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Income Taxes | 12 Months Ended
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Dec. 31, 2019
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes. a.MGE Energy and MGE Income Taxes. MGE Energy files a consolidated federal income tax return that includes the operations of all subsidiary companies. The subsidiaries calculate their respective federal income tax provisions as if they were separate taxable entities. On a consolidated and separate company basis, the income tax provision consists of the following provision (benefit) components for the years ended December 31:
|  | MGE Energy |  | MGE
(In thousands) |  | 2019 |  | 2018 |  | 2017 |  | 2019 |  | 2018 |  | 2017
Current payable: |  |  |  |  |  |  |  |  |  |  |  |
Federal | $ | 8,017 | $ | 18,622 | $ | 21,125 | $ | 7,616 | $ | 19,926 | $ | 21,512
State |  | 4,647 |  | 5,163 |  | 5,129 |  | 4,608 |  | 5,704 |  | 5,316
Net-deferred: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | 3,510 |  | 120 |  | (8,346) |  | 2,242 |  | (2,563) |  | (11,195)
State |  | 3,702 |  | 3,629 |  | 4,264 |  | 3,044 |  | 2,494 |  | 3,435
Amortized investment tax credits |  | (92) |  | (100) |  | (78) |  | (92) |  | (100) |  | (78)
Total income tax provision | $ | 19,784 | $ | 27,434 | $ | 22,094 | $ | 17,418 | $ | 25,461 | $ | 18,990
The consolidated income tax provision differs from the amount computed by applying the statutory federal income tax rate to income before income taxes, as follows:
|  | MGE Energy |  | MGE |
|  | 2019 |  | 2018 |  | 2017 |  | 2019 |  | 2018 |  | 2017 |
| Statutory federal income tax rate | 21.0 | % |  | 21.0 | % |  | 35.0 | % |  | 21.0 | % |  | 21.0 | % |  | 35.0 | % |
| State income taxes, net of federal benefit | 6.2 |  |  | 6.3 |  |  | 5.1 |  |  | 6.1 |  |  | 6.2 |  |  | 5.1 |  |
| Amortized investment tax credits | (0.1) |  |  | (0.1) |  |  | - |  |  | (0.1) |  |  | (0.1) |  |  | - |  |
| Credit for electricity from wind energy(a) | (5.7) |  |  | (0.3) |  |  | (1.6) |  |  | (6.2) |  |  | (0.4) |  |  | (1.7) |  |
| Domestic manufacturing deduction | - |  |  | - |  |  | (1.4) |  |  | - |  |  | - |  |  | (1.5) |  |
| AFUDC equity, net | (0.3) |  |  | (0.6) |  |  | (0.2) |  |  | (0.3) |  |  | (0.5) |  |  | (0.2) |  |
| Federal income tax rate reduction | - |  |  | - |  |  | (18.1) |  |  | - |  |  | - |  |  | (19.3) |  |
| Amortization of utility excess deferred tax(b) | (2.4) |  |  | (1.8) |  |  | - |  |  | (2.7) |  |  | (2.0) |  |  | - |  |
| Other, net, individually insignificant | (0.1) |  |  | 0.1 |  |  | (0.3) |  |  | (0.1) |  |  | 0.2 |  |  | (0.4) |  |
| Effective income tax rate | 18.6 | % |  | 24.6 | % |  | 18.5 | % |  | 17.7 | % |  | 24.4 | % |  | 17.0 | % |
(a)Saratoga became operational in February 2019. (b)Included are impacts of the Tax Cuts and Jobs Act for the regulated utility for excess deferred taxes recognized using a normalization method of accounting. For the years ended December 31, 2019 and 2018, MGE recognized $2.6 million and $2.1 million, respectively. The amount and timing of the cash impacts will depend on the period over which certain income tax benefits are provided to customers, as determined by the PSCW. The significant components of deferred tax liabilities (assets) that appear on the consolidated balance sheets as of December 31 are as follows:
|  |  | MGE Energy |  | MGE |
| (In thousands) |  | 2019 |  | 2018 |  | 2019 |  | 2018 |
| Deferred tax assets |  |  |  |  |  |  |  |  |
| Investment in ATC | $ | 22,576 | $ | 23,638 | $ | - | $ | - |
| Accrued expenses |  | 15,901 |  | 15,385 |  | 15,890 |  | 15,385 |
| Pension and other postretirement benefits |  | 30,968 |  | 34,914 |  | 30,968 |  | 34,914 |
| Deferred tax regulatory account |  | 35,493 |  | 37,121 |  | 35,493 |  | 37,121 |
| Derivatives |  | 7,351 |  | 8,861 |  | 7,351 |  | 8,861 |
| Leases |  | 5,167 |  | - |  | 5,167 |  | - |
| Other |  | 12,540 |  | 15,137 |  | 12,593 |  | 15,185 |
| Gross deferred income tax assets |  | 129,996 |  | 135,056 |  | 107,462 |  | 111,466 |
| Less valuation allowance |  | (86) |  | (86) |  | (86) |  | (86) |
| Net deferred income tax assets | $ | 129,910 | $ | 134,970 | $ | 107,376 | $ | 111,380 |
| Deferred tax liabilities |  |  |  |  |  |  |  |  |
| Property-related | $ | 245,083 | $ | 244,114 | $ | 245,083 | $ | 244,114 |
| Investment in ATC |  | 51,569 |  | 50,771 |  | - |  | - |
| Bond transactions |  | 657 |  | 765 |  | 657 |  | 765 |
| Pension and other postretirement benefits |  | 45,683 |  | 47,644 |  | 45,683 |  | 47,644 |
| Derivatives |  | 7,351 |  | 8,861 |  | 7,351 |  | 8,861 |
| Tax deductible prepayments |  | 9,078 |  | 6,014 |  | 9,051 |  | 6,014 |
| Leases |  | 5,167 |  | - |  | 5,167 |  | - |
| Other |  | 8,624 |  | 8,753 |  | 8,425 |  | 8,598 |
| Gross deferred income tax liabilities |  | 373,212 |  | 366,922 |  | 321,417 |  | 315,996 |
| Deferred income taxes | $ | 243,302 | $ | 231,952 | $ | 214,041 | $ | 204,616 |
The state valuation allowance reduces MGE Energy's and MGE's deferred tax assets for state carryforward losses to estimated realizable value due to the uncertainty of future income estimates in various state tax jurisdictions. For tax purposes, as of December 31, 2019, both MGE Energy and MGE had approximately $1.4 million of state tax net operating loss deductions subject to a valuation allowance that expire between 2020 and 2023 if unused. b.Accounting for Uncertainty in Income Taxes - MGE Energy and MGE. The difference between the tax benefit amount taken on prior year tax returns, or expected to be taken on a current year tax return, and the tax benefit amount recognized in the financial statements is accounted for as an unrecognized tax benefit. A tabular reconciliation of unrecognized tax benefits and is as follows:
| (In thousands) |  |  |  |  |  |  |
| Unrecognized Tax Benefits: |  | 2019 |  | 2018 |  | 2017 |
| Unrecognized tax benefits, January 1, | $ | 1,949 | $ | 1,924 | $ | 2,487 |
| Additions based on tax positions related to the current year |  | 741 |  | 425 |  | 552 |
| Additions based on tax positions related to the prior years |  | 84 |  | 272 |  | 19 |
| Reductions based on tax positions related to the prior years |  | (681) |  | (672) |  | (1,134) |
| Unrecognized tax benefits, December 31, | $ | 2,093 | $ | 1,949 | $ | 1,924 |
| (In thousands) |  |  |  |  |  |  |
| Interest on Unrecognized Tax Benefits: |  | 2019 |  | 2018 |  | 2017 |
| Accrued interest on unrecognized tax benefits, January 1, | $ | 191 | $ | 165 | $ | 388 |
| Reduction in interest expense on uncertain tax positions |  | (137) |  | (136) |  | (312) |
| Interest expense on uncertain tax positions |  | 122 |  | 162 |  | 89 |
| Accrued interest on unrecognized tax benefits, December 31, | $ | 176 | $ | 191 | $ | 165 |
Unrecognized tax benefits are classified with "Other deferred liabilities" on the consolidated balance sheets. The interest component recoverable in rates is offset by a regulatory asset. As of December 31, 2019, 2018, and 2017, unrecognized tax benefits primarily related to temporary tax differences associated with the change in income tax method of accounting for electric generation and electric and gas distribution repairs. In addition, as of December 31, 2019 and 2017, unrecognized tax benefits relating to permanent differences and tax credits was less than $0.1 million. As of December 31, 2018, unrecognized tax benefits relating to permanent differences and tax credits was $0.3 million. The unrecognized tax benefits as of December 31, 2019, are not expected to significantly increase or decrease within the next twelve months. In addition, statutes of limitations will expire for MGE Energy and MGE tax returns. The impact of the statutes of limitations expiring is not anticipated to be material. The following table shows tax years that remain subject to examination by major jurisdiction:
| Taxpayer | Open Years |
| MGE Energy and consolidated subsidiaries in federal return | 2016 through 2019 |
| MGE Energy Wisconsin combined reporting corporation return | 2017 through 2019 |

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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