MGE Energy(MGEE) - 2023 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements This section provides the unaudited consolidated financial statements for MGE Energy, Inc. and Madison Gas and Electric Company, including income statements, balance sheets, and cash flow statements, along with detailed explanatory notes MGE Energy, Inc. Financial Statements MGE Energy reported a net income of $97.6 million for the nine months ended September 30, 2023, an 8.6% increase year-over-year, with diluted EPS rising to $2.70 and total assets growing to $2.59 billion MGE Energy, Inc. Consolidated Statements of Income (unaudited) | (In thousands, except per share amounts) | Nine Months Ended Sep 30, 2023 (in thousands) | Nine Months Ended Sep 30, 2022 (in thousands) | | :--- | :--- | :--- | | Total Operating Revenues | $525,779 | $524,686 | | Operating Income | $122,216 | $109,808 | | Net Income | $97,616 | $89,901 | | Diluted Earnings Per Share ($) | $2.70 | $2.49 | MGE Energy, Inc. Consolidated Balance Sheet Highlights (unaudited) | (In thousands) | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | | :--- | :--- | :--- | | Total Current Assets | $216,411 | $243,480 | | Total Property, Plant, and Equipment | $2,070,536 | $1,971,100 | | Total Assets | $2,590,532 | $2,517,600 | | Total Current Liabilities | $122,838 | $225,062 | | Total Long-term debt | $690,028 | $585,246 | | Common shareholders' equity | $1,135,253 | $1,081,674 | | Total Liabilities and Capitalization | $2,590,532 | $2,517,600 | - Cash provided by operating activities increased to $194.0 million for the nine months ended Sep 30, 2023, up from $144.3 million in the prior year period, while capital expenditures rose to $150.3 million from $133.4 million[21] Madison Gas and Electric Company Financial Statements Madison Gas and Electric Company reported net income attributable to MGE of $76.8 million for the nine months ended September 30, 2023, driven by higher operating income and an increase in total assets to $2.47 billion MGE Consolidated Statements of Income (unaudited) | (In thousands) | Nine Months Ended Sep 30, 2023 (in thousands) | Nine Months Ended Sep 30, 2022 (in thousands) | | :--- | :--- | :--- | | Total Operating Revenues | $525,779 | $524,686 | | Operating Income | $122,969 | $110,504 | | Net Income | $93,202 | $84,481 | | Net Income Attributable to MGE | $76,820 | $68,534 | MGE Consolidated Balance Sheet Highlights (unaudited) | (In thousands) | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | | :--- | :--- | :--- | | Total Assets | $2,471,614 | $2,404,639 | | Total Equity | $1,048,338 | $1,002,386 | | Total Liabilities and Capitalization | $2,471,614 | $2,404,639 | Notes to Consolidated Financial Statements The notes detail the basis of financial statement presentation, accounting policies, and specific financial items, providing critical context for understanding the financial statements - MGE Transco's equity earnings from its investment in American Transmission Company (ATC) were $7.8 million for the nine months ended Sep 30, 2023, up from $6.5 million in the prior year period[49] - The effective income tax rate for MGE Energy for the nine months ended Sep 30, 2023 was 18.8%, slightly lower than the 18.9% in the prior year period, influenced by renewable energy credits and other factors[52] - In August 2023, MGE entered into a private placement agreement to issue $70 million of new long-term debt in two series, with funding for the $40 million Series A occurring in September 2023[60] Future Commitments for Purchase Contracts (as of Sep 30, 2023) | (In thousands) | 2023 (in thousands) | 2024 (in thousands) | 2025 (in thousands) | 2026 (in thousands) | 2027 (in thousands) | Thereafter (in thousands) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Coal | $8,511 | $23,173 | $14,425 | $2,581 | $— | $— | | Natural gas | $20,009 | $41,502 | $25,517 | $14,873 | $2,165 | $11,995 | Joint Plant Construction Projects (as of Sep 30, 2023) | Project | Ownership Interest | Share of Generation | Estimated Costs (in thousands) | Costs Incurred (in thousands) | Commercial Operation | | :--- | :--- | :--- | :--- | :--- | :--- | | Red Barn | 10% | 9.16 MW | $18,000 | $16,500 | April 2023 | | Badger Hollow II | 33% | 50 MW | $86,000 | $58,900 | Late 2023/early 2024 | | Paris | 10% | 20 MW/11 MW | $61,000 | $34,500 | 2024 Solar/2025 Battery | | Darien | 10% | 25 MW | $46,000 | $21,900 | 2024 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the financial results for the third quarter and first nine months of 2023, highlighting increased earnings from electric infrastructure investments and rate changes, strategic focus on renewable energy, and potential impacts from regulatory and market factors Executive Overview and Results of Operations MGE Energy's Q3 2023 earnings increased to $37.9 million, with nine-month earnings at $97.6 million, driven by the Electric Utility segment's growth, while the Gas Utility segment saw a decline due to warmer weather MGE Energy Net Income by Business Segment (In millions) | Business Segment | Nine Months Ended Sep 30, 2023 (in millions) | Nine Months Ended Sep 30, 2022 (in millions) | | :--- | :--- | :--- | | Electric Utility | $66.0 | $55.2 | | Gas Utility | $10.5 | $12.8 | | Nonregulated Energy | $16.7 | $16.5 | | Transmission Investments | $5.8 | $4.8 | | All Other | ($1.4) | $0.6 | - Electric utility earnings increased due to new investments and rate changes, with warmer weather in Q3 increasing electric retail sales despite a Q1 decline[125] - Gas utility earnings decreased for the nine-month period due to a 15% decrease in heating degree days, leading to an 11% drop in gas retail sales[126] - The company is focused on achieving an 80% carbon reduction by 2030 by transitioning away from coal and growing renewable generation[120][140] Liquidity and Capital Resources The company expects adequate liquidity for the next twelve months, with cash from operations increasing to $194.0 million and forecasted capital expenditures averaging over $230 million annually from 2024-2028, primarily for renewable generation Forecasted Capital Expenditures (In thousands) | Category | 2023 (in thousands) | 2024 (in thousands) | 2025 (in thousands) | 2026 (in thousands) | 2027 (in thousands) | 2028 (in thousands) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Electric | $173,000 | $177,000 | $186,000 | $193,000 | $222,000 | $207,000 | | Gas | $33,000 | $28,000 | $29,000 | $32,000 | $29,000 | $28,000 | | Nonregulated | $6,000 | $9,000 | $10,000 | $7,000 | $6,000 | $8,000 | | MGE Energy total | $212,000 | $214,000 | $225,000 | $232,000 | $257,000 | $243,000 | - Forecasted capital expenditures for 2024-2028 show a significant focus on electric renewables, including solar, wind, and battery storage projects[196] - MGE Energy's common equity ratio was 61.3% as of September 30, 2023, compared to 60.4% at the end of 2022[210] Other Matters This section details key external factors affecting the company, including a pending rate case for 2024/2025, the ongoing FERC challenge to ATC's Return on Equity, and potential solar procurement disruptions - MGE filed a rate case for 2024/2025, proposing a 3.75% electric and 2.56% gas rate increase for 2024, with further increases proposed for 2025, and a final PSCW order expected by the end of 2023[215] - The company is exposed to risk from the ongoing challenge to ATC's ROE at FERC, where a reduction could lower MGE Energy's equity earnings, which constituted 5.7% of its net income in the first nine months of 2023[217][220][221] - Solar project timelines and costs may be impacted by the UFLPA and a USDOC tariff investigation, with MGE expecting to request recovery for any cost increases in future rate proceedings[222][224] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company states that there were no material changes to the market risks disclosed in its 2022 Annual Report on Form 10-K - There were no material changes to the market risks disclosed in Item 7A of the company's 2022 Annual Report on Form 10-K[226] Item 4. Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of September 30, 2023, with no material changes during the quarter - As of September 30, 2023, the principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective[228] - No changes in internal controls over financial reporting occurred during the quarter ended September 30, 2023, that materially affected or are reasonably likely to materially affect internal controls[229] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company and its subsidiaries are involved in various legal proceedings that are being handled and defended in the ordinary course of business and are not expected to have a material adverse effect - MGE Energy and its subsidiaries are involved in various legal proceedings handled in the ordinary course of business, with further details provided in Footnotes 8.a and 8.b[231] Item 1A. Risk Factors There have been no material changes from the risk factors previously disclosed in the company's 2022 Annual Report on Form 10-K - There were no material changes from the risk factors disclosed in the company's 2022 Annual Report on Form 10-K[232] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Under the Direct Stock Purchase and Dividend Reinvestment Plan, shares can be newly issued or purchased on the open market, and during 2023, all shares purchased under the plan were acquired in the open market - During 2023, shares purchased under the Direct Stock Purchase and Dividend Reinvestment Plan (Stock Plan) have been purchased in the open market, not newly issued by MGE Energy[233] Item 5. Other Information No director or officer of MGE Energy or Madison Gas and Electric adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the third quarter of 2023 - During the three months ended September 30, 2023, no director or officer adopted or terminated a Rule 10b5-1 trading arrangement or other non-Rule 10b5-1 trading arrangement[236] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications by the CEO and CFO pursuant to the Sarbanes-Oxley Act and XBRL data files - The report includes certifications from CEO Jeffrey M. Keebler and CFO Jared J. Bushek for both MGE Energy, Inc. and Madison Gas and Electric Company, as well as XBRL data files[238]