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Commitments and Contingencies | 6 Months Ended
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Jun. 30, 2016
Commitments and Contingencies Disclosure [Abstract] |
Commitments and Contingencies | Commitments and Contingencies - MGE Energy and MGE. a. Environmental. MGE Energy and MGE are subject to frequently changing local, state, and federal regulations concerning air quality, water quality, land use, threatened and endangered species, hazardous materials handling, and solid waste disposal. These regulations affect the manner in which we conduct our operations, the costs of those operations, as well as capital and operating expenditures. Regulatory initiatives, proposed rules, and court challenges to adopted rules, have the potential to have a material effect on our capital expenditures and operating costs. These initiatives, proposed rules, and court challenges include: EPA's Effluent Limitations Guidelines (ELG) and Standards for Steam Electric Power Generating Point Source Category In November 2015, the EPA published its final rule setting Effluent Limitations Guidelines (ELG) for the steam electric power generating industry. The ELG rule establishes federal limits on the amount of met als and other pollutants that can be discharged in wastewater from new and existing steam electric generation plants. The ELG rule mostly covers pollutants that are captured by certain air pollution control systems and via wet ash handling systems at coal-burning power plants with units greater than 50 MW generation capacity. The operators of our Columbia and Elm Road Units have indicated that equipment upgrades may be necessary to comply with the new discharge standards. The rule will be applied to Wiscons in-based power plants as they renew their WPDES permits, beginning in 2018 but no later than 2023. Management believes that any compliance costs will be recovered in future rates based on previous treatment of environmental compliance projects. EPA Coolin g Water Intake Rules (Section 316(b)) Section 316(b) of the Clean Water Act 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. The EPA finalized its 316(b) rule for existing facilities in 2014. Section 316(b) requirements are implemented in Wisconsin through modifications to plants' WPDES permi ts, which govern plant wastewater discharges. WDNR is currently developing rules to implement the EPA 316(b) rule. Our WCCF, Blount, and Columbia plants are considered existing plants under this rule. Our WCCF facility already employs a system that meets the 316(b) rule. Our Blount plant has conducted studies showing that it will likely be in compliance with this rule when its WPDES permit is renewed in 2017. The operator of our Columbia plant is conducting an intake study to demonstrate compliance with t he 316(b) rule and/or identify design criteria needed to meet the new rule requirements prior to Columbia's 2017 WPDES permit renewal. The exact requirements at Blount and Columbia, however, will not be known until the WDNR finalizes its rule, approves the plant operators' approach, and those sites' WPDES permits are modified to account for this rule. Nonetheless, MGE expects that the 316(b) rule will not have material effects on its existing plants. EPA's Greenhouse Gas (GHG) Reduction Guidelines under the Clean Air Act 111(d) Rule In October 2015, the EPA published its Clean Power Plan (CPP) rule, which went into effect in December 2015, setting guidelines and approval criteria for states to use in developing plans to control GHG emissions from existing fossil fuel-fired electric generating units (EGUs) and systems. In October 2015, the EPA also published a proposed federal implementation plan under the CPP rule. The proposed federal implementation plan is designed to provide mass-based and rate-based em issions trading options to serve as a model and/or resource for states that are adopting their own plans, or for use by the EPA in states that do not implement their own plans under the finalized CPP. Implementation of the rule is expected to have a direct impact on existing coal and natural gas fired generating units, including possible changes in dispatch and additional operating costs. On January 26, 2016, several parties filed a request for a stay of the CPP with the U.S. Supreme Court; and on February 9, 2016, the U.S. Supreme Court granted that request. The CPP may not be implemented until the Supreme Court lifts the stay, presumably after the courts ultimately resolve the underlying legality of the rule. Oral arguments are scheduled before the D.C. C ircuit for September 27, 2016. Given the pending legal proceedings and the need for a yet-to-be-developed state implementation plan or finalization of the federal implementation plan, the nature and timing of any final requirements is subject to uncertain ty. If the rule remains substantially in its present form, it is expected to have a material impact on MGE. National Ambient Air Quality Standards (NAAQS) The EPA's NAAQS regulations have been developed to set ambient levels of six pollutants to protect sensitive populations (primary NAAQS) and the environment (secondary NAAQS) from the negative effects of exposure to these pollutants at higher levels. MGE is following developments for several NAAQS, including for particulate matter, nitrogen dioxide, su lfur dioxide, and ozone. Further discussion on ozone, sulfur dioxide, and nitrogen dioxide NAAQS follows. For additional information on the NAAQS process, see Footnote 18.c. of Notes to Consolidated Financial Statements under Item 8, Financial Statements a nd Supplementary Data, of MGE Energy's and MGE's 2015 Annual Report on Form 10-K. Ozone NAAQS In October 2015, the EPA revised the primary and secondary ozone NAAQS, lowering each to 70 ppb. The rule became effective in December 2015. Based on current ozo ne monitoring data, it appears that Milwaukee County (where our Elm Road Units are located) will likely not attain the lowered standards, and Dane and Columbia Counties (where our WCCF/Blount and Columbia Units are located, respectively) may or may not att ain them. It is too early to determine, however, as final attainment designations for these three counties will be based upon air monitoring data for years 2014-2016 and must be approved by the EPA. Once these designations are complete, the State of Wiscon sin will develop implementation plans for each county designated as nonattainment, which could affect operations and emission control obligations for plants located within the nonattainment counties. The State of Wisconsin has joined a lawsuit filed by sev eral states challenging the EPA's new ozone standard, alleging that the new standard is not attainable and the EPA is not properly considering background levels in setting its ozone attainment levels. Briefings in this challenge began in April 2016 and wil l continue through the summer. The final briefs are scheduled to be filed in September 2016. MGE will continue to monitor legal developments, attainment designations, and any state actions and implementation plans. Sulfur Dioxide (SO2) NAAQS In March 2015, the EPA identified MGE's Columbia Plant in Columbia County as a large stationary source of SO2 that may exceed the one hour SO2 NAAQS standard and was subject to a State of Wisconsin proposed county attainment/nonattainment determination. In September 20 15, Wisconsin sent a letter to the EPA proposing that Columbia County be designated as being in attainment for SO2 NAAQS based on recent modeling demonstrating that SO2 pollution controls on the Columbia Plant had brought the county into attainment. In Jun e 2016, the EPA issued a final rule classifying Colu mbia County as an unclassified/attainment area. In addition to the EPA's actions on SO2 NAAQS, the WDNR is revising its state rules to incorporate the one hour SO2 standard with a proposed final rule date of August 2016. MGE does not anticipate any material costs from this rule. Nitrogen Dioxide (NO2) NAAQS The WDNR is revising its state rules to incorporate the EPA's one hour NO2 NAAQS rule that was finalized in 2 010. The ef fective date of the state rule wa s August 1, 2016. Wisconsin's NO2 NAAQS rule may affect our stationary fossil-fuel generation sources by requiring that we demonstrate consistency with the NAAQS when applying for certain air permits. Preliminary assessments conducted by MGE suggest that these NAAQS rules w ill not have a material impact. EPA's Cross-State Air Pollution Rule: Proposed Ozone Season Update based on 2008 Ozone NAAQS The EPA's Cross-State Air Pollution Rule (CSAPR) is an interstate air pollution transport rule designed to reduce ozone and fine particulate (PM2.5) air levels in areas that the EPA has determined are being affected by pollution from neighboring and upwind states. This is accomplished in the CSAPR through a reduction in SO2 and Nitrogen Oxides (NOx) from fossil-fuel fired power plants. NOx and SO2 contribute to fine particulate pollution, and NOx contributes to ozone. Reductions are achieved through a cap and trad e model. Individual plants can meet their caps through modifications and/or buying allowances on the market. In December 2015, the EPA published a proposed rule to amend the existing CSAPR. The proposed rule is designed to incorporate 2008 Ozone NAAQS attainment levels (the current CSAPR is based on 1997 Ozone NAAQS levels) in 23 states, including Wisconsin, by further limiting ozone season NOx levels through a reduction in NOx allowances. The proposed rule also includes revisions to CSAPR that are designed to address issues remaining from the D.C. Circuit remand of CSAPR, including Wisconsin's inclusion in the NOx ozone season portion of the rule. The proposed rule would reduce summertime NOx emissions from power plants starting in 2017. Initial review of this proposed rule shows that we will likely need to buy NOx Ozone Season allowances to comply with the rule. Depending on the cost of allowances, this requirement could be material for MGE. It is however too soon to te ll what costs MGE will incur as the rule is not finalized, all legal proceedings are not completed, and the allowances are not on the market yet. We expect to monitor the rule developments and the D.C. Circuit Court remand completion to help determine how this rule will ultimately affect MGE. Clean Air Visibility Rule (CAVR) Columbia may 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 control re trofits. Columbia's pollution control upgrades and the EPA's stance that compliance with the CSAPR equals compliance with BART should mean that Columbia will not need to do additional work to meet BART requirements. In February 2016, the EPA submitted a pr oposed revision to the CAVR. The proposed revision would move state plan due dates from July 2018 to July 2021. This would allow for states to coordinate their CAVR compliance with other compliance efforts. If this proposed revision is finalized, it would reduce the chances that CAVR would be material for MGE. At this time, however, the BART regulatory obligations, compliance strategies, and costs remain uncertain due to the continued legal uncertainty surrounding CSAPR. Solid Waste EPA's Coal Combustion Residuals Rule In December 2014, the EPA finalized its Disposal of Coal Combustion Residuals from Electric Utilities (CCR) rule. The rule became effective in October 2015. It provides that coal ash will be regulated as a solid waste, and defines what ash u se activities would be considered generally exempt beneficial reuse of coal ash. The rule also regulates landfills, ash ponds, and other surface impoundments for coal combustion residuals by regulating their design, location, monitoring, and operation. Thi s portion of the rule is accomplished in phases to allow for sites with onsite storage and/or disposal to evaluate their compliance with the rule's design criteria. Landfills and impoundments that cannot meet design criteria will need to close formally wit hin defined timeframes. The Columbia and Elm Road Units co-owners and plant operators are working through the phased requirements to determine what changes may be necessary at those facilities to meet design criteria. We anticipate that some design and op erational changes may need to be made at these facilities. Review of our Elm Road facility has indicated that the costs to comply with this rule are not expected to be significant. Columbia's operator has developed a preliminary implementation schedule for meeting the various deadlines spelled out in the rule. Costs at Columbia will be dependent on what is determined during the evaluation stage. Management believes compliance costs will be recovered in future rates based on previous treatment of en vironmen tal compliance projects. b. Legal Matters. MGE 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. MGE does not expect the resolution of these matters to have a material adverse effect on its consolidated results of operations, financial condition, or cash flows. c. Purchase Contracts. MGE Energy and MGE have entered into various commodity supply, transportation, and storage contracts to meet their obligations to deliver natural gas to customers. As of June 30, 2016, the future commitments related to these purchase contracts were as follows:
| (In thousands) |  | 2016 |  | 2017 |  | 2018 |  | 2019 |  | 2020 |  | Thereafter |
| Natural gas |  |  |  |  |  |  |  |  |  |  |  |  |
| Transportation & storage(a) | $ | 10,621 | $ | 25,044 | $ | 24,833 | $ | 23,048 | $ | 16,274 | $ | 32,595 |
| Supply(b) |  | 11,035 |  | 13,092 |  | - |  | - |  | - |  | - |
|  | $ | 21,656 | $ | 38,136 | $ | 24,833 | $ | 23,048 | $ | 16,274 | $ | 32,595 |
(a) 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. Management expects to recover these costs in future customer rates. (b) These commitments include market-based pricing. Management expects to recover these costs in future customer rates.

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