Leases

12 Months Ended

Dec. 31, 2024

Leases - MGE Energy and MGE.

As part of its regular operations, MGE enters into various contracts related to IT equipment, substations, cell towers, land, wind easements, and other property in use for operations. A contract is or contains a lease if the contract conveys the right to control the use of identified property, plant, or equipment for a period of time in exchange for consideration. Determination as to whether an arrangement is or contains a lease is completed at inception. Leases with an initial term of 12 months or less are not recorded on the consolidated balance sheets; lease expense for these leases are recognized on a straight-line basis over the lease term. Leases with initial terms in excess of 12 months are recorded as operating or financing leases on the consolidated balance sheets.

Operating lease assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. For leases that do not provide an implicit rate, a collateralized incremental borrowing rate based on the information available at commencement date, including lease term, is used in determining the present value of future payments. The operating lease asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the option will be exercised. Operating lease expense is recognized on a straight-line basis over the lease term. As of December 31, 2024, MGE had no significant leases not yet commenced that would create significant future rights and obligations.

The following table shows lease expense for the years ended December 31:


(In thousands)	2024		2023		Income Statement Location
Finance lease expense:
Amortization of leased assets	$	1,598	$	1,588	Depreciation and amortization
Interest on lease liabilities		597		556	Interest expense, net
Operating lease expense		441		465	Other operations and maintenance
Total lease expense	$	2,636	$	2,609

MGE has regulatory treatment and recognizes regulatory assets or liabilities for timing differences between net lease costs recognized and lease cash payments made. These deferred costs have not been reflected in the table above. See Footnote 8 for further details of deferred lease costs.

The following table shows the lease assets and liabilities on the consolidated balance sheets as of December 31:


(In thousands)	2024		2023		Balance Sheet Location
Lease assets:
Finance lease assets	$	15,611	$	15,439	Property, plant, and equipment, net
Operating lease assets		7,400		7,557	Other deferred assets and other
Total lease assets	$	23,011	$	22,996
Lease liabilities:
Finance lease liabilities - current	$	1,297	$	1,172	Other current liabilities
Finance lease liabilities - long-term		18,466		18,039	Other deferred liabilities and other
Operating lease liabilities - current		65		114	Other current liabilities
Operating lease liabilities - long-term		7,781		7,801	Other deferred liabilities and other
Total lease liabilities	$	27,609	$	27,126

The following table shows other lease information for the years ended December 31:


(In thousands)	2024		2023
Cash paid for amounts included in the measurement of lease liabilities:
Finance leases - Financing cash flows	$	1,323	$	1,322
Finance leases - Operating cash flows		872		822
Operating leases - Operating cash flows		353		372
Lease assets obtained in exchange for lease liabilities:
Finance leases		1,876		2,385
Operating leases		48		—

The following table shows the weighted average remaining lease terms and discounts as of December 31:


Weighted-average remaining lease terms (in years):	2024			2023
Finance leases		35			36
Operating leases		32			33
Weighted-average discount rates:
Finance leases		4.49	%		4.44	%
Operating leases	3.11		%	3.08		%

The following table shows maturities of lease liabilities as of December 31, 2024:


(In thousands)	Finance			Operating
2025	$	2,149		$	300
2026		1,835			305
2027		1,551			311
2028		894			317
2029		774			322
Thereafter		39,377			11,211
Subtotal		46,580			12,766
Less: Present value discount		(26,817	)		(4,920	)
Lease liability		19,763			7,846
Less: current portion		(1,297	)		(65	)
Noncurrent lease liability	$	18,466		$	7,781