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Commitments and Contingencies | 12 Months Ended
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Dec. 31, 2013
Commitments and Contingencies Disclosure [Abstract] |
Commitments and Contingencies | Commitments and Contingencies. a. Purchase Contracts - MGE Energy and MGE. MGE Energy and MGE have entered into various commodity supply, transportation, and storage contracts to meet their obligations to deliver electricity and natural gas to customers. As of December 31, 2013, the future minimum commitments related to these pur chase contracts were as follows:
| (In thousands) |  | 2014 |  | 2015 |  | 2016 |  | 2017 |  | 2018 |
| Coal(a) | $ | 22,109 | $ | 14,633 | $ | 10,938 | $ | 5,073 | $ | 2,710 |
| Natural Gas |  |  |  |  |  |  |  |  |  |  |
| Transportation and storage(b) |  | 17,211 |  | 16,857 |  | 9,288 |  | 272 |  | 191 |
| Supply(c) |  | 19,511 |  | 0 |  | 0 |  | 0 |  | 0 |
| Purchase Power(d) |  | 47,241 |  | 45,711 |  | 46,467 |  | 46,928 |  | 47,911 |
| Other |  | 2,314 |  | 498 |  | 498 |  | 498 |  | 124 |
|  | $ | 108,386 | $ | 77,699 | $ | 67,191 | $ | 52,771 | $ | 50,936 |
(a) Total coal commitments for the Columbia and Elm Road Units, including transportation. Fuel procurement for MGE's jointly owned Columbia and Elm Road Units are handled by WPL and WEPCO, respectively, who are the operators of those facilities. If any minimum purchase obligations must be paid under these contracts, management believes these obligations would be considered costs of service and recoverable in rates. (b) MGE's natural gas transportation and storage contracts require fixed monthly payments for firm supply pipeline transportation and storage capacity. The pricing components of the fixed monthly payments for the transportation and storage contracts are established by FERC but may be subject to change. (c) These commitments include market-based pricing. Management expects to recover these costs in future customer rates. (d) MGE has several purchase power agreements to help meet future electric supply requirements. Management expects to recover these costs in future customer rates. In October 2008, MGE entered into a ten-year purchase power agreement to help meet future electric supply requirements. Under this agreement, MGE has agreed to purchase 50 MW of wind power from Osceola Windpower II, LLC, which is located in Iowa. This facility became operational in October 2008. MGE does not have any capacity payment commitments under this agreement. However, MGE is obligated to purchase its ratable share of the energy produced by the project. MGE's commitment related to its ratable share of energy produced by the project has been estimated and is included in the above numbers. b. Chattel Paper Agreement and Other Guarantees - MGE Energy and MGE. MGE makes available to qualifying customers a financing program for the purchase and installation of energy-related equipment that will provide more efficient use of utility service at the customer's property. MGE is party to a chattel paper purchase agreement with a financial institution under which it can sell or finance an undivided interest with recourse, in up to $10.0 million of the financing program receivables, until July 31, 20 1 4. At December 31, 2013, 2012, and 2011, respectively, MGE had sold a $5.4 million, $4.5 million, and $4.3 million interest in these receivables. MGE retains the servicing responsibility for these receivables. MGE accounts for servicing rights under the amortization method. Initial determination of the servicing asset fair value is based on the present value of the estimated future cash flows. The discount rate is based on the PSCW authorized weighted cost of capital. MGE maintains responsibility for collecting and remitting loan payments from customers to the financial institution and does not retain any interest in the assets sold to the financial institution. At December 31, 2013, MGE had recorded a servicing asset of $0.3 million. At both December 31, 2012 and 2011, MGE had recorded a servicing asset of $0.2 million. MGE recognized a gain of $0.2 million for the year ended December 31, 2013 in connection with the sale of loan assets. MGE recognized gain s of $0.1 million for each of the years ended December 31, 2012 and 2011, in connection with the sale of loan assets. The servicing asset amount amortized in 2013 was less than $0.1 million. The loan assets are sold to the financial institution at cost, which approximates fair value in view of their mark et rates of interest. During 2013, 2012, and 2011, MGE received approximately $1.6 million, $1.2 million, and $1.5 million, respectively, from the financial institution for the sale of loan assets. During those same years, payments of $0.8 million, $1.2 million, and $0.8 million, respectively, were made by MGE to the financial institution. MGE would be required to perform under its guarantee if a customer defaulted on its loan. The energy-related equipment installed at the customer sites is used to secure the customer loans. The loan balances outstanding at December 31, 2013, approximate the fair value of the energy-related equipment acting as collateral. The length of the MGE guarantee to the financial institution varies from one to ten years depending on the term of the u nderlying customer loan. Principal payments for the next five years on the loans are:
| (In thousands) |  | 2014 |  | 2015 |  | 2016 |  | 2017 |  | 2018 |
| Principal payments | $ | 714 | $ | 1,007 | $ | 910 | $ | 506 | $ | 449 |
c. Leases - MGE Energy and MGE. MGE has noncancelable operating leases, primarily for combustion turbines, railcars, and computer equipment. The operating leases generally do not contain renewal options, with the exception of certain railcar operating leases. These leases have a renewal option of one year or less. MGE is required to pay all executory costs such as maintenanc e and insurance for its leases. Future minimum rental payments at December 31, 2013, under agreements classified as operating leases with noncancelable terms in excess of one year are as follows:
| (In thousands) |  | 2014 |  | 2015 |  | 2016 |  | 2017 |  | 2018 |  | Thereafter |
| Minimum lease payments | $ | 1,668 | $ | 1,478 | $ | 983 | $ | 718 | $ | 418 | $ | 8,179 |
Rental expense under operating leases totaled $2.7 million for 2013, $2.6 million for 2012, and $3.2 million for 2011. d. Environmental - MGE Energy and MGE. Water Quality Water quality regulations promulgated by the EPA and WDNR in accordance with the Federal Water Pollution Control Act, or more commonly known as the Clean Water Act (CWA), impose restrictions on discharges of various pollutants into surface waters. The CWA also regulates surface water quality issues that affect aquatic life, such as water temperatures, intake structures, and wetlands filling. The CWA also includes discharge standards, which require the use of effluent-treatment processes equivalent to categorical "best practicable" or "best available" technologies. The CWA regulates discharges from "point sources," such as power plants, through establishing discharge limits in water discharge permits. MGE's power plants operate under Wisconsin Pollution Discharge Elimination System (WPDES) permits to ensure compliance with these discharge limits. EPA Cooling Water Intake Rules (Section 316(b)) Section 316(b) of the CWA requires that the cooling water intake structures at electric power plants meet best available technology standards so that mortality from entrainment (drawing aquatic life into a plant's cooling system) and impingement (trapping aquatic life on screens) are reduced. Section 316(b) is implemented in Wisconsin through modifications to plants' WPDES permits in a timeframe determined by the rule. Although new facilities have been required to meet 316(b) standards for some time, regulations for existing facilities have not yet been finalized but are expected to be issued by EPA in 2014. The currently proposed rule for existing plants allows for a state permitting agency's discretion in determining best technology available at plants and does not require cooling towers in all instances. Blount and Columbia generating plants are subject to both the impingement and entrainment aspects of the current proposed rule. WCCF is subject to the impingement aspect only. The Elm Road Units met the new facility requirements when it was built. We anticipate that under the current proposed rule, equipment would need to be installed at Blount, WCCF and Columbia to meet the new standards. However it is not presently possible to estimate the potential costs associated with this rule because the rule has not been finalized. EPA's Proposed Effluent Limitations Guidelines and Standards for Steam Electric Power Generating Point Source Category In June 2013, the EPA published a proposed rule focusing on the reduction of metals and other pollutants in wastewater from new and existing electric generation plants with a focus on coal-burning plants. The proposed rule regulates wastewater from seven specific wastewater types. The proposed rule is technology-driven in that specific technologies may need to be installed to meet the rule's requirements. Sites that already have these technologies will be deemed to meet the requirements of the rule. The proposed rule as written will likely a ffect wastewater systems at Columbia and the Elm Road Units. The EPA has signed a consent decree to finalize the rule by May 2014 and have the rule apply to power plants as they renew their water discharge permits beginning in July 2017. Based on our current evaluation of the proposed rule and its alternatives we may need to add treatments systems or additional equipment at our Elm Road and Columbia facilities. We will have a better understanding of potential costs to MGE once the rule is finalized. Energy Efficiency and Renewables The Wisconsin Energy Efficiency and Renewables Act requires that, by 2015, 10% of the state's electricity be generated from renewable resources. MGE is in compliance with the 2015 requirement. The costs to comply with the Act and its accompanying regulations are being recovered in rates. Air Quality Federal and state air quality regulations impose restrictions on emission of particulates (PM), sulfur dioxide (SO 2), nitrogen oxides (NO x) and other pollutants and require permits for operation of emission sources. These permits have been obtained by MGE and must be renewed periodically. Various initiatives, including interstate pollution transport rules, maximum achievable control technology (MACT) standards, such as the Reciprocating Internal Combustion Engine (RICE) MACT, new source performance standards (NSPS), the Clean Air Visibility Rule (also known as the Regional Haze Rule), and mercury emissions limits are expected to result in additional operating and capital expenditure costs for electric generating units. Interstate Transport Rules for NO x and SO 2 EPA has promulgated three interstate air pollution rules consisting of the NO x SIP Call, the Clean Air Interstate Rule (CAIR) and the Cross-State Air Pollution Rule (CSAPR). These rules were each designed to reduce nitrogen oxide (NO x) and/or sulfur dioxide (SO 2) air emissions from EGUs, including EGUs located in Wisconsin and other states. NO x and SO 2 interact in the atmosphere to form ambient ozone and fine particulate matter pollution. As explained below, only the CAIR currently affects MGE's generation assets. In 2000, the U.S. Court of Appeals for the D.C. Circuit held that Wisconsin had been illegally included in a portion of the NO x SIP Call, but stayed the remaining legal challenges to the rule pending EPA's development of additional interstate pollution transport rules. The EPA developed the CAIR to replace the NO x SIP Call, but in 2008, the U.S. Court of Appeals for the D.C. Circuit remanded the CAIR to the EPA with directions to revise or replace the rule. In 2011, the EPA developed CSAPR which the U.S. Court of Appeals for the D.C. Circuit vacated in 2012 with directions that the EPA temporarily reinstate CAIR. That decision was argued before the U.S. Supreme Court in December 2013, and a decision is pending. The CAIR remains effective. The CAIR generally requires NO x and SO 2 emission reductions from fossil fuel-fired EGUs (25 MW or greater) in the eastern half of the United States in two phases and includes a regional cap-and-trade system. Phase I is currently in place. Phase II begins in 2015 and will require regional NO x and SO 2 emissions reductions from 2003 levels by 65% and 70%, respectively. MGE owns or has partial ownership in several generation units currently subject to the CAIR: Blount, Columbia, Elm Road Units, and its combustion turbines located in West Marinette and Fitchburg. Based on our evaluation of Phase II of CAIR, we will be able to meet NO x emissions reductions through using our NO x allowances provided through the rule, and we will meet SO 2 emissions reductions through installation of pollution controls. New SO 2 controls that will meet or exceed CAIR allowances at Columbia are underway and are planned to be completed by mid-2014 (see the discussion regarding the Columbia environmental project below). MGE expects that any costs incurred to meet Phase II of the CAIR will be fully recoverable through rates. We will continue to monitor the Supreme Court's response to the CSAPR appeals and any actions by the EPA on any new or revised interstate transport rule. Clean Air Visibility Rule (CAVR) Air modeling indicates that SO 2 and NO x emissions (and to a lesser extent particulate matter) from Columbia may impair visibility at certain Class I Scenic Areas. Columbia may therefore be subject to the best available retrofit technology (BART) regulations, a subsection of the EPA's Clean Air Visibility Rule (CAVR), which may require pollution retrofits. The EPA had proposed that Columbia's compliance with emissions limitations in the CAIR and the CSAPR could also serve as compliance with the BART for SO 2 and NO x emissions. However, this proposal is now uncertain because of the D.C. Circuit remanding the CAIR to the EPA and vacating the CSAPR. The Sierra Club has sought federal appellate court review of Wisconsin's implementation plan for the BART portion of CAVR and that appeal has been stayed pending the U.S. Supreme Court's decision on CSAPR. At this time, the BART regulatory obligations, compliance strategies and costs remain uncertain. Reciprocating Internal Combustion Engines Maximum Achievable Control Technology (RICE MACT) In January 2013, the EPA finalized amendments to its RICE MACT standard. RICE MACT applies to industrial or electrical engines that are classified as reciprocating internal combustion engines. Engines owned by MGE that would fall under the RICE MACT rule include backup generators and small engines at various locations, including our fleet of distributed generators that serve as electric system backup and emergency dispatch. Our units that currently serve as system or emergency backup will be restricted to emergency operation and limited (50 hours) non-emergency operation annually or will require additional pollution control equipment to run more often. The EPA issued a notice of reconsideration in August, 2013 on the 50 hour non-emergency operating limit. MGE is currently installing pollution control equipment on a number of units. MGE will continue to monitor developments regarding potential changes to the number of hours allowed for non-emergency operation. Mercury and Air Toxics Standards (MATs) for Utility Boilers (Also Referred to as the Maximum Achievable Control Technology or MACT) In December 2011, the EPA finalized its Mercury and Air Toxics Standards for coal and oil-burning EGU boilers. MATs will require emissions standards for mercury, non-mercury HAPs metals, and acid gases. MGE's Columbia and Elm Road Units are subject to MATs. Wisconsin has a separate mercury rule that will be phased out as MATs is implemented. The Elm Road Unit's current pollution controls and Columbia's planned mercury pollution controls (baghouse and scrubbers) are expected to allow both facilities to comply with the MATs rule (see the discussion regarding Columbia environmental project below). GHG New Source Performance Standards (NSPS) for New and Existing Electric Generating Units In a June 2013 directive, President Obama instructed the EPA to re-propose greenhouse gas standards for new power plants, based on comments received on their original rule proposal issued in March 2012, and to finalize those standards in a timely manner. The EPA developed proposed standards for new power plants in September 2013, which would require, if finalized, that new coal-fired units and small natural gas units meet carbon dioxide emission levels significantly below current levels. The June 2013 directive also instructed the EPA to propose standards, regulations or guidelines for modified, reconstructed and existing power plants under Sections 111(b) and 111(d) of the Clean Air Act no later than June 2014 and to finalize those standards by June 2015. The directive further instructs the EPA to require states to submit implementation plans for this rule by June 30, 2016. It is reasonable to assume that costs of implementation of this rule could be significant depending on the approach taken. We will continue to monitor this rule in 2014. National Ambient Air Quality Standards (NAAQS) The EPA has announced that they will be reviewing all of their NAAQS in 2014. Changes in NAAQS can affect the determination as to whether an area is designated as nonattainment, which can affect permitting, capital expenditures and operating costs for emission sources in those nonattainment areas. MGE will be monitoring the outcome of this planned review to evaluate whether changes affect our operations. MGE continues to monitor NAAQS closely because our generation facilities in areas designated as nonattainment for a NAAQS may have additional permitting requirements, including compliance demonstrations and/or equipment installations. In addition the EPA has developed draft SO 2 NAAQS technical documents as guidance to states for classifying areas as attainment or nonattainment. The documents provide guidance for monitoring and/or modeling to determine SO 2 levels. We are currently unable to assess operational or capital costs associated with adoption of the final guidance as it has not been adopted by the State of Wisconsin. We will be monitoring State of Wisconsin actions to better evaluate the e ffect it may have on our Columbia and the Elm Road Units. Columbia Based upon current available information, compliance with various environmental requirements and initiatives is expected to result in significant additional operating and capital expenditures at Columbia as noted below. Columbia Environmental Project In early 2011, the PSCW issued a Certificate and Order authorizing the construction of scrubbers and bag houses and associated equipment on Columbia Units 1 and 2 to reduce SO 2 and mercury emissions. The scrubbers and bag houses are expected to support compliance obligations for current and anticipated air quality regulations, including CAIR, CAIR's eventual replacement, the Mercury and Air Toxics Standards (MATs) and the Wisconsin Mercury Rule. WPL, the plant operator, currently estimates that MGE's share of the capital expenditures required for this project is approximately $1 35 million. The project is underway and estimated to be completed in mid-2014. MGE's share of various contractual commitments entered for the project as of December 31, 2013 is $14.7 million. These costs are expected to be capitalized and included in the consolidated balance sheets of MGE Energy and MGE. See Footnote 20 for further information regarding the Columbia environmental construction project. Columbia Clean Air Act Litigation In December 2009, the EPA sent a notice of violation (NOV) to MGE as one of the co-owners of Columbia. The NOV alleges that WPL, as owner-operator, and the other co-owners failed to comply with appropriate pre-construction review and permitting requirements and, as a result, violated the PSD program requirements, the Title V operating permit requirements of the CAA and the Wisconsin State Implementation Plan (SIP). In April 2013, the EPA filed a lawsuit against the co-owners of Columbia asserting similar allegations. In September 2010 and April 2013, Sierra Club filed lawsuits against WPL alleging violations of the CAA at Columbia and other WPL-operated Wisconsin facilities. In April 2013, WPL, as owner-operator, along with the other owners of Columbia, entered into a consent decree with the EPA and the Sierra Club to resolve these claims, while admitting no liability. In June 2013, the consent decree was approved and entered by the Court. The consent decree requires installation of the following emission controls at Columbia: scrubbers and baghouses at Columbia Units 1 and 2 by December 31, 2014, and an SCR system at Columbia Unit 2 by December 31, 2018. In addition, the consent decree establishes emission rate limits for SO 2, NO x, and particulate matter for Columbia Units 1 and 2. The consent decree also includes annual plant-wide emission caps for SO 2 and NO x for Columbia. MGE also paid approximately $0.2 million as its share of a civil penalty and will complete approximately $0.6 million in environmental mitigation projects. MGE intends to seek recovery in rates of the costs associated with its compliance with the terms of the final consent decree and currently expects to recover any material compliance costs. e. Legal Matters - MGE Energy and MGE. M GE is involved in various legal matters that are being defended and handled in the normal course of business. MGE maintains accruals for such costs that are probable of being incurred and subject to reasonable estimation. The accrued amount for these matters is not material to the financial statements. f. Elm Road - MGE Energy and MGE. The warranty periods for both of the Elm Road Units have expired. During 2013, WEPCO and Bechtel (the construction contractor for the Elm Road Units) were working through the outstanding warranty claims. The warranty claim for the costs incurred to repair steam turbine corrosion damage identified on both units was resolved through a binding arbitration in June 2013. Final acceptance of the Elm Road Units occurred in June 2013 after all requirements stated in the contract with Bechtel were satisfied. g. Other Commitments. MGE Energy holds investment s in nonpublic entities. From time to time, these entities require additional capital infusions from their investors. MGE Energy has committed to contribute $1.7 million in capital for such infusions. The timing of these infusions is dependent on the needs of the investee and is therefore uncertain at this time. In addition, MGE Energy has a three year agreement with a venture debt fund expiring in December 201 6. MGE Energy has committed to invest up to a t otal of $1.0 million into this fund. As of December 31, 2013, MGE Energy has $0.5 million remaining in commitments. The timing of infusions is dependent on the needs of the fund and is therefore uncertain at this time. MGE has several other commitments related to various projects. Payments for these commitments are expected to be as follows:
| (In thousands) |  | 2014 |  | 2015 |  | 2016 |  | 2017 |  | 2018 |  | Thereafter |
| Other Commitments | $ | 1,473 | $ | 474 | $ | 475 | $ | 433 | $ | 435 | $ | 6,961 |

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