MGEE

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended June 30, 2026, for MGE Energy, Inc. (MGE Energy) and its wholly-owned subsidiary, Madison Gas and Electric Company (MGE). MGE Energy is an investor-owned public utility holding company operating regulated electric and gas utility businesses in Wisconsin, alongside nonregulated energy operations and transmission investments. The report includes unaudited consolidated financial statements for both entities.

Key Financial Metrics (Six Months Ended June 30, 2026)

Material Changes vs. Prior Period

• Revenue Growth: Total operating revenues increased 6.7% year-over-year. Electric revenues rose 3.1% and gas revenues increased 14.1%, driven primarily by rate increases approved in late 2025 and higher commodity costs passed through to customers.
• Profitability: Net income increased 20.2% to $81.8 million. This was driven by higher electric utility earnings due to rate base growth, investment gains from venture capital funds, and increased equity earnings from transmission investments.
• Capital Investment: Capital expenditures surged 88.7% to $210.9 million, reflecting accelerated spending on solar, wind, and battery storage projects (e.g., Sunnyside, Dawn Harvest, Saratoga).
• Financing Activity: MGE Energy issued $90 million in long-term debt and raised approximately $250 million in gross proceeds from a public offering of common stock (including forward sale agreements) in May 2026.
• Cost Structure: Operations and maintenance expenses increased $12.5 million, primarily due to higher pension costs, transmission rates, and electric production expenses.

Guidance, Outlook, and Risks

• Rate Matters: The Public Service Commission of Wisconsin (PSCW) approved a 2026/2027 rate settlement. Electric rates increased 0.15% in 2026 and 3.63% in 2027; gas rates increased 2.77% in 2026 and 2.04% in 2027. A 2027 Fuel Cost Plan is pending final PSCW decision.
• Strategic Outlook: MGE is pursuing a net-zero carbon electricity goal by 2050, focusing on renewable generation and storage. The company is transitioning the Elm Road Units from coal to natural gas, with full transition expected by 2032.
• Regulatory and Environmental Risks:
  • Solar Tariffs: Ongoing investigations and tariffs on solar imports (UFLPA, AD/CVD) pose risks of cost increases and construction delays for solar projects.
  • Climate Regulations: EPA rules regarding greenhouse gas emissions, ozone standards, and coal combustion residuals remain subject to legal challenges and potential changes, impacting capital planning.
  • Tax Policy: The "One Big Beautiful Bill Act" (OBBBA) accelerates the termination of tax credits for wind and solar projects placed in service after 2027, creating urgency for project timelines.
• Liquidity: Management expects adequate liquidity to support operations and capital expenditures, supported by operating cash flows, credit facilities, and recent equity issuances.

Investor Verification Checklist

• Capital Expenditure Execution: Verify the timeline and cost recovery status of major renewable projects (Sunnyside, Dawn Harvest, Saratoga) given the high capital spend ($210.9M YTD).
• Regulatory Approvals: Monitor the final PSCW decision on the 2027 Fuel Cost Plan and the status of the 2026/2027 rate settlement implementation.
• Supply Chain Risks: Assess the impact of solar tariffs and UFLPA compliance on project costs and potential rate case filings for cost recovery.
• Debt and Equity Structure: Review the settlement terms of the forward sale agreements ($168.4M expected proceeds) and the impact on future dilution.
• Coal Transition: Track progress on the Elm Road Units fuel switch and associated capital requirements to ensure alignment with the 2032 target.