Fair Value of Financial Instruments (Tables)

9 Months Ended

Sep. 30, 2017

Fair Value Disclosures [Abstract]

Estimated Fair Market Value of Financial Instruments

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

		September 30, 2017				December 31, 2016
(In thousands)		Carrying Amount		Fair Value		Carrying Amount		Fair Value
MGE Energy
Assets:
Cash and cash equivalents	$	104,733	$	104,733	$	95,959	$	95,959
Liabilities:
Short-term debt - commercial paper		7,000		7,000		-		-
Long-term debt(a)		397,981		444,195		391,242		430,122
MGE
Assets:
Cash and cash equivalents	$	1,954	$	1,954	$	10,768	$	10,768
Liabilities:
Short-term debt - commercial paper		7,000		7,000		-		-
Long-term debt(a)		397,981		444,195		391,242		430,122
(a) Includes long-term debt due within one year. Excludes debt issuance costs and unamortized discount of
$4.1 million at September 30, 2017, and December 31, 2016.

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, 2017
(In thousands)		Total		Level 1		Level 2		Level 3
MGE Energy
Assets:
Derivatives	$	1,536	$	673	$	-	$	863
Exchange-traded investments		816		816		-		-
Total Assets	$	2,352	$	1,489	$	-	$	863
Liabilities:
Derivatives	$	43,812	$	190	$	-	$	43,622
Deferred compensation		3,150		-		3,150		-
Total Liabilities	$	46,962	$	190	$	3,150	$	43,622
MGE
Assets:
Derivatives	$	1,536	$	673	$	-	$	863
Exchange-traded investments		78		78		-		-
Total Assets	$	1,614	$	751	$	-	$	863
Liabilities:
Derivatives	$	43,812	$	190	$	-	$	43,622
Deferred compensation		3,150		-		3,150		-
Total Liabilities	$	46,962	$	190	$	3,150	$	43,622

		Fair Value as of December 31, 2016
(In thousands)		Total		Level 1		Level 2		Level 3
MGE Energy
Assets:
Derivatives	$	1,527	$	1,041	$	-	$	486
Exchange-traded investments		500		500		-		-
Total Assets	$	2,027	$	1,541	$	-	$	486
Liabilities:
Derivatives	$	50,808	$	16	$	-	$	50,792
Deferred compensation		3,039		-		3,039		-
Total Liabilities	$	53,847	$	16	$	3,039	$	50,792
MGE
Assets:
Derivatives	$	1,527	$	1,041	$	-	$	486
Exchange-traded investments		143		143		-		-
Total Assets	$	1,670	$	1,184	$	-	$	486
Liabilities:
Derivatives	$	50,808	$	16	$	-	$	50,792
Deferred compensation		3,039		-		3,039		-
Total Liabilities	$	53,847	$	16	$	3,039	$	50,792

Significant Unobservable Inputs

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

	Model Input
Significant Unobservable Inputs	September 30, 2017	December 31, 2016
Basis adjustment:
On peak	92.4%	91.9%
Off peak	94.2%	93.4%
Counterparty fuel mix:
Internal generation	55% - 75%	55% - 75%
Purchased power	45% - 25%	45% - 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)		2017		2016		2017		2016
Beginning balance	$	(45,605)	$	(51,883)	$	(50,305)	$	(53,501)
Realized and unrealized gains (losses):
Included in regulatory liabilities		2,846		1,455		7,547		3,073
Included in other comprehensive income		-		-		-		-
Included in earnings		(1,478)		(278)		(2,614)		(4,250)
Included in current assets		(14)		-		(111)		-
Purchases		6,299		5,814		18,481		16,751
Sales		-		-		-		-
Issuances		-		-		-		-
Settlements		(4,807)		(5,537)		(15,757)		(12,502)
Transfers in and/or out of Level 3		-		-		-		-
Balance as of September 30,	$	(42,759)	$	(50,429)	$	(42,759)	$	(50,429)
Total gains (losses) included in earnings attributed to
the change in unrealized gains (losses) related to
assets and liabilities held at September 30,(b)	$	-	$	-	$	-	$	-

(b)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 losses included in income for Level 3 assets and liabilities measured at fair value on a recurring basis (b).

		Three Months Ended				Nine Months Ended
		September 30,				September 30,
(In thousands)		2017		2016		2017		2016
Purchased Power Expense	$	(1,460)	$	(278)	$	(2,377)	$	(4,250)
Cost of Gas Sold Expense		(18)		-		(237)		-
Total	$	(1,478)	$	(278)	$	(2,614)	$	(4,250)

(b)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.