 2018.
Deferred Fuel Costs: As of December 31, 2017, MGE
has deferred $4.2 million of 2017 fuel savings. These costs will be subject
to the PSCW's annual review of 2017 fuel costs, expected to be completed in
2018.
2016 Annual Fuel Proceeding: In July 2017, the PSCW
issued a final order in the fuel rules proceedings requiring MGE to refund
additional fuel savings realized during 2015 and 2016 to its retail electric
customers over a one-month period. In October 2017, MGE returned
$6.2 million to customers through bill credits.
Debt Issuance: MGE issued $40 million of long-term
unsecured debt in January 2017. The debt carries an interest rate of 3.76%
per annum over its 35-year term. The proceeds of this debt financing were used
to refinance $30 million of medium-term notes, which matured in
January 2017, and assist with the financing of additional capital
expenditures. In October 2017, MGE issued $30 million of long-term
unsecured debt to cover capital expenditures and other corporate obligations.
The debt carries an interest rate of 3.11% per annum, over its 10-year term. The
covenants of these debt issuances are substantially consistent with MGE's
existing unsecured long-term debt.
During 2018, several items may affect us, including:
Tax Reform: MGE Energy and MGE will incur lower income
tax expense beginning January 1, 2018. The lower income tax expense and the
refund of deferred income tax regulatory liabilities are expected to lead to
lower customer rates over time. For 2018, MGE will defer the amount collected in
rates associated with the decrease in tax rate. The rate at which the refund is
returned is subject to review by the PSCW, anticipated in 2018. The Tax Act is
generally expected to result in lower operating cash inflows in future years as
a result of the elimination of bonus depreciation and lower customer rates.
ATC Return on Equity: Several parties have filed
complaints with the FERC seeking to reduce the ROE used by MISO transmission
owners, including ATC. Any change to ATC's ROE could result in lower equity
earnings and distributions from ATC in the future. We derived approximately 6.2%
and 6.8% of our net income for the years ended December 31, 2017 and 2016,
respectively, from our investment in ATC. See "Other Matters" below for
additional information concerning ATC.
Environmental Initiatives: There are proposed
legislation, rules, and initiatives involving matters related to air emissions,
water effluent, hazardous materials, and greenhouse gases, all of which affect
generation plant capital expenditures and operating costs as well as future
operational planning. At present, it is unclear how the changes in the
Presidential and EPA administration may affect pending or new legislative or
rulemaking proposals or regulatory initiatives. Such legislation and rulemaking
could significantly affect the costs of owning and operating fossil-fueled
generating plants, such as Columbia and the Elm Road Units, from which we derive
approximately 43% of our electric generating capacity as of December 31,
2017. We would expect to seek and receive recovery of any such costs in rates;
however, it is difficult to estimate the amount of such costs due to the
uncertainty as to the timing and form of the legislation and rules, and the
scope and time of the recovery of costs in rates, which may lag the incurrence
of those costs.
EPA's Clean Power Plan: In October 2015, the EPA
finalized its Clean Power Plan (CPP) rule with an effective date of
December 2015, setting guidelines and approval criteria for states to use
in developing plans to control GHG emissions from existing fossil fuel-fired
electric generating units (EGUs) and systems. Implementation of the rule is
expected to have a direct impact on existing coal and natural gas fired
generating units, including possible changes in dispatch and additional
operating costs. The rule is the subject of pending legal challenges. In
October 2017, the EPA published a proposed rule announcing the EPA's
intention to repeal the CPP and has sought public comment on whether to replace
the rule, and if so how. Given the pending legal proceedings, and the EPA's
proposal, the nature and timing of any final requirements to control GHG
emissions from existing fossil fuel-fired EGUs is subject to uncertainty. If a
rule is implemented substantially in the form of the CPP rule, it is expected to
have a material impact on MGE. MGE will continue to monitor developments with
this proposed rule.
Future Generation: During the
first quarter of 2016, MGE entered into an agreement with WPL under which MGE
may acquire up to 50 MW of capacity in a gas-fired generating plant to be
constructed by WPL at its Riverside Energy Center in Beloit, Wisconsin, during
the five-year period following the in-service date of the plant. The plant is
expected to be completed by early 2020. MGE and WPL have negotiated an amendment
to the existing Columbia joint operating agreement, effective January 1,
2017, under which MGE will reduce its obligation to pay certain capital
expenditures (other than SCR-related expenditures) at Columbia prior to the
expected in-service date of the Riverside gas-fired generating plant in exchange
for a proportional reduction in MGE's ownership in Columbia. On January 1
of each year, beginning in 2017 and ending June 1, 2020, the ownership
percentage will be adjusted, through a partial sale, based on the amount of
capital expenditures foregone. As of December 31, 2017, MGE classified
$8.8 million of Columbia assets as held-for-sale on the consolidated
balance sheets as a result of capital expenditures foregone during 2017 under
the amendment. In January 2018, MGE reduced its ownership interest in
Columbia from 20.4% to 19.4% through the partial sale of plant assets to WPL. By
June 2020, MGE's ownership in Columbia is forecasted to be approximately
19%.
Saratoga Wind Farm: In November 2017, the PSCW
approved MGE's request to construct, own and operate a 66MW wind farm,
consisting of 33 turbines, located near Saratoga, Iowa. Construction of the
project is expected to be completed by the end of 2018, with an estimated
capital cost of $108 million.
Forward Wind: In October 2017, MGE, along with two
other utilities, entered into an agreement to purchase the Forward Wind Energy
Center, which consists of 86 wind turbines located in Wisconsin with a total
capacity of 129 MWs. The aggregate purchase price is approximately
$174 million of which MGE's proportionate share is 12.8%, or approximately
$23 million. MGE currently purchases 12.8% of the facility's energy output
under a purchase power agreement. The transaction, which was approved by the
FERC in January 2018, is subject to PSCW approval and is expected to close
in the spring of 2018.
Financing Plans: MGE has regulatory authority to issue up
to $150 million of new long-term debt during the next three years to
finance authorized utility capital expenditures, including the Saratoga Wind
Farm, refinance a portion of its current and maturing long-term debt, reduce
short-term debt, and finance other corporate utility purposes.
The following discussion is based on the business
segments as discussed in Footnote 20 of the Notes to Consolidated Financial
Statements.
Results of Operations
Year Ended December 31, 2017, Versus the Year
Ended December 31, 2016
Electric Utility Operations - MGE Energy and
MGE
Electric sales and revenues
The following table compares MGE's electric revenues and
electric kWh sales by customer class for each of the years indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
Revenues |
|
Sales (kWh) |
|
|
|
(In thousands, except cooling
degree days) |
|
2017 |
|
2016 |
|
% Change |
|
2017 |
|
2016 |
|
% Change |
|
|
|
Residential |
$ |
136,168 |
$ |
136,792 |
|
(0.5)% |
|
793,337 |
|
828,887 |
|
(4.3)% |
|
|
|
Commercial |
|
216,461 |
|
213,101 |
|
1.6 % |
|
1,825,922 |
|
1,866,035 |
|
(2.1)% |
|
|
|
Industrial |
|
16,176 |
|
17,589 |
|
(8.0)% |
|
196,629 |
|
232,854 |
|
(15.6)% |
|
|
|
Other-retail/municipal |
|
38,010 |
|
35,559 |
|
6.9 % |
|
421,360 |
|
395,662 |
|
6.5 % |
|
|
|
Total
retail |
|
406,815 |
|
403,041 |
|
0.9 % |
|
3,237,248 |
|
3,323,438 |
|
(2.6)% |
|
|
|
Sales to the market |
|
4,067 |
|
6,135 |
|
(33.7)% |
|
117,039 |
|
183,195 |
|
(36.1)% |
|
|
|
Return of fuel savings |
|
- |
|
(423) |
|
(100.0)% |
|
- |
|
- |
|
-% |
|
|
|
Adjustments to revenues |
|
3,044 |
|
253 |
|
N/A% |
|
- |
|
- |
|
-% |
|
|
|
Total |
$ |
413,926 |
$ |
409,006 |
|
1.2 % |
|
3,354,287 |
|
3,506,633 |
|
(4.3)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cooling degree days (normal
659) |
|
|
|
|
|
|
|
580 |
|
780 |
|
(25.6)% |
|
Electric operating revenues
increased $4.9 million or 1.2% during 2017, due to the following:
|
|
|
|
| |
|
|
(In millions) |
|
|
|
|
|
Deferral of fuel savings/fuel
credit |
$ |
17.9 |
|
|
|
Adjustments to revenues |
|
2.4 |
|
|
|
Other |
|
0.3 |
|
|
|
Volume |
|
(9.6) |
|
|
|
Rate changes |
|
(4.0) |
|
|
|
Sales to the market |
|
(2.1) |
|
|
|
Total |
$ |
4.9 |
|
·
Deferral
of fuel savings/fuel credit. During 2017, customers received a fuel credit
on their bill related to accumulated fuel savings of $6.2 million, which
decreased electric revenues. During 2016, customers received a fuel credit on
their bill related to the fuel savings of $23.7 million, which decreased
electric revenues in the prior year. In January 2016, the PSCW lowered
MGE's 2016 fuel rules monitored costs as a result of continued lower projected
fuel costs in 2016.
·
Adjustments to
Revenue. MGE leases electric generating capacity from MGE Power Elm Road.
MGE collects in rates the lease payments associated with the electric generating
capacity as authorized by the PSCW. Any differential between estimated lease
payments collected in rates and actual lease payments paid to MGE Power Elm Road
are included in adjustments to revenues.
·
Volume.
During 2017, there was a 15.6% decrease in industrial retail sales volumes
compared to the same period in the prior year as a result of a large industrial
customer relocating its operations out of state. During 2017, there was a 4.3%
decrease in residential sales volumes compared to the same period in the prior
year driven by decreased customer demand due, at least in part, to less
favorable weather conditions, as evidenced by the lower number of cooling degree
days.
·
Rate
Changes. In December 2016, the PSCW authorized MGE to decrease 2017
rates for retail electric customers by 0.8% or $3.3 million on an annual
basis.
Rates charged to retail customers for
2017, were 2.2% or $4.0 million lower than those charged during the same
period in the prior year.
·
Sales
to the market. Sales to the market represent wholesale sales made to third
parties who are not ultimate users of the electricity. These sales may include
spot market transactions on the markets operated by MISO and PJM. These sales
may also include bilateral sales to other utilities or power marketers.
Generating units are dispatched by MISO based on cost considerations as well as
reliability of the system. Sales to the market typically occur when MGE has more
generation and purchases online than are needed for its own system demand. The
excess electricity is then sold to others in the market. For 2017, market
volumes decreased compared to the same period in the prior year, reflecting
decreased opportunities for sales, and those sales were made at lower market
prices. The revenue generated from these sales is included in fuel rules
monitored costs. See fuel rules discussion in Footnote 16.b. of the Notes
to Consolidated Financial Statements.
Electric fuel and purchased power
Electric fuel and purchased power costs reflect a
decrease in internal generation volumes partially offset by an increase in the
volume of purchased power when compared to the prior year. Adjustments related
to the regulatory recovery for fuel costs, known as fuel rules, increased
purchased power expense. These items are explained below.
Fuel for electric generation
The expense for fuel for internal electric generation
decreased $7.7 million during 2017 compared to 2016 due to the
following:
|
|
|
|
| |
|
|
(In millions) |
|
|
|
|
|
Decrease in volume |
$ |
(4.7) |
|
|
|
Decrease in per-unit cost |
|
(3.0) |
|
|
|
Total |
$ |
(7.7) |
|
This decrease in expense
reflects an 8.1% decrease in internal generation volume delivered to the system
primarily as a result of decreased generation at WCCF based on market prices and
a 5.0% decrease in per-unit cost of internal electric generation.
Purchased power
Purchased power expense increased $2.4 million
during 2017 compared to 2016 due to the following:
|
|
|
|
| |
|
|
(In millions) |
|
|
|
|
|
Increase in volume |
$ |
2.9 |
|
|
|
Decrease in per-unit cost |
|
(2.2) |
|
|
|
Change in fuel rule adjustments,
net of recoveries |
|
1.7 |
|
|
|
Total |
$ |
2.4 |
|
The increase in expense (before fuel rules adjustments)
reflects a 4.9% increase in the volume of power purchased from third parties,
partially offset by a 3.5% decrease in the per-unit cost of purchased power.
Under fuel rules, MGE is required to defer electric
fuel-related costs that fall outside a 2% cost tolerance band around the amount
used in the most recent rate proceeding. Any fuel rules adjustments are
reflected in purchased power expense, with potential refunds associated with
fuel savings increasing that expense and potential recovery of excess fuel costs
decreasing that expense.
Electric operating and maintenance
expenses
Electric operating and maintenance expenses increased
$3.9 million during 2017 compared to 2016. The following changes
contributed to the net change:
|
|
|
|
| |
|
|
(In millions) |
|
|
|
|
|
Increased transmission costs |
$ |
5.2 |
|
|
|
Increased customer accounts
costs |
|
1.7 |
|
|
|
Increased other costs |
|
0.1 |
|
|
|
Decreased production costs |
|
(2.3) |
|
|
|
Decreased administrative and
general costs |
|
(0.8) |
|
|
|
Total |
$ |
3.9 |
|
For 2017, increased transmission costs are primarily due
to an increase in transmission reliability enhancements and increased customer
accounts costs are primarily related to technology improvements, partially
offset by decreased production costs at Columbia and the Elm Road Units.
Electric depreciation expense
Electric depreciation expense increased $7.5 million
for 2017, compared to the prior year as a result of new depreciation rates for
Columbia, as approved by the PSCW.
Other electric income
Other electric income increased $1.0 million for
2017, compared to the same period in the prior year, primarily due to the gain
on sale of property assets.
Gas Utility Operations -
MGE Energy and MGE
Gas deliveries and revenues
The following table compares MGE's gas revenues and gas
therms delivered by customer class during each of the years indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
(In thousands, except HDD and
average rate per therm of retail customer) |
|
Revenues |
|
Therms
Delivered |
|
|
|
|
|
2017 |
|
2016 |
|
% Change |
|
2017 |
|
2016 |
|
% Change |
|
|
|
Residential |
$ |
88,695 |
$ |
81,014 |
|
9.5 % |
|
94,631 |
|
91,791 |
|
3.1 % |
|
|
|
Commercial/Industrial |
|
55,151 |
|
48,497 |
|
13.7 % |
|
91,411 |
|
86,641 |
|
5.5 % |
|
|
|
Total
retail |
|
143,846 |
|
129,511 |
|
11.1 % |
|
186,042 |
|
178,432 |
|
4.3 % |
|
|
|
Gas transportation |
|
4,561 |
|
4,635 |
|
(1.6)% |
|
70,234 |
|
72,922 |
|
(3.7)% |
|
|
|
Other revenues |
|
418 |
|
397 |
|
5.3 % |
|
- |
|
- |
|
-% |
|
|
|
Total |
$ |
148,825 |
$ |
134,543 |
|
10.6 % |
|
256,276 |
|
251,354 |
|
2.0 % |
|
|
|
Heating degree days (normal
6,916) |
|
|
|
|
|
|
|
6,569 |
|
6,417 |
|
2.4 % |
|
|
|
Average rate per therm of retail
customer |
$ |
0.773 |
$ |
0.726 |
|
6.5 % |
|
|
|
|
|
|
|
Gas revenues increased $14.3 million or 10.6% during
2017. These changes are related to the following factors:
|
|
|
|
| |
|
|
(In millions) |
|
|
|
|
|
Rate/PGA changes |
$ |
10.1 |
|
|
|
Volume |
|
4.2 |
|
|
|
Total |
$ |
14.3 |
|
·
Rate/PGA
changes. In December 2016, the PSCW authorized MGE to increase 2017
rates for retail gas customers by 1.9% or $3.1 million on an annual
basis.
MGE recovers the cost of natural gas
in its gas segment through the purchased gas adjustment clause (PGA). Under the
PGA, MGE is able to pass through to its gas customers the cost of gas. Changes
in PGA recoveries affect revenues but do not impact net income.
The average retail rate per therm for
2017, increased 6.5% compared to 2016, reflecting a $6.5 million increase
in natural gas commodity costs (recovered through the PGA). Additionally, there
was an increase in fixed rate charges.
·
Volume. For
2017, retail gas deliveries increased 4.3% compared to the prior year. The
increase in volume is primarily related to customer growth and cooler weather in
the fourth quarter of 2017 compared to the prior year.
Cost of gas sold
For 2017, cost of gas sold increased by
$9.9 million, compared to the prior year. The cost per therm of natural gas
increased 9.2%, which resulted in $6.5 million of increased expense. The
volume of gas purchased increased 5.1%, which resulted in $3.4 million of
increased expense.
Gas operating and maintenance expenses
Gas operating and maintenance expenses increased
$1.6 million for 2017 compared to 2016. The following changes contributed
to the net change.
|
|
|
|
| |
|
|
(In millions) |
|
|
|
|
|
Increased customer accounts
costs |
$ |
1.6 |
|
|
|
Increased customer service
costs |
|
0.9 |
|
|
|
Increased other costs |
|
0.2 |
|
|
|
Decreased administrative and
general costs |
|
(1.1) |
|
|
|
Total |
$ |
1.6 |
|
For 2017, increased customer accounts costs are primarily
related to technology improvements. Increased customer service costs are due to
higher Focus on Energy payments. Focus on Energy is Wisconsin's statewide energy
efficiency and renewable resource program to promote energy efficiency on
customer's premises. Decreased administrative and general costs are primarily
related to a decrease in payroll expense.
Nonregulated Energy
Operations - MGE Energy and MGE
The nonregulated energy operations are conducted through
MGE Energy's subsidiaries: MGE Power Elm Road (the Elm Road Units) and MGE Power
West Campus (WCCF), which have been formed to own and lease electric generating
capacity to assist MGE. For 2017 and 2016, net income at the nonregulated energy
operations segment was $40.5 million and $19.1 million, respectively.
The increase in net income is attributable to a $21.6 million one-time tax
impact as a result of the Tax Act. The Tax Act reduced the federal tax rate from
35% to 21%. See Footnote 12 of the Notes to Consolidated Financial
Statements in this Report.
Transmission Investment Operations - MGE Energy and
MGE
Transmission investment other income
For 2017 and 2016, other income at the transmission
investment segment was $9.8 million and $8.4 million, respectively.
The transmission investment segment holds our interest in ATC and ATC Holdco,
and its income reflects our equity in the earnings of the investments. ATC
Holdco was formed in December 2016. In the near term, it is expected that
ATC Holdco will be pursuing transmission development opportunities that
typically have long development and investment lead times before becoming
operational. See Footnote 4 of the Notes to Consolidated Financial
Statements in this Report and "Other Matters" below for additional information
concerning ATC and summarized financial information regarding ATC.
All Other Operations - MGE Energy and MGE
Other income
The decrease in all other income primarily results from a
$2 million (pre-tax) voluntary contribution to the Madison Gas and Electric
Foundation.
Consolidated Income Taxes - MGE Energy and MGE
MGE Energy's effective income tax rate for 2017 and 2016
was 18.5% and 36.0%, respectively. MGE's effective income tax rate for 2017 and
2016 was 17.0% and 35.9%, respectively. The decrease in the effective tax rate
for both MGE Energy and MGE in 2017 was primarily related to the Tax Act, which
was signed into law on December 22, 2017. Pursuant to the Tax Act, deferred
income tax balances as of December 31, 2017, were remeasured to reflect the
decrease in the corporate income tax rate from 35 percent to 21 percent
beginning January 1, 2018. See Footnote 12 of the Notes to
Consolidated Financial Statements for details of effective income tax rates for
continuing operations.
Noncontrolling Interest, Net of Tax - MGE
The noncontrolling interest, net of tax, reflects the
accounting required for MGE Energy's interest in MGE Power Elm Road (the Elm
Road Units) and MGE Power West Campus (WCCF). MGE Energy owns 100% of MGE Power
Elm Road and MGE Power West Campus; however, due to the contractual agreements
for these projects with MGE, the entities are considered VIEs with respect to
MGE and their results are consolidated with those of MGE, the primary
beneficiary of the VIEs. Also included in noncontrolling interest, net of tax,
for 2016, is MGE Energy's interest in MGE Transco, which holds our investment in
ATC. The following table shows MGE Energy's noncontrolling interest, net of tax,
reflected on MGE's consolidated statement of income:
|
|
|
|
|
|
| |
|
|
|
|
Year Ended
December 31, |
|
|
|
(In millions) |
|
2017 |
|
2016 |
|
|
|
MGE Power Elm Road(a) |
$ |
29.3 |
$ |
14.8 |
|
|
|
MGE Power West Campus(a) |
$ |
13.9 |
$ |
7.2 |
|
|
|
MGE Transco(b) |
$ |
- |
$ |
1.4 |
|
(a)
In
2017, there was a $21.6 million one-time tax impact as a result of the Tax
Act. The Tax Act reduced the federal tax rate from 35% to 21%. See
Footnote 12 of the Notes to Consolidated Financial Statements for
additional information.
(b)
MGE
Transco holds an ownership interest in ATC. In July 2016, MGE's ownership
interest in MGE Transco declined below a majority, resulting in MGE Energy's
investment in MGE Transco being deconsolidated from MGE's consolidated financial
statements. See Footnote 8 of the Notes to Consolidated Financial
Statements for further discussion of noncontrolling interest. In
December 2016, MGE's ownership interest in MGE Transco was transferred to
MGE Energy. See Footnote 4 of the Notes to Consolidated Financial
Statements for additional information.
Results
of Operations
Year Ended December 31, 2016, Versus the Year
Ended December 31, 2015
Electric Utility Operations - MGE Energy and
MGE
Electric sales and revenues
The following table compares MGE's electric revenues and
electric kWh sales by customer class for each of the years indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
Revenues |
|
Sales (kWh) |
|
|
|
(In thousands, except cooling
degree days) |
|
2016 |
|
2015 |
|
% Change |
|
2016 |
|
2015 |
|
% Change |
|
|
|
Residential |
$ |
136,792 |
$ |
135,201 |
|
1.2 % |
|
828,887 |
|
786,741 |
|
5.4 % |
|
|
|
Commercial |
|
213,101 |
|
220,745 |
|
(3.5)% |
|
1,866,035 |
|
1,831,251 |
|
1.9 % |
|
|
|
Industrial |
|
17,589 |
|
20,283 |
|
(13.3)% |
|
232,854 |
|
248,443 |
|
(6.3)% |
|
|
|
Other-retail/municipal |
|
35,559 |
|
38,824 |
|
(8.4)% |
|
395,662 |
|
422,188 |
|
(6.3)% |
|
|
|
Total
retail |
|
403,041 |
|
415,053 |
|
(2.9)% |
|
3,323,438 |
|
3,288,623 |
|
1.1 % |
|
|
|
Sales to the market |
|
6,135 |
|
2,154 |
|
N/A% |
|
183,195 |
|
68,886 |
|
N/A% |
|
|
|
Return of fuel savings |
|
(423) |
|
- |
|
-% |
|
- |
|
- |
|
-% |
|
|
|
Adjustments to revenues |
|
253 |
|
(4,679) |
|
(105.4)% |
|
- |
|
- |
|
-% |
|
|
|
Total |
$ |
409,006 |
$ |
412,528 |
|
(0.9)% |
|
3,506,633 |
|
3,357,509 |
|
4.4 % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cooling degree days (normal
647) |
|
|
|
|
|
|
|
780 |
|
666 |
|
17.1 % |
|
Electric operating revenues decreased $3.5 million
or 0.9% during 2016 due to the following:
|
|
|
|
| |
|
|
(In millions) |
|
|
|
|
|
Deferral of fuel savings/fuel
credit |
$ |
(21.5) |
|
|
|
Volume |
|
6.7 |
|
|
|
Adjustments to revenues |
|
4.9 |
|
|
|
Sales to the market |
|
4.0 |
|
|
|
Other |
|
2.4 |
|
|
|
Total |
$ |
(3.5) |
|
In July 2015, the PSCW
authorized MGE to freeze 2016 rates at 2015 levels for retail electric
customers.
·
Deferral
of fuel savings/fuel credit. During 2016, customers received a fuel credit
on their bill related to the fuel savings of $21.1 million, which decreased
electric revenues when compared to 2015. This amount was partially offset by the
2016 deferred fuel rules monitored costs. In January 2016, the PSCW lowered
MGE's 2016 fuel rules monitored costs as a result of continued lower projected
fuel costs in 2016.
·
Volume.
During 2016, there was a 5.4% increase in total residential sales volumes
compared to the same period in the prior year driven by increased customer
demand due, at least in part, to more favorable weather conditions, as evidenced
by the higher number of cooling degree days.
·
Adjustments to
Revenue. The adjustments to revenues amount includes the elimination of
carrying costs for the Elm Road Units and the WCCF that were collected in
electric rates ending in 2015, which were recognized as operating revenues in
our Nonregulated Energy Operations segment.
MGE leases electric generating
capacity from MGE Power Elm Road. MGE collects in rates the lease payments
associated with the electric generating capacity as authorized by the PSCW. Any
differential between estimated lease payments collected in rates and actual
lease payments paid to MGE Power Elm Road are included in adjustments to
revenues.
·
Sales
to the market. Sales to the market represent wholesale sales made to third
parties who are not ultimate users of the electricity. These sales may include
spot market transactions on the markets operated by MISO. These sales may also
include bilateral sales to other utilities or power marketers. Generating units
are dispatched by MISO based on cost considerations as well as reliability of
the system. Sales to the market typically occur when MGE has more generation and
purchases online than are needed for its own system demand. The excess
electricity is then sold to others in the market. For 2016, market volumes
increased compared to the same period in the prior year,
reflecting
increased opportunities for sales, and those sales were made at higher market
prices. The revenue generated from these sales is included in fuel rules
monitored costs. See fuel rules discussion in Footnote 16.b. of the Notes
to Consolidated Financial Statements.
·
Other.
During 2016, other items affecting electric operating revenues increased
$2.4 million. MGE experienced an increase in residential and small
commercial customers contributing to the increase in other electric revenue.
Higher monthly on-peak sales also attributed to the increase.
Electric fuel and purchased power
Electric fuel and purchased power costs reflect an
increase in internal generation volumes partially offset by a decrease in the
volume of purchased power when compared to the prior year. Adjustments related
to the regulatory recovery for fuel costs, known as fuel rules, decreased
purchased power expense. These items are explained below.
Fuel for electric generation
The expense for fuel for internal electric generation
increased $6.9 million during 2016 compared to 2015 due to the
following:
|
|
|
|
| |
|
|
(In millions) |
|
|
|
|
|
Increase in volume |
$ |
10.5 |
|
|
|
Decrease in per-unit cost |
|
(3.6) |
|
|
|
Total |
$ |
6.9 |
|
This increase in expense reflects a 21.0% increase in
internal generation volume delivered to the system primarily as a result of
increased generation at WCCF based on market prices, partially offset by a 6.8%
decrease in per-unit cost of internal electric generation, reflective of lower
natural gas prices.
Purchased power
Purchased power expense decreased $24.9 million
during 2016 compared to 2015 due to the following:
|
|
|
|
| |
|
|
(In millions) |
|
|
|
|
|
Decrease in volume |
$ |
(15.2) |
|
|
|
Increase in per-unit cost |
|
3.0 |
|
|
|
Change in fuel rule adjustments,
net of recoveries |
|
(12.7) |
|
|
|
Total |
$ |
(24.9) |
|
The decrease in expense (before fuel rules adjustments)
reflects a 21.1% decrease in the volume of power purchased from third parties
primarily as a result of the increased internal generation, partially offset by
a 5.2% increase in the per-unit cost of purchased power.
Under fuel rules, MGE is required to defer electric
fuel-related costs that fall outside a 2% cost tolerance band around the amount
used in the most recent rate proceeding. Any fuel rules adjustments are
reflected in purchased power expense.
Electric operating and maintenance
expenses
Electric operating and maintenance expenses increased
$2.5 million during 2016 compared to 2015. The following changes
contributed to the net change:
|
|
|
|
| |
|
|
(In millions) |
|
|
|
|
|
Increased customer accounts
costs |
$ |
0.9 |
|
|
|
Increased production costs |
|
0.7 |
|
|
|
Increased distribution costs |
|
0.5 |
|
|
|
Increased other costs |
|
0.4 |
|
|
|
Total |
$ |
2.5 |
|
For 2016, increased customer accounts costs are primarily
related to higher customer billing expenses.
Electric depreciation expense
Electric depreciation expense decreased $0.8 million
for 2016, compared to the prior year. A new depreciation study approved by the
PSCW, effective January 1, 2016, resulted in a decrease in expense.
Gas
Utility Operations - MGE Energy and MGE
Gas deliveries and revenues
The following table compares MGE's gas revenues and gas
therms delivered by customer class during each of the years indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
(In thousands, except HDD and
average rate per therm of retail customer) |
|
Revenues |
|
Therms
Delivered |
|
|
|
|
|
2016 |
|
2015 |
|
% Change |
|
2016 |
|
2015 |
|
% Change |
|
|
|
Residential |
$ |
81,014 |
$ |
85,438 |
|
(5.2)% |
|
91,791 |
|
92,970 |
|
(1.3)% |
|
|
|
Commercial/Industrial |
|
48,497 |
|
53,161 |
|
(8.8)% |
|
86,641 |
|
88,489 |
|
(2.1)% |
|
|
|
Total
retail |
|
129,511 |
|
138,599 |
|
(6.6)% |
|
178,432 |
|
181,459 |
|
(1.7)% |
|
|
|
Gas transportation |
|
4,635 |
|
4,652 |
|
(0.4)% |
|
72,922 |
|
75,572 |
|
(3.5)% |
|
|
|
Other revenues |
|
397 |
|
486 |
|
(18.3)% |
|
- |
|
- |
|
-% |
|
|
|
Total |
$ |
134,543 |
$ |
143,737 |
|
(6.4)% |
|
251,354 |
|
257,031 |
|
(2.2)% |
|
|
|
Heating degree days (normal
7,083) |
|
|
|
|
|
|
|
6,417 |
|
6,395 |
|
0.3 % |
|
|
|
Average rate per therm of retail
customer |
$ |
0.726 |
$ |
0.764 |
|
(5.0)% |
|
|
|
|
|
|
|
Gas revenues decreased $9.2 million or 6.4% during
2016. These changes are related to the following factors:
|
|
|
|
| |
|
|
(In millions) |
|
|
|
|
|
Rate/PGA changes |
$ |
(5.6) |
|
|
|
Volume |
|
(3.5) |
|
|
|
Transportation and other
effects |
|
(0.1) |
|
|
|
Total |
$ |
(9.2) |
|
·
Rate/PGA
changes. MGE recovers the cost of natural gas in its gas segment through the
purchased gas adjustment clause (PGA). Under the PGA, MGE is able to pass
through to its gas customers the cost of gas. Changes in PGA recoveries affect
revenues but do not impact net income.
The average retail rate per therm for
2016, decreased 5.0% compared to 2015, reflecting a $6.3 million decrease
in natural gas commodity costs (recovered through the PGA). The decrease was
partially offset by an increase in fixed rate charges.
·
Volume. For
2016, retail gas deliveries decreased 1.7% compared to the prior year.
Cost of gas sold
For 2016, cost of gas sold decreased by
$9.3 million, compared to the prior year. The cost per therm of natural gas
decreased 10.3%, which resulted in $7.6 million of decreased expense. The
volume of gas purchased decreased 2.2%, which resulted in $1.7 million of
decreased expense.
Gas operating and maintenance expenses
Gas operating and maintenance expenses increased
$1.0 million for 2016 compared to 2015. The following changes contributed
to the net change.
|
|
|
|
| |
|
|
(In millions) |
|
|
|
|
|
Increased customer accounts
costs |
$ |
0.8 |
|
|
|
Increased administrative and
general costs |
|
0.5 |
|
|
|
Decreased distribution costs |
|
(0.3) |
|
|
|
Total |
$ |
1.0 |
|
For 2016, increased customer accounts costs are due to
higher customer billing expenses.
Gas depreciation expense
Gas depreciation expense increased $1.4 million for
2016, compared to the prior year. This increase is primarily driven by an
increase in gas utility plant in-service in 2016 and a new depreciation study
approved by the PSCW, effective January 1, 2016.
Nonregulated Energy
Operations - MGE Energy and MGE
For 2016 and 2015, net income at the nonregulated energy
operations segment was $19.1 million and $20.1 million, respectively.
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. Carrying costs incurred during construction of the Elm Road
Units and WCCF were recognized by MGE Power Elm Road and MGE Power West
Campus over the period allowed for recovery in rates. The recovery period ended
in 2015, contributing to a reduction in nonregulated earnings in 2016. The
reduction in earnings was partially offset by an increase in lease revenue.
Transmission Investment Operations - MGE Energy and
MGE
Transmission investment other income
For 2016 and 2015, other income at the transmission
investment segment was $8.4 million and $7.7 million, respectively.
The transmission investment segment holds our interest in ATC and ATC Holdco,
and its income reflects our equity in the earnings of ATC. ATC Holdco was formed
in 2016. In the near term, it is expected that ATC Holdco will be pursuing
transmission development opportunities that typically have long development and
investment lead times before becoming operational. See Footnote 4.b. of the
Notes to Consolidated Financial Statements and "Other Matters" below for
additional information concerning the transmission investments and summarized
financial information regarding ATC.
Consolidated Income Taxes - MGE Energy and MGE
MGE Energy's effective income tax rate for 2016 and 2015
was 36.0% and 36.7%, respectively. MGE's effective income tax rate for 2016 and
2015 was 35.9% and 36.7%, respectively. The decrease in the effective tax rate
is due in part to a combination of individually insignificant fluctuations. See
Footnote 12 of the Notes to Consolidated Financial Statements for details
of effective income tax rates for continuing operations.
Noncontrolling Interest, Net of Tax - MGE
The noncontrolling interest, net of tax, reflects the
accounting required for MGE Energy's interest in MGE Power Elm Road (the Elm
Road Units) and MGE Power West Campus (WCCF). MGE Energy owns 100% of MGE Power
Elm Road and MGE Power West Campus; however, due to the contractual agreements
for these projects with MGE, the entities are considered VIEs with respect to
MGE and their results are consolidated with those of MGE, the primary
beneficiary of the VIEs. Also included in noncontrolling interest, net of tax,
is MGE Energy's interest in MGE Transco, which holds our investment in ATC. The
following table shows MGE Energy's noncontrolling interest, net of tax,
reflected on MGE's consolidated statements of income:
|
|
|
|
|
|
| |
|
|
|
|
Year Ended
December 31, |
|
|
|
(In millions) |
|
2016 |
|
2015 |
|
|
|
MGE Power Elm Road |
$ |
14.8 |
$ |
16.6 |
|
|
|
MGE Power West Campus |
$ |
7.2 |
$ |
7.3 |
|
|
|
MGE Transco |
$ |
1.4 |
$ |
2.2 |
|
(a)
MGE
Transco holds an ownership interest in ATC. In July 2016, MGE's ownership
interest in MGE Transco declined below a majority, resulting in MGE Energy's
investment in MGE Transco being deconsolidated from MGE's consolidated financial
statements. See Footnote 8 of the Notes to Consolidated Financial
Statements for further discussion of noncontrolling interest. In
December 2016, MGE's ownership interest in MGE Transco was transferred to
MGE Energy. See Footnote 4 of the Notes to Consolidated Financial
Statements for additional information.
Liquidity and Capital
Resources
MGE Energy and MGE have adequate liquidity to fund
operations and capital expenditures over the next twelve months. Available
resources include cash and cash equivalents, operating cash flows, liquid
assets, borrowing capacity under revolving credit facilities, and access to
equity and debt capital markets.
Cash Flows
The following summarizes cash flows for MGE Energy and
MGE during 2017, 2016, and 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
MGE Energy |
|
MGE |
|
|
|
(In thousands) |
|
2017 |
|
2016 |
|
2015 |
|
|
2017 |
|
2016 |
|
2015 |
|
|
|
Cash provided by/(used
for): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
activities |
$ |
132,991 |
$ |
147,513 |
$ |
141,185 |
|
$ |
125,738 |
$ |
146,501 |
$ |
148,460 |
|
|
|
Investing
activities |
|
(116,361) |
|
(86,826) |
|
(73,313) |
|
|
(106,658) |
|
(85,648) |
|
(72,920) |
|
|
|
Financing
activities |
|
(4,637) |
|
(46,112) |
|
(52,243) |
|
|
(23,897) |
|
(76,845) |
|
(53,342) |
|
Cash Provided by Operating Activities
MGE Energy
MGE Energy's consolidated net cash provided by operating
activities is derived mainly from the electric and gas operations of its
principal subsidiary, MGE.
2017 vs. 2016
Cash provided by operating activities for 2017 was
$133.0 million, a decrease of $14.5 million when compared to the prior
year.
MGE Energy's net income increased $22.0 million for
2017 when compared to the prior year primarily related to a $21.6 million
one-time 2017 noncash tax impact of the Tax Act from the nonregulated energy
segment.
In 2016, MGE received a $10.0 million refund from
the IRS for the 2015 tax year. Excluding the 2016 refund, MGE Energy's federal
and state taxes paid increased $5.3 million during 2017, when compared to
the prior year.
Working capital accounts (excluding prepaid and accrued
taxes) resulted in $11.1 million in cash used for operating activities for
2017, primarily due to decreased accounts payable, increased receivables,
increased inventories, and increased unbilled revenues, partially offset by
increased current liabilities.
Working capital accounts (excluding prepaid and accrued
taxes) resulted in $7.3 million in cash provided by operating activities
for 2016, primarily due to increased accounts payable, decreased inventories,
and decreased receivable margin, partially offset by increased unbilled
revenues, increased receivables, and decreased current liabilities. The decrease
in current liabilities includes a fuel credit, approved in August 2015, of
$8.3 million that customers received on their bill throughout 2016 and a
one-time fuel credit, approved in July 2016, of $15.5 million that
customers received on their bill in September 2016.
A decrease in discretionary pension contribution resulted
in an additional $3.2 million in cash provided by operating activities for
2017, when compared to the prior year. Pension contributions reflect amounts
required by law and discretionary amounts.
2016 vs. 2015
Cash provided by operating activities for 2016 was
$147.5 million, an increase of $6.3 million when compared to the prior
year.
MGE Energy's net income increased $4.2 million for
2016 when compared to the prior year.
In both 2016 and 2015, MGE received a $10.0 million
refund from the IRS for the 2015 and 2014 tax years, respectively. Excluding the
2016 and 2015 refund, MGE Energy's federal and state taxes paid decreased
$1.8 million during 2016, when compared to the prior year.
Working capital accounts (excluding prepaid and accrued
taxes) resulted in $7.3 million in cash provided by operating activities
for 2016, primarily due to increased accounts payable, decreased inventories,
and decreased receivable margin, partially offset by increased unbilled
revenues, increased receivables, and decreased current liabilities. The decrease
in current liabilities includes a fuel credit, approved in August 2015, of
$8.3 million that customers received on their bill throughout 2016 and a
one-time fuel credit, approved in July 2016, of $15.5 million that
customers received on their bill in September 2016.
Working capital accounts
(excluding prepaid and accrued taxes) resulted in $5.0 million in cash
provided by operating activities for 2015, primarily due to decreased
receivables and decreased unbilled revenues, partially offset by increased
inventories, decreased accounts payable, and decreased current liabilities. The
decrease in current liabilities includes a fuel credit of $2.6 million that
customers received on their bill in the period September through
December 2015 related to the 2015 fuel savings and $11.4 million of
deferred fuel related cost savings that was returned to customers.
MGE
2017 vs. 2016
Cash provided by operating activities for 2017 was
$125.7 million, a decrease of $20.8 million when compared to the prior
year.
Net income increased $18.5 million for 2017, when
compared to the prior year primarily related to a $21.6 million one-time
2017 noncash tax impact of the Tax Act from the nonregulated energy segment.
In 2016, MGE received a $10.0 million refund from
the IRS for the 2015 tax year. Excluding the 2016 refund, MGE's federal and
state taxes paid to MGE Energy increased $5.2 million during 2017, when
compared to the prior year.
Working capital accounts (excluding prepaid and accrued
taxes) resulted in $12.7 million in cash used for operating activities for
2017, primarily due to decreased accounts payable, increased receivables,
increased inventories, and increased unbilled revenues, partially offset by
increased current liabilities.
Working capital accounts (excluding prepaid and accrued
taxes) resulted in $7.4 million in cash provided by operating activities
for 2016, primarily due to increased accounts payable, decreased inventories,
and decreased receivable margin, partially offset by increased receivables,
increased unbilled revenues, and decreased current liabilities. The decrease in
current liabilities includes a fuel credit, approved in August 2015, of
$8.3 million that customers received on their bill throughout 2016 and a
one-time fuel credit, approved in July 2016, of $15.5 million that
customers received on their bill in September 2016.
A decrease in discretionary pension contribution resulted
in an additional $3.2 million in cash provided by operating activities for
2017, when compared to the prior year. Pension contributions reflect amounts
required by law and discretionary amounts.
In 2016, MGE received dividends of $5.0 million from
ATC. In December 2016, MGE's ownership interest in MGE Transco was
transferred to MGE Energy.
2016 vs. 2015
Cash provided by operating activities for 2016 was
$146.5 million, a decrease of $2.0 million when compared to the prior
year.
Net income increased $3.1 million for 2016, when
compared to the prior year.
In both 2016 and 2015, MGE received a $10.0 million
refund from the IRS for the 2015 and 2014 tax years, respectively. Excluding the
2016 and 2015 refund, MGE's federal and state taxes paid to MGE Energy increased
$4.2 million during 2016, when compared to the prior year.
Working capital accounts (excluding prepaid and accrued
taxes) resulted in $7.4 million in cash provided by operating activities
for 2016, primarily due to increased accounts payable, decreased inventories,
and decreased receivable margin, partially offset by increased receivables,
increased unbilled revenues, and decreased current liabilities. The decrease in
current liabilities includes a fuel credit, approved in August 2015, of
$8.3 million that customers received on their bill throughout 2016 and a
one-time fuel credit, approved in July 2016, of $15.5 million that
customers received on their bill in September 2016.
Working capital accounts (excluding prepaid and accrued
taxes) resulted in $14.0 million in cash provided by operating activities
for 2015, primarily due to decreased receivables and decreased unbilled
revenues, partially offset by increased gas inventories, decreased accounts
payable, and decreased other current liabilities. The decrease in current
liabilities includes a fuel credit of $2.6 million that customers received
on their bill in the period September through December 2015 related to
the 2015 fuel savings and $11.4 million of deferred fuel related cost
savings that was returned to customers.
Capital Requirements and
Investing Activities
MGE Energy
2017 vs. 2016
MGE Energy's cash used for investing activities increased
$29.5 million for 2017 when compared to the prior year.
Capital expenditures for 2017 were $108.1 million.
This amount represents an increase of $24.5 million from the expenditures
made in the prior year. This increase primarily reflects increased expenditures
on electric assets.
Capital contributions in ATC and other investments
increased $8.1 million for 2017 when compared to the prior year.
MGE Energy received $2.8 million in proceeds from
the sales of property in 2017.
2016 vs. 2015
MGE Energy's cash used for investing activities increased
$13.5 million for 2016 when compared to the prior year.
Capital expenditures for 2016 were $83.7 million.
This amount represents an increase of $11.6 million from the expenditures
made in the prior year. This increase primarily reflects increased expenditures
on electric and gas distribution assets.
There was a $1.9 million increase in the capital
contributions to investments for 2016 when compared to the prior year.
MGE
2017 vs. 2016
MGE's cash used for investing activities increased
$21.0 million for 2017 when compared to the prior year.
Capital expenditures for 2017 were $108.1 million.
This amount represents an increase of $24.5 million from the expenditures
made in the prior year. This increase primarily reflects increased expenditures
on electric assets.
Capital contributions in ATC and other investments
decreased $1.6 million in 2017, when compared to the prior year. In
December 2016, MGE transferred its ownership interest in ATC to MGE Energy.
See Footnote 4 of the Notes to Consolidated Financial Statements in this
Report for further details.
MGE received $1.7 million in proceeds from the sales
of property in 2017.
2016 vs. 2015
MGE's cash used for investing activities increased
$12.7 million for 2016 when compared to the prior year.
Capital expenditures for 2016 were $83.7 million.
This amount represents an increase of $11.6 million from the expenditures
made in the prior year. This increase primarily reflects increased expenditures
on electric and gas distribution assets.
There was a $0.9 million increase in the capital
contributions to investments for 2016 when compared to the prior year.
Capital
expenditures
The following table shows MGE Energy's actual capital
expenditures for both 2017 and 2016, forecasted capital expenditures for 2018,
and annual average forecasted capital expenditures for the years 2019 through
2021:
|
|
|
|
|
|
|
|
| |
|
|
|
Actual |
|
Forecasted |
|
(In thousands) |
|
|
|
|
|
|
|
(Annual
Average) |
|
For the years ended
December 31, |
|
2016 |
|
2017 |
|
2018 |
|
2019-2021 |
|
Electric |
$ |
50,699 |
$ |
77,353 |
$ |
185,616 |
$ |
77,556 |
|
Gas |
|
29,136 |
|
26,847 |
|
38,013 |
|
36,031 |
|
Utility
plant total |
|
79,835 |
|
104,200 |
|
223,629 |
|
113,587 |
|
Nonregulated |
|
3,824 |
|
3,931 |
|
7,481 |
|
3,124 |
|
MGE Energy
total |
$ |
83,659 |
$ |
108,131 |
$ |
231,110 |
$ |
116,711 |
The Saratoga Wind Farm will be constructed in 2018. This
project accounts for $108 million of the forecasted capital expenditures
for 2018 and is expected to be financed through internally generated cash,
short-term debt, and issuance of long-term debt.
The forecasted capital expenditures are based upon
management's assumptions with respect to future events, including the timing and
amount of expenditures associated with compliance with environmental compliance
initiatives, load growth, and the timing and adequacy of rate recovery. Actual
events may differ materially from those assumptions and result in material
changes to those forecasted amounts.
MGE Energy used funds received as dividend payments from
MGE Power West Campus and MGE Power Elm Road, internally generated cash, and
long-term and short-term external financing to meet its 2017 capital
requirements and cash obligations, including dividend payments. External
financing included short-term financing under existing lines of credit.
Financing Activities
MGE Energy
2017 vs. 2016
Cash used for MGE Energy's financing activities was
$4.6 million for 2017, compared to $46.1 million of cash used for
2016.
For 2017, cash dividends paid were $43.7 million
compared to $41.8 million in the prior year. This increase was a result of
a higher dividend per share ($1.26 vs. $1.21).
During 2017, MGE issued $70.0 million of senior
unsecured notes, which was used to refinance $30.0 million of medium-term
notes and assist with financing additional capital expenditures.
For 2017, short-term debt borrowings were
$4.0 million. There were no short-term borrowings for 2016.
2016 vs. 2015
Cash used for MGE Energy's financing activities was
$46.1 million for 2016, compared to $52.2 million of cash used for
2015.
For 2016, cash dividends paid were $41.8 million
compared to $40.0 million in the prior year. This increase was a result of
a higher dividend per share ($1.21 vs. $1.16).
For 2015, net short-term debt repayments were
$7.0 million. There were no short-term debt repayments for 2016.
MGE
2017 vs. 2016
During 2017, cash used for MGE's financing activities was
$23.9 million, compared to $76.8 million of cash used for MGE's
financing activities in the prior year.
Cash dividends paid from MGE
to MGE Energy were $45.0 million for 2017, compared to $50.0 million
in the prior year.
Distributions to parent (MGE Energy) from noncontrolling
interest, which represent distributions from MGE Power Elm Road and MGE Power
West Campus, were $18.0 million for 2017, compared to $24.1 million in
the prior year.
For 2016, equity contributions received from
noncontrolling interest, which represent contributions by MGE Energy to MGE
Transco, were $1.6 million. There were no equity contributions received
from noncontrolling interest, which represent contributions to MGE Transco for
2017, as MGE Transco was a wholly-owned subsidiary of MGE Energy during
2017.
During 2017, MGE issued $70.0 million of senior
unsecured notes, which was used to refinance $30.0 million of medium-term
notes and assist with financing additional capital expenditures.
For 2017, short-term borrowings were $4.0 million.
There were no short-term borrowings for 2016.
2016 vs. 2015
During 2016, cash used for MGE's financing activities was
$76.8 million, compared to $53.3 million of cash used for MGE's
financing activities in the prior year.
Cash dividends paid from MGE to MGE Energy were
$50.0 million for 2016, compared to $30.0 million in the prior year.
Distributions to parent (MGE Energy) from noncontrolling
interest, which represent distributions from MGE Power Elm Road and MGE Power
West Campus, were $24.1 million for 2016, compared to $14.7 million in
the prior year.
For 2015, net short-term debt repayments were
$7.0 million. There were no short-term debt repayments for 2016.
Dividend Restrictions
Dividend payments by MGE to MGE Energy are subject to
restrictions arising under a PSCW rate order and, to a lesser degree, MGE's
first mortgage bonds. The PSCW order restricts any dividends, above the PSCW
authorized amount of $70.8 million, that MGE may pay MGE Energy if its
common equity ratio, calculated in the manner used in the rate proceeding, is
less than 55%. MGE's thirteen month rolling average common equity ratio at
December 31, 2017, is 58.5%, as determined under the calculation used in
the rate proceeding. This restriction did not impact MGE's payment of dividends
in 2017. Cash dividends of $45.0 million and $50.0 million were paid
by MGE to MGE Energy in 2017 and 2016, respectively. In 2016, MGE also
transferred its ownership interest in MGE Transco to MGE Energy in the form of a
dividend in kind of $15.8 million. The rate proceeding calculation includes
as indebtedness imputed amounts for MGE's outstanding purchase power capacity
payments and other PSCW adjustments, but does not include the indebtedness
associated with MGE Power Elm Road and MGE Power West Campus, which are
consolidated into MGE's financial statements but are not direct obligations of
MGE.
MGE has covenanted with the holders of its first mortgage
bonds not to declare or pay any dividend or make any other distribution on or
purchase any shares of its common stock unless, after giving effect thereto, the
aggregate amount of all such dividends and distributions and all amounts applied
to such purchases, after December 31, 1945, shall not exceed the earned
surplus (retained earnings) accumulated subsequent to December 31, 1945. As
of December 31, 2017, approximately $343.3 million was available for
the payment of dividends under this covenant.
Credit Facilities
At December 31, 2017, MGE Energy and MGE had the
following aggregate bank commitments and available capacity under their credit
agreements:
|
|
|
|
|
|
|
|
|
|
| |
|
Borrower |
|
Aggregate Bank
Commitments |
|
Outstanding Commercial
Paper |
|
Outstanding
Borrowings |
|
Available
Capacity |
|
Expiration
Date |
|
|
|
(Dollars
in millions) |
|
|
|
MGE Energy |
$ |
50.0 |
$ |
- |
$ |
- |
$ |
50.0 |
|
June 1,
2020 |
|
MGE |
$ |
100.0 |
$ |
4.0 |
$ |
- |
$ |
96.0 |
|
June 1,
2020 |
Borrowings under the Credit
Agreements may bear interest at a rate based upon either a "floating rate" or a
"Eurodollar Rate" adjusted for statutory reserve requirements, plus an adder
based upon the credit ratings assigned to MGE's senior unsecured long-term debt
securities. The "floating rate" is calculated on a daily basis as the highest of
a prime rate, a Federal Funds effective rate plus 0.5% per annum, or a
Eurodollar Rate for a one-month interest period plus 1%. The "floating rate"
adder ranges from zero to 0.125%. The "Eurodollar Rate" is calculated as
provided in the Credit Agreements. The "Eurodollar Rate" adder ranges from
0.625% to 1.125%.
The credit agreements require the borrower to maintain a
ratio of consolidated debt to consolidated total capitalization not to exceed a
maximum of 65%. The ratio calculation excludes assets, liabilities, revenues,
and expenses included in MGE's financial statements as a result of the
consolidation of VIEs, such as MGE Power Elm Road and MGE Power West Campus. At
December 31, 2017, the ratio of consolidated debt to consolidated total
capitalization for each of MGE Energy and MGE, as calculated under the credit
agreements' covenant, were 35.4% and 40.1%, respectively. See Footnote 10
of the Notes to Consolidated Financial Statements for additional information
regarding the credit facilities.
Capitalization Ratios
MGE Energy's capitalization ratios were as follows:
|
|
|
|
|
| |
|
|
|
MGE Energy |
|
|
|
|
2017 |
|
2016 |
|
|
|
Common shareholders' equity |
64.6 % |
|
65.2 % |
|
|
|
Long-term debt* |
35.1 % |
|
34.8 % |
|
|
|
Short-term debt |
0.3 % |
|
-% |
|
|
|
*Includes the current portion of
long-term debt. |
|
Credit Ratings
MGE Energy's and MGE's access to the capital markets,
including, in the case of MGE, the commercial paper market, and their respective
financing costs in those markets, may depend on the credit ratings of the entity
that is accessing the capital markets.
None of MGE Energy's or MGE's borrowing is subject to
default or prepayment as a result of a downgrading of credit ratings, although a
downgrading of MGE's credit ratings could increase fees and interest charges
under both MGE Energy's and MGE's credit agreements.
Contractual Obligations and
Commercial Commitments for MGE Energy and MGE
MGE Energy's and MGE's contractual obligations as of
December 31, 2017, representing cash obligations that are considered to be
firm commitments, are as follows:
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Payment Due
Within: |
|
Due After |
|
(In thousands) |
|
Total |
|
1 Year |
|
2-3 Years |
|
4-5 Years |
|
5 Years |
|
MGE Energy |
|
|
|
|
|
|
|
|
|
|
|
Long-term debt(a) |
$ |
426,883 |
$ |
24,452 |
$ |
24,212 |
$ |
9,660 |
$ |
368,559 |
|
Short-term
debt(b) |
|
4,000 |
|
4,000 |
|
- |
|
- |
|
- |
|
Repurchase-to-maturity transactions
- loans(c) |
|
3,130 |
|
538 |
|
1,079 |
|
816 |
|
697 |
|
Interest
expense(d) |
|
300,796 |
|
19,467 |
|
36,665 |
|
34,692 |
|
209,972 |
|
Operating
leases(e) |
|
10,521 |
|
1,205 |
|
1,053 |
|
552 |
|
7,711 |
|
Purchase
obligations(f) |
|
474,886 |
|
128,064 |
|
129,913 |
|
97,290 |
|
119,619 |
|
Other
obligations(g) |
|
25,289 |
|
16,801 |
|
1,873 |
|
1,413 |
|
5,202 |
|
Total MGE Energy contractual
obligations |
$ |
1,245,505 |
$ |
194,527 |
$ |
194,795 |
$ |
144,423 |
$ |
711,760 |
|
|
|
|
|
|
|
|
|
|
|
|
|
MGE |
|
|
|
|
|
|
|
|
|
|
|
Long-term debt(a) |
$ |
426,883 |
$ |
24,452 |
$ |
24,212 |
$ |
9,660 |
$ |
368,559 |
|
Short-term
debt(b) |
|
4,000 |
|
4,000 |
|
- |
|
- |
|
- |
|
Repurchase-to-maturity transactions
- loans(c) |
|
3,130 |
|
538 |
|
1,079 |
|
816 |
|
697 |
|
Interest
expense(d) |
|
300,796 |
|
19,467 |
|
36,665 |
|
34,692 |
|
209,972 |
|
Operating
leases(e) |
|
10,521 |
|
1,205 |
|
1,053 |
|
552 |
|
7,711 |
|
Purchase
obligations(f) |
|
474,886 |
|
128,064 |
|
129,913 |
|
97,290 |
|
119,619 |
|
Other
obligations(g) |
|
13,780 |
|
5,292 |
|
1,873 |
|
1,413 |
|
5,202 |
|
Total MGE contractual obligations
|
$ |
1,233,996 |
$ |
183,018 |
$ |
194,795 |
$ |
144,423 |
$ |
711,760 |
(a)
Long-term
debt consisting of secured first mortgage bonds, unsecured medium-term notes,
and Industrial Development Revenue Bonds issued by MGE, and private placement
debt issued by MGE, MGE Power Elm Road, and MGE Power West Campus.
(b)
Short-term
debt consisting of commercial paper for MGE. See Footnote 10 of the Notes
to Consolidated Financial Statements.
(c)
Chattel
paper agreements. See Footnote 1.g. of the Notes to Consolidated Financial
Statements.
(d)
Amount
represents interest expense on long-term debt. See Footnote 9 of the Notes
to Consolidated Financial Statements for further discussion of the long-term
debt outstanding at December 31, 2017.
(e)
Operating
leases. See Footnote 17.b. of the Notes to Consolidated Financial
Statements.
(f)
Purchase
obligations for MGE Energy and MGE consist primarily of the purchase of
electricity and natural gas, electric transmission, natural gas storage
capacity, natural gas pipeline transportation, and the purchase and transport of
coal. See Footnote 17.a. of the Notes to Consolidated Financial
Statements.
(g)
Other
obligations are primarily related to investment commitments, easements,
environmental projects, fuel credit, and uncertain tax positions.
The above amounts do not include any contributions for
MGE's pension and postretirement plans. MGE does not expect to need to make any
required contributions to the qualified plans for 2018 or 2019. The
contributions for years after 2019 are not yet currently estimated. Due to
uncertainties in the future economic performance of plan assets, discount rates,
and other key assumptions, estimated contributions are subject to change. MGE
may also elect to make additional discretionary contributions to the plans.
The above amounts do not include future capital calls by
ATC and ATC Holdco. In January 2018, MGE Transco made a $0.7 million
capital contribution to ATC, and MGEE Transco made a $0.1 million capital
contribution to ATC Holdco. The amount and timing of future capital calls to
these entities is uncertain and primarily dependent on the operations and
expansion of ATC and ATC Holdco.
MGE Energy's and MGE's commercial commitments as of
December 31, 2017, representing commitments triggered by future events and
including financing arrangements to secure obligations of MGE Energy and MGE,
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
Expiration
Within: |
|
Due After |
|
|
|
(In thousands) |
|
Total |
|
1 Year |
|
2-3 Years |
|
4-5 Years |
|
5 Years |
|
|
|
MGE Energy |
|
|
|
|
|
|
|
|
|
|
|
|
|
Available lines of
credit(a) |
$ |
150,000 |
$ |
- |
$ |
150,000 |
$ |
- |
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MGE |
|
|
|
|
|
|
|
|
|
|
|
|
|
Available lines of
credit(b) |
$ |
100,000 |
$ |
- |
$ |
100,000 |
$ |
- |
$ |
- |
|
(a)
Amount
includes the facilities discussed in (b) plus an additional line of credit. MGE
Energy has available at any time a $50 million committed revolving credit
agreement, expiring in June 2020. At December 31, 2017, MGE Energy had
no borrowings outstanding under this credit facility.
(b)
Amount
includes two committed revolving credit agreements totaling $100 million
expiring in June 2020. These credit facilities are used to support
commercial paper issuances. At December 31, 2017, MGE had no borrowings
outstanding under these facilities. On that date, MGE had $4.0 million of
commercial paper outstanding.
Other
Matters
ATC
In 2013, several parties filed a complaint with the FERC
seeking to reduce the base return on equity (ROE) used by MISO transmission
owners, including ATC, "due to changes in the capital markets." The complaint
alleged that the MISO ROE should not exceed 9.15%, the equity components of
hypothetical capital structures should be restricted to 50%, and the relevant
incentive ROE adders should be discontinued. At the time, MISO's base ROE was
12.38% and ATC's base ROE was 12.2%. In February 2015, a second complaint
was filed for the period February 2015 through May 2015 with the FERC
requesting a reduction in the base ROE used by MISO transmission owners,
including ATC, to 8.67%, with a refund effective date retroactive to the filing
date of the complaint. In June 2016, an administrative law judge issued an
initial decision for the second complaint that would reduce the transmission
owner's base ROE to 9.7%. The initial decision will be reviewed by FERC. It is
anticipated FERC will issue an order on this issue in the beginning of 2018. On
September 28, 2016, FERC issued an order on the first complaint, for the
period November 2013 through February 2015, reducing the base ROE to
10.32%. This base ROE also became effective September 28, 2016, and will
apply to future periods until FERC rules in the second complaint, at which time
the base ROE ordered by FERC in the second complaint will prospectively become
the authorized base ROE. Any change to ATC's ROE could result in lower equity
earnings and distributions from ATC in the future.
In January 2015, FERC accepted the transmission
owner's request for a 50 basis-point incentive ROE adder for participating in
MISO. The adder became effective January 6, 2015.
FERC staff has challenged certain aspects of ATC's
implementation of its formula rate tariff. Although ATC disagrees with FERC
staff's interpretation of the tariff, ATC has determined that it is probable
that FERC will require a refund.
Our share of ATC's earnings reflects a pre-tax adjustment
of $0.5 million and $1.9 million for 2017 and 2016, respectively,
recorded by ATC for these matters representing its estimate of its refund
liability. We derived approximately 6.2% and 6.8% of our net income for 2017 and
2016, respectively, from our investment in ATC.
Critical Accounting Estimates -
MGE Energy and MGE
The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities. On an on-going basis, we evaluate our
estimates, including those related to unbilled revenues, allowance for doubtful
accounts, pension obligations, income taxes, derivatives, and regulatory assets
and liabilities. We base our estimates on historical experience and on various
assumptions that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources.
Those values may differ from these estimates under different assumptions or
conditions. We believe the following critical accounting estimates affect our
more significant judgments used in the preparation of our consolidated financial
statements.
Unbilled Revenues
Revenues from the sale of electricity and gas to
customers are recorded when electricity/gas is delivered to those customers. The
quantity of those sales is measured by customers' meters. Due to the large
volume of those meters, it is impractical to read all of them at month end.
Meters are read on a systematic basis throughout the month based on established
meter-reading schedules. Consequently, at the end of any month, there exists a
quantity of electricity and gas that has been delivered to customers but has not
been captured by the meter readings. As a result, management must estimate
revenue related to electricity and gas delivered to customers between their
meter-read dates and the end of the period. These estimates include:
·
The amount of
electricity expected to be lost in the process of its transmission and
distribution to customers (line loss) and the amount of electricity actually
delivered to customers.
·
The amount of gas
expected to be lost in the process of its distribution to customers and the
amount of gas actually delivered to customers.
·
The mix of sales
between customer rate classes, which is based upon historical utilization
assumptions.
MGE monitors the
reasonableness of the unbilled revenue estimate through the review of ratios
such as unbilled electric consumption compared to billed electric sales. In the
case of unbilled gas, the estimated unbilled consumption is compared to various
other statistics, including percent of gas available for sale, change in
unbilled month to month and change in unbilled compared to the prior year in
order to confirm its reasonableness.
Allowance for Doubtful Accounts
MGE maintains allowances for doubtful accounts for
estimated losses resulting from the inability of its customers to make required
payments. It determines the allowance based on historical write-off experience,
regional economic data, and review of the accounts receivable aging. MGE reviews
its allowance for doubtful accounts monthly. Although management believes that
the allowance for doubtful accounts is MGE's best estimate of the amount of
probable credit losses, if the financial condition of MGE's customers were to
deteriorate, resulting in an impairment of their ability to make payments,
additional allowances may be required.
Pension and Other Postretirement Benefit Plans
MGE provides employees with certain retirement (pension)
and postretirement (health care and life insurance) benefits. In order to
measure the expense and obligations associated with these benefits, management
must make a variety of estimates, including discount rates used to value certain
liabilities, the expected return on plan assets set aside to fund these costs,
the rate of compensation increase, employee turnover rates, retirement rates,
health care trends, mortality rates, and other factors. These accounting
estimates bear the risk of change due to the uncertainty attached to the
estimate as well as the fact that these estimates are difficult to measure.
Different estimates used by us could result in recognizing different amounts of
expense over different periods of time. Recovery in rates is expected.
We use third-party specialists to assist us in evaluating
our assumptions as well as appropriately measure the costs and obligations
associated with these retirement benefits. The discount rate and expected return
on plan assets are based primarily on available investment yields and the
historical performance of our plan assets. They are critical accounting
estimates because they are subject to management's judgment and can materially
affect net income.
·
Assumed return
on assets. This assumption represents the rate of return on plan assets
reflecting the average rate of earnings expected on the funds invested (or to be
invested) to provide for the benefits included in the projected benefit
obligation. For 2017, MGE used an assumed return on assets of 7.40% for pension
and 6.80% for other postretirement benefits. In 2018, the pension asset
assumption will remain at 7.40%. MGE will increase the postretirement benefit
assumption from 6.80% to 6.87% in 2018. The annual expected rate of return is
based on projected long-term equity and bond returns, maturities and asset
allocations. Holding other assumptions constant, for every 1% reduction in the
expected rate of return on plan assets, annual pension and other postretirement
cost would increase by approximately $3.5 million, before taxes.
·
Discount
rate. The discount rate represents the rate at which pension obligations
could effectively be settled on a present-value basis. MGE uses high-grade bond
yields as a benchmark for determining the appropriate discount rate. MGE uses
individual spot rates, instead of a weighted average of the yield curve spot
rates, for measuring the service cost and interest cost components for net
periodic benefit cost. Holding other assumptions constant, a 0.5% reduction in
the discount rate on the obligation balance at December 31, 2017, would
increase annual pension and other postretirement cost by approximately
$3.2 million, before taxes.
·
Medical trend
assumptions. The health care cost trend rate is the assumed rate of increase
in per-capita health care charges.
·
Mortality rate
assumption. Expected mortality rates are used in the valuation to determine
the expected duration of future benefit payments to the plan participants. MGE
utilizes mortality tables and projection scales developed by a third party
actuary that were updated in 2016.
See Footnote 13 of the Notes to Consolidated
Financial Statements for additional discussion of these plans.
Income Tax Provision
MGE Energy's and MGE's income tax provisions, including
both current and deferred components, are based on estimates, assumptions,
calculations, and interpretation of tax statutes for the current and future
years. Determination of current-year federal and state income tax will not be
settled for years.
Management regularly makes
assessments of tax return outcomes relative to financial statement tax
provisions and adjusts the tax provisions in the period when facts become
final.
Additionally, in determining our current income tax
provision, we assess temporary differences resulting from differing treatments
of items for tax and accounting purposes. These differences result in deferred
tax assets and liabilities, which are recorded in our balance sheets. When we
maintain deferred tax assets, we assess the likelihood that these assets will be
recovered through adjustments to future taxable income. Future tax benefits are
recognized to the extent that realization of such benefits is more likely than
not. A valuation allowance is recorded for those benefits that do not meet this
criterion. We record an allowance reducing the asset to a value we believe will
be recoverable based on our expectation of future taxable income. We believe the
accounting estimate related to the valuation allowance is a critical accounting
estimate because it is highly susceptible to change from period to period as it
requires management to make assumptions about our future income over the lives
of the deferred tax assets, and the impact of increasing or decreasing the
valuation allowance is potentially material to our results of operations.
On December 22, 2017, President Trump signed the Tax
Act into law. The passing of the law significantly lowers MGE's corporate tax
rates and triggered a remeasurement of deferred taxes. We have reflected
estimates of the impact of the Tax Act in our year-end 2017 financial results;
however, those estimates could be affected by, and require subsequent adjustment
as a result of, clarity and regulatory guidance that develops around the Tax Act
and its implementation during 2018. Furthermore, while regulation allows us to
incorporate changes in tax law into the rate-setting process, there will most
likely be timing delays before realization of the changes.
Accounting for uncertainty in income taxes applies to all
tax positions and requires a recognition threshold and measurement standard for
the financial statement recognition and measurement of a tax position taken, or
expected to be taken, in an income tax return. The threshold is defined for
recognizing tax return positions in the financial statements as "more likely
than not" that the position is sustainable, based on its merits. Subsequent
recognition, derecognition, and measurement is based on management's best
judgment given the facts, circumstances and information available at the
reporting date.
Accounting for Derivative Instruments
MGE accounts for derivative financial instruments, except
those qualifying for the normal purchase normal sale exception, at their fair
value on the balance sheet. Fair value is determined using current quoted market
prices, except for the PPA, which is valued utilizing an internally-developed
pricing model. This model includes observable and unobservable inputs.
MGE received approval from the PSCW to establish a
regulatory asset or liability for the deferral of the effects of mark-to-market
accounting on contracts related to commodity hedging in MGE's regulated
operations.
Regulatory Assets/Liabilities
Regulatory assets represent costs that have been deferred
to future periods when it is probable that the regulator will allow future
recovery of those costs through rates. MGE bases its assessment of recovery on
precedents established by the regulatory body. Regulatory liabilities represent
previous collections from customers that are expected to be refunded to
customers in future periods. Regulatory assets and regulatory liabilities
typically include deferral of energy costs, the normalization of income taxes,
the deferral of certain operating expenses, and non-ARO removal costs. The
accounting for these regulatory assets and liabilities is in accordance with
regulatory accounting standards.
MGE continually assesses whether the regulatory assets
and liabilities meet the criteria for probability of future recovery or
deferral. This assessment considers factors such as changes in the regulatory
environment, recent rate orders to other regulated entities under the same
jurisdiction, and the status of any pending or potential deregulation
legislation. If future recovery of costs becomes no longer probable, the assets
and liabilities would be recognized as current-period revenues or expenses.
Amortization of regulatory assets and liabilities is
provided over the recovery or deferral period as allowed in the related
regulatory agreement.
Adoption of Accounting Principles and Recently Issued
Accounting Pronouncements - MGE Energy and MGE
See Footnote 19 of the Notes to Consolidated
Financial Statements for discussion of new accounting pronouncements.
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk.
MGE Energy and MGE are potentially exposed to market risk
associated with interest rates, commodity prices, and equity returns. MGE
currently has no exposure to foreign currency risk. MGE manages some risk
exposure through risk management policies and the use of derivative instruments.
MGE's risk management policy prohibits speculative trading transactions.
Commodity Price Risk
MGE has commodity price risk exposure with respect to the
price of natural gas, electricity, coal, emission credits, and oil. MGE's
electric operations burn natural gas in several of its peaking power plants and,
in many cases, the cost of purchased power is tied to the cost of natural gas.
MGE employs established policies and procedures to reduce the market risks
associated with changing commodity prices. MGE's commodity risks are somewhat
mitigated by the current ratemaking process in place for recovering electric
fuel cost, purchased energy costs, and the cost of natural gas.
MGE's electric fuel costs are subject to fuel rules
established by the PSCW. The fuel rules require the PSCW and Wisconsin utilities
to defer electric fuel-related costs that fall outside a symmetrical cost
tolerance band. Any over/under recovery of the actual costs in a year outside of
the symmetrical cost tolerance band is determined in the following year and is
then reflected in future billings to electric retail customers. Under the
electric fuel rules, MGE is required to defer the benefit of lower costs if the
actual electric fuel costs fall outside the lower end of the range and is
required to defer costs, less any excess revenues, if the actual electric fuel
costs exceed the upper end of the range. Excess revenues are defined as revenues
in the year in question that provide MGE with a greater return on common equity
than authorized by the PSCW in MGE's latest rate order. The range is defined by
the PSCW and has been modified throughout the years based on market conditions
and other relevant factors. Currently, MGE is subject to a plus or minus 2%
range. MGE assumes the risks and benefits of variances that are within the cost
tolerance band. For 2018, fuel and purchased power costs included in MGE's fuel
monitoring level rates are $102.4 million. See Footnote 16 of the
Notes to Consolidated Financial Statements for additional information.
MGE recovers the cost of natural gas in its gas utility
segment through the purchased gas adjustment clause (PGA). Under the PGA, MGE is
able to pass through to its gas customers the cost of gas.
MGE also reduces price risk caused by market fluctuations
via physical contracts and financial derivative contracts, including futures,
swaps, options, forwards, and other contractual commitments. The maximum length
of time over which cash flows related to energy commodities can be hedged under
applicable PSCW approvals is four years.
MGE has financial gas and electric commodity contracts to
hedge commodity price risk in the gas and electric utility segments. These
contracts are primarily comprised of exchange-traded option and future
contracts. MGE also holds financial transmission rights (FTRs), which are used
to hedge the risk of increased transmission congestion charges. At
December 31, 2017, the fair value of these instruments exceeded their cost
basis by $0.2 million. Under the PGA clause and electric fuel rules, MGE
may include the costs and benefits of the aforementioned fuel price risk
management tools in the costs of fuel (natural gas or power). Because these
costs/benefits are recoverable, the related unrealized loss/gain has been
deferred on the consolidated balance sheets as a regulatory asset/liability.
MGE has also entered into a purchased power agreement
that provides MGE with firm capacity and energy that began on June 1, 2012,
and ends on May 31, 2022 (the "base term"). The agreement also allows MGE
an option to extend the contract after the base term. The agreement is
considered a derivative contract and is recognized at its fair value on the
consolidated balance sheets. However, the derivative qualifies for regulatory
deferral and is recognized with a corresponding regulatory asset or liability
depending on whether the fair value is in a loss or gain position. The fair
value of the contract at December 31, 2017, reflects a loss position of
$42.2 million.
Interest Rate Risk
Both MGE Energy and MGE may have short term borrowings at
varying interest rates. MGE issues commercial paper for its short-term
borrowings, while MGE Energy draws from its current credit facility to meet its
short-term borrowing needs. Borrowing levels vary from period to period
depending upon capital investments and other factors. Future short-term interest
expense and payments will reflect both future short-term interest rates and
borrowing levels. MGE Energy and MGE manage interest rate risk by limiting their
variable rate exposure and continually monitoring the effects of market changes
on interest rates. MGE is not exposed to changes in interest rates on a
substantial portion of its long-term debt until that debt matures and is
refinanced at market rates. Assuming the current level of variable rate
borrowings and assuming a 1% change in the 2017 average interest rate under
those borrowings, it is estimated that our 2017 interest expense and net income
would have changed less than $0.1 million for both MGE Energy and MGE.
Equity Price Risk -
Pension-Related Assets
MGE currently funds its liabilities related to employee
benefits through trust funds. These funds, which include investments in debt and
equity securities, are managed by various investment managers. Changes in market
value of these investments can have an impact on the future expenses related to
these liabilities. Holding other assumptions constant, for every 1% reduction in
the expected rate of return on plan assets, annual pension and other
postretirement cost would increase by approximately $3.5 million, before
taxes. MGE's risk of expense and annuity payments, as a result of changes in the
market value of the trust funds, is mitigated in part through future rate
actions by the PSCW. The value of employee benefit plans trusts' assets have
increased in value by approximately 18.36% and 8.36% during the years ended
December 31, 2017 and 2016, respectively.
Credit Risk - Counterparty
Credit risk is the loss that may result from counterparty
nonperformance. MGE is exposed to credit risk primarily through its merchant
energy business. MGE uses credit policies to manage its credit risk, which
include utilizing an established credit approval process, monitoring
counterparty limits, employing credit mitigation measures such as collateral or
prepayment arrangements, and using netting agreements.
Due to the possibility of extreme volatility in the
prices of energy commodities and derivatives, the market value of contractual
positions with individual counterparties could exceed established credit limits
or collateral provided by those counterparties. If such a counterparty were then
to fail to perform its obligations under its contract (for example, fail to
deliver the electricity MGE originally contracted for), MGE could sustain a loss
that could have a material impact on its financial results.
Additionally, if a counterparty were to default and MGE
were to liquidate all contracts with that entity, MGE's credit loss would
include the loss in value of mark-to-market contracts; the amount owed for
settled transactions; and additional payments, if any, to settle unrealized
losses on accrual contracts. As of December 31, 2017, no counterparties
have defaulted.
MGE is obligated to provide service to all electric and
gas customers within its respective franchised territories. MGE's franchised
electric territory includes a 316 square-mile area in Dane County, Wisconsin,
and MGE's franchised gas territory includes a service area covering 1,682 square
miles in Wisconsin. Based on results for December 31, 2017, no one customer
constituted more than 10% of total operating revenues for MGE Energy and MGE.
Credit risk for electric and gas is managed by MGE's credit and collection
policies, which are consistent with state regulatory requirements.
Cash, cash equivalents, and customer accounts receivable
are the financial instruments that potentially subject MGE Energy and MGE to
concentrations of credit risk. MGE Energy and MGE place their cash and cash
equivalents with high credit-quality financial institutions. MGE has limited
concentrations of credit risk from customer accounts receivable because of the
large number of customers and relatively strong economy in its service
territory.
Item 8.
Financial Statements and Supplementary Data.
MGE Energy
Management's Report on Internal Control Over
Financial Reporting
Our management is responsible for establishing and
maintaining adequate internal control over financial reporting, as such term is
defined in Exchange Act Rule 13a-15(f). Under the supervision and with the
participation of our management, including our principal executive officer and
principal financial officer, we conducted an assessment of the effectiveness of
our internal control over financial reporting based on the framework in the
Internal Control - Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Based on our assessment
under the framework in the Internal Control - Integrated Framework (2013), our
management concluded that our internal control over financial reporting was
effective as of December 31, 2017.
Because of its inherent limitations, internal control
over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to
the risk that controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may
deteriorate.
The effectiveness of MGE Energy's internal control over
financial reporting as of December 31, 2017, has been audited by
PricewaterhouseCoopers LLP, an independent registered public accounting firm, as
stated in their report which appears herein.
February 23, 2018
MGE
Management's Report on Internal Control Over
Financial Reporting
Our management is responsible for establishing and
maintaining adequate internal control over financial reporting, as such term is
defined in Exchange Act Rule 13a-15(f). Under the supervision and with the
participation of our management, including our principal executive officer and
principal financial officer, we conducted an assessment of the effectiveness of
our internal control over financial reporting based on the framework in the
Internal Control - Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Based on our assessment
under the framework in the Internal Control - Integrated Framework (2013), our
management concluded that our internal control over financial reporting was
effective as of December 31, 2017.
Because of its inherent limitations, internal control
over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to
the risk that controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may
deteriorate.
February 23, 2018
Report of Independent
Registered Public Accounting Firm
To the Board of Directors and Shareholders of MGE Energy,
Inc.:
Opinions on the Financial Statements and Internal
Control over Financial Reporting
We have audited the accompanying consolidated balance
sheets of MGE Energy, Inc. and its subsidiaries as of December 31,
2017 and 2016, and the related consolidated statements of income,
comprehensive income, cash flows and common equity for each of the three years
in the period ended December 31, 2017, including the related notes and
financial statement schedules listed in the index appearing under Item 15(a)(2)
(collectively referred to as the "consolidated financial statements"). We
also have audited the Company's internal control over financial reporting as of
December 31, 2017, based on criteria established in Internal Control -
Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the financial
position of the Company as of December 31, 2017 and 2016, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 2017 in conformity with accounting principles
generally accepted in the United States of America. Also in our opinion, the
Company maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2017, based on criteria established
in Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these
consolidated financial statements, for maintaining effective internal control
over financial reporting, and for its assessment of the effectiveness of
internal control over financial reporting, included in the accompanying
Management's Report on Internal Control over Financial Reporting. Our
responsibility is to express opinions on the Company's consolidated financial
statements and on the Company's internal control over financial reporting based
on our audits. We are a public accounting firm registered with the Public
Company Accounting Oversight Board (United States) ("PCAOB") and are required to
be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards
of the PCAOB. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement, whether due to error or fraud, and whether
effective internal control over financial reporting was maintained in all
material respects.
Our audits of the consolidated financial statements
included performing procedures to assess the risks of material misstatement of
the consolidated financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in
the consolidated financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well
as evaluating the overall presentation of the consolidated financial statements.
Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk
that a material weakness exists, and testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk. Our
audits also included performing such other procedures as we considered necessary
in the circumstances. We believe that our audits provide a reasonable basis for
our opinions.
Definition and Limitations of Internal Control over
Financial Reporting
A company's internal control over financial reporting is
a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles. A
company's internal control over financial reporting includes those policies and
procedures that (i) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the
assets of the company; (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company's assets that could have a
material effect on the financial statements.
Because of its inherent
limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
Chicago, Illinois
February 23, 2018
We have served as the Company's auditor since 1993.
Report of Independent Registered Public Accounting
Firm
To the Board of Directors and Shareholder of Madison Gas
and Electric Company:
Opinion on the Financial Statements
We have audited the accompanying consolidated balance
sheets of Madison Gas and Electric Company and its subsidiaries as of
December 31, 2017 and 2016, and the related consolidated statements of
income, comprehensive income, cash flows and common equity for each of the three
years in the period ended December 31, 2017, including the related notes
and financial statement schedule listed in the index appearing under Item
15(a)(2) (collectively referred to as the "consolidated financial statements").
In our opinion, the consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of December 31,
2017 and 2016, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 2017 in conformity with
accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the Company's consolidated financial statements based on our audits.
We are a public accounting firm registered with the Public Company Accounting
Oversight Board (United States) ("PCAOB") and are required to be independent
with respect to the Company in accordance with the U.S. federal securities laws
and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audits of these consolidated financial
statements in accordance with the standards of the PCAOB. Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free of material misstatement,
whether due to error or fraud. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial reporting.
As part of our audits we are required to obtain an understanding of internal
control over financial reporting but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the
risks of material misstatement of the consolidated financial statements, whether
due to error or fraud, and performing procedures that respond to those risks.
Such procedures included examining, on a test basis, evidence regarding the
amounts and disclosures in the consolidated financial statements. Our audits
also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of
the consolidated financial statements. We believe that our audits provide a
reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Chicago, Illinois
February 23, 2018
We have served as the Company's auditor since 1993.
MGE Energy, Inc.
Consolidated Statements
of Income
(In thousands, except
per share amounts)
|
|
|
|
|
|
|
| |
|
|
|
For the Years Ended
December 31, |
|
|
|
|
2017 |
|
2016 |
|
2015 |
|
|
Operating Revenues: |
|
|
|
|
|
|
|
|
Electric
revenues |
$ |
414,274 |
$ |
410,202 |
$ |
420,291 |
|
|
Gas
revenues |
|
148,825 |
|
134,543 |
|
143,737 |
|
|
Total
Operating Revenues |
|
563,099 |
|
544,745 |
|
564,028 |
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses: |
|
|
|
|
|
|
|
|
Fuel for
electric generation |
|
53,029 |
|
60,736 |
|
53,858 |
|
|
Purchased
power |
|
58,690 |
|
56,313 |
|
81,224 |
|
|
Cost of gas
sold |
|
76,644 |
|
66,771 |
|
76,109 |
|
|
Other
operations and maintenance |
|
173,629 |
|
167,989 |
|
164,478 |
|
|
Depreciation
and amortization |
|
53,077 |
|
44,646 |
|
44,225 |
|
|
Other
general taxes |
|
19,294 |
|
20,062 |
|
19,879 |
|
|
Total
Operating Expenses |
|
434,363 |
|
416,517 |
|
439,773 |
|
|
Operating Income |
|
128,736 |
|
128,228 |
|
124,255 |
|
|
|
|
|
|
|
|
|
|
|
Other income, net |
|
10,288 |
|
9,711 |
|
8,613 |
|
|
Interest expense, net |
|
(19,324) |
|
(19,866) |
|
(20,162) |
|
|
Income
before income taxes |
|
119,700 |
|
118,073 |
|
112,706 |
|
|
Income tax provision |
|
(22,094) |
|
(42,513) |
|
(41,363) |
|
|
Net Income |
$ |
97,606 |
$ |
75,560 |
$ |
71,343 |
|
|
|
|
|
|
|
|
|
|
|
Earnings Per Share of Common
Stock |
|
|
|
|
|
|
|
|
(basic and diluted) |
$ |
2.82 |
$ |
2.18 |
$ |
2.06 |
|
|
|
|
|
|
|
|
|
|
|
Dividends per share of common
stock |
$ |
1.26 |
$ |
1.21 |
$ |
1.16 |
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Shares
Outstanding |
|
|
|
|
|
|
|
|
(basic and diluted) |
|
34,668 |
|
34,668 |
|
34,668 |
|
|
|
|
|
|
|
|
|
|
|
The accompanying
notes are an integral part of the above consolidated financial
statements. |
|
MGE Energy, Inc.
Consolidated Statements
of Comprehensive Income
(In thousands)
|
|
|
|
|
|
|
| |
|
|
|
For the Years Ended
December 31, |
|
|
|
|
2017 |
|
2016 |
|
2015 |
|
|
Net Income |
$ |
97,606 |
$ |
75,560 |
$ |
71,343 |
|
|
Other comprehensive income, net of
tax: |
|
|
|
|
|
|
|
|
Unrealized
gain (loss) on available-for-sale securities, net of |
|
|
|
|
|
|
|
|
tax
($(117), $104, and $67) |
|
175 |
|
(155) |
|
(101) |
|
|
Comprehensive Income |
$ |
97,781 |
$ |
75,405 |
$ |
71,242 |
|
|
|
|
|
|
|
|
|
|
|
The accompanying
notes are an integral part of the above consolidated financial
statements. |
|
MGE Energy, Inc.
Consolidated Statements
of Cash Flows
(In thousands)
|
|
|
|
|
|
| |
|
|
|
For the Years Ended
December 31, |
|
|
|
2017 |
|
2016 |
|
2015 |
|
Operating Activities: |
|
|
|
|
|
|
|
Net
income |
$ |
97,606 |
$ |
75,560 |
$ |
71,343 |
|
Items not
affecting cash: |
|
|
|
|
|
|
|
Depreciation
and amortization |
|
53,077 |
|
44,646 |
|
44,225 |
|
Deferred
income taxes |
|
(4,082) |
|
22,421 |
|
21,927 |
|
Provision
for doubtful receivables |
|
1,016 |
|
1,196 |
|
596 |
|
Employee
benefit plan cost |
|
831 |
|
295 |
|
3,333 |
|
Equity
earnings in ATC |
|
(10,125) |
|
(8,428) |
|
(7,728) |
|
Gain
on sale of property |
|
(1,547) |
|
- |
|
- |
|
Other
items |
|
748 |
|
1,426 |
|
721 |
|
Changes in
working capital items: |
|
|
|
|
|
|
|
Trade
and other receivables |
|
(4,502) |
|
(3,594) |
|
4,508 |
|
Inventories |
|
(2,568) |
|
7,273 |
|
(2,646) |
|
Unbilled
revenues |
|
(1,554) |
|
(4,838) |
|
6,254 |
|
Prepaid
taxes |
|
101 |
|
8,616 |
|
3,658 |
|
Other
current assets |
|
(1,275) |
|
700 |
|
978 |
|
Accounts
payable |
|
(5,290) |
|
9,881 |
|
(3,499) |
|
Other
current liabilities |
|
3,948 |
|
(1,738) |
|
(597) |
|
Dividends
from ATC |
|
8,803 |
|
5,854 |
|
6,645 |
|
Cash
contributions to pension and other postretirement plans |
|
(11,304) |
|
(14,452) |
|
(13,676) |
|
Other
noncurrent items, net |
|
9,108 |
|
2,695 |
|
5,143 |
|
Cash
Provided by Operating Activities |
|
132,991 |
|
147,513 |
|
141,185 |
|
Investing Activities: |
|
|
|
|
|
|
|
Capital
expenditures |
|
(108,131) |
|
(83,659) |
|
(72,030) |
|
Capital
contributions to investments |
|
(11,081) |
|
(2,958) |
|
(1,053) |
|
Proceeds
from sale of property |
|
2,819 |
|
- |
|
- |
|
Other |
|
32 |
|
(209) |
|
(230) |
|
Cash
Used for Investing Activities |
|
(116,361) |
|
(86,826) |
|
(73,313) |
|
Financing Activities: |
|
|
|
|
|
|
|
Cash
dividends paid on common stock |
|
(43,682) |
|
(41,775) |
|
(40,043) |
|
Repayment
of long-term debt |
|
(34,358) |
|
(4,267) |
|
(4,182) |
|
Issuance of
long-term debt |
|
70,000 |
|
- |
|
- |
|
Proceeds
from (repayments of) short-term debt |
|
4,000 |
|
- |
|
(7,000) |
|
Other |
|
(597) |
|
(70) |
|
(1,018) |
|
Cash
Used for Financing Activities |
|
(4,637) |
|
(46,112) |
|
(52,243) |
|
Change in
cash and cash equivalents: |
|
11,993 |
|
14,575 |
|
15,629 |
|
Cash and
cash equivalents at beginning of period |
|
95,959 |
|
81,384 |
|
65,755 |
|
Cash and
cash equivalents at end of period |
$ |
107,952 |
$ |
95,959 |
$ |
81,384 |
|
|
|
|
|
|
|
|
|
Supplemental Disclosures of Cash
Flow Information: |
|
|
|
|
|
|
|
Interest
paid |
$ |
19,176 |
$ |
19,415 |
$ |
19,636 |
|
Income
taxes paid |
$ |
27,149 |
$ |
21,831 |
$ |
23,800 |
|
Income
taxes received |
$ |
- |
$ |
(10,000) |
$ |
(10,130) |
|
Significant
noncash investing activities: |
|
|
|
|
|
|
|
Accrued
capital expenditures |
$ |
16,602 |
$ |
16,376 |
$ |
3,963 |
|
|
|
|
|
|
|
|
|
The accompanying
notes are an integral part of the above consolidated financial
statements. |
MGE Energy, Inc.
Consolidated Balance
Sheets
(In thousands)
|
|
|
|
| |
|
|
|
At
December 31, |
|
ASSETS |
|
2017 |
|
2016 |
|
Current Assets: |
|
|
|
|
|
Cash and
cash equivalents |
$ |
107,952 |
$ |
95,959 |
|
Accounts
receivable, less reserves of $2,840 and $3,017, respectively |
|
42,299 |
|
39,887 |
|
Other
accounts receivable, less reserves of $335 and $426, respectively |
|
9,440 |
|
8,530 |
|
Unbilled
revenues |
|
31,400 |
|
29,846 |
|
Materials
and supplies, at average cost |
|
22,614 |
|
18,561 |
|
Fuel for
electric generation, at average cost |
|
8,256 |
|
9,757 |
|
Stored
natural gas, at average cost |
|
12,923 |
|
12,819 |
|
Prepaid
taxes |
|
26,535 |
|
26,636 |
|
Regulatory
assets - current |
|
7,888 |
|
6,414 |
|
Assets held
for sale |
|
8,817 |
|
14,813 |
|
Other
current assets |
|
12,507 |
|
12,293 |
|
Total
Current Assets |
|
290,631 |
|
275,515 |
|
Other long-term receivables |
|
4,788 |
|
5,603 |
|
Regulatory assets |
|
142,567 |
|
158,485 |
|
Pension and other postretirement
benefit asset |
|
7,336 |
|
2,020 |
|
Other deferred assets and
other |
|
731 |
|
1,088 |
|
Property, Plant, and
Equipment: |
|
|
|
|
|
Property,
plant, and equipment, net |
|
1,283,313 |
|
1,245,269 |
|
Construction
work in progress |
|
58,044 |
|
36,790 |
|
Total
Property, Plant, and Equipment |
|
1,341,357 |
|
1,282,059 |
|
Investments |
|
67,772 |
|
76,290 |
|
Total
Assets |
$ |
1,855,182 |
$ |
1,801,060 |
|
|
|
|
|
|
|
LIABILITIES AND
CAPITALIZATION |
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
Long-term
debt due within one year |
$ |
24,452 |
$ |
4,333 |
|
Short-term
debt |
|
4,000 |
|
- |
|
Accounts
payable |
|
47,645 |
|
47,799 |
|
Accrued
interest and taxes |
|
5,602 |
|
5,495 |
|
Accrued
payroll related items |
|
12,244 |
|
11,892 |
|
Regulatory
liabilities - current |
|
5,633 |
|
6,910 |
|
Derivative
liabilities |
|
8,180 |
|
7,620 |
|
Other
current liabilities |
|
18,758 |
|
19,456 |
|
Total
Current Liabilities |
|
126,514 |
|
103,505 |
|
Other Credits: |
|
|
|
|
|
Deferred
income taxes |
|
225,130 |
|
383,813 |
|
Investment
tax credit - deferred |
|
918 |
|
947 |
|
Regulatory
liabilities |
|
154,153 |
|
22,173 |
|
Accrued
pension and other postretirement benefits |
|
69,088 |
|
74,347 |
|
Derivative
liabilities |
|
33,990 |
|
42,970 |
|
Other
deferred liabilities and other |
|
69,041 |
|
66,426 |
|
Total
Other Credits |
|
552,320 |
|
590,676 |
|
Capitalization: |
|
|
|
|
|
Common
shareholders' equity: |
|
|
|
|
|
Common
Stock - $1 par value - 75,000 shares authorized; |
|
|
|
|
|
34,668
shares issued and outstanding |
|
34,668 |
|
34,668 |
|
Additional
paid-in capital |
|
316,268 |
|
316,268 |
|
Retained
earnings |
|
426,874 |
|
372,950 |
|
Accumulated
other comprehensive income, net of tax |
|
377 |
|
202 |
|
Total
Common Shareholders' Equity |
|
778,187 |
|
724,088 |
|
Long-term
debt |
|
398,161 |
|
382,791 |
|
Total
Capitalization |
|
1,176,348 |
|
1,106,879 |
|
Commitments and contingencies (see
Footnote 17) |
|
|
|
|
|
Total
Liabilities and Capitalization |
$ |
1,855,182 |
$ |
1,801,060 |
|
|
|
|
|
|
|
The accompanying
notes are an integral part of the above consolidated financial
statements. |
MGE Energy, Inc.
Consolidated Statements
of Common Equity
(In thousands, except
per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
Other |
|
|
|
|
|
|
Common Stock |
|
Paid-in |
|
Retained |
|
Comprehensive |
|
|
|
|
|
|
Shares |
|
Value |
|
Capital |
|
Earnings |
|
Income/(Loss) |
|
Total |
|
|
|
2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance -
December 31, 2014 |
34,668 |
$ |
34,668 |
$ |
316,268 |
$ |
308,007 |
$ |
458 |
$ |
659,401 |
|
|
|
Cumulative effect of new accounting
principle |
|
|
|
|
|
|
(142) |
|
|
|
(142) |
|
|
|
Beginning balance - Adjusted |
|
|
|
|
|
|
307,865 |
|
|
|
659,259 |
|
|
|
Net income |
|
|
|
|
|
|
71,343 |
|
|
|
71,343 |
|
|
|
Other comprehensive loss |
|
|
|
|
|
|
|
|
(101) |
|
(101) |
|
|
|
Common stock dividends declared
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($1.16 per share) |
|
|
|
|
|
|
(40,043) |
|
|
|
(40,043) |
|
|
|
Ending balance - December 31,
2015 |
34,668 |
$ |
34,668 |
$ |
316,268 |
$ |
339,165 |
$ |
357 |
$ |
690,458 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
75,560 |
|
|
|
75,560 |
|
|
|
Other comprehensive loss |
|
|
|
|
|
|
|
|
(155) |
|
(155) |
|
|
|
Common stock dividends declared
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($1.21 per share) |
|
|
|
|
|
|
(41,775) |
|
|
|
(41,775) |
|
|
|
Ending balance - December 31,
2016 |
34,668 |
$ |
34,668 |
$ |
316,268 |
$ |
372,950 |
$ |
202 |
$ |
724,088 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
97,606 |
|
|
|
97,606 |
|
|
|
Other comprehensive income |
|
|
|
|
|
|
|
|
175 |
|
175 |
|
|
|
Common stock dividends
declared |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($1.26 per share) |
|
|
|
|
|
|
(43,682) |
|
|
|
(43,682) |
|
|
|
Ending balance - December 31,
2017 |
34,668 |
$ |
34,668 |
$ |
316,268 |
$ |
426,874 |
$ |
377 |
$ |
778,187 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying
notes are an integral part of the above consolidated financial
statements. |
|
Madison Gas and Electric Company
Consolidated Statements
of Income
(In thousands)
|
|
|
|
|
|
|
| |
|
|
|
For the Years Ended
December 31, |
|
|
|
|
2017 |
|
2016 |
|
2015 |
|
|
Operating Revenues: |
|
|
|
|
|
|
|
|
Electric
revenues |
$ |
414,277 |
$ |
410,226 |
$ |
420,313 |
|
|
Gas
revenues |
|
148,834 |
|
134,572 |
|
143,752 |
|
|
Total
Operating Revenues |
|
563,111 |
|
544,798 |
|
564,065 |
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses: |
|
|
|
|
|
|
|
|
Fuel for
electric generation |
|
53,031 |
|
60,745 |
|
53,866 |
|
|
Purchased
power |
|
58,692 |
|
56,327 |
|
81,237 |
|
|
Cost of gas
sold |
|
76,652 |
|
66,800 |
|
76,124 |
|
|
Other
operations and maintenance |
|
172,618 |
|
167,077 |
|
163,622 |
|
|
Depreciation
and amortization |
|
53,077 |
|
44,622 |
|
44,178 |
|
|
Other
general taxes |
|
19,294 |
|
20,062 |
|
19,879 |
|
|
Income tax
provision |
|
18,280 |
|
39,616 |
|
38,159 |
|
|
Total
Operating Expenses |
|
451,644 |
|
455,249 |
|
477,065 |
|
|
Operating Income |
|
111,467 |
|
89,549 |
|
87,000 |
|
|
|
|
|
|
|
|
|
|
|
Other Income and
Deductions: |
|
|
|
|
|
|
|
|
AFUDC -
equity funds |
|
1,222 |
|
1,207 |
|
712 |
|
|
Equity
earnings in MGE Transco |
|
- |
|
6,366 |
|
7,728 |
|
|
Income tax
provision |
|
(710) |
|
(2,175) |
|
(3,247) |
|
|
Other
income (deductions), net |
|
1,117 |
|
(217) |
|
(345) |
|
|
Total
Other Income and Deductions |
|
1,629 |
|
5,181 |
|
4,848 |
|
|
Income
before interest expense |
|
113,096 |
|
94,730 |
|
91,848 |
|
|
|
|
|
|
|
|
|
|
|
Interest Expense: |
|
|
|
|
|
|
|
|
Interest on
long-term debt |
|
20,273 |
|
20,351 |
|
20,520 |
|
|
Other
interest, net |
|
163 |
|
182 |
|
94 |
|
|
AFUDC -
borrowed funds |
|
(412) |
|
(395) |
|
(231) |
|
|
Net
Interest Expense |
|
20,024 |
|
20,138 |
|
20,383 |
|
|
Net Income |
$ |
93,072 |
$ |
74,592 |
$ |
71,465 |
|
|
Less Net Income Attributable to
Noncontrolling Interest, net of tax |
|
(43,237) |
|
(23,358) |
|
(26,097) |
|
|
Net Income Attributable to
MGE |
$ |
49,835 |
$ |
51,234 |
$ |
45,368 |
|
|
|
|
|
|
|
|
|
|
|
The accompanying
notes are an integral part of the above consolidated financial
statements. |
|
Madison Gas and Electric
Company
Consolidated Statements
of Comprehensive Income
(In thousands)
|
|
|
|
|
|
|
| |
|
|
|
For the Years Ended
December 31, |
|
|
|
|
2017 |
|
2016 |
|
2015 |
|
|
Net Income |
$ |
93,072 |
$ |
74,592 |
$ |
71,465 |
|
|
Other comprehensive income, net of
tax: |
|
|
|
|
|
|
|
|
Unrealized
loss on available-for-sale securities, net of |
|
|
|
|
|
|
|
|
tax ($31,
$2, and $81) |
|
(47) |
|
(4) |
|
(121) |
|
|
Comprehensive Income |
$ |
93,025 |
$ |
74,588 |
$ |
71,344 |
|
|
Less:
Comprehensive Income Attributable to Noncontrolling |
|
|
|
|
|
|
|
|
Interest,
net of tax |
|
(43,237) |
|
(23,358) |
|
(26,097) |
|
|
Comprehensive Income
Attributable to MGE |
$ |
49,788 |
$ |
51,230 |
$ |
45,247 |
|
|
|
|
|
|
|
|
|
|
|
The accompanying
notes are an integral part of the above consolidated financial
statements. |
|
Madison Gas and Electric Company
Consolidated Statements
of Cash Flows
(In thousands)
|
|
|
|
|
|
| |
|
|
|
For the Years Ended
December 31, |
|
|
|
2017 |
|
2016 |
|
2015 |
|
Operating Activities: |
|
|
|
|
|
|
|
Net
income |
$ |
93,072 |
$ |
74,592 |
$ |
71,465 |
|
Items not
affecting cash: |
|
|
|
|
|
|
|
Depreciation
and amortization |
|
53,077 |
|
44,622 |
|
44,178 |
|
Deferred
income taxes |
|
(7,760) |
|
20,876 |
|
18,843 |
|
Provision
for doubtful receivables |
|
1,016 |
|
1,196 |
|
596 |
|
Employee
benefit plan costs |
|
831 |
|
295 |
|
3,333 |
|
Equity
earnings in MGE Transco |
|
- |
|
(6,366) |
|
(7,728) |
|
Gain
on sale of property |
|
(1,547) |
|
- |
|
- |
|
Other
items |
|
1,515 |
|
1,954 |
|
1,223 |
|
Changes in
working capital items: |
|
|
|
|
|
|
|
Trade
and other receivables |
|
(4,113) |
|
(3,583) |
|
11,079 |
|
Inventories |
|
(2,568) |
|
7,273 |
|
(2,647) |
|
Unbilled
revenues |
|
(1,554) |
|
(4,838) |
|
6,254 |
|
Prepaid
taxes |
|
725 |
|
8,481 |
|
4,824 |
|
Other
current assets |
|
(1,277) |
|
699 |
|
976 |
|
Accounts
payable |
|
(5,312) |
|
9,941 |
|
(3,587) |
|
Accrued
interest and taxes |
|
118 |
|
419 |
|
(18) |
|
Other
current liabilities |
|
1,941 |
|
(2,137) |
|
1,885 |
|
Dividends
from MGE Transco |
|
- |
|
5,032 |
|
6,645 |
|
Cash
contributions to pension and other postretirement plans |
|
(11,304) |
|
(14,452) |
|
(13,677) |
|
Other
noncurrent items, net |
|
8,878 |
|
2,497 |
|
4,816 |
|
Cash
Provided by Operating Activities |
|
125,738 |
|
146,501 |
|
148,460 |
|
Investing Activities: |
|
|
|
|
|
|
|
Capital
expenditures |
|
(108,131) |
|
(83,659) |
|
(72,030) |
|
Capital
contributions to investments |
|
- |
|
(1,598) |
|
(710) |
|
Proceeds
from sale of property |
|
1,721 |
|
- |
|
- |
|
Other |
|
(248) |
|
(391) |
|
(180) |
|
Cash
Used for Investing Activities |
|
(106,658) |
|
(85,648) |
|
(72,920) |
|
Financing Activities: |
|
|
|
|
|
|
|
Cash
dividends paid to parent by MGE |
|
(45,000) |
|
(50,000) |
|
(30,000) |
|
Distributions
to parent from noncontrolling interest |
|
(18,000) |
|
(24,113) |
|
(14,708) |
|
Equity
contribution received by noncontrolling interest |
|
- |
|
1,598 |
|
3,230 |
|
Repayment
of long-term debt |
|
(34,358) |
|
(4,267) |
|
(4,182) |
|
Issuance of
long-term debt |
|
70,000 |
|
- |
|
- |
|
Proceeds
from (repayments of) short-term debt |
|
4,000 |
|
- |
|
(7,000) |
|
Other |
|
(539) |
|
(63) |
|
(682) |
|
Cash
Used for Financing Activities |
|
(23,897) |
|
(76,845) |
|
(53,342) |
|
Change in
cash and cash equivalents: |
|
(4,817) |
|
(15,992) |
|
22,198 |
|
Cash and
cash equivalents at beginning of period |
|
10,768 |
|
26,760 |
|
4,562 |
|
Cash and
cash equivalents at end of period |
$ |
5,951 |
$ |
10,768 |
$ |
26,760 |
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash
flow information: |
|
|
|
|
|
|
|
Interest
paid |
$ |
19,176 |
$ |
19,415 |
$ |
19,636 |
|
Income
taxes paid |
$ |
1 |
$ |
29 |
$ |
29 |
|
Significant
noncash investing activities: |
|
|
|
|
|
|
|
Accrued
capital expenditures |
$ |
16,602 |
$ |
16,376 |
$ |
3,963 |
|
Dividend
in kind to parent |
$ |
- |
$ |
15,822 |
$ |
- |
|
|
|
|
|
|
|
|
|
The accompanying
notes are an integral part of the above consolidated financial
statements. |
Madison Gas and Electric Company
Consolidated Balance
Sheets
(In thousands)
|
|
|
|
| |
|
|
|
At
December 31, |
|
ASSETS |
|
2017 |
|
2016 |
|
Current Assets: |
|
|
|
|
|
Cash and
cash equivalents |
$ |
5,951 |
$ |
10,768 |
|
Accounts
receivable, less reserves of $2,840 and $3,017, respectively |
|
42,299 |
|
39,887 |
|
Affiliate
receivables |
|
668 |
|
539 |
|
Other
accounts receivable, less reserves of $335 and $426, respectively |
|
6,984 |
|
6,363 |
|
Unbilled
revenues |
|
31,400 |
|
29,846 |
|
Materials
and supplies, at average cost |
|
22,614 |
|
18,561 |
|
Fuel for
electric generation, at average cost |
|
8,256 |
|
9,757 |
|
Stored
natural gas, at average cost |
|
12,923 |
|
12,819 |
|
Prepaid
taxes |
|
25,073 |
|
25,798 |
|
Regulatory
assets - current |
|
7,888 |
|
6,414 |
|
Assets held
for sale |
|
8,817 |
|
14,813 |
|
Other
current assets |
|
12,484 |
|
12,268 |
|
Total
Current Assets |
|
185,357 |
|
187,833 |
|
Affiliate receivable
long-term |
|
3,707 |
|
4,236 |
|
Regulatory assets |
|
142,567 |
|
158,485 |
|
Pension and other postretirement
benefit asset |
|
7,336 |
|
2,020 |
|
Other deferred assets and
other |
|
3,280 |
|
4,353 |
|
Property, Plant, and
Equipment: |
|
|
|
|
|
Property,
plant, and equipment, net |
|
1,283,341 |
|
1,244,648 |
|
Construction
work in progress |
|
58,044 |
|
36,790 |
|
Total
Property, Plant, and Equipment |
|
1,341,385 |
|
1,281,438 |
|
Investments |
|
409 |
|
487 |
|
Total
Assets |
$ |
1,684,041 |
$ |
1,638,852 |
|
|
|
|
|
|
|
LIABILITIES AND
CAPITALIZATION |
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
Long-term
debt due within one year |
$ |
24,452 |
$ |
4,333 |
|
Short-term
debt |
|
4,000 |
|
- |
|
Accounts
payable |
|
47,614 |
|
47,790 |
|
Accrued
interest and taxes |
|
5,558 |
|
5,440 |
|
Accrued
payroll related items |
|
12,244 |
|
11,892 |
|
Regulatory
liabilities - current |
|
5,633 |
|
6,910 |
|
Derivative
liabilities |
|
8,180 |
|
7,620 |
|
Other
current liabilities |
|
16,749 |
|
19,347 |
|
Total
Current Liabilities |
|
124,430 |
|
103,332 |
|
Other Credits: |
|
|
|
|
|
Deferred
income taxes |
|
201,486 |
|
343,117 |
|
Investment
tax credit - deferred |
|
918 |
|
947 |
|
Regulatory
liabilities |
|
154,153 |
|
22,173 |
|
Accrued
pension and other postretirement benefits |
|
69,088 |
|
74,347 |
|
Derivative
liabilities |
|
33,990 |
|
42,970 |
|
Other
deferred liabilities and other |
|
69,041 |
|
66,426 |
|
Total
Other Credits |
|
528,676 |
|
549,980 |
|
Capitalization: |
|
|
|
|
|
Common
shareholder's equity: |
|
|
|
|
|
Common
Stock - $1 par value - 50,000 shares authorized; 17,348 shares
outstanding |
|
17,348 |
|
17,348 |
|
Additional
paid-in capital |
|
192,417 |
|
192,417 |
|
Retained
earnings |
|
282,135 |
|
277,300 |
|
Accumulated
other comprehensive (loss) income, net of tax |
|
(28) |
|
19 |
|
Total
Common Shareholder's Equity |
|
491,872 |
|
487,084 |
|
Noncontrolling
interest |
|
140,902 |
|
115,665 |
|
Total
Equity |
|
632,774 |
|
602,749 |
|
Long-term
debt |
|
398,161 |
|
382,791 |
|
Total
Capitalization |
|
1,030,935 |
|
985,540 |
|
Commitments and contingencies (see
Footnote 17) |
|
|
|
|
|
Total
Liabilities and Capitalization |
$ |
1,684,041 |
$ |
1,638,852 |
|
|
|
|
|
|
|
The accompanying
notes are an integral part of the above consolidated financial
statements. |
Madison Gas and Electric Company
Consolidated Statements
of Equity
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
Other |
|
Non- |
|
|
|
|
|
|
Common Stock |
|
Paid-in |
|
Retained |
Comprehensive |
Controlling |
|
|
|
|
|
|
Shares |
|
Value |
|
Capital |
|
Earnings |
Income/(Loss) |
Interest |
|
Total |
|
|
|
2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance -
December 31, 2014 |
17,348 |
$ |
17,348 |
$ |
192,417 |
$ |
276,662 |
$ |
144 |
$ |
125,689 |
$ |
612,260 |
|
|
|
Cumulative effect of new accounting
principle |
|
|
|
|
|
|
(142) |
|
|
|
|
|
(142) |
|
|
|
Beginning balance - adjusted |
|
|
|
|
|
|
276,520 |
|
|
|
|
|
612,118 |
|
|
|
Net income |
|
|
|
|
|
|
45,368 |
|
|
|
26,097 |
|
71,465 |
|
|
|
Other comprehensive loss |
|
|
|
|
|
|
|
|
(121) |
|
|
|
(121) |
|
|
|
Cash dividends paid to parent by
MGE |
|
|
|
|
|
|
(30,000) |
|
|
|
|
|
(30,000) |
|
|
|
Equity contribution received
by |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
3,230 |
|
3,230 |
|
|
|
Distributions to parent from |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
(14,708) |
|
(14,708) |
|
|
|
Ending balance - December 31,
2015 |
17,348 |
$ |
17,348 |
$ |
192,417 |
$ |
291,888 |
$ |
23 |
$ |
140,308 |
$ |
641,984 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
51,234 |
|
|
|
23,358 |
|
74,592 |
|
|
|
Other comprehensive loss |
|
|
|
|
|
|
|
|
(4) |
|
|
|
(4) |
|
|
|
Cash dividends paid to parent by
MGE |
|
|
|
|
|
|
(50,000) |
|
|
|
|
|
(50,000) |
|
|
|
Dividend in kind to parent |
|
|
|
|
|
|
(15,822) |
|
|
|
|
|
(15,822) |
|
|
|
Equity contribution received
by |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
1,598 |
|
1,598 |
|
|
|
Distributions to parent from |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
(24,113) |
|
(24,113) |
|
|
|
Deconsolidation of noncontrolling
interest |
|
|
|
|
|
|
|
|
|
|
(25,486) |
|
(25,486) |
|
|
|
Ending balance - December 31,
2016 |
17,348 |
$ |
17,348 |
$ |
192,417 |
$ |
277,300 |
$ |
19 |
$ |
115,665 |
$ |
602,749 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
49,835 |
|
|
|
43,237 |
|
93,072 |
|
|
|
Other comprehensive loss |
|
|
|
|
|
|
|
|
(47) |
|
|
|
(47) |
|
|
|
Cash dividends paid to parent by
MGE |
|
|
|
|
|
|
(45,000) |
|
|
|
|
|
(45,000) |
|
|
|
Distributions to parent from |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
(18,000) |
|
(18,000) |
|
|
|
Ending balance - December 31,
2017 |
17,348 |
$ |
17,348 |
$ |
192,417 |
$ |
282,135 |
$ |
(28) |
$ |
140,902 |
$ |
632,774 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying
notes are an integral part of the above consolidated financial
statements. |
|
Notes to Consolidated Financial Statements
December 31, 2017, 2016, and
2015
This report is a combined report of MGE Energy and MGE.
The notes to the consolidated financial statements that follow include
consolidated MGE Energy footnotes and certain footnotes related to MGE as
signified below.
1.
Summary of
Significant Accounting Policies.
a.
Basis of
Presentation - MGE Energy and MGE.
The consolidated financial statements
are prepared in conformity with accounting principles generally accepted in the
United States of America (GAAP), which give recognition to the rate making
accounting policies for regulated operations prescribed by the regulatory
authorities having jurisdiction, principally the PSCW and FERC. MGE's accounting
records conform to the FERC uniform system of accounts.
We revised the MGE Energy cash flow
statement for the year ending 2016 for a misclassification between two lines in
the operating activities section. The revision resulted in a decrease to
"Dividend income" from ATC of $2.1 million, with a corresponding increase
to "Trade and other receivables." This revision had no impact to the total
operating cash flows and management has concluded the impact on MGE Energy's
consolidated statement of cash flows is not material.
b.
Principles of
Consolidation - MGE Energy and MGE.
MGE, a wholly owned subsidiary of MGE
Energy, is a regulated electric and gas utility headquartered in Madison,
Wisconsin. MGE Energy and MGE consolidate all majority owned subsidiaries in
which they have a controlling influence.
Additional wholly owned subsidiaries
of MGE Energy include CWDC, MAGAEL, MGE Power, MGE State Energy Services, MGE
Services, MGE Transco, MGEE Transco, and NGV Fueling Services. MGE Power owns
100% of MGE Power Elm Road and MGE Power West Campus. MGE Power and its
subsidiaries are part of MGE Energy's nonregulated energy operations, which were
formed to own and lease electric generation projects to assist MGE. MGE Transco
and MGEE Transco are nonregulated entities formed to manage the investments in
ATC and ATC Holdco, respectively. On December 1, 2016, MGE's ownership
interest in MGE Transco was transferred to MGE Energy. See Footnote 4 for
further discussion of the transfer of MGE's investment in MGE Transco.
MGE Energy and MGE consolidate
variable interest entities (VIEs) for which it is the primary beneficiary.
Variable interest entities are legal entities that possess any of the following
characteristics: equity investors who have an insufficient amount of equity at
risk to finance their activities, equity owners who do not have the power to
direct the significant activities of the entity (or have voting rights that are
disproportionate to their ownership interest), or equity holders who do not
receive expected losses or returns significant to the VIE. If MGE Energy or MGE
is not the primary beneficiary and an ownership interest is held, the VIE is
accounted for under the equity method of accounting. When assessing the
determination of the primary beneficiary, all relevant facts and circumstances
are considered, including: the power, through voting or similar rights, to
direct the activities of the VIE that most significantly impact the VIE's
economic performance and the obligation to absorb the expected losses and/or the
right to receive the expected returns of the VIE. Ongoing reassessments of all
VIEs are performed to determine if the primary beneficiary status has changed.
MGE has consolidated MGE Power Elm Road and MGE Power West Campus. Both entities
are VIEs. MGE is considered the primary beneficiary of these entities as a
result of contractual agreements. See Footnote 2 for more discussion of
these entities.
Prior to December 1, 2016, MGE
Transco was jointly owned by MGE Energy and MGE. MGE's ownership interest in MGE
Transco declined below a majority in July 2016. As a result of the change
in majority ownership, MGE deconsolidated MGE Energy's proportionate share of
the equity in MGE Transco. See Footnote 8 for further discussion regarding
the deconsolidation of noncontrolling interest.
The consolidated financial statements
reflect the application of certain accounting policies described in this note.
All intercompany accounts and transactions have been eliminated in
consolidation.
c.
Use of
Estimates - MGE Energy and MGE.
In order to prepare consolidated
financial statements in conformity with GAAP, management must make estimates and
assumptions. These estimates could affect reported amounts of assets,
liabilities, and disclosures at the date of the financial statements, as well as
the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from management's estimates.
d.
Cash
Equivalents and Restricted Cash - MGE Energy and MGE.
Cash Equivalents
MGE Energy and MGE consider all
highly liquid investments purchased with an original maturity of three months or
less to be cash equivalents.
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. As of
December 31, 2017 and 2016, there was $2.1 million and
$3.7 million, respectively, of 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 for certain financial transactions are recorded as receivable – margin
account in "Other current assets" on the consolidated balance sheets. As of
December 31, 2017 and 2016, the receivable – margin account balance of
$2.5 million and $1.3 million, respectively, is shown net of any
collateral posted against derivative positions. As of December 31, 2017,
there was $0.1 million of collateral posted against derivative positions.
As of December 31, 2016, no cash collateral was posted against derivative
positions. Changes in this cash account are considered cash flows from operating
activities to match with the costs being hedged. The costs being hedged are fuel
for electric generation, purchased power, and cost of gas sold.
e.
Trade
Receivables, Allowance for Doubtful Accounts, and Concentration Risk - MGE
Energy and MGE.
Trade accounts receivable are
recorded at the invoiced amount and do not bear interest. However, a 1% late
payment charge is recorded on all receivables unpaid after the due date. The
allowance for doubtful accounts associated with these receivables represents our
best estimate of the amount of probable credit losses in our existing accounts
receivable. We determine our allowance for doubtful accounts based on historical
write-off experience, regional economic data, and review of the accounts
receivable aging. MGE manages this concentration and the related credit risk
through its credit and collection policies, which are consistent with state
regulatory requirements.
f.
Inventories -
MGE Energy and MGE.
Inventories consist of natural gas in
storage, fuel for electric generation, materials and supplies, and renewable
energy credits (RECs). MGE values natural gas in storage, fuel for electric
generation, and materials and supplies using average cost.
REC allowances are included in
"Materials and supplies" on the consolidated balance sheets and are recorded
based on specific identification. These allowances are charged to purchase power
expense as they are used in operations. MGE's REC allowance balance as of
December 31, 2017 and 2016, was $0.5 million and $0.3 million,
respectively.
g.
Chattel Paper
Agreements - MGE Energy and MGE.
MGE makes available to qualifying
customers a financing program for the purchase and installation of
energy-related equipment that will provide more efficient use of utility service
at the customer's property. The energy-related equipment installed at the
customer sites is used to secure the customer loans. MGE is a party to a chattel
paper purchase agreement with a financial institution under which MGE can sell,
transfer, and assign to the financial institution an undivided interest with
recourse, in up to $10.0 million of the financing program receivables,
until July 31, 2018. The length of the MGE guarantee to the financial
institution varies from one to ten years depending on the term of the underlying
customer loan. The loan balances outstanding at
December 31,
2017, approximates the fair value of the energy-related equipment acting as
collateral. MGE accounts for these agreements as secured borrowings.
As of December 31, 2017, the
remaining contractual maturities of the chattel paper agreements were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
(In thousands) |
|
2018 |
|
2019 |
|
2020 |
|
2021 |
|
2022 |
|
Thereafter |
|
Repurchase-to-Maturity
Transactions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans |
$ |
538 |
$ |
542 |
$ |
537 |
$ |
431 |
$ |
385 |
$ |
697 |
h.
Regulatory
Assets and Liabilities - MGE Energy and MGE.
Regulatory assets and regulatory
liabilities are recorded consistent with regulatory treatment. Regulatory assets
represent costs which are deferred due to the probable future recovery from
customers through regulated rates. Regulatory liabilities represent the excess
recovery of costs or accrued credits which were deferred because MGE believes it
is probable such amounts will be returned to customers through future regulated
rates. Regulatory assets and liabilities are amortized in the consolidated
statements of income consistent with the recovery or refund included in customer
rates. MGE believes that it is probable that its recorded regulatory assets and
liabilities will be recovered and refunded, respectively, in future rates. See
Footnote 6 for further information.
i.
Debt Issuance
Costs - MGE Energy and MGE.
Premiums, discounts, and expenses
incurred with the issuance of outstanding long-term debt are amortized over the
life of the debt issue. Any call premiums or unamortized expenses associated
with refinancing higher-cost debt obligations used to finance utility-regulated
assets and operations are amortized consistent with regulatory treatment of
those items. These costs are included as a direct reduction to the related debt
liability on the consolidated balance sheets.
j.
Property,
Plant, and Equipment - MGE Energy and MGE.
Property, plant, and equipment is
recorded at original cost. Cost includes indirect costs consisting of payroll
taxes, pensions, postretirement benefits, other fringe benefits, and
administrative and general costs. Also, included in the cost is AFUDC for
utility property and capitalized interest for nonregulated property. Additions
for significant replacements of property are charged to property, plant, and
equipment at cost; and minor items are charged to maintenance expense.
Depreciation rates on utility property are approved by the PSCW, based on the
estimated economic lives of property, and include estimates for salvage value
and removal costs. Removal costs of utility property, less any salvage value,
are adjusted through regulatory liabilities. Depreciation rates on nonregulated
property are based on the estimated economic lives of the property. See
Footnote 3 for further information.
Provisions at composite straight-line
depreciation rates approximate the following percentages for the cost of
depreciable property:
|
|
|
|
|
|
|
|
| |
|
|
|
2017 |
|
2016 |
|
2015 |
|
|
|
|
Electric(a)(b) |
3.0 % |
|
2.5 % |
|
2.6 % |
|
|
|
|
Gas(a) |
2.1 % |
|
2.1 % |
|
1.7 % |
|
|
|
|
Nonregulated |
2.3 % |
|
2.3 % |
|
2.4 % |
|
|
(a)
In
December 2015, the PSCW approved new depreciation rates, which were
implemented and became effective as of January 1, 2016.
(b)
In
September 2016, the PSCW approved new depreciation rates for Columbia
effective January 1, 2017.
k.
Asset
Retirement Obligations - MGE Energy and MGE.
MGE Energy and MGE are required to
record a liability for the fair value of an ARO to be recognized in the period
in which it is incurred if it can be reasonably estimated. The offsetting
associated asset retirement costs are capitalized as a long-lived asset and
depreciated over the asset's useful life. The expected present value technique
used to calculate the fair value of ARO liabilities includes assumptions about
costs, probabilities, settlement dates, interest accretion, and inflation.
Revisions to the assumptions, including the timing or amount of expected asset
retirement costs, could result in increases or decreases to the AROs. All asset
retirement obligations are recorded as "Other long-term liabilities" on the
consolidated balance sheets. MGE has regulatory treatment and recognizes
regulatory assets or liabilities for the timing differences between when it
recovers legal AROs in rates and when it would recognize these costs. See
Footnote 18 for further information.
l.
Repairs and
Maintenance Expense - MGE Energy and MGE.
MGE utilizes the direct expensing
method for planned major maintenance projects. Under this method, MGE expenses
all costs associated with major planned maintenance activities as incurred.
m.
Purchased Gas
Adjustment Clause - MGE Energy and MGE.
MGE's natural gas rates are subject
to a fuel adjustment clause designed to recover or refund the difference between
the actual cost of purchased gas and the amount included in rates. Differences
between the amounts billed to customers and the actual costs recoverable are
deferred and recovered or refunded in future periods by means of prospective
monthly adjustments to rates. At December 31, 2017 and 2016, MGE had over
collected $1.4 million and $0.9 million, respectively. These amounts are included in
"Regulatory liabilities - current" on the consolidated balance sheets.
n.
Revenue
Recognition - MGE Energy and MGE.
Operating revenues are recorded as
service is rendered or energy is delivered to customers. Meters are read on a
systematic basis throughout the month based on established meter-reading
schedules. At the end of the month, MGE accrues an estimate for the unbilled
amount of energy delivered to customers. The unbilled revenue estimate is based
on daily system demand volumes, weather factors, estimated line losses,
estimated customer usage by class, and applicable customer rates.
o.
Utility Cost
Recovery - MGE Energy and MGE.
MGE's rates include a provision for
fuel costs. The PSCW allows Wisconsin utilities to defer electric fuel-related
costs, less excess revenues, that fall outside a symmetrical cost tolerance
band. Any over/under recovery of the actual costs in a year is determined in the
following year and is then reflected in future billings to electric retail
customers. Such deferred amounts will be recognized in "Purchased power" expense
in MGE Energy's and MGE's consolidated income statements each period. The
cumulative effects of these deferred amounts will be recorded in "Regulatory
assets" or "Regulatory liabilities" on MGE Energy's and MGE's consolidated
balance sheets until they are reflected in future billings to customers. See
Footnote 16.b. for further information regarding the regulatory rules
applicable to the recovery of electric fuel costs.
p.
Regional
Transmission Organizations - MGE Energy and MGE.
MGE reports on a net basis
transactions on the MISO markets in which it buys and sells power within the
same hour to meet electric energy delivery requirements. This treatment resulted
in a $87.9 million, a $77.2 million, and a $68.6 million
reduction to sales to the market and purchase power expense for MISO markets for
the years ended December 31, 2017, 2016, and 2015, respectively.
q.
Allowance for
Funds Used During Construction - MGE Energy and MGE.
Allowance for funds used during
construction is included in utility plant accounts and represents the cost of
borrowed funds used during plant construction and a return on shareholder's
capital used for construction purposes. In the consolidated income statements,
the cost of borrowed funds (AFUDC-debt) is presented as an offset to "Interest
expense" and the return on shareholder's capital (AFUDC-equity funds) is shown
as an item within "Other income." For 2017, as approved by the PSCW, MGE
capitalized AFUDC-debt and equity on 50% of applicable average construction work
in progress at 7.87%. For both 2016 and 2015, as approved by the PSCW, MGE
capitalized AFUDC-debt and equity on 50% of applicable average construction work
in progress at 7.93%. For 2017, 2016, and 2015, MGE received specific approval
to recover 100% AFUDC on certain environmental costs for Columbia. For 2017, MGE
received specific approval to recover 100% AFUDC on certain costs for the
Saratoga Wind Farm project. These amounts are recovered under the ratemaking
process over the service lives of the related properties.
r.
Investments -
MGE Energy and MGE.
Investments in limited liability
companies that have specific ownership accounts in which MGE Energy or MGE's
ownership interest is more than minor and are considered to have significant
influence are accounted for using the equity method. All other investments are
carried at fair value or at cost, as appropriate. See Footnote 4 for
further information.
s.
Capitalized
Software Costs - MGE Energy and MGE.
Property, plant, and equipment
includes the net book value of capitalized costs of internal use software
totaling $11.1 million and $12.3 million at December 31, 2017 and
2016, respectively. During 2017, 2016, and 2015, MGE recorded $3.3 million,
$3.0 million, and $2.2 million, respectively, of amortization expense
related to these costs. These costs are amortized on a straight-line basis over
the estimated useful lives of the assets. For internal use software, the useful
lives range from five to ten years.
t.
Impairment of
Long-Lived Assets - MGE Energy and MGE.
MGE reviews plant and equipment and
other property for impairment when events or changes in circumstances indicate
that the carrying amount of the assets may not be recoverable. MGE's policy for
determining when long-lived assets are impaired is to recognize an impairment
loss if the sum of the expected future cash flows (undiscounted and without
interest charges) from an asset are less than the carrying amount of that asset.
If an impairment loss is recognized, the amount that will be recorded will be
measured as the amount by which the carrying amount of the asset exceeds the
fair value of the asset. There was no impairment of long-lived assets at
December 31, 2017, 2016, and 2015.
u.
Income Taxes
and Excise Taxes - MGE Energy and MGE.
Income taxes
Under the liability method, income
taxes are deferred for all temporary differences between pretax financial and
taxable income and between the book and tax basis of assets and liabilities
using the tax rates scheduled by law to be in effect when the temporary
differences reverse. Future tax benefits are recognized to the extent that
realization of such benefits is more likely than not. A valuation allowance is
recorded for those benefits that do not meet this criterion.
Accounting for uncertainty in income
taxes applies to all tax positions and requires a recognition threshold and
measurement standard for the financial statement recognition and measurement of
a tax position taken, or expected to be taken, in an income tax return. The
threshold is defined for recognizing tax return positions in the financial
statements as "more likely than not" that the position is sustainable, based on
its merits. Subsequent recognition, derecognition, and measurement is based on
management's best judgment given the facts, circumstances, and information
available at the reporting date.
Regulatory and accounting principles
have resulted in a regulatory liability related to income taxes. Excess deferred
income taxes result from past taxes provided at rates higher than current rates.
The income tax regulatory liability and deferred investment tax credit reflect
the revenue requirement associated with the return of these tax benefits to
customers.
On December 22, 2017, President
Trump signed the Tax Cuts and Jobs Act (Tax Act) into law. The passing of the
law significantly lowers MGE's corporate tax rates and triggers a remeasurement
of deferred taxes. We have reflected estimates of the impact of the Tax Act in
our year-end 2017 financial results; however, those estimates could be affected
by, and require subsequent adjustment as a result of, clarity and regulatory
guidance that develops around the Tax Act and its implementation during 2018.
Furthermore, while regulation allows us to incorporate changes in tax law into
the rate-setting process, there will most likely be timing delays before
realization of the changes. See Footnote 12 for further information.
Investment tax credits from regulated
operations are amortized over related property service lives.
Excise taxes
MGE Energy, through its utility
operations, pays a state license fee tax in lieu of property taxes on property
used in utility operations. License fee tax is calculated as a percentage of
adjusted operating revenues of the prior year. The electric tax rate is 3.19%
for retail sales and 1.59% for sales of electricity for resale by the purchaser.
The tax rate on sales of natural gas is 0.97%. The tax is required to be
estimated and prepaid in the year prior to its computation and expensing.
License fee tax expense, included in "Other general taxes," was
$14.1 million, $14.5 million, and $14.7 million for the years
ended December 31, 2017, 2016, and 2015, respectively.
Operating income taxes, including tax
credits and license fee tax, are included in rates for utility related
items.
v.
Share-Based
Compensation - MGE Energy and MGE.
Under two separate incentive plans,
eligible participants, including employees and non-employee directors, may
receive performance units that entitle the holder to receive a cash payment
equal to the value of a designated number of shares of MGE Energy's common
stock, plus dividend equivalent payments thereon, at the end of the set
performance period. Under the plans, these awards are subject to a prescribed
vesting schedule and must be settled in cash. Accordingly, no new shares of
common stock are issued in connection with the plans.
MGE Energy and MGE initially measure
the cost of the employee or director services received in exchange for a
performance unit award based on the current market value of MGE Energy common
stock. The fair value of the awards is subsequently re-measured quarterly
through the settlement date. Changes in fair value as well as the original grant
during the requisite period are recognized as compensation cost.
See Footnote 14 for additional
information regarding the plans.
w.
Comprehensive
Income - MGE Energy and MGE.
Total comprehensive income includes
all changes in equity during a period except those resulting from investments by
and distributions to shareholders. Comprehensive income is reflected in the
consolidated statements of comprehensive income.
x.
Derivative and
Hedging Instruments - MGE Energy and MGE.
As part of regular operations, MGE
enters into contracts, including options, swaps, futures, forwards, and other
contractual commitments, to manage its exposure to commodity prices. MGE
recognizes all derivatives in the consolidated balance sheets at fair value,
with changes in the fair value of derivative instruments to be recorded in
current earnings or deferred in accumulated other comprehensive income (loss),
depending on whether a derivative is designated as, and is effective as, a hedge
and on the type of hedge transaction. Derivative activities are in accordance
with the company's risk management policy.
If the derivative qualifies for
regulatory deferral, the derivatives are marked to fair value and are offset
with a corresponding regulatory asset or liability. Cash flows from such
derivative instruments are classified on a basis consistent with the nature of
the underlying hedged item.
2.
Variable
Interest Entities - MGE Energy and MGE.
a.
MGE Power Elm
Road.
MGE Power Elm Road is not a
subsidiary of MGE; however, it has been consolidated in the financial statements
of MGE. MGE Power Elm Road was created for the purpose of owning new generating
assets. Its sole principal assets are an undivided ownership interest in two
coal-fired generating plants located in Oak Creek, Wisconsin, which it leases to
MGE pursuant to long-term leases. Based on the nature and terms of the
contractual agreements, MGE is expected to absorb a majority of the expected
losses, residual value, or both, associated with the ownership of MGE Power Elm
Road and therefore holds a variable interest in MGE Power Elm Road, even though
it has no equity interest in MGE Power Elm Road. MGE Energy and MGE consolidate
VIEs for which they are the primary beneficiary. MGE has the power to direct the
activities that most significantly impact the Elm Road Units' economic
performance and is also the party most closely associated with MGE Power Elm
Road. As a result, MGE is the primary beneficiary. At December 31, MGE has
included the following significant accounts on its consolidated balance sheets
related to its interest in this VIE:
|
|
|
|
|
|
| |
|
|
(In thousands) |
|
2017 |
|
2016 |
|
|
|
Property, plant, and equipment,
net |
$ |
176,002 |
$ |
175,502 |
|
|
|
Construction work in
progress |
|
1,225 |
|
3,241 |
|
|
|
Deferred income
taxes(a) |
|
29,256 |
|
42,525 |
|
|
|
Long-term debt |
|
59,416 |
|
62,021 |
|
|
|
Noncontrolling
interest(a) |
|
97,635 |
|
80,362 |
|
(a)
In
2017, there was a $14.8 million one-time tax impact as a result of the Tax
Act for MGE Power Elm Road. See Footnote 12 for further information.
Long-term
debt excluding debt issuance costs consists of $60.0 million at
December 31, 2017, of senior secured notes that require that MGE Power Elm
Road maintain a projected and actual debt service coverage ratio at the end of
any calendar quarter of not less than 1.25 to 1.00 for the trailing 12-month
period. The debt is secured by a collateral assignment of lease payments that
MGE is making to MGE Power Elm Road for use of the Elm Road Units pursuant
to the related long-term leases. As of December 31, 2017, MGE Power Elm
Road is in compliance with the covenant requirements.
MGE has been and will continue to
recover in rates the lease payments made to MGE Power Elm Road. MGE received
approval from the PSCW to collect in rates the carrying costs incurred by MGE
Power Elm Road. The total carrying costs on the Elm Road Units is
$62.5 million. MGE collected carrying costs in rates over a six year period
that began in 2010. Of these costs, $17.0 million relates to the
capitalized interest and the debt portion of the units. These costs will be
recognized over the period in which the generating units will be depreciated.
The remaining $45.5 million represents the equity portion and was
recognized over the period allowed for recovery in rates which ended in 2015.
b.
MGE Power West
Campus.
MGE Power West Campus is not a
subsidiary of MGE; however, it has been consolidated in the financial statements
of MGE. MGE Power West Campus was created for the purpose of owning new
generating assets. Its sole principal asset is the WCCF, which it leases to MGE
pursuant to a long-term lease. MGE is responsible for operation of the plant
during the term of the lease. Based on the nature and terms of these contractual
relationships, MGE absorbs a majority of the expected losses, residual value, or
both, associated with the ownership and operation of the WCCF and therefore
holds a variable interest in MGE Power West Campus, even though it has no equity
interest in MGE Power West Campus. MGE has the power to direct the activities
that most significantly impact WCCF's economic performance and is also the party
most closely associated with MGE Power West Campus. As a result, MGE is the
primary beneficiary. At
December 31, MGE has included the following significant accounts on its
consolidated balance sheets related to its interest in this VIE:
|
|
|
|
|
|
| |
|
|
(In thousands) |
|
2017 |
|
2016 |
|
|
|
Property, plant, and equipment,
net |
$ |
80,282 |
$ |
81,588 |
|
|
|
Affiliate receivables |
|
4,236 |
|
4,769 |
|
|
|
Deferred income
taxes(b) |
|
13,795 |
|
19,912 |
|
|
|
Long-term debt |
|
43,262 |
|
44,932 |
|
|
|
Noncontrolling
interest(b) |
|
43,267 |
|
35,303 |
|
(b)
In
2017, there was a $6.8 million one-time tax impact as a result of the Tax
Act for MGE Power West Campus. See Footnote 12 for further information.
Long-term debt excluding debt
issuance costs consists of $43.4 million at December 31, 2017, of
senior secured notes that require that MGE Power West Campus maintain a
projected debt service coverage ratio of not less than 1.25 to 1.00 and debt to
total capitalization ratio of not more than 0.65 to 1.00. The debt is secured by
a collateral assignment of lease payments that MGE is making to MGE Power West
Campus for use of the cogeneration facility pursuant to the long-term lease. As
of December 31, 2017, MGE Power West Campus is in compliance with the
covenant requirements.
MGE has been and will continue to
recover lease payments made to MGE Power West Campus in rates.
c.
Other Variable
Interest Entities.
MGE has a variable interest in
entities through purchase power agreements relating to purchased energy from the
facilities covered by the agreements. As of December 31, 2017 and 2016, MGE
had 61 megawatts and 51 megawatts, respectively, of capacity available under
these agreements. MGE evaluated the variable interest entities for possible
consolidation. The interest holder is considered the primary beneficiary of the
entity and is required to consolidate the entity if the interest holder has the
power to direct the activities that most significantly impact the economics of
the variable interest entity. MGE examined qualitative factors such as the
length of the remaining term of the contracts compared with the remaining lives
of the plants, who has the power to direct the operations and maintenance of the
facilities, and other factors, and determined MGE is not the primary beneficiary
of the variable interest entities. There is not a significant potential exposure
to loss as a result of involvement with these variable interest entities.
3.
Property,
Plant, and Equipment - MGE Energy and MGE.
Property, plant,
and equipment consisted of the following at December 31:
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
MGE Energy |
|
|
MGE |
|
|
|
(In thousands) |
|
2017 |
|
2016 |
|
|
2017 |
|
2016 |
|
|
|
Utility: |
|
|
|
|
|
|
|
|
|
|
|
|
Electric(a) |
$ |
1,209,336 |
$ |
1,171,004 |
|
$ |
1,209,353 |
$ |
1,171,021 |
|
|
|
Gas |
|
415,542 |
|
395,790 |
|
|
415,553 |
|
395,801 |
|
|
|
Total utility plant |
|
1,624,878 |
|
1,566,794 |
|
|
1,624,906 |
|
1,566,822 |
|
|
|
Less: Accumulated depreciation and
amortization(a) |
|
599,469 |
|
579,965 |
|
|
599,469 |
|
579,965 |
|
|
|
In-service utility plant,
net |
|
1,025,409 |
|
986,829 |
|
|
1,025,437 |
|
986,857 |
|
|
|
Nonregulated: |
|
|
|
|
|
|
|
|
|
|
|
|
Nonregulated |
|
319,611 |
|
317,810 |
|
|
319,611 |
|
317,014 |
|
|
|
Less: Accumulated depreciation and
amortization |
|
61,707 |
|
59,370 |
|
|
61,707 |
|
59,223 |
|
|
|
In-service nonregulated plant,
net |
|
257,904 |
|
258,440 |
|
|
257,904 |
|
257,791 |
|
|
|
Construction work in
progress: |
|
|
|
|
|
|
|
|
|
|
|
|
Utility construction work in
progress(a) |
|
56,208 |
|
31,356 |
|
|
56,208 |
|
31,356 |
|
|
|
Nonregulated construction work in
progress |
|
1,836 |
|
5,434 |
|
|
1,836 |
|
5,434 |
|
|
|
Total property, plant, and
equipment |
$ |
1,341,357 |
$ |
1,282,059 |
|
$ |
1,341,385 |
$ |
1,281,438 |
|
(a)
As
of December 31, 2017 and 2016, MGE has classified $8.8 million and
$14.8 million, respectively, of Columbia assets as held-for-sale on the
consolidated balance sheets related to the partial sale of plant assets to WPL.
See Footnote 5.a. for further discussion.
MGE's utility plant is subject to the
lien of its Indenture of Mortgage and Deed of Trust. As of December 31,
2017 and 2016, there was $1.2 million of bonds outstanding under that
indenture. See Footnote 9 for further discussion of the mortgage
indenture.
4.
Investments -
MGE Energy and MGE.
a.
Equity Method
Investments, Available for Sale Securities, and Other Investments.
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
MGE Energy |
|
|
MGE |
|
|
|
(In thousands) |
|
2017 |
|
2016 |
|
|
2017 |
|
2016 |
|
|
|
Available for sale
securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Cost
basis |
$ |
6,662 |
$ |
2,216 |
|
$ |
455 |
$ |
455 |
|
|
|
Gross
unrealized gains |
|
675 |
|
346 |
|
|
- |
|
40 |
|
|
|
Gross
unrealized losses |
|
(46) |
|
(8) |
|
|
(46) |
|
(8) |
|
|
|
Fair value |
|
7,291 |
|
2,554 |
|
|
409 |
|
487 |
|
|
|
Equity method investments: |
|
|
|
|
|
|
|
|
|
|
|
|
ATC and ATC
Holdco(a)(b) |
|
59,298 |
|
72,458 |
|
|
- |
|
- |
|
|
|
Other |
|
1,128 |
|
1,158 |
|
|
- |
|
- |
|
|
|
Total equity method
investments |
|
60,426 |
|
73,616 |
|
|
- |
|
- |
|
|
|
Other investments |
|
55 |
|
120 |
|
|
- |
|
- |
|
|
|
Total |
$ |
67,772 |
$ |
76,290 |
|
$ |
409 |
$ |
487 |
|
(a)
MGE
Transco holds an ownership interest in ATC, and MGEE Transco holds an ownership
interest in ATC Holdco. In July 2016, MGE's ownership interest in MGE
Transco declined below a majority, resulting in MGE Energy's investment in MGE
Transco being deconsolidated from MGE's consolidated financial statements. See
Footnote 8 for further discussion of noncontrolling interest. In
December 2016, MGE's ownership interest in MGE Transco was transferred to
MGE Energy, see "ATC and ATC Holdco" below for additional information.
(b)
In
December 2017, there was a $20.4 million one-time tax impact related
to ATC as a result of the Tax Act. See Footnote 12 for further
information.
MGE Energy's and MGE's available for
sale securities represent publicly traded securities and private equity
investments in common stock of companies in various industries.
During the
years ended December 31, 2017, 2016, and 2015, certain investments were
liquidated. As a result of these liquidations, MGE Energy and MGE received the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
MGE Energy |
|
MGE |
|
|
|
(In thousands) |
|
2017 |
|
2016 |
|
2015 |
|
2017 |
|
2016 |
|
2015 |
|
|
|
Cash proceeds |
$ |
677 |
$ |
408 |
$ |
19 |
$ |
- |
$ |
16 |
$ |
19 |
|
|
|
Gain (loss) on sale |
|
522 |
|
121 |
|
10 |
|
- |
|
(8) |
|
10 |
|
b.
ATC and ATC
Holdco.
ATC owns and operates electric
transmission facilities primarily in Wisconsin. MGE received an interest in ATC
when it, like other Wisconsin electric utilities, contributed its electric
transmission facilities to ATC as required by Wisconsin law. That interest is
presently held by MGE Transco, which, since December 1, 2016, is owned by
MGE Energy. ATC Holdco was formed by several members of ATC, including MGE
Energy, to pursue electric transmission development and investments outside of
Wisconsin. The ownership interest in ATC Holdco is held by MGEE Transco, a
wholly-owned subsidiary of MGE Energy.
MGE Transco and MGEE Transco have
accounted for their investment in ATC and ATC Holdco, respectively, under the
equity method of accounting. For the years ended
December 31, 2017, 2016, and 2015, MGE Transco recorded the following:
|
|
|
|
|
|
|
|
| |
|
|
(In thousands) |
|
2017 |
|
2016 |
|
2015 |
|
|
|
Equity earnings from investment in
ATC |
$ |
10,125 |
$ |
8,670 |
$ |
7,728 |
|
|
|
Dividends received from
ATC(a) |
|
9,078 |
|
7,926 |
|
6,645 |
|
|
|
Capital contributions to ATC |
|
3,551 |
|
2,486 |
|
710 |
|
(a)
MGE
Transco recorded a $2.3 million and $2.1 million dividend receivable
from ATC as of December 31, 2017 and 2016, respectively. A cash dividend
was received in January of each of the proceeding years.
ATC Holdco was formed in
December 2016. In the near term, it is expected that ATC Holdco will be
pursuing transmission development opportunities that typically have long
development and investment lead times before becoming operational. In 2017, MGEE
Transco recorded capital contributions of $2.9 million to ATC Holdco.
At December 31, 2017 and 2016,
MGE Transco held a 3.6% ownership interest in ATC. At December 31, 2017 and
2016, MGEE Transco held a 4.4% and 4.0% ownership interest in ATC Holdco,
respectively. In January 2018, MGE Transco made a $0.7 million capital
contribution to ATC and MGEE Transco made a $0.1 million capital
contribution to ATC Holdco.
In June 2016, the PSCW required
MGE to transfer its interest in ATC to MGE Energy, which was to be completed by
December 31, 2022. The requirement arose in the context of requests for
regulatory approvals by several owners of ATC in connection with a
reorganization of ATC. MGE's ownership interest in ATC, held through MGE
Transco, was transferred net of deferred tax liabilities to MGE Energy by way of
a dividend in kind of $15.8 million as of December 1, 2016. As a
result of the transfer, MGE's ownership interest in MGE Transco was completely
eliminated in favor of MGE Energy. See Footnote 12 for further discussion
of the transfer of deferred tax liabilities. The change had no effect on MGE
Energy's consolidated financial statements.
ATC's
summarized financial data for the years ended December 31, 2017, 2016, and
2015 is as follows:
|
|
|
|
|
|
|
|
| |
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
Income statement data for the
year ended December 31, |
|
2017 |
|
2016 |
|
2015 |
|
|
|
Operating revenues |
$ |
721,672 |
$ |
650,806 |
$ |
615,836 |
|
|
|
Operating expenses |
|
(344,935) |
|
(322,517) |
|
(319,321) |
|
|
|
Other income |
|
5,285 |
|
3,225 |
|
1,176 |
|
|
|
Interest expense, net |
|
(109,394) |
|
(98,758) |
|
(97,250) |
|
|
|
Earnings before members' income
taxes |
$ |
272,628 |
$ |
232,756 |
$ |
200,441 |
|
|
|
|
|
|
|
| |
|
|
Balance sheet data as of
December 31, |
|
2017 |
|
2016 |
|
|
|
Current assets |
$ |
87,730 |
$ |
75,790 |
|
|
|
Noncurrent assets |
|
4,598,919 |
|
4,312,893 |
|
|
|
Total assets |
$ |
4,686,649 |
$ |
4,388,683 |
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
$ |
767,248 |
$ |
495,126 |
|
|
|
Long-term debt |
|
1,790,590 |
|
1,865,302 |
|
|
|
Other noncurrent liabilities |
|
240,286 |
|
271,495 |
|
|
|
Members' equity |
|
1,888,525 |
|
1,756,760 |
|
|
|
Total members' equity and
liabilities |
$ |
4,686,649 |
$ |
4,388,683 |
|
During 2017, 2016, and 2015, MGE
recorded $29.2 million, $29.1 million, and $28.2 million,
respectively, for transmission services received from ATC. MGE also provides a
variety of operational, maintenance, and project management work for ATC, which
is reimbursed by ATC. As of years ended December 31, 2017 and 2016, MGE had
a receivable due from ATC of $0.2 million and $0.1 million,
respectively.
5.
Joint Plant
Ownership - MGE Energy and MGE.
a.
Columbia.
MGE and two other utilities jointly
own Columbia, a coal-fired generating facility located in Portage, Wisconsin,
which, at December 31, 2017, accounts for 29% (221 MW) of MGE's net
summer rated capacity. Power from this facility is shared in proportion to each
company's ownership interest. At December 31, 2017, MGE had a 20.4%
ownership interest in Columbia. The other owners are WPL, which operates
Columbia, and WPSC. MGE's share of fuel, operating, and maintenance expenses for
Columbia was $36.2 million, $39.5 million, and $38.2 million for
the years ended December 31, 2017, 2016, and 2015, respectively.
Each owner provides its own financing
and reflects its respective portion of facilities and operating costs in its
financial statements. MGE's
interest in Columbia's gross utility plant in service, and the related
accumulated depreciation reserves at December 31 were as follows:
|
|
|
|
|
|
| |
|
|
(In thousands) |
|
2017 |
|
2016 |
|
|
|
Utility plant |
$ |
274,450 |
$ |
270,898 |
|
|
|
Accumulated depreciation |
|
(87,144) |
|
(81,935) |
|
|
|
Property, plant, and equipment,
net |
|
187,306 |
|
188,963 |
|
|
|
Construction work in
progress |
|
20,382 |
|
21,120 |
|
|
|
Total property, plant, and
equipment |
$ |
207,688 |
$ |
210,083 |
|
In 2016, MGE and WPL negotiated an
amendment to the existing Columbia joint operating agreement, that has been
approved by the PSCW, under which MGE will have the option to reduce its
obligation to pay certain capital expenditures (other than SCR-related
expenditures) at Columbia in exchange for a proportional reduction in MGE's
ownership in Columbia. On January 1 of each year, beginning in 2017 and
ending June 1, 2020, the ownership percentage will be adjusted, through a
partial sale, based on the amount of capital expenditures foregone. In
June 2017, the FERC approved the ownership transfer in Columbia, effective
January 1, 2017.
During 2017 and 2016, MGE accrued
$8.8 million and $14.8 million, respectively, of capital expenditures
that MGE has forgone subject to the ownership transfer agreement. As of
December 31, 2017 and 2016, MGE classified $8.8 million and
$14.8 million, respectively, of Columbia assets as held-for-sale on the
consolidated balance sheets. In January 2017, MGE reduced its ownership
interest in Columbia from 22.0% to 20.4% and in January 2018, MGE further
reduced its ownership to 19.4% through the partial sale of plant assets to
WPL.
b.
Elm
Road.
MGE Power Elm Road owns an 8.33%
ownership interest in each of two 615 MW coal-fired generating units in Oak
Creek, Wisconsin, which, at December 31, 2017, accounts for 14%
(106 MW) of MGE's net summer rated capacity. Unit 1 entered commercial
operation on February 2, 2010. Unit 2 entered commercial operation on
January 12, 2011. MGE Power Elm Road's sole principal asset is that
ownership interest in those generating units. MGE Power Elm Road's interest in
the Elm Road Units is leased to MGE pursuant to long-term leases.
The remainder of the ownership
interest in the Elm Road Units is held by two other entities, one of which
is also responsible for the Units' operation. Each owner provides its own
financing and reflects its respective portion of the facility and costs in its
financial statements. MGE's share of fuel, operating, and maintenance expenses
for the Elm Road Units was $17.3 million, $21.2 million, and
$20.9 million for the years ended December 31, 2017, 2016, and 2015,
respectively. MGE Power Elm Road's interest
in the portion of the Elm Road Units in-service and the related accumulated
depreciation reserves at December 31 were as follows:
|
|
|
|
|
|
| |
|
|
(In thousands) |
|
2017 |
|
2016 |
|
|
|
Nonregulated plant |
$ |
206,063 |
$ |
204,292 |
|
|
|
Accumulated depreciation |
|
(30,061) |
|
(28,790) |
|
|
|
Property, plant, and equipment,
net |
|
176,002 |
|
175,502 |
|
|
|
Construction work in
progress |
|
1,225 |
|
3,241 |
|
|
|
Total property, plant, and
equipment |
$ |
177,227 |
$ |
178,743 |
|
c.
WCCF.
MGE Power West Campus and the UW
jointly own the West Campus Cogeneration Facility located on the UW campus in
Madison, Wisconsin. MGE Power West Campus owns 55% of the facility and the UW
owns 45% of the facility. The UW owns a controlling interest in the
chilled-water and steam plants, which are used to meet the growing needs for
air-conditioning and steam-heat capacity for the UW campus. MGE Power West
Campus owns a controlling interest in the electric generation plant, which is
leased and operated by MGE.
Each owner provides its own financing
and reflects its respective portion of the facility and operating costs in its
financial statements. MGE
Power West Campus' interest in WCCF and the related accumulated depreciation
reserves at December 31 were as follows:
|
|
|
|
|
|
| |
|
|
(In thousands) |
|
2017 |
|
2016 |
|
|
|
Nonregulated plant |
$ |
111,386 |
$ |
111,330 |
|
|
|
Accumulated depreciation |
|
(31,104) |
|
(29,742) |
|
|
|
Property, plant, and equipment,
net |
|
80,282 |
|
81,588 |
|
|
|
Construction work in
progress |
|
610 |
|
1,009 |
|
|
|
Total property, plant, and
equipment |
$ |
80,892 |
$ |
82,597 |
|
Operating charges are allocated to
the UW based on formulas contained in the operating agreement. Under the
provisions of this arrangement, the UW is required to reimburse MGE for their
allocated portion of fuel and operating expenses. For the years ended
December 31, 2017, 2016, and 2015, the UW allocated share of fuel and
operating costs was $5.3 million, $5.5 million, and $3.7 million,
respectively.
6.
Regulatory
Assets and Liabilities - MGE Energy and MGE.
The following regulatory assets and
liabilities are reflected in MGE's consolidated balance sheets as of
December 31:
|
|
|
|
|
|
|
|
| |
|
|
(In thousands) |
|
|
2017 |
|
|
2016 |
|
|
|
Regulatory Assets |
|
|
|
|
|
|
|
|
|
Asset retirement obligation |
|
$ |
8,328 |
|
$ |
5,563 |
|
|
|
Conservation costs |
|
|
222 |
|
|
444 |
|
|
|
Debt related costs |
|
|
9,749 |
|
|
10,211 |
|
|
|
Derivatives |
|
|
41,958 |
|
|
49,281 |
|
|
|
Tax recovery related to AFUDC
equity |
|
|
5,497 |
|
|
9,403 |
|
|
|
Unfunded pension and other
postretirement liability |
|
|
84,342 |
|
|
86,475 |
|
|
|
Other |
|
|
359 |
|
|
3,522 |
|
|
|
Total
Regulatory Assets |
|
$ |
150,455 |
|
$ |
164,899 |
|
|
|
Regulatory
Liabilities |
|
|
|
|
|
|
|
|
|
Deferred fuel savings |
|
$ |
4,229 |
|
$ |
6,016 |
|
|
|
Elm Road |
|
|
931 |
|
|
3,473 |
|
|
|
Income taxes |
|
|
131,689 |
|
|
1,302 |
|
|
|
Non-ARO removal costs |
|
|
18,536 |
|
|
16,415 |
|
|
|
Purchased gas adjustment |
|
|
1,404 |
|
|
894 |
|
|
|
Renewable energy credits |
|
|
454 |
|
|
339 |
|
|
|
Other |
|
|
2,543 |
|
|
644 |
|
|
|
Total
Regulatory Liabilities |
|
$ |
159,786 |
|
$ |
29,083 |
|
MGE expects to recover its regulatory
assets and return its regulatory liabilities through rates charged to customers
based on PSCW decisions made during the ratemaking process or based on PSCW
long-standing policies and guidelines. The adjustments to rates for these
regulatory assets and liabilities will occur over the periods either specified
by the PSCW or over the corresponding period related to the asset or liability.
Management believes it is probable that MGE will continue to recover from
customers the regulatory assets described above based on prior and current
ratemaking treatment for such costs. All regulatory assets for which a cash
outflow had been made are earning a return.
Asset Retirement Obligation
See Footnote 18 for further
discussion.
Conservation Costs
MGE has received regulatory treatment
for certain conservation expenditures. The expenditures are used for Focus on
Energy programs, which is Wisconsin's statewide energy efficiency and renewable
resource program, to promote energy efficiency on the customer's premises. Costs
for Focus on Energy programs are estimated in MGE's rates utilizing escrow
accounting. The escrow accounting allows the utility to true-up its actual costs
incurred and reflect the amount of the true-up in its next rate case filing.
Debt Related Costs
This balance includes debt issuance
costs of extinguished debt and other debt related expenses, including make-whole
premiums. The PSCW has allowed rate recovery on unamortized issuance costs for
extinguished debt facilities. When the facility replacing the old facility is
deemed by the PSCW to be more favorable for the ratepayers, the PSCW will allow
rate recovery of any unamortized issuance costs related to the old facility.
These amounts are recovered over the term of the new facility.
Derivatives
MGE has physical and financial
contracts that are accounted for as derivatives. The amounts recorded for the
net mark-to-market value of the commodity based contracts is offset with a
corresponding regulatory asset or liability because these transactions are part
of the PGA or fuel rules clause authorized by the PSCW. A significant portion of
the recorded amount is related to a purchased power agreement that provides MGE
with firm capacity and energy during a base term that began on June 1,
2012, and ends on May 31, 2022. See Footnote 15 for further
discussion.
Tax Recovery Related to AFUDC
Equity
AFUDC equity represents the after-tax
equity cost associated with utility plant construction and results in a
temporary difference between the book and tax basis of such plant. It is
probable under PSCW regulation that MGE
will
recover in future rates the future increase in taxes payable represented by the
deferred income tax liability. The amounts will be recovered in rates over the
depreciable life of the asset for which AFUDC was applied. Tax recovery related
to AFUDC equity represents the revenue requirement related to recovery of these
future taxes payable, calculated at current statutory tax rates.
Unfunded Pension and Other
Postretirement Liability
MGE is required to recognize the
unfunded status of defined benefit pension and other postretirement pension
plans as a net liability or asset on the balance sheet with an offset to a
regulatory asset or liability. The unfunded status represents future expenses
that are expected to be recovered in rates. See Footnote 13 for further
discussion.
Deferred Fuel Savings
The fuel rules require the PSCW and
Wisconsin utilities to defer electric fuel-related costs that fall outside a
symmetrical cost tolerance band. Any over/under recovery of the actual costs is
determined on an annual basis and is adjusted in future billings to electric
retail customers. See Footnote 16.b. for further discussion.
Elm Road
Costs associated with Elm Road are
estimated in MGE's rates utilizing escrow accounting and include costs for lease
payments, management fees, community impact mitigation, and operating costs.
Costs are collected in rates over a one to two year period.
Income Taxes
Excess deferred income taxes result
from past taxes provided at rates higher than current rates. The regulatory
liability and deferred investment tax credit reflects the revenue requirement
associated with the return of these tax benefits to customers.
Changes in income taxes are generally
passed through in customer rates for the regulated utility. The one-time 2017
impact on timing differences related to income taxes passed through to customer
rates of the Tax Act was recorded as a regulatory liability. The amount and
timing of the cash impacts will depend on the period over which certain income
tax benefits are provided to customers, which will be subject to review by the
PSCW. A portion of the regulatory liability will be returned to customers based
on a mandated timeframe dictated by applicable tax laws. See Footnote 12
for further information.
Non-ARO Removal
Costs
In connection with accounting for
asset retirement obligations, companies are required to reclassify cumulative
collections for non-ARO removal costs as a regulatory liability, with an
offsetting entry to accumulated depreciation. Under the current rate structure,
these removal costs are being recovered as a component of depreciation
expense.
Purchased Gas
Adjustment
MGE's natural gas rates are subject
to a fuel adjustment clause designed to recover or refund the difference between
the actual cost of purchased gas and the amount included in rates. Differences
between the amounts billed to customers and the actual costs recoverable are
deferred and recovered or refunded in future periods by means of prospective
monthly adjustments to rates.
Renewable Energy
Credits
MGE receives renewable energy credits
from certain purchase power agreements. The value of the credits are recorded as
inventory and expensed when the credit is redeemed or expired. A regulatory
liability has been established for the value of the renewable energy credits
included in inventory. In Wisconsin, renewable energy credits expire four years
after the year of acquisition.
7.
Common
Equity.
a.
Common Stock -
MGE Energy and MGE.
MGE Energy sells shares of its common
stock through its Stock Plan. Those shares may be newly issued shares or shares
that MGE Energy has purchased in the open market for resale to participants in
the Stock Plan. All sales under the Stock Plan are covered by a shelf
registration statement that MGE Energy filed with the SEC. For the years ended
December 31, 2017 and 2016, MGE Energy did not issue any new shares of
common stock under the Stock Plan.
MGE
Energy's transfer agent purchases shares on the open market to provide shares to
meet obligations to participants in the Stock Plan. The shares are purchased on
the open market through their securities broker-dealer and then are reissued
under the Stock Plan as needed to meet share delivery requirements. The volume
and timing of share repurchases in the open market depends upon the level of
dividend reinvestment and optional share purchases being made from time to time
by plan participants. As a result, there is no specific maximum number of shares
to be repurchased and no specified termination date for the repurchases.
During the years ended
December 31, 2017 and 2016, MGE Energy paid $43.7 million (or $1.26
per share) and $41.8 million (or $1.21 per share), respectively, in cash
dividends on its common stock. Dividend payments by MGE to MGE Energy are
subject to restrictions arising under a PSCW rate order and, to a lesser degree,
MGE's first mortgage bonds. The PSCW order restricts any dividends, above the
PSCW authorized amount that MGE may pay MGE Energy if its common equity ratio,
calculated in the manner used in the rate proceeding, is less than 55%. See
Footnote 9 for further discussion of the mortgage indenture covenants.
During the years ended December 31, 2017 and 2016, MGE paid
$45.0 million and $50.0 million, respectively, in cash dividends to
MGE Energy. In 2016, MGE also transferred its ownership interest in MGE Transco
to MGE Energy in the form of a dividend in kind of $15.8 million. See
Footnote 4 for further information.
b.
Dilutive Shares
Calculation - MGE Energy.
MGE Energy does not hold any dilutive
securities.
8.
Noncontrolling
Interest - MGE.
The
noncontrolling interest on MGE's consolidated balance sheets at December 31
was as follows:
|
|
|
|
| |
|
(In thousands) |
|
2017 |
|
2016 |
|
MGE Power Elm
Road(a) |
$ |
97,635 |
$ |
80,362 |
|
MGE Power West
Campus(a) |
|
43,267 |
|
35,303 |
|
Total Noncontrolling
Interest |
$ |
140,902 |
$ |
115,665 |
The net income attributable to
noncontrolling interest, net of tax, for the years ended December 31, 2017,
2016, and 2015 was as follows:
|
|
|
|
|
|
| |
|
(In thousands) |
|
2017 |
|
2016 |
|
2015 |
|
MGE Power Elm
Road(a) |
$ |
29,274 |
$ |
14,748 |
$ |
16,577 |
|
MGE Power West
Campus(a) |
|
13,963 |
|
7,200 |
|
7,348 |
|
MGE Transco(b) |
|
- |
|
1,410 |
|
2,172 |
|
Net Income Attributable to
Noncontrolling Interest, Net of Tax |
$ |
43,237 |
$ |
23,358 |
$ |
26,097 |
(a)
MGE
Power Elm Road and MGE Power West Campus are not subsidiaries of MGE; however,
they have been consolidated in the consolidated financial statements of MGE (see
Footnote 2). MGE Power Elm Road and MGE Power West Campus are 100% owned by
MGE Power, and MGE Power is 100% owned by MGE Energy. MGE Energy's proportionate
share of the equity and net income (through its wholly owned subsidiary MGE
Power) of MGE Power Elm Road and MGE Power West Campus is classified within the
MGE consolidated financial statements as noncontrolling interest. In 2017, there
was a $14.8 million and $6.8 million one-time tax impact as a result
of the Tax Act for MGE Power Elm Road and MGE Power West Campus, respectively.
The Tax Act reduced the federal tax rate from 35% to 21%. See Footnote 12
for further information.
(b)
At
December 31, 2017, MGE Energy is the owner of MGE Transco. In
July 2016, MGE's ownership interest in MGE Transco declined below a
majority as a result of continued funding of ATC capital contributions by MGE
Energy. As a result of the change in majority ownership in MGE Transco, MGE
deconsolidated MGE Energy's proportionate share of the equity in MGE Transco.
The change in consolidation was applied prospectively by reducing its investment
and noncontrolling interest on MGE's consolidated financial statements. The
change had no effect on MGE Energy's consolidated financial statements; however,
MGE Energy's proportionate share of the equity and net income of MGE Transco
classified as noncontrolling interest was deconsolidated from MGE's financial
statements. No gain or loss was recognized in July 2016 due to MGE ceasing
to have a controlling financial interest.
9.
Long-Term Debt
- MGE Energy and MGE.
a.
Long-Term Debt.
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
December 31,
2017 |
|
|
December 31,
2016 |
|
|
|
(In thousands) |
|
MGE Energy |
|
MGE |
|
|
MGE Energy |
|
MGE |
|
|
|
First Mortgage
Bonds:(a) |
|
|
|
|
|
|
|
|
|
|
|
|
7.70%, 2028
Series |
$ |
1,200 |
$ |
1,200 |
|
$ |
1,200 |
$ |
1,200 |
|
|
|
Tax Exempt Debt: |
|
|
|
|
|
|
|
|
|
|
|
|
3.45%, 2027
Series, |
|
|
|
|
|
|
|
|
|
|
|
|
Industrial
Development Revenue Bonds |
|
19,300 |
|
19,300 |
|
|
19,300 |
|
19,300 |
|
|
|
Medium-Term
Notes:(b) |
|
|
|
|
|
|
|
|
|
|
|
|
5.25%, due
2017(c) |
|
- |
|
- |
|
|
30,000 |
|
30,000 |
|
|
|
6.12%, due
2028 |
|
20,000 |
|
20,000 |
|
|
20,000 |
|
20,000 |
|
|
|
7.12%, due
2032 |
|
25,000 |
|
25,000 |
|
|
25,000 |
|
25,000 |
|
|
|
6.247%, due
2037 |
|
25,000 |
|
25,000 |
|
|
25,000 |
|
25,000 |
|
|
|
Total
Medium-Term Notes |
|
70,000 |
|
70,000 |
|
|
100,000 |
|
100,000 |
|
|
|
Other Long-Term
Debt:(d) |
|
|
|
|
|
|
|
|
|
|
|
|
5.59%, due
2018(e) |
|
20,000 |
|
20,000 |
|
|
20,000 |
|
20,000 |
|
|
|
3.38%, due
2020(e) |
|
15,000 |
|
15,000 |
|
|
15,000 |
|
15,000 |
|
|
|
3.09%, due
2023(e) |
|
30,000 |
|
30,000 |
|
|
30,000 |
|
30,000 |
|
|
|
3.29%, due
2026(e) |
|
15,000 |
|
15,000 |
|
|
15,000 |
|
15,000 |
|
|
|
3.11%, due
2027(e) |
|
30,000 |
|
30,000 |
|
|
- |
|
- |
|
|
|
5.68%, due
2033(f) |
|
26,121 |
|
26,121 |
|
|
27,120 |
|
27,120 |
|
|
|
5.19%, due
2033(f) |
|
17,290 |
|
17,290 |
|
|
17,983 |
|
17,983 |
|
|
|
5.26%, due
2040(e) |
|
15,000 |
|
15,000 |
|
|
15,000 |
|
15,000 |
|
|
|
5.04%, due
2040(g) |
|
36,806 |
|
36,806 |
|
|
38,472 |
|
38,472 |
|
|
|
4.74%, due
2041(g) |
|
23,166 |
|
23,166 |
|
|
24,167 |
|
24,167 |
|
|
|
4.38%, due
2042(e) |
|
28,000 |
|
28,000 |
|
|
28,000 |
|
28,000 |
|
|
|
4.42%, due
2043(e) |
|
20,000 |
|
20,000 |
|
|
20,000 |
|
20,000 |
|
|
|
4.47%, due
2048(e) |
|
20,000 |
|
20,000 |
|
|
20,000 |
|
20,000 |
|
|
|
3.76%, due
2052(c)(e) |
|
40,000 |
|
40,000 |
|
|
- |
|
- |
|
|
|
Total
Other Long-Term Debt |
|
336,383 |
|
336,383 |
|
|
270,742 |
|
270,742 |
|
|
|
Long-term
debt due within one year |
|
(24,452) |
|
(24,452) |
|
|
(4,333) |
|
(4,333) |
|
|
|
Unamortized
discount and debt issuance costs |
|
(4,270) |
|
(4,270) |
|
|
(4,118) |
|
(4,118) |
|
|
|
Total
Long-Term Debt |
$ |
398,161 |
$ |
398,161 |
|
$ |
382,791 |
$ |
382,791 |
|
(a)
MGE's
utility plant is subject to the lien of its Indenture of Mortgage and Deed of
Trust, under which its first mortgage bonds are issued. The Mortgage Indenture
provides that dividends or any other distribution or purchase of shares may not
be made if the aggregate amount thereof since December 31, 1945 would
exceed the earned surplus (retained earnings) accumulated subsequent to
December 31, 1945. As of December 31, 2017, approximately
$343.3 million was available for the payment of dividends under this
covenant.
(b)
The
indenture under which MGE's Medium-Term notes are issued provides that those
notes will be entitled to be equally and ratably secured in the event that MGE
issues any additional first mortgage bonds.
(c)
MGE
had $30 million of medium-term notes mature in January 2017. MGE
issued $40 million of new long-term unsecured debt on January 13,
2017, to refinance the maturing $30 million medium-term notes and assist
with the financing of additional capital expenditures. In accordance with
applicable accounting guidance, MGE classified the $30 million of maturing
medium-term notes as long-term debt on the consolidated balance sheets for the
year ended December 31, 2016.
(d)
Unsecured
notes issued pursuant to various Note Purchase Agreements with one or more
purchasers. The notes are not issued under, or governed by, MGE's Indenture
dated as of September 1, 1998, which governs MGE's Medium-Term Notes.
(e)
Issued
by MGE. Under that Note Purchase Agreement: (i) note holders have the right to
require MGE to repurchase their notes at par in the event of an acquisition of
beneficial ownership of 30% or more of the outstanding voting stock of MGE
Energy, (ii) MGE must maintain a ratio of its consolidated indebtedness to
consolidated total capitalization not to exceed a maximum of 65%, and (iii) MGE
cannot issue "Priority Debt" in an amount exceeding 20% of its consolidated
assets. Priority Debt is defined as any indebtedness of MGE secured by liens
other than specified liens permitted by the Note Purchase Agreement and certain
unsecured indebtedness of certain subsidiaries. As of December 31, 2017,
MGE was in compliance with the covenant requirements.
(f)
Issued
by MGE Power West Campus. The Note Purchase Agreements require it to maintain a
projected debt service coverage ratio of not less than 1.25 to 1.00, and debt to
total capitalization ratio of not more than 0.65 to 1.00. The notes are secured
by a collateral assignment of lease payments that MGE is making to MGE Power
West Campus for use of its ownership interest in the WCCF pursuant to a
long-term lease. As of December 31, 2017, MGE Power West Campus was in
compliance with the covenant requirements.
(g)
Issued
by MGE Power Elm Road. The Note Purchase Agreement requires MGE Power Elm Road
to maintain a projected and actual debt service coverage ratio at the end of any
calendar quarter of not less than 1.25 to 1.00 for the trailing 12-month period.
The notes are secured by a collateral assignment of lease payments that MGE is
making to MGE Power Elm Road for use of its ownership interest in the Elm Road
Units pursuant to long-term leases. As of December 31, 2017, MGE Power
Elm Road was in compliance with the covenant requirements.
b.
Long-Term Debt
Maturities.
Below is MGE Energy's and MGE's
aggregate maturities for all long-term debt for years following
December 31, 2017.
|
|
|
|
|
|
| |
|
|
|
|
MGE |
|
|
|
|
|
(In thousands) |
|
Energy |
|
MGE * |
|
|
|
2018 |
$ |
24,452 |
|
24,452 |
|
|
|
2019 |
|
4,553 |
|
4,553 |
|
|
|
2020 |
|
19,659 |
|
19,659 |
|
|
|
2021 |
|
4,771 |
|
4,771 |
|
|
|
2022 |
|
4,889 |
|
4,889 |
|
|
|
Future years |
|
368,559 |
|
368,559 |
|
|
|
Total |
$ |
426,883 |
$ |
426,883 |
|
*
Includes
$60.0 million for MGE Power Elm Road and $43.4 million for MGE Power
West Campus, all of which are consolidated with MGE's debt (see Footnote 2
for further information).
10.
Notes Payable
to Banks, Commercial Paper, and Lines of Credit.
a.
MGE
Energy.
At
December 31, 2017, MGE Energy had an unsecured, committed revolving line of
credit of $50 million expiring June 1, 2020. At December 31,
2017, no borrowings were outstanding under this facility.
The agreement requires MGE Energy to
maintain a ratio of its consolidated indebtedness to consolidated total
capitalization not to exceed a maximum of 65%. A change in control constitutes a
default under the agreement. Change in control events are defined as (i) a
failure by MGE Energy to hold 100% of the outstanding voting equity interest in
MGE or (ii) the acquisition of beneficial ownership of 30% or more of the
outstanding voting stock of MGE Energy by one person or two or more persons
acting in concert. As of December 31, 2017, MGE Energy was in compliance
with the covenant requirements.
b.
MGE.
For short-term borrowings, MGE
generally issues commercial paper (issued at the prevailing discount rate at the
time of issuance), which is supported by unused committed bank lines of credit.
At December 31, 2017, MGE had two unsecured, committed revolving lines of
credit for a total of $100 million expiring June 1, 2020. At
December 31, 2017, no borrowings were outstanding under these facilities;
however there was $4.0 million in commercial paper outstanding.
The agreements require MGE to
maintain a ratio of consolidated debt to consolidated total capitalization not
to exceed a maximum of 65%. The ratio calculation excludes assets, liabilities,
revenues, and expenses included in MGE's financial statements as the result of
the consolidation of VIEs, such as MGE Power West Campus and MGE Power Elm Road.
A change in control constitutes a default under the agreements. Change in
control events are defined as (i) a failure by MGE Energy to hold 100% of the
outstanding voting equity interest in MGE or (ii) the acquisition of beneficial
ownership of 30% or more of the outstanding voting stock of MGE Energy by one
person or two or more persons acting in concert. As of December 31, 2017,
MGE was in compliance with the covenant requirements.
c.
MGE Energy and
MGE.
Information
concerning short-term borrowings for the past two years is shown below:
|
|
|
|
|
|
| |
|
|
|
|
As of
December 31, |
|
|
|
(In thousands) |
|
2017 |
|
2016 |
|
|
|
MGE
Energy(a) |
|
|
|
|
|
|
|
Available
lines of credit |
$ |
150,000 |
$ |
150,000 |
|
|
|
Short-term
debt outstanding |
$ |
4,000 |
$ |
- |
|
|
|
Weighted-average
interest rate |
|
1.55% |
|
-% |
|
|
|
During the year: |
|
|
|
|
|
|
|
Maximum
short-term borrowings |
$ |
7,500 |
$ |
- |
|
|
|
Average
short-term borrowings |
$ |
304 |
$ |
- |
|
|
|
Weighted-average
interest rate |
|
1.18% |
|
-% |
|
|
|
|
|
|
|
|
|
|
|
MGE |
|
|
|
|
|
|
|
Available
lines of credit |
$ |
100,000 |
$ |
100,000 |
|
|
|
Commercial
paper outstanding |
$ |
4,000 |
$ |
- |
|
|
|
Weighted-average
interest rate |
|
1.55% |
|
-% |
|
|
|
During the year: |
|
|
|
|
|
|
|
Maximum
short-term borrowings |
$ |
7,500 |
$ |
- |
|
|
|
Average
short-term borrowings |
$ |
304 |
$ |
- |
|
|
|
Weighted-average
interest rate |
|
1.18% |
|
-% |
|
(a)
MGE
Energy short-term borrowings include MGE Energy and MGE lines of credit and MGE
commercial paper.
11.
Fair Value of
Financial Instruments - MGE Energy and MGE.
Fair value is defined as the price
that would be received to sell an asset or would be paid to transfer a liability
(an exit price) in the principal or most advantageous market for the asset or
liability in an orderly transaction between market participants at the
measurement date. The accounting standard clarifies that fair value should be
based on the assumptions market participants would use when pricing the asset or
liability including assumptions about risk. The standard also establishes a
three level fair value hierarchy based upon the observability of the assumptions
used and requires the use of observable market data when available. The levels
are:
Level 1 - Pricing inputs are quoted
prices within active markets for identical assets or liabilities.
Level 2 - Pricing inputs are quoted
prices within active markets for similar assets or liabilities; quoted prices
for identical or similar instruments in markets that are not active; and
model-derived valuations that are correlated with or otherwise verifiable by
observable market data.
Level 3 - Pricing inputs are
unobservable and reflect management's best estimate of what market participants
would use in pricing the asset or liability.
a.
Fair Value of
Financial Assets and Liabilities Recorded at the Carrying Amount.
At December 31, 2017 and 2016,
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 MGE Energy's and MGE's
long-term debt is based on quoted market prices for similar financial
instruments at December 31. 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:
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
December 31,
2017 |
|
|
December 31,
2016 |
|
|
|
(In thousands) |
|
Carrying Amount |
|
Fair
Value |
|
|
Carrying Amount |
|
Fair
Value |
|
|
|
MGE Energy |
|
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash and
cash equivalents |
$ |
107,952 |
$ |
107,952 |
|
$ |
95,959 |
$ |
95,959 |
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
debt - commercial paper |
|
4,000 |
|
4,000 |
|
|
- |
|
- |
|
|
|
Long-term
debt(a) |
|
426,883 |
|
475,282 |
|
|
391,242 |
|
430,122 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MGE |
|
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash and
cash equivalents |
$ |
5,951 |
$ |
5,951 |
|
$ |
10,768 |
$ |
10,768 |
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
debt - commercial paper |
|
4,000 |
|
4,000 |
|
|
- |
|
- |
|
|
|
Long-term
debt(a) |
|
426,883 |
|
475,282 |
|
|
391,242 |
|
430,122 |
|
(a)
Includes
long-term debt due within one year. Excludes debt issuance costs and unamortized
discount of $4.3 million and $4.1 million at December 31, 2017 and 2016,
respectively.
b.
Recurring Fair
Value Measurements.
The following table presents the
balances of assets and liabilities measured at fair value on a recurring
basis.
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Fair Value as of
December 31, 2017 |
|
|
|
(In thousands) |
|
Total |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
|
|
MGE Energy |
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
Derivatives,
net |
$ |
1,005 |
$ |
278 |
$ |
- |
$ |
727 |
|
|
|
Exchange-traded
investments |
|
792 |
|
792 |
|
- |
|
- |
|
|
|
Total
Assets |
$ |
1,797 |
$ |
1,070 |
$ |
- |
$ |
727 |
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
Derivatives,
net(b) |
$ |
42,963 |
$ |
210 |
$ |
- |
$ |
42,753 |
|
|
|
Deferred
compensation |
|
3,065 |
|
- |
|
3,065 |
|
- |
|
|
|
Total
Liabilities |
$ |
46,028 |
$ |
210 |
$ |
3,065 |
$ |
42,753 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MGE |
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
Derivatives,
net |
$ |
1,005 |
$ |
278 |
$ |
- |
$ |
727 |
|
|
|
Exchange-traded
investments |
|
64 |
|
64 |
|
- |
|
- |
|
|
|
Total
Assets |
$ |
1,069 |
$ |
342 |
$ |
- |
$ |
727 |
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
Derivatives,
net(b) |
$ |
42,963 |
$ |
210 |
$ |
- |
$ |
42,753 |
|
|
|
Deferred
compensation |
|
3,065 |
|
- |
|
3,065 |
|
- |
|
|
|
Total
Liabilities |
$ |
46,028 |
$ |
210 |
$ |
3,065 |
$ |
42,753 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Fair Value as of
December 31, 2016 |
|
|
|
(In thousands) |
|
Total |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
|
|
MGE Energy |
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
Derivatives,
net |
$ |
1,527 |
$ |
1,041 |
$ |
- |
$ |
486 |
|
|
|
Exchange-traded
investments |
|
500 |
|
500 |
|
- |
|
- |
|
|
|
Total
Assets |
$ |
2,027 |
$ |
1,541 |
$ |
- |
$ |
486 |
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
Derivatives,
net |
$ |
50,808 |
$ |
16 |
$ |
- |
$ |
50,792 |
|
|
|
Deferred
compensation |
|
3,039 |
|
- |
|
3,039 |
|
- |
|
|
|
Total
Liabilities |
$ |
53,847 |
$ |
16 |
$ |
3,039 |
$ |
50,792 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MGE |
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
Derivatives,
net |
$ |
1,527 |
$ |
1,041 |
$ |
- |
$ |
486 |
|
|
|
Exchange-traded
investments |
|
143 |
|
143 |
|
- |
|
- |
|
|
|
Total
Assets |
$ |
1,670 |
$ |
1,184 |
$ |
- |
$ |
486 |
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
Derivatives,
net |
$ |
50,808 |
$ |
16 |
$ |
- |
$ |
50,792 |
|
|
|
Deferred
compensation |
|
3,039 |
|
- |
|
3,039 |
|
- |
|
|
|
Total
Liabilities |
$ |
53,847 |
$ |
16 |
$ |
3,039 |
$ |
50,792 |
|
(b)
These
amounts are shown gross and exclude $0.1 million of collateral that was posted
against derivative positions with counterparties as of December 31, 2017.
No transfers were made in or out of
Level 1 or Level 2 for the year ended December 31, 2017.
Investments include exchange-traded
investment securities valued using quoted prices on active exchanges and are
therefore classified as Level 1.
Derivatives include exchange-traded
derivative contracts, over-the-counter transactions, a purchased power
agreement, and financial transmission rights (FTRs). Most exchange-traded
derivative contracts are valued based on unadjusted quoted prices in active
markets and are therefore classified as Level 1. A small number of
exchange-traded derivative contracts are valued using quoted market pricing in
markets with insufficient volumes and are therefore considered unobservable and
classified as Level 3. Transactions done with an over-the-counter party are on
inactive markets and are therefore classified as Level 3. These transactions are
valued based on quoted prices from markets with similar exchange-traded
transactions. FTRs are priced based upon monthly auction results for identical
or similar instruments in a closed market with limited data available and are
therefore classified as Level 3.
The purchased power agreement (see
Footnote 15) was valued using an internally-developed pricing model and
therefore is classified as Level 3. The model projects future market energy
prices and compares those prices to the projected power costs to be incurred
under the contract. Inputs to the model require significant management judgment
and estimation. Future energy prices are based on a forward power pricing curve
using exchange-traded contracts in the electric futures market. A basis
adjustment is applied to the market energy price to reflect the price
differential between the market price delivery point and the counterparty
delivery point. The historical relationship between the delivery points is
reviewed and a discount (below 100%) or premium (above 100%) is derived. This
comparison is done for both peak times when demand is high and off peak times
when demand is low. If the basis adjustment is lowered, the fair value
measurement will decrease, and if the basis adjustment is increased, the fair
value measurement will increase.
The projected power costs anticipated
to be incurred under the purchased power agreement are determined using many
factors, including historical generating costs, future prices, and expected fuel
mix of the counterparty. An increase in the projected fuel costs would result in
a decrease in the fair value measurement of the purchased power agreement. A
significant input that MGE estimates is the counterparty's fuel mix in
determining the projected power cost. MGE also considers the assumptions that
market participants would use in valuing the asset or liability. This
consideration includes assumptions about market risk such as liquidity,
volatility, and contract duration. The fair value model uses a discount rate
that incorporates discounting, credit, and model risks.
The
following table presents the significant unobservable inputs used in the pricing
model as of December 31:
|
|
|
|
|
| |
|
|
|
|
Model Input |
|
|
Significant Unobservable
Inputs |
|
2017 |
|
2016 |
|
|
Basis adjustment: |
|
|
|
|
|
|
On
peak |
|
92.3% |
|
91.9% |
|
|
Off
peak |
|
94.1% |
|
93.4% |
|
|
Counterparty fuel mix: |
|
|
|
|
|
|
Internal
generation |
|
55%-75% |
|
55%-75% |
|
|
Purchased
power |
|
45%-25% |
|
45%-25% |
The deferred compensation plan allows
participants to defer certain cash compensation into a notional investment
account. These amounts are included within other deferred liabilities in the
consolidated balance sheets of MGE Energy and MGE. The notional investments earn
interest based upon the semiannual rate of U.S. Treasury Bills having a 26
week maturity increased by 1% compounded monthly with a minimum annual rate of
7%, compounded monthly. The notional investments are based upon observable
market data, however since the deferred compensation obligations themselves are
not exchanged in an active market they are classified as Level 2.
The following table summarizes the
changes in Level 3 commodity derivative assets and liabilities measured at fair
value on a recurring basis.
|
|
|
|
|
|
|
|
| |
|
|
(In thousands) |
|
2017 |
|
2016 |
|
2015 |
|
|
|
Balance as of
January 1, |
$ |
(50,306) |
$ |
(53,501) |
$ |
(53,986) |
|
|
|
Realized and unrealized gains
(losses): |
|
|
|
|
|
|
|
|
|
Included in
regulatory liabilities |
|
8,281 |
|
3,195 |
|
484 |
|
|
|
Included in
other comprehensive income |
|
- |
|
- |
|
- |
|
|
|
Included in
earnings |
|
(3,718) |
|
(5,347) |
|
(6,635) |
|
|
|
Included in
current assets |
|
(9) |
|
(142) |
|
- |
|
|
|
Purchases |
|
24,181 |
|
23,346 |
|
23,052 |
|
|
|
Sales |
|
- |
|
- |
|
- |
|
|
|
Issuances |
|
- |
|
- |
|
- |
|
|
|
Settlements |
|
(20,455) |
|
(17,857) |
|
(16,416) |
|
|
|
Transfers in and/or out of Level
3 |
|
- |
|
- |
|
- |
|
|
|
Balance as of
December 31, |
$ |
(42,026) |
$ |
(50,306) |
$ |
(53,501) |
|
|
|
Total gains (losses) included in
earnings attributed to the |
|
|
|
|
|
|
|
|
|
change in unrealized gains (losses)
related to assets and |
|
|
|
|
|
|
|
|
|
liabilities held at
December 31,(c) |
$ |
- |
$ |
- |
$ |
- |
|
The following table presents total
realized and unrealized gains (losses) included in income for Level 3 assets and
liabilities measured at fair value on a recurring basis (c).
|
|
|
|
|
|
|
|
| |
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
Year Ended
December 31, |
|
2017 |
|
2016 |
|
2015 |
|
|
|
Purchased power expense |
$ |
(3,314) |
$ |
(5,262) |
$ |
(6,663) |
|
|
|
Cost of gas sold expense |
|
(404) |
|
(85) |
|
28 |
|
|
|
Total |
$ |
(3,718) |
$ |
(5,347) |
$ |
(6,635) |
|
(c)
MGE's
exchange-traded derivative contracts, over-the-counter party transactions,
purchased power agreement, and FTRs are subject to regulatory deferral. These
derivatives are therefore marked to fair value and are offset in the financial
statements with a corresponding regulatory asset or liability.
12.
Income
Taxes.
a.
MGE Energy and
MGE Income Taxes.
MGE Energy files a consolidated
federal income tax return that includes the operations of all subsidiary
companies. The subsidiaries calculate their respective federal income tax
provisions as if they were separate taxable entities.
On a
consolidated and separate company basis, the income tax provision consists of
the following provision (benefit) components for the years ended
December 31:
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
MGE Energy |
|
MGE |
|
(In thousands) |
|
2017 |
|
2016 |
|
2015 |
|
2017 |
|
2016 |
|
2015 |
|
Current payable: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
$ |
21,125 |
$ |
16,908 |
$ |
16,837 |
$ |
21,512 |
$ |
17,521 |
$ |
19,295 |
|
State |
|
5,129 |
|
3,287 |
|
2,774 |
|
5,316 |
|
3,497 |
|
3,443 |
|
Net-deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
(8,346) |
|
17,571 |
|
15,951 |
|
(11,195) |
|
16,391 |
|
13,538 |
|
State |
|
4,264 |
|
4,850 |
|
5,976 |
|
3,435 |
|
4,485 |
|
5,305 |
|
Amortized investment tax
credits |
|
(78) |
|
(103) |
|
(175) |
|
(78) |
|
(103) |
|
(175) |
|
Total income tax provision |
$ |
22,094 |
$ |
42,513 |
$ |
41,363 |
$ |
18,990 |
$ |
41,791 |
$ |
41,406 |
The consolidated income tax provision
differs from the amount computed by applying the statutory federal income tax
rate to income before income taxes, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
MGE Energy |
|
MGE |
|
|
|
|
2017 |
|
2016 |
|
2015 |
|
2017 |
|
2016 |
|
2015 |
|
|
|
Statutory federal income tax
rate |
35.0 % |
|
35.0 % |
|
35.0 % |
|
35.0 % |
|
35.0 % |
|
35.0 % |
|
|
|
State income taxes, net of federal
benefit |
5.1 % |
|
5.1 % |
|
5.2 % |
|
5.1 % |
|
5.1 % |
|
5.2 % |
|
|
|
Amortized investment tax
credits |
-% |
|
(0.1)% |
|
(0.2)% |
|
-% |
|
(0.1)% |
|
(0.2)% |
|
|
|
Credit for electricity from wind
energy |
(1.6)% |
|
(1.6)% |
|
(1.8)% |
|
(1.7)% |
|
(1.7)% |
|
(1.8)% |
|
|
|
Domestic manufacturing
deduction |
(1.4)% |
|
(1.3)% |
|
(1.4)% |
|
(1.5)% |
|
(1.3)% |
|
(1.4)% |
|
|
|
AFUDC equity, net |
(0.2)% |
|
(0.2)% |
|
(0.1)% |
|
(0.2)% |
|
(0.2)% |
|
(0.1)% |
|
|
|
Federal income tax rate
reduction |
(18.1)% |
|
-% |
|
-% |
|
(19.3)% |
|
-% |
|
-% |
|
|
|
Other, net, individually
insignificant |
(0.3)% |
|
(0.9)% |
|
-% |
|
(0.4)% |
|
(0.9)% |
|
-% |
|
|
|
Effective income tax rate |
18.5 % |
|
36.0 % |
|
36.7 % |
|
17.0 % |
|
35.9 % |
|
36.7 % |
|
The significant components of
deferred tax liabilities (assets) that appear on the consolidated balance sheets
as of December 31 are as follows:
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
MGE Energy |
|
MGE |
|
|
|
(In thousands) |
|
2017 |
|
2016 |
|
2017 |
|
2016 |
|
|
|
Property-related |
$ |
238,437 |
$ |
344,721 |
$ |
238,544 |
$ |
344,630 |
|
|
|
Investment in
ATC(a) |
|
48,324 |
|
71,898 |
|
- |
|
- |
|
|
|
Bond transactions |
|
832 |
|
1,324 |
|
832 |
|
1,324 |
|
|
|
Pension and other postretirement
benefits |
|
42,919 |
|
63,516 |
|
42,919 |
|
63,516 |
|
|
|
Derivatives |
|
11,525 |
|
20,304 |
|
11,525 |
|
20,304 |
|
|
|
Tax deductible prepayments |
|
6,169 |
|
8,404 |
|
6,169 |
|
8,404 |
|
|
|
Other |
|
9,389 |
|
16,606 |
|
9,222 |
|
16,571 |
|
|
|
Gross
deferred income tax liabilities |
|
357,595 |
|
526,773 |
|
309,211 |
|
454,749 |
|
|
|
Investment in
ATC(a) |
|
(24,781) |
|
(31,212) |
|
- |
|
- |
|
|
|
Accrued expenses |
|
(15,135) |
|
(22,410) |
|
(15,135) |
|
(22,410) |
|
|
|
Pension and other postretirement
benefits |
|
(32,196) |
|
(48,860) |
|
(32,196) |
|
(48,860) |
|
|
|
Deferred tax regulatory
account |
|
(36,124) |
|
(903) |
|
(36,124) |
|
(903) |
|
|
|
Derivatives |
|
(11,525) |
|
(20,304) |
|
(11,525) |
|
(20,304) |
|
|
|
Other |
|
(12,790) |
|
(19,340) |
|
(12,831) |
|
(19,224) |
|
|
|
Gross
deferred income tax assets |
|
(132,551) |
|
(143,029) |
|
(107,811) |
|
(111,701) |
|
|
|
Less
valuation allowance |
|
86 |
|
69 |
|
86 |
|
69 |
|
|
|
Net
deferred income tax assets |
|
(132,465) |
|
(142,960) |
|
(107,725) |
|
(111,632) |
|
|
|
Deferred
income taxes |
$ |
225,130 |
$ |
383,813 |
$ |
201,486 |
$ |
343,117 |
|
(a)
As
of December 1, 2016, MGE transferred its ownership interest in ATC to MGE
Energy, resulting in a deferred intercompany gain and a corresponding step-up in
tax basis.
On December 22, 2017, the U.S.
government enacted comprehensive tax legislation commonly referred to as the Tax
Cuts and Jobs Act (the Tax Act). The Tax Act makes broad and complex changes to
the U.S. tax code, including a reduction in the U.S. federal corporate tax rate
from 35 percent to 21 percent.
The SEC
staff issued Staff Accounting Bulletin No. 118 (SAB 118), which provides
guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a
measurement period that should not extend beyond one year from the Tax Act
enactment date for companies to complete the accounting for certain income tax
effects. In accordance with SAB 118, a company must reflect the income tax
effects of those aspects of the Tax Act for which the accounting is complete. To
the extent that a company's accounting for certain income tax effects of the Tax
Act is incomplete but it is able to determine a reasonable estimate, it must
record a provisional estimate in the financial statements. If a company cannot
determine a provisional estimate to be included in the financial statements, it
should continue accounting for certain income tax effects on the basis of the
provisions of the tax laws that were in effect immediately before the enactment
of the Tax Act.
The Tax Act reduces the corporate tax
rate to 21 percent, effective January 1, 2018. Consequently, MGE Energy has
recorded a provisional decrease related to deferred tax assets (DTAs) and
deferred tax liabilities (DTLs) of $2.1 million and $179.0 million,
respectively, with a corresponding net adjustment to deferred income tax expense
of $21.7 million generated by nonregulated activities, investment in ATC of
$20.4 million, regulatory assets of $4.3 million, and regulatory
liabilities of $130.5 million for the year ended December 31, 2017.
MGE has recorded a provisional increase related to DTAs and decrease related to
DTLs of $1.4 million and $155.1 million, respectively, with a
corresponding net adjustment to deferred income tax expense of $
21.7 million, regulatory assets of $4.3 million, and regulatory
liabilities of $130.5 million for the year ended December 31, 2017.
Given that changes in income taxes are generally passed through in customer
rates for the regulated utility, a regulatory liability was recorded. The amount
and timing of the cash impacts will depend on the period over which certain
income tax benefits are provided to customers, which will be subject to review
by the PSCW. A portion of the regulatory liability will be returned to customers
based on a mandated timeframe dictated by applicable tax laws. While we are able
to make a reasonable estimate of the impact of the reduction in corporate rate,
it may be affected by other analyses related to the Tax Act. Any subsequent
adjustment to these amounts will be recorded in the quarter of 2018 when the
analysis is complete.
Our state valuation allowance reduces
MGE Energy's and MGE's deferred tax assets for state carryforward losses to
estimated realizable value due to the uncertainty of future income estimates in
various state tax jurisdictions. For tax purposes, as of December 31, 2017,
both MGE Energy and MGE had approximately $1.4 million of state tax net
operating loss deductions subject to a valuation allowance that expire between
2020 and 2023 if unused.
b.
Accounting for
Uncertainty in Income Taxes - MGE Energy and MGE.
MGE Energy and MGE account for the
difference between the tax benefit amount taken on prior year tax returns, or
expected to be taken on a current year tax return, and the tax benefit amount
recognized in the financial statements as an unrecognized tax benefit.
A tabular reconciliation of
unrecognized tax benefits and interest from January 1, 2015, to
December 31, 2017, is as follows:
|
|
|
|
|
|
|
|
| |
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
Unrecognized Tax
Benefits: |
|
2017 |
|
2016 |
|
2015 |
|
|
|
Unrecognized tax benefits,
January 1, |
$ |
2,487 |
$ |
2,528 |
$ |
2,365 |
|
|
|
Additions based on tax positions
related to the current year |
|
552 |
|
452 |
|
488 |
|
|
|
Additions based on tax positions
related to the prior years |
|
19 |
|
39 |
|
520 |
|
|
|
Reductions based on tax positions
related to the prior years |
|
(1,134) |
|
(532) |
|
(845) |
|
|
|
Unrecognized tax benefits,
December 31, |
$ |
1,924 |
$ |
2,487 |
$ |
2,528 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
Interest on Unrecognized Tax
Benefits: |
|
2017 |
|
2016 |
|
2015 |
|
|
|
Accrued interest on unrecognized
tax benefits, January 1, |
$ |
388 |
$ |
311 |
$ |
92 |
|
|
|
Reduction in interest expense on
uncertain tax positions |
|
(312) |
|
(27) |
|
(102) |
|
|
|
Interest expense on uncertain tax
positions |
|
89 |
|
104 |
|
321 |
|
|
|
Accrued interest on unrecognized
tax benefits, December 31, |
$ |
165 |
$ |
388 |
$ |
311 |
|
Unrecognized tax benefits are
classified with "Other deferred liabilities" on the consolidated balance sheets.
The interest component is offset by a regulatory asset.
At
December 31, 2017, 2016, and 2015, MGE Energy and MGE had unrecognized tax
benefits primarily related to temporary tax differences associated with the
change in income tax method of accounting for electric generation and electric
and gas distribution repairs. In addition, at December 31, 2017 and 2016,
MGE Energy and MGE had unrecognized tax benefits relating to permanent
differences and tax credits of less than $0.1 million. There were no
unrecognized tax benefits at December 31, 2015, related to federal
permanent differences and tax credits.
The unrecognized tax benefits at
December 31, 2017, are not expected to significantly increase or decrease
within the next twelve months. In addition, statutes of limitations will expire
for MGE Energy and MGE tax returns. The impact of the statutes of limitations
expiring is not anticipated to be material. The following table shows tax
years that remain subject to examination by major jurisdiction:
|
|
|
| |
|
|
Taxpayer |
Open Years |
|
|
|
MGE Energy and consolidated
subsidiaries in federal return |
2014 through 2017 |
|
|
|
MGE Energy Wisconsin combined
reporting corporation return |
2013 through 2017 |
|
13.
Pension Plans
and Other Postretirement Benefits - MGE Energy and MGE.
MGE maintains qualified and
nonqualified pension plans, health care, and life insurance benefits, and
defined contribution 401(k) benefit plans for its employees and retirees. MGE's
costs for the 401(k) plans were $3.5 million, $3.1 million, and
$2.8 million for the years ended December 31, 2017, 2016, and 2015,
respectively. A measurement date of December 31 is utilized for all pension
and postretirement benefit plans.
All employees hired after
December 31, 2006, have been enrolled in the defined contribution pension
plan, rather than the defined benefit pension plan previously in place.
a.
Benefit
Obligations and Plan Assets.
|
|
|
|
|
|
|
|
|
|
| |
|
|
(In thousands) |
|
Pension
Benefits |
|
Other Postretirement
Benefits |
|
|
|
Change in Benefit
Obligations: |
|
2017 |
|
2016 |
|
2017 |
|
2016 |
|
|
|
Net benefit obligation at beginning
of year |
$ |
349,556 |
$ |
332,565 |
$ |
78,842 |
$ |
74,935 |
|
|
|
Service cost |
|
5,383 |
|
5,365 |
|
1,231 |
|
1,271 |
|
|
|
Interest cost |
|
12,625 |
|
12,393 |
|
2,666 |
|
2,681 |
|
|
|
Plan participants'
contributions |
|
- |
|
- |
|
894 |
|
767 |
|
|
|
Actuarial loss(a) |
|
37,689 |
|
11,412 |
|
2,749 |
|
2,638 |
|
|
|
Gross benefits paid |
|
(13,984) |
|
(12,179) |
|
(4,262) |
|
(3,637) |
|
|
|
Less:
federal subsidy on benefits paid(b) |
|
- |
|
- |
|
170 |
|
187 |
|
|
|
Benefit obligation at end of
year |
$ |
391,269 |
$ |
349,556 |
$ |
82,290 |
$ |
78,842 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Plan
Assets: |
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at
beginning of year |
$ |
311,933 |
$ |
290,716 |
$ |
43,177 |
$ |
40,170 |
|
|
|
Actual return on plan assets |
|
56,987 |
|
24,181 |
|
7,104 |
|
3,236 |
|
|
|
Employer contributions |
|
6,715 |
|
9,215 |
|
1,557 |
|
2,641 |
|
|
|
Plan participants'
contributions |
|
- |
|
- |
|
894 |
|
767 |
|
|
|
Gross benefits paid |
|
(13,984) |
|
(12,179) |
|
(4,262) |
|
(3,637) |
|
|
|
Fair value of plan assets at end of
year |
$ |
361,651 |
$ |
311,933 |
$ |
48,470 |
$ |
43,177 |
|
|
|
Funded Status at
December 31 |
$ |
(29,618) |
$ |
(37,623) |
$ |
(33,820) |
$ |
(35,665) |
|
(a)
In
2017 and 2016, lower discount rates were the main driver of the actuarial
loss.
(b)
In
2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003
was signed into law authorizing Medicare to provide prescription drug benefits
to retirees. For the years ended December 31, 2017 and 2016, the subsidy
due to MGE was $0.2 million.
The accumulated benefit obligation
for the defined benefit pension plans as of December 31, 2017 and 2016 was $356.0 million
and $319.9 million, respectively.
The
amounts recognized in the consolidated balance sheets to reflect the funded
status of the plans as of December 31 are as follows:
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
Pension
Benefits |
|
Other Postretirement
Benefits |
|
|
|
(In thousands) |
|
2017 |
|
2016 |
|
2017 |
|
2016 |
|
|
|
Long-term asset |
$ |
7,336 |
$ |
2,020 |
$ |
- |
$ |
- |
|
|
|
Current liability |
|
(1,726) |
|
(972) |
|
- |
|
- |
|
|
|
Long-term liability |
|
(35,228) |
|
(38,671) |
|
(33,820) |
|
(35,665) |
|
|
|
Net liability |
$ |
(29,618) |
$ |
(37,623) |
$ |
(33,820) |
$ |
(35,665) |
|
The following table shows the amounts
that have not yet been recognized in our net periodic benefit cost as of
December 31 and are recorded as regulatory assets in our consolidated
balance sheets:
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
Pension
Benefits |
|
Other Postretirement
Benefits |
|
|
|
(In thousands) |
|
2017 |
|
2016 |
|
2017 |
|
2016 |
|
|
|
Net actuarial loss |
$ |
81,969 |
$ |
84,656 |
$ |
12,600 |
$ |
14,728 |
|
|
|
Prior service benefit |
|
(429) |
|
(446) |
|
(9,821) |
|
(12,489) |
|
|
|
Transition obligation |
|
- |
|
- |
|
23 |
|
26 |
|
|
|
Total |
$ |
81,540 |
$ |
84,210 |
$ |
2,802 |
$ |
2,265 |
|
The projected benefit obligation and
fair value of plan assets for pension plans with a projected benefit obligation
in excess of plan assets were as follows:
|
|
|
|
|
|
| |
|
|
(In thousands) |
|
Pension
Benefits |
|
|
|
Projected Benefit Obligation in
Excess of Plan Assets |
|
2017 |
|
2016 |
|
|
|
Projected benefit obligation, end
of year |
$ |
36,954 |
$ |
227,739 |
|
|
|
Fair value of plan assets, end of
year |
|
- |
|
188,096 |
|
The accumulated benefit obligation
and fair value of plan assets for pension plans with an accumulated benefit
obligation in excess of plan assets were as follows:
|
|
|
|
|
|
| |
|
|
(In thousands) |
|
Pension
Benefits |
|
|
|
Accumulated Benefit Obligation
in Excess of Plan Assets |
|
2017 |
|
2016 |
|
|
|
Accumulated benefit obligation, end
of year |
$ |
32,813 |
$ |
26,927 |
|
|
|
Fair value of plan assets, end of
year |
|
- |
|
- |
|
b.
Net Periodic
Benefit Cost.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
(In thousands) |
|
Pension
Benefits |
|
Other Postretirement
Benefits |
|
|
|
Components of Net Periodic
Benefit Cost: |
|
2017 |
|
2016 |
|
2015 |
|
2017 |
|
2016 |
|
2015 |
|
|
|
Service cost |
$ |
5,383 |
$ |
5,365 |
$ |
7,263 |
$ |
1,231 |
$ |
1,271 |
$ |
1,559 |
|
|
|
Interest cost |
|
12,625 |
|
12,393 |
|
13,766 |
|
2,666 |
|
2,681 |
|
3,075 |
|
|
|
Expected return on assets |
|
(22,963) |
|
(22,365) |
|
(22,682) |
|
(2,887) |
|
(2,829) |
|
(2,812) |
|
|
|
Amortization of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transition
obligation |
|
- |
|
- |
|
- |
|
3 |
|
3 |
|
3 |
|
|
|
Prior
service (credit) cost |
|
(17) |
|
10 |
|
23 |
|
(2,669) |
|
(2,669) |
|
(2,669) |
|
|
|
Actuarial
loss |
|
6,352 |
|
5,600 |
|
5,395 |
|
660 |
|
589 |
|
953 |
|
|
|
Net periodic benefit cost
(credit) |
$ |
1,380 |
$ |
1,003 |
$ |
3,765 |
$ |
(996) |
$ |
(954) |
$ |
109 |
|
c.
Plan
Assumptions.
The weighted-average assumptions used
to determine the benefit obligations were as follows for the years ended
December 31:
|
|
|
|
|
|
|
|
| |
|
|
|
Pension
Benefits |
|
Other Postretirement
Benefits |
|
|
|
2017 |
|
2016 |
|
2017 |
|
2016 |
|
Discount rate |
|
3.73% |
|
4.29% |
|
3.58% |
|
4.11% |
|
Rate of compensation
increase |
|
3.67% |
|
3.71% |
|
N/A |
|
N/A |
|
Assumed health care cost trend
rates: |
|
|
|
|
|
|
|
|
|
Health care
cost trend rate assumed for next year |
|
N/A |
|
N/A |
|
6.00% |
|
6.25% |
|
Rate to
which the cost trend rate is assumed to |
|
|
|
|
|
|
|
|
|
decline
(the ultimate trend rate) |
|
N/A |
|
N/A |
|
5.00% |
|
5.00% |
|
Year that the rate reaches
the ultimate trend rate |
|
N/A |
|
N/A |
|
2022 |
|
2022 |
MGE uses individual spot rates,
instead of a weighted average of the yield curve spot rates, for measuring the
service cost and interest cost components of net periodic benefit cost.
The weighted-average assumptions used
to determine the net periodic cost were as follows for the years ended
December 31:
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Pension
Benefits |
|
Other Postretirement
Benefits |
|
|
|
2017 |
|
2016 |
|
2015 |
|
2017 |
|
2016 |
|
2015 |
|
Discount rate |
|
4.30% |
|
4.51% |
|
4.11% |
|
4.09% |
|
4.32% |
|
3.96% |
|
Expected rate of return on plan
assets |
|
7.40% |
|
7.65% |
|
7.80% |
|
6.80% |
|
6.96% |
|
7.06% |
|
Rate of compensation
increase |
|
3.76% |
|
3.76% |
|
3.84% |
|
N/A |
|
N/A |
|
N/A |
The assumed health care cost trend
rates have a significant effect on the amounts reported for the health care
plans. The following table
shows how an assumed 1% increase or 1% decrease in health care cost trends could
impact postretirement benefits in 2017 dollars:
|
|
|
|
| |
|
(In thousands) |
|
1% Increase |
|
1% Decrease |
|
Effect on other postretirement
benefit obligation |
$ |
740 |
$ |
(1,076) |
|
Effect on total service and
interest cost components |
|
19 |
|
(31) |
MGE employs a building-block approach
in determining the expected long-term rate of return for asset classes.
Historical markets are studied and long-term historical relationships among
asset classes are analyzed, consistent with the widely accepted capital market
principle that assets with higher volatility generate a greater return over the
long run. Current market factors, such as interest rates and dividend yields,
are evaluated before long-term capital market assumptions are determined.
The expected long-term nominal rate
of return for plan assets is primarily a function of expected long-term real
rates of return for component asset classes and the plan's target asset
allocation in conjunction with an inflation assumption. Peer data and historical
returns are reviewed to check for appropriateness.
d.
Investment
Strategy.
MGE employs a total return investment
approach whereby a mix of equities, fixed income, and real estate investments
are used to maximize the expected long-term return of plan assets for a prudent
level of risk. Risk tolerance is established through careful consideration of
plan liabilities, plan-funded status, and corporate financial condition. The
investment portfolio contains a diversified blend of equity, fixed income, and
real estate investments. Investment risk is measured and monitored on an ongoing
basis through periodic investment portfolio reviews and liability
measurements.
The asset
allocation for MGE's pension plans as of December 31, 2017 and 2016, and
the target allocation for 2018, by asset category, follows:
|
|
|
|
|
|
|
| |
|
|
|
Target
Allocation |
|
Percentage of Plan
Assets at Year
End |
|
|
|
|
|
|
2017 |
|
2016 |
|
|
|
Equity
securities(a) |
63.0 % |
|
65.0 % |
|
65.0 % |
|
|
|
Fixed income securities |
30.0 % |
|
29.0 % |
|
27.0 % |
|
|
|
Real estate |
7.0 % |
|
6.0 % |
|
8.0 % |
|
|
|
Total |
100.0 % |
|
100.0 % |
|
100.0 % |
|
(a)
Target
allocations for equity securities are broken out as follows: 45.5% United States
equity, 17.5% non-United States equity.
The fair value of plan assets for the
postretirement benefit plans is $48.5 million and $43.2 million as of
December 31, 2017 and 2016, respectively. Of this amount,
$43.1 million and $37.0 million as of December 31, 2017 and 2016,
respectively, were held in the master pension trust and are allocable to
postretirement health expenses. The target asset allocation and investment
strategy for the portion of assets held in the master pension trust are the same
as that explained for MGE's pension plans. The remainder of postretirement
benefit assets are held either in an insurance continuance fund for the payment
of retiree life benefits or health benefit trusts for payment of retiree health
premiums. The asset allocation for the insurance continuance fund is determined
by the life insurer. The target asset allocation for the health benefit trusts
are established based on a similar investment strategy as assets held in the
master pension trust, with consideration for liquidity needs in the health
benefit trusts.
e.
Concentrations
of Credit Risk.
MGE evaluated its pension and other
postretirement benefit plans' asset portfolios for the existence of significant
concentrations of credit risk as of December 31, 2017. Types of
concentrations that were evaluated include, but are not limited to, investment
concentrations in a single entity, type of industry, and foreign country. As of
December 31, 2017, there were no significant concentrations (defined as
greater than 10 percent of plan assets) of risk in MGE pension and
postretirement benefit plan assets.
f.
Fair Value
Measurements of Plan Assets.
Pension and other postretirement
benefit plan investments are recorded at fair value. See Footnote 11 for
more information regarding the fair value hierarchy.
The following descriptions are the
categories of underlying plan assets held within the pension and other
postretirement benefit plans as of December 31, 2017:
Cash and Cash Equivalents –
This category includes highly liquid investments with maturities of less than
three months which are traded in active markets.
Equity Securities – These
securities consist of U.S. and international stock funds. The U.S. stock funds
are primarily invested in domestic equities. Securities in these funds are
typically priced using the closing price from the applicable exchange, NYSE,
Nasdaq, etc. The international funds are composed of international equities.
Securities are priced using the closing price from the appropriate local stock
exchange.
Fixed Income Securities –
These securities consist of U.S. bond funds and short-term funds. U.S. bond
funds are priced by a pricing agent using inputs such as benchmark yields,
reported trades, broker/dealer quotes, and issuer spreads. The short-term funds
are valued initially at cost and adjusted for amortization of any discount or
premium.
Real Estate – Real estate
funds are funds with a direct investment in pools of real estate properties.
These funds are valued by investment managers on a periodic basis using pricing
models that use independent appraisals. The fair value of real estate
investments is determined using net asset value.
Insurance Continuance Fund
(ICF) – The ICF is a supplemental retirement plan that includes assets that
have been segregated and restricted to pay retiree term life insurance
premiums.
Fixed
Rate Fund – The Fixed Rate fund is supported by an underlying portfolio of
fixed income securities, including public bonds, commercial mortgages, and
private placement bonds. Public market data and GAAP reported market values are
used when available to determine fair value.
All of the fair values of MGE's plan
assets are measured using net asset value, except for cash and cash equivalents
which are considered level 1 investments. The fair values of MGE's plan assets
by asset category as of December 31 are as follows:
|
|
|
|
|
|
| |
|
|
(In thousands) |
|
2017 |
|
2016 |
|
|
|
Cash and Cash Equivalents |
$ |
488 |
$ |
284 |
|
|
|
Equity Securities: |
|
|
|
|
|
|
|
U.S. Large
Cap |
|
124,594 |
|
107,406 |
|
|
|
U.S. Mid
Cap |
|
29,138 |
|
25,966 |
|
|
|
U.S. Small
Cap |
|
37,782 |
|
33,836 |
|
|
|
International
Blend |
|
71,514 |
|
59,054 |
|
|
|
Fixed Income Securities: |
|
|
|
|
|
|
|
Short-Term
Fund |
|
4,641 |
|
4,318 |
|
|
|
High Yield
Bond |
|
19,400 |
|
17,978 |
|
|
|
Long
Duration Bond |
|
91,678 |
|
71,512 |
|
|
|
Real Estate |
|
25,995 |
|
29,441 |
|
|
|
Insurance Continuance Fund |
|
1,500 |
|
1,514 |
|
|
|
Fixed Rate Fund |
|
3,391 |
|
3,801 |
|
|
|
Total |
$ |
410,121 |
$ |
355,110 |
|
g.
Expected Cash
Flows.
MGE does not expect to need to make
any required contributions to the qualified plans for 2018 and 2019. The
contributions for years after 2019 are not yet currently estimated. MGE has
adopted the asset smoothing as permitted in accordance with the Pension
Protection Act of 2006, including modifications made by WRERA.
Due to uncertainties in the future
economic performance of plan assets, discount rates, and other key assumptions,
estimated contributions are subject to change. MGE may also elect to make
additional discretionary contributions.
In 2017, MGE made $11.3 million
in employer contributions to its pension and postretirement plans.
h.
Benefit
Payments.
The following benefit payments, which
reflect expected future service, as appropriate, are expected to be paid as
follows:
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
Pension |
|
Other Postretirement
Benefits |
|
|
|
(In thousands) |
|
Pension
Benefits |
|
Gross
Postretirement
Benefits |
|
Expected
Medicare Part D
Subsidy |
|
Net
Postretirement
Benefits |
|
|
|
2018 |
$ |
15,011 |
$ |
3,828 |
$ |
(215) |
$ |
3,613 |
|
|
|
2019 |
|
16,009 |
|
4,233 |
|
(234) |
|
3,999 |
|
|
|
2020 |
|
16,830 |
|
4,678 |
|
(259) |
|
4,419 |
|
|
|
2021 |
|
17,717 |
|
5,157 |
|
(280) |
|
4,877 |
|
|
|
2022 |
|
18,869 |
|
5,481 |
|
(305) |
|
5,176 |
|
|
|
2023 - 2027 |
|
107,402 |
|
29,636 |
|
(1,941) |
|
27,695 |
|
14.
Share-Based
Compensation - MGE Energy and MGE.
Under MGE Energy's Director Incentive
Plan and its Performance Unit Plan, non-employee directors and eligible
employees may receive performance units that entitle the holder to receive a
cash payment equal to the value of a designated number of shares of MGE Energy's
common stock, plus dividend equivalent payments thereon, at the end of the set
performance period. In accordance with the plans' provisions, these awards are
subject to prescribed vesting schedules and must be settled in cash.
Accordingly, no shares of common stock will be issued in connection with the
plans.
On the
grant date, MGE Energy and MGE measure the cost of the director or employee
services received in exchange for a performance unit award based on the current
market value of MGE Energy common stock. The fair value of the awards is
re-measured quarterly, including at December 31, 2017, as required by
applicable accounting standards. Changes in fair value as well as the original
grant are recognized as compensation cost. Since this amount is re-measured
throughout the vesting period, the compensation cost is subject to variability.
Units granted under the Director
Incentive Plan are subject to a three-year vesting schedule. The most recent
three years of units granted under this plan are as follows:
|
|
|
|
| |
|
|
Grant Date |
|
MGE Energy
Units Granted |
|
|
|
January 19, 2018 |
|
4,704 |
|
|
|
January 20, 2017 |
|
4,608 |
|
|
|
January 15, 2016 |
|
3,773 |
|
Units granted under the
Performance Unit Plan are subject to a five-year vesting schedule. The most
recent units granted under this plan are as follows:
|
|
|
|
| |
|
|
Grant Date |
|
MGE Energy
Units Granted |
|
|
|
February 16, 2018 |
|
17,830 |
|
|
|
March 1, 2017 |
|
14,704 |
|
|
|
February 19, 2016 |
|
19,055 |
|
|
|
February 20, 2015 |
|
18,948 |
|
|
|
February 21, 2014 |
|
21,991 |
|
For nonretirement eligible employees,
stock-based compensation costs are accrued and recognized using the graded
vesting method. Compensation cost for retirement eligible employees or employees
that will become retirement eligible during the vesting schedule are recognized
on an abridged horizon.
During the years ended
December 31, 2017 and 2015, MGE recorded $1.0 million in compensation
expense as a result of awards under the plans. During the year ended
December 31, 2016, MGE recorded $3.1 million in compensation expense
as a result of awards under the plans. In January 2017, cash payments of
$1.7 million were distributed relating to awards that were settled based on
the prescribed vesting schedules. During the year ended December 31, 2015,
MGE recorded a $0.2 million gain on 4,676 units forfeited. No forfeitures
occurred during the years ended December 31, 2017 and 2016. At
December 31, 2017, $5.9 million of outstanding awards are vested, and
of this amount, no cash settlements have occurred.
15.
Derivative and
Hedging Instruments - MGE Energy and MGE.
a.
Purpose.
As part of its regular operations,
MGE enters into contracts, including options, swaps, futures, forwards, and
other contractual commitments, to manage its exposure to commodity prices. To
the extent that these contracts are derivatives, MGE assesses whether or not the
normal purchases or normal sales exclusion applies. For contracts to which this
exclusion cannot be applied, the derivatives are recognized in the consolidated
balance sheets at fair value. MGE's financial commodity derivative activities
are conducted in accordance with its electric and gas risk management program,
which is approved by the PSCW and limits the volume MGE can hedge with specific
risk management strategies. The maximum length of time over which cash flows
related to energy commodities can be hedged is four years. 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 new loss or net gain position, respectively. The
deferred gain or loss is recognized in earnings in the delivery month applicable
to the instrument. Gains and losses related to hedges qualifying for regulatory
treatment are recoverable in gas rates through the PGA or in electric rates as a
component of the fuel rules mechanism.
b.
Notional
Amounts.
The gross notional
volume of open derivatives is as follows:
|
|
|
|
|
| |
|
|
|
December 31,
2017 |
|
December 31,
2016 |
|
|
|
Commodity derivative
contracts |
552,310 MWh |
|
393,395 MWh |
|
|
|
Commodity derivative
contracts |
5,460,000 Dth |
|
4,195,000 Dth |
|
|
|
FTRs |
2,226 MW |
|
2,251 MW |
|
|
|
PPA |
2,650 MW |
|
3,250 MW |
|
c.
Financial
Statement Presentation.
MGE purchases and sells
exchange-traded and over-the-counter options, swaps, and future contracts. These
arrangements are primarily entered into to help stabilize the price risk
associated with gas or power purchases. These transactions are employed by both
MGE's gas and electric segments. Additionally, as a result of the firm
transmission agreements that MGE holds on electricity transmission paths in the
MISO market, MGE holds financial transmission rights (FTRs). An FTR is a
financial instrument that entitles the holder to a stream of revenues or charges
based on the differences in hourly day-ahead energy prices between two points on
the transmission grid. The fair values of these instruments are offset with a
corresponding regulatory asset/liability depending on whether they are in a net
loss/gain position. Depending on the nature of the instrument, the gain or loss
associated with these transactions will be reflected as cost of gas sold, fuel
for electric generation, or purchased power expense in the delivery month
applicable to the instrument. At December 31, 2017 and 2016, the fair value
of exchange traded derivatives and FTRs exceeded their cost basis by
$0.2 million and $1.3 million, respectively.
MGE is a party to a purchased power
agreement that provides MGE with firm capacity and energy during a base term
from June 1, 2012, through May 31, 2022. The agreement also allows MGE
an option to extend the contract after the base term. The agreement is accounted
for as a derivative contract and is recognized at its fair value on the
consolidated balance sheets. However, the derivative qualifies for regulatory
deferral and is recognized with a corresponding regulatory asset or liability
depending on whether the fair value is in a loss or gain position. The fair
value of the contract at December 31, 2017 and 2016, reflects a loss
position of $42.2 million and $50.6 million, respectively. The actual
cost will be recognized in purchased power expense in the month of purchase.
The following table summarizes the
fair value of the derivative instruments on the consolidated balance sheets. All 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.
|
|
|
|
|
|
|
| |
|
|
(In thousands) |
|
Derivative
Assets |
|
Derivative
Liabilities |
|
Balance Sheet
Location |
|
|
December 31,
2017 |
|
|
|
|
|
|
|
|
Commodity derivative
contracts(a) |
$ |
566 |
$ |
603 |
|
Derivative liability
(current)(b) |
|
|
Commodity derivative
contracts(a) |
|
110 |
|
190 |
|
Derivative liability
(long-term) |
|
|
FTRs |
|
329 |
|
- |
|
Other current assets |
|
|
PPA |
|
N/A |
|
8,180 |
|
Derivative liability
(current) |
|
|
PPA |
|
N/A |
|
33,990 |
|
Derivative liability
(long-term) |
|
|
|
|
|
|
|
|
|
|
|
December 31,
2016 |
|
|
|
|
|
|
|
|
Commodity derivative
contracts(a) |
$ |
1,227 |
$ |
164 |
|
Other current assets |
|
|
Commodity derivative
contracts(a) |
|
157 |
|
54 |
|
Other deferred charges |
|
|
FTRs |
|
143 |
|
- |
|
Other current assets |
|
|
PPA |
|
N/A |
|
7,620 |
|
Derivative liability
(current) |
|
|
PPA |
|
N/A |
|
42,970 |
|
Derivative liability
(long-term) |
(a)
As
of December 31, 2017, collateral of $0.1 million was posted against
and netted with derivative liability positions on the consolidated balance
sheets. No collateral was posted against derivative positions as of
December 31, 2016.
(b)
As
of December 31, 2017, $0.1 million was presented as other current
assets on the consolidated balance sheets.
The
following tables show the effect of netting arrangements for recognized
derivative assets and liabilities that are subject to a master netting
arrangement or similar arrangement on the consolidated balance sheets.
|
|
|
|
|
|
|
|
|
|
| |
|
|
Offsetting of Derivative
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
Gross Amounts |
|
Gross Amounts
Offset in
Balance Sheets |
|
Collateral Posted
Against Derivative
Positions |
|
Net Amount
Presented in
Balance Sheets |
|
|
|
December 31,
2017 |
|
|
|
|
|
|
|
|
|
|
|
Commodity derivative
contracts |
$ |
676 |
$ |
(654) |
$ |
- |
$ |
22 |
|
|
|
FTRs |
|
329 |
|
- |
|
- |
|
329 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2016 |
|
|
|
|
|
|
|
|
|
|
|
Commodity derivative
contracts |
$ |
1,384 |
$ |
(218) |
$ |
- |
$ |
1,166 |
|
|
|
FTRs |
|
143 |
|
- |
|
- |
|
143 |
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Offsetting of Derivative
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
Gross Amounts |
|
Gross Amounts
Offset in
Balance Sheets |
|
Collateral Posted
Against Derivative
Positions |
|
Net Amount
Presented in
Balance Sheets |
|
|
|
December 31,
2017 |
|
|
|
|
|
|
|
|
|
|
|
Commodity derivative
contracts |
$ |
793 |
$ |
(654) |
$ |
(139) |
$ |
- |
|
|
|
PPA |
|
42,170 |
|
- |
|
- |
|
42,170 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2016 |
|
|
|
|
|
|
|
|
|
|
|
Commodity derivative
contracts |
$ |
218 |
$ |
(218) |
$ |
- |
$ |
- |
|
|
|
PPA |
|
50,590 |
|
- |
|
- |
|
50,590 |
|
The following tables summarize the
unrealized and realized gains (losses) related to the derivative instruments on
the consolidated balance sheets at December 31, 2017 and 2016, and the
consolidated income statements for the years ended December 31, 2017 and
2016.
|
|
|
|
|
|
|
|
|
| |
|
|
|
2017 |
|
|
2016 |
|
|
|
Current and Long-Term
Regulatory Asset |
|
Other Current
Assets |
|
|
Current and Long-Term
Regulatory Asset |
|
Other Current
Assets |
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
Balance at January 1, |
$ |
49,281 |
$ |
230 |
|
$ |
54,082 |
$ |
1,208 |
|
Unrealized (gain) loss |
|
(2,743) |
|
- |
|
|
1,575 |
|
- |
|
Realized (loss) gain reclassified
to a deferred account |
|
(1,260) |
|
1,260 |
|
|
(1,060) |
|
1,060 |
|
Realized loss reclassified to
income statement |
|
(3,320) |
|
(684) |
|
|
(5,316) |
|
(2,038) |
|
Balance at December 31,
|
$ |
41,958 |
$ |
806 |
|
$ |
49,281 |
$ |
230 |
|
|
|
|
|
|
|
|
|
| |
|
|
|
Realized Losses
(Gains) |
|
|
|
2017 |
|
|
2016 |
|
(In thousands) |
|
Fuel for Electric
Generation/ Purchased Power |
|
Cost of Gas
Sold |
|
|
Fuel for Electric
Generation/ Purchased Power |
|
Cost of Gas
Sold |
|
Year Ended
December 31: |
|
|
|
|
|
|
|
|
|
|
Commodity derivative
contracts |
$ |
786 |
$ |
634 |
|
$ |
1,154 |
$ |
2,064 |
|
FTRs |
|
(1,464) |
|
- |
|
|
(445) |
|
- |
|
PPA |
|
4,048 |
|
- |
|
|
4,581 |
|
- |
MGE's commodity derivative contracts,
FTRs, and PPA are subject to regulatory deferral. These derivatives are marked
to fair value and are offset with a corresponding regulatory asset or liability.
Realized gains and losses are deferred on the consolidated balance sheets and
are recognized in earnings in the delivery month applicable to the instrument.
As a result of the above described treatment, there are no unrealized gains or
losses that flow through earnings.
The PPA has a provision that may
require MGE to post collateral if MGE's debt rating falls below investment grade
(i.e., below BBB-). The amount of collateral that it may be required to post
varies from $20.0 million to $40.0 million, depending on MGE's
nominated capacity amount. As of December 31, 2017, no collateral is
required
to be, or has been, posted. Certain counterparties extend MGE a credit limit. If
MGE exceeds these limits, the counterparties may require collateral to be
posted. As of December 31, 2017, certain counterparties were in a net
liability of $0.1 million. As of December 31, 2016, no counterparties
were in a net liability position.
Nonperformance of counterparties to
the non-exchange traded derivatives could expose MGE to credit loss. However,
MGE enters into transactions only with companies that meet or exceed strict
credit guidelines, and it monitors these counterparties on an ongoing basis to
mitigate nonperformance risk in its portfolio. As of December 31, 2017, no
counterparties have defaulted.
16.
Rate Matters -
MGE Energy and MGE.
a.
Rate
Proceedings.
In December 2016, the PSCW
authorized MGE, effective January 1, 2017, to decrease 2017 rates for
retail electric customers by 0.8% or $3.3 million and to increase rates for
retail gas customers by 1.9% or $3.1 million on an annual basis. The
decrease in retail electric rates was attributable to declining fuel and
purchased power costs. The increase in retail gas rates covered costs associated
with MGE's natural gas system infrastructure improvements. The authorized return
on common stock equity for 2017 was 9.8% based on a capital structure consisting
of 57.2% common equity. The PSCW also approved MGE's request to extend the
current accounting treatment for transmission related costs through 2018. This
accounting treatment allowed MGE to reflect any differential between
transmission costs reflected in rates and actual costs incurred in its next rate
case filing.
In July 2015, the PSCW approved
MGE's request to extend the current accounting treatment for transmission
related costs through 2016, conditioned upon MGE not filing a base rate case for
2016. MGE did not file a base rate case for 2016.
On December 23, 2014, the PSCW
authorized MGE to increase 2015 rates for retail electric customers by 3.8% or
$15.4 million and to decrease gas rates by 2.0% or $3.8 million. The
increase in retail electric rates cover costs associated with the construction
of emission-reduction equipment at Columbia, improvements and reliability of the
state's electric transmission system, fuel and purchased power related to coal
delivery costs, partially offset by lower cost as a result of market conditions
for pension and postretirement benefit costs. The authorized return on common
stock equity was 10.2%.
The PSCW also approved changes to
customer rates and rate design for gas service that became effective
January 1, 2015. Gas rate design consists of a fixed monthly customer
charge and a variable charge tied to actual usage, in addition to the separate
charge through the PGA for natural gas commodity costs. The change shifted more
of the rate recovery to the monthly charge, reflecting the related fixed costs
of providing gas services, and reduced the variable usage-based charge. Thus,
gas net income is expected to be more evenly distributed during the year and
less sensitive to weather.
b.
Fuel
Rules.
Fuel rules require the PSCW and
Wisconsin utilities to defer electric fuel-related costs that fall outside a
symmetrical cost tolerance band around the amount approved for a utility in its
annual fuel proceedings. Any over/under recovery of the actual costs is
determined in the following year and is then reflected in future billings to
electric retail customers. The fuel rules bandwidth is currently set at plus or
minus 2%. Under fuel rules, MGE would defer costs, less any excess revenues, if
its actual electric fuel costs exceeded 102% of the electric fuel costs allowed
in its latest rate order. Excess revenues are defined as revenues in the year in
question that provide MGE with a greater return on common equity than authorized
by the PSCW in MGE's latest rate order. Conversely, MGE is required to defer the
benefit of lower costs if actual electric fuel costs were less than 98% of the
electric fuel costs allowed in that order.
In August 2015, the PSCW
approved a $0.00256/kWh fuel credit that began on September 1, 2015, and
continued throughout 2016. MGE returned $2.6 million of electric
fuel-related savings to customers through bill credits during the period from
September 1, 2015, through December 31, 2015. MGE returned
$8.3 million of electric fuel-related savings during the year ended
December 31, 2016.
In July 2016, the PSCW issued a
final order in the fuel rules proceedings requiring MGE to refund additional
fuel savings incurred during 2015 and 2016 to its retail electric customers over
a one-month period. In September 2016, MGE returned $15.5 million to
customers through bill credits.
In
July 2017, the PSCW issued a final order in the fuel rules proceedings
requiring MGE to refund additional fuel savings realized during 2015 and 2016 to
its retail electric customers over a one-month period. In October 2017, MGE
returned $6.2 million to customers through bill credits.
In December 2017, the PSCW
approved a surcharge for 2018 electric fuel-related costs. The surcharge will
increase electric retail revenue in 2018 by $0.5 million or 0.13%.
As of December 31, 2017, MGE has
deferred $4.2 million of 2017 fuel-related savings. These costs will be
subject to the PSCW's annual review of 2017 fuel costs, expected to be completed
in 2018.
17.
Commitments and
Contingencies.
a.
Purchase
Contracts - MGE Energy and MGE.
MGE Energy and MGE have entered into
various commodity supply, transportation, and storage contracts to meet their
obligations to deliver electricity and natural gas to customers. Management expects to recover
these costs in future customer rates. As of December 31, 2017, the future
minimum commitments related to these purchase contracts were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
(In thousands) |
|
2018 |
|
2019 |
|
2020 |
|
2021 |
|
2022 |
|
Thereafter |
|
|
|
Coal(a) |
$ |
22,677 |
$ |
14,920 |
$ |
5,399 |
$ |
- |
$ |
- |
$ |
- |
|
|
|
Natural gas |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transportation
and storage(b) |
|
20,981 |
|
20,830 |
|
20,830 |
|
20,830 |
|
20,830 |
|
74,141 |
|
|
|
Supply(c) |
|
13,709 |
|
- |
|
- |
|
- |
|
- |
|
- |
|
|
|
Purchase power(d) |
|
44,350 |
|
32,444 |
|
31,479 |
|
32,120 |
|
18,887 |
|
44,641 |
|
|
|
Saratoga wind(e) |
|
18,903 |
|
- |
|
1,399 |
|
1,399 |
|
1,399 |
|
- |
|
|
|
Other |
|
7,444 |
|
1,371 |
|
1,241 |
|
935 |
|
890 |
|
837 |
|
|
|
|
$ |
128,064 |
$ |
69,565 |
$ |
60,348 |
$ |
55,284 |
$ |
42,006 |
$ |
119,619 |
|
(a)
Total
coal commitments for the Columbia and Elm Road Units, including transportation.
Fuel procurement for MGE's jointly owned Columbia and Elm Road Units is
handled by WPL and WEPCO, respectively, who are the operators of those
facilities.
(b)
MGE's
natural gas transportation and storage contracts require fixed monthly payments
for firm supply pipeline transportation and storage capacity. The pricing
components of the fixed monthly payments for the transportation and storage
contracts are established by FERC but may be subject to change.
(c)
These
commitments include market-based pricing.
(d)
MGE
has several purchase power agreements to help meet future electric supply
requirements. Management expects to recover these costs in future customer
rates. In October 2008, MGE entered into a purchase power agreement to help
meet future electric supply requirements. Under this agreement, MGE has agreed
to purchase 50 MW of wind power from Osceola Windpower II, LLC, which is
located in Iowa. This facility became operational in October 2008. MGE does
not have any capacity payment commitments under this agreement. However, MGE is
obligated to purchase its ratable share of the energy produced by the project.
MGE's commitment related to its ratable share of energy produced by the project
has been estimated and is included in the above numbers.
(e)
The
Saratoga Wind Farm is a planned 66 MW wind farm, consisting of 33 turbines,
located near Saratoga, Iowa. The project was approved by the PSCW in
December 2017, and construction is expected to begin in early 2018, with an
estimated capital cost of $108 million.
b.
Leases - MGE
Energy and MGE.
MGE has noncancelable operating
leases, primarily for combustion turbines, railcars, and computer equipment. The
operating leases generally do not contain renewal options, with the exception of
certain railcar operating leases. These leases have a renewal option of one year
or less. MGE is required to pay all executory costs, such as maintenance and
insurance, for its leases.
Future minimum rental payments at
December 31, 2017, under agreements classified as operating leases with
noncancelable terms in excess of one year are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
(In thousands) |
|
2018 |
|
2019 |
|
2020 |
|
2021 |
|
2022 |
|
Thereafter |
|
|
|
Minimum lease payments |
$ |
1,205 |
$ |
638 |
$ |
415 |
$ |
276 |
$ |
276 |
$ |
7,711 |
|
Rental expense under operating leases
totaled $1.7 million, $2.0 million, and $2.1 million for 2017,
2016, and 2015, respectively.
c.
Environmental -
MGE Energy and MGE.
Water Quality
Water quality regulations promulgated
by the EPA and WDNR in accordance with the Federal Water Pollution Control Act,
or more commonly known as the Clean Water Act (CWA), impose restrictions on
discharges of various pollutants into surface waters. The CWA also regulates
surface water quality issues that affect aquatic life, such as water
temperatures, intake structures, and wetlands filling. The CWA also includes
discharge standards, which require the use of effluent-treatment processes
equivalent to categorical "best practicable" or "best available" technologies.
The CWA regulates discharges from "point sources," such as power plants, through
establishing discharge limits in water discharge permits. MGE's power plants
operate under Wisconsin Pollution Discharge Elimination System (WPDES) permits
issued by the WDNR to ensure compliance with these discharge limits. Permits are
subject to periodic renewal.
EPA's Effluent Limitations
Guidelines and Standards for Steam Electric Power Generating Point Source
Category
In November 2015, the EPA
published its final rule setting Effluent Limitations Guidelines (ELG) for the
steam electric power generating industry. The ELG rule establishes federal
limits on the amount of metals and other pollutants that can be discharged in
wastewater from new and existing steam electric generation plants. The rule will
be applied to Wisconsin-based power plants as they renew their WPDES permits,
beginning in 2018 but no later than 2023. The operators of our Columbia and Elm
Road Units have indicated that equipment upgrades may be necessary to
comply with the new discharge standards. Management believes that any compliance
costs will be recovered in future rates based on previous treatment of
environmental compliance projects.
EPA Cooling Water Intake Rules
(Section 316(b))
Section 316(b) of the Clean Water Act
requires that the cooling water intake structures at electric power plants meet
best available technology standards so that mortality from entrainment (drawing
aquatic life into a plant's cooling system) and impingement (trapping aquatic
life on screens) are reduced. The EPA finalized its Section 316(b) rule for
existing facilities in 2014. Section 316(b) requirements are implemented in
Wisconsin through modifications to plants' WPDES permits, which govern plant
wastewater discharges.
The WCCF, Blount, and Columbia plants
are considered existing plants under this rule. The WCCF facility already
employs a system that meets the Section 316(b) rule. Our Blount plant's WPDES
permit assumes that Blount meets best technology available (BTA) for the
duration of the permit, which expires in 2023. However, MGE needs to perform an
entrainment study by the end of 2021 to determine future BTA, which will be
included with the next permit renewal. Section 316(b) applies to river intakes
at our Columbia plant. The operator of our Columbia plant is conducting an
intake study to demonstrate compliance with the Section 316(b) rule and/or
identify design criteria needed to meet the new rule requirements prior to
Columbia's WPDES permit renewal. The results of this study will determine if
Columbia will have additional requirements in its WPDES renewal. The exact
requirements at Blount and Columbia, however, will remain unknown until those
sites' WPDES permits are modified to account for this rule. Nonetheless, MGE
expects that the Section 316(b) rule will not have material effects on its
existing plants.
Energy
Efficiency and Renewables
The Wisconsin Energy Efficiency and
Renewables Act requires that 10% of the state's electricity be generated from
renewable sources. MGE is in compliance with the requirement. The costs to
comply with the Act and its accompanying regulations are being recovered in
rates.
Air Quality
Federal and state air quality
regulations impose restrictions on various emissions, including emissions of
particulate matter (PM), sulfur dioxide (SO2), nitrogen oxides
(NOx), and other pollutants, and require permits for operation of
emission sources. These permits have been obtained by MGE and must be renewed
periodically. Current EPA initiatives under the Clean Air Act, including a
recent update to the Cross-State Air Pollution Rule (CSAPR), and recently
revised National Ambient Air Quality Standards (NAAQS) for ozone, have the
potential to result in additional operating and capital expenditure costs for
MGE.
EPA's
Greenhouse Gas (GHG) Reduction Guidelines under the Clean Air Act 111(d)
Rule
In October 2015, the EPA
finalized its Clean Power Plan (CPP) rule with an effective date of
December 2015, setting guidelines and approval criteria for states to use
in developing plans to control GHG emissions from existing fossil fuel-fired
electric generating units (EGUs) and systems. Implementation of the rule was
expected to have a direct impact on existing coal and natural gas fired
generating units, including possible changes in dispatch and additional
operating costs.
In October 2015, many states
(including Wisconsin) and other litigants filed petitions with the U.S. Court of
Appeals for the District of Columbia Circuit asking for a stay of the CPP rule,
and seeking expedited review of the petitioners' challenges to the CPP's
legality. The parties' request to stay the rule was denied by the D.C. Circuit
on January 20, 2016, but the D.C. Circuit issued an expedited schedule for
resolving the merits of the litigation.
In February 2016, the U.S.
Supreme Court issued a stay blocking implementation of the CPP pending the
Court's own review. The stay will remain in effect until the D.C. Circuit Court
reaches its decision and the U.S. Supreme Court either declines to review the
lower court's decision or reaches a decision of its own. During the pendency of
the stay, states are not required to submit implementation plans and the EPA
will not enforce deadlines or issue a federal plan for any state.
Also in February 2016, the
Governor of Wisconsin issued Executive Order 186, which prohibits Wisconsin
state agencies, departments, boards, commissions, or other state entities from
developing or promoting the development of a state plan in response to the CPP.
In May 2017, the EPA requested
the U.S. Court of Appeals for the D.C. Circuit to put on hold, indefinitely, any
ongoing challenges to the rules while the EPA reviews the rule and undertakes
any potential rulemaking. In October 2017, the EPA published a proposed
rule announcing the EPA's intention to repeal the CPP and has sought public
comment on whether to replace the rule, and if so how. In December 2017,
the EPA published an Advanced Notice of Proposed Rulemaking (ANPR) to solicit
information from the public as it considers a future rule to limit GHG emissions
from electric generating units.
Given the pending legal proceedings,
and the ANPR, the nature and timing of any final requirements is subject to
uncertainty. If the rule remains substantially in its present form, it is
expected to have a material impact on MGE. MGE will continue to monitor
developments with this proposed rule.
National Ambient Air Quality
Standards (NAAQS) and Related Rules
The EPA's NAAQS regulations have been
developed to set ambient levels of six pollutants to protect sensitive human
populations (primary NAAQS) and the environment (secondary NAAQS) from the
negative effects of exposure to these pollutants at higher levels. The Clean Air
Act requires that the EPA periodically review, and adjust as necessary, the
NAAQS for these six air pollutants. The EPA's NAAQS review can result in a
lowering of the allowed ambient levels of a pollutant, a change in how the
pollutant is monitored, and/or a change in which sources of that pollutant are
regulated. States implement any necessary monitoring and measurement changes and
recommend areas for attainment (meets the ambient requirements) or nonattainment
(does not meet these standards). The EPA makes the final attainment and
nonattainment determinations. States must come up with a state implementation
plan (SIP) to get nonattainment areas into attainment and maintain air quality
in attainment areas. A company with facilities located in a nonattainment area
will be most affected. Their facilities may be subject to additional data
submissions and measurement during permitting renewals, their facilities may
need to meet new emission limitations set by the SIP (which could result in
significant capital expenditures), and the company may have additional expenses
and/or difficulties expanding existing facilities or building new facilities.
The process from determining acceptable primary and/or secondary NAAQS to
executing SIPs can take years. Nonetheless, because the NAAQS regulations have
the potential to affect both existing and new facilities in areas, MGE
continuously monitors changes to these rules to evaluate whether changes could
impact its operations. In addition, the EPA has adopted interstate transport
rules, such as the CSAPR, to address contributions to NAAQS nonattainment from
upwind sources in neighboring states. In the following paragraphs we discuss
specific NAAQS and transport rule developments that may affect MGE.
Ozone NAAQS
In December 2017, the EPA
informed the Governor of Wisconsin of its proposal to designate Milwaukee
County, where MGE's Elm Road Units are located, as being in nonattainment
with the 2015 Ozone NAAQS. The EPA anticipates issuing its final decision in
April 2018, after considering comments from the public and the State of
Wisconsin. If the EPA designates Milwaukee County as being in nonattainment, the
State of Wisconsin
will need
to develop an implementation plan for the County which could affect operations
and emission control obligations for our Elm Road Units.
The State of Wisconsin has joined a
lawsuit filed by several states challenging the EPA's 2015 ozone standard,
alleging that the standard is not attainable and the EPA is not properly
considering background levels in setting its ozone attainment levels. The
lawsuit has been stayed at the request of the EPA, which is reviewing the 2015
standard and may repeal or modify the standard. MGE will continue to monitor the
nonattainment designation process for Milwaukee County, and the related
litigation, to assess potential impacts to its Elm Road Units.
Sulfur Dioxide
(SO2) NAAQS
In June 2016, the EPA issued a
final rule classifying Columbia County as an unclassified/attainment area. MGE
does not anticipate any material costs from this rule, however, it will continue
to track developments at the national level as the EPA continues to implement
parts of this rule.
EPA's Cross-State Air Pollution
Rule: Proposed Ozone Season Update based on 2008 Ozone NAAQS
The EPA's Cross-State Air Pollution
Rule (CSAPR) is an interstate air pollution transport rule designed to reduce
ozone and fine particulate (PM2.5) air levels in areas that the EPA has
determined are being affected by pollution from neighboring and upwind states.
This is accomplished in the CSAPR through a reduction in SO2 and
NOx from qualifying fossil-fuel fired power plants in upwind or
"contributing" states. NOx and SO2 contribute to fine
particulate pollution and NOx contributes to ozone formation.
Reductions are achieved through a cap and trade system. Individual plants can
meet their caps through modifications and/or buying allowances on the
market.
In October 2016, the EPA
finalized rulemaking for an update to CSAPR that incorporated 2008 Ozone NAAQS
standards into the rule (the original CSAPR is based on 1997 Ozone NAAQS
standards) and began further reducing summertime ozone season NOx
allowances in 2017. The update affects 22 states, including Wisconsin, by
further limiting statewide NOx allowances in each of those states.
The rule also includes revisions to CSAPR that are designed to address issues
remaining from the D.C. Circuit remand of CSAPR, including Wisconsin's inclusion
in the NOx ozone season portion of the rule. The State of Wisconsin
filed a legal challenge to the CSAPR update rule asserting, among other things,
that the rule over-controls NOx emissions in Wisconsin.
MGE intends to meet the rule
requirements through a combination of reduced emissions through pollution
control (e.g. SCR installation at Columbia), as well as owned, received, and
purchased allowances. Until MGE fully understands its long-term costs associated
with compliance, the results of the pending litigation, the impact of the
pollution controls installed at Columbia, and the ozone season market
stabilizes, there remains some uncertainty about its future costs to comply.
Depending on the cost of allowances in future years, this requirement may or may
not be material for MGE.
Clean Air Visibility Rule
(CAVR)
Columbia is subject to the best
available retrofit technology (BART) regulations, a subsection of the EPA's
Clean Air Visibility Rule (CAVR), which may require pollution control retrofits.
Columbia's existing pollution control upgrades, and the EPA's stance that
compliance with the CSAPR equals compliance with BART, should mean that Columbia
will not need to do additional work to meet BART requirements. At this time,
however, the BART regulatory obligations, compliance strategies, and costs
remain uncertain due to the continued legal challenges surrounding CSAPR and
CAVR.
Solid Waste
EPA's Coal Combustion Residuals
Rule
In December 2014, the EPA
finalized its Disposal of Coal Combustion Residuals from Electric Utilities
(CCR) rule. The rule became effective in October 2015. It provides that
coal ash will be regulated as a solid waste, and defines what ash use activities
would be considered generally exempt beneficial reuse of coal ash. The rule also
regulates landfills, ash ponds, and other surface impoundments for coal
combustion residuals by regulating their design, location, monitoring, and
operation. This portion of the rule is accomplished in phases to allow for sites
with onsite storage and/or disposal to evaluate their compliance with the rule's
design criteria. Landfills and impoundments that cannot meet design criteria
will need to close formally within defined timeframes.
Our Columbia plant and Elm Road
Units are subject to this rule. The costs to comply with this rule at our
Elm Road Units are not expected to be significant. Columbia's operator has
completed a review of their system and has determined that an onsite ash pond
will need to be closed by 2023. Columbia's operator will install a dry ash
handling
system to replace the ash pond. The dry ash handling system installation is
planned for 2020-2021. In 2015, MGE recorded an asset retirement obligation for
its share of the legal liability associated with the effect of the CCR rule.
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 cost estimate changes. Management believes compliance costs will be
recovered in future rates based on previous treatment of environmental
compliance projects.
Columbia
Based upon current available
information, compliance with various environmental requirements and initiatives
is expected to result in significant additional operating and capital
expenditures at Columbia as noted below.
Columbia Clean Air Act
Litigation
Columbia is a coal-fired generating
station operated by WPL in which WPL, WPSC, and MGE have ownership interests. In
December 2009, the EPA sent a Notice of Violation (NOV) to the co-owners,
including MGE. The NOV alleged that WPL, which is the plant operator, and the
Columbia co-owners failed to comply with appropriate pre-construction review and
permitting requirements and, as a result, violated the Prevention of Significant
Deterioration program requirements, Title V Operating Permit requirements of the
CAA, and the Wisconsin SIP. In June 2013, the court approved and entered a
consent decree entered by the EPA, Sierra Club, and the co-owners of Columbia.
One of the requirements of the consent decree requires installation of an SCR
system at Columbia Unit 2 by December 31, 2018. Installation of the
SCR has been approved by the PSCW. The SCR project is currently under
construction and is expected to be placed in service in 2018. MGE's portion of
capital expenditures (past and future) for the SCR is expected to be
approximately $19-$24 million.
d.
Legal Matters -
MGE Energy and MGE.
MGE is involved in various legal
matters that are being defended and handled in the normal course of business.
MGE maintains accruals for such costs that are probable of being incurred and
subject to reasonable estimation. The accrued amount for these matters is not
material to the financial statements. MGE does not expect the resolution of
these matters to have a material adverse effect on its consolidated results of
operations, financial condition, or cash flows.
e.
Other
Commitments.
MGE Energy holds investments in
nonpublic venture funds. From time to time, these entities require additional
capital infusions from their investors. MGE Energy has committed to contribute
$11.1 million in capital for such infusions. The timing of these infusions
is dependent on the needs of the investee and is therefore uncertain at this
time.
In addition, MGE Energy has a three
year agreement with a venture debt fund expiring in December 2019. MGE
Energy has committed to invest up to a total of $1.5 million into this
fund. As of December 31, 2017, MGE Energy has $0.4 million remaining
in commitments. The timing of infusions is dependent on the needs of the fund
and is therefore uncertain at this time.
MGE has several other commitments
related to various projects. Payments for these commitments are expected to be
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
(In thousands) |
|
2018 |
|
2019 |
|
2020 |
|
2021 |
|
2022 |
|
Thereafter |
|
Other commitments |
$ |
435 |
$ |
437 |
$ |
438 |
$ |
441 |
$ |
442 |
$ |
5,202 |
18.
Asset
Retirement Obligations - MGE Energy and MGE.
MGE recorded an obligation for the
fair value of its legal liability for asset retirement obligations (AROs)
associated with removal of the West Campus Cogeneration Facility and the Elm
Road Units, electric substations, combustion turbine generating units, wind
generating facilities, and photovoltaic generating facilities, all of which are
located on property not owned by MGE Energy and MGE and would need to be removed
upon the ultimate end of the associated leases. The significant conditional AROs
identified by MGE included the costs of abandoning in place gas services and
mains, the abatement and disposal of equipment and buildings contaminated with
asbestos and PCBs, and the proper disposal and removal of tanks, batteries, and
underground cable. Changes in management's assumptions regarding settlement
dates, settlement methods, or assigned probabilities could have a material
effect on the liabilities recorded by MGE at December 31, 2017, as well as
the regulatory asset recorded.
MGE also
may have AROs relating to the removal of various assets, such as certain
electric and gas distribution facilities. These facilities are generally located
on property owned by third parties, on which MGE is permitted to operate by
lease, permit, easement, license, or service agreement. The asset retirement
obligations associated with these facilities cannot be reasonably determined due
to the indeterminate life of the related agreements.
The following table summarizes the
change in AROs. Amounts include conditional AROs.
|
|
|
|
|
|
| |
|
|
(In thousands) |
|
2017 |
|
2016 |
|
|
|
Balance at January 1, |
$ |
26,886 |
$ |
24,360 |
|
|
|
Liabilities incurred |
|
145 |
|
1,303 |
|
|
|
Accretion expense |
|
1,359 |
|
1,269 |
|
|
|
Liabilities
settled(a) |
|
(1,789) |
|
(110) |
|
|
|
Revisions in estimated cash
flows |
|
137 |
|
64 |
|
|
|
Balance at December 31, |
$ |
26,738 |
$ |
26,886 |
|
(a)
In
2017, MGE removed asbestos at Blount for $1.6 million.
19.
Adoption of
Accounting Principles and Recently Issued Accounting Pronouncements - MGE Energy
and MGE.
a.
Revenue from
Contracts with Customers.
In May 2014, the FASB issued
authoritative guidance within the Codification's Revenue Recognition topic that
provides guidance on the recognition, measurement, and disclosure of revenue
from contracts with customers. The new standard establishes a five step model
for recognizing and measuring revenue from contracts with customers and replaces
existing guidance on revenue recognition. The objective of the new standard is
to provide a single, comprehensive revenue recognition model for all contracts
with customers to improve comparability within industries, across industries and
across capital markets. The underlying principle is that an entity will
recognize revenue to depict the transfer of goods or services to customers at an
amount that the entity expects to be entitled to in exchange for those goods or
services.
MGE Energy and MGE have been
assessing the impact of this guidance on revenue streams within the scope of the
new standard. All retail electric and gas revenues are tariff rates approved by
the PSCW. Based on our evaluation of the new standard, retail revenues will be
recognized within the period in which utility service is provided to the
customer and the performance obligation is fulfilled, consistent with our
current revenue recognition model. Electric revenues for sales to the market
represent wholesale sales made to third parties who are not ultimate users of
the electricity. These sales may also include bilateral sales to other utilities
or power marketers. Revenues for sales to the market will be recognized when the
sale is completed within the market operated by MISO, similar to the recognition
under our current revenue recognition model. In addition, revenues from the
transportation of gas will continue to be recognized upon the performance of
services for the respective customer. Based on our assessment of the new
standard, revenue recognition for retail revenues, sales to the market, and
transportation of gas will be materially consistent with our current revenue
recognition model. However, additional disclosures regarding the nature, amount,
timing, and uncertainty of these revenue streams and related cash flows arising
from contracts with customers will be required as a result of the new standard.
Management continues to analyze newly-released interpretative guidance and
assess the related impacts to the current revenue recognition model.
This authoritative guidance will
become effective January 1, 2018, and MGE Energy and MGE anticipate
adopting the standard upon the effective date. Adoption of this standard is
permitted under one of two methods: the full retrospective method or the
modified retrospective method. MGE Energy and MGE have chosen to implement the
standard using the modified retrospective method. The cumulative impact of this
guidance on our financial statements is not expected to be material, except for
additional footnote disclosures.
b.
Financial
Instruments.
In January 2016, the FASB issued
authoritative guidance within the Codification's Financial Instruments topic
that provides guidance on the recognition and measurement of financial
instruments. This authoritative guidance will become effective January 1,
2018, and will require equity investments to be measured at fair value with
changes in fair value recognized in net income rather than in other
comprehensive income. As a result of this guidance, MGE Energy and MGE will no
longer have other comprehensive income related to equity investments. This
standard will be applied using a modified retrospective approach, with a
cumulative effect
adjustment
recorded to opening retained earnings as of the beginning of all prior periods
presented. As of December 31, 2017, MGE Energy had $0.4 million of
accumulated other comprehensive income and MGE had less than $0.1 million
of accumulated other comprehensive loss related to equity investments within the
scope of this standard.
c.
Leases.
In February 2016, the FASB
issued authoritative guidance within the Codification's Leases topic that
provides guidance on the classification, recognition, measurement, and
disclosure of leases. The new leasing standard establishes that a lease conveys
the right to control the use of identified property, plant, or equipment for a
period of time in exchange for consideration. Under the new guidance, lessees
will be required to recognize all leases with terms greater than one year,
including operating leases, on the consolidated balance sheet by recording a
right-of-use asset and lease liability. Prior to the authoritative guidance,
only capital leases were recognized on the balance sheet by lessees. The new
accounting guidance as applied by lessors is materially consistent from that
applied under current GAAP. In January 2018, the FASB issued authoritative
guidance which provided an optional practical expedient to grandfather the
accounting for existing and expired land easements not accounted for as a lease
under the new authoritative guidance. MGE Energy and MGE plan to adopt this
practical expedient.
Management has begun utilizing a
bottoms-up approach to analyze the impact of the standard on our lease
portfolio. MGE Energy and MGE have been reviewing current accounting policies
and procedures to identify potential differences in accounting treatment that
would result from applying the requirements of the new standard to our existing
lease portfolio. In addition, we are identifying appropriate changes to our
business processes, systems, and controls to support recognition and disclosure
requirements under the new standard. This authoritative guidance will become
effective January 1, 2019, with early adoption permitted. MGE Energy and
MGE anticipate adopting the standard upon the effective date. The new leasing
standard requires entities to recognize and measure leases at the beginning of
the earliest comparative period presented using a modified retrospective
approach. MGE Energy and MGE are currently assessing the impact this
pronouncement will have on our financial statements.
d.
Restricted
Cash.
In November 2016, the FASB
issued authoritative guidance within the Codification's Statement of Cash Flows
topic that provides guidance on the classification and presentation of changes
in restricted cash within the statement of cash flows. The new standard was
issued to eliminate a current diversity in practice for the accounting treatment
of restricted cash. Under the new guidance, reporting entities will be required
to explain the changes in the total of restricted and unrestricted cash and cash
equivalents when reconciling the beginning and ending balances on the statement
of cash flows. Prior to the authoritative guidance, changes in restricted cash
were presented as either cash flows from operating, investing, or financing
activities within the statement of cash flows, as appropriate based on the
nature of the restriction. Also under the new standard, reporting entities will
be required to provide a reconciliation from the balance sheet to the statement
of cash flows and disclose the nature of the restrictions of cash. This
authoritative guidance will become effective January 1, 2018. Upon the
effective date, MGE Energy and MGE will change the presentation of restricted
cash to reflect this change in accounting guidance. MGE Energy and MGE will also
retrospectively apply the guidance to all prior periods presented. As of
December 31, 2017 and 2016, MGE Energy and MGE had $4.6 million and
$5.1 million, respectively, of restricted cash classified within other
current assets on the consolidated balance sheets.
e.
Pension and
Other Postretirement Benefits.
In March 2017, the FASB issued
authoritative guidance within the Compensation – Retirement Benefits topic that
provides guidance on the presentation of net periodic pension cost and net
periodic postretirement benefit cost (together, net benefit cost). This
authoritative guidance will become effective January 1, 2018. Under the new
guidance, the service cost component of net benefit cost is required to be
recorded in the same line item or items as other compensation costs arising from
services rendered by the pertinent employees during the period. The other
components of net benefit cost are required to be presented in the income
statement separately from the service cost component and outside of income from
operations. A practical expedient within the standard permits an employer to use
the amounts disclosed in its pension and other postretirement benefit plan
footnote for prior comparative periods as the estimation basis for applying the
retrospective presentation requirements. MGE Energy and MGE have elected to
apply the practical expedient. Operating income will decrease and other
income
will increase $6.6 million and $5.0 million for the years ended
December 31, 2016 and 2015, respectively. The standard also only allows the
service cost component to be eligible for capitalization prospectively from the
effective date of the pronouncement (whereas under current GAAP, all components
of net benefit cost are eligible for capitalization). MGE Energy and MGE are
currently evaluating the impact of how the change in components of net benefit
cost eligible for capitalization will affect our financial statements.
20.
Segment
Information - MGE Energy and MGE.
The electric utility business
purchases, generates and distributes electricity, and contracts for transmission
service. The gas utility business purchases and distributes natural gas and
contracts for the transportation of natural gas. Both the electric and gas
segments operate through MGE Energy's principal subsidiary, MGE.
The nonregulated energy operations
are conducted through MGE Energy's subsidiaries: MGE Power, MGE Power Elm Road,
and MGE Power West Campus. These subsidiaries own and lease electric generating
capacity to assist MGE. MGE Power Elm Road has an ownership interest in two
coal-fired generating units in Oak Creek, Wisconsin, which are leased to MGE,
and MGE Power West Campus owns a controlling interest in the electric generation
plant of a natural gas-fired cogeneration facility on the UW campus. MGE Power
West Campus's portion is also leased to MGE.
The transmission investment segment
invests, through MGE Transco, in ATC, a company that provides electric
transmission services primarily in Wisconsin and MGEE Transco, in ATC Holdco, a
company formed to pursue electric transmission development and investments
outside of Wisconsin. See Footnote 4 for further discussion.
The "All Others" segment includes:
corporate, CWDC, MAGAEL, MGE State Energy Services, MGE Services, and NGV
Fueling Services. These entities' operations consist of investing in companies
and property which relate to the regulated operations, financing the regulated
operations, or owning and operating natural gas compression equipment.
General corporate expenses include
the cost of executive management, corporate accounting and finance, information
technology, risk management, human resources and legal functions, and employee
benefits that are allocated to electric and gas segments based on formulas
prescribed by the PSCW. Identifiable assets are those used in MGE's operations
in each segment. Assets not allocated consist primarily of cash and cash
equivalents, restricted cash, investments, other accounts receivable, and
prepaid assets.
Sales between our electric and gas
segments are based on PSCW approved tariffed rates. Additionally, intersegment
operations related to the leasing arrangement between our electric segment and
MGE Power Elm Road/MGE Power West Campus are based on terms previously approved
by the PSCW. Consistent with internal reporting, management has presented the
direct financing capital leases between MGE and MGE Power Elm Road/MGE Power
West Campus based on actual lease payments included in rates. Lease payments
made by MGE to MGE Power Elm Road and MGE Power West Campus are shown as
operating expenses. The lease payments received by MGE Power Elm Road and MGE
Power West Campus from MGE are shown as lease income in interdepartmental
revenues. The depreciation expense associated with the Elm Road Units and
WCCF is reflected in the nonregulated energy segment.
The
following table shows segment information for MGE Energy's and MGE's
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
(In thousands)
MGE Energy |
|
Electric |
|
Gas |
|
Non-Regulated
Energy |
|
Transmission
Investment |
|
All Others |
|
Consolidation/
Elimination Entries |
|
Consolidated
Total |
|
Year Ended December 31,
2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues |
$ |
413,926 |
$ |
148,825 |
$ |
348 |
$ |
- |
$ |
- |
$ |
- |
$ |
563,099 |
|
Interdepartmental revenues |
|
(510) |
|
14,974 |
|
44,468 |
|
- |
|
- |
|
(58,932) |
|
- |
|
Total operating revenues |
|
413,416 |
|
163,799 |
|
44,816 |
|
- |
|
- |
|
(58,932) |
|
563,099 |
|
Depreciation and
amortization |
|
(36,660) |
|
(9,000) |
|
(7,417) |
|
- |
|
- |
|
- |
|
(53,077) |
|
Other operating expenses |
|
(305,539) |
|
(133,479) |
|
(190) |
|
(9) |
|
(1,001) |
|
58,932 |
|
(381,286) |
|
Operating income (loss) |
|
71,217 |
|
21,320 |
|
37,209 |
|
(9) |
|
(1,001) |
|
- |
|
128,736 |
|
Other income (deductions),
net |
|
1,978 |
|
362 |
|
- |
|
9,844 |
|
(1,896) |
|
- |
|
10,288 |
|
Interest (expense) income,
net |
|
(11,257) |
|
(3,234) |
|
(5,533) |
|
- |
|
700 |
|
- |
|
(19,324) |
|
Income (loss) before taxes |
|
61,938 |
|
18,448 |
|
31,676 |
|
9,835 |
|
(2,197) |
|
- |
|
119,700 |
|
Income tax (provision) benefit(a) |
|
(20,547) |
|
(7,303) |
|
8,860 |
|
(3,954) |
|
850 |
|
- |
|
(22,094) |
|
Net income (loss) |
$ |
41,391 |
$ |
11,145 |
$ |
40,536 |
$ |
5,881 |
$ |
(1,347) |
$ |
- |
$ |
97,606 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues |
$ |
409,006 |
$ |
134,543 |
$ |
1,196 |
$ |
- |
$ |
- |
$ |
- |
$ |
544,745 |
|
Interdepartmental revenues |
|
1,912 |
|
21,378 |
|
43,930 |
|
- |
|
- |
|
(67,220) |
|
- |
|
Total operating revenues |
|
410,918 |
|
155,921 |
|
45,126 |
|
- |
|
- |
|
(67,220) |
|
544,745 |
|
Depreciation and
amortization |
|
(29,122) |
|
(8,128) |
|
(7,372) |
|
- |
|
(24) |
|
- |
|
(44,646) |
|
Other operating expenses |
|
(310,941) |
|
(127,083) |
|
(155) |
|
(17) |
|
(895) |
|
67,220 |
|
(371,871) |
|
Operating income (loss) |
|
70,855 |
|
20,710 |
|
37,599 |
|
(17) |
|
(919) |
|
- |
|
128,228 |
|
Other income, net |
|
960 |
|
30 |
|
- |
|
8,429 |
|
292 |
|
- |
|
9,711 |
|
Interest (expense) income,
net |
|
(11,147) |
|
(3,223) |
|
(5,768) |
|
- |
|
272 |
|
- |
|
(19,866) |
|
Income (loss) before taxes |
|
60,668 |
|
17,517 |
|
31,831 |
|
8,412 |
|
(355) |
|
- |
|
118,073 |
|
Income tax (provision)
benefit |
|
(20,115) |
|
(6,894) |
|
(12,775) |
|
(2,836) |
|
107 |
|
- |
|
(42,513) |
|
Net income (loss) |
$ |
40,553 |
$ |
10,623 |
$ |
19,056 |
$ |
5,576 |
$ |
(248) |
$ |
- |
$ |
75,560 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues |
$ |
412,528 |
$ |
143,737 |
$ |
7,763 |
$ |
- |
$ |
- |
$ |
- |
$ |
564,028 |
|
Interdepartmental revenues |
|
513 |
|
11,780 |
|
39,435 |
|
- |
|
- |
|
(51,728) |
|
- |
|
Total operating revenues |
|
413,041 |
|
155,517 |
|
47,198 |
|
- |
|
- |
|
(51,728) |
|
564,028 |
|
Depreciation and
amortization |
|
(29,945) |
|
(6,758) |
|
(7,475) |
|
- |
|
(47) |
|
- |
|
(44,225) |
|
Other operating expenses |
|
(318,001) |
|
(128,241) |
|
(158) |
|
(19) |
|
(857) |
|
51,728 |
|
(395,548) |
|
Operating income (loss) |
|
65,095 |
|
20,518 |
|
39,565 |
|
(19) |
|
(904) |
|
- |
|
124,255 |
|
Other income (deductions),
net |
|
400 |
|
(33) |
|
- |
|
7,728 |
|
518 |
|
- |
|
8,613 |
|
Interest (expense) income,
net |
|
(11,187) |
|
(3,203) |
|
(5,993) |
|
- |
|
221 |
|
- |
|
(20,162) |
|
Income (loss) before taxes |
|
54,308 |
|
17,282 |
|
33,572 |
|
7,709 |
|
(165) |
|
- |
|
112,706 |
|
Income tax (provision)
benefit |
|
(17,915) |
|
(6,915) |
|
(13,474) |
|
(3,102) |
|
43 |
|
- |
|
(41,363) |
|
Net income (loss) |
$ |
36,393 |
$ |
10,367 |
$ |
20,098 |
$ |
4,607 |
$ |
(122) |
$ |
- |
$ |
71,343 |
(a)
In
December 2017, there was a $21.7 million one-time tax impact as a result of the
Tax Act. See Footnote 12 for further information.
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
(In thousands)
MGE |
|
Electric |
|
Gas |
|
Nonregulated
Energy |
|
Transmission
Investment(c) |
|
Consolidation/
Elimination Entries |
|
Consolidated
Total |
|
Year Ended December 31,
2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues |
$ |
413,929 |
$ |
148,834 |
$ |
348 |
$ |
- |
$ |
- |
$ |
563,111 |
|
Interdepartmental revenues |
|
(513) |
|
14,965 |
|
44,468 |
|
- |
|
(58,920) |
|
- |
|
Total operating revenues |
|
413,416 |
|
163,799 |
|
44,816 |
|
- |
|
(58,920) |
|
563,111 |
|
Depreciation and
amortization |
|
(36,660) |
|
(9,000) |
|
(7,417) |
|
- |
|
- |
|
(53,077) |
|
Other operating (expenses)
income(a,b) |
|
(325,532) |
|
(140,625) |
|
8,670 |
|
- |
|
58,920 |
|
(398,567) |
|
Operating income(b) |
|
51,224 |
|
14,174 |
|
46,069 |
|
- |
|
- |
|
111,467 |
|
Other income, net(b) |
|
1,424 |
|
205 |
|
- |
|
- |
|
- |
|
1,629 |
|
Interest expense, net |
|
(11,257) |
|
(3,234) |
|
(5,533) |
|
- |
|
- |
|
(20,024) |
|
Net income |
|
41,391 |
|
11,145 |
|
40,536 |
|
- |
|
- |
|
93,072 |
|
Less: Net income attributable
to |
|
|
|
|
|
|
|
|
|
|
|
|
|
noncontrolling interest, net
of tax |
|
- |
|
- |
|
- |
|
- |
|
(43,237) |
|
(43,237) |
|
Net income attributable to
MGE |
$ |
41,391 |
$ |
11,145 |
$ |
40,536 |
$ |
- |
$ |
(43,237) |
$ |
49,835 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues |
$ |
409,030 |
$ |
134,572 |
$ |
1,196 |
$ |
- |
$ |
- |
$ |
544,798 |
|
Interdepartmental revenues |
|
1,888 |
|
21,349 |
|
43,930 |
|
- |
|
(67,167) |
|
- |
|
Total operating revenues |
|
410,918 |
|
155,921 |
|
45,126 |
|
- |
|
(67,167) |
|
544,798 |
|
Depreciation and
amortization |
|
(29,122) |
|
(8,128) |
|
(7,372) |
|
- |
|
- |
|
(44,622) |
|
Other operating expenses(b) |
|
(330,924) |
|
(133,940) |
|
(12,930) |
|
- |
|
67,167 |
|
(410,627) |
|
Operating income(b) |
|
50,872 |
|
13,853 |
|
24,824 |
|
- |
|
- |
|
89,549 |
|
Other income (deductions), net(b) |
|
828 |
|
(7) |
|
- |
|
4,360 |
|
- |
|
5,181 |
|
Interest expense, net |
|
(11,147) |
|
(3,223) |
|
(5,768) |
|
- |
|
- |
|
(20,138) |
|
Net income |
|
40,553 |
|
10,623 |
|
19,056 |
|
4,360 |
|
- |
|
74,592 |
|
Less: net income attributable
to |
|
|
|
|
|
|
|
|
|
|
|
|
|
noncontrolling interest, net of
tax |
|
- |
|
- |
|
- |
|
- |
|
(23,358) |
|
(23,358) |
|
Net income attributable to
MGE |
$ |
40,553 |
$ |
10,623 |
$ |
19,056 |
$ |
4,360 |
$ |
(23,358) |
$ |
51,234 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues |
$ |
412,550 |
$ |
143,752 |
$ |
7,763 |
$ |
- |
$ |
- |
$ |
564,065 |
|
Interdepartmental revenues |
|
491 |
|
11,765 |
|
39,435 |
|
- |
|
(51,691) |
|
- |
|
Total operating revenues |
|
413,041 |
|
155,517 |
|
47,198 |
|
- |
|
(51,691) |
|
564,065 |
|
Depreciation and
amortization |
|
(29,945) |
|
(6,758) |
|
(7,475) |
|
- |
|
- |
|
(44,178) |
|
Other operating expenses(b) |
|
(335,803) |
|
(135,124) |
|
(13,632) |
|
(19) |
|
51,691 |
|
(432,887) |
|
Operating income (loss)(b) |
|
47,293 |
|
13,635 |
|
26,091 |
|
(19) |
|
- |
|
87,000 |
|
Other income (deductions), net(b) |
|
287 |
|
(65) |
|
- |
|
4,626 |
|
- |
|
4,848 |
|
Interest expense, net |
|
(11,187) |
|
(3,203) |
|
(5,993) |
|
- |
|
- |
|
(20,383) |
|
Net income |
|
36,393 |
|
10,367 |
|
20,098 |
|
4,607 |
|
- |
|
71,465 |
|
Less: Net income attributable
to |
|
|
|
|
|
|
|
|
|
|
|
|
|
noncontrolling interest, net of
tax |
|
- |
|
- |
|
- |
|
- |
|
(26,097) |
|
(26,097) |
|
Net income attributable to
MGE |
$ |
36,393 |
$ |
10,367 |
$ |
20,098 |
$ |
4,607 |
$ |
(26,097) |
$ |
45,368 |
(a)
In
December 2017, there was a $21.7 million one-time tax impact as a result of the
Tax Act. See Footnote 12 for further information.
(b)
Amounts
are shown net of the related tax expense, consistent with the presentation on
the MGE Consolidated Statements of Income.
(c)
As
of July 31, 2016, MGE no longer consolidates MGE Energy's proportionate share of
equity earnings in MGE Transco. See Footnote 4 for further information.
The following table shows segment
information for MGE Energy's and MGE's assets and capital expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Utility |
|
|
Consolidated |
|
(In thousands)
MGE Energy |
|
Electric |
|
Gas |
|
Assets not
Allocated |
|
|
Non-regulated
Energy |
|
Transmission
Investment(d) |
|
All Others |
|
Consolidation/
Elimination Entries |
|
Total |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017 |
$ |
1,043,181 |
$ |
344,337 |
$ |
26,345 |
|
$ |
270,384 |
$ |
61,783 |
$ |
485,548 |
$ |
(376,396) |
$ |
1,855,182 |
|
December 31, 2016 |
|
1,021,905 |
|
318,603 |
|
27,338 |
|
|
271,277 |
|
74,535 |
|
465,202 |
|
(377,800) |
|
1,801,060 |
|
December 31, 2015 |
|
974,235 |
|
298,435 |
|
49,753 |
|
|
277,858 |
|
69,470 |
|
434,868 |
|
(378,216) |
|
1,726,403 |
|
Capital Expenditures: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended Dec. 31, 2017 |
$ |
77,353 |
$ |
26,847 |
$ |
- |
|
$ |
3,931 |
$ |
- |
$ |
- |
$ |
- |
$ |
108,131 |
|
Year ended Dec. 31, 2016 |
|
50,699 |
|
29,136 |
|
- |
|
|
3,824 |
|
- |
|
- |
|
- |
|
83,659 |
|
Year ended Dec. 31, 2015 |
|
49,370 |
|
18,787 |
|
- |
|
|
3,873 |
|
- |
|
- |
|
- |
|
72,030 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Utility |
|
|
Consolidated |
|
|
(In thousands)
MGE |
|
Electric |
|
Gas |
|
Assets not
Allocated |
|
|
Non-regulated
Energy |
|
Transmission
Investment(e) |
|
Consolidation/
Elimination Entries |
|
Total |
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017 |
$ |
1,043,181 |
$ |
344,337 |
$ |
26,345 |
|
$ |
270,334 |
$ |
- |
$ |
(156) |
$ |
1,684,041 |
|
|
December 31, 2016 |
|
1,021,905 |
|
318,603 |
|
27,338 |
|
|
271,227 |
|
- |
|
(221) |
|
1,638,852 |
|
|
December 31, 2015 |
|
974,235 |
|
298,435 |
|
49,753 |
|
|
277,808 |
|
69,470 |
|
(187) |
|
1,669,514 |
|
|
Capital Expenditures: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended Dec. 31, 2017 |
$ |
77,353 |
$ |
26,847 |
$ |
- |
|
$ |
3,931 |
$ |
- |
$ |
- |
$ |
108,131 |
|
|
Year ended Dec. 31, 2016 |
|
50,699 |
|
29,136 |
|
- |
|
|
3,824 |
|
- |
|
- |
|
83,659 |
|
|
Year ended Dec. 31, 2015 |
|
49,370 |
|
18,787 |
|
- |
|
|
3,873 |
|
- |
|
- |
|
72,030 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(d)
In
December 2017, there was a $20.4 million one-time tax impact as a result of the
Tax Act. See Footnote 12 for further information.
(e)
In
December 2016, MGE's ownership interest in MGE Transco was transferred to MGE
Energy. See Footnote 4 for further information.
21.
Quarterly
Summary of Operations - MGE Energy (unaudited).
|
|
|
|
|
|
|
|
|
|
| |
|
|
(In thousands, except per share
amounts) |
|
Quarters Ended |
|
|
|
2017 |
|
March 31 |
|
June 30 |
|
September 30 |
|
December 31 |
|
|
|
Operating revenues: |
|
|
|
|
|
|
|
|
|
|
|
Electric revenues |
$ |
98,397 |
$ |
102,382 |
$ |
120,761 |
$ |
92,734 |
|
|
|
Gas revenues |
|
58,426 |
|
24,081 |
|
18,778 |
|
47,540 |
|
|
|
Total Operating Revenues |
|
156,823 |
|
126,463 |
|
139,539 |
|
140,274 |
|
|
|
Operating expenses |
|
123,913 |
|
99,912 |
|
96,538 |
|
114,000 |
|
|
|
Operating income |
|
32,910 |
|
26,551 |
|
43,001 |
|
26,274 |
|
|
|
Interest and other income,
net |
|
(2,443) |
|
(2,272) |
|
(788) |
|
(3,533) |
|
|
|
Income tax
provision(a) |
|
(11,167) |
|
(8,736) |
|
(15,584) |
|
13,393 |
|
|
|
Earnings on common stock |
$ |
19,300 |
$ |
15,543 |
$ |
26,629 |
$ |
36,134 |
|
|
|
Earnings per common share |
$ |
0.56 |
$ |
0.45 |
$ |
0.77 |
$ |
1.04 |
|
|
|
Dividends per share |
$ |
0.308 |
$ |
0.308 |
$ |
0.323 |
$ |
0.323 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016 |
|
|
|
|
|
|
|
|
|
|
|
Operating revenues: |
|
|
|
|
|
|
|
|
|
|
|
Electric revenues |
$ |
93,690 |
$ |
100,615 |
$ |
119,147 |
$ |
96,750 |
|
|
|
Gas revenues |
|
53,837 |
|
20,961 |
|
17,570 |
|
42,175 |
|
|
|
Total Operating Revenues |
|
147,527 |
|
121,576 |
|
136,717 |
|
138,925 |
|
|
|
Operating expenses |
|
117,996 |
|
93,364 |
|
90,190 |
|
114,967 |
|
|
|
Operating income |
|
29,531 |
|
28,212 |
|
46,527 |
|
23,958 |
|
|
|
Interest and other income,
net |
|
(2,558) |
|
(2,778) |
|
(2,933) |
|
(1,886) |
|
|
|
Income tax provision |
|
(9,945) |
|
(9,284) |
|
(15,714) |
|
(7,570) |
|
|
|
Earnings on common stock |
$ |
17,028 |
$ |
16,150 |
$ |
27,880 |
$ |
14,502 |
|
|
|
Earnings per common share |
$ |
0.49 |
$ |
0.47 |
$ |
0.80 |
$ |
0.42 |
|
|
|
Dividends per share |
$ |
0.295 |
$ |
0.295 |
$ |
0.308 |
$ |
0.308 |
|
(a)
In
December 2017, there was a $21.7 million one-time tax impact as a
result of the Tax Act. See Footnote 12 for further information.
Notes:
·
The
quarterly results of operations within a year may not be comparable because of
seasonal and other factors.
·
The
sum of earnings per share of common stock for any four quarters may vary
slightly from the earnings per share of common stock for the equivalent
twelve-month period due to rounding.
·
MGE
Energy's operations are based primarily on its utility subsidiary MGE.
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure.
MGE Energy and MGE
None.
Item 9A. Controls and
Procedures.
MGE Energy and MGE
Conclusion Regarding the Effectiveness of Disclosure
Controls and Procedures
During the fourth quarter of 2017, 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 its principal executive officer and its
principal financial officer, by other employees of that registrant and its
subsidiaries as appropriate to allow timely decisions regarding required
disclosure, and that this information is recorded, processed, summarized,
evaluated, and reported, as applicable, within the time periods specified in the
SEC's rules and forms. Due to the inherent limitations of control systems, not
all misstatements may be detected. These inherent limitations include the
realities that judgments in decision making can be faulty and breakdowns can
occur because of simple error or mistake. Additionally, controls can be
circumvented by the individual acts of some persons, by collusion of two or more
people, or by management override of the control. Also, the registrants do not
control or manage certain of their unconsolidated entities, and thus, their
access and ability to apply their procedures to those entities is more limited
than is the case for their consolidated subsidiaries.
As of December 31, 2017, the principal executive
officer and principal financial officer of each registrant concluded that such
registrant's disclosure controls and procedures (as defined in Rules 13a-15(e)
and 15d-15(e) under the Securities Exchange Act of 1934) were effective to
accomplish their objectives. 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 December 31, 2017, there
were no changes in MGE Energy or MGE's internal controls over financial
reporting that materially affected, or are reasonably likely to affect
materially, MGE Energy or MGE's internal control over financial reporting.
MGE Energy and MGE
Management of MGE Energy and MGE are required to assess
and report on the effectiveness of its internal control over financial reporting
as of December 31, 2017. As a result of that assessment, management
determined that there were no material weaknesses as of December 31, 2017
and, therefore, concluded that MGE Energy and MGE's internal control over
financial reporting was effective. Management's Report on Internal Control Over
Financial Reporting is included in Item 8. Financial Statements and
Supplementary Data.
Item 9B. Other Information.
MGE Energy
None.
PART III.
Item 10. Directors, Executive
Officers, and Corporate Governance.
MGE Energy
The information required by Item 10 relating to directors
and nominees for election as directors at MGE Energy's annual meeting of
shareholders is incorporated herein by reference to the information under the
heading "ELECTION OF DIRECTORS" in MGE Energy's definitive proxy statement (2018
Proxy Statement) to be filed with the SEC on or before March 26, 2018.
Information relating to compliance with Section 16(a) of the Securities Exchange
Act of 1934 is incorporated herein by reference to the information under the
heading "BENEFICIAL OWNERSHIP - Section 16(a) Beneficial Ownership Reporting
Compliance" in the 2018 Proxy Statement.
The information required by Item 10 relating to executive
officers is set forth above in Item 1. Business - Executive Officers of the
Registrants.
Code of Ethics
MGE Energy has adopted a Code of Ethics applicable to its
directors and all of its employees, including its chief executive officer, chief
financial officer, and principal accounting officer. The Code of Ethics is
available on MGE Energy's website at www.mgeenergy.com.
Item 11. Executive
Compensation.
See Item 12.
Item 12. Security Ownership of
Certain Beneficial Owners and Management and Related Stockholder
Matters.
MGE Energy
The required information is included in the 2018 Proxy
Statement, which will be filed with the SEC on or before March 26, 2018,
for Item 11 under the section "EXECUTIVE COMPENSATION," not including
"Compensation Committee Report," and "Cumulative Five-Year Total Return
Comparison Graph," and for Item 12 under the section "BENEFICIAL OWNERSHIP,"
which is incorporated herein by reference.
MGE Energy does not have or maintain any compensation
plans pursuant to which equity is issued.
Item 13. Certain Relationships and
Related Transactions, and Director Independence.
MGE Energy
The information required by Item 13 is incorporated by
reference herein from the "BOARD OF DIRECTORS INFORMATION" section in the 2018
Proxy Statement, which will be filed with the SEC on or before March 26,
2018.
Item 14.
Principal Accounting Fees and Services.
MGE Energy
The information required by Item 14 is incorporated
herein by reference to the information under the heading "RATIFICATION OF
PRICEWATERHOUSECOOPERS LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM"
in the 2018 Proxy Statement, which will be filed with the SEC on or before
March 26, 2018.
MGE
Independent Registered Public Accounting Firm Fees
Disclosure
|
|
|
|
|
|
| |
|
|
|
|
2017 |
|
2016 |
|
|
|
Audit fees(a) |
$ |
829,746 |
$ |
823,495 |
|
|
|
Audit-related
fees(b) |
|
75,000 |
|
75,000 |
|
|
|
Tax fees(c) |
|
47,065 |
|
83,027 |
|
|
|
All other fees(d) |
|
304,028 |
|
236,509 |
|
(a)
Professional
services rendered for the audits of the financial statements, review of the
interim financial statements, opinion on the effectiveness of our internal
control over financial reporting for MGE Energy, and services that generally
only the independent auditor can reasonably provide, such as comfort letters,
statutory audits, consents and assistance with and review of documents filed
with the SEC.
(b)
Professional
services rendered in connection with utility commission-mandated
obligations.
(c)
Review
of federal and state income tax returns and tax planning.
(d)
Other
fees for 2017 include Enterprise Forward advisory services. Enterprise Forward
is a strategic project aimed at transforming MGE into a digital integrated
utility and includes the replacement of the customer information system. Other
fees for 2016 include customer information system replacement advisory services
and a cyber-security risk assessment.
MGE is a wholly owned subsidiary of MGE Energy and does
not have a separate audit committee. Instead, that function is fulfilled for MGE
by the MGE Energy Audit Committee. The Audit Committee approves each engagement
of the independent registered public accounting firm to render any audit or
nonaudit services before the firm is engaged to render those services. The Chair
of the Audit Committee or other designated Audit Committee member may represent
the entire Audit Committee for purposes of this approval. Any services approved
by the Chair or other designated Audit Committee members are reported to the
full Audit Committee at the next scheduled Audit Committee meeting. No de
minimis exceptions to this approval process are allowed under the Audit
Committee Charter; and thus, none of the services described in the preceding
table were approved pursuant to Rule 2-01(c)(7)(i)(C) of Regulation S-X.
PART
IV.
Item 15. Exhibits and Financial
Statement Schedules.
(a) 1. Financial Statements.
|
| |
|
MGE Energy |
|
|
Consolidated Statements of Income
for the years ended December 31, 2017, 2016, and 2015 |
54 |
|
Consolidated Statements of
Comprehensive Income for the years ended December 31, 2017, 2016, and
2015 |
54 |
|
Consolidated Statements of Cash
Flows for the years ended December 31, 2017, 2016, and 2015 |
55 |
|
Consolidated Balance Sheets as of
December 31, 2017 and 2016 |
56 |
|
Consolidated Statements of Common
Equity as of December 31, 2017, 2016, and 2015 |
57 |
|
Notes to Consolidated Financial
Statements |
62 |
|
|
|
|
MGE |
|
|
Consolidated Statements of Income
for the years ended December 31, 2017, 2016, and 2015 |
58 |
|
Consolidated Statements of
Comprehensive Income for the years ended December 31, 2017, 2016, and
2015 |
58 |
|
Consolidated Statements of Cash
Flows for the years ended December 31, 2017, 2016, and 2015 |
59 |
|
Consolidated Balance Sheets as of
December 31, 2017 and 2016 |
60 |
|
Consolidated Statements of Common
Equity as of December 31, 2017, 2016, and 2015 |
61 |
|
Notes to Consolidated Financial
Statements |
62 |
2.
Financial
Statement Schedule.
Schedule I – Condensed Parent Company
Financial Statements.
Schedule II – Valuation and
Qualifying Accounts for MGE Energy, Inc. and Madison Gas and Electric
Company.
All other schedules have been omitted
because they are not applicable or not required, or because the required
information is shown in the consolidated financial statements or notes
thereto.
3.
All Exhibits
Including Those Incorporated by Reference.
Exhibits. Several of the following
exhibits are incorporated herein by reference under Rule 12b-32 of the
Securities Exchange Act of 1934, as amended. Several other instruments, which
would otherwise be required to be listed below, have not been so listed because
those instruments do not authorize securities in an amount that exceeds 10% of
the total assets of the applicable registrant and its subsidiaries on a
consolidated basis. The relevant registrant agrees to furnish a copy of any
instrument that was so omitted on that basis to the Commission upon request.
|
|
|
|
|
| |
|
|
|
Incorporated by
Reference |
|
Ex. No. |
Exhibit Description |
Form |
File No. |
Exhibit |
Date Filed |
|
|
|
|
|
|
|
|
3.1 |
Amended and Restated Articles of
Incorporation of MGE Energy, Inc. |
S-3 Registration
Statement |
333-197423 |
4.1 |
7/15/2014 |
|
|
|
|
|
|
|
|
3.2** |
Amended and Restated Bylaws of MGE
Energy, Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
3.3 |
Restated Articles of Incorporation
of Madison Gas and Electric Company as in effect at October 25, 2012.
|
8-K |
0-1125 |
3.1 |
10/25/2012 |
|
|
|
|
|
|
|
|
3.4 |
Amended Bylaws of Madison Gas and
Electric Company as in effect at October 25, 2012 |
10-K |
0-1125 |
3.3 |
3/26/2003 |
|
|
|
|
|
|
|
|
4.1 P |
Indenture of Mortgage and Deed of
Trust between Madison Gas and Electric Company and U.S. Bank, N.A.
(successor to First Wisconsin Trust Company), as Trustee, |
Registration
Statement |
2-6059 |
7-D |
1/1/1946 |
|
|
|
|
|
|
|
|
4.2 P |
Supplemental Indenture dated as of
February 1, 1993 to aforementioned Indenture of Mortgage and Deed of
Trust. |
10-K |
0-1125 |
4F |
12/31/1992 |
|
|
|
|
|
|
|
|
4.3 |
Indenture between Madison Gas and
Electric Company and The Bank of New York Mellon Trust Company, N.A. (as
successor to Bank One, N.A.), as Trustee |
10-K |
0-1125 |
4B |
3/29/2000 |
|
|
|
|
|
|
|
|
10.1 |
Credit Agreement dated as of
June 1, 2015, among MGE Energy, Inc., the Lenders party thereto and
JPMorgan Chase Bank, N.A., as Administrative Agent. |
8-K |
0-49965 |
10.1 |
6/3/2015 |
|
|
|
|
|
|
|
|
10.2 |
Credit Agreement dated as of
June 1, 2015, among Madison Gas and Electric Company, the Lenders
party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent.
|
8-K |
0-1125 |
10.2 |
6/3/2015 |
|
|
|
|
|
|
|
|
10.3 |
Credit Agreement dated as of
June 1, 2015, among Madison Gas and Electric Company, the Lenders
party thereto and U.S. Bank National Association, as Administrative Agent.
|
8-K |
0-1125 |
10.3 |
6/3/2015 |
|
|
|
|
|
| |
|
|
|
Incorporated by
Reference |
|
Ex. No. |
Exhibit Description |
Form |
File No. |
Exhibit |
Date Filed |
|
|
|
|
|
|
|
|
10.4 P |
Joint Power Supply Agreement with
Wisconsin Power and Light Company and Wisconsin Public Service
Corporation. |
Registration
Statement |
2-27308 |
4.09 |
2/2/1967 |
|
|
|
|
|
|
|
|
10.5 P |
Joint Power Supply Agreement
(Exclusive of Exhibits) with Wisconsin Power and Light Company and
Wisconsin Public Service Corporation. |
Registration
Statement |
2-48781 |
5.04A |
7/26/1973 |
|
|
|
|
|
|
|
|
10.6** |
Second Amended and Restated
Agreement for Construction and Operation of Columbia Generating
Plant. |
|
|
|
|
|
|
|
|
|
|
|
|
10.7 |
West Campus Cogeneration Facility
Joint Ownership Agreement, dated as of October 13, 2003, among MGE
Power West Campus, LLC, The Board of Regents of the University of
Wisconsin System, and the State of Wisconsin, as Joint Owners. |
10-Q |
0-1125 |
10.19 |
11/8/2005 |
|
|
|
|
|
|
|
|
10.8 |
West Campus Cogeneration Facility
Operation and Maintenance Agreement, dated as of October 13, 2003,
among Madison Gas and Electric Company, as Operator, and the Board of
Regents of the University of Wisconsin System, as Joint Owner. |
10-Q |
0-1125 |
10.20 |
11/8/2005 |
|
|
|
|
|
|
|
|
10.9 |
West Campus Cogeneration Facility
Lease Agreement, dated as of March 18, 2004, among MGE Power West
Campus, LLC, as Lessor, and Madison Gas and Electric Company, as Lessee.
|
10-Q |
0-1125 |
10.21 |
11/8/2005 |
|
|
|
|
|
|
|
|
10.10 |
West Campus Cogeneration Facility
Ground Lease, dated as of July 15, 2002, among MGE Power LLC, as
Lessee, and the Board of Regents of the University of Wisconsin System, as
Lessor. |
10-Q |
0-1125 |
10.22 |
11/8/2005 |
|
|
|
|
|
|
|
|
10.11 |
West Campus Cogeneration Facility
Amendment of Ground Lease, dated as of March 18, 2004, among MGE
Power West Campus, LLC, as Lessee, and the Board of Regents of the
University of Wisconsin System, as Lessor. |
10-Q |
0-1125 |
10.23 |
11/8/2005 |
|
|
|
|
|
|
|
|
10.12 |
West Campus Cogeneration Facility
MGE Ground Sublease, dated as of March 18, 2004, among MGE Power West
Campus, LLC, as Lessee, and Madison Gas and Electric Company, as Lessor.
|
10-Q |
0-1125 |
10.24 |
11/8/2005 |
|
|
|
|
|
|
|
|
10.13 |
Elm Road Generating Station Common
Facilities Operating and Maintenance Agreement, dated as of
December 17, 2004, among Madison Gas and Electric Company, Wisconsin
Electric Power Company, and Wisconsin Public Power Inc., as Lessee/Owner
Parties, and Wisconsin Electric Power Company, as Operating Agent. |
10-Q |
0-1125 |
10.7 |
11/8/2005 |
|
|
|
|
|
|
|
|
10.14 |
Elm Road Generating Station New
Common Facilities Ownership Agreement, dated as of December 17, 2004,
among MGE Power Elm Road, LLC, Elm Road Generating Station Supercritical,
LLC, and Wisconsin Public Power Inc., as Joint Owners. |
10-Q |
0-1125 |
10.8 |
11/8/2005 |
|
|
|
|
|
|
|
|
10.15 |
Elm Road Generating Station I
Ownership Agreement, dated as of December 17, 2004, among MGE Power
Elm Road, LLC, Elm Road Generating Station Supercritical, LLC, and
Wisconsin Public Power Inc., as Joint Owners, Elm Road Services, LLC, as
Project Manager, and W.E. Power LLC. |
10-Q |
0-1125 |
10.9 |
11/8/2005 |
|
|
|
|
|
|
|
|
10.16 |
Elm Road Generating Station I
Facility Lease Agreement, dated as of November 4, 2005, among MGE
Power Elm Road, LLC, as Lessor, and Madison Gas and Electric Company, as
Lessee. |
10-Q |
0-1125 |
10.10 |
11/8/2005 |
|
|
|
|
|
|
|
|
10.17 |
Elm Road Generating Station I
Operating and Maintenance Agreement, dated as of December 17, 2004,
among Madison Gas and Electric Company, Wisconsin Electric Power Company,
and Wisconsin Public Power Inc., as Lessee/ Owners, and Wisconsin Electric
Power Company, as Operating Agent. |
10-Q |
0-1125 |
10.11 |
11/8/2005 |
|
|
|
|
|
|
|
|
10.18 |
Elm Road Generating Station I
Easement and Indemnification Agreement, dated as of December 17,
2004, among MGE Power Elm Road, LLC and Wisconsin Public Power Inc., as
Grantees, and Wisconsin Electric Power Company, as Grantor. |
10-Q |
0-1125 |
10.12 |
11/8/2005 |
|
|
|
|
|
|
|
|
10.19 |
Assignment and Assumption
Agreement, dated as of November 4, 2005 between MGE Power Elm Road,
LLC and Madison Gas and Electric Company relating to Elm Road Generating
Station I Easement and Indemnification Agreement, dated as of
December 17, 2004, among MGE Power Elm Road, LLC and Wisconsin Public
Power Inc., as Grantees, and Wisconsin Electric Power Company, as Grantor.
|
10-K |
0-1125 |
10.16 |
3/8/2006 |
|
|
|
|
|
|
|
|
10.20 |
Elm Road Generating Station II
Ownership Agreement, dated as of December 17, 2004, among MGE Power
Elm Road, LLC, Elm Road Generating Station Supercritical, LLC, and
Wisconsin Public Power Inc., as Joint Owners, Elm Road Services, LLC, as
Project Manager, and W.E. Power LLC. |
10-Q |
0-1125 |
10.13 |
11/8/2005 |
|
|
|
|
|
|
|
|
10.21 |
Elm Road Generating Station II
Facility Lease Agreement, dated as of November 4, 2005, among MGE
Power Elm Road, LLC, as Lessor, and Madison Gas and Electric Company, as
Lessee. |
10-Q |
0-1125 |
10.14 |
11/8/2005 |
|
|
|
|
|
|
|
|
10.22 |
Elm Road Generating Station II
Operating and Maintenance Agreement, dated as of December 17, 2004,
among Madison Gas and Electric Company, Wisconsin Electric Power Company,
and Wisconsin Public Power Inc., as Lessee/ Owners, and Wisconsin Electric
Power Company, as Operating Agent. |
10-Q |
0-1125 |
10.15 |
11/8/2005 |
|
|
|
|
|
|
|
|
10.23 |
Elm Road Generating Station II
Easement and Indemnification Agreement, dated as of December 17,
2004, among MGE Power Elm Road, LLC and Wisconsin Public Power Inc., as
Grantees, and Wisconsin Electric Power Company, as Grantor. |
10-Q |
0-1125 |
10.16 |
11/8/2005 |
|
|
|
|
|
|
|
|
10.24 |
Substation and Transformer Shared
Use Agreement and Easement Agreement, dated as of September 29, 2006,
among Madison Gas and Electric Company and Northern Iowa Windpower II LLC
as Joint Owners. |
10-Q |
0-1125 |
10.6 |
11/7/2006 |
|
|
|
|
|
|
|
|
10.25 |
Management and Administration
Agreement, dated as of October 13, 2006, among Madison Gas and
Electric Company as Owner and Midwest Renewable Energy Resources, LLC as
Manager. |
10-Q |
0-1125 |
10.7 |
11/7/2006 |
|
|
|
|
|
|
|
|
10.26* |
Form of Severance Agreement.
|
10-K |
0-49965 |
10.37 |
2/26/2009 |
|
|
|
|
|
| |
|
|
|
Incorporated by
Reference |
|
Ex. No. |
Exhibit Description |
Form |
File No. |
Exhibit |
Date Filed |
|
|
|
|
|
|
|
|
10.27* |
Form of Amendment to Severance
Agreement. |
10-Q |
0-49965 |
10.1 |
5/5/2016 |
|
|
|
|
|
|
|
|
10.28* |
Form of Severance Agreement for
Officers hired on or after January 1, 2012. |
10-Q |
0-49965 |
10.2 |
5/5/2016 |
|
|
|
|
|
|
|
|
10.29* |
Form of Deferred Compensation
Agreement. |
10-K |
0-49965 |
10.38 |
2/26/2009 |
|
|
|
|
|
|
|
|
10.30* |
Form of Amended and Restated
Deferred Compensation Agreement. |
10-K |
0-49965 |
10.39 |
2/26/2009 |
|
|
|
|
|
|
|
|
10.31* |
Form of Income Continuation
Agreement as revised January 1, 2016. |
10-Q |
0-49965 |
10.3 |
5/5/2016 |
|
|
|
|
|
|
|
|
10.32* |
Defined Contribution Supplemental
Executive Retirement Plan |
10-K |
0-49965 |
10.32 |
2/24/2017 |
|
|
|
|
|
|
|
|
10.33* |
Form of Participation Agreement for
the Defined Contribution Supplemental Executive Retirement Plan |
10-K |
0-49965 |
10.33 |
2/24/2017 |
|
|
|
|
|
|
|
|
10.34* |
MGE Energy, Inc., 2006 Performance
Unit Plan, as amended. |
10-Q |
0-49965 |
10.1 |
5/5/2017 |
|
|
|
|
|
|
|
|
10.35* |
Form of Performance Unit Award
Agreement. |
10-K |
0-49965 |
10.42 |
2/26/2009 |
|
|
|
|
|
|
|
|
10.36* |
Form of Amendment to Performance
Unit Award Agreement. |
8-K |
0-49965 |
10.1 |
4/21/2011 |
|
|
|
|
|
|
|
|
10.37* |
MGE Energy, Inc., 2013 Director
Incentive Plan, as amended. |
10-Q |
0-49965 |
10.2 |
5/5/2017 |
|
|
|
|
|
|
|
|
10.38* |
Form of 2013 Director Incentive
Plan Award Agreement. |
10-K |
0-49965 |
10.38 |
2/27/2014 |
|
|
|
|
|
|
|
|
12.1** |
Statements regarding computation of
ratio of earnings to fixed charges MGE Energy, Inc. |
- |
- |
- |
- |
|
|
|
|
|
|
|
|
12.2**
|
Statements regarding computation of
ratio of earnings to fixed charges Madison Gas and Electric Company |
- |
- |
- |
- |
|
|
|
|
|
|
|
|
21**
|
Subsidiaries of MGE Energy,
Inc. |
- |
- |
- |
- |
|
|
|
|
|
|
|
|
23.1**
|
Consent of Independent Registered
Public Accounting Firm - MGE Energy, Inc. |
- |
- |
- |
- |
|
|
|
|
|
|
|
|
23.2**
|
Consent of Independent Registered
Public Accounting Firm - Madison Gas and Electric Company |
- |
- |
- |
- |
|
|
|
|
|
|
|
|
31.1**
|
Certifications Pursuant to Rule
13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934 filed by
Jeffrey M. Keebler for MGE Energy, Inc. |
- |
- |
- |
- |
|
|
|
|
|
|
|
|
31.2**
|
Certifications Pursuant to Rule
13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934 filed by
Jeffrey C. Newman for MGE Energy, Inc. |
- |
- |
- |
- |
|
|
|
|
|
|
|
|
31.3**
|
Certifications Pursuant to Rule
13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934 filed by
Jeffrey M. Keebler for Madison Gas and Electric Company |
- |
- |
- |
- |
|
|
|
|
|
|
|
|
31.4**
|
Certifications Pursuant to Rule
13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934 filed by
Jeffrey C. Newman for Madison Gas and Electric Company |
- |
- |
- |
- |
|
|
|
|
|
|
|
|
32.1***
|
Certifications Pursuant to Section
1350 of Chapter 63 of Title 18 United States Code (Sarbanes-Oxley Act of
2002) filed by Jeffrey M. Keebler for MGE Energy, Inc. |
- |
- |
- |
- |
|
|
|
|
|
|
|
|
32.2*** |
Certifications Pursuant to Section
1350 of Chapter 63 of Title 18 United States Code (Sarbanes-Oxley Act of
2002) filed by Jeffrey C. Newman for MGE Energy, Inc. |
- |
- |
- |
- |
|
|
|
|
|
|
|
|
32.3***
|
Certifications Pursuant to Section
1350 of Chapter 63 of Title 18 United States Code (Sarbanes-Oxley Act of
2002) filed by Jeffrey M. Keebler for Madison Gas and Electric
Company |
- |
- |
- |
- |
|
|
|
|
|
|
|
|
32.4***
|
Certifications Pursuant to Section
1350 of Chapter 63 of Title 18 United States Code (Sarbanes-Oxley Act of
2002) filed by Jeffrey C. Newman for Madison Gas and Electric
Company |
- |
- |
- |
- |
|
|
|
|
|
|
|
|
101.INS** |
XBRL Instance |
- |
- |
- |
- |
|
101.SCH** |
XBRL Taxonomy Extension
Schema |
- |
- |
- |
- |
|
101.CAL** |
XBRL Taxonomy Extension
Calculation |
- |
- |
- |
- |
|
101.DEF** |
XBRL Taxonomy Extension
Definition |
- |
- |
- |
- |
|
101.LAB** |
XBRL Taxonomy Extension
Labels |
- |
- |
- |
- |
|
101.PRE** |
XBRL Taxonomy Extension
Presentation |
- |
- |
- |
- |
|
|
|
|
|
|
|
|
* |
Indicates a management contract or
compensatory plan or arrangement. |
|
|
|
|
|
** |
Filed herewith. |
|
|
|
|
|
*** |
Furnished herewith. |
|
|
|
|
Item 16. Form 10-K Summary.
MGE Energy and MGE
None.
Schedule I
Condensed Parent Company Financial
Statements
MGE Energy, Inc.
Statements of Comprehensive
Income
(Parent Company Only)
(In thousands)
|
|
|
|
|
|
|
| |
|
|
|
For the Years Ended
December 31, |
|
|
|
|
2017 |
|
2016 |
|
2015 |
|
|
Operating Expenses: |
|
|
|
|
|
|
|
|
Other
operations and maintenance |
$ |
880 |
$ |
720 |
$ |
690 |
|
|
Total
Operating Expenses |
|
880 |
|
720 |
|
690 |
|
|
Operating Loss |
|
(880) |
|
(720) |
|
(690) |
|
|
Equity in earnings of
investments |
|
99,246 |
|
75,581 |
|
71,306 |
|
|
Other (loss) income, net |
|
(2,165) |
|
435 |
|
526 |
|
|
Interest income, net |
|
605 |
|
176 |
|
136 |
|
|
Income
before income taxes |
|
96,806 |
|
75,472 |
|
71,278 |
|
|
Income tax provision |
|
800 |
|
88 |
|
65 |
|
|
Net Income |
|
97,606 |
|
75,560 |
|
71,343 |
|
|
Other Comprehensive Income, Net
of Tax: |
|
|
|
|
|
|
|
|
Unrealized
gain (loss) on available-for-sale securities, net of |
|
|
|
|
|
|
|
|
tax
($(117), $104, and $67) |
|
175 |
|
(155) |
|
(101) |
|
|
Comprehensive Income |
$ |
97,781 |
$ |
75,405 |
$ |
71,242 |
|
|
|
|
|
|
|
|
|
|
|
The accompanying
notes are an integral part of the above consolidated financial
statements. |
MGE Energy, Inc.
Statements of Cash Flows
(Parent Company Only)
(In thousands)
|
|
|
|
|
|
|
| |
|
|
|
For the Years Ended
December 31, |
|
|
|
|
2017 |
|
2016 |
|
2015 |
|
|
Net Cash Flows Provided by
Operating Activities |
$ |
70,268 |
$ |
74,994 |
$ |
37,085 |
|
|
Investing Activities: |
|
|
|
|
|
|
|
|
Contributions
to affiliates |
|
(6,522) |
|
(2,789) |
|
(3,360) |
|
|
Contributions
to other investments |
|
(4,534) |
|
(360) |
|
(330) |
|
|
Other |
|
843 |
|
385 |
|
- |
|
|
Cash
Used for Investing Activities |
|
(10,213) |
|
(2,764) |
|
(3,690) |
|
|
Financing Activities: |
|
|
|
|
|
|
|
|
Cash
dividends paid on common stock |
|
(43,682) |
|
(41,775) |
|
(40,043) |
|
|
Other |
|
(58) |
|
(11) |
|
- |
|
|
Cash
Used for Financing Activities |
|
(43,740) |
|
(41,786) |
|
(40,043) |
|
|
Change in
cash and cash equivalents: |
|
16,315 |
|
30,444 |
|
(6,648) |
|
|
Cash and
cash equivalents at beginning of period |
|
82,225 |
|
51,781 |
|
58,429 |
|
|
Cash and
cash equivalents at end of period |
$ |
98,540 |
$ |
82,225 |
$ |
51,781 |
|
|
|
|
|
|
|
|
|
|
|
The accompanying
notes are an integral part of the above consolidated financial
statements. |
Schedule I
Condensed Parent Company Financial
Statements (continued)
MGE Energy, Inc.
Balance Sheets
(Parent Company Only)
(In thousands)
|
|
|
|
| |
|
|
|
At
December 31, |
|
ASSETS |
|
2017 |
|
2016 |
|
Current Assets: |
|
|
|
|
|
Cash and
cash equivalents |
$ |
98,540 |
$ |
82,225 |
|
Accounts
receivable, net: |
|
|
|
|
|
Accounts
receivable from affiliates |
|
- |
|
83 |
|
Other
current assets |
|
1,601 |
|
1,221 |
|
Total
Current Assets |
|
100,141 |
|
83,529 |
|
Other deferred assets and
other |
|
171 |
|
201 |
|
Investments: |
|
|
|
|
|
Investments
in affiliates |
|
702,134 |
|
684,968 |
|
Other
investments |
|
5,640 |
|
1,161 |
|
Total
Investments |
|
707,774 |
|
686,129 |
|
Total
Assets |
$ |
808,086 |
$ |
769,859 |
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS'
EQUITY |
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
Accounts
payable to affiliates |
$ |
665 |
$ |
530 |
|
Accrued
taxes |
|
17 |
|
218 |
|
Other
current liabilities |
|
2,030 |
|
115 |
|
Total
Current Liabilities |
|
2,712 |
|
863 |
|
Other Credits: |
|
|
|
|
|
Deferred
income taxes |
|
23,480 |
|
40,672 |
|
Accounts
payable to affiliates |
|
3,707 |
|
4,236 |
|
Total
Other Credits |
|
27,187 |
|
44,908 |
|
Shareholders' Equity: |
|
|
|
|
|
Common
shareholders' equity |
|
350,936 |
|
350,936 |
|
Retained
earnings |
|
426,874 |
|
372,950 |
|
Accumulated
other comprehensive income, net of tax |
|
377 |
|
202 |
|
Total
Shareholders' Equity |
|
778,187 |
|
724,088 |
|
Commitments and contingencies (see
Footnote 3) |
|
|
|
|
|
Total
Liabilities and Shareholders' Equity |
$ |
808,086 |
$ |
769,859 |
|
|
|
|
|
|
|
The accompanying
notes are an integral part of the above consolidated financial
statements. |
Schedule I
Condensed Parent Company
Financial Statements (continued)
Notes to Condensed
Financial Statements
(Parent Company Only)
1.
Basis of
Presentation.
MGE Energy is a
holding company and conducts substantially all of its business operations
through its subsidiaries. For Parent Company only presentation, investment in
subsidiaries are accounted for using the equity method. These condensed Parent
Company financial statements and related notes have been prepared in accordance
with Rule 12-04, Schedule I of Regulation S-X. These statements should be read
in conjunction with the financial statements and the notes in Item 8. Financial
Statements and Supplementary Data of the Annual Report on Form 10-K for the year
ended December 31, 2017.
2.
Credit
Agreements.
As of December 31, 2017, MGE
Energy had access to an unsecured, committed credit facility with aggregate bank
commitments of $50.0 million. At December 31, 2017, no borrowings were
outstanding under this facility.
See Footnote 10 of the Notes to
Consolidated Financial Statements for further information regarding MGE Energy's
credit agreements.
3.
Commitments and
Contingencies.
See Footnote 17 of the Notes to
Consolidated Financial Statements for commitments and contingencies.
4.
Dividends from
Affiliates.
|
|
|
|
|
|
|
|
| |
|
|
|
|
Dividends from
Affiliates |
|
|
|
(In thousands) |
|
2017 |
|
2016 |
|
2015 |
|
|
|
MGE(a) |
$ |
45,000 |
$ |
50,000 |
$ |
30,000 |
|
|
|
MGE Power Elm Road |
|
12,000 |
|
13,500 |
|
10,000 |
|
|
|
MGE Power West Campus |
|
6,000 |
|
9,500 |
|
3,000 |
|
|
|
MGE Transco |
|
4,669 |
|
1,107 |
|
1,708 |
|
|
|
MGEE Transco |
|
112 |
|
- |
|
- |
|
|
|
Total |
$ |
67,781 |
$ |
74,107 |
$ |
44,708 |
|
(a)
Excludes
$15.8 million dividend in kind to MGE Energy from MGE in 2016.
Dividend
Restrictions
Dividend payments by MGE to MGE
Energy are subject to restrictions arising under a PSCW rate order and, to a
lesser degree, MGE's first mortgage bonds. The PSCW order restricts any
dividends, above the PSCW authorized amount of $70.8 million, that MGE may
pay MGE Energy if its common equity ratio, calculated in the manner used in the
rate proceeding, is less than 55%. MGE's thirteen month rolling average common
equity ratio at December 31, 2017, is 58.5% as determined under the
calculation used in the rate proceeding. MGE was not restricted from paying cash
dividends in 2017. Cash dividends of $45.0 million and $50.0 million
were paid by MGE to MGE Energy in 2017 and 2016, respectively. In 2016, MGE also
transferred its ownership interest in MGE Transco to MGE Energy in the form of a
dividend in kind of $15.8 million. The rate proceeding calculation includes
as indebtedness imputed amounts for MGE's outstanding purchase power capacity
payments and other PSCW adjustments, but does not include the indebtedness
associated with MGE Power Elm Road or MGE Power West Campus, which are
consolidated into MGE's financial statements but are not direct obligations of
MGE.
MGE has covenanted with the holders
of its first mortgage bonds not to declare or pay any dividend or make any other
distribution on or purchase any shares of its common stock unless, after giving
effect thereto, the aggregate amount of all such dividends and distributions and
all amounts applied to such purchases, after December 31, 1945, shall not
exceed the earned surplus (retained earnings) accumulated subsequent to
December 31, 1945. As of December 31, 2017, approximately
$343.3 million was available for the payment of dividends under this
covenant.
See Footnotes 9 and 10 of the
Notes to Consolidated Financial Statements for long-term debt and lines of
credit dividend restrictions.
Schedule II
MGE Energy, Inc. and Madison Gas and
Electric Company
Valuation and Qualifying Accounts
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Additions |
|
|
|
|
|
|
|
Balance at Beginning
of Period |
|
Charged to Costs and
Expenses |
Charged to
Other Accounts |
|
Net Accounts Written
Off(a) |
|
Balance at End of
Period |
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year 2015: |
|
|
|
|
|
|
|
|
|
|
Accumulated provision for
uncollectibles |
$ |
4,748,657 |
|
595,500 |
25,500 |
|
(1,675,577) |
$ |
3,694,080 |
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year 2016: |
|
|
|
|
|
|
|
|
|
|
Accumulated provision for
uncollectibles |
$ |
3,694,080 |
|
1,195,500 |
19,500 |
|
(1,465,784) |
$ |
3,443,296 |
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year 2017: |
|
|
|
|
|
|
|
|
|
|
Accumulated provision for
uncollectibles |
$ |
3,443,296 |
|
1,015,970 |
20,400 |
|
(1,304,721) |
$ |
3,174,945 |
|
|
|
|
|
|
|
|
|
|
|
|
(a) Net of recovery of amounts
previously written off. |
|
|
|
|
|
|
|
Signatures - MGE Energy,
Inc.
Pursuant to the requirements of Section 13 or 15(d) 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. |
|
(Registrant) |
|
|
|
|
Date: February 23, 2018 |
/s/ Jeffrey M. Keebler |
|
|
President and Chief Executive
Officer |
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities indicated on February 23,
2018.
|
| |
|
/s/ Jeffrey M. Keebler |
Jeffrey M. Keebler
President and Chief Executive Officer and
Director
(Principal Executive Officer) |
|
|
|
|
/s/ Jeffrey C. Newman |
Jeffrey C. Newman
Executive Vice President, Chief Financial Officer,
Secretary and Treasurer
(Principal Financial Officer and Principal
Accounting Officer) |
|
|
|
|
/s/ Gary J. Wolter |
Gary J. Wolter, Chairman and Director |
|
|
|
|
/s/ Mark D. Bugher |
Mark D. Bugher, Director |
|
|
|
|
/s/ Londa J. Dewey |
Londa J. Dewey, Director |
|
|
|
|
/s/ F. Curtis Hastings |
F. Curtis Hastings, Director |
|
|
|
|
/s/ Regina M. Millner |
Regina M. Millner, Director |
|
|
|
|
/s/ John R. Nevin |
John R. Nevin, Director |
|
|
|
|
/s/ James L. Possin |
James L. Possin, Director |
|
|
|
|
/s/ Thomas R. Stolper |
Thomas R. Stolper, Director |
Signatures - Madison Gas
and Electric Company
Pursuant to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned, hereunto duly authorized.
|
| |
|
|
Madison Gas and Electric Company |
|
(Registrant) |
|
|
|
|
Date: February 23, 2018 |
/s/ Jeffrey M. Keebler |
|
|
President and Chief Executive
Officer |
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities indicated on February 23,
2018.
|
| |
|
/s/ Jeffrey M. Keebler |
Jeffrey M. Keebler
President and Chief Executive Officer and
Director
(Principal Executive Officer) |
|
|
|
|
/s/ Jeffrey C. Newman |
Jeffrey C. Newman
Executive Vice President, Chief Financial Officer,
Secretary and Treasurer
(Principal Financial Officer and Principal
Accounting Officer) |
|
|
|
|
/s/ Gary J. Wolter |
Gary J. Wolter, Chairman and Director |
|
|
|
|
/s/ Mark D. Bugher |
Mark D. Bugher, Director |
|
|
|
|
/s/ Londa J. Dewey |
Londa J. Dewey, Director |
|
|
|
|
/s/ F. Curtis Hastings |
F. Curtis Hastings, Director |
|
|
|
|
/s/ Regina M. Millner |
Regina M. Millner, Director |
|
|
|
|
/s/ John R. Nevin |
John R. Nevin, Director |
|
|
|
|
/s/ James L. Possin |
James L. Possin, Director |
|
|
|
|
/s/ Thomas R. Stolper |
Thomas R. Stolper, Director |