Investment in ATC and ATC Holdco

9 Months Ended

Sep. 30, 2017

Equity Method Investments and Joint Ventures [Abstract]

Investment in ATC and ATC Holdco - 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, as of December 1, 2016, is owned solely by MGE Energy. ATC Holdco was formed by several members of ATC, including MGE Energy, to pursue electric transmission development and investments outside of Wisconsin. The ownership interest in ATC Holdco is held by MGEE Transco, a wholly-owned subsidiary of MGE Energy.

MGE Transco and MGEE Transco have accounted for their investment in ATC and ATC Holdco, respectively, under the equity method of accounting. Equity earnings from investments are recorded as "Other income" on MGE Energy's consolidated statements of income. For the three and nine months ended September 30, 2017 and 2016, MGE Transco recorded the following:

		Three Months Ended				Nine Months Ended
		September 30,				September 30,
(In thousands)		2017		2016		2017		2016
Equity earnings from investment in ATC	$	2,338	$	2,023	$	7,432	$	6,023
Dividends from ATC^(a)		2,070		1,486		4,070		4,214
Capital contributions to ATC		710		888		3,018		1,598

(a) As of December 31, 2016, MGE Transco recorded a $2.1 million receivable from ATC for a cash dividend received in January 2017.

ATC Holdco's activities commenced in late December 2016 and had an immaterial impact on results of operations, cash flows, and financial condition.

At September 30, 2017, and December 31, 2016, MGE Transco held a 3.6% ownership interest in ATC. At September 30, 2017, and December 31, 2016, MGEE Transco held a 4.4% and 4.0% ownership interest in ATC Holdco, respectively.

In June 2016, the PSCW required MGE to transfer its interest in ATC to MGE Energy, which was to be completed by December 31, 2022. The requirement arose in the context of requests for regulatory approvals by several owners of ATC in connection with a reorganization of ATC. MGE's ownership interest in ATC, held through MGE Transco, was transferred net of deferred tax liabilities to MGE Energy by way of a dividend in kind of $15.8 million as of December 1, 2016. As a result of the transfer, MGE's ownership interest in MGE Transco was completely eliminated in favor of MGE Energy. The change had no effect on MGE Energy's consolidated financial statements.

ATC's summarized financial data for the three and nine months ended September 30, 2017 and 2016, is as follows:

		Three Months Ended				Nine Months Ended
		September 30,				September 30,
(In thousands)		2017		2016		2017		2016
Operating revenues	$	171,123	$	158,126	$	522,402	$	476,591
Operating expenses		(85,063)		(80,271)		(250,116)		(241,034)
Other income, net		796		1,128		1,615		2,563
Interest expense, net		(28,273)		(24,624)		(81,188)		(73,714)
Earnings before members' income taxes	$	58,583	$	54,359	$	192,713	$	164,406

MGE receives transmission and other related services from ATC. During the three and nine months ended September 30, 2017, MGE recorded $7.3 million and $21.9 million, respectively, for transmission services received compared to $7.4 million and $22.1 million for the comparable periods in 2016. MGE also provides a variety of operational, maintenance, and project management services for ATC, which is reimbursed by ATC. As of September 30, 2017 and December 31, 2016, MGE had a receivable due from ATC of $0.1 million.