Fair Value of Financial Instruments (Tables)

12 Months Ended

Dec. 31, 2018

Estimated Fair Market Value of Financial Instruments

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

		December 31, 2018				December 31, 2017
(In thousands)		Carrying Amount		Fair Value		Carrying Amount		Fair Value
MGE Energy
Assets:
Cash and cash equivalents	$	83,102	$	83,102	$	107,952	$	107,952
Liabilities:
Short-term debt - commercial paper		13,000		13,000		4,000		4,000
Long-term debt^(a)		502,431		518,811		426,883		475,282

MGE
Assets:
Cash and cash equivalents	$	4,843	$	4,843	$	5,951	$	5,951
Liabilities:
Short-term debt - commercial paper		13,000		13,000		4,000		4,000
Long-term debt^(a)		502,431		518,811		426,883		475,282

(a) Includes long-term debt due within one year. Excludes debt issuance costs and unamortized
discount of $4.5 million and $4.3 million as of December 31, 2018 and 2017, 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, 2018
(In thousands)		Total		Level 1		Level 2		Level 3
MGE Energy
Assets:
Derivatives, net	$	1,042	$	296	$	-	$	746
Exchange-traded investments		848		848		-		-
Total Assets	$	1,890	$	1,144	$	-	$	746
Liabilities:
Derivatives, net	$	32,872	$	124	$	-	$	32,748
Deferred compensation		3,078		-		3,078		-
Total Liabilities	$	35,950	$	124	$	3,078	$	32,748

MGE
Assets:
Derivatives, net	$	1,042	$	296	$	-	$	746
Exchange-traded investments		43		43		-		-
Total Assets	$	1,085	$	339	$	-	$	746
Liabilities:
Derivatives, net	$	32,872	$	124	$	-	$	32,748
Deferred compensation		3,078		-		3,078		-
Total Liabilities	$	35,950	$	124	$	3,078	$	32,748


	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

(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	2018	2017
Basis adjustment:
On peak	92.1%	92.3%
Off peak	92.8%	94.1%
Counterparty fuel mix:
Internal generation	50%-75%	55%-75%
Purchased power	50%-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)		2018		2017		2016
Balance as of January 1,	$	(42,026)	$	(50,306)	$	(53,501)
Realized and unrealized gains (losses):
Included in regulatory liabilities		10,024		8,281		3,195
Included in other comprehensive income		-		-		-
Included in earnings		132		(3,718)		(5,347)
Included in current assets		(47)		(9)		(142)
Purchases		23,643		24,181		23,346
Sales		-		-		-
Issuances		-		-		-
Settlements		(23,728)		(20,455)		(17,857)
Transfers in and/or out of Level 3		-		-		-
Balance as of December 31,	$	(32,002)	$	(42,026)	$	(50,306)
Total gains (losses) included in earnings attributed to the
change in unrealized gains (losses) related to assets and
liabilities held as of 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,		2018		2017		2016
Purchased power expense	$	355	$	(3,314)	$	(5,262)
Cost of gas sold expense		(223)		(404)		(85)
Total	$	132	$	(3,718)	$	(5,347)