United States SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM For the quarterly period ended: For the transition period from _______________ to _______________ |
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Commission File No. |
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Name of Registrant, State of Incorporation, Address of Principal Executive Offices, and Telephone No. |
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IRS Employer Identification No. |
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(a ( |
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(a ( |
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Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days:
MGE Energy, Inc. |
Madison Gas and Electric Company |
Indicate by check mark whether the registrants have submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrants were required to submit such files):
MGE Energy, Inc. |
Madison Gas and Electric Company |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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Accelerated Filer |
Smaller Reporting Company |
Emerging Growth Company |
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MGE Energy, Inc. |
☒ |
☐ |
☐ |
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Madison Gas and Electric Company |
☐ |
☐ |
☒ |
If an emerging growth company, indicate by check mark if the registrants have elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
MGE Energy, Inc. ☐ |
Madison Gas and Electric Company ☐ |
Indicate by check mark whether the registrants are shell companies (as defined in Rule 12b-2 of the Exchange Act):
MGE Energy, Inc. Yes |
Madison Gas and Electric Company Yes |
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Trading symbol(s) |
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Name of each exchange on which registered |
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The |
Number of Shares Outstanding of Each Class of Common Stock as of October 31, 2022 |
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MGE Energy, Inc. |
Common stock, $1.00 par value, |
Madison Gas and Electric Company |
Common stock, $1.00 par value, |
1
Table of Contents
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Definitions, Abbreviations, and Acronyms Used in the Text and Notes of this Report |
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. |
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Item 3. Quantitative and Qualitative Disclosures About Market Risk. |
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. |
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2
PART I. FINANCIAL INFORMATION.
Filing Format
This combined Form 10-Q is being filed separately by MGE Energy, Inc. (MGE Energy) and Madison Gas and Electric Company (MGE). MGE is a wholly owned subsidiary of MGE Energy and represents a majority of its assets, liabilities, revenues, expenses, and operations. Thus, all information contained in this report relates to, and is filed by, MGE Energy. Information that is specifically identified in this report as relating solely to MGE Energy, such as its financial statements and information relating to its nonregulated business, does not relate to, and is not filed by, MGE. MGE makes no representation as to that information. The terms "we" and "our," as used in this report, refer to MGE Energy and its consolidated subsidiaries, unless otherwise indicated.
Forward-Looking Statements
This report, and other documents filed by MGE Energy and MGE with the Securities and Exchange Commission (SEC) from time to time, contain forward-looking statements that reflect management's current assumptions and estimates regarding future performance and economic conditions—especially as they relate to economic conditions, future load growth, revenues, expenses, capital expenditures, financial resources, regulatory matters, and the scope and expense associated with future environmental regulation. These forward-looking statements are made pursuant to the provisions of the Private Securities Litigation Reform Act of 1995. Words such as "believe," "expect," "anticipate," "estimate," "could," "should," "intend," "will," and other similar words, and words relating to goals, targets and projections, generally identify forward-looking statements. Both MGE Energy and MGE caution investors that these forward-looking statements are subject to known and unknown risks and uncertainties that may cause actual results to differ materially from those projected, expressed, or implied.
The factors that could cause actual results to differ materially from the forward-looking statements made by a registrant include: (a) those factors discussed in the registrants' 2021 Annual Report on Form 10-K: Item 1A. Risk Factors, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, as updated by Part I, Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations in this report, and Item 8. Financial Statements and Supplementary Data – Note 16, as updated by Part I, Item 1. Financial Statements – Note 8 in this report, and (b) other factors discussed herein and in other filings made by that registrant with the SEC.
Readers are cautioned not to place undue reliance on these forward-looking statements, which apply only as of the date of this report. MGE Energy and MGE undertake no obligation to release publicly any revision to these forward-looking statements to reflect events or circumstances after the date of this report, except as required by law.
Where to Find More Information
We file annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K and other information with the SEC. The SEC maintains an internet site at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.
MGE Energy maintains a website at mgeenergy.com, and MGE maintains a website at mge.com. Copies of the reports and other information that we file with the SEC may be obtained from our websites free of charge. Information contained on MGE Energy's and MGE's websites shall not be deemed incorporated into, or to be a part of, this report.
3
Definitions, Abbreviations, and Acronyms Used in the Text and Notes of this Report
Abbreviations, acronyms, and definitions used in the text and notes of this report are defined below.
MGE Energy and Subsidiaries: |
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CWDC |
Central Wisconsin Development Corporation |
MAGAEL |
MAGAEL, LLC |
MGE |
Madison Gas and Electric Company |
MGE Energy |
MGE Energy, Inc. |
MGE Power |
MGE Power, LLC |
MGE Power Elm Road |
MGE Power Elm Road, LLC |
MGE Power West Campus |
MGE Power West Campus, LLC |
MGE Services |
MGE Services, LLC |
MGE State Energy Services |
MGE State Energy Services, LLC |
MGE Transco |
MGE Transco Investment, LLC |
MGEE Transco |
MGEE Transco, LLC |
North Mendota |
North Mendota Energy & Technology Park, LLC |
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Other Defined Terms: |
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2017 Tax Act |
Tax Cut and Jobs Act of 2017 |
2021 Annual Report on Form 10-K |
MGE Energy's and MGE's Annual Report on Form 10-K for the year ended December 31, 2021 |
2021 Plan |
MGE Energy's 2021 Long-Term Incentive Plan |
AFUDC |
Allowance for Funds Used During Construction |
ATC |
American Transmission Company LLC |
ATC Holdco |
ATC Holdco, LLC |
Badger Hollow I |
Badger Hollow I Solar Farm |
Badger Hollow II |
Badger Hollow II Solar Farm |
Blount |
Blount Station |
BTA |
Best technology available |
CA |
Certificate of Authority |
CBP |
U.S. Customs and Border Protection |
CCR |
Coal Combustion Residual |
Columbia |
Columbia Energy Center |
cooling degree days (CDD) |
Measure of the extent to which the average daily temperature is above 65 degrees Fahrenheit, which is considered an indicator of possible increased demand for energy to provide cooling |
COVID-19 |
Coronavirus Disease 2019 |
CSAPR |
Cross-State Air Pollution Rule |
Dth |
Dekatherms, a quantity measure for natural gas |
EGU |
Electric generating unit |
ELG |
Effluent Limitations Guidelines |
Elm Road Units |
Elm Road Generating Station |
EPA |
United States Environmental Protection Agency |
FERC |
Federal Energy Regulatory Commission |
FIP |
Federal Implementation Plan |
FTR |
Financial Transmission Rights |
GAAP |
Generally Accepted Accounting Principles |
GHG |
Greenhouse gas |
heating degree days (HDD) |
Measure of the extent to which the average daily temperature is below 65 degrees Fahrenheit, which is considered an indicator of possible increased demand for energy to provide heating |
IRS |
Internal Revenue Service |
kWh |
Kilowatt-hour, a measure of electric energy produced |
MISO |
Midcontinent Independent System Operator (a regional transmission organization) |
MW |
Megawatt, a measure of electric energy generating capacity |
MWh |
Megawatt-hour, a measure of electric energy produced |
NAAQS |
National Ambient Air Quality Standards |
NOx |
Nitrogen oxide |
PGA |
Purchased Gas Adjustment clause, a regulatory mechanism used to reconcile natural gas costs recovered in rates to actual costs |
4
PPA |
Purchased Power Agreement |
PSCW |
Public Service Commission of Wisconsin |
ROE |
Return on equity |
Saratoga |
Saratoga Wind Farm |
SCR |
Selective Catalytic Reduction |
SEC |
Securities and Exchange Commission |
SIP |
State Implementation Plan |
SO2 |
Sulfur dioxide |
Stock Plan |
Direct Stock Purchase and Dividend Reinvestment Plan of MGE Energy |
Two Creeks |
Two Creeks Solar Farm |
USDOC |
U.S. Department of Commerce |
WCCF |
West Campus Cogeneration Facility |
WDNR |
Wisconsin Department of Natural Resources |
WEPCO |
Wisconsin Electric Power Company, a subsidiary of WEC Energy Group, Inc. |
West Riverside |
West Riverside Energy Center in Beloit, Wisconsin |
working capital |
Current assets less current liabilities |
WPL |
Wisconsin Power and Light Company, a subsidiary of Alliant Energy Corporation |
WRO |
Withhold Release Order |
XBRL |
eXtensible Business Reporting Language |
a
5
Item 1. Financial Statements.
MGE Energy, Inc.
Consolidated Statements of Income (unaudited)
(In thousands, except per share amounts)
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Three Months Ended |
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Nine Months Ended |
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September 30, |
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September 30, |
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2022 |
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2021 |
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2022 |
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2021 |
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Operating Revenues: |
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Electric revenues |
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$ |
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$ |
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$ |
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$ |
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Gas revenues |
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Total Operating Revenues |
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Operating Expenses: |
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Fuel for electric generation |
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Purchased power |
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Cost of gas sold |
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Other operations and maintenance |
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Depreciation and amortization |
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Other general taxes |
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Total Operating Expenses |
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Operating Income |
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Other income, net |
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Interest expense, net |
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Income before income taxes |
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Income tax provision |
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( |
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( |
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( |
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Net Income |
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$ |
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$ |
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$ |
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$ |
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Earnings Per Share of Common Stock |
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Basic |
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$ |
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$ |
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$ |
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$ |
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Diluted |
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$ |
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$ |
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$ |
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$ |
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Dividends per share of common stock |
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$ |
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$ |
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$ |
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$ |
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Weighted Average Shares Outstanding |
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Basic |
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Diluted |
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The accompanying notes are an integral part of the above unaudited consolidated financial statements.
6
MGE Energy, Inc.
Consolidated Statements of Cash Flows (unaudited)
(In thousands)
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Nine Months Ended |
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September 30, |
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2022 |
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2021 |
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Operating Activities: |
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Net income |
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$ |
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$ |
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Items not affecting cash: |
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Depreciation and amortization |
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Deferred income taxes |
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Provision for doubtful receivables |
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Employee benefit plan cost (credit) |
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Equity earnings in investments |
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Other items |
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Changes in working capital items: |
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Increase in current assets |
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(Decrease) increase in current liabilities |
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Dividends from investments |
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Cash contributions to pension and other postretirement plans |
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Other noncurrent items, net |
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Cash Provided by Operating Activities |
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Investing Activities: |
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Capital expenditures |
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( |
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Capital contributions to investments |
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( |
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( |
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Other |
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Cash Used for Investing Activities |
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( |
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Financing Activities: |
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Cash dividends paid on common stock |
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Repayments of long-term debt |
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Issuance of long-term debt |
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Proceeds from (repayments of) short-term debt |
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( |
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Other |
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( |
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Cash (Used for) Provided by Financing Activities |
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( |
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Change in cash, cash equivalents, and restricted cash |
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Cash, cash equivalents, and restricted cash at beginning of period |
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Cash, cash equivalents, and restricted cash at end of period |
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$ |
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$ |
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Supplemental disclosures of cash flow information: |
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Significant noncash investing activities: |
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Accrued capital expenditures |
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$ |
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$ |
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The accompanying notes are an integral part of the above unaudited consolidated financial statements.
7
MGE Energy, Inc.
Consolidated Balance Sheets (unaudited)
(In thousands)
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September 30, |
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December 31, |
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ASSETS |
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2022 |
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2021 |
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Current Assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Accounts receivable, less reserves of $ |
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Other accounts receivable, less reserves of $ |
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Unbilled revenues |
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Materials and supplies, at average cost |
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Fuel for electric generation, at average cost |
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Stored natural gas, at average cost |
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Prepaid taxes |
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Regulatory assets - current |
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Other current assets |
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Total Current Assets |
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Other long-term receivables |
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Regulatory assets |
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Pension benefit asset |
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Other deferred assets and other |
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Property, Plant, and Equipment: |
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Property, plant, and equipment, net |
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Construction work in progress |
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Total Property, Plant, and Equipment |
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Investments |
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Total Assets |
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$ |
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$ |
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LIABILITIES AND CAPITALIZATION |
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Current Liabilities: |
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Long-term debt due within one year |
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$ |
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$ |
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Short-term debt |
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Accounts payable |
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Accrued interest and taxes |
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Accrued payroll related items |
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Regulatory liabilities - current |
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Derivative liabilities |
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Other current liabilities |
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Total Current Liabilities |
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Other Credits: |
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Deferred income taxes |
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Investment tax credit - deferred |
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Regulatory liabilities |
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Accrued pension and other postretirement benefits |
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Finance lease liabilities |
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Other deferred liabilities and other |
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Total Other Credits |
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Capitalization: |
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Common shareholders' equity |
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Long-term debt |
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Total Capitalization |
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Total Liabilities and Capitalization |
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$ |
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$ |
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The accompanying notes are an integral part of the above unaudited consolidated financial statements.
8
MGE Energy, Inc.
Consolidated Statements of Common Equity (unaudited)
(In thousands, except per share amounts)
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Accumulated |
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Additional |
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Other |
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Common Stock |
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Paid-in |
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Retained |
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Comprehensive |
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Shares |
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Value |
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Capital |
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Earnings |
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Income/(Loss) |
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Total |
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||||||
Three Months Ended September 30, 2021 |
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Beginning Balance |
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$ |
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$ |
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$ |
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$ |
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$ |
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Net income |
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Common stock dividends declared |
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( |
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( |
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Equity-based compensation plans and other |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Ending Balance - September 30, 2021 |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Three Months Ended September 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Beginning Balance |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Common stock dividends declared |
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||||
Equity-based compensation plans and other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Ending Balance - September 30, 2022 |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Nine Months Ended September 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Beginning Balance |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Common stock dividends declared |
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||||
Equity-based compensation plans and other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Ending Balance - September 30, 2021 |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Nine Months Ended September 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Beginning Balance |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Common stock dividends declared |
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||||
Equity-based compensation plans and other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Ending Balance - September 30, 2022 |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
The accompanying notes are an integral part of the above unaudited consolidated financial statements.
9
Madison Gas and Electric Company
Consolidated Statements of Income (unaudited)
(In thousands)
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Operating Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Electric revenues |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Gas revenues |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total Operating Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Operating Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Fuel for electric generation |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Purchased power |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cost of gas sold |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other operations and maintenance |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other general taxes |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total Operating Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Operating Income |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other income, net |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest expense, net |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Income before income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Income tax provision |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Net Income |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Less: Net Income Attributable to Noncontrolling |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Net Income Attributable to MGE |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
The accompanying notes are an integral part of the above unaudited consolidated financial statements.
10
Madison Gas and Electric Company
Consolidated Statements of Cash Flows (unaudited)
(In thousands)
|
|
Nine Months Ended |
|
|||||
|
|
September 30, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
Operating Activities: |
|
|
|
|
|
|
||
Net income |
|
$ |
|
|
$ |
|
||
Items not affecting cash: |
|
|
|
|
|
|
||
Depreciation and amortization |
|
|
|
|
|
|
||
Deferred income taxes |
|
|
|
|
|
|
||
Provision for doubtful receivables |
|
|
|
|
|
|
||
Employee benefit plan cost (credit) |
|
|
( |
) |
|
|
( |
) |
Other items |
|
|
( |
) |
|
|
|
|
Changes in working capital items: |
|
|
|
|
|
|
||
Increase in current assets |
|
|
( |
) |
|
|
( |
) |
(Decrease) increase in current liabilities |
|
|
( |
) |
|
|
|
|
Cash contributions to pension and other postretirement plans |
|
|
( |
) |
|
|
( |
) |
Other noncurrent items, net |
|
|
( |
) |
|
|
|
|
Cash Provided by Operating Activities |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Investing Activities: |
|
|
|
|
|
|
||
Capital expenditures |
|
|
( |
) |
|
|
( |
) |
Other |
|
|
( |
) |
|
|
( |
) |
Cash Used for Investing Activities |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
||
Financing Activities: |
|
|
|
|
|
|
||
Cash dividends paid to parent by MGE |
|
|
( |
) |
|
|
|
|
Distributions to parent from noncontrolling interest |
|
|
( |
) |
|
|
( |
) |
Repayments of long-term debt |
|
|
( |
) |
|
|
( |
) |
Issuance of long-term debt |
|
|
|
|
|
|
||
Proceeds from (repayments of) short-term debt |
|
|
|
|
|
( |
) |
|
Other |
|
|
( |
) |
|
|
( |
) |
Cash (Used for) Provided by Financing Activities |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
||
Change in cash, cash equivalents, and restricted cash |
|
|
( |
) |
|
|
|
|
Cash, cash equivalents, and restricted cash at beginning of period |
|
|
|
|
|
|
||
Cash, cash equivalents, and restricted cash at end of period |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Supplemental disclosures of cash flow information: |
|
|
|
|
|
|
||
Significant noncash investing activities: |
|
|
|
|
|
|
||
Accrued capital expenditures |
|
$ |
|
|
$ |
|
||
The accompanying notes are an integral part of the above unaudited consolidated financial statements.
11
Madison Gas and Electric Company
Consolidated Balance Sheets (unaudited)
(In thousands)
|
|
September 30, |
|
|
December 31, |
|
||
ASSETS |
|
2022 |
|
|
2021 |
|
||
Current Assets: |
|
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
||
Accounts receivable, less reserves of $ |
|
|
|
|
|
|
||
Affiliate receivables |
|
|
|
|
|
|
||
Other accounts receivable, less reserves of $ |
|
|
|
|
|
|
||
Unbilled revenues |
|
|
|
|
|
|
||
Materials and supplies, at average cost |
|
|
|
|
|
|
||
Fuel for electric generation, at average cost |
|
|
|
|
|
|
||
Stored natural gas, at average cost |
|
|
|
|
|
|
||
Prepaid taxes |
|
|
|
|
|
|
||
Regulatory assets - current |
|
|
|
|
|
|
||
Other current assets |
|
|
|
|
|
|
||
Total Current Assets |
|
|
|
|
|
|
||
Affiliate receivable long-term |
|
|
|
|
|
|
||
Regulatory assets |
|
|
|
|
|
|
||
Pension benefit asset |
|
|
|
|
|
|
||
Other deferred assets and other |
|
|
|
|
|
|
||
Property, Plant, and Equipment: |
|
|
|
|
|
|
||
Property, plant, and equipment, net |
|
|
|
|
|
|
||
Construction work in progress |
|
|
|
|
|
|
||
Total Property, Plant, and Equipment |
|
|
|
|
|
|
||
Investments |
|
|
|
|
|
|
||
Total Assets |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
LIABILITIES AND CAPITALIZATION |
|
|
|
|
|
|
||
Current Liabilities: |
|
|
|
|
|
|
||
Long-term debt due within one year |
|
$ |
|
|
$ |
|
||
Short-term debt |
|
|
|
|
|
|
||
Accounts payable |
|
|
|
|
|
|
||
Accrued interest and taxes |
|
|
|
|
|
|
||
Accrued payroll related items |
|
|
|
|
|
|
||
Regulatory liabilities - current |
|
|
|
|
|
|
||
Derivative liabilities |
|
|
|
|
|
|
||
Other current liabilities |
|
|
|
|
|
|
||
Total Current Liabilities |
|
|
|
|
|
|
||
Other Credits: |
|
|
|
|
|
|
||
Deferred income taxes |
|
|
|
|
|
|
||
Investment tax credit - deferred |
|
|
|
|
|
|
||
Regulatory liabilities |
|
|
|
|
|
|
||
Accrued pension and other postretirement benefits |
|
|
|
|
|
|
||
Finance lease liabilities |
|
|
|
|
|
|
||
Other deferred liabilities and other |
|
|
|
|
|
|
||
Total Other Credits |
|
|
|
|
|
|
||
Capitalization: |
|
|
|
|
|
|
||
Common shareholder's equity |
|
|
|
|
|
|
||
Noncontrolling interest |
|
|
|
|
|
|
||
Total Equity |
|
|
|
|
|
|
||
Long-term debt |
|
|
|
|
|
|
||
Total Capitalization |
|
|
|
|
|
|
||
|
|
|
|
|
|
|||
Total Liabilities and Capitalization |
|
$ |
|
|
$ |
|
||
The accompanying notes are an integral part of the above unaudited consolidated financial statements.
12
Madison Gas and Electric Company
Consolidated Statements of Equity (unaudited)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|||||||
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
Other |
|
|
Non- |
|
|
|
|
|||||||
|
|
Common Stock |
|
|
Paid-in |
|
|
Retained |
|
|
Comprehensive |
|
|
Controlling |
|
|
|
|
||||||||||
|
|
Shares |
|
|
Value |
|
|
Capital |
|
|
Earnings |
|
|
Income/(Loss) |
|
|
Interest |
|
|
Total |
|
|||||||
Three Months Ended September 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Beginning balance |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Distributions to parent from |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|||||
Ending Balance - September 30, 2021 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Three Months Ended September 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Beginning balance |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Cash dividends paid to parent by MGE |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|||||
Distributions to parent from |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|||||
Ending Balance - September 30, 2022 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Nine Months Ended September 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Beginning balance |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Distributions to parent from |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|||||
Ending Balance - September 30, 2021 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Nine Months Ended September 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Beginning balance |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Cash dividends paid to parent by MGE |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|||||
Distributions to parent from |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|||||
Ending Balance - September 30, 2022 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
The accompanying notes are an integral part of the above unaudited consolidated financial statements.
13
MGE Energy, Inc., and Madison Gas and Electric Company
Notes to Consolidated Financial Statements (unaudited)
September 30, 2022
This report is a combined report of MGE Energy and MGE. References in this report to "MGE Energy" are to MGE Energy, Inc. and its subsidiaries. References in this report to "MGE" are to Madison Gas and Electric Company.
The accompanying consolidated financial statements as of September 30, 2022, and during the three and nine months ended, are unaudited but include all adjustments that MGE Energy and MGE management consider necessary for a fair statement of their respective financial statements. All adjustments are of a normal, recurring nature except as otherwise disclosed. The year-end consolidated balance sheet information was derived from the audited balance sheet appearing in the 2021 Annual Report on Form 10-K but does not include all disclosures required by accounting principles generally accepted in the United States of America. These notes should be read in conjunction with the financial statements and the notes on pages 61 through 115 of the 2021 Annual Report on Form 10-K.
The following table presents the components of total cash, cash equivalents, and restricted cash on the consolidated balance sheets.
|
|
MGE Energy |
|
MGE |
||||||||
|
|
September 30, |
|
December 31, |
|
September 30, |
|
December 31, |
||||
(In thousands) |
|
2022 |
|
2021 |
|
2022 |
|
2021 |
||||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
Restricted cash |
|
|
|
|
|
|
|
|
|
|
|
|
Receivable - margin account |
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents, and restricted cash |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
Cash Equivalents
All highly liquid investments purchased with an original maturity of three months or less are considered to be cash equivalents.
Restricted Cash
MGE has certain cash accounts that are restricted to uses other than current operations and designated for a specific purpose. MGE's restricted cash accounts include cash held by trustees for certain employee benefits and cash deposits held by third parties. These are included in "Other current assets" on the consolidated balance sheets.
Receivable – Margin Account
Cash amounts held by counterparties as margin collateral for certain financial transactions are recorded as Receivable – margin account in "Other current assets" on the consolidated balance sheets. The costs being hedged are fuel for electric generation, purchased power, and cost of gas sold.
14
Columbia.
An asset that will be retired in the near future and substantially in advance of its previously expected retirement date is subject to abandonment accounting. In the second quarter of 2021, the operator of Columbia received approval from MISO to retire Columbia Units 1 and 2. The co-owners initially intended to retire Unit 1 by the end of 2023 and Unit 2 by the end of 2024. In June 2022, the target retirement date for both Units was updated to June 2026 after consideration by the owners of supply chain disruptions impacting the completion dates of current and planned renewable generation projects and the impact of those delays upon energy supply availability, reliability and cost. The postponement is not expected to affect MGE's goal to achieve 80% carbon reduction by 2030. Final timing and retirement dates are subject to change depending on operational, regulatory, and other factors. As of September 30, 2022, early retirement of Columbia was probable.
The net book value of our ownership share of this generating unit was $
If it becomes probable that regulators will disallow full recovery or a return on the remaining net book value of a generating unit that is either abandoned or probable of being abandoned, an impairment loss would be required. An impairment loss would be recorded to the extent that the remaining net book value of the generating unit exceeds the present value of the amount expected to be recovered from ratepayers.
MGE Energy and MGE reviewed FASB authoritative guidance recently issued, none of which are expected to have a material impact on their consolidated results of operations, financial condition, or cash flows.
ATC owns and operates electric transmission facilities primarily in Wisconsin. MGE received an interest in ATC when it, like other Wisconsin electric utilities, contributed its electric transmission facilities to ATC as required by Wisconsin law. That interest is presently held by MGE Transco, a subsidiary of MGE Energy. ATC Holdco was formed by several members of ATC, including MGE Energy, to pursue electric transmission development and investments outside of Wisconsin. The ownership interest in ATC Holdco is held by MGEE Transco, a subsidiary of MGE Energy.
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||
(In thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Equity earnings from investment in ATC |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Dividends received from ATC |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Capital contributions to ATC |
|
|
|
|
|
|
|
|
|
|
|
|
||||
ATC Holdco was formed in December 2016. ATC Holdco's transmission development activities have been suspended for the near term.
15
In October 2022, MGE Transco made a $
ATC's summarized financial data is as follows:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||
(In thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Operating revenues |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Operating expenses |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Other income, net |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest expense, net |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Earnings before members' income taxes |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
MGE receives transmission and other related services from ATC. During the three and nine months ended September 30, 2022, MGE recorded $
Effective Tax Rate.
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 |
||||||||||||||||
Three Months Ended September 30, |
|
2022 |
|
2021 |
|
2022 |
|
2021 |
||||||||||||
Statutory federal income tax rate |
|
|
|
% |
|
|
|
% |
|
|
|
% |
|
|
|
% |
||||
State income taxes, net of federal benefit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Amortized investment tax credits |
|
|
( |
) |
|
|
|
( |
) |
|
|
|
( |
) |
|
|
|
( |
) |
|
Credit for electricity from wind energy |
|
|
( |
) |
|
|
|
( |
) |
|
|
|
( |
) |
|
|
|
( |
) |
|
AFUDC equity, net |
|
|
( |
) |
|
|
|
( |
) |
|
|
|
( |
) |
|
|
|
( |
) |
|
Amortization of utility excess deferred tax - tax reform(a) |
|
|
( |
) |
|
|
|
( |
) |
|
|
|
( |
) |
|
|
|
( |
) |
|
Other, net, individually insignificant |
|
|
( |
) |
|
|
|
( |
) |
|
|
|
( |
) |
|
|
|
( |
) |
|
Effective income tax rate |
|
|
|
% |
|
|
|
% |
|
|
|
% |
|
|
|
% |
||||
|
|
MGE Energy |
|
MGE |
||||||||||||||||
Nine Months Ended September 30, |
|
2022 |
|
2021 |
|
2022 |
|
2021 |
||||||||||||
Statutory federal income tax rate |
|
|
|
% |
|
|
|
% |
|
|
|
% |
|
|
|
% |
||||
State income taxes, net of federal benefit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Amortized investment tax credits |
|
|
( |
) |
|
|
|
( |
) |
|
|
|
( |
) |
|
|
|
( |
) |
|
Credit for electricity from wind energy |
|
|
( |
) |
|
|
|
( |
) |
|
|
|
( |
) |
|
|
|
( |
) |
|
AFUDC equity, net |
|
|
( |
) |
|
|
|
( |
) |
|
|
|
( |
) |
|
|
|
( |
) |
|
Amortization of utility excess deferred tax - tax reform(a) |
|
|
( |
) |
|
|
|
( |
) |
|
|
|
( |
) |
|
|
|
( |
) |
|
Other, net, individually insignificant |
|
|
( |
) |
|
|
|
( |
) |
|
|
|
( |
) |
|
|
|
|
|
|
Effective income tax rate |
|
|
|
% |
|
|
|
% |
|
|
|
% |
|
|
|
% |
||||
16
MGE maintains qualified and nonqualified pension plans, health care, and life insurance benefits and defined contribution 401(k) benefit plans for its employees and retirees.
The components of net periodic benefit cost, other than the service cost component, are recorded in "Other income, net" on the consolidated statements of income. The service cost component is recorded in "Other operations and maintenance" on the consolidated statements of income. MGE has regulatory treatment and recognizes regulatory assets or liabilities for timing differences between when net periodic benefit costs are recovered and when costs are recognized.
The following table presents the components of net periodic benefit costs recognized.
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||
(In thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Pension Benefits |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Components of net periodic benefit cost: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Service cost |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Interest cost |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Expected return on assets |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Amortization of: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Prior service credit |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Actuarial loss |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net periodic benefit (credit) cost |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Postretirement Benefits |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Components of net periodic benefit cost: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Service cost |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Interest cost |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Expected return on assets |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Amortization of: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Transition obligation |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Prior service credit |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Actuarial loss |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net periodic benefit (credit) cost |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
As approved by the PSCW, MGE is allowed to defer differences between actual employee benefit plan costs and costs reflected in current rates. The deferred costs may be recovered or refunded in MGE's next rate filing. During the three and nine months ended September 30, 2022, MGE recovered $
During the three and nine months ended September 30, 2022, MGE deferred and recorded as a regulatory liability $
17
During the three and nine months ended September 30, 2022 and 2021, MGE Energy issued
As of September 30, 2022,
On November 1, 2022, MGE entered into a private placement Note Purchase Agreement in which it committed to issue $
During the three and nine months ended September 30, 2022, MGE recorded $
In January 2022, cash payments of $
In February 2022, MGE issued
MGE recognizes stock-based compensation expense on a straight-line basis over the requisite service period. Awards classified as equity awards are measured based on their grant-date fair value. Awards classified as liability awards are recorded at fair value each reporting period. The performance units can be paid out in either cash, shares of common stock or a combination of cash and stock and are classified as a liability award. The restricted stock units will be paid out in shares of common stock, and therefore are classified as equity awards.
In February 2021, MGE and the other co-owners of Columbia announced plans to retire that facility. The co-owners intend to retire Unit 1 and Unit 2 by June 2026. Final timing and retirement dates are subject to change depending on operational, regulatory, and other factors. Effects of environmental compliance requirements discussed below will depend upon the final retirement dates approved and compliance requirement dates.
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 operations are conducted, the costs of operations, as well as capital and operating expenditures. Several of these environmental rules are subject to legal challenges, reconsideration and/or other uncertainties. Regulatory initiatives, proposed rules, and court challenges to adopted rules could have a material
18
effect on capital expenditures and operating costs. Management believes compliance costs will be recovered in future rates based on previous treatment of environmental compliance projects.
These initiatives, proposed rules, and court challenges include:
In July 2021, the PSCW approved a Certificate of Authority (CA) application filed by MGE and the other owners of Columbia. The CA application commits to close Columbia's wet pond system (as described in further detail in the CCR section below). By committing to close the wet pond system, Columbia will be in compliance with ELG requirements.
The Elm Road Units must satisfy the ELG rule's requirements no later than December 2023, as determined by the permitting authority. In December 2021, the PSCW approved a CA application for installation of additional wastewater treatment equipment to comply with the ELG Rule. MGE's share of the costs to comply with the rule is estimated to be approximately $
Blount's WPDES permit assumes that the plant meets BTA standards for the duration of the permit, which expires in 2023. Before the next permit renewal, MGE is required to complete an entrainment study and recommend a BTA along with alternative technologies considered. MGE completed the entrainment study in 2021 and submitted the results to the WDNR. The WDNR will make the final BTA determination and include any BTA requirements in Blount's next permit renewal, which is expected to be completed by the end of 2022 and effective in 2023. Management believes that the BTA determination at Blount will not be material for MGE.
Columbia's river intakes are subject to this rule. Columbia's operator received a permit in 2019 requiring studies of intake structures to be submitted to the WDNR by November 2023 to help determine BTA. BTA improvements may not be required given that the owners are planning to retire both units by June of 2026. MGE will continue to work with Columbia's operator to evaluate all regulatory requirements applicable to the planned retirements.
MGE does not expect this rule to have a material effect on its existing plants.
In October 2021, as part of the Biden administration's Unified Agenda, the EPA announced its intention to issue a new rule to reduce greenhouse gas emissions from existing fossil fuel-fired EGUs. In June 2022, the U.S. Supreme Court held that the Clean Air Act does not authorize the EPA to regulate GHG emissions using generation shifting (e.g., shifting from coal to natural gas and/or renewable generation sources). MGE will continue to evaluate greenhouse gas rule developments, including any new EPA actions towards rule development, and any further court decisions on the EPA's authority to regulate greenhouse gases.
19
The Elm Road Units are located in Milwaukee County, Wisconsin, a nonattainment area. In October 2022, the EPA reclassified Milwaukee County from "marginal" to "moderate" nonattainment under the 2015 ozone NAAQS. The Wisconsin Department of Natural Resources (WDNR) must develop a State Implementation Plan (SIP) for the area, and this reclassification will result in more stringent SIP requirements for both constructing new development and modifying or expanding existing plants in the area. The deadline for moderate classified areas to meet attainment standards is August 2024. MGE will continue to monitor the WDNR's SIP development and the extent to which the requirements will impact the Elm Road Units. At this time, the operator of the Elm Road Units does not expect that the 2015 Ozone NAAQS will have a material effect on its existing plants based on final designations.
The EPA's CSAPR and its progeny are a suite of interstate air pollution transport rules designed to reduce ozone and fine particulate (PM2.5) ambient air levels in areas that the EPA has determined as being significantly impacted by pollution from upwind states. This is accomplished in the CSAPR through a reduction in SO2 and NOx from qualifying fossil-fuel fired power plants in upwind "contributing" states. NOx and SO2 contribute to fine particulate pollution and NOx contributes to ozone formation in downwind areas. Reductions are generally achieved through a cap-and-trade system. Individual plants can meet their caps through reducing emissions and/or buying allowances on the market.
In April 2022, the EPA published a proposed Federal Implementation Plan (FIP) to address state obligations under the Clean Air Act "good neighbor" provisions for the 2015 Ozone NAAQS. This proposed rule impacts 26 states, including Wisconsin, and is designed to both revise the current NOx CSAPR ozone season cap-and-trade obligations for fossil-fuel generated power plants and add NOx limitations for certain industries in specified states. For Wisconsin, the proposed rule includes revisions to the current obligations for fossil-fuel power generation as well as the new limitations for certain industries.
If finalized, the proposed rule would be effective beginning with the 2023 ozone season and start with emissions budgets that can be achieved with what the EPA has defined as immediately available measures, including consistently operating emissions controls already installed at power plants. In 2026, additional obligations would go into effect, including potential daily emissions limits and technology upgrades to coal-fired power plants without existing emission controls. Wisconsin would need to submit a SIP to meet its obligations or accept the EPA's proposed FIP.
MGE has met its current CSAPR obligations through a combination of reduced emissions through pollution control (e.g., SCR installation at Columbia), and owned, received, and purchased allowances. MGE expects the rule, if finalized as written, to impact our fossil-fueled generation assets. However, we will not know the impact of this rule with any certainty until it is finalized. We will continue to monitor rule developments.
The CCR rule regulates as a solid waste coal ash from burning coal for the purpose of generating electricity and defines what ash use activities would be considered generally exempt beneficial reuse of coal ash. The CCR rule also regulates landfills, ash ponds, and other surface impoundments used for coal combustion residuals by regulating their design, location, monitoring, and operation. The CCR rule requires owners or operators of coal-fired power plants to stop transporting CCR and non-CCR wastewater to unlined surface impoundments. In addition, regulated entities must initiate impoundment closure as soon as feasible and in no event later than April 2021, unless the EPA grants an extension. A site-specific extension to initiate closure of the primary ash pond at Columbia by December 31, 2022 was requested. The EPA has not formally approved the extension.
20
In July 2021, the PSCW approved a CA application filed by MGE and the other owners of Columbia to install technology required to cease bottom ash transport water discharges rather than extend the longevity of the ash ponds. Construction of the coal combustion residuals system that will replace the unlined surface impoundment is undergoing final testing. Construction is expected to be completed by the end of 2022. MGE's share of the costs of the project is expected to be approximately $
Review of the Elm Road Units has indicated that the costs to comply with the CCR rule are not expected to be significant.
MGE is involved in various legal matters that are being defended and handled in the normal course of business. MGE accrues for 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.
Certain environmental groups filed petitions against the PSCW regarding MGE's two most recent rate settlements. MGE has intervened in the petitions in cooperation with the PSCW. See Footnote 9.a. for more information regarding this matter.
MGE Energy and MGE have entered into various commodity supply, transportation, and storage contracts to meet their obligations to deliver electricity and natural gas to customers. Management expects to recover these costs in future customer rates.
(In thousands) |
|
2022 |
|
|
2023 |
|
|
2024 |
|
|
2025 |
|
|
2026 |
|
|
Thereafter |
|
||||||
Coal(a) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Natural gas |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Transportation and storage(b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Supply(c) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Renewable energy(d) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
21
|
|
Rate increase |
|
Return on Common Equity |
|
Common Equity Component of Regulatory Capital Structure |
|
Effective Date |
Approved 2021 settlement(a) |
|
|
|
|
|
|
|
|
Electric |
|
|
|
|
1/1/2021 |
|||
Gas |
|
|
|
|
1/1/2021 |
|||
Approved 2022/2023 settlement(b) |
|
|
|
|
|
|
|
|
Electric |
|
|
|
|
1/1/2022 |
|||
Gas |
|
|
|
|
1/1/2022 |
|||
Gas |
|
|
|
|
1/1/2023 |
|||
Proposed limited 2023 reopener(c) |
|
|
|
|
|
|
|
|
Electric |
|
|
|
|
1/1/2023 |
Sierra Club and Vote Solar have filed petitions with the Dane County Circuit Court seeking review of the PSCW decision approving MGE's two most recent rate settlements (2021 and 2022/2023). The PSCW is named as the responding party; MGE is not named as a party. The petitions challenge the process the PSCW used to approve the portion of the settlements relating to electric rates and the electric customer fixed charge that does not vary with usage. The requested relief is unclear. The revenue requirement approved by the PSCW in the settlements have not been challenged. The PSCW is expected to vigorously defend its approval of the rate case settlements. MGE has intervened in the proceedings to further defend the PSCW's decision.
Fuel rules require Wisconsin utilities to defer electric fuel-related costs that fall outside a symmetrical cost tolerance band around the amount approved for a utility in its annual fuel proceedings. Any over- or under-recovery of the actual costs is determined in the following year and is then reflected in future billings to electric retail customers. The fuel rules bandwidth is set at plus or minus
22
|
|
Fuel Costs (in millions) |
|
Refund or Recovery Period |
2019 deferred fuel savings |
|
$( |
|
January 2021 through December 2021 |
2020 deferred fuel savings |
|
$( |
|
October 2021 |
2021 deferred fuel costs |
|
|
January 2023 through December 2023(b) |
|
2022 deferred fuel costs |
|
$ |
|
(c) |
The gross notional volume of open derivatives is as follows:
|
|
September 30, 2022 |
|
December 31, 2021 |
||||||||
Commodity derivative contracts |
|
|
|
|
MWh |
|
|
|
|
MWh |
||
Commodity derivative contracts |
|
|
|
|
Dth |
|
|
|
|
Dth |
||
FTRs |
|
|
|
|
MW |
|
|
|
|
MW |
||
PPA |
|
|
|
|
MW |
|
|
|
|
MW |
||
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 financial transmission rights (FTRs). An FTR is a financial instrument that entitles the holder to a stream of revenues or charges based on the differences in hourly day-ahead energy prices between two points on the transmission grid. The fair values of these instruments are offset with a corresponding regulatory asset/liability 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 the delivery month applicable to the instrument. As of September 30, 2022, and December 31, 2021, the fair value of exchange traded derivatives and FTRs exceeded their cost basis by $
MGE was a party to a purchased power agreement that provided MGE with firm capacity and energy during a base term from June 1, 2012, through May 31, 2022. The agreement was accounted for as a derivative contract and was recognized at its fair value on the consolidated balance sheets. However,
23
the derivative qualified for regulatory deferral and was recognized with a corresponding regulatory asset or liability depending on whether the fair value was in a loss or gain position. The actual cost was recognized in purchased power expense in the month of purchase.
The following table summarizes the fair value of the derivative instruments on the consolidated balance sheets.
|
|
Derivative |
|
|
Derivative |
|
|
|
||
(In thousands) |
|
Assets |
|
|
Liabilities |
|
|
Balance Sheet Location |
||
September 30, 2022 |
|
|
|
|
|
|
|
|
||
Commodity derivative contracts(a) |
|
$ |
|
|
$ |
|
|
Other current assets |
||
Commodity derivative contracts(a) |
|
|
|
|
|
|
|
Other deferred charges |
||
FTRs |
|
|
|
|
|
|
|
Other current assets |
||
|
|
|
|
|
|
|
|
|
||
December 31, 2021 |
|
|
|
|
|
|
|
|
||
Commodity derivative contracts(b) |
|
$ |
|
|
$ |
|
|
Other current assets |
||
Commodity derivative contracts(b) |
|
|
|
|
|
|
|
Other deferred charges |
||
FTRs |
|
|
|
|
|
|
|
Other current assets |
||
PPA |
|
N/A |
|
|
|
|
|
Derivative liability (current) |
||
The following tables show the effect of netting arrangements for recognized derivative assets and liabilities that are subject to a master netting arrangement 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 |
|
||||
September 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Commodity derivative contracts |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||
FTRs |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
December 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Commodity derivative contracts |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
||
FTRs |
|
|
|
|
|
|
|
|
|
|
|
|
||||
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 |
|
||||
September 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Commodity derivative contracts |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
December 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Commodity derivative contracts |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||
PPA |
|
|
|
|
|
|
|
|
|
|
|
|
||||
24
The following tables summarize the unrealized and realized gains/losses related to the derivative instruments on the consolidated balance sheets and the consolidated statements of income.
|
|
2022 |
|
|
2021 |
|
||||||||||
(In thousands) |
|
Current and Long-Term Regulatory Asset (Liability) |
|
|
Other Current Assets |
|
|
Current and Long-Term Regulatory Asset (Liability) |
|
|
Other Current Assets |
|
||||
Three Months Ended September 30: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Balance as of July 1, |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
||
Unrealized gain |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Realized gain (loss) reclassified to a deferred account |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Realized gain reclassified to income statement |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Balance as of September 30, |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Nine Months Ended September 30: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Balance as of January 1, |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Unrealized gain |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Realized gain (loss) reclassified to a deferred account |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
||
Realized gain (loss) reclassified to income statement |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|||
Balance as of September 30, |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
|
|
Realized Losses (Gains) |
|
|||||||||||||
|
|
2022 |
|
|
2021 |
|
||||||||||
(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 September 30: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Commodity derivative contracts |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
FTRs |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
PPA |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Nine Months Ended September 30: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Commodity derivative contracts |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
FTRs |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
PPA |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
MGE's commodity derivative 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 sheets and are recognized in earnings in the delivery month applicable to the instrument. As a result of the treatment described above, there are no unrealized gains or losses that flow through earnings.
Certain counterparties extend MGE a credit limit. If MGE exceeds these limits, the counterparties may require collateral to be posted. As of September 30, 2022, and December 31, 2021,
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 ongoing basis to mitigate nonperformance risk in its portfolio. As of September 30, 2022,
Fair value is defined as the price that would be received to sell an asset or would be paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. The accounting standard clarifies that
25
fair value should be based on the assumptions market participants would use when pricing the asset or liability including assumptions about risk. The standard also establishes a three-level fair value hierarchy based upon the observability of the assumptions used and requires the use of observable market data when available. The levels are:
Level 1 - Pricing inputs are quoted prices within active markets for identical assets or liabilities.
Level 2 - Pricing inputs are quoted prices within active markets for similar assets or liabilities; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations that are correlated with or otherwise verifiable by observable market data.
Level 3 - Pricing inputs are unobservable and reflect management's best estimate of what market participants would use in pricing the asset or liability.
|
|
September 30, 2022 |
|
|
December 31, 2021 |
|
||||||||||
(In thousands) |
|
Carrying Amount |
|
|
Fair Value |
|
|
Carrying Amount |
|
|
Fair Value |
|
||||
Long-term debt(a) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
The following table presents the balances of assets and liabilities measured at fair value on a recurring basis.
|
|
Fair Value as of September 30, 2022 |
|
|||||||||||||
(In thousands) |
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
MGE Energy |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Derivatives, net(b) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Exchange-traded investments |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total Assets |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Derivatives, net(b) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Deferred compensation |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total Liabilities |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
MGE |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Derivatives, net(b) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Exchange-traded investments |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total Assets |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Derivatives, net(b) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Deferred compensation |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total Liabilities |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
26
|
|
Fair Value as of December 31, 2021 |
|
|||||||||||||
(In thousands) |
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
MGE Energy |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Derivatives, net(c) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Exchange-traded investments |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total Assets |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Derivatives, net |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Deferred compensation |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total Liabilities |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
MGE |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Derivatives, net(c) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Exchange-traded investments |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total Assets |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Derivatives, net |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Deferred compensation |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total Liabilities |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Investments include exchange-traded investment securities valued using quoted prices on active exchanges and are therefore classified as Level 1.
The deferred compensation plan allows participants to defer certain cash compensation into a notional investment account. These amounts are included within other deferred liabilities in the consolidated balance sheets. The notional investments earn interest based upon the semiannual rate of U.S. Treasury Bills having a
Derivatives include exchange-traded derivative contracts, over-the-counter transactions, a purchased power agreement, and FTRs. Most exchange-traded derivative contracts are valued based on unadjusted quoted prices in active markets and are therefore classified as Level 1. A small number of exchange-traded derivative contracts are valued using quoted market pricing in markets with insufficient volumes and are therefore considered unobservable and classified as Level 3. Transactions done with an over-the-counter party are on inactive markets and are therefore classified as Level 3. These transactions are valued based on quoted prices from markets with similar exchange-traded transactions. FTRs are priced based upon monthly auction results for identical or similar instruments in a closed market with limited data available and are therefore classified as Level 3.
The purchased power agreement, with a term ended May 2022, (see Footnote 10) was valued using an internal pricing model and therefore was classified as Level 3. See the 2021 Annual Report on Form 10-K for details on the internal pricing model and significant unobservable inputs.
27
The following table summarizes the changes in Level 3 commodity derivative assets and liabilities measured at fair value on a recurring basis.
|
|
Three Months Ended |
|
Nine Months Ended |
||||||||
|
|
September 30, |
|
September 30, |
||||||||
(In thousands) |
|
2022 |
|
2021 |
|
2022 |
|
2021 |
||||
Beginning balance |
|
$ |
|
|
$ |
( |
|
$ |
|
|
$ |
( |
Realized and unrealized gains (losses): |
|
|
|
|
|
|
|
|
|
|
|
|
Included in regulatory liability |
|
|
( |
|
|
|
|
|
|
|
|
|
Included in other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
Included in earnings |
|
|
|
|
|
|
|
|
|
|
|
|
Included in current assets |
|
|
( |
|
|
|
|
|
|
|
|
|
Purchases |
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
|
|
|
|
|
|
|
|
|
|
|
Issuances |
|
|
|
|
|
|
|
|
|
|
|
|
Settlements |
|
|
( |
|
|
( |
|
|
( |
|
|
( |
Balance as of September 30, |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
Total gains (losses) included in earnings attributed to |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
The following table presents total realized and unrealized gains (losses) included in income for Level 3 assets and liabilities measured at fair value on a recurring basis(d).
|
|
Three Months Ended |
|
Nine Months Ended |
||||||||
|
|
September 30, |
|
September 30, |
||||||||
(In thousands) |
|
2022 |
|
2021 |
|
2022 |
|
2021 |
||||
Purchased power expense |
|
$ |
|
$ |
|
$ |
|
$ |
||||
Cost of gas sold expense |
|
|
( |
|
|
|
|
|
( |
|
|
( |
Total |
|
$ |
|
$ |
|
$ |
|
$ |
||||
MGE currently has ongoing jointly-owned solar generation construction projects, as shown in the following table. Incurred costs are reflected in "Construction work in progress" on the consolidated balance sheets.
|
|
Ownership |
|
Share of |
|
Share of |
|
Costs incurred |
|
Estimated Date of |
Project |
|
Interest |
|
Generation |
|
Estimated Costs(a) |
|
2022(a) |
|
Operation |
Red Barn(b) |
|
|
|
$ |
|
$ |
|
Early 2023 |
||
Badger Hollow II(c) |
|
|
|
$ |
|
$ |
|
First Half of 2023 |
||
Paris(d) |
|
|
|
$ |
|
$ |
|
2023(g) |
MGE received specific approval to recover
28
tax, in AFUDC for these projects compared to $
Revenues disaggregated by revenue source were as follows:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
(In thousands) |
|
September 30, |
|
|
September 30, |
|
||||||||||
Electric revenues |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Residential |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Commercial |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Industrial |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other-retail/municipal |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total retail |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Sales to the market |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total electric revenues |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Gas revenues |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Residential |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Commercial/Industrial |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total retail |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Gas transportation |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total gas revenues |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Non-regulated energy revenues |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total Operating Revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
29
MGE Energy operates in the following business segments: electric utility, gas utility, nonregulated energy, transmission investment, and all other. See the 2021 Annual Report on Form 10-K for additional discussion of each of these segments.
(In thousands) |
|
Electric |
|
|
Gas |
|
|
Non-Regulated Energy |
|
|
Transmission Investment |
|
|
All Others |
|
|
Consolidation/ |
|
|
Consolidated Total |
|
|||||||
Three Months Ended September 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Operating revenues |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||||||
Interdepartmental revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|||||
Total operating revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||||
Equity in earnings of investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Net income (loss) |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Three Months Ended September 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Operating revenues |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||||||
Interdepartmental revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|||||
Total operating revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||||
Equity in earnings of investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Net income (loss) |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Nine Months Ended September 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Operating revenues |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||||||
Interdepartmental revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|||||
Total operating revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||||
Equity in earnings of investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Nine Months Ended September 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Operating revenues |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||||||
Interdepartmental revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|||||
Total operating revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||||
Equity in earnings of investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Net income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
||||||
(In thousands) |
|
Electric |
|
|
Gas |
|
|
Non-Regulated Energy |
|
|
Consolidation/ |
|
|
Consolidated Total |
|
|||||
Three Months Ended September 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Operating revenues |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||||
Interdepartmental revenues |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|||
Total operating revenues |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||
Net income (loss) attributable to MGE |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Three Months Ended September 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Operating revenues |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||||
Interdepartmental revenues |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|||
Total operating revenues |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||
Net income (loss) attributable to MGE |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Nine Months Ended September 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Operating revenues |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||||
Interdepartmental revenues |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|||
Total operating revenues |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||
Net income attributable to MGE |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Nine Months Ended September 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Operating revenues |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||||
Interdepartmental revenues |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|||
Total operating revenues |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||
Net income attributable to MGE |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||
30
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
General
MGE Energy is an investor-owned public utility holding company operating through subsidiaries in five business segments:
Our principal subsidiary is MGE, which generates and distributes electric energy, distributes natural gas, and represents a majority portion of our assets, liabilities, revenues, and expenses. MGE generates, purchases, and distributes electricity to approximately 159,000 customers in Dane County, Wisconsin, including the city of Madison, and purchases and distributes natural gas to approximately 169,000 customers in the Wisconsin counties of Columbia, Crawford, Dane, Iowa, Juneau, Monroe, and Vernon.
Our nonregulated energy operations own interests in electric generating capacity that is leased to MGE. The ownership/leasing structure was adopted under applicable state regulatory guidelines for MGE's participation in these generation facilities, consisting principally of a stable return on the equity investment in the new generation facilities over the term of the related leases. The nonregulated energy operations include an ownership interest in two coal-fired generating units in Oak Creek, Wisconsin and a partial ownership of a cogeneration project on the UW-Madison campus. A third party operates the units in Oak Creek, and MGE operates the cogeneration project. Due to the nature of MGE's participation in these facilities, the results of MGE Energy's nonregulated operations are also consolidated into MGE's consolidated financial position and results of operations under applicable accounting standards.
Executive Overview
Our primary focus today and for the foreseeable future is our core utility customers at MGE as well as creating long-term value for our shareholders. MGE continues to face the challenge of providing its customers with reliable power at competitive prices. MGE works on meeting this challenge by investing in more efficient generation projects, including renewable energy sources. As we work toward achieving 80% carbon reduction by 2030 (from 2005 levels), MGE continues to examine and pursue opportunities to reduce the proportion that coal generation represents in its generation mix, as evidenced by its most recent announcements of the retirement of Columbia (a coal generation plant), the planned change in the Elm Road Units fuel source from coal to natural gas, and its growing ownership of renewable generation sources. MGE will continue to focus on growing earnings while controlling operating and fuel costs. MGE's goal is to provide safe and efficient operations in addition to providing customer value. We believe it is critical to maintain a strong credit rating consistent with financial strength in MGE in order to accomplish these goals.
We principally earn revenue and generate cash from operations by providing electric and natural gas utility services, including electric power generation and electric power and gas distribution. The earnings and cash flows from the utility business are sensitive to various external factors, including:
31
During the three months ended September 30, 2022, MGE Energy's earnings were $33.7 million or $0.93 per share compared to $34.9 million or $0.97 per share during the same period in the prior year. MGE's earnings during the three months ended September 30, 2022, were $27.2 million compared to $27.4 million during the same period in the prior year.
During the nine months ended September 30, 2022, MGE Energy's earnings were $89.9 million or $2.49 per share compared to $92.7 million or $2.56 per share during the same period in the prior year. MGE's earnings during the nine months ended September 30, 2022, were $68.5 million compared to $70.8 million during the same period in the prior year.
MGE Energy's net income was derived from our business segments as follows:
|
Three Months Ended |
|
Nine Months Ended |
||||||||
(In millions) |
September 30, |
|
September 30, |
||||||||
Business Segment: |
2022 |
|
2021 |
|
2022 |
|
2021 |
||||
Electric Utility |
$ |
27.6 |
|
$ |
27.8 |
|
$ |
55.2 |
|
$ |
60.0 |
Gas Utility |
|
(0.4) |
|
|
(0.2) |
|
|
12.8 |
|
|
11.6 |
Nonregulated Energy |
|
5.6 |
|
|
5.4 |
|
|
16.5 |
|
|
15.9 |
Transmission Investments |
|
1.1 |
|
|
1.8 |
|
|
4.8 |
|
|
5.4 |
All Other |
|
(0.2) |
|
|
0.1 |
|
|
0.6 |
|
|
(0.2) |
Net Income |
$ |
33.7 |
|
$ |
34.9 |
|
$ |
89.9 |
|
$ |
92.7 |
Our net income during the three and nine months ended September 30, 2022, compared to the same periods in the prior year primarily reflects the effects of the following factors:
Electric Utility
An increase in electric investments contributed to earnings for 2022. Timing of 2021 depreciation and other operations and maintenance costs contributed to higher earnings in 2021. Depreciation and operations and maintenance costs increased during the remainder of 2021 and into 2022 after significant capital projects were completed. The new customer information system went live in September 2021 and Badger Hollow I was completed in November 2021. MGE received approval to recover 100% AFUDC during construction of these projects.
Gas Utility
An increase in gas investments contributed to increased earnings for 2022. Higher gas retail sales resulting from colder weather in the first half of 2022 contributed to higher earnings for the nine months ended September 30, 2022. Heating degree days (a measure for determining the impact of weather during the heating season) increased by approximately 7% in the first nine months of 2022 compared to the same period in the prior year.
Transmission Investments
In September 2022, our share of ATC's earnings reflected an estimated possible loss of approximately $0.8 million, inclusive of interest and net of tax, related to the August 2022 developments in the MISO transmission owners complaints on authorized return on equity. See additional information in "Other Matters" below.
The following developments affected the first nine months of 2022:
2022/2023 Rate Settlement Agreement: In December 2021, the PSCW approved a settlement agreement for MGE's 2022 rate case. The settlement agreement provides for an 8.81% increase to electric rates and a 2.15% increase to gas rates for 2022. As part of that settlement agreement, the PSCW approved a 0.96% increase in 2023 gas rates and a potential 2023 electric rate change to be addressed through a limited rate case reopener. See "Other Matters" below for additional information on the 2022/2023 rate case settlement.
32
Utility Solar: Large solar generation projects were recently completed or are under construction, as shown in the following table. Incurred costs are reflected in "Property, plant, and equipment, net" for projects placed in service, or "Construction work in progress" for projects under construction on the consolidated balance sheets.
Project |
|
Ownership Interest |
|
Share of Generation |
|
Share of |
|
Costs Incurred as of |
|
Estimated Date of |
Red Barn |
|
10% |
|
9.16MW |
|
$18 million |
|
$0.6 million |
|
Early 2023 |
Badger Hollow II |
|
33% |
|
50 MW |
|
$76 million |
|
$46.8 million(b)(c) |
|
First Half of 2023 |
Paris |
|
10% |
|
31 MW |
|
$51 million |
|
$21.8 million(b) |
|
2023(d) |
Deferred Fuel Costs: MGE has under-recovered fuel costs through the nine months ended September 30, 2022. As of September 30, 2022, MGE had deferred $4.4 million of 2022 fuel costs. Coal transportation constraints resulted in reduced generation at Columbia, which required MGE to purchase power in the market at higher cost. We may continue to see increased fuel costs in the near term because of these coal transportation constraints. These costs will be subject to the PSCW's annual review of 2022 fuel costs, expected to be completed during 2023. See Footnote 9.b. of the Notes to Consolidated Financial Statements in this Report for further information regarding fuel cost proceedings.
In the near term, several items may affect us, including:
2021 Annual Fuel Proceeding: MGE under-recovered fuel costs in 2021. As of December 31, 2021, MGE had deferred $3.3 million of 2021 fuel costs. In August 2022, the PSCW issued a final decision in the 2021 fuel rules proceedings for MGE to include the recovery of these costs as part of the 2023 electric limited rate case reopener. There was no change to the costs to be recovered in the fuel rule proceedings from the amount MGE deferred in the previous year.
2023 Electric Limited Rate Case Reopener: In April 2022, MGE filed with the PSCW a proposed electric limited rate case reopener. The limited rate case reopener proposes a 4.38% increase to electric rates for 2023. See "Other Matters" below for additional information on the 2023 electric limited rate case reopener.
ATC Return on Equity: As discussed in "Other Matters" below, ATC's authorized ROE, which is used in calculating its rates and revenues, is the subject of a challenge before FERC. A decrease in ATC's ROE could result in lower equity earnings and distributions from ATC in the future. We derived approximately 5.1% and 5.7% of our net income during the nine months ended September 30, 2022 and 2021, respectively, from our investment in ATC.
Environmental Initiatives: There are proposed legislative rules and initiatives involving matters related to air emissions, water effluent, hazardous materials, and greenhouse gases, all of which affect generation plant capital expenditures and operating costs as well as future operational planning. Legislation and rulemaking addressing climate change and related matters could significantly affect the costs of owning and operating fossil-fueled generating plants. We would expect to seek and receive recovery of any such costs in rates. However, it is difficult to estimate the amount of such costs due to the uncertainty as to the timing and form of any legislation or rules, and the scope and time of the recovery of costs in rates, which may occur after those costs have been incurred and paid.
Future Generation – 80% carbon reduction target by 2030 (from 2005 levels): MGE has outlined initiatives to achieve our raised target.
33
Elm Road Units: In November 2021, MGE announced plans to end the use of coal as a primary fuel at the Elm Road Units and transition the plant to natural gas. MGE is a minority owner of Elm Road, owning 8.33%. The approximately 1,230 MW coal-fired plant is co-owned by WEC Energy Group, whose subsidiary serves as operator, and by WPPI Energy, Inc. Transition plans and costs will be subject to PSCW approval. MGE's remaining use of coal is expected to be further reduced as the Elm Road Units transition to natural gas. By the end of 2030, MGE expects coal to be used only as a backup fuel at the Elm Road Units. This transition will help MGE meet its 2030 carbon reduction goals. By 2035, MGE expects that the Elm Road Units will be fully transitioned away from coal, which will eliminate coal as an internal generation source for MGE.
Solar Procurement Disruptions – Import Regulations: In June 2021, the U.S. Customs and Border Protection (CBP) issued a Withhold Release Order (WRO) against silica-based products made by Hoshine Silicon Industry Co. Ltd., a company located in China's Xinjiang Uyghur Autonomous Region. As a result of this WRO, CBP is holding many solar panels imported into the United States until importers can prove that the panels do not contain materials originating from this region. The Uyghur Forced Labor Protection Act, a federal law that became effective on June 21, 2022, further established that all goods mined, produced, or manufactured wholly or in part in Xinjiang or by certain defined entities are prohibited from U.S. importation. MGE is currently assessing the potential impact of these disruptions on current and future solar projects which may result in an increase in costs or delays in construction timelines. In the event that such disruptions cause costs to exceed the levels approved for specific projects, we expect to file a notification with the PSCW and expect to request recovery of any increases in MGE’s next rate proceeding.
Solar Procurement Disruptions – Solar Tariff Investigation: In March 2022, the U.S. Department of Commerce (USDOC) announced a solar tariff investigation on solar panels from four Southeast Asian countries. This investigation could result in additional tariffs on solar panels. In June 2022, the USDOC issued a 24-month exemption from tariffs for solar panel and module imports from these four countries. MGE is currently assessing the potential impact of these disruptions on current and future solar projects which may result in an increase in costs or delays in construction timelines. In the event that such disruptions cause costs to exceed the levels approved for specific projects, we expect to file a notification with the PSCW and expect to request recovery of any increases in MGE’s next rate proceeding.
COVID-19 Update: MGE Energy continues to provide safe and reliable service to our customers despite the challenges presented by the COVID-19 and its variants. We have operated continuously throughout the pandemic and suffered no material disruptions in service or employment. We continue to monitor potential disruptions or constraints in materials and supplies from key suppliers and as well as macroeconomic trends, such as inflation. We could experience increased costs and delays in our ability to perform certain maintenance and capital project activities. We cannot estimate with any degree of certainty the actual impact of COVID-19 and associated governmental regulations may have on future results of operations, financial position, and liquidity. See Item 1A. "Risk Factors" "Pandemic virus or diseases, including COVID-19, could have a material adverse effect on our business, financial condition and liquidity" in our 2021 Annual Report on Form 10-K for a description of risk.
34
The following discussion is based on the business segments as discussed in Footnote 14 of the Notes to Consolidated Financial Statements in this Report.
Results of Operations
Three Months Ended September 30, 2022 and 2021
Electric sales and revenues
The following table compares MGE's electric revenues and electric kWh sales by customer class for each of the periods indicated:
|
|
Revenues |
|
Sales (kWh) |
||||||||||
|
|
Three Months Ended September 30, |
|
Three Months Ended September 30, |
||||||||||
(In thousands, except CDD) |
|
2022 |
|
2021 |
|
% Change |
|
2022 |
|
2021 |
|
% Change |
||
Residential |
|
$ |
45,154 |
|
$ |
44,398 |
|
1.7% |
|
252,457 |
|
263,833 |
|
(4.3)% |
Commercial |
|
|
65,468 |
|
|
60,996 |
|
7.3% |
|
495,135 |
|
500,434 |
|
(1.1)% |
Industrial |
|
|
3,912 |
|
|
3,380 |
|
15.7% |
|
41,304 |
|
42,400 |
|
(2.6)% |
Other-retail/municipal |
|
|
10,010 |
|
|
9,478 |
|
5.6% |
|
104,548 |
|
106,919 |
|
(2.2)% |
Total retail |
|
|
124,544 |
|
|
118,252 |
|
5.3% |
|
893,444 |
|
913,586 |
|
(2.2)% |
Sales to the market |
|
|
7,858 |
|
|
3,071 |
|
n.m.% |
|
48,632 |
|
67,536 |
|
(28.0)% |
Other |
|
|
474 |
|
|
316 |
|
50.0% |
|
— |
|
— |
|
—% |
Total |
|
$ |
132,876 |
|
$ |
121,639 |
|
9.2% |
|
942,076 |
|
981,122 |
|
(4.0)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cooling degree days (normal 500) |
|
|
|
|
|
|
|
|
|
507 |
|
511 |
|
(0.8)% |
n.m. not meaningful
Electric revenue increased $11.2 million during the three months ended September 30, 2022, compared to the same period in 2021, due to the following:
(In millions) |
|
|
|
|
Rate changes |
|
$ |
7.8 |
|
Sales to the market |
|
|
4.8 |
|
Revenue subject to refund, net |
|
|
0.4 |
|
Other |
|
|
0.4 |
|
Decrease in residential volume |
|
|
(1.6 |
) |
Net decrease in commercial, industrial and other-retail/municipal volume |
|
|
(0.6 |
) |
Total |
|
$ |
11.2 |
|
35
Electric fuel and purchased power
|
Three Months Ended September 30, |
|
||||||||||||
(In millions) |
2022 |
|
|
2021 |
|
|
$ Change |
|
||||||
Fuel for electric generation |
$ |
|
21.0 |
|
|
$ |
|
18.5 |
|
|
$ |
|
2.5 |
|
Purchased power |
|
|
9.6 |
|
|
|
|
8.6 |
|
|
|
|
1.0 |
|
The $2.5 million increase in fuel for electric generation was due to an approximately 29% increase in the average cost offset by an approximately 12% decrease in internal generation. Coal transportation constraints resulted in reduced generation at Columbia, which required MGE to purchase power in the market at higher cost.
The $1.0 million increase in purchased power was due to an approximately 40% increase in market purchases as a result of lower internal generation.
Fuel and purchased power costs are generally offset by electric revenue and do not have a significant impact on net income. MGE expects to seek and receive recovery of fuel and purchased power costs outside the fuel rules bandwidth in customer rates. See Footnote 9 of the Notes to Consolidated Financial Statements in this Report for further information on the fuel rules bandwidth.
Gas deliveries and revenues
The following table compares MGE's gas revenues and gas therms delivered by customer class for each of the periods indicated:
|
|
Revenues |
|
Therms Delivered |
||||||||||
(In thousands, except HDD and average |
|
Three Months Ended September 30, |
|
Three Months Ended September 30, |
||||||||||
rate per therm of retail customer) |
|
2022 |
|
2021 |
|
% Change |
|
2022 |
|
2021 |
|
% Change |
||
Residential |
|
$ |
17,167 |
|
$ |
14,643 |
|
17.2% |
|
6,166 |
|
5,987 |
|
3.0% |
Commercial/Industrial |
|
|
11,490 |
|
|
8,069 |
|
42.4% |
|
9,555 |
|
8,889 |
|
7.5% |
Total retail |
|
|
28,657 |
|
|
22,712 |
|
26.2% |
|
15,721 |
|
14,876 |
|
5.7% |
Gas transportation |
|
|
1,588 |
|
|
1,256 |
|
26.4% |
|
15,183 |
|
15,212 |
|
(0.2)% |
Other |
|
|
65 |
|
|
52 |
|
25.0% |
|
— |
|
— |
|
—% |
Total |
|
$ |
30,310 |
|
$ |
24,020 |
|
26.2% |
|
30,904 |
|
30,088 |
|
2.7% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Heating degree days (normal 134) |
|
|
|
|
|
|
|
|
|
135 |
|
50 |
|
170.0% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average rate per therm |
|
$ |
1.823 |
|
$ |
1.527 |
|
19.4% |
|
|
|
|
|
|
Gas revenue increased $6.3 million during the three months ended September 30, 2022, compared to the same period in 2021, due to the following:
(In millions) |
|
|
|
|
Rate changes |
|
$ |
3.9 |
|
Increase in volume |
|
|
2.0 |
|
Other |
|
|
0.4 |
|
Total |
|
$ |
6.3 |
|
MGE recovers the cost of natural gas in its gas segment through the purchased gas adjustment clause (PGA). Under the PGA, MGE is able to pass through to its gas customers the cost of gas. Changes in PGA recoveries
36
affect revenues but do not change net income in view of the pass-through treatment of the costs. Payments for natural gas increased driving higher rates during the three months ended September 30, 2022.
The average retail rate per therm for the three months ended 2022, increased approximately 19% compared to 2021, reflecting a $5.7 million increase in natural gas commodity costs (recovered through the PGA).
.
Cost of gas sold
A $5.7 million increase in cost of gas sold driven by higher cost per therm of gas. Average cost per therm increased approximately 62%. MGE recovers the cost of natural gas in its gas segment through the PGA as described under gas deliveries and revenue above.
Consolidated operations and maintenance expenses
During the three months ended September 30, 2022, operations and maintenance expenses increased $0.7 million, compared to the same period in the prior year. The following contributed to the net change:
(In millions) |
|
|
|
|
Increased customer accounts costs |
|
$ |
0.5 |
|
Increased electric production expenses |
|
|
0.4 |
|
Increased transmission costs |
|
|
0.3 |
|
Decreased other expenses |
|
|
(0.5 |
) |
Total |
|
$ |
0.7 |
|
Consolidated depreciation expense
Electric depreciation expense increased $1.7 million and gas depreciation expense increased $0.7 million during the three months ended September 30, 2022, compared to the same period in the prior year. MGE placed Badger Hollow I in service in November 2021. The timing of the in-service date contributed to the increase in electric depreciation expense. The new customer information system went live in September 2021, which increased depreciation expense for both electric and gas in 2022.
Nonregulated Energy Operations - MGE Energy and MGE
The nonregulated energy operations are conducted through MGE Energy's subsidiaries: MGE Power Elm Road (the Elm Road Units) and MGE Power West Campus (WCCF), which have been formed to own and lease electric generating capacity to assist MGE. During the three months ended September 30, 2022 and 2021, net income at the nonregulated energy operations segment was $5.6 million and $5.4 million, respectively.
Transmission Investment Operations - MGE Energy
The transmission investment segment holds our interest in ATC and ATC Holdco, and its income reflects our equity in the earnings of those investments. ATC Holdco was formed in December 2016 to pursue transmission development opportunities that typically have long development and investment lead times before becoming operational. ATC Holdco's transmission development activities have been suspended for the near term. During the three months ended September 30, 2022 and 2021, other income at the transmission investment segment primarily reflects ATC's operations and was $1.5 million and $2.5 million, respectively. In August 2022, the U.S. Court of Appeals for the D.C. Circuit vacated the underlying FERC orders regarding methodology for setting authorized return on equity resulting in an additional estimated possible loss. See Footnote 3 of the Notes to Consolidated Financial Statements in this Report and "Other Matters" below for additional information concerning ATC and summarized financial information regarding ATC.
37
Consolidated Income Taxes - MGE Energy and MGE
In 2022, the effective electric tax rate increased as a result of the return of electric excess deferred taxes related to the 2017 Tax Act not governed by IRS normalization rules in 2021. These costs were recorded as a regulatory liability in the year of remeasurement. See Footnote 4 of the Notes to Consolidated Financial Statements in this Report for the effective tax rate reconciliation.
Noncontrolling Interest, Net of Tax - MGE
Noncontrolling interest, net of tax, reflects the accounting required for MGE Energy's interest in MGE Power Elm Road (the Elm Road Units) and MGE Power West Campus (WCCF). MGE Energy owns 100% of MGE Power Elm Road and MGE Power West Campus. They are not owned by MGE. Due to the contractual agreements for these projects with MGE, the entities are considered VIEs with respect to MGE and their results are consolidated with those of MGE, the primary beneficiary of the VIEs. The following table shows MGE Energy's noncontrolling interest, net of tax, reflected on MGE's consolidated statement of income:
|
|
Three Months Ended |
|
|||||
|
|
September 30, |
|
|||||
(In millions) |
|
2022 |
|
|
2021 |
|
||
MGE Power Elm Road |
|
$ |
3.8 |
|
|
$ |
3.8 |
|
MGE Power West Campus |
|
|
1.8 |
|
|
|
1.8 |
|
Nine Months Ended September 30, 2022 and 2021
Electric sales and revenues
The following table compares MGE's electric revenues and electric kWh sales by customer class for each of the periods indicated:
|
|
|
Revenues |
|
Sales (kWh) |
|||||||||
|
|
|
Nine Months Ended September 30, |
|
Nine Months Ended September 30, |
|||||||||
(In thousands, except CDD) |
|
|
2022 |
|
|
2021 |
|
% Change |
|
2022 |
|
2021 |
|
% Change |
Residential |
|
$ |
123,183 |
|
$ |
117,229 |
|
5.1% |
|
679,308 |
|
693,739 |
|
(2.1)% |
Commercial |
|
|
177,877 |
|
|
161,270 |
|
10.3% |
|
1,368,060 |
|
1,352,091 |
|
1.2% |
Industrial |
|
|
10,535 |
|
|
9,469 |
|
11.3% |
|
120,827 |
|
122,493 |
|
(1.4)% |
Other-retail/municipal |
|
|
28,215 |
|
|
26,340 |
|
7.1% |
|
276,843 |
|
276,950 |
|
—% |
Total retail |
|
|
339,810 |
|
|
314,308 |
|
8.1% |
|
2,445,038 |
|
2,445,273 |
|
—% |
Sales to the market |
|
|
13,938 |
|
|
8,854 |
|
57.4% |
|
121,848 |
|
201,902 |
|
(39.6)% |
Other revenues |
|
|
1,167 |
|
|
948 |
|
23.1% |
|
— |
|
— |
|
—% |
Total |
|
$ |
354,915 |
|
$ |
324,110 |
|
9.5% |
|
2,566,886 |
|
2,647,175 |
|
(3.0)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cooling degree days (normal 690) |
|
|
|
|
|
|
|
|
|
784 |
|
820 |
|
(4.4)% |
Electric revenue increased $30.8 million during the nine months ended September 30, 2022, compared to the same period in 2021, due to the following:
(In millions) |
|
|
|
|
Rate changes |
$ |
|
27.7 |
|
Sales to the market |
|
|
5.1 |
|
Customer fixed and demand charges |
|
|
2.2 |
|
Net increase in commercial, industrial and other-retail/municipal volume |
|
|
0.7 |
|
Other |
|
|
0.2 |
|
Revenue subject to refund, net |
|
|
(3.2 |
) |
Decrease in residential volume |
|
|
(1.9 |
) |
Total |
$ |
|
30.8 |
|
38
Electric fuel and purchased power
|
Nine Months Ended September 30, |
|||||||
(In millions) |
2022 |
|
2021 |
|
$ Change |
|||
Fuel for electric generation |
$ |
48.4 |
|
$ |
42.6 |
|
$ |
5.8 |
Purchased power |
|
35.8 |
|
|
28.9 |
|
|
6.9 |
The $5.8 million increase in fuel for electric generation was due to an approximately 31% increase in the average cost offset by an approximately 13% decrease in internal generation. Coal transportation constraints resulted in reduced generation at Columbia, which required MGE to purchase power in the market at higher cost.
The $6.9 million increase in purchased power was due to an approximately 43% increase in market purchases as a result of lower internal generation.
Fuel and purchased power costs are generally offset by electric revenue and do not have a significant impact on net income. MGE expects to seek and receive recovery of fuel and purchased power costs outside the fuel rules bandwidth in customer rates. See Footnote 9 of the Notes to Consolidated Financial Statements in this Report for further information on the fuel rules bandwidth.
39
Gas deliveries and revenues
The following table compares MGE's gas revenues and gas therms delivered by customer class for each of the periods indicated:
|
|
|
Revenues |
|
Therms Delivered |
|||||||||
(In thousands, except HDD and average |
|
|
Nine Months Ended September 30, |
|
Nine Months Ended September 30, |
|||||||||
rate per therm of retail customer) |
|
|
2022 |
|
|
2021 |
|
% Change |
|
2022 |
|
2021 |
|
% Change |
Residential |
|
$ |
97,498 |
|
$ |
72,286 |
|
34.9% |
|
77,091 |
|
68,791 |
|
12.1% |
Commercial/Industrial |
|
|
66,913 |
|
|
42,972 |
|
55.7% |
|
73,349 |
|
64,179 |
|
14.3% |
Total retail |
|
|
164,411 |
|
|
115,258 |
|
42.6% |
|
150,440 |
|
132,970 |
|
13.1% |
Gas transportation |
|
|
4,804 |
|
|
4,589 |
|
4.7% |
|
58,059 |
|
55,150 |
|
5.3% |
Other revenues |
|
|
90 |
|
|
97 |
|
(7.2)% |
|
— |
|
— |
|
—% |
Total |
|
$ |
169,305 |
|
$ |
119,944 |
|
41.2% |
|
208,499 |
|
188,120 |
|
10.8% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Heating degree days (normal 4,479) |
|
|
|
|
|
|
|
|
|
4,723 |
|
4,404 |
|
7.2% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average rate per therm of retail customer |
|
$ |
1.093 |
|
$ |
0.867 |
|
26.1% |
|
|
|
|
|
|
Gas revenue increased $49.4 million during the nine months ended September 30, 2022, compared to the same period in 2021, due to the following:
(In millions) |
|
|
|
|
Rate changes |
|
$ |
38.2 |
|
Increase in volume |
|
|
9.9 |
|
Other |
|
|
1.3 |
|
Total |
|
$ |
49.4 |
|
MGE recovers the cost of natural gas in its gas segment through the purchased gas adjustment clause (PGA). Under the PGA, MGE is able to pass through to its gas customers the cost of gas. Changes in PGA recoveries affect revenues but do not change net income in view of the pass-through treatment of the costs. Payments for natural gas increased driving higher rates during the nine months ended September 30, 2022.
The average retail rate per therm for the nine months ended 2022, increased approximately 26% compared to 2021, reflecting a $42.9 million increase in natural gas commodity costs (recovered through the PGA).
Cost of gas sold
The $42.9 million increase in cost of gas sold was driven by higher cost per therm of gas. Average cost per therm increased approximately 56%. An increase in volume of approximately 12% also contributed to the increase in cost. MGE recovers the cost of natural gas in its gas segment through the PGA as described under gas deliveries and revenue above.
40
Consolidated operations and maintenance expenses
During the nine months ended September 30, 2022, operations and maintenance expenses increased $6.1 million, compared to the same period in the prior year. The following contributed to the net change:
(In millions) |
|
|
|
|
Increased administrative and general costs |
|
$ |
4.2 |
|
Increased customer accounts costs |
|
|
2.6 |
|
Increased electric distribution expenses |
|
|
0.5 |
|
Increased other expenses |
|
|
0.5 |
|
Decreased electric production expenses |
|
|
(1.3 |
) |
Decreased customer services |
|
|
(0.4 |
) |
Total |
|
$ |
6.1 |
|
Consolidated depreciation expense
Electric depreciation expense increased $5.7 million and gas depreciation expense increased $2.2 million during the nine months ended September 30, 2022, compared to the same period in the prior year. MGE placed Badger Hollow I in service in November 2021. The timing of the in-service date contributed to the increase in electric depreciation expense. The new customer information system went live in September 2021, which increased depreciation expense for both electric and gas in 2022.
Electric and gas other income
Electric other income increased $2.3 million and gas other income increased $3.7 million during the nine months ended September 30, 2022, compared to the same period in the prior year, primarily related to the collection in 2021 of the deferred pension and other postretirement other than service costs from 2019.
Nonregulated Energy Operations - MGE Energy and MGE
The nonregulated energy operations are conducted through MGE Energy's subsidiaries: MGE Power Elm Road (the Elm Road Units) and MGE Power West Campus (WCCF), which have been formed to own and lease electric generating capacity to assist MGE. During the nine months ended September 30, 2022 and 2021, net income at the nonregulated energy operations segment was $16.5 million and $15.9 million, respectively.
Transmission Investment Operations - MGE Energy
The transmission investment segment holds our interest in ATC and ATC Holdco, and its income reflects our equity in the earnings of those investments. ATC Holdco was formed in December 2016 to pursue transmission development opportunities that typically have long development and investment lead times before becoming operational. ATC Holdco's transmission development activities have been suspended for the near term. During the nine months ended September 30, 2022 and 2021, other income at the transmission investment segment primarily reflects ATC's operations and was $6.6 million and $7.4 million, respectively. In August 2022, the U.S. Court of Appeals for the D.C. Circuit vacated the underlying FERC orders regarding methodology for setting authorized return on equity resulting in an additional estimated possible loss. See Footnote 3 of the Notes to Consolidated Financial Statements in this Report and "Other Matters" below for additional information concerning ATC and summarized financial information regarding ATC.
41
Consolidated Income Taxes - MGE Energy and MGE
In 2022, the effective electric tax rate increased as a result of the return of electric excess deferred taxes related to the 2017 Tax Act not governed by IRS normalization rules in 2021. These costs were recorded as a regulatory liability in the year of remeasurement. See Footnote 4 of the Notes to Consolidated Financial Statements in this Report for the effective tax rate reconciliation.
Noncontrolling Interest, Net of Tax - MGE
Noncontrolling interest, net of tax, reflects the accounting required for MGE Energy's interest in MGE Power Elm Road (the Elm Road Units) and MGE Power West Campus (WCCF). MGE Energy owns 100% of MGE Power Elm Road and MGE Power West Campus. They are not owned by MGE. Due to the contractual agreements for these projects with MGE, the entities are considered VIEs with respect to MGE and their results are consolidated with those of MGE, the primary beneficiary of the VIEs. The following table shows MGE Energy's noncontrolling interest, net of tax, reflected on MGE's consolidated statement of income:
|
|
Nine Months Ended |
|
|||||
|
|
September 30, |
|
|||||
(In millions) |
|
2022 |
|
|
2021 |
|
||
MGE Power Elm Road |
|
$ |
10.5 |
|
|
$ |
11.4 |
|
MGE Power West Campus |
|
|
5.4 |
|
|
|
5.4 |
|
Contractual Obligations and Commercial Commitments - MGE Energy and MGE
There were no material changes, other than from the normal course of business, to MGE Energy's and MGE's contractual obligations (representing cash obligations that are considered to be firm commitments) and commercial commitments (representing commitments triggered by future events) during the nine months ended September 30, 2022, except as noted below. Further discussion of the contractual obligations and commercial commitments is included in Footnote 16 of the Notes to Consolidated Financial Statements and "Contractual Obligations and Commercial Commitments for MGE Energy and MGE" under "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the 2021 Annual Report on Form 10-K.
Purchase Contracts – MGE Energy and MGE
See Footnote 8.c. of Notes to Consolidated Financial Statements in this Report for a description of commitments as of September 30, 2022, that MGE Energy and MGE have entered with respect to various commodity supply and transportation contracts to meet their obligations to deliver electricity and natural gas to customers.
Long-term Debt – MGE Energy and MGE
In November 2022, MGE entered into a private placement Note Purchase Agreement in which it committed to issue $75 million of new long-term debt. See Footnote 6.c. of Notes to Consolidated Financial Statements in this Report for further information on long-term debt issuance.
Liquidity and Capital Resources
MGE Energy and MGE expect to have adequate liquidity to support future operations and capital expenditures over the next twelve months. Available resources include cash and cash equivalents, operating cash flows, liquid assets, borrowing working capacity under revolving credit facilities, and access to equity and debt capital markets. MGE Energy expects to generate funds from operations and both long-term and short-term debt financing. See "Credit Facilities" under Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources in the 2021 Annual Report on Form 10-K for information regarding MGE Energy's and MGE's credit facilities.
42
Cash Flows
The following summarizes cash flows for MGE Energy and MGE during the nine months ended September 30, 2022 and 2021:
|
|
MGE Energy |
|
MGE |
||||||||
(In thousands) |
|
2022 |
|
2021 |
|
2022 |
|
2021 |
||||
Cash provided by (used for): |
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities |
|
$ |
144,282 |
|
$ |
141,297 |
|
$ |
141,786 |
|
$ |
135,451 |
Investing activities |
|
|
(137,219) |
|
|
(118,347) |
|
|
(134,089) |
|
|
(115,591) |
Financing activities |
|
|
(12,663) |
|
|
1,656 |
|
|
(8,400) |
|
|
31,930 |
Cash Provided by Operating Activities
MGE Energy
MGE Energy's consolidated net cash provided by operating activities is derived mainly from the electric and gas operations of its principal subsidiary, MGE.
Cash provided by operating activities during the nine months ended September 30, 2022, was $144.3 million, an increase of $3.0 million when compared to the same period in the prior year.
MGE Energy's net income decreased $2.8 million during the nine months ended September 30, 2022, when compared to the same period in the prior year.
MGE Energy's federal and state taxes paid decreased $3.0 million during the nine months ended September 30, 2022, when compared to the prior year.
Working capital accounts (excluding prepaid and accrued taxes) resulted in $17.7 million in cash used for operating activities during the nine months ended September 30, 2022. Working capital accounts were impacted by increased gas inventory driven by the increase in cost of gas and decreased other current liabilities, partially offset by decreased unbilled revenues.
Working capital accounts (excluding prepaid and accrued taxes) resulted in $9.1 million in cash used for operating activities during the nine months ended September 30, 2021. Actual purchased gas costs were $6.3 million higher than the amount collected in rates primarily due to the extreme cold weather experienced in the U.S. in February 2021. These costs were deferred as a regulatory asset and recovered throughout 2021. In addition, working capital accounts were impacted by increased accounts receivable and increased inventories, partially offset by increased other current liabilities, decreased unbilled revenues, and increased accounts payable.
Hosted software asset expenditures during the nine months ended September 30, 2022, were $0.5 million. This amount represents a decrease of $2.5 million of cash used when compared to the prior year.
MGE
Cash provided by operating activities during the nine months ended September 30, 2022, was $141.8 million, an increase of $6.3 million when compared to the same period in the prior year.
Net income decreased $3.0 million during the nine months ended September 30, 2022, when compared to the same period in the prior year.
MGE's federal and state taxes paid decreased $4.2 million during the nine months ended September 30, 2022, when compared to the prior year.
Working capital accounts (excluding prepaid and accrued taxes) resulted in $15.3 million in cash used for operating activities during the nine months ended September 30, 2022. Working capital accounts were impacted by increased gas inventory driven by the increase in cost of gas and decreased current liabilities, partially offset by decreased unbilled revenues.
43
Working capital accounts (excluding prepaid and accrued taxes) resulted in $9.1 million in cash used for operating activities during the nine months ended September 30, 2021. Actual purchased gas costs were $6.3 million higher than the amount collected in rates primarily due to the extreme cold weather experienced in the U.S. in February 2021. These costs were deferred as a regulatory asset and recovered throughout 2021. In addition, working capital accounts were impacted by increased accounts receivable and increased inventories, partially offset by increased other current liabilities, decreased unbilled revenues, and increased accounts payable.
Hosted software asset expenditures during the nine months ended September 30, 2022, were $0.5 million. This amount represents a decrease of $2.5 million of cash used when compared to the prior year.
Capital Requirements and Investing Activities
MGE Energy
MGE Energy's cash used for investing activities increased $18.9 million during the nine months ended September 30, 2022, when compared to the same period in the prior year.
Capital expenditures during the nine months ended September 30, 2022, were $133.4 million. This amount represents an increase of $19.3 million from the expenditures made in the same period in the prior year. This increase primarily reflects the increase of expenditures for Badger Hollow II and Paris.
Proceeds from the sale of investments decreased $0.8 million during the nine months ended September 30, 2022, when compared to the same period in the prior year.
MGE
MGE's cash used for investing activities increased $18.5 million during the nine months ended September 30, 2022, when compared to the same period in the prior year.
Capital expenditures during the nine months ended September 30, 2022, were $133.4 million. This amount represents an increase of $19.3 million from the expenditures made in the same period in the prior year. This increase primarily reflects the increase of expenditures for Badger Hollow II and Paris.
Capital Expenditures
The following table shows MGE Energy's forecasted capital expenditures for 2022 through 2025:
|
|
|
|
Forecasted |
|
||||||||||||||||
(In thousands) |
|
|
|
|
|
|
2022(a) |
|
|
2023 |
|
|
2024 |
|
|
2025 |
|
||||
Electric |
|
|
|
|
|
|
$ |
138,200 |
|
|
$ |
181,000 |
|
|
$ |
185,100 |
|
|
$ |
174,400 |
|
Gas |
|
|
|
|
|
|
|
25,300 |
|
|
|
26,200 |
|
|
|
25,600 |
|
|
|
23,200 |
|
Utility plant total |
|
|
|
|
|
|
|
163,500 |
|
|
|
207,200 |
|
|
|
210,700 |
|
|
|
197,600 |
|
Nonregulated |
|
|
|
|
|
|
|
7,700 |
|
|
|
7,900 |
|
|
|
7,800 |
|
|
|
6,100 |
|
MGE Energy total |
|
|
|
|
|
|
$ |
171,200 |
|
|
$ |
215,100 |
|
|
$ |
218,500 |
|
|
$ |
203,700 |
|
Forecasted capital expenditures are based upon management's assumptions with respect to future events, including the timing and amount of expenditures associated with environmental compliance initiatives, legislative and regulatory action, supply chain and market disruptions, customer demand and support for electrification and renewable energy resources, energy conservation programs, load growth, the timing of any required regulatory approvals, and the adequacy of rate recovery. Actual events may differ materially from these assumptions and result in material changes to those forecasted amounts.
MGE is targeting at least 80% carbon reduction from electric generation by 2030 (from 2005 levels) and net-zero carbon electricity by 2050. Solar, wind, and battery storage projects are a major step toward deep decarbonization and greater use of clean energy sources in pursuit of our goal. MGE continues to evaluate solar, wind, and battery
44
storage projects that align with its goals as legacy fossil fuel-fired facilities are retired. The target early retirement date for Columbia is June 2026. MGE has included forecasted capital expenditures for the years 2022 through 2025 for projects to replace Columbia's generation. Additional replacement capital expenditures are expected to continue beyond 2025.
Our forecasted capital expenditures reflect the following significant renewable projects that are proposed or currently under construction:
Project |
|
Source |
|
Ownership Interest |
|
Share of |
|
Share of |
|
Estimated Date of |
Red Barn(a) |
|
Wind |
|
10% |
|
9.16MW |
|
$18 million(e) |
|
Early 2023 |
Badger Hollow II(a) |
|
Solar |
|
33% |
|
50 MW |
|
$76 million(d)(e) |
|
First Half of 2023 |
Paris(a) |
|
Solar/Battery |
|
10% |
|
31 MW |
|
$51 million(d)(e) |
|
2023(f) |
Darien(b) |
|
Solar/Battery |
|
10% |
|
25MW/7.5MW |
|
$45 million(d) |
|
2024(f) |
Koshkonong(b) |
|
Solar/Battery |
|
10% |
|
30MW/16.5MW |
|
$65 million(d) |
|
2025(f) |
In 2022, MGE notified the PSCW of increases in projected costs at Badger Hollow II and Paris. The main drivers were increases in the costs of key commodities, labor, and solar modules resulting from supply chain and market disruptions. See Footnote 12 of Notes to Consolidated Financial Statements in this Report for more information on these projects. Furthermore, solar procurement disruptions have also shifted construction timelines for Darien and Koshkonong. Projected completion dates of these projects are one year later than originally anticipated. MGE continues to assess the potential impact of these disruptions on current and future solar projects which may result in an increase in costs or delays in construction timelines. See further information on procurement disruptions discussed earlier under "Executive Overview."
West Riverside: In 2016, MGE entered into an agreement with WPL under which MGE may acquire up to 50 MW of capacity in a gas-fired generating plant constructed by WPL at its West Riverside Energy Center in Beloit, Wisconsin, during the five-year period following the in-service date of the plant. The plant was placed in service in May 2020. In January 2022, MGE, along with joint applicants, filed an application with the PSCW requesting approval for a sale and purchase of ownership interests in West Riverside. If approved, MGE's share of West Riverside will be 25 MW at a purchase price of approximately $25 million. The closing and actual transfer of ownership is expected to occur in March 2023. MGE also retains the option to purchase an additional 25 MW of capacity from West Riverside until May 2025. MGE currently expects to exercise this option in a future period.
Electric and Gas Distribution: In 2022 through 2025, electric and gas capital expenditures include investment in enhanced metering solutions to provide customers with more timely and detailed energy use information. Investments in advanced metering infrastructure will provide additional benefits including outage and demand response and automated meter reading capabilities. Forecasted capital expenditures in those years is approximately $24 million.
Cash Used for/Provided by Financing Activities
MGE Energy
Cash used for MGE Energy's financing activities was $12.7 million during the nine months ended September 30, 2022, compared to cash proceeds of $1.7 million for the same period in the prior year.
During the nine months ended September 30, 2022, dividends paid were $42.8 million compared to $40.8 million in the prior year. The increase reflected a higher dividend rate per share ($1.183 vs. $1.128).
45
During the nine months ended September 30, 2021, MGE borrowed $100.0 million of senior unsecured notes which was used to assist with financing additional capital expenditures and other corporate obligations. There were no long-term debt borrowings during the nine months ended September 30, 2022.
During the nine months ended September 30, 2022, net short-term debt borrowings were $34.5 million, compared to $52.5 million of repayments in the same period in the prior year.
MGE
During the nine months ended September 30, 2022, cash used for MGE's financing activities was $8.4 million, compared to cash proceeds of $31.9 million for the same period in the prior year.
Cash dividends to parent (MGE Energy) were $21.0 million during the nine months ended September 30, 2022. There were no cash dividends to parent in the same period in the prior year.
Distributions to parent from noncontrolling interest, which represent distributions from MGE Power Elm Road and MGE Power West Campus to MGE Energy, were $17.5 million during the nine months ended September 30, 2022, compared to $10.5 million in the same period in the prior year.
During the nine months ended September 30, 2021, MGE borrowed $100.0 million of senior unsecured notes which was used to assist with financing additional capital expenditures and other corporate obligations. There were no long-term debt borrowings during the nine months ended September 30, 2022.
During the nine months ended September 30, 2022, net short-term debt borrowings were $34.5 million, compared to $52.5 million of repayments in the same period in the prior year.
Capitalization Ratios
MGE Energy's capitalization ratios were as follows:
|
|
MGE Energy |
||
|
|
September 30, 2022 |
|
December 31, 2021 |
Common shareholders' equity |
|
62.1% |
|
62.2% |
Long-term debt(a) |
|
35.6% |
|
37.5% |
Short-term debt |
|
2.3% |
|
0.3% |
Credit Ratings
MGE Energy's and MGE's access to the capital markets, including, in the case of MGE, the commercial paper market, and their respective financing costs in those markets, may depend on the credit ratings of the entity that is accessing the capital markets.
None of MGE Energy's or MGE's borrowing is subject to default or prepayment as a result of a downgrading of credit ratings, although a downgrading of MGE's credit ratings would increase fees and interest charges under both MGE Energy's and MGE's credit agreements.
Environmental Matters
See the discussion of environmental matters included in the 2021 Annual Report on Form 10-K, as updated by Footnote 8.a. of Notes to Consolidated Financial Statements in this Report.
46
Other Matters
Rate Matters
In December 2021, the PSCW approved a settlement agreement for MGE's 2022 rate case. The settlement agreement provides for an 8.81% increase to electric rates and a 2.15% increase to gas rates for 2022. As part of that settlement agreement, the PSCW approved a 0.96% increase in 2023 gas rates and a potential 2023 electric rate change to be addressed through a limited rate case reopener.
In April 2022, MGE filed with the PSCW a limited rate reopener proposing a 4.38% increase to electric rates for 2023.
Details related to MGE's 2022/2023 approved settlement agreement and pending electric limited reopener:
(Dollars in thousands) |
|
Authorized Average Rate Base(a) |
|
Authorized Average CWIP(b) |
|
Authorized Return on Common Equity(c) |
|
Common Equity Component of Regulatory Capital Structure |
|
Effective Date |
||
Electric (2022 Test Period) |
|
$ |
1,044,362 |
|
$ |
19,976 |
|
9.8% |
|
55.63% |
|
1/1/2022 |
Gas (2022 Test Period) |
|
$ |
299,319 |
|
$ |
11,410 |
|
9.8% |
|
55.63% |
|
1/1/2022 |
Electric (2023 Test Period)(d) |
|
$ |
1,159,155 |
|
$ |
19,976 |
|
9.8% |
|
55.63% |
|
1/1/2023 |
Gas (2023 Test Period) |
|
$ |
312,270 |
|
$ |
8,228 |
|
9.8% |
|
55.63% |
|
1/1/2023 |
See Footnote 9 of Notes to Consolidated Financial Statements in this Report for further discussion of rate proceedings.
ATC
MISO transmission owners, including ATC, are involved in two complaints filed at FERC by several parties challenging that the base ROE in effect for MISO transmission owners, including ATC, was no longer just and reasonable. Each complaint provided for a 15-month statutory refund period: November 12, 2013 through February 11, 2015 (the "First Complaint Period") and February 12, 2015 through May 11, 2016 (the "Second Complaint Period").
In May 2020, FERC issued an order further refining the methodology for setting authorized ROE. This refined methodology increased the authorized ROE from 9.88% to 10.02%. This base ROE is effective for the First Complaint Period and for all periods following September 2016. This order also dismissed the second complaint. Accordingly, no refunds were ordered for the Second Complaint Period.
As a result of the May 2020 FERC order, our share of ATC's earnings reflected a $0.6 million reduction of our reserve. Additionally, our share of ATC's earnings reflected the derecognition of a possible refund related to the Second Complaint Period as ATC considered such a refund to be no longer probable. However, due to pending requests for rehearing, a loss related to the 2015 complaint remains possible. Our share of the estimated refund for the Second Complaint Period is approximately $2.3 million. MGE has not recorded a possible loss for the Second Complaint Period.
Several petitions for review of FERC’s prior orders were filed with the U.S. Court of Appeals for the D.C. Circuit (the "Court") and an oral argument was held in November 2021. In August 2022, the Court ruled that four of the five
47
arguments made by the complaining parties were unpersuasive. However, the Court agreed that FERC’s decision to reintroduce a risk-premium model into its ROE methodology was arbitrary and capricious. The Court vacated the underlying orders for the First Complaint Period and remanded to FERC for further proceedings. In September 2022, our share of ATC's earnings reflected an estimated possible loss of approximately $0.8 million, inclusive of interest and net of tax, for a possible additional refund for the First Complaint Period and for the period following the Second Complaint Period. Although the Court agreed that FERC was correct to use the base ROE established in the first complaint to adjudicate the second, and that FERC was right to dismiss the second complaint, the second complaint was also remanded for FERC to reopen proceedings. Any reduction in ATC's ROE could result in lower equity earnings and distributions from ATC in the future.
We derived approximately 5.1% and 5.7% of our net income during the nine months ended September 30, 2022 and 2021, respectively, from our investment in ATC.
Inflation Reduction Act
In August 2022, the Inflation Reduction Act (IRA) was signed into law. Among other provisions, the IRA: extends current PTC and ITC for renewable technologies (e.g., wind and solar); restores full value of the PTC and ITC for qualifying facilities placed into service after 2021 that satisfy prevailing wage and apprenticeship requirements; creates a PTC for solar, clean hydrogen and nuclear; establishes an ITC for energy storage, microgrids, and interconnection facilities; and allows companies to monetize or sell credits to unrelated parties. In addition, the IRA created a new corporate alternative minimum tax (AMT). MGE Energy does not expect to be subject to the AMT in the near term. Implementation of IRA provisions is subject to the issuance of additional guidance by the U.S. Treasury Department. While the final impact cannot be determined at this time, the IRA is not expected to have a material impact on MGE Energy and MGE for the year ending December 31, 2022.
Adoption of Accounting Principles and Recently Issued Accounting Pronouncements
See Footnote 2 of Notes to Consolidated Financial Statements in this Report for discussion of new accounting pronouncements.
48
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
There were no material changes to the market risks disclosed in Item 7A. Quantitative and Qualitative Disclosures About Market Risk in our 2021 Annual Report on Form 10-K, except as noted below.
Equity Price Risk - Pension-Related Assets
MGE currently funds its liabilities related to employee benefits through trust funds. These funds, which include investments in debt and equity securities, are managed by various third-party investment managers. Changes in the market value of these investments can have an impact on the future expenses related to these liabilities. The value of employee benefit plan assets has declined by approximately 23% during the nine months ended September 30, 2022.
Item 4. Controls and Procedures.
During the third quarter of 2022, each registrant's management, including the principal executive officer and principal financial officer, evaluated its disclosure controls and procedures related to the recording, processing, summarization, and reporting of information in its periodic reports that it files with the SEC. These disclosure controls and procedures have been designed to ensure that material information relating to that registrant, including its subsidiaries, is accumulated and made known to that registrant's management, including these officers, by other employees of that registrant and its subsidiaries as appropriate to allow timely decisions regarding required disclosure, and that this information is recorded, processed, summarized, evaluated, and reported, as applicable, within the time periods specified in the SEC's rules and forms. The evaluations take into account changes in the internal and external operating environments that may impact those controls and procedures. Due to the inherent limitations of control systems, not all misstatements may be detected. These inherent limitations include the realities that judgments in decision making can be faulty and breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. Also, MGE Energy does not control or manage certain of its unconsolidated entities and thus, its access and ability to apply its procedures to those entities is more limited than is the case for its consolidated subsidiaries.
As of September 30, 2022, each registrant's principal executive officer and principal financial officer concluded that its disclosure controls and procedures were effective. Each registrant intends to strive continually to improve its disclosure controls and procedures to enhance the quality of its financial reporting.
During the quarter ended September 30, 2022, there were no changes in either registrant's internal controls over financial reporting that materially affected, or are reasonably likely to affect materially, that registrant's internal control over financial reporting.
49
PART II. OTHER INFORMATION.
Item 1. Legal Proceedings.
MGE Energy and MGE
MGE Energy and its subsidiaries, including MGE, from time to time are involved in various legal proceedings that are handled and defended in the ordinary course of business. See Footnote 8.a. and 8.b. of Notes to Consolidated Financial Statements in this Report for more information.
Item 1A Risk Factors.
There were no material changes from the risk factors disclosed in Item 1A. Risk Factors in our 2021 Annual Report on Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Under the MGE Energy, Inc. Direct Stock Purchase and Dividend Reinvestment Plan (Stock Plan), common stock shares purchased by plan participants may be either shares issued by MGE Energy or shares purchased on the open market, as determined from time to time by MGE Energy. Shares issued by MGE Energy are covered by an existing registration statement. Shares purchased in the open market are purchased at the direction of the plan participants by MGE Energy's transfer agent's securities broker-dealer for the accounts of those plan participants. Subject to the plan's restrictions, the timing and amount of open market purchases is determined by the plan participants and the broker-dealer. MGE Energy is not involved in the open market purchases. During 2022, shares purchased under the Stock Plan have been purchased in the open market.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable to MGE Energy and MGE.
Item 5. Other Information.
Expected Issuance of Notes
On November 1, 2022, MGE entered into a private placement Note Purchase Agreement in which it committed to issue $25 million of 5.43% senior notes, Series A, due December 1, 2032, $15 million of 5.43% senior notes, Series B, due February 15, 2033, and $35 million of 5.53% senior notes, Series C, due February 15, 2035. Funding will occur on December 1, 2022 for Series A notes and on February 28, 2023 for Series B notes and Series C notes. The proceeds of the notes will be used to assist with capital expenditures and other corporate obligations.
The Series A, Series B, and Series C notes are redeemable at any time at MGE's option at a redemption price equal to 100% of the principal amount of the Notes to be redeemed, plus accrued interest to the redemption date and a make-whole premium (not less than zero) equal to the excess, if any, of the discounted present value of the remaining scheduled payments of principal and interest on the notes to be redeemed over the principal amount of the notes to be redeemed, except that no make-whole premium is due on a note that is redeemed during the 90-day period immediately preceding and ending on its maturity date. Following a change in control event, MGE must offer to prepay the notes at a price equal to 100% of the principal amount of the notes, plus accrued interest to the date of prepayment, but without any make-whole premium. The prepayment offer expires if not accepted by a holder of notes within a defined period. A change in control event is deemed to have occurred if MGE does not have an investment grade rating for its senior, unsecured, long-term indebtedness from at least two of Standard & Poor's Rating Services, Moody's Investors Service or any other nationally recognized statistical rating agency, within 90 days after an acquisition of beneficial ownership of 30% or more of the outstanding voting stock of MGE Energy, Inc. by one person, or two or more persons acting in concert.
50
Events of default under the Note Purchase Agreement include failures to pay principal, make-whole premium or interest on the notes; defaults in the performance of various covenants; cross-defaults to specified other indebtedness; failure to pay specified judgments; and certain bankruptcy-related events; subject to any applicable cure periods. The Note Purchase Agreement requires MGE to maintain a ratio of its consolidated indebtedness to consolidated total capitalization not to exceed a maximum of 65%. Both consolidated indebtedness and consolidated total capitalization are determined in accordance with generally accepted accounting principles, except that amounts included within MGE's indebtedness and capitalization from "variable interest entities" as a result of the application of FASB Interpretation No. 46, Consolidation of Variable Interest Entities – an Interpretation of ARB No. 51, as modified, are excluded.
The Note Purchase Agreement also restricts MGE from issuing "Priority Debt" in an amount exceeding 20% of its consolidated assets. MGE has agreed not to use the capacity to issue Priority Debt to grant a lien to secure its principal credit facility indebtedness without simultaneously providing that the notes be equally and ratably secured with the principal credit facility indebtedness so long as such indebtedness is so secured. Priority Debt is defined as any indebtedness of MGE secured by liens other than specified liens permitted by the Note Purchase Agreement and certain unsecured indebtedness of certain subsidiaries. Principal credit facility indebtedness means the indebtedness under MGE's Amended and Restated Credit Agreements dated as of February 7, 2019, with the lenders party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent, and with the lenders party thereto and US Bank National Association, as Administrative Agent, or, in each case, any replacement credit agreement, including amendments and restatements.
51
Item 6. Exhibits.
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|
|
Ex. No. |
|
Exhibit Description |
4.1 |
|
Note Purchase Agreement dated November 1, 2022, among MGE and the purchasers named therein, including form of 5.43% Senior Notes, Series A, due December 1, 2032; form of 5.43% Senior Notes, Series B, due February 15, 2033; and form of 5.53% Senior Notes, Series C, due February 15, 2035. |
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|
* |
Certifications Pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934 filed by Jeffrey M. Keebler for MGE Energy, Inc. |
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* |
Certifications Pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934 filed by Jared J. Bushek for MGE Energy, Inc. |
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* |
Certifications Pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934 filed by Jeffrey M. Keebler for Madison Gas and Electric Company |
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|
* |
Certifications Pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934 filed by Jared J. Bushek for Madison Gas and Electric Company |
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|
|
|
** |
Certifications Pursuant to Section 1350 of Chapter 63 of Title 18 United States Code (Sarbanes-Oxley Act of 2002) filed by Jeffrey M. Keebler for MGE Energy, Inc. |
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|
** |
Certifications Pursuant to Section 1350 of Chapter 63 of Title 18 United States Code (Sarbanes-Oxley Act of 2002) filed by Jared J. Bushek for MGE Energy, Inc. |
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|
|
** |
Certifications Pursuant to Section 1350 of Chapter 63 of Title 18 United States Code (Sarbanes-Oxley Act of 2002) filed by Jeffrey M. Keebler for Madison Gas and Electric Company |
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|
|
** |
Certifications Pursuant to Section 1350 of Chapter 63 of Title 18 United States Code (Sarbanes-Oxley Act of 2002) filed by Jared J. Bushek for Madison Gas and Electric Company |
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101.INS |
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XBRL Instance |
101.SCH |
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XBRL Taxonomy Extension Schema |
101.CAL |
|
XBRL Taxonomy Extension Calculation |
101.DEF |
|
XBRL Taxonomy Extension Definition |
101.LAB |
|
XBRL Taxonomy Extension Labels |
101.PRE |
|
XBRL Taxonomy Extension Presentation |
104.1 |
|
Included in the cover page, formatted in Inline XBRL |
|
|
|
* |
|
Filed herewith. |
** |
|
Furnished herewith. |
52
Signatures - MGE Energy, Inc.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
|
MGE ENERGY, INC. |
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|
|
Date: November 3, 2022 |
/s/ Jeffrey M. Keebler |
|
Jeffrey M. Keebler Chairman, President and Chief Executive Officer (Duly Authorized Officer) |
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|
|
|
|
Date: November 3, 2022 |
/s/ Jared J. Bushek |
|
Jared J. Bushek Vice President - Finance, Chief Information Officer and Treasurer (Chief Financial Officer) |
|
|
|
|
|
|
Date: November 3, 2022 |
/s/ Tamara J. Johnson |
|
Tamara J. Johnson Vice President - Accounting and Controller (Chief Accounting Officer) |
53
Signatures – Madison Gas and Electric Company
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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MADISON GAS AND ELECTRIC |
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|
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Date: November 3, 2022 |
/s/ Jeffrey M. Keebler |
|
Jeffrey M. Keebler Chairman, President and Chief Executive Officer (Duly Authorized Officer) |
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|
|
|
|
|
Date: November 3, 2022 |
/s/ Jared J. Bushek |
|
Jared J. Bushek Vice President - Finance, Chief Information Officer and Treasurer (Chief Financial Officer) |
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|
|
|
|
|
Date: November 3, 2022 |
/s/ Tamara J. Johnson |
|
Tamara J. Johnson Vice President - Accounting and Controller (Chief Accounting Officer) |
54
EXHIBIT 4.1
Madison Gas and Electric Company
$25,000,000 5.43% Senior Notes, Series A, due December 1, 2032
$15,000,000 5.43% Senior Notes, Series B, due February 15, 2033
$35,000,000 5.53% Senior Notes, Series C, due February 15, 2035
_____________
Note Purchase Agreement
_____________
Dated November 1, 2022
Table of Contents
Section Heading Page
Section 1. Authorization of Notes |
1 |
Section 2. Sale and Purchase of Notes |
1 |
Section 3. Closing |
2 |
Section 4. Conditions to Closings |
2 |
Section 4.1. Representations and Warranties |
2 |
Section 4.2. Performance; No Default |
3 |
Section 4.3. Compliance Certificates |
3 |
Section 4.4. Opinions of Counsel |
3 |
Section 4.5. Purchase Permitted By Applicable Law, Etc |
3 |
Section 4.6. Sale of Other Notes |
4 |
Section 4.7. Payment of Special Counsel Fees |
4 |
Section 4.8. Private Placement Number |
4 |
Section 4.9. Changes in Corporate Structure |
4 |
Section 4.10. Funding Instructions |
4 |
Section 4.11. Proceedings and Documents |
5 |
Section 5. Representations and Warranties of The Company |
5 |
Section 5.1. Organization; Power and Authority |
5 |
Section 5.2. Authorization, Etc |
5 |
Section 5.3. Disclosure |
5 |
Section 5.4. Organization and Ownership of Shares of Subsidiaries |
6 |
Section 5.5. Financial Statements; Material Liabilities |
6 |
Section 5.6. Compliance with Laws, Other Instruments, Etc |
6 |
Section 5.7. Governmental Authorizations, Etc |
7 |
Section 5.8. Litigation; Observance of Statutes and Orders |
7 |
Section 5.9. Taxes |
7 |
Section 5.10. Title to Property; Leases |
8 |
Section 5.11. Licenses, Permits, Etc |
8 |
Section 5.12. Compliance with ERISA |
8 |
Section 5.13. Private Offering by the Company |
9 |
Section 5.14. Use of Proceeds; Margin Regulations |
10 |
Section 5.15. Existing Indebtedness |
10 |
Section 5.16. Foreign Assets Control Regulations, Etc |
10 |
Section 5.17. Status under Certain Statutes |
11 |
-i-
Section 6. Representations of The Purchasers |
11 |
Section 6.1. Purchase for Investment |
11 |
Section 6.2. Source of Funds |
11 |
Section 7. Information as To Company |
13 |
Section 7.1. Financial and Business Information |
13 |
Section 7.2. Officer’s Certificate |
15 |
Section 7.3. Visitation |
16 |
Section 7.4. Electronic Delivery |
17 |
Section 8. Payment and Prepayment of The Notes |
17 |
Section 8.1. Maturity |
17 |
Section 8.2. Optional Prepayments with Make-Whole Amount |
18 |
Section 8.3. Allocation of Partial Prepayments |
18 |
Section 8.4. Maturity; Surrender, Etc |
18 |
Section 8.5. Purchase of Notes |
19 |
Section 8.6. Make-Whole Amount |
19 |
Section 8.7. Change in Control |
21 |
Section 9. Affirmative Covenants |
22 |
Section 9.1. Compliance with Law |
22 |
Section 9.2. Insurance |
22 |
Section 9.3. Maintenance of Properties |
22 |
Section 9.4. Payment of Taxes |
23 |
Section 9.5. Corporate Existence, Etc |
23 |
Section 9.6. Books and Records |
23 |
Section 9.7. Conduct of Business |
23 |
Section 10. Negative Covenants |
24 |
Section 10.1. Transactions with Affiliates |
24 |
Section 10.2. Merger, Consolidation, Etc |
24 |
Section 10.3. Terrorism Sanctions Regulations |
24 |
Section 10.4. Limitation on Liens |
25 |
Section 10.5. Indebtedness Ratio |
27 |
Section 10.6. Priority Debt |
27 |
Section 11. Events of Default |
27 |
Section 12. Remedies on Default, Etc |
30 |
Section 12.1. Acceleration |
30 |
Section 12.2. Other Remedies |
30 |
Section 12.3. Rescission |
31 |
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Section 12.4. No Waivers or Election of Remedies, Expenses, Etc |
31 |
Section 13. Registration; Exchange; Substitution of Notes |
31 |
Section 13.1. Registration of Notes |
31 |
Section 13.2. Transfer and Exchange of Notes |
32 |
Section 13.3. Replacement of Notes |
32 |
Section 14. Payments on Notes |
33 |
Section 14.1. Place of Payment |
33 |
Section 14.2. Home Office Payment |
33 |
Section 15. Expenses, Etc |
33 |
Section 15.1. Transaction Expenses |
33 |
Section 15.2. Survival |
34 |
Section 16. Survival of Representations and Warranties; Entire Agreement |
34 |
Section 17. Amendment and Waiver |
34 |
Section 17.1. Requirements |
34 |
Section 17.2. Solicitation of Holders of Notes |
35 |
Section 17.3. Binding Effect, Etc |
35 |
Section 17.4. Notes Held by Company, Etc |
36 |
Section 18. Notices |
36 |
Section 19. Reproduction of Documents |
36 |
Section 20. Confidential Information |
37 |
Section 21. Substitution of Purchaser |
38 |
Section 22. Miscellaneous |
38 |
Section 22.1. Successors and Assigns |
38 |
Section 22.2. Payments Due on Non-Business Days |
38 |
Section 22.3. Accounting Terms |
39 |
Section 22.4. Severability |
40 |
Section 22.5. Construction, Etc |
40 |
Section 22.6. Counterparts; Electronic Contracting |
40 |
Section 22.7. Governing Law |
41 |
Section 22.8. Jurisdiction and Process; Waiver of Jury Trial |
41 |
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Schedule A — Information Relating to Purchasers
Schedule B — Defined Terms
Schedule 5.3 — Disclosure Materials
Schedule 5.4 — Subsidiaries of the Company and Ownership of Subsidiary Stock
Schedule 5.5 — Financial Statements
Schedule 5.15 — Existing Indebtedness
Exhibit 1-A — Form of 5.43% Senior Note, Series A, due December 1, 2032
Exhibit 1-B — Form of 5.43% Senior Note, Series B, due February 15, 2033
Exhibit 1-C — Form of 5.53% Senior Note, Series C, due February 15, 2035
Exhibit 4.4(a) — Form of Opinions of Special Counsel for the Company
Exhibit 4.4(b) — Form of Opinion of Special Counsel for the Purchasers
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MADISON GAS AND ELECTRIC COMPANY
133 SOUTH BLAIR STREET
MADISON, WI 53788
$25,000,000 5.43% Senior Notes, Series A, due December 1, 2032
$15,000,000 5.43% Senior Notes, Series B, due February 15, 2033
$35,000,000 5.53% Senior Notes, Series C, due February 15, 2035
November 1, 2022
To Each of The Purchasers Listed in
Schedule A Hereto:
Ladies and Gentlemen:
Madison Gas and Electric Company, a Wisconsin corporation (the “Company”), agrees with each of the purchasers whose names appear at the end hereof (each, a “Purchaser” and, collectively, the “Purchasers”) as follows:
Section 1. Authorization of Notes.
The Company will authorize the issue and sale of (a) $25,000,000 aggregate principal amount of its 5.43% Senior Notes, Series A, due December 1, 2032 (the “Series A Notes”); (b) $15,000,000 aggregate principal amount of its 5.43% Senior Notes, Series B, due February 15, 2033 (the “Series B Notes”) and (c) $35,000,000 aggregate principal amount of its 5.53% Senior Notes, Series C, due February 15, 2035 (the “Series C Notes” and together with the Series A Notes and the Series B Notes, the “Notes”, such term to include any such notes issued in substitution therefor pursuant to Section 13). The Notes shall be substantially in the forms set out in Exhibit 1-A, Exhibit 1-B and Exhibit 1-C, respectively. Certain capitalized and other terms used in this Agreement are defined in Schedule B; and references to a “Schedule” or an “Exhibit” are, unless otherwise specified, to a Schedule or an Exhibit attached to this Agreement.
Section 2. Sale and Purchase of Notes.
Subject to the terms and conditions of this Agreement, the Company will issue and sell to each Purchaser who is to purchase Notes at a Closing and each such Purchaser will purchase from the Company, at such Closing provided for in Section 3, Notes of the series in the principal amount specified opposite such Purchaser’s name in Schedule A at the purchase price of 100% of the principal amount thereof. The Purchasers’ obligations hereunder are several and not joint obligations and no Purchaser shall have any liability to any Person for the performance or non-performance of any obligation by any other Purchaser hereunder.
Madison Gas and Electric Company Note Purchase Agreement
Section 3. Closings.
The execution of this Agreement shall occur on November 1, 2022 (the “Execution Date”). The sale and purchase of the Notes to be purchased by each Purchaser shall occur at the offices of Greenberg Traurig, LLP, 77 West Wacker Drive, Chicago, Illinois 60601, at 10:00 a.m., Chicago time, at two closings as set forth immediately hereafter, (i) the sale and purchase of the Series A Notes shall occur on December 1, 2022 (the “First Closing”), and (ii) the sale and purchase of the Series B Notes and Series C Notes shall occur on February 28, 2023 (the “Second Closing” and each of the First Closing and the Second Closing being referred to herein as a “Closing”), or on such other Business Day thereafter as may be agreed upon by the Company and the Purchasers. At each Closing, the Company will deliver to each applicable Purchaser the Notes of the series to be purchased by such Purchaser at such Closing in the form of a single Note of such series (or such greater number of Notes of such series in denominations of at least $250,000 as such Purchaser may request) dated the date of such Closing and registered in such Purchaser’s name (or in the name of its nominee), against delivery by such Purchaser to the Company or its order of immediately available funds in the amount of the purchase price therefor by wire transfer of immediately available funds for the account of the Company to account number xxx-xxx-xxx at Chase Bank, 22 East Mifflin Street, Madison Wisconsin 53703; ABA # xxx xxx xxx; for the credit of Madison Gas and Electric Company. If on the date of the Closing, the Company shall fail to tender the Notes to be purchased at that Closing to any Purchaser as provided above in this Section 3, or any of the conditions specified in Section 4 shall not have been fulfilled to such Purchaser’s satisfaction, such Purchaser shall, at its election, be relieved of all further obligations under this Agreement, without thereby waiving any rights such Purchaser may have by reason of such failure or such nonfulfillment.
Section 4. Conditions to Closings.
A Purchaser’s obligation to purchase and pay for the Notes to be sold to such Purchaser at each Closing is subject to the fulfillment to such Purchaser’s satisfaction, prior to or at such Closing, of the following conditions:
Section 4.1. Representations and Warranties. The representations and warranties of the Company in this Agreement shall be correct when made, as of the Execution Date and at the time of the Closing (excluding any representation or warranty that speaks only as of a given date, in which case such representation or warranty is correct only as of such date); provided, that, with respect to a Closing, the Company shall be permitted to make additions and deletions to Schedules 5.4, 5.5 and/or 5.15 after the Execution Date but prior to such Closing (and any reference herein to any such Schedule shall be deemed to be a reference to such Schedule as so modified), so long as (a) the Company shall have provided under an Officer’s Certificate an updated copy of the relevant Schedules to such Purchaser not less than 5 Business Days prior to the Closing, (b) in the case of Schedules 5.4 and 5.5, any such additions or deletions are in all respects reasonably satisfactory to such Purchaser as a condition to the Closing and (c) after giving effect to such additions and deletions, immediately before and after giving effect to the issue and sale of the Notes, the Company shall be in compliance with this Agreement, including without limitation, Section 10. Notwithstanding the foregoing, the Company shall not be required to deliver an Officer’s Certificate pursuant to this
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Madison Gas and Electric Company Note Purchase Agreement
Section 4.1 with respect to drawings under any lending facility or agreement in existence on the Execution Date and listed in Schedule 5.15 or changes in outstanding commercial paper in each case in the ordinary course of business (provided the aggregate amount of (i) outstanding commercial paper and (ii) any borrowings under the lending facilities in existence on the Execution Date and listed in Schedule 5.15, do not exceed the aggregate commitments under those lending facilities).
Section 4.2. Performance; No Default. The Company shall have performed and complied with all agreements and conditions contained in this Agreement required to be performed or complied with by it prior to or at the Closing and from the Execution Date to the Closing (assuming, for purposes of this Agreement, that Sections 9 and 10 are applicable from the Execution Date). From the Execution Date until the Closing, before and after giving effect to the issue and sale of the Notes (and the application of the proceeds thereof as contemplated by Section 5.14), no Default or Event of Default shall have occurred and be continuing.
Section 4.3. Compliance Certificates.
(a) Officer’s Certificate. The Company shall have delivered to such Purchaser an Officer’s Certificate, dated the date of the Closing, certifying that the conditions specified in Sections 4.1, 4.2 and 4.9 have been fulfilled.
(b) Secretary’s Certificate. The Company shall have delivered to such Purchaser a certificate of its Secretary or Assistant Secretary, dated the date of the Closing, certifying as to the resolutions attached thereto and other corporate proceedings relating to the authorization, execution and delivery of the Notes and this Agreement.
Section 4.4. Opinions of Counsel. Such Purchaser shall have received opinions in form and substance satisfactory to such Purchaser, dated the date of the Closing (a) from Stafford Rosenbaum LLP, Wisconsin counsel to the Company, and Sidley Austin LLP, special New York counsel to the Company, covering the matters set forth in Exhibit 4.4(a) and covering such other matters incident to the transactions contemplated hereby as such Purchaser or its counsel may reasonably request (and the Company hereby instructs its counsel to deliver such opinions to the Purchasers) and (b) from Greenberg Traurig, LLP, the Purchasers’ special counsel in connection with such transactions, substantially in the form set forth in Exhibit 4.4(b) and covering such other matters incident to such transactions as such Purchaser may reasonably request.
Section 4.5. Purchase Permitted By Applicable Law, Etc. On the date of the Closing, such Purchaser’s purchase of Notes shall (a) be permitted by the laws and regulations of each jurisdiction to which such Purchaser is subject, without recourse to provisions (such as section 1405(a)(8) of the New York Insurance Law) permitting limited investments by insurance companies without restriction as to the character of the particular investment, (b) not violate any applicable law or regulation (including, without limitation, Regulation T, U or X of the Board of
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Madison Gas and Electric Company Note Purchase Agreement
Governors of the Federal Reserve System) and (c) not subject such Purchaser to any tax, penalty or liability under or pursuant to any applicable law or regulation, which law or regulation was not in effect on the date hereof. If requested by such Purchaser, such Purchaser shall have received an Officer’s Certificate certifying as to such matters of fact as such Purchaser may reasonably specify to enable such Purchaser to determine whether such purchase is so permitted.
Section 4.6. Sale of Other Notes. Contemporaneously with the Closing, the Company shall sell to each other Purchaser, and each other Purchaser shall purchase, the Notes to be purchased by it at such Closing as specified in Schedule A. In the case of the Second Closing, all Notes which were to be issued at the First Closing (as specified in Schedule A) shall have been so issued.
Section 4.7. Payment of Special Counsel Fees. Without limiting the provisions of Section 15.1, the Company shall have paid on or before the Execution Date and the Closing the reasonable fees, charges and disbursements of the Purchasers’ special counsel referred to in Section 4.4 to the extent reflected in a statement of such counsel rendered to the Company at least one Business Day prior to the relevant date.
Section 4.8. Private Placement Number. A Private Placement Number issued by the PPN CUSIP Unit of CUSIP Global Services (in cooperation with the SVO) shall have been obtained for each series of Notes.
Section 4.9. Changes in Corporate Structure. The Company shall not have changed its jurisdiction of incorporation or organization, as applicable, or been a party to any merger or consolidation or succeeded to all or any substantial part of the liabilities of any other entity, at any time following the date of the most recent financial statements referred to in Schedule 5.5.
Section 4.10. Funding Instructions. At least five Business Days prior to the date of the Closing, such Purchaser shall have received written instructions signed by a Responsible Officer on letterhead of the Company confirming the information specified in Section 3 including (i) the name and address of the transferee bank, (ii) such transferee bank’s ABA number and (iii) the account name and number into which the purchase price for the Notes is to be deposited, which account shall be fully opened and able to receive micro deposits in accordance with Section 4.10 at least five Business Days prior to the date of such Closing and (iv) the name, telephone number and email address of a Responsible Officer of the Company responsible for verifying receipt of the funds. Each Purchaser has the right, but not the obligation, upon written notice (which may be by email) to the Company, to elect to deliver a micro deposit (less than $51.00) to the account identified in the written instructions no later than two Business Days prior to Closing. If a Purchaser delivers a micro deposit, a Responsible Officer must verbally verify the receipt and amount of the micro deposit to such Purchaser on a telephone call initiated by such Purchaser prior to Closing. The Company shall not be obligated to return the amount of the micro deposit, nor will the amount of the micro deposit be netted against the Purchaser’s purchase price of the Notes. If requested by one or more Purchasers, an identifiable Responsible Officer of the Company shall confirm the written instructions by one live videoconference
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Madison Gas and Electric Company Note Purchase Agreement
made available to the Purchasers no later than 2 Business Days prior to the date of the Closing.
Section 4.11. Proceedings and Documents. All corporate and other proceedings in connection with the transactions contemplated by this Agreement and all documents and instruments incident to such transactions shall be reasonably satisfactory to such Purchaser and its special counsel, and such Purchaser and its special counsel shall have received all such counterpart originals or certified or other copies of such documents as such Purchaser or such special counsel may reasonably request.
Section 5. Representations and Warranties of The Company.
The Company represents and warrants to each Purchaser as of the Execution Date and as of the Closing for such Purchaser that:
Section 5.1. Organization; Power and Authority. The Company is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation, and is duly qualified as a foreign corporation and is in good standing in each jurisdiction in which such qualification is required by law, other than those jurisdictions as to which the failure to be so qualified or in good standing would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. The Company has the corporate power and authority to own or hold under lease the properties it purports to own or hold under lease, to transact the business it transacts and currently proposes to transact, to execute and deliver this Agreement and the Notes and to perform the provisions hereof and thereof.
Section 5.2. Authorization, Etc. This Agreement and the Notes have been duly authorized by all necessary corporate action on the part of the Company, and this Agreement constitutes, and upon execution and delivery thereof each Note will constitute, a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as such enforceability may be limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors’ rights generally and (ii) general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).
Section 5.3. Disclosure. The Company, through its agent, U.S. Bancorp Investments, Inc., has delivered to each Purchaser a copy of an Investor Presentation dated October 2022 (the “Presentation”), relating to the transactions contemplated hereby. This Agreement, the Presentation and the documents, certificates or other writings delivered to the Purchasers by or on behalf of the Company in connection with the transactions contemplated hereby and identified in Schedule 5.3, and the financial statements listed in Schedule 5.5 (this Agreement, the Presentation and such documents, certificates or other writings and such financial statements delivered to each Purchaser prior to October 27, 2022 being referred to, collectively, as the “Disclosure Documents”), taken as a whole, do not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading in light of the circumstances under which they were made. Except as disclosed in the Disclosure Documents, since December 31, 2021, there has been no change in the financial condition, operations, business
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Madison Gas and Electric Company Note Purchase Agreement
or properties of the Company or any of its Subsidiaries except changes that individually or in the aggregate would not reasonably be expected to have a Material Adverse Effect.
Section 5.4. Organization and Ownership of Shares of Subsidiaries. (a) Schedule 5.4 is (except as noted therein) a complete and correct list of the Company’s Subsidiaries, showing, as to each Subsidiary, the correct name thereof, the jurisdiction of its organization, and the percentage of shares of each class of its capital stock or similar equity interests outstanding owned by the Company and each other Subsidiary.
(b) All of the outstanding shares of capital stock or similar equity interests of each Subsidiary shown in Schedule 5.4 as being owned by the Company and its Subsidiaries have been validly issued, are fully paid and nonassessable and are owned by the Company or another Subsidiary free and clear of any Lien (except as otherwise disclosed in Schedule 5.4).
(c) Each Subsidiary identified in Schedule 5.4 is a corporation or other legal entity duly organized, validly existing and in good standing under the laws of its jurisdiction of organization, and is duly qualified as a foreign corporation or other legal entity and is in good standing in each jurisdiction in which such qualification is required by law, other than those jurisdictions as to which the failure to be so qualified or in good standing would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Each such Subsidiary has the corporate or other power and authority to own or hold under lease the properties it purports to own or hold under lease and to transact the business it transacts and currently proposes to transact.
Section 5.5. Financial Statements; Material Liabilities. The Company has delivered to each Purchaser as of the Execution Date copies of the financial statements of the Company and its Subsidiaries listed on Schedule 5.5. All of said financial statements (including in each case the related schedules and notes) fairly present in all material respects the consolidated financial position of the Company and its Subsidiaries as of the respective dates specified in such Schedule and the consolidated results of their operations and cash flows for the respective periods so specified and have been prepared in accordance with GAAP consistently applied throughout the periods involved except as set forth in the notes thereto (subject, in the case of any interim financial statements, to normal year-end adjustments and that such interim financial statements may not contain all of the footnote disclosures required by GAAP). The Company and its Subsidiaries do not have any Material liabilities that are not disclosed on such financial statements or otherwise disclosed in the Disclosure Documents.
Section 5.6. Compliance with Laws, Other Instruments, Etc. The execution, delivery and performance by the Company of this Agreement and the Notes will not (i) contravene, result in any breach of, or constitute a default under, or result in the creation of any Lien in respect of any property of the Company or any Subsidiary
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Madison Gas and Electric Company Note Purchase Agreement
under, any Material indenture, mortgage, deed of trust, loan, purchase or credit agreement, lease, corporate charter or by-laws, or any other Material agreement or instrument to which the Company or any Subsidiary is bound or by which the Company or any Subsidiary or any of their respective properties may be bound or affected, (ii) conflict with or result in a breach of any of the terms, conditions or provisions of any order, judgment, decree, or ruling of any court, arbitrator or Governmental Authority applicable to the Company or any Subsidiary or (iii) violate any provision of any statute or other rule or regulation of any Governmental Authority applicable to the Company or any Subsidiary.
Section 5.7. Governmental Authorizations, Etc. No consent, approval or authorization of, or registration, filing or declaration with, any Governmental Authority is required in connection with the execution, delivery or performance by the Company of this Agreement or the Notes (other than authorization from the Public Service Commission of Wisconsin, which has been previously obtained).
Section 5.8. Litigation; Observance of Statutes and Orders. (a) Except as described in (i) Part I, Item 1 “Business -- Environmental,” Part I, Item 3 “Legal Proceedings,” Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Other Matters – ATC” and Part II, Item 8 “Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements,” footnotes 16a and 16b in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 10-K Report”) and (ii) Part I, Item 1 “Financial Statements –Notes to Consolidated Financial Statements,” footnotes 8a and 8b, Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Other Matters – ATC” and Part II, Item 1 “Legal Proceedings” in the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2022 (the “June 30, 2022 10-Q Report”), there are no actions, suits, investigations or proceedings pending or, to the knowledge of the Company, threatened against or affecting the Company or any Subsidiary or any property of the Company or any Subsidiary in any court or before any arbitrator of any kind or before or by any Governmental Authority that, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect.
(b) Neither the Company nor any Subsidiary (i) is in violation of any order, judgment, decree or ruling of any court, arbitrator or Governmental Authority or (ii) is in violation of any applicable law, ordinance, rule or regulation of any Governmental Authority (including without limitation Environmental Laws, the USA Patriot Act or any of the other laws and regulations that are referred to in Section 5.16), which default or violation, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect.
Section 5.9. Taxes. MGE Energy, Inc., the parent corporation of the Company, has, or the Company and its Subsidiaries have, filed all income tax returns that are required to have been filed in any jurisdiction, and have paid all taxes shown to be due and payable on such returns and all other taxes and assessments payable by them, to the extent such taxes and assessments have become due and payable and before they have become delinquent, except for any taxes and assessments (i) the amount of which is not individually or in the aggregate Material or
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Madison Gas and Electric Company Note Purchase Agreement
(ii) the amount, applicability or validity of which is currently being contested in good faith by appropriate proceedings and with respect to which the Company or a Subsidiary, as the case may be, has established adequate reserves in accordance with GAAP. The Federal income tax liabilities of the Company and its Subsidiaries have been finally determined (whether by reason of completed audits or the statute of limitations having run) for all fiscal years up to and including the fiscal year ended December 31, 2017.
Section 5.10. Title to Property; Leases. The Company and its Subsidiaries have good and sufficient title to their respective Material properties, including all such properties reflected in the most recent audited balance sheet referred to in Section 5.5 or purported to have been acquired by the Company or any Subsidiary after said date (except as (i) disclosed in the audited financial statements referred to in Section 5.5 with respect to the consolidation of certain variable interest entities under the provisions of FASB Interpretation No. 46R, Consolidation of Variable Interest Entities—An Interpretation of ARB No. 51, or (ii) sold or otherwise disposed of in the ordinary course of business), in each case free and clear of Liens prohibited by this Agreement, except for those defects in title and Liens that, individually or in the aggregate, would not have a Material Adverse Effect. All Material leases are valid and subsisting and are in full force and effect in all material respects.
Section 5.11. Licenses, Permits, Etc. The Company and its Subsidiaries own or possess all licenses, permits, franchises, authorizations, patents, copyrights, proprietary software, service marks, trademarks and trade names, or rights thereto, that are Material, without known conflict with the rights of others, except for those conflicts that, individually or in the aggregate, would not have a Material Adverse Effect.
Section 5.12. Compliance with ERISA. (a) The Company and each ERISA Affiliate have operated and administered each Plan in compliance with all applicable laws except for such instances of noncompliance as have not resulted in and would not reasonably be expected to result in a Material Adverse Effect. Neither the Company nor any ERISA Affiliate has incurred any liability pursuant to Title I or IV of ERISA or the penalty or excise tax provisions of the Code relating to employee benefit plans (as defined in section 3 of ERISA), and no event, transaction or condition has occurred or exists that would reasonably be expected to result in the incurrence of any such liability by the Company or any ERISA Affiliate, or in the imposition of any Lien on any of the rights, properties or assets of the Company or any ERISA Affiliate, in either case pursuant to Title I or IV of ERISA or to section 430(k) of the Code or to any such penalty or excise tax provisions under the Code or federal law or section 4068 of ERISA or by the granting of a security interest in connection with the amendment of a Plan, other than such liabilities or Liens as would not result, individually or in the aggregate, in a Material Adverse Effect.
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Madison Gas and Electric Company Note Purchase Agreement
(b) The present value of the aggregate benefit liabilities under each of the Plans (other than (i) Multiemployer Plans and (ii) any Plans covered by the representation in Section 5.12(d)), determined as of the end of such Plan’s most recently ended plan year on the basis of the actuarial assumptions specified for funding purposes in such Plan’s most recent actuarial valuation report, did not exceed the aggregate current value of the assets of such Plan allocable to such benefit liabilities by more than $50,000,000 in the case of any single Plan and by more than $100,000,000 in the aggregate for all Plans (other than any Plans covered by the representation in Section 5.12(d)). The term “benefit liabilities” has the meaning specified in section 4001 of ERISA and the terms “current value” and “present value” have the meaning specified in section 3 of ERISA.
(c) The Company and its ERISA Affiliates have not incurred withdrawal liabilities (and are not subject to contingent withdrawal liabilities) under section 4201 or 4204 of ERISA in respect of Multiemployer Plans that, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect.
(d) The expected postretirement benefit obligation (determined as of the last day of the Company’s most recently ended fiscal year in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 715-60, without regard to liabilities attributable to continuation coverage mandated by section 4980B of the Code) of the Company and its Subsidiaries would not result in a Material Adverse Effect or has otherwise been disclosed in footnote 11 of Notes to Consolidated Financial Statements in Part II, Item 8 “Financial Statements and Supplementary Data” in the 2021 10-K Report or footnote 5 of Notes to Consolidated Financial Statements in Part I, Item 1 “Financial Statements” in the June 30, 2022 10-Q Report.
(e) The execution and delivery of this Agreement and the issuance and sale of the Notes hereunder will not involve any transaction that is subject to the prohibitions of section 406 of ERISA or in connection with which an excise tax could be imposed pursuant to section 4975(c)(1)(A)‑(D) of the Code. The representation by the Company to each Purchaser in the first sentence of this Section 5.12(e) is made in reliance upon and subject to the accuracy of such Purchaser’s representation in Section 6.2 as to the sources of the funds to be used to pay the purchase price of the Notes to be purchased by such Purchaser.
Section 5.13. Private Offering by the Company. Neither the Company nor anyone acting on its behalf has offered the Notes or any similar securities for sale to, or solicited any offer to buy any of the same from, or otherwise approached or negotiated in respect thereof with, any person other than the Purchasers and not more than 11 other Institutional Investors, each of which has been offered the Notes at a private sale for investment. Neither the Company nor anyone acting on its behalf has taken, or will take, any action that would subject the issuance or sale of the Notes to the registration requirements of Section 5 of the Securities Act or to the registration requirements of any securities or blue sky laws of any applicable jurisdiction.
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Madison Gas and Electric Company Note Purchase Agreement
Section 5.14. Use of Proceeds; Margin Regulations. The Company will apply the proceeds of the sale of the Notes for general corporate purposes and in compliance with all laws referenced in Section 5.16. No part of the proceeds from the sale of the Notes hereunder will be used, directly or indirectly, for the purpose of buying or carrying any margin stock within the meaning of Regulation U of the Board of Governors of the Federal Reserve System (12 CFR 221), or for the purpose of buying or carrying or trading in any securities under such circumstances as to involve the Company in a violation of Regulation X of said Board (12 CFR 224) or to involve any broker or dealer in a violation of Regulation T of said Board (12 CFR 220). Margin stock does not constitute more than 25% of the value of the consolidated assets of the Company and its Subsidiaries and the Company does not have any present intention that margin stock will constitute more than 25% of the value of such assets. As used in this Section, the terms “margin stock” and “purpose of buying or carrying” shall have the meanings assigned to them in said Regulation U.
Section 5.15. Existing Indebtedness. (a) Except as described therein, Schedule 5.15 sets forth a complete and correct list of all outstanding Indebtedness of the Company and its Subsidiaries as of September 30, 2022 (including a description of the obligors and obligees, principal amount outstanding and collateral therefor, if any, and Guaranty thereof, if any), since which date, except as set forth in an updated Schedule 5.15 delivered under an Officer’s Certificate pursuant to Section 4.1, there has been no Material change in the amounts, interest rates, sinking funds, installment payments or maturities of the Indebtedness of the Company or its Subsidiaries, other than borrowings under the Company’s credit agreements and issuances of commercial paper in the ordinary course of business. Neither the Company nor any Subsidiary is in default and no waiver of default is currently in effect, in the payment of any principal or interest on any Indebtedness of the Company or such Subsidiary and no event or condition exists with respect to any Indebtedness of the Company or any Subsidiary the outstanding principal amount of which exceeds $50,000,000 that would permit (or that with notice or the lapse of time, or both, would permit) one or more Persons to cause such Indebtedness to become due and payable before its stated maturity or before its regularly scheduled dates of payment.
(b) Neither the Company nor any Subsidiary is a party to, or otherwise subject to any provision contained in, any instrument evidencing Indebtedness of the Company or such Subsidiary, any agreement relating thereto or any other agreement (including, but not limited to, its charter or other organizational document) which limits the amount of, or otherwise imposes restrictions on the incurring of, Indebtedness of the Company, except as specifically indicated in Schedule 5.15.
Section 5.16. Foreign Assets Control Regulations, Etc. (a) Neither the Company nor any Controlled Entity (i) is a Blocked Person, (ii) has been notified that its name appears or may in the future appear on a State Sanctions List or (iii) is a target of sanctions that have been imposed by the United Nations or the European Union.
(b) Neither the Company nor any Controlled Entity (i) has violated, been found in violation of, or been charged or convicted under, any applicable U.S. Economic Sanctions Laws, Anti-Money Laundering Laws or Anti-Corruption Laws or (ii) to the Company’s knowledge, is under investigation by any Governmental Authority for possible violation of any U.S. Economic Sanctions Laws, Anti-Money Laundering Laws or Anti-Corruption Laws.
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Madison Gas and Electric Company Note Purchase Agreement
(c) No part of the proceeds from the sale of the Notes hereunder:
(i) constitutes or will constitute funds obtained on behalf of any Blocked Person or will otherwise be used by the Company or any Controlled Entity, directly or indirectly, (A) in connection with any investment in, or any transactions or dealings with, any Blocked Person, (B) for any purpose that would cause any Purchaser to be in violation of any U.S. Economic Sanctions Laws or (C) otherwise in violation of any U.S. Economic Sanctions Laws; (ii) will be used, directly or indirectly, in violation of, or cause any Purchaser to be in violation of, any applicable Anti-Money Laundering Laws; or
(iii) will be used, directly or indirectly, for the purpose of making any improper payments, including bribes, to any Governmental Official or commercial counterparty in order to obtain, retain or direct business or obtain any improper advantage, in each case which would be in violation of, or cause any Purchaser to be in violation of, any applicable Anti-Corruption Laws.
(d) The Company has taken reasonable measures appropriate to the circumstances (and otherwise comply with applicable law) to ensure that the Company and each Controlled Entity is and will continue to be in compliance with all applicable U.S. Economic Sanctions Laws, Anti-Money Laundering Laws and Anti-Corruption Laws.
Section 5.17. Status under Certain Statutes. Neither the Company nor any Subsidiary is subject to regulation under the Investment Company Act of 1940, as amended, or the ICC Termination Act of 1995, as amended.
Section 6. Representations of The Purchasers.
Section 6.1. Purchase for Investment. Each Purchaser severally represents as of the Execution Date and as of the Closing that it is purchasing the Notes for its own account or for one or more separate accounts maintained by such Purchaser or for the account of one or more pension or trust funds and not with a view to the distribution thereof, provided that the disposition of such Purchaser’s or their property shall at all times be within such Purchaser’s or their control. Each Purchaser understands that the Notes have not been registered under the Securities Act and may be resold only if registered pursuant to the provisions of the Securities Act or if an exemption from registration is available, except under circumstances where neither such registration nor such an exemption is required by law, and that the Company is not required to register the Notes.
Section 6.2. Source of Funds. Each Purchaser severally represents that at least one of the following statements is an accurate representation as to each source of funds (a “Source”) to be used by such Purchaser to pay the purchase price of the Notes to be purchased by such Purchaser hereunder:
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Madison Gas and Electric Company Note Purchase Agreement
(a) the Source is an “insurance company general account” (as the term is defined in the United States Department of Labor’s Prohibited Transaction Exemption (“PTE”) 95-60) in respect of which the reserves and liabilities (as defined by the annual statement for life insurance companies approved by the National Association of Insurance Commissioners (the “NAIC Annual Statement”)) for the general account contract(s) held by or on behalf of any employee benefit plan together with the amount of the reserves and liabilities for the general account contract(s) held by or on behalf of any other employee benefit plans maintained by the same employer (or affiliate thereof as defined in PTE 95‑60) or by the same employee organization in the general account do not exceed 10% of the total reserves and liabilities of the general account (exclusive of separate account liabilities) plus surplus as set forth in the NAIC Annual Statement filed with such Purchaser’s state of domicile; or
(b) the Source is a separate account that is maintained solely in connection with such Purchaser’s fixed contractual obligations under which the amounts payable, or credited, to any employee benefit plan (or its related trust) that has any interest in such separate account (or to any participant or beneficiary of such plan (including any annuitant)) are not affected in any manner by the investment performance of the separate account; or
(c) the Source is either (i) an insurance company pooled separate account, within the meaning of PTE 90-1 or (ii) a bank collective investment fund, within the meaning of the PTE 91-38 and, except as disclosed by such Purchaser to the Company in writing pursuant to this clause (c), no employee benefit plan or group of plans maintained by the same employer or employee organization beneficially owns more than 10% of all assets allocated to such pooled separate account or collective investment fund; or
(d) the Source constitutes assets of an “investment fund” (within the meaning of Part VI of PTE 84-14 (the “QPAM Exemption”)) managed by a “qualified professional asset manager” or “QPAM” (within the meaning of Part VI of the QPAM Exemption), no employee benefit plan’s assets that are managed by the QPAM in such investment fund, when combined with the assets of all other employee benefit plans established or maintained by the same employer or by an affiliate (within the meaning of Part VI(c)(1) of the QPAM Exemption) of such employer or by the same employee organization and managed by such QPAM, represent more than 20% of the total client assets managed by such QPAM, the conditions of Part I(c) and (g) of the QPAM Exemption are satisfied, neither the QPAM nor a person controlling or controlled by the QPAM maintains an ownership interest in the Company that would cause the QPAM and the Company to be “related” within the meaning of Part VI(h) of the QPAM Exemption and (i) the identity of such QPAM and (ii) the names of any employee benefit plans whose assets in the investment fund, when combined with the assets of all other employee benefit plans established or maintained by the same employer or by an affiliate (within the meaning of Part VI(c)(1) of the QPAM Exemption) of such employer or by the same employee organization, represent 10% or more of the assets of such investment fund, have been disclosed to the Company in writing pursuant to this clause (d); or
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Madison Gas and Electric Company Note Purchase Agreement
(e) the Source constitutes assets of a “plan(s)” (within the meaning of Part IV(h) of PTE 96‑23 (the “INHAM Exemption”)) managed by an “in-house asset manager” or “INHAM” (within the meaning of Part IV(a) of the INHAM Exemption), the conditions of Part I(a), (g) and (h) of the INHAM Exemption are satisfied, neither the INHAM nor a person controlling or controlled by the INHAM (applying the definition of “control” in Part IV(d)(3) of the INHAM Exemption) owns a 10% or more interest in the Company and (i) the identity of such INHAM and (ii) the name(s) of the employee benefit plan(s) whose assets constitute the Source have been disclosed to the Company in writing pursuant to this clause (e); or
(f) the Source is a governmental plan; or
(g) the Source is one or more employee benefit plans, or a separate account or trust fund comprised of one or more employee benefit plans, each of which has been identified to the Company in writing pursuant to this clause (g); or
(h) the Source does not include assets of any employee benefit plan, other than a plan exempt from the coverage of ERISA.
As used in this Section 6.2, the terms “employee benefit plan,” “governmental plan,” and “separate account” shall have the respective meanings assigned to such terms in section 3 of ERISA.
Section 7. Information as To Company.
Section 7.1. Financial and Business Information. The Company shall deliver to each holder of Notes that is an Institutional Investor (and to each Purchaser during the period from the Execution Date through the Second Closing):
(a) Quarterly Statements — within 60 days (or such shorter period as is 15 days greater than the period applicable to the filing of the Company’s Quarterly Report on Form 10‑Q (the “Form 10‑Q”) with the SEC regardless of whether the Company is subject to the filing requirements thereof) after the end of each quarterly fiscal period in each fiscal year of the Company (other than the last quarterly fiscal period of each such fiscal year), duplicate copies of,
(i) an unaudited consolidated balance sheet of the Company and its Subsidiaries as at the end of such quarter, and
(ii) unaudited consolidated statements of income and cash flows of the Company and its consolidated Subsidiaries, for such quarter and (in the case of the second and third quarters) for the portion of the fiscal year ending with such quarter,
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Madison Gas and Electric Company Note Purchase Agreement
setting forth in each case in comparative form the figures for the corresponding periods in the previous fiscal year, all in reasonable detail, prepared in accordance with GAAP applicable to unaudited quarterly financial statements generally, and certified by a Senior Financial Officer as fairly presenting, in all material respects, the consolidated financial position of the companies being reported on and their consolidated results of operations and cash flows, subject to changes resulting from year-end adjustments, provided that delivery within the time period specified above of copies of the Company’s Form 10-Q prepared in compliance with the requirements therefor and filed with the SEC shall be deemed to satisfy the requirements of this Section 7.1(a);
(b) Annual Statements — within 105 days (or such shorter period as is 15 days greater than the period applicable to the filing of the Company’s Annual Report on Form 10‑K (the “Form 10‑K”) with the SEC regardless of whether the Company is subject to the filing requirements thereof) after the end of each fiscal year of the Company, duplicate copies of,
(i) a consolidated balance sheet of the Company and its Subsidiaries, as at the end of such year, and
(ii) consolidated statements of income and cash flows of the Company and its Subsidiaries, for such year,
setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail, prepared in accordance with GAAP, and accompanied by an opinion thereon of independent public accountants of recognized national standing, which opinion shall state that such financial statements present fairly, in all material respects, the financial position of the companies being reported upon and their results of operations and cash flows and have been prepared in conformity with GAAP, and that the examination of such accountants in connection with such financial statements has been made in accordance with the standards of the Public Company Accounting Oversight Board, and that such audit provides a reasonable basis for such opinion in the circumstances, provided that the delivery within the time period specified above of the Company’s Annual Report on Form 10-K for such fiscal year (together with the Company’s annual report to shareholders, if any, prepared pursuant to Rule 14a-3 under the Exchange Act) prepared in accordance with the requirements therefor and filed with the SEC shall be deemed to satisfy the requirements of this Section 7.1(b);
(c) SEC and Other Reports — promptly upon their becoming available, one copy of (i) each financial statement, report, notice or proxy statement sent by the Company or any Subsidiary to its public securities holders generally, and (ii) each regular or periodic report, each registration statement that shall have become effective (without exhibits except as expressly requested by such holder and excluding registration statements on Form S-8), and each final prospectus and all amendments thereto filed by the Company or any Subsidiary with the SEC;
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Madison Gas and Electric Company Note Purchase Agreement
(d) Notice of Default or Event of Default — promptly, and in any event within five days after a Responsible Officer becoming aware of the existence of any Default or Event of Default, a written notice specifying the nature and period of existence thereof and what action the Company is taking or proposes to take with respect thereto;
(e) ERISA Matters — promptly, and in any event within five days after a Responsible Officer becoming aware of any of the following, a written notice setting forth the nature thereof and the action, if any, that the Company or an ERISA Affiliate proposes to take with respect thereto:
(i) with respect to any Plan, any reportable event, as defined in section 4043(c) of ERISA and the regulations thereunder, for which notice thereof has not been waived pursuant to such regulations as in effect on the date hereof; or
(ii) the taking by the PBGC of steps to institute, or the threatening by the PBGC of the institution of, proceedings under section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan, or the receipt by the Company or any ERISA Affiliate of a notice from a Multiemployer Plan that such action has been taken by the PBGC with respect to such Multiemployer Plan; or
(iii) any event, transaction or condition that could result in the incurrence of any liability by the Company or any ERISA Affiliate pursuant to Title I or IV of ERISA or the penalty or excise tax provisions of the Code relating to employee benefit plans, or in the imposition of any Lien on any of the rights, properties or assets of the Company or any ERISA Affiliate pursuant to Title I or IV of ERISA or such penalty or excise tax provisions, if such liability or Lien, taken together with any other such liabilities or Liens then existing, would reasonably be expected to have a Material Adverse Effect; and
(f) Requested Information — with reasonable promptness, such other data and information relating to the business, operations, affairs, financial condition, assets or properties of the Company or any of its Subsidiaries (including, but without limitation, actual copies of the Company’s Form 10‑Q and Form 10‑K) or relating to the ability of the Company to perform its obligations under this Agreement and under the Notes as from time to time may be reasonably requested by the holders of Notes holding at least 33% of the then aggregate outstanding principal amount of the Notes.
Section 7.2. Officer’s Certificate. Each set of financial statements delivered to a holder of Notes (and to each Purchaser during the period from the Execution Date through the Second Closing) pursuant to Section 7.1(a) or Section 7.1(b) shall be accompanied by a certificate of a Senior Financial Officer setting forth (which, in the case of Electronic Delivery pursuant to Section 7.4 of any such financial statements, shall be by separate concurrent delivery of such certificate to each holder or Purchaser (as applicable) of Notes):
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Madison Gas and Electric Company Note Purchase Agreement
(a) Covenant Compliance — the information (including detailed calculations) required in order to establish whether the Company was in compliance with the requirements of Section 10.4 through Section 10.6, inclusive, during the quarterly or annual period covered by the statements then being furnished (including with respect to each such Section, where applicable, the calculations of the maximum or minimum amount, ratio or percentage, as the case may be, permissible under the terms of such Sections, and the calculation of the amount, ratio or percentage then in existence). In the event that the Company or any Subsidiary has made an election to measure any financial liability using fair value (which election is being disregarded for purposes of determining compliance with this Agreement pursuant to Section 22.3) as to the period covered by any such financial statement, such Senior Financial Officer’s certificate as to such period shall include a reconciliation from GAAP with respect to such election; and
(b) Event of Default — a statement that such Senior Financial Officer has reviewed the relevant terms hereof and has made, or caused to be made, under his or her supervision, a review of the transactions and conditions of the Company and its Subsidiaries from the beginning of the quarterly or annual period covered by the statements then being furnished to the date of the certificate and that, as a result of such review, such Senior Financial Officer has not become aware of the existence during such period of any condition or event that constitutes a Default or an Event of Default or, if any such condition or event existed or exists, specifying the nature and period of existence thereof and what action the Company shall have taken or proposes to take with respect thereto.
Section 7.3. Visitation. The Company shall permit the representatives of each holder of Notes that is an Institutional Investor (and of each Purchaser during the period from the Execution Date through the Second Closing):
(a) No Default — if no Default or Event of Default then exists, at the expense of such holder or such Purchaser and upon reasonable prior notice to the Company, to visit the principal executive office of the Company, to discuss the affairs, finances and accounts of the Company and its Subsidiaries with the Company’s officers, and, with the consent of the Company (which consent will not be unreasonably withheld), to visit the other offices and properties of the Company and each Subsidiary, all at such reasonable times and as often as may be reasonably requested in writing; and
(b) Default — if a Default or Event of Default then exists, at the expense of the Company to visit and inspect any of the offices or properties of the Company or any Subsidiary, to examine all their respective books of account, records, reports and other papers, to make copies and extracts therefrom, and to discuss their respective affairs, finances and accounts with their respective officers and independent public accountants (and by this provision the Company authorizes said accountants to discuss the affairs, finances and accounts of the Company and its Subsidiaries), all at such times and as often as may be requested.
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Madison Gas and Electric Company Note Purchase Agreement
Section 7.4. Electronic Delivery. Financial statements, opinions of independent certified public accountants, other information and Officer’s Certificates that are required to be delivered by the Company pursuant to Sections 7.1(a), (b) or (c) and Section 7.2 shall be deemed to have been delivered if the Company satisfies any of the following requirements with respect thereto:
(i) such financial statements satisfying the requirements of Section 7.1(a) or (b) and related Officer’s Certificate satisfying the requirements of Section 7.2 and any other information required under Section 7.1(c) are delivered to each holder or Purchaser of a Note by e-mail at the e-mail address set forth in such holder’s or Purchaser’s Purchaser Schedule or as communicated from time to time in a separate writing delivered to the Company; (ii) the Company shall have timely filed such Form 10–Q or Form 10‑K, satisfying the requirements of Section 7.1(a) or Section 7.1(b), as the case may be, with the SEC on EDGAR and shall have made such form and the related Officer’s Certificate satisfying the requirements of Section 7.2 available on its home page on the internet, which is located at http://mgeenergy.com as of the date of this Agreement;
(iii) such financial statements satisfying the requirements of Section 7.1(a) or Section 7.1(b) and related Officer’s Certificate(s) satisfying the requirements of Section 7.2 are timely posted by or on behalf of the Company on its home page on the internet or on IntraLinks or on any other similar website to which each holder or Purchaser of Notes has free access; or
(iv) the Company shall have filed any of the items referred to in Section 7.1(c) with the SEC on EDGAR and shall have made such items available on its home page on the internet or on IntraLinks or on any other similar website to which each holder or Purchaser of Notes has free access;
provided however, that in no case shall access to such financial statements, other information and Officer’s Certificates be conditioned upon any waiver or other agreement or consent (other than confidentiality provisions consistent with Section 20 of this Agreement); provided further, that in the case of any of clauses (ii), (iii) or (iv), the Company shall have given each holder or Purchaser of a Note prior written notice, which may be by e-mail or in accordance with Section 18, of such posting or filing in connection with each delivery, provided further, that upon request of any holder or Purchaser to receive paper copies of such forms, financial statements and Officer’s Certificates or to receive them by e-mail, the Company will promptly e-mail them or deliver such paper copies, as the case may be, to such holder or Purchaser.
Section 8. Payment and Prepayment of The Notes.
Section 8.1. Maturity. As provided therein, the entire unpaid principal balance of the Notes shall be due and payable on the stated maturity date thereof.
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Madison Gas and Electric Company Note Purchase Agreement
Section 8.2. Optional Prepayments with Make-Whole Amount. The Company may, at its option, upon notice as provided below, prepay at any time all, or from time to time any part of, the Notes, in an amount not less than 10% of the aggregate principal amount of the series of Notes proposed to be prepaid then outstanding in the case of a partial prepayment, at 100% of the principal amount so prepaid, plus the Make-Whole Amount determined for the prepayment date with respect to such principal amount (provided that no Make-Whole Amount shall be due if such series of Notes are prepaid during the 90-day period immediately preceding and ending on the Maturity Date thereof), provided, further, that if (i) a Default or Event of Default has occurred and is continuing at the time of such notice provided or on the date set for prepayment or (ii) a Default or an Event of Default would result from making such prepayment, then such prepayment pursuant to this Section 8.2 must be made on a pro rata basis to the holders of all Notes at the time outstanding (without regards to series). The Company will give each holder of the series of Notes proposed to be prepaid written notice of such optional prepayment under this Section 8.2 not less than 20 days and not more than 60 days prior to the date fixed for such prepayment. Each such notice shall specify such date (which shall be a Business Day), the series and aggregate principal amount of such series of the Notes to be prepaid on such date, the principal amount of each Note of such series held by such holder to be prepaid (determined in accordance with Section 8.3), and the interest to be paid on the prepayment date with respect to such principal amount being prepaid, and shall be accompanied by a certificate of a Senior Financial Officer as to the estimated Make-Whole Amount due in connection with such prepayment (calculated as if the date of such notice were the date of the prepayment), setting forth the details of such computation. Two Business Days prior to such prepayment, the Company shall deliver to each holder of Notes to be prepaid a certificate of a Senior Financial Officer specifying the calculation of such Make-Whole Amount as of the specified prepayment date.
Section 8.3. Allocation of Partial Prepayments. In the case of each partial prepayment of a series of the Notes pursuant to Section 8.2, the principal amount of such series of the Notes to be prepaid shall be allocated among all of the Notes of such series at the time outstanding in proportion, as nearly as practicable, to the respective unpaid principal amounts thereof not theretofore called for prepayment.
Section 8.4. Maturity; Surrender, Etc. In the case of each prepayment of Notes pursuant to this Section 8, the principal amount of each Note to be prepaid shall mature and become due and payable on the date fixed for such prepayment (which shall be a Business Day), together with interest on such principal amount accrued to such date and the applicable Make-Whole Amount, if any. From and after such date, unless the Company shall fail to pay such principal amount when so due and payable, together with the interest and Make-Whole Amount, if any, as aforesaid, interest on such principal amount shall cease to accrue. Any Note paid or prepaid in full shall be surrendered to the Company and cancelled and shall not be reissued, and no Note shall be issued in lieu of any prepaid principal amount of any Note.
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Madison Gas and Electric Company Note Purchase Agreement
Section 8.5. Purchase of Notes. The Company will not and will not permit any Affiliate to purchase, redeem, prepay or otherwise acquire, directly or indirectly, any of the outstanding Notes of a series except (a) upon the payment or prepayment of such Notes in accordance with the terms of this Agreement and such Notes or (b) pursuant to an offer to purchase made by the Company or an Affiliate pro rata to the holders of all Notes of such series at the time outstanding upon the same terms and conditions, provided that if (i) a Default or Event of Default has occurred and is continuing at the time such offer to purchase is made or on the date set for purchase or (ii) a Default or Event of Default would result from such purchase, then such offer to purchase pursuant to this Section 8.5 shall be made on a pro rata basis to the holders of all Notes at the time outstanding (without regard to series). Any such offer shall provide each holder of Notes of such series with sufficient information to enable it to make an informed decision with respect to such offer, and shall remain open for at least 30 days. If the holders of more than 50% of the principal amount of the Notes of such series then outstanding accept such offer, the Company shall promptly notify the remaining holders of such series of such fact and the expiration date for the acceptance by holders of Notes of such series of such offer shall be extended by the number of days necessary to give each such remaining holder at least 10 days from its receipt of such notice to accept such offer. The Company will promptly cancel all Notes acquired by it or any Affiliate pursuant to any payment, prepayment or purchase of Notes pursuant to any provision of this Agreement and no Notes may be issued in substitution or exchange for any such Notes.
Section 8.6. Make-Whole Amount. “Make-Whole Amount” means, with respect to any Note, an amount equal to the excess, if any, of the Discounted Value of the Remaining Scheduled Payments with respect to the Called Principal of such Note over the amount of such Called Principal, provided that the Make-Whole Amount may in no event be less than zero. For the purposes of determining the Make-Whole Amount, the following terms have the following meanings:
“Called Principal” means, with respect to any Note, the principal of such Note that is to be prepaid pursuant to Section 8.2 or has become or is declared to be immediately due and payable pursuant to Section 12.1, as the context requires.
“Discounted Value” means, with respect to the Called Principal of any Note, the amount obtained by discounting all Remaining Scheduled Payments with respect to such Called Principal from their respective scheduled due dates to the Settlement Date with respect to such Called Principal, in accordance with accepted financial practice and at a discount factor (applied on the same periodic basis as that on which interest on the Notes is payable) equal to the Reinvestment Yield with respect to such Called Principal.
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Madison Gas and Electric Company Note Purchase Agreement
“Reinvestment Yield” means, with respect to the Called Principal of any Note, 0.50% over the yield to maturity implied by the “Ask-Yield(s)” reported as of 10:00 a.m. (New York City time) on the second Business Day preceding the Settlement Date with respect to such Called Principal, on the display designated as “Page PX1” (or such other display as may replace Page PX1) on Bloomberg Financial Markets for the most recently issued actively traded on-the-run U.S. Treasury securities (“Reported”) having a maturity equal to the Remaining Average Life of such Called Principal as of such Settlement Date. If there are no such U.S. Treasury securities Reported having a maturity equal to such Remaining Average Life, then such implied yield to maturity will be determined by (a) converting U.S. Treasury bill quotations to bond equivalent yields in accordance with accepted financial practice and (b) interpolating linearly between the “Ask-Yields” Reported for the applicable most recently issued actively traded on-the-run U.S. Treasury securities with the maturities (1) closest to and greater than such Remaining Average Life and (2) closest to and less than such Remaining Average Life. The Reinvestment Yield shall be rounded to the number of decimal places as appears in the interest rate of the applicable Note.
If such yields are not Reported or the yields Reported as of such time are not ascertainable (including by way of interpolation), then “Reinvestment Yield” means, with respect to the Called Principal of any Note, 0.50% over the yield to maturity implied by the U.S. Treasury constant maturity yields reported, for the latest day for which such yields have been so reported as of the second Business Day preceding the Settlement Date with respect to such Called Principal, in Federal Reserve Statistical Release H.15 (or any comparable successor publication) for the U.S. Treasury constant maturity having a term equal to the Remaining Average Life of such Called Principal as of such Settlement Date. If there is no such U.S. Treasury constant maturity having a term equal to such Remaining Average Life, such implied yield to maturity will be determined by interpolating linearly between (1) the U.S. Treasury constant maturity so reported with the term closest to and greater than such Remaining Average Life and (2) the U.S. Treasury constant maturity so reported with the term closest to and less than such Remaining Average Life. The Reinvestment Yield shall be rounded to the number of decimal places as appears in the interest rate of the applicable Note.
“Remaining Average Life” means, with respect to any Called Principal, the number of years (or portions of years) obtained by dividing (i) such Called Principal into (ii) the sum of the products obtained by multiplying (a) the principal component of each Remaining Scheduled Payment with respect to such Called Principal by (b) the number of years (or portions of years), computed on the basis of a 360-day year composed of twelve 30-day months and calculated to two decimal places, that will elapse between the Settlement Date with respect to such Called Principal and the scheduled due date of such Remaining Scheduled Payment.
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Madison Gas and Electric Company Note Purchase Agreement
“Remaining Scheduled Payments” means, with respect to the Called Principal of any Note, all payments of such Called Principal and interest thereon that would be due after the Settlement Date with respect to such Called Principal if no payment of such Called Principal were made prior to its scheduled due date, provided that if such Settlement Date is not a date on which interest payments are due to be made under the terms of the Notes, then the amount of the next succeeding scheduled interest payment will be reduced by the amount of interest accrued to such Settlement Date and required to be paid on such Settlement Date pursuant to Section 8.2 or Section 12.1.
“Settlement Date” means, with respect to the Called Principal of any Note, the date on which such Called Principal is to be prepaid pursuant to Section 8.2 or has become or is declared to be immediately due and payable pursuant to Section 12.1, as the context requires.
Section 8.7. Change in Control.
(a) Notice of Change in Control and Change in Control Event. The Company will, within five (5) Business Days after a Responsible Officer has knowledge of the occurrence of any Change in Control, give written notice of such Change in Control to each holder of Notes. If within 90 days after such Change in Control, the Company does not, for any reason, have an Investment Grade Rating, a “Change in Control Event” shall be deemed to have occurred. If a Change in Control Event has occurred, the Company shall promptly, and, in any event, within 10 days after the end of such 90 day period, give written notice thereof to the holders of the Notes, and such notice shall contain and constitute an offer by the Company to prepay the Notes of the Company as described in Section 8.7(b) hereof and shall be accompanied by the certificate described in Section 8.7(e).
(b) Offer to Prepay Notes. The offer to prepay Notes contemplated by paragraph (a) of this Section 8.7 shall be an offer to prepay by the Company, in accordance with and subject to this Section 8.7, all, but not less than all, the Notes held by each holder (in this case only, “holder” in respect of any Note registered in the name of a nominee for a disclosed beneficial owner shall mean such beneficial owner) on a date specified in such offer (the “Proposed Prepayment Date”). Such Proposed Prepayment Date shall be a Business Day not less than 30 days and not more than 60 days after the date of such offer.
(c) Acceptance. A holder of Notes may accept the offer to prepay made pursuant to this Section 8.7 by causing a notice of such acceptance to be delivered to the Company not later than 15 days prior to the Proposed Prepayment Date. A failure by a holder of Notes to respond to an offer to prepay made pursuant to this Section 8.7 within the specified time period shall be deemed to constitute a rejection of such offer by such holder.
(d) Prepayment. Prepayment of the Notes to be prepaid pursuant to this Section 8.7 shall be at 100% of the principal amount of the Notes, together with accrued and unpaid interest thereon to the date of prepayment, but in no event with a Make-Whole Amount or other premium. The prepayment shall be made on the Proposed Prepayment Date.
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Madison Gas and Electric Company Note Purchase Agreement
(e) Officer’s Certificate. Each offer to prepay the Notes pursuant to this Section 8.7 shall be accompanied by a certificate, executed by a Senior Financial Officer of the Company and dated the date of such offer, specifying: (i) the Proposed Prepayment Date; (ii) that such offer is made pursuant to this Section 8.7; (iii) the principal amount of each Note offered to be prepaid (which shall be 100% of the principal amount thereof); (iv) the interest that would be due on each Note offered to be prepaid, accrued to the Proposed Prepayment Date; (v) that the conditions of this Section 8.7 have been fulfilled; (vi) in reasonable detail, the nature of the Change in Control Event; and (vii) any written response from the relevant rating agency.
Section 9. Affirmative Covenants.
From the date of this Agreement until the First Closing and thereafter, so long as any of the Notes are outstanding, the Company covenants that:
Section 9.1. Compliance with Law. Without limiting Section 10.3, the Company will and will cause each of its Principal Subsidiaries to comply with all laws, ordinances or governmental rules or regulations to which each of them is subject, including, without limitation, ERISA, Environmental Laws, the USA Patriot Act and the other laws and regulations that are referred to in Section 5.16, and will obtain and maintain in effect all licenses, certificates, permits, franchises and other governmental authorizations necessary to the ownership of their respective properties or to the conduct of their respective businesses, in each case to the extent necessary to ensure that non-compliance with such laws, ordinances or governmental rules or regulations or failures to obtain or maintain in effect such licenses, certificates, permits, franchises and other governmental authorizations would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect.
Section 9.2. Insurance. The Company will and will cause each of its Principal Subsidiaries to maintain, with financially sound and reputable insurers, insurance with respect to their respective properties and businesses against such casualties and contingencies, of such types, on such terms and in such amounts (including deductibles, co-insurance and self-insurance, if adequate reserves are maintained with respect thereto) as is customary in the case of entities of established reputations engaged in the same or a similar business and similarly situated.
Section 9.3. Maintenance of Properties. The Company will and will cause each of its Principal Subsidiaries to maintain and keep, or cause to be maintained and kept, their respective properties in good repair, working order and condition (other than ordinary wear and tear), so that the business carried on in connection therewith may be properly conducted at all times, provided that this Section shall not prevent the Company or any Principal Subsidiary from discontinuing the operation and the maintenance of any of its properties if such discontinuance is desirable in the conduct of its business and the Company has concluded that such discontinuance would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
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Madison Gas and Electric Company Note Purchase Agreement
Section 9.4. Payment of Taxes. The Company will and will cause each of its Principal Subsidiaries to file all income tax or similar tax returns required to be filed in any jurisdiction and to pay and discharge all taxes shown to be due and payable on such returns and all other taxes, assessments, governmental charges, or levies payable by any of them, to the extent the same have become due and payable and before they have become delinquent, provided that neither the Company nor any Principal Subsidiary need pay any such tax, assessment, charge or levy if (i) the amount, applicability or validity thereof is contested by the Company or such Principal Subsidiary on a timely basis in good faith and in appropriate proceedings, and the Company or a Principal Subsidiary has established adequate reserves therefor in accordance with GAAP on the books of the Company or such Principal Subsidiary or (ii) the nonpayment of all such taxes, assessments, charges and levies in the aggregate would not reasonably be expected to have a Material Adverse Effect.
Section 9.5. Legal Existence, Etc. Subject to Section 10.2, the Company will at all times preserve and keep in full force and effect its legal existence. Subject to Section 10.2, the Company will at all times preserve and keep in full force and effect the legal existence of each of its Principal Subsidiaries (unless merged into the Company or a Wholly‑Owned Subsidiary) and all rights and franchises of the Company and its Principal Subsidiaries unless, in the good faith judgment of the Company, the termination of or failure to preserve and keep in full force and effect such legal existence, right or franchise would not, individually or in the aggregate, have a Material Adverse Effect.
Section 9.6. Books and Records. The Company will, and will cause each of its Principal Subsidiaries to, maintain proper books of record and account in conformity with GAAP and all applicable requirements of any Governmental Authority having legal or regulatory jurisdiction over the Company or such Subsidiary, as the case may be.
Section 9.7. Conduct of Business. The Company will, and will cause each Principal Subsidiary to, (a) carry on and conduct its business in substantially the same manner and in substantially the same fields of enterprise as it is presently conducted, (b) do all things necessary to remain duly incorporated or organized, validly existing and (to the extent such concept applies to such entity) in good standing as a domestic corporation, partnership or limited liability company in its jurisdiction of incorporation or organization, as the case may be, and (c) maintain all requisite authority to conduct its business in each jurisdiction in which its business is conducted and the failure so to maintain such authority would reasonably be expected to have a Material Adverse Effect, provided that this Section shall not be deemed to prohibit any transaction permitted under Section 10.2.
Although it will not be a Default or an Event of Default if the Company fails to comply with any provision of Section 9 on or after the date of this Agreement and prior to the First Closing, if such a failure occurs, then any of the Purchasers may elect not to purchase the Notes on the date of Closing that is specified in Section 3.
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Madison Gas and Electric Company Note Purchase Agreement
Section 10. Negative Covenants.
From the date of this Agreement until the First Closing and thereafter, so long as any of the Notes are outstanding, the Company covenants that:
Section 10.1. Transactions with Affiliates. The Company will not, and will not permit any Principal Subsidiary to, enter into any Material transaction (including the purchase or sale of any property or service) with any Affiliate except (i) in the ordinary course of business and pursuant to the reasonable requirements of the Company’s or such Principal Subsidiary’s business and upon fair and reasonable terms no less favorable to the Company or such Principal Subsidiary than the Company or such Principal Subsidiary would obtain in a comparable arms‑length transaction or (ii) pursuant to agreements or transactions authorized or approved by the Public Service Commission of Wisconsin or federal utilities regulatory bodies.
Section 10.2. Merger, Consolidation, Etc. The Company will not consolidate with or merge with any other Person or convey, transfer or lease all or substantially all of its assets in a single transaction or series of transactions to any Person unless:
(a) the successor formed by such consolidation or the survivor of such merger or the Person that acquires by conveyance, transfer or lease all or substantially all of the assets of the Company as an entirety, as the case may be, shall be a solvent corporation or limited liability company organized and existing under the laws of the United States or any State thereof (including the District of Columbia), and, if the Company is not such corporation or limited liability company, such corporation or limited liability company shall have executed and delivered to each holder of any Notes its assumption of the due and punctual performance and observance of each covenant and condition of this Agreement and the Notes; and
(b) immediately before and immediately after giving effect to such transaction, no Default or Event of Default shall have occurred and be continuing.
No such conveyance, transfer or lease of substantially all of the assets of the Company shall have the effect of releasing the Company or any successor corporation or limited liability company that shall theretofore have become such in the manner prescribed in this Section 10.2 from its liability under this Agreement or the Notes.
Section 10.3. Terrorism Sanctions Regulations. The Company will not and will not permit any Controlled Entity to (a) become (including by virtue of being owned or controlled by a Blocked Person), own or control a Blocked Person or (b) directly or indirectly have any investment in or engage in any dealing or transaction (including any investment, dealing or transaction involving the proceeds of the Notes) with any Person if such investment, dealing or transaction (i) would cause any Purchaser or holder or any affiliate of such holder to be in violation of, or subject to sanctions under, any law or regulation administered by OFAC, or (ii) is prohibited by or subject to sanctions under any U.S. Economic Sanctions Laws.
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Madison Gas and Electric Company Note Purchase Agreement
Section 10.4. Limitation on Liens. The Company will not, nor will it permit any Principal Subsidiary to, create, incur, or suffer to exist any Lien in, of or on the property of the Company or any of its Principal Subsidiaries, except:
(a) Liens for taxes, assessments or governmental charges or levies on its property if the same shall not at the time be delinquent or thereafter can be paid without penalty, or are being contested in good faith and by appropriate proceedings;
(b) Liens imposed by law, such as carriers’, warehousemen’s and mechanics’ liens and other similar liens arising in the ordinary course of business which secure payment of obligations not more than 60 days past due or which are being contested in good faith and by appropriate proceedings diligently conducted;
(c) Liens arising out of pledges or deposits under worker’s compensation laws, unemployment insurance, old age pensions, or other social security or retirement benefits, or similar legislation;
(d) Lien incidental to the normal conduct of the business of the Company or any Principal Subsidiary or the ownership of its property or the conduct of the ordinary course of its business, including (i) zoning restrictions, easements, rights of way, reservations, restrictions on the use of real property and other minor irregularities of title, (ii) rights of lessees under leases, (iii) rights of collecting banks having rights of setoff, revocation, refund or chargeback with respect to money or instruments of the Company or any Principal Subsidiary on deposit with or in the possession of such banks, (iv) Liens or deposits to secure the performance of statutory obligations, tenders, bids, leases, progress payments, performance or return-of-money bonds, performance or other similar bonds or other obligations of a similar nature incurred in the ordinary course of business, and (v) Liens required by any contract or statute in order to permit the Company or a Principal Subsidiary to perform any contract or subcontract made by it with or pursuant to the requirements of a governmental entity, in each case which are not incurred in connection with the borrowing of money, the obtaining of advances or credit or the payment of the deferred purchase price of property and which do not in the aggregate impair the use of property in the operation of the business of the Company and its Principal Subsidiaries taken as a whole;
(e) Liens on property existing at the time of acquisition thereof or Liens affecting property of a Person existing at the time it becomes a Principal Subsidiary or at the time it is merged into or consolidated with the Company or a Principal Subsidiary; provided that, in either case, such Liens were not granted in contemplation of such acquisition or in contemplation of the transaction pursuant to which such Person became a Principal Subsidiary; and provided further that in either case, such Liens do not extend to or cover any property of the Company or of any of its Principal Subsidiaries other than the property that secured the acquired Indebtedness prior to the time such Indebtedness became Indebtedness of the Company or a Principal Subsidiary;
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Madison Gas and Electric Company Note Purchase Agreement
(f) Liens on property securing Indebtedness incurred prior to, at the time of, or within 12 months after the acquisition thereof for the purpose of financing all or part of the purchase price thereof, provided that such Liens do not extend to or cover any other property of the Company or any Principal Subsidiary and the Indebtedness secured thereby was incurred to pay, and does not exceed, the purchase price thereof;
(g) Liens on any improvements to property securing Indebtedness incurred to provide funds for all or part of the cost of such improvements in a principal amount not exceeding the cost of acquisition or construction of such improvements and incurred within 12 months after completion of such improvements or construction, provided that such Liens do not extend to or cover any property of the Company or any Principal Subsidiary other than such improvements;
(h) Liens to government entities granted to secure pollution control or industrial revenue bond financings, which Liens in each financing transaction cover only the property the acquisition of which, or the construction of which, was financed by such financing, and property related thereto;
(i) any Lien incurred or deposits to secure the performance of surety bonds incurred in the ordinary course of business consistent with past practice, provided that such Liens shall cover only the Company’s or its Principal Subsidiary interests in and relating to the contract underlying the transaction for which such surety bonds were issued;
(j) Liens on cash or cash equivalents created or existing to secure stay or appeal bonds or otherwise resulting from any litigation or legal proceeding which are being contested in good faith by appropriate action promptly initiated and diligently conducted, including the Lien of any judgment; provided that the aggregate amount secured by all such Liens does not exceed $50,000,000;
(k) Liens securing any extension, renewal, replacement or refinancing of Indebtedness secured by any Lien referred to in the foregoing clauses (e), (f), (g), (h), and (l); provided that
(i) such new Lien shall be limited to all or part of the same property that secured the original Lien (plus improvements on such property); and
(ii) the amount secured by such Lien at such time is not increased to any amount greater than the amount outstanding at the time of such renewal, replacement or refinancing;
(l) agreements for and obligations relating to the joint or common use of property owned by the Company or any Principal Subsidiary in common or jointly with one or more other parties;
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Madison Gas and Electric Company Note Purchase Agreement
(m) Liens on assets held by entities which are required to be included in the Company’s or any Principal Subsidiary’s consolidated financial statements solely as a result of the application of FASB Interpretation No. 46R;
(n) Liens existing on the date hereof and described in Schedule 5.15 (other than Liens arising under the Mortgage, which are described and covered in paragraph (p) of this Section 10.4);
(o) Permissible Encumbrances;
(p) Liens arising under the Mortgage; and
(q) Liens securing Indebtedness of the Company or any Subsidiary permitted (or, in the case of the Notes and any Other Notes, required) by Section 10.6.
Section 10.5. Indebtedness Ratio. The Company will not permit the ratio of (i) its Consolidated Indebtedness to (ii) its Consolidated Total Capitalization to exceed 0.65 to 1.0 at any time.
Section 10.6. Priority Debt. The Company will not at any time permit Priority Debt to exceed an amount equal to 20% of Consolidated Assets. The Company agrees that neither it nor any of its Subsidiaries shall at any time use the capacity to incur, assume or permit to exist any Priority Debt to grant a Lien on its property securing Principal Credit Facility Indebtedness without simultaneously and effectively providing, pursuant to documentation in form and substance reasonably satisfactory to the parties, that the Notes shall be equally and ratably secured with the Principal Credit Facility Indebtedness that is so secured for so long as such Principal Credit Facility Indebtedness is so secured; provided, however, that the Notes (and any other notes issued pursuant to a note purchase agreement having a provision similar to this Section 10.6 (the “Other Notes”), to the extent required by such note purchase agreement or otherwise consented to or waived by the requisite holders of such Other Notes) shall continue to be so secured unless and until a Responsible Officer shall deliver a certificate to each holder of Notes confirming that, after giving effect to such release, no Default or Event of Default shall have occurred and be continuing.
Although it will not be a Default or Event of Default if the Company fails to comply with any provision of Section 10 before on or after the date of this Agreement and prior to the First Closing, if such a failure occurs, then any of the Purchasers may elect not to purchase the Notes on the date of Closing that is specified in Section 3.
Section 11. Events of Default.
An “Event of Default” shall exist if any of the following conditions or events shall occur and be continuing:
(a) the Company defaults in the payment of any principal or Make-Whole Amount, if any, on any Note when the same becomes due and payable, whether at maturity or at a date fixed for prepayment or by declaration or otherwise; or
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Madison Gas and Electric Company Note Purchase Agreement
(b) the Company defaults in the payment of any interest on any Note for more than five Business Days after the same becomes due and payable; or
(c) the Company defaults in the performance of or compliance with any term contained in Section 7.1(d) or Sections 10.2, 10.4, 10.5 or 10.6; or
(d) the Company defaults in the performance of or compliance with any term contained herein (other than those referred to in Sections 11(a), (b) and (c)) and such default is not remedied within 30 days after the earlier of (i) a Responsible Officer obtaining actual knowledge of such default and (ii) the Company receiving written notice of such default from any holder of a Note (any such written notice to be identified as a “notice of default” and to refer specifically to this Section 11(d)); or
(e) any representation or warranty made in writing by or on behalf of the Company or by any officer of the Company in this Agreement or in any writing furnished by the Company or by any officer of the Company in connection with the transactions contemplated hereby proves to have been false or incorrect in any material respect on the date as of which made; or
(f) (i) the Company or any Principal Subsidiary is in default (as principal or as guarantor or other surety) in the payment of any principal of or premium or make-whole amount or interest on any Indebtedness that is outstanding in an aggregate principal amount of at least $50,000,000 beyond any period of grace provided with respect thereto, or (ii) the Company or any Principal Subsidiary is in default in the performance of or compliance with any term of any evidence of any Indebtedness in an aggregate outstanding principal amount of at least $50,000,000 or of any mortgage, indenture or other agreement relating thereto or any other condition exists, and as a consequence of such default or condition such Indebtedness has become, or has been declared due and payable before its stated maturity or before its regularly scheduled dates of payment; or
(g) the Company or any Principal Subsidiary (i) is generally not paying, or admits in writing its inability to pay, its debts as they become due, (ii) files, or consents by answer or otherwise to the filing against it of, a petition for relief or reorganization or arrangement or any other petition in bankruptcy, for liquidation or to take advantage of any bankruptcy, insolvency, reorganization, moratorium or other similar law of any jurisdiction, (iii) makes an assignment for the benefit of its creditors, (iv) consents to the appointment of a custodian, receiver, trustee or other officer with similar powers with respect to it or with respect to any substantial part of its property, (v) is adjudicated as insolvent or to be liquidated, or (vi) takes corporate action for the purpose of any of the foregoing; or
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Madison Gas and Electric Company Note Purchase Agreement
(h) a court or Governmental Authority of competent jurisdiction enters an order appointing, without consent by the Company or any of its Principal Subsidiaries, a custodian, receiver, trustee or other officer with similar powers with respect to it or with respect to any substantial part of its property, or constituting an order for relief or approving a petition for relief or reorganization or any other petition in bankruptcy or for liquidation or to take advantage of any bankruptcy or insolvency law of any jurisdiction, or ordering the dissolution, winding-up or liquidation of the Company or any of its Principal Subsidiaries, or any such petition shall be filed against the Company or any of its Principal Subsidiaries and such petition shall not be dismissed within 60 days; or
(i) a final judgment or judgments for the payment of money aggregating in excess of $50,000,000 (that is not covered by insurance, performance bonds or the like issued by solvent companies who have acknowledged coverage) are rendered against one or more of the Company and its Principal Subsidiaries and which judgments are not, within 90 days after entry thereof, bonded, discharged or stayed pending appeal, or are not discharged within 90 days after the expiration of such stay; or
(j) if (i) any Plan shall fail to satisfy the minimum funding standards of ERISA or the Code for any plan year or part thereof or a waiver of such standards or extension of any amortization period is sought or granted under section 412 of the Code, (ii) a notice of intent to terminate any Plan shall have been or is reasonably expected to be filed with the PBGC or the PBGC shall have instituted proceedings under ERISA section 4042 to terminate or appoint a trustee to administer any Plan or the PBGC shall have notified the Company or any ERISA Affiliate that a Plan may become a subject of any such proceedings, (iii) the aggregate “amount of unfunded benefit liabilities” (within the meaning of section 4001(a)(18) of ERISA) under all Plans subject to Title IV of ERISA, determined in accordance with Title IV of ERISA, shall exceed $100,000,000, (iv) the Company or any ERISA Affiliate shall have incurred or is reasonably expected to incur any liability pursuant to Title I or IV of ERISA or the penalty or excise tax provisions of the Code relating to employee benefit plans, (v) the Company or any ERISA Affiliate withdraws from any Multiemployer Plan, or (vi) the Company or any Subsidiary establishes or amends any employee welfare benefit plan that provides post-employment welfare benefits in a manner that would increase the liability of the Company or any Subsidiary thereunder; and any such event or events described in clauses (i) through (vi) above, either individually or together with any other such event or events, would reasonably be expected to have a Material Adverse Effect.
As used in Section 11(j), the terms “employee benefit plan” and “employee welfare benefit plan” shall have the respective meanings assigned to such terms in section 3 of ERISA.
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Madison Gas and Electric Company Note Purchase Agreement
Section 12. Remedies on Default, Etc.
Section 12.1. Acceleration. (a) If an Event of Default with respect to the Company described in Section 11(g) or (h) (other than an Event of Default described in clause (i) of Section 11(g) or described in clause (vi) of Section 11(g) by virtue of the fact that such clause encompasses clause (i) of Section 11(g)) has occurred, all the Notes then outstanding shall automatically become immediately due and payable.
(b) If any Event of Default described in Section 11(a) or (b) has occurred and is continuing, any holder or holders of Notes at the time outstanding affected by such Event of Default may at any time, at its or their option, by notice or notices to the Company, declare all the Notes held by it or them to be immediately due and payable.
(c) If any other Event of Default has occurred and is continuing, the Required Holders may at any time at its or their option, by notice or notices to the Company, declare all the Notes then outstanding to be immediately due and payable.
Upon any Notes becoming due and payable under this Section 12.1, whether automatically or by declaration, such Notes will forthwith mature and the entire unpaid principal amount of such Notes, plus (x) all accrued and unpaid interest thereon (including, but not limited to, interest accrued thereon at the Default Rate) and (y) the Make-Whole Amount determined in respect of such principal amount (to the full extent permitted by applicable law), shall all be immediately due and payable, in each and every case without presentment, demand, protest or further notice, all of which are hereby waived. The Company acknowledges, and the parties hereto agree, that each holder of a Note has the right to maintain its investment in the Notes free from repayment by the Company (except as herein specifically provided for) and that the provision for payment of a Make-Whole Amount by the Company in the event that the Notes are prepaid or are accelerated as a result of an Event of Default, is intended to provide compensation for the deprivation of such right under such circumstances.
Section 12.2. Other Remedies. If any Default or Event of Default has occurred and is continuing, and irrespective of whether any Notes have become or have been declared immediately due and payable under Section 12.1, the holder of any Note at the time outstanding may proceed to protect and enforce the rights of such holder by an action at law, suit in equity or other appropriate proceeding, whether for the specific performance of any agreement contained herein or in any Note, or for an injunction against a violation of any of the terms hereof or thereof, or in aid of the exercise of any power granted hereby or thereby or by law or otherwise.
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Madison Gas and Electric Company Note Purchase Agreement
Section 12.3. Rescission. At any time after any Notes have been declared due and payable pursuant to Section 12.1(b) or (c), the Required Holders, by written notice to the Company, may rescind and annul any such declaration and its consequences if (a) the Company has paid all overdue interest on the Notes, all principal of and Make-Whole Amount, if any, on any Notes that are due and payable and are unpaid other than by reason of such declaration, and all interest on such overdue principal and Make-Whole Amount, if any, and (to the extent permitted by applicable law) any overdue interest in respect of the Notes, at the Default Rate, (b) neither the Company nor any other Person shall have paid any amounts which have become due solely by reason of such declaration, (c) all Events of Default and Defaults, other than non-payment of amounts that have become due solely by reason of such declaration, have been cured or have been waived pursuant to Section 17, and (d) no judgment or decree has been entered for the payment of any monies due pursuant hereto or to the Notes. No rescission and annulment under this Section 12.3 will extend to or affect any subsequent Event of Default or Default or impair any right consequent thereon.
Section 12.4. No Waivers or Election of Remedies, Expenses, Etc. No course of dealing and no delay on the part of any holder of any Note in exercising any right, power or remedy shall operate as a waiver thereof or otherwise prejudice such holder’s rights, powers or remedies. No right, power or remedy conferred by this Agreement or by any Note upon any holder thereof shall be exclusive of any other right, power or remedy referred to herein or therein or now or hereafter available at law, in equity, by statute or otherwise. Without limiting the obligations of the Company under Section 15, the Company will pay to the holder of each Note on demand such further amount as shall be sufficient to cover all costs and expenses of such holder incurred in any enforcement or collection under this Section 12, including, without limitation, reasonable attorneys’ fees, expenses and disbursements.
Section 13. Registration; Exchange; Substitution of Notes.
Section 13.1. Registration of Notes. The Company shall keep at its principal executive office a register for the registration and registration of transfers of Notes. The name and address of each holder of one or more Notes, each transfer thereof and the name and address of each transferee of one or more Notes shall be registered in such register. Prior to due presentment for registration of transfer, the Person in whose name any Note shall be registered shall be deemed and treated as the owner and holder thereof for all purposes hereof, and the Company shall not be affected by any notice or knowledge to the contrary. The Company shall give to any holder of a Note that is an Institutional Investor promptly upon request therefor, a complete and correct copy of the names and addresses of all registered holders of Notes.
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Madison Gas and Electric Company Note Purchase Agreement
Section 13.2. Transfer and Exchange of Notes. Upon surrender of any Note to the Company at the address and to the attention of the designated officer (all as specified in Section 18(iii)), for registration of transfer or exchange (and in the case of a surrender for registration of transfer accompanied by a written instrument of transfer duly executed by the registered holder of such Note or such holder’s attorney duly authorized in writing and accompanied by the relevant name, address and other information for notices of each transferee of such Note or part thereof), within ten Business Days thereafter, the Company shall execute and deliver, at the Company’s expense (except as provided below), one or more new Notes (as requested by the holder thereof) of the same series in exchange therefor, in an aggregate principal amount equal to the unpaid principal amount of the surrendered Note. Each such new Note shall be payable to such Person as such holder may request and shall be substantially in the form of Exhibit 1-A or Exhibit 1-B, as applicable. Each such new Note shall be dated and bear interest from the date to which interest shall have been paid on the surrendered Note or dated the date of the surrendered Note if no interest shall have been paid thereon. The Company may require payment of a sum sufficient to cover any stamp tax or governmental charge imposed in respect of any such transfer of Notes. Notes shall not be transferred in denominations of less than $250,000, provided that if necessary to enable the registration of transfer by a holder of its entire holding of Notes of a series, one Note for such series may be in a denomination of less than $250,000. Any transferee, by its acceptance of a Note registered in its name (or the name of its nominee), shall be deemed to have made the representations set forth in Sections 6.1 and 6.2.
Section 13.3. Replacement of Notes. Upon receipt by the Company at the address and to the attention of the designated officer (all as specified in Section 18(iii)) of evidence reasonably satisfactory to it of the ownership of and the loss, theft, destruction or mutilation of any Note (which evidence shall be, in the case of an Institutional Investor, notice from such Institutional Investor of such ownership and such loss, theft, destruction or mutilation), and
(a) in the case of loss, theft or destruction, of indemnity reasonably satisfactory to it (provided that if the holder of such Note is, or is a nominee for, an original Purchaser or another holder of a Note with a minimum net worth of at least $25,000,000 or a Qualified Institutional Buyer, such Person’s own unsecured agreement of indemnity shall be deemed to be satisfactory), or
(b) in the case of mutilation, upon surrender and cancellation thereof,
within ten Business Days thereafter, the Company at its own expense shall execute and deliver, in lieu thereof, a new Note of the same series, dated and bearing interest from the date to which interest shall have been paid on such lost, stolen, destroyed or mutilated Note or dated the date of such lost, stolen, destroyed or mutilated Note if no interest shall have been paid thereon.
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Madison Gas and Electric Company Note Purchase Agreement
Section 14. Payments on Notes.
Section 14.1. Place of Payment. Subject to Section 14.2, payments of principal, Make-Whole Amount, if any, and interest becoming due and payable on the Notes shall be made in New York, New York at the principal office of JPMorgan Chase Bank, N.A. in such jurisdiction. The Company may at any time, by notice to each holder of a Note, change the place of payment of the Notes so long as such place of payment shall be either the principal office of the Company in such jurisdiction or the principal office of a bank or trust company in such jurisdiction.
Section 14.2. Home Office Payment. So long as any Purchaser or its nominee shall be the holder of any Note, and notwithstanding anything contained in Section 14.1 or in such Note to the contrary, the Company will pay all sums becoming due on such Note for principal, Make-Whole Amount, if any, and interest by the method and at the address specified for such purpose below such Purchaser’s name in Schedule A, or by such other method or at such other address as such Purchaser shall have from time to time specified to the Company in writing for such purpose, without the presentation or surrender of such Note or the making of any notation thereon, except that upon written request of the Company made concurrently with or reasonably promptly after payment or prepayment in full of any Note, such Purchaser shall surrender such Note for cancellation, reasonably promptly after any such request, to the Company at its principal executive office or at the place of payment most recently designated by the Company pursuant to Section 14.1. Prior to any sale or other disposition of any Note held by a Purchaser or its nominee, such Purchaser will, at its election, either endorse thereon the amount of principal paid thereon and the last date to which interest has been paid thereon or surrender such Note to the Company in exchange for a new Note or Notes pursuant to Section 13.2. The Company will afford the benefits of this Section 14.2 to any Institutional Investor that is the direct or indirect transferee of any Note purchased by a Purchaser under this Agreement and that has made the same agreement relating to such Note as the Purchasers have made in this Section 14.2.
Section 15. Expenses, Etc.
Section 15.1. Transaction Expenses. Whether or not the transactions contemplated hereby are consummated, the Company will pay all reasonable costs and expenses (including reasonable attorneys’ fees of a special counsel and, if reasonably required by the Required Holders, local or other counsel) incurred by the Purchasers and each other holder of a Note in connection with such transactions and in connection with any amendments, waivers or consents under or in respect of this Agreement or the Notes (whether or not such amendment, waiver or consent becomes effective), including, without limitation: (a) the reasonable costs and expenses incurred in enforcing or defending (or determining whether or how to enforce or defend) any rights under this Agreement or the Notes or in responding to any subpoena or other legal process or informal investigative demand issued in connection with this Agreement or the Notes, or by reason of being a holder of any Note, (b) the reasonable costs and expenses, including financial advisors’ fees, incurred in connection with the insolvency or bankruptcy of the Company or any Subsidiary or in connection with any work-out or restructuring of the transactions contemplated hereby and by the Notes and (c) the costs and expenses incurred in connection with
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Madison Gas and Electric Company Note Purchase Agreement
the initial filing of this Agreement and all related documents and financial information with the SVO, provided that such costs and expenses under this clause (c) shall not exceed $1,725 per series of Notes. The Company will pay, and will save each Purchaser and each other holder of a Note harmless from, all claims in respect of any fees, costs or expenses if any, of brokers and finders (other than those, if any, retained by a Purchaser or other holder in connection with its purchase of the Notes).
Section 15.2. Survival. The obligations of the Company under this Section 15 will survive the payment or transfer of any Note, the enforcement, amendment or waiver of any provision of this Agreement or the Notes, and the termination of this Agreement.
Section 16. Survival of Representations and Warranties; Entire Agreement.
All representations and warranties contained herein shall survive the execution and delivery of this Agreement and the Notes, the purchase or transfer by any Purchaser of any Note or portion thereof or interest therein and the payment of any Note, and may be relied upon by any subsequent holder of a Note, regardless of any investigation made at any time by or on behalf of such Purchaser or any other holder of a Note. All statements contained in any certificate or other instrument delivered by or on behalf of the Company pursuant to this Agreement shall be deemed representations and warranties of the Company under this Agreement. Subject to the preceding sentence, this Agreement and the Notes embody the entire agreement and understanding between each Purchaser and the Company and supersede all prior agreements and understandings relating to the subject matter hereof.
Section 17. Amendment and Waiver.
Section 17.1. Requirements. This Agreement and the Notes may be amended, and the observance of any term hereof or of the Notes may be waived (either retroactively or prospectively), with (and only with) the written consent of the Company and the Required Holders, except that (a) no amendment or waiver of any of the provisions of Section 1, 2, 3, 4, 5, 6 or 21 hereof, or any defined term (as it is used therein), will be effective as to any Purchaser unless consented to by such Purchaser in writing, and (b) no such amendment or waiver may, without the written consent of the holder of each Note at the time outstanding affected thereby (or, if prior to a Closing, each Purchaser for that Closing or any subsequent Closing), (i) subject to the provisions of Section 12 relating to acceleration or rescission, change the amount or time of any prepayment or payment of principal of, or reduce the rate or change the time of payment or method of computation of interest or of the Make-Whole Amount on, the Notes, (ii) change the percentage of the principal amount of the Notes the holders of which are required to consent to any such amendment or waiver, or (iii) amend any of Sections 8, 11(a), 11(b), 12, 17 or 20.
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Madison Gas and Electric Company Note Purchase Agreement
Section 17.2. Solicitation of Holders of Notes.
(a) Solicitation. The Company will provide each holder of the Notes (irrespective of the amount of Notes then owned by it) with sufficient information, sufficiently far in advance of the date a decision is required, to enable such holder to make an informed and considered decision with respect to any proposed amendment, waiver or consent in respect of any of the provisions hereof or of the Notes. The Company will deliver executed or true and correct copies of each amendment, waiver or consent effected pursuant to the provisions of this Section 17 to each holder of outstanding Notes promptly following the date on which it is executed and delivered by, or receives the consent or approval of, the requisite holders of Notes.
(b) Payment. The Company will not directly or indirectly pay or cause to be paid any remuneration, whether by way of supplemental or additional interest, fee or otherwise, or grant any security or provide other credit support, to any holder of Notes as consideration for or as an inducement to the entering into by any holder of Notes of any waiver or amendment of any of the terms and provisions hereof unless such remuneration is concurrently paid, or security is concurrently granted or other credit support concurrently provided, on the same terms, ratably to each holder of Notes then outstanding even if such holder did not consent to such waiver or amendment.
(c) Consent in Contemplation of Transfer. Any consent made pursuant to this Section 17.2 by the holder of any Note that has transferred or has agreed to transfer such Note to the Company, any Subsidiary or any Affiliate of the Company and has provided or has agreed to provide such written consent as a condition to such transfer shall be void and of no force or effect except solely as to such holder, and any amendments effected or waivers granted or to be effected or granted that would not have been or would not be so effected or granted but for such consent (and the consents of all other holders of Notes that were acquired under the same or similar conditions) shall be void and of no force or effect except solely as to such transferring holder.
(d) Reference to Holders of Notes Prior to the Closing. Each reference to a holder of Notes in the foregoing clauses (a) and (b) of this Section 17.2 prior to a Closing shall be deemed to be a reference to include Purchasers who have not yet purchased Notes.
Section 17.3. Binding Effect, Etc. Any amendment or waiver consented to as provided in this Section 17 applies equally to all holders of Notes (and if prior to the Closing, all Purchasers) and is binding upon them and upon each future holder of any Note and upon the Company without regard to whether such Note has been marked to indicate such amendment or waiver. No such amendment or waiver will extend to or affect any obligation, covenant, agreement, Default or Event of Default not expressly amended or waived or impair any right consequent thereon. No course of dealing between the Company and the holder of any Note (or any Purchaser) nor any delay in exercising any rights hereunder or under any Note shall operate as a waiver of any rights of any holder of such Note (or any such Purchaser). As used herein, the term “this Agreement” and references thereto shall mean this Agreement as it may from time to time be amended or supplemented.
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Madison Gas and Electric Company Note Purchase Agreement
Section 17.4. Notes Held by Company, Etc. Solely for the purpose of determining whether the holders (or Purchasers, as applicable) of the requisite percentage of the aggregate principal amount of Notes then outstanding approved or consented to any amendment, waiver or consent to be given under this Agreement or the Notes, or have directed the taking of any action provided herein or in the Notes to be taken upon the direction of the holders (or Purchasers, as applicable) of a specified percentage of the aggregate principal amount of Notes then outstanding, Notes directly or indirectly owned by the Company or any of its Affiliates shall be deemed not to be outstanding.
Section 18. Notices.
All notices and communications provided for hereunder shall be in writing and sent (a) by telecopy if the sender on the same day sends a confirming copy of such notice by a recognized overnight delivery service (charges prepaid), or (b) by registered or certified mail with return receipt requested (postage prepaid), or (c) by a recognized overnight delivery service (with charges prepaid). Any such notice must be sent:
(i) if to any Purchaser or its nominee, to such Purchaser or nominee at the address specified for such communications in Schedule A, or at such other address as such Purchaser or nominee shall have specified to the Company in writing,
(ii) if to any other holder of any Note, to such holder at such address as such other holder shall have specified to the Company in writing, or
(iii) if to the Company, to the Company at its address set forth at the beginning hereof to the attention of Vice President and Treasurer or at such other address as the Company shall have specified to the holder of each Note in writing.
Notices under this Section 18 will be deemed given only when actually received.
Section 19. Reproduction of Documents.
This Agreement and all documents relating thereto, including, without limitation, (a) consents, waivers and modifications that may hereafter be executed, (b) documents received by any Purchaser at each Closing (except the Notes themselves), and (c) financial statements, certificates and other information previously or hereafter furnished to any Purchaser, may be reproduced by such Purchaser by any photographic, photostatic, electronic, digital, or other similar process and such Purchaser may destroy any original document so reproduced. The Company agrees and stipulates that, to the extent permitted by applicable law, any such reproduction shall be admissible in evidence as the original itself in any judicial or administrative proceeding (whether or not the original is in existence and whether or not such reproduction was made by such Purchaser in the regular course of business) and any enlargement, facsimile or further reproduction of such reproduction shall likewise be admissible in evidence. This Section 19 shall not prohibit the Company or any other holder of Notes from contesting any such reproduction to the
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Madison Gas and Electric Company Note Purchase Agreement
same extent that it could contest the original, or from introducing evidence to demonstrate the inaccuracy of any such reproduction.
Section 20. Confidential Information.
For the purposes of this Section 20, “Confidential Information” means information delivered to any Purchaser by or on behalf of the Company or any Subsidiary in connection with the transactions contemplated by or otherwise pursuant to this Agreement that is proprietary or confidential in nature and that was clearly marked or labeled or otherwise adequately identified when received by such Purchaser as being confidential information of the Company or such Subsidiary, provided that such term does not include information that (a) was publicly known or otherwise known to such Purchaser prior to the time of such disclosure, (b) subsequently becomes publicly known through no act or omission by such Purchaser or any person acting on such Purchaser’s behalf, (c) otherwise becomes known to such Purchaser other than through disclosure by the Company or any Subsidiary without violation of any known confidentiality obligation owed to the Company or (d) constitutes financial statements delivered to such Purchaser under Section 7.1 that are otherwise publicly available. Each Purchaser will maintain the confidentiality of such Confidential Information in accordance with procedures adopted by such Purchaser in good faith to protect confidential information of third parties delivered to such Purchaser, provided that such Purchaser may deliver or disclose Confidential Information to (i) its directors, trustees, officers, employees, agents, attorneys and affiliates (to the extent such disclosure reasonably relates to the administration of the investment represented by its Notes), (ii) its financial advisors and other professional advisors who agree to hold confidential the Confidential Information substantially in accordance with the terms of this Section 20, (iii) any other holder of any Note, (iv) any Institutional Investor to which it sells or offers to sell such Note or any part thereof or any participation therein (if such Person has agreed in writing prior to its receipt of such Confidential Information to be bound by the provisions of this Section 20), (v) any Person from which it offers to purchase any security of the Company (if such Person has agreed in writing prior to its receipt of such Confidential Information to be bound by the provisions of this Section 20), (vi) any federal or state regulatory authority having jurisdiction over such Purchaser, (vii) the NAIC or the SVO or, in each case, any similar organization, or any nationally recognized rating agency that requires access to information about such Purchaser’s investment portfolio, or (viii) any other Person to which such delivery or disclosure may be necessary or appropriate (w) to effect compliance with any law, rule, regulation or order applicable to such Purchaser, (x) in response to any subpoena or other legal process, (y) in connection with any litigation to which such Purchaser is a party or (z) if an Event of Default has occurred and is continuing, to the extent such Purchaser may reasonably determine such delivery and disclosure to be necessary or appropriate in the enforcement or for the protection of the rights and remedies under such Purchaser’s Notes and this Agreement. Each holder of a Note, by its acceptance of a Note, will be deemed to have agreed to be bound by and to be entitled to the benefits of this Section 20 as though it were a party to this Agreement. On reasonable request by the Company in connection with the delivery to any holder of a Note of information required to be delivered to such holder under this Agreement or requested by such holder (other than a holder that is a party to this Agreement or its nominee), such holder will enter into an agreement with the Company embodying the provisions of this Section 20.
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Madison Gas and Electric Company Note Purchase Agreement
In the event that as a condition to receiving access to information relating to the Company or its Subsidiaries in connection with the transactions contemplated by or otherwise pursuant to this Agreement, any Purchaser or holder of a Note is required to agree to a confidentiality undertaking (whether through IntraLinks, another secure website, a secure virtual workspace or otherwise) which is different from this Section 20, this Section 20 shall not be amended thereby and, as between such Purchaser or such holder and the Company, this Section 20 shall supersede any such other confidentiality undertaking.
Section 21. Substitution of Purchaser.
Each Purchaser shall have the right to substitute any one of its Affiliates as the purchaser of the Notes that it has agreed to purchase hereunder, by written notice to the Company, which notice shall be signed by both such Purchaser and such Affiliate, shall contain such Affiliate’s agreement to be bound by this Agreement and shall contain a confirmation by such Affiliate of the accuracy with respect to it of the representations set forth in Section 6. Upon receipt of such notice, any reference to such Purchaser in this Agreement (other than in this Section 21), shall be deemed to refer to such Affiliate in lieu of such original Purchaser. In the event that such Affiliate is so substituted as a Purchaser hereunder and such Affiliate thereafter transfers to such original Purchaser all of the Notes then held by such Affiliate, upon receipt by the Company of notice of such transfer, any reference to such Affiliate as a “Purchaser” in this Agreement (other than in this Section 21), shall no longer be deemed to refer to such Affiliate, but shall refer to such original Purchaser, and such original Purchaser shall again have all the rights of an original holder of the Notes under this Agreement.
Section 22. Miscellaneous.
Section 22.1. Successors and Assigns. All covenants and other agreements contained in this Agreement by or on behalf of any of the parties hereto bind and inure to the benefit of their respective successors and assigns (including, without limitation, any subsequent holder of a Note) whether so expressed or not, except that, subject to Section 10.2, the Company may not assign or otherwise transfer any of its rights or obligations hereunder or under the Notes without the prior written consent of each holder. Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto and their respective successors and assigns permitted hereby) any legal or equitable right, remedy or claim under or by reason of this Agreement.
Section 22.2. Payments Due on Non-Business Days. Anything in this Agreement or the Notes to the contrary notwithstanding (but without limiting the requirement in Section 8.2 that the notice of any optional prepayment specify a Business Day as the date fixed for such prepayment), any payment of principal of or Make-Whole Amount or interest on any Note that is due on a date other than a Business Day shall be made on the next succeeding Business Day without including the additional days elapsed in the computation of the interest payable on such next succeeding Business Day; provided that if the maturity date of any Note is a date other than a Business Day, the payment otherwise due on such maturity date shall be made on the next succeeding Business Day and shall
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Madison Gas and Electric Company Note Purchase Agreement
include the additional days elapsed in the computation of interest payable on such next succeeding Business Day.
Section 22.3. Accounting Terms. (a) As used in this Agreement, “GAAP” means generally accepted accounting principles in the United States, applied on a basis consistent with the principles used in preparing the Company’s audited consolidated financial statements as of December 31, 2021 and for the fiscal year then ended, as such principles may be revised as a result of changes in GAAP implemented by the Company subsequent to such date. In this Agreement, except to the extent, if any, otherwise provided herein, all accounting and financial terms shall have the meanings ascribed to such terms by GAAP, and all computations and determinations as to accounting and financial matters shall be made in accordance with GAAP. In the event that the financial statements generally prepared by the Company apply accounting principles other than GAAP (including as a result of any event described in Section 22.3(b)), the compliance certificate delivered pursuant to Section 7.2 accompanying such financial statements shall include information in reasonable detail reconciling such financial statements to GAAP to the extent relevant to the calculations set forth in such compliance certificate.
(b) If at any time any change in GAAP would affect the computation of any financial ratio or requirement set forth herein and the Company or the Required Holders shall so request, the Required Holders and the Company shall negotiate in good faith to amend such ratio or requirement to preserve the original intent thereof in light of such change in GAAP (subject to the approval of the Required Holders); provided that, until so amended, such ratio or requirement shall continue to be computed in accordance with GAAP prior to such change therein.
(c) For purposes of any calculation or determination which is to be made on a consolidated basis (including compliance with Section 10.5), such calculation or determination shall exclude any assets, liabilities, revenues and expenses that are included in the Company’s financial statements from “variable interest entities” as a result of the application of FASB Interpretation No. 46, Consolidation of Variable Interest Entities – an Interpretation of ARB No. 51, as updated through FIN No. 46-R and as modified by FIN No. 94.
(d) For purposes of determining compliance with the covenants set out in this Agreement, any election by the Company to measure an item of Indebtedness using fair value (as permitted by Accounting Standard Codification Topic No. 825‑10‑25 ‑ Fair Value Option or any similar accounting standard) shall be disregarded and such determination shall be made as if such election had not been made.
(e) All terms of an accounting or financial nature used herein shall be construed, and all computations of amounts and ratios referred to herein shall be made, without giving effect to any treatment of any lease (or similar arrangement conveying the right to use) as an asset and corresponding liability where such lease (or similar arrangement) would not have been required to be so treated under GAAP prior to giving effect to United States Financial Accounting Standards Board Accounting Standards Codification 842 (or any other United States Accounting Standards Codification having a similar result or effect) (and related interpretations) (the “Change in Lease Accounting Standard”). The Company shall include relevant reconciliations in reasonable detail
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Madison Gas and Electric Company Note Purchase Agreement
with respect to the Change in Lease Accounting Standard for the applicable covenant compliance calculations contained in each certificate of a Senior Financial Officer delivered pursuant to Section 7.2(a).
Notwithstanding the foregoing, if at any time any Principal Credit Facility shall include a provision giving effect to or otherwise addressing the Change in Lease Accounting Standard that shall result in any lease being treated as an asset and corresponding liability for the purposes of the Principal Credit Facility’s covenants, then the Company shall promptly provide notice thereof to the holders of Notes, which notice shall refer specifically to this Section 22.3(e) and set forth the relevant provision from such Principal Credit Facility, including any change in the debt to capitalization covenant or the priority debt covenant that accompanies that change, whereupon that provision shall apply for the purposes of this Agreement.
Section 22.4. Severability. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall (to the full extent permitted by law) not invalidate or render unenforceable such provision in any other jurisdiction.
Section 22.5. Construction, Etc. Each covenant contained herein shall be construed (absent express provision to the contrary) as being independent of each other covenant contained herein, so that compliance with any one covenant shall not (absent such an express contrary provision) be deemed to excuse compliance with any other covenant. Where any provision herein refers to action to be taken by any Person, or which such Person is prohibited from taking, such provision shall be applicable whether such action is taken directly or indirectly by such Person.
For the avoidance of doubt, all Schedules and Exhibits attached to this Agreement shall be deemed to be a part hereof.
Section 22.6. Counterparts; Electronic Contracting. This Agreement may be executed in any number of counterparts, each of which shall be an original but all of which together shall constitute one instrument. Each counterpart may consist of a number of copies hereof, each signed by less than all, but together signed by all, of the parties hereto.
The parties agree to electronic contracting and signatures with respect to this Agreement and, other than the Notes, the other documents required to be delivered hereunder (collectively, the “Note Documents”). Delivery of an electronic signature to, or a signed copy of, the Note Documents by facsimile, email or other electronic transmission shall be fully binding on the parties to the same extent as the delivery of the manually signed originals and shall be admissible into evidence for all purposes. Notwithstanding the foregoing, if any Purchaser shall request manually signed counterpart signatures to any Note Document, the Company hereby agrees to deliver, or cause to be delivered, such manually signed counterpart signatures to such Purchaser no later than 15 Business Days after such request or such longer period as the requesting Purchaser and the Company may otherwise agree. For the avoidance of doubt, the Company acknowledges and agrees that manually signed counterpart signatures to the Notes are required to be delivered at each Closing.
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Madison Gas and Electric Company Note Purchase Agreement
Section 22.7. Governing Law. This Agreement shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the law of the State of New York excluding choice-of-law principles of the law of such State that would permit the application of the laws of a jurisdiction other than such State.
Section 22.8. Jurisdiction and Process; Waiver of Jury Trial. (a) The Company irrevocably submits to the non-exclusive jurisdiction of any New York State or federal court sitting in the Borough of Manhattan, The City of New York, over any suit, action or proceeding arising out of or relating to this Agreement or the Notes. To the fullest extent permitted by applicable law, the Company irrevocably waives and agrees not to assert, by way of motion, as a defense or otherwise, any claim that it is not subject to the jurisdiction of any such court, any objection that it may now or hereafter have to the laying of the venue of any such suit, action or proceeding brought in any such court and any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum.
(b) The Company consents to process being served by or on behalf of any holder of Notes in any suit, action or proceeding of the nature referred to in Section 22.8(a) by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, return receipt requested, to it at its address specified in Section 18 or at such other address of which such holder shall then have been notified pursuant to said Section. The Company agrees that such service upon receipt (i) shall be deemed in every respect effective service of process upon it in any such suit, action or proceeding and (ii) shall, to the fullest extent permitted by applicable law, be taken and held to be valid personal service upon and personal delivery to it. Notices hereunder shall be conclusively presumed received as evidenced by a delivery receipt furnished by the United States Postal Service or any reputable commercial delivery service.
(c) Nothing in this Section 22.8 shall affect the right of any holder of a Note to serve process in any manner permitted by law, or limit any right that the holders of any of the Notes may have to bring proceedings against the Company in the courts of any appropriate jurisdiction or to enforce in any lawful manner a judgment obtained in one jurisdiction in any other jurisdiction.
(d) The parties hereto hereby waive trial by jury in any action brought on or with respect to this Agreement, the Notes or any other document executed in connection herewith or therewith.
* * * * *
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Madison Gas and Electric Company Note Purchase Agreement
If you are in agreement with the foregoing, please sign the form of agreement on a counterpart of this Agreement and return it to the Company, whereupon this Agreement shall become a binding agreement between you and the Company.
Very truly yours,
Madison Gas and Electric Company
By: /s/ Jared Bushek
Name: Jared Bushek
Title: Vice President – Finance, Chief Information Officer and Treasurer
Madison Gas and Electric Company Note Purchase Agreement
This Agreement is hereby accepted and agreed to as of the date hereof.
The Northwestern Mutual Life Insurance Company
By: Northwestern Mutual Investment Management Company, LLC,
its investment adviser
By: /s/ Timothy S. Collins
Name: Timothy S. Collins
Title: Managing Director
The Northwestern Mutual Life Insurance Company
for its Group Annuity Separate Account
By: Northwestern Mutual Investment Management Company, LLC,
its investment adviser
By: /s/ Timothy S. Collins
Name: Timothy S. Collins
Title: Managing Director
Madison Gas and Electric Company Note Purchase Agreement
This Agreement is hereby accepted and agreed to as of the date hereof.
State Farm Life Insurance Company
By: /s/ Rebekah L. Holt
Name: Rebekah L. Holt
Title: Investment Professional
By: /s/ Jeffrey Attwood
Name: Jeffrey Attwood
Title: Investment Professional
State Farm Life and Accident Assurance Company
By: /s/ Rebekah L. Holt
Name: Rebekah L. Holt
Title: Investment Professional
By: /s/ Jeffrey Attwood
Name: Jeffrey Attwood
Title: Investment Professional
State Farm Insurance Companies Employee Retirement Trust
By: /s/ Rebekah L. Holt
Name: Rebekah L. Holt
Title: Investment Professional
By: /s/ Jeffrey Attwood
Name: Jeffrey Attwood
Title: Investment Professional
Madison Gas and Electric Company Note Purchase Agreement
This Agreement is hereby accepted and agreed to as of the date hereof.
CMFG Life Insurance Company
By: MEMBERS Capital Advisors, Inc.
acting as Investment Advisor
By: /s/ Stan J. Van Aartsen
Name: Stan J. Van Aartsen
Title: Managing Director, Investments
Madison Gas and Electric Company Note Purchase Agreement
This Agreement is hereby accepted and agreed to as of the date hereof.
American Family Mutual Insurance Company, S.I.
By: /s/ David L. Voge
Name: David L. Voge
Title: Director Private Markets
American Family Life Insurance Company
By: /s/ David L. Voge
Name: David L. Voge
Title: Director Private Markets
Schedule A
Information Relating to Purchasers
[omitted]
Schedule A
(to Note Purchase Agreement)
Defined Terms
As used herein, the following terms have the respective meanings set forth below or set forth in the Section hereof following such term:
“Affiliate” means, at any time, and with respect to any Person, any other Person that at such time directly or indirectly through one or more intermediaries Controls, or is Controlled by, or is under common Control with, such first Person. As used in this definition, “Control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. Unless the context otherwise clearly requires, any reference to an “Affiliate” is a reference to an Affiliate of the Company.
“Agreement” means this Agreement, including all Schedules attached to this Agreement, as it may be amended, restated, supplemented or otherwise modified from time to time.
“Anti-Corruption Laws” means any law or regulation in a U.S. or any non-U.S. jurisdiction regarding bribery or any other corrupt activity, including the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act 2010.
“Anti-Money Laundering Laws” means any law or regulation in a U.S. or any non-U.S. jurisdiction regarding money laundering, drug trafficking, terrorist-related activities or other money laundering predicate crimes, including the Currency and Foreign Transactions Reporting Act of 1970 (otherwise known as the Bank Secrecy Act) and the USA Patriot Act.
“Blocked Person” means (a) a Person whose name appears on the list of Specially Designated Nationals and Blocked Persons published by OFAC, (b) a Person, entity, organization, country or regime that is blocked or a target of sanctions that have been imposed under U.S. Economic Sanctions Laws or (c) a Person that is an agent, department or instrumentality of, or is otherwise beneficially owned by, controlled by or acting on behalf of, directly or indirectly, any Person, entity, organization, country or regime described in clause (a) or (b).
“Business Day” means (a) for the purposes of Section 8.6 only, any day other than a Saturday, a Sunday or a day on which commercial banks in New York City are required or authorized to be closed, and (b) for the purposes of any other provision of this Agreement, any day other than a Saturday, a Sunday or a day on which commercial banks in New York, New York, or Madison, Wisconsin are required or authorized to be closed.
“Capital Lease” means, at any time, a lease with respect to which the lessee is required concurrently to recognize the acquisition of an asset and the incurrence of a liability in accordance with GAAP.
Schedule B
(to Note Purchase Agreement)
“Change in Control” means the acquisition by any Person, or two or more Persons acting in concert, of beneficial ownership (within the meaning of Rule 13d‑3 of the Exchange Act) of 30% or more of the outstanding shares of voting stock of MGE Energy, Inc.
“Change in Control Event” is defined in Section 8.7(a).
“Closing” is defined in Section 3.
“Code” means the Internal Revenue Code of 1986, as amended from time to time, and the rules and regulations promulgated thereunder from time to time.
“Company” means Madison Gas and Electric Company, a Wisconsin corporation or any successor that becomes such in the manner prescribed in Section 10.2.
“Confidential Information” is defined in Section 20.
“Consolidated Assets” means at any time all assets of the Company and its Subsidiaries calculated on a consolidated basis as of such time.
“Consolidated Indebtedness” means at any time the Indebtedness of the Company and its Subsidiaries calculated on a consolidated basis as of such time.
“Consolidated Net Worth” means at any time the consolidated stockholder’s equity of the Company and its Subsidiaries calculated on a consolidated basis as of such time.
“Consolidated Total Capitalization” means at any time the sum of Consolidated Indebtedness and Consolidated Net Worth, each calculated at such time.
“Controlled Entity” means any of the Subsidiaries of the Company and any of their or the Company’s respective Affiliates.
“Default” means an event or condition the occurrence or existence of which would, with the lapse of time or the giving of notice or both, become an Event of Default.
“Default Rate” means that rate of interest that is the greater of (i) 2.00% per annum above the rate of interest stated in clause (a) of the first paragraph of the Notes or (ii) 2.00% over the rate of interest publicly announced by JPMorgan Chase Bank, N.A. in New York, New York as its “base” or “prime” rate.
“Disclosure Documents” is defined in Section 5.3.
“EDGAR” means the SEC’s Electronic Data Gathering, Analysis and Retrieval System or any successor SEC electronic filing system for such purposes.
B-2
“Environmental Laws” means any and all Federal, state, local, and foreign statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or governmental restrictions relating to pollution and the protection of the environment or the release of any materials into the environment, including but not limited to those related to Hazardous Materials.
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the rules and regulations promulgated thereunder from time to time in effect.
“ERISA Affiliate” means any trade or business (whether or not incorporated) that is treated as a single employer together with the Company under section 414 of the Code.
“Event of Default” is defined in Section 11.
“Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time, and the rules and regulations promulgated thereunder from time to time in effect.
“Execution Date” is defined in Section 3.
“Form 10‑K” is defined in Section 7.1(b).
“Form 10‑Q” is defined in Section 7.1(a).
“GAAP” is defined in Section 22.3(a).
“Governmental Authority” means
(a) the government of
(i) the United States of America or any State or other political subdivision thereof, or
(ii) any other jurisdiction in which the Company or any Subsidiary conducts all or any part of its business, or which asserts jurisdiction over any properties of the Company or any Subsidiary, or
(b) any entity exercising executive, legislative, judicial, regulatory or administrative functions of, or pertaining to, any such government.
B-3
“Guaranty” means, with respect to any Person, any obligation (except the endorsement in the ordinary course of business of negotiable instruments for deposit or collection) of such Person guaranteeing or in effect guaranteeing any indebtedness, dividend or other obligation of any other Person in any manner, whether directly or indirectly, including (without limitation) obligations incurred through an agreement, contingent or otherwise, by such Person:
(a) to purchase such indebtedness or obligation or any property constituting security therefor;
(b) to advance or supply funds (i) for the purchase or payment of such indebtedness or obligation, or (ii) to maintain any working capital or other balance sheet condition or any income statement condition of any other Person or otherwise to advance or make available funds for the purchase or payment of such indebtedness or obligation;
(c) to lease properties or to purchase properties or services primarily for the purpose of assuring the owner of such indebtedness or obligation of the ability of any other Person to make payment of the indebtedness or obligation; or
(d) otherwise to assure the owner of such indebtedness or obligation against loss in respect thereof.
In any computation of the indebtedness or other liabilities of the obligor under any Guaranty, the indebtedness or other obligations that are the subject of such Guaranty shall be assumed to be direct obligations of such obligor.
“Hazardous Material” means any and all pollutants, toxic or hazardous wastes or other substances that might pose a hazard to health and safety, the removal of which is required or the generation, manufacture, refining, production, processing, treatment, storage, handling, transportation, transfer, use, disposal, release, discharge, spillage, seepage or filtration of which is or shall be restricted, prohibited or penalized by any applicable law including, but not limited to, asbestos, urea formaldehyde foam insulation, polychlorinated biphenyls, petroleum, petroleum products, lead based paint, radon gas or similar restricted, prohibited or penalized substances.
“holder” means, with respect to any Note, the Person in whose name such Note is registered in the register maintained by the Company pursuant to Section 13.1, provided, however, that if such Person is a nominee, then for the purposes of Sections 7, 12, 17.2 and 18 and any related definitions in this Schedule B, “holder” shall mean the beneficial owner of such Note whose name and address appears in such register.
“Indebtedness” with respect to any Person means, at any time, without duplication,
(a) its liabilities for borrowed money and its redemption obligations in respect of mandatorily redeemable Preferred Stock;
B-4
(b) its liabilities for the deferred purchase price of property acquired by such Person (excluding accounts payable arising in the ordinary course of business but including all liabilities created or arising under any conditional sale or other title retention agreement with respect to any such property);
(c) all liabilities appearing on its balance sheet in accordance with GAAP in respect of Capital Leases;
(d) all liabilities for borrowed money secured by any Lien with respect to any property owned by such Person (whether or not it has assumed or otherwise become liable for such liabilities);
(e) all its liabilities in respect of letters of credit or instruments serving a similar function issued or accepted for its account by banks and other financial institutions (whether or not representing obligations for borrowed money); and
(f) any Guaranty of such Person with respect to liabilities of a type described in any of clauses (a) through (e) hereof.
“INHAM Exemption” is defined in Section 6.2(e).
“Institutional Investor” means (a) any Purchaser of a Note, (b) any holder of a Note holding (together with one or more of its affiliates) more than 10% of the aggregate principal amount of the Notes then outstanding, (c) any bank, trust company, savings and loan association or other financial institution, any pension plan, any investment company, any insurance company, any broker or dealer, or any other similar financial institution or entity, regardless of legal form, and (d) any Related Fund of any holder of any Note.
“Investment Grade Rating” in respect of any Person means, at the time of determination, at least two of the following ratings of its senior, unsecured, non-credit enhanced, long-term indebtedness for borrowed money: (i) by Standard & Poor's Rating Services, a Standard & Poor’s Financial Services LLC business, or any successor thereof, “BBB-” or better, (ii) by Moody's Investors Service, Inc., or any successor thereof, “Baa3” or better, or (iii) by any other nationally recognized statistical rating agency, an equivalent or better rating.
“June 30, 2022 10-Q Report” is defined in Section 5.8.
“Lien” means, with respect to any Person, any mortgage, lien, pledge, charge, security interest or other encumbrance, or any interest or title of any vendor, lessor, lender or other secured party to or of such Person under any conditional sale or other title retention agreement or Capital Lease, upon or with respect to any property or asset of such Person (including in the case of stock, stockholder agreements, voting trust agreements and all similar arrangements).
“Make-Whole Amount” is defined in Section 8.6.
B-5
“Material” means material in relation to the business, operations, affairs, financial condition, assets or properties of the Company and its Subsidiaries taken as a whole.
“Material Adverse Effect” means a material adverse effect on (a) the business, operations, affairs, financial condition, assets or properties of the Company and its Subsidiaries taken as a whole, (b) the ability of the Company to perform its obligations under this Agreement and the Notes or (c) the validity or enforceability of this Agreement or the Notes.
“Maturity Date” is defined in the first paragraph of each Note.
“Mortgage” means the Indenture of Mortgage and Deed of Trust dated as of January 1, 1946, as supplemented, from the Company to US Bank, N.A. (as successor to First Wisconsin Trust Company), as Trustee.
“Multiemployer Plan” means any Plan that is a “multiemployer plan” (as such term is defined in section 4001(a)(3) of ERISA).
“NAIC” means the National Association of Insurance Commissioners or any successor thereto.
“NAIC Annual Statement” is defined in Section 6.2(a).
“Notes” is defined in Section 1.
“OFAC” means the Office of Foreign Assets Control of the United States Department of the Treasury.
“OFAC Sanctions Program” means any economic or trade sanction that OFAC is responsible for administering and enforcing. A list of OFAC Sanctions Programs may be found at http://www.treasury.gov/resource-center/sanctions/Programs/Pages/Programs.aspx.
“Officer’s Certificate” means a certificate of a Senior Financial Officer or of any other officer of the Company whose responsibilities extend to the subject matter of such certificate.
“Other Notes” is defined in Section 10.6.
“PBGC” means the Pension Benefit Guaranty Corporation referred to and defined in ERISA or any successor thereto.
“Permissible Encumbrances” means:
(a) liens, neither assumed by the Company or any Principal Subsidiary nor on account of which they customarily pay interest, existing upon real estate or rights in or relating to real estate now owned or hereafter acquired or leased by the Company or any Principal Subsidiary for substation, transmission line, distribution line, pipe line, conduit or right-of-way purposes;
B-6
(b) undetermined liens or charges incidental to construction or current operations which, in each case, are not incurred in connection with the borrowing of money, the obtaining of advances or credit or the payment of the deferred purchase price of property and which do not in the aggregate impair the use of property in the operation of the business of the Company and its Principal Subsidiaries taken as a whole;
(c) the right reserved to, or vested in, any municipality or public authority by the terms of any franchise, grant, license or permit, or by any provision of law, to terminate such franchise, grant, license or permit or to purchase or appropriate or recapture or to designate a purchaser of any of the mortgaged property, or to demand and collect from the Company or any Principal Subsidiary any tax or other compensation for the use of streets, alleys or other public places;
(d) rights reserved to, or vested in, any municipality or public authority to use, control, remove or regulate any property of the Company or any Principal Subsidiary; and
(e) rights reserved to or vested in others to take or receive any part of the electricity, gas, steam or water generated or produced by or from any property of the Company or any Principal Subsidiary.
“Person” means an individual, partnership, corporation, limited liability company, association, trust, unincorporated organization, business entity or Governmental Authority.
“Plan” means an “employee benefit plan” (as defined in section 3(3) of ERISA) subject to Title I of ERISA that is or, within the preceding five years, has been established or maintained, or to which contributions are or, within the preceding five years, have been made or required to be made, by the Company or any ERISA Affiliate or with respect to which the Company or any ERISA Affiliate may have any liability.
“Preferred Stock” means any class of capital stock of a Person that is preferred over any other class of capital stock (or similar equity interests) of such Person as to the payment of dividends or the payment of any amount upon liquidation or dissolution of such Person.
“Presentation” is defined in Section 5.3.
“Principal Credit Facility” means (i) the Amended and Restated Credit Agreement dated as of February 7, 2019, among the Company, JPMorgan Chase Bank, N.A., as administrative agent, Bank of America, N.A. and U.S. Bank National Association, as syndication agents, and the lenders party thereto, or any replacement credit agreement, and (ii) the Amended and Restated Credit Agreement dated as of February 7, 2019, among the Company, U.S. Bank National Association, as administrative agent, Associated Bank, N.A., as syndication agent, and the lenders party thereto, or any replacement credit agreement; as any such Credit Agreement or replacement credit agreement may be amended, modified, supplemented, extended, renewed or restated from time to time.
B-7
“Principal Credit Facility Indebtedness” means Indebtedness outstanding under the Principal Credit Facility.
“Principal Subsidiary” means any Subsidiary (i) which together with its Subsidiaries has assets having an aggregate book value exceeding 10% of the Consolidated Assets of the Company and its Subsidiaries, or (ii) which together with its Subsidiaries had net income in excess of 10% of the consolidated net income of the Company and its Subsidiaries for the most recently ended period of four fiscal quarters.
“Priority Debt” means at any time the sum of (i) all Indebtedness of the Company or any Principal Subsidiary secured by any Lien other than Liens permitted by Section 10.4(a) through (o), plus (ii) all unsecured Indebtedness of Principal Subsidiaries (excluding any such Indebtedness described in this clause (ii) of any Principal Subsidiary which is (a) owing to the Company or any Principal Subsidiary or (b) existing as of September 30, 2022 and specifically described on Schedule 5.15).
“property” or “properties” means, unless otherwise specifically limited, real or personal property of any kind, tangible or intangible, choate or inchoate.
“Proposed Prepayment Date” is defined in Section 8.7(b).
“PTE” is defined in Section 6.2(a).
“Purchaser” or “Purchasers” means each of the purchasers that has executed and delivered this Agreement to the Company and such Purchaser’s successors and assigns (so long as any such assignment complies with Section 13.2), provided, however, that any Purchaser of a Note that ceases to be the registered holder or a beneficial owner (through a nominee) of such Note as the result of a transfer thereof pursuant to Section 13.2 shall cease to be included within the meaning of “Purchaser” of such Note for the purposes of this Agreement upon such transfer.
“QPAM Exemption” is defined in Section 6.2(d).
“Qualified Institutional Buyer” means any Person who is a “qualified institutional buyer” within the meaning of such term as set forth in Rule 144A(a)(1) under the Securities Act.
“Related Fund” means, with respect to any holder of any Note, any fund or entity that (i) invests in Securities or bank loans, and (ii) is advised or managed by such holder, the same investment advisor as such holder or by an affiliate of such holder or such investment advisor.
“Required Holders” means, at any time (i) prior to the First Closing, the Purchasers, (ii) on or after the First Closing and prior to the Second Closing, the Purchasers of the Notes to be issued at the Second Closing and the holders of at least 51% in principal amount of the Notes at the time outstanding (exclusive of Notes then owned by the Company or any of its Affiliates) and (iii) on or after the Second Closing, the holders of at least 51% in principal amount of the Notes at the time outstanding (exclusive of Notes then owned by the Company or any of its Affiliates).
B-8
“Responsible Officer” means any Senior Financial Officer and any other officer of the Company with responsibility for the administration of the relevant portion of this Agreement.
“SEC” shall mean the Securities and Exchange Commission of the United States, or any successor thereto.
“Securities” or “Security” shall have the meaning specified in Section 2(1) of the Securities Act.
“Securities Act” means the Securities Act of 1933, as amended from time to time, and the rules and regulations promulgated thereunder from time to time in effect.
“Senior Financial Officer” means the chief financial officer, principal accounting officer, treasurer or comptroller of the Company.
“Series A Notes” is defined in Section 1.
“Series B Notes” is defined in Section 1.
“Series C Notes” is defined in Section 1.
“Source” is defined in Section 6.2.
“State Sanctions List” means a list that is adopted by any state Governmental Authority within the United States of America pertaining to Persons that engage in investment or other commercial activities in Iran or any other country that is a target of economic sanctions imposed under U.S. Economic Sanctions Laws.
“Subsidiary” means, as to any Person, any other Person in which such first Person or one or more of its Subsidiaries or such first Person and one or more of its Subsidiaries owns sufficient equity or voting interests to enable it or them (as a group) ordinarily, in the absence of contingencies, to elect a majority of the directors (or Persons performing similar functions) of such second Person, and any partnership or joint venture if more than a 50% interest in the profits or capital thereof is owned by such first Person or one or more of its Subsidiaries or such first Person and one or more of its Subsidiaries (unless such partnership or joint venture can and does ordinarily take major business actions without the prior approval of such Person or one or more of its Subsidiaries). Unless the context otherwise clearly requires, any reference to a “Subsidiary” is a reference to a Subsidiary of the Company.
“SVO” means the Securities Valuation Office of the NAIC or any successor to such Office.
“2021 10-K Report” is defined in Section 5.8.
B-9
“U.S. Economic Sanctions Laws” means those laws, executive orders, enabling legislation or regulations administered and enforced by the United States pursuant to which economic sanctions have been imposed on any Person, entity, organization, country or regime, including the Trading with the Enemy Act, the International Emergency Economic Powers Act, the Iran Sanctions Act, the Sudan Accountability and Divestment Act and any other OFAC Sanctions Program.
“USA Patriot Act” means United States Public Law 107-56, Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT ACT) Act of 2001, as amended from time to time, and the rules and regulations promulgated thereunder from time to time in effect.
“Wholly-Owned Subsidiary” means, at any time, any Subsidiary all of the equity interests (except directors’ qualifying shares) and voting interests of which are owned by any one or more of the Company and the Company’s other Wholly-Owned Subsidiaries at such time.
B-10
Disclosure Materials
Annual Report on Form 10-K for the year ended December 31, 2021.
Quarterly Reports on Form 10-Q for the quarters ended March 31, 2022 and June 30, 2022
Schedule 5.3
(to Note Purchase Agreement)
Subsidiaries of the Company and Ownership of Subsidiary Stock
Name of Subsidiary |
Jurisdiction of Organization |
Percentage Ownership by Company and its Subsidiaries |
None. |
|
|
Schedule 5.4
(to Note Purchase Agreement)
Financial Statements
1. Report of Independent Registered Public Accounting Firm
2. Consolidated Statements of Income for the years ended December 31, 2021, 2020 and 2019
3. Consolidated Statements of Cash Flows for the years ended December 31, 2021, 2020 and 2019
4. Consolidated Balance Sheets as of December 31, 2021 and 2020
5. Consolidated Statements of Equity for the years ended December 31, 2021, 2020 and 2019
6. Notes to Consolidated Financial Statements referred to in items 1 through 5 (inclusive)
7. Consolidated Statements of Income for the three months and six months ended June 30, 2022 and 2021
8. Consolidated Statements of Cash Flows for the six months ended June 30, 2022 and 2021
9. Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021
10. Consolidated Statements of Equity for the three months and six months ended June 30, 2022 and 2021
11. Notes to Consolidated Financial Statements referred to in items 7 through 10 (inclusive)
Schedule 5.5
(to Note Purchase Agreement)
Existing Indebtedness as of September 30, 2022
|
Principal Amount Outstanding |
Commercial Paper |
$40,000,000 |
Borrowings under Credit Agreements1 |
0 |
|
|
First Mortgage Bonds:2 |
|
7.70% First Mortgage Bonds, due 2028 |
1,200,000 |
|
|
Senior Secured Notes issued by MGE Power West Campus LLC:3 |
|
5.68% Medium-Term Notes due 2033 |
20,522,840 |
5.19% Medium-Term Notes due 2033 |
13,465,353 |
|
|
Senior Secured Notes issued by MGE Power Elm Road LLC:4 |
|
5.04% Senior Secured Notes, Series A due 2040 |
28,888,889 |
4.74% Senior Secured Notes, Series B due 2041 |
18,416,667 |
Schedule 5.15
(to Note Purchase Agreement)
Medium-Term Notes:5 |
|
7.12% Medium-Term Notes due 2032 |
25,000,000 |
6.12% Medium-Term Notes due 2028 |
20,000,000 |
6.247% Medium-Term Notes due 2037 |
25,000,000 |
|
|
Senior Unsecured Notes6 |
|
3.09% Senior Notes, due 2023 3.29%, Senior Notes, due 2026 |
30,000,000 15,000,000 |
3.11% Senior Notes due October 1, 2027 |
30,000,000 |
2.94% Senior Notes, due November 15, 2029 2.48% Senior Notes, due August 15, 2031 2.63% Senior Notes, due June 15, 2033 |
50,000,000 60,000,000 40,000,000 |
5.26% Senior Notes, Series B due December 20, 2040 |
15,000,000 |
4.38% Senior Notes due April 1, 2042 4.42%, Senior Notes, due 2043 |
28,000,000 20,000,000 |
4.47%, Senior Notes, due 2048 |
20,000,000 |
3.76% Senior Notes, due January 15, 2052 4.19% Senior Notes, Series A due September 15, 2048 4.24% Senior Notes, Series B due July 15, 2053 4.34% Senior Notes, Series C due July 15, 2058 |
40,000,000 60,000,000 |
|
|
Industrial Development Revenue Bonds: |
|
2.05% Industrial Development Revenue Refunding Bonds, Series 2023, due 20237 |
19,300,000 |
|
|
Total |
$659,793,748 |
5.15-2
The Amended and Restated Credit Agreement dated as of February 7, 2019, among the Company, the Lenders named therein, and JPMorgan Chase Bank, N.A., as Administrative Agent, the Amended and Restated Credit Agreement dated as of February 7, 2019, among the Company, the Lenders named therein, and U.S. Bank National Association, as Administrative Agent, and the Note Purchase Agreements dated December 20, 2010 April 2, 2012, July 18, 2013, November 29, 2016, July 25, 2017, July 16, 2018, August 28, 2019, and May 10, 2021, between the Company and the Note Purchasers named therein (pursuant to which the 5.26% Senior Notes were issued in 2010; the 4.38% Senior Notes were issued in 2012; the 3.09%, 3.29%, 4.42% and 4.47% Senior Notes were issued in 2013; the 3.76% Senior Notes were issued in 2017; the 3.11% Senior Notes were issued in 2017; the 4.19%, 4.24% and 4.34% Senior Notes were issued in 2018; the 2.94% Senior Notes were issued in 2019; and the 2.48% and 2.63% Senior Notes were issued in 2021), require the Company to maintain a ratio of its consolidated indebtedness to consolidated total capitalization not to exceed a maximum of 65%. Consolidated indebtedness and consolidated total capitalization are determined in accordance with generally accepted accounting principles, subject to adjustment to remove assets, liabilities, revenues and expenses that are included in the Company’s financial statements as a result of the consolidation of “variable interest entities” under applicable accounting principles.
The Note Purchase Agreements also provide that the Company shall not issue “Priority Debt” in an amount exceeding 20% of the Company’s consolidated assets. Priority Debt is defined as any indebtedness of the Company secured by liens other than specified liens permitted by the Note Purchase Agreement and certain unsecured indebtedness of certain subsidiaries.
The bonds require their holders to tender them on April 30, 2023, at which time the bonds will either be repriced and remarketed or redeemed and retired. The Company’s obligations under the Loan Agreement are unsecured.
5.15-3
[Form of Series A Note]
Madison Gas and Electric Company
5.43% Senior Note, Series A, due December 1, 2032
No. RA-[_____] [Date]
$[_______] PPN 557497 K@2
For Value Received, the undersigned, Madison Gas and Electric Company (herein called the “Company”), a corporation organized and existing under the laws of the State of Wisconsin, hereby promises to pay to [____________], or registered assigns, the principal sum of [_____________________] Dollars (or so much thereof as shall not have been prepaid) on December 1, 2032 (the “Maturity Date”), with interest (computed on the basis of a 360-day year of twelve 30‑day months) (a) on the unpaid balance hereof at the rate of 5.43% per annum from the date hereof, payable semiannually, on the 1st day of June and December in each year, commencing with the June 1st or December 1st next succeeding the date hereof, until the principal hereof shall have become due and payable, and on the Maturity Date, and (b) to the extent permitted by law, on any overdue payment (including any overdue prepayment) of principal, any overdue payment of interest and any overdue payment of any Make‑Whole Amount, payable semiannually as aforesaid (or, at the option of the registered holder hereof, on demand), at a rate per annum from time to time equal to the greater of (i) 7.43% and (ii) 2.00% over the rate of interest publicly announced by JPMorgan Chase Bank, N.A. from time to time in New York, New York as its “base” or “prime” rate.
Payments of principal of, interest on and any Make-Whole Amount with respect to this Note are to be made in lawful money of the United States of America at JPMorgan Chase Bank, N.A. or at such other place as the Company shall have designated by written notice to the holder of this Note as provided in the Note Purchase Agreement referred to below.
This Note is one of the Senior Notes (herein called the “Notes”) issued pursuant to the Note Purchase Agreement, dated November 1, 2022 (as from time to time amended, the “Note Purchase Agreement”), between the Company and the respective Purchasers named therein and is entitled to the benefits thereof. Each holder of this Note will be deemed, by its acceptance hereof, to have (i) agreed to the confidentiality provisions set forth in Section 20 of the Note Purchase Agreement and (ii) made the representations set forth in Sections 6.1 and 6.2 of the Note Purchase Agreement. Unless otherwise indicated, capitalized terms used in this Note shall have the respective meanings ascribed to such terms in the Note Purchase Agreement.
This Note is a registered Note and, as provided in the Note Purchase Agreement, upon surrender of this Note for registration of transfer, accompanied by a written instrument of transfer duly executed, by the registered holder hereof or such holder’s attorney duly authorized in writing, a new Note for a like principal amount will be issued to, and registered in the name of, the transferee. Prior to due presentment for registration of transfer, the Company may treat the person
Exhibit 1-A
(to Note Purchase Agreement)
in whose name this Note is registered as the owner hereof for the purpose of receiving payment and for all other purposes, and the Company will not be affected by any notice to the contrary.
The Company will make required prepayments of principal on the dates and in the amounts specified in the Note Purchase Agreement. This Note is also subject to optional prepayment, in whole or from time to time in part, at the times and on the terms specified in the Note Purchase Agreement, but not otherwise.
If an Event of Default occurs and is continuing, the principal of this Note may be declared or otherwise become due and payable in the manner, at the price (including any applicable Make-Whole Amount) and with the effect provided in the Note Purchase Agreement.
This Note shall be construed and enforced in accordance with, and the rights of the Company and the holder of this Note shall be governed by, the law of the State of New York excluding choice-of-law principles of the law of such State that would permit the application of the laws of a jurisdiction other than such State.
Madison Gas and Electric Company
By
Name:
Title:
-2-
[Form of Series B Note]
Madison Gas and Electric Company
5.43% Senior Note, Series B, due February 15, 2033
No. RB-[_____] [Date]
$[_______] PPN 557497 K#0
For Value Received, the undersigned, Madison Gas and Electric Company (herein called the “Company”), a corporation organized and existing under the laws of the State of Wisconsin, hereby promises to pay to [____________], or registered assigns, the principal sum of [_____________________] Dollars (or so much thereof as shall not have been prepaid) on February 15, 2033 (the “Maturity Date”), with interest (computed on the basis of a 360-day year of twelve 30‑day months) (a) on the unpaid balance hereof at the rate of 5.43% per annum from the date hereof, payable semiannually, on the 15th day of February and August in each year, commencing with the August 15th or February 15th next succeeding the date hereof, until the principal hereof shall have become due and payable, and on the Maturity Date, and (b) to the extent permitted by law, on any overdue payment (including any overdue prepayment) of principal, any overdue payment of interest and any overdue payment of any Make‑Whole Amount, payable semiannually as aforesaid (or, at the option of the registered holder hereof, on demand), at a rate per annum from time to time equal to the greater of (i) 7.43% and (ii) 2.00% over the rate of interest publicly announced by JPMorgan Chase Bank, N.A. from time to time in New York, New York as its “base” or “prime” rate.
Payments of principal of, interest on and any Make-Whole Amount with respect to this Note are to be made in lawful money of the United States of America at JPMorgan Chase Bank, N.A. or at such other place as the Company shall have designated by written notice to the holder of this Note as provided in the Note Purchase Agreement referred to below.
This Note is one of the Senior Notes (herein called the “Notes”) issued pursuant to the Note Purchase Agreement, dated November 1, 2022 (as from time to time amended, the “Note Purchase Agreement”), between the Company and the respective Purchasers named therein and is entitled to the benefits thereof. Each holder of this Note will be deemed, by its acceptance hereof, to have (i) agreed to the confidentiality provisions set forth in Section 20 of the Note Purchase Agreement and (ii) made the representations set forth in Sections 6.1 and 6.2 of the Note Purchase Agreement. Unless otherwise indicated, capitalized terms used in this Note shall have the respective meanings ascribed to such terms in the Note Purchase Agreement.
This Note is a registered Note and, as provided in the Note Purchase Agreement, upon surrender of this Note for registration of transfer, accompanied by a written instrument of transfer duly executed, by the registered holder hereof or such holder’s attorney duly authorized in writing, a new Note for a like principal amount will be issued to, and registered in the name of, the transferee. Prior to due presentment for registration of transfer, the Company may treat the person
Exhibit 1-B
(to Note Purchase Agreement)
in whose name this Note is registered as the owner hereof for the purpose of receiving payment and for all other purposes, and the Company will not be affected by any notice to the contrary.
The Company will make required prepayments of principal on the dates and in the amounts specified in the Note Purchase Agreement. This Note is also subject to optional prepayment, in whole or from time to time in part, at the times and on the terms specified in the Note Purchase Agreement, but not otherwise.
If an Event of Default occurs and is continuing, the principal of this Note may be declared or otherwise become due and payable in the manner, at the price (including any applicable Make-Whole Amount) and with the effect provided in the Note Purchase Agreement.
This Note shall be construed and enforced in accordance with, and the rights of the Company and the holder of this Note shall be governed by, the law of the State of New York excluding choice-of-law principles of the law of such State that would permit the application of the laws of a jurisdiction other than such State.
Madison Gas and Electric Company
By
Name:
Title:
-2-
[Form of Series C Note]
Madison Gas and Electric Company
5.53% Senior Note, Series C, due February 15, 2035
No. RC-[_____] [Date]
$[_______] PPN 557497 L*3
For Value Received, the undersigned, Madison Gas and Electric Company (herein called the “Company”), a corporation organized and existing under the laws of the State of Wisconsin, hereby promises to pay to [____________], or registered assigns, the principal sum of [_____________________] Dollars (or so much thereof as shall not have been prepaid) on February 15, 2035 (the “Maturity Date”), with interest (computed on the basis of a 360-day year of twelve 30‑day months) (a) on the unpaid balance hereof at the rate of 5.53% per annum from the date hereof, payable semiannually, on the 15th day of February and August in each year, commencing with the August 15th or February 15th next succeeding the date hereof, until the principal hereof shall have become due and payable, and on the Maturity Date, and (b) to the extent permitted by law, on any overdue payment (including any overdue prepayment) of principal, any overdue payment of interest and any overdue payment of any Make‑Whole Amount, payable semiannually as aforesaid (or, at the option of the registered holder hereof, on demand), at a rate per annum from time to time equal to the greater of (i) 7.53% and (ii) 2.00% over the rate of interest publicly announced by JPMorgan Chase Bank, N.A. from time to time in New York, New York as its “base” or “prime” rate.
Payments of principal of, interest on and any Make-Whole Amount with respect to this Note are to be made in lawful money of the United States of America at JPMorgan Chase Bank, N.A. or at such other place as the Company shall have designated by written notice to the holder of this Note as provided in the Note Purchase Agreement referred to below.
This Note is one of the Senior Notes (herein called the “Notes”) issued pursuant to the Note Purchase Agreement, dated November 1, 2022 (as from time to time amended, the “Note Purchase Agreement”), between the Company and the respective Purchasers named therein and is entitled to the benefits thereof. Each holder of this Note will be deemed, by its acceptance hereof, to have (i) agreed to the confidentiality provisions set forth in Section 20 of the Note Purchase Agreement and (ii) made the representations set forth in Sections 6.1 and 6.2 of the Note Purchase Agreement. Unless otherwise indicated, capitalized terms used in this Note shall have the respective meanings ascribed to such terms in the Note Purchase Agreement.
This Note is a registered Note and, as provided in the Note Purchase Agreement, upon surrender of this Note for registration of transfer, accompanied by a written instrument of transfer duly executed, by the registered holder hereof or such holder’s attorney duly authorized in writing, a new Note for a like principal amount will be issued to, and registered in the name of, the transferee. Prior to due presentment for registration of transfer, the Company may treat the person
Exhibit 1-C
(to Note Purchase Agreement)
in whose name this Note is registered as the owner hereof for the purpose of receiving payment and for all other purposes, and the Company will not be affected by any notice to the contrary.
The Company will make required prepayments of principal on the dates and in the amounts specified in the Note Purchase Agreement. This Note is also subject to optional prepayment, in whole or from time to time in part, at the times and on the terms specified in the Note Purchase Agreement, but not otherwise.
If an Event of Default occurs and is continuing, the principal of this Note may be declared or otherwise become due and payable in the manner, at the price (including any applicable Make-Whole Amount) and with the effect provided in the Note Purchase Agreement.
This Note shall be construed and enforced in accordance with, and the rights of the Company and the holder of this Note shall be governed by, the law of the State of New York excluding choice-of-law principles of the law of such State that would permit the application of the laws of a jurisdiction other than such State.
Madison Gas and Electric Company
By
Name:
Title:
-2-
Form of Opinion of Special Counsel
to the Company
Matters To Be Covered In
Opinion of Special Counsel To the Company
1. Each of the Company and its Principal Subsidiaries being duly incorporated, validly existing and in good standing and the Company having requisite corporate power and authority to issue and sell the Notes and to execute and deliver the documents.
2. The Company being duly qualified and in good standing as a foreign corporation in appropriate jurisdictions.
3. Due authorization and execution of the documents and such documents being legal, valid, binding and enforceable.
4. No conflicts with charter documents, laws or other agreements.
5. All consents required to issue and sell the Notes and to execute and deliver the documents having been obtained.
6. No litigation questioning validity of documents.
7. The Notes not requiring registration under the Securities Act of 1933, as amended; no need to qualify an indenture under the Trust Indenture Act of 1939, as amended.
8. No violation of Regulations U or X of the Federal Reserve Board.
9. Company not required to be registered as an “investment company” under the Investment Company Act of 1940, as amended.
Exhibit 4.4(a)
(to Note Purchase Agreement)
Form of Opinion of Special Counsel
to the Purchasers
[to be provided on a case by case basis]
Exhibit 4.4(b)
(to Note Purchase Agreement)
EXHIBIT 31.1
Certification Pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934
I, Jeffrey M. Keebler, certify that:
/s/ Jeffrey M. Keebler |
Jeffrey M. Keebler Chairman, President and Chief Executive Officer
Date: November 3, 2022 |
1
EXHIBIT 31.2
Certification Pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934
I, Jared J. Bushek, certify that:
/s/ Jared J. Bushek |
Jared J. Bushek Vice President - Finance, Chief Information Officer and Treasurer
Date: November 3, 2022 |
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EXHIBIT 31.3
Certification Pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934
I, Jeffrey M. Keebler, certify that:
/s/ Jeffrey M. Keebler |
Jeffrey M. Keebler Chairman, President and Chief Executive Officer
Date: November 3, 2022 |
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EXHIBIT 31.4
Certification Pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934
I, Jared J. Bushek, certify that:
/s/ Jared J. Bushek |
Jared J. Bushek Vice President - Finance, Chief Information Officer and Treasurer
Date: November 3, 2022 |
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EXHIBIT 32.1
Certification Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the quarterly report on Form 10-Q of MGE Energy, Inc. (the "Company"), for the period ended September 30, 2022, as filed with the Securities and Exchange Commission on the date hereof ("the Report"), I, Jeffrey M. Keebler, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
/s/ Jeffrey M. Keebler |
Jeffrey M. Keebler Chairman, President and Chief Executive Officer
Date: November 3, 2022 |
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EXHIBIT 32.2
Certification Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the quarterly report on Form 10-Q of MGE Energy, Inc. (the "Company"), for the period ended September 30, 2022, as filed with the Securities and Exchange Commission on the date hereof ("the Report"), I, Jared J. Bushek, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
/s/ Jared J. Bushek |
Jared J. Bushek Vice President - Finance, Chief Information Officer and Treasurer
Date: November 3, 2022 |
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EXHIBIT 32.3
Certification Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the quarterly report on Form 10-Q of Madison Gas and Electric Company (the "Company"), for the period ended September 30, 2022, as filed with the Securities and Exchange Commission on the date hereof ("the Report"), I, Jeffrey M. Keebler, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
/s/ Jeffrey M. Keebler |
Jeffrey M. Keebler Chairman, President and Chief Executive Officer
Date: November 3, 2022 |
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EXHIBIT 32.4
Certification Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the quarterly report on Form 10-Q of Madison Gas and Electric Company (the "Company"), for the period ended September 30, 2022, as filed with the Securities and Exchange Commission on the date hereof ("the Report"), I, Jared J. Bushek, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
/s/ Jared J. Bushek |
Jared J. Bushek Vice President - Finance, Chief Information Officer and Treasurer
Date: November 3, 2022 |
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