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United States

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended:

December 31, 2023

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

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

 

 

Title of Class

 

Trading Symbol

Name of Each Exchange on which Registered

MGE Energy, Inc.

Common Stock, $1 Par Value Per Share

MGEE

The NASDAQ Stock Market

 

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

 

Title of Class

Madison Gas and Electric Company

Common Stock, $1 Par Value Per Share

 

Indicate by check mark if the registrants are well-known seasoned issuers, as defined in Rule 405 of the Securities Act.

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

 

Indicate by check mark if the registrants are not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

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

 

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 the 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 checkmark if the registrants have elected not to use the extended transition period for complying with any new or revised financial reporting 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 registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.

MGE Energy, Inc. Madison Gas and Electric Company

 

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.

MGE Energy, Inc. Madison Gas and Electric Company

 

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b).

MGE Energy, Inc.Madison Gas and Electric Company

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

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

 

The aggregate market value of the voting and nonvoting common equity held by nonaffiliates of each registrant as of June 30, 2023 was as follows:

MGE Energy, Inc.

$2,854,990,012

Madison Gas and Electric Company

$0

 

The number of shares outstanding of each registrant's common stock as of January 31, 2024, were as follows:

MGE Energy, Inc.

36,168,310

Madison Gas and Electric Company

17,347,894

 

DOCUMENTS INCORPORATED BY REFERENCE

 

Portions of MGE Energy, Inc.'s definitive proxy statement to be filed before April 29, 2024, 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 10 relating to Directors and Executive Officers as permitted by General Instruction (I)(2)(c), (iii.) the information otherwise required by Item 11 relating to Executive Compensation as permitted by General Instruction (I)(2)(c), (iv.) 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 (v.) the information otherwise required by Item 13 relating to Certain Relationships and Related Transactions as permitted by General Instruction (I)(2)(c).


 

Table of Contents

 

 

Filing Format.

4

Forward-Looking Statements.

4

Where to Find More Information.

4

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

5

PART I.

7

 

Item 1. Business.

7

 

Item 1A. Risk Factors.

19

 

Item 1B. Unresolved Staff Comments.

27

 

Item 1C. Cybersecurity.

27

 

Item 2. Properties.

29

 

Item 3. Legal Proceedings.

31

 

Item 4. Mine Safety Disclosures.

31

PART II.

32

 

Item 5. Market for Registrants' Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities.

32

 

Item 6. [Reserved].

32

 

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

33

 

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

51

 

Item 8. Financial Statements and Supplementary Data.

53

 

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

108

 

Item 9A. Controls and Procedures.

108

 

Item 9B. Other Information.

108

 

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.

108

PART III.

109

 

Item 10. Directors, Executive Officers, and Corporate Governance.

109

 

Item 11. Executive Compensation.

109

 

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

109

 

Item 13. Certain Relationships and Related Transactions, and Director Independence.

110

 

Item 14. Principal Accounting Fees and Services.

110

PART IV.

111

 

Item 15. Exhibits and Financial Statement Schedules.

111

 

Item 16. Form 10-K Summary.

114

 

Signatures - MGE Energy, Inc.

119

 

Signatures - Madison Gas and Electric Company.

120

 

3


 

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 and rate recovery, financial resources, regulatory matters, and the scope and expense associated with future environmental regulation. These forward-looking statements are made pursuant to the provisions of the Private Securities Litigation Reform Act of 1995. Words such as "believe," "expect," "anticipate," "estimate," "could," "should," "intend," "will," "commit," "target," and other similar words, and words relating to goals, targets and projections, generally identify forward-looking statements. Both MGE Energy and MGE caution investors that these forward-looking statements are subject to known and unknown risks and uncertainties that may cause actual results to differ materially from those projected, expressed, or implied.

 

The factors that could cause actual results to differ materially from the forward-looking statements made by a registrant include (a) those factors discussed in 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 16. 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

 

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.

4


 

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 Cuts and Jobs Act of 2017

2020 Plan

MGE Energy's 2020 Performance Unit Plan

2021 Incentive Plan

MGE Energy's 2021 Long-Term Incentive Plan

AFUDC

Allowance for Funds Used During Construction

ANR

ANR Pipeline

ARO

Asset Retirement Obligation

ATC

American Transmission Company LLC

ATC Holdco

ATC Holdco, LLC

Badger Hollow I

Badger Hollow I Solar Farm

Badger Hollow II

Badger Hollow II Solar Farm

BART

Best Available Retrofit Technology

Blount

Blount Station

BTA

Best Technology Available

CA

Certificate of Authority

CASAC

Clean Air Scientific Advisory Committee

CBP

United States Customs and Border Patrol

CCR

Coal Combustion Residual

CO2

Carbon Dioxide

codification

Financial Accounting Standards Board Accounting Standards Codification

Columbia

Columbia Energy Center

Cooling degree days (CDD)

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

COVID-19

Coronavirus Disease 2019 and its variants

COSO

Committee of Sponsoring Organizations

CSAPR

Cross-State Air Pollution Rule

CWA

Clean Water Act

D.C. Circuit

United States Court of Appeals for the District of Columbia Circuit

Darien

Darien Solar Energy Center

Dth

Dekatherms

EEI

Edison Electric Institute

ELG

Effluent Limitations Guidelines

Elm Road Units

Elm Road Generating Station

EPA

United States Environmental Protection Agency

ERM

Enterprise Risk Management

EV

Electric vehicles

FASB

Financial Accounting Standards Board

FERC

Federal Energy Regulatory Commission

Forward Wind

Forward Wind Energy Center

FTR

Financial Transmission Rights

GAAP

Generally Accepted Accounting Principles

GHG

Greenhouse Gas

heating degree days (HDD)

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

High Noon

High Noon Solar Project

ICF

Insurance Continuance Fund

5


 

IPCC

Intergovernmental Panel on Climate Change

IRA

Inflation Reduction Act

IRS

Internal Revenue Service

Koshkonong

Koshkonong Solar Energy Center

kVA

Kilovolt Ampere

KW

Kilowatt, a measure of electric energy generating capacity

kWh

Kilowatt-hour

MISO

Midcontinent Independent System Operator, Inc. (a regional transmission organization)

MW

Megawatt

MWh

Megawatt-hour

NAAQS

National Ambient Air Quality Standards

Nasdaq

The Nasdaq Stock Market

NERC

North American Electric Reliability Corporation

NNG

Northern Natural Gas Company

NOx

Nitrogen Oxides

NYSE

New York Stock Exchange

O'Brien

O'Brien Solar Fields

OSCE

State of Wisconsin's Office of Sustainability and Clean Energy

Paris

Paris Solar and Battery Park

Paris Agreement

Paris Agreement under the United Nations Framework Convention on Climate Change

PCAOB

Public Company Accounting Oversight Board

PCBs

Polychlorinated Biphenyls

PFAS

Polyfluoroalkyl substances

the Petition

Petition for Judicial Review of Agency Action

PGA

Purchased Gas Adjustment clause

PM

Particulate Matter

PPA

Purchased power agreement

PSCW

Public Service Commission of Wisconsin

REC

Renewable Energy Credit

Red Barn

Red Barn Wind Farm

RER

Renewable Energy Rider

ROE

Return on Equity

RTO

Regional Transmission Organization

Saratoga

Saratoga Wind Farm

SEC

Securities and Exchange Commission

SIP

State Implementation Plan

SO2

Sulfur Dioxide

SOFR

Secured Overnight Funding Rate

the State

State of Wisconsin

Stock Plan

Direct Stock Purchase and Dividend Reinvestment Plan of MGE Energy

Two Creeks

Two Creeks Solar Farm

UFLPA

Uyghur Forced Protection Act

UW

University of Wisconsin at Madison

VIE

Variable Interest Entity

WCCF

West Campus Cogeneration Facility

WDNR

Wisconsin Department of Natural Resources

WEPCO

Wisconsin Electric Power Company, a subsidiary of WEC Energy Group, Inc.

West Riverside

West Riverside Energy Center in Beloit, Wisconsin

working capital

Current assets less current liabilities

WOTUS

Waters of the United States

WPDES

Wisconsin Pollutant Discharge Elimination System

WPL

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

WPSC

Wisconsin Public Service Corporation

WRO

Withhold Release Order

WRERA

Worker, Retiree and Employer Recovery Act of 2008

XBRL

eXtensible Business Reporting Language

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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, North Mendota, 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. Our principal offices are located at 133 South Blair Street, Madison, Wisconsin 53788, and our telephone number is (608) 252-7000.

 

Electric Utility Operations

 

MGE distributes electricity in a service area covering a 264 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.

 

As of December 31, 2023, MGE supplied electric service to approximately 163,000 customers, with approximately 90% located in the cities of Fitchburg, Madison, Middleton, and Monona and 10% in adjacent areas.

 

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Electric sales, customers, and revenues for 2023 were comprised of the following:

 

img48029297_0.jpg 

 

Electric operations accounted for approximately 71%, 65%, and 69% of MGE's total 2023, 2022, and 2021 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. The essential purposes of these entities are to develop and implement regional and NERC reliability standards and determine compliance with those standards, including enforcement mechanisms.

 

Transmission

 

American Transmission Company LLC (ATC) was formed by Wisconsin-based 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. ATC is also regulated by the PSCW for 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 MISO. MISO, a FERC-approved RTO, is responsible for monitoring the electric transmission system that delivers power from generating plants to wholesale power customers. MISO's role is to ensure equal access to the transmission system and to maintain or improve electric system reliability across 15 U.S. states and the Canadian province of Manitoba.

 

MISO operates a bid-based energy market. MGE offers substantially all of its generation to the MISO market and purchases its electric supply, or load requirement from the MISO market in accordance with the MISO tariff. MGE also participates in the ancillary services market operated by MISO, which is an extension of the existing energy market. Through the operation of 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 MISO capacity auction, which provides a forum for buyers and sellers of planning resource credits to interact. Load serving entities such as MGE may participate in the capacity auction 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.

 

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Fuel supply and generation

 

MGE satisfies its customers' electric demand with internal generation and purchased power. MGE's current fuel mix for generation fluctuates from year-to-year due to fuel pricing in the market, generating unit availability, weather, and customer demand. MGE has a responsibility to its customers to dispatch the lowest cost generation available pursuant to regulatory requirements.

 

MGE's electric energy delivery requirements were satisfied from the following fuel sources:

 

(in MWh)

 

2023

 

 

2022

 

 

2021

 

Coal(a)

 

 

1,359,691

 

 

 

1,219,793

 

 

 

1,797,017

 

Natural gas

 

 

566,972

 

 

 

539,265

 

 

 

405,696

 

Renewable sources(b)

 

 

715,369

 

 

 

759,194

 

 

 

581,374

 

Fuel oil

 

 

544

 

 

 

475

 

 

 

884

 

Purchased power - other(c)(d)

 

 

744,120

 

 

 

919,052

 

 

 

726,008

 

Total fuel sources

 

 

3,386,696

 

 

 

3,437,779

 

 

 

3,510,979

 

 

 

 

 

 

 

 

 

 

 

Adjusted total fuel sources(d)

 

 

3,643,267

 

 

 

3,741,207

 

 

 

3,743,743

 

 

(a)
In 2023, MGE used more coal generation for electric supply, compared with 2022. Generation sources change based on lowest cost generation available. MGE continues to drive its commitment to achieve our emission reduction goals through the continuing addition of renewable generation and its transition plan to eliminate coal as a fuel source.
(b)
Includes both internal generation and purchased power.
(c)
Includes third-party purchased power and MISO market activity. A significant percentage of MGE's electric supply comes from internal generation sources. MGE supplements this internal generation with long-term purchase power agreements and spot purchases in the MISO market.
(d)
The MISO market consists of two energy markets, the Day-ahead market and the Real-time market. The table above nets purchases and sales within the same hour in the two MISO markets. For the years ended December 31, 2023, 2022, and 2021, the amount netted between Day-ahead and the Real-time MISO markets was 256,571 MWh, 303,428 MWh, and 232,764 MWh, respectively. These amounts are reflected in "Adjusted total fuel sources."

 

MGE is working toward a more sustainable future for the benefit of its investors, employees, customers and the broader community. MGE is targeting net-zero carbon electricity by 2050 and MGE has committed to achieving carbon reductions of at least 80% by 2030 (from 2005 levels).

 

MGE's carbon reduction goals are aligned with those of the scientific community, specifically the Intergovernmental Panel on Climate Change (IPCC) and its recommendation of limiting global temperature increases to 1.5 degrees Celsius above pre-industrial levels. In 2020, the University of Wisconsin-Madison's Nelson Institute for Environmental Studies released its analysis of MGE's goal of reaching net-zero carbon electricity by 2050. The IPCC modeling available suggested that by 2050, emissions from electricity generation in industrialized countries should be 87% to 99% lower than the 2005 baseline. The analysis determined that our 2050 goal is in line with model benchmarks to limit global warming to 1.5 degrees Celsius above pre-industrial levels.

 

MGE is working to achieve a more sustainable energy future using the best, most cost-effective technologies as they become available. MGE's future path to achieve its target of 80% carbon reduction by 2030 (from 2005 levels) is based on the transition away from coal and the addition of new renewable generation to reach our ultimate target of net-zero carbon by 2050. MGE already has taken action toward its goals:

Transition away from coal - MGE and the other co-owners of Columbia, a two-unit coal-fired generation facility, intend to retire Unit 1 and Unit 2 by June 2026. MGE currently owns 19% of the facility. Final timing and retirement dates are subject to change depending on operational, regulatory, and other factors. By 2027, with the planned retirement of both units at Columbia, MGE will have eliminated approximately two-thirds of the company’s current coal-fired generation capacity. MGE's remaining use of coal is expected to be further reduced as the Elm Road Units transition to natural gas. MGE is a minority owner of the coal-fired Elm Road Generating Station. Transition plans and costs will be subject to PSCW approval. By the end of 2030, MGE expects coal to be used only as a backup fuel at the Elm Road Units. This transition will help MGE meet its 2030 carbon reduction goal. By the end of 2032, MGE expects that the Elm Road Units will be fully transitioned away from coal, which will eliminate coal as an owned generation source for MGE.

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Renewable generation - Our solar, wind, and battery storage projects are a major step toward deep decarbonization and greater use of clean energy sources in pursuit of our net-zero carbon goal. Additionally, MGE seeks to reduce its use of fossil fuels and work to help customers with energy efficiency and electrification, including the electrification of transportation.

 

Since 2015, MGE has added 196 MW of solar and 93 MW of wind generation facilities to its electric renewable generation portfolio. See Item 2. Properties below for further information on these facilities. MGE offers cost-effective renewable energy solutions to customers, including the Renewable Energy Rider (RER) and Shared Solar Program, using a portion of this renewable capacity. These programs are described further below. The following includes renewable energy projects expected to be completed or proposed to be completed, and MGE's share of capacity.

 

Year of Commercial Operation

Project

Ownership Interest

Source

Share of Generation/Battery Storage

2024

Tyto Solar(a) - Online February 2024

100%

Solar

6 MW

Paris

10%

Solar

20 MW

 

Darien(b)

10%

Solar

25 MW

 

Strix Solar(a)

100%

Solar

6 MW

2025

Paris

10%

Battery

11 MW

2026

Koshkonong(b)

10%

Solar

30 MW

High Noon – proposed(c)

10%

Solar

30 MW

 

(a)
Project located within MGE service territory.
(b)
24 MW of battery storage has been approved by the PSCW as part of these projects, but is not included in the forecasted capital expenditures for 2024 through 2028. MGE will continue to evaluate timing, cost, and feasibility of the installation of battery storage.
(c)
A filed application is pending approval by the PSCW. 16.5 MW of battery storage has been proposed as part of this project, but is not included in the forecasted capital expenditures for 2024 through 2028. MGE will continue to evaluate timing, cost, and feasibility of the installation of battery storage.

 

MGE is partnering with the co-owners of Columbia to construct a compressed carbon dioxide long-duration energy storage system, known as the Columbia Energy Storage project. The 20 MW project was selected for a grant from the U.S Department of Energy. If the Columbia Energy Storage project is approved by the PSCW, the project would be the first of its kind in the United States.

 

MGE is working to achieve a more sustainable energy future by investing in cost-effective renewable generation and innovative new technologies and services for customers. MGE has emphasized this innovation by developing customer programs to address climate change and encourage our customers to use clean energy. Our RER and Shared Solar programs reduce MGE's carbon emissions while providing customers the ability to purchase renewable energy to meet their energy needs, and we have been working on many fronts in the community to further the electrification of transportation.

 

Renewable Energy Rider (RER) – Under this program, MGE partners with large energy users, primarily governmental entities, on customized renewable energy solutions. MGE owns the generation assets and RER customers are billed a contractual renewable resource rate (as approved by the PSCW) for all costs associated with the construction and ongoing operations of the renewable generation facility. MGE has developed approximately 42 MW of solar generation under the RER program.

 

Shared Solar Program – This program provides an option for residential and small business customers to power their household or business with locally generated solar energy for up to half of their annual energy use. The first solar array associated with this program, owned by MGE, became operational in 2017 for 500 KW capacity. MGE expanded the program by completing construction of a second solar facility (Morey Field), which added 3.5 MW of capacity to the program.

 

Electrifying transportation - The electrification of transportation is a key strategy for reducing carbon emissions. MGE has established a network of more than 50 charging stations, powered by renewable energy, serving the growing number of electric vehicles (EV) in our service area. An EV fast charging hub features some of the most powerful EV chargers in the Midwest. Charge@Home, MGE's home EV charging program,

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makes it easy for EV drivers to charge efficiently and conveniently. We have continued to add EVs to our fleet and are targeting 100% all-electric or plug-in hybrid light-duty vehicles by 2030. Additionally, we are working with the City of Madison to further the electrification of its vehicles and buses. The City of Madison currently has a goal of 100% electric buses used for its' new Bus Rapid Transit system located in the downtown region.

 

Natural gas as a fuel source - As part of MGE's continued energy transition plan, MGE plans to invest in additional natural gas plants and storage facilities. These power sources are vital to the success of our carbon reduction goals as they will provide reliable energy to dependably serve demand, while MGE continues to build out its renewable generation infrastructure and complete its full transition away from coal. In early 2023, MGE purchased 25 MW in the West Riverside Energy Center, a highly efficient, state-of-the-art natural gas-fired plant in Beloit, Wisconsin. In fall 2023, MGE requested approval from the PSCW to purchase an additional 25 MW of capacity in West Riverside. The closing and actual transfer of ownership is expected to occur in June 2024. Natural gas has lower carbon emission rates compared to coal-fired generation. The reliable energy supply provided by West Riverside plant will help MGE to retire the Columbia coal-fired facility. MGE has additional investments in natural gas generators planned for the future to ensure adequate dispatchable capacity requirements are met.

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 MGE Energy's 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. As of December 31, 2023, MGE has 30 MW of a renewable purchase power commitment for each of the next four years.

 

Gas Utility Operations

 

MGE transports and distributes natural gas in a service area covering 1,684 square miles in seven south-central Wisconsin counties. The service area includes the city of Madison, Wisconsin and surrounding areas.

 

As of December 31, 2023, MGE supplied natural gas service to approximately 176,000 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. Gas sales, customers, and revenues for 2023 were comprised of the following:

 

img48029297_1.jpg 

 

Gas operations accounted for approximately 29%, 35%, and 31% of MGE's total 2023, 2022, and 2021 regulated revenues, respectively.

 

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MGE can curtail gas deliveries to interruptible customers. These are customers who agree to reduce their load in the case of an emergency interruption. Approximately 3% of retail gas deliveries in 2023, 2022 and 2021 were to interruptible customers.

 

Environmental Initiatives - Natural gas distribution

Building upon our long-standing commitment to providing affordable, sustainable energy, MGE has set a goal to achieve net-zero methane emissions from its natural gas distribution system by 2035. If MGE can accelerate plans to achieve net-zero methane emissions from its natural gas system—through the evolution of new technologies, such as renewable natural gas—it will. MGE is working to reduce overall emissions from its natural gas distribution system cost-effectively as quickly as possible.

 

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 the mid-continent and Gulf Coast regions of the United States.

 

During the winter months, when customer demand is high, MGE is primarily concerned with meeting its obligation to 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 approximately 6.5 million 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:

185,650 Dth (including 116,078 Dth of storage withdrawals) on ANR.
81,453 Dth on NNG.

 

Nonregulated Energy Operations

 

MGE Energy, through our subsidiaries, has developed generation sources that assist MGE in meeting the electricity needs of our customers. These sources consist of the Elm Road Units and the WCCF, which are owned by subsidiaries of MGE Energy and leased 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, a wholly-owned subsidiary of MGE Energy. As of December 31, 2023, 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 explore electric transmission development and investments outside of Wisconsin, which typically have long development and investment lead times before becoming operational. MGE Energy's ownership interest in ATC Holdco is held by MGEE Transco, a wholly-owned subsidiary. As of December 31, 2023, MGEE Transco held a 4.4% ownership interest in ATC Holdco.

 

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

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waste disposal. These regulations affect the manner in which we conduct our 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 state and federal regulations governing surface water and/or groundwater containing per- and polyfluoroalkyl substances (PFAS), potential changes to regulations governing polychlorinated biphenyl (PCB), potential changes to air and water standards, and potential climate change legislation.

 

In February 2021, MGE and the other co-owners of Columbia announced plans to retire that facility. The co-owners intend to retire Unit 1 and Unit 2 by June 2026. Final timing and unit retirement dates are subject to change depending on operational, regulatory, and other factors. Effects of the environmental compliance requirements discussed below will depend upon the final Columbia retirement dates approved, applicable regulations at that time, and required compliance dates.

 

Water Quality

 

Effluent Limitations Guidelines and Standards for Steam Electric Power Generating Point Source Category

The EPA's promulgated water Effluent Limitations Guidelines (ELG) and standards for steam electric power plants focus on the reduction of metals and other pollutants in wastewater from new and existing power plants. MGE's Columbia plant and Elm Road Units are subject to this rule. In March 2023, the EPA published a proposed update to this rule that would further regulate the wastewater discharges associated with coal-fired power plants. The proposed rule focuses on wastewater discharges from flue gas desulfurization, bottom ash transport water, and combustion residual leachate.

 

See Footnote 16.a. of the Notes to the Consolidated Financial Statements in this Report for further discussion of compliance plans for Columbia and the Elm Road Units. Based on previous treatment of environmental compliance projects, management believes that any compliance costs will be recovered in future rates.

 

Cooling Water Intake Rules (Section 316(b))

Section 316(b) of the Clean Water Act requires cooling water intake structures at electric power plants to meet best available technology (BTA) standards to reduce mortality from entrainment (drawing aquatic life into a plant's cooling system) and impingement (trapping aquatic life on screens). 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.

 

Blount received its most recent WPDES permit from the Wisconsin Department of Natural Resources (WDNR) in October 2023. Blount's latest WPDES permit assumes that the plant meets BTA standards for entrainment for the duration of this permit which expires in 2028. The WDNR included a requirement to conduct an impingement study in the latest permit which needs to be completed in the next three years. Once the WDNR determines the impingement requirements at Blount, MGE will be able to determine any compliance costs of meeting Blount's permit requirements.

 

Intakes at Columbia are subject to this rule. The Columbia operator's most recent permit required that studies of intake structures be submitted to the WDNR by November 2023 to help determine BTA. Columbia's permit renewal application is due in 2024 and in November 2023 the Columbia operator timely submitted its renewal application to the WDNR. BTA improvements required by the future renewal permit may be coordinated with the owners' plan to retire both units by June of 2026. MGE will continue to work with Columbia's operator to evaluate regulatory requirements in light of the planned retirements. MGE does not expect this rule to have a material effect on Columbia.

 

Air Quality

 

Air quality regulations promulgated by the EPA and 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.

 

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Ozone NAAQS

The Elm Road Units are located in Milwaukee County, Wisconsin, a "moderate" nonattainment area for the 2015 Ozone NAAQS. The deadline for moderate classified areas to meet attainment standards is August 2024. At this time, the operator of the Elm Road Units does not expect that the 2015 Ozone NAAQS or the Milwaukee County nonattainment designation to have a material effect on the Units based on final designations.

 

Fine Particulate Matter (PM2.5) NAAQS

In January 2023, the EPA published a proposed rule to lower the average annual PM2.5 NAAQS from its current level. The EPA has also solicited comments on whether to lower the annual standard further than the proposed level, and whether to lower the maximum 24-hour limit to be consistent with recommendations from its Clean Air Scientific Advisory Committee (CASAC). Neither the proposed annual PM2.5 NAAQS nor the 24-hour limit recommended by the CASAC are expected to impact the attainment status of the counties where Columbia and the Elm Road Units are located. However, if the annual PM2.5 NAAQS is lowered further than the EPA's currently proposed value, Milwaukee County may be in nonattainment with the standard. A nonattainment designation would require the State of Wisconsin to develop a plan to get into attainment, which may include additional emission limitations for the Elm Road units. However, we will not know the impact of this rule until it is finalized, the EPA determines the attainment status of Wisconsin counties, and the State of Wisconsin develops an attainment implementation plan. MGE will continue to follow the rule's developments.

 

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

The EPA's CSAPR and its progeny are a suite of interstate air pollution transport rules designed to reduce ozone and PM2.5 ambient air levels in areas that the EPA has determined as being significantly impacted by pollution from upwind states. This is accomplished through a reduction in NOx and SO2 from qualifying fossil-fuel fired power plants and industrial boilers in upwind "contributing" states. NOx and SO2 contribute to fine particulate pollution and NOx contributes to ozone formation in downwind areas. Reductions are generally achieved through a cap-and-trade system. Individual plants can meet their caps through reducing emissions and/or buying allowances on the market.

 

In March 2023, the EPA finalized its Federal Implementation Plan to address state obligations under the Clean Air Act "good neighbor" provisions for the 2015 Ozone NAAQS. See Footnote 16.a. of the Notes to the Consolidated Financial Statements in this Report for further discussion of the proposed rule. MGE is reviewing the final rule and monitoring lawsuits challenging the final rule. Based on our current evaluation, the 2026 additional emission reductions may impact the Elm Road Units and additional upgrades may be needed to comply, however, we will not know the final impact until evaluations are completed.

 

Clean Air Visibility Rule

Columbia is subject to the best available retrofit technology (BART) regulations, a subsection of Clean Air Visibility Rule, 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. Wisconsin's 2021 SIP argues that Wisconsin will meet its current regional haze goals based on expected emissions reductions, which include Columbia unit retirements. Given that the Wisconsin SIP recognizes the Columbia unit retirements as part of its emission reduction plan, MGE does not anticipate further obligations with this rule at Columbia. MGE will continue to monitor legal developments and any future updates to this rule.

 

Global Climate Change

 

MGE produces 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 would expect to seek and receive rate recovery of associated compliance costs, if and when required. MGE continues to monitor proposed climate change legislation and regulation.

 

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MGE has taken steps to address GHG emissions. MGE is targeting net-zero carbon electricity by 2050. In January 2022, MGE built on previously set carbon emissions goals for 2030, announcing a goal to reduce carbon at least 80% by 2030 (from 2005 levels) as MGE works toward achieving net-zero carbon electricity. This goal surpassed MGE's previous expectation to reduce carbon emissions at least 65% by 2030. MGE has an ongoing transition plan to eliminate coal generation with the retirement of Columbia in 2026 and Elm Road transition from coal to natural gas by the end of 2032. Also under the 2030 framework, MGE aims to increase renewable energy to 25% of retail electric sales by 2025 and to 30% by 2030. See "Electric Utility Operations - Fuel supply and generation" above for further information.

 

Building upon our long-standing commitment to providing affordable, sustainable energy, MGE has set a goal to achieve net-zero methane emissions from its natural gas distribution system by 2035. If MGE can accelerate plans to achieve net-zero methane emissions from its natural gas system – through the evolution of new technologies, such as renewable natural gas – it will. MGE is working to reduce overall emissions from its natural gas distribution system cost-effectively as quickly as possible.

 

Greenhouse Gas Reduction Guidelines under the Clean Air Act 111(d) Rule

In May 2023, the EPA proposed a rule under section 111 of the Clean Air Act to establish New Source Performance Standards and emission guidelines to limit GHG emissions from existing fossil fuel-fired electric generating units and new, modified, and/or reconstructed fossil fuel-fired power plants. The EPA anticipates promulgating a final rule in 2024. MGE fossil fuel-fired generation units would be subject to the rule as proposed. MGE expects larger-sized units with long range retirement plans, West Riverside and the Elm Road units, may need to employ technology to achieve the proposed reductions. Columbia may not be impacted due to the owners' planned retirement of the existing fossil fuel fired units by 2026. However, we will not know the impact of this rule with any certainty until the rule is finalized.

 

Federal Action on Climate Change

President Biden's actions on climate change, including multiple executive orders and the recommitment of the U.S. to the Paris Agreement under the United Nations Framework Convention on Climate Change (the Paris Agreement), indicate that climate considerations are a broad focus.

 

In December 2021, President Biden signed an executive order that sets goals for the federal government agencies and operations to have, among other things, 100% carbon-free electricity by 2030, acquisitions of vehicles to be 100% zero-emissions light-duty vehicles by 2027, and all vehicles by 2035, and net-zero emissions from federal operations by 2050. Efforts at the federal level are expected to spur the carbon-neutral economy in the private sector.

 

In August 2022, the federal government enacted the Inflation Reduction Act (IRA). Included in the IRA are federal funds for investment in infrastructure, transportation, energy, and climate change. MGE is monitoring actions on climate change to determine the impact to MGE's decarbonization plans. In September 2022, President Biden signed an executive order on the Implementation of the Energy and Infrastructure Act of 2022. The order directs agencies to implement the energy and infrastructure provisions of the 2022 IRA and directs agencies to take actions towards implementing U.S. climate change priorities to be in line with the Paris Agreement. The Paris Agreement includes progress towards achieving greenhouse gas reductions of 50-52% below 2005 levels in 2030, achieving a carbon pollution-free electricity sector by 2035, and achieving net-zero emissions no later than 2050.

 

MGE is following the development of recommendations and plans developed by agencies as a result of IRA and executive orders, as well as other executive actions taken by the Biden administration, to determine their applicability to MGE's decarbonization plans and to evaluate any potential impact to our operations.

 

State and Regional Action on Climate Change

In August 2019, Wisconsin Governor Tony Evers signed an executive order to establish the Office of Sustainability and Clean Energy (OSCE). The order tasks the OSCE with, among other things, ensuring that the actions of the State of Wisconsin are aligned with the goals and recommendations of the Paris Agreement, verifying that electricity consumed by the State of Wisconsin is 100% carbon-free by 2050, and developing a comprehensive multi-sector clean energy plan for the state. In April 2022, the OSCE released Wisconsin's Clean Energy Plan. The plan includes a goal to achieve net zero carbon by 2050. MGE is engaged in this process by participating on a Stakeholder Advisory

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Team in a voluntary capacity. MGE will continue to evaluate this plan for its applicability to MGE's decarbonization plans and to evaluate potential impact to our operations.

 

Solid Waste

 

Coal Combustion Residuals (CCR) Rule

The CCR rule regulates the disposal of solid waste coal ash and defines what ash use activities would be considered generally exempt beneficial reuse of coal ash. The CCR rule also regulates landfills, ash ponds, and other surface impoundments used for coal combustion residuals by regulating their design, location, monitoring, and operation. The CCR rule requires owners and operators of coal-fired power plants to stop transporting CCR and non-CCR wastewater to unlined surface impoundments. Columbia's obligations under this portion of the CCR Rule are now complete. Review of the Elm Road Units has indicated that the costs to comply with this rule are not expected to be significant. See Footnote 16.a. of the Notes to the Consolidated Financial Statements in this Report for further discussion.

 

In May 2023, the EPA proposed a CCR Legacy Rule that if finalized as currently written, will apply to previously closed CCR sites. Columbia's operator has evaluated the proposed rule and determined that parts of the rule would likely apply to Columbia's previously closed site. However, we will not know the impact of this rule with any certainty until the rule is finalized.

 

Renewable Energy Standards

 

Wisconsin law establishes a minimum amount of energy MGE must supply from renewable sources. MGE currently exceeds the applicable minimum requirement of approximately 8%. The costs to comply with this requirement are being recovered in rates.

 

Human Capital

 

MGE Energy and MGE are committed to attracting, developing, and retaining a sustainable workforce and aims to foster a diverse, equitable, and inclusive culture.

 

As of December 31, 2023, MGE had 719 employees, 317 of which are covered by collective bargaining agreements as described below:

Union

 

Number of Employees Represented

 

Expiration of Collective Bargaining Agreement

Local Union 2304 of the International Brotherhood of Electrical Workers

 

227

 

April 30, 2028

Local Union No. 39 of the Office and Professional Employees International Union

 

85

 

May 31, 2028

Local Union No. 2006, Unit 6 of the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial, and Service Workers International Union

 

5

 

October 31, 2028

 

Governance

The Human Resources and Compensation Committee of the Board of Directors of MGE Energy oversees MGE's human resource strategies around diversity, equity and inclusion, workplace environment and culture, employee engagement, talent development, retention and recruitment. It also evaluates performance (reviewing the salaries, fees and other benefits of officers and directors and recommending compensation adjustments to the board), oversees the design and development of new, and revisions to, compensation and benefit plans, and assists the Board and the Board's Governance Committee with policies. Such policies related to Stock Ownership Guidelines, the recovery, or the "clawback" of, excess compensation based on erroneous data, and succession planning.

 

Development and Training

The energy industry is ever-changing. MGE Energy and MGE believe it is important to continue to engage our human capital resources as our industry evolves. We are committed to sustainable workforce practices such as career development and training. We offer all employees the opportunity to learn and grow—whether the goal is to increase job proficiency, improve decision-making skills, or prepare for new roles and responsibilities. We work to provide our employees with the tools they need to be successful in their careers. This strategy is essential given our aging workforce.

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In addition to instructor-led corporate training, all employees have access to an online learning resource containing a vast library of relevant courses, videos, podcasts, articles, and playlists. This resource helps ensure employees are equipped with the knowledge and skills to effectively navigate our evolving industry.

 

Diversity, Equity, and Inclusion

We value equity, diversity, and inclusion. We promote an inclusive, respectful work environment where individuals and groups can achieve their full potential. All employees have equitable access to employment and development opportunities. Everyone is responsible for helping to meet the objectives of our diversity and inclusion policy as well as supporting the concepts of equal opportunity and affirmative action. We believe that our diversity makes us stronger.

 

Our employee-led DEI Steering Team, with representation from various parts of the company, works to engage employees and to identify opportunities and strategies for strengthening our commitment to diversity, equity, and inclusion. As of December 31, 2023, women and ethnic minorities represented 27% and 11% of our total workforce, respectively. With the addition of three new directors on March 1, 2024, and retirements occurring at our 2024 annual meeting of shareholders, our continuing Board of Directors will be comprised of 40% women and 20% ethnic minorities.

 

MGE is committed to serving and connecting with our richly diverse communities through a myriad of partnership and engagement strategies. MGE works to advance diversity in the energy industry by partnering with local organizations to provide educational career-oriented programming for area youth. The events, programs and partnerships help to introduce energy-related careers to students with backgrounds underrepresented in the utility industry.

 

Safe and Healthy Working Conditions

"We power safety. Work safe. Home safe." That is our commitment at MGE, and it is embraced by our employees. Our journey to safety excellence is guided by our Safety Steering Team. The team meets regularly to examine safety topics and to identify and to prioritize continuous improvement opportunities. We go beyond applicable occupational health and safety standards by involving employees from all levels of the organization in the continuous improvement of our company-wide safety culture. Our continuous improvement process incorporates safety perception surveys, improvement projects, and monitoring of leading indicators. Stop Work Authority is an employee-developed program to communicate the right every worker has to stop any unsafe work activity.

 

We encourage employees across the company to make health and wellness a priority. Good health brings vitality and energy to our work lives and our home lives. MGE's programs to promote health and wellness include hybrid work schedules, the Healthy Rewards program, and access to athletic trainers for sprain and strain prevention and ergonomic assessments.

 

Financial Information About Segments

 

See Footnote 22 of the Notes to the Consolidated Financial Statements in this Report for financial information relating to MGE Energy's and MGE's business segments.

 

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Information About our Executive Officers

 

As of December 31, 2023, the executive officers of the registrants were as follows:

Executive

 

Title

 

Effective
Date

 

Service
Years as
an Officer

Jeffrey M. Keebler(a)

 

Chairman of the Board, President, and Chief Executive Officer

 

10/01/2018

 

12

Age: 52

 

 

 

 

 

 

 

 

 

 

 

 

Jared J. Bushek(a)

 

Vice President – Chief Financial Officer and Treasurer

 

03/01/2023

 

8

Age: 43

 

Vice President – Finance, Chief Information Officer and Treasurer

 

09/01/2020

 

 

 

Assistant Vice President – Chief Information Officer

 

07/23/2015

 

 

 

 

 

 

 

 

Lynn K. Hobbie(b)

 

Executive Vice President – Marketing and Communications

 

03/01/2017

 

29

Age: 65

 

 

 

 

 

 

 

 

 

 

 

 

Tamara J. Johnson(a)

 

Vice President – Chief Accounting Officer and Controller

 

03/01/2023

 

8

Age: 59

 

Vice President – Accounting and Controller

 

03/01/2020

 

 

 

Assistant Vice President – Controller

 

07/23/2015

 

 

 

 

 

 

 

 

James J. Lorenz(b)

 

Vice President – Energy Operations

 

05/01/2021

 

5

Age: 57

 

Assistant Vice President – Energy Operations

 

10/01/2018

 

 

 

 

 

 

 

 

Cari Anne Renlund(a)

 

Vice President, General Counsel and Secretary

 

09/01/2020

 

8

Age: 50

 

Vice President and General Counsel

 

11/02/2015

 

 

 

 

 

 

 

 

Scott R. Smith(b)

 

Vice President – Business and Regulatory Strategy

 

05/01/2021

 

5

Age: 52

 

Assistant Vice President – Business and Regulatory Strategy

 

03/01/2018

 

 

 

Note: Ages, years of service, and positions as of December 31, 2023.

(a)
Executive officer of MGE Energy and MGE.
(b)
Executive officer of MGE.

 

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Item 1A. Risk Factors.

 

MGE Energy and our subsidiaries, including MGE, operate in a regulated market environment that involves significant risks, many of which are beyond our control. The following risk factors may adversely affect our results of operations, cash flows and financial position and market price for our publicly traded securities. While we believe we have identified and discussed below the key risk factors affecting our business, additional unknown risks and uncertainties may adversely affect our 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. The regulations adopted by the State and Federal agencies affect how we do business, our ability to undertake specified actions since pre-approval or authorization may be required for projects, the costs of operations, and the rates charged to recover those costs. Our ability to attract capital also depends, in part, upon our ability to recover our costs and obtain a fair return for shareholders.

 

MGE Energy is subject to regulation as a holding company by the PSCW. The PSCW regulates MGE's rates; terms and conditions of service; various business practices and transactions; financing; the closure of generating facilities and related cost recovery; 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.

 

MGE is subject to oversight and monitoring by MISO. Possible changes to MISO's accredited capacity methodology may impact new generating facilities such as solar and wind which may require adjustments to the current resource plan. We may need to add additional resources to comply with MISO's planning reserve margin requirements or procure capacity in the market whereby such costs might not be recovered in rates. The lack of availability of new and existing generating facilities may also impact our current resource plan to be in accordance with MISO's methodology.

 

ATC, in which we have an investment, is subject to regulation by FERC as to, among other things, rates.

 

Our utility revenues are subject to regulatory proceedings and/or negotiated settlements, 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 statutes and regulations. These proceedings typically involve multiple parties, including governmental bodies and officials, consumer advocacy groups, and various consumers of energy, who focus on differing elements of the rate setting process, including environmental matters and addressing affordability concerns. Decisions are subject to judicial review, potentially leading to additional uncertainty associated with the approval proceedings. 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, we have 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 a reasonable return on equity. We estimate the impacts of changes in customer growth and weather as part of our customer rates. Any reduction of sales from these factors may not result in rates that fully recover our costs and require adjustments to our rates.

 

Under applicable accounting for regulated operations, 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 as a current period expense and could materially and adversely impact our operations and financial performance in that period.

 

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

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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.

We are subject to environmental laws and regulations that affect the manner in which we conduct business, including capital expenditures, operating costs, and potential liabilities. The current presidential administration has and continues to undertake an active effort on climate change-related matters, including restrictions on greenhouse gas emissions, such as carbon. While it is difficult to know the extent of possible legislation or regulatory activity, it is expected there will be an increase in the number and scope of environmental laws and regulations aimed at carbon sources, including fossil-fueled generation and the transportation of natural gas. These possible changes, as well as evolving consumer sentiment, have affected and may continue to affect 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. These include: 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.

 

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), 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 have incurred and are expected to continue to incur costs from more stringent regulation of GHG from power plants, natural gas delivery, GHG used in power distribution, and efficiencies lost during power distribution. While it is difficult to know the extent of possible legislation or regulatory activity, the federal government is likely to consider, and could pass, some form of greenhouse gas legislation or regulations. In addition, litigation by environmental nongovernment organizations targeting GHG emissions from the electric power industry is also likely if the federal government fails to act on greenhouse gas initiatives.

 

Climate change could affect us in several other ways:

Changes in weather patterns, including swings in intensity, could affect use of electricity and gas by our customers, affecting revenues; and could affect the condition of our facilities, affecting our costs.
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, which could raise our costs of attracting capital.
If we are not seen as being proactive in addressing concerns:

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o
we may experience reputational issues among our customers and the communities that we serve. Those issues could affect customers' energy choices, including efforts at self-supply, and could affect the handling and treatment of our rate requests and cost recovery.
o
we may experience difficulty in attracting investors, which could affect the availability and cost of capital and financing.

 

These matters represent uncertainties in the operation and management of our business.

 

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 electric generation facilities. In many cases, the cost of purchased power is tied to the cost of natural gas. In the event of an 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. Electric fuel rules require Wisconsin utilities to defer electric fuel-related costs that fall outside a symmetrical cost tolerance band around the amount approved for a utility in its annual fuel proceedings. Any over- or under-recovery of the actual costs is determined in the following year and is then reflected in future billings to electric retail customers. The electric fuel-related costs are subject to an excess revenue test. Excess revenues are defined as revenues in the year in question that provide MGE with a greater return on common equity than authorized by the PSCW in MGE's latest rate order. The recovery of under-collected electric fuel-related costs would be reduced by the amount that exceeds the excess revenue test. These costs are subject to the PSCW's annual review of fuel costs completed in the year following the deferral. MGE assumes the risks and benefits of variances that are within the cost tolerance band.

 

Changes in federal income tax policy or our inability to use or generate tax credits may adversely affect our financial condition, results of operations, and cash flows, as well as our credit ratings.

If corporate tax rates or policies are changed, we may be required to take material charges against earnings. If tax rates are increased, there could be timing delays before regulated rates provide for recovery of those tax increases in revenues. In addition, certain IRS tax policies, such as tax normalization, may impact our ability to economically deliver certain types of resources relative to market prices.

 

We have historically reduced our consolidated federal and state income tax liability with the use of various tax credits under the applicable tax codes. We may not be able to fully use tax credits if our future federal and state taxable income and related income tax liability is insufficient to permit their use or if we are unable to transfer tax credits to a third party. In addition, any future disallowance of some or all of those tax credits as a result of legislation or an adverse determination by one of the applicable taxing jurisdictions could materially affect our tax obligations and financial results.

 

Our utility business currently owns and operates renewable energy generating facilities. These facilities produce PTC and ITC used to reduce our federal tax obligations. The amount of tax credits we earn depends on the date the qualifying generating facilities are placed in service and various operating and economic factors, including facility generation, transmission constraints, unfavorable trends in pricing for wind or solar energy, adverse weather conditions, the breakdown or failure of equipment, and the applicable tax credit rate. These factors could significantly reduce the PTC and ITC produced by our wind or solar farms, resulting in increased federal income tax expense. We could also be forced to replace lost generation capacity with additional power purchases from third parties, potentially leading to increased costs. Any of the considerations mentioned above could have an adverse impact on our financial condition and results of operations, which could be material depending upon the cause of the disruption and its duration.

 

There is also uncertainty as to when or how credit rating agencies, capital markets, the FERC, or state public utility commissions will treat impacts of any future federal or state tax regulation. These impacts could subject us to credit rating downgrades. In addition, certain financial metrics used by credit rating agencies, such as our funds from operations-to-debt percentage, could be negatively impacted by future rulings.

 

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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 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. It is possible that legislation or regulations could be adopted supporting the use of these technologies that permit third-party sales from such facilities, and allow these facilities to interconnect to our distribution system. 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, a reduction 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 through the installation of alternative energy sources, such as rooftop 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 local, national, and worldwide economic activity.

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.

 

Higher levels of development and business activity within our service area generally increases the number of customers and their use of electricity and gas. Likewise, recessionary economic conditions generally have an adverse impact on our results of operations. Our business activities, including those of our subsidiaries, are concentrated in the State of Wisconsin. Changes in our local economy could negatively impact the financial condition of our customers, the growth opportunities available to us and our subsidiaries, and our results from operations.

 

More recently, our operations have been impacted by domestic and global supply chain disruptions which are delaying the delivery of materials, equipment, and other resources that are critical to our business operations and projects under construction, including our renewable energy projects. Supply interruptions could affect our ability to operate and maintain our system and ability to implement our long-term goals. Inflation has also increased

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prices of equipment, materials, employee wages and benefits, and other resources. Inflationary pressures in the economy could lead to higher expenses which may adversely impact our financial condition and results of operations.

 

The ability to obtain an adequate supply of coal could limit the ability to operate the co-owned coal-fired facilities from which we receive a significant portion of our electric supply.

The availability of coal and the means to transport coal could:

 

Affect our operating costs due to increased costs associated with lower levels of owned generation or the need for alternate coal supply or transportation,
Limit the ability to generate electricity if the plant operator is unable to arrange timely deliveries of adequate supplies 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 coal plant closures 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 our fuel suppliers, has affected, and could affect 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 fulfill the underlying obligation at higher prices. The Columbia plant operator has been, and the plant operators may be, forced to reduce generation at our jointly-held coal units, which would cause us to replace this generation through additional power purchases from third parties. These factors may also affect the terms under which any of the 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 owned or contracted power from the 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 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 that 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 place over prolonged periods or may be unsuccessful. We may also be unable to make the necessary improvements to our operational system, causing service interruptions. Furthermore, our facilities are interconnected with third-party transmission providers. Damage to or failures of these providers' equipment or facilities is out of our control but could lead to service interruptions. The resulting interruption of services would result in lost revenues and additional costs. Lack of gas or decreased gas pressure from interstate pipeline systems may result in unexpected energy interruptions and may lead to additional costs for alternative energy sources. 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.

 

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Our operations and confidential information are subject to the risk of physical or cyber attacks, 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 generation and distribution facilities and computer-based systems and other infrastructure or physical assets are vulnerable to interruption, the introduction of viruses, malware, ransomware, security breaches, terrorist-style attacks, fire, power loss, system malfunction, network outages, unauthorized access, and other events that 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.

 

Generation, transmission systems, and natural gas pipelines are part of an interconnected system. Therefore, a disruption caused by the impact of a cyber security incident on the regional electric transmission grid, natural gas pipeline infrastructure or other fuel sources of our third-party service providers' operations, could also negatively impact our business.

 

Our business includes the collection and retention of personally identifiable information of our customers, shareholders, and employees, who expect that we will adequately protect such information. In some cases, we outsource certain functions to vendors that could be targets of cyber-attacks. 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 and subject us to legal claims, fines, or penalties.

 

We maintain security measures to protect our information technology and control systems, network infrastructure and other assets. While we have not been subject to cyber incidents that have had a material impact on operations to date, 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, equipment may fail to work and confidential data could be compromised, any additional costs may not be recoverable in rates, or may exceed cyber insurance limits, or may not be covered by cyber insurance and could adversely impact our results of operations.

 

Catastrophic and unpredictable events, including the recent COVID-19 pandemic, could have a material adverse effect on our business.

A terrorist attack, war, natural disaster, pandemic virus or disease, including the recent COVID-19 pandemic, or other catastrophic or unpredictable event could adversely affect our future revenues, expenses and operating results by: interrupting our normal business operations; causing employee absences or casualties, including loss of our key employees; interrupting or affecting supplier operations; requiring substantial expenditures and expenses to repair, replace and restore normal business operations; and reducing investor confidence. Facilities for electric generation, transmission, and gas and electric distribution are potential targets of terrorist threats and activities both physical or cyber attacks. A terrorist act or catastrophic event at our facilities or the facilities of other companies to which we are interconnected could result in a disruption of our ability to generate, transmit, transport, purchase, or distribute electricity or natural gas. Such an event 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 or making alternative arrangements could materially and adversely affect our financial condition and results of operations.

 

We face risk in connection with the completion of significant capital projects.

Our capital projects, such as our renewable generation projects, are subject to various completion 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 or tariffs; legal action; and unforeseen engineering or technology issues. In the case of our renewable generation projects, we

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may face delays in the completion of the necessary transmission system connections or upgrades to accommodate the project.

 

If a capital project exceeds the approved project costs approved by the PSCW, we may not be able to recover those excess costs through regulated customer rates. If that happens, we may have to finance overruns through cash from operations, which may delay other projects, or by securing additional financing. Any or all of these methods may not be available when or in the amounts needed or may adversely affect our financial condition, results of operations and cash flows.

 

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. Further, our revenues and cash flows may not increase immediately following our expenditure of funds on a particular project, which could affect our liquidity and financial position.

 

Our stated long-term goals are based on various assumptions and beliefs that may not prove to be achievable in the time frame projected.

Some of our current long-term goals include MGE's targeting of a net‐zero carbon electricity by 2050 and MGE's Energy 2030 framework, which describes our plan for growth in renewables generation. MGE is working to achieve a more sustainable energy future using cost‐effective renewable generation technologies. Management established these goals in conjunction with our board of directors based upon a number of different internal and external factors that characterize and influence our current and expected future activities. These long-term goals are based on certain assumptions regarding the timing, scope, and relative costs of technological advancements, including generation, storage and energy use technologies; levels of customer participation in programs and partnerships, which will be critical to the achievement of the goals; our ability to transition or displace existing coal-fired resources; our ability to complete renewable generation projects in a timely manner and within approved budgets; our ability to obtain recovery of costs in rates; and our ability to obtain the necessary permits or licenses for such projects. These assumptions may differ materially from actual future results. Accordingly, we may not achieve our stated long-term goals in the timeframe projected or at all.

 

Failure to attract and retain an appropriately qualified workforce could affect our operations.

We must attract, train, and retain a workforce to meet current and future needs. Events such as an aging workforce without appropriate replacements, mismatch of skill sets to future needs, labor market conditions, evolving employee culture expectations, or unavailability of contract resources may lead to operating challenges and increased costs. Some of the challenges include lack of resources, loss of knowledge, and time required for replacement employees to develop necessary skills. Failure to identify qualified replacement employees could increase costs as a result of decreased productivity and increased safety incidents. If we are unable to attract and retain an appropriately qualified workforce, our operations could be negatively affected. We are also subject to multiple collective bargaining agreements covering approximately 317 employees. Future negotiation of these collective bargaining agreements could lead to work stoppages or other disruptions to our operations, which could adversely affect 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, oil, and environmental allowances.

We face commodity price risk exposure with respect to the purchase of natural gas, electricity, coal, oil, and environmental allowances. We also face risk through our use of derivatives such as futures, forwards, and swaps, to manage our 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.

 

Interest rate movements and market performance affects our employee benefit plan costs.

Prevailing interest rates affect our assessment and determination of discount rates and are a key assumption in the determination of the costs and funding of our defined benefit pension plans. Changes in rates 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

25


 

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 counterparty credit risk primarily through our regulated energy business.

Credit risk is the loss and additional expense 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. That risk may be increased during periods of weak or stressed economic conditions.

 

As a holding company, we are dependent on upstream cash flows from our subsidiaries for the payment of dividends on our common stock.

MGE Energy is a holding company, with no operations of its own, and its ability to pay dividends on our common stock is dependent on the earnings and cash flows of operating subsidiaries and their ability to pay upstream dividends or to repay funds to MGE Energy. Our subsidiaries have financial obligations that must be satisfied before funding MGE Energy. These obligations include debt service and obligations to trade creditors, among others. Our subsidiaries are also 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. Furthermore, if we are unable to access the capital and credit markets on favorable terms, it could have a material adverse effect on our business, financial condition, results of operations, cash flows and liquidity and our ability to repay or refinance our debt. We also rely on our credit ratings to access the credit markets. If our credit ratings are downgraded for any reason, borrowing costs would increase, the number of potential investors could decrease, or we could be required to provide additional credit assurance, including cash collateral, to contract counterparties.

 

General Risk Factors

 

Our insurance coverage may not be sufficient to cover losses caused by an operating failure or catastrophic events, such as severe weather events or a cyber-attack, or it may not be available at a reasonable cost, or available at all.

We may experience increased costs and difficulties in obtaining insurance coverage for risks that could arise from our ordinary operations. We or our contractors and customers could continue to experience coverage reductions and/or increased insurance costs in future years. No assurance can be given that future losses will not exceed the limits of our insurance coverage. Uninsured losses and increases in the cost of insurance may not be recoverable in customer rates. A loss that is not fully insured or cannot be recovered in customer rates could materially affect our financial condition, results of operations, liquidity, and cash flows. In addition, we are unable to predict whether we would be allowed to recover in rates the increased costs of insurance or the costs of any uninsured losses. If the amount of insurance is insufficient or otherwise unavailable, or if we are unable to obtain insurance at a reasonable cost or recover in rates the costs of any uninsured losses, our financial condition, results of operations, liquidity, and cash flows could be materially affected.

 

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

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stock in addition to our operating results and prospects, including changes in conditions locally and in the broader economy. These conditions include 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 1C. Cybersecurity.

 

MGE Energy and MGE

 

Risk management and strategy

MGE manages its cybersecurity risk in accordance with the National Institute of Standards and Technology (NIST) Cybersecurity Framework. Using the core functions of NIST framework – identify, protect, detect, respond, and recover – MGE employs a cybersecurity strategy program with input from information technology (IT) leadership, senior management, and MGE Energy's Board of Directors (the Board). MGE maintains policies and procedures concerning cybersecurity matters, including those related to antivirus/malware protection, remote access, authentication, and confidential information. These policies go through an internal review process and are approved by appropriate members of management.

 

Cybersecurity is considered within MGE's overall Enterprise Risk Management (ERM) program, which establishes an overall approach to enterprise risk management that can be consistently applied across the enterprise. As part of the ERM program, management identifies, assesses, mitigates, and monitors key enterprise risks. The ERM program includes evaluation of cyber risks' causes, impacts, ratings, and mitigations. Enterprise risks are reviewed and updated by management semi-annually.

 

MGE's IT Security team trains and collaborates across the organization and with outside partners and governmental agencies to maintain visibility and detection of continuously evolving threats and protection of MGE's digital systems. MGE has developed a security awareness program to help employees make sound security decisions through ongoing security awareness, education, and training activities. MGE has cyber incident response plans that detail identification, response, and recovery procedures in the event of a cyber incident. Periodic third-party penetration tests and vulnerability scans are performed both internally and externally to assess MGE's security measures and validate MGE's processes and procedures during a threat. In addition to assessing its own cybersecurity preparedness, MGE's security team also considers and evaluates cybersecurity risks associated with use of third-party service providers to confirm that security standards are met. MGE relies on third parties to deliver its products and services to customers, and a cybersecurity incident at a supplier, subcontractor, or joint venture partner could materially impact MGE. Third-party cybersecurity controls are assessed through a cybersecurity questionnaire, and security and privacy addendums are included in contracts when applicable. Furthermore, at least annually vendor System and Organization Controls (SOC) 1 or SOC 2 reports are reviewed by internal business owners, if available. MGE's assessment of risks associated with use of third-party providers is part of the overall cybersecurity risk management framework. MGE has a cyber insurance policy to mitigate risk of financial damages. In an event of a material cyber incident, MGE engages representatives of the insurer in accordance with the cyber incident response plan.

 

Governance

Enterprise-wide risk assessment and oversight are fundamental responsibilities of the Board, including cybersecurity. The Board, of which three members have technology and cybersecurity skills, is involved in the process of overseeing the primary risks faced in the conduct of our business. The Board receives, on an ongoing basis, information from management related to key business risks and mitigation strategies. These business risks include existing and emerging risks related to environmental performance and sustainability, information technology systems and cybersecurity, operational risks, financial risks, reliability risks, and regulatory risks. Updates to the ERM risk register are provided to the Audit Committee of the Board semiannually, which includes a cybersecurity risk assessment. Annually, management presents the Company's cybersecurity strategy and

27


 

initiatives to the Board. In addition, management provides quarterly cybersecurity updates to the Audit Committee to inform on any incidents, changes in risk or threat landscape, and provide any relevant information on trending topics in cybersecurity as it pertains to MGE.

 

The Chief Financial Officer (CFO) & Treasurer and the Chief Information Officer (CIO) are the system owners for electronic information and, in that capacity, are responsible for the processing, integrity, security, and availability of electronic information under their jurisdiction. The CFO has over 15 years of experience spanning several IT functions and levels of management, IT audit, applications development, project management, infrastructure and telecommunications, and cybersecurity. The CIO has over 25 years of IT experience, including ten years dedicated to cybersecurity in the utility, insurance, and financial sectors, and maintains a Certified Information Systems Security Professional (CISSP) certification. The CIO's cybersecurity experience includes engineering, architecture, incident response, and management.

 

MGE has had no material cyber security incidents that affected business strategy, results of operations, or financial condition.

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Item 2. Properties.

 

Electric Generation

 

Net summer rated capacity in service as of December 31, 2023, was as follows:

 

Plants

 

Location

 

Commercial
Operation Date

 

Fuel

 

Nameplate
Capacity (MW)

 

Net Summer
Rated
Capacity (MW)
(a)(b)

 

No. of
Units

Coal Facilities:

 

 

 

 

 

 

 

 

 

 

 

Columbia

 

Portage, WI

 

1975 & 1978

 

Low-sulfur Coal

 

211

 

212

(c)

 

2

Elm Road Units

 

Oak Creek, WI

 

2010 & 2011

 

Coal

 

106

 

109

(c)

 

2

 

 

 

 

 

 

 

 

 

 

 

Natural Gas Facilities:

 

 

 

 

 

 

 

 

 

 

 

Blount

 

Madison, WI

 

1957 & 1961

 

Natural Gas

 

100

 

95

 

 

2

Nine Springs

 

Madison, WI

 

1964

 

Natural Gas

 

16

 

12

 

 

1

Sycamore

 

Madison, WI

 

1967 & 1971

 

Natural Gas

 

38

 

30

 

 

2

Fitchburg

 

Fitchburg, WI

 

1973

 

Natural Gas

 

53

 

31

 

 

2

West Marinette

 

Marinette, WI

 

2000

 

Natural Gas/Oil

 

90

 

69

 

 

1

WCCF

 

Madison, WI

 

2005

 

Natural Gas/Oil

 

157

 

127

(c)

 

2

West Riverside

 

Beloit, WI

 

2020

 

Natural Gas

 

25

 

23

(c)

 

2

 

 

 

 

 

 

 

 

 

 

 

 

 

Distributed Generators:

 

 

 

 

 

 

 

 

 

 

 

Multiple Locations

 

Madison, WI

 

1998-2021

 

ULSFO(d)

 

60

 

54

 

 

60

 

 

 

 

 

 

 

 

 

 

 

 

 

Wind Facilities:

 

 

 

 

 

 

 

 

 

 

 

Lincoln-Red River

 

Kewaunee County, WI

 

1999

 

Wind

 

11

 

1

 

 

17

Top of Iowa

 

Brookfield, IA

 

2008

 

Wind

 

30

 

5

 

 

18

Forward

 

Dodge & Fond du Lac
Counties, WI

 

2008

 

Wind

 

18

 

3

(c)

 

86

Saratoga

 

Howard County, IA

 

2019

 

Wind

 

66

 

18

 

 

33

Red Barn

 

Grant County, WI

 

2023

 

Wind

 

9

 

1

(c)

 

28

 

 

 

 

 

 

 

 

 

 

 

 

 

Solar Facilities:

 

 

 

 

 

 

 

 

 

 

 

Morey Field

 

Middleton, WI

 

2020

 

Solar

 

6

 

4

 

 

4

Two Creeks

 

Two Creeks, WI

 

2020

 

Solar