Form 10-Q

United States SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended: September 30, 2020 ☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _______________ to _______________
Commission File No.	Name of Registrant, State of Incorporation, Address of Principal Executive Offices, and Telephone No.	IRS Employer Identification No.
000-49965	MGE Energy, Inc. (a Wisconsin Corporation) 133 South Blair Street Madison, Wisconsin 53788 (608) 252-7000 \| mgeenergy.com	39-2040501
000-1125	Madison Gas and Electric Company (a Wisconsin Corporation) 133 South Blair Street Madison, Wisconsin 53788 (608) 252-7000 \| mge.com	39-0444025

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

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

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

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

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

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

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

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

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

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

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

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

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

Table of Contents

PART I. FINANCIAL INFORMATION3

Filing Format3

Forward-Looking Statements3

Where to Find More Information3

Definitions, Abbreviations, and Acronyms Used in the Text and Notes of this Report4

Item 1. Financial Statements.6

MGE Energy, Inc.6

Consolidated Statements of Income (unaudited)6

Consolidated Statements of Cash Flows (unaudited)7

Consolidated Balance Sheets (unaudited)8

Consolidated Statements of Common Equity (unaudited)9

Madison Gas and Electric Company10

Consolidated Statements of Income (unaudited)10

Consolidated Statements of Cash Flows (unaudited)11

Consolidated Balance Sheets (unaudited)12

Consolidated Statements of Equity (unaudited)13

MGE Energy, Inc., and Madison Gas and Electric Company14

Notes to Consolidated Financial Statements (unaudited)14

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

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

Item 4. Controls and Procedures.56

PART II. OTHER INFORMATION.57

Item 1. Legal Proceedings.57

Item1A. Risk Factors.57

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

Item 4. Mine Safety Disclosures.59

Item 5. Other Information.59

Item 6. Exhibits.59

Signatures - MGE Energy, Inc.60

Signatures - Madison Gas and Electric Company61

PART I. FINANCIAL INFORMATION.

Filing Format

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

Forward-Looking Statements

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

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

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

Where to Find More Information

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

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

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

MGE Energy and Subsidiaries:

CWDCCentral Wisconsin Development Corporation

MAGAELMAGAEL, LLC

MGEMadison Gas and Electric Company

MGE EnergyMGE Energy, Inc.

MGE PowerMGE Power, LLC

MGE Power Elm RoadMGE Power Elm Road, LLC

MGE Power West CampusMGE Power West Campus, LLC

MGE ServicesMGE Services, LLC

MGE State Energy ServicesMGE State Energy Services, LLC

MGE TranscoMGE Transco Investment, LLC

MGEE TranscoMGEE Transco, LLC

North MendotaNorth Mendota Energy & Technology Park, LLC

Other Defined Terms:

2006 PlanMGE Energy's 2006 Performance Unit Plan

2013 PlanMGE Energy's 2013 Director Incentive Plan

2020 PlanMGE Energy's 2020 Performance Unit Plan

ACEAffordable Clean Energy

AFUDCAllowance for Funds Used During Construction

ATCAmerican Transmission Company LLC

ATC HoldcoATC Holdco, LLC

Badger Hollow IBadger Hollow I Solar Farm

Badger Hollow IIBadger Hollow II Solar Farm

BARTBest Available Retrofit Technology

BATBest Available Technology

BlountBlount Station

BSERBest System of Emissions Reductions

CAVRClean Air Visibility Rule

CCRCoal Combustion Residual

codificationFinancial Accounting Standards Board Accounting Standards Codification

ColumbiaColumbia Energy Center

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

COVID-19Coronavirus Disease 2019

CSAPRCross-State Air Pollution Rule

DthDekatherms, a quantity measure for natural gas

EGUsElectric Generating Units

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

Elm Road UnitsElm Road Generating Station

EPAUnited States Environmental Protection Agency

FERCFederal Energy Regulatory Commission

FTRFinancial Transmission Rights

GAAPGenerally Accepted Accounting Principles

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

GHGGreenhouse Gas

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

IRSInternal Revenue Service

kWhKilowatt-hour, a measure of electric energy produced

MISOMidcontinent Independent System Operator (a regional transmission organization)

MWMegawatt, a measure of electric energy generating capacity

MWhMegawatt-hour, a measure of electric energy produced

NAAQSNational Ambient Air Quality Standards

NO_xNitrogen Oxide

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

PHMDCPublic Health Madison & Dane County

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

PPAPurchased Power Agreement

PSCWPublic Service Commission of Wisconsin

RiversideRiverside Energy Center

ROEReturn on Equity

SaratogaSaratoga Wind Farm

SCRSelective Catalytic Reduction

SECSecurities and Exchange Commission

SO₂Sulfur Dioxide

Stock PlanDirect Stock Purchase and Dividend Reinvestment Plan of MGE Energy

Tax ActTax Cuts and Jobs Act

Two CreeksTwo Creeks Solar Farm

VIEVariable Interest Entity

WCCFWest Campus Cogeneration Facility

WDNRWisconsin Department of Natural Resources

working capitalCurrent assets less current liabilities

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

XBRLeXtensible Business Reporting Language

Item 1. Financial Statements.

MGE Energy, Inc.

Consolidated Statements of Income (unaudited)

(In thousands, except per share amounts)

		Three Months Ended				Nine Months Ended
		September 30,				September 30,
		2020		2019		2020		2019
Operating Revenues:
Electric revenues	$	116,568	$	120,821	$	303,556	$	315,367
Gas revenues		18,643		17,377		98,568		112,547
Total Operating Revenues		135,211		138,198		402,124		427,914

Operating Expenses:
Fuel for electric generation		12,945		15,901		31,343		40,221
Purchased power		10,708		9,126		32,050		31,013
Cost of gas sold		3,812		3,092		40,950		55,220
Other operations and maintenance		45,819		48,070		136,412		143,979
Depreciation and amortization		18,592		18,193		55,193		53,423
Other general taxes		5,010		5,078		14,892		15,026
Total Operating Expenses		96,886		99,460		310,840		338,882
Operating Income		38,325		38,738		91,284		89,032

Other income, net		6,534		5,204		19,131		15,074
Interest expense, net		(5,765)		(5,831)		(17,740)		(17,227)
Income before income taxes		39,094		38,111		92,675		86,879
Income tax provision		(7,300)		(7,454)		(16,053)		(16,667)
Net Income	$	31,794	$	30,657	$	76,622	$	70,212

Earnings Per Share of Common Stock
(basic and diluted)	$	0.88	$	0.88	$	2.16	$	2.03

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

Weighted Average Shares Outstanding
(basic and diluted)		36,163		34,668		35,427		34,668

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

MGE Energy, Inc.

Consolidated Statements of Cash Flows (unaudited)

(In thousands)


		Nine Months Ended
		September 30,
		2020		2019
Operating Activities:
Net income	$	76,622	$	70,212
Items not affecting cash:
Depreciation and amortization		55,193		53,423
Deferred income taxes		8,464		4,864
Provision for doubtful receivables		1,078		978
Employee benefit plan credit		(2,813)		(2,866)
Equity earnings in investments		(7,780)		(6,879)
Other items		382		692
Changes in working capital items:
Decrease in current assets		5,494		14,307
Decrease in current liabilities		(8,808)		(24,088)
Dividends from investments		6,929		5,526
Cash contributions to pension and other postretirement plans		(4,576)		(3,707)
Other noncurrent items, net		5,826		(760)
Cash Provided by Operating Activities		136,011		111,702

Investing Activities:
Capital expenditures		(139,055)		(128,389)
Capital contributions to investments		(4,007)		(5,894)
Other		(1,298)		(248)
Cash Used for Investing Activities		(144,360)		(134,531)

Financing Activities:
Issuance of common stock, net		79,635		-
Cash dividends paid on common stock		(38,349)		(35,622)
Repayments of long-term debt		(22,784)		(3,405)
Issuance of long-term debt		19,300		-
Net proceeds from short-term debt		-		41,500
Other		(1,175)		(1,331)
Cash Provided by Financing Activities		36,627		1,142

Change in cash, cash equivalents, and restricted cash		28,278		(21,687)
Cash, cash equivalents, and restricted cash at beginning of period		25,814		84,929
Cash, cash equivalents, and restricted cash at end of period	$	54,092	$	63,242

Supplemental disclosures of cash flow information:
Significant noncash investing activities:
Accrued capital expenditures	$	23,594	$	16,819

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

MGE Energy, Inc.

Consolidated Balance Sheets (unaudited)

(In thousands)


		September 30,	December 31,
ASSETS		2020		2019
Current Assets:
Cash and cash equivalents	$	53,058	$	23,481
Accounts receivable, less reserves of $4,636 and $2,820, respectively		39,177		40,482
Other accounts receivable, less reserves of $1,248 and $438 , respectively		9,828		7,940
Unbilled revenues		20,029		25,899
Materials and supplies, at average cost		33,608		26,287
Fuel for electric generation, at average cost		5,793		8,358
Stored natural gas, at average cost		10,022		10,637
Prepaid taxes		11,759		16,892
Regulatory assets - current		7,845		11,432
Other current assets		8,814		10,233
Total Current Assets		199,933		181,641
Other long-term receivables		1,662		1,811
Regulatory assets		126,929		134,314
Pension benefit asset		21,848		13,630
Other deferred assets and other		18,087		19,093
Property, Plant, and Equipment:
Property, plant, and equipment, net		1,536,567		1,530,199
Construction work in progress		197,594		112,484
Total Property, Plant, and Equipment		1,734,161		1,642,683
Investments		93,106		88,492
Total Assets	$	2,195,726	$	2,081,664

LIABILITIES AND CAPITALIZATION
Current Liabilities:
Long-term debt due within one year	$	19,742	$	19,659
Accounts payable		56,054		55,161
Accrued interest and taxes		5,789		7,244
Accrued payroll related items		11,625		12,752
Regulatory liabilities - current		3,585		9,228
Derivative liabilities		9,640		10,100
Other current liabilities		9,045		14,676
Total Current Liabilities		115,480		128,820
Other Credits:
Deferred income taxes		253,411		243,302
Investment tax credit - deferred		2,692		763
Regulatory liabilities		171,637		164,965
Accrued pension and other postretirement benefits		68,632		68,665
Derivative liabilities		6,340		15,340
Finance lease liabilities		17,795		17,379
Other deferred liabilities and other		65,772		63,013
Total Other Credits		586,279		573,427
Capitalization:
Common shareholders' equity		973,584		855,676
Long-term debt		520,383		523,741
Total Capitalization		1,493,967		1,379,417
Commitments and contingencies (see Footnote 8)
Total Liabilities and Capitalization	$	2,195,726	$	2,081,664

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

MGE Energy, Inc.

Consolidated Statements of Common Equity (unaudited)

(In thousands, except per share amounts)


									Accumulated
					Additional				Other
	Common Stock				Paid-in		Retained		Comprehensive
	Shares		Value		Capital		Earnings		Income/(Loss)		Total
Three Months Ended September 30, 2019
Beginning Balance	34,668	$	34,668	$	316,268	$	481,861	$	-	$	832,797
Net income							30,657				30,657
Common stock dividends declared
($0.353 per share)							(12,220)				(12,220)
Ending Balance - September 30, 2019	34,668	$	34,668	$	316,268	$	500,298	$	-	$	851,234

Three Months Ended September 30, 2020
Beginning Balance	36,163	$	36,163	$	394,408	$	524,600	$	-	$	955,171
Net income							31,794				31,794
Common stock dividends declared
($0.3700 per share)							(13,381)				(13,381)
Ending Balance - September 30, 2020	36,163	$	36,163	$	394,408	$	543,013	$	-	$	973,584


Nine Months Ended September 30, 2019
Beginning Balance	34,668	$	34,668	$	316,268	$	465,708	$	-	$	816,644
Net income							70,212				70,212
Common stock dividends declared
($1.028 per share)							(35,622)				(35,622)
Ending Balance - September 30, 2019	34,668	$	34,668	$	316,268	$	500,298	$	-	$	851,234

Nine Months Ended September 30, 2020
Beginning Balance	34,668	$	34,668	$	316,268	$	504,740	$	-	$	855,676
Net income							76,622				76,622
Common stock dividends declared
($1.075 per share)							(38,349)				(38,349)
Common stock issued, net	1,495		1,495		78,140						79,635
Ending Balance - September 30, 2020	36,163	$	36,163	$	394,408	$	543,013	$	-	$	973,584

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

Madison Gas and Electric Company

Consolidated Statements of Income (unaudited)

(In thousands)


		Three Months Ended				Nine Months Ended
		September 30,				September 30,
		2020		2019		2020		2019
Operating Revenues:
Electric revenues	$	116,568	$	120,821	$	303,556	$	315,367
Gas revenues		18,643		17,377		98,568		112,547
Total Operating Revenues		135,211		138,198		402,124		427,914

Operating Expenses:
Fuel for electric generation		12,945		15,901		31,343		40,221
Purchased power		10,708		9,126		32,050		31,013
Cost of gas sold		3,812		3,092		40,950		55,220
Other operations and maintenance		45,591		47,947		135,634		143,282
Depreciation and amortization		18,592		18,193		55,193		53,423
Other general taxes		5,010		5,078		14,892		15,026
Total Operating Expenses		96,658		99,337		310,062		338,185
Operating Income		38,553		38,861		92,062		89,729

Other income, net		4,093		2,672		11,005		7,837
Interest expense, net		(5,802)		(6,095)		(17,848)		(18,223)
Income before income taxes		36,844		35,438		85,219		79,343
Income tax provision		(6,611)		(6,687)		(14,028)		(14,579)
Net Income	$	30,233	$	28,751	$	71,191	$	64,764
Less: Net Income Attributable to Noncontrolling
Interest, net of tax		(5,493)		(5,614)		(16,754)		(16,725)
Net Income Attributable to MGE	$	24,740	$	23,137	$	54,437	$	48,039

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

Madison Gas and Electric Company

Consolidated Statements of Cash Flows (unaudited)

(In thousands)


		Nine Months Ended
		September 30,
		2020		2019
Operating Activities:
Net income	$	71,191	$	64,764
Items not affecting cash:
Depreciation and amortization		55,193		53,423