|****                                                                                                                                                                                                                                                                                                        
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|**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: **MARCH
      31, 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 May 14, 2001: 16,743,766 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**

**PART I. FINANCIAL INFORMATION**Item 1. Financial Statements
  Condensed Consolidated Statements of Income for three months ended March 31,
  2001 and 2000 (unaudited)
  Condensed Consolidated Statements of Cash Flows for three months ended March
  31, 2001 and 2000 (unaudited)
  Condensed Consolidated Balance Sheets as of March 31, 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**PART I. FINANCIAL INFORMATION**

******Item
  1. Financial Statements**

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

|For the three months ended March 31                                                            |         |        
|---------------------------------------------------------------------------------------------- | ------- | -------
|*(In thousands, except per-share amounts)*                                                     | 2001    | 2000   
|**Operating Revenues******                                                                     |         |        
|Electric                                                                                       | $49,438 | $46,904
|Gas                                                                                            | 72,592  | 37,639 
|Total Operating Revenues                                                                       | 122,030 | 84,543 
|****                                                                                           |         |        
|**Operating Expenses******                                                                     |         |        
|Fuel for electric generation                                                                   | 11,223  | 7,230  
|Purchased power                                                                                | 3,837   | 4,614  
|Natural gas purchased                                                                          | 55,058  | 22,799 
|Other operations                                                                               | 18,566  | 16,742 
|Maintenance                                                                                    | 4,104   | 4,038  
|Depreciation and amortization                                                                  | 8,950   | 8,544  
|Other general taxes                                                                            | 2,909   | 2,603  
|Income tax provision                                                                           | 5,301   | 5,566  
|Total Operating Expenses                                                                       | 109,948 | 72,136 
|                                                                                               |         |        
|**Net Operating Income**                                                                       | 12,082  | 12,407 
|                                                                                               |         |        
|AFUDC - equity funds                                                                           | 89      | 110    
|Equity earnings in ATC                                                                         | 755     | -      
|Other income, net                                                                              | 468     | 671    
|Income before interest expense and cumulative effect of a change in accounting
      principle | 13,394  | 13,188 
|                                                                                               |         |        
|Interest on long-term debt                                                                     | 3,306   | 2,873  
|Other interest                                                                                 | 524     | 262    
|AFUDC - borrowed funds                                                                         | (50)    | (57)   
|Net Interest Expense                                                                           | 3,780   | 3,078  
|Net income before cumulative effect of a change in accounting principle                        | 9,614   | 10,110 
|Cumulative effect of a change in accounting principle, net of tax benefit
      of $78         | (117)   | -      
|**Net Income**                                                                                 | $9,497  | $10,110
|                                                                                               |         |        
|**Earnings Per Share of Common Stock** (basic & diluted):                                      |         |        
|Income before cumulative effect of a change in accounting principle                            | $0.58   | $0.62  
|Cumulative effect of a change in accounting principle                                          | (0.01)  | -      
|**Net Income**                                                                                 | $0.57   | $0.62  
|                                                                                               |         |        
|**Average Shares Outstanding**
      (basic and diluted)                                       | 16,656  | 16,200 

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

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

|For the three months ended March 31                                                                           |          |         
|------------------------------------------------------------------------------------------------------------- | -------- | --------
|*(In thousands)*                                                                                              | 2001     | 2000    
|**Operating Activities******                                                                                  |          |         
|Net income                                                                                                    | $ 9,497  | $10,110 
|Adjustments to reconcile net income to net cash provided by operating
      activities:                       |          |         
|Depreciation and amortization                                                                                 | 8,950    | 8,544   
|Deferred income taxes                                                                                         | 348      | (342)   
|Amortization of nuclear fuel                                                                                  | 618      | 643     
|Amortization of investment tax credits                                                                        | (143)    | (181)   
|AFUDC - equity funds                                                                                          | (89)     | (110)   
|Equity earnings in ATC                                                                                        | 755      | -       
|Cumulative effect of change in accounting principle                                                           | 117      | -       
|Other noncash items                                                                                           | -        | (424)   
|Changes in working capital, excluding cash equivalents, sinking funds,
      maturities, and short-term debt: |          |         
|Decrease in current assets                                                                                    | 14,524   | 9,960   
|Increase/(decrease) in current liabilities                                                                    | (1,851)  | 3,175   
|Other noncurrent items, net                                                                                   | 1,025    | 3,695   
|Cash Provided by Operating Activities                                                                         | 33,751   | 35,070  
|****                                                                                                          |          |         
|**Investing Activities******                                                                                  |          |         
|Additions to utility plant and nuclear fuel                                                                   | (5,069)  | (13,109)
|AFUDC - borrowed funds                                                                                        | (50)     | (57)    
|Increase in nuclear decommissioning fund                                                                      | (2,535)  | (2,594) 
|Cash Used for Investing Activities                                                                            | (7,654)  | (15,760)
|****                                                                                                          |          |         
|**Financing Activities******                                                                                  |          |         
|Issuance of common stock                                                                                      | 2,413    | 2,224   
|Cash dividends on common stock                                                                                | (5,510)  | (5,316) 
|Decrease in short-term debt                                                                                   | (22,000) | (15,750)
|Cash Used for Financing Activities                                                                            | (25,097) | (18,842)
|****                                                                                                          |          |         
|**Change in Cash and Cash Equivalents**                                                                       | 1,000    | 468     
|Cash and cash equivalents at beginning of period                                                              | 4,307    | 1,948   
|Cash and cash equivalents at end of period                                                                    | $ 5,307  | $2,416  

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

**Condensed Consolidated Balance Sheets**

|(In thousands)                                                        | March 31, 2000 (Unaudited) | Dec. 31, 2000
|--------------------------------------------------------------------- | -------------------------- | -------------
|ASSET                                                                 |                            |              
|Utility Plant (at original cost, in service)                          |                            |              
|Electric                                                              | $545,270                   | $622,209     
|Gas                                                                   | 198,806                    | 197,093      
|Gross Plant in Service                                                | 744,076                    | 819,302      
|Less accumulated provision for depreciation                           | (472,934)                  | (510,381)    
|Net Plant in Service                                                  | 271,142                    | 308,921      
|Construction work in progress                                         | 23,387                     | 22,863       
|Nuclear decommissioning fund                                          | 97,741                     | 102,891      
|Nuclear fuel, net                                                     | 6,362                      | 6,979        
|Total Utility Plant                                                   | 398,632                    | 441,654      
|Other Property and Investments                                        | 3,674                      | 3,988        
|Investment in ATC                                                     | 38,956                     | -            
|Total other property and investments                                  | 42,630                     | 3,988        
|Current Assets                                                        |                            |              
|Cash and cash equivalents                                             | 5,307                      | 4,307        
|Accounts receivable, less reserves of $2,486 and $2,071, respectively | 42,430                     | 38,161       
|Unbilled revenue                                                      | 20,109                     | 27,900       
|Materials and supplies, at lower of average cost or market            | 8,054                      | 7,735        
|Fossil fuel, at lower of average cost or market                       | 3,995                      | 3,872        
|Stored natural gas, at lower of average cost or market                | 241                        | 9,785        
|Prepaid taxes                                                         | 5,512                      | 7,539        
|Other prepayments                                                     | 1,348                      | 1,221        
|Total Current Assets                                                  | 86,996                     | 100,520      
|Deferred Charges                                                      | 23,137                     | 25,442       
|Total Assets                                                          | $551,395                   | $571,604     
|CAPITALIZATION AND LIABILITIES                                        |                            |              
|Capitalization                                                        | $390,157                   | $383,749     
|Current Liabilities                                                   |                            |              
|Long-term debt due within one year                                    | 200                        | 200          
|Interim loans - commercial paper outstanding                          | 22,000                     | 44,000       
|Accounts payable                                                      | 21,922                     | 28,792       
|Accrued taxes                                                         | 8,304                      | 2,550        
|Accrued interest                                                      | 3,810                      | 3,162        
|Other current liabilities                                             | 7,150                      | 8,533        
|Total Current Liabilities                                             | 63,386                     | 87,237       
|Other Credits                                                         |                            |              
|Deferred income taxes                                                 | 43,669                     | 43,321       
|Regulatory liabilities                                                | 21,738                     | 26,517       
|Investment tax credit - deferred                                      | 6,631                      | 8,472        
|Other deferred liabilities                                            | 25,814                     | 22,308       
|Total Liabilities                                                     | 161,238                    | 187,855      
|Total Capitalization and Liabilities                                  | $551,395                   | $571,604     

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





MGE prepared these consolidated financial statements,
  without audit (except for balance sheet information at December 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 consolidated financial
  statements be read in conjunction with the 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. Nuclear Decommissioning**

Nuclear decommissioning costs for the Kewaunee
  Nuclear Power Plant (Kewaunee) are currently being accrued for full cost recovery
  by the end of 2002. These costs are currently recovered from customers in rates
  and are deposited in external trusts. MGE is presently funding decommissioning
  costs at $8.1 million annually. These trusts are shown on the balance sheet
  in the utility plant section. As of March 31, 2001, these trusts totaled
  $97.7 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 estimated to be $94.4 million in current dollars based on a site-specific
  study performed in 1992 using immediate dismantlement as the method of decommissioning.

**2. Per-share Amounts**

Earnings per share of common stock are computed
  on the basis of the weighted average of the daily number of shares outstanding.
  For the three months ended March 31, 2001 and 2000, there were 16,656,202
  and 16,199,669 shares outstanding, respectively.

Dividends declared and paid per share of common
  stock for the three months ended March 31, 2001 and 2000, were $0.331 and
  $0.328, respectively.

**3. Rate Matters**

In January 2001, the Public Service Commission
  of Wisconsin (PSCW) authorized (1) an electric rate increase of $7.5 million,
  or 3.9%, to cover rising fuel costs and increased system demands, (2) a natural
  gas rate increase of $3.4 million, or 2.7%, for improving the gas delivery system,
  and (3) a return on common stock equity of 12.9%. MGE's next rate case period
  is expected to begin Jan. 1, 2003. The PSCW will allow a rate case to be reopened
  if there are significant and material items in the second year of the biennial
  period and the impact of those items is uncertain at the time of the audit.
  MGE has a limited reopener in its current rate case to reflect items that may
  significantly impact rates for 2002. MGE's reopener will reflect the full-year
  impact of the disposition of Kewaunee and also address implementing a proposed
  automated meter reading system.

MGE has filed an application with the PSCW for
  a temporary increase in electric rates for 2001 of 2.7%. The temporary
  rate increase is primarily due to the higher natural gas costs used to generate
  electricity. The rate change was approved by the Commission on May 8, 2001,
  and will be effective from the spring through the end of the year.

**4. 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 (ATC) were as follows:

|Three months ended March 31 *(In thousands)* | ****
        2001 | 2000  
|-------------------------------------------- | ----------------- | ------
|Interest paid, net of amounts capitalized    | $ 3,131           | $2,182
|Income taxes paid, net                       | $ 684             | $1,451
|Investment in ATC (see Footnote 6)           | $43,612           | $ -   

**5. Cumulative Impact of
  a Change in Accounting Principle**

MGE is potentially exposed to market risk associated
  with interest rates, commodity prices, and equity returns. MGE has risk management
  policies to monitor and assist in controlling these market risks and uses derivative
  instruments to manage some of the exposures.

MGE manages its interest rate risk by limiting
  its variable rate exposure by using certain financial instruments to lock in
  fixed rates and continually monitoring the effects of market changes on interest
  rates. MGE is not exposed to changes in interest rates on its long-term debt
  until such debt matures and is refinanced at the then applicable 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 resale. MGE uses
  weather derivatives to reduce the impact of weather volatility on its margins
  related to gas operations. In February 2000, MGE purchased a nonexchange-traded
  heating degree day put option covering the periods of March 2000 and November
  2000 through March 2001. The weather derivative expired on April 1 with no value.

MGE currently funds its liabilities related to
  employee benefits and nuclear decommissioning through trust funds. MGE's risk
  of expense and annuity payment variations as a result of changes in the market
  value of the trust funds is mitigated in part through future rate actions by
  the PSCW.

MGE has entered into a limited number of commodity
  contracts related to purchased gas and power agreements with commodity price
  components. Management believes that any gains or losses resulting from the
  settlement of these agreements will be collected from or refunded to customers
  under current rate tariffs with the PSCW. The derivative amounts to be recorded
  as a result of these contracts will be offset with a corresponding regulatory
  asset and liability pursuant to FAS No. 71, "Accounting for the Effects of Certain
  Types of Regulation."

MGE has a swap agreement with a commercial bank
  at 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. MGE's adoption of FAS No.
  133 resulted in an after-tax charge of $0.1 million, which is reflected in the
  statement of income as a cumulative effect of a change in accounting principle.

For the three-month period ended March 31, 2001,
  MGE recognized a net loss of $0.1 million (after tax) to other income in the
  statement of income. This was a result of the change in the fair value of the
  derivative from the adoption of FAS No. 133 to the end of the first quarter.

******6.
  Investment in American Transmission Company LLC (ATC)**

On Jan. 1, 2001, MGE transferred its electric
  transmission facilities to ATC. ATC is a joint venture of Wisconsin investor-owned
  utilities, several Wisconsin municipal utilities, electric cooperatives, and
  power supply agencies. ATC owns and operates most of Wisconsin's transmission
  system. ATC was authorized by Wisconsin Reliability 2000 legislation and is
  rate regulated by the Federal Energy Regulatory Commission (FERC). MGE is also
  regulated as to its business practices and construction projects by the PSCW.
  MGE contracts with ATC for transmission services and expects to earn a return
  on its investment in ATC approximately equal to the return it would have earned
  by retaining its transmission assets.

MGE's investment in ATC is accounted for on the
  equity method of accounting. Investors in ATC have an ownership interest equal
  to their ratable share of property transferred adjusted by deferred income taxes
  and accumulated deferred investment tax credit. MGE's investment in ATC (approximately
  6%) is carried at net book value of the transferred transmission plant and construction
  work in progress (CWIP), reduced by the FAS 109 regulatory liability and deferred
  investment tax credit attributable to the transmission assets. The following
  is MGE's initial investment in ATC:

|*(In millions)*                                                                                                         |       
|----------------------------------------------------------------------------------------------------------------------- | ------
|Utility transmission plant cost                                                                                         | $78.9 
|Transmission CWIP                                                                                                       | 1.9   
|Utility transmission plant accumulated
        depreciation                                                             | (37.2)
|Investment in ATC                                                                                                       | 43.6  
|Less FAS 109 regulatory liability and deferred
        investment tax credit attributable
        to transmission plant | (5.5) 
|Initial investment carrying value in ATC                                                                                | $38.1 

The reduction to the investment carrying value
  for the transmission component of the FAS 109 regulatory liability and deferred
  investment tax credit reflects the transfer of excess deferred taxes and accumulated
  deferred investment tax credits for ratemaking purposes to the ATC. The impact
  of the accumulated deferred investment tax credit and theFAS 109
  regulatory liability for excess deferred taxes of the transmission plant was
  $2.8 million and $2.7 million, respectively.

MGE will accrete its investment carrying value
  by amortizing this FAS 109 regulatory liability adjustment into income over
  the related regulatory life of the excess deferred taxes and accumulated deferred
  investment tax credit to coincide with the impact to ATC's regulated revenues.

The amortization period is approximately 10 years.
  In the first quarter of 2001, the amount amortized into income was $0.1 million.
  MGE's equity in the earnings of ATC amounted to $0.8 million (pre-tax) for the
  first quarter of 2001.

All customers of ATC pay the same rate, based
  on load ratio share, for transmission service regardless of their ownership
  interest. During the first quarter, MGE incurred a network transmission service
  fee of $2.2 million, which is included in MGE's operating expenses. MGE is currently
  providing services to ATC for fixed capital, operations and maintenance, and
  transitional services. The contract to provide these services is for a three-year
  period and includes the actual costs of labor, material, and overheads. Approximately
  $0.5 millionhas
  been billed to ATC for these services during the first quarter of 2001. Services
  are tracked on an actual basis and billed to ATC monthly.

Since the impact of transferring MGE's transmission
  plant to ATC was indeterminable at the time MGE's current tariffs were established
  by its rate case, MGE's current rates and first-quarter operating revenues reflect
  a continued investment in and operation of MGE's transmission plant. The difference
  between the revenue requirement associated with transmission services within
  MGE's current tariffs and the network transmission service fee from ATC is deferred
  subject to regulatory treatment, and will be adjusted in MGE's next rate case.
  During the first quarter, MGE recorded a deferred asset of $0.4 million for
  this difference.Cash Distribution from ATC

ATC's current rate structure includes a capital
  structure that is weighted 50% equity and 50% debt. In April, ATC issued debt
  and distributed the proceeds to the owners. MGE received from ATC a partial
  (80%) debt repayment distribution of $11.5 million. The remaining cash distribution
  from ATC will be received once the final audit has been conducted.

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

|*(In thousands)*             | Electric | Gas     | Consolidated
|---------------------------- | -------- | ------- | ------------
|*Three months ended Mar. 31* | 2001     | 2000    | 2001        
|Revenues                     | $49,438  | $46,904 | $72,592     
|Net Operating Income         | $5,704   | $7,439  | $6,378      

|                      | Electric | Gas      | Other   | Consolidated
|--------------------- | -------- | -------- | ------- | ------------
|Assets:               |          |          |         |             
|March 31, 2001        | $385,447 | $110,213 | $55,735 | $551,395    
|December 31, 2000     | $395,622 | $123,486 | $52,496 | $571,604    
|Capital Expenditures: |          |          |         |             
|March 31, 2001        | $4,161   | $908     | $ -     | $5,069      
|December 31, 2000     | $65,312  | $8,294   | $ -     | $73,606     

******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 decreased
  $1.3 million, or 3.8%, for the first quarter of 2001. Current liabilities decreased
  $5.0 million during the first quarter of 2001, compared to 2000, while current
  assets decreased $4.6 million for the same period.

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

Cash used for investing activities decreased $8.1
  million, or 51.4%. This is due to a decrease in plant additions of $8.0 million
  during the first quarter of 2001 compared to last year. During the first quarter
  of 2000, MGE had significant capital spending for its customer backup generation
  program to provide system reliability relating to industrial customers.

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

Cash used for financing activities increased by
  $6.3 million, or 33.2%, due to the decrease in short-term debt during the first
  quarter of 2001 as compared to last year. Cash flows are cyclical in nature
  for MGE. Incoming cash is heaviest during the winter and summer months. MGE
  benefits in the winter months by drawing down on its stored natural gas, which
  it purchased in the summer months, reducing winter purchased gas payments.

Bank lines of credit available to MGE as of March 31,
  2001, were $55 million.

MGE's capitalization ratios were as follows:

|                                                                            | Mar.
        31, 2001 | Dec. 31, 2000
|--------------------------------------------------------------------------- | --------------------- | -------------
|Common shareholders' equity                                                 | 50.3%                 | 46.8%        
|Short-term debt                                                             | 5.3                   | 10.3         
|Long-term debt*                                                             | 44.4                  | 42.9         
|*Includes current maturities
        and current sinking fund requirements.

**Capital Requirements**

MGE's liquidity is primarily affected by its construction
  requirements. During this year's first quarter, MGE's plant additions totaled
  $5.1 million, down 61.3% from last year's first quarter. It is anticipated
  that capital expenditures for projects in 2001 will be $44.6 million. The major
  projects include:

- Improvements at MGE's Blount Generating Station.- Improvements to MGE 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 this year's first quarter. For larger capital investments, MGE will issue
  additional long-term debt or common stock.

MGE's pretax interest coverage for the twelve
  months ended March 31, 2001, was 3.78 times. Below is a table of MGE's current
  credit ratings.

|                                                                | Standard
        & Poor's | Moody's   
|--------------------------------------------------------------- | ------------------------- | ----------
|First Mortgage BondsUnsecured Medium Term NotesCommercial Paper | AA AA- A1+                | Aa2 Aa3 P1

**Results of Operations**

**Sales and Revenues**

***Electric***

Retail sales increased 2.4% during the first three
  months ended March 31, 2001 (see table).

|*Electric Sales (megawatt-hours)*
        Three months ended March 31 | 2001    | 2000    | % Change
|--------------------------------------------------------------------- | ------- | ------- | --------
|Residential                                                           | 207,504 | 192,091 | 8.0     
|Large commercial                                                      | 292,152 | 256,632 | 13.8    
|Small commercial                                                      | 152,137 | 189,655 | (19.8)  
|Other                                                                 | 66,966  | 63,516  | 5.4     
|Total Retail                                                          | 718,759 | 701,895 | 2.4     
|Sales for resale                                                      | 24,245  | 93,283  | (74.0)  
|Total Sales                                                           | 743,004 | 795,178 | (6.6)   



Electric operating revenue increased $2.5 million,
  or 5.4%, during the first three months of 2001. The increase in electric revenues
  was due to higher retail sales and a 3.9% electric rate increase ($3.6 million),
  which went into effect on January 1 (see Footnote 3, Rate Matters). Sales for
  resale were down $1.5 million for the first quarter of 2001 because a contract
  with Wisconsin Public Power Inc. expired. MGE sold 30 MW of firm energy and
  capacity to Wisconsin Public Power Inc. from March 1999 through 2000.

***Gas***

For the three months ended March 31, 2001, retail
  gas deliveries increased 13.9% over the prior year's first quarter, due in large
  part to colder winter weather. The average temperature for the first quarter
  2001 was 24.6 degrees Fahrenheit, which was 18.1% colder than last year's first
  quarter.

|*Gas Deliveries (thousands of therms*)
        Three months ended March 31 | 2001   | 2000   | % Change
|-------------------------------------------------------------------------- | ------ | ------ | --------
|Residential                                                                | 41,930 | 36,966 | 13.4    
|Commercial and Industrial                                                  | 33,519 | 29,290 | 14.4    
|Total Retail                                                               | 75,449 | 66,256 | 13.9    
|Transport                                                                  | 12,744 | 14,623 | (12.8)  
|Total Gas Deliveries                                                       | 88,193 | 80,879 | 9.0     

Gas operating
  revenues increased $35.0 million in the first quarter 2001, mainly due to the
  significant increase in the cost of gas. Gas incentive revenues were down $1.0
  million when compared to last year's first quarter due to the gas cost incentive
  mechanism (GCIM). Under MGE's 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. High gas prices and increased demand caused MGE's gas commodity
  costs to exceed the GCIM benchmark by $1.4 million during the first quarter.
  This cost was shared equally ($0.7 million each) by shareholders and gas sales
  service customers.

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

Fuel for electric generation increased $4.0 million,
  or 55.2%, during this year's first quarter. Fuel costs for MGE's electric generating
  units were up 47% compared to last year, primarily due to the higher natural
  gas costs used to generate electricity.

Purchased power decreased $0.8 million, or 16.8%,
  during the first quarter. This is due to a decrease in the amount of power being
  purchased from Commonwealth Edison. During the first quarter 2001, MGE purchased
  15 MW from Commonwealth as compared to the 30 MW purchased during last year's
  first quarter.

Electric margin (revenues less fuel and purchased
  power) decreased $0.7 million, or 1.9%, during the first quarter 2001 due to
  the increase in natural gas used for electric generation.

**Natural Gas Purchased******

Natural gas purchased increased $32.3 million,
  or 141.5%, during the three months ended March 31, 2001. The average cost per
  therm of natural gas has more than doubled (112%) for the first quarter of 2001
  when compared to last year's first quarter. 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. Increased gas deliveries
  of 13.9% also contributed to the increase in natural gas purchased.

Gas margin (revenues less gas purchased) increased
  $2.7 million, or 18.2%, during the first quarter 2001 due to: (1) higher
  retail deliveries and (2) a 2.7% rate increase effective Jan. 1, 2001.

**Electric and Gas Operations******

Electric operating costs increased $1.8 million,
  or 48.8%, during the first quarter of 2001. As of Jan. 1, MGE pays a network
  service charge to the ATC for transmission usage. In the first quarter, MGE
  paid $1.6 million to ATC (see Footnote 6). This wheeling charge is offset by
  decreases in electric depreciation expense of $0.5 million and operations and
  maintenance expenses of $0.3 million. Also, a portion of this wheeling charge
  is offset by the earnings MGE receives from ATC for its ownership interest,
  which flows through other income. There were no significant impacts to gas operations
  during the first quarter.

**Electric and Gas Depreciation******

Electric depreciation expense increased $0.4 million,
  or 6.2%, during the first quarter of 2001 despite the reduction related to the
  transfer of MGE's transmission facilities of $0.5 million. The decrease was
  more than offset by an increase in MGE's electric generating assets, specifically
  the combustion turbine in Marinette. There were no significant impacts to gas
  depreciation during the first quarter.

**Other General Taxes******

General taxes increased $0.3 million, or 11.8%,
  due to an increase in MGE's license fee tax, which is based on operating revenues.

**Income Taxes******

MGE's effective tax rate for the three months
  ended March 31, 2001, increased to 38.3% from 36.5% for the year 2000 due to
  lower relative amounts of amortized excess deferred income taxes and amortized
  investment tax credits. MGE is amortizing the deferred investment tax credits
  and the excess deferred income taxes through its investment account. The lower
  amounts of amortization reflect the transfer of MGE's transmission facilities
  to ATC (see Footnote 6).

**Other Income******

Other income increased $0.6 million, or 82.2%,
  during the first quarter of 2001. MGE received $0.5 million (after tax)
  in the first quarter as equity in earnings from ATC (see Footnote 6). MGE
  had a benefit of $0.1 million (after tax) related to the settlement of a cost-sharing
  agreement on certain transmission facilities between MGE and Alliant Energy.

**Interest Expense**

Interest on long-term debt increased $0.4 million,
  or 15.1%, during this year's first quarter due to the financing of several major
  capital projects needed to improve reliability for MGE customers. Also, significantly
  higher natural gas costs increased short-term debt and caused other interest
  expense to rise $0.3 million.

**Cumulative Impact of a
  Change in Accounting Principle**

MGE is potentially exposed to market risk associated
  with interest rates, commodity prices and equity returns. MGE has risk management
  policies to monitor and assist in controlling these market risks and uses derivative
  instruments to manage some of the exposures.

MGE manages its interest rate risk by limiting
  its variable rate exposure by using certain financial instruments to lock in
  fixed rates and continually monitoring the effects of market changes on interest
  rates. MGE is not exposed to changes in interest rates on its long-term debt
  until such debt matures and is refinanced at the then applicable rates.

MGE's commodity risks are somewhat mitigated by
  the current rate making process in place for the recovery of electric fuel,
  purchased energy and the cost of natural gas purchased for resale. MGE uses
  weather derivatives to reduce the impact of weather volatility on its margins
  related to gas operations. In February 2000, MGE purchased a non exchange-traded
  heating degree day put option covering the periods of March 2000 and November
  2000 through March 2001. The weather derivative expired on April 1 with no-value.

MGE currently funds its liabilities related to
  employee benefits and nuclear decommissioning through trust funds. MGE's risk
  of expense and annuity payment variations as a result of changes in the market
  value of the trust funds is mitigated in part through future rate actions by
  the PSCW.

MGE has entered into a limited number of commodity
  contracts related to purchased gas and power agreements with commodity price
  components. Management believes that any gains or losses resulting from the
  settlement of these agreements will be collected from or refunded to customers
  under current rate tariffs with the PSCW. The derivative amounts to be recorded
  as a result of these contracts will be offset with a corresponding regulatory
  asset and liability pursuant to FAS No. 71, "Accounting for the Effects of Certain
  Types of Regulation."

MGE has a swap agreement with a commercial bank
  at 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. MGE's adoption of FAS No.
  133 resulted in an after-tax charge of $0.1 million, which is reflected in the
  statement of income as a cumulative effect of a change in accounting principle.

For the three-month period ended March 31, 2001,
  MGE recognized a net loss of $0.1 million (after tax) to other income in the
  statement of income. This was a result of the change in the fair value of the
  derivative from the adoption of FAS No. 133 to the end of the first quarter.

**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 the exposures.

MGE manages its interest rate risk by limiting
  its variable rate exposure through various financial instruments to lock in
  fixed rates and 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 such debt matures and
  is refinanced at the then applicable 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 resale. MGE uses weather derivatives
  to reduce the impact of weather volatility on its margins related to gas operations.
  In February 2000, MGE purchased a nonexchange-traded heating degree day put
  option covering the periods of March 2000 and November 2000 through March 2001.
  The weather derivative expired on April 1 with no value.

MGE currently funds its liabilities related to
  employee benefits and nuclear decommissioning through trust funds. MGE's risk
  of expense and annuity payment variations as a result of changes in the market
  value of the trust funds is mitigated in part 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**

Kewaunee is jointly owned by MGE, Wisconsin Public
  Service Corp. (WPSC) and Alliant Energy. Kewaunee has been operated since 1974
  by WPSC. The plant's license will expire in 2013.

On March 27, 2001, the Kewaunee co-owners received
  approval from the PSCW to apply deferred accounting treatment to Kewaunee's
  incremental costs associated with its accelerated five-year program to adopt
  current industry standards. Regarding this matter, MGE is continuing its negotiations
  with the co-owners to share only the costs required to keep Kewaunee on-line
  until the replacement of the steam generators begins this fall.

Information regarding the replacement of two steam
  generators at Kewaunee and WPSC's agreement to buy MGE's 17.8% share of Kewaunee
  is included in the registrant's Annual Report on Form 10-K for the year ended
  December 31, 2000.

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