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<td ALIGN=CENTER COLSPAN="2"><b><font face="Univers (WN) Regular"><font color="#0000FF"><font size=+2>SECURITIES
AND EXCHANGE COMMISSION</font></font></font></b></td>
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<td ALIGN=CENTER COLSPAN="2"><b><font face="Univers (WN) Regular">Washington,
D.C. 20549</font></b></td>
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<td ALIGN=CENTER COLSPAN="2"><b><font face="Univers (WN) Regular"><font color="#0000FF"><font size=+2>FORM
10-K</font></font></font></b></td>
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<td COLSPAN="2"><font face="Times New Roman">(Mark One)</font></td>
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<td COLSPAN="2"><font face="Times New Roman">[X] ANNUAL REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE SECURITIES</font>
<br><font face="Times New Roman">EXCHANGE ACT OF 1934</font></td>
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<td COLSPAN="2"><font face="Times New Roman">For the fiscal year ended:
<b><font color="#FF0000"><font size=+1>December
31, 1999</font></font></b></font></td>
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<center><b><font face="Times New Roman">or</font></b></center>
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<td COLSPAN="2"><font face="Times New Roman">[ ] TRANSITION REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934For the transition
period from: ________________ to ________________</font></td>
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<td ALIGN=CENTER COLSPAN="2"><b><font face="Times New Roman">Commission
File Number 0-1125</font></b></td>
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<td ALIGN=CENTER COLSPAN="2"><b><font face="Times New Roman"><font color="#008000"><font size=+2>MADISON
GAS AND ELECTRIC COMPANY</font></font></font></b>
<br><b><font face="Times New Roman"><font size=-1>(Exact name of registrant
as specified in its charter)</font></font></b></td>
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<td ALIGN=CENTER><b>WISCONSIN</b>
<br><b><font face="Times New Roman"><font color="#008000"><font size=-1>(State
or other jurisdiction of incorporation or organization)</font></font></font></b></td>

<td ALIGN=CENTER><b>39-0444025</b>
<br><b><font face="Times New Roman"><font color="#008000"><font size=-1>(IRS
Employer Identification No.)</font></font></font></b></td>
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<td ALIGN=CENTER COLSPAN="2"><b>133 South Blair Street </b>
<br><b><font face="Times New Roman">Post Office Box 1231</font></b>
<br><b><font face="Times New Roman">Madison, Wisconsin 53701-1231</font></b>
<br><b><font face="Times New Roman"><font color="#008000"><font size=-1>(Address
of principal executive offices, including ZIP code)</font></font></font></b></td>
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<td ALIGN=CENTER COLSPAN="2"><b>(608) 252-7000 </b>
<br><b><font face="Times New Roman"><font color="#008000"><font size=-1>(Registrant's
telephone number, including area code)</font></font></font></b></td>
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<td ALIGN=CENTER COLSPAN="2"><font face="Times New Roman">Securities registered
pursuant to Section 12(b) of the Act:</font>
<br><font face="Times New Roman">Securities registered pursuant to Section
12(g) of the Act:</font>
<br><font face="Times New Roman"><b><font color="#008000">Common, Par Value
$1 Per Share</font></b>(Title of Class)</font></td>
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<p><font face="Times New Roman">Indicate by check mark whether the Registrant
(1) has 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 Registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes <u>X </u>No</font>
<p><font face="Times New Roman">Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of Registrant's knowledge,
in definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to this Form 10-K. Yes <u>X
</u>No</font>
<p><font face="Times New Roman">State the aggregate market value of the
voting stock held by nonaffiliates of the Registrant: $292,472,913 based
on a closing bid price of $18.063 on March 1, 2000 (the record date for
the Annual Meeting of Shareholders).</font>
<p><font face="Times New Roman">The number of shares outstanding of each
of the issuer's classes of common stock, as of the close of the periods
covered by this report, was 16,161,305 for 1999 and 16,079,718 for 1998
and 1997 of Common Stock, Par Value $1 Per Share.</font>
<p><font face="Times New Roman">List hereunder the following documents
if incorporated by reference and the part of the Form 10-K (e.g., Part
I, Part II, etc.) into which the document is incorporated: (1) Any annual
report to security holders; (2) Any proxy or information statement; and
(3) Any prospectus filed pursuant to Rule 424(b) or (c) under the Securities
Act of 1933.</font>
<p><font face="Times New Roman">- 1999 Annual Report to Shareholders (Parts
I, II, and IV)</font>
<br><font face="Times New Roman">- Definitive Proxy Statement filed on
March 31, 2000 (Parts I and III)</font>
<p><b><font face="Univers (W1) Bold"><font color="#008000"><font size=+1>Table
of Contents</font></font></font></b>
<p><b><font face="Times New Roman">Part I</font></b>
<br><font face="Times New Roman">1. Business</font>
<br><font face="Times New Roman">2. Properties</font>
<br><font face="Times New Roman">3. Legal Proceedings</font>
<br><font face="Times New Roman">4. Results of Votes of Security Holders</font>
<p><b><font face="Times New Roman">Part II</font></b>
<br><font face="Times New Roman">5. Market for the Registrant's Common
Stock and Related Stockholder Matters</font>
<br><font face="Times New Roman">6. Selected Financial Data</font>
<br><font face="Times New Roman">7. Management's Discussion and Analysis
of Financial Condition and Results of Operations</font>
<br><font face="Times New Roman">8. Financial Statements and Supplementary
Data</font>
<br><font face="Times New Roman">9. Changes in Disagreements with Accountants
on Accounting and Financial Disclosure</font>
<p><b><font face="Times New Roman">Part III</font></b>
<br><font face="Times New Roman">10. Directors and Executive Officers of
the Registrant</font>
<br><font face="Times New Roman">11. Executive Compensation</font>
<br><font face="Times New Roman">12. Security Ownership of Certain Beneficial
Owners and Management</font>
<br><font face="Times New Roman">13. Certain Relationships and Related
Transactions</font>
<p><b><font face="Times New Roman">Part IV</font></b>
<br><font face="Times New Roman">14. Exhibits, Financial Statement Schedules,
Reports on Form 8-K, and Signatures</font>
<p><font face="Univers (WN) Bold"><font color="#FF0000"><font size=+1>PART
I.</font></font></font>
<p><font face="Univers (WN) Bold"><font color="#0000FF">Item 1. Business</font></font>
<p><b><font face="Times New Roman"><font color="#008000">General Description
of Business</font></font></b>
<p>Madison Gas and Electric Company (MGE), a Wisconsin corporation organized
in 1896, is a public utility that generates, transmits and distributes
electricity in Dane County, Wisconsin <i>(250  square miles)</i>.
MGE also purchases, transports and distributes natural gas in seven Wisconsin
counties: Columbia, Crawford, Dane, Iowa, Juneau, Monroe and Vernon <i>(1,325
square miles)</i>. Exhibit No. 21 describes MGE's wholly owned subsidiaries.
<p>In December 1998, MGE's two gas marketing subsidiaries, Great Lakes
Energy Corp. (GLENCO) and American Energy Management, Inc. (AEM), sold
their remaining assets in National Energy Management, L.L.C. (NEM) for
$1.8 million. NEM was formed in January 1997 as a joint venture between
GLENCO, AEM and a Houston-based gas marketing company. <i>(See Item 7,
page II-6, and Item 8, page F-18, for further discussion.)</i>
<p>The Public Service Commission of Wisconsin (PSCW) has authority to regulate
MGE's rates, accounts, issuance of securities, plant and transmission line
siting, and other aspects of its business. The Federal Energy Regulatory
Commission (FERC) has jurisdiction, under the Federal Power Act, over certain
accounting practices and certain other aspects of MGE's business. The Nuclear
Regulatory Commission (NRC) has jurisdiction over operation of the Kewaunee
Nuclear Power Plant (Kewaunee). MGE has a 17.8% ownership interest in Kewaunee.
The other owners are Wisconsin Public Service Corporation (WPSC), which
operates Kewaunee, and Alliant Energy Corp.
<p>MGE is also subject to state and federal regulations concerning air
quality, water quality and solid waste
<i>(see I-5 through I-7). </i>MGE
may be subject to other environmental regulations set by various federal,
state and local authorities including the Wisconsin Department of Natural
Resources (DNR), which regulates pollution and environmental control matters
at MGE's electric generating plants. The DNR has jurisdiction over air
and water quality as well as solid and hazardous waste standards. MGE has
met the requirements of current environmental regulations. It is not known
if additional expenditures will be required for pollution control equipment
and/or modifying existing plants to comply with future unknown environmental
regulations.
<p>The ongoing issue of global warming could result in significant compliance
cost for reducing carbon dioxide emissions. MGE does not yet know the amounts
of these expenditures or the period of time over which they may be required.
MGE is unable to predict if complying with future pollution control regulations
could involve: (1) curtailing operations, (2) reducing capacity or efficiency
at existing plants or (3) delaying the construction and operation of future
generating facilities.
<p>The National Environmental Policy Act and Wisconsin Environmental Policy
Act require MGE to conduct a complete environmental review and issue a
detailed environmental impact statement before obtaining necessary authorizations
or permits from regulatory agencies. This applies to any new projects or
other major actions that could significantly affect the environment.
<p><b><font color="#008000">Electric Operations</font></b>
<p>At Dec. 31, 1999, MGE supplied electric service to approximately 125,000
customers, of whom 112,000 were located in the cities of Fitchburg, Madison,
Middleton and Monona, and 13,000 in adjacent areas. Of the total number
of customers, approximately 108,000 were residential and 17,000 were commercial
and industrial. Electric revenues for 1999 comprised of residential (35%),
commercial (47%), industrial (7%), sales to public authorities including
the University of Wisconsin (7%) and sales to other utilities (4%). Electric
operations accounted for 68% of MGE's total 1999 revenues.
<p>See Item 2, page I-9, Properties, for a description of MGE's electric
utility plant.
<p>MGE is a member of Mid-America Interconnected Network, Inc. (MAIN),
a regional reliability group. MAIN members work together to better utilize
reserve generating capacity and coordinate long-range system planning and
day-to-day operations. MAIN seeks to maintain adequate planning generation
reserve margins in the region, ranging from 15% to 22%. MGE is also a member
of the Mid-Continent Area Power Pool (MAPP) Regional Transmission Committee
(RTC). RTC members pool their transmission systems allowing each member
to easily access economical energy across the Upper Midwest. Each member
is then compensated for the energy flows on their individual transmission
system.
<p>On Oct. 29, 1999, Reliability 2000 legislation took effect (<i>Part
of 1999 Wisconsin Act 9</i>). The new law addresses a wide range of electric
utility topics, including:
<p>- Creating a statewide for-profit transmission company (TRANSCO) that
will own transmission assets formerly owned by investor-owned utilities
but will transfer operational control of transmission facilities to the
Midwest Independent System Operator.
<p>- Continuing and expanding public benefits programs related to: (a)
low-income energy assistance and (b) energy conservation, renewable energy
and other related topics.
<p><font face="Times New Roman">- Providing a public utility holding company
with partial relief from "asset-cap" restraints (<i>which limit the amount
of nonutility assets it can own</i>) if the utility transfers its electric
transmission facilities to a separate TRANSCO.</font>
<p>- Limiting real estate activities of holding companies.
<br>- Addressing future requirements that may be placed on electric utilities
to control NO<sub>x</sub> air emissions. - Creating protections for employees
of utilities and cooperatives.
<p>TRANSCO will be owned and governed in accordance with 1999 Wisconsin
Act 9 by utilities that contribute facilities or capital. Governance of
the company also will include outside directors not associated with the
energy business. Company stock eventually may be offered for public ownership.
<p>TRANSCO's sole business will be to provide reliable, economic transmission
service to all customers in a fair and equitable manner. Specifically,
TRANSCO will plan, construct, operate, maintain and expand transmission
facilities it will own to provide for adequate and reliable transmission
of power. It will provide comparable service to all customers and will
support effective competition in energy markets without favoring any market
participant. Formation of the company will require federal and state regulatory
approvals. TRANSCO will be regulated by the FERC for all rate terms and
conditions of service. The company will be a transmission-owning member
of the Midwest Independent System Operator. The TRANSCO is expected to
incorporate by the end of March under the name American Transmission Co.,
LLC.
<p>Most Wisconsin public utility holding companies are joining the TRANSCO.
Management will analyze its options and determine if it is beneficial for
MGE to join the TRANSCO. Since MGE is not a holding company, it will not
receive "assets-cap" relief under this legislation. The TRANSCO's effective
date of operation is Nov. 1, 2000.
<p><b>Fuel supply and generation</b>
<p>MGE estimates its net kilowatt-hour requirements for 2000 will be provided
from the following sources: 65% from fossil-fueled steam plants, 23% from
a nuclear-fueled steam plant, 10% from power purchases and 2% from a combination
of wind turbines and natural gas- and oil-fired combustion turbines.
<p>MGE has a 22% ownership interest in the Columbia Energy Center (Columbia).
The other owners are Alliant Energy Corp., which operates Columbia, and
WPSC. The first (Columbia I) and second (Columbia II) units at Columbia
were placed in commercial operation in 1975 and 1978, respectively. The
Columbia co-owners' coal inventory supply for Columbia I and Columbia II
increased from 61 days on Dec. 31, 1998, to 68 days on Dec. 31, 1999. In
the future, the co-owners' goal is to maintain approximately a 40-day inventory.
Columbia, with two 527-megawatt units, obtains 100% of its low-sulfur coal
from the <font face="Times New Roman">Powder River Basin </font>coal fields
located in Wyoming and Montana.
<p>About 200 megawatts of MGE's electric generating capacity is provided
by the Blount Generating Station (Blount) <i>(see Item 2, page I-9, Properties)</i>.
MGE is able to burn a variety of coals, natural gas and other fuels.
<p>The Kewaunee plant is a pressurized water reactor plant with a nameplate
capacity of 562 megawatts. It began commercial operation in 1974. The Kewaunee
operating license expires in 2013.
<p>On April 7, 1998, WPSC received state regulatory approval to replace
the two steam generators at Kewaunee. The project will cost approximately
$113 million (MGE's share would be $20.1 million).
<p>On Sept. 29, 1998, MGE finalized an agreement to sell its share of Kewaunee
to WPSC. MGE will receive a cash payment from WPSC for Kewaunee upon closing.
The payment would be comprised of Kewaunee's book value (currently $12.4
million) plus the book value of other assets related to Kewaunee. MGE believes
it can secure electric capacity and energy more cost-effectively from other
sources and eliminate the risk of future stranded costs. If approved by
state regulators, this agreement will close when steam generators are replaced
at Kewaunee. The work, which will take approximately 60 days, is scheduled
for the fall of 2001.
<p>MGE will have an option to buy electric capacity and energy (up to 93
MW) from WPSC for two years after the sale closes. MGE's decommissioning
liability will be limited to the current fund balance until the sale closes,
plus all decommissioning collections through 2002. WPSC assumes MGE's decommissioning
liability the day the sale closes.
<p>Kewaunee completed 1999 with 100% availability. The plant returned to
service on Nov. 27, 1998, after a planned maintenance and refueling outage.
An inspection of the plant's two steam generators showed that 1997 tube
repairs held up well and few additional repairs were needed. A major overhaul
was also performed on the main turbine generator. The next shutdown for
refueling and maintenance is scheduled for spring 2000.
<p>MGE contracted with WPSC to build and operate an 83 MW natural gas-fired
combustion turbine near Marinette, Wisconsin. MGE will purchase the combustion
turbine for approximately $32 million when the unit is completed, which
is anticipated in the second quarter of 2000.
<p><font face="Times New Roman">The federal government has the responsibility
to dispose of or permanently store spent nuclear fuel. Spent nuclear fuel
is currently being stored at Kewaunee. With minor plant modifications planned
for 2001, Kewaunee should have sufficient fuel storage capacity until the
end of its licensed life in 2013. Legislation is being considered on the
federal level to provide for the establishment of an interim storage facility.</font>
<p><font face="Times New Roman">On Jan. 31, 1998, the U.S. Department of
Energy (DOE) failed to comply with its obligation to begin removing spent
nuclear fuel from plant sites as required by the Nuclear Waste Policy Act
of 1982. The Kewaunee co-owners joined other utilities in a motion to enforce
the July 1996 mandate of the U.S. Court of Appeals for the District of
Columbia. The court had ruled that the DOE had an unconditional obligation
to begin accepting, transporting, and disposing of spent nuclear fuel by
Jan. 31, 1998.</font>
<p><font face="Times New Roman">On May 5, 1998, the U.S. Court of Appeals
for the District of Columbia issued a decision denying the motion to enforce
the court's 1996 mandate. The denial centered on the question of whether
the DOE could properly use the Nuclear Waste Fund as a source to pay damages.
The court also ruled that the question is not ready for review. The court
indicated that compelling the DOE to submit a detailed program for disposing
of spent fuel from utilities and declaring that the utilities are relieved
of their obligation to pay fees to the Nuclear Waste Fund falls outside
the scope of the court's authority. The scope of the court's mandate was
limited to defining the nature of the DOE's statutory obligations and did
not extend to requiring the DOE to perform under its contracts with the
utilities. The Kewaunee co-owners current recourse is to request reimbursement
from the DOE for expansion of disposal facilities. Litigation on this issue
continues in the industry and the Kewaunee co-owners continue to monitor
its progress.</font>
<p><font face="Times New Roman">On June 26, 1997, the Midwest Compact Commission
halted development of a six-state regional disposal facility for low-level
radioactive waste storage in Ohio. The Commission, established to implement
the Federal Low Level Radioactive Waste Policy Act of 1980, cited dwindling
regional waste volumes, continued access to existing disposal facilities
and potentially high development costs as the primary reasons for the decision.
The Commission continues to monitor the availability of disposal facilities
for the low-level radioactive waste created by all Midwest generators.
A site at Barnwell, S.C., has been available for the storage of low-level
radioactive waste from Kewaunee in the past. The availability of this site
for future waste storage is uncertain. As a result of technology advances,
waste compaction and the reduction of waste generated, Kewaunee has on-site
low-level radioactive waste storage capacity sufficient to store the amount
of low-level waste expected over the next 10-year period.</font>
<p><font face="Times New Roman">The PSCW has directed the owners of Kewaunee
to develop depreciation and decommissioning cost levels based on full recovery
by the end of 2002, versus full recovery when the plant's license expires
in 2013. This was prompted by uncertainty about the expected useful life
of the plant without steam generator replacement. On Dec. 31, 1999, the
net carrying amount of MGE's investment in Kewaunee was approximately $12.4
million. MGE's share of Kewaunee decommissioning costs is an estimated
$88 million in current dollars based on a site-specific study performed
in 1992 using immediate dismantlement as the method of decommissioning.
The decommissioning trust assets at Dec. 31, 1999, totaled $97.1 million--its
pretax fair market value. In accordance with the Agreement between WPSC
and MGE regarding the sale of Kewaunee, MGE's </font>decommissioning liability
has been limited to the current fund balances plus all decommissioning
contributions through 2002. The study assumed decommissioning costs will
increase an average of 6.0% per year. Physical decommissioning is expected
to occur from 2014 through 2021. It is expected that additional expenditures
will be incurred from 2022 through 2039 for storing spent nuclear fuel
at the plant site.
<p>Nuclear decommissioning costs are currently recovered from customers
in rates and are deposited in external trusts. For 1999, the decommissioning
costs recovered in rates were $8.1 million. <i>(See Item 7, pages II-6,
and Item 8, page F-10, for further discussion of Kewaunee.)</i>
<p>The Kewaunee co-owners purchase uranium concentrates, conversion services,
enrichment services and fabrication services for nuclear fuel assemblies
at Kewaunee. Approximately one-third of the 121 fuel assemblies are removed
from the reactor every 18 months and replaced with new assemblies. Removed
assemblies are placed in storage at the plant site pending permanent disposal
by the DOE.
<p>Uranium concentrates, conversion services and enrichment services are
purchased either on the spot market, through a bidding process or using
existing contracts.
<p>The uranium inventory policy of the Kewaunee co-owners requires that
sufficient inventory be maintained for two reactor refuelings. As of Dec.
31, 1999, approximately 983,000 pounds of yellowcake (a processed form
of uranium ore), or its equivalent, were held in inventory for the plant.
Inventory includes uranium under contract.
<p>Conversion services are complete for nuclear fuel reloads in 2000, 2001
and 2003.
<p>A fixed quantity of enrichment services have been contracted through
the year 2004. The Kewaunee co-owners have the option of purchasing future
enrichment services under an existing contract or from the spot market.
<p>The Kewaunee co-owners have contracts in place for fuel fabrication
services for the next decade. These contracts contain force majeure and
termination for convenience provisions.
<p>If, for any reason, Kewaunee was forced to suspend operations permanently,
the maximum exposure related to fuel contracts would not be expected to
exceed $274,000 (for all of Kewaunee). No financial penalties associated
with the present uranium supply, conversion service and enrichment agreements
exist.
<p>The fuel fabrication contract contains force majeure and termination
for convenience provisions. Uranium inventories could be sold on the spot
market.
<p>A surcharge imposed by the Energy Policy Act of 1992 requires nuclear
power companies to fund the decontamination and decommissioning of DOE
facilities that process nuclear fuel. As a result, the Kewaunee co-owners
are required to pay a surcharge on uranium enrichment services purchased
from the federal government prior to Oct. 23, 1992. On an inflation-adjusted
basis, MGE's portion of the obligation related to Kewaunee is approximately
$250,000 per year through 2007. MGE has agreed to continue to pay its portion
of this annual assessment after the transfer of its ownership interest
in the plant to WPSC.
<p>The Kewaunee co-owners and a number of other nuclear power companies
sued the DOE in the U.S. Court of Federal Claims seeking a refund of the
previously paid decontamination and decommissioning surcharge payments.
This claim continues in the Court of Federal Claims pending the settlement
of other litigation. On Aug. 13, 1998, 22 utilities filed a complaint in
the U.S. District Court for the Southern District of New York seeking a
declaratory judgment that certain sections of the Energy Policy Act are
unconstitutional. As of December 1999, the DOE and the utilities continue
legal proceedings in both the Court of Federal Claims and the U.S. District
Courts. No rulings have been issued.
<p><b>Air quality</b>
<p>MGE is meeting the Phase II requirements of the 1990 Federal Clean Air
Act amendments which sets limits for allowable emissions of sulfur dioxides
(SO<sub>2</sub>) and nitrogen oxides (NO<sub>x</sub>).
<p>In addition to these requirements, the EPA enacted a rule requiring
22 states, including Wisconsin, to reduce NO<sub>x</sub> emissions from
large utility and non-utility boilers (the "NO<sub>x</sub> SIP Call").
MGE successfully challenged EPA's decision to include Wisconsin in the
NO<sub>x</sub> SIP Call. As a result, MGE's Wisconsin operations are not
currently subject to the NO<sub>x</sub> SIP Call's emission control requirements.
<p>Aside from the NO<sub>x</sub> SIP Call, the Wisconsin Department of
Natural Resources (WDNR) is evaluating whether additional NO<sub>x</sub>
emission controls are needed within the State to demonstrate compliance
with the current national ozone standard. These strategies, if adopted,
could impose additional emission control requirements on MGE's operations.
If such controls are determined to be necessary, compliance could be required
as early as May 2003.
<p>In the event EPA or DNR imposes additional NO<sub>x</sub> controls,
MGE is evaluating alternative compliance strategies including fuel switching,
emissions trading, purchased power agreements, new emission control devices
or installation of new fuel-burning and clean-coal technologies. Implementing
any of these new measures would likely increase capital, operating and
maintenance expenditures.
<p>Wisconsin's acid rain law imposes limitations of SO<sub>2</sub> emissions.
Blount and MGE's share of Columbia are required to meet a combined SO<sub>2</sub>
emission rate of 1.20 pounds of SO<sub>2</sub> per million Btu. MGE does
not anticipate any capital expenditure in order to comply with this standard.
<p>The 1990 Federal Clean Air Act amendments required the EPA to perform
certain studies concerning hazardous air emissions from electric utilities.
The EPA recently completed a study for mercury and has collected coal and
mercury emissions data from utilities. In addition, the WDNR is evaluating
potential control strategies for reducing mercury emissions in Wisconsin.
These efforts may lead to new power plant regulations for controlling mercury
and other hazardous air emissions that could increase capital, operating
and maintenance expenditures. Management is unable to determine the effect
on MGE's financial condition or results of operations.
<p>MGE believes all of its plants to be in full compliance with all material
aspects of present air-pollution control regulations.
<p><b><font face="Times New Roman">Water quality</font></b>
<p><font face="Times New Roman">MGE is subject to water quality regulations
by the DNR. These regulations include both categorical-effluent discharge
standards and general water quality standards. The regulations limit discharges
from MGE's plants into Lake Michigan and other Wisconsin waters.</font>
<p><font face="Times New Roman">The categorical-effluent discharge standards
require each discharger to use effluent treatment processes equivalent
to categorical </font>"<font face="Times New Roman">best practicable" or
"best available" technologies under compliance schedules established pursuant
to the federal Water Pollution Control Act. The DNR has published categorical
regulations for chemical discharges from steam electric generating plants.
MGE is in compliance with these standards.</font>
<p><b><font face="Times New Roman">Solid waste</font></b>
<p><font face="Times New Roman">MGE is listed as a potentially responsible
party for clean up at two sites that the EPA has placed on the national
priorities Superfund list: (1) the Refuse Hideaway Landfill in Middleton,
Wisconsin, where MGE disposed of fly-ash sludge from 1980 to 1984 and (2)
the Lenz Oil site in Lemont, Ill., which was used for storing and processing
waste oil for several years. These sites require clean up under the Comprehensive
Environmental Response, Compensation and Liability Act (CERCLA). A group
of companies is currently negotiating with the EPA on the cleanup of these
two sites.</font>
<p><font face="Times New Roman">MGE's management believes the Company's
share of the final cleanup costs will not result in any materially adverse
effects on the operations, cash flows or financial position of MGE. Insurance
may cover a significant amount of the cleanup costs. Management believes
the cleanup costs not covered by insurance will be recovered in current
and future rates.</font>
<p><font face="Times New Roman">From 1855 through the 1950s, MGE and its
predecessors operated a manufactured gas plant at the present site of Blount.
The plant used coal and oil to produce a low-Btu gas for residential cooking
and heating. Wastes from the gas manufacturing process included light oils
and tars. Residual tars and oils from operating the plant may have impacted
the site near the gas holders. MGE has been monitoring the groundwater
and soils for several years in cooperation with the DNR. In the opinion
of management and legal counsel, the resolution of this matter will not
result in any materially adverse effect on the operations or financial
position of MGE.</font>
<p><font face="Times New Roman">MGE, a potentially responsible party, is
also negotiating with the City of Madison for cleanup costs at the Demetral
Landfill. MGE used this site for coal ash disposal from 1954-1959.</font>
<p><font face="Times New Roman">Management believes its share of the final
cleanup costs will not result in any materially adverse effects on MGE's
operations, cash flows or financial position. Insurance may cover a significant
amount of the cleanup costs. Management believes that the cleanup costs
not covered by insurance will be recovered in current and future rates.
MGE estimates its future expense to clean up these sites could range from
$400,000 to $850,000.</font>
<p><b><font face="Times New Roman"><font color="#008000">Gas Operations</font></font></b>
<p><font face="Times New Roman">On Dec. 31, 1999, MGE supplied natural
gas service to approximately 111,000 customers in the cities of Elroy,
Madison, Middleton, Monona, Fitchburg, Lodi, Verona and Viroqua; 22 villages;
and all or parts of 41 townships. Gas revenues for 1999 comprised of residential
(57%), commercial (32%), industrial (4%) and other (7%). Transportation
service accounted for slightly more than 3% of the total 1999 gas revenues.
Gas operations accounted for 32% of MGE's total revenues.</font>
<p><font face="Times New Roman">MGE can curtail gas deliveries to its interruptible
customers. Approximately 5% of gas sold in 1999 was to interruptible customers.</font>
<p><b><font face="Times New Roman">Gas supply</font></b>
<p><font face="Times New Roman">MGE has physical interconnections with
both ANR Pipeline Company (ANR) and Northern Natural Gas Company (NNG).
MGE's primary service territory, which includes Madison and the surrounding
area, receives deliveries at four ANR and one NNG gate station. MGE also
receives deliveries at NNG gate stations located in Viroqua and Elroy and
in Crawford County. Interconnections with two major pipelines provide competition
in interstate pipeline service and a more reliable and economical supply
mix, which includes gas from Canada and the U.S. Mid-Continent and Gulf/Offshore
regions.</font>
<p><font face="Times New Roman">By contract, a total of 4,953,354 dekatherms
can be injected into ANR's storage fields from April 1 through October
31. These gas supplies are then available for withdrawal during the subsequent
heating season November 1 through March 31. ANR's </font>storage fields
are located in Michigan. Using storage allows MGE to buy gas supplies during
the summer season, when prices are normally lowest, and withdraw these
supplies during the winter season, when gas prices are typically higher.
Storage also gives MGE more flexibility in meeting daily load fluctuations.
<p>During the winter months, when customer demand is highest, MGE is primarily
concerned with meeting its obligation to firm customers. MGE meets customer
demand by using long-term firm supply contracts, supplies in storage <i>(injected
during the summer)</i> and other firm supplies purchased for the winter
period. Contracts for these gas supplies are finalized before the heating
season to assure reliable deliveries and stable prices.
<p>The prior heating season <i>(November 1998 through March 1999)</i> was
much warmer than normal (14% fewer heating degree days). Demand for natural
gas was below forecasted amounts during the summer
<i>(April 1999 through
October 1999)</i> as gas was injected into storage to replenish inventories.
The current heating season <i>(November 1999 through March 2000)</i> has
been 15% warmer than normal (based on actual heating degree days through
February) and has caused storage levels to be higher than normal.
<p>MGE's contracts for firm transportation service include maximum daily
quantities of:
<p>- 45,072 dekatherms (<i>excluding storage</i>) on ANR;
<br>- <font face="Times New Roman">48,719 dekatherms on NNG;- 2,457 dekatherms
into Viroqua's NNG gate station; and</font>
<br><font face="Times New Roman">- 1,432 dekatherms into Crawford County's
NNG gate station.</font>
<p><b><font face="Times New Roman"><font color="#008000">General</font></font></b>
<p><font face="Times New Roman">MGE's business is seasonal to the same
extent as other upper Midwest electric and natural gas utilities.</font>
<p><font face="Times New Roman">MGE had 692 permanent employees at Dec.
31, 1999.</font>
<p><font face="Times New Roman">Information regarding MGE executive officers
is included under Item 10, page III-1, Directors and Executive Officers
of the Registrant.</font>
<p><font face="Univers"><font color="#0000FF">Item 2. Properties</font></font>
<p><font face="Times New Roman">The following table presents the generating
capability in service at Dec. 31, 1999:</font>
<br> 
<table WIDTH="100%" >
<tr VALIGN=TOP>
<td ALIGN=CENTER>
<br><u><font face="Times New Roman">Plants</font></u></td>

<td ALIGN=RIGHT><font face="Times New Roman">Commercial</font>
<br><u><font face="Times New Roman">Operation Date</font></u></td>

<td ALIGN=RIGHT>
<br><u><font face="Times New Roman">Fuel</font></u></td>

<td ALIGN=RIGHT>
<br><u><font face="Times New Roman">Net Capability (Megawatt)</font></u></td>

<td ALIGN=RIGHT>
<br><u><font face="Times New Roman">No. of
Units</font></u></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Steam plants:</font></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Columbia </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">1975 & 1978</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">Low-sulfur coal</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">232 <sup>(1,2,4)</sup></font></td>

<td ALIGN=RIGHT><font face="Times New Roman">2</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Kewaunee </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">1974</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">Nuclear</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">93 <sup>(1,3,5)</sup></font></td>

<td ALIGN=RIGHT><font face="Times New Roman">1</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Blount (Madison) </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">1957 & 1961</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">Coal/gas</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">99 </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">2</font></td>
</tr>

<tr VALIGN=TOP>
<td></td>

<td ALIGN=RIGHT><font face="Times New Roman">1938 & 1942</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">Gas</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">39 </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">2</font></td>
</tr>

<tr VALIGN=TOP>
<td></td>

<td ALIGN=RIGHT><font face="Times New Roman">1949</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">Coal/gas</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">22 </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">1</font></td>
</tr>

<tr VALIGN=TOP>
<td></td>

<td ALIGN=RIGHT><font face="Times New Roman">1964-1968</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">Gas/oil</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">35 </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">4</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Combustion turbines </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">1964-1973</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">Gas/oil</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">91 </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">5</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Portable generators </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">1998-1999</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">Diesel</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">14 </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">15</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Wind turbines </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">1999</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">Wind</font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">_11</font></u></td>

<td ALIGN=RIGHT><font face="Times New Roman">17</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Total </font></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT><font face="Times New Roman">636 </font></td>

<td ALIGN=RIGHT></td>
</tr>
</TABLE>

<p><font face="Times New Roman"><sup>1</sup> Base load generation</font>
<br><font face="Times New Roman"><sup>2</sup> MGE's 22% share of two 527-MW
units located near Portage, Wis.</font>
<br><font face="Times New Roman"><sup>3</sup> MGE's 17.8% share of 525-MW
unit located near Kewaunee, Wis.</font>
<br><font face="Times New Roman"><sup>4</sup> See Item 3, page I-10 - Legal
Proceedings.</font>
<br><font face="Times New Roman"><sup>5</sup> See Item 1, page I-3, and
Item 7, page II-6, for more information.</font>
<p><font face="Times New Roman">Major electric transmission and distribution
lines and substations in service at Dec. 31, 1999, are as follows:</font>
<br> 
<table BORDER WIDTH="100%" >
<tr VALIGN=TOP>
<td></td>

<td ALIGN=RIGHT COLSPAN="2">
<center><b><u><font face="Times New Roman">Miles </font></u></b></center>
</td>
</tr>

<tr VALIGN=TOP>
<td ALIGN=CENTER><b><u><font face="Times New Roman">Lines</font></u></b></td>

<td ALIGN=RIGHT><b><u><font face="Times New Roman">Overhead Lines</font></u></b></td>

<td ALIGN=RIGHT><b><u><font face="Times New Roman">Underground Lines</font></u></b></td>
</tr>

<tr VALIGN=TOP>
<td><b><font face="Times New Roman">Transmission</font></b></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">345 kV </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">124</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">-</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">138 kV </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">96</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">3</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">69 kV </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">63</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">20</font></td>
</tr>

<tr VALIGN=TOP>
<td><b><font face="Times New Roman">Distribution</font></b></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">13.8 kV and under </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">1,012</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">779</font></td>
</tr>

<tr VALIGN=TOP>
<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT><b><u><font face="Times New Roman">Substations</font></u></b></td>

<td ALIGN=RIGHT><b><u><font face="Times New Roman">Installed Capacity (kVA)</font></u></b></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Transmission </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">22</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">1,446,000</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Distribution </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">33</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">329,000</font></td>
</tr>
</TABLE>

<p><font face="Times New Roman">Gas facilities include 1,955 miles of distribution
mains.</font>
<p><font face="Univers"><font color="#0000FF">Item 3. Legal Proceedings</font></font>
<p><font face="Times New Roman">In May 1999, MGE demanded arbitration against
Alliant Energy Corp., the parent company of Wisconsin Power and Light Co.
(WPL). The arbitration is based on a claim regarding WPL's merger into
Alliant Energy Corp. and the manner in which the Columbia Energy Center
is run that has triggered MGE's right to acquire WPL's interest in the
plant. MGE currently owns 22% of Columbia.</font>
<p><font face="Times New Roman">MGE claims that since WPL merged with two
Iowa utilities in 1998 forming Alliant Energy Corp., it has changed the
way it operates and maintains the plant--violating operating agreements.
MGE wants Alliant/WPL to relinquish its ownership in Columbia to MGE and
Wisconsin Public Service Corp. Arbitrators have been named and a hearing
on MGE's claim will be scheduled in the near future.</font>
<p><font face="Univers"><font color="#0000FF">Item 4. Results of Votes
of Security Holders</font></font>
<p>No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year.
<p><font face="Univers (WN) Bold"><font color="#FF0000"><font size=+1>PART
II.</font></font></font>
<p><font face="Univers (WN) Bold"><font color="#0000FF">Item 5. Market
for the Registrant's Common Stock and Related Stockholder Matters</font></font>
<p><font face="Times New Roman">MGE common stock is traded on The Nasdaq
National Stock Market (Nasdaq) under the symbol MDSN. On Jan. 31, 2000,
there were approximately 18,405 stockholders of record. MGE's transfer
agent and registrar is Harris Trust and Savings Bank, Chicago, Illinois.</font>
<p><font face="Times New Roman">The tables below show the following: (1)
high and low sales prices for the common stock on Nasdaq and (2) dividends
paid per common share for each quarter over the past two years.</font>
<br> 
<table WIDTH="100%" >
<tr VALIGN=TOP>
<td ALIGN=RIGHT></td>

<td ALIGN=CENTER COLSPAN="2"><font face="Times New Roman">Common stock
price range
<u>1999</u></font></td>

<td ALIGN=RIGHT><font face="Times New Roman">Dividends per share</font></td>
</tr>

<tr VALIGN=TOP>
<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">High</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">Low</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">1999</font></u></td>
</tr>

<tr VALIGN=TOP>
<td ALIGN=RIGHT><font face="Times New Roman">First quarter</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">23-1/4</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">16-3/8</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">$0.326</font></td>
</tr>

<tr VALIGN=TOP>
<td ALIGN=RIGHT><font face="Times New Roman">Second quarter</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">23-3/8</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">18-5/8</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">$0.326</font></td>
</tr>

<tr VALIGN=TOP>
<td ALIGN=RIGHT><font face="Times New Roman">Third quarter</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">22-7/8</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">19-3/4</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">$0.328</font></td>
</tr>

<tr VALIGN=TOP>
<td ALIGN=RIGHT><font face="Times New Roman">Fourth quarter</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">21-7/8</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">18-1/2</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">$0.328</font></td>
</tr>
</TABLE>

<table WIDTH="100%" >
<tr VALIGN=TOP>
<td ALIGN=RIGHT></td>

<td ALIGN=CENTER COLSPAN="2"><font face="Times New Roman">Common stock
price range <u>1998</u></font></td>

<td ALIGN=RIGHT><font face="Times New Roman">Dividends per share</font></td>
</tr>

<tr VALIGN=TOP>
<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">High</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">Low</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">1998</font></u></td>
</tr>

<tr VALIGN=TOP>
<td ALIGN=RIGHT><font face="Times New Roman">First quarter</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">$23-1/2</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">$21-3/4</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">$0.323</font></td>
</tr>

<tr VALIGN=TOP>
<td ALIGN=RIGHT><font face="Times New Roman">Second quarter</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">$22-7/8</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">$20-7/8</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">$0.323</font></td>
</tr>

<tr VALIGN=TOP>
<td ALIGN=RIGHT><font face="Times New Roman">Third quarter</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">$23-1/2</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">$22-1/4</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">$0.326</font></td>
</tr>

<tr VALIGN=TOP>
<td ALIGN=RIGHT><font face="Times New Roman">Fourth quarter</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">$23-11/16</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">$22-1/4</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">$0.326</font></td>
</tr>
</TABLE>

<p><font face="Univers (WN) Bold"><font color="#0000FF">Item 6. Selected
Financial Data</font></font>
<br> 
<table WIDTH="100%" >
<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>For the years ended December
31,</font></font>
<br><font face="Times New Roman"><font size=-1>(In thousands, except per-share
amounts)</font></font></td>

<td ALIGN=RIGHT><u>1999</u></td>

<td ALIGN=RIGHT><u>1998</u></td>

<td ALIGN=RIGHT><u>1997</u></td>

<td ALIGN=RIGHT><u>1996</u></td>

<td ALIGN=RIGHT><u>1995</u></td>
</tr>

<tr VALIGN=TOP>
<td ALIGN=CENTER><b><font face="Times New Roman"><font size=-1>Summary
of Operations</font></font></b></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Operating Revenues:</font></font></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Electric </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>$185,955</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>$169,563</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>$163,123</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>$152,747</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>$153,554</font></font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Gas </font></font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>88,079</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>80,189</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>101,525</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>100,544</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>95,036</font></font></u></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Total </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>274,034</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>249,752</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>264,648</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>253,291</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>248,590</font></font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Operating expenses </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>219,910</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>199,954</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>212,921</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>200,486</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>191,725</font></font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Other general taxes </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>9,306</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>9,263</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>8,797</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>8,736</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>8,709</font></font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Income tax items </font></font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>12,268</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>10,723</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>11,940</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>12,553</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>14,285</font></font></u></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Net operating income </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>32,550</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>29,812</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>30,990</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>31,516</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>33,871</font></font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Other (loss)/income (including
AFUDC) </font></font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>3,390</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>3,339</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>2,272</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>(14,177)</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>1,635</font></font></u></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Income before interest expense </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>35,940</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>33,151</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>33,262</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>17,339</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>35,506</font></font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Interest expense </font></font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>12,194</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>10,921</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>10,739</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>10,912</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>11,536</font></font></u></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Net income </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>23,746</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>22,230</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>22,523</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>6,427</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>23,970</font></font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Preferred dividends </font></font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>-</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>-</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>-</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>-</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>64</font></font></u></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Earnings on common stock </font></font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>$23,746</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>$22,230</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>$22,523</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>$ 6,427</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>$ 23,906</font></font></u></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Average shares outstanding </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>16,084</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>16,080</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>16,080</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>16,080</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>16,080</font></font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Earnings per share </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>$1.48</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>$1.38</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>$1.40</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>$0.40</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>$1.49</font></font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Dividends paid per share </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>$1.308</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>$1.298</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>$1.287</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>$1.273</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>$1.260</font></font></td>
</tr>

<tr VALIGN=TOP>
<td>
<center>At December 31,</center>
</td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>
</tr>

<tr VALIGN=TOP>
<td ALIGN=CENTER><b><font face="Times New Roman"><font size=-1>Assets</font></font></b></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Electric </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>$342,130</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>$311,563</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>$313,855</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>$315,022</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>$327,053</font></font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Gas </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>114,881</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>111,762</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>118,339</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>116,723</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>119,968</font></font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Assets not allocated </font></font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>38,499</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>42,940</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>39,596</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>52,424</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>46,855</font></font></u></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Total </font></font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>$495,510</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>$466,265</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>$471,790</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>$484,169</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>$493,876</font></font></u></td>
</tr>

<tr VALIGN=TOP>
<td ALIGN=CENTER><b><font face="Times New Roman"><font size=-1>Capitalization</font></font></b></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Common shareholders' equity </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>$185,686</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>$182,275</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>$180,923</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>$179,089</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>$193,137</font></font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Long-term debt </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>159,799</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>159,761</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>129,923</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>128,886</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>129,048</font></font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Short-term debt </font></font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>15,750</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>-</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>33,500</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>29,750</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>20,500</font></font></u></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Total Capitalization </font></font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>$361,235</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>$342,036</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>$344,346</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>$337,725</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>$342,685</font></font></u></td>
</tr>
</TABLE>

<p><font face="Univers (WN) Bold"><font color="#0000FF">Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations</font></font>
<p><b><font face="Times New Roman"><font color="#008000">GENERAL</font></font></b>
<p><font face="Times New Roman">The following discussion and analysis provides
information which management believes is relevant to an assessment and
understanding of Madison Gas and Electric Company's (MGE) consolidated
results of operations and financial condition. This discussion should be
read in conjunction with the consolidated financial statements and notes.
This report, and certain other MGE public documents, contain forward-looking
statements that reflect management's current assumptions and estimates
of future performance and economic conditions, especially as they relate
to future revenues, expenses, financial resources and regulatory matters.
These forward-looking statements are made pursuant to the Safe Harbor provisions
of the Private Securities Litigation Reform Act of 1995. MGE cautions investors
that forward-looking statements are subject to known and unknown risks
and uncertainties that may cause MGE's actual results to differ materially
from those projected, expressed or implied. Some of those risks and uncertainties
include the:</font>
<p><font face="Times New Roman">- Economic and market conditions in MGE's
service territory;</font>
<br><font face="Times New Roman">- Magnitude and timing of capital expenditures;</font>
<br><font face="Times New Roman">- Regulatory environment (<i>including
restructuring the electric utility industry in Wisconsin</i>); and</font>
<br><font face="Times New Roman">- Availability and cost of power supplies.</font>
<p><b><font face="Times New Roman"><font color="#008000">RESULTS OF OPERATIONS</font></font></b>
<p><b><font face="Times New Roman">Earnings Overview</font></b>
<p><font face="Times New Roman">In 1999, MGE produced earnings of $23.7
million, or $1.48 per share. Revenues and net operating income were up
nearly 10% in 1999 due to: (1) a 5.1% electric rate increase effective
in January and (2) an increase in gas margin due to higher deliveries in
1999.</font>
<p><font face="Times New Roman">In 1998, MGE produced consolidated earnings
of $22.2 million, or $1.38 per share, despite one of the warmest heating
seasons on record. MGE minimized the impact of weather on earnings by:
(1) controlling costs, (2) selling its remaining assets in National Energy
Management, L.L.C. (NEM) and (3) implementing risk management strategies
to limit the loss of gas revenue due to abnormally warm weather.</font>
<p><font face="Times New Roman">In 1997, MGE earned $22.5 million, or $1.40
per share. An extended outage at the Kewaunee Nuclear Power Plant (Kewaunee)
caused MGE to incur higher costs for replacement power. Tight regional
power supplies also prompted MGE to take extra steps to prevent power outages.
These actions resulted in higher operating costs, which were offset by:
(1) greater electric sales, (2) a 3.1% increase in electric rates effective
in August and (3) an interim rate surcharge effective March through June.</font>
<p><b><font face="Times New Roman">Electric Sales and Revenues</font></b>
<p><font face="Times New Roman">In 1999, electric retail sales increased
2.1% and sales for resale increased 306.9%. The sharp rise in sales for
resale occurred after MGE agreed to sell 30 megawatts (MW) of firm capacity
to Wisconsin Public Power Inc. starting in March 1999 (<i>see Item 8, page
F-18, Commitments).</i></font>
<p><font face="Times New Roman">Electric revenues increased $16.4 million,
or 9.7%, primarily due to:</font>
<p><font face="Times New Roman">- Growth in retail sales;</font>
<br><font face="Times New Roman">- A 5.1% electric rate increase effective
in January 1999;</font>
<br><font face="Times New Roman">- A 3.6% interim electric rate increase
that was in effect during the fourth quarter (<i>see Item 8, page F-17,
Rate Matters</i>); and</font>
<br><font face="Times New Roman">- Higher sales for resale.</font>
<br> 
<center><table WIDTH="100%" >
<tr VALIGN=TOP>
<td COLSPAN="4"><u><font face="Times New Roman">Electric Sales</font></u></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><i>(Megawatt-hours</i>)</font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">1999</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">1998</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">% Change</font></u></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Residential </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">770,153</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">750,831</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">2.6</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Commercial </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">1,524,641</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">1,481,315</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">2.9</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Industrial </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">315,238</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">306,022</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">3.0</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Other </font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">301,147</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">312,684</font></u></td>

<td ALIGN=RIGHT><font face="Times New Roman">(3.7)</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Total Retail </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">2,911,179</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">2,850,852</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">2.1</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Resale - Utilities </font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">312,861</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">76,889</font></u></td>

<td ALIGN=RIGHT><font face="Times New Roman">306.9</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Total Sales </font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">3,224,040</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">2,927,741</font></u></td>

<td ALIGN=RIGHT><font face="Times New Roman">10.1</font></td>
</tr>
</TABLE></center>

<p><font face="Times New Roman">In 1998, warm summer weather contributed
to a 2.5% increase in electric retail sales and a $6.4 million, or 3.9%,
rise in electric revenues. Revenues were up due to growth in sales and
a customer surcharge for deferred expenses related to 1997 repairs at Kewaunee.</font>
<p><b><font face="Times New Roman">Gas Sales and Revenues</font></b>
<p><font face="Times New Roman">In 1999, total retail gas therms delivered
by MGE rose 4.9%. Total heating degree days (<i>as measured by the number
of degrees that the mean daily temperature is below 65 degrees Fahrenheit</i>)
were up 10.4% compared to 1998.</font>
<p><font face="Times New Roman">Gas revenues were up $7.9 million, or 9.8%,
in 1999 due to: (1) increased deliveries and (2) higher gas costs that
were passed on to customers through the Purchased Gas Adjustment Clause.
The table below shows total gas deliveries by customer class.</font>
<br> 
<center><table WIDTH="100%" >
<tr VALIGN=TOP>
<td COLSPAN="4"><u><font face="Times New Roman">Therms Delivered</font></u></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><i>(In thousands</i>)</font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">1999</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">1998</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">% Change</font></u></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Residential </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">81,219</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">75,283</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">7.9</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Commercial and Industrial </font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">69,246</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">68,109</font></u></td>

<td ALIGN=RIGHT><font face="Times New Roman">1.7</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Total Retail System </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">150,465</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">143,392</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">4.9</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Transport </font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">46,013</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">40,926</font></u></td>

<td ALIGN=RIGHT><font face="Times New Roman">12.4</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Total Gas Deliveries </font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">196,478</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">184,318</font></u></td>

<td ALIGN=RIGHT><font face="Times New Roman">6.6</font></td>
</tr>
</TABLE></center>

<p><font face="Times New Roman">In 1998, total gas therms delivered by
MGE dropped 14.8% and gas revenues were down $21.3 million, or 21%. These
declines were caused by one of the warmest winters in more than 50 years.
Heating degree days were down 19.3% in 1998 compared to 1997.</font>
<p><b><font face="Times New Roman">Electric Fuel and Natural Gas Costs</font></b>
<p><font face="Times New Roman">In 1999, electric fuel and purchased power
costs rose $12.7 million, or 30.2%. Extended outages at the Columbia Energy
Center (Columbia) required MGE to generate more power at its Blount Generating
Station (Blount), which has higher fuel costs. MGE also needed to pay more
for purchased power when Columbia was out of service and during times of
peak demand. MGE customers set a new record for peak demand (<i>634 MW</i>)
on July 23. Electric margins (<i>revenues less fuel and purchased power</i>)
were up $3.7 million, or 2.9%, due to the electric rate increases previously
described, higher retail sales and sales for resale.</font>
<p><font face="Times New Roman">During 1998, Kewaunee availability reduced
MGE's need for purchased power--contributing to a $2.9 million, or 6.4%,
drop in electric fuel and purchased power costs. Electric margins were
up $9.3 million, or 7.9%, partially because of an interim rate surcharge.</font>
<p><font face="Times New Roman">In 1999, natural gas costs increased $3.9
million, or 8.7%, because retail sales were up 4.9%. Gas margins (<i>revenues
less natural gas purchased</i>) increased $4 million, or 11.4%, in 1999.
Contributing factors included: (1) a rise in retail deliveries and (2)
a 0.7% rate increase effective in January 1999.</font>
<p><font face="Times New Roman">In 1998, natural gas costs decreased $19.6
million, or 30.1%. Extremely warm winter weather in 1998 caused a 14.8%
drop in gas deliveries. Gas margins fell $1.7 million, or 4.7%, because
MGE sold less gas.</font>
<p><b><font face="Times New Roman">Other Operating Expenses</font></b>
<p><font face="Times New Roman">In 1999, electric operating expense increased
$2.3 million, or 4.9%. The increase is primarily related to payroll and
benefits of $1.3 million and transmission wheeling expenses of $1 million.
Gas operating expenses rose approximately $0.9 million, or 5.5%, due to
higher administrative and general expenses. Electric maintenance expense
was down $1.8 million, or 13.6%, primarily because of lower maintenance
costs at Kewaunee. Depreciation expense increased $2 million, or 5.9%.
Electric depreciation expense comprised $1.7 million of the increase, resulting
from increased plant additions and decommissioning depreciation expense.
Income taxes charged to operations increased approximately $1.5 million,
or 14.4%, in 1999. This increase relates solely to higher operating income.
Interest on long-term debt increased $1.3 million, or 12.4%, in 1999. In
September 1998, MGE issued $30 million in unsecured debt, which was outstanding
throughout 1999.</font>
<p><font face="Times New Roman">In 1998, electric operating expense increased
$1.6 million, or 3.6%, while electric maintenance expense rose $2.3 million,
or 20.4%. Factors contributing to these increases included:</font>
<p><font face="Times New Roman">- Amortization of deferred 1997 expenses
for repairing the steam generator at Kewaunee (<i>offset by the interim
rate surcharge MGE collected in 1998</i>).</font>
<p><font face="Times New Roman">- Amortization of deferred costs associated
with industry restructuring and regional power shortages.</font>
<p><font face="Times New Roman">In 1998, depreciation and amortization
expenses increased $4.9 million, or 17.2%. Approximately $3.4 million of
this increase was due to accelerating both the depreciation and collection
of decommissioning funds for Kewaunee. In 1998, operating income taxes
were down $1.2 million, or 10.2%, from the prior period, primarily due
to a decrease in operating income.</font>
<p><b><font face="Times New Roman">Other Nonoperating Items</font></b>
<p><font face="Times New Roman">In 1999, MGE earned $3.1 million on its
decommissioning trust. These earnings are included in other income and
depreciation expense. MGE also resolved certain contingencies in the amount
of $1 million (<i>net of tax</i>) related to its gas marketing subsidiaries.
In 1996, MGE wrote down its investment in both gas marketing subsidiaries
Great Lakes Energy Corp. (GLENCO) and American Energy Management, Inc.
(AEM), to reflect its current value. These outstanding contingencies included:</font>
<p><font face="Times New Roman">- The expiration of lighting warranties
and outstanding accounts payable for AEM.</font>
<br><font face="Times New Roman">- One-time benefits on some outstanding
legal and tax issues for GLENCO and AEM.</font>
<p><font face="Times New Roman">In 1998, MGE sold its remaining assets
in NEM for $1.8 million (<i>see Item 8, page F-18, Gas Marketing Subsidiaries</i>).
NEM was formed in January 1997 as a joint venture between MGE's gas marketing
subsidiaries and National Gas and Electric L.P. Earnings on the decommissioning
trusts totaled $1.8 million in 1998. This amount is included in other income
and depreciation expense.</font>
<p><b><font face="Times New Roman">Electric and Gas Operations Outlook</font></b>
<p><font face="Times New Roman">MGE anticipates electric and gas sales
will grow at a compounded rate of 1% to 2% through December 2004. MGE expects
to maintain a competitive advantage in a deregulated industry because of
its:</font>
<p><font face="Times New Roman">- Vibrant service territory, which is well-insulated
against economic downturns.</font>
<br><font face="Times New Roman">- Competitive distribution costs, low
percentage of industrial customers and lower risk of stranded investments.</font>
<br><font face="Times New Roman">- Size and agility, which allow employees
to respond quickly and offer more flexibility as customers' needs change.</font>
<p><font face="Times New Roman">MGE will sell its ownership interest (<i>17.8%</i>)
in Kewaunee in the fall of 2001. This will help eliminate the risk of future
stranded investment. The capacity lost from Kewaunee will be replaced with
purchased power contracts.</font>
<p><font face="Times New Roman">The Public Service Commission of Wisconsin
(PSCW) currently regulates MGE for both its electric and gas operations.
Current trends are moving toward electric deregulation. MGE believes it
can continue to offer competitive rates and service to meet the needs of
its customers in a deregulated market.</font>
<p><b><font face="Times New Roman"><font color="#008000">Kewaunee Nuclear
Power Plant</font></font></b>
<p><font face="Times New Roman">Kewaunee is jointly owned by MGE, Wisconsin
Public Service Corp. (WPSC) and Alliant Energy. Kewaunee has been operated
since 1974 by WPSC. The plant's license will expire in 2013.</font>
<p><font face="Times New Roman">On April 7, 1998, WPSC received state regulatory
approval to replace the two steam generators at Kewaunee. The project will
cost approximately $113 million (<i>MGE's share would be $20.1 million</i>).</font>
<p><font face="Times New Roman">On Sept. 29, 1998, MGE finalized an agreement
to sell its share of Kewaunee to WPSC. MGE will receive a cash payment
from WPSC for Kewaunee upon closing. The payment would be comprised of
Kewaunee's book value (<i>currently $12.4 million</i>) plus the book value
of other assets related to Kewaunee. MGE believes it can secure electric
capacity and energy more cost-effectively from other sources and eliminate
the risk of future stranded costs. If approved by state regulators, this
agreement will close when steam generators are replaced at Kewaunee. The
work, which will take approximately 60 days, is scheduled for the fall
of 2001.</font>
<p><font face="Times New Roman">MGE will have an option to buy electric
capacity and energy (<i>up to 93 MW</i>) from WPSC for two years after
the sale closes. MGE's decommissioning liability will be limited to the
current fund balance until the sale closes, plus all decommissioning collections
through 2002. WPSC assumes MGE's decommissioning liability on the date
the sale closes.</font>
<p><font face="Times New Roman">Kewaunee completed 1999 with 100% availability.
The plant returned to service on Nov. 27, 1998, after a planned maintenance
and refueling outage. An inspection of the plant's two steam generators
showed that 1997 tube repairs held up well and few additional repairs were
needed. A major overhaul was also performed on the main turbine generator.
The next shutdown for refueling and maintenance is scheduled for spring
2000.</font>
<p><font face="Times New Roman">MGE contracted with WPSC to build and operate
an 83 MW natural gas-fired combustion turbine near Marinette, Wisconsin.
MGE will purchase the combustion turbine for approximately $32 million
when the unit is completed, which is anticipated in the second quarter
of 2000.</font>
<p><b><font face="Times New Roman"><font color="#008000">LIQUIDITY AND
CAPITAL RESOURCES</font></font></b>
<p><b><font face="Times New Roman">Cash Provided by Operating Activities</font></b>
<p><font face="Times New Roman">In 1999, cash provided by operating activities
decreased $10.2 million, or 14.5%, primarily due to a decrease in net working
capital.</font>
<p><font face="Times New Roman">In 1998, cash provided by operating activities
increased to $70 million, up from $41 million, as MGE decreased its deferred
assets (<i>particularly regulatory assets</i>). In 1997, MGE's gas marketing
subsidiaries had also entered into a joint venture with another gas company,
which reduced the current payables for GLENCO and AEM.</font>
<p><b><font face="Times New Roman">Capital Requirements and Investing Activities</font></b>
<p><font face="Times New Roman">MGE's liquidity is primarily affected by
its construction requirements. 1999 capital expenditures totaled $51 million,
which included $12.6 million for a wind energy project, $10 million for
distributed generation and $3 million for improvements at the Blount plant.</font>
<p><font face="Times New Roman">It is anticipated that 2000 capital expenditures
will be $76.4 million. Major projects include:</font>
<p><font face="Times New Roman">- An 83 MW gas-fired combustion turbine.</font>
<br><font face="Times New Roman">- MGE-owned backup generators that are
located at customers' sites (<i>distributed generation</i>).</font>
<br><font face="Times New Roman">- A gas pipeline expansion project.</font>
<br><font face="Times New Roman">- Improvements at the Blount plant.</font>
<br><font face="Times New Roman">- Nitrogen oxide (NO<sub>x</sub>) emissions
equipment at the jointly owned Columbia plant.</font>
<p><font face="Times New Roman">These projects either comply with new legislation
or help maintain the reliability of MGE's distribution system. Capital
expenditures for the years 2001 through 2004 will average an estimated
$34 million per year. The table below shows capital expenditures and nuclear
fuel estimates for 2000, actuals for 1999 and the three-year average for
1996 to 1998. MGE also has $11 million in debt maturing in November 2000.</font>
<p><font face="Times New Roman">In 1999, MGE's cash used for investing
activities increased $21 million, or 51.5%, due to the plant additions
previously described. MGE used internally generated funds and short-term
borrowing to satisfy most of its capital requirements. For larger capital
investments, MGE will issue additional long-term debt or common stock.</font>
<p><font face="Times New Roman">In 1998, MGE increased its cash used for
investing activities by $12.7 million, or 45.1%, due to $9 million in plant
additions and accelerating the collection of decommissioning funds (<i>$3
million</i>) for the Kewaunee plant.</font>
<br> 
<table WIDTH="100%" >
<tr VALIGN=TOP>
<td ALIGN=CENTER COLSPAN="7"><u><font face="Times New Roman">Capital Expenditures
(including Nuclear Fuel)</font></u></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">For the years ended December 31:</font></td>

<td ALIGN=RIGHT COLSPAN="2">
<center>
<p><u><font face="Times New Roman">2000 Estimated </font></u></center>
</td>

<td ALIGN=RIGHT COLSPAN="2">
<center>
<p><u><font face="Times New Roman">1999 </font></u></center>
</td>

<td ALIGN=RIGHT COLSPAN="2">
<center><font face="Times New Roman">Annual Average</font>
<br><u><font face="Times New Roman">1996 to 1998 </font></u></center>
</td>
</tr>

<tr VALIGN=TOP>
<td><i><font face="Times New Roman">(In thousands)</font></i></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Electric</font></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT><font face="Times New Roman">%</font></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT><font face="Times New Roman">%</font></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT><font face="Times New Roman">%</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Production </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">$46,859</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">61.3</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">$26,462</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">51.9</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">$5,805</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">21.7</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Transmission </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">1,975</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">2.6</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">3,828</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">7.5</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">1,303</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">4.9</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Distribution and General </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">12,987</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">17.0</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">11,641</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">22.9</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">9,234</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">34.3</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Nuclear Fuel </font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">2,161</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">2.8</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">1,086</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">2.1</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">2,617</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">9.8</font></u></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Total Electric </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">63,982</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">83.7</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">43,017</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">84.4</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">18,959</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">70.7</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Gas </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">8,491</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">11.1</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">5,866</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">11.5</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">5,778</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">21.6</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Common </font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">3,927</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">5.2</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">2,105</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">4.1</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">2,060</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">7.7</font></u></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Total </font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">$76,400</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">100.0</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">$50,988</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">100.0</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">$26,797</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">100.0</font></u></td>
</tr>
</TABLE>

<p><b><font face="Times New Roman">Financing Activities and Capitalization
Matters</font></b>
<p><font face="Times New Roman">In 1999, cash used for financing activities
was down $20.8 million, or 84.6%. MGE added short-term debt totaling $15.8
million. In December 1999, MGE started issuing new shares of common stock
for its Dividend Reinvestment and Direct Stock Purchase Plan (Investors
Plus Plan) to improve cash flow and capitalization ratios.</font>
<p><font face="Times New Roman">In 1998, cash used for financing activities
increased $8.6 million, or 54.3%. In September 1998, MGE issued $30 million
in unsecured Medium-Term Notes to reduce short-term debt and help finance
capital spending.</font>
<p><font face="Times New Roman">MGE's First Mortgage Bonds are currently
rated Aa2 by Moody's Investors Service, Inc. (Moody's), and AA by Standard
& Poor's Corp (S&P). MGE's Medium-Term Notes are rated Aa3 by Moody's
and AA- by S&P. MGE's dealer-issued commercial paper carries the highest
ratings assigned by Moody's and S&P.</font>
<p><b><font face="Times New Roman"><font color="#008000">Business and Regulatory
Environment</font></font></b>
<p><font face="Times New Roman">On Oct. 29, 1999, Reliability 2000 legislation
took effect (<i>Part of 1999 Wisconsin Act 9</i>). The new law addresses
a wide range of electric utility topics, including:</font>
<p><font face="Times New Roman">- Providing a public utility holding company
with partial relief from "asset-cap" restraints (<i>which limit the amount
of nonutility assets it could own</i>), if the utility transfers its electric
transmission facilities to a separate transmission company (TRANSCO).</font>
<p><font face="Times New Roman">- Creating a statewide TRANSCO that will
transfer operational control of transmission facilities to the Midwest
Independent System Operator.</font>
<p><font face="Times New Roman">- Continuing and expanding public benefits
programs related to: (a) low-income energy assistance and (b) energy conservation,
renewable energy and other related topics.</font>
<p><font face="Times New Roman">- Limiting real estate activities of holding
companies.</font>
<p><font face="Times New Roman">- Addressing future requirements that may
be placed on electric utilities to control NO<sub>x</sub> air emissions.</font>
<p><font face="Times New Roman">- Creating protections for employees of
utilities and cooperatives.</font>
<p><font face="Times New Roman">Most Wisconsin public utility holding companies
are joining the TRANSCO. Management will analyze its options and determine
if it is beneficial for MGE to join the TRANSCO. The TRANSCO's effective
date of operation is Nov. 1, 2000.</font>
<p><font face="Times New Roman">The PSCW will decide when it is appropriate
for retail competition to proceed in the electric industry. MGE cannot
predict what impact future PSCW actions may have on its future financial
condition, cash flows and results of operations. However, MGE believes
it is well-positioned to compete in a deregulated market.</font>
<p><font face="Times New Roman">Restructuring the electric industry could
affect MGE's ability to continue to establish certain regulatory asset
and liability amounts allowed under Statement of Financial Accounting Standard
(SFAS) No. 71, "Accounting for the Effects of Certain Types of Regulation."
MGE is unable to predict whether any adjustments to regulatory assets and
liabilities will occur in the future. However, the PSCW's restructuring
plan specifically recognizes the need to allow recovery for commitments
made under prior regulatory regimes.</font>
<p><font face="Times New Roman">On Nov. 1, 1999, MGE started operating
under the new gas cost incentive mechanism (GCIM). Under the GCIM, gas
commodity costs are compared to a monthly price benchmark set by state
regulators. If actual costs are above or below the benchmark, MGE gas sales
service customers and shareholders will participate equally in the increased
costs or savings. Any savings or costs that exceed $1.5 million will be
passed on to gas sales service customers.</font>
<p><font face="Times New Roman">The PSCW allows MGE to resell gas pipeline
capacity reserved to meet peak-day demands, but not needed every day to
serve actual customers. Revenues from capacity release that exceed the
target level approved by the PSCW will be shared equally between firm gas
sales service customers and shareholders.</font>
<p><font face="Times New Roman">MGE has contracted with WPSC to build and
operate an 83 MW natural gas-fired combustion turbine near Marinette, Wisconsin.
MGE received rate recovery for this asset and related operations and maintenance
expenses. The revenue collected in 1999 associated with this asset (<i>$1.7
million</i>) has been deferred until the unit is purchased in 2000.</font>
<p><font face="Times New Roman">In June 1999, the Financial Accounting
Standards Board (FASB) issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of
SFAS No. 133." This new accounting standard will take effect after June
15, 2000, for all fiscal quarters of all fiscal years. Due to MGE's limited
use of derivative instruments and hedging activities, SFAS No. 133 is not
expected to have a significant effect on MGE's results of operations or
its financial position.</font>
<p><b><font face="Times New Roman"><font color="#008000">Inflation</font></font></b>
<p><font face="Times New Roman">The current financial statements report
operating results in terms of historical cost, but they do not evaluate
the impact of inflation. Since utilities can depreciate only the historical
cost of utility plant, there may not be adequate cash flows from existing
plant to replace this investment. Under PSCW rate treatment, projected
operating cost</font>s--including the impacts of inflatio<font face="Times New Roman">n--are
recovered in revenues.</font>
<p><b><font face="Times New Roman"><font color="#008000">Environmental
Issues</font></font></b>
<p><font face="Times New Roman">On Jan. 1, 2000, Phase II of the 1990 Federal
Clean Air Act amendments took effect, setting new emission limits for sulfur
dioxides and NO<sub>x</sub>. MGE's generating units were modified well
in advance to meet year 2000 NO<sub>x</sub> requirements. Early modifications
at Blount allow MGE to postpone meeting more stringent NO<sub>x</sub> requirements
at this plant until 2007.</font>
<p><font face="Times New Roman">The Wisconsin Department of Natural Resources
(DNR) is reviewing the current Phase II federal NO<sub>x</sub> emission
limits. MGE is considering the following options to comply with NO<sub>x</sub>
requirements: fuel switching, emissions trading, purchased power agreements,
new emission-control devices or installing new fuel-burning and clean-coal
technologies. MGE has evaluated compliance strategies and their costs.
Implementing new measures will likely increase capital, operating and maintenance
expenditures.</font>
<p><font face="Times New Roman">MGE is listed as a potentially responsible
party for two sites that the EPA has placed on the national priorities
Superfund list: (1) the Refuse Hideaway Landfill in Middleton, Wisconsin,
where MGE disposed of fly ash sludge from 1980 to 1984; and (2) the Lenz
Oil site in Lemont, Ill., which was used for storing and processing waste
oil for several years. These sites require cleanup under the Comprehensive
Environmental Response, Compensation and Liability Act (CERCLA). A group
of companies is currently negotiating with the EPA on the cleanup of these
two sites.</font>
<p><font face="Times New Roman">MGE, a potentially responsible party, is
also negotiating with the City of Madison for cleanup costs at the Demetral
Landfill. MGE used this site for coal ash disposal from 1954-1959.</font>
<p><font face="Times New Roman">Management believes its share of the final
cleanup costs will not result in any materially adverse effects on MGE's
operations, cash flows or financial position. Insurance may cover a significant
amount of the cleanup costs. Management believes that the cleanup costs
not covered by insurance will be recovered in current and future rates.
MGE estimates its future expense to clean up these sites could range from
$400,000 to $850,000.</font>
<p><b><font face="Times New Roman"><font color="#008000">Year 2000</font></font></b>
<p><font face="Times New Roman">MGE provided reliable gas and electric
service to customers as the Year 2000 (Y2K) arrived in Wisconsin.</font>
<p><font face="Times New Roman">The Y2K issue was the result of computer
programs that were written using two digits rather than four to define
the applicable year. A failure due to the Y2K issue could have caused disruptions
in normal business operations.</font>
<p><font face="Times New Roman">MGE staff dedicated more than 52,000 work
hours over four years to prepare for the Year 2000 transition. MGE's Y2K
work plan included awareness, assessment, remediation, verification, auditing,
and contingency planning and preparedness. The work plan was completed
well before Dec. 31, 1999.</font>
<p><font face="Times New Roman">More than 500 MGE staff worked New Year's
Eve and New Year's weekend to check the operation of the Company's generating
plants, substations, natural gas facilities and business systems. MGE experienced
no material failure of its systems, equipment or suppliers due to Y2K problems
during or immediately after the transition. MGE believes it would be an
extremely remote possibility that any latent Y2K failures could significantly
affect operations.</font>
<p><font face="Times New Roman">MGE's Y2K expenses totaled $4.3 million.
The costs were expensed, as incurred, and funded through operating cash
flow.</font>
<p><font face="Univers"><font color="#0000FF">Item 8. Financial Statements
and Supplementary Data</font></font>
<p><font face="Times New Roman">Index of Consolidated Financial Statements,
Footnotes, and Supplementary Data</font>
<p><font face="Times New Roman">Responsibility for Financial Statements</font>
<br><font face="Times New Roman">Report of Independent Accountants</font>
<br><font face="Times New Roman">Consolidated Statements of Income</font>
<br><font face="Times New Roman">Consolidated Statements of Cash Flows</font>
<br><font face="Times New Roman">Consolidated Balance Sheets</font>
<br><font face="Times New Roman">Consolidated Statements of Capitalization</font>
<br><font face="Times New Roman">Consolidated Statements of Common Equity</font>
<br><font face="Times New Roman">Notes to Consolidated Financial Statements</font>
<p><font face="Univers (WN) Bold"><font color="#0000FF">Item 9. Changes
in and Disagreements with Accountants on Accounting and Financial Disclosure</font></font>
<p><font face="Times New Roman">None.</font>
<p><font face="Univers (WN) Bold"><font color="#008000"><font size=+1>Responsibility
for Financial Statements</font></font></font>
<p>The management of Madison Gas and Electric Company (MGE) is responsible
for preparing and presenting the financial information in this Annual Report.
The following financial statements have been prepared in accordance with
accounting standards generally accepted in the United States. They reflect
management's best estimates and informed judgments, as required.
<p>To fulfill these responsibilities, management has developed and maintains
a comprehensive system of internal operating, accounting and financial
controls. These controls provide reasonable assurance that MGE's assets
are safeguarded, transactions are properly recorded and the resulting financial
statements are reliable. An internal audit function assists management
in monitoring the effectiveness of these controls.
<p>The Report of Independent Accountants on the financial statements by
PricewaterhouseCoopers LLP appears on page F-2. The responsibility of the
independent accountants is limited to the audit of the financial statements
presented and the expression of an opinion as to their fairness.
<p>The Board of Directors oversees MGE's financial situation through its
monthly review of operations and financial condition and its selection
of the independent accountants. The Audit Committee is comprised of all
Board members who are not MGE employees or officers. The Audit Committee
meets periodically with the independent accountants and MGE's internal
audit staff--without management representatives present--to review accounting,
auditing and financial matters. Pertinent items discussed at the meetings
are reviewed with the full Board of Directors.
<br> 
<table BORDER WIDTH="100%" >
<tr VALIGN=TOP>
<td>/s/ Gary J. Wolter</td>
</tr>

<tr VALIGN=TOP>
<td>President and Chief Executive Officer</td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">/s/ Terry A. Hanson</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Vice President - Finance</font></td>
</tr>
</TABLE>

<p><font face="Univers (WN) Bold"><font color="#008000"><font size=+1>Report
of Independent Accountants</font></font></font>
<p><b><font face="Times New Roman">To the Board of Directors and Shareholders
of Madison Gas and Electric Company:</font></b>
<p><font face="Times New Roman">In our opinion, the accompanying consolidated
balance sheets and statements of capitalization and the related consolidated
statements of income, common equity, and cash flows present fairly, in
all material respects, the financial position of Madison Gas and Electric
Company (the Company) and subsidiaries at Dec. 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the three
years in the period ended Dec. 31, 1999, in conformity with accounting
principles generally accepted in the United States. These financial statements
are the responsibility of the Company's management; our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits of these statements in accordance with auditing
standards generally accepted in the United States, which require that we
plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for the opinion expressed above.</font>
<p><font face="Times New Roman">/s/ PricewaterhouseCoopers LLP</font>
<br><font face="Times New Roman">Philadelphia, Pennsylvania</font>
<br><font face="Times New Roman">February 7, 2000</font>
<p><font face="Univers (WN) Bold"><font color="#008000"><font size=+1>Consolidated
Statements of Income</font></font></font>
<br> 
<table WIDTH="100%" >
<tr VALIGN=TOP>
<td><font face="Times New Roman">For the years ended December 31</font>
<br><i><font face="Times New Roman">(In thousands, except per-share amounts)</font></i></td>

<td ALIGN=CENTER></td>

<td ALIGN=CENTER></td>

<td ALIGN=CENTER></td>
</tr>

<tr VALIGN=TOP>
<td></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">1999</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">1998</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">1997</font></u></td>
</tr>

<tr VALIGN=TOP>
<td><b><font face="Times New Roman"><font color="#008000">Operating Revenues</font></font></b></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Electric </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">$185,955</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">$169,563</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">$163,123</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Gas </font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">88,079</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">80,189</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">101,525</font></u></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Total Operating Revenues </font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">274,034</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">249,752</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">264,648</font></u></td>
</tr>

<tr VALIGN=TOP>
<td></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>
</tr>

<tr VALIGN=TOP>
<td><b><font face="Times New Roman"><font color="#008000">Operating Expenses</font></font></b></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Fuel for electric generation </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">32,388</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">32,289</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">30,764</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Purchased power </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">22,198</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">9,624</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">14,008</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Natural gas purchased </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">49,395</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">45,458</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">65,079</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Other operations </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">67,471</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">64,231</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">62,018</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Maintenance </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">13,304</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">15,167</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">12,735</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Depreciation and amortization </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">35,154</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">33,185</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">28,317</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Other general taxes </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">9,306</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">9,263</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">8,797</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Income tax provision </font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">12,268</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">10,723</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">11,940</font></u></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Total Operating Expenses </font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">241,484</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">219,940</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">233,658</font></u></td>
</tr>

<tr VALIGN=TOP>
<td></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>
</tr>

<tr VALIGN=TOP>
<td><b><font face="Times New Roman"><font color="#008000">Net Operating
Income</font></font></b></td>

<td ALIGN=RIGHT><font face="Times New Roman">32,550</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">29,812</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">30,990</font></td>
</tr>

<tr VALIGN=TOP>
<td></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">AFUDC - equity funds </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">302</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">122</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">28</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Other income, net </font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">2,933</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">3,151</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">2,229</font></u></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Income Before Interest Expense </font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">35,785</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">33,085</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">33,247</font></u></td>
</tr>

<tr VALIGN=TOP>
<td></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>
</tr>

<tr VALIGN=TOP>
<td><b><font face="Times New Roman"><font color="#008000">Interest Expense</font></font></b></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Interest on long-term debt </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">11,500</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">10,234</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">9,641</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Other interest </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">694</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">687</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">1,098</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">AFUDC - borrowed funds </font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">(155)</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">(66)</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">(15)</font></u></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Net Interest Expense </font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">12,039</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">10,855</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">10,724</font></u></td>
</tr>

<tr VALIGN=TOP>
<td></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>
</tr>

<tr VALIGN=TOP>
<td><b><font face="Times New Roman"><font color="#008000">Net Income</font></font></b></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">$ 23,746</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">$ 22,230</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">$ 22,523</font></u></td>
</tr>

<tr VALIGN=TOP>
<td></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><b><font color="#008000">Earnings Per
Share of Common Stock</font></b> (basic and diluted) </font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">$1.48</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">$1.38</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">$1.40</font></u></td>
</tr>

<tr VALIGN=TOP>
<td></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>
</tr>

<tr VALIGN=TOP>
<td><b><font face="Times New Roman"><font color="#008000">Average Shares
Outstanding</font></font></b></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">16,084</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">16,080</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">16,080</font></u></td>
</tr>
</TABLE>

<p><i><font face="Times New Roman"><font size=-1>The accompanying notes
are an integral part of the above statements.</font></font></i>
<p><font face="Univers (WN) Bold"><font color="#008000"><font size=+1>Consolidated
Statements of Cash Flows</font></font></font>
<br> 
<table WIDTH="100%" >
<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>For the years ended December
31</font></font>
<br><i><font face="Times New Roman">(In thousands)</font></i></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>
</tr>

<tr VALIGN=TOP>
<td ALIGN=CENTER></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>1999</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>1998</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>1997</font></font></u></td>
</tr>

<tr VALIGN=TOP>
<td><b><font face="Times New Roman"><font color="#008000"><font size=-1>Operating
Activities</font></font></font></b></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Net income </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>$23,746</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>$22,230</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>$22,523</font></font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Items not affecting cash:</font></font></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Depreciation and amortization </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>35,154</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>33,185</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>28,317</font></font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Deferred income taxes </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>(708)</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>(1,229)</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>(1,400)</font></font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Amortization of nuclear
fuel </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>2,638</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>2,321</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>1,517</font></font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Amortization of investment
tax credits </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>(739)</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>(747)</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>(753)</font></font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>AFUDC - equity funds </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>(302)</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>(122)</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>(28)</font></font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Other noncash items </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>(1,430)</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>(2,066)</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>(3,086)</font></font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Changes in working capital,
excluding cash equivalents, sinking funds, maturities, and interim loans:</font></font></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>(Increase)/decrease in current
assets </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>(2,512)</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>3,577</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>6,162</font></font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Increase/(decrease) in current
liabilities </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>3,354</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>1,283</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>(18,088)</font></font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Other noncurrent items,
net </font></font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>1,104</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>12,055</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>5,675</font></font></u></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Cash Provided by Operating
Activities </font></font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>60,305</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>70,487</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>40,839</font></font></u></td>
</tr>

<tr VALIGN=TOP>
<td></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font color="#008000"><font size=-1>Investing
Activities</font></font></font></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Additions to utility plant
and nuclear fuel </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>(50,988)</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>(30,829)</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>(21,635)</font></font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>AFUDC - borrowed funds </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>(155)</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>(66)</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>(15)</font></font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Increase in nuclear decommissioning
fund </font></font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>(10,692)</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>(9,910)</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>(6,467)</font></font></u></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Cash Used for Investing
Activities </font></font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>(61,835)</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>(40,805)</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>(28,117)</font></font></u></td>
</tr>

<tr VALIGN=TOP>
<td></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font color="#008000"><font size=-1>Financing
Activities</font></font></font></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Issuance of Common Stock </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>1,678</font></font></td>

<td ALIGN=RIGHT><b><font face="Times New Roman"><font size=-1>-</font></font></b></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>-</font></font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Cash dividends on common
stock </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>(21,038)</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>(20,878)</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>(20,689)</font></font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Increase in long-term debt </font></font></td>

<td ALIGN=RIGHT><b><font face="Times New Roman"><font size=-1>-</font></font></b></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>30,000</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>5,000</font></font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Maturity/redemption of First
Mortgage Bonds </font></font></td>

<td ALIGN=RIGHT><b><font face="Times New Roman"><font size=-1>-</font></font></b></td>

<td ALIGN=RIGHT><b><font face="Times New Roman"><font size=-1>-</font></font></b></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>(3,800)</font></font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Other decreases in First
Mortgage Bonds </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>(162)</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>(162)</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>(163)</font></font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Increase/(decrease) in short-term
debt </font></font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>15,750</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>(33,500)</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>3,750</font></font></u></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Cash Used for Financing
Activities </font></font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>(3,772)</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>(24,540)</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>(15,902)</font></font></u></td>
</tr>

<tr VALIGN=TOP>
<td></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font color="#008000"><font size=-1>Change
in Cash and Cash Equivalents</font></font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>(5,302)</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>5,142</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>(3,180)</font></font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Cash and cash equivalents
at beginning of period </font></font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>7,250</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>2,108</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>5,288</font></font></u></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Cash and cash equivalents
at end of period </font></font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>$ 1,948</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>$ 7,250</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>$ 2,108</font></font></u></td>
</tr>
</TABLE>

<p><i><font face="Times New Roman"><font size=-1>The accompanying notes
are an integral part of the above statements.</font></font></i>
<p><font face="Univers (WN) Bold"><font color="#008000"><font size=+1>Consolidated
Balance Sheets</font></font></font>
<br> 
<table WIDTH="100%" >
<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>At December 31<i>(In thousands)</i></font></font></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>
</tr>

<tr VALIGN=TOP>
<td><b><font face="Times New Roman"><font size=-1>ASSETS</font></font></b></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>1999</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>1998</font></font></u></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1><b><font color="#008000">Utility
Plant</font></b> (at original cost, in service)</font></font></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Electric </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>$554,392</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>$520,753</font></font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Gas </font></font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>190,137</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>184,868</font></font></u></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Gross Plant in Service </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>744,529</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>705,621</font></font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Less accumulated provision
for depreciation </font></font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>(484,428)</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>(446,984)</font></font></u></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Net Plant in Service </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>260,101</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>258,637</font></font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Construction work in progress </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>31,134</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>21,490</font></font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Nuclear decommissioning
fund </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>97,056</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>79,089</font></font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Nuclear fuel, net </font></font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>6,534</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>8,086</font></font></u></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Total Utility Plant </font></font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>394,825</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>367,302</font></font></u></td>
</tr>

<tr VALIGN=TOP>
<td><b><font face="Times New Roman"><font color="#008000"><font size=-1>Other
Property and Investments</font></font></font></b></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>3,591</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>6,700</font></font></u></td>
</tr>

<tr VALIGN=TOP>
<td><b><font face="Times New Roman"><font color="#008000"><font size=-1>Current
Assets</font></font></font></b></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Cash and cash equivalents </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>1,948</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>7,250</font></font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Accounts receivable, less
reserves of $1,391 and $1,281, respectively </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>27,913</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>26,812</font></font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Unbilled revenue </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>13,167</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>13,113</font></font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Materials and supplies,
at lower of average cost or market </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>6,149</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>5,936</font></font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Fossil fuel, at lower of
average cost or market </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>4,061</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>3,509</font></font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Stored natural gas, at lower
of average cost or market </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>10,039</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>9,709</font></font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Prepaid taxes </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>6,802</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>6,573</font></font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Other prepayments </font></font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>1,063</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>1,030</font></font></u></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Total Current Assets </font></font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>71,142</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>73,932</font></font></u></td>
</tr>

<tr VALIGN=TOP>
<td><b><font face="Times New Roman"><font color="#008000"><font size=-1>Deferred
Charges</font></font></font></b></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>25,952</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>18,331</font></font></u></td>
</tr>

<tr VALIGN=TOP>
<td><b><font face="Times New Roman"><font color="#008000"><font size=-1>Total
Assets</font></font></font></b></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>$495,510</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>$466,265</font></font></u></td>
</tr>

<tr VALIGN=TOP>
<td></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>
</tr>

<tr VALIGN=TOP>
<td><b><font face="Times New Roman"><font size=-1>CAPITALIZATION AND LIABILITIES</font></font></b></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1><b><font color="#008000">Capitalization</font></b>
(see statement) </font></font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>$334,285</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>$342,036</font></font></u></td>
</tr>

<tr VALIGN=TOP>
<td><b><font face="Times New Roman"><font color="#008000"><font size=-1>Current
Liabilities</font></font></font></b></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Long-term debt due within
one year </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>11,200</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>200</font></font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Short-term debt - commercial
paper </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>15,750</font></font></td>

<td ALIGN=RIGHT><b><font face="Times New Roman"><font size=-1>-</font></font></b></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Accounts payable </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>19,553</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>15,364</font></font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Accrued taxes </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>891</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>549</font></font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Accrued interest </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>2,770</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>2,734</font></font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Accrued nonregulated items </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>825</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>2,771</font></font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Accrued payroll-related
items </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>4,064</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>3,189</font></font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Deferred gas costs </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>3,247</font></font></td>

<td ALIGN=RIGHT><b><font face="Times New Roman"><font size=-1>-</font></font></b></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Other </font></font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>2,023</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>1,507</font></font></u></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Total Current Liabilities </font></font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>60,323</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>26,314</font></font></u></td>
</tr>

<tr VALIGN=TOP>
<td><b><font face="Times New Roman"><font color="#008000"><font size=-1>Other
Credits</font></font></font></b></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Deferred income taxes </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>42,981</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>44,343</font></font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Investment tax credit -
deferred </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>9,199</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>9,938</font></font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Regulatory liability - SFAS
109 </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>22,875</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>23,745</font></font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Other regulatory liabilities </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>5,078</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>2,995</font></font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Other deferred liabilities </font></font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>20,769</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>16,894</font></font></u></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Total Other Credits </font></font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>100,902</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>97,915</font></font></u></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Total Liabilities</font></font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>161,225</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>124,229</font></font></u></td>
</tr>

<tr VALIGN=TOP>
<td><b><font face="Times New Roman"><font color="#008000"><font size=-1>Total
Capitalization and Liabilities</font></font></font></b></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>$495,510</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>$466,265</font></font></u></td>
</tr>
</TABLE>

<p><i><font face="Times New Roman"><font size=-1>The accompanying notes
are an integral part of the above statements.</font></font></i>
<p><font face="Univers (WN) Bold"><font color="#008000"><font size=+1>Consolidated
Statements of Capitalization</font></font></font>
<br> 
<table WIDTH="100%" >
<tr VALIGN=TOP>
<td><font face="Times New Roman">At December 31</font>
<br><i><font face="Times New Roman">(In thousands)</font></i></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>
</tr>

<tr VALIGN=TOP>
<td ALIGN=CENTER></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font color="#008000">Common Equity</font></font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">1999</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">1998</font></u></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Common stock - par value $1 per share:</font></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Authorized 50,000,000 shares</font></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Outstanding 16,161,305 and 16,079,718
shares, respectively </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">$ 16,161</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">$ 16,080</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Additional paid-in capital </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">114,155</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">112,558</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Retained earnings </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">56,345</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">53,637</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Accumulated other comprehensive income/(loss) </font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">(975)</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">-</font></u></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Total Common Equity </font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">185,686</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">182,275</font></u></td>
</tr>

<tr VALIGN=TOP>
<td></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>
</tr>

<tr VALIGN=TOP>
<td><b><font face="Times New Roman"><font color="#008000">First Mortgage
Bonds</font></font></b></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">6-1/2%, 2006 Series:</font></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Pollution Control Revenue Bonds </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">6,275</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">6,475</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">8.50%, 2022 Series </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">40,000</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">40,000</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">6.75%, 2027A Series:</font></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Industrial Development Revenue Bonds </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">28,000</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">28,000</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">6.70%, 2027B Series:</font></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Industrial Development Revenue Bonds </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">19,300</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">19,300</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">7.70%, 2028 Series </font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">21,200</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">21,200</font></u></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">First Mortgage Bonds Outstanding </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">114,775</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">114,975</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Unamortized discount and premium on bonds,
net </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">(976)</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">(1,014)</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Long-term debt sinking fund requirements </font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">(200)</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">(200)</font></u></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Total First Mortgage Bonds </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">113,599</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">113,761</font></td>
</tr>

<tr VALIGN=TOP>
<td></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>
</tr>

<tr VALIGN=TOP>
<td><b><font face="Times New Roman"><font color="#008000">Other Long-Term
Debt</font></font></b></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">6.01%, due 2000 </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">-</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">11,000</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">6.91%, due 2004 </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">5,000</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">5,000</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">6.02%, due 2008 </font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">30,000</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">30,000</font></u></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Total Long-Term Debt </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">148,599</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">159,761</font></td>
</tr>

<tr VALIGN=TOP>
<td></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>
</tr>

<tr VALIGN=TOP>
<td><b><font face="Times New Roman"><font color="#008000">Total Capitalization</font></font></b></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">$334,285</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">$342,036</font></u></td>
</tr>
</TABLE>

<p><i><font face="Times New Roman">The accompanying notes are an integral
part of the above statements.</font></i>
<p><font face="Univers (WN) Bold"><font color="#008000"><font size=+1>Consolidated
Statements of Common Equity</font></font></font>
<br> 
<table WIDTH="100%" >
<tr VALIGN=TOP>
<td><i><font face="Times New Roman">(In thousands)</font></i></td>

<td ALIGN=RIGHT>
<center>Common <u>Stock</u></center>
</td>

<td ALIGN=RIGHT>
<center>Additional Paid-in <u>Capital</u></center>
</td>

<td ALIGN=RIGHT>
<center>Retained <u>Earnings</u></center>
</td>

<td ALIGN=RIGHT>
<center><font face="Times New Roman"><font size=-1>Accumulated Other <u>Comprehensive
Income (Loss)</u></font></font></center>
</td>

<td ALIGN=RIGHT>
<center>Total Common <u>Equity</u></center>
</td>
</tr>

<tr VALIGN=TOP>
<td><b><font face="Times New Roman">1997</font></b></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Beginning balance - Dec.
31, 1996 </font></font></td>

<td ALIGN=RIGHT>
<br><font face="Times New Roman"><font size=-1>$16,080</font></font></td>

<td ALIGN=RIGHT>
<br><font face="Times New Roman"><font size=-1>$112,558</font></font></td>

<td ALIGN=RIGHT>
<br><font face="Times New Roman"><font size=-1>$50,451</font></font></td>

<td ALIGN=RIGHT>
<br><font face="Times New Roman"><font size=-1>$ -</font></font></td>

<td ALIGN=RIGHT>
<br><font face="Times New Roman"><font size=-1>$179,089</font></font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Net income </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>-</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>-</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>22,523</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>-</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>22,523</font></font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Common stock dividends</font></font>
<br><font face="Times New Roman"><font size=-1>($1.29 per share) </font></font></td>

<td ALIGN=RIGHT>-</td>

<td ALIGN=RIGHT>
<br>-</td>

<td ALIGN=RIGHT>
<br><font size=-1>(20,689)</font></td>

<td ALIGN=RIGHT>
<br>-</td>

<td ALIGN=RIGHT>
<br><font size=-1>(20,689)</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Ending balance - Dec. 31,
1997 </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>16,080</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>112,558</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>52,285</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>-</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>180,923</font></font></td>
</tr>

<tr VALIGN=TOP>
<td></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>1998</font></font></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Net income </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>-</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>-</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>22,230</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>-</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>22,230</font></font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Common stock dividends</font></font>
<br><font face="Times New Roman"><font size=-1>($1.30 per share) </font></font></td>

<td ALIGN=RIGHT>
<br>-</td>

<td ALIGN=RIGHT>
<br>-</td>

<td ALIGN=RIGHT>
<br><font size=-1>(20,878)</font></td>

<td ALIGN=RIGHT>
<br>-</td>

<td ALIGN=RIGHT>
<br><font size=-1>(20,878)</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Ending balance - Dec. 31,
1998 </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>16,080</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>112,558</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>53,637</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>-</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>182,275</font></font></td>
</tr>

<tr VALIGN=TOP>
<td></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>1999</font></font></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Net income </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>-</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>-</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>23,746</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>-</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>23,746</font></font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Other comprehensive income/(loss):</font></font></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Minimum pension liability
adjustment (net of $654 tax) </font></font></td>

<td ALIGN=RIGHT>
<br>-</td>

<td ALIGN=RIGHT>
<br>-</td>

<td ALIGN=RIGHT>
<br>-</td>

<td ALIGN=RIGHT>
<br><font size=-1>(975)</font></td>

<td ALIGN=RIGHT>
<br><font size=-1>(975)</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Common stock dividends</font></font>
<br><font face="Times New Roman"><font size=-1>($1.31 per share) </font></font></td>

<td ALIGN=RIGHT>
<br>-</td>

<td ALIGN=RIGHT>
<br>-</td>

<td ALIGN=RIGHT>
<br><font size=-1>(21,038)</font></td>

<td ALIGN=RIGHT>
<br>-</td>

<td ALIGN=RIGHT><font size=-1>(21,038)</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Common stock issued </font></font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>81</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>1,597</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>-</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>-</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>1,678</font></font></u></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Ending balance - Dec. 31,
1999 </font></font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>$16,161</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>$114,155</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>$56,345</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>$(975)</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>$185,686</font></font></u></td>
</tr>
</TABLE>

<p><i><font face="Times New Roman">The accompanying notes are an integral
part of the above statements.</font></i>
<p><font face="Univers (WN) Bold"><font color="#008000"><font size=+1>Notes
to Consolidated Financial Statements</font></font></font>
<p><font face="Times New Roman">December 31, 1999, 1998 and 1997</font>
<p><b><font face="Times New Roman"><font color="#008000">1. SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES</font></font></b>
<p><b><font face="Times New Roman">a. General</font></b>
<p><font face="Times New Roman">Madison Gas and Electric Company (MGE)
is an investor-owned public utility headquartered in Madison, Wisconsin.
MGE generates, transmits and distributes electricity to more than 125,000
customers in a 250-square-mile area of Dane County. MGE also transports
and distributes natural gas to nearly 112,000 customers in 1,325 square
miles of service territory in seven counties.</font>
<p><font face="Times New Roman">The consolidated financial statements reflect
the application of certain accounting policies described in this note.
Certain 1998 balances have been reclassified to conform to the 1999 presentation.
The financial statements include the accounts of MGE and its subsidiaries.
All significant intercompany accounts and transactions have been eliminated
in consolidation. Revenues are recorded based on services rendered or energy
delivered to customers. MGE accrues an estimate on a monthly basis for
unbilled revenue on the same basis. Gas revenues are subject to an adjustment
clause related to periodic changes in the cost of gas. In November 1999,
MGE started operating under the new gas cost incentive mechanism (GCIM).
Under the GCIM, if actual gas commodity costs are above or below the benchmark
set by state regulators, MGE gas sales service customers and shareholders
will participate equally in the increased cost or savings.</font>
<p><font face="Times New Roman">In order to prepare consolidated financial
statements in conformity with generally accepted accounting principles,
management must make estimates and assumptions that affect the following:
(1) reported amounts of assets and liabilities at the dates of the financial
statements, (2) reported amounts of revenues and expenses during the reported
periods and (3) disclosure of contingencies. Actual results could differ
from management's estimates.</font>
<p><b><font face="Times New Roman">b. Utility Plant</font></b>
<p><font face="Times New Roman">Utility plant is stated at the original
cost of construction, which includes: indirect costs consisting of payroll
taxes, pensions, postretirement benefits, other fringe benefits, administrative
and general costs, and an allowance for funds used during construction
(AFUDC).</font>
<p><font face="Times New Roman">AFUDC represents the approximate cost of
debt and equity capital devoted to plant under construction. MGE presently
capitalizes AFUDC at a rate of 10.52% on 50% of construction work in progress.
The AFUDC rate approximates MGE's cost of capital. The portion of the allowance
applicable to borrowed funds is presented in the Consolidated Statements
of Income as a reduction of interest expense. The portion of the allowance
applicable to equity funds is presented as other income. Although the allowance
does not represent current cash income, it is recovered under the ratemaking
process over the service lives of the related properties.</font>
<p><b><font face="Times New Roman">c. Nuclear Fuel</font></b>
<p><font face="Times New Roman">The cost of nuclear fuel used for electric
generation is amortized to fuel expense and recovered in rates based on
the units of production method for generating electricity at the Kewaunee
Nuclear Power Plant (Kewaunee).</font>
<p><font face="Times New Roman">These costs include a provision for estimated
future disposal costs of spent nuclear fuel. MGE currently pays disposal
fees to the Department of Energy based on net nuclear generation. MGE has
recovered, through rates, its known fuel disposal liability for past nuclear
generation.</font>
<p><font face="Times New Roman">The 1992 National Energy Policy Act requires
all utilities that have used federal enrichment facilities to pay a special
assessment for decontaminating and decommissioning these facilities. This
special assessment is based on past enrichment. MGE has accrued and deferred
an estimated $1.8 million for its portion of the special assessment. MGE
believes any additional costs will be recovered in future rates.</font>
<p><b>d. Joint Plant Ownership</b>
<p>MGE and two other utilities jointly own two electric generating facilities,
which account for 54% of MGE's net generating capability--325 megawatts
(MW). Power from these facilities is shared in proportion to each company's
ownership interest. MGE owns:
<p>- 22% (232 MW) of the coal-fired Columbia Energy Center (Columbia),
which is operated by Alliant Energy Corp.
<p>- 17.8% (93 MW) of Kewaunee, which is operated by Wisconsin Public Service
Corp. (WPSC).
<p>On Sept. 29, 1998, MGE finalized an agreement to sell its share of Kewaunee
to WPSC. MGE will receive a cash payment from WPSC for Kewaunee upon closing.
The payment would be comprised of Kewaunee's book value (<i>currently $12.4
million</i>) plus the book value of other assets related to Kewaunee. MGE's
decommissioning liability will be limited to the current fund balance until
the sale closes, plus all decommissioning collections through 2002. MGE
believes it can secure electric capacity and energy more cost-effectively
from other sources and eliminate the risk of future stranded costs. If
approved by state regulators, this agreement will close when steam generators
are replaced at Kewaunee. The work, which will take approximately 60 days,
is scheduled for the fall of 2001.
<p>Each owner provides its own financing and reflects its respective portion
of facilities and operating costs in its financial statements. MGE's interest
in these facilities, included in its gross utility plant in service, and
the related accumulated depreciation reserves at Dec. 31 were as follows:
<br> 
<table WIDTH="100%" >
<tr VALIGN=TOP>
<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT COLSPAN="2">
<center><u><font face="Times New Roman">Columbia </font></u></center>
</td>

<td ALIGN=RIGHT COLSPAN="2">
<center><u><font face="Times New Roman">Kewaunee </font></u></center>
</td>
</tr>

<tr VALIGN=TOP>
<td><i><font face="Times New Roman">(In thousands)</font></i></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">1999</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">1998</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">1999</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">1998</font></u></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Utility plant </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">$86,875</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">$86,175</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">$58,835</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">$58,364</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Accumulated depreciation </font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">(53,417)</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">(51,108)</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">(46,462)</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">(42,520)</font></u></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Net plant </font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">$33,458</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">$35,067</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">$12,373</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">$15,844</font></u></td>
</tr>
</TABLE>

<p><b><font face="Times New Roman">e. Depreciation</font></b>
<p><font face="Times New Roman">Provisions at composite straight-line depreciation
rate</font>s--excluding decommissioning costs--approximate the following
percentages for the cost of depreciable property:
<p>- Electric: 3.6% in 1999 and 1998, and 3.4% in 1997.
<br>- Gas: 3.4% in 1999, 1998 and 1997.
<p>Depreciation rates are approved by the Public Service Commission of
Wisconsin (PSCW) and are generally based on the estimated economic lives
of property.
<p>Nuclear decommissioning costs are being accrued to an end-of-service
life of 2002 for Kewaunee. These costs are currently recovered from customers
in rates and are deposited in external trusts. For 1999, the decommissioning
costs recovered in rates were $8.1 million.
<p>Decommissioning costs are recovered through depreciation expense. Net
earnings on the trusts are included in other income. It is expected that
the decommissioning contributions to the trust<font face="Times New Roman">s--along
with earnings on the trusts--will provide sufficient funds for decommissioning
the plant. It is assumed the long-term, after-tax earnings on the assets
held by the trusts is 5.6%.</font>
<p><font face="Times New Roman">As required by Statement of Financial Accounting
Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," MGE's debt and equity security investments in the trusts
are classified as available for sale. Gains and losses on the trusts were
determined on the basis of specific identification; net unrealized holding
gains on the trusts were recorded as part of accumulated provision for
depreciation.</font>
<p><font face="Times New Roman">As of Dec. 31, 1999, the decommissioning
trusts totaled $97.1 million--its pre-tax fair market value. Realized earnings
on the trusts were $3.1 million, $1.8 million and $1.6 million for the
years ended Dec. 31, 1999, 1998 and 1997, respectively. Unrealized earnings
of the trusts totaled $33.3 million, $26 million and $16 million at Dec.
31, 1999, 1998 and 1997, respectively.</font>
<p><font face="Times New Roman">MGE's share of Kewaunee decommissioning
costs is an estimated $88 million in current dollars based on a site-specific
study performed in 1992 using immediate dismantlement as the method of
decommissioning. This study assumed decommissioning costs would inflate
at an average rate of 6% per year. MGE's decommissioning liability is limited
to the current fund balances plus all decommissioning contributions through
2002, under the agreement that allows MGE to sell its share of Kewaunee
to WPSC. Physical decommissioning is expected to occur from 2014 through
2021. Additional expenses will likely be incurred from 2022 through 2039
to store spent nuclear fuel at the plant site.</font>
<p><b><font face="Times New Roman">f. Income Taxes</font></b>
<p><font face="Times New Roman">Total income taxes in the Consolidated
Statements of Income are as follows:</font>
<br> 
<table WIDTH="100%" >
<tr VALIGN=TOP>
<td><i><font face="Times New Roman">(In thousands)</font></i></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">1999</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">1998</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">1997</font></u></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Income taxes charged to operations </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">$12,268</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">$10,723</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">$11,940</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Income taxes charged to other income </font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">1,608</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">2,384</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">1,571</font></u></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Total income taxes </font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">$13,876</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">$13,107</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">$13,511</font></u></td>
</tr>
</TABLE>

<p><font face="Times New Roman">Total income taxes consist of the following
provision (<i>benefit</i>) components for the years ended Dec. 31:</font>
<br> 
<table WIDTH="100%" >
<tr VALIGN=TOP>
<td><i><font face="Times New Roman">(In thousands)</font></i></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">1999</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">1998</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">1997</font></u></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Currently payable</font></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Federal </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">$11,772</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">$11,832</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">$12,229</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">State </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">3,551</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">3,251</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">3,435</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Net-deferred</font></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Federal </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">(476)</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">(1,092)</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">(1,308)</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">State </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">(232)</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">(137)</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">(92)</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Amortized investment tax credits </font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">(739)</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">(747)</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">(753)</font></u></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Total income taxes </font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">$13,876</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">$13,107</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">$13,511</font></u></td>
</tr>
</TABLE>

<p><font face="Times New Roman">Deferred income taxes are provided to reflect
the expected tax consequences of temporary differences between the tax
basis of assets and liabilities and their reported amounts in the financial
statements. Investment tax credits from regulated operations are amortized
over related property service lives.</font>
<p><font face="Times New Roman">The differences between the federal statutory
income tax rate and MGE's effective rate are as follows:</font>
<br> 
<table WIDTH="100%" >
<tr VALIGN=TOP>
<td></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">1999</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">1998</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">1997</font></u></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Statutory federal income tax rate </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">35.0%</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">35.0%</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">35.0%</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Amortized investment tax credits </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">(2.0)</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">(2.1)</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">(2.1)</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">State income taxes, net of federal benefit </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">5.7</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">5.7</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">5.9</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Valuation allowance </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">(0.3)</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">(0.4)</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">(0.2)</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Renewable electricity production credit </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">(0.5)</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">-</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">-</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Other, individually insignificant </font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">(1.0)</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">(1.1)</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">(1.1)</font></u></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Effective income tax rate </font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">36.9%</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">37.1%</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">37.5%</font></u></td>
</tr>
</TABLE>

<p><font face="Times New Roman">The significant components of deferred
tax liabilities (<i>assets</i>) that appear on the Consolidated Balance
Sheets as of Dec. 31 are as follows:</font>
<br> 
<table WIDTH="100%" >
<tr VALIGN=TOP>
<td><i><font face="Times New Roman">(In thousands)</font></i></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">1999</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">1998</font></u></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Property-related </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">$53,841</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">$55,560</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Other </font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">5,693</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">5,598</font></u></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Gross deferred income tax liabilities </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">59,534</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">61,158</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Accrued expenses </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">(5,718)</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">(5,339)</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Other </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">(2,503)</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">(2,896)</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Deferred tax regulatory account </font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">(9,181)</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">(9,530)</font></u></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Gross deferred income tax assets </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">(17,042)</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">(17,765)</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Less valuation allowance </font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">849</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">950</font></u></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Net deferred income tax assets </font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">(16,553)</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">(16,815)</font></u></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Deferred income taxes </font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">$42,981</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">$44,343</font></u></td>
</tr>
</TABLE>

<p><font face="Times New Roman">Excess deferred income taxes, resulting
chiefly from taxes provided at rates higher than current rates, have been
recorded as a net regulatory liability (<i>$22.9 million and $23.7 million
at Dec. 31, 1999 and 1998, respectively</i>), refundable through future
rates.</font>
<p><font face="Times New Roman">MGE's valuation allowance to reduce its
deferred tax assets to estimated realizable value relates primarily to
deferred tax assets arising from state tax carryforward losses of two subsidiaries
which have sold their interests in a joint venture (<i>see page F-18, Gas
Marketing Subsidiaries</i>). Realization of these deferred tax assets is
dependent on future income in states where the two subsidiaries file separate
tax returns and on tax planning techniques MGE may pursue in 2000 to realize
certain state tax carryforward losses. MGE will continue to review its
deferred-tax assets for recoverability, and tax benefits will be recognized
to the extent it is determined the valuation allowance is no longer required.</font>
<p><font face="Times New Roman">For tax purposes, these subsidiaries, as
of Dec. 31, 1999, had approximately $13.7 million of state tax net-operating
carryforward losses that expire in 2013, if unused.</font>
<p><b><font face="Times New Roman">g. Pension Plans</font></b>
<p><font face="Times New Roman">MGE maintains qualified and nonqualified
pension plans. MGE also provides health care and life insurance benefits
for its retired employees. The table on page F-14 provides a reconciliation
of benefit obligations, plan assets and funded status of the plans. The
1999 pension plan beginning net-benefit obligation balance includes certain
additional amounts for a nonqualified pension plan.</font>
<p><font face="Times New Roman">The funded status information reported
on page F-14 includes a nonqualified pension plan and a postretirement
plan with accumulated benefit obligations in excess of the fair value of
assets. The projected benefit obligation, accumulated benefit obligation
and fair value of assets for a nonqualified pension plan were $6.9 million,
$6.6 million, and $0, respectively, at December 31, 1999. Similarly, the
accumulated benefit obligation and fair value of assets for a postretirement
plan were $15.6 million and $6.4 million.</font>
<p><font face="Times New Roman">MGE has elected to recognize the cost of
its transition obligation (<i>the accumulated postretirement benefit obligation
as of Jan. 1, 1993</i>) by amortizing it on a straight-line basis over
20 years.</font>
<p><font face="Times New Roman">MGE maintains two defined contribution
401(k) benefit plans for its employees. MGE's costs of the 401(k) plans
were $0.5 million in 1999, $0.5 million in 1998 and $0.3 million in 1997.</font>
<p><font face="Times New Roman"><b>Sensitivity of retiree welfare results</b>:
The following table shows how an assumed 1% increase or 1% decrease in
health care cost trends could impact postretirement benefits in 1999 dollars.</font>
<br> 
<table WIDTH="100%" >
<tr VALIGN=TOP>
<td><i><font face="Times New Roman">(In thousands)</font></i></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">1% Increase</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">1% Decrease</font></u></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Effect on:</font></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Total service and interest cost components </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">$ 380</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">$ (299)</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Postretirement benefit obligation </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">$2,807</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">$(2,249)</font></td>
</tr>
</TABLE>

<p><font face="Times New Roman">MGE reports comprehensive income in accordance
with FASB Statement No. 130, "Reporting Comprehensive Income." Comprehensive
Income includes the minimum pension liability adjustment, net of tax, for
a nonqualified pension plan and is reflected in the Consolidated Statements
of Common Equity.</font>
<br> 
<table WIDTH="100%" >
<tr VALIGN=TOP>
<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT COLSPAN="2">
<center><u><font face="Times New Roman">Pension Benefits </font></u></center>
</td>

<td ALIGN=RIGHT COLSPAN="2">
<center><u><font face="Times New Roman">Postretirement Benefits</font></u></center>
</td>
</tr>

<tr VALIGN=TOP>
<td><i><font face="Times New Roman">(In thousands)</font></i></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">1999</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">1998</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">1999</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">1998</font></u></td>
</tr>

<tr VALIGN=TOP>
<td><b><font face="Times New Roman">Change in Benefit Obligation</font></b></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Net benefit obligation at beginning of
year </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">$81,548</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">$65,110</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">$16,432</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">$15,783</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Service cost </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">2,020</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">1,655</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">648</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">510</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Interest cost </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">5,868</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">4,750</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">1,177</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">1,035</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Plan participants' contributions </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">-</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">-</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">134</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">129</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Plan amendments </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">3,244</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">-</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">-</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">-</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Actuarial (gain)/loss </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">(8,390)</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">5,211</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">(1,654)</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">(531)</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Gross benefits paid </font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">(2,615)</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">(2,288)</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">(493)</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">(494)</font></u></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Net benefit obligation at end of year </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">$81,675</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">$74,438</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">$16,244</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">$16,432</font></td>
</tr>

<tr VALIGN=TOP>
<td><b><font face="Times New Roman">Change in Plan Assets</font></b></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Fair value of plan assets at beginning
of year </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">$81,118</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">$70,298</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">$ 5,493</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">$ 4,467</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Actual return on plan assets </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">19,370</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">11,508</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">929</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">555</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Employer contributions </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">1,600</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">1,600</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">960</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">836</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Plan participants' contributions </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">-</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">-</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">134</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">129</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Gross benefits paid </font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">(2,321)</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">(2,288)</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">(493)</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">(494)</font></u></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Fair value of plan assets at end of year </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">$99,767</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">$81,118</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">$ 7,023</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">$ 5,493</font></td>
</tr>

<tr VALIGN=TOP>
<td></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Funded status at end of year </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">$18,092</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">$ 6,680</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">$ (9,221)</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">$(10,939)</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Unrecognized net actuarial gain </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">(24,385)</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">(6,156)</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">(4,466)</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">(2,414)</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Unrecognized prior service cost </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">3,889</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">997</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">1,731</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">1,921</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Unrecognized net transition obligation </font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">1,583</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">114</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">5,644</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">6,078</font></u></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Net amount recognized at end of year </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">$ (821)</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">$ 1,635</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">$ (6,312)</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">$ (5,354)</font></td>
</tr>

<tr VALIGN=TOP>
<td></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Amounts recognized in the balance sheet
consist of:</font></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Prepaid benefit cost </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">$ 3,121</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">$ 1,635</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">$ 67</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">$ -</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Accrued benefit liability </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">(3,942)</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">-</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">(6,379)</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">(5,354)</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Additional minimum liability </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">(2,697)</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">-</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">-</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">-</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Intangible asset </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">1,068</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">-</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">-</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">-</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Accumulated other comprehensive income </font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">1,629</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">-</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">-</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">-</font></u></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Net amount recognized at end of year </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">$ (821)</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">$ 1,635</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">$ (6,312)</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">$ (5,354)</font></td>
</tr>
</TABLE>

<table WIDTH="100%" >
<tr VALIGN=TOP>
<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT COLSPAN="3">
<center><u><font face="Times New Roman">Pension Benefits </font></u></center>
</td>

<td ALIGN=RIGHT COLSPAN="3">
<center><u><font face="Times New Roman">Postretirement Benefits</font></u></center>
</td>
</tr>

<tr VALIGN=TOP>
<td><i><font face="Times New Roman">(In thousands)</font></i></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">1999</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">1998</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">1997</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">1999</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">1998</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">1997</font></u></td>
</tr>

<tr VALIGN=TOP>
<td><b><font face="Times New Roman">Components of Net Periodic Benefit
Cost</font></b></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Service cost </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">$2,020</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">$1,655</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">$1,616</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">$ 648</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">$ 510</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">$ 490</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Interest cost </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">5,868</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">4,750</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">4,421</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">1,177</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">1,035</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">1,062</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Expected return on assets </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">(7,597)</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">(6,580)</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">(5,493)</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">(513)</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">(434)</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">(336)</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Amortization of:</font></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Transition obligation (asset) </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">104</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">(39)</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">(39)</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">434</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">434</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">434</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Prior service cost </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">352</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">143</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">144</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">190</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">190</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">189</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Actuarial gain (loss) </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">89</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">(28)</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">-</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">(19)</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">(132)</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">(92)</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Regulatory effect based on phase-in </font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">113</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">103</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">-</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">-</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">-</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">-</font></u></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Net periodic benefit cost </font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">$ 949</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">$ 4</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">$ 649</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">$1,917</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">$1,603</font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman">$1,747</font></u></td>
</tr>
</TABLE>

<table WIDTH="100%" >
<tr VALIGN=TOP>
<td><b><font face="Times New Roman">Weighted-average Assumptions</font></b>
<br><b><font face="Times New Roman">as of Dec. 31</font></b></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Discount rate </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">7.50%</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">6.75%</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">7.25%</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">7.50%</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">6.75%</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">7.25%</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Expected return on plan assets </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">9.50%</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">9.50%</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">9.50%</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">9.50%</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">9.50%</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">9.50%</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Rate of compensation increase </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">5.00%</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">5.00%</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">5.00%</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">5.00%</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">5.00%</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">5.00%</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Health care cost trend on covered charges </font></td>

<td ALIGN=RIGHT><font face="Times New Roman">NA</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">NA</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">NA</font></td>

<td ALIGN=RIGHT><font face="Times New Roman">8.00%<sup>1</sup></font></td>

<td ALIGN=RIGHT><font face="Times New Roman">9.00%<sup>1</sup></font></td>

<td ALIGN=RIGHT><font face="Times New Roman">10.00%<sup>1</sup></font></td>
</tr>

<tr VALIGN=TOP>
<td COLSPAN="7"><font face="Times New Roman"><sup>1</sup> Decreasing gradually
to 5% in 2003 and remaining constant thereafter.</font></td>
</tr>
</TABLE>

<p><b><font face="Times New Roman"><font size=-1>h. Fair Value of Financial
Instruments</font></font></b>
<p><font face="Times New Roman"><font size=-1>At Dec. 31, 1999 and 1998,
the carrying amount of cash, cash equivalents and outstanding commercial
paper approximates fair market value due to the short maturity of those
investments and obligations. MGE's nuclear decommissioning trusts are recorded
at fair market value.</font></font>
<p><font face="Times New Roman"><font size=-1>The estimated fair market
value of MGE's long-term debt and interest rate swap agreements are based
on quoted market prices at Dec. 31. The estimated fair market value of
MGE's financial instruments are as follows:</font></font>
<br> 
<table WIDTH="100%" >
<tr VALIGN=TOP>
<td></td>

<td ALIGN=RIGHT COLSPAN="2">
<center><u><font face="Times New Roman"><font size=-1>1999 </font></font></u></center>
</td>

<td ALIGN=RIGHT COLSPAN="2">
<center><u><font face="Times New Roman"><font size=-1>1998 </font></font></u></center>
</td>
</tr>

<tr VALIGN=TOP>
<td><i><font face="Times New Roman"><font size=-1>(In thousands)</font></font></i></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>Carrying</font></font>
<br><u><font face="Times New Roman"><font size=-1>Amount</font></font></u></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>Fair</font></font>
<br><u><font face="Times New Roman"><font size=-1>Value</font></font></u></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>Carrying</font></font>
<br><u><font face="Times New Roman"><font size=-1>Amount</font></font></u></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>Fair</font></font>
<br><u><font face="Times New Roman"><font size=-1>Value</font></font></u></td>
</tr>

<tr VALIGN=TOP>
<td><b><font face="Times New Roman"><font size=-1>Assets</font></font></b></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Cash and cash equivalents </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>$ 1,948</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>$ 1,948</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>$ 7,250</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>$ 7,250</font></font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Decommissioning fund </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>$ 97,056</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>$ 97,056</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>$79,089</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>$ 79,089</font></font></td>
</tr>

<tr VALIGN=TOP>
<td><b><font face="Times New Roman"><font size=-1>Liabilities</font></font></b></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Short-term debt </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>$ 15,750</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>$ 15,750</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>-</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>-</font></font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Long-term debt </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>$160,775</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>$157,852</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>$160,975</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>$173,236</font></font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Interest rate swap agreements </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>-</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>(13)</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>-</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>(576)</font></font></td>
</tr>
</TABLE>

<p><font face="Times New Roman"><font size=-1>Cash, cash equivalents and
customer accounts receivable are the financial instruments that potentially
subject MGE to concentrations of credit risk. MGE places its cash and cash
equivalents with high-credit quality financial institutions. MGE has limited
concentrations of credit risk from customer accounts receivable because
of the large number of customers and strong economy in its service territory.</font></font>
<p><font face="Times New Roman"><font size=-1>MGE has two interest rate
swap agreements with commercial banks totaling $16 million for 1999 and
1998, with effective interest rates of 5.1% and 5.5%, respectively. These
agreements have a fixed rate and are backed by MGE's commercial paper.
MGE believes counterparties to the agreements will meet their obligations
based on their high credit ratings.</font></font>
<p><b><font face="Times New Roman"><font color="#008000"><font size=-1>2.
CAPITALIZATION MATTERS</font></font></font></b>
<p><b><font face="Times New Roman"><font size=-1>a. Common Stock</font></font></b>
<p><font size=-1><font face="Times New Roman">Beginning in December 1999,
MGE switched from buying shares on the open market to issuing new shares
for its Dividend Reinvestment and Direct Stock Purchase Plan (Plan). Issuing
new share</font>s--rather than buying shares on the open market--will help
improve cash flow and strengthen MGE's capital structure.</font>
<p><font size=-1>Under the Plan, 81,587 new shares of common stock were
issued in 1999. The proceeds were allocated to common stock and amounts
received in excess of par value.</font>
<p><b><font size=-1>b. Preferred Stock</font></b>
<p><font size=-1>MGE has 1,175,000 shares of $25 par value redeemable preferred
stock, cumulative, that is authorized but unissued at Dec. 31, 1999.</font>
<p><b><font size=-1>c. First Mortgage Bonds and Other Long-Term Debt</font></b>
<p><font size=-1>MGE's utility plant is subject to the lien of its First
Mortgage Bonds.</font>
<p><font size=-1>Long-term debt maturities, including mandatory sinking
fund requirements relating to the 6 1⁄2%, 2006 Series, First Mortgage
Bonds are: $11.2 million (<i>$11 million, 6.01% debt issue matures on Nov.
10</i>) in 2000; $0.2 million in 2001 and 2002; $0.5 million in 2003; and
$1 million in 2004.</font>
<p><b><font size=-1>d. Notes Payable to Banks, Commercial Paper and Lines
of Credit</font></b>
<p><font size=-1>For short-term borrowings, MGE generally issues commercial
paper (<i>issued at the prevailing discount rate at the time of issuance</i>)
that is supported by unused bank lines of credit. Through negotiations
with several banks, MGE has $40 million in bank lines of credit.</font>
<p><font size=-1>Information concerning short-term borrowings for the past
three years is shown below:</font>
<br> 
<table WIDTH="100%" >
<tr VALIGN=TOP>
<td><i><font face="Times New Roman"><font size=-1>(In thousands)</font></font></i></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>1999</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>1998</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>1997</font></font></u></td>
</tr>

<tr VALIGN=TOP>
<td><b><font face="Times New Roman"><font size=-1>As of December 31:</font></font></b></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Available lines of credit
(MGE) </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>$40,000</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>$45,000</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>$52,000</font></font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Commercial paper outstanding </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>$15,750</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>-</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>$33,500</font></font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Weighted-average interest
rate </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>6.44%</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>0.00%</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>6.06%</font></font></td>
</tr>

<tr VALIGN=TOP>
<td><b><font face="Times New Roman"><font size=-1>During the year:</font></font></b></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Maximum short-term borrowings </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>$15,750</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>$33,500</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>$33,500</font></font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Average short-term borrowings </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>$ 1,899</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>$ 9,223</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>$16,816</font></font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Weighted-average interest
rate </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>5.68%</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>5.70%</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>5.68%</font></font></td>
</tr>
</TABLE>

<p><b><font face="Times New Roman"><font color="#008000"><font size=-1>3.
RATE MATTERS</font></font></font></b>
<p><font face="Times New Roman"><font size=-1>In January 1999, the PSCW
authorized an electric rate increase of $8.4 million, or 5.1%, and a natural
gas rate increase of $0.7 million, or 0.7%. These rates are based on an
authorized 12.2% return on common stock equity.</font></font>
<p><font face="Times New Roman"><font size=-1>In August 1999, the PSCW
approved a temporary retail electric rate surcharge of 3.6%, on average.
This surcharge covers higher fuel expenses, including extended outages
at Columbia, which MGE jointly owns with Alliant Energy and WPSC.</font></font>
<p><font face="Times New Roman"><font size=-1>This temporary rate surcharge
ended on Dec. 31, 1999. On Jan. 1, 2000, a PSCW-approved electric rate
increase of $9.7 million, or 5.5%, went into effect. This electric rate
increase was needed to cover higher fuel costs in 2000, an increase in
backup generator costs and repairs at Kewaunee.</font></font>
<p><font size=-1><font face="Times New Roman">In its previous rate case,
MGE assumed its ownership of Kewaunee would be transferred to WPSC in the
spring of 200</font>0--when steam generators were scheduled to be replaced.
However, a delay in manufacturing the steam generators postponed that work
until the fall of 2001. MGE must now recover its share of Kewaunee's operating
and maintenance costs through rates. These new rates will remain in place
until the next rate proceeding, which is scheduled to begin Jan. 1, 2001.</font>
<p><b><font face="Times New Roman"><font color="#008000"><font size=-1>4.
GAS MARKETING SUBSIDIARIES</font></font></font></b>
<p><font size=-1><font face="Times New Roman">In 1996, MGE wrote down its
investment in its gas marketing subsidiarie</font>s--Great Lakes Energy
Corp. (GLENCO) and American Energy Management, Inc. (AEM)--to reflect its
current value. As of Dec. 31, 1999, the remaining contingencies related
to this write down account for a $0.8 million liability.</font>
<p><font size=-1>In 1999, MGE resolved certain contingencies related to
the expiration of lighting warranties and outstanding accounts payable
for AEM. MGE also recognized certain one-time benefits on some outstanding
legal and tax issues for the gas marketing subsidiaries. The after-tax
amount of these events was $1 million.</font>
<p><font size=-1>In December 1998, GLENCO and AEM sold their remaining
assets in National Energy Management, L.L.C. (NEM), for $1.8 million. NEM
was formed in January 1997 as a joint venture between MGE's gas marketing
subsidiaries and National Gas and Electric L.P.</font>
<p><b><font face="Times New Roman"><font color="#008000"><font size=-1>5.
COMMITMENTS</font></font></font></b>
<p><font face="Times New Roman"><font size=-1><b><i>Coal Contracts</i></b>:
MGE has no coal contracts that contain demand obligations for Blount Generating
Station (Blount). Fuel procurement for MGE's ownership interest in Columbia
is handled by Alliant Energy, the operating company. If any amounts must
be paid under the demand obligations of these contracts, management believes
these would be considered costs of service and recoverable in rates.</font></font>
<p><font face="Times New Roman"><font size=-1><b><i>Purchased Power Contract</i></b>:
In the fall of 1998, MGE executed a five-year contract with Commonwealth
Edison to buy 60 MW of firm capacity and energy. The agreement became effective
in March 1999. In conjunction with the Commonwealth contract, MGE agreed
to sell 30 MW of the 60 MW to Wisconsin Public Power Inc. for five years.</font></font>
<p><font face="Times New Roman"><font size=-1>Purchased power contracts
executed for capacity are estimated to be: $9.5 million in 2000, $3.7 million
in 2001, $3.8 million in 2002 and $3.9 million in 2003. MGE is also soliciting
bids for additional future purchased power contracts to serve growing electric
demands. Management expects to recover these costs in future customer rates.</font></font>
<p><font face="Times New Roman"><font size=-1><b><i>Purchased Gas Contracts</i></b>:
MGE has several natural gas supply and transportation contracts that provide
for the availability of firm gas supply and firm pipeline capacity under
which it must make fixed monthly payments. The pricing component of the
fixed monthly payment for these contracts is established, but is subject
to change by the Federal Energy Regulatory Commission. These payments are
estimated to be: $12.3 million in 2000, $15.8 million in 2001, $14.7 million
in 2002 and $12.4 million in 2003 and 2004. Management expects to recover
these costs in future customer rates.</font></font>
<p><font face="Times New Roman"><font size=-1><b><i>Environmental</i></b>:
MGE has been listed as a potentially responsible party for environmental
cleanup at three waste sites: Refuse Hideaway Landfill, Demetral Landfill
and Lenz Oil. These sites were used by MGE for disposing of fly ash sludge
and coal ash, and storing and processing waste oil. It is estimated that
MGE's future exposure to clean up these sites could range from $400,000
to $850,000. A liability for cleanup of these sites has been established
with an offsetting regulatory asset. Management believes that cleanup costs
not covered by insurance will be recovered in current and future customer
rates.</font></font>
<p><font face="Times New Roman"><font size=-1>MGE is in compliance with
both Phase I and Phase II of the 1990 Federal Clean Air Act amendments.
The Wisconsin Department of Natural Resources is reviewing the nitrogen
oxide (NO<sub>x</sub>) emission limits currently under Phase II. MGE is
evaluating compliance strategies and their costs. Implementing new measures
will likely increase capital, operating and maintenance expenditures. Management
believes that all costs incurred for additional NO<sub>x</sub> compliance
will be recoverable in future customer rates.</font></font>
<p><b><font face="Times New Roman"><font color="#008000"><font size=-1>6.
SUPPLEMENTAL CASH FLOW INFORMATION</font></font></font></b>
<p><font face="Times New Roman"><font size=-1>MGE considers cash equivalents
to be those investments that are highly liquid with original maturity dates
of less than three months.</font></font>
<p><font face="Times New Roman"><font size=-1>Supplementary noncash investing
items and cash paid for interest and income taxes for the years ended Dec.
31 were as follows:</font></font>
<br> 
<table WIDTH="100%" >
<tr VALIGN=TOP>
<td><i><font face="Times New Roman"><font size=-1>(In thousands)</font></font></i></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>1999</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>1998</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>1997</font></font></u></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Interest paid, net of amounts
capitalized </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>$12,053</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>$10,227</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>$10,841</font></font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Income taxes paid, net </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>$15,857</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>$14,188</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>$15,365</font></font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Noncash investing items </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>$ 5,301</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>-</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>-</font></font></td>
</tr>
</TABLE>

<p><b><font face="Times New Roman"><font color="#008000"><font size=-1>7.
Regulatory and Deferred Assets and Liabilities</font></font></font></b>
<p><font face="Times New Roman"><font size=-1>Pursuant to SFAS No. 71 "Accounting
for the Effects of Certain Types of Regulation," MGE capitalizes, as deferred
charges, incurred costs that are expected to be recovered in future electric
and natural gas rates. MGE also records as other credits, obligations to
customers to refund previously collected revenue or to spend revenue collected
from customers on future costs. Restructuring the electric industry could
affect MGE's ability to continue to establish certain regulatory asset
and liability amounts allowed under SFAS No. 71. MGE is unable to predict
whether any adjustments to regulatory assets and liabilities will occur
in the future. However, the PSCW's restructuring plan specifically recognizes
the need to allow recovery for commitments made under prior regulatory
regimes.</font></font>
<p><font face="Times New Roman"><font size=-1>MGE's regulatory and deferred
assets and liabilities consisted of the following as of Dec. 31:</font></font>
<br> 
<table WIDTH="100%" >
<tr VALIGN=TOP>
<td></td>

<td ALIGN=RIGHT COLSPAN="2">
<center><u><font face="Times New Roman"><font size=-1>1999 </font></font></u></center>
</td>

<td ALIGN=RIGHT COLSPAN="2">
<center><u><font face="Times New Roman"><font size=-1>1998 </font></font></u></center>
</td>
</tr>

<tr VALIGN=TOP>
<td><i><font face="Times New Roman"><font size=-1>(In thousands)</font></font></i></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>Assets</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>Liabilities</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>Assets</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>Liabilities</font></font></u></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Demand-side management </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>$ 5,879</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>$ 1,487</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>$ 7,820</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>$ 998</font></font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Decommissioning and decontamination </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>1,955</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>1,787</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>2,333</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>1,997</font></font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Environmental costs </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>656</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>-</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>345</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>-</font></font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Regulatory liability - SFAS
109 </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>-</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>22,875</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>-</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>23,745</font></font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Other </font></font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>2,255</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>1,804</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>1,062</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>-</font></font></u></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Subtotal regulatory assets/liabilities </font></font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>10,745</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>27,953</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>11,560</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>26,740</font></font></u></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Pension and deferred compensation</font></font>
<br><font face="Times New Roman"><font size=-1>assets/liabilities </font></font></td>

<td ALIGN=RIGHT>
<br><font size=-1>3,121</font></td>

<td ALIGN=RIGHT>
<br><font size=-1>14,001</font></td>

<td ALIGN=RIGHT>
<br><font size=-1>1,477</font></td>

<td ALIGN=RIGHT>
<br><font size=-1>9,863</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Unamortized debt expense </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>5,064</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>-</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>5,294</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>-</font></font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Customer advances for construction </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>-</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>4,109</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>-</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>6,323</font></font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Other deferred items </font></font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>7,022</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>2,659</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>-</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>708</font></font></u></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Subtotal deferred assets/liabilities </font></font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>15,207</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>20,769</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>6,771</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>16,894</font></font></u></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Total</font></font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>$25,952</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>$48,722</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>$18,331</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>$43,634</font></font></u></td>
</tr>
</TABLE>

<p><font face="Times New Roman"><font size=-1>MGE has entered into an agreement
with WPSC to purchase an 83 MW natural gas-fired combustion turbine currently
being construction by WPSC. MGE will purchase the combustion turbine for
approximately $32 million when the unit is completed, which is anticipated
in the second quarter of 2000. MGE received rate recovery for this asset
and the related operations and maintenance expenses over a two-year period
(1999 and 2000). The revenue collection in 1999 associated with this asset
($1.7 million) has been deferred until the unit is purchased in 2000. The
deferred revenue is included in liabilities under other deferred items.</font></font>
<p><b><font face="Times New Roman"><font color="#008000"><font size=-1>8.
SEGMENTS OF BUSINESS</font></font></font></b>
<p><font size=-1><font face="Times New Roman">MGE has two main business
segment</font>s--<font face="Times New Roman">electric and gas--which are
both regulated. The electric business generates, transmits and distributes
electricity. The gas business transports and distributes natural gas. The
following table shows key information about MGE's electric and gas operations,
including the distribution of net assets for the years ended Dec. 31.</font></font>
<br> 
<table WIDTH="100%" >
<tr VALIGN=TOP>
<td><i><font face="Times New Roman"><font size=-1>(In thousands)</font></font></i></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>1999</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>1998</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>1997</font></font></u></td>
</tr>

<tr VALIGN=TOP>
<td><b><font face="Times New Roman"><font color="#008000"><font size=-1>Electric
Operations</font></font></font></b></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Total revenues </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>$185,955</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>$169,563</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>$163,123</font></font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Operation and maintenance
expenses </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>115,204</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>102,006</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>100,854</font></font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Depreciation and amortization </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>29,319</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>27,586</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>22,799</font></font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Other general taxes </font></font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>7,622</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>7,378</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>6,937</font></font></u></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Pre-tax operating income </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>$ 33,810</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>$ 32,593</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>$ 32,533</font></font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Income tax provision </font></font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>9,599</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>8,883</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>9,106</font></font></u></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Net operating income </font></font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>$ 24,211</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>$ 23,710</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>$ 23,427</font></font></u></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font color="#008000"><font size=-1>Electric
Construction and Nuclear Fuel</font></font></font>
<br><font face="Times New Roman"><font color="#008000"><font size=-1>Expenditures</font></font></font></td>

<td ALIGN=RIGHT>
<br><font size=-1>$ 44,297</font></td>

<td ALIGN=RIGHT>
<br><font size=-1>$ 25,970</font></td>

<td ALIGN=RIGHT>
<br><font size=-1>$ 16,849</font></td>
</tr>

<tr VALIGN=TOP>
<td><b><font face="Times New Roman"><font color="#008000"><font size=-1>Gas
Operations</font></font></font></b></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Operating revenues </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>$ 88,079</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>$ 80,189</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>$101,525</font></font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Revenues from sales to electric
utility </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>7,352</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>6,362</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>6,038</font></font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Total revenues </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>95,431</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>86,551</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>107,563</font></font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Operation and maintenance
expenses </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>76,904</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>71,125</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>89,788</font></font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Depreciation and amortization </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>5,835</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>5,599</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>5,518</font></font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Other general taxes </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>1,684</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>1,885</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>1,860</font></font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Pre-tax operating income </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>11,008</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>7,942</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>10,397</font></font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Income tax provision </font></font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>2,669</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>1,840</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>2,834</font></font></u></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Net operating income </font></font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>$ 8,339</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>$ 6,102</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>$ 7,563</font></font></u></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font color="#008000"><font size=-1>Gas
Construction Expenditures</font></font></font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>$ 6,691</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>$ 4,859</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>$ 4,786</font></font></u></td>
</tr>

<tr VALIGN=TOP>
<td><b><font face="Times New Roman"><font color="#008000"><font size=-1>Assets
(year-end)</font></font></font></b></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Electric</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>$342,130</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>$311,563</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>$313,855</font></font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Gas </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>114,881</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>111,762</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>118,339</font></font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Assets not allocated </font></font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>38,499</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>42,940</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>39,596</font></font></u></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Total </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>$495,510</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>$466,265</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>$471,790</font></font></td>
</tr>
</TABLE>

<p><b><font face="Times New Roman"><font color="#008000"><font size=-1>9.
QUARTERLY SUMMARY OF OPERATIONS (unaudited)</font></font></font></b>
<br> 
<table WIDTH="100%" >
<tr VALIGN=TOP>
<td><i><font face="Times New Roman"><font size=-1>(In thousands, except
per-share amounts)</font></font></i></td>

<td ALIGN=CENTER COLSPAN="4">Quarters Ended</td>
</tr>

<tr VALIGN=TOP>
<td><b><font face="Times New Roman"><font size=-1>1999</font></font></b></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>March 31</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>June 30</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>Sept. 30</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>Dec. 31</font></font></u></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font color="#008000"><font size=-1>Operating
Revenues</font></font></font></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Electric </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>$41,194</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>$44,409</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>$55,439</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>$44,913</font></font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Gas </font></font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>38,340</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>12,753</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>9,036</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>27,950</font></font></u></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Total </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>79,534</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>57,162</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>64,475</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>72,863</font></font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Operating Expenses </font></font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>67,758</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>53,603</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>56,349</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>63,774</font></font></u></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Net Operating Income </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>11,776</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>3,559</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>8,126</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>9,089</font></font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Interest and Other </font></font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>2,720</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>1,079</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>2,097</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>2,908</font></font></u></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font color="#008000"><font size=-1>Net
Income</font></font></font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>$ 9,056</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>$ 2,480</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>$ 6,029</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>$ 6,181</font></font></u></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font color="#008000"><font size=-1>Earnings
per Common Share</font></font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>56.0¢</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>15.0¢</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>38.0¢</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>39.0¢</font></font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font color="#008000"><font size=-1>Dividends
per Common Share</font></font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>32.6¢</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>32.6¢</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>32.8¢</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>32.8¢</font></font></td>
</tr>

<tr VALIGN=TOP>
<td><b><font face="Times New Roman"><font size=-1>1998</font></font></b></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font color="#008000"><font size=-1>Operating
Revenues</font></font></font></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>

<td ALIGN=RIGHT></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Electric </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>$38,393</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>$42,444</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>$50,458</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>$38,268</font></font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Gas </font></font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>36,722</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>12,118</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>7,321</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>24,028</font></font></u></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Total </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>75,115</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>54,562</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>57,779</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>62,296</font></font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Operating Expenses </font></font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>64,881</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>50,001</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>49,258</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>55,800</font></font></u></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Net Operating Income </font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>10,234</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>4,561</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>8,521</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>6,496</font></font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Interest and Other </font></font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>1,819</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>2,108</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>2,683</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>972</font></font></u></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font color="#008000"><font size=-1>Net
Income</font></font></font></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>$ 8,415</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>$ 2,453</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>$ 5,838</font></font></u></td>

<td ALIGN=RIGHT><u><font face="Times New Roman"><font size=-1>$ 5,524</font></font></u></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font color="#008000"><font size=-1>Earnings
per Common Share</font></font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>52.0¢</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>15.0¢</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>36.0¢</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>34.0¢</font></font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font color="#008000"><font size=-1>Dividends
per Common Share</font></font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>32.3¢</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>32.3¢</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>32.6¢</font></font></td>

<td ALIGN=RIGHT><font face="Times New Roman"><font size=-1>32.6¢</font></font></td>
</tr>
</TABLE>

<p><b><font face="Times New Roman"><font size=-1>Notes:</font></font></b>
<p><font face="Times New Roman"><font size=-1>(1) The quarterly results
of operations within a year are not comparable because of seasonal and
other factors.</font></font>
<p><font face="Times New Roman"><font size=-1>(2) The sum of earnings per
share of common stock for any four quarterly periods may vary slightly
from the earnings per share of common stock for the equivalent 12-month
period due to the effect of rounding each quarterly period separately.</font></font>
<p><font face="Univers (WN) Bold"><font color="#FF0000"><font size=+1>PART
III.</font></font></font>
<p><font face="Univers (WN) Bold"><font color="#0000FF">Item 10. Directors
and Executive Officers of the Registrant</font></font>
<p><font face="Times New Roman">Information concerning the Directors of
the Company is contained in the definitive proxy statement under the section
"Election of Directors" filed by March 31, 2000, with the Securities and
Exchange Commission, which is incorporated herein by reference.</font>
<p><font face="Times New Roman"><b>Executive Officers of the Registrant</b>
(elected annually by Directors)</font>
<br> 
<table WIDTH="100%" >
<tr VALIGN=TOP>
<td><b>Executive</b></td>

<td><b>Title</b></td>

<td ALIGN=CENTER><b><font face="Times New Roman"><font size=-1>Effective</font></font></b>
<br><b><font face="Times New Roman"><font size=-1>Date</font></font></b></td>

<td ALIGN=CENTER><b><font face="Times New Roman"><font size=-1>Service
Years as an Officer</font></font></b></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>David C. Mebane</font></font>
<br><font face="Times New Roman"><font size=-1>Age: 66</font></font></td>

<td><font face="Times New Roman"><font size=-1>Chairman</font></font>
<br><font face="Times New Roman"><font size=-1>Chairman, President &
CEO</font></font>
<br><font face="Times New Roman"><font size=-1>President, CEO & COO</font></font></td>

<td ALIGN=CENTER><font face="Times New Roman"><font size=-1>02/01/00</font></font>
<br><font face="Times New Roman"><font size=-1>05/09/94</font></font>
<br><font face="Times New Roman"><font size=-1>01/01/94</font></font></td>

<td ALIGN=RIGHT>
<center><font face="Times New Roman"><font size=-1>19</font></font></center>
</td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Gary J. Wolter</font></font>
<br><font face="Times New Roman"><font size=-1>Age: 45</font></font></td>

<td><font face="Times New Roman"><font size=-1>President & Chief Executive
Officer</font></font>
<br><font face="Times New Roman"><font size=-1>Senior Vice President -
Administration & Secretary</font></font>
<br><font face="Times New Roman"><font size=-1>Vice President - Administration
& Secretary</font></font></td>

<td ALIGN=CENTER><font face="Times New Roman"><font size=-1>02/01/00</font></font>
<br><font face="Times New Roman"><font size=-1>05/01/95</font></font>
<br><font face="Times New Roman"><font size=-1>12/01/91</font></font></td>

<td ALIGN=RIGHT>
<center><font face="Times New Roman"><font size=-1>9</font></font></center>
</td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Mark C. Williamson</font></font>
<br><font face="Times New Roman"><font size=-1>Age: 46</font></font></td>

<td><font face="Times New Roman"><font size=-1>Executive Vice President
& Chief Strategic Officer</font></font>
<br><font face="Times New Roman"><font size=-1>Senior Vice President -
Energy Services</font></font>
<br><font face="Times New Roman"><font size=-1>Vice President - Energy
Services</font></font></td>

<td ALIGN=CENTER><font face="Times New Roman"><font size=-1>02/01/00</font></font>
<br><font face="Times New Roman"><font size=-1>05/01/95</font></font>
<br><font face="Times New Roman"><font size=-1>05/03/93</font></font></td>

<td ALIGN=RIGHT>
<center><font face="Times New Roman"><font size=-1>8</font></font></center>
</td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Ronald L. Semmann</font></font>
<br><font face="Times New Roman"><font size=-1>Age: 64</font></font></td>

<td><font face="Times New Roman"><font size=-1>Executive Vice President</font></font>
<br><font face="Times New Roman"><font size=-1>Group Vice President</font></font>
<br><font face="Times New Roman"><font size=-1>Vice President - Human Resources</font></font>
<br><font face="Times New Roman"><font size=-1>Special Assistant to the
Chairman</font></font></td>

<td ALIGN=CENTER><font face="Times New Roman"><font size=-1>02/01/00</font></font>
<br><font face="Times New Roman"><font size=-1>01/01/98</font></font>
<br><font face="Times New Roman"><font size=-1>07/18/97</font></font>
<br><font face="Times New Roman"><font size=-1>05/12/97</font></font></td>

<td ALIGN=RIGHT>
<center><font face="Times New Roman"><font size=-1>3</font></font></center>
</td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Lynn K. Hobbie</font></font>
<br><font face="Times New Roman"><font size=-1>Age: 41</font></font></td>

<td><font face="Times New Roman"><font size=-1>Senior Vice President</font></font>
<br><font face="Times New Roman"><font size=-1>Vice President - Marketing</font></font>
<br><font face="Times New Roman"><font size=-1>Assistant Vice President
- Marketing</font></font></td>

<td ALIGN=CENTER><font face="Times New Roman"><font size=-1>02/01/00</font></font>
<br><font face="Times New Roman"><font size=-1>05/01/96</font></font>
<br><font face="Times New Roman"><font size=-1>11/01/94</font></font></td>

<td ALIGN=RIGHT>
<center><font face="Times New Roman"><font size=-1>6</font></font></center>
</td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Thomas R. Krull</font></font>
<br><font face="Times New Roman"><font size=-1>Age: 51</font></font></td>

<td><font face="Times New Roman"><font size=-1>Group Vice President</font></font>
<br><font face="Times New Roman"><font size=-1>Vice President - Gas &
Electric Operations</font></font>
<br><font face="Times New Roman"><font size=-1>Vice President - Electric
Transmission & Distribution</font></font>
<br><font face="Times New Roman"><font size=-1>Assistant Vice President
- Electric Trans. & Dist.</font></font></td>

<td ALIGN=CENTER><font face="Times New Roman"><font size=-1>02/01/00</font></font>
<br><font face="Times New Roman"><font size=-1>11/01/97</font></font>
<br><font face="Times New Roman"><font size=-1>05/01/96</font></font>
<br><font face="Times New Roman"><font size=-1>05/03/93</font></font></td>

<td ALIGN=RIGHT>
<center><font face="Times New Roman"><font size=-1>7</font></font></center>
</td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>James G. Bidlingmaier</font></font>
<br><font face="Times New Roman"><font size=-1>Age: 53</font></font></td>

<td><font face="Times New Roman"><font size=-1>Vice President - Admin.
& Chief Information Officer</font></font>
<br><font face="Times New Roman"><font size=-1>Executive Director - Information
Management Systems</font></font></td>

<td ALIGN=CENTER><font face="Times New Roman"><font size=-1>02/01/00</font></font>
<br><font face="Times New Roman"><font size=-1>09/01/94</font></font></td>

<td ALIGN=RIGHT>
<center><font face="Times New Roman"><font size=-1>-</font></font></center>
</td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Mark A. Frankel</font></font>
<br><font face="Times New Roman"><font size=-1>Age: 51</font></font></td>

<td><font face="Times New Roman"><font size=-1>Vice President, General
Counsel & Secretary</font></font>
<br><font face="Times New Roman"><font size=-1>Vice President & General
Counsel</font></font></td>

<td ALIGN=CENTER><font face="Times New Roman"><font size=-1>02/01/00</font></font>
<br><font face="Times New Roman"><font size=-1>08/23/99</font></font></td>

<td ALIGN=RIGHT>
<center><font face="Times New Roman"><font size=-1>-</font></font></center>
</td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Terry A. Hanson</font></font>
<br><font face="Times New Roman"><font size=-1>Age: 48</font></font></td>

<td><font face="Times New Roman"><font size=-1>Vice President - Finance</font></font>
<br><font face="Times New Roman"><font size=-1>Vice President & Treasurer</font></font>
<br><font face="Times New Roman"><font size=-1>Treasurer</font></font></td>

<td ALIGN=CENTER><font face="Times New Roman"><font size=-1>11/01/97</font></font>
<br><font face="Times New Roman"><font size=-1>10/01/96</font></font>
<br><font face="Times New Roman"><font size=-1>12/01/91</font></font></td>

<td ALIGN=RIGHT>
<center><font face="Times New Roman"><font size=-1>9</font></font></center>
</td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Scott A. Neitzel</font></font>
<br><font face="Times New Roman"><font size=-1>Age: 39</font></font></td>

<td><font face="Times New Roman"><font size=-1>Vice President - Gas Rates
& Fuels</font></font>
<br><font face="Times New Roman"><font size=-1>Assistant Vice President
- Gas Rates & Fuels</font></font></td>

<td ALIGN=CENTER><font face="Times New Roman"><font size=-1>02/01/00</font></font>
<br><font face="Times New Roman"><font size=-1>08/04/97</font></font></td>

<td ALIGN=RIGHT>
<center><font face="Times New Roman"><font size=-1>3</font></font></center>
</td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Peter J. Waldron</font></font>
<br><font face="Times New Roman"><font size=-1>Age: 42</font></font></td>

<td><font face="Times New Roman"><font size=-1>Vice President - Power Supply</font></font>
<br><font face="Times New Roman"><font size=-1>Vice President - Power Supply
Ops. & Eng.</font></font>
<br><font face="Times New Roman"><font size=-1>Assistant Vice President
- Power Supply Ops. & Eng.</font></font>
<br><font face="Times New Roman"><font size=-1>Executive Director - Power
Supply Ops. & Eng.</font></font>
<br><font face="Times New Roman"><font size=-1>Senior Director - Power
Supply Ops. & Eng.</font></font></td>

<td ALIGN=CENTER><font face="Times New Roman"><font size=-1>04/24/98</font></font>
<br><font face="Times New Roman"><font size=-1>04/23/97</font></font>
<br><font face="Times New Roman"><font size=-1>05/01/96</font></font>
<br><font face="Times New Roman"><font size=-1>10/01/95</font></font>
<br><font face="Times New Roman"><font size=-1>12/01/94</font></font></td>

<td ALIGN=RIGHT>
<center><font face="Times New Roman"><font size=-1>4</font></font></center>
</td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman"><font size=-1>Jeffrey C. Newman</font></font>
<br><font face="Times New Roman"><font size=-1>Age: 37</font></font></td>

<td><font face="Times New Roman"><font size=-1>Treasurer</font></font>
<br><font face="Times New Roman"><font size=-1>Exec. Director - Budgets
& Financial Management</font></font>
<br><font face="Times New Roman"><font size=-1>Director - Budgets &
Financial Management</font></font></td>

<td ALIGN=CENTER><font face="Times New Roman"><font size=-1>11/01/97</font></font>
<br><font face="Times New Roman"><font size=-1>05/01/96</font></font>
<br><font face="Times New Roman"><font size=-1>08/01/92</font></font></td>

<td ALIGN=RIGHT>
<center><font face="Times New Roman"><font size=-1>3</font></font></center>
</td>
</tr>
</TABLE>

<p><font face="Univers (WN) Bold"><font color="#0000FF">Item 11. Executive
Compensation</font></font>
<p><font face="Times New Roman">See Item 12 below.</font>
<p><font face="Univers (WN) Bold"><font color="#0000FF">Item 12. Security
Ownership of Certain Beneficial Owners and Management</font></font>
<p><font face="Times New Roman">The required information for Items 11 and
12 is included in the Company's definitive proxy statement under the section
"Executive Compensation," not including "Report on Executive Compensation"
and "Company Performance," and under the section "Beneficial Ownership
of Common Stock by Directors and Executive Officers" filed with the Securities
and Exchange Commission by March 31, 2000, which is incorporated herein
by reference.</font>
<p><font face="Univers (WN) Bold"><font color="#0000FF">Item 13. Certain
Relationships and Related Transactions</font></font>
<p><font face="Times New Roman">None.</font>
<p><font face="Univers (WN) Bold"><font color="#FF0000"><font size=+1>PART
IV.</font></font></font>
<p><font face="Univers (WN) Bold"><font color="#0000FF">Item 14. Exhibits,
Financial Statement Schedules, and Reports on Form 8-K</font></font>
<p><font face="Times New Roman"><b>1a. Financial statements</b> (consolidated,
as of Dec. 31, 1999 and 1998, and for each of the three years in the period
ended Dec. 31, 1999). Included in Part II, Item 8, page II-11 of this report:</font>
<p><font face="Times New Roman">- Responsibility for Financial Statements</font>
<br><font face="Times New Roman">- Report of Independent Accountants</font>
<br><font face="Times New Roman">- Statements of Income</font>
<br><font face="Times New Roman">- Statements of Cash Flows</font>
<br><font face="Times New Roman">- Balance Sheets</font>
<br><font face="Times New Roman">- Statements of Capitalization</font>
<br><font face="Times New Roman">- Statements of Common Equity</font>
<br><font face="Times New Roman">- Notes to Consolidated Financial Statements</font>
<p><b><font face="Times New Roman">b. Financial statement schedules.</font></b>
<p><font face="Times New Roman">None.</font>
<p><b><font face="Times New Roman">2. All exhibits including those incorporated
by reference.</font></b>
<p><font face="Times New Roman">Exhibits (an asterisk (*) indicates a management
contract or compensatory plan or arrangement):</font>
<p><b><u><font face="Times New Roman">No. Description of document</font></u></b>
<p><font face="Times New Roman">3.(i) Articles of Incorporation as in effect
at May 6, 1996. (Incorporated by reference to Exhibit 3.(i) with 1996 10-K
in File No. 0-1125.)</font>
<p><font face="Times New Roman">3.(ii) By-Laws as in effect at May 4, 1999.</font>
<p><font face="Times New Roman">4A Indenture of Mortgage and Deed of Trust
between the Company and Firstar Trust Company, as Trustee, dated as of</font>
<br><font face="Times New Roman">Jan. 1, 1946, and filed as Exhibit 7-D
to SEC File No. 0-1125 and the following indentures supplemental thereto
are incorporated herein by reference:</font>
<br> 
<table BORDER WIDTH="100%" >
<tr VALIGN=TOP>
<td ALIGN=CENTER><u><font face="Times New Roman">Supplemental Indenture</font></u></td>

<td ALIGN=CENTER><u><font face="Times New Roman">Dated as of</font></u></td>

<td ALIGN=CENTER><u><font face="Times New Roman">Exhibit
No.</font></u></td>

<td ALIGN=CENTER><u><font face="Times New Roman">SEC File No.</font></u></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Tenth<sup>1</sup></font></td>

<td ALIGN=CENTER><font face="Times New Roman">11/01/76</font></td>

<td ALIGN=CENTER><font face="Times New Roman">2.03</font></td>

<td><font face="Times New Roman">2-60227</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Fourteenth</font></td>

<td ALIGN=CENTER><font face="Times New Roman">04/01/92</font></td>

<td ALIGN=CENTER><font face="Times New Roman">4C</font></td>

<td><font face="Times New Roman">0-1125 (1992 10-K)</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Fifteenth</font></td>

<td ALIGN=CENTER><font face="Times New Roman">04/01/92</font></td>

<td ALIGN=CENTER><font face="Times New Roman">4D</font></td>

<td><font face="Times New Roman">0-1125 (1992 10-K)</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Sixteenth</font></td>

<td ALIGN=CENTER><font face="Times New Roman">10/01/92</font></td>

<td ALIGN=CENTER><font face="Times New Roman">4E</font></td>

<td><font face="Times New Roman">0-1125 (1992 10-K)</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Seventeenth</font></td>

<td ALIGN=CENTER><font face="Times New Roman">02/01/93</font></td>

<td ALIGN=CENTER><font face="Times New Roman">4F</font></td>

<td><font face="Times New Roman">0-1125 (1992 10-K)</font></td>
</tr>
</TABLE>

<p><font face="Times New Roman">4B Indenture between the Company and Bank
One, N.A., as Trustee, dated as of Sept. 1, 1998.</font>
<p><b><u><font face="Times New Roman">No. Description of document</font></u></b>
<p><font face="Times New Roman">10A Copy of Joint Power Supply Agreement
with Wisconsin Power and Light Company and Wisconsin Public Service Corporation
dated Feb. 2, 1967. (Incorporated by reference to Exhibit 4.09 in File
No. 2-27308.)</font>
<p><font face="Times New Roman">10B Copy of Joint Power Supply Agreement
(Exclusive of Exhibits) with Wisconsin Power and Light Company and Wisconsin
Public Service Corporation dated July 26, 1973, amending Exhibit 5.04.
(Incorporated by reference to Exhibit 5.04A in File No. 2-48781.)</font>
<p><font face="Times New Roman">10D Copy of revised Agreement for Construction
and Operation of Columbia Generating Plant with Wisconsin Power and Light
Company and Wisconsin Public Service Corporation dated July 26, 1973. (Incorporated
by reference to Exhibit 5.07 in File No. 2-48781.)</font>
<p><font face="Times New Roman">10F* Form of Severance Agreement. (Incorporated
by reference to Exhibit 10F with 1994 10-K in File No. 0-1125.)</font>
<p><font face="Times New Roman">12 Statement regarding computation of ratios.</font>
<p><font face="Times New Roman">21 Subsidiaries of the Registrant.</font>
<p><font face="Times New Roman">23 Consent of Independent Accountants.</font>
<p><font face="Times New Roman">27 Appendix E to Item 601(c) of Regulation
S-K: Public Utilities Companies Financial Data Schedule UT.</font>
<p><font face="Times New Roman"><b>3. Reports on Form 8-K</b> - No Current
Report on Form 8-K was filed for the quarter ended Dec. 31, 1999.</font>
<p><font face="Univers (WN) Bold"><font color="#008000"><font size=+1>SIGNATURES</font></font></font>
<p><font face="Times New Roman">Pursuant to the requirements of Section
13 or 15(d) of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.</font>
<br> 
<table WIDTH="100%" >
<tr VALIGN=TOP>
<td></td>

<td><b><font face="Times New Roman"><font color="#008000">MADISON GAS AND
ELECTRIC COMPANY</font></font></b>
<p><b><font face="Times New Roman"><font color="#008000">(Registrant)</font></font></b></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Date: March 31, 2000</font></td>

<td><font face="Times New Roman">/s/ Gary J. Wolter</font></td>
</tr>

<tr VALIGN=TOP>
<td></td>

<td><font face="Times New Roman">President and Chief Executive Officer</font></td>
</tr>
</TABLE>

<p><font face="Times New Roman">Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities indicated on
March 31, 2000.</font>
<br> 
<table WIDTH="100%" >
<tr VALIGN=TOP>
<td>/s/ Gary J. Wolter</td>

<td><font face="Times New Roman">President and Chief Executive Officer
and Director (Principal Executive Officer)</font></td>
</tr>

<tr VALIGN=TOP>
<td>/s/ Terry A. Hanson</td>

<td><font face="Times New Roman">Vice President - Finance (Principal Financial
Officer and Principal Accounting Officer)</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">/s/ David C. Mebane</font></td>

<td VALIGN=BOTTOM><font face="Times New Roman">Chairman of the Board and
Director</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">Jean M. Biddick</font></td>

<td VALIGN=BOTTOM><font face="Times New Roman">Director</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">/s/ Richard E. Blaney</font></td>

<td VALIGN=BOTTOM><font face="Times New Roman">Director</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">/s/ F. Curtis Hastings</font></td>

<td VALIGN=BOTTOM><font face="Times New Roman">Director</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">/s/ Regina M. Millner</font></td>

<td VALIGN=BOTTOM><font face="Times New Roman">Director</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">/s/ Frederic E. Mohs</font></td>

<td VALIGN=BOTTOM><font face="Times New Roman">Director</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">/s/ John R. Nevin</font></td>

<td VALIGN=BOTTOM><font face="Times New Roman">Director</font></td>
</tr>

<tr VALIGN=TOP>
<td><font face="Times New Roman">/s/ H. Lee Swanson</font></td>

<td VALIGN=BOTTOM><font face="Times New Roman">Director</font></td>
</tr>
</TABLE>

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