MGE ENERGY INC

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 we conduct our operations, the costs of those 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 the potential to have a material effect on our capital expenditures and operating costs. Management believes compliance costs will be recovered in future rates based on the previous treatment of environmental compliance projects. In addition to the regulations discussed below, MGE continues to track state and federal initiatives such as potential state and federal regulations governing surface water and/or groundwater containing per- and polyfluoroalkyl substances (PFAS), potential changes to regulations governing polychlorinated biphenyl (PCB), potential changes to air and water standards, and potential climate change legislation.

Water Quality

Effluent Limitations Guidelines and Standards for Steam Electric Power Generating Point Source Category

The EPA's promulgated water Effluent Limitations Guidelines (ELG) and standards for steam electric power plants focus on the reduction of metals and other pollutants in wastewater from new and existing power plants. MGE's Columbia plant and Elm Road Units are subject to this rule. In May 2024, the EPA finalized the ELG rule that further regulates wastewater discharges associated with coal-fired power plants. The rule focuses on wastewater discharges from flue gas desulfurization, combustion residual leachate, and bottom ash transport water. The rule also regulates legacy wastewater that is discharged from certain surface impoundments.

See Footnote 16.a. of the Notes to the Consolidated Financial Statements in Part II, Item 8 of this Report for further discussion of environmental compliance obligations. Based on previous treatment of environmental compliance projects, management believes that any compliance costs will be recovered in future rates.

Cooling Water Intake Rules (Section 316(b))

Section 316(b) of the Clean Water Act requires that cooling water intake structures at electric power plants meet best available technology (BTA) standards to reduce mortality from entrainment (drawing aquatic life into a plant's cooling system) and impingement (trapping aquatic life on screens of cooling water intake structures). The EPA finalized its Section 316(b) rule for existing facilities in 2014. Section 316(b) requirements are implemented in Wisconsin through modifications to WPDES permits, which govern plant wastewater discharges.

Blount received its most recent WPDES permit from the Wisconsin Department of Natural Resources (WDNR) in October 2023. Blount's latest WPDES permit assumes that the plant meets BTA standards for entrainment for the duration of this permit which expires in 2028. The WDNR included a requirement to conduct an optimization study to demonstrate compliance with impingement BTA standards in the latest permit which needs to be completed by January 2028. Once the WDNR determines the impingement requirements at Blount, MGE will be able to determine any compliance costs of meeting Blount's permit requirements. Based on previous treatment of environmental compliance projects, management believes that any compliance costs will be recovered in future rates.

Intakes at Columbia are subject to this rule. The Columbia operator timely submitted its renewal application to the WDNR. Columbia's operator anticipates that BTA improvements required by the future renewal permit will be coordinated with the WDNR by the end of 2029. MGE will continue to work with Columbia's operator to evaluate regulatory requirements. MGE does not expect this rule to have a material effect on Columbia.

Air Quality

Air quality regulations promulgated by the EPA and WDNR in accordance with the Federal Clean Air Act and the Clean Air Act Amendments of 1990 impose restrictions on the emission of particulates, sulfur dioxide (SO 2), nitrogen oxides (NOx), hazardous air pollutants and other pollutants, and require permits for the operation of emission sources. These permits must be renewed periodically. Various newly enacted and/or proposed federal and state initiatives may result in additional operating and capital expenditure costs for fossil-fueled electric generating units. Based on previous treatment of environmental compliance projects, management believes that any compliance costs will be recovered in future rates.

Ozone NAAQS

The Elm Road Units are located in Milwaukee County, Wisconsin, a nonattainment area for the 2015 Ozone NAAQS. At this time, the operator of the Elm Road Units does not expect that the 2015 Ozone NAAQS or the Milwaukee County nonattainment designation will have a direct material effect on the Elm Road Units.

Fine Particulate Matter (PM2.5) NAAQS

In March 2024, the EPA published a final rule to lower the average annual PM2.5 NAAQS from 12 ug/m3 to 9 ug/m3, effective May 2024. The new annual PM2.5 NAAQS could impact Milwaukee County, where the Elm Road Units are located, if the county is determined to be in nonattainment. A nonattainment designation would require the State of Wisconsin to develop a plan to get into attainment, which would likely include additional limitations for new and modified plants in the county. With the planned transition of the Elm Road Units to natural gas, there is a low probability for the need of additional emission limitations. However, the final impact of this rule will not be known until the EPA determines the attainment status of Wisconsin counties, and the State of Wisconsin develops an attainment implementation plan. MGE will continue to follow the rule's developments.

Rules regulating nitrogen oxide (NOx) and sulfur dioxide (SO 2) emissions, including the Cross State Air Pollution Rule's (CSAPR) Good Neighbor Plan and Clean Air Visibility Rule

The EPA's CSAPR and its progeny (e.g. the Good Neighbor Plan) are a suite of interstate air pollution transport rules designed to reduce ozone and PM2.5 ambient air levels in areas that the EPA has determined as being significantly impacted by pollution from upwind states. This is accomplished through a reduction in NOx and SO 2 from qualifying fossil-fuel fired power plants and industrial boilers in upwind "contributing" states. NOx and SO 2 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 2023, the EPA finalized its Federal Implementation Plan to address state obligations under the Clean Air Act "good neighbor" provisions for the 2015 Ozone NAAQS (Good Neighbor Plan). The EPA has temporarily halted the enforcement of the Good Neighbor Plan's requirements for all pollution sources in states affected by the plan, including Wisconsin. This action follows legal challenges to the plan. While the EPA addresses these concerns, interim rules have been implemented. See Footnote 16.a. of the Notes to the Consolidated Financial Statements in this Report for further discussion of the proposed rule.

Clean Air Visibility Rule

Columbia is subject to the best available retrofit technology (BART) regulations, a subsection of the Clean Air Visibility Rule, which may require pollution control retrofits. Columbia's existing pollution control upgrades, and the EPA's stance that compliance with the CSAPR and its progeny such as the Good Neighbor Plan satisfy the requirements of BART, should mean that Columbia will not need to do additional work to meet BART requirements. Wisconsin's 2021 State Implementation Plan (SIP) finds that Wisconsin will meet its current regional haze goals based on expected emissions reductions. MGE will continue to monitor legal developments and any future updates to this rule.

Global Climate Change

MGE produces greenhouse gas (GHG) emissions, primarily from the fossil fuel generating facilities it uses to meet customers' energy needs, as well as from its natural gas pipeline system and fleet vehicles. Climate change and the regulatory response to it could significantly affect our operations in a number of ways, including increased operating costs and capital expenditures, restrictions on energy supply options, operational limits on fossil fuel fired plants, permitting difficulties, and emission limits. MGE would expect to seek and receive rate recovery of associated compliance costs, if and when required. MGE continues to monitor proposed climate change legislation and regulation.

MGE has taken steps to address GHG emissions and is targeting net-zero carbon electricity by 2050. As part of this strategy, MGE continues to evaluate the role of coal fired generation in its portfolio, including previously announced plans regarding the Columbia Energy Center and the planned fuel transition at the Elm Road Units. MGE remains focused on reducing reliance on coal over time and expanding ownership of renewable generation to support a cleaner, reliable energy future. Renewable energy continues to play a critical role in MGE's strategy for reducing carbon emissions. See "Electric Utility Operations - Fuel supply and generation" above for further information.

Building upon MGE's 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.

Greenhouse Gas Reduction Guidelines under the Clean Air Act 111(d) Rule

In May 2024, the EPA published its final performance standards and emission guidelines under section 111(b) of the Clean Air Act for carbon dioxide emissions from new combustion turbines and existing fossil-fuel fired boilers used to produce electricity. The final rule granted some emissions flexibility for existing coal-fired units that retire and/or fuel switch by certain dates. For existing natural gas boiler units, the final rule establishes a process where states must submit plans to the EPA for establishing standards. States will have two years from the publication date of these rules to submit plans to the EPA for review and approval. Preliminary evaluation of the final ruling showed that MGE met the requirements for the gas-fired boilers at Blount. Evaluations done by the owners of Columbia and the Elm Road Units in 2024 indicated that they have a plan for complying with the May 2024 rule.

In June 2025, the EPA published a proposed rule with two potential options: (1) repeal the performance standards and emission guidelines under Section 111 of the Clean Air Act associated with GHG emissions from fossil fuel-fired power plants, or (2) retain only the efficiency-based requirements for new natural gas-fired power plants and repeal all other aspects of the rule.

In July 2025, the EPA released a new proposed rule titled "Reconsideration of 2009 Endangerment Finding and Greenhouse Gas Vehicle Standards." In February 2026, the EPA finalized the proposed rule which repeals the 2009 Endangerment Finding and Greenhouse Gas Vehicle Standards. The repeal will effectively undo the basis for federal regulation of GHG emissions under the Clean Air Act. Several states have already initiated legal challenges to the repeal, and other stakeholders are expected to do so. The scope and timing of any impacts on federal GHG regulation remain uncertain pending litigation and potential further agency action. MGE will continue to monitor developments.

Federal Action on Climate Change

In January 2025, the Trump Administration issued several executive orders relating to energy and climate policy, including directing the United States' withdrawal from the Paris Agreement. As of January 2026, the U.S. has formally withdrawn. MGE continues to monitor the development of agency recommendations, implementation plans, and other administrative actions resulting from these orders to assess their relevance to MGE's decarbonization strategy, capital investment plans, and environmental compliance obligations, as well as any potential impacts on our operations.

State and Regional Action on Climate Change

In August 2019, Wisconsin Governor Tony Evers signed an executive order to establish the Office of Sustainability and Clean Energy (OSCE). The order tasks the OSCE with, among other things, ensuring that the actions of the State of Wisconsin are aligned with the goals and recommendations of the Paris Agreement, verifying that electricity consumed by the State of Wisconsin is 100% carbon-free by 2050, and developing a comprehensive multi-sector clean energy plan for the state. In April 2022, the OSCE released Wisconsin's Clean Energy Plan. The plan includes a goal to achieve net zero carbon by 2050. MGE is engaged in this process by participating on a Stakeholder Advisory Team in a voluntary capacity. MGE will continue to evaluate this plan for its applicability to MGE's decarbonization plans and to evaluate potential impact on our operations.

Solid Waste

Coal Combustion Residuals (CCR) Rule

The CCR Rule regulates the disposal of solid waste coal ash 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 and operators of coal-fired power plants to stop transporting CCR and non-CCR wastewater to unlined surface impoundments. Columbia's obligations under this portion of the CCR Rule are now complete. Review of the Elm Road Units has indicated that the costs to comply with this rule are not expected to be significant.

In May 2024, the EPA published its final CCR Legacy Rule. The CCR Legacy Rule applies to previously closed disposal sites. Columbia's operator has evaluated the rule and determined that parts of the rule apply to Columbia's previously closed site.

In February 2026, the EPA finalized the CCR Management Unit Deadline Extension Rule, which provides a one‑year extension for the submission of Facility Evaluation Reports and extends the deadline for the implementation of groundwater monitoring systems at legacy CCR management units to February 2031. Columbia is evaluating the impact of this extension on its compliance timeline.

See Footnote 16.a. of the Notes to the Consolidated Financial Statements in this Report for further discussion of compliance costs for Columbia. Based on previous treatment of environmental compliance projects, management believes that any compliance costs will be recovered in future rates.

Renewable Energy Standards

Wisconsin law establishes a minimum amount of energy MGE must supply from renewable sources. MGE currently exceeds the applicable minimum requirement of approximately 8%. The costs to comply with this requirement are being recovered in rates.

Human Capital

MGE Energy and MGE are committed to attracting, developing, and retaining a sustainable workforce and aim to foster a diverse, equitable, and inclusive culture.

As of December 31, 2025, MGE Energy and its subsidiaries had 726 employees, 318 of whom were covered by collective bargaining agreements as described below:

As of December 31, 2025, women and ethnic minorities represented 27% and 10% of our total workforce, respectively.

Governance

The Human Resources and Compensation Committee of the Board of Directors of MGE Energy oversees MGE Energy's human resource strategies. It reviews the salaries, fees and other benefits of officers and directors and recommends compensation adjustments to the board. The committee determines the amounts and elements of compensation for the company's executive officers and provides overall guidance for the company's executive compensation policies and programs. Such policies relate to Stock Ownership Guidelines, the recovery, or the "clawback" of, excess compensation based on erroneous data, and succession planning.

Development and Training

The energy industry is ever-changing. MGE believes it is important to continue to engage human capital resources as the industry evolves. MGE is committed to sustainable workforce practices such as career development and training. MGE offers all employees the opportunity to learn and grow—whether it is to become more proficient in their job, improve decision-making skills, or prepare for a move to another role. MGE works to provide employees with the right tools—learning and content—needed to develop the knowledge and skills necessary to grow and to ensure MGE has a workforce that is knowledgeable, prepared, and high performing to deliver on our goals and objectives. All employees have access to a variety of learning resources to help ensure they are equipped with the knowledge and skills to effectively navigate the evolving utility industry.

Workplace Culture

MGE supports an inclusive, respectful work environment where individuals and groups can achieve their full potential. MGE seeks to attract and retain the best people to do the job. A wide range of backgrounds and ideas strengthens MGE's work environment. MGE's goal is to create a healthy and productive work environment that provides a sense of belonging for all MGE employees. MGE's employee-led steering team on workplace culture works to engage employees and identify opportunities for connecting and for living our values. As a community energy company, this commitment creates value-added partnerships with the broader community.

Safe and Healthy Working Conditions

"We power safety. Work safe. Home safe." That is the commitment at MGE, and it is embraced by employees. MGE's journey to safety excellence is guided by the Safety Steering Team. The team meets regularly to examine safety topics and to identify and to prioritize continuous improvement opportunities. MGE goes beyond applicable occupational health and safety standards by involving employees from all levels of the organization in the continuous improvement of the company-wide safety culture. MGE's continuous improvement process incorporates safety perception surveys, improvement projects, and monitoring of leading indicators. Stop Work Authority is an employee-developed program to communicate that all employees have equal authority and responsibility to stop work when a perceived unsafe condition or behavior is reported.

MGE encourages employees across the company to make health and wellness a priority. Good health brings vitality and energy to employees' work lives and home lives. MGE's programs to promote health and wellness include hybrid work schedules, the Healthy Rewards program, and access to occupational therapists for sprain and strain prevention and ergonomic assessments.

Financial Information About Segments

See Footnote 22 of the Notes to the Consolidated Financial Statements in Part II, Item 8 of this Report for financial information relating to MGE Energy's and MGE's business segments.

Information About our Executive Officers

The names, ages, and positions of MGE Energy and MGE's executive officers are listed below along with their business experience during the past five years.

(a)

Executive officer of MGE Energy and MGE.

(b)

Executive officer of MGE.

(c)

Retired effective December 31, 2025.

Item 1A. Ris