MGE ENERGY INC

nsation - MGE Energy and MGE.

In 2020, MGE Energy shareholders approved the 2021 Long-Term Incentive Plan (the 2021 Incentive Plan). It provides for the issuance of up to 500,000 shares of MGE Energy common stock in connection with awards made under the 2021 Incentive Plan. The 2021 Incentive Plan authorizes awards of restricted stock, restricted stock units, performance units, and dividend equivalents, or any combination of the foregoing for eligible employees and non-employee directors. Prior to the adoption of the 2021 plan, eligible employees could receive awards of performance units under the 2006 Performance Unit Plan, an inactive plan with final award paid to employees in 2024. For the years ended December 31,2025, 2024, and 2023, MGE recorded $3.3 million, $4.5 million, and $2.7 million, respectively, related to share-based compensation awards under the 2006 Performance Unit Plan and the 2021 Incentive Plan in "Other operations and maintenance" on the consolidated statements of income.

Restricted Stock Units - Equity Awards - Effective for awards granted in 2025, payouts of restricted stock units under the 2021 Incentive Plan are based on the expiration of a one-year time-vesting period for non-employee directors, and athree-year time-vesting period for officers. Prior to 2025, non-employee directors were based on a three-year time-vesting period. Restricted stock units granted are to be paid out in shares of MGE Energy common stock and are accounted for as equity awards. The fair value of each restricted stock unit granted is based on the closing market price of one share of MGE Energy common stock on the grant date of the award. Compensation expense is recorded ratably over the performance period based on the fair value of the awards on the grant date. The following activity occurred:

(a)

Represents restricted stock units that vested but were not distributed to retirement-eligible employees.

In the first quarter of 2025,11,213 shares were distributed related to awards that were granted in 2022 under the 2021 Incentive Plan. In the first quarter of 2026,22,050 shares were distributed related to awards granted in 2023 to employees and non-employee directors, and in 2025 to non-employee directors, under the 2021 Incentive Plan.

Performance Units - Liability Awards - Performance units under the 2021 Incentive Plan can be paid out in shares of MGE Energy common stock, cash or a combination of cash and stock. MGE assumes it will make future payouts of its performance units granted in cash; therefore, these performance units are accounted for as liability awards. Compensation expense for these performance units is recorded ratably over the performance period based on the fair value of the awards at each reporting period. The payout is based upon achievement of specified performance goals during a performance period set by the Human Resources and Compensation Committee of MGE Energy's Board of Directors. Awards are subject to vesting provisions providing for 100% vesting at the end of the performance period. Compensation cost for retirement eligible employees or employees that will become retirement eligible during the vesting schedule are recognized on an abridged horizon as retirement eligibility accelerates vesting.

The performance units contain market and performance conditions. The market condition is based on total shareowner return relative to an investor-owned utility peer group. The performance condition is based on achievement of targets specified in the award agreement (such as an earnings growth target). The fair value of each performance unit is based on the fair value of the underlying common stock on the grant date and the probability of satisfying the market and performance conditions contained in the award agreement during thethree-year performance period. The actual payments upon vesting depends upon actual performance and may range from zero to 200% of the granted number of performance units. The following activity occurred:

(c)

Represents performance units that vested but were not distributed to retirement-eligible employees.

Awards granted in 2022, for the 2021 Incentive Plan, vested at 175% with $1.2 million cash paid during the first quarter of 2025.

Notes Payable to Ban

ks, Commercial Paper, and Lines of Credit - MGE Energy and MGE.

Information regarding lines of credit and short-term borrowings is shown below:

(a)

MGE Energy short-term borrowings include MGE Energy and MGE lines of credit and MGE commercial paper.

(b)

As of December 31,2025, MGE Energy and MGE hadno borrowings outstanding under these credit facilities and were in compliance with the covenant requirements of the credit agreements.

(c)

A change in control constitutes a default under the agreement. Change in control events are defined as (i) a failure by MGE Energy to hold 100% of the outstanding voting equity interest in MGE or (ii) the acquisition of beneficial ownership of 30% or more of the outstanding voting stock of MGE Energy by one person or two or more persons acting in concert.

(d)

The ratio calculation excludes assets, liabilities, revenues, and expenses included in MGE's financial statements as the result of the consolidation of VIEs, such as MGE Power West Campus and MGE Power Elm Road. A change in control constitutes a default under the agreements. Change in control events are defined as (i) a failure by MGE Energy to hold 100% of the outstanding voting equity interest in MGE or (ii) the acquisition of beneficial ownership of 30% or more of the outstanding voting stock of MGE Energy by one person or two or more persons acting in concert.

(e)

Available capacity under the Company’s line of credit is calculated as total committed revolving credit capacity less commercial paper outstanding as of December 31, 2025. The $2.0 million unsecured promissory note, issued to the seller in connection with a land acquisition, is included in short‑term debt outstanding but is not a borrowing under the Company’s revolving credit facilities. The promissory note was fully repaid, including interest, in January 2026.

Long-Term Debt - MGE Energy and MGE.

a.

Long-Term Debt.

(a)

MGE's utility plant was subject to a lien related to its Indenture of Mortgage and Deed of Trust, under which its first mortgage bonds were issued. On January 27, 2026, MGE completed a redemption of all outstanding first mortgage bonds and delivered to the Trustee a satisfaction and discharge which, pursuant to the terms of the Indenture, effectively discharged the Indenture. The Mortgage Indenture provided that dividends or any other distribution or purchase of MGE shares may not be made if the aggregate amount thereof since December 31, 1945, would exceed the earned surplus (retained earnings) accumulated subsequent to December 31, 1945. As of December 31,2025, approximately $807.2 million was available for the payment of dividends under this covenant.

(b)

The indenture under which MGE's Medium-Term notes are issued provides that those notes will be entitled to be equally and ratably secured in the event that MGE issues any additional secured bonds.

(c)

Unsecured notes issued pursuant to various Note Purchase Agreements with one or more purchasers. The notes are not issued under, or governed by, MGE's Indenture dated as of September 1, 1998, which governs MGE's Medium-Term Notes.

(d)

Issued by MGE. Under that Note Purchase Agreement: (i) note holders have the right to require MGE to repurchase their notes at par in the event of an acquisition of beneficial ownership of 30% or more of the outstanding voting stock of MGE Energy, (ii) MGE must maintain a ratio of its consolidated indebtedness to consolidated total capitalization not to exceed a maximum of 65%, and (iii) MGE cannot issue "Priority Debt" in an amount exceeding 20% of its consolidated assets. 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. As of December 31,2025, MGE was in compliance with the covenant requirements.

(e)

Issued by MGE Power West Campus. The Note Purchase Agreements require MGE Power West Campus to maintain a projected debt service coverage ratio of not less than 1.25 to 1.00, and debt to total capitalization ratio of not more than 0.65 to 1.00. The notes are secured by a collateral assignment of lease payments that MGE is making to MGE Power West Campus for use of the WCCF pursuant to a long-term lease. As of December 31,2025, MGE Power West Campus was in compliance with the covenant requirements.

(f)

In October 2025, MGE entered into a private placement Note Purchase Agreement in which it committed to issue $25 million of new long-term debt (Series A), carrying an interest rate of 5.12% per annum over its 11-year life, and $25 million of new long-term debt (Series B), carrying an interest rate of 5.76% per annum over its 30-year life. Funding occurred on November 13, 2025. The proceeds of the senior notes will be used to assist with capital expenditures and other corporate obligations. The covenants of this debt are substantially consistent with the covenants applicable to MGE's existing unsecured senior notes.

(g)

Issued by MGE Power Elm Road. The Note Purchase Agreement requires MGE Power Elm Road to maintain a projected and actual debt service coverage ratio at the end of any calendar quarter of not less than 1.25 to 1.00 for the trailing 12-month period. The notes are secured by a collateral assignment of lease payments that MGE is making to MGE Power Elm Road for use of the Elm Road Units pursuant to long-term leases. As of December 31,2025, MGE Power Elm Road was in compliance with the covenant requirements.

b.

Long-Term Debt Maturities.

Below is MGE Energy's and MGE's aggregate maturities for all long-term debt for years following December 31, 2025.

MGE includes long-term debt held by MGE Power Elm Road and MGE Power West Campus in the consolidated financial statements (see Footnote 3 for further information regarding these VIEs).

c.

Long-Term Debt Issuance - MGE Energy and MGE.

On January 22, 2026, MGE entered into a private placement Note Purchase Agreement in which it committed to issue $30 million of 5.05% senior unsecured notes due 2036, $30 million of 5.25% senior unsecured notes due 2041, and $30 million of 5.79% senior unsecured notes due 2056. The proceeds of the senior notes will be used to assist with capital expenditures and other corporate obligations. The covenants of these senior notes are substantially consistent with the covenants applicable to MGE's existing senior unsecured notes.

Common Equity.

a.

Common Stock - MGE Energy and MGE.

MGE Energy sells shares of its common stock through its Direct Stock Purchase and Dividend Reinvestment Plan (the Stock Plan). Those shares may be newly issued shares or shares that are purchased in the open market by an independent agent for participants in the Stock Plan. Effective May 2025, MGE Energy transitioned to utilizing open market purchases for all shares issued under the Stock Plan. Sales of newly issued shares under the Stock Plan are covered by a shelf registration statement that MGE Energy filed with the SEC. During the year ended December 31, 2025, MGE Energy issueda pproximately 41,000 new shares of common stock. The net proceeds from these issuances were approximately $3.8 million, which were used for general corporate purposes.

For the years ended December 31, 2025 and 2024, MGE Energy paid $67.6 million (or $1.85 per share) and $63.6 million (or $1.76 per share), respectively, in cash dividends on its common stock. Dividend payments by MGE to MGE Energy are subject to restrictions arising under a PSCW rate order and, to a lesser degree, MGE's first mortgage bonds. The PSCW order restricts any dividends, above the PSCW authorized amount that MGE may pay MGE Energy if MGE's common equity ratio, calculated in the manner used in the rate proceeding, is less than 55%. This restriction did not restrict MGE's payment of dividends in 2025. For the years ended December 31, 2025 and 2024, MGE paid $51.5 million and $34.5 million, respectively, in cash dividends to MGE Energy.

b.

Dilutive Shares Calculation - MGE Energy.

As of December 31, 2025,37,293 shares were included in the calculation of diluted earnings per share related to nonvested equity awards. See Footnote 12 for additional information on shared-based compensation awards.

Commitments and Contin