MGEE 10-K & 10-Q changes, risk factors and insider trading

We are subject to extensive government regulation in our business, which affects our costs and responsivenessability to respond to changing events and circumstances.

Our business is subject to regulation at the Statelocal, state, and federal levels. The regulations adopted by thelocal, Statestate, and federal agencies affect how we do business, our ability to undertake specified actions since pre-approval or authorization may be required for projects, the costs of operations, and the rates chargedwe are authorized to charge to recover those costs. Our ability to attract capital also depends, in part, upon our ability to recover our costs and obtain a fair return for shareholders.

MGE Energy is subject to regulation as a holding company by the PSCW. The PSCW regulates MGE's rates; terms and conditions of service; various business practices and transactions; financing; the closure of generating facilities and related cost recovery; and transactions between it and its affiliates, including MGE Energy. MGE is also subject to regulation by the FERC, which regulates certain aspects of its business.business, including certain accounting policies.

Our utility customer rates have a material impact on our financial condition, results of operations, and liquidity. Our ability to obtain adjustments to those rates depends upon timely regulatory action under applicable statutes and regulations. These proceedings typically involve multiple parties, including governmental bodies and officials, consumer advocacy groups, and various consumers of energy, who may focus on differing elements of the rate setting process, including environmental matters andmatters, addressing affordability concerns. Decisions are subject to judicial review, potentially leading to additional uncertainty associated with the approval proceedings.proceedings, including with respect to outcome and timing. Rate regulation provides us an opportunity to recover costs that have been reasonably incurred and the ability to earn a reasonable rate of return on invested capital. However, we have no assurance that our regulators will consider all of our costs to have been reasonably incurred. In addition, our rate proceedings may not always result in rates that fully recover our costs or provide a reasonable return on equity. We estimate the impacts of changes in customer growth and weather as part of our customer rates. Any reduction of sales from these factors may not result in rates that fully recover our costs and may require adjustments to our rates, which we cannot guarantee will be approved.

Our subsidiaries have incurred and may continue to incur costs from more stringent regulation of GHG from power plants, natural gas delivery, GHG used in power distribution, and efficiencies lost during power distribution. Compliance with such regulation may result in increased capital and operating costs, including expenditures for equipment, technology, and monitoring activities. While it is difficult to know the extent of possible legislation or regulatory activity, the federal government may consider, and could pass, some form of greenhouse gas legislation or regulations. In addition, litigation by environmental nongovernment organizations targeting GHG emissions from the electric power industry may also occur if the federal government fails to act on greenhouse gas initiatives.

Changes in federal income tax policypolicy, including provisions under the Inflation Reduction Act (IRA) and One Big Beautiful Bill Act (OBBBA), or our inability to use or generate tax creditscredits, may adversely affect our financial condition, results of operations, and cash flows, as well as ourand credit ratings.

If corporate tax rates or policies are changed,change, we may be required to takerecord material charges against earnings. IfIncreased tax rates are increased, there could becreate timing delays before regulated rates provide forallow recovery of those tax increases in revenues. In addition, certain IRS tax policies,policies such as tax normalizationnormalization, Treasury Regulations, and Treasuryevolving Regulationsguidance under the IRA and guidance issued in connection with the IRA,OBBBA may impact our ability to economically deliver certain types of resources relative to market prices. OBBBA includes provisions for the phase-out of certain tax credits over time, creating uncertainty around long-term project economics and potentially accelerating investment timelines. These changes could require us to modify resource plans, accelerate construction schedules, or seek alternative financing structures, all of which may increase costs and risk. There is uncertainty regarding whether and how the current and future Presidential administrations or U.S. Congress will continue to address tax policy and regulation.

We have historically reduced our consolidated federal and state income tax liability with the use ofthrough various tax credits under the applicable tax codes.credits. We may not be able to fully use these tax credits if our future federal and state taxable income and related income tax liability is insufficient to permit their use or if wetransferability options are unablelimited. to transfer tax credits to a third party. In addition, anyAny future disallowance of somecredits due to legislative changes or all of those tax credits as a result of legislation or an adverse determination by one of the applicable taxing jurisdictionsdeterminations could materially affect our tax obligations and financial results. The IRA introduced new labor requirements that are conditions to qualification for renewable tax credits. Failure to meet these requirements on renewable projects that began construction after January 28, 2023, could result in a significant reduction in the amount of renewable tax credits, which could adversely impact our financial condition and results of operations. OBBBA introduces additional eligibility requirements, including compliance with Foreign Entity of Concern (FEOC) rules, which may restrict the use of certain equipment or components in renewable projects. Failure to meet FEOC requirements could disqualify projects from tax credits, significantly increasing costs and reducing expected returns.

Our utility business currently owns and operates renewable energy generating facilities.facilities These facilitiesthat produce PTC and ITC used to reduce our federal tax obligations.credits. The amount of tax credits we earnearned depends on thefacility datein-service the qualifying generating facilities are placed in servicedates and various operating and economic factors, including facilitygeneration generation,output, transmission constraints, unfavorable trends in pricing for wind or solar energy,trends, adverse weather conditions, theequipment breakdown or failure of equipment,reliability, and the applicable taxcredit rates. These factors, combined with labor requirements under IRA and FEOC compliance risks and credit rate.phase-outs Theseunder factorsOBBBA, could significantly reduce the PTCcredits and ITC produced by our wind or solar farms, resulting in increasedincrease federal income tax expense. We could also be forced to replace lost generation capacity with additional power purchases from third parties, potentially leading to increased costs. Any of the considerations mentioned above could have an adverse impact on our financial condition and results of operations, which could be material depending upon the cause of the disruption and its duration.

There is also uncertainty as to when or how credit rating agencies, capital markets, the FERC, or state public utility commissions will treat impacts of any future federal or state tax regulation. These impacts could subjectresult us toin credit rating downgrades.downgrades Inor addition,negatively certainaffect financial metrics used by credit rating agencies, such as our funds from operations-to-debt percentage, could be negatively impacted by future rulings.ratios.

The demand for electricity and gas is affected by weather. Very warm and very cold temperatures, especially for prolonged periods, can dramatically increase the demand for electricity and gas for cooling and heating, respectively, as opposed to the softening effect of more moderate temperatures. Our electric revenues are sensitive to the summer cooling season and, to a lesser extent, the winter heating season. Similarly, very cold temperatures can dramatically increase the demand for gas for heating. A significant portion of our gas system demand is driven by heating. Extreme summer conditions or storms may stress electric systems, resulting in increased maintenance costs and limiting our ability to meet peak customer demand. As a result, our overall operating results may fluctuate substantially on a seasonal basis.

We could be adversely affected by changes in the development, and utilization by our customers, of power generation, storage, and use technologies.technologies, as well as emerging technologies such as AI.

Advancements in power generation technology, including commercial and residential solar generation installations and commercial micro turbine installations, are improving the cost-effectiveness of customer self-supply of electricity. Improvements in energy storage technology, including batteries and fuel cells, could also better position customers to meet their around-the-clock electricity requirements. It is possible that legislationLegislation or regulations could be adopted supporting the use ofsupport these technologies thattechnologies, permit third-party sales from such facilities,sales, and allow these facilities to interconnectinterconnection to our distribution system. Improvements in the energy efficiency of lighting, appliances, and equipmentvoluntary conservation efforts will also affect consumption. AI-driven energy consumptionmanagement by customers. Customerstools could engagealso inenable individualcustomers conservationto effortsoptimize by voluntarily reducing their consumption of electricity through changes in energy useusage and throughfurther thereduce usepurchases offrom more energy efficient lighting, appliances, and equipment.us. Such developments could reduce customer purchases of electricity but may not necessarily reduce our investment and operating requirements due to our obligation to serve customers, including those whose self-supply customersresources whosefail. equipment has failed for any reason to provide the power they need whether due to inadequate on-site resources, restricted operating hours, or equipment failure. In addition, sinceBecause a portion of our costs are recovered through chargesvolumetric basedcharges, upon the volume of power delivered, a reductionreductions in electricity deliveries willcould affect the timing of our recovery of those costs and may require changes to our rate structures.

MGE Energy's and MGE's operations are affected by local, nationalnational, and worldwide economic conditions. The consequences of a prolonged period of reduced economic activity may include lower demand for energy, uncertainty regarding energy prices and the capital and commodity markets, and increased credit risk. A decline in energy consumption may adversely affect our revenues and future growth. Increased credit risk reflects the risk that our retail customers will not pay their bills in a timely manner or at all, which may lead to a reduction in liquidity and an eventual increase in bad debt expense.

More recently, ourOur operations have beenbeen, and may continue to be, impacted by domestic and global supply chain disruptions which are delaying the delivery of materials, equipment, and other resources that are critical to our business operations and projects under construction, including our renewable energy projects. Supply interruptions could affect our ability to operate and maintain our system and ability to implement our long-term goals. Inflation has also increased prices of equipment, materials, employee wages and benefits, and other resources. Inflationary pressures in the economy could lead to higher expenses which may adversely impact our financial condition and results of operations.

A significant portion of our electric generating capacity is dependent on coal. Demand for coal has been, and may continue to be, impacted by prevailing prices for natural gas and coal plant closures and may affect mine performance. Consequently, we are exposed to the risk that counterparties to these contracts will not be able to fulfill their obligations. Disruption in the delivery of fuel, including disruptions as a result of transportation delays, weather, labor relations, force majeure events, or environmental regulations affecting any of our fuel suppliers, has affected, and could in the future affectaffect, our ability to generate electricity at our facilities at the desired level. Should counterparties fail to perform, or other unplanned disruptions occur, we may be forced to fulfill the underlying obligation at higher prices. The Columbia plant operator has been, and the plant operators may be, forced to reduce generation at our jointly-held coal units, which would cause us to replace this generation through additional power purchases from third parties. These factors may also affect the terms under which any of the existing coal supply or transportation agreements are renewed or replaced upon the expiration of their current terms.

Generation, transmission systems, and natural gas pipelines are part of an interconnected system. Therefore, a disruption caused by the impact of a cyber securitycybersecurity incident on the regional electric transmission grid, natural gas pipeline infrastructure or other fuel sources of our third-party service providers' operations, could also negatively impact our business.

We maintain security measures to protect our information technology and control systems, network infrastructure and other assets. Despite such measures, we have been and may in the future be subject to cyber incidents. While we have not been subject to cyber incidents that have had a material impact on operations to date, the safeguards we have may not always be effective due to the evolving nature of cyber attacks. Moreover, the rapid evolution and increased adoption of artificial intelligenceAI technologies may intensify our cybersecurity risks. We cannot guarantee that the protections we have in place will be completely successful in the event of a cyber attack. If the technology systems were to fail or be breached by a cyber attack, and not be recovered in a timely fashion, we may be unable to fulfill critical business functions, equipment may fail to work and confidential data could be compromised, any additional costs may not be recoverable in rates, or may exceed cyber insurance limits, or may not be covered by cyber insurance and could adversely impact our results of operations.

A terrorist attack, war, natural disaster, wildfire, severe storms, pandemic virus or disease, or other catastrophic or unpredictable event could adversely affect our future revenues, expenses and operating results by: interrupting our normal business operations; causing employee absences or casualties, including loss of our key employees; interrupting or affecting supplier operations; requiring substantial expenditures and expenses to repair, replace and restore normal business operations; and reducing investor confidence.confidence; and disrupting, or causing volatility in, capital markets. No assurance can be given that future losses for such events will not exceed the limits of our insurance coverage, if applicable. While we maintain insurance coverage for certain losses arising from catastrophic events, such coverage may be subject to limits, retentions (deductibles), exclusions, or delays in recovery, and may materially increase in cost in the future. Uninsured or underinsured losses could materially and adversely affect our financial condition and results of operations. Facilities for electric generation, transmission, and gas and electric distribution are potential targets of terrorist threats and activities, including both physical or cyber attacks. A terrorist act or catastrophic event at our facilities or the facilities of other companies to which we are interconnected could result in a disruption of our ability to generate, transmit, transport, purchase, or distribute electricity or natural gas. Such an event would have additional adverse effects, including environmental ramifications, increased security and insurance costs, as well as general economic volatility or uncertainty within our service territories. The inability to maintain operational continuity and any additional costs incurred for repairing our facilities or making alternative arrangements could materially and adversely affect our financial condition and results of operations.

Our capital projects, such as our renewable generation and storage projects, are subject to various completion risks that could cause increases in costs or delays in completion. These risks include shortages of, the inability to obtain, the cost of, and the consistency of, labor, materials and equipment; the inability of the contractors to perform under their contracts; the inability to agree to terms of contracts or disputes in contract terms; work stoppages; adverse weather conditions; the inability to obtain necessary permits in a timely manner; changes in applicable laws or regulations; adverse interpretation or enforcement of permit conditions; governmental actions or tariffs; legal action; and unforeseen engineering or technology issues. Our capital projects may also be adversely affected by geopolitical instability, trade policy changes, or shortages of critical materials and equipment. Disruptions in global supply chains could delay project completion, increase costs, or affect system reliability. In the case of our renewable generation projects, we may face delays in the completion of the necessary transmission system connections or upgrades to accommodate the project.

If a capital project exceeds the approved project costs approved by the PSCW, we may not be able to recover those excess costs through regulated customer rates. If that happens, we may have to finance overruns through cash from operations, which may delay other projects, or by securing additional financing. Any or all of these methods may not be available when or in the amounts neededneeded, on reasonable terms or mayat adversely affect our financial condition, results of operations and cash flows.all.

Inability to recover excess costs, obtain additional financing when or inabilityif toneeded on reasonable terms or complete the project in a timely manner, could adversely impact our financial condition and results of operations. Further, our revenues and cash flows may not increase immediately following our expenditure of funds on a particular project,project or in the period during which the expenditure occurs, which could affect our liquidity and financial position.

Some of our current long-term goals include MGE's targetingtarget of net‐zero carbon electricity by 2050 and MGE's Energy 2030 framework, which describes our plan for growth in renewables generation. MGE is working to achieve a more sustainable energy future using cost‐effective renewable generation and storage technologies. Management established these goals in conjunction with our board of directors based upon a number of different internal and external factors that characterize and influence our current and expected future activities. These long-term goals are based on certain assumptions regarding the timing, scope, and relative costs of technological advancements, including generation, storage and energy use technologies; levels of customer participation in programs and partnerships, which will be critical to the achievement of the goalspartnerships; our ability to transition away from or displace existing coal-fired resources; our ability to complete renewable generation and storage projects in a timely manner and within approved budgets; our ability to obtain recovery of costs in rates; and our ability to obtain the necessary permits or licenses for such projects. These assumptions may differ materially from actual future results.developments. Accordingly, we may not achieve our stated long-term goals in the timeframe projected or at all.

WeBecause we operate in an industry that requires employees with specialized technical skills, we must attract, train, and retain a specialized workforce to meet current and future needs. Events such as an aging workforce without sufficient replacement workers, mismatch of skill sets to future needs, labor market conditions, evolving employee culture expectations, or unavailability of contract resources may lead to operating challenges and increased costs. Some of the challenges include lack of resources, loss of knowledge, and time required for replacement employees to develop necessary skills. Failure to identify qualified replacement employees could increase costs as a result of decreased productivity and increased safety incidents. If we are unable to attract and retain an appropriately qualified workforce, our operations could be negatively affected. We are also subject to multiple collective bargaining agreements covering approximately 314318 employees.employees as of December 31, 2025. Future negotiation of these collective bargaining agreements could lead to work stoppages or other disruptions to our operations, which could adversely affect our financial condition and results of operations.

We face commodity price risk exposure with respect to the purchase of natural gas, electricity, coal, oil, and environmental allowances. We also face risk through our use of derivativesderivatives, such as futures, forwards, and swaps, to manage our commodity price risk. We could experience increased costs as a result of volatility in the market values of those commodities. We could also experience losses on our derivative contracts as a result of that market value volatility or if a counterparty fails to perform under a contract.

Prevailing interest rates affect our assessment and determination of discount rates and are a key assumption in the determination of the costs and funding of our defined benefit pension plans. Changes in rates may impact the amount of expense and timing of contributions to those plans. The performance of the capital markets affects the values of the assets that are held in trust to satisfy the future obligations under our pension and postretirement benefit plans. We have significant obligations in these areas and hold significant assets in these trusts. A decline in the market value of thosetrust fund assets may increase our current and longer-term funding requirements forby these obligations. Changes in the value of trust fund assets may affectincreasing the level of required contributions to these trustsrequired to meet benefit obligations. ReducedIn benefitaddition, planchanges assetsin workforce demographics, retirement patterns, life expectancy, or eligibility requirements for Social Security or Medicare could result in increasedincrease benefit costs inand futurefunding yearsrequirements for our pension and maypostretirement increasebenefit the amount and accelerate the timing of required future funding contributions.plans.

MGE Energy is a holding company, with no operations of its own, and its ability to pay dividends on our common stock is dependent on the earnings and cash flows of operating subsidiaries and their ability to pay upstream dividends or to repay funds to MGE Energy. Our subsidiaries have financial obligations that must be satisfied before funding MGE Energy. These obligations include debt service and obligations to trade creditors, among others. Our subsidiaries are also subject to contractual and regulatory restrictions that may limit or impair their ability to pay dividends to MGE Energy. Certain regulatory orders impose conditions on dividend payments based on specified financial metrics or capital structure requirements, which could restrict the paymentamount or timing of dividends.dividends paid to MGE Energy.

Our primary focus is our core utility customers, which are served by MGE as well as creating long-term value for our shareholders. MGE seeks to meet its customers' expectations for reasonably priced, reliable electric and gas service provided in a responsible manner. That responsibility is manifested in actions MGE has taken, and will continue to take, to achieve its goalsgoal of 80% carbon reduction by 2030 (from 2005 levels) and net-zero carbon by 2050, including:2050.

reducingAs part of this long‑term transition, MGE continues to evaluate the proportionrole thatof coal‑fired generation represents in its generationportfolio, mix,including aspreviously evidencedannounced byplans its announcements ofregarding the retirement of Columbia (aEnergy coal generation plant)Center and the planned changefuel intransition at the Elm Road UnitsUnits. fuelMGE sourceremains fromfocused on reducing reliance on coal toover natural gas,time and growingexpanding ownership of renewable generation sources.to support a cleaner, reliable energy future.

LowerHigher gas retail sales resultingin from2025 warmercontributed thanto normalhigher weathergas earnings for 2025, compared to the same period in the firstprior quarter of 2024 contributed to lower gas earnings in 2024.year. Gas retail sales decreasedincreased approximately 4%14% andfor heating2025, compared to the prior year period. Heating degree days (a measure for determining the impact of weather during the heating season) decreasedincreased by approximately 6%18% in 20242025 compared to the same period in the prior year.

2024/2025 Rate Proceeding: In December 2023, the PSCW approved a 1.54% increase to electric rates and 2.44% increase to gas rates for 2024. The PSCW also approved a 4.17% increase to electric rates and 1.32% increase to gas rates infor 2025. The PSCW approved a 2025 Fuel Cost Plan in December 2024. The plan lowered the 2025 increase in electric rates to 2.63%, reflecting lower expected fuel costs.2.63%. See "Other Matters" below for additional information on the 2024/2025 rate proceeding.

The 2024/2025 rate order includesincluded an earnings sharing mechanism, under which, if MGE earns above the 9.7% ROE authorized in the rate order: (i) MGE will retain 100% of earnings for the first 15 basis points above the authorized ROE; (ii) 50% of the next 60 basis points will be required to be deferred and returned to customers; and (iii) 100% of any remaining excess earnings will be required to be refunded to customers. The earnings calculation excludes fuel rules adjustments.

Large Scale Utility Projects: Large scale generation projects recently completed or under construction, are shownsummarized 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. See "Capital Expenditures" below for additional information on projects.

MGE received specific approval to recover 100% AFUDC on Paris, Darien, and Koshkonong.AFUDC. After tax, MGE recognized $4.8$5.4 million, $2.7$3.2 million, and$2.3 $0.2million, $1.4 million, $0.6 million of AFUDC equity earnings through December 31, 2024,2025, on Paris, Darien, Koshkonong, High Noon, and Koshkonong,other projects, respectively, during construction. AFUDC has been excluded from the costs incurred in the table above.

Deferred Fuel Costs - Subject to RefundSavings: As of December 31, 2024,2025, MGE had deferred $3.0$7.1 million of 20242025 fuel savings. These costs will be subject to the PSCW's annual review of 20242025 fuel costs, expected to be completed during 2025.2026. See Footnote 9.b. of the Notes to Consolidated Financial Statements in Part II, Item 8 of this Report for further information regarding fuel proceedings.

20232024 Annual Fuel Proceeding: MGE had fuel savings in 2023.2024. As of December 31, 2023,2024, MGE had deferred $7.2$3.0 million of 20232024 fuel costs.savings. The PSCW has completed the annualtheir review of 20232024 fuel costs and approved MGE's return of these savings over a three-month period fromin October 2024 through December 2024.2025. There was no change to the costs to be refunded as a result of the fuel rules proceedings from the amount MGE deferred in 2023.2024.

Growing renewable generation.generation and storage. MGE is seeking to acquireacquire, aor has acquired, joint interestinterests in several renewable generation and storage projects. The forecasted capital expenditures include approximately 252 MW of solar, 18 MW of wind, and 125 MW of storage, which include projects approved or pending PSCW approval. See ourthe 2025-20292026-2030 capital expenditures forecast included under "Liquidity and Capital Resources" below for information on thesethose projects.

Environmental Initiatives – Natural gas distribution: Building upon our long-standing commitment to providing affordable, sustainable energy, MGE has set a goal to achieve net-zero methane emissions from its natural gas distribution system by 2035. If MGE can accelerate plans to achieve net-zero methane emissions from its natural gas system—through the evolution of new technologies, such as renewable natural gas—it will. MGE is working to reduce overall emissions from its natural gas distribution system in a quick and cost-effective manner. For customers who want to reduce their environmental footprint further, MGE introducedoffers atwo voluntary renewable natural gas programprograms. The initial program, launched in May 2024, afterenables approvalcustomers byto theoffset PSCW.emissions associated with their natural gas consumption through a mechanism in which MGE purchases renewable thermal credits and retires them on behalf of customersparticipating whocustomers. voluntarilyThe electsecond program, launched in theJanuary program2026, enables customers to offsetinject therenewable emissionsnatural associatedgas withproduced on the customer's monthlypremise into MGE's distribution system; customers may sell the natural gas usage.to MGE or another third party and may retain or sell to MGE or another third party the associated environmental attributes.

Solar Procurement Disruptions: MGE is monitoring import regulations under the Uyghur Forced Labor ProtectionPrevention Act and the U.S. Department of CommerceCommerce's new solar tariffs. These disruptions have a potential to impact 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 have filed, and expect to continue to file, notifications with the PSCW and expect to request recovery of any increases in MGE's future rate proceedings. See "Other Matters" below for additional information on the solar procurement disruptions.

Executive Order – Tariffs: MGE is monitoring the actions of the Trump Administration with respect to certain proposed or recently implemented import tariffs on foreign goods, including those from Canada, Mexico, and/or China.goods. These tariffs have a potential impact on cost of operations and on current and future capital projects. See "Other Matters" below for additional information on the executive orders on Tariffs.

Sales to the market. Sales to the market typically occur when MGE has more generation and purchases in the MISO market than are needed for its customer demand. The excess electricity is then sold to other utilities or power marketers in the MISO market. During 2024,2025, market volumes increased compared to 2023,2024, reflecting increase in sales. However,Additionally, the cost of capacity sold decreasedincreased, offsettingcontributing to the revenue generated from increased sales to the market from excess generation and purchases. The revenue generated from these sales is includedlargely inoffset by fuel rules costs.costs, and do not have a significant impact on net income. See fuel rules discussion in Footnote 9 of the Notes to Consolidated Financial Statements in Part II, Item 8 of this Report.

Residential Volume. During 2024,2025, residential sales decreasedincreased by approximately 1%5% compared to 2023.2024. TheThis decreaseincrease was driven by unfavorablefavorable weather.weather conditions and an increase in customers during 2025, compared to the same period in the prior year.

The $3.6$16.8 million decreaseincrease in fuel for electric generation was due to an approximately 17%16% decreaseincrease in theinternal averagegeneration cost,as partiallywell offset byas an approximately 13% increase in internalthe generation.average Renewable generation increased approximately 26% driven by new generation sources including Badger Hollow II.cost.

Excluding deferred fuel costs, purchased power decreased $9.7$6.2 million. The decrease in purchased power was due to an approximately 30%39% decrease in market purchases as a result of increased internal generation. Furthermore, there was an approximately 4%1% increase in average cost partially offsetting the decrease in market purchases. Deferred fuel cost recovered in 2024 iswas $6.7 millionmillion. comparedThere towere $5.4no milliondeferred infuel 2023.costs recovered during 2025.

Gas revenue decreasedincreased $21.4$32.8 million during 20242025 compared to 2023,2024, due to the following:

Rate changes. In December 2023, the PSCW authorized MGE to increase 20242025 rates for retail gas customers by 2.44%.approximately 1.32%.

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 decreasedincreased, driving lowerhigher rates during 2024.2025.

The average retail rate per therm excluding customer fixed charges for 2024,2025, decreasedincreased approximately 7%4% compared to 2023,2024, reflecting aan decreaseincrease in natural gas commodity costs (recovered through the PGA).

Volume. For 2024,2025, retail gas deliveries decreasedincreased approximately 4%14% compared to 20232024 primarily attributable to unfavorable weather conditions in the first half of 2024.

Cost of gas sold decreasedincreased $24.0$24.3 million in 20242025 compared to 2023.2024. CostTherms delivered increased approximately 14% primarily driven by weather and cost per therm decreasedincreased approximately 19% and therms delivered decreased approximately 4%.14%. MGE recovers the cost of natural gas in its gas segment through the PGA as described under "Gasgas deliveries and revenues" above.

Increased transmission costs are primarily a result of an increase in transmission rate and collection of deferred costs from prior years.rate. Transmission costs represent ATC and MISO network transmission expenses authorized to collect in rates. The PSCW has approved MGE to defer as a regulatory asset or liability, the difference between actual costs included in rates and to be recovered or refunded in a future rate proceeding. Transmission cost is generally offset by electric revenue and does not have a significant impact on net income.

Increased electric production expenses are primarily related to operating and maintenance costs for Columbiathe Elm Road Units and renewable generating facilities. MGE continues to add new renewable generation sites including the second phase of Badger Hollow which went online in December 2023.

Electric depreciation expense increased $6.8$4.9 million and gas depreciation expense increased $1.2$0.6 million for 2024,2025, compared to 2023.2024. MGEParis purchased West Riverside in March 2023 and Badger Hollow IIsolar was placed in service in December 2023.2024, Darien solar was placed in service in March 2025, and Paris battery was placed in service in June 2025. The timing of the in-service dates contributed to the increase in electric depreciation expense.

Electric and gas other income and interest expense

There were no material changes from the risk factors disclosed in Item 1A. Risk Factors in our 2025 Annual Report on Form 10-K.10-K, other than as set forth below:

Regulated electric utility operations, conducted through MGE, which generate and distribute electricity to approximately 170,000 customers in Dane County, Wisconsin, Regulated gas utility operations, conducted through MGE, which distribute natural gas to approximately 180,000 customers in seven south-central and western Wisconsin counties, Nonregulated energy operations, conducted through MGE Power and its subsidiaries, which ownsown interests in electric generating capacity that is leased to MGE, Transmission investments, representing our equity investment in ATC, which owns and operates electric transmission facilities primarily in Wisconsin, and ATC Holdco, a company created to facilitate out-of-state electric transmission development and investments, and All other, which includes investing in companies and property that relate to the regulated operations and financing of the regulated operations, through its wholly owned subsidiaries CWDC, MAGAEL, and North Mendota, and corporate operations and services.

During the three months ended MarchJune 31,30, 2026, MGE Energy's earnings were $48.5$33.4 million, or $1.32$0.89 per diluted share, compared to $41.6$26.5 million, or $1.14$0.72 per diluted share, during the same period in the prior year. MGE's earnings during the three months ended MarchJune 31,30, 2026, were $40.1$22.5 million compared to $34.2$18.8 million during the same period in the prior year.

Our net income during the three and six months ended MarchJune 31,30, 2026, compared to the same periods in the prior year, primarily reflects the effects of the following factors:

Earnings for the three and six months ended MarchJune 31,30, 2026, increased year-over-year, primarily driven by a rise in the rate base due to increased electric investments approved in the 2026/2027 rate case.

The following events affected the first threesix months of 2026:

2026/2027 Rate Settlement Agreement: In December 2025, the PSCW approved a unanimous settlement agreement that MGE reached with intervening parties in its 2026/2027 rate case. As part of the settlement agreement, the PSCW approved a 0.15% increase for electric rates and a 2.77% increase to gas rates for 2026 and a 3.63% increase for electric rates and a 2.04% increase to gas rates for 2027. MGE filed a 2027 Fuel Cost Plan with the PSCW in June 2026. MGE expects a final decision from the PSCW on the Fuel Cost Plan by the end of 2026. See "Other Matters" below for additional information on the 2026/2027 rate case settlement.

2026 Deferred Fuel Savings: MGE had deferred fuel savings through the threesix months ended MarchJune 31,30, 2026. As of MarchJune 31,30, 2026, MGE deferred $4.4$6.7 million of 2026 fuel savings. These costs will be subject to the PSCW's annual review of 2026 fuel costs, expected to be completed during 2027. See Footnote 9 of the Notes to the Consolidated Financial Statements in this Report for further information regarding fuel cost proceedings.

Large Scale Utility Projects: Large scale generation projects recently completed or under construction,construction are summarized 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.

MGE received specific approval to recover 100% AFUDC. After tax, MGE recognized $3.2$4.4 million, $2.3$3.3 million, $1.0$1.9 million, $0.7and $2.0 million of AFUDC equity earnings through MarchJune 31,30, 2026, on Koshkonong, High Noon, Sunnyside, and other projects, respectively, during construction. AFUDC has been excluded from the costs incurred in the table above.

In February 2026, MGE executed an asset purchase agreement to acquire a 33.4% ownership interest in the RockGen Energy Center, an existing natural gas-fired generating plant near Cambridge, Wisconsin. MGE's estimated cost is approximately $203 million. If approved, the transaction is expected to close in late 2027.

2025 Annual Fuel Proceeding: MGE had fuel savings in 2025. As of December 31, 2025, MGE deferred $7.1 million of 2025 fuel savings. TheseThe costsPSCW willhas be subject tocompleted the PSCW's annual review of 2025 fuel costs,costs expectedand togave beapproval completed during 2026.for MGE has proposed to return these savings in October 2026. There was no change to the costs to be refunded in the fuel rule proceedings from the amount MGE deferred in the previous year.

Financing and Equity Issuance Plans: As of MarchJune 31,30, 2026, MGE has $140 million of remaining regulatory authority from the PSCW to issue long-term debt to finance authorized utility capital expenditures. MGE expects to use a portion of the remaining authority during 2026 to finance authorized utility capital expenditures. MGE Energy has equity programs available to issue new shares of common stock, including its at-the-market offering programprogram, forward equity sale agreements, and its Direct Stock Purchase and Dividend Reinvestment Plan. See Footnote 6 of the Notes to Consolidated Financial Statements in this Report for additional information on these programs.

Three Months Ended MarchJune 31,30, 2026 and 2025

Electric revenue increased $5.9$2.1 million during the three months ended MarchJune 31,30, 2026, compared to the same period in the prior year, due to the following:

Rate changes. In December 2025, the PSCW authorized MGE to increase 2026 rates for retail electric customers by approximately 0.15%. Rates charged to retail customers during the three months ended MarchJune 31,30, 2026, were $2.0 million higher than those charged during the same period in the prior year. See Footnote 9 of the Notes to Consolidated Financial Statements in this Report for further information on the rate increase. Any increaseincreases in rates associated with fuel or purchase power costs are generally offset by fuel and purchased power costs and do not have a significant impact on net income.

The $2.7$3.4 million increasedecrease in fuel for electric generation in the first three months of 2026 was due to an approximately 18%23% increasedecrease in theinternal averagegeneration cost,driven by a decrease in sales, partially offset by a 2% decreaseincrease in internalthe generation,average cost, each compared to the same period in the prior year.

Excluding deferred fuel costs, purchased power decreasedincreased $1.9$0.3 million in the first three months of 2026, compared to the same period in the prior year.million. The decreaseincrease in purchased power was due to an approximately 53% decrease in average cost. This decrease was partially offset by an approximately 21%59% increase in market purchases as a result of decreased internal generation. This increase was partially offset by an approximately 34% decrease in average cost. There were no deferred fuel costs recovered during the three months ended MarchJune 31,30, 2026 and 2025.

Gas revenue increaseddecreased $17.8$0.3 million during the three months ended MarchJune 31,30, 2026, compared to the same period in the prior year, due to the following:

Other. For the three months ended MarchJune 31,30, 2026, other gas revenue increased primarily due to customer growth and higher residential customer fixed rate.

Cost of gas sold increaseddecreased $16.9$2.0 million during the three months ended MarchJune 31,30, 2026, compared to the same period in the prior year. Cost per therm increaseddecreased approximately 36%,14% partiallyand offsetthere bywas a decrease in therms delivered of approximately 3%.5%. MGE recovers the cost of natural gas in its gas segment through the PGA as described under gas deliveries and revenues above.

During the three months ended MarchJune 31,30, 2026, operations and maintenance expenses increased $5.0$7.5 million, compared to the same period in the prior year. The following contributed to the net change:

Increased administrative and general costs are primarily related to increased pension and other postretirement costs. The PSCW has approvedauthorized MGE to defer as a regulatory asset or liability, the difference between actual pension and other postretirement costs included in rates and to be recovered or refunded in a future rate proceeding. Pension and other postretirement cost are generally offset by electric revenue and does not have a significant impact on net income.

Increased transmission costs are primarily a result of an increase in transmission rate. Transmission costs represent ATC and MISO network transmission expenses authorized to collect in rates. The PSCW has approvedauthorized MGE to defer as a regulatory asset or liability, the difference between actual costs included in rates and to be recovered or refunded in a future rate proceeding. Transmission cost is generally offset by electric revenue and does not have a significant impact on net income.

Electric depreciation expense decreased $0.3$0.1 million and gas depreciation expense increased $0.6$0.7 million during the three months ended MarchJune 31,30, 2026, compared to the same period in the prior year. In December 2025, the PSCW approved new depreciation rates, which were implemented and became effective as of January 1, 2026. These new rates were the primary driver for the change in depreciation expense.

Electric other income increased $6.0$4.9 million and gas other income increased $1.0$2.0 million during the three months ended MarchJune 31,30, 2026, compared to the same period in the prior year, driven by a $4.2$2.3 million positive impact from non-service costs components of pension and other postretirement costs. The PSCW has approvedauthorized MGE to defer as a regulatory asset or liability, the difference between actual pension and other postretirement costs included in rates and to be recovered or refunded in a future rate proceeding. Pension and other postretirement cost is generally offset by electric and gas revenue and does not have a significant impact on net income. Higher AFUDC-Equity due to continued capital investment further contributed to an increase in electric other income.

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 MarchJune 31,30, 2026 and 2025, net income at the nonregulated energy operations segment was $6.3$6.5 million and $6.0$6.2 million, respectively.

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. During the three months ended MarchJune 31,30, 2026 and 2025, other income at the transmission investment segment primarily reflects ATC's operations and was $3.5$3.8 million and $3.2$3.1 million, respectively. See Footnote 3 of the Notes to Consolidated Financial Statements in this Report for summarized financial information regarding ATC.

The increase of $1.0$2.9 million in other income from all other operations during the three months ended MarchJune 31,30, 2026, primarily reflects results from investment gains recognized in the current year, from venture capital funds. These venture capital investments support early-stage companies working to advance smart technologies, the customer experience, distributed energy resources, electrification, cybersecurity and other priorities for utility companies, such as greater sustainability.