Variable Interest Entities

12 Months Ended

Dec. 31, 2020

Variable Interest Entities Disclosure [Abstract]

Variable Interest Entities

Variable Interest Entities - MGE Energy and MGE.

a.Consolidated Variable Interest Entities.

MGE Power Elm Road and MGE Power West Campus are not subsidiaries of MGE, but they have been consolidated in the financial statements of MGE. MGE Power Elm Road and MGE Power West Campus were created for the purpose of owning new generating assets and leasing those assets to MGE. MGE Power Elm Road's sole principal asset is an undivided ownership interest in two coal-fired generating plants (the Elm Road Units) located in Oak Creek, Wisconsin, which it leases to MGE pursuant to long-term leases. MGE Power West Campus's sole principal asset is the WCCF, which it leases to MGE pursuant to a long-term lease. Based on the nature and terms of the contractual agreements, MGE is expected to absorb a majority of the expected losses or residual value associated with the ownership of the generation assets by MGE Power Elm Road and Power West Campus and therefore MGE holds a

variable interest despite the absence of an equity interest.

In accordance with applicable accounting guidance, MGE Energy and MGE consolidate VIEs of which they are the primary beneficiary. MGE has the power to direct the activities that most significantly impact both the Elm Road Units' and the WCCF's economic performance and is also the party most closely associated with MGE Power Elm Road and MGE Power West Campus. As a result, MGE is the primary beneficiary.

As of December 31, MGE has included the following significant accounts on its consolidated balance sheets related to its interest in these VIEs:

		MGE Power Elm Road				MGE Power West Campus
(In thousands)		2020		2019		2020		2019
Property, plant, and equipment, net	$	166,883	$	170,763	$	79,077	$	79,473
Construction work in progress		697		468		677		309
Affiliate receivables		-		-		2,803		3,600
Accrued interest and accrued (prepaid) taxes		2,701		1,364		671		(160)
Deferred income taxes		30,646		30,621		14,521		14,363
Long-term debt(a)		51,590		54,207		37,652		39,627
Noncontrolling interest		96,856		97,172		44,340		43,131

(a)MGE Power Elm Road's long-term debt includes debt issuance costs of $0.4 million as of December 31, 2020 and 2019. The debt is secured by a collateral assignment of lease payments that MGE makes to MGE Power Elm Road for use of the Elm Road Units pursuant to the related long-term leases. MGE Power West Campus's long-term debt includes debt issuance costs of $0.1 million as of December 31, 2020 and 2019. The debt is secured by a collateral assignment of lease payments that MGE makes to MGE Power West Campus for use of the cogeneration facility pursuant to the long-term lease. See Footnote 14 for further information on the long-term debt securities.

MGE is permitted by PSCW order to recover lease payments made to MGE Power Elm Road and MGE Power West Campus in customer rates.

b.Other Variable Interest Entities.

MGE has a variable interest in entities through purchase power agreements relating to purchased energy from the facilities covered by the agreements. As of December 31, 2020 and 2019, MGE had 13 megawatts of capacity available under these agreements. MGE evaluated the variable interest entities for possible consolidation. The interest holder is considered the primary beneficiary of the entity and is required to consolidate the entity if the interest holder has the power to direct the activities that most significantly impact the economics of the variable interest entity. MGE examined qualitative factors such as the length of the remaining term of the contracts compared with the remaining lives of the plants, who has the power to direct the operations and maintenance of the facilities, and other factors, and determined MGE is not the primary beneficiary of the variable interest entities. There is no significant potential exposure to loss as a result of involvement with these variable interest entities.