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Fair Value of Financial Instruments (Tables)
 9 Months Ended
Sep. 30, 2020
Fair Value Disclosures [Abstract]  
Estimated Fair Market Value of Financial Instruments The estimated fair market value offinancial instruments are as follows:

 

 

 

September 30, 2020

 

December 31, 2019

 

 

(In thousands)

 

Carrying Amount

 

Fair Value

 

Carrying Amount

 

Fair Value

 

 

MGE Energy

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

$

53,058

$

53,058

$

23,481

$

23,481

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

Long-term debt(a)

 

544,395

 

658,008

 

547,879

 

611,909

 

 

 

 

 

 

 

 

 

 

 

 

 

MGE

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

$

5,171

$

5,171

$

3,196

$

3,196

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

Long-term debt(a)

 

544,395

 

658,008

 

547,879

 

611,909

 

(a) Includes long-term debt due within one year. Excludes debt issuance costs and unamortized discount of $4.3 million and $4.5 million as of September 30, 2020, and December 31, 2019, 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 September 30, 2020

 

 

(In thousands)

 

Total

 

Level 1

 

Level 2

 

Level 3

 

 

MGE Energy

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

Derivatives, net(b)

$

2,521

$

1,975

$

-

$

546

 

 

Exchange-traded investments

 

1,781

 

1,781

 

-

 

-

 

 

Total Assets

$

4,302

$

3,756

$

-

$

546

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

Derivatives, net

$

16,538

$

265

$

-

$

16,273

 

 

Deferred compensation

 

3,349

 

-

 

3,349

 

-

 

 

Total Liabilities

$

19,887

$

265

$

3,349

$

16,273

 

 

 

 

 

 

 

 

 

 

 

 

 

MGE

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

Derivatives, net(b)

$

2,521

$

1,975

$

-

$

546

 

 

Exchange-traded investments

 

461

 

461

 

-

 

-

 

 

Total Assets

$

2,982

$

2,436

$

-

$

546

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

Derivatives, net

$

16,538

$

265

$

-

$

16,273

 

 

Deferred compensation

 

3,349

 

-

 

3,349

 

-

 

 

Total Liabilities

$

19,887

$

265

$

3,349

$

16,273

 

 

 

 

Fair Value as of December 31, 2019

 

 

(In thousands)

 

Total

 

Level 1

 

Level 2

 

Level 3

 

 

MGE Energy

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

Derivatives, net

$

303

$

189

$

-

$

114

 

 

Exchange-traded investments

 

1,271

 

1,271

 

-

 

-

 

 

Total Assets

$

1,574

$

1,460

$

-

$

114

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

Derivatives, net(c)

$

27,178

$

608

$

-

$

26,570

 

 

Deferred compensation

 

3,157

 

-

 

3,157

 

-

 

 

Total Liabilities

$

30,335

$

608

$

3,157

$

26,570

 

 

 

 

 

 

 

 

 

 

 

 

 

MGE

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

Derivatives, net

$

303

$

189

$

-

$

114

 

 

Exchange-traded investments

 

209

 

209

 

-

 

-

 

 

Total Assets

$

512

$

398

$

-

$

114

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

Derivatives, net(c)

$

27,178

$

608

$

-

$

26,570

 

 

Deferred compensation

 

3,157

 

-

 

3,157

 

-

 

 

Total Liabilities

$

30,335

$

608

$

3,157

$

26,570

 

(b) These amounts are shown gross and exclude $0.7 million of collateral against derivative positions owed to counterparties under a master netting agreement as of September 30, 2020.

 

(c) These amounts are shown gross and exclude $1.5 million of collateral that was posted against derivative positions with counterparties as December 31, 2019.
Significant Unobservable Inputs The following table presents the significant unobservable inputs used in the pricing model.

 

 

 

Model Input

 

 

 

Significant Unobservable Inputs

 

September 30, 2020

 

December 31, 2019

 

 

 

Basis adjustment:

 

 

 

 

 

 

 

 

 

On peak

 

93.9

%

 

92.1

%

 

 

 

Off peak

 

93.7

%

 

92.7

%

 

 

 

Counterparty fuel mix:

 

 

 

 

 

 

 

 

 

Internal generation - range

 

46.0% - 65.0

%

 

40.0% - 60.0

%

 

 

 

Internal generation - weighted average

 

56.4

%

 

52.2

%

 

 

 

Purchased power - range

 

54.0% - 35.0

%

 

60.0% - 40.0

%

 

 

 

Purchased power - weighted average

 

43.6

%

 

47.8

%

 

 
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)

 

2020

 

2019

 

2020

 

2019

Beginning balance

$

(21,023)

$

(33,337)

$

(26,456)

$

(32,002)

Realized and unrealized gains (losses):

 

 

 

 

 

 

 

 

Included in regulatory assets

 

5,296

 

4,317

 

10,729

 

2,982

Included in other comprehensive income

 

-

 

-

 

-

 

-

Included in earnings

 

(1,524)

 

(492)

 

(4,687)

 

(1,928)

Included in current assets

 

(37)

 

4

 

(101)

 

(198)

Purchases

 

5,505

 

5,205

 

15,837

 

16,827

Sales

 

-

 

-

 

-

 

-

Issuances

 

-

 

-

 

-

 

-

Settlements

 

(3,944)

 

(4,717)

 

(11,049)

 

(14,701)

Transfers in and/or out of Level 3

 

-

 

-

 

-

 

-

Balance as of September 30,

$

(15,727)

$

(29,020)

$

(15,727)

$

(29,020)

Total gains (losses) included in earnings attributed to

 

 

 

 

 

 

 

 

the change in unrealized gains (losses) related to

 

 

 

 

 

 

 

 

assets and liabilities held as of September 30,(d)

$

-

$

-

$

-

$

-

(d) 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(d).

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

 

September 30,

 

September 30,

 

 

(In thousands)

 

2020

 

2019

 

2020

 

2019

 

 

Purchased Power Expense

$

(1,496)

$

(409)

$

(4,343)

$

(1,658)

 

 

Cost of Gas Sold Expense

 

(28)

 

(83)

 

(344)

 

(270)

 

 

Total

$

(1,524)

$

(492)

$

(4,687)

$

(1,928)

 

(d) 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.