Mge Energy Inc.

Company Overview

Business Model: MGE Energy, Inc. operates as an investor-owned public utility holding company through its subsidiaries across five business segments. Its core operations are conducted through Madison Gas and Electric Company (MGE), a regulated electric and gas utility. MGE generates, purchases, and distributes electricity to approximately 170,000 customers and purchases, transports, and distributes natural gas to approximately 180,000 customers in south-central Wisconsin. Nonregulated energy operations involve MGE Energy, Inc.'s subsidiaries, MGE Power Elm Road and MGE Power West Campus, owning and leasing electric generating capacity to MGE. The company also has transmission investments through its equity interests in American Transmission Company LLC (ATC) and ATC Holdco LLC. The "All Other" segment encompasses investments in companies and property related to regulated operations, financing activities, and corporate functions. MGE's utility operations constitute the majority of MGE Energy, Inc.'s assets, liabilities, revenues, expenses, and overall operations.

Market Position: MGE distributes electricity across a 264 square-mile area in Dane County, Wisconsin, including the city of Madison, with 91% of its electric customers located in four key cities. Its natural gas service area spans 1,722 square miles across seven south-central Wisconsin counties. MGE is a nontransmission owning member of Midcontinent Independent System Operator, Inc. (MISO), which oversees the electric transmission system across 15 U.S. states and the Canadian province of Manitoba. MGE Energy, Inc. holds a 3.6% ownership interest in ATC, a major electric transmission provider primarily in Wisconsin, and a 4.4% interest in ATC Holdco LLC, which focuses on out-of-state transmission development. MGE currently exceeds Wisconsin's minimum renewable energy requirement of approximately 8%.

Recent Strategic Developments:

• Decarbonization Goals: MGE has set a target of achieving net-zero carbon electricity by 2050, aligning with Intergovernmental Panel on Climate Change (IPCC) recommendations. It also aims for net-zero methane emissions from its natural gas distribution system by 2035.
• Renewable Energy Expansion: Since 2015, MGE has added 253 MW of solar, 93 MW of wind, and 11 MW of battery storage. Future plans include adding approximately 252 MW of solar, 18 MW of wind, and 125 MW of battery storage by the end of 2030, with projects either approved or pending Public Service Commission of Wisconsin (PSCW) approval.
• Innovative Storage: The Columbia Energy Storage project, a compressed carbon dioxide long-duration energy storage system, was approved by the PSCW in 2025. MGE's 19% share will be 3 MW, and the project received a grant from the U.S. Department of Energy.
• Coal Transition: In October 2025, MGE and co-owners filed a joint application with the PSCW to transition the Elm Road Units from coal to natural gas, with coal expected to be a backup fuel by the end of 2030 and fully transitioned by the end of 2032. MGE and co-owners are also evaluating transitioning the Columbia Energy Center away from coal, including exploring conversion to natural gas.
• Natural Gas Generation: MGE acquired 50 MW (6.9% ownership) in the West Riverside Energy Center in 2023 and 2024. In February 2026, MGE executed an asset purchase agreement for a 33.4% ownership interest (168 MW) in the existing RockGen Energy Center, subject to PSCW approval and expected to close in late 2027.
• Electrification of Transportation: MGE has established a network of nearly 60 EV charging stations and aims for 100% all-electric or plug-in hybrid light-duty vehicles in its fleet by 2030.
• Rate Case Outcomes: In December 2023, the PSCW approved a 4.17% increase for electric rates and a 1.32% increase for gas rates for 2025, with the 2025 electric rate increase later adjusted to 2.63% due to a fuel cost plan. In December 2025, the PSCW approved a settlement for the 2026/2027 rate case, authorizing a 0.15% electric and 2.77% gas rate increase for 2026, and a 3.63% electric and 2.04% gas rate increase for 2027.
• Tax Policy Changes: The One Big Beautiful Bill Act (OBBBA), signed July 4, 2025, accelerates the termination of certain clean electricity tax credits for wind and solar projects and imposes new restrictions on tax credit eligibility related to foreign entities.

Geographic Footprint: MGE Energy, Inc.'s primary operations are concentrated in Wisconsin, serving Dane County for electricity and seven south-central Wisconsin counties for natural gas. Its electric generation facilities are located in Wisconsin and Iowa. Transmission investments are primarily within Wisconsin through ATC, with additional out-of-state exposure via ATC Holdco LLC.

Financial Performance

Revenue Analysis

(a) Gross Profit is calculated as Total Operating Revenues minus (Fuel for electric generation + Purchased power + Cost of gas sold).

Profitability Metrics:

• Gross Margin: 73.39% (2025) vs. 74.95% (2024)
• Operating Margin: 22.95% (2025) vs. 21.61% (2024)
• Net Margin: 18.27% (2025) vs. 17.81% (2024)

Investment in Growth:

• Capital Expenditures: $343,220 thousand (2025) vs. $236,925 thousand (2024)
• Strategic Investments:
  • Solar projects: $584.0 million (share of estimated costs)
  • Wind projects: $73.0 million (share of estimated costs)
  • Battery projects: $224.3 million (share of estimated costs)
  • Storage projects: $22.0 million (share of estimated costs)
  • Other projects: $11.0 million (share of estimated costs)
  • Capital contributions to American Transmission Company LLC and other investments: $9,496 thousand (2025)
  • Venture capital fund commitments: $5.1 million, with $0.7 million remaining as of December 31, 2025.

Business Segment Analysis

Electric Utility

Financial Performance:

• Revenue: $531,554 thousand (+6.8% YoY from $497,673 thousand in 2024)
• Net Income: $85,777 thousand (+15.12% YoY from $74,508 thousand in 2024)
• Key Growth Drivers: Increased rate base from electric investments approved in the 2024/2025 rate case, higher residential sales volume (+4.5% in kWh) due to customer growth and favorable weather conditions (Cooling Degree Days up 4.0%), and increased sales to the market (+181.4% in revenue, +78.3% in MWh).

Product Portfolio: MGE distributes electricity and owns or leases interests in electric generation facilities in Wisconsin and Iowa. The 2025 fuel mix included coal (1,750,273 MWh), natural gas (756,966 MWh), and renewable sources (913,612 MWh). MGE has added 253 MW of solar, 93 MW of wind, and 11 MW of battery storage since 2015, with plans for further significant additions by 2030. Customer programs include the Renewable Energy Rider (RER) and Shared Solar Program, with a new Shared Solar for Business program approved in December 2025. MGE is also advancing transportation electrification with a network of charging stations and a target for its light-duty fleet.

Market Dynamics: MGE serves approximately 170,000 electric customers in Dane County, Wisconsin. It participates in the MISO energy and capacity markets. Strategically, MGE is transitioning away from coal, with plans to convert the Elm Road Units to natural gas by 2032 and evaluating similar options for the Columbia Energy Center. It is also investing in natural gas-fired generation, including a 6.9% ownership in the West Riverside Energy Center and a pending 33.4% ownership in the RockGen Energy Center.

Gas Utility

Financial Performance:

• Revenue: $211,423 thousand (+18.4% YoY from $178,587 thousand in 2024)
• Net Income: $16,257 thousand (+18.41% YoY from $13,729 thousand in 2024)
• Key Growth Drivers: Higher gas retail sales (+14.3% in therms) primarily due to increased Heating Degree Days (+17.8%) in 2025 compared to 2024, and a 1.32% rate increase for 2025.

Product Portfolio: MGE transports and distributes natural gas to approximately 180,000 customers across seven south-central Wisconsin counties. It offers two voluntary renewable natural gas programs, launched in May 2024 and January 2026, to enable customers to offset or inject renewable natural gas.

Market Dynamics: MGE's gas supply is secured through physical interconnections with ANR Pipeline Company and Northern Natural Gas Company, with firm transportation contracts totaling 185,650 Dth on ANR and 81,453 Dth on NNG. MGE utilizes storage capacity (approximately 6.5 million Dth annually) to manage seasonal demand fluctuations. The company has set a goal to achieve net-zero methane emissions from its natural gas distribution system by 2035.

Nonregulated Energy Operations

Financial Performance:

• Revenue: $677 thousand (-1.02% YoY from $684 thousand in 2024)
• Net Income: $24,763 thousand (+2.91% YoY from $24,062 thousand in 2024)
• Operating Expenses: $131 thousand (+15.93% YoY from $113 thousand in 2024)

Product Portfolio: This segment, through MGE Power Elm Road and MGE Power West Campus, owns and leases electric generating capacity to MGE. MGE Power Elm Road holds an 8.33% undivided interest in the two coal-fired Elm Road Units in Oak Creek, Wisconsin. MGE Power West Campus owns a 55% interest in the electric generating assets of the natural gas/oil-fired West Campus Cogeneration Facility (WCCF) on the University of Wisconsin campus, which MGE leases and operates.

Market Dynamics: The lease arrangements with MGE provide a stable return on equity investment for these nonregulated assets. The planned transition of the Elm Road Units from coal to natural gas is subject to PSCW approval.

Transmission Investments

Financial Performance:

• Net Income: $9,464 thousand (+5.98% YoY from $8,930 thousand in 2024)
• Equity in earnings of investments: $13,009 thousand (+5.98% YoY from $12,275 thousand in 2024)
• Dividends received from American Transmission Company LLC: $10,612 thousand (+22.90% YoY from $8,635 thousand in 2024)

Product Portfolio: This segment represents MGE Energy, Inc.'s equity investments in American Transmission Company LLC (ATC) and ATC Holdco LLC. MGE Energy, Inc. holds a 3.6% ownership interest in ATC, which owns and operates electric transmission facilities primarily in Wisconsin. It also holds a 4.4% ownership interest in ATC Holdco LLC, formed to explore out-of-state electric transmission development.

Market Dynamics: ATC is regulated by FERC for rates and conditions of service, and by the PSCW for certain governance aspects. ATC is a transmission-owning member of MISO. A FERC ruling in October 2024 resolved complaints regarding ATC's authorized Return on Equity (ROE), resulting in a minor reduction for certain periods, with no impact on 2025 results.

Capital Allocation Strategy

Shareholder Returns:

• Share Repurchases: MGE Energy, Inc. transitioned to open market purchases for shares issued under its Direct Stock Purchase and Dividend Reinvestment Plan (Stock Plan) effective May 2025.
• Dividend Payments: MGE Energy, Inc. paid $67,587 thousand ($1.85 per share) in cash dividends in 2025, an increase from $63,596 thousand ($1.76 per share) in 2024. MGE paid $51,500 thousand in cash dividends to MGE Energy, Inc. in 2025.
• Future Capital Return Commitments: MGE Energy, Inc. expects to resume issuing new shares of common stock to Stock Plan participants starting March 2026.

Balance Sheet Position:

• Cash and Equivalents: $5,666 thousand as of December 31, 2025.
• Total Debt: $912,642 thousand (comprising $818,115 thousand long-term debt including current portion, and $94,527 thousand short-term debt) as of December 31, 2025.
• Net Cash Position: -$906,976 thousand (net debt) as of December 31, 2025.
• Debt Maturity Profile: Aggregate long-term debt maturities are $21,633 thousand in 2026, $54,888 thousand in 2027, $25,753 thousand in 2028, $55,926 thousand in 2029, $6,110 thousand in 2030, and $653,805 thousand thereafter. In January 2026, MGE issued $90 million of new long-term debt and redeemed all $1.2 million of its outstanding first mortgage bonds.

Cash Flow Generation:

• Operating Cash Flow: $263,234 thousand in 2025, a decrease from $277,784 thousand in 2024.
• Free Cash Flow (estimated): -$79,986 thousand in 2025 (Operating Cash Flow less Capital Expenditures).

Operational Excellence

Production & Service Model: MGE's electric utility operations involve generating, purchasing, and distributing electricity, prioritizing the dispatch of the lowest cost generation. Its gas utility operations focus on purchasing, transporting, and distributing natural gas, ensuring supply reliability through firm contracts and storage. Nonregulated energy operations provide electric generating capacity to MGE through lease agreements. MGE adheres to mandatory reliability standards set by North American Electric Reliability Corporation (NERC) for its electric distribution system and participates actively in the MISO energy and capacity markets.

Supply Chain Architecture: Key Suppliers & Partners:

• Fuel Suppliers: Coal is sourced from the Powder River Basin (Wyoming) and northern West Virginia/southwestern Pennsylvania. Natural gas is supplied via ANR Pipeline Company and Northern Natural Gas Company.
• Generation Operators: Various co-owners operate jointly-owned facilities, including Wisconsin Power and Light Company (WPL), WEC Energy Group, Inc. (WEC), and Wisconsin Public Service Corporation (WPSC).
• Transmission Services: American Transmission Company LLC (ATC) provides essential electric transmission services.
• Technology Partners: MGE Energy, Inc. invests in venture capital funds that support early-stage companies focused on smart technologies, customer experience, distributed energy resources, electrification, cybersecurity, and sustainability.

Facility Network:

• Manufacturing/Generation: MGE's generation portfolio includes coal-fired (Columbia Energy Center, Elm Road Units), natural gas-fired (Blount Station, West Campus Cogeneration Facility, West Riverside Energy Center, RockGen Energy Center pending), distributed generators, and a growing number of wind (e.g., Forward Wind Energy Center, Red Barn Wind Farm) and solar (e.g., Badger Hollow I & II, Paris Solar and Battery Park) facilities.
• Research & Development: The Columbia Energy Storage project represents a significant R&D initiative as the first compressed carbon dioxide long-duration energy storage system in the U.S.
• Distribution: MGE maintains an extensive electric distribution network of 811 miles of overhead lines, 1,386 miles of underground cable, and 47 substations. Its gas distribution system comprises 3,117 miles of mains.

Operational Metrics:

• Electric retail sales in 2025 totaled 3,220,550 MWh (+2.1% YoY), with residential sales growing 4.5% and commercial sales 1.7%. Sales to the market increased 78.3% to 402,875 MWh.
• Gas retail deliveries in 2025 increased 14.3% to 212,001 therms, driven by a 14.6% rise in residential deliveries and a 14.0% increase in commercial/industrial deliveries.
• Weather impacts: Cooling Degree Days were up 4.0% in 2025, and Heating Degree Days were up 17.8%.
• Coal inventory for Columbia Energy Center was 84 days, and MGE's share for Elm Road Units was 48 days as of December 31, 2025.

Market Access & Customer Relationships

Go-to-Market Strategy: Distribution Channels:

• Direct Sales: MGE provides direct electric and natural gas utility services to retail customers within its exclusive franchised territories.
• Channel Partners: MGE collaborates with large energy users, particularly governmental entities, through its Renewable Energy Rider (RER) program, offering customized renewable energy solutions.
• Digital Platforms: While not explicitly detailed, customer engagement and service delivery imply the use of digital platforms.

Customer Portfolio: Enterprise Customers:

• Tier 1 Clients: The University of Wisconsin at Madison is a joint owner and customer of the West Campus Cogeneration Facility. The City of Madison is a strategic partner in vehicle electrification initiatives.
• Customer Concentration: No single customer accounted for more than 10% of MGE Energy, Inc.'s or MGE's total operating revenues for the year ended December 31, 2025.
• Large-Load Growth: MGE is observing increasing interest from large-load customers, including data-intensive and technology-focused operations, seeking reliable and scalable electric service within its service territory, supported by its favorable location and regional transmission access.

Geographic Revenue Distribution:

• Electric operations contributed approximately 72% of MGE's total regulated revenues in 2025.
• Gas operations contributed approximately 28% of MGE's total regulated revenues in 2025.

Competitive Intelligence

Market Structure & Dynamics

Industry Characteristics: MGE Energy, Inc. operates within a highly regulated utility market, subject to extensive oversight from the PSCW, FERC, and MISO. The industry is undergoing a significant transformation driven by decarbonization goals, with MGE targeting net-zero carbon electricity by 2050 and net-zero methane emissions by 2035. Technological advancements in distributed generation, energy storage, and AI-driven energy management tools are influencing customer behavior and energy consumption patterns. The company faces challenges from domestic and global supply chain disruptions, particularly impacting solar projects, and is sensitive to broader economic conditions affecting energy demand and credit markets. A national trend of data center expansion presents both opportunities and challenges for increased load growth.

Competitive Positioning Matrix:

Direct Competitors

Primary Competitors: MGE Energy, Inc. operates in a co-ownership model for several generation facilities, with key partners and operators including Wisconsin Power and Light Company (WPL), Wisconsin Public Service Corporation (WPSC), WEC Energy Group, Inc. (WEC), and WPPI Energy, Inc. American Transmission Company LLC (ATC) is a key transmission service provider in which MGE Energy, Inc. holds an investment.

Emerging Competitive Threats: The rise of distributed generation (e.g., commercial and residential solar, micro turbines) and advancements in energy storage technologies (e.g., batteries, fuel cells) pose threats by enabling customer self-supply. AI-driven energy management tools could further optimize customer usage, reducing reliance on MGE. New entrants, particularly large-scale data centers, could significantly alter load obligations, while legislative or regulatory actions supporting these alternative technologies or third-party sales could impact MGE's revenue streams.

Competitive Response Strategy: MGE Energy, Inc. is actively responding to competitive dynamics by investing in cost-effective renewable generation and innovative technologies. It is developing customer programs to encourage clean energy adoption and addressing climate change. The company is strategically transitioning its generation portfolio away from coal while investing in natural gas-fired generation to maintain reliability. MGE also engages proactively with prospective large-load customers to manage potential demand growth and adapts to evolving environmental regulations and trade policies.

Risk Assessment Framework

Strategic & Market Risks

Market Dynamics: MGE Energy, Inc. is exposed to weather-related demand fluctuations for electricity and gas, which can impact operating results and increase maintenance costs during extreme conditions. The ongoing expansion of data centers, particularly those driven by Artificial Intelligence, presents a potential for significant, rapid load growth, but also uncertainty regarding its timing and scale. Technological advancements in distributed generation and energy storage could reduce customer reliance on MGE. The company's operations are sensitive to local, national, and global economic conditions, which can affect energy demand, prices, and credit risk. Technology Disruption: Rapid advancements in power generation, storage, and energy efficiency technologies, including AI-driven energy management tools, could reduce customer purchases and impact the timing of cost recovery. Customer Concentration: While no single customer accounts for more than 10% of total operating revenues, the potential for large-scale data centers introduces new demand dynamics. Global Climate Change: Physical risks from extreme weather events, increased operating costs, capital expenditures, and potential restrictions on energy supply options due to climate change and related regulations. Investor sentiment shifting away from fossil fuels could also impact capital attraction and reputational standing.

Operational & Execution Risks

Supply Chain Vulnerabilities: MGE Energy, Inc. faces risks related to the availability and cost of coal and natural gas, with potential disruptions from transportation delays, weather, labor issues, or environmental regulations. Global supply chain disruptions, including those affecting solar panel procurement (e.g., Uyghur Forced Labor Prevention Act, U.S. Department of Commerce solar tariffs), can lead to increased costs or delays in capital projects. Geographic Concentration: The concentration of business activities in Wisconsin makes the company susceptible to local economic downturns. Capacity Constraints: Significant capital projects, particularly in renewable generation and storage, are subject to completion risks such as labor and material shortages, contractor performance issues, permitting delays, and geopolitical instability, which could lead to cost overruns or delays in project timelines. Inflation: Rising prices for equipment, materials, employee wages, and benefits could adversely impact financial performance.

Financial & Regulatory Risks

Market & Financial Risks: The company is exposed to commodity price risk for natural gas, electricity, coal, oil, and environmental allowances, although this is largely mitigated by regulatory mechanisms and derivative instruments. Interest rate risk on variable rate financing could increase borrowing costs. Disruptions in financial markets or credit rating downgrades could affect access to capital and financing costs. Employee benefit plan costs are sensitive to interest rate movements and market performance. Counterparty credit risk exists in commodity contracts, with potential losses from nonperformance. Regulatory & Compliance Risks: MGE Energy, Inc. operates under extensive and frequently changing local, state, and federal regulations (PSCW, FERC, MISO, EPA, NERC), which impact costs, rates, and operational flexibility. There is no assurance that regulators will approve full cost recovery or a reasonable return on equity. Non-compliance with reliability standards can result in penalties. Evolving environmental laws and regulations, including those related to air quality, water quality, solid waste, and greenhouse gas emissions, could lead to increased capital and operating expenditures. Tax Policy Changes: Changes in federal income tax policy, such as those introduced by the Inflation Reduction Act and the One Big Beautiful Bill Act, could impact the availability and value of tax credits, potentially increasing tax obligations and affecting financial results. New labor requirements and restrictions on foreign-sourced components for tax credit eligibility add complexity.

Geopolitical & External Risks

Geopolitical Exposure: Evolving U.S. and international trade policies, including tariffs and sanctions, can impact operating costs and capital investments, particularly for renewable energy and battery storage initiatives. Catastrophic Events: The business is vulnerable to terrorist attacks, natural disasters, severe storms, pandemics, or other unpredictable events that could disrupt operations, cause infrastructure damage, increase costs, and reduce investor confidence. Insurance coverage may not fully mitigate all losses.

Innovation & Technology Leadership

Research & Development Focus: Core Technology Areas: MGE Energy, Inc. is focused on advancing renewable generation (solar, wind), energy storage (battery, long-duration compressed carbon dioxide systems like the Columbia Energy Storage project), electrification of transportation, and renewable natural gas solutions. The company also invests in smart technologies, customer experience enhancements, distributed energy resources, and cybersecurity.

Innovation Pipeline: MGE has a robust pipeline of projects, including plans to add approximately 252 MW of solar, 18 MW of wind, and 125 MW of battery storage by 2030. Key projects include the Columbia Energy Storage project (expected in-service 2027) and the acquisition of a 33.4% ownership interest in the RockGen Energy Center (expected to close late 2027). The company is also pursuing the transition of the Elm Road Units to natural gas by 2032.

Intellectual Property Portfolio: Not explicitly detailed in the filing.

Technology Partnerships: MGE Energy, Inc. engages in strategic alliances and research collaborations through its venture capital investments in early-stage companies. It also partners with academic institutions, such as the University of Wisconsin at Madison for the West Campus Cogeneration Facility, and receives grants from entities like the U.S. Department of Energy for projects like the Columbia Energy Storage project.

Leadership & Governance

Executive Leadership Team

Leadership Continuity: The company emphasizes attracting, developing, and retaining a sustainable workforce, with a focus on career development and training to adapt to the evolving energy industry. Board Composition: MGE Energy, Inc.'s Board of Directors oversees enterprise-wide risk assessment, including cybersecurity. Four board members possess technology and cybersecurity skills. The Audit Committee receives semi-annual updates on the Enterprise Risk Management (ERM) risk register and annual presentations on cybersecurity strategy.

Human Capital Strategy

Workforce Composition:

• Total Employees: 726 employees as of December 31, 2025.
• Geographic Distribution: Not explicitly detailed beyond general service areas.
• Skill Mix: 318 employees (approximately 43.8%) are covered by collective bargaining agreements.
• Diversity Metrics: As of December 31, 2025, women represented 27% of the total workforce, and ethnic minorities represented 10%.

Talent Management: Acquisition & Retention: MGE Energy, Inc. is committed to attracting, developing, and retaining a sustainable workforce. It offers career development and training opportunities to enhance employee proficiency, decision-making skills, and preparation for new roles within the evolving utility industry. Employee Value Proposition: The company fosters an inclusive, respectful work environment, emphasizing safe and healthy working conditions through initiatives like the Safety Steering Team and Stop Work Authority. Programs such as Healthy Rewards and hybrid work schedules are offered to promote employee well-being.

Diversity & Development: MGE supports a diverse, equitable, and inclusive culture, believing that a wide range of backgrounds and ideas strengthens its work environment. Employee-led steering teams focus on workplace culture and engagement. The company provides various learning resources to ensure employees are equipped with necessary knowledge and skills.

Environmental & Social Impact

Environmental Commitments: Climate Strategy: MGE is committed to achieving net-zero carbon electricity by 2050, aligning with IPCC recommendations to limit global temperature increases. It also targets net-zero methane emissions from its natural gas distribution system by 2035. The strategy involves significant investments in solar, wind, and battery storage, and a transition away from coal-fired generation at the Elm Road Units by 2032, with similar evaluations for the Columbia Energy Center. Carbon Neutrality: The company's 2050 net-zero carbon electricity goal is a central component of its climate strategy. Renewable Energy: MGE actively invests in renewable energy, exceeding Wisconsin's minimum renewable energy requirement of approximately 8%. It also promotes clean energy use through customer programs like the Renewable Energy Rider and Shared Solar.

Supply Chain Sustainability: MGE monitors import regulations, such as the Uyghur Forced Labor Prevention Act (UFLPA) and U.S. Department of Commerce solar tariffs, to ensure compliance and assess potential impacts on its solar projects.

Social Impact Initiatives: MGE Energy, Inc. made a $2.5 million (pre-tax) voluntary contribution to the Madison Gas and Electric Foundation in 2025. The company's initiatives also include promoting product accessibility and social benefits through programs like transportation electrification.

Business Cyclicality & Seasonality

Demand Patterns: MGE's demand for electricity and natural gas is significantly influenced by weather conditions. Electric revenues are sensitive to the summer cooling season and, to a lesser extent, the winter heating season. Natural gas demand is primarily driven by the winter heating season. These factors can cause substantial seasonal fluctuations in overall operating results. The company's operations are also affected by broader economic activity, which can lead to variations in energy demand.

Planning & Forecasting: MGE incorporates customer growth and weather impacts into its rate-setting process. It manages natural gas supply through storage injections during summer for withdrawal in winter, leveraging seasonal price differences. Coal inventory levels are also monitored to ensure supply. Forecasted capital expenditures for 2026-2030 reflect strategic investments in generation and storage projects to meet anticipated demand and decarbonization goals.

Regulatory Environment & Compliance

Regulatory Framework: MGE Energy, Inc. and its subsidiaries operate under extensive regulation. MGE is regulated by the PSCW for rates, service terms, financing, and plant siting, and by FERC for certain accounting practices. MISO oversees MGE's electric transmission system participation, energy market, and capacity auction. MGE adheres to NERC mandatory reliability standards. Industry-Specific Regulations: The company is subject to frequently changing local, state, and federal environmental regulations from the EPA and Wisconsin Department of Natural Resources (WDNR) concerning air quality (e.g., Effluent Limitations Guidelines, Cooling Water Intake Rules, Cross-State Air Pollution Rule's Good Neighbor Plan, National Ambient Air Quality Standards for Ozone and PM2.5, Clean Air Act 111(d) Rule), water quality, and solid waste disposal (e.g., Coal Combustion Residuals Rule). Wisconsin law also mandates minimum renewable energy supply, which MGE currently exceeds. Trade & Export Controls: MGE monitors and ensures compliance with the Uyghur Forced Labor Prevention Act (UFLPA) for solar project components and assesses the impact of U.S. Department of Commerce solar tariffs, including potential retroactive duties and new investigations, on project costs and timelines. The One Big Beautiful Bill Act (OBBBA) introduces new restrictions on tax credit eligibility related to foreign entities. Legal Proceedings: MGE Energy, Inc. and its subsidiaries are involved in various legal proceedings in the ordinary course of business, with no material adverse effect on financial statements expected from their resolution.

Tax Strategy & Considerations

Tax Profile: MGE Energy, Inc. files a consolidated federal income tax return, with subsidiaries calculating their respective tax provisions. The effective tax rate for MGE Energy, Inc. was 13.26% in 2025, 8.08% in 2024, and 19.11% in 2023. Geographic Tax Planning: MGE calculates its share of tax liability and makes intercompany tax payments to its parent company. Tax Reform Impact: The Inflation Reduction Act (IRA) introduced new labor requirements for renewable tax credits. The One Big Beautiful Bill Act (OBBBA), signed July 4, 2025, accelerates the termination of certain clean electricity tax credits for wind and solar projects and imposes stringent restrictions on tax credit eligibility for projects involving material assistance from specified foreign entities or foreign-influenced entities. The 2017 Tax Act's impact on excess deferred income taxes is managed through regulatory liabilities, with amounts returned to customers based on IRS normalization rules. Tax Credits: MGE Energy, Inc. historically utilizes various tax credits, including Production Tax Credits (PTC) and Investment Tax Credits (ITC), to reduce its tax liability. The company faces risks if future taxable income is insufficient or if new compliance requirements (e.g., IRA labor rules, OBBBA's Foreign Entity of Concern rules) limit credit eligibility.

Insurance & Risk Transfer

Risk Management Framework: MGE Energy, Inc. manages its cybersecurity risk in accordance with the National Institute of Standards and Technology (NIST) Cybersecurity Framework, encompassing identification, protection, detection, response, recovery, and governance. Cybersecurity is integrated into the overall Enterprise Risk Management (ERM) program, which is overseen by the Board of Directors. Commodity price risk is managed through established risk management policies and the use of derivative instruments, prohibiting speculative trading. Credit risk is managed through credit policies, counterparty limits, and mitigation measures.

Insurance Coverage: MGE maintains a cyber insurance policy to mitigate financial damages from cyber incidents. While the company holds insurance for certain catastrophic events, coverage may be subject to limits, retentions, exclusions, or delays in recovery.

Risk Transfer Mechanisms:

• Regulatory Mechanisms: MGE utilizes electric fuel rules, which allow for the deferral and future recovery or refund of electric fuel-related costs that fall outside a symmetrical cost tolerance band (e.g., +/- 2% in 2025). The Purchased Gas Adjustment (PGA) clause allows MGE to pass through natural gas costs to customers. Regulatory assets and liabilities are used to defer certain costs (e.g., bad debt, pension, transmission) for future recovery or refund.
• Derivative Instruments: MGE employs financial gas and electric commodity contracts (options, swaps, futures) and Financial Transmission Rights (FTRs) to hedge commodity price risk and transmission congestion charges. These derivatives are subject to regulatory deferral, with gains and losses recognized in earnings in the applicable delivery month.