Income Taxes

12 Months Ended

Dec. 31, 2024

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)	2024			2023			2022			2024			2023			2022
Current payable:
Federal	$	4,811		$	1,864		$	2,102		$	3,206		$	1,329		$	934
State		6,875			4,637			2,385			6,309			4,560			2,060
Net-deferred:
Federal		(2,695	)		16,317			14,770			(3,342	)		15,345			14,397
State		3,303			6,683			8,665			2,909			6,191			8,370
Amortized investment tax credits		(1,698	)		(1,698	)		(1,698	)		(1,698	)		(1,698	)		(1,698	)
Total income tax provision	$	10,596		$	27,803		$	26,224		$	7,384		$	25,727		$	24,063

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
	2024				2023				2022				2024				2023				2022
Statutory federal income tax rate		21.0		%		21.0		%		21.0		%		21.0		%		21.0		%		21.0		%
State income taxes, net of federal benefit		6.3				6.2				6.2				6.2				6.2				6.2
Amortized investment tax credits		(2.1	)			(0.7	)			(0.7	)			(2.3	)			(0.7	)			(0.7	)
Credit for electricity from wind energy		(10.5	)			(5.3	)			(5.4	)			(11.5	)			(5.6	)			(5.7	)
AFUDC equity, net		(0.7	)			(0.6	)			(0.3	)			(0.8	)			(0.6	)			(0.3	)
Amortization of utility excess deferred tax(a)		(5.9	)			(1.5	)			(2.0	)			(6.5	)			(1.6	)			(2.1	)
Other, net, individually insignificant		—				—				0.3				0.1				(0.1	)			0.2
Effective income tax rate		8.1		%		19.1		%		19.1		%		6.2		%		18.6		%		18.6		%

(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, 2024, 2023, and 2022, MGE recognized $3.5 million, $3.5 million, and $4.1 million, respectively. For the year ended December 31, 2024, MGE recognized $4.1 million of deferred taxes not restricted by IRS normalization rules, compared to a net collection from customers of $1.3 million for both the years ended December 31, 2023 and 2022.

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)	2024		2023		2024		2023
Deferred tax assets
Investment in ATC	$	18,467	$	19,287	$	—	$	—
Federal tax credits		21,252		43,281		21,252		43,281
Accrued expenses		11,614		10,408		11,566		10,406
Pension and other postretirement benefits		6,878		15,793		6,878		15,793
Deferred tax regulatory account		37,892		41,893		37,892		41,893
Derivatives		13		1,472		13		1,472
Leases		7,521		7,389		7,521		7,389
Other		29,290		23,075		29,048		22,934
Gross deferred income tax assets		132,927		162,598		114,170		143,168
Less valuation allowance		—		—		—		—
Net deferred income tax assets	$	132,927	$	162,598	$	114,170	$	143,168

	MGE Energy				MGE
(In thousands)	2024		2023		2024		2023
Deferred tax liabilities
Property-related	$	334,728	$	316,305	$	334,728	$	316,305
Investment in ATC		54,262		53,137		—		—
Bond transactions		349		411		349		411
Pension and other postretirement benefits		26,801		34,824		26,801		34,824
Derivatives		13		1,472		13		1,472
Tax deductible prepayments		9,677		9,996		9,666		9,986
Leases		7,521		7,389		7,521		7,389
Other		15,973		18,093		16,053		17,415
Gross deferred income tax liabilities		449,324		441,627		395,131		387,802
Deferred income taxes, net	$	316,397	$	279,029	$	280,961	$	244,634

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

	MGE Energy				MGE
(In thousands)	2024		2023		2024		2023
Federal tax credits	$	21,252	$	43,281	$	21,252	$	43,281

Federal tax credit carryovers begin to expire in 2040. 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:	2024			2023			2022
Unrecognized tax benefits, January 1,	$	1,615		$	2,485		$	2,353
Additions based on tax positions related to the current year		415			455			731
Additions based on tax positions related to the prior years		—			—			—
Reductions based on tax positions related to the prior years		(484	)		(1,325	)		(599	)
Unrecognized tax benefits, December 31,	$	1,546		$	1,615		$	2,485

(In thousands)
Interest on Unrecognized Tax Benefits:	2024			2023			2022
Accrued interest on unrecognized tax benefits, January 1,	$	130		$	189		$	150
Reduction in interest expense on uncertain tax positions		(77	)		(149	)		(95	)
Interest expense on uncertain tax positions		64			90			134
Accrued interest on unrecognized tax benefits, December 31,	$	117		$	130		$	189

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, 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, 2024, and 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 in 2023.

The unrecognized tax benefits as of December 31, 2024, 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	2021 through 2024
MGE Energy Wisconsin combined reporting corporation return	2020 through 2024