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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:

March 31, 2022

 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 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 April 30, 2022

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.).

 

1


 

Table of Contents

PART I. FINANCIAL INFORMATION

3

Filing Format

3

Forward-Looking Statements

3

Where to Find More Information

3

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

4

Item 1. Financial Statements.

6

MGE Energy, Inc.

6

Consolidated Statements of Income (unaudited)

6

Consolidated Statements of Cash Flows (unaudited)

7

Consolidated Balance Sheets (unaudited)

8

Consolidated Statements of Common Equity (unaudited)

9

Madison Gas and Electric Company

10

Consolidated Statements of Income (unaudited)

10

Consolidated Statements of Cash Flows (unaudited)

11

Consolidated Balance Sheets (unaudited)

12

Consolidated Statements of Equity (unaudited)

13

MGE Energy, Inc., and Madison Gas and Electric Company - Notes to Consolidated Financial Statements (unaudited)

14

1. Summary of Significant Accounting Policies.

14

2. New Accounting Standards.

15

3. Investment in ATC and ATC Holdco.

15

4. Taxes.

16

5. Pension and Other Postretirement Plans.

16

6. Equity and Financing Arrangements.

17

7. Share-Based Compensation.

17

8. Commitments and Contingencies.

18

9. Rate Matters.

21

10. Derivative and Hedging Instruments.

22

11. Fair Value of Financial Instruments.

25

12. Joint Plant Construction Project Ownership.

28

13. Revenue.

29

14. Segment Information.

30

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

31

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

44

Item 4. Controls and Procedures.

47

PART II. OTHER INFORMATION.

48

Item 1. Legal Proceedings.

48

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

48

Item 3. Defaults Upon Senior Securities.

48

Item 4. Mine Safety Disclosures.

48

Item 5. Other Information.

48

Item 6. Exhibits.

49

Signatures - MGE Energy, Inc.

50

Signatures - Madison Gas and Electric Company

51

 

2


 

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, and words relating to goals, targets and projections, generally identify forward-looking statements. Both MGE Energy and MGE caution investors that these forward-looking statements are subject to known and unknown risks and uncertainties that may cause actual results to differ materially from those projected, expressed, or implied.

 

The factors that could cause actual results to differ materially from the forward-looking statements made by a registrant include: (a) those factors discussed in the registrants' 2021 Annual Report on Form 10-K: Item 1A. Risk Factors, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, as updated by Part I, Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations in this report, and Item 8. Financial Statements and Supplementary Data – Note 16, as updated by Part I, Item 1. Financial Statements – Note 8 in this report, and (b) other factors discussed herein and in other filings made by that registrant with the SEC.

 

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

 

Where to Find More Information

 

We file annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K and other information with the SEC. The SEC maintains an internet site at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.

MGE Energy maintains a website at mgeenergy.com, and MGE maintains a website at mge.com. Copies of the reports and other information that we file with the SEC may be obtained from our websites free of charge. Information contained on MGE Energy's and MGE's websites shall not be deemed incorporated into, or to be a part of, this report.
 

3


 

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:

 

 

 

CWDC

Central Wisconsin Development Corporation

MAGAEL

MAGAEL, LLC

MGE

Madison Gas and Electric Company

MGE Energy

MGE Energy, Inc.

MGE Power

MGE Power, LLC

MGE Power Elm Road

MGE Power Elm Road, LLC

MGE Power West Campus

MGE Power West Campus, LLC

MGE Services

MGE Services, LLC

MGE State Energy Services

MGE State Energy Services, LLC

MGE Transco

MGE Transco Investment, LLC

MGEE Transco

MGEE Transco, LLC

North Mendota

North Mendota Energy & Technology Park, LLC

 

 

Other Defined Terms:

 

 

 

2017 Tax Act

Tax Cut and Jobs Act of 2017

2021 Annual Report on Form 10-K

MGE Energy’s and MGE’s Annual Report of Form 10-K for the year ended December 31, 2021

2021 Plan

MGE Energy's 2021 Long-Term Incentive Plan

AFUDC

Allowance for Funds Used During Construction

ATC

American Transmission Company LLC

ATC Holdco

ATC Holdco, LLC

Badger Hollow I

Badger Hollow I Solar Farm

Badger Hollow II

Badger Hollow II Solar Farm

Blount

Blount Station

BTA

Best technology available

CA

Certificate of Authority

CBP

United States Customs and Border Protection

CCR

Coal Combustion Residual

Columbia

Columbia Energy Center

COVID-19

Coronavirus Disease 2019

CSAPR

Cross-State Air Pollution Rule

Dth

Dekatherms, a quantity measure for natural gas

EGU

Electric generating unit

ELG

Effluent Limitations Guidelines

electric margin

Electric revenues less fuel for electric generation and purchased power costs, a non-GAAP measure

Elm Road Units

Elm Road Generating Station

EPA

United States Environmental Protection Agency

FERC

Federal Energy Regulatory Commission

FIP

Federal Implementation Plan

FTR

Financial Transmission Rights

GAAP

Generally Accepted Accounting Principles

gas margin

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

GHG

Greenhouse gas

heating degree days (HDD)

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

IRS

Internal Revenue Service

kWh

Kilowatt-hour, a measure of electric energy produced

MISO

Midcontinent Independent System Operator (a regional transmission organization)

MW

Megawatt, a measure of electric energy generating capacity

MWh

Megawatt-hour, a measure of electric energy produced

NAAQS

National Ambient Air Quality Standards

NOx

Nitrogen oxide

PGA

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

PPA

Purchased Power Agreement

 

4


 

PSCW

Public Service Commission of Wisconsin

ROE

Return on equity

Saratoga

Saratoga Wind Farm

SCR

Selective Catalytic Reduction

SEC

Securities and Exchange Commission

SIP

State Implementation Plan

SO2

Sulfur dioxide

Stock Plan

Direct Stock Purchase and Dividend Reinvestment Plan of MGE Energy

Two Creeks

Two Creeks Solar Farm

WCCF

West Campus Cogeneration Facility

WDNR

Wisconsin Department of Natural Resources

WEPCO

Wisconsin Electric Power Company

West Riverside

West Riverside Energy Center in Beloit, Wisconsin

working capital

Current assets less current liabilities

WPL

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

WRO

Withhold Release Order

XBRL

eXtensible Business Reporting Language

 

5


 

Item 1. Financial Statements.

MGE Energy, Inc.

Consolidated Statements of Income (unaudited)

(In thousands, except per share amounts)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2022

 

 

2021

 

Operating Revenues:

 

 

 

 

 

 

Electric revenues

 

$

110,127

 

 

$

100,645

 

Gas revenues

 

 

98,811

 

 

 

67,270

 

Total Operating Revenues

 

 

208,938

 

 

 

167,915

 

 

 

 

 

 

 

 

Operating Expenses:

 

 

 

 

 

 

Fuel for electric generation

 

 

13,485

 

 

 

13,171

 

Purchased power

 

 

12,543

 

 

 

9,355

 

Cost of gas sold

 

 

64,802

 

 

 

37,444

 

Other operations and maintenance

 

 

49,994

 

 

 

45,682

 

Depreciation and amortization

 

 

21,046

 

 

 

18,382

 

Other general taxes

 

 

5,205

 

 

 

4,827

 

Total Operating Expenses

 

 

167,075

 

 

 

128,861

 

Operating Income

 

 

41,863

 

 

 

39,054

 

 

 

 

 

 

 

 

Other income, net

 

 

6,972

 

 

 

2,078

 

Interest expense, net

 

 

(6,571

)

 

 

(5,740

)

Income before income taxes

 

 

42,264

 

 

 

35,392

 

Income tax provision

 

 

(7,844

)

 

 

(459

)

Net Income

 

$

34,420

 

 

$

34,933

 

 

 

 

 

 

 

 

Earnings Per Share of Common Stock

 

 

 

 

 

 

Basic

 

$

0.95

 

 

$

0.97

 

Diluted

 

$

0.95

 

 

$

0.97

 

 

 

 

 

 

 

 

Dividends per share of common stock

 

$

0.388

 

 

$

0.370

 

 

 

 

 

 

 

 

Weighted Average Shares Outstanding

 

 

 

 

 

 

Basic

 

 

36,163

 

 

 

36,163

 

Diluted

 

 

36,171

 

 

 

36,165

 

 

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

6


 

MGE Energy, Inc.

Consolidated Statements of Cash Flows (unaudited)

(In thousands)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2022

 

 

2021

 

Operating Activities:

 

 

 

 

 

 

Net income

 

$

34,420

 

 

$

34,933

 

Items not affecting cash:

 

 

 

 

 

 

Depreciation and amortization

 

 

21,046

 

 

 

18,382

 

Deferred income taxes

 

 

5,606

 

 

 

(796

)

Provision for doubtful receivables

 

 

441

 

 

 

388

 

Employee benefit plan cost (credit)

 

 

(1,678

)

 

 

1,461

 

Equity earnings in investments

 

 

(2,504

)

 

 

(2,444

)

Other items

 

 

(486

)

 

 

(277

)

Changes in working capital items:

 

 

 

 

 

 

Decrease (increase) in current assets

 

 

12,332

 

 

 

(2,851

)

Decrease in current liabilities

 

 

(7,115

)

 

 

(4,213

)

Dividends from investments

 

 

2,001

 

 

 

1,967

 

Cash contributions to pension and other postretirement plans

 

 

(1,660

)

 

 

(1,552

)

Other noncurrent items, net

 

 

(304

)

 

 

(1,115

)

Cash Provided by Operating Activities

 

 

62,099

 

 

 

43,883

 

 

 

 

 

 

 

 

Investing Activities:

 

 

 

 

 

 

Capital expenditures

 

 

(30,778

)

 

 

(34,746

)

Capital contributions to investments

 

 

(1,546

)

 

 

(670

)

Other

 

 

155

 

 

 

(419

)

Cash Used for Investing Activities

 

 

(32,169

)

 

 

(35,835

)

 

 

 

 

 

 

 

Financing Activities:

 

 

 

 

 

 

Cash dividends paid on common stock

 

 

(14,013

)

 

 

(13,380

)

Repayments of long-term debt

 

 

(1,211

)

 

 

(1,182

)

(Repayments of) proceeds from short-term debt

 

 

(5,500

)

 

 

1,500

 

Other

 

 

(492

)

 

 

(523

)

Cash Used for Financing Activities

 

 

(21,216

)

 

 

(13,585

)

 

 

 

 

 

 

 

Change in cash, cash equivalents, and restricted cash

 

 

8,714

 

 

 

(5,537

)

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

 

 

18,835

 

 

 

47,039

 

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

 

$

27,549

 

 

$

41,502

 

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

Significant noncash investing activities:

 

 

 

 

 

 

Accrued capital expenditures

 

$

6,735

 

 

$

8,843

 

 

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

7


 

MGE Energy, Inc.

Consolidated Balance Sheets (unaudited)

(In thousands)

 

 

 

March 31,

 

 

December 31,

 

ASSETS

 

2022

 

 

2021

 

Current Assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

26,374

 

 

$

17,438

 

Accounts receivable, less reserves of $8,952 and $6,940, respectively

 

 

50,167

 

 

 

46,205

 

Other accounts receivable, less reserves of $1,213 and $1,364, respectively

 

 

15,244

 

 

 

16,094

 

Unbilled revenues

 

 

30,839

 

 

 

34,812

 

Materials and supplies, at average cost

 

 

30,951

 

 

 

29,863

 

Fuel for electric generation, at average cost

 

 

6,331

 

 

 

6,429

 

Stored natural gas, at average cost

 

 

5,580

 

 

 

15,668

 

Prepaid taxes

 

 

15,487

 

 

 

20,214

 

Regulatory assets - current

 

 

2,205

 

 

 

1,465

 

Other current assets

 

 

11,255

 

 

 

11,183

 

Total Current Assets

 

 

194,433

 

 

 

199,371

 

Other long-term receivables

 

 

691

 

 

 

1,155

 

Regulatory assets

 

 

108,271

 

 

 

107,547

 

Pension benefit asset

 

 

62,806

 

 

 

58,757

 

Other deferred assets and other

 

 

26,697

 

 

 

27,548

 

Property, Plant, and Equipment:

 

 

 

 

 

 

Property, plant, and equipment, net

 

 

1,843,122

 

 

 

1,828,171

 

Construction work in progress

 

 

40,156

 

 

 

50,603

 

Total Property, Plant, and Equipment

 

 

1,883,278

 

 

 

1,878,774

 

Investments

 

 

101,365

 

 

 

98,754

 

Total Assets

 

$

2,377,541

 

 

$

2,371,906

 

 

 

 

 

 

 

 

LIABILITIES AND CAPITALIZATION

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

Long-term debt due within one year

 

$

4,920

 

 

$

4,889

 

Short-term debt

 

 

 

 

 

5,500

 

Accounts payable

 

 

44,690

 

 

 

64,149

 

Accrued interest and taxes

 

 

9,265

 

 

 

10,385

 

Accrued payroll related items

 

 

9,296

 

 

 

12,951

 

Regulatory liabilities - current

 

 

24,557

 

 

 

9,365

 

Derivative liabilities

 

 

130

 

 

 

2,140

 

Other current liabilities

 

 

5,246

 

 

 

8,468

 

Total Current Liabilities

 

 

98,104

 

 

 

117,847

 

Other Credits:

 

 

 

 

 

 

Deferred income taxes

 

 

233,146

 

 

 

231,149

 

Investment tax credit - deferred

 

 

48,773

 

 

 

44,836

 

Regulatory liabilities

 

 

155,096

 

 

 

154,298

 

Accrued pension and other postretirement benefits

 

 

72,881

 

 

 

73,085

 

Finance lease liabilities

 

 

16,920

 

 

 

17,322

 

Other deferred liabilities and other

 

 

91,363

 

 

 

91,690

 

Total Other Credits

 

 

618,179

 

 

 

612,380

 

Capitalization:

 

 

 

 

 

 

Common shareholders' equity

 

 

1,048,153

 

 

 

1,027,468

 

Long-term debt

 

 

613,105

 

 

 

614,211

 

Total Capitalization

 

 

1,661,258

 

 

 

1,641,679

 

Commitments and contingencies (see Footnote 8)

 

 

 

 

 

 

Total Liabilities and Capitalization

 

$

2,377,541

 

 

$

2,371,906

 

 

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

8


 

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 March 31, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning Balance

 

 

36,163

 

 

 

$

36,163

 

 

$

394,408

 

 

$

545,429

 

 

$

 

 

$

976,000

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

34,933

 

 

 

 

 

 

34,933

 

Common stock dividends declared
   ($
0.370 per share)

 

 

 

 

 

 

 

 

 

 

 

 

(13,380

)

 

 

 

 

 

(13,380

)

Equity-based compensation plans and other

 

 

 

 

 

 

 

 

 

158

 

 

 

 

 

 

 

 

 

158

 

Ending Balance - March 31, 2021

 

 

36,163

 

 

 

$

36,163

 

 

$

394,566

 

 

$

566,982

 

 

$

 

 

$

997,711

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning Balance

 

 

36,163

 

 

 

$

36,163

 

 

$

394,903

 

 

$

596,402

 

 

$

 

 

$

1,027,468

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

34,420

 

 

 

 

 

 

34,420

 

Common stock dividends declared
   ($
0.388 per share)

 

 

 

 

 

 

 

 

 

 

 

 

(14,013

)

 

 

 

 

 

(14,013

)

Equity-based compensation plans and other

 

 

 

 

 

 

 

 

 

278

 

 

 

 

 

 

 

 

 

278

 

Ending Balance - March 31, 2022

 

 

36,163

 

 

 

$

36,163

 

 

$

395,181

 

 

$

616,809

 

 

$

 

 

$

1,048,153

 

 

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

9


 

Madison Gas and Electric Company

Consolidated Statements of Income (unaudited)

(In thousands)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2022

 

 

2021

 

Operating Revenues:

 

 

 

 

 

 

Electric revenues

 

$

110,127

 

 

$

100,645

 

Gas revenues

 

 

98,811

 

 

 

67,270

 

Total Operating Revenues

 

 

208,938

 

 

 

167,915

 

 

 

 

 

 

 

 

Operating Expenses:

 

 

 

 

 

 

Fuel for electric generation

 

 

13,485

 

 

 

13,171

 

Purchased power

 

 

12,543

 

 

 

9,355

 

Cost of gas sold

 

 

64,802

 

 

 

37,444

 

Other operations and maintenance

 

 

49,746

 

 

 

45,538

 

Depreciation and amortization

 

 

21,046

 

 

 

18,382

 

Other general taxes

 

 

5,205

 

 

 

4,827

 

Total Operating Expenses

 

 

166,827

 

 

 

128,717

 

Operating Income

 

 

42,111

 

 

 

39,198

 

 

 

 

 

 

 

 

Other income (expense), net

 

 

3,519

 

 

 

(104