Fair Value of Financial Instruments (Tables)

12 Months Ended

Dec. 31, 2017

Estimated Fair Market Value of Financial Instruments

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

		December 31, 2017				December 31, 2016
(In thousands)		Carrying Amount		Fair Value		Carrying Amount		Fair Value
MGE Energy
Assets:
Cash and cash equivalents	$	107,952	$	107,952	$	95,959	$	95,959
Liabilities:
Short-term debt - commercial paper		4,000		4,000		-		-
Long-term debt^(a)		426,883		475,282		391,242		430,122

MGE
Assets:
Cash and cash equivalents	$	5,951	$	5,951	$	10,768	$	10,768
Liabilities:
Short-term debt - commercial paper		4,000		4,000		-		-
Long-term debt^(a)		426,883		475,282		391,242		430,122

(a) Includes long-term debt due within one year. Excludes debt issuance costs and unamortized
discount of $4.3 million and $4.1 million at December 31, 2017 and 2016, 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 December 31, 2017
(In thousands)		Total		Level 1		Level 2		Level 3
MGE Energy
Assets:
Derivatives, net	$	1,005	$	278	$	-	$	727
Exchange-traded investments		792		792		-		-
Total Assets	$	1,797	$	1,070	$	-	$	727
Liabilities:
Derivatives, net^(b)	$	42,963	$	210	$	-	$	42,753
Deferred compensation		3,065		-		3,065		-
Total Liabilities	$	46,028	$	210	$	3,065	$	42,753

MGE
Assets:
Derivatives, net	$	1,005	$	278	$	-	$	727
Exchange-traded investments		64		64		-		-
Total Assets	$	1,069	$	342	$	-	$	727
Liabilities:
Derivatives, net^(b)	$	42,963	$	210	$	-	$	42,753
Deferred compensation		3,065		-		3,065		-
Total Liabilities	$	46,028	$	210	$	3,065	$	42,753


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

MGE
Assets:
Derivatives, net	$	1,527	$	1,041	$	-	$	486
Exchange-traded investments		143		143		-		-
Total Assets	$	1,670	$	1,184	$	-	$	486
Liabilities:
Derivatives, net	$	50,808	$	16	$	-	$	50,792
Deferred compensation		3,039		-		3,039		-
Total Liabilities	$	53,847	$	16	$	3,039	$	50,792

(b) These amounts are shown gross and exclude $0.1 million of collateral that was posted against
derivative positions with counterparties as of December 31, 2017.

Significant Unobservable Inputs

The following table presents the significant unobservable inputs used in the pricing model as of December 31:

	Model Input
Significant Unobservable Inputs	2017	2016
Basis adjustment:
On peak	92.3%	91.9%
Off peak	94.1%	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.

(In thousands)		2017		2016		2015
Balance as of January 1,	$	(50,306)	$	(53,501)	$	(53,986)
Realized and unrealized gains (losses):
Included in regulatory liabilities		8,281		3,195		484
Included in other comprehensive income		-		-		-
Included in earnings		(3,718)		(5,347)		(6,635)
Included in current assets		(9)		(142)		-
Purchases		24,181		23,346		23,052
Sales		-		-		-
Issuances		-		-		-
Settlements		(20,455)		(17,857)		(16,416)
Transfers in and/or out of Level 3		-		-		-
Balance as of December 31,	$	(42,026)	$	(50,306)	$	(53,501)
Total gains (losses) included in earnings attributed to the
change in unrealized gains (losses) related to assets and
liabilities held at December 31,^(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).

(In thousands)
Year Ended December 31,		2017		2016		2015
Purchased power expense	$	(3,314)	$	(5,262)	$	(6,663)
Cost of gas sold expense		(404)		(85)		28
Total	$	(3,718)	$	(5,347)	$	(6,635)