Taxes

9 Months Ended

Sep. 30, 2012

Taxes Disclosure [Abstract]

Taxes

5.       Taxes - MGE Energy and MGE.

a.       Accounting for Uncertainty in Income Taxes.

MGE Energy and MGE account for the difference between the tax benefit amount taken on prior year tax returns, or expected to be taken on a current year tax return, and the tax benefit amount recognized in the financial statements as an unrecognized tax benefit.

MGE Energy hasadopted a tax method of accounting to accelerate tax deductions for repairs in accordance with Treasury Regulations and case law, as compared to the prior method of claiming tax depreciation on project costs.The method change for electric generation and transmission and distribution repairs was included on the 2009 tax return while the change for gas distribution repairs was included on the 2010 return. During 2011, the IRS issued guidance on the treatment of electric transmission and distribution repairs. This guidance prompted the reversal of a portion of the unrecognized tax benefits for these repairs during 2011. MGE Energy and MGE have an unrecognized tax benefit at September 30, 2012 and December 31, 2011, in the amount of $3.2 million and $2.4million, respectively, for the tax uncertainty primarily related to the change in tax method of accounting forelectric generation and gas distribution repairs.

b.       Effective Tax Rate.

MGE Energy's effective income tax rate for the three and nine months endedSeptember 30, 2012,is37.6% and 37.7%, respectively, compared to 37.3%and 37.3% for the same periods in 2011; and MGE's effective income tax rate for the three and nine months endedSeptember 30, 2012,is37.6% and 37.7%, respectively, compared to 37.1% and 37.3% for the same periods in 2011.