Investment in ATC

9 Months Ended

Sep. 30, 2016

Equity Method Investments and Joint Ventures [Abstract]

Investment in ATC - MGE Energy and MGE.

ATC owns and operates electric transmission facilities primarily in Wisconsin. MGE received an interest in ATC when it, like other Wisconsin electric utilities, contributed its electric transmission facilities to ATC as required by Wisconsin law. That interest is presently held by MGE Transco, which is jointly owned by MGE Energy and MGE.

MGE Transco has accounted for its investment in ATC under the equity method of accounting. For the three and nine months ended September 30, 2016 and 2015, MGE Transco recorded the following:

		Three Months Ended				Nine Months Ended
		September 30,				September 30,
(In thousands)		2016		2015		2016		2015
Equity earnings from investment in ATC	$	2,023	$	2,398	$	6,023	$	6,568
Dividends received from ATC		1,486		1,841		4,214		4,732
Capital contributions to ATC		888		177		1,598		533

MGE Transco's investment in ATC as of September 30, 2016, and December 31, 2015, was $72.9 million and $69.5 million, respectively. As of September 30, 2016, MGE's investment in MGE Transco was $46.8 million.

At September 30, 2016, MGE Energy, the holding company, is the majority owner (50.5%), and MGE is the minority owner (49.5%) of MGE Transco. MGE's ownership interest declined below a majority in July 2016 as a result of continued funding of ATC capital contributions by MGE Energy. As a result of the change in majority ownership in MGE Transco in July 2016, MGE deconsolidated MGE Energy's proportionate share of the equity in MGE Transco. The change in consolidation was applied prospectively by reducing its investment and noncontrolling interest on MGE's consolidated financial statements. No gain or loss was recognized in July 2016 due to MGE ceasing to have a controlling financial interest. As of December 31, 2015, the noncontrolling interest on MGE's consolidated balance sheets was $23.6 million. For the three and nine months ended September 30, 2016 and 2015, MGE recorded the following amounts attributable to noncontrolling interest in MGE Transco:

		Three Months Ended				Nine Months Ended
		September 30,				September 30,
(In thousands)		2016		2015		2016		2015
Equity earnings from investment^(a)	$	254	$	679	$	1,410	$	1,848
Dividends received from investment^(a)		561		423		1,113		1,007
Capital contributions by noncontrolling interest		888		177		1,598		533

(a) Amounts reflected net of tax.

In June 2016, the PSCW accepted a staff recommendation to have MGE transfer its interest in ATC to MGE Energy. As a result, MGE's ownership interest in MGE Transco will be completely eliminated in favor of MGE Energy when the transfers are complete, which is required by December 31, 2022. The recommendation arose in the context of requests for regulatory approvals by several owners of ATC in connection with a reorganization of ATC designed to separate its existing Wisconsin-based transmission operations from its non-Wisconsin transmission development activities. The change will have no effect on MGE Energy's consolidated financial statements.

ATC's summarized financial data for the three and nine months ended September 30, 2016 and 2015, is as follows:

		Three Months Ended				Nine Months Ended
		September 30,				September 30,
(In thousands)		2016		2015		2016		2015
Operating revenues	$	158,126	$	164,515	$	476,591	$	482,043
Operating expenses		(80,271)		(78,059)		(241,034)		(238,336)
Other income, net		1,128		585		2,563		566
Interest expense, net		(24,624)		(23,655)		(73,714)		(72,310)
Earnings before members' income taxes	$	54,359	$	63,386	$	164,406	$	171,963

MGE receives transmission and other related services from ATC. During the three and nine months ended September 30, 2016, MGE recorded $7.4 million and $22.1 million, respectively, for transmission services received compared to $7.0 million and $21.1 million for the comparable periods in 2015. MGE also provides a variety of operational, maintenance, and project management services for ATC, which is reimbursed by ATC. As of September 30, 2016 and December 31, 2015, MGE had a receivable due from ATC of $0.3 million and $0.2 million, respectively.