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Fair Value of Financial Instruments (Tables)

9 Months Ended

Sep. 30, 2023

Estimated Fair Market Value of Financial Instruments

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


	September 30, 2023				December 31, 2022
(In thousands)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Long-term debt(a)	$	699,812	$	606,355	$	643,560	$	571,374

(a)

Includes long-term debt due within one year. Excludes debt issuance costs and unamortized discount of $4.7 million and $4.0 million as of September 30, 2023, and December 31, 2022, 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 September 30, 2023
(In thousands)	Total		Level 1		Level 2		Level 3
MGE Energy
Assets:
Derivatives, net(b)	$	1,289	$	766	$	—	$	523
Exchange-traded investments		1,771		1,771		—		—
Total Assets	$	3,060	$	2,537	$	—	$	523
Liabilities:
Derivatives, net(b)	$	3,837	$	2,190	$	—	$	1,647
Deferred compensation		5,077		—		5,077		—
Total Liabilities	$	8,914	$	2,190	$	5,077	$	1,647

MGE
Assets:
Derivatives, net(b)	$	1,289	$	766	$	—	$	523
Exchange-traded investments		83		83		—		—
Total Assets	$	1,372	$	849	$	—	$	523
Liabilities:
Derivatives, net(b)	$	3,837	$	2,190	$	—	$	1,647
Deferred compensation		5,077		—		5,077		—
Total Liabilities	$	8,914	$	2,190	$	5,077	$	1,647


	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

(b)

As of September 30, 2023, and December 31, 2022, collateral of $2.9 million and $5.2 million, respectively, 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.

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.


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(In thousands)	2023		2022		2023		2022
Beginning balance	$	(2,892)	$	8,959	$	(866)	$	178
Realized and unrealized gains (losses):
Included in regulatory assets		1,768		—		(258)		—
Included in regulatory liability		—		(5,105)		—		3,675
Included in other comprehensive income		—		—		—		—
Included in earnings		(2,016)		6,609		(7,590)		13,607
Included in current assets		—		(73)		—		45
Purchases		—		108		—		11,911
Sales		—		—		—		—
Issuances		—		—		—		—
Settlements		2,016		(6,644)		7,590		(25,562)
Balance as of September 30,	$	(1,124)	$	3,854	$	(1,124)	$	3,854
Total gains (losses) included in earnings attributed to the change in unrealized gains (losses) related to assets and liabilities held as of September 30,(c)	$	—	$	—	$	—	$	—

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(c).


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(In thousands)	2023		2022		2023		2022
Purchased power expense	$	(2,016)	$	6,644	$	(7,590)	$	13,805
Cost of gas sold expense		—		(35)		—		(198)
Total	$	(2,016)	$	6,609	$	(7,590)	$	13,607

(c)

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.