Fair Value of Financial Instruments (Tables)

9 Months Ended

Sep. 30, 2016

Fair Value Disclosures [Abstract]

Estimated Fair Market Value of Financial Instruments

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

		September 30, 2016				December 31, 2015
(In thousands)		Carrying Amount		Fair Value		Carrying Amount		Fair Value
MGE Energy
Assets:
Cash and cash equivalents	$	111,585	$	111,585	$	81,384	$	81,384
Liabilities:
Long-term debt(a)		392,316		463,849		395,508		435,767
MGE
Assets:
Cash and cash equivalents	$	31,558	$	31,558	$	26,760	$	26,760
Liabilities:
Long-term debt(a)		392,316		463,849		395,508		435,767
(a) Includes long-term debt due within one year. Excludes debt issuance costs and unamortized discount of
$4.2 million and $4.5 million at September 30, 2016, and December 31, 2015, 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, 2016
(In thousands)		Total		Level 1		Level 2		Level 3
MGE Energy
Assets:
Derivatives	$	1,367	$	917	$	-	$	450
Exchange-traded investments		520		520		-		-
Total Assets	$	1,887	$	1,437	$	-	$	450
Liabilities:
Derivatives	$	50,938	$	59	$	-	$	50,879
Deferred compensation		2,963		-		2,963		-
Total Liabilities	$	53,901	$	59	$	2,963	$	50,879
MGE
Assets:
Derivatives	$	1,367	$	917	$	-	$	450
Exchange-traded investments		97		97		-		-
Total Assets	$	1,464	$	1,014	$	-	$	450
Liabilities:
Derivatives	$	50,938	$	59	$	-	$	50,879
Deferred compensation		2,963		-		2,963		-
Total Liabilities	$	53,901	$	59	$	2,963	$	50,879

		Fair Value as of December 31, 2015
(In thousands)		Total		Level 1		Level 2		Level 3
MGE Energy
Assets:
Derivatives	$	234	$	-	$	-	$	234
Exchange-traded investments		759		759		-		-
Total Assets	$	993	$	759	$	-	$	234
Liabilities:
Derivatives(b)	$	54,316	$	581	$	-	$	53,735
Deferred compensation		3,145		-		3,145		-
Total Liabilities	$	57,461	$	581	$	3,145	$	53,735
MGE
Assets:
Derivatives	$	234	$	-	$	-	$	234
Exchange-traded investments		148		148		-		-
Total Assets	$	382	$	148	$	-	$	234
Liabilities:
Derivatives(b)	$	54,316	$	581	$	-	$	53,735
Deferred compensation		3,145		-		3,145		-
Total Liabilities	$	57,461	$	581	$	3,145	$	53,735
(b) These amounts are shown gross and exclude $1.0 million of collateral that was posted
against derivative positions with counterparties as of December 31, 2015.

Significant Unobservable Inputs

The following table presents the significant unobservable inputs used in the pricing model.

	Model Input
Significant Unobservable Inputs	September 30, 2016	December 31, 2015
Basis adjustment:
On peak	93.3%	96.9%
Off peak	94.1%	95.1%
Counterparty fuel mix:
Internal generation	55% - 75%	60% - 75%
Purchased power	45% - 25%	40% - 25%

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)		2016		2015		2016		2015
Beginning balance	$	(51,883)	$	(56,194)	$	(53,501)	$	(53,986)
Realized and unrealized gains (losses):
Included in regulatory liabilities (assets)		1,455		(888)		3,073		(3,096)
Included in other comprehensive income		-		-		-		-
Included in earnings		(278)		(2,285)		(4,250)		(4,497)
Included in current assets		-		-		-		-
Purchases		5,814		6,364		16,751		17,497
Sales		-		-		-		-
Issuances		-		-		-		-
Settlements		(5,537)		(4,079)		(12,502)		(13,000)
Transfers in and/or out of Level 3		-		-		-		-
Balance as of September 30,	$	(50,429)	$	(57,082)	$	(50,429)	$	(57,082)
Total gains (losses) included in earnings attributed to
the change in unrealized gains (losses) related to
assets and liabilities held at September 30,(c)	$	-	$	-	$	-	$	-

(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.

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)		2016		2015		2016		2015
Purchased Power Expense	$	(278)	$	(2,302)	$	(4,250)	$	(4,515)
Cost of Gas Sold Expense		-		17		-		18
Total	$	(278)	$	(2,285)	$	(4,250)	$	(4,497)

(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.