SECURITIES AND EXCHANGE COMMISSION
                     Washington, D. C.  20549
                            FORM 10-Q

    [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
        SECURITIES EXCHANGE ACT OF 1934

        For the quarterly period ended: SEPTEMBER 30, 1998
                                 
    [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
        SECURITIES EXCHANGE ACT OF 1934. For the transition period
        from:  ________________ to ________________

                  Commission File Number 0-1125

                 MADISON GAS AND ELECTRIC COMPANY
      (Exact name of registrant as specified in its charter)

                            Wisconsin
  (State or other jurisdiction of incorporation or organization)

                            39-0444025
                (IRS Employer Identification No.)

         133 South Blair Street, Madison, Wisconsin 53703
      (Address of principal executive offices and ZIP code)

                          (608) 252-7000
       (Registrant's telephone number including area code)

          Common Stock Outstanding at November 12, 1998:
                        16,079,718 shares

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,
and (2) has been subject to such filing requirements for the past
90 days.  Yes [X]  No [  ]
<PAGE>
<TABLE>
PART I.  FINANCIAL INFORMATION
ITEM 1.  FINANCIAL STATEMENTS
==============================

        Madison Gas and Electric Company and Subsidiaries
      CONSOLIDATED STATEMENTS OF INCOME AND RETAINED INCOME
                      (Thousands of Dollars)
                           (Unaudited)
<CAPTION>
                           Three Months Ended  Nine Months Ended
                              September 30,       September 30,
                            -----------------  -----------------
                            1998     1997       1998      1997
                           -------  -------   --------  --------
<S>                        <C>      <C>       <C>       <C>
STATEMENTS OF INCOME
--------------------
Operating Revenues:
 Electric                  $50,458  $45,502   $131,295  $123,585
 Gas                         7,321    7,655     56,161    67,736
                           -------  -------   --------  --------
 Total Operating Revenues   57,779   53,157    187,456   191,321
                           -------  -------   --------  --------
Operating Expenses:
 Fuel for electric
  generation                10,219    8,341     24,890    23,833
 Purchased power             2,950    3,060      8,292    11,695
 Natural gas purchased       2,454    3,255     31,380    42,692
 Other operations           16,372   15,041     48,598    46,497
 Maintenance                 3,475    2,786     10,529     9,409
 Depreciation and
  amortization               8,112    7,348     24,648    20,115
 Other general taxes         2,309    2,112      7,000     6,559
 Income tax items            3,367    3,385      8,803     8,600
                           -------  -------   --------  --------
 Total Operating Expenses   49,258   45,328    164,140   169,400
                           -------  -------   --------  --------
Net Operating Income         8,521    7,829     23,316    21,921
AFUDC - equity funds            25      (12)        79        12
Other income, net              109      555      1,123     1,346
Non-utility operating
 income/(loss), net           (156)    (114)        60       796
                           -------  -------   --------  --------
Income before interest
 expense                     8,499    8,258     24,578    24,075
                           -------  -------   --------  --------
Interest expense:
 Interest on long-term
  debt                       2,508    2,392      7,356     7,212
 Other interest                166      213        558       621
 AFUDC - borrowed funds        (13)       6        (42)       (6)
                           -------  -------   --------  --------
 Net Interest Expense        2,661    2,611      7,872     7,827
                           -------  -------   --------  --------
Net Income                 $ 5,838  $ 5,647   $ 16,706  $ 16,248
                           =======  =======   ========  ========
Earnings per share of
 common stock (basic
 and diluted) (Note 3)       $0.36    $0.35      $1.04     $1.01
                           =======  =======   ========  ========

STATEMENTS OF RETAINED
INCOME
----------------------
Balance - beginning of
 period                    $52,755  $50,761    $52,285   $50,451
Earnings on common stock     5,838    5,647     16,706    16,248
Cash dividends on common
 stock (Note 3)             (5,239)  (5,200)   (15,637)  (15,491)
                           -------  -------    -------   -------
Balance - end of period    $53,354  $51,208    $53,354   $51,208
                           =======  =======    =======   =======

The accompanying notes are an integral part of the above
statements.
</TABLE>
<PAGE>
<TABLE>
        Madison Gas and Electric Company and Subsidiaries
              CONSOLIDATED STATEMENTS OF CASH FLOWS
                      (Thousands of Dollars)
                           (Unaudited)
<CAPTION>
                            Three Months Ended   Nine Months Ended
                               September 30,        September 30,
                             -----------------   -----------------
                              1998     1997         1998     1997
                            -------  -------      -------  -------
<S>                         <C>      <C>          <C>      <C>
OPERATING ACTIVITIES
--------------------
Net income                  $ 5,838  $ 5,647      $16,706  $16,248
Items not affecting
working capital:
 Depreciation and
  amortization                8,112    7,348       24,648   20,115
 Deferred income taxes         (759)    (388)      (3,145)  (1,098)
 Amortization of nuclear
  fuel                          680      707        1,983      805
 Amortization of
 investment tax credits        (187)    (188)        (560)    (566)
 AFUDC - equity funds           (25)      12          (79)     (12)
 Other                          921       68        1,503      542
                            -------  -------      -------  -------
 Net funds provided from
  Operations                 14,580   13,206       41,056   36,034

Changes in working
capital, excluding
cash, sinking funds,
maturities, and interim
loans:
 (Increase)/decrease in
  current assets               (592)   5,524       14,790   28,251
 Decrease in current
  liabilities                (1,144)  (6,838)       1,906  (23,338)
Other noncurrent items,
 net                           (829)  (4,226)       6,668    1,079
                            -------  -------      -------  -------
 Cash provided by
 Operating Activities        12,015    7,666       64,420   42,026
                            -------  -------      -------  -------
FINANCING ACTIVITIES
--------------------
Cash dividends on common
 and preferred stock         (5,239)  (5,200)     (15,637) (15,491)
Maturities/redemptions
 of First Mortgage Bonds          -        -            -   (3,800)
Increase in long-term
 debt                        30,000        -       30,000    5,000
Other decrease in First
 Mortgage Bonds                  10        9           29       28
Increase/(decrease) in
 interim loans              (11,750)   4,500      (33,500) (11,750)
                            -------  -------      -------  -------
 Cash provided by/(used
 for) Financing Activities   13,021     (691)     (19,108) (26,013)
                            -------  -------      -------  -------
INVESTING ACTIVITIES
--------------------
Additions to utility
 plant and nuclear fuel      (8,764)  (5,650)     (23,124) (14,877)
AFUDC - borrowed funds          (13)       6          (42)      (6)
Increase in nuclear
 decommissioning fund        (2,234)  (1,884)      (7,210)  (4,042)
                            -------  -------      -------  -------
 Cash used for Investing
 Activities                 (11,011)  (7,528)     (30,376) (18,925)
                            -------  -------      -------  -------
CHANGE IN CASH AND
 EQUIVALENTS                 14,025     (553)      14,936   (2,912)
 Cash and equivalents at
  beginning of period         3,019    2,929        2,108    5,288
                            -------  -------      -------  -------
 Cash and equivalents at
  end of period             $17,044  $ 2,376      $17,044  $ 2,376
                            =======  =======      =======  =======

The accompanying notes are an integral part of the above
statements.
</TABLE>
<PAGE>
<TABLE>
        Madison Gas and Electric Company and Subsidiaries
                   CONSOLIDATED BALANCE SHEETS
                      (Thousands of Dollars)
                           (Unaudited)
<CAPTION>
                                          Sept. 30,  Dec. 31,
                                            1998       1997
                                          --------   --------
<S>                                       <C>        <C>
ASSETS
------
Utility Plant, at original cost, in
service:                                                               

 Electric                                 $519,691   $510,405
 Gas                                       185,157    181,861
                                          --------   --------
  Gross plant in service                   704,848    692,266
 Less accumulated provisions for
  depreciation                            (432,275)  (407,602)
                                          --------   --------
  Net plant in service                     272,573    284,664
 Construction work in progress              15,603     10,995
 Nuclear decommissioning fund               69,046     59,179
 Nuclear fuel, net                           8,377      8,255
                                          --------   --------
  Total Utility Plant                      365,599    363,093
                                          --------   --------
Other property and investments               7,501      8,252
                                          --------   --------
Current Assets:                                                        
 Cash and cash equivalents                  17,044      2,108
 Accounts receivable, less reserves of
  $1,116 and $1,235, respectively           21,298     28,395
 Unbilled revenue                            8,195     13,580
 Material and supplies, at average cost      5,902      5,557
 Fossil fuel, at average cost                3,142      3,605
 Stored natural gas, at average cost        10,672      9,851
 Prepaid taxes                               4,819      7,190
 Other prepayments                           1,440      2,081
                                          --------   --------
 Total Current Assets                       72,512     72,367
                                          --------   --------
 Deferred charges                           23,707     28,078
                                          --------   --------
  Total Assets                            $469,319   $471,790
                                          ========   ========
CAPITALIZATION AND LIABILITIES
------------------------------
Capitalization (see statement)            $341,944   $310,846
                                          --------   --------
Current Liabilities:
 Long-term debt sinking fund
  requirements                                 200        200
 Interim loans - commercial paper
  outstanding                                    -     33,500
 Accounts payable                            9,288     14,528
 Accrued taxes                               3,214          -
 Accrued interest                            3,628      2,206
 Accrued nonregulated items                  4,536      4,837
 Other                                       8,137      5,326
                                          --------   --------
  Total Current Liabilities                 29,003     60,597
                                          --------   --------
Other Credits:
 Deferred income taxes                      42,427     45,572
 Regulatory liability - SFAS 109            24,007     24,875
 Investment tax credit - deferred           10,125     10,685
 Other regulatory liabilities               21,813     19,215
                                          --------   --------
  Total Other Credits                       98,372    100,347
                                          --------   --------
Commitments                                      -          -
                                          --------   --------
  Total Capitalization and Liabilities    $469,319   $471,790
                                          ========   ========

The accompanying notes are an integral part of the above balance
sheets.
</TABLE>
<PAGE>
<TABLE>
        Madison Gas and Electric Company and Subsidiaries
            CONSOLIDATED STATEMENTS OF CAPITALIZATION
                      (Thousands of Dollars)
                           (Unaudited)
<CAPTION>
                                          Sept. 30,  Dec. 31,
                                            1998       1997
                                          --------   --------
<S>                                       <C>        <C>
COMMON SHAREHOLDERS' EQUITY
---------------------------
Common stock - par value $1 per share:                                 
 Authorized 50,000,000 shares                                          
 Outstanding 16,079,718 shares            $ 16,080   $ 16,080
Amount received in excess of par value     112,558    112,558
Retained income                             53,354     52,285
                                          --------   --------
  Total Common Shareholders' Equity        181,992    180,923
                                          --------   --------
FIRST MORTGAGE BONDS
--------------------

6 1/2%, 2006 series:
 Pollution Control Revenue Bonds             6,675      6,675

8.50%, 2022 series                          40,000     40,000

6.75%, 2027A series:
 Industrial Development Revenue Bonds       28,000     28,000

6.70%, 2027B series:
 Industrial Development Revenue Bonds       19,300     19,300

7.70%, 2028 series                          21,200     21,200
                                          --------   --------
 First Mortgage Bonds Outstanding          115,175    115,175

Unamortized discount and premium on
 bonds, net                                 (1,023)    (1,052)

Long-term debt sinking fund
 requirements                                 (200)      (200)
                                          --------   --------

  Total First Mortgage Bonds               113,952    113,923

OTHER LONG-TERM DEBT
--------------------
 6.01%, due 2000                            11,000     11,000

 6.91%, due 2004                             5,000      5,000

 6.02%, due 2008                            30,000          -
                                          --------   --------
  Total Capitalization                    $341,944   $310,846
                                          ========   ========

The accompanying notes are an integral part of the above
statements.
</TABLE>
<PAGE>
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
                        SEPTEMBER 30, 1998
================================================================

The consolidated financial statements included herein have been
prepared by the Company, without audit (except for balance sheet
information at December 31, 1997), pursuant to the rules and
regulations of the Securities and Exchange Commission (SEC).
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although the Company
believes that the disclosures made are adequate to make the
information presented not misleading. In the opinion of Company
management, all adjustments (consisting of only normal recurring
adjustments) necessary to fairly present results have been made.

It is suggested that these consolidated financial statements be
read in conjunction with the financial statements and the notes
thereto set forth on pages 18 through 27 of the Company's 1997
Annual Report to Shareholders and in the Company's 1997 Annual
Report on Form 10-K.

1. Summary of Significant Accounting Policies
   ------------------------------------------

    The accounting and financial policies relative to the
  following items have been described in the "Notes to
  Consolidated Financial Statements" in the Company's 1997
  Annual Report to Shareholders and have been omitted herein
  because they have not changed materially through the date of
  this report.

  a.  General
  b.  Utility plant
  c.  Nuclear fuel
  d.  Joint plant ownership
  e.  Depreciation
  f.  Income taxes
  g.  Pension plans
  h.  Postretirement benefits other than pensions
  i.  Fair value of financial instruments
  j.  Capitalization matters: preferred stock; and notes payable
      to banks, commercial paper, and lines of credit
  k.  Gas marketing subsidiaries
  l.  Commitments
  m.  Segments of business
  n.  Regulatory assets and liabilities

2. Nuclear Decommissioning
   -----------------------

    Nuclear decommissioning costs are being accrued to an
  end-of-service life of 2002 for the Kewaunee Nuclear Power
  Plant (Kewaunee). These costs are currently recovered from
  customers in rates and are deposited in external trusts. The
  Company is presently funding decommissioning costs in the
  amount of $8.1 million annually. These trusts are shown on the
  balance sheet in the utility plant section. As of
  September 30, 1998, these trusts totaled $69.0 million (fair
  market value).

    Decommissioning costs are recovered through depreciation
  expense, exclusive of earnings on the trusts. Net earnings on
  the trusts are included in other income. The long-term,
  after-tax earnings assumption on these trusts is 5.6 percent.

    The Company's share of Kewaunee decommissioning costs is
  estimated to be $82.1 million in current dollars based on a
  site-specific study performed in 1992 using immediate
  dismantlement as a method of decommissioning. Decommissioning
  costs are assumed to inflate at an average rate of
  6.0 percent. Physical decommissioning is expected to occur
  during the period 2014 through 2021, with additional
  expenditures being incurred during the period 2022 through
  2039 related to the storage of spent nuclear fuel at the site.
  The Company's obligations regarding decommissioning and spent
  nuclear fuel have significantly changed with its agreement
  with Wisconsin Public Service Corporation (WPSC) to sell the
  Company's ownership in Kewaunee to WPSC (also discussed in
  Item 2, Management's Discussion and Analysis).

3. Per-Share Amounts
   -----------------

    Earnings per share of common stock, basic and diluted, are
  computed on the basis of the daily weighted average number of
  shares outstanding. For the three and for the nine months
  ended September 30, 1998 and 1997, there were 16,079,718
  shares outstanding.

    Dividends declared and paid per share of common stock for the
  periods ended September 30, 1998 and 1997, were, respectively,
  for the three months $0.326 and $0.323; for the nine months
  $0.972 and $0.963.

4. Rate Matters
   ------------

    The Company received approval from the Public Service
  Commission of Wisconsin (PSCW) on March 19, 1998, to recover
  approximately $1.8 million (excluding carrying costs) of
  deferred expenses related to the 1997 repairs to the Kewaunee
  steam generator tubes. The deferred expenses were recovered
  through a four-month customer surcharge effective April
  through July of 1998.

    On April 15, 1998, the Company announced its intention to
  increase electric rates for the test year beginning January 1,
  1999, by $14.6 million, or 8.9 percent annually, and increase
  natural gas rates by $4.6 million, or 4.5 percent annually,
  for the same time period. The proposed changes are based on a
  requested return on common stock equity of 12.5 percent and
  would remain in effect through the year 2000. The rising cost
  of fuel coupled with increased transmission and generation
  costs to improve electric reliability are the primary reasons
  for the requested increase in electric rates. Both rate
  requests include costs to implement technology to ensure
  computer system compatibility with the year 2000. Hearings
  were held in September with a final rate order expected by
  year end.

5. First Mortgage Bonds and Other Long-Term Debt
   ---------------------------------------------

    On September 14, 1998, the Company issued on the open market
  $30 million in Medium Term Notes, due 2008 at 6.02%. The
  Company intends to use the proceeds to finance several major
  capital projects in 1998 and 1999.

6. Supplemental Cash Flow Information
   ----------------------------------

    For purposes of the Consolidated Statements of Cash Flows, the
  Company considers cash equivalents to be those investments
  that are highly liquid with maturity dates of less than three
  months.

    Cash payments for interest, net of amounts capitalized, and
  income taxes were as follows:

  (Thousands of dollars)    Three Months         Nine Months
                                Ended               Ended
                            September 30,       September 30,
                           ---------------     ----------------
                            1998     1997       1998     1997
                           ------   ------     -------  -------
  Interest, net of
    amounts capitalized    $1,214   $1,244      $6,454   $6,521
  Income taxes paid        $4,204   $3,849     $10,412  $11,016

7. Statement of Financial Accounting Standards No. 133,
  "Accounting for Derivative Instruments and Hedging Activities"
   -------------------------------------------------------------

    On June 15, 1998, the Financial Accounting Standards Board
  issued Statement of Financial Accounting Standards No. 133,
  Accounting for Derivative Instruments and Hedging Activities
  (FAS 133). FAS 133 is effective for all fiscal quarters of all
  fiscal years beginning after June 15, 1999 (January 1, 2000,
  for the Company). FAS 133 requires that all derivative
  instruments be recorded on the balance sheet at their fair
  value. Changes in the fair value of derivatives are recorded
  each period in current earnings or other comprehensive income,
  depending on whether a derivative is designated as part of a
  hedge transaction and, if it is, the type of hedge
  transaction. Management of the Company anticipates that, due
  to its limited use of derivative instruments, the adoption of
  FAS 133 will not have a significant effect on the Company's
  results of operations or its financial position.

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
==========================================================

LIQUIDITY AND CAPITAL RESOURCES
-------------------------------

Cash provided by operating activities through September of this
year increased $22.4 million, compared to the same time period
last year. This was attributable primarily to a decrease in net
working capital. Cash provided by operating activities during the
third quarter of 1998 increased $4.3 million compared to last
year's third quarter, for the same reason stated above.

Cash provided by financing activities increased $13.7 million for
the three months ended September 30, 1998, over the same time
period last year, because of the $30 million debt issue in
September 1998.

The Company's internally generated funds were greater than the
funds used for construction and nuclear fuel expenditures for the
nine-month period ended September 30, 1998. Cash used in
investing activities increased by $11.5 million during the nine
months ended September 30, 1998, compared to 1997, primarily due
to increased additions to utility plant and nuclear fuel
expenditures during the first nine months of 1998 compared to
1997. It is anticipated that 1998 construction and nuclear fuel
expenditures will be approximately $46.4 million.

Bank lines of credit available to the Company as of September 30,
1998, were $45 million.

The Company's capitalization ratios were as follows:

                              Sept. 30, 1998  Dec. 31, 1997
                              --------------  -------------
Common shareholders' equity        53.2%           52.5%
Long-term debt*                    46.8            37.8
Short-term debt                       -             9.7

   *Includes current maturities and current sinking fund
    requirements.

The Company's First Mortgage Bonds are currently rated Aa2 by
Moody's Investors Service, Inc., and AA by Standard & Poor's
Corporation. The Company's Medium Term Notes are currently rated
Aa3 by Moody's and AA- by Standard & Poor's. The Company's
dealer-issued commercial paper carries the highest ratings
assigned by Moody's and Standard & Poor's.

Business and Regulatory Environment
-----------------------------------

In February 1996, the PSCW submitted a report to the State
Legislature on electric utility restructuring in Wisconsin.
Included in the report was a 32-step work plan and time line
summarizing expected restructuring activities. During the summer
of 1997, Wisconsin and Illinois experienced electric supply
shortages due to outages of a number of nuclear plants in
Illinois and Wisconsin, including Kewaunee. The electric
reliability crisis caused the PSCW to revise its previous plans
for restructuring the electric industry. In October 1997, the
PSCW revised the plan to seven steps and stated that retail
competition cannot occur until all the safeguards are in place to
protect consumers. Also, prior to any significant restructuring,
reliability concerns must be addressed. This conclusion was
consistent with plans proposed by the Company and a broad
coalition of customers.

The new plan focuses on the construction of a generation and
transmission infrastructure by all Wisconsin utilities to
increase the amount of power in the state and the state's ability
to obtain electricity from other regions. The PSCW plans to
remove any barriers to open access to the transmission system
that currently exist and to move forward in its efforts to
develop a strong state and regional Independent System Operator
(ISO). This would assure that the transmission system is operated
safely, reliably, and with open and nondiscriminatory access.
Also in its revised plan, the PSCW plans to explore new ways to
promote the development of renewable energy sources. The PSCW has
not set a date for retail competition and has concluded that any
decision to go to retail competition in the electric industry
remains to be made in the future. The Company cannot predict what
impact future PSCW actions may have on its future financial
condition, cash flows, or results of operations. However, the
Company believes it is well-positioned to compete in a
deregulated market.

The restructuring of the electric industry could affect the
eligibility of the Company to continue applying Statement of
Financial Accounting Standard (SFAS) No. 71, "Accounting for the
Effects of Certain Types of Regulation." Under this situation,
continued deferral of certain regulatory asset and liability
amounts on the Company's books may no longer be appropriate as
allowed under SFAS No. 71. The Company is unable to predict
whether any adjustments to regulatory assets and liabilities will
occur in the future. The PSCW's restructuring plan specifically
recognizes the need to allow recovery for commitments made under
prior regulatory regimes.

The Company's last rate order authorized a gas cost recovery
mechanism that allows recovery of pipeline capacity, Federal
Energy Regulatory Commission (FERC)-approved/mandated charges,
and supply demand costs. Under the new mechanism, gas commodity
costs will be compared to a monthly benchmark equal to the
first-of-the-month index plus adders reflecting the effects on
pricing for reliability, flexibility, weather, and variable
transportation costs. If actual costs are below the benchmark,
full recovery is allowed. Gas commodity costs above the benchmark
will be reviewed by the PSCW. A target will also be determined
for capacity release. Capacity release above the target will be
shared 60 percent with the ratepayers and 40 percent with the
shareholders. Any shortfalls in capacity release will be shared
40 percent with the ratepayers and 60 percent with the
shareholders.

Electric Reliability Act
------------------------

On April 28, 1998, Governor Tommy Thompson signed into law the
1997 Wisconsin Act 204 (the Act) - the Electric Reliability Plan.
The Act seeks to guarantee the reliable provision of electricity
in Wisconsin for future generations. It received widespread
support from consumer groups, legislators, and utilities
(including the Company).

Among the many provisions included in the Act are those
streamlining the regulatory process. For instance, the Act
requires the PSCW to prepare a strategic energy assessment, and
calls for expediting the PSCW and the Department of Natural
Resources (DNR) deadlines to grant certificates of public
convenience and necessity needed to construct electric generating
facilities and transmission lines. The Act also calls for
utilities to voluntarily transfer transmission operations to an
ISO approved by the FERC by June 30th of the year 2000.

The Act also includes the following:

- Allows for the construction of "merchant" power plants that
  would sell their power to utilities. A merchant plant is built
  without prior commitments to buy the power it will produce.

- Requires a total of 50 megawatts of new generation to come
  from renewable power sources, such as wind or solar. The
  Company is in the process of building a $14 million wind
  generation project which will allow its customers to purchase
  blocks of energy produced with renewable resources. Pursuant
  to the Act, these costs will be recovered from the companies'
  customers through rates.

- Directs the PSCW to conduct a study of constraints in the
  intrastate and interstate transmission system that hurt the
  reliability of electric service in Wisconsin. The PSCW
  reported the results to the state legislature on September 1,
  1998.

In response to the Act, the Company issued Request for Proposals
and has entered into an agreement with WPSC to have an 83-MW gas
combustion turbine built. The capital cost of this turbine would
be approximately $30 million, and its targeted date of operation
is June 1, 2000. The agreement has been filed with the PSCW and
is awaiting approval.

Year 2000
---------

The "Year 2000" (Y2K) issue is the result of computer programs
that were written using two digits rather than four to define the
applicable year. If the Company's computer programs with
date-sensitive functions are not Y2K compliant, they may
recognize a date "00" as the year 1900 rather than the year 2000.
This could result in a system failure causing disruptions in
normal business operations.

In 1997, the Company established a Y2K project team to address
this concern. During 1997, the project team completed an
assessment of the Company's internal systems as well as the
Company's embedded systems that may be susceptible to system
failures or processing errors as a result of the Y2K issue. The
project team identified those systems that may require
remediation or replacement and established priorities for repair
or replacement. The business systems considered most critical to
continuing operations have been given the highest priority. The
Company's objective is to complete substantially all remediation
and replacement of critical internal systems by the first quarter
of 1999, and to complete final testing for Y2K by the end of July
1999.

As part of the Y2K project plan, critical service providers,
vendors, customers and business partners have been identified and
steps taken in an attempt to ascertain their stage of Y2K
readiness through questionnaires and interviews.

Concurrently with the Y2K readiness measures described above, the
Company is developing contingency plans intended to mitigate the
possible disruption in business operations that may result from
the Y2K issue. Contingency plans may include increasing fuel
inventories, securing alternate suppliers, and adjusting facility
shutdown and start-up schedules along with other appropriate
measures. Contingency planning is an ongoing process and will be
continually revised as additional information becomes available.

It is currently estimated that the cost of the Company's Y2K
efforts will be $4.3 million, of which $627,000 has been spent.
These costs are being expensed as incurred and are being funded
through operating cash flow. The costs associated with the
replacement of computerized systems and equipment are being
capitalized.

Environmental Matters
---------------------

The Company received a notice of violation from the DNR regarding
fugitive dust and coal emissions at its Blount Generating
Station. The Company and the DNR are working on a solution in
which the Company will make certain capital improvements over the
next two years. The cost of these improvements are included in
the Company's currently filed rate case. In the opinion of
management, the improvements will meet the Company's obligation
to fully comply with the notice.

Kewaunee Nuclear Power Plant
----------------------------

Kewaunee is operated by WPSC with a license that expires in 2013.
The Company has a 17.8 percent ownership interest in Kewaunee.

On April 7, 1998, the PSCW approved WPSC's application for
replacement of the two steam generators at Kewaunee. The total
cost of replacing the steam generators would be approximately
$90.7 million (the Company's share would be 17.8 percent or
$16.1 million). The replacement work is scheduled for the spring
of 2000 and will take approximately 60 days. 

The Company finalized an agreement on September 29, 1998, with
WPSC to sell its ownership (17.8 percent) of Kewaunee to WPSC.
This agreement is contingent upon regulatory approval and steam
generator replacement. The closing of this agreement is scheduled
for the spring of 2000. The Company's decommissioning liability
has been limited to the current fund balances plus all
decommissioning contributions through 2002. The Company will have
an option to purchase capacity and energy up to approximately the
Company's current capacity in Kewaunee from WPSC for up to two
years following the closing of the transaction.

The Company believes it can secure capacity and energy more cost
effectively from other sources than from its Kewaunee investment.
The aforementioned agreement provides that the book value of the
Company's share of Kewaunee could be credited against the
purchase price of a planned 83-megawatt, natural gas-fired,
combustion turbine electric generating station to be built near
Marinette, Wisconsin. WPSC had previously agreed to build this
station for the Company. If, for some reason, the Marinette
station is not completed, the agreement calls for WPSC to pay for
the Company's share of Kewaunee with a combination of cash and
notes.

On October 17, 1998, Kewaunee was shut down for a planned
maintenance and refueling outage. Inspection of the plant's two
steam generators shows the repairs made in 1997 are holding up
well and few additional repairs are needed. In addition to the
inspection and repairs of the steam generators, a major overhaul
is being performed on the main turbine generator. The plant
should be back in operation during the first week of December
1998. On July 2, 1998, the Kewaunee co-owners received approval
from the PSCW to defer the costs associated with the repair of
the Kewaunee steam generator tubes. If the costs are significant,
recovery of the deferred costs will be requested in a future rate
proceeding. Minimal costs have been deferred to date.

Kewaunee has been in operation since 1974 and is jointly owned by
the Company, WPSC, and Wisconsin Power and Light Company.

Background information regarding Kewaunee steam generator repair
issues is set forth in the registrant's Annual Report on Form
10-K for the year ended December 31, 1997.

RESULTS OF OPERATIONS
---------------------

Electric Sales and Revenues
---------------------------

Electric retail sales increased 4 percent for the nine-month
period and 8 percent for the three-month period ended
September 30, 1998, over the comparable periods last year (see
table).

                        ELECTRIC SALES IN MEGAWATT-HOURS
                 Three Months Ended           Nine Months Ended 
                     Sept. 30,                    Sept. 30,
               -----------------------   ---------------------------
                 1998    1997  %Change     1998       1997   %Change
               ------- ------- -------   --------- --------- -------
Residential    225,111 200,916  12.0%      576,949   544,340   6.0%

Large com-
mercial and
industrial     284,679 243,417  17.0       785,294   716,950   9.5

Small com-
mercial and
industrial     205,451 210,055  (2.2)      571,571   566,229   0.9

Other           88,369  88,916  (0.6)      238,036   253,116  (6.0)
               ------- -------           --------- ---------
Total
retail         803,610 743,304   8.1     2,171,850 2,080,635   4.4

Sales for
resale          14,908  24,857 (40.0)       63,710    44,709  42.5
               ------- -------           --------- ---------

Total sales    818,518 768,161   6.6     2,235,560 2,125,344   5.2
               ======= =======           ========= =========

Electric operating revenues increased $7.7 million, or 6 percent,
for the first nine months of 1998 compared to the same  period in
1997.

Electric operating revenues for the three-month period ended
September 30, 1998, increased $5.0 million, or 11 percent,
compared to last year's third quarter. The warmer weather this
summer contributed to the increase in electric sales for the
three and nine months ended September 30, 1998, compared to the
same periods last year. Also contributing to the increase in
revenues was a customer surcharge relating to deferred expenses
on 1997 repairs to the Kewaunee steam generation tubes (see
Footnote No. 4 - Rate Matters).

Cooling degree days (measured by the number of degrees the mean
daily temperature is above 65 degrees Fahrenheit) for the third
quarter of 1998 increased approximately 77 percent from last
year's third quarter and were 4 percent above normal.

Gas Sales and Revenues
----------------------

For the nine months ended September 30, 1998, gas operating
revenues decreased $11.6 million, or 17 percent, compared to the
same period in 1997. This decrease is primarily due to the
decrease in gas deliveries caused by the above-normal
temperatures experienced in this year's first quarter.

For the three months ended September 30, 1998, gas revenues
decreased $0.3 million, or 4 percent, compared to the same period
last year. This also can be attributed to the decrease in retail
gas deliveries.

The following table illustrates gas deliveries as compared to the
previous year:

                    GAS DELIVERIES IN THOUSANDS OF THERMS
                  Three Months Ended        Nine Months Ended
                      Sept. 30,                 Sept. 30,
               -----------------------  ------------------------
                1998    1997   %Change    1998     1997  %Change
               ------  ------  -------  -------  ------- -------

Residential     5,379   5,533   (2.8)    51,321   60,217  (14.8)

Commercial
& industrial    6,957   8,828  (21.2)    45,575   59,083  (22.9)
               ------  ------           -------  -------
Total
retail         12,336  14,361  (14.1)    96,896  119,300  (18.8)

Transport      10,327  10,340   (0.1)    29,094   29,434   (1.2)
               ------  ------           -------  -------
Total
deliveries     22,663  24,701   (8.3)   125,990  148,734  (15.3)
               ======  ======           =======  =======

Electric Fuel and Natural Gas Costs
-----------------------------------

Fuel costs for electric generation and purchased power increased
$1.7 million, or 15 percent, for the third quarter of 1998
compared to last year's third quarter. This is mainly attributed
to the higher sales we experienced in this year's third quarter
compared to last year's third quarter.

Fuel costs for electric generation and purchased power decreased
$2.3 million, or 7 percent, for the nine months ended
September 30, 1998, compared to the same period last year.
Electric margin (revenues less fuel and purchased power costs)
increased $10.0 million, or 11 percent, for this same time
period. The primary factor for the increased electric margin is
lower purchased power costs. During the first half of 1997, the
Company had higher replacement power costs due to the extended
outage of the Kewaunee plant.

Natural gas costs for the nine months ended September 30, 1998,
decreased $11.3 million, or 27 percent, compared to the same
period a year ago. This is mainly due to above-normal
temperatures resulting in a decrease in retail gas deliveries of
19 percent. Natural gas costs for the third quarter of 1998
decreased $0.8 million, or 25 percent versus the comparative 1997
period, due to a decrease in retail gas deliveries of 14 percent.

Other Operating Expenses
------------------------

Operations and maintenance costs increased $2.0 million, or
11 percent, for the third quarter of 1998 and increased
$3.2 million, or 6 percent, for the first nine months of the year
compared to the same time periods a year ago. The primary reason
for the increase is the costs associated with maintenance on our
generating facilities to meet this summer's power demand.

Depreciation and amortization expense increased $4.5 million, or
23 percent, for the nine months ended September 30, 1998, and
$0.8 million, or 10 percent, for the third quarter of 1998 versus
the comparable periods a year ago. The increases are attributed
to the accelerated depreciation and decommission funding of the
Kewaunee plant. The PSCW approved the accelerated depreciation
and decommissioning funding for Kewaunee based on a service life
ending at the end of 2002. The acceleration went into effect in
August of 1997.

PART II.  OTHER INFORMATION
===========================

ITEM 1 - LEGAL PROCEEDINGS
--------------------------

The Company has filed a case with the Dane County Circuit Court,
"Madison Gas and Electric Co. vs Public Service Commission of
Wisconsin." The case involves the Company's appeal of the PSCW's
order granting Wisconsin Public Service Corporation authority to
replace the steam generators at Kewaunee. The owners of Kewaunee
have differing views on the desirability of proceeding with the
steam generator replacement project. The Company has not favored
replacement of the steam generators and believes the record does
not support replacement. The case is being held in abeyance
pending consummation of the agreement to transfer ownership of
Kewaunee.

ITEM 5 - OTHER INFORMATION
--------------------------

Forward-Looking Statements
--------------------------

This report contains, and certain of the Company's other 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. Such statements are forward-looking statements made
pursuant to the Safe Harbor provisions of the Private Securities
Litigation Reform Act of 1995. The Company cautions investors
that forward-looking statements are subject to known and unknown
risks and uncertainties that may cause the Company's actual
results to differ materially from those projected, expressed or
implied, in such forward-looking statements. Some of those risks
and uncertainties include the economic and market conditions in
the Company's service territory; magnitude and timing of capital
expenditures; regulatory environment, including the restructuring
of the electric utility industry in Wisconsin; regulatory
approval of the sale of Kewaunee; availability and cost of power
supplies; and the Company's ability to become Year 2000 compliant
at a reasonable cost.

Kewaunee Nuclear Power Plant
----------------------------

Kewaunee was shut down for refueling on October 17, 1998. During
refueling, the steam generator tubes were checked for
corrosion-induced cracking. This inspection discovered that a
small number of steam generator tubes need to be repaired by
sleeving or removed from service. Kewaunee is expected to return
to service in the first week of December.

On September 29, 1998, the Company and WPSC finalized an
agreement for WPSC to buy MGE's entire 17.8 percent share of
Kewaunee. The closing is contingent upon regulatory approval and
steam generator replacement and is scheduled to occur in the
spring of 2000.

Background information regarding Kewaunee steam generator repair
issues and ownership issues is set forth in the registrant's
Annual Report on Form 10-K for the year ended December 31, 1997,
and on Form 8-K dated September 30, 1998.

1999 Annual Meeting of Shareholders
-----------------------------------

The Company's 1999 Annual Meeting of Shareholders is expected to
be held on Tuesday, May 4, 1999. Pursuant to rules of the
Securities and Exchange Commission (SEC), in order to be
considered for inclusion as an agenda item in the Company's 1999
Proxy Statement, a shareholder proposal must be received by the
Company no later than November 23, 1998. In addition, regardless
of whether a proposal is included as an agenda item in the
Company's 1999 Proxy Statement, the Company's Bylaws establish an
advance notice procedure for shareholder proposals to be brought
before any meeting of shareholders, including proposed
nominations of persons for election to the Board of Directors.
Shareholders at the 1999 Annual Meeting may consider a proposal
or nomination brought by a shareholder of record on the record
date to be established for the 1999 Annual Meeting who has given
the Company timely written notice, in proper form, of the
shareholder's proposal or nomination. A shareholder proposal or
nomination intended to be brought before the 1999 Annual Meeting
must be received by the Company after the close of business on
January 25, 1999, and prior to the close of business on
February 19, 1999.

If a timely and proper shareholder proposal is received by the
Company, the proposal is not included as an agenda item in the
1999 Proxy Statement, and the proposal is properly presented at
the 1999 Annual Meeting, the Company may exercise discretionary
authority when voting on the proposal if in the 1999 Proxy
Statement the Company advises shareholders on the nature of the
proposal and how the Company intends to vote on the proposal,
unless the shareholder satisfies certain SEC requirements,
including mailing a separate proxy statement to the Company's
shareholders. All proposals and nominations should be directed to
the Company's principal executive offices at 133 South Blair
Street, Post Office Box 1231, Madison, Wisconsin 53701-1231,
Attention: Corporate Secretary.

ITEM 6(A) - EXHIBITS
--------------------

Exh. No. 3. Bylaws as in effect at October 16, 1998.

Exh. No. 4. Indenture of Mortgage and Deed of Trust between the
Company and Firstar Trust Company, as Trustee (and supplements).
Incorporated by reference to Exhibit 4A of the Company's 1997
Annual Report on Form 10-K (Commission File No. 0-1125).

Exh. No. 12. Ratio of Earnings to Fixed Charges

Exh. No. 27. Appendix E to Item 601(c) of Regulation S-K: Public
Utility Companies Financial Data Schedule UT.

ITEM 6(B) - REPORTS ON FORM 8-K
-------------------------------

The Company filed a current report on Form 8-K dated September 30,
1998, under Item 5, "Other Events," which contains, under
Exhibit 99, a press release announcing its agreement with WPSC to
sell its share of the Kewaunee plant (17.8 percent) to WPSC.

SIGNATURES
==========

Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.

                      MADISON GAS AND ELECTRIC COMPANY
                      (Registrant)


Date: November 12, 1998   /s/ David C. Mebane
                          Chairman, President and
                          Chief Executive Officer
                          (Duly Authorized Officer)


Date: November 12, 1998   /s/ Terry A. Hanson
                          Vice President - Finance
                          (Chief Financial and
                          Accounting Officer)