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Derivative and Hedging Instruments | 6 Months Ended
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Jun. 30, 2016
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 derivatives in the co nsolidated 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 t he volume MGE can hedge with specific risk management st rategies. 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 regulato ry 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 electri c rates as a component of the fuel rules mechanism. b. Notional Amounts. The gross notional volume of open derivatives is as follows:
|  | June 30, 2016 |  | December 31, 2015 |
| Commodity derivative contracts | 479,725 MWh |  | 355,580 MWh |
| Commodity derivative contracts | 1,887,500 Dth |  | 5,037,500 Dth |
| FTRs | 5,653 MW |  | 2,000 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 June 30, 2016, the fair value of exchange traded derivatives and FTRs exceeded their cost basis by $1.7 million. At December 31, 2015, the cost basis of exchange traded deriv atives and FTRs exceeded their fair value by $0.8 million. MGE is a party to a 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 base term. The agreement is accounted for as a derivative contract and is recognized at its fair value on the consolidated balance sheet s. However, the derivative qualifies for regulatory deferral and is recognized with a corresponding regulatory asset or liability depending on whether the fair value is in a loss or gain position. The fair value of the contract at June 30, 2016, and December 31, 2015, reflects a loss position of $52.2 million and $53.3 million, respectively. The actual cost will be recognized in purchased power e xpense in the month of purchase. The following table summarizes the fair value of the derivative instruments on the consolidat ed balance sheet s. 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 collatera l. For financia l statement purposes, MGE Energy and MGE have netted instruments with the same counterparty under a master netting agreement as well as the netting of collatera l.
|  | Asset Derivatives |  | Liability Derivatives
(In thousands) |  | Balance Sheet Location |  | Fair Value |  | Balance Sheet Location |  | Fair Value
June 30, 2016 |  |  |  |  |  |  |  |
Commodity derivative contracts |  | Other current assets | $ | 1,814 | Derivative liability (current) | $ | 212
Commodity derivative contracts |  | Other deferred charges |  | 143 |  | Derivative liability (long-term) |  | 60
FTRs |  | Other current assets |  | 34 |  | Derivative liability (current) |  | -
PPA |  | N/A |  | N/A |  | Derivative liability (current) |  | 8,650
PPA |  | N/A |  | N/A |  | Derivative liability (long-term) |  | 43,590
December 31, 2015 |  |  |  |  |  |  |  |
Commodity derivative contracts |  | Other current assets | $ | 146 |  | Derivative liability (current) | $ | 1,266
Commodity derivative contracts |  | Other deferred charges |  | 144 |  | Derivative liability (long-term) |  | 70
FTRs |  | Other current assets |  | 234 |  | Derivative liability (current) |  | -
PPA |  | N/A |  | N/A |  | Derivative liability (current) |  | 8,340
PPA |  | N/A |  | N/A |  | Derivative liability (long-term) |  | 44,930
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 sheets.
| Offsetting of Derivative Assets |
| (In thousands) |  | Gross Amounts |  | Gross Amounts Offset in Balance Sheets |  | Collateral Posted Against Derivative Positions |  | Net Amount Presented in Balance Sheets |
| June 30, 2016 |  |  |  |  |  |  |  |  |
| Commodity derivative contracts | $ | 1,957 | $ | (272) | $ | - | $ | 1,685 |
| FTRs |  | 34 |  | - |  | - |  | 34 |
| December 31, 2015 |  |  |  |  |  |  |  |  |
| Commodity derivative contracts | $ | 290 | $ | (290) | $ | - | $ | - |
| FTRs |  | 234 |  | - |  | - |  | 234 |
| Offsetting of Derivative Liabilities |
| (In thousands) |  | Gross Amounts |  | Gross Amounts Offset in Balance Sheets |  | Collateral Posted Against Derivative Positions |  | Net Amount Presented in Balance Sheets |
| June 30, 2016 |  |  |  |  |  |  |  |  |
| Commodity derivative contracts | $ | 272 | $ | (272) | $ | - | $ | - |
| PPA |  | 52,240 |  | - |  | - |  | 52,240 |
| December 31, 2015 |  |  |  |  |  |  |  |  |
| Commodity derivative contracts | $ | 1,336 | $ | (290) | $ | (1,038) | $ | 8 |
| PPA |  | 53,270 |  | - |  | - |  | 53,270 |
The following table s summarize the unrealized and realized gains (losses) related to the derivative instruments on the consolidated balance sheet s at June 30, 2016 and 2015, and the consolidated income statement s for the three and six months ended June 30, 2016 and 2015.
|  | 2016 |  |  | 2015
(In thousands) |  | Current and Long-Term Regulatory Asset |  | Other Current Assets |  |  | Current and Long-Term Regulatory Asset |  | Other Current Assets
Three Months Ended June 30: |  |  |  |  |  |  |  |  |
Balance at April 1, | $ | 56,884 | $ | 655 |  | $ | 53,966 | $ | 268
Unrealized (gain) loss |  | (4,580) |  | - |  |  | 3,160 |  | -
Realized gain (loss) reclassified to a deferred account |  | 17 |  | (17) |  |  | (231) |  | 231
Realized (loss) gain reclassified to income statement |  | (1,800) |  | 21 |  |  | (847) |  | (44)
Balance at June 30, | $ | 50,521 | $ | 659 |  | $ | 56,048 | $ | 455
Six Months Ended June 30: |  |  |  |  |  |  |  |  |
Balance at January 1, | $ | 54,082 | $ | 1,208 |  | $ | 54,998 | $ | 1,001
Unrealized loss |  | 1,791 |  | - |  |  | 4,478 |  | -
Realized (loss) gain reclassified to a deferred account |  | (1,434) |  | 1,434 |  |  | (1,292) |  | 1,292
Realized (loss) gain reclassified to income statement |  | (3,918) |  | (1,983) |  |  | (2,136) |  | (1,838)
Balance at June 30, | $ | 50,521 | $ | 659 |  | $ | 56,048 | $ | 455
|  | Realized Losses (Gains)
|  | 2016 |  |  | 2015
(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 June 30: |  |  |  |  |  |  |  |  |
Commodity derivative contracts | $ | 417 | $ | - |  | $ | 578 | $ | (2)
FTRs |  | 136 |  | - |  |  | (255) |  | -
PPA |  | 1,226 |  | - |  |  | 570 |  | -
Six Months Ended June 30: |  |  |  |  |  |  |  |  |
Commodity derivative contracts | $ | 1,424 | $ | 1,814 |  | $ | 998 | $ | 1,759
FTRs |  | 68 |  | - |  |  | (374) |  | -
PPA |  | 2,595 |  | - |  |  | 1,591 |  | -
MGE's commodity derivativ e contracts, FTRs, and 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 s 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 PPA has a provision 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 June 30, 2016, no collateral is required to be, or has been, posted. Certain counterparties extend MGE a credit limit. If MGE exceeds these limits, the counterparties may require collateral to be pos ted. As of June 30, 2016, no counterparties were in a net liability position. As of December 31, 2015, certain counterparties were in a net liability position 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 ongo ing basis to mitigate nonperformance risk in its portfolio. As of June 30, 2016, 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 45 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6441202&loc=d3e80720-113993 Reference 2: 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=56946850&loc=SL5624171-113959 Reference 3: 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=56946850&loc=d3e41620-113959 Reference 4: 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=56946850&loc=SL5624163-113959 Reference 5: 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=56946850&loc=SL5579240-113959 Reference 6: 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=56946850&loc=SL5624177-113959 Reference 7: 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=35736893&loc=d3e80784-113994 Reference 8: 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=56946850&loc=d3e41641-113959 Reference 9: 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=56946850&loc=SL5579245-113959 Reference 10: 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=56946850&loc=SL5624258-113959 Reference 11: 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=35736893&loc=d3e80748-113994 Reference 12: 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=56946850&loc=SL5708775-113959 Reference 13: 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=56946850&loc=SL5708773-113959 Reference 14: 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=56946850&loc=SL5618551-113959 Reference 15: 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=56946850&loc=SL5580258-113959 Reference 16: 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=56946850&loc=SL5624181-113959 Reference 17: 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 18: 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=56946850&loc=d3e41638-113959 Reference 19: 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 + Details
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