v3.26.1
Derivative and Hedging Instruments
 3 Months Ended
Mar. 31, 2026
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative and Hedging Instruments Derivative and Hedging Instruments - MGE Energy and MGE.
a.
Purpose.

As part of its regular operations, MGE enters into contracts, including options, swaps, futures, forwards, and other contractual commitments, to manage its exposure to commodity prices. To the extent that these contracts are derivatives, MGE assesses whether or not the normal purchases or normal sales exclusion applies. For contracts to which this exclusion cannot be applied, the derivatives are recognized in the consolidated balance sheets at fair value. MGE's financial commodity derivative activities are conducted in accordance with its electric and gas risk management program, which is approved by the PSCW and limits the volume MGE can hedge with specific risk management strategies. The maximum length of time over which cash flows related to energy commodities can be hedged is four years. If the derivative qualifies for regulatory deferral, the derivatives are marked to fair value and are offset with a corresponding regulatory asset or liability depending on whether the derivative is in a net loss or net gain position, respectively. The deferred gain or loss is recognized in earnings in the delivery month applicable to the instrument. Gains and losses related to hedges qualifying for regulatory treatment are refundable or recoverable in gas rates through the Purchased Gas Adjustment (PGA) or in electric rates as a component of the fuel rules mechanism.

b.
Notional Amounts.

The gross notional volume of open derivatives is as follows:

 

 

 

March 31, 2026

 

December 31, 2025

Commodity derivative contracts

 

 

195,040

 

 

MWh

 

 

224,360

 

 

MWh

Commodity derivative contracts

 

 

4,792,500

 

 

Dth

 

 

8,230,000

 

 

Dth

FTRs

 

 

927

 

 

MW

 

 

2,413

 

 

MW

 

c.
Financial Statement Presentation.

 

MGE purchases and sells exchange-traded and over-the-counter options, swaps, and future contracts. These arrangements are primarily entered into to help stabilize the price risk associated with gas or power purchases. These transactions are employed by both MGE's gas and electric segments. Additionally, as a result of the firm transmission agreements that MGE holds on electricity transmission paths in the MISO market, MGE holds financial transmission rights (FTRs). An FTR is a financial instrument that entitles the holder to a stream of revenues or charges based on the differences in hourly day-ahead energy prices between two points on the transmission grid. The fair values of these instruments are offset with a corresponding regulatory asset/liability depending on whether the instruments are in a net loss/gain position. Depending on the nature of the instrument, the gain or loss associated with these transactions will be reflected as cost of gas sold, fuel for electric generation, or purchased power expense in the delivery month applicable to the instrument. As of March 31, 2026, the fair value of exchange traded derivatives and FTRs exceeded their cost basis by less than $0.1 million. As of December 31, 2025, the cost basis of exchange traded derivatives and FTRs exceeded their fair value by $1.4 million.

 

The following table summarizes the fair value of the derivative instruments on the consolidated balance sheets. All derivative instruments in this table are presented on a gross basis and are calculated prior to the netting of instruments with the same counterparty under a master netting agreement as well as the netting of collateral. For financial statement purposes, instruments are netted with the same counterparty under a master netting agreement as well as the netting of collateral.

 

 

 

Derivative

 

 

Derivative

 

 

 

(In thousands)

 

Assets

 

 

Liabilities

 

 

Balance Sheet Location

March 31, 2026

 

 

 

 

 

 

 

 

Commodity derivative contracts(a)

 

$

1,109

 

 

$

1,213

 

 

Other current liabilities

Commodity derivative contracts(a)

 

 

144

 

 

 

74

 

 

Other deferred liabilities and other

FTRs

 

 

109

 

 

 

—

 

 

Other current assets

 

 

 

 

 

 

 

 

 

December 31, 2025

 

 

 

 

 

 

 

 

Commodity derivative contracts(a)

 

$

448

 

 

$

2,380

 

 

Other current liabilities

Commodity derivative contracts(a)

 

 

366

 

 

 

185

 

 

Other deferred liabilities and other

FTRs

 

 

337

 

 

 

—

 

 

Other current assets

 

(a)
As of March 31, 2026, and December 31, 2025, collateral of less than $0.1 million and $1.8 million, respectively, was posted against and netted with derivative liability positions. The fair value of the derivatives disclosed in this table has not been adjusted for the collateral posted.

 

The following table shows the effect of netting arrangements for recognized derivative assets and liabilities that are subject to a master netting arrangement or similar arrangement on the consolidated balance sheets.

 

Offsetting of Derivative Assets and Liabilities

(In thousands)

 

Gross Amounts

 

 

Gross Amounts Offset in Balance Sheets

 

 

Collateral Posted Against Derivative Positions

 

 

Net Amount Presented in Balance Sheets

 

March 31, 2026

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Commodity derivative contracts

 

$

1,253

 

 

$

(1,253

)

 

$

—

 

 

$

—

 

FTRs

 

 

109

 

 

 

—

 

 

 

—

 

 

 

109

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Commodity derivative contracts

 

 

1,287

 

 

 

(1,253

)

 

 

(34

)

 

 

—

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2025

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Commodity derivative contracts

 

$

814

 

 

$

(814

)

 

$

—

 

 

$

—

 

FTRs

 

 

337

 

 

 

—

 

 

 

—

 

 

 

337

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Commodity derivative contracts

 

 

2,565

 

 

 

(814

)

 

 

(1,751

)

 

 

—

 

 

The following tables summarize the unrealized and realized gains (losses) related to the derivative instruments on the consolidated balance sheets and the consolidated statements of income.

 

 

 

2026

 

 

2025

 

(In thousands)

 

Current and Long-Term Regulatory Asset (Liability)

 

 

Other Current Assets

 

 

Current and Long-Term Regulatory Asset (Liability)

 

 

Other Current Assets

 

Three Months Ended March 31:

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain

 

$

(5,432

)

 

$

—

 

 

$

(1,756

)

 

$

—

 

Realized gain (loss) reclassified to a deferred account

 

 

2,608

 

 

 

(2,608

)

 

 

551

 

 

 

(551

)

Realized gain (loss) reclassified to income statement

 

 

1,335

 

 

 

2,315

 

 

 

(595

)

 

 

241

 

 

 

 

Realized Losses (Gains)

 

 

 

2026

 

 

2025

 

(In thousands)

 

Fuel for Electric Generation/ Purchased Power

 

 

Cost of Gas Sold

 

 

Fuel for Electric Generation/ Purchased Power

 

 

Cost of Gas Sold

 

Three Months Ended March 31:

 

 

 

 

 

 

 

 

 

 

 

 

Commodity derivative contracts

 

$

(872

)

 

$

(2,231

)

 

$

398

 

 

$

(203

)

FTRs

 

 

(547

)

 

 

—

 

 

 

159

 

 

 

—

 

 

MGE's commodity derivative contracts and FTRs are subject to regulatory deferral. These derivatives are marked to fair value and are offset with a corresponding regulatory asset or liability. Realized gains and losses are deferred on the consolidated balance sheets and are recognized in earnings in the delivery month applicable to the instrument. As a result of the treatment described above, there are no unrealized gains or losses that flow through earnings.

 

Certain counterparties extend MGE a credit limit. If MGE exceeds these limits, the counterparties may require collateral to be posted. As of both March 31, 2026, and December 31, 2025, no counterparties were in a net liability position.

 

Nonperformance of counterparties to the non-exchange traded derivatives could expose MGE to credit loss. However, MGE enters into transactions only with companies that meet or exceed strict credit guidelines, and it monitors these counterparties on an ongoing basis to mitigate nonperformance risk in its portfolio. As of March 31, 2026, no counterparties had defaulted.