Income Taxes (Tables)

12 Months Ended

Dec. 31, 2017

On a consolidated and separate company basis, the income tax provision consists of the following provision (benefit) components for the years ended December 31:

		MGE Energy						MGE
(In thousands)		2017		2016		2015		2017		2016		2015
Current payable:
Federal	$	21,125	$	16,908	$	16,837	$	21,512	$	17,521	$	19,295
State		5,129		3,287		2,774		5,316		3,497		3,443
Net-deferred:
Federal		(8,346)		17,571		15,951		(11,195)		16,391		13,538
State		4,264		4,850		5,976		3,435		4,485		5,305
Amortized investment tax credits		(78)		(103)		(175)		(78)		(103)		(175)
Total income tax provision	$	22,094	$	42,513	$	41,363	$	18,990	$	41,791	$	41,406

Effective Tax Rate Reconciliation

The consolidated income tax provision differs from the amount computed by applying the statutory federal income tax rate to income before income taxes, as follows:

	MGE Energy			MGE
	2017	2016	2015	2017	2016	2015
Statutory federal income tax rate	35.0 %	35.0 %	35.0 %	35.0 %	35.0 %	35.0 %
State income taxes, net of federal benefit	5.1 %	5.1 %	5.2 %	5.1 %	5.1 %	5.2 %
Amortized investment tax credits	-%	(0.1)%	(0.2)%	-%	(0.1)%	(0.2)%
Credit for electricity from wind energy	(1.6)%	(1.6)%	(1.8)%	(1.7)%	(1.7)%	(1.8)%
Domestic manufacturing deduction	(1.4)%	(1.3)%	(1.4)%	(1.5)%	(1.3)%	(1.4)%
AFUDC equity, net	(0.2)%	(0.2)%	(0.1)%	(0.2)%	(0.2)%	(0.1)%
Federal income tax rate reduction	(18.1)%	-%	-%	(19.3)%	-%	-%
Other, net, individually insignificant	(0.3)%	(0.9)%	-%	(0.4)%	(0.9)%	-%
Effective income tax rate	18.5 %	36.0 %	36.7 %	17.0 %	35.9 %	36.7 %

Deferred Tax Liabilities (Assets)

The significant components of deferred tax liabilities (assets) that appear on the consolidated balance sheets as of December 31 are as follows:

		MGE Energy				MGE
(In thousands)		2017		2016		2017		2016
Property-related	$	238,437	$	344,721	$	238,544	$	344,630
Investment in ATC^(a)		48,324		71,898		-		-
Bond transactions		832		1,324		832		1,324
Pension and other postretirement benefits		42,919		63,516		42,919		63,516
Derivatives		11,525		20,304		11,525		20,304
Tax deductible prepayments		6,169		8,404		6,169		8,404
Other		9,389		16,606		9,222		16,571
Gross deferred income tax liabilities		357,595		526,773		309,211		454,749
Investment in ATC^(a)		(24,781)		(31,212)		-		-
Accrued expenses		(15,135)		(22,410)		(15,135)		(22,410)
Pension and other postretirement benefits		(32,196)		(48,860)		(32,196)		(48,860)
Deferred tax regulatory account		(36,124)		(903)		(36,124)		(903)
Derivatives		(11,525)		(20,304)		(11,525)		(20,304)
Other		(12,790)		(19,340)		(12,831)		(19,224)
Gross deferred income tax assets		(132,551)		(143,029)		(107,811)		(111,701)
Less valuation allowance		86		69		86		69
Net deferred income tax assets		(132,465)		(142,960)		(107,725)		(111,632)
Deferred income taxes	$	225,130	$	383,813	$	201,486	$	343,117

(a) As of December 1, 2016, MGE transferred its ownership interest in ATC to MGE Energy, resulting in a deferred intercompany gain and a corresponding step-up in tax basis.

Unrecognized Tax Benefits and Interest

A tabular reconciliation of unrecognized tax benefits and interest from January 1, 2015, to December 31, 2017, is as follows:

(In thousands)
Unrecognized Tax Benefits:		2017		2016		2015
Unrecognized tax benefits, January 1,	$	2,487	$	2,528	$	2,365
Additions based on tax positions related to the current year		552		452		488
Additions based on tax positions related to the prior years		19		39		520
Reductions based on tax positions related to the prior years		(1,134)		(532)		(845)
Unrecognized tax benefits, December 31,	$	1,924	$	2,487	$	2,528

(In thousands)
Interest on Unrecognized Tax Benefits:		2017		2016		2015
Accrued interest on unrecognized tax benefits, January 1,	$	388	$	311	$	92
Reduction in interest expense on uncertain tax positions		(312)		(27)		(102)
Interest expense on uncertain tax positions		89		104		321
Accrued interest on unrecognized tax benefits, December 31,	$	165	$	388	$	311

Tax Years that Remain Subject to Examination

The following table shows tax years that remain subject to examination by major jurisdiction:

	Taxpayer	Open Years
	MGE Energy and consolidated subsidiaries in federal return	2014 through 2017
	MGE Energy Wisconsin combined reporting corporation return	2013 through 2017