Summary of Significant Accounting Principles

9 Months Ended

Sep. 30, 2018

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Summary of Significant Accounting Policies.

a. Basis of Presentation - MGE Energy and MGE.

This report is a combined report of MGE Energy and MGE. References in this report to "MGE Energy" are to MGE Energy, Inc. and its subsidiaries. References in this report to "MGE" are to Madison Gas and Electric Company.

MGE Power Elm Road and MGE Power West Campus own electric generating assets and lease those assets to MGE. Both entities are variable interest entities under applicable authoritative accounting guidance. MGE is considered the primary beneficiary of these entities as a result of contractual agreements. As a result, MGE has consolidated MGE Power Elm Road and MGE Power West Campus. See Footnote 2 of Notes to Consolidated Financial Statements under Item 8, Financial Statements and Supplementary Data, of MGE Energy's and MGE's 2017 Annual Report on Form 10-K (the 2017 Annual Report on Form 10-K).

The accompanying consolidated financial statements as of September 30, 2018, and for the three and nine months ended, are unaudited but include all adjustments that MGE Energy and MGE management consider necessary for a fair statement of their respective financial statements. All adjustments are of a normal, recurring nature except as otherwise disclosed. The year-end consolidated balance sheet information was derived from the audited balance sheet appearing in the 2017 Annual Report on Form 10-K, but does not include all disclosures required by accounting principles generally accepted in the United States of America. These notes should be read in conjunction with the financial statements and the notes on pages 54 through 103 of the 2017 Annual Report on Form 10-K.

b. Cash, Cash Equivalents, and Restricted Cash – MGE Energy and MGE.

The following table presents the components of total cash, cash equivalents, and restricted cash on the consolidated balance sheets.

		MGE Energy				MGE
		September 30,		December 31,		September 30,		December 31,
(In thousands)		2018		2017		2018		2017
Cash and cash equivalents	$	133,855	$	107,952	$	47,264	$	5,951
Restricted cash		406		1,635		406		1,635
Receivable - margin account		780		2,507		780		2,507
Cash, cash equivalents, and restricted cash	$	135,041	$	112,094	$	48,450	$	10,093

Cash Equivalents

MGE Energy and MGE consider all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.

Restricted Cash

MGE has certain cash accounts that are restricted to uses other than current operations and designated for a specific purpose. MGE's restricted cash accounts include cash held by trustees for certain employee benefits and cash deposits held by third parties. These are included in "Other current assets" on the consolidated balance sheets.

Receivable – Margin Account

Cash amounts held by counterparties as margin collateral for certain financial transactions are recorded as Receivable – margin account in "Other current assets" on the consolidated balance sheets. The costs being hedged are fuel for electric generation, purchased power, and cost of gas sold.

The following table presents the retrospective adjustments to cash flow amounts on MGE Energy's and MGE's consolidated statements of cash flows in accordance with the adoption of ASU 2016-18, Restricted Cash.

		Nine Months Ended
(In thousands)		September 30, 2017
Cash provided by operating activities	$	(2,870)
Cash used for investing activities		525
Change in cash, cash equivalents, and restricted cash		(2,345)
Cash, cash equivalents, and restricted cash at beginning of period		5,674
Cash, cash equivalents, and restricted cash at end of period	$	3,329

c. Capitalized Software Assets – Hosting Arrangements – MGE Energy and MGE.

The FASB issued authoritative guidance of accounting for software in a hosted arrangement. MGE Energy and MGE adopted the authoritative guidance as of September 30, 2018. See Footnote 2.a. for further information.

As of September 30, 2018, and December 31, 2017, the net book value of capitalized costs of internal use software incurred in a hosting arrangement was $6.2 million and $0.5 million, respectively. As of September 30, 2018, accumulated amortization expense is less than $0.1 million. As of December 31, 2017, there was no accumulated amortization expense. Capitalized software assets for hosted arrangements and the related accumulated amortization expense are recorded in "Other deferred assets and other" on the consolidated balance sheets of MGE Energy and MGE.

For the three and nine months ended September 30, 2018, MGE recorded less than $0.1 million of amortization expense related to software assets for hosted arrangements. For the three and nine months ended September 30, 2017, no amortization expense was recorded. These costs are recognized in "Other operations and maintenance" expense in the consolidated statements of income of MGE Energy and MGE and are amortized on a straight-line basis over the estimated useful lives of the assets. Software assets for hosted arrangements have useful lives ranging from five to fifteen years.