Income Taxes

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

Income Taxes.

a.MGE Energy and MGE Income Taxes.

MGE Energy files a consolidated federal income tax return that includes the operations of all subsidiary companies. The subsidiaries calculate their respective federal income tax provisions as if they were separate taxable entities.

On a consolidated and separate company basis, the income tax provision consists of the following provision (benefit) components for the years ended December 31:

	MGE Energy									MGE
(In thousands)	2023			2022			2021			2023			2022			2021
Current payable:
Federal	$	1,864		$	2,102		$	(2,589	)	$	1,329		$	934		$	(3,434	)
State		4,637			2,385			3,002			4,560			2,060			3,163
Net-deferred:
Federal		16,317			14,770			(1,473	)		15,345			14,397			(1,951	)
State		6,683			8,665			6,310			6,191			8,370			5,605
Amortized investment tax credits		(1,698	)		(1,698	)		(1,135	)		(1,698	)		(1,698	)		(1,135	)
Total income tax provision	$	27,803		$	26,224		$	4,115		$	25,727		$	24,063		$	2,248

The consolidated income tax provision differs from the amount computed by applying the statutory federal income tax rate to income before income taxes, as follows:

	MGE Energy												MGE
	2023				2022				2021				2023				2022				2021
Statutory federal income tax rate		21.0		%		21.0		%		21.0		%		21.0		%		21.0		%		21.0		%
State income taxes, net of federal benefit		6.2				6.2				6.2				6.2				6.2				6.2
Amortized investment tax credits		(0.7	)			(0.7	)			(1.5	)			(0.7	)			(0.7	)			(1.5	)
Credit for electricity from wind energy		(5.3	)			(5.4	)			(6.0	)			(5.6	)			(5.7	)			(6.4	)
AFUDC equity, net		(0.6	)			(0.3	)			(0.9	)			(0.6	)			(0.3	)			(1.0	)
Amortization of utility excess deferred tax(a)		(1.5	)			(2.0	)			(14.8	)			(1.6	)			(2.1	)			(15.8	)
Other, net, individually insignificant		—				0.3				(0.3	)			(0.1	)			0.2				(0.3	)
Effective income tax rate		19.1		%		19.1		%		3.7		%		18.6		%		18.6		%		2.2		%

(a)Included are impacts of the 2017 Tax Act for the regulated utility for excess deferred taxes recognized using a normalization method of accounting in recognition of IRS rules that restrict the rate at which the excess deferred taxes may be returned to utility customers. For the years ended December 31, 2023, 2022, and 2021, MGE recognized $3.5 million, $4.1 million, and $2.6 million, respectively. Included in the 2021 rate settlement was a one-time return to customers of the electric portion of excess deferred taxes related to the 2017 Tax Act not restricted by IRS normalization rules. For the year ended December 31, 2021, MGE recognized $13.2 million. Included in the 2022 and 2023 rate settlement was a net collection from customers of the gas portion of deficient deferred taxes related to the 2017 Tax Act not restricted by IRS normalization rules. For both the years ended December 31, 2023, and 2022, MGE recognized $1.3 million.

The significant components of deferred tax assets and liabilities that appear on the consolidated balance sheets as of December 31 are as follows:

	MGE Energy				MGE
(In thousands)	2023		2022		2023		2022
Deferred tax assets
Investment in ATC	$	19,287	$	20,098	$	—	$	—
Federal tax credits		43,281		46,282		43,281		46,282
Accrued expenses		10,408		10,642		10,406		10,644
Pension and other postretirement benefits		15,793		20,687		15,793		20,687
Deferred tax regulatory account		41,893		42,999		41,893		42,999
Derivatives		1,472		1,416		1,472		1,416
Leases		7,389		7,137		7,389		7,137
Other		23,075		17,438		22,934		17,490
Gross deferred income tax assets		162,598		166,699		143,168		146,655
Less valuation allowance		—		—		—		—
Net deferred income tax assets	$	162,598	$	166,699	$	143,168	$	146,655

	MGE Energy				MGE
(In thousands)	2023		2022		2023		2022
Deferred tax liabilities
Property-related	$	316,305	$	295,872	$	316,305	$	295,872
Investment in ATC		53,137		52,840		—		—
Bond transactions		411		472		411		472
Pension and other postretirement benefits		34,824		35,590		34,824		35,590
Derivatives		1,472		1,416		1,472		1,416
Tax deductible prepayments		9,996		10,308		9,986		10,308
Leases		7,389		7,137		7,389		7,137
Other		18,093		15,254		17,415		15,118
Gross deferred income tax liabilities		441,627		418,889		387,802		365,913
Deferred income taxes, net	$	279,029	$	252,190	$	244,634	$	219,258

The components of federal and state tax benefit carryovers as of December 31, are as follows:

	MGE Energy					MGE
(In thousands)	2023		2022			2023		2022
Federal tax credits	$	43,281	$	46,282		$	43,281	$	46,282
State net operating losses		—		3			—		3
Valuation allowances for state net operating losses		—		(3	)		—		(3	)

Federal tax credit carryovers begin to expire in 2040 and state net operating loss carryforwards expired in 2023. Federal tax credits represent the deferred tax asset.

b.Accounting for Uncertainty in Income Taxes - MGE Energy and MGE.

The difference between the tax benefit amount taken on prior year tax returns, or expected to be taken on a current year tax return, and the tax benefit amount recognized in the financial statements is accounted for as an unrecognized tax benefit.

A tabular reconciliation of unrecognized tax benefits and interest is as follows:

(In thousands)
Unrecognized Tax Benefits:	2023			2022			2021
Unrecognized tax benefits, January 1,	$	2,485		$	2,353		$	2,281
Additions based on tax positions related to the current year		455			731			714
Additions based on tax positions related to the prior years		—			—			—
Reductions based on tax positions related to the prior years		(1,325	)		(599	)		(642	)
Unrecognized tax benefits, December 31,	$	1,615		$	2,485		$	2,353

(In thousands)
Interest on Unrecognized Tax Benefits:	2023			2022			2021
Accrued interest on unrecognized tax benefits, January 1,	$	189		$	150		$	154
Reduction in interest expense on uncertain tax positions		(149	)		(95	)		(98	)
Interest expense on uncertain tax positions		90			134			94
Accrued interest on unrecognized tax benefits, December 31,	$	130		$	189		$	150

Unrecognized tax benefits are classified with "Other deferred liabilities" on the consolidated balance sheets. The interest component recoverable in rates is offset by a regulatory asset.

As of December 31, 2022, and 2021, MGE Energy and MGE had an unrecognized tax benefit primarily related to temporary tax differences associated with the change in income tax method of accounting for electric generation and electric and gas distribution repairs. As of December 31, 2023, MGE Energy and MGE continue to have an unrecognized tax benefit associated with the change in income tax method of accounting for electric generation and electric distribution repairs, however, the tax benefit relating to gas distribution repairs has been recognized due to the adoption of the safe harbor method of accounting for gas repairs issued by the Internal Revenue Service.

The unrecognized tax benefits as of December 31, 2023, are not expected to significantly increase or decrease within the next twelve months. In addition, statutes of limitations will expire for MGE Energy and MGE tax returns. The impact of the statutes of limitations expiring is not anticipated to be material. The following table shows tax years that remain subject to examination by major jurisdiction:

Taxpayer	Open Years
MGE Energy and consolidated subsidiaries in federal return	2020 through 2023
MGE Energy Wisconsin combined reporting corporation return	2019 through 2023