# MGE Energy Inc: Form 10-Q for the period ended Sep 30, 2024

- Company: [MGE Energy Inc](/companies/mgee.md) (CIK 1161728)
- Form: 10-Q
- Filed: 2024-11-06
- Accepted by EDGAR: Nov 6, 2024, 11:36 ET
- Period: 2024-09-30
- Accession: 0000950170-24-121952
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1161728/000095017024121952/mgee-20240930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1161728/000095017024121952/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Operating income | 3 months, 2024-07-01 to 2024-09-30 | $48.1m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2024-01-01 to 2024-09-30 | $118.6m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2024-07-01 to 2024-09-30 | $3.6m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2024-01-01 to 2024-09-30 | $7.9m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-07-01 to 2024-09-30 | $40.9m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2024-01-01 to 2024-09-30 | $98.5m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-07-01 to 2024-09-30 | $1.13 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2024-01-01 to 2024-09-30 | $2.72 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-07-01 to 2024-09-30 | $1.13 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2024-01-01 to 2024-09-30 | $2.72 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-07-01 to 2024-09-30 | 36,211,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2024-01-01 to 2024-09-30 | 36,202,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2024-01-01 to 2024-09-30 | $209.8m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2024-01-01 to 2024-09-30 | $164.1m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 9 months, 2024-01-01 to 2024-09-30 | $47.2m | us-gaap:PaymentsOfDividendsCommonStock |
| Cash and equivalents | at 2024-09-30 | $14.9m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-09-30 | $210.3m | us-gaap:AssetsCurrent |
| Total assets | at 2024-09-30 | $2.75bn | us-gaap:Assets |
| Current liabilities | at 2024-09-30 | $149.6m | us-gaap:LiabilitiesCurrent |
| Long-term debt | at 2024-09-30 | $715.3m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2024-09-30 | $5.3m | us-gaap:LongTermDebtCurrent |
| Short-term borrowings | at 2024-09-30 | $48.5m | us-gaap:ShortTermBorrowings |
| Shareholders' equity | at 2024-09-30 | $1.20bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 62,103 characters.

### General

MGE Energy is an investor-owned public utility holding company operating through subsidiaries in five business segments:

- Regulated electric utility operations, conducted through MGE, which generate and distribute electricity to approximately 163,000 customers in Dane County, Wisconsin,
- Regulated gas utility operations, conducted through MGE, which distribute natural gas to approximately 176,000 customers in seven south-central and western Wisconsin counties,
- Nonregulated energy operations, conducted through MGE Power and its subsidiaries, which owns interests in electric generating capacity that is leased to MGE,
- Transmission investments, representing our equity investment in ATC, which owns and operates electric transmission facilities primarily in Wisconsin, and ATC Holdco, a company created to facilitate out-of-state electric transmission development and investments, and
- All other, which includes corporate operations and services.

MGE will continue to focus on growing earnings while controlling operating and fuel costs. MGE's goal is to provide safe and efficient operations in addition to providing customer value. We believe it is critical to maintain a strong credit rating consistent with financial strength in MGE in order to accomplish these goals.

The ownership/leasing structure for our nonregulated energy operations was adopted under applicable state regulatory guidelines for MGE's participation in these generation facilities, consisting principally of a stable return on the equity investment in the new generation facilities over the term of the related leases. The nonregulated energy operations include an ownership interest in two coal-fired generating units in Oak Creek, Wisconsin and a partial ownership of a cogeneration project on the University of Wisconsin-Madison campus. A third party operates the units in Oak Creek, and MGE operates the cogeneration project. Due to the nature of MGE's participation in these facilities, the results of MGE Energy's nonregulated operations are also consolidated into MGE's consolidated financial position and results of operations under applicable accounting standards.

### Executive Overview

We principally earn revenue and generate cash from operations by providing electric and natural gas utility services, including electric power generation and electric power and gas distribution. The earnings and cash flows from the utility business are sensitive to various external factors, including:

- Weather, and its impact on customer sales,
- Economic conditions, including current business activity and employment and their impact on customer demand,
- Regulation and regulatory issues, and their impact on the timing and recovery of costs,
- Energy commodity prices, including natural gas prices,
- Equity price risk pertaining to pension related assets,
- Credit market conditions, including interest rates and our debt credit rating,
- Environmental laws and regulations, including adopted and pending environmental rule changes, and
- Other factors listed in "Item 1A. Risk Factors" in our 2023 Annual Report on Form 10-K.

During the three months ended September 30, 2024, MGE Energy's earnings were $40.9 million or $1.13 per share compared to $37.9 million or $1.05 per share during the same period in the prior year. MGE's earnings during the three months ended September 30, 2024, were $33.3 million compared to $30.5 million during the same period in the prior year.

During the nine months ended September 30, 2024, MGE Energy's earnings were $98.5 million or $2.72 per share compared to $97.6 million or $2.70 per share during the same period in the prior year. MGE's earnings during the nine months ended September 30, 2024, were $75.9 million compared to $76.8 million during the same period in the prior year.

MGE Energy's net income was derived from our business segments as follows:

*(In millions)*

| Business Segment: | Three Months Ended September 30, 2024 | 2023 | Nine Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| Electric Utility | $35.0 | $31.1 | $66.5 | $66.0 |
| Gas Utility | (2.0) | (0.8) | 8.6 | 10.5 |
| Nonregulated Energy | 6.1 | 5.6 | 18.0 | 16.7 |
| Transmission Investments | 2.1 | 2.0 | 6.1 | 5.8 |
| All Other | (0.3) | — | (0.7) | (1.4) |
| Net Income | $40.9 | $37.9 | $98.5 | $97.6 |

Our net income during the three and nine months ended September 30, 2024, compared to the same periods in the prior year primarily reflects the effects of the following factors:

#### Electric Utility

An increase in electric investments, as part of the 2024 rate case, contributed to earnings for the three and nine months ended September 30, 2024. Unfavorable weather contributed to lower electric residential sales for the nine months ended September 30, 2024, compared to the same period in the prior year. Electric residential sales remained flat for the three months ended September 30, 2024, compared to the same period in the prior year. Also contributing to higher third quarter electric earnings is lower fuel costs during the three months ended September 30, 2024, compared to the 2024 fuel cost plan approved by the PSCW.

#### Gas Utility

Lower gas retail sales resulting from warmer than normal weather in the first quarter of 2024 contributed to lower gas earnings for the nine months ended September 30, 2024. Gas retail sales decreased approximately 7%. Heating degree days (a measure for determining the impact of weather during the heating season) decreased by approximately 9% in the first nine months of 2024 compared to the same period in the prior year.

### Significant Events

The following events affected the first nine months of 2024:

2024/2025 Rate Proceeding: In December 2023, the PSCW approved a 1.54% increase to electric rates and 2.44% increase to gas rates for 2024. The PSCW also approved a 4.17% increase to electric rates and 1.32% increase to gas rates in 2025. MGE filed a 2025 Fuel Cost Plan with the PSCW in June 2024. The plan would lower the 2025 increase in electric rates to 2.47%, reflecting lower expected fuel costs. MGE expects a final decision from the PSCW on the Fuel Cost Plan by the end of 2024. See "Other Matters" below for additional information on the 2024/2025 rate proceeding.

The 2024/2025 rate order includes an earnings sharing mechanism, under which, if MGE earns above the 9.7% ROE authorized in the rate order: (i) the utility will retain 100% of earnings for the first 15 basis points above the authorized ROE; (ii) 50% of the next 60 basis points will be required to be deferred and returned to customers; and (iii) 100% of any remaining excess earnings will be required to be refunded to customers. The earnings calculation excludes fuel rules adjustments.

Large Scale Utility Projects: Large scale generation projects under construction, are shown in the following table. Incurred costs are reflected in "Construction work in progress" for projects under construction on the consolidated balance sheets.

| Project | Ownership Interest | Source | Share of Generation | Share of Estimated Costs(a) | Costs incurred as of September 30, 2024(a) | Estimated Date of Commercial Operation |
| --- | ---: | --- | --- | --- | --- | --- |
| Paris | 10% | Solar/Battery | 20 MW/11 MW | $61 million(c) | $48.6 million(b) | 2024 Solar 2025 Battery |
| Darien | 10% | Solar/Battery | 25 MW/7.5 MW | $63 million(c) | $41.9 million(b) | 2025 Solar 2026 Battery |
| Koshkonong | 10% | Solar/Battery | 30 MW/16.5 MW | $104 million(c) | $6.6 million | 2026 Solar 2027 Battery |
| High Noon(d) | 10% | Solar/Battery | 30 MW/16.5 MW | $99 million | $1.0 million | 2027 Solar 2027 Battery |
| Sunnyside(d) | 100% | Solar/Battery | 20MW/40MW | $112 million | $0.9 million | 2026 Solar 2027 Battery |

(a) Excluding AFUDC.

(b) MGE received specific approval to recover 100% AFUDC. After tax, MGE recognized $4.0 million and $2.0 million of AFUDC equity through September 30, 2024, on Paris and Darien, respectively, during construction. AFUDC has been excluded from the costs incurred in the table above.

(c) Estimated costs are expected to exceed PSCW previously approved CA levels. Notifications are provided to the PSCW when costs increase above CA levels. MGE has and will continue to request recovery of the updates in its rate case proceedings.

(d) Pending approval by the PSCW.

In the near term, several items may affect us, including:

2023 Annual Fuel Proceeding: MGE had fuel savings in 2023. As of December 31, 2023, MGE had deferred $7.2 million of 2023 fuel savings. The PSCW has completed the annual review of 2023 fuel costs and approved MGE's return of these savings over a three-month period from October 2024 through December 2024. There was no change to the costs to be refunded as a result of the fuel rule proceedings from the amount MGE deferred in 2023.

ATC ROE: As discussed in "Other Matters" below, ATC's authorized ROE, which is used in calculating its rates and revenues, is the subject of a challenge before the Federal Energy Regulatory Commission (FERC). A decrease in ATC's ROE could result in lower equity earnings and distributions from ATC in the future. We derived approximately 6.0% and 5.7% of our net income during the nine months ended September 30, 2024 and 2023, respectively, from our investment in ATC.

Environmental Initiatives: There are proposed legislative rules and initiatives involving matters related to air emissions, water effluent, hazardous materials, and greenhouse gases, all of which affect generation plant capital expenditures and operating costs as well as future operational planning. Legislation and rulemaking addressing climate change and related matters could significantly affect the costs of owning and operating fossil-fueled generating plants. We would expect to seek and receive recovery of any such costs in rates. However, it is difficult to estimate the amount of such costs due to the uncertainty as to the timing and form of any legislation or rules, the timing and effects of any judicial review, and the scope and time of the recovery of costs in rates, which may occur after those costs have been incurred and paid.

Future Generation – 80% carbon reduction target by 2030 (from 2005 levels): MGE has outlined initiatives to achieve our raised target.

- *Transitioning away from coal.* Columbia: MGE, along with the other plant co-owners, announced plans to retire Columbia Unit 1 and Unit 2. Final timing and retirement dates for Units 1 and 2 continue to be evaluated and depend upon operational, regulatory, capacity needs and availability, and other factors impacting one or more of the Columbia co-owners. MGE has a plan, which it continues to evaluate, to replace the generation from Columbia while maintaining electric service reliability.

Elm Road Units: MGE, along with the plant co-owners, announced plans to end the use of coal as a primary fuel at the Elm Road Units and transition the plant to natural gas. Transition plans and costs will be subject to PSCW approval. MGE's remaining use of coal is expected to be further reduced as the Elm Road Units transition to natural gas. By the end of 2030, MGE expects coal to be used only as a backup fuel at the Elm Road Units. This transition will help MGE meet its 2030 carbon reduction goals. By the end of 2032, MGE expects that the Elm Road Units will be fully transitioned away from coal, which will eliminate coal as an internal generation source for MGE.

- *Growing renewable generation.* MGE is seeking to acquire, or has acquired, a joint interest in several renewable generation projects. The forecasted capital expenditures include announced projects for 198 MW of solar, 97 MW of battery, and 18 MW of wind. See the 2024-2029 capital expenditures forecast included under "Liquidity and Capital Resources" below for information on those projects.
- *Natural gas as a fuel source.* West Riverside: In June 2024, MGE purchased an additional 25 MW of capacity of West Riverside for approximately $25 million. After purchase, MGE owns 50 MW of capacity of West Riverside. West Riverside is a natural gas-fired generating plant.

Environmental Initiatives – Natural gas distribution: Building upon our long-standing commitment to providing affordable, sustainable energy, MGE has set a goal to achieve net-zero methane emissions from its natural gas distribution system by 2035. If MGE can accelerate plans to achieve net-zero methane emissions from its natural gas system—through the evolution of new technologies, such as renewable natural gas—it will. MGE is working to reduce overall emissions from its natural gas distribution system cost-effectively. For customers who want to reduce their footprint further, MGE introduced a renewable natural gas program which was made effective starting May 2024 after approval by the PSCW. MGE purchases renewable thermal credits on behalf of customers who voluntarily elect in the program to offset the emissions associated with the customer's monthly natural gas usage.

Solar Procurement Disruptions: MGE is monitoring import regulations under the Uyghur Forced Labor Protection Act and the U.S. Department of Commerce new solar tariffs. These disruptions have a potential to impact current and future solar projects which may result in an increase in costs or delays in construction timelines. In the event that such disruptions cause costs to exceed the levels approved for specific projects, we have filed, and expect to continue to file, notifications with the PSCW and expect to request recovery of any increases in MGE's future rate proceedings. See "Other Matters" below for additional information on the solar procurement disruptions.

Equity Issuance Plans: In September 2024, MGE Energy began issuing new shares of common stock to participants in our Direct Stock Purchase and Dividend Reinvestment Plan.

The following discussion is based on the business segments as discussed in Footnote 14 of the Notes to Consolidated Financial Statements in this Report.

### Results of Operations

### Three Months Ended September 30, 2024 and 2023

### Electric sales and revenues

The following table compares MGE's electric revenues and electric kWh sales by customer class for each of the periods indicated:

*(In thousands, except CDD)*

|  | Revenues Three Months Ended September 30, 2024 | 2023 | % Change | Sales (kWh) Three Months Ended September 30, 2024 | 2023 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Residential | $52,834 | $50,008 | 5.7% | 265,632 | 264,678 | 0.4% |
| Commercial | 73,517 | 70,795 | 3.8% | 495,402 | 496,161 | (0.2)% |
| Industrial | 3,459 | 3,715 | (6.9)% | 36,666 | 39,908 | (8.1)% |
| Other-retail/municipal | 11,346 | 10,991 | 3.2% | 104,915 | 102,400 | 2.5% |
| Total retail | 141,156 | 135,509 | 4.2% | 902,615 | 903,147 | (0.1)% |
| Sales to the market | 5,799 | 3,305 | 75.5% | 103,552 | 72,916 | 42.0% |
| Other | 835 | 77 | n.m.% | — | — | —% |
| Total | $147,790 | $138,891 | 6.4% | 1,006,167 | 976,063 | 3.1% |
| Cooling degree days (normal 503) |  |  |  | 505 | 549 | (8.0)% |

n.m. not meaningful

Electric revenue increased $8.9 million during the three months ended September 30, 2024, compared to the same period in the prior year, due to the following:

*(In millions)*

|  |  |
| --- | ---: |
| Revenue subject to refund, net | $3.2 |
| Sales to the market | 2.5 |
| Rate changes | 2.0 |
| Customer fixed and demand charges | 0.6 |
| Other | 0.4 |
| Increase in residential volume | 0.2 |
| Total | $8.9 |

- *Revenue subject to refund.* For cost recovery mechanisms, any over-collection of revenues resulting from costs authorized to be collected from customers in rates exceeding actual costs is recorded as a reduction of revenue in the period incurred, as the over-collection is expected to be refunded to customers in a subsequent period. In the year the over-collection is refunded, rates are reduced and offset as revenue subject to refund. There is no net income impact in the year the costs are refunded.
- *Sales to the market.* Sales to the market typically occur when MGE has more generation and purchases in the MISO market than are needed for its customer demand. The excess electricity is then sold to other utilities or power marketers in the MISO market. During the three months ended September 30, 2024, market volumes increased compared to the same period in the prior year, reflecting an increase in sales. Additionally, an increase in the cost of capacity sold further contributed to the increase in sales. The revenue generated from these sales is included in fuel rules costs. See fuel rules discussion in Footnote 9 of the Notes to Consolidated Financial Statements in this Report.
- *Rate changes.* In December 2023, the PSCW authorized MGE to increase 2024 rates for retail electric customers by approximately 1.54%. Rates charged to retail customers during the three months ended September 30, 2024, were $2.0 million higher than those charged during the same period in the prior year. See Footnote 9 of the Notes to Consolidated Financial Statements in this Report for further information on the rate increase. Any increase in rates associated with fuel or purchase power costs are generally offset in fuel and purchased power costs and do not have a significant impact on net income.

### Electric fuel and purchased power

*(In millions)*

|  | Three Months Ended September 30, 2024 | 2023 | $ Change |
| --- | ---: | ---: | ---: |
| Fuel for electric generation | $17.3 | $19.7 | $(2.4) |
| Purchased power | 8.1 | 7.0 | 1.1 |

The $2.4 million decrease in fuel for electric generation was due to an approximately 16% decrease in the average cost primarily driven by lower market prices. Internal generation increased approximately 5%.

Excluding deferred fuel costs, purchased power decreased $0.5 million. The decrease in purchased power was due to an approximately 10% decrease in average cost. The decrease was partially offset by an approximately 2% increase in market purchases as a result of higher customer sales. Deferred fuel cost recovered during the three months ended September 30, 2024, was $2.4 million compared to $0.8 million in the same period of the prior year.

Fuel and purchased power costs are generally offset by electric revenue and do not have a significant impact on net income. MGE expects to seek and receive recovery of fuel and purchased power costs that exceed the fuel rules bandwidth in customer rates. See Footnote 9 of the Notes to Consolidated Financial Statements in this Report for further information on the fuel rules bandwidth.

### Gas deliveries and revenues

The following table compares MGE's gas revenues and gas therms delivered by customer class for each of the periods indicated:

*(In thousands, except HDD and average*

| rate per therm of retail customer) | Revenues Three Months Ended September 30, 2024 | 2023 | % Change | Therms Delivered Three Months Ended September 30, 2024 | 2023 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Residential | $13,069 | $13,719 | (4.7)% | 6,067 | 6,202 | (2.2)% |
| Commercial/Industrial | 5,892 | 6,016 | (2.1)% | 9,145 | 9,335 | (2.0)% |
| Total retail | 18,961 | 19,735 | (3.9)% | 15,212 | 15,537 | (2.1)% |
| Gas transportation | 1,417 | 1,587 | (10.7)% | 15,393 | 15,014 | 2.5% |
| Other | 98 | 102 | (3.9)% | — | — | —% |
| Total | $20,476 | $21,424 | (4.4)% | 30,605 | 30,551 | 0.2% |
| Heating degree days (normal 132) |  |  |  | 60 | 70 | (14.3)% |
| Average rate per therm of retail customer | $1.246 | $1.270 | (1.9)% |  |  |  |

Gas revenue decreased $0.9 million during the three months ended September 30, 2024, compared to the same period in the prior year, due to the following:

*(In millions)*

|  |  |
| --- | ---: |
| Decrease in volume | $(0.9) |
| Other | (0.7) |
| Rate changes | 0.7 |
| Total | $(0.9) |

- *Rate changes.* In December 2023, the PSCW authorized MGE to increase 2024 rates for retail gas customers by approximately 2.44%.

MGE recovers the cost of natural gas in its gas segment through the PGA. Under the PGA, MGE is able to pass through to its gas customers the cost of gas. Changes in PGA recoveries affect revenues but do not change net income in view of the pass-through treatment of the costs. Payments for natural gas decreased driving lower rates during the three months ended September 30, 2024.

The average retail rate per therm for the three months ended September 30, 2024, decreased approximately 2% compared to the same period in the prior year, reflecting a decrease in natural gas commodity costs (recovered through the PGA).

### Cost of gas sold

Cost of gas sold decreased $0.5 million during the three months ended September 30, 2024, compared to the same period in the prior year. Average cost per therm decreased approximately 10% and therms delivered decreased approximately 1%. MGE recovers the cost of natural gas in its gas segment through the PGA as described under gas deliveries and revenue above.

### Consolidated operations and maintenance expenses

During the three months ended September 30, 2024, operations and maintenance expenses increased $3.1 million, compared to the same period in the prior year. The following contributed to the net change:

*(In millions)*

|  |  |
| --- | ---: |
| Increased customer accounts costs | $2.4 |
| Increased transmission costs | 1.5 |
| Increased electric production expenses | 0.6 |
| Increased other expenses | 0.4 |
| Decreased administrative and general costs | (1.8) |
| Total | $3.1 |

- Increased customer accounts costs are primarily related to collection of deferred bad debt expense from prior years. MGE has received approval to recover deferred bad debt expense from 2020 through 2023 over a two-year period beginning in 2024. Bad debt expense is generally offset by electric revenue and does not have a significant impact on net income.
- Increased transmission costs are primarily a result of an increase in transmission rate and collection of deferred costs from prior

years. Transmission costs represent ATC and MISO network transmission expenses authorized to collect in rates. The PSCW has approved MGE to defer as a regulatory asset or liability, the difference between actual costs included in rates and to be recovered or refunded in a future rate proceeding. Transmission cost is generally offset by electric revenue and does not have a significant impact on net income.

- Decreased administrative and general costs are primarily related to a decrease in pension and other postretirement service costs. These costs are generally offset by electric revenue and do not have a significant impact on net income.

### Consolidated depreciation expense

Electric depreciation expense increased $1.5 million and gas depreciation expense increased $0.3 million during the three months ended September 30, 2024, compared to the same period in the prior year. Badger Hollow II was placed in service in December 2023. The timing of the in-service dates contributed to the increase in electric depreciation expense.

### Electric and gas other income

Electric other income decreased $4.3 million and gas other income decreased $1.5 million during the three months ended September 30, 2024, compared to the same period in the prior year, primarily related to pension and other postretirement excluding service costs.

### Nonregulated Energy Operations - MGE Energy and MGE

The nonregulated energy operations are conducted through MGE Energy's subsidiaries: MGE Power Elm Road (the Elm Road Units) and MGE Power West Campus (WCCF), which have been formed to own and lease electric generating capacity to assist MGE. During the three months ended September 30, 2024 and 2023, net income at the nonregulated energy operations segment was $6.1 million and $5.6 million, respectively.

### Transmission Investment Operations - MGE Energy

The transmission investment segment holds our interest in ATC and ATC Holdco, and its income reflects our equity in the earnings of those investments. ATC Holdco was formed in December 2016 to pursue transmission development opportunities that typically have long development and investment lead times before becoming operational. During the three months ended September 30, 2024 and 2023, other income at the transmission investment segment primarily reflects ATC's operations and was $2.9 million and $2.7 million, respectively. In October 2024, FERC issued a ruling eliminating the risk premium in the ROE calculation resulting in a 4-basis point reduction in the base ROE from 10.02% to 9.98%. See Footnote 3 of the Notes to Consolidated Financial Statements in this Report for summarized financial information regarding ATC and "Other Matters" below for additional information concerning ATC and FERC ruling on ROE.

### Consolidated Income Taxes - MGE Energy and MGE

See Footnote 4 of the Notes to Consolidated Financial Statements in this Report for the effective tax rate reconciliation.

### Noncontrolling Interest, Net of Tax - MGE

Noncontrolling interest, net of tax, reflects the accounting required for MGE Energy's interest in MGE Power Elm Road (the Elm Road Units) and MGE Power West Campus (WCCF). MGE Energy owns 100% of MGE Power Elm Road and MGE Power West Campus. They are not owned by MGE. Due to the contractual agreements for these projects with MGE, the entities are considered VIEs with respect to MGE and their results are consolidated with those of MGE, the primary beneficiary of the VIEs. The following table shows MGE Energy's noncontrolling interest, net of tax, reflected on MGE's consolidated statement of income:

*(In millions)*

|  | Three Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: |
| MGE Power Elm Road | $3.9 | $3.7 |
| MGE Power West Campus | 1.8 | 1.8 |

36

### Results of Operations

### Nine Months Ended September 30, 2024 and 2023

### Electric sales and revenues

The following table compares MGE's electric revenues and electric kWh sales by customer class for each of the periods indicated:

*(In thousands, except CDD)*

|  | Revenues Nine Months Ended September 30, 2024 | 2023 | % Change | Sales (kWh) Nine Months Ended September 30, 2024 | 2023 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Residential | $134,296 | $131,552 | 2.1% | 659,210 | 672,760 | (2.0)% |
| Commercial | 197,541 | 193,760 | 2.0% | 1,356,345 | 1,356,286 | 0.0% |
| Industrial | 10,314 | 10,578 | (2.5)% | 110,936 | 114,514 | (3.1)% |
| Other-retail/municipal | 31,439 | 30,853 | 1.9% | 285,410 | 274,875 | 3.8% |
| Total retail | 373,590 | 366,743 | 1.9% | 2,411,901 | 2,418,435 | (0.3)% |
| Sales to the market | 8,394 | 9,617 | (12.7)% | 165,239 | 126,739 | 30.4% |
| Other revenues | 2,314 | 1,267 | 82.6% | — | — | —% |
| Total | $384,298 | $377,627 | 1.8% | 2,577,140 | 2,545,174 | 1.3% |
| Cooling degree days (normal 700) |  |  |  | 712 | 754 | (5.6)% |

Electric revenue increased $6.7 million during the nine months ended September 30, 2024, compared to the same period in the prior year, due to the following:

*(In millions)*

|  |  |
| --- | ---: |
| Rate changes | $5.3 |
| Customer fixed and demand charges | 2.3 |
| Revenue subject to refund, net | 1.8 |
| Other | 0.7 |
| Decrease in residential volume | (2.2) |
| Sales to the market | (1.2) |
| Total | $6.7 |

- *Rate changes.* In December 2023, the PSCW authorized MGE to increase 2024 rates for retail electric customers by approximately 1.54%. Rates charged to retail customers during the nine months ended September 30, 2024, were $5.3 million higher than those charged during the same period in the prior year. See Footnote 9 of the Notes to Consolidated Financial Statements in this Report for further information on the rate increase. Any increase in rates associated with fuel or purchase power costs are generally offset in fuel and purchased power costs and do not have a significant impact on net income.
- *Customer fixed and demand charges.* During the nine months ended September 30, 2024, fixed and demand charges increased $2.3 million primarily attributable to the increase in demand charges for commercial customers.
- *Revenue subject to refund.* For cost recovery mechanisms, any over-collection of revenues resulting from costs authorized to be collected from customers in rates exceeding actual costs is recorded as a reduction of revenue in the period incurred, as the over-collection is expected to be refunded to customers in a subsequent period. In the year the over-collection is refunded, rates are reduced and offset as revenue subject to refund. There is no net income impact in the year the costs are refunded.
- *Volume.* During the nine months ended September 30, 2024, residential sales decreased by approximately 2% compared to the same period in the prior year. This decrease was driven by weather conditions during the heating months. This change was a result of a warmer April 2023 compared to 2024 which impacted residential sales.
- *Sales to the market.* Sales to the market typically occur when MGE has more generation and purchases in the MISO market than are needed for its customer demand. The excess electricity is then sold to other utilities or power marketers in the MISO market. During the nine months ended September 30, 2024, market volumes increased compared to the same period in the prior year, reflecting an increase in sales. However, the cost of capacity sold decreased offsetting the revenue generated from increased sales to the market from excess generation and purchases. The revenue generated from these sales is included in fuel rules costs. See fuel rules discussion in Footnote 9 of the Notes to Consolidated Financial Statements in this Report.

### Electric fuel and purchased power

*(In millions)*

|  | Nine Months Ended September 30, 2024 | 2023 | $ Change |
| --- | ---: | ---: | ---: |
| Fuel for electric generation | $41.2 | $47.1 | $(5.9) |
| Purchased power | 26.4 | 28.3 | (1.9) |

The $5.9 million decrease in fuel for electric generation was due to an approximately 19% decrease in the average cost partially offset by an approximately 9% increase in internal generation. Renewable generation increased approximately 29% driven by new generation sources including Badger Hollow II.

Excluding deferred fuel costs, purchased power decreased $5.9 million. The decrease in purchased power was due to an approximately 22% decrease in market purchases as a result of lower customer sales and increased internal generation. In addition, there was an approximately 1% decrease in average cost. Deferred fuel cost recovered during the nine months ended September 30, 2024, was $6.5 million compared to $2.5 million in the same period of the prior year.

Fuel and purchased power costs are generally offset by electric revenue and do not have a significant impact on net income. MGE expects to seek and receive recovery of fuel and purchased power costs that exceed the fuel rules bandwidth in customer rates. See Footnote 9 of the Notes to Consolidated Financial Statements in this Report for further information on the fuel rules bandwidth.

### Gas deliveries and revenues

The following table compares MGE's gas revenues and gas therms delivered by customer class for each of the periods indicated:

*(In thousands, except HDD and average*

| rate per therm of retail customer) | Revenues Nine Months Ended September 30, 2024 | 2023 | % Change | Therms Delivered Nine Months Ended September 30, 2024 | 2023 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Residential | $72,057 | $86,131 | (16.3)% | 61,696 | 66,948 | (7.8)% |
| Commercial/Industrial | 43,292 | 55,726 | (22.3)% | 62,193 | 66,584 | (6.6)% |
| Total retail | 115,349 | 141,857 | (18.7)% | 123,889 | 133,532 | (7.2)% |
| Gas transportation | 5,003 | 5,354 | (6.6)% | 51,648 | 53,319 | (3.1)% |
| Other revenues | 409 | 466 | (12.2)% | — | — | —% |
| Total | $120,761 | $147,677 | (18.2)% | 175,537 | 186,851 | (6.1)% |
| Heating degree days (normal 4,496) |  |  |  | 3,640 | 3,999 | (9.0)% |
| Average rate per therm of retail customer | $0.931 | $1.062 | (12.3)% |  |  |  |

Gas revenue decreased $26.9 million during the nine months ended September 30, 2024, compared to the same period in the prior year, due to the following:

*(In millions)*

|  |  |
| --- | ---: |
| Rate changes | $(15.1) |
| Decrease in volume | (9.7) |
| Other | (2.1) |
| Total | $(26.9) |

- *Rate changes.* In December 2023, the PSCW authorized MGE to increase 2024 rates for retail gas customers by approximately 2.44%.

MGE recovers the cost of natural gas in its gas segment through the purchased gas adjustment clause (PGA). Under the PGA, MGE is able to pass through to its gas customers the cost of gas. Changes in PGA recoveries affect revenues but do not change net income in view of the pass-through treatment of the costs. Payments for natural gas decreased driving lower rates during the nine months ended September 30, 2024.

The average retail rate per therm excluding customer fixed charges for the nine months ended September 30, 2024, decreased approximately 12% compared to the same period in the prior year, reflecting a decrease in natural gas commodity costs (recovered through the PGA).

- *Volume.* For the nine months ended September 30, 2024, retail gas deliveries decreased approximately 7% compared to the

same period in the prior year primarily attributable to unfavorable weather conditions in the first half of 2024.

- *Other.* For the nine months ended September 30, 2024, other gas revenues decreased primarily related to lower residential customer fixed charges. The PSCW approved a reduction in the customer fixed charge component of the residential gas rate in the 2024 rate proceeding.

### Cost of gas sold

Cost of gas sold decreased $27.5 million during the nine months ended September 30, 2024, compared to the same period in the prior year. Cost per therm decreased approximately 30% and therms delivered decreased approximately 7%. MGE recovers the cost of natural gas in its gas segment through the PGA as described under gas deliveries and revenues above.

### Consolidated operations and maintenance expenses

During the nine months ended September 30, 2024, operations and maintenance expenses increased $11.8 million, compared to the same period in the prior year. The following contributed to the net change:

*(In millions)*

|  |  |
| --- | ---: |
| Increased customer accounts costs | $7.0 |
| Increased transmission costs | 4.4 |
| Increased electric production expenses | 2.1 |
| Increased electric distribution expenses | 1.6 |
| Decreased administrative and general costs | (3.2) |
| Decreased other expenses | (0.1) |
| Total | $11.8 |

- Increased customer accounts costs are primarily related to collection of deferred bad debt expense from prior years. MGE has received approval to recover deferred bad debt expense from 2020 through 2023 over a two-year period beginning in 2024. Bad debt expense is generally offset by electric revenue and does not have a significant impact on net income.
- Increased transmission costs are primarily a result of an increase in transmission rate and collection of deferred costs from prior years. Transmission costs represent ATC and MISO network transmission expenses authorized to collect in rates. The PSCW has approved MGE to defer as a regulatory asset or liability, the difference between actual costs included in rates and to be recovered or refunded in a future rate proceeding. Transmission cost is generally offset by electric revenue and does not have a significant impact on net income.
- Increased electric production expenses are primarily related to operating and maintenance costs for renewable generating facilities. MGE continues to add new renewable generation sites including the second phase of Badger Hollow which went online in December 2023.
- Increased distribution expenses in 2024 are primarily related to the May 2024 storm response costs.
- Decreased administrative and general costs are primarily related to a decrease in pension and other postretirement service costs. These costs are generally offset by electric revenue and do not have a significant impact on net income.

### Consolidated depreciation expense

Electric depreciation expense increased $4.7 million and gas depreciation expense increased $0.9 million during the nine months ended September 30, 2024, compared to the same period in the prior year. MGE purchased West Riverside in March 2023 and Badger Hollow II was placed in service in December 2023. The timing of the in-service dates contributed to the increase in electric depreciation expense.

### Electric and gas other income

Electric other income decreased $5.6 million and gas other income decreased $4.1 million during the nine months ended September 30, 2024, compared to the same period in the prior year, primarily related to pension and other postretirement excluding service costs.

### Nonregulated Energy Operations - MGE Energy and MGE

The nonregulated energy operations are conducted through MGE Energy's subsidiaries: MGE Power Elm Road (the Elm Road Units) and MGE Power West Campus (WCCF), which have been formed to own and lease electric generating capacity to assist MGE. During the nine months ended September 30, 2024 and 2023, net income at the nonregulated energy operations segment was $18.0 million and $16.7 million, respectively.

### Transmission Investment Operations - MGE Energy

The transmission investment segment holds our interest in ATC and ATC Holdco, and its income reflects our equity in the earnings of those investments. ATC Holdco was formed in December 2016 to pursue transmission development opportunities that typically have long development and investment lead times before becoming operational. During the nine months ended September 30, 2024 and 2023, other income at the transmission investment segment primarily reflects ATC's operations and was $8.4 million and $7.9 million, respectively. In October 2024, FERC issued a ruling eliminating the risk premium in the ROE calculation resulting in a 4-basis point reduction in the base ROE from 10.02% to 9.98%. See Footnote 3 of the Notes to Consolidated Financial Statements in this Report for summarized financial information regarding ATC and "Other Matters" below for additional information concerning ATC and FERC ruling on ROE.

### All Other Operations - MGE Energy

### Other income

The increase of $1.0 million in other income from all other operations during the nine months ended September 30, 2024, primarily results from decreased investment distribution losses from our venture capital funds compared to the same period in the prior year. These venture capital investments support early-stage companies working to advance smart technologies, the customer experience, distributed energy resources, electrification, cybersecurity, and other priorities for utility companies such as greater sustainability.

### Consolidated Income Taxes - MGE Energy and MGE

See Footnote 4 of the Notes to Consolidated Financial Statements in this Report for the effective tax rate reconciliation.

### Noncontrolling Interest, Net of Tax - MGE

Noncontrolling interest, net of tax, reflects the accounting required for MGE Energy's interest in MGE Power Elm Road (the Elm Road Units) and MGE Power West Campus (WCCF). MGE Energy owns 100% of MGE Power Elm Road and MGE Power West Campus. They are not owned by MGE. Due to the contractual agreements for these projects with MGE, the entities are considered VIEs with respect to MGE and their results are consolidated with those of MGE, the primary beneficiary of the VIEs. The following table shows MGE Energy's noncontrolling interest, net of tax, reflected on MGE's consolidated statement of income:

*(In millions)*

|  | Nine Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: |
| MGE Power Elm Road | $11.7 | $11.0 |
| MGE Power West Campus | 5.5 | 5.4 |

### Contractual Obligations and Commercial Commitments - MGE Energy and MGE

There were no material changes, other than from the normal course of business, to MGE Energy's and MGE's contractual obligations (representing cash obligations that are considered to be firm commitments) and commercial commitments (representing commitments triggered by future events) during the nine months ended September 30, 2024, except as noted below. Further discussion of the contractual obligations and commercial commitments is included in Footnote 16 of the Notes to Consolidated Financial Statements and "Contractual Obligations and Commercial Commitments for MGE Energy and MGE" under Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations in the 2023 Annual Report on Form 10-K.

### Purchase Contracts – MGE Energy and MGE

See Footnote 8.c. of Notes to Consolidated Financial Statements in this Report for a description of commitments as of September 30, 2024, that MGE Energy and MGE have entered with respect to various commodity supply and transportation contracts to meet their obligations to deliver electricity and natural gas to customers.

### Long-term Debt – MGE Energy and MGE

In October 2024, MGE entered into a private placement Note Purchase Agreement in which it committed to issue $50 million of senior unsecured notes. See Footnote 6.c. of Notes to Consolidated Financial Statements in this Report for further information on the senior note issuance.

### Liquidity and Capital Resources

MGE Energy and MGE expect to have adequate liquidity to support future operations and capital expenditures over the next twelve months. Available resources include cash and cash equivalents, operating cash flows, liquid assets, borrowing working capacity under revolving credit facilities, and access to equity and debt capital markets. In September 2024, MGE Energy began issuing new shares of common stock to participants in our Direct Stock Purchase and Dividend Reinvestment Plan. MGE Energy also expects to generate funds from operations and both long-term and short-term debt financing. See "Credit Facilities" under Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources in the 2023 Annual Report on Form 10-K for information regarding MGE Energy's and MGE's credit facilities.

### Cash Flows

The following summarizes cash flows for MGE Energy and MGE during the nine months ended September 30, 2024 and 2023:

*(In thousands)*

| Cash provided by (used for): | MGE Energy 2024 | 2023 | MGE 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| Operating activities | $209,836 | $194,038 | $206,703 | $190,368 |
| Investing activities | (167,611) | (156,490) | (165,511) | (151,636) |
| Financing activities | (38,845) | (39,309) | (41,226) | (41,626) |

### Cash Provided by Operating Activities

Cash flows from operating activities for MGE Energy and MGE principally reflect the receipt of customer payments for electric and gas service and outflows related to fuel for electric generation, purchased power, gas, and operation and maintenance expenditures.

The principal increases (decreases) in cash flows from operating activities during the nine months ended September 30, 2024, compared to the same period in 2023, were as follows:

*(In millions)*

|  | MGE Energy | MGE |
| --- | ---: | ---: |
| Lower payments for fuel and purchased power at our generation plants, as well as lower natural gas costs to our customers, primarily driven by a decrease in the price of natural gas | $51.4 | $51.4 |
| Changes in income taxes paid/received - includes $7.1 million proceeds from renewable tax credits transferred to other corporate taxpayers during the nine months ended September 30, 2024 | 11.3 | 13.5 |
| Lower overall collections from customers, driven by lower purchased gas costs adjusted through the PGA customer rate | (34.2) | (34.2) |
| Higher payments for other operation and maintenance expenses | (8.7) | (10.3) |
| Higher payments for interest, driven by MGE's issuance of long-term debt during the second half of 2023 | (4.1) | (4.1) |
| Other operating activities | 0.1 | — |
| Increase in cash provided by operating activities | $15.8 | $16.3 |

### Capital Requirements and Investing Activities

### MGE Energy

MGE Energy's cash used for investing activities increased $11.1 million during the nine months ended September 30, 2024, when compared to the same period in the prior year.

Capital expenditures during the nine months ended September 30, 2024, were $164.1 million. This amount represents an increase of $13.8 million from the expenditures made in the same period in the prior year. This increase primarily reflects an increase in electric and gas utility expenditures.

Proceeds from the sale of investments increased $1.3 million during the nine months ended September 30, 2024, when compared to the same period in the prior year.

Capital contributions in ATC and other investments decreased $1.6 million during the nine months ended September 30, 2024, when compared to the same period in the prior year.

### MGE

MGE's cash used for investing activities increased $13.9 million during the nine months ended September 30, 2024, when compared to the same period in the prior year.

Capital expenditures during the nine months ended September 30, 2024, were $164.1 million. This amount represents an increase of $13.8 million from the expenditures made in the same period in the prior year. This increase primarily reflects an increase in electric and gas utility expenditures.

### Capital Expenditures

The following table shows MGE Energy's forecasted capital expenditures for 2024 through 2029:

*(In thousands)*

|  | Forecasted 2024(a) | 2025 | 2026 | 2027 | 2028 | 2029 |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Electric | $181,000 | $203,000 | $229,000 | $247,000 | $256,000 | $276,000 |
| Gas | 38,000 | 28,000 | 28,000 | 30,000 | 29,000 | 27,000 |
| Utility plant total | 219,000 | 231,000 | 257,000 | 277,000 | 285,000 | 303,000 |
| Nonregulated | 7,000 | 9,000 | 9,000 | 9,000 | 11,000 | 9,000 |
| MGE Energy total | $226,000 | $240,000 | $266,000 | $286,000 | $296,000 | $312,000 |

(a) Includes actual capital expenditures already incurred in 2024 and estimated capital expenditures for the remainder of the year.

Forecasted capital expenditures are based upon management's assumptions with respect to future events, including the timing and amount of expenditures associated with environmental compliance initiatives, legislative and regulatory action, supply chain and market disruptions, customer demand and support for electrification and renewable energy resources, energy conservation programs, load growth, the timing of any required regulatory approvals, and the adequacy of rate recovery. Actual events may differ materially from these assumptions and result in material changes to those forecasted amounts.

MGE is targeting at least 80% carbon reduction from electric generation by 2030 (from 2005 levels) and net-zero carbon electricity by 2050. Solar, wind, and battery storage projects are a major step toward deep decarbonization and greater use of clean energy sources in pursuit of our goal. In addition, natural gas generation projects help enable MGE's clean energy transition and ensure reliability for customers as the energy supply is decarbonized. MGE continues to evaluate solar, wind, battery storage, and natural gas generation projects that align with its goals as legacy fossil fuel-fired facilities are retired.

The following table provides further detail of MGE Energy's forecasted capital expenditures, separating spending into capital project categories for 2025 through 2029:

*(In thousands)*

| For the years ended December 31, | Forecasted 2025 | 2026 | 2027 | 2028 | 2029 |
| --- | ---: | ---: | ---: | ---: | ---: |
| Electric renewables(a) | $131,000 | $128,000 | $174,000 | $182,000 | $202,000 |
| Electric production | 7,000 | 36,000 | 7,000 | 8,000 | 8,000 |
| Electric distribution | 65,000 | 65,000 | 66,000 | 66,000 | 66,000 |
| Gas distribution | 28,000 | 28,000 | 30,000 | 29,000 | 27,000 |
| Utility plant total | 231,000 | 257,000 | 277,000 | 285,000 | 303,000 |
| Nonregulated | 9,000 | 9,000 | 9,000 | 11,000 | 9,000 |
| MGE Energy total | $240,000 | $266,000 | $286,000 | $296,000 | $312,000 |

(a) Includes solar and wind generation and battery storage.

Our forecasted capital expenditures reflect the following significant renewable projects that are currently under construction or pending regulatory approval:

| Project | Source | Ownership Interest | Share of Generation/ Battery Storage | Share of Estimated Costs(b) | Estimated Date of Commercial Operation |
| --- | --- | ---: | --- | --- | --- |
| Paris(a) | Solar/Battery | 10% | 20 MW/11 MW | $61 million(c)(d)(f) | 2024 Solar 2025 Battery |
| Strix | Solar | 100% | 6 MW | $12 million | 2024 |
| Darien(a) | Solar/Battery | 10% | 25 MW/7.5 MW | $63 million(c)(d)(f) | 2025 Solar 2026 Battery |
| Koshkonong(a) | Solar/Battery | 10% | 30 MW/16.5 MW | $104 million(c)(d)(f) | 2026 Solar 2027 Battery |
| Sunnyside(e) | Solar/Battery | 100% | 20 MW/40 MW | $112 million | 2026 Solar 2027 Battery |
| High Noon(e) | Solar/Battery | 10% | 30 MW/16.5 MW | $99 million | 2027 Solar 2027 Battery |
| Ursa(e) | Solar | 10% | 20 MW | $46 million | 2027 |
| Badger Hollow(e) | Wind | 10% | 11.2 MW | $36 million | 2027 |
| Whitetail(e) | Wind | 10% | 6.7 MW | $23 million | 2027 |
| Dawn Harvest(e) | Solar | 10% | 15 MW | $34 million | 2028 |
| Good Oak(e) | Solar | 10% | 9.8 MW | $22 million | 2028 |
| Gristmill(e) | Solar | 10% | 6.7 MW | $15 million | 2028 |
| Saratoga(e) | Solar/Battery | 10% | 15 MW/5 MW | $46 million | 2028 Solar 2028 Battery |

(a) Approved by the PSCW.

(b) Excluding AFUDC.

(c) MGE received PSCW approval to recover 100% AFUDC.

(d) See Footnote 12 of Notes to Consolidated Financial Statements in the Report for information on costs incurred.

(e) Pending approval by the PSCW.

(f) Estimated costs are expected to exceed PSCW previously approved CA levels. Notifications are provided to the PSCW when costs increase above CA levels. MGE has and will continue to request recovery of the updates in its rate case proceedings.

MGE continues to assess the potential impact of procurement disruptions on current and future solar projects that may result in an increase in costs or delays in construction timelines. In the event that such disruptions cause costs to exceed the levels approved for specific projects, we have filed, and expect to continue to file, notifications with the PSCW and expect to request recovery of any increases in MGE's future rate proceedings. See further information on procurement disruptions discussed under "Other Matters" section below.

Columbia Energy Storage Project: In August 2024, MGE was included in a Joint Application to develop an Energy Dome closed-loop gas-to-liquid solution. This project would use vaporized liquid carbon dioxide to power an electric generating turbine. MGE holds a 19% ownership interest in this project.

West Riverside: In June 2024, MGE purchased an additional 25 MW of capacity of West Riverside for approximately $25 million. After purchase, MGE owns 50 MW of capacity of West Riverside. West Riverside is a natural gas-fired generating plant.

Electric and Gas Distribution: In 2024 through 2029, electric and gas capital expenditures include investment in enhanced metering solutions to provide customers with more timely and detailed energy use information. Investments in advanced metering infrastructure will provide additional benefits including outage and demand response and automated meter reading capabilities. Forecasted total capital expenditures for those years is approximately $57 million.

### Cash Used for Financing Activities

The principal sources and uses of cash are related to short-term and long-term borrowings and repayments and the payment of cash dividends.

The principal increases (decreases) in cash flows from financing activities during the nine months ended September 30, 2024, compared to the same period in 2023, were as follows:

*(In millions)*

|  | MGE Energy | MGE |
| --- | ---: | ---: |
| Issuance of common stock | $2.6 | $— |
| Higher cash dividends paid, dividend rate per share ($1.305 vs. $1.243) | (2.3) | — |
| Higher cash dividends to parent (MGE Energy) | — | (1.0) |
| Lower distributions to parent (MGE Energy) from noncontrolling interest, representing distributions from MGE Power Elm Road and MGE Power West Campus(a) | — | 1.3 |
| Change in long-term debt(b) | (60.1) | (60.1) |
| Change in short-term debt borrowings, net | 59.0 | 59.0 |
| Other financing activities | 1.2 | 1.2 |
| Increase in cash flows from financing activities | $0.4 | $0.4 |

(a) The noncontrolling interest arises from the accounting required for the entities, which are not owned by MGE but are consolidated as VIEs.

(b) During the nine months ended September 30, 2023, MGE issued $50 million of senior unsecured notes that were used to assist with financing additional capital expenditures and other corporate obligations. In addition, $19.3 million of Industrial Development Revenue Bonds were tendered by their holders as required by the terms of the bonds and remarketed as permitted by those terms.

### Capitalization Ratios

MGE Energy's capitalization ratios were as follows:

|  | MGE Energy September 30, 2024 | December 31, 2023 |
| --- | ---: | ---: |
| Common shareholders' equity | 60.8% | 59.9% |
| Long-term debt(a) | 36.7% | 38.1% |
| Short-term debt | 2.5% | 2.0% |

(a) Includes the current portion of long-term debt.

### Credit Ratings

MGE Energy's and MGE's access to the capital markets, including, in the case of MGE, the commercial paper market, and their respective financing costs in those markets, may depend on the credit ratings of the entity that is accessing the capital markets.

None of MGE Energy's or MGE's borrowing is subject to default or prepayment as a result of a downgrading of credit ratings, although a downgrading of MGE's credit ratings would increase fees and interest charges under both MGE Energy's and MGE's credit agreements.

### Environmental Matters

See the discussion of environmental matters included in the 2023 Annual Report on Form 10-K, as updated by Footnote 8.a. of Notes to Consolidated Financial Statements in this Report.

### Other Matters

### Rate Matters

In December 2023, the PSCW approved the 2024/2025 rate application for an increase of 1.54% for electric rates and a 2.44% increase for gas rates in 2024. The PSCW also approved a 4.17% increase for electric rates and a 1.32% increase to gas rates for 2025. MGE filed a 2025 Fuel Cost Plan with the PSCW in June 2024. The plan would lower the 2025 increase in electric rates to 2.47%, reflecting lower expected fuel costs. MGE expects a final decision from the PSCW on the Fuel Cost Plan by the end of 2024.

Details related to MGE's 2024/2025 rate proceeding are shown in the table below:

*(Dollars in thousands)*

|  | Authorized Average Rate Base(a) | Authorized Average CWIP(b) | Authorized Return on Common Equity(c) | Common Equity Component of Regulatory Capital Structure | Effective Date |
| --- | ---: | ---: | ---: | ---: | --- |
| Electric (2024 Test Period) | $1,185,550 | $10,727 | 9.7% | 56.13% | 1/1/2024 |
| Gas (2024 Test Period) | $335,533 | $7,160 | 9.7% | 56.13% | 1/1/2024 |
| Electric (2025 Test Period) | $1,241,502 | $7,106 | 9.7% | 56.06% | 1/1/2025 |
| Gas (2025 Test Period) | $341,369 | $7,146 | 9.7% | 56.06% | 1/1/2025 |

(a) Average rate base amounts reflect MGE's allocated share of rate base and do not include construction work in progress (CWIP) or a cash working capital allowance and were calculated using a forecasted 13-month average for the test periods. The PSCW provides a return on selected CWIP and a cash working capital allowance by adjusting the percentage return on rate base.

(b) 50% of the forecasted 13-month average CWIP for the test periods earns an AFUDC return. Projects eligible to earn 100% AFUDC are excluded from this balance and discussed further in the Management Discussion and Analysis of Financial Condition and Results of Operations - Significant Events section.

(c) Authorized returns on common equity may not be indicative of actual returns earned or projections of future returns, as actual returns will be affected by the volume of electricity or gas sold.

See Footnote 9 of Notes to Consolidated Financial Statements in this Report for further discussion of rate proceedings and an earnings sharing mechanism if MGE earns above the authorized return on common equity in the rate order.

### ATC

MISO transmission owners, including ATC, are involved in two complaints filed at FERC by several parties challenging that the base ROE in effect for MISO transmission owners, including ATC, was no longer just and reasonable. Each complaint provided for a 15-month statutory refund period: November 12, 2013 through February 11, 2015 (the "First Complaint Period") and February 12, 2015 through May 11, 2016 (the "Second Complaint Period").

In May 2020, FERC issued an order further refining the methodology for setting authorized ROE. This refined methodology increased the authorized ROE from 9.88% to 10.02%. This base ROE is effective for the First Complaint Period and for all periods following September 2016. This order also dismissed the second complaint. Accordingly, no refunds were ordered for the Second Complaint Period.

Several petitions for review of FERC’s prior orders were filed with the United States Court of Appeals for the District of Columbia Circuit (the "Court") and an oral argument was held in November 2021. In August 2022, the Court ruled that four of the five arguments made by the complaining parties were unpersuasive. However, the Court agreed that FERC’s decision to reintroduce a risk-premium model into its ROE methodology was arbitrary and capricious. The Court vacated the underlying orders for the First Complaint Period and remanded to FERC for further proceedings. In October 2024, FERC issued a ruling eliminating the risk premium in the ROE calculation resulting in a 4-basis point reduction in the base ROE from 10.02% to 9.98%. FERC also affirmed its prior decision to dismiss the second complaint. ATC must provide refunds, with interest, by December 2025 covering the First Complaint Period and all periods following September 2016. Prior to the ruling, our share of ATC’s earnings reflected a possible loss of approximately $1.2 million, inclusive of interest and net of tax, for a possible additional refund for the First Complaint Period and for the period following the Second Complaint Period. As a result of the October 2024 ruling, during the fourth quarter 2024 our earnings in ATC will reflect an approximately $0.8 million reduction of our reserve.

We derived approximately 6.0% and 5.7% of our net income during the nine months ended September 30, 2024 and 2023, respectively, from our investment in ATC.

### Uyghur Forced Labor Protection Act

In June 2021, the U.S. Customs and Border Protection (CBP) issued a Withhold Release Order (WRO) against silica-based products made by Hoshine Silicon Industry Co. Ltd., a company located in China's Xinjiang Uyghur Autonomous Region. As a result of this WRO, CBP is holding many solar panels imported into the United States until importers can prove that the panels do not contain materials originating from this region. The Uyghur Forced Labor Protection Act (UFLPA), a federal law that became effective on June 21, 2022, further established that all goods mined, produced, or manufactured wholly or in part in Xinjiang or by certain defined entities are prohibited from U.S. importation. Suppliers for MGE's current solar projects were able to provide the CBP sufficient documentation to meet WRO compliance requirements, and MGE expects the same will be true for UFLPA purposes, however we cannot currently predict what, if any, impact the UFLPA will have on the overall supply of solar panels into the United States and the related impact to timing and cost of solar projects included in our capital plan. In the event that such disruptions cause costs to exceed the levels approved for specific projects, we have filed and expect to continue to file a notification with the PSCW and expect to request recovery of any cost increases in MGE's future rate proceedings.

### U.S. Department of Commerce - Solar Cells and Modules

In August 2023, the U.S. Department of Commerce issued its final determination on a solar tariff investigation that began in 2022, finding that Chinese manufacturers were circumventing tariffs on solar panels by shipping them through four Southeast Asian countries. A 24-month exemption from tariffs for solar panel and module imports from these four countries was in effect from June 2022 until June 6, 2024. In May 2024, the Biden Administration announced that bifacial solar panels would be subject to safeguard tariffs under Section 201 of the Trade Act of 1974, of which they were previously excluded. President Biden also directed U.S. Trade Representatives to increase tariffs under Section 301 from 25% to 50% on solar cells and modules. MGE continues to assess the potential impact of these tariffs on current and future solar projects which may result in an increase in costs or delays in construction timelines. In the event that such disruptions cause costs to exceed the levels approved for specific projects, we have filed and expect to continue to file a notification with the PSCW and expect to request recovery of any cost increases in MGE's future rate proceedings.

### Adoption of Accounting Principles and Recently Issued Accounting Pronouncements

See Footnote 2 of Notes to Consolidated Financial Statements in this Report for discussion of new accounting pronouncements.

## Market risk

As filed, 700 characters.

There were no material changes to the market risks disclosed in Item 7A. Quantitative and Qualitative Disclosures About Market Risk in our 2023 Annual Report on Form 10-K, except as noted below.

### Equity Price Risk - Pension-Related Assets

MGE currently funds its liabilities related to employee benefits through trust funds. These funds, which include investments in debt and equity securities, are managed by various third-party investment managers. Changes in the market value of these investments can have an impact on the future expenses related to these liabilities. The value of employee benefit plan assets has increased by approximately 13% during the nine months ended September 30, 2024.

## Controls and procedures

As filed, 2,227 characters.

During the third quarter of 2024, each registrant's management, including the principal executive officer and principal financial officer, evaluated its disclosure controls and procedures related to the recording, processing, summarization, and reporting of information in its periodic reports that it files with the SEC. These disclosure controls and procedures have been designed to ensure that material information relating to that registrant, including its subsidiaries, is accumulated and made known to that registrant's management, including these officers, by other employees of that registrant and its subsidiaries as appropriate to allow timely decisions regarding required disclosure, and that this information is recorded, processed, summarized, evaluated, and reported, as applicable, within the time periods specified in the SEC's rules and forms. The evaluations take into account changes in the internal and external operating environments that may impact those controls and procedures. Due to the inherent limitations of control systems, not all misstatements may be detected. These inherent limitations include the realities that judgments in decision making can be faulty and breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. Also, MGE Energy does not control or manage certain of its unconsolidated entities and thus, its access and ability to apply its procedures to those entities is more limited than is the case for its consolidated subsidiaries.

As of September 30, 2024, each registrant's principal executive officer and principal financial officer concluded that its disclosure controls and procedures were effective. Each registrant intends to strive continually to improve its disclosure controls and procedures to enhance the quality of its financial reporting.

During the quarter ended September 30, 2024, there were no changes in either registrant's internal controls over financial reporting that materially affected, or are reasonably likely to affect materially, that registrant's internal control over financial reporting.

## Risk factors

As filed, 127 characters.

There were no material changes from the risk factors disclosed in Item 1A. Risk Factors in our 2023 Annual Report on Form 10-K.

Filed Nov 6, 2024.
Source: SEC EDGAR, the filing index for accession 0000950170-24-121952. Last ingested by Listed: Nov 5, 2026, 13:34 ET. No prices; not investment advice.