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Income Taxes (Tables)

12 Months Ended

Dec. 31, 2013

On a consolidated and separate company basis, MGE Energy's and MGE's income tax provision consists of the following provision (benefit) components for the years ended December 31:

		MGE Energy						MGE
(In thousands)		2013		2012		2011		2013		2012		2011
Current payable:
Federal	$	(1,508)	$	(6,053)	$	(1,504)	$	(448)	$	(5,030)	$	(607)
State		8,213		436		4,580		8,322		613		4,658
Net-deferred:
Federal		37,203		37,178		30,115		36,937		36,589		29,255
State		1,163		7,618		3,102		1,223		7,523		3,034
Amortized investment tax credits		(212)		(260)		(301)		(212)		(260)		(301)
Total income tax provision	$	44,859	$	38,919	$	35,992	$	45,822	$	39,435	$	36,039

Effective Tax Rate Reconciliation

MGE Energy's and MGE's consolidated income tax provision differs from the amount computed by applying the statutory federal income tax rate to income before income taxes, as follows:

	MGE Energy			MGE
	2013	2012	2011	2013	2012	2011
Statutory federal income tax rate	35.0%	35.0%	35.0%	35.0%	35.0%	35.0%
State income taxes, net of federal benefit	5.1%	5.0%	5.1%	5.1%	5.0%	5.1%
Amortized investment tax credits	(0.2)%	(0.3)%	(0.3)%	(0.2)%	(0.2)%	(0.3)%
Credit for electricity from wind energy	(1.5)%	(1.6)%	(1.8)%	(1.5)%	(1.5)%	(1.8)%
Domestic manufacturing deduction	(0.2)%	0.3%	(0.7)%	(0.2)%	0.3%	(0.7)%
AFUDC Equity, net	(0.7)%	(0.4)%	0.0%	(0.7)%	(0.4)%	0.0%
Other, net, individually insignificant	(0.0)%	(0.3)%	(0.2)%	(0.0)%	(0.5)%	(0.3)%
Effective income tax rate	37.5%	37.7%	37.1%	37.5%	37.7%	37.0%

Deferred Tax Liabilities (Assets)

The significant components of deferred tax liabilities (assets) that appear on MGE Energy's and MGE's consolidated balance sheets as of December 31 as follows:

		MGE Energy				MGE
(In thousands)		2013		2012		2013		2012
Property-related	$	263,881	$	248,545	$	263,881	$	248,545
Investment in ATC		32,696		29,147		27,073		24,993
Bond transactions		1,553		1,643		1,553		1,643
Pension and other postretirement benefits		34,478		82,072		34,478		82,072
Derivatives		26,361		29,134		26,361		29,134
Tax deductible prepayments		7,508		7,233		7,508		7,233
Other		1,995		10,662		1,911		10,634
Gross deferred income tax liabilities		368,472		408,436		362,765		404,254
Future federal tax benefit		0		(25,626)		0		(25,899)
Accrued expenses		(17,195)		(30,277)		(17,195)		(30,228)
Pension and other postretirement benefits		(26,838)		(69,941)		(26,838)		(69,941)
Deferred tax regulatory account		(1,402)		(1,551)		(1,402)		(1,551)
Derivatives		(26,361)		(29,134)		(26,361)		(29,134)
Other		(10,369)		(5,345)		(9,356)		(4,940)
Gross deferred income tax assets		(82,165)		(161,874)		(81,152)		(161,693)
Less valuation allowance		195		365		195		365
Net deferred income tax assets		(81,970)		(161,509)		(80,957)		(161,328)
Deferred income taxes	$	286,502	$	246,927	$	281,808	$	242,926

Unrecognized Tax Benefits and Interest

A tabular reconciliation of unrecognized tax benefits and interest from January 1, 2011 to December 31, 2013, is as follows:

(In thousands)
Unrecognized tax benefits:		2013		2012		2011
Unrecognized tax benefits, January 1,	$	3,204	$	2,364	$	4,377
Additions based on tax positions related to the current year		377		401		128
Additions based on tax positions related to the prior years		424		580		427
Reductions based on tax positions related to the current year		(40)		0		0
Reductions based on tax positions related to the prior years		(1,602)		(141)		(2,568)
Unrecognized tax benefits, December 31,	$	2,363	$	3,204	$	2,364

(In thousands)
Interest on unrecognized tax benefits:		2013		2012		2011
Accrued interest on unrecognized tax benefits, January 1,	$	314	$	216	$	214
Reduction in interest expense on uncertain tax positions		(275)		0		0
Interest expense on uncertain tax positions		62		98		2
Accrued interest on unrecognized tax benefits, December 31,	$	101	$	314	$	216

Tax Years that Remain Subject to Examination

The following table shows tax years that remain subject to examination by major jurisdiction:

	Taxpayer	Open Years
	MGE Energy and consolidated subsidiaries in federal return	2010 through 2013
	MGE Energy Wisconsin combined reporting corporation return	2009 through 2013

- Definition

Tabular disclosure of tax positions taken in the tax returns filed or to be filed for which it is more likely than not that the tax position will not be sustained upon examination by taxing authorities (i.e., uncertain tax positions) and other types of income tax contingencies, including: (1) the policy on classification of interest and penalties; (2) a tabular reconciliation of the total amounts of unrecognized tax benefits at the beginning and end of the period; the total amount(s) of: (3) unrecognized tax benefits that, if recognized, would affect the effective tax rate, and (4) interest and penalties recognized in each of the income statement and balance sheet; (5) for positions for which it is reasonably possible that the total amounts unrecognized will significantly change within 12 months of the reporting date the: (i) nature of the uncertainty, (ii) nature of the event that could occur that would cause the change, and (iii) an estimate of the range of the reasonably possible change or a statement that an estimate of the range cannot be made; and (6) a description of tax years that remain subject to examination by major tax jurisdictions.

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- Definition

Tabular disclosure of income tax examinations that an enterprise is currently subject to or that have been completed in the current period typically including a description of the examination, the jurisdiction conducting the examination, the tax year(s) under examination, the likelihood of an unfavorable settlement, the range of possible losses, the liability recorded, the increase or decrease in the liability from the prior period, and any penalties and interest that have been recorded.

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