Taxes

6 Months Ended

Jun. 30, 2011

Taxes Disclosure [Abstract]

Taxes

5.       Taxes - MGE Energy and MGE.

a.       Accounting for Uncertainty in Income Taxes.

MGE Energy and MGE account for 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 as an unrecognized tax benefit.

MGE Energy will file an application with its 2010 tax returns to change its tax method of accounting for gas repairs. This method change accelerates tax deductions for repairs in accordance with Treasury Regulations and case law, as compared to the prior method of claiming tax depreciation on project costs.At June 30, 2011, MGE Energy and MGE have a liability in the amount of $0.6 million for the tax uncertainty related to the change in tax method of accounting for gas repairs. At June 30, 2011, MGE Energy and MGE have an unrecognized tax benefit in the amount of $5.0 million for the tax uncertainty primarily related to the change in tax method of accounting for electric and gas repairs. At December 31, 2010, the unrecognized tax benefit was$4.4 million primarily for the tax uncertainty related to the change in tax method of accounting for electric repairs.

b.       Effective Tax Rate.

MGE Energy's effective income tax rate for the three and six months endedJune 30, 2011, are 37.3% and 37.4%, respectively, compared to 35.9% and 36.4% for the same periods in 2010; and MGE's effective income tax rate for the three and six months ended June 30, 2011, are 37.3% and 37.4%, respectively, compared to 36.0% and 36.4% for the same periods in 2010. The higher effective tax rate is, in part, attributable to a lower estimated domestic manufacturing deduction.