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Fair Value of Financial Instruments (Tables)

12 Months Ended

Dec. 31, 2022

Estimated Fair Market Value of Financial Instruments

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


	December 31, 2022				December 31, 2021
(In thousands)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Long-term debt(a)	$	643,560	$	571,374	$	623,449	$	729,914

(a)

Includes long-term debt due within one year. Excludes debt issuance costs and unamortized discount of $4.0 million and $4.3 million as of December 31, 2022 and 2021, 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 December 31, 2022
(In thousands)	Total		Level 1		Level 2		Level 3
MGE Energy
Assets:
Derivatives, net(b)	$	3,069	$	1,353	$	—	$	1,716
Exchange-traded investments		1,516		1,516		—		—
Total Assets	$	4,585	$	2,869	$	—	$	1,716
Liabilities:
Derivatives, net(b)	$	8,163	$	5,581	$	—	$	2,582
Deferred compensation		4,743		—		4,743		—
Total Liabilities	$	12,906	$	5,581	$	4,743	$	2,582

MGE
Assets:
Derivatives, net(b)	$	3,069	$	1,353	$	—	$	1,716
Exchange-traded investments		115		115		—		—
Total Assets	$	3,184	$	1,468	$	—	$	1,716
Liabilities:
Derivatives, net(b)	$	8,163	$	5,581	$	—	$	2,582


Deferred compensation		4,743		—		4,743		—
Total Liabilities	$	12,906	$	5,581	$	4,743	$	2,582


	Fair Value as of December 31, 2021
(In thousands)	Total		Level 1		Level 2		Level 3
MGE Energy
Assets:
Derivatives, net(c)	$	3,606	$	1,170	$	—	$	2,436
Exchange-traded investments		1,296		1,296		—		—
Total Assets	$	4,902	$	2,466	$	—	$	2,436
Liabilities:
Derivatives, net(c)	$	2,989	$	731	$	—	$	2,258
Deferred compensation		3,653		—		3,653		—
Total Liabilities	$	6,642	$	731	$	3,653	$	2,258

MGE
Assets:
Derivatives, net(c)	$	3,606	$	1,170	$	—	$	2,436
Exchange-traded investments		230		230		—		—
Total Assets	$	3,836	$	1,400	$	—	$	2,436
Liabilities:
Derivatives, net(c)	$	2,989	$	731	$	—	$	2,258
Deferred compensation		3,653		—		3,653		—
Total Liabilities	$	6,642	$	731	$	3,653	$	2,258

(b)

As of December 31, 2022, collateral of $5.2 million was posted against and netted with derivative liability positions on the consolidated balance sheets. The fair value of the derivative liability disclosed in this table has not been reduced for the collateral posted.

(c)

As of December 31, 2021, MGE received collateral of $1.3 million from counterparties under a master netting agreement for outstanding exchange traded derivative positions. The fair value of the derivative asset disclosed in this table has not been reduced for the collateral received.

Significant Unobservable Inputs

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


Significant Unobservable Inputs		2021
Basis adjustment:
On peak		94.1%
Off peak		92.4%
Counterparty fuel mix:
Internal generation - range		41%-66%
Internal generation - weighted average		56.6%
Purchased power - range		59%-34%
Purchased power - weighted average		43.4%

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.


(In thousands)	2022			2021			2020
Balance as of January 1,	$	178		$	(14,055	)	$	(26,456	)
Realized and unrealized gains (losses):
Included in regulatory assets		(1,044	)		—			12,402
Included in regulatory liability		—			14,234			—
Included in other comprehensive income		—			—			—
Included in earnings		14,140			5,521			(6,439	)
Included in current assets		118			237			(87	)
Purchases		11,997			26,287			22,232
Sales		—			—			—
Issuances		—			—			—
Settlements		(26,255	)		(32,046	)		(15,707	)
Balance as of December 31,	$	(866	)	$	178		$	(14,055	)
Total gains (losses) included in earnings attributed to the change in unrealized gains (losses) related to assets and liabilities held as of December 31,(d)	$	—		$	—		$	—

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 (d).


(In thousands)
Year Ended December 31,	2022			2021			2020
Purchased power expense	$	14,497		$	6,192		$	(5,888	)
Cost of gas sold expense		(357	)		(671	)		(551	)
Total	$	14,140		$	5,521		$	(6,439	)

(d)

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.