Fair Value of Financial Instruments (Tables)

12 Months Ended

Dec. 31, 2015

Estimated Fair Market Value of Financial Instruments

The estimated fair market value of MGE Energy's and MGE's financial instruments are as follows:

		2015				2014
(In thousands)		Carrying Amount		Fair Value		Carrying Amount		Fair Value
MGE Energy
Assets:
Cash and cash equivalents	$	81,384	$	81,384	$	65,755	$	65,755
Liabilities:
Short-term debt - commercial paper		-		-		7,000		7,000
Long-term debt*		395,508		435,767		399,690		457,420

MGE
Assets:
Cash and cash equivalents	$	26,760	$	26,760	$	4,562	$	4,562
Liabilities:
Short-term debt - commercial paper		-		-		7,000		7,000
Long-term debt*		395,508		435,767		399,690		457,420

*Includes long-term debt due within one year.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table presents the balances of assets and liabilities measured at fair value on a recurring basis for MGE Energy and MGE.

	Fair Value as of December 31, 2015
(In thousands)		Total		Level 1		Level 2		Level 3
MGE Energy
Assets:
Derivatives, net	$	234	$	-	$	-	$	234
Exchange-traded investments		759		759		-		-
Total Assets	$	993	$	759	$	-	$	234
Liabilities:
Derivatives, net^(a)	$	54,316	$	581	$	-	$	53,735
Deferred compensation		3,145		-		3,145		-
Total Liabilities	$	57,461	$	581	$	3,145	$	53,735

MGE
Assets:
Derivatives, net	$	234	$	-	$	-	$	234
Exchange-traded investments		148		148		-		-
Total Assets	$	382	$	148	$	-	$	234
Liabilities:
Derivatives, net^(a)	$	54,316	$	581	$	-	$	53,735
Deferred compensation		3,145		-		3,145		-
Total Liabilities	$	57,461	$	581	$	3,145	$	53,735


	Fair Value as of December 31, 2014
(In thousands)		Total		Level 1		Level 2		Level 3
MGE Energy
Assets:
Derivatives, net	$	642	$	-	$	-	$	642
Exchange-traded investments		927		927		-		-
Total Assets	$	1,569	$	927	$	-	$	642
Liabilities:
Derivatives, net^(a)	$	55,640	$	1,012	$	-	$	54,628
Deferred compensation		2,832		-		2,832		-
Total Liabilities	$	58,472	$	1,012	$	2,832	$	54,628

MGE
Assets:
Derivatives, net	$	642	$	-	$	-	$	642
Exchange-traded investments		350		350		-		-
Total Assets	$	992	$	350	$	-	$	642
Liabilities:
Derivatives, net^(a)	$	55,640	$	1,012	$	-	$	54,628
Deferred compensation		2,832		-		2,832		-
Total Liabilities	$	58,472	$	1,012	$	2,832	$	54,628

(a) These amounts are shown gross and exclude $1.0 million and $2.2 million of collateral that was
posted against derivative positions with counterparties as of December 31, 2015 and 2014,
respectively.

Significant Unobservable Inputs

The following table presents the significant unobservable inputs used in the pricing model as of December 31:

	Model Input
Significant Unobservable Inputs	2015	2014
Basis adjustment:
On peak	96.9%	98.1%
Off peak	95.1%	95.0%
Counterparty fuel mix:
Internal generation	60%-75%	50%-70%
Purchased power	40%-25%	50%-30%

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table summarizes the changes in Level 3 assets and liabilities measured at fair value on a recurring basis for both MGE Energy and MGE.

(In thousands)		2015		2014		2013
Balance as of January 1,	$	(53,986)	$	(64,628)	$	(72,346)
Realized and unrealized gains (losses):
Included in regulatory liabilities		484		10,642		7,718
Included in other comprehensive income		-		-		-
Included in earnings		(6,635)		5,129		(2,618)
Included in current assets		-		-		(108)
Purchases		23,052		26,382		23,726
Sales		35		(125)		(2)
Issuances		-		-		-
Settlements		(16,451)		(31,386)		(20,998)
Transfers in and/or out of Level 3		-		-		-
Balance as of December 31,	$	(53,501)	$	(53,986)	$	(64,628)
Total gains (losses) included in earnings attributed to the
change in unrealized gains (losses) related to assets and
liabilities held at December 31,^(b)	$	-	$	-	$	-

(b) MGE's exchange-traded derivative contracts, over-the-counter party transactions, purchased power agreement, and FTRs are subject to regulatory deferral. These derivatives are therefore marked to fair value and are offset in the financial statements with a corresponding regulatory asset or liability.

Gains and Losses Included in Income for Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table presents total realized and unrealized gains (losses) included in income for Level 3 assets and liabilities measured at fair value on a recurring basis for both MGE Energy and MGE (b).

(In thousands)
Year Ended December 31,		2015		2014		2013
Purchased power expense	$	(6,663)	$	5,137	$	(2,618)
Cost of gas sold expense		28		(8)		-
Total	$	(6,635)	$	5,129	$	(2,618)