
	Rate increase	Return on Common Equity	Common Equity Component of Regulatory Capital Structure	Effective Date
Approved 2022/2023 settlement(a)
Electric	8.81%	9.8%	55.6%	1/1/2022
Gas	2.15%	9.8%	55.6%	1/1/2022
Gas	0.96%	9.8%	55.6%	1/1/2023
Approved limited 2023 reopener(b)
Electric	9.01%	9.8%	55.6%	1/1/2023
Proposed 2024/2025 rate proceeding(c)
Electric(d)	3.75%	9.8%	56.1%	1/1/2024
Gas(d)	2.56%	9.8%	56.1%	1/1/2024
Electric(e)	3.41%	9.8%	56.1%	1/1/2025
Gas(e)	1.66%	9.8%	56.1%	1/1/2025

(a)

The electric and gas rate increases were driven by an increase in rate base including our investments in Badger Hollow I and a new customer information system. Also driving the requested electric increase were higher fuel and purchased power costs as well as the completion in 2021 of the one-time return of the electric excess deferred tax credit related to the 2017 Tax Act not restricted by IRS normalization rules. Included in the electric residential rate is a reduction in the customer fixed charge.

(b)

The electric rate increase was driven by additions to generation assets including our investments in Badger Hollow II (solar), Paris (solar and battery), Red Barn (wind), and West Riverside (natural gas). In addition, the reopener request included an increase in fuel costs and the recovery of deferred 2021 fuel costs. The reopener also revised the depreciation schedule for Columbia Unit 2 and shared equipment to 2029 to align with the depreciation schedule for Unit 1.

(c)

In April 2023, MGE filed a proposed 2-year rate case and PSCW approval is pending. In October 2023, MGE filed an updated 2024 fuel cost forecast with the PSCW which will decease forecasted fuel costs filed in the original rate application and reduce the rates ultimately approved. That reduction is not reflected in the proposed rates in the table above. MGE will file an updated 2025 fuel forecast with the PSCW in 2024 which may impact rates in 2025, depending on any variance between the forecast submitted as a part of the proposed rates and updated forecast. MGE has also requested to update renewable project construction costs to include force majeure claims and changes to in-service dates for projects under construction or to begin construction during 2024 and 2025. These renewable project updates have not been reflected in the proposed rates in the table above. Staff audit is completed, and a PSCW decision is expected in November 2023 with a final order expected before the end of 2023. MGE cannot predict with any certainty the final outcome of the rate proceeding.

(d)

The proposed electric rate increase is driven by an increase in rate base including our investments made in West Riverside, local solar, and continued investment in grid modernization. Also driving the requested electric increase are higher costs for transmission, pension and OPEB, and uncollectible costs (including costs previously deferred from prior years). This increase in electric costs is offset by a decrease in fuel costs and benefit from lower tax expense (including impacts from the Inflation Reduction Act). The proposed gas rate increase is also attributable to our investment made in grid modernization and higher pension and OPEB and uncollectible costs (including costs previously deferred from prior years). The proposed gas increase is offset by a tax benefit related to excess deferred taxes. In total for both electric and gas rates, MGE has requested recovery of $9.7 million of incremental uncollectible costs deferred from the periods 2020 through 2023. Regulated entities are allowed to defer certain costs that would otherwise be charged to expense if the regulated entity believes the recovery of those costs is probable. Recovery of the deferred costs in future rates is subject to the review and approval by the PSCW. Any disallowance of previously deferred costs would be charged to income in the current period.

(e)

The proposed electric and gas rate increases are driven by an increase in rate base for our continued investment in grid modernization projects and an increase in labor costs.

Sierra Club and Vote Solar have filed petitions with the Dane County Circuit Court seeking review of the PSCW decisions approving MGE's electric and gas 2022/2023 rate settlement and 2023 electric limited reopener. The PSCW is named as the responding party; MGE is not named as a party. The Petitions challenge the amount of customer fixed charge that does not vary with usage. The requested relief is unclear. The revenue requirement approved by the PSCW in the settlement and limited reopener have not been challenged. The PSCW is expected to vigorously defend its approval of the rate case settlement and limited reopener. MGE has intervened in the proceedings to further defend the PSCW's decision. The Dane County Circuit Court affirmed the PSCW's decision to approve the 2022/2023 rate

settlement, and Sierra Club and Vote Solar have now appealed that decision to the Wisconsin Court of Appeals.

Fuel rules require Wisconsin utilities to defer electric fuel-related costs that fall outside a symmetrical cost tolerance band around the amount approved for a utility in its annual fuel proceedings. Any over- or under-recovery of the actual costs is determined in the following year and is then reflected in future billings to electric retail customers. The fuel rules bandwidth is set at plus or minus 2% in 2023 and 1% in 2022. The electric fuel-related costs are subject to an excess revenues test. Excess revenues are defined as revenues in the year in question that provide MGE with a greater return on common equity than authorized by the PSCW in MGE's latest rate order. The recovery of under-collected electric fuel-related costs would be reduced by the amount that exceeds the excess revenue test. These costs are subject to the PSCW's annual review of fuel costs completed in the year following the deferral. The following table summarizes deferred electric fuel-related costs: