Fair Value of Financial Instruments (Tables)

9 Months Ended

Sep. 30, 2014

Fair Value Disclosures [Abstract]

Estimated Fair Market Value of Financial Instruments

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

		September 30, 2014				December 31, 2013
(In thousands)		Carrying Amount		Fair Value		Carrying Amount		Fair Value
MGE Energy
Assets:
Cash and cash equivalents	$	88,719	$	88,719	$	68,813	$	68,813
Liabilities:
Long-term debt*		400,724		443,203		403,793		432,010
MGE
Assets:
Cash and cash equivalents	$	22,983	$	22,983	$	14,808	$	14,808
Liabilities:
Long-term debt*		400,724		443,203		403,793		432,010
*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 September 30, 2014
(In thousands)		Total		Level 1		Level 2		Level 3
MGE Energy
Assets:
Derivatives, net	$	2,267	$	417	$	-	$	1,850
Exchange-traded investments		886		886		-		-
Total Assets	$	3,153	$	1,303	$	-	$	1,850
Liabilities:
Derivatives, net	$	54,951	$	-	$	-	$	54,951
Deferred compensation		2,705		-		2,705		-
Total Liabilities	$	57,656	$	-	$	2,705	$	54,951
MGE
Assets:
Derivatives, net	$	2,267	$	417	$	-	$	1,850
Exchange-traded investments		341		341		-		-
Total Assets	$	2,608	$	758	$	-	$	1,850
Liabilities:
Derivatives, net	$	54,951	$	-	$	-	$	54,951
Deferred compensation		2,705		-		2,705		-
Total Liabilities	$	57,656	$	-	$	2,705	$	54,951

		Fair Value as of December 31, 2013
(In thousands)		Total		Level 1		Level 2		Level 3
MGE Energy
Assets:
Derivatives, net(a)	$	1,787	$	735	$	-	$	1,052
Exchange-traded investments		792		792		-		-
Total Assets	$	2,579	$	1,527	$	-	$	1,052
Liabilities:
Derivatives, net	$	65,680	$	-	$	-	$	65,680
Deferred compensation		2,364		-		2,364		-
Total Liabilities	$	68,044	$	-	$	2,364	$	65,680
MGE
Assets:
Derivatives, net(a)	$	1,787	$	735	$	-	$	1,052
Exchange-traded investments		431		431		-		-
Total Assets	$	2,218	$	1,166	$	-	$	1,052
Liabilities:
Derivatives, net	$	65,680	$	-	$	-	$	65,680
Deferred compensation		2,364		-		2,364		-
Total Liabilities	$	68,044	$	-	$	2,364	$	65,680
(a) These amounts are shown gross and exclude $0.2 million of collateral that was
posted against derivative positions with counterparties as of December 31, 2013.

Significant Unobservable Inputs

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

	Model Input
Significant Unobservable Inputs	September 30, 2014	December 31, 2013
Basis adjustment:
On peak	97.5%	94.2%
Off peak	94.4%	92.6%
Counterparty fuel mix:
Internal generation	50% - 70%	50% - 70%
Purchased power	50% - 30%	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.

		Three Months Ended				Nine Months Ended
		September 30,				September 30,
(In thousands)		2014		2013		2014		2013
Beginning balance	$	(49,349)	$	(66,856)	$	(64,628)	$	(72,346)
Realized and unrealized gains (losses):
Included in regulatory liabilities (assets)		(3,752)		(1,472)		11,528		4,018
Included in other comprehensive income		-		-		-		-
Included in earnings		(1,419)		(174)		5,837		(2,034)
Included in current assets		-		(38)		(89)		(94)
Purchases		6,371		6,052		19,900		17,709
Sales		-		-		(60)		(2)
Issuances		-		-		-		-
Settlements		(4,952)		(5,840)		(25,589)		(15,579)
Transfers in and/or out of Level 3		-		-		-		-
Balance as of September 30,	$	(53,101)	$	(68,328)	$	(53,101)	$	(68,328)
Total gains (losses) included in earnings attributed to
the change in unrealized gains (losses) related to
assets and liabilities held at September 30,(b)	$	-	$	-	$	-	$	-

(b)MGE's exchange-traded derivative contracts, over-the-counter party transactions, ten-year 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).

		Three Months Ended				Nine Months Ended
		September 30,				September 30,
(In thousands)		2014		2013		2014		2013
Purchased Power Expense	$	(1,411)	$	(174)	$	5,845	$	(2,034)
Cost of Gas Sold Expense		(8)		-		(8)		-
Total	$	(1,419)	$	(174)	$	5,837	$	(2,034)

(b)MGE's exchange-traded derivative contracts, over-the-counter party transactions, ten-year 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.