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Derivative and Hedging Instruments | 3 Months Ended
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Mar. 31, 2015
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, MGE Energy and MGE recognize such deri vatives in the consolidated balance sheets at fair value. MGE's 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 r isk management strategies. The maximum length of time over which cash flows related to energy commodities can be hedg ed is four years. If the derivative qualifies for regulatory deferral, the derivatives are marked to fair value and are offset with a corre sponding regulatory asset or liability. 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 recoverable in gas rates through the 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, 2015 |  | December 31, 2014 |
| Commodity derivative contracts | 408,920 MWh |  | 448,000 MWh |
| Commodity derivative contracts | 2,785,000 Dth |  | 4,405,000 Dth |
| FTRs | 691 MW |  | 1,854 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 FTRs. An FTR is a financial instrument th at entitles the holder to a stream of revenues or charges based on the differences in hourly day-ahead energy prices between two p oints on the transmission grid. The fair values of these instruments are offset with a corresponding regulatory asset/liabilit y depending on whether they 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 t he delivery month applicable to the instrument. At March 31, 2015 and December 31, 2014, the cost basis of exchange traded derivatives and FTRs exceeded their fair value by $0.6 million and $1.6 million, respectively. MGE is a party to a ten-year purchased power agreement that provides MGE with firm capacity and energy during a base term from June 1, 2012, through May 31, 2022. The agreement also allows MGE an option to extend the contract after the bas e term. The agreement is accounted for as a derivative contract and is recognized at its fair value on the consolidated balance sheet. However, the derivative qualifies for regulatory deferral and is recognized with a corresponding regulatory asset or liab ility depending on whether the fair value is in a loss or gain position. The fair value of the contract at March 31, 2015 and December 31, 2014, reflects a loss position of $53.4 million. The actual fuel cost will be recognized in purchased power e xpense in the month of purchase and collected in rates. The following table summarizes the fair value of the derivative instruments on the consolidated balance sheet. 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, MGE Energy and MGE have netted instruments with the same counterparty under a master netting agreement as well as the netting of collateral. At March 31, 2015, MGE Energy and MGE had the right to reclaim collateral (a receivable) of $0.6 million.
|  | Asset Derivatives |  | Liability Derivatives
(In thousands) |  | Balance Sheet Location |  | Fair Value |  | Balance Sheet Location |  | Fair Value
March 31, 2015 |  |  |  |  |  |  |  |
Commodity derivative contracts |  | Other current assets | $ | 336 | Derivative liability (current) | $ | 821
Commodity derivative contracts |  | Other deferred charges |  | 7 |  | Derivative liability (long-term) |  | 116
FTRs |  | Other current assets |  | 38 |  | Derivative liability (current) |  | -
Ten-year PPA |  | N/A |  | N/A |  | Derivative liability (current) |  | 7,090
Ten-year PPA |  | N/A |  | N/A |  | Derivative liability (long-term) |  | 46,320
December 31, 2014 |  |  |  |  |  |  |  |
Commodity derivative contracts |  | Other current assets | $ | 130 |  | Derivative liability (current) | $ | 2,262
Commodity derivative contracts |  | Other deferred charges |  | 93 |  | Derivative liability (long-term) |  | 171
FTRs |  | Other current assets |  | 642 |  | Derivative liability (current) |  | -
Ten-year PPA |  | N/A |  | N/A |  | Derivative liability (current) |  | 6,870
Ten-year PPA |  | N/A |  | N/A |  | Derivative liability (long-term) |  | 46,560
The foll owing tables show the ef fect of netting arrangements for recognized derivative assets and liabilities that are subject to a master netting arr angement or similar arrangement on the consolidated balance sheet.
| Offsetting of Derivative Assets |
| (In thousands) |  | Gross amounts |  | Gross amounts offset in balance sheet |  | Collateral posted against derivative positions |  | Net amount presented in balance sheet |
| March 31, 2015 |  |  |  |  |  |  |  |  |
| Commodity derivative contracts | $ | 343 | $ | (343) | $ | - | $ | - |
| FTRs |  | 38 |  | - |  | - |  | 38 |
| December 31, 2014 |  |  |  |  |  |  |  |  |
| Commodity derivative contracts | $ | 223 | $ | (223) | $ | - | $ | - |
| FTRs |  | 642 |  | - |  | - |  | 642 |
| Offsetting of Derivative Liabilities |
| (In thousands) |  | Gross amounts |  | Gross amounts offset in balance sheet |  | Collateral posted against derivative positions |  | Net amount presented in balance sheet |
| March 31, 2015 |  |  |  |  |  |  |  |  |
| Commodity derivative contracts | $ | 937 | $ | (343) | $ | (565) | $ | 29 |
| Ten-year PPA |  | 53,410 |  | - |  | - |  | 53,410 |
| December 31, 2014 |  |  |  |  |  |  |  |  |
| Commodity derivative contracts | $ | 2,433 | $ | (223) | $ | (2,179) | $ | 31 |
| Ten-year PPA |  | 53,430 |  | - |  | - |  | 53,430 |
The following table s summarize the unrealized and realized gains (losses) related to the derivative instruments on the consolidated balance sheet at March 31, 2015 and 2014, and the consolidated income statement for the three months ended March 31, 2015 and 2014.
|  | 2015 |  |  | 2014
(In thousands) |  | Current and long-term regulatory asset |  | Other current assets |  |  | Current and long-term regulatory asset |  | Other current assets
Three Months Ended March 31: |  |  |  |  |  |  |  |  |
Balance at January 1, | $ | 54,998 | $ | 1,001 |  | $ | 63,893 | $ | 411
Change in unrealized (loss) gain |  | 1,318 |  | - |  |  | (13,601) |  | -
Realized (loss) gain reclassified to a deferred account |  | (1,061) |  | 1,061 |  |  | 1,535 |  | (1,535)
Realized gain (loss) reclassified to income |  |  |  |  |  |  |  |  |
statement |  | (1,289) |  | (1,794) |  |  | 6,386 |  | 1,475
Balance at March 31, | $ | 53,966 | $ | 268 |  | $ | 58,213 | $ | 351
|  | Realized losses (gains)
|  | 2015 |  |  | 2014
(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 | $ | 420 | $ | 1,761 |  | $ | (4,795) | $ | (1,220)
FTRs |  | (119) |  | - |  |  | (636) |  | -
Ten-year PPA |  | 1,021 |  | - |  |  | (1,210) |  | -
MGE's commodity derivative contracts, FTRs, and ten-year PPA 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 sheet and are recognized in earnings in the delivery month applicable to the instrument. As a result of the above described treatment, there are no unrealized gains or losses that flow through earnings. The ten-year PPA has a provis ion that may require MGE to post collateral if MGE's debt rating falls below investment grade (i.e., below BBB-). The amount of collateral that it may be required to post varies from $20.0 million to $40.0 million, depending on MGE's nominated capacity amount. As of March 31, 2015, no collateral has been posted. Certain counterparties extend MGE a credit limit. If MGE exceeds these limits, the counterparties may require collateral to be posted. As of March 31, 2015 and December 31, 2014, certain counterparties were in a net liability of less than $0.1 million. 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, 2015, no counterparties have defaulted.

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=7668309&loc=d3e80748-113994 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=7476318&loc=d3e41635-113959 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4K -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5708775-113959 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 25 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6886632&loc=d3e76258-113986 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4A -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5618551-113959 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 45 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6441202&loc=d3e80720-113993 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(n)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4H -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5624258-113959 Reference 9: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4B -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5624163-113959 Reference 10: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4E -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5624181-113959 Reference 11: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4J -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5708773-113959 Reference 12: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=7668309&loc=d3e80784-113994 Reference 13: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=7476318&loc=d3e41620-113959 Reference 14: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4D -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5624177-113959 Reference 15: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 1A -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5579245-113959 Reference 16: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 1B -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5580258-113959 Reference 17: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5579240-113959 Reference 18: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 5 -URI http://asc.fasb.org/extlink&oid=7476318&loc=d3e41641-113959 Reference 19: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=7476318&loc=d3e41638-113959 Reference 20: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4C -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5624171-113959 + Details
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