Fair Value of Financial Instruments (Tables)

9 Months Ended

Sep. 30, 2018

Fair Value Disclosures [Abstract]

Estimated Fair Market Value of Financial Instruments

The estimated fair market value of financial instruments are as follows:

		September 30, 2018				December 31, 2017
(In thousands)		Carrying Amount		Fair Value		Carrying Amount		Fair Value
MGE Energy
Assets:
Cash and cash equivalents	$	133,855	$	133,855	$	107,952	$	107,952
Liabilities:
Short-term debt - commercial paper		-		-		4,000		4,000
Long-term debt(a)		503,553		523,075		426,883		475,282
MGE
Assets:
Cash and cash equivalents	$	47,264	$	47,264	$	5,951	$	5,951
Liabilities:
Short-term debt - commercial paper		-		-		4,000		4,000
Long-term debt(a)		503,553		523,075		426,883		475,282
(a) Includes long-term debt due within one year. Excludes debt issuance costs and unamortized discount of
$4.6 million and $4.3 million as of September 30, 2018, and December 31, 2017, respectively.

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.

		Fair Value as of September 30, 2018
(In thousands)		Total		Level 1		Level 2		Level 3
MGE Energy
Assets:
Derivatives, net	$	1,927	$	824	$	-	$	1,103
Exchange-traded investments		1,005		1,005		-		-
Total Assets	$	2,932	$	1,829	$	-	$	1,103
Liabilities:
Derivatives, net	$	36,557	$	140	$	-	$	36,417
Deferred compensation		2,985		-		2,985		-
Total Liabilities	$	39,542	$	140	$	2,985	$	36,417
MGE
Assets:
Derivatives, net	$	1,927	$	824	$	-	$	1,103
Exchange-traded investments		70		70		-		-
Total Assets	$	1,997	$	894	$	-	$	1,103
Liabilities:
Derivatives, net	$	36,557	$	140	$	-	$	36,417
Deferred compensation		2,985		-		2,985		-
Total Liabilities	$	39,542	$	140	$	2,985	$	36,417

		Fair Value as of December 31, 2017
(In thousands)		Total		Level 1		Level 2		Level 3
MGE Energy
Assets:
Derivatives, net	$	1,005	$	278	$	-	$	727
Exchange-traded investments		792		792		-		-
Total Assets	$	1,797	$	1,070	$	-	$	727
Liabilities:
Derivatives, net(b)	$	42,963	$	210	$	-	$	42,753
Deferred compensation		3,065		-		3,065		-
Total Liabilities	$	46,028	$	210	$	3,065	$	42,753
MGE
Assets:
Derivatives, net	$	1,005	$	278	$	-	$	727
Exchange-traded investments		64		64		-		-
Total Assets	$	1,069	$	342	$	-	$	727
Liabilities:
Derivatives, net(b)	$	42,963	$	210	$	-	$	42,753
Deferred compensation		3,065		-		3,065		-
Total Liabilities	$	46,028	$	210	$	3,065	$	42,753
(b)     These amounts are shown gross and exclude $0.1 million of collateral that was posted against derivative
positions with counterparties as of December 31, 2017.

Significant Unobservable Inputs

The following table presents the significant unobservable inputs used in the pricing model.

	Model Input
Significant Unobservable Inputs	September 30, 2018	December 31, 2017
Basis adjustment:
On peak	91.9%	92.3%
Off peak	93.2%	94.1%
Counterparty fuel mix:
Internal generation	50% - 75%	55% - 75%
Purchased power	50% - 25%	45% - 25%

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

The following table summarizes the changes in Level 3 commodity derivative assets and liabilities measured at fair value on a recurring basis.

		Three Months Ended				Nine Months Ended
		September 30,				September 30,
(In thousands)		2018		2017		2018		2017
Beginning balance	$	(37,332)	$	(45,605)	$	(42,026)	$	(50,305)
Realized and unrealized gains (losses):
Included in regulatory assets		2,018		2,846		6,711		7,547
Included in other comprehensive income		-		-		-		-
Included in earnings		26		(1,478)		(434)		(2,614)
Included in current assets		(25)		(14)		(496)		(111)
Purchases		5,736		6,299		17,602		18,481
Sales		-		-		-		-
Issuances		-		-		-		-
Settlements		(5,737)		(4,807)		(16,671)		(15,757)
Transfers in and/or out of Level 3		-		-		-		-
Balance as of September 30,	$	(35,314)	$	(42,759)	$	(35,314)	$	(42,759)
Total gains (losses) included in earnings attributed to
the change in unrealized gains (losses) related to
assets and liabilities held at September 30,(c)	$	-	$	-	$	-	$	-

(c)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 (c).

		Three Months Ended				Nine Months Ended
		September 30,				September 30,
(In thousands)		2018		2017		2018		2017
Purchased Power Expense	$	26	$	(1,460)	$	(637)	$	(2,377)
Cost of Gas Sold Expense		-		(18)		203		(237)
Total	$	26	$	(1,478)	$	(434)	$	(2,614)

(c)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.