|****                                                                                                                                                                                                                                                                                  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|**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, 2001**                                                                                                                                                                                                                                 
|or                                                                                                                                                                                                                                                                                    
|[  ]	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)                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                      
|**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 14, 2001:  16,964,718 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 [  ]



**TABLE OF CONTENTS**



Item 1.  Financial Statements

Condensed Consolidated Statements of Income and Comprehensive Income for the three and nine
months ended Sept. 30, 2001 and 2000 (unaudited)

Condensed Consolidated Statements of Cash Flows for the three and nine months ended Sept. 30,
2001 and 2000 (unaudited)

Condensed Consolidated Balance Sheets as of Sept. 30, 2001 (unaudited) and Dec. 31, 2000

Notes to Condensed Consolidated Financial Statements (unaudited)

Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations

Liquidity and Capital Resources

Results of Operations

Item 3 - Quantitative and Qualitative Disclosures About Market Risk

**PART II.  OTHER INFORMATION**

Item 5 - Other Information

Item 6(a) - Exhibits

Item 6(b) - Reports on Form 8-K



**Condensed Consolidated Statements of Income and Comprehensive Income********(unaudited)**

|                                                                                         | Three Months Ended | Nine Months
      Ended
|---------------------------------------------------------------------------------------- | ------------------ | -----------------------
|*(In thousands, except per-share amounts)*                                               | Sept. 30,          | Sept 30,               
|**Operating Revenues******                                                               | 2001               | 2000                   
|Electric                                                                                 | $56,432            | $59,563                
|Gas                                                                                      | 9,499              | 12,398                 
|Total Operating Revenues                                                                 | 65,931             | 71,961                 
|**Operating Expenses******                                                               |                    |                        
|Fuel for electric generation                                                             | 11,557             | 11,277                 
|Purchased power                                                                          | 5,027              | 5,373                  
|Natural gas purchased                                                                    | 3,108              | 6,227                  
|Other operations and maintenance                                                         | 22,906             | 20,345                 
|Depreciation and amortization                                                            | 10,940             | 8,969                  
|Other general taxes                                                                      | 2,706              | 2,478                  
|Income tax provision                                                                     | 3,086              | 5,295                  
|Total Operating Expenses                                                                 | 59,330             | 59,964                 
|**Net Operating Income**                                                                 | 6,601              | 11,997                 
|**Other Income and Deductions**                                                          |                    |                        
|AFUDC - equity funds                                                                     | 123                | 75                     
|Equity in earnings of investee                                                           | 641                | -                      
|Income tax provision                                                                     | (324)              | (216)                  
|Other, net                                                                               | 2,197              | 330                    
|Total Other Income and Deductions                                                        | 2,637              | 189                    
|Income Before Interest Expense and Cumulative Effect
of a Change in Accounting Principle | 9,238              | 12,186                 
|**Interest Expense**                                                                     |                    |                        
|Interest on long-term debt                                                               | 3,173              | 3,258                  
|Other interest                                                                           | 137                | 521                    
|AFUDC - borrowed funds                                                                   | (69)               | (39)                   
|Net Interest Expense                                                                     | 3,241              | 3,740                  
|Net income before cumulative effect of a change in
accounting principle                  | 5,997              | 8,446                  
|Cumulative effect of a change in accounting principle,
net of tax benefit of $78         | -                  | -                      
|**Net Income**                                                                           | $  5,997           | $ 8,446                
|**Total Comprehensive Income**                                                           | $  5,997           | $ 8,446                
|**Earnings Per Share of Common Stock** (basic & diluted):                                |                    |                        
|Income before cumulative effect of a change in
accounting principle                      | $0.36              | $0.51                  
|Cumulative effect of a change in accounting principle                                    | -                  | -                      
|**Net Income**                                                                           | $0.36              | $0.51                  

*The accompanying notes are an integral part of the above condensed consolidated financial statements.*

**Condensed Consolidated Statements of Cash Flows************(unaudited)**

|                                                                                                        | Three Months Ended | Nine Months Ended
|------------------------------------------------------------------------------------------------------- | ------------------ | -----------------
|*(In thousands)*                                                                                        | Sept. 30,          | Sept. 30,        
|****                                                                                                    | 2001               | 2000             
|**Operating Activities******                                                                            |                    |                  
|Net income                                                                                              | $ 5,997            | $ 8,446          
|Items not affecting cash:                                                                               |                    |                  
|Depreciation and amortization                                                                           | 10,940             | 8,969            
|Deferred income taxes                                                                                   | 8,083              | 11               
|Amortization of nuclear fuel                                                                            | 424                | 630              
|Amortization of investment tax credits                                                                  | (142)              | (182)            
|AFUDC - equity funds                                                                                    | (123)              | (75)             
|Equity in earnings in ATC                                                                               | (641)              | -                
|Cumulative effect of change in accounting principle                                                     | -                  | -                
|Other noncash items                                                                                     | -                  | -                
|Changes in working capital, excluding cash equivalents,
sinking funds, maturities, and short-term debt: |                    |                  
|(Increase)/decrease in current assets                                                                   | 4,937              | (9,339)          
|Decrease in current liabilities                                                                         | (7,464)            | (489)            
|Other noncurrent items, net                                                                             | (4,468)            | 950              
|Cash Provided by Operating Activities                                                                   | 17,543             | 8,921            
|****                                                                                                    |                    |                  
|**Investing Activities******                                                                            |                    |                  
|Additions to utility plant and nuclear fuel                                                             | (12,315)           | (9,783)          
|AFUDC - borrowed funds                                                                                  | (69)               | (39)             
|Increase in nuclear decommissioning fund                                                                | (1,930)            | (2,957)          
|Capital distribution from investee                                                                      | -                  | -                
|Sale of interest in nuclear plant                                                                       | 15,381             | -                
|Cash Provided by/(Used for) Investing Activities                                                        | 1,067              | (12,779)         
|****                                                                                                    |                    |                  
|**Financing Activities******                                                                            |                    |                  
|Issuance of common stock                                                                                | 2,669              | 2,091            
|Cash dividends on common stock                                                                          | (5,622)            | (5,439)          
|Increase in long-term debt                                                                              | -                  | 15,000           
|Decrease in short-term debt/commercial paper                                                            | (13,000)           | (8,500)          
|Cash Provided by/(Used for) Financing Activities                                                        | (15,953)           | 3,152            
|****                                                                                                    |                    |                  
|**Change in Cash and Cash Equivalents**                                                                 | 2,657              | (707)            
|Cash and cash equivalents at beginning of period                                                        | 2,625              | 2,194            
|Cash and cash equivalents at end of period                                                              | $ 5,282            | $ 1,487          

**Condensed Consolidated Balance Sheets******

|*(In thousands)*                                                      | Unaudited
      Sept. 30, | Dec. 31,     
|--------------------------------------------------------------------- | ------------------------- | -------------
|**ASSETS**                                                            | 2001                      | **2000**     
|**Utility Plant** (at original
      cost, in service)                |                           | ****         
|**** Electric                                                         | $498,441                  | **$622,209** 
|Gas                                                                   | 199,249                   | **197,093**  
|Gross Plant in Service                                                | 697,690                   | **819,302**  
|Less accumulated provision for depreciation                           | (332,624)                 | **(510,381)**
|Net Plant in Service                                                  | 365,066                   | **308,921**  
|Construction work in progress                                         | 27,883                    | **22,863**   
|Nuclear decommissioning fund                                          | 525                       | **102,891**  
|Nuclear fuel, net                                                     | -                         | **6,979**    
|**Total Utility Plant**                                               | 393,474                   | **441,654**  
|**Other Property and Investments**                                    | 3,703                     | **3,988**    
|Investment in ATC                                                     | 25,853                    | **-**        
|Total other property and investments                                  | 29,556                    | **3,988**    
|**Current Assets******                                                |                           | ****         
|**** Cash and cash equivalents                                        | 5,282                     | **4,307**    
|Accounts receivable, less reserves of $3,882 and $2,071, respectively | 25,955                    | **38,161**   
|Unbilled revenues                                                     | 10,879                    | **27,900**   
|Materials and supplies, at lower of average cost or market            | 6,761                     | **7,735**    
|Fossil fuel, at lower of average cost or market                       | 3,345                     | **3,872**    
|Stored natural gas, at lower of average cost or market                | 16,442                    | **9,785**    
|Prepaid taxes                                                         | 6,168                     | **7,539**    
|Other prepayments                                                     | 1,503                     | **1,221**    
|Total Current Assets                                                  | 76,335                    | **100,520**  
|**Deferred Charges**                                                  | 27,374                    | **25,442**   
|**Total Assets**                                                      | $526,739                  | **$571,604** 
|**CAPITALIZATION AND LIABILITIES**                                    |                           | ****         
|******Capitalization**                                                | $375,509                  | **$383,749** 
|**Current Liabilities******                                           |                           | ****         
|**** Long-term debt due within one year                               | 20,200                    | **200**      
|Short-term debt - commercial paper                                    | -                         | **44,000**   
|Accounts payable                                                      | 13,069                    | **28,792**   
|Accrued taxes                                                         | 394                       | **2,550**    
|Accrued interest                                                      | 3,792                     | **3,162**    
|Other current liabilities                                             | 6,852                     | **8,533**    
|Total Current Liabilities                                             | 44,307                    | **87,237**   
|**Other Credits******                                                 |                           | ****         
|**** Deferred income taxes                                            | 51,995                    | **43,321**   
|Regulatory liabilities                                                | 25,130                    | **26,517**   
|Investment tax credit - deferred                                      | 6,348                     | **8,472**    
|Other deferred liabilities                                            | 23,450                    | **22,308**   
|Total Other Credits                                                   | 106,923                   | **100,618**  
|**Total Capitalization and Liabilities**                              | $526,739                  | **$571,604** 

*The accompanying notes are an integral part of the above condensed consolidated financial statements.*

**Notes to Condensed Consolidated Financial Statements (unaudited)**

***September 30, 2001***

Madison Gas and Electric Company (MGE) prepared these condensed consolidated financial statements,
without audit (except for balance sheet information at Dec. 31, 2000), pursuant to the rules and regulations
of the Securities and Exchange Commission. 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. MGE believes the disclosures provided are
accurate and not misleading. MGE management believes it has made all normal recurring adjustments
needed to present fairly the financial statements and notes in this report.

It is suggested that these condensed consolidated financial statements be read in conjunction with the
consolidated financial statements and the notes on pages 20 through 35 of MGE's 2000 Annual Report to
Shareholders and as filed on Form 10-K.

**1.	Kewaunee Nuclear Power Plant**

Effective Sept. 23, 2001, MGE sold its 17.8% ownership interest of Kewaunee Nuclear Power Plant
(Kewaunee) to Wisconsin Public Service Corporation (WPSC) for net book value, including the
remaining nuclear fuel inventory balance.

Pursuant to the sale agreement entered into with WPSC on Sept. 29, 1998, MGE in June 2001 executed
its option to buy electric capacity and energy at a fixed price from WPSC. MGE contracted with WPSC
to purchase 90 MW of electric capacity and energy from Sept. 24, 2001, through Sept. 23, 2003, to meet
current needs.

**2.	Nuclear Decommissioning**

Pursuant to an agreement dated Sept. 29, 1998, MGE transferred its interest in Kewaunee to WPSC
effective Sept. 23, 2001 (Footnote 1). MGE also transferred the assets of its external decommissioning
trusts to external trusts of WPSC. The agreement requires MGE to continue funding its external
decommissioning trust through the end of 2002 at the PSCW authorized level, which is currently
$8.1 million annually. At the end of 2002 the remaining assets of the MGE trust will transfer to the
external trust of WPSC. The trusts are shown on the balance sheet in the Utility Plant section. As of
Sept. 30, 2001, these trusts total $0.5 million (pretax, fair market value) and are offset by an equal
amount under accumulated provision for depreciation.

MGE's share of Kewaunee decommissioning costs is currently limited to $8.1 million annually through
the end of 2002. These costs are currently recovered from customers in rates.

**3.	Per-share Amounts**

Since there are no dilutive items, earnings per share of common stock are computed based on the
weighted average of the daily number of shares outstanding. For the three months ended Sept. 30, 2001
and 2000, there were 16,863,820 and 16,444,332 shares outstanding, respectively. Dividends declared
and paid per share of common stock for the three months ended Sept. 30, 2001 and 2000, were $0.333
and $0.331, respectively.

For the nine months ended Sept. 30, 2001 and 2000, there were 16,761,469 and 16,325,647 shares
outstanding, respectively. Dividends declared and paid per share of common stock for the same nine
months were $0.995 and $0.987, respectively.

**4.	Rate Matters**

In January 2001, the Public Service Commission of Wisconsin (PSCW) authorized (1) an electric rate
increase designed to increase electric revenues by $7.5 million, or 3.9%, to cover rising fuel costs and
increased system demands, (2) a natural gas rate increase designed to increase gas revenues by
$3.4 million, or 2.7%, for improving the gas delivery system, and (3) a return on common stock equity
of 12.9%.

The PSCW approved MGE's request for a temporary electric fuel surcharge of 2.7% effective May 9
through Sept. 2, 2001. The temporary rate increase covered the higher cost of natural gas used to
generate electricity. Revenues collected from this surcharge are subject to refund, pending the PSCW's
review of any excess revenues collected by MGE while the surcharge was in effect.

The PSCW has allowed MGE to reopen its current rate case for limited specific issues such as the sale
of its ownership interest in Kewaunee, rising fuel costs, and a proposed automated meter reading system.
The proposed rate change, subject to PSCW approval, is designed to increase revenue by $12 million (a
5.8% increase in electric rates and a 0.7% increase in gas rates). MGE has requested the ability to
recover these additional expenses less any reduced costs due to the sale of its ownership interest in
Kewaunee. The PSCW is reviewing the request and an order is expected by year-end.

**5.	Supplemental Cash Flow Information**

Cash payments for interest, net of amounts capitalized, net cash payments for income taxes, and the
investment in the American Transmission Company LLC (ATC) were as follows:

|                                          | Three Months Ended
        Sept. 30, | **Nine Months Ended****Sept. 30,**
|----------------------------------------- | ------------------------------------ | ----------------------------------
|*(In thousands)*                          | **2001**                             | 2000                              
|Interest paid, net of amounts capitalized | **$2,646**                           | $2,812                            
|Income taxes paid, net                    | **$   747**                          | $1,025                            
|Investment in ATC (see Footnote 7)        | **$        -**                       | $        -                        



MGE has a swap agreement with a commercial bank for a notional amount of $5.0 million, backed by
MGE's commercial paper. MGE pays a fixed rate of 6.91% on the swap, which was used to retire a
portion of MGE's 7.70%, 2028 Series, First Mortgage Bonds. MGE's commercial paper swap
agreement has been classified as a derivative. The cumulative effect of the change in accounting
principle, for the adoption of Statement of Financial Accounting Standards (FAS) No. 133, "Accounting
for Derivative Instruments and Hedging Activities," led to a one-time charge of $0.1 million (after tax),
which was recorded in the first quarter. MGE has a 22.0% ownership interest in the coal-fired Columbia
Energy Center, which is operated by Alliant Energy, Inc. (Alliant). Alliant has entered into a long-term
coal supply agreement with Dynegy Marketing and Trade. The contract contains certain put options and
consequently, in accordance with the terms of FAS No. 133, the contract is recorded at fair value on the
balance sheet. Gains and losses are recorded in other income. The fair value adjustments of the two
derivatives' were $0.1 million (after tax) for the third quarter 2001 and for the nine months ended
Sept. 30, 2001.

MGE has a limited number of physical and financial gas commodity contracts that are defined as
derivatives under FAS 133. These gas instruments are primarily comprised of exchange-traded option
contracts to manage the cost of gas and over-the-counter financial floating-to-fixed price swaps and calls
for the Winter Set-Price Firm Gas Sales Service pilot program. The derivative amounts recorded as a
result of these gas contracts is offset with a corresponding regulatory asset or liability because these
transactions are part of the purchased gas adjustment clause and not subject to the gas cost incentive
sharing mechanism. As of Sept. 30, 2001, MGE has recorded a liability from gas supply derivatives and
a corresponding regulatory asset of $1.0 million related to these contracts.

**7.	Investment in ATC**

On Jan. 1, 2001, MGE transferred substantially all of its electric transmission facilities to ATC in
exchange for approximately a 6% interest in this joint venture, which is comprised of Wisconsin
investor-owned utilities and some Wisconsin municipal utilities, cooperatives, and power supply
agencies.

MGE accounts for this investment on the equity method of accounting. MGE's share of ATC's
earnings--as well as amortization of the FAS 109 Regulatory Liability and deferred investment tax
credits related to the contributed transmission assets--are recorded as equity in earnings of the investee.
For the three and nine months ended Sept. 30, 2001, MGE has recorded $0.6 million and $2.4 million
(pretax), respectively, of equity earnings from its investment in ATC.

MGE contracts with ATC for transmission services, which have cost $2.2 million and $5.8 million,
respectively, during the three and nine months ended Sept. 30, 2001. This amount is included in MGE's
operating expenses.

Under a three-year contract beginning Jan. 1, 2001, MGE provides various services to ATC, including
(1) fixed capital construction, (2) operations and maintenance, and (3) transitional services. MGE bills
for these services based on its actual costs for labor, materials, and overhead. For the three and nine
months ended Sept. 30, 2001, MGE billed ATC $0.8 million and $1.8 million for these services,
respectively.

MGE tracks the difference between the revenue requirement for transmission services included in its
current rate tariffs and the network transmission service fee collected from ATC. The difference is
deferred and subject to adjustment in MGE's next rate case. For the three and nine months ended
Sept. 30, 2001, MGE has recorded a deferred asset of $0.3 million and $0.8 million for this difference,
respectively.

**8.	Segment Information**

The following tables show MGE's segment information for electric and gas operations.

|*(In thousands)*                              | Three Months Ended
      Sept. 30, |  | Nine Months Ended
      Sept. 30,
|--------------------------------------------- | ---------------------------------- |  | ---------------------------------
|**Electric**                                  | **2001**                           |  | 2000                             
|Gross Revenues                                | **$56,551**                        |  | $59,674                          
|Net Operating Income                          | **$6,674**                         |  | $11,937                          
|                                              |                                    |  |                                  
|**********Gas**                               | ****                               |  |                                  
|****Gross Revenues                            | **$11,533**                        |  | $14,658                          
|Net Operating Income                          | **$(73)**                          |  | $60                              
|                                              |                                    |  |                                  
|********Interdepartmental Revenues Eliminated | **$(2,153)**                       |  | $(2,371)                         
|                                              |                                    |  |                                  
|**********Consolidated**                      | ****                               |  |                                  
|****Net Revenues                              | **$65,931**                        |  | $71,961                          
|Net Operating Income                          | **$6,601**                         |  | $11,997                          



|                     | Electric |      | Gas      |      | Other        |      | Consolidated
|-------------------- | -------- | ---- | -------- | ---- | ------------ | ---- | ------------
|Assets               |          |      |          |      |              |      |             
|Sept. 30, 2001       | $361,709 | **** | $124,285 | **** | $40,745      | **** | $526,739    
|Dec. 31, 2000        | $395,622 |      | $123,486 |      | $52,496      |      | $571,604    
|                     |          |      |          |      |              |      |             
|Capital Expenditures |          |      |          |      |              |      |             
|Sept. 30, 2001       | $24,170  | **** | $5,548   | **** | $          - | **** | $29,718     
|Dec. 31, 2000        | $65,312  | **** | $8,294   | **** | $          - | **** | $73,606     

**Natural gas-fired cogeneration plant**

MGE and the University of Wisconsin-Madison proposed building a natural gas-fired cogeneration plant
to help meet future needs of the University and MGE customers. In July 2001, MGE entered into a
contract with GE Packaged Power, Inc., for the purchase of two gas turbines for the cogeneration plant.

**Purchase of Prairie du Chien gas service territory**

On Oct. 17, 2001, MGE executed its agreement to purchase the Prairie du Chien-area natural gas system
from Wisconsin Electric/Wisconsin Gas (WE/WG) for approximately $3.8 million, the net book value
of the gas assets.

The purchase includes facilities in the city of Prairie du Chien and other surrounding villages and
townships located in west-central Wisconsin in Crawford County. Approximately 3,500 residential and
commercial customers are part of the transfer. MGE currently serves natural gas customers in Crawford
County.

As part of the transaction, a definitive gas service boundary agreement between the two companies
within Dane County will be established. The new boundary lines do not involve transfer of any
customers and are located primarily through undeveloped land north of the Madison city limits.

MGE filed a joint application with WE/WG to the PSCW seeking approval for this transaction, an order
is expected by December 2001.

**10.	New Accounting Pronouncements**

In June 2001, the Financial Accounting Standards Board (FASB) issued FAS No. 141, "Business
Combinations" and FAS No. 142, "Goodwill and Other Intangible Assets" that supersede Accounting
Principles Board (APB) Opinion No. 16, "Business Combinations," and APB Opinion No. 17,
"Intangible Assets." The two statements modify the method of accounting for business combinations
and address the accounting and reporting for goodwill and intangible assets. FAS 141 is effective for all
business combinations (1) initiated after June 30, 2001, and (2) with acquisitions completed after
June 30, 2001, all business combinations accounted for by the purchase method for which the date of
acquisition is after June 30, 2001. FAS No. 142 is effective for fiscal years beginning after Dec. 15,
2001. MGE is currently reviewing these statements to determine their effect on the company's financial
statements.

In June 2001, the FASB issued FAS No. 143, "Accounting for Asset Retirement Obligations," which
amends FAS No. 19, "Financial Accounting and Reporting by Oil and Gas Producing Companies," and
is effective for all companies. This statement addresses the financial accounting and reporting for
obligations associated with the retirement of tangible, long-lived assets and the associated asset
retirement costs. FAS No. 143 is effective for fiscal years beginning after June 15, 2002. MGE is
currently reviewing this statement to determine its effect on the company's financial statements.

In August 2001, the FASB issued FAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets," which supersedes FAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of," and the accounting and reporting provisions of
APB No. 30, "Reporting the Results of Operations, Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions." FAS
No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets
and is effective for fiscal years beginning after Dec. 15, 2001, and interim periods within those fiscal
years. MGE is currently reviewing this statement to determine its effect on the company's financial
statements.

**11.	Subsequent Event**

In November 2001, MGE filed a registration statement on Form S-4 with the Securities and Exchange
Commission regarding its proposal to create a holding company named MGE Energy, Inc. The holding
company structure allows the company to raise capital in the financial markets as it builds new power
plants. Electric prices will continue to be regulated by the PSCW as they are today.

Under the holding company proposal, shares of MGE common stock would be exchanged on a
one-for-one basis for shares of MGE Energy, Inc. Company shareholders will vote on the holding
company proposal at their annual meeting next May. All other regulatory approvals are expected to be
completed by summer 2002.

**Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations**

**Liquidity and Capital Resources**

**Cash Provided by Operating Activities******

Cash provided by operating activities increased $8.6 million for the third quarter of 2001 compared to prior
year. Current assets decreased $4.9 million during the third quarter of 2001 compared to an increase of $9.3
million for the same period last year. The decrease in current assets during the third quarter of 2001 is due to
a decrease in accounts receivable of $2.9 million, unbilled revenues of $4.9 million, and prepaid taxes of
$1.9 million. This was partially offset by an increase in stored gas of $5.2 million. MGE's current liabilities
decreased $7.5 million during the third quarter of 2001 due to decreases in accounts payable and accrued
taxes.

Cash provided by operating activities increased $15.2 million, or 33.4%, for the nine months ended Sept. 30,
2001, compared to the same period last year. The change in current assets for the first nine months of 2001
compared to 2000 is a decrease of $26.3 million. The change in current liabilities for the first nine months of
2001 compared to 2000 is a decrease of $14.5 million. The add-back of deferred income taxes increased
over $8.0 million for both the three and nine months ended Sept. 30, 2001, as a result of the sale of MGEs
ownership interest in Kewaunee.

**Cash Used for Investing Activities******

Cash provided by investing activities was $1.1 million during the third quarter 2001 compared to cash used
for investing activities of $12.8 million last year. MGE sold its ownership interest in Kewaunee for
$15.4 million cash during the third quarter of 2001.

Cash used for investing activities was $6.6 million for the nine months ended Sept. 30, 2001, compared to
$70.9 million for the same time period last year (when MGE purchased an 83-MW natural gas-fired
combustion turbine). Cash used for investing activities is lower in 2001 mainly due to a $33.1 million
decrease in plant additions and the following: (1) MGE received a capital distribution of $15.0 million from
ATC (Footnote 7) and (2) a cash payment of $15.4 million related to the sale of its ownership interest in
Kewaunee (Footnote 1).

**Cash Used for Financing and Capital Resources******

Cash used for financing activities was $16.0 million for the third quarter of 2001 compared to cash provided
by financing activities of $3.2 million last year. During the third quarter of 2000, MGE issued $15.0 million
in unsecured, Medium-Term Notes. MGE reduced its short-term debt by $4.5 million more during the third
quarter of 2001 when compared to last year's third quarter.

Cash used for financing activities was $53.2 million for the nine months ended September 2001 compared to
cash provided by financing activities of $24.9 million for the same period last year. In 2000, MGE issued
$35.0 million in unsecured, Medium-Term Notes, which it used to help finance capital expenditures
(83-MW combustion turbine). In 2001, MGE paid off $44.0 million in short-term debt.

Bank lines of credit available to MGE as of Sept. 30, 2001, were $40 million.

MGE's capitalization ratios were as follows:

|                                                                    | Sept. 30, 2001 | Dec. 31, 2000
|------------------------------------------------------------------- | -------------- | -------------
|Common shareholders' equity                                         | 53.7%          | 46.8%        
|Long-term debt*                                                     | 46.3           | 42.9         
|Short-term debt                                                     | -              | 10.3         
|*Includes current maturities and current sinking fund requirements.

MGE's liquidity is primarily affected by its construction requirements. During the nine months ended
Sept. 30, 2001, MGE's plant additions totaled $29.7 million, down $33.1 million, or 52.7%, from the first
nine months of last year. Last year, MGE purchased an 83-MW natural gas-fired combustion turbine. In
2001, it is anticipated capital expenditures will be $44.6 million for projects improving MGE's Blount
Generating Station and MGE's electric and gas distribution systems.

MGE uses its internally generated funds and short-term debt to satisfy a majority of its capital requirements.
Internally generated funds exceeded the funds used for construction and nuclear fuel expenditures during the
first nine months of 2001. For larger capital investments, MGE will issue additional long-term debt or
common stock.

MGE's pretax interest coverage for the twelve months ended Sept. 30, 2001, was 3.96 times. Below is a
table of MGE's current credit ratings:

|                                                                 | Standard & Poor's |  | Moody's 
|---------------------------------------------------------------- | ----------------- |  | --------
|First Mortgage Bonds Unsecured medium term notesCommercial paper | AAAA-A1+          |  | Aa2Aa3P1



**Sales and Revenues**

***Electric***

Retail sales decreased 3.9% for the three months ended Sept. 30, 2001, and were flat for the nine months
ended Sept. 30, 2001.

|*Electric Sales*

*(megawatt-hours)* | Three Months Ended Sept. 30, |          | Nine Months Ended Sept. 30,
|------------------------------------ | ---------------------------- | -------- | ---------------------------
|**2001**                             | 2000                         | % Change |                            
|Residential                          | **225,501**                  | 226,207  | (0.3)                      
|Large commercial                     | **281,658**                  | 296,926  | (5.1)                      
|Small commercial                     | **201,625**                  | 216,333  | (6.8)                      
|Other                                | **87,948**                   | 89,243   | (1.5)                      
|Total Retail                         | **796,732**                  | 828,709  | (3.9)                      
|Sales for Resale                     | **7,290**                    | 75,619   | (90.4)                     
|Total Sales                          | **804,022**                  | 904,328  | (11.1)                     



During the third quarter of 2001, electric operating revenues decreased $3.1 million, or 5.3%. Significant
items contributing to the revenue decrease during the quarter included:

- A $1.6 million decrease in sales for resale because a contract with Wisconsin Public Power Inc.
(WPPI) expired. (MGE sold 30 MW of firm energy and capacity to WPPI from March 1999 through
the end of 2000.)
- A decrease in other electric revenues ($2.3 million) due to (1) reversal of the electric surcharge of
$1.4 million in the current year and (2) recognition of increased electric revenues of $1.0 million
during the second quarter of 2000 related to an 83-MW natural-gas fired combustion turbine which
was brought on-line at that time.

- A change in the estimate of unbilled revenues
    and sales ($4.5 million, pretax).

The above items were somewhat offset by:

- A 3.9% electric rate increase effective Jan.
    1, 2001, combined with customer growth and greater use per customer ($4.0
    million).
- A .00176 cents/kWh electric fuel surcharge
    effective May 9, 2001, $1.3 million (Footnote 4).

For the nine months ended Sept. 30, 2001, electric operating revenues increased $1.9 million, or 1.3%, due
to (1) the electric rate increase, (2) customer growth, (3) greater use per customer, and (4) the surcharge, all
mentioned previously, which totals $13.0 million, and was offset by a revised estimate for unbilled revenues
of $4.5 million (pretax). Other electric revenues decreased $2.2 million for the nine months ended Sept. 30,
2001. Sales for resale were down $4.3 million for the nine months ended Sept. 30, 2001, due to a contract
expiring with WPPI (as stated above).

***Gas***

For the three months ended Sept. 30, 2001, retail gas deliveries decreased 3.5% due to lower use per
customer. During the third quarter of 2001, transport deliveries increased 48.4% over the prior year,
primarily due to increased usage by customers that use gas for generation of electricity or steam and have
the ability to switch to or from alternate fuels. For the nine months ended Sept. 30, 2001, retail gas deliveries
increased 6.2% over the prior year. This increase is primarily attributable to the colder winter weather
experienced during the first quarter of 2001. The average temperature for the first quarter 2001 was
24.6 degrees Fahrenheit, which was 18.1% colder than the same period last year.

|*Gas Deliveries*

*(thousands of therms)* | Three Months Ended Sept. 30, |          | Nine Months Ended Sept. 30,
|----------------------------------------- | ---------------------------- | -------- | ---------------------------
|**2001**                                  | 2000                         | % Change |                            
|Residential                               | **5,948**                    | 6,106    | (2.6)                      
|Commercial and Industrial                 | **7,151**                    | 7,462    | (4.2)                      
|Total Retail                              | **13,099**                   | 13,568   | (3.5)                      
|Transport                                 | **11,421**                   | 7,698    | 48.4                       
|Total Gas Deliveries                      | **24,520**                   | 21,266   | 15.3                       



Gas revenues decreased $2.9 million, or 23.4%, for the three months ended Sept. 30, 2001, mainly because
the cost of natural gas dropped (see Natural Gas Purchased).

Gas revenues for the nine months ended Sept. 30, 2001, increased $35.6 million, or 54.0%, primarily due to
the significantly higher cost of gas during the first half of the year.

Gas incentive revenues were relatively unchanged for the three months ended Sept. 30, 2001. Under MGE's
gas cost incentive mechanism (GCIM), if actual gas commodity costs are above or below a benchmark set by
the PSCW, MGE's gas sales service customers and shareholders share equally in any increased costs or
savings up to $1.5 million. Any costs or savings that exceed $1.5 million for the gas year are passed on to
customers. MGE's gas commodity costs were below the GCIM benchmark by $0.5 million for the three
months ended Sept. 30, 2001. This savings was shared equally by shareholders and gas sales service
customers.

Revenues from the GCIM were down $0.8 million for the nine months ended Sept. 30, 2001, primarily due
to high gas prices and increased demand during the first quarter of 2001. MGE's gas commodity was below
the GCIM benchmark by $0.1 million for the nine months ended Sept. 30, 2001.

**Electric Fuel and Purchased Power******

Fuel for electric generation increased $0.3 million, or 2.5%, for the three months ended Sept. 30, 2001. For
the nine months ended Sept. 30, 2001, fuel for electric generation increased $5.2 million, or 18.9%. Fuel
costs for MGE's electric generating units were up compared to last year primarily due to (1) the increased
use of base-load power plants at a marginally higher fuel cost, especially in the second quarter of 2001, and
(2) the higher cost of natural gas used to generate electricity.

Purchased power decreased $0.3 million and $5.4 million for the three and nine months ended Sept. 30,
2001. This decrease is attributed to the following:

- During 2001 MGE did not need to buy additional
    capacity from outside sources because its base-load units operated at full
    capacity. In the second quarter of 2000, MGE purchased more expensive open-market
    replacement power during a six-week scheduled refueling and maintenance outage
    at the Kewaunee plant.
- A decrease in the hourly purchase from Commonwealth
    Edison. During the first half of 2001, MGE purchased 15 MW from Commonwealth
    compared to 30 MW during the first half of last year.

Electric margin (revenues less fuel and purchased power) decreased $3.1 million, or 7.1%, for the three
months ended Sept. 30, 2001. For the third quarter, electric margin decreased due to the changes in revenue
described previously.

For the nine months ended Sept. 30, 2001, electric margins increased $2.1 million, or 1.9%, because
revenues were up (previously described) and purchased power costs were down.

**Natural Gas Purchased******

Natural gas purchases decreased $3.1 million, or 50.1%, for the three months ended Sept. 30, 2001. The
average cost per therm of natural gas for the third quarter decreased 49.0%. Under the purchased gas
adjustment clause authorized by the PSCW, MGE passes along to customers the cost of gas, subject to
certain limited incentive participation. Gas margin (revenues less gas purchased) increased $0.2 million, or
3.6%, for the three months ended Sept. 30, 2001, primarily due to a 2.7% rate increase effective Jan. 1,
2001.

Natural gas purchases increased $32.0 million, or 85.5%, for the nine months ended Sept. 30, 2001. The
average cost per therm of natural gas for the nine months ended Sept. 30, 2001, increased 75.0%. Gas
margin increased $3.7 million, or 12.9%, for the nine months ended Sept. 30, 2001, primarily due to
(1) higher retail deliveries in the first quarter, (2) the Jan. 1, 2001, rate increase, and (3) the recovery of
regulatory gas assets.

**Other Operations and Maintenance**

Operating and maintenance expenses increased $2.6 million for the third quarter of 2001, or 12.6%. For the
nine months ended Sept. 30, 2001, operating and maintenance costs increased $6.0 million, or 9.3%.

The changes in operations and maintenance expenses are a result of:

- Beginning Jan. 1, 2001, MGE pays a network
    service charge to ATC for transmission usage. In the third quarter, MGE paid
    $2.2 million to ATC (Footnote 7). For the nine months ended Sept. 30,
    2001, MGE paid $5.9 million to ATC.
- Uncollectible account expenses for electric
    and gas increased by $1.7 million due to the significant rise in natural
    gas costs and customers' utility bills during the first quarter.
- Energy conservation amortization for the nine
    months ending Sept. 30, 2001, decreased $0.8 million.
- For the nine months ended Sept. 30, 2001,
    operating and maintenance expenses at Kewaunee were down $0.7 million
    primarily due to lower administrative and general overheads.

**Depreciation Expense**

Depreciation expense for electric increased $2.0 million and $2.5 million, respectively, for the three and
nine months ended Sept. 30, 2001.

- Depreciation expense for electric assets increased $0.3 million and $0.9 million for the three and nine
months ended Sept. 30, 2001. This increase is attributable to a NOx accrual of $0.5 million in 2001 and
the addition of electric assets designed to increase customer reliability (an 83-MW natural gas-fired
combustion turbine was added during the second quarter of 2000).

- Depreciation expense for the decommissioning
    trust fund increased $1.6 million for the three and nine months ended Sept. 30,
    2001, due to increased earnings on the fund.

There were no significant impacts to gas depreciation for the three or nine months ended Sept. 30, 2001.

**Income Taxes and Other General Taxes******

MGE's effective tax rate for the nine months ended Sept. 30, 2001, increased to 38.1% from 36.5% last year
due to lower relative amounts of amortized excess deferred income taxes and amortized investment tax
credits. The lower amortization amounts result from MGE transferring its transmission assets to ATC
(Footnote 7).

The change in net deferred tax liabilities for the three months and nine months ended Sept. 30, 2001, of
$8.1 million and $8.7 million, respectively, is attributable to the sale of MGE's ownership interest in
Kewaunee (Footnote 1). Deferred tax assets and liabilities related to temporary differences between the tax
basis of Kewaunee assets and decommissioning liabilities and their reported book values were reversed in
the accounting for the sale. MGE realized no book gain or loss on the sale transaction.

General taxes increased $0.5 million for the nine months ended Sept. 30, 2001, compared to the same period
last year due to an increase in MGE's license fee tax. This tax is based on operating revenues for the year
immediately prior to the year the expense is recognized. The license fee tax is paid one year in advance and
amortized to expense in the following year on a straight-line basis. Accordingly, the general tax expense is
not related to current operating revenues.

**Other Income and Deductions******

Other income and deductions increased $2.4 million and $3.4 million (after tax), respectively, for the three
and nine months ended Sept. 30, 2001. Significant factors contributing to the increase include:

- MGE received $0.4 million (after tax) in
    the third quarter and $1.4 million (after tax) for the nine months ended
    Sept. 30, 2001, as equity earnings from ATC (Footnote 7).
- Gains and earnings of the decommissioning funds
    increased $1.6 million (after tax) for the three and nine months ending
    Sept. 30, 2001, when compared to the same period a year ago.

**Interest Expense**

Interest expense on long-term debt for the three months ended Sept. 30, 2001, decreased $0.1 million.
Interest expense for the nine months ended Sept. 30, 2001, increased $0.5 million, or 5.3%, due to the
financing of several major capital projects needed to improve reliability for MGE customers.

Lower short-term debt, due to proceeds received from ATC (Footnote 7), and the sale of Kewaunee caused
other interest expense to decline $0.4 million and $0.2 million for the three and nine months ended Sept. 30,
2001, respectively.

**New Accounting Pronouncements**

In June 2001, the Financial Accounting Standards Board (FASB) issued FAS No. 141, "Business
Combinations" and FAS No. 142, "Goodwill and Other Intangible Assets" that supersede Accounting
Principles Board (APB) Opinion No. 16, "Business Combinations," and APB Opinion No. 17, "Intangible
Assets." The two statements modify the method of accounting for business combinations and address the
accounting and reporting for goodwill and intangible assets. FAS 141 is effective for all business
combinations (1) initiated after June 30, 2001, and (2) with acquisitions completed after June 30, 2001, all
business combinations accounted for by the purchase method for which the date of acquisition is after June
30, 2001. FAS No. 142 is effective for fiscal years beginning after Dec. 15, 2001. MGE is currently
reviewing these statements to determine their effect on the company's financial statements.

In June 2001, the FASB issued FAS No. 143, "Accounting for Asset Retirement Obligations," which
amends FAS No. 19, "Financial Accounting and Reporting by Oil and Gas Producing Companies," and is
effective for all companies. This statement addresses the financial accounting and reporting for obligations
associated with the retirement of tangible, long-lived assets and the associated asset retirement costs. FAS
No. 143 is effective for fiscal years beginning after June 15, 2002. MGE is currently reviewing this
statement to determine its effect on the company's financial statements.

In August 2001, the FASB issued FAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets," which supersedes FAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of," and the accounting and reporting provisions of APB No. 30,
"Reporting the Results of Operations, Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions." FAS No. 144 addresses
financial accounting and reporting for the impairment or disposal of long-lived assets and is effective for
fiscal years beginning after Dec. 15, 2001, and interim periods within those fiscal years. MGE is currently
reviewing this statement to determine its effect on the company's financial statements.

******Item 3 - Quantitative and Qualitative Disclosures About Market Risk**

MGE is potentially exposed to market risk associated with interest rates, commodity prices, and equity
returns. MGE currently has no exposure to foreign currency risk. MGE has risk management policies to
monitor and assist in controlling these market risks and uses derivative instruments to manage some of its
exposures.

MGE manages its interest rate risk by (1) limiting its variable rate exposure through various financial
instruments to lock in fixed rates and (2) continually monitoring the effects of market changes on interest
rates. MGE has a long-term swap agreement that manages short-term commercial paper. MGE's fixed rate
on this swap agreement is 6.91%. MGE is not exposed to changes in interest rates on its long-term debt until
that debt matures and is refinanced at current rates.

MGE's commodity risks are somewhat mitigated by the current ratemaking process in place for the recovery
of electric fuel, purchased energy, and the cost of natural gas purchased for gas resale. MGE uses weather
derivatives to reduce the impact of weather volatility on its margins related to gas operations.

MGE currently funds its liabilities related to employee benefits and nuclear decommissioning through trust
funds. Changes in the market value of these trust funds affect MGE's expense and annuity payment. MGE
mitigates some of its risk in this matter through future rate actions by the PSCW.

**PART
  II. OTHER INFORMATION******
******Item 5 - Other Information**

**Forward-Looking Statements**

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:

- Economic and market conditions in MGE's service
    territory.
- Magnitude and timing of capital expenditures.
- Regulatory environment (including restructuring
    the electric utility industry in Wisconsin).
- Availability and cost of power supplies.

**Kewaunee Nuclear Power Plant**

Effective Sept. 23, 2001, MGE sold its 17.8% ownership interest of Kewaunee to Wisconsin Public Service
Corporation (WPSC) for net book value.

Pursuant to the sale agreement entered into with WPSC on Sept. 29, 1998, MGE in June 2001 executed its
option to buy electric capacity and energy at a fixed price from WPSC. MGE contracted with WPSC to
purchase 90 MW of electric capacity and energy from Sept. 24, 2001, through Sept. 23, 2003.

**Financing Registration
  Statement**

In October 2001, MGE filed a $100 million registration statement Form S-3 with the Securities and
Exchange Commission (SEC) regarding the issuance of debt and equity securities. Use of proceeds from the
sale of securities related to this registration statement will be for the following: (1) capital expenditures, in
particular an automated meter reading billing system, (2) refinancing of higher cost debt, and (3) general
corporate purposes.

**Holding Company Registration Statement**

In November 2001, MGE filed a registration statement
  on Form S-4 with the SEC regarding its proposal to create a holding company
  named MGE Energy, Inc. The holding company structure allows the company to raise
  capital in the financial markets as it builds new power plants. Electric prices
  will continue to be regulated by the PSCW as they are today.

Under the holding company proposal, shares of MGE common stock would be exchanged on a one-for-one
basis for shares of MGE Energy, Inc. Company shareholders will vote on the holding company proposal at
their annual meeting next May. All other approvals are expected to be completed by summer 2002.

******Item
  6(a) - Exhibits**

Exhibit 4	Indenture of Mortgage and Deed of Trust between MGE and Firstar Trust Company, as Trustee
(and supplements). Reference was provided in MGE's 2000 Annual Report on Form 10-K
(Commission File No. 0-1125).

Exhibit 12	Ratio of Earnings to Fixed Charges.

******Item 6(b) - Reports on Form 8-K**

No reports on Form 8-K were filed during the quarter for which this report is filed.

**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: Nov. 14, 2001 | /s/ Gary J. Wolter                                                                                   
|                    | President and Chief Executive Officer(Duly Authorized Officer)                                       
|Date: Nov. 14, 2001 | /s/ Terry A. Hanson                                                                                  
|                    | Vice President, Chief Financial Officer
        and Secretary(Chief Financial and Accounting Officer)