[X] Quarterly Report Pursuant to Section 13 or 15(d) of
  the Securities Exchange Act of 1934





[ ] Transition report pursuant to Section 13
  or 15(d) of the Securities Exchange Act of 1934



|Commission
      File No. | Name of Registrant, State of Incorporation,
      Address 
      of Principal Executive Offices and Telephone No.                         | IRS Employer
        Identification No.
|------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------
|000-49965                 | **MGE Energy, Inc.***(a Wisconsin Corporation)*133 South Blair Street
      Madison, Wisconsin 53703
      (608) 252-7000                 | 39-2040501                             
|000-1125                  | **Madison Gas and Electric Company***(a Wisconsin Corporation)*133 South Blair Street
      Madison, Wisconsin 53703
      (608) 252-7000 | 39-0444025                             
|                          | **www.mgeenergy.com/sec***Web Site*                                                                                                       |                                        



Indicate by check mark whether the registrants (1) have
  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) have been
  subject to such filing requirements for the past 90 days: Yes [X] No [
  ]

Indicate by check mark whether the registrants are an accelerated
  filer (as defined in Rule 12b-2 of the Exchange Act):

MGE Energy Yes [X] No [ ] Madison Gas and Electric Company Yes
  [ ] No [X]

|**Number of shares outstanding
      of each class of common stock as of November 13, 2003**
|--------------------------------------------------------------------------------------------
|MGE Energy, Inc.                                                                            
|Madison Gas and Electric Company                                                            



**PART I. FINANCIAL INFORMATION.** 3

Filing Format 3

Forward-Looking Statements 3

Where to Find More Information 3

Item 1. Financial Statements. 4

**MGE Energy, Inc.**

Condensed Consolidated Statements of Income and Comprehensive
  Income (unaudited) 4

Condensed Consolidated Statements of Cash Flows (unaudited)
  5

Condensed Consolidated Balance Sheets (unaudited) 6

**Madison Gas and Electric Company**

Condensed Statements of Income and Comprehensive Income (unaudited)
  7

Condensed Statements of Cash Flows (unaudited) 8

Condensed Balance Sheets (unaudited) 9

**MGE Energy, Inc. and Madison Gas and Electric Company**

Notes to Condensed Consolidated Financial Statements (unaudited)
  10

Item 2. Management's Discussion and Analysis of Financial Condition
  and Results of Operations. 22

Item 3. Quantitative and Qualitative Disclosures About Market
  Risk. 30

Item 4. Controls and Procedures. 32

**PART II: OTHER INFORMATION** 33

Item 6. Exhibits and Reports on Form 8-K. 33

Signatures - MGE Energy, Inc. 34

Signatures - Madison Gas and Electric Company 35

**PART I. FINANCIAL INFORMATION.**

**Filing Format**

This combined Form 10-Q is being filed separately by MGE Energy,
  Inc. (MGE Energy) and Madison Gas and Electric Company (MGE). Information contained
  herein relating to an individual registrant has been filed by that registrant
  on its own behalf. Neither registrant makes any representation as to information
  relating to the other registrant.

**Forward-Looking Statements**

This report contains 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. When used in this report, the words "anticipate,"
  "estimate," "expect," "project," "believe," and similar expressions are intended
  to identify forward-looking statements. These forward-looking statements are
  made pursuant to the "safe harbor" provisions of the Private Securities Litigation
  Reform Act of 1995. MGE Energy and MGE caution investors that forward-looking
  statements are subject to known and unknown risks and uncertainties that may
  cause MGE Energy's and MGE's actual results to differ materially from those
  projected, expressed, or implied in forward-looking statements. Some of those
  risks and uncertainties include:

- Weather.
  - 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.

MGE Energy and MGE undertake no obligation to publicly release
  any revision to these forward-looking statements to reflect events or circumstances
  after the date of this report.

**Where to Find More Information**

MGE Energy's and MGE's annual reports on Form 10-K, quarterly
  reports on Form 10-Q, current reports on Form 8-K, and any amendments
  to such reports filed with or furnished to the Securities and Exchange Commission
  (SEC) pursuant to Sections 13(a) or 15(d) of the Securities Exchange Act
  of 1934 are available free of charge on MGE Energy's Web site (www.mgeenergy.com/sec)
  as soon as reasonably practicable after such reports are electronically filed
  with the SEC. They are also available at the SEC's Web site at http://www.sec.gov.

**Item 1. Financial Statements.**







|                                                                 | Three Months Ended
      Sept. 30, |  | Nine Months Ended
      Sept. 30,
|---------------------------------------------------------------- | ---------------------------------- |  | ---------------------------------
|                                                                 | 2003                               |  | 2002                             
|**Revenues:**                                                    |                                    |  |                                  
|Regulated utility operations                                     | $87,931                            |  | $79,430                          
|                                                                 |                                    |  |                                  
|**Expenses:**                                                    |                                    |  |                                  
|Fuel for electric generation                                     | 11,872                             |  | 11,403                           
|Purchased power                                                  | 14,222                             |  | 13,646                           
|Natural gas purchased                                            | 7,590                              |  | 4,537                            
|Other operations and maintenance                                 | 25,878                             |  | 20,508                           
|Depreciation and amortization                                    | 5,795                              |  | 7,219                            
|Other general taxes                                              | 2,881                              |  | 2,649                            
|*Total Operating Expenses*                                       | 68,238                             |  | 59,962                           
|**Operating Income**                                             | 19,693                             |  | 19,468                           
|                                                                 |                                    |  |                                  
|Other income                                                     | 115                                |  | 1,366                            
|Interest expense                                                 | (2,912)                            |  | (3,135)                          
|Income before income taxes                                       | 16,896                             |  | 17,699                           
|Income tax provision                                             | (6,788)                            |  | (7,209)                          
|**Net Income**                                                   | $10,108                            |  | $10,490                          
|                                                                 |                                    |  |                                  
|**Total Comprehensive Income**                                   | $10,108                            |  | $10,490                          
|                                                                 |                                    |  |                                  
|**Earnings per Share of Common Stock** (basic
      and diluted) | $0.56                              |  | $0.60                            
|                                                                 |                                    |  |                                  
|Dividends paid per share of common stock                         | $0.338                             |  | $0.336                           
|                                                                 |                                    |  |                                  
|**Average Shares Outstanding** (basic and
      diluted)         | 17,957                             |  | 17,373                           



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

**MGE Energy, Inc.**





|                                                                                                                      | Nine Months Ended
      Sept. 30,
|--------------------------------------------------------------------------------------------------------------------- | ---------------------------------
|                                                                                                                      | 2003                             
|**Operating Activities:**                                                                                             |                                  
|Net income                                                                                                            | $25,316                          
|Items not affecting cash:                                                                                             |                                  
|Depreciation and amortization                                                                                         | 17,556                           
|Deferred income taxes                                                                                                 | 1,505                            
|Amortization of investment tax credits                                                                                | (387)                            
|Other                                                                                                                 | (351)                            
|Equity in earnings of ATC                                                                                             | (2,754)                          
|Dividend income from ATC                                                                                              | 1,959                            
|Collateral to ATC                                                                                                     | 5,000                            
|Changes in working capital, excluding cash equivalents,
      current long-term debt maturities, and short-term debt: |                                  
|Decrease/(Increase) in current assets                                                                                 | 9,377                            
|Increase in current liabilities                                                                                       | 2,669                            
|Other noncurrent items, net                                                                                           | 9,739                            
|*Cash Provided by Operating Activities*                                                                               | 69,629                           
|                                                                                                                      |                                  
|**Investing Activities:**                                                                                             |                                  
|Capital expenditures                                                                                                  | (84,236)                         
|Increase in nuclear decommissioning fund                                                                              | -                                
|Other                                                                                                                 | (160)                            
|*Cash Used for Investing Activities*                                                                                  | (84,396)                         
|                                                                                                                      |                                  
|**Financing Activities:**                                                                                             |                                  
|Issuance of common stock                                                                                              | 15,487                           
|Cash dividends on common stock                                                                                        | (17,978)                         
|Debt issue expense                                                                                                    | (902)                            
|Increase in long-term debt                                                                                            | 50,000                           
|Decrease in long-term debt                                                                                            | (20,000)                         
|Short-term debt (repayments)/borrowings                                                                               | (10,118)                         
|*Cash Provided by (Used for) Financing Activities*                                                                    | 16,489                           
|                                                                                                                      |                                  
|**Change in Cash and Cash Equivalents**                                                                               | 1,722                            
|Cash and cash equivalents at beginning of period                                                                      | 2,998                            
|Cash and cash equivalents at end of period                                                                            | $4,720                           



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

**MGE Energy, Inc.**





|                                                                            | Sept. 30,
      2003 |  | Dec. 31,
      2002
|--------------------------------------------------------------------------- | -------------------- |  | -------------------
|**Assets**                                                                  |                      |  |                    
|**Current Assets:**                                                         |                      |  |                    
|Cash and cash equivalents                                                   | $4,720               |  | $2,998             
|Accounts receivable, less reserves of $2,542 and $2,659,
      respectively | 28,574               |  | 36,275             
|Unbilled revenues                                                           | 13,524               |  | 18,539             
|Materials and supplies, at lower of average cost or market                  | 7,711                |  | 8,147              
|Fossil fuel, at lower of average cost or market                             | 3,483                |  | 5,213              
|Stored natural gas, at lower of average cost or market                      | 22,011               |  | 12,948             
|Prepaid taxes                                                               | 6,721                |  | 10,827             
|Other prepayments                                                           | 2,572                |  | 2,024              
|*Total Current Assets*                                                      | 89,316               |  | 96,971             
|**Deferred Charges**                                                        | 40,321               |  | 36,103             
|                                                                            |                      |  |                    
|**Property, Plant, and Equipment, Net**                                     | 422,875              |  | 404,007            
|Construction work in progress                                               | 95,092               |  | 47,539             
|Nuclear decommissioning fund                                                | -                    |  | 8,782              
|*Total Property, Plant, and Equipment*                                      | 517,967              |  | 460,328            
|**Other property and investments**                                          | 31,319               |  | 35,493             
|                                                                            |                      |  |                    
|**Total Assets**                                                            | $678,923             |  | $628,895           
|                                                                            |                      |  |                    
|**Liabilities and Capitalization**                                          |                      |  |                    
|**Current Liabilities:**                                                    |                      |  |                    
|Long-term debt - due within one year                                        | $5,000               |  | $ -                
|Short-term debt                                                             | 24,180               |  | 34,298             
|Accounts payable                                                            | 28,732               |  | 32,039             
|Accrued taxes                                                               | 4,262                |  | -                  
|Accrued interest                                                            | 3,465                |  | 3,161              
|Other current liabilities                                                   | 12,459               |  | 11,049             
|*Total Current Liabilities*                                                 | 78,098               |  | 80,547             
|                                                                            |                      |  |                    
|**Other Credits:**                                                          |                      |  |                    
|Deferred income taxes                                                       | 63,955               |  | 62,450             
|Investment tax credit - deferred                                            | 5,020                |  | 5,407              
|Other deferred liabilities                                                  | 64,465               |  | 60,972             
|*Total other credits*                                                       | 133,440              |  | 128,829            
|                                                                            |                      |  |                    
|Commitments and contingencies                                               | -                    |  | -                  
|                                                                            |                      |  |                    
|**Capitalization:**                                                         |                      |  |                    
|Common stockholders' equity                                                 | 250,195              |  | 227,370            
|Long-term debt                                                              | 217,190              |  | 192,149            
|*Total Capitalization*                                                      | 467,385              |  | 419,519            
|                                                                            |                      |  |                    
|**Total Liabilities and Capitalization**                                    | $678,923             |  | $628,895           



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







|                                    | Three Months Ended
      September 30, |  | Nine Months Ended
      September 30,
|----------------------------------- | -------------------------------------- |  | -------------------------------------
|                                    | 2003                                   |  | 2002                                 
|**Operating Revenues:**             |                                        |  |                                      
|Regulated electric revenues         | $72,811                                |  | $67,953                              
|Regulated gas revenues              | 15,120                                 |  | 11,477                               
|*Total Operating Revenues*          | 87,931                                 |  | 79,430                               
|                                    |                                        |  |                                      
|**Operating Expenses:**             |                                        |  |                                      
|Fuel for electric generation        | 11,872                                 |  | 11,403                               
|Purchased power                     | 14,222                                 |  | 13,646                               
|Natural gas purchased               | 7,590                                  |  | 4,537                                
|Other operations and maintenance    | 25,782                                 |  | 20,508                               
|Depreciation and amortization       | 5,795                                  |  | 7,219                                
|Other general taxes                 | 2,874                                  |  | 2,649                                
|Income tax provision                | 6,733                                  |  | 6,338                                
|*Total Operating Expenses*          | 74,868                                 |  | 66,300                               
|**Net Operating Income**            | 13,063                                 |  | 13,130                               
|                                    |                                        |  |                                      
|**Other Income and Deductions:**    |                                        |  |                                      
|AFUDC - equity funds                | 134                                    |  | 85                                   
|Equity in earnings in ATC           | 933                                    |  | 716                                  
|Income tax provision                | (2)                                    |  | (573)                                
|Other deductions                    | (1,014)                                |  | 642                                  
|*Total Other Income and Deductions* | 51                                     |  | 870                                  
|Income Before Interest Expense      | 13,114                                 |  | 14,000                               
|                                    |                                        |  |                                      
|**Interest Expense:**               |                                        |  |                                      
|Interest on long-term debt          | 2,885                                  |  | 2,951                                
|Other interest                      | 15                                     |  | 184                                  
|AFUDC - borrowed funds              | (58)                                   |  | (47)                                 
|*Net Interest Expense*              | 2,842                                  |  | 3,088                                
|**Net Income**                      | $10,272                                |  | $10,912                              
|                                    |                                        |  |                                      
|**Total Comprehensive Income**      | $10,272                                |  | $10,912                              



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

**Madison Gas and Electric Company**





|                                                                                                                      | Nine Months Ended
      September 30,
|--------------------------------------------------------------------------------------------------------------------- | -------------------------------------
|                                                                                                                      | 2003                                 
|**Operating Activities:**                                                                                             |                                      
|Net income                                                                                                            | $25,520                              
|Items not affecting cash:                                                                                             |                                      
|Depreciation and amortization                                                                                         | 17,556                               
|Deferred income taxes                                                                                                 | 1,523                                
|Amortization of investment tax credits                                                                                | (387)                                
|AFUDC - equity funds                                                                                                  | (351)                                
|Equity in earnings of ATC                                                                                             | (2,754)                              
|Dividend income from ATC                                                                                              | 1,959                                
|Collateral to ATC                                                                                                     | 5,000                                
|Changes in working capital, excluding cash equivalents,
      current long-term debt maturities, and short-term debt: |                                      
|Decrease/(increase) in current assets                                                                                 | 9,293                                
|Increase in current liabilities                                                                                       | 1,191                                
|Other noncurrent items, net                                                                                           | 9,805                                
|*Cash Provided by Operating Activities*                                                                               | 68,355                               
|                                                                                                                      |                                      
|**Investing Activities:**                                                                                             |                                      
|Additions to utility plant                                                                                            | (43,506)                             
|AFUDC - borrowed funds                                                                                                | (160)                                
|Increase in nuclear decommissioning fund                                                                              | -                                    
|Purchase of gas service territory                                                                                     | -                                    
|*Cash Used for Investing Activities*                                                                                  | (43,666)                             
|                                                                                                                      |                                      
|**Financing Activities:**                                                                                             |                                      
|Equity contributions from parent                                                                                      | 13,808                               
|Issuance of common stock                                                                                              | -                                    
|Debt issue expense                                                                                                    | (1,002)                              
|Increase in long-term debt                                                                                            | 20,000                               
|Decrease in long-term debt                                                                                            | (20,000)                             
|Cash dividends to parent                                                                                              | (23,854)                             
|Short-term debt (repayments)/borrowings                                                                               | (13,500)                             
|*Cash Used for Financing Activities*                                                                                  | (24,548)                             
|                                                                                                                      |                                      
|**Change in Cash and Cash Equivalents**                                                                               | 141                                  
|Cash and cash equivalents at beginning of period                                                                      | 2,531                                
|Cash and cash equivalents at end of period                                                                            | $2,672                               

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

**Madison Gas and Electric Company**





|                                                                            | Sept. 30,
      2003 |  | Dec. 31,
      2002
|--------------------------------------------------------------------------- | -------------------- |  | -------------------
|**Assets**                                                                  |                      |  |                    
|**Utility Plant** (At Original Cost, in Service):                           |                      |  |                    
|Electric                                                                    | $566,150             |  | $547,139           
|Gas                                                                         | 226,963              |  | 222,111            
|Gross plant in service                                                      | 793,113              |  | 769,250            
|Less accumulated provision for depreciation                                 | (370,238)            |  | (365,243)          
|Net plant in service                                                        | 422,875              |  | 404,007            
|Construction work in progress                                               | 35,509               |  | 28,686             
|Nuclear decommissioning fund                                                | -                    |  | 8,782              
|*Total Utility Plant*                                                       | 458,384              |  | 441,475            
|Other property and investments                                              | 2,648                |  | 7,550              
|Investment in ATC                                                           | 27,634               |  | 26,839             
|*Total Other Property and Investments*                                      | 30,282               |  | 34,389             
|**Current Assets:**                                                         |                      |  |                    
|Cash and cash equivalents                                                   | 2,672                |  | 2,531              
|Accounts receivable, less reserves of $2,542 and $2,659,
      respectively | 28,482               |  | 36,291             
|Unbilled revenues                                                           | 13,524               |  | 18,539             
|Materials and supplies, at lower of average cost or market                  | 7,711                |  | 8,147              
|Fossil fuel, at lower of average cost or market                             | 3,483                |  | 5,213              
|Stored natural gas, at lower of average cost or market                      | 22,012               |  | 12,948             
|Prepaid taxes                                                               | 6,721                |  | 10,619             
|Other prepayments                                                           | 2,532                |  | 2,001              
|*Total Current Assets*                                                      | 87,137               |  | 96,289             
|Other deferred charges                                                      | 40,288               |  | 36,103             
|**Total Assets**                                                            | $616,091             |  | $608,256           
|**Capitalization and Liabilities**                                          |                      |  |                    
|Common stockholder equity                                                   | 246,008              |  | 230,534            
|Long-term debt                                                              | 187,190              |  | 192,149            
|*Total Capitalization*                                                      | 433,198              |  | 422,683            
|**Current Liabilities:**                                                    |                      |  |                    
|Long-term debt - due within one year                                        | 5,000                |  | -                  
|Short-term debt - commercial paper                                          | -                    |  | 13,500             
|Accounts payable                                                            | 24,463               |  | 29,151             
|Accrued taxes                                                               | 4,317                |  | -                  
|Accrued interest                                                            | 3,459                |  | 3,157              
|Other current liabilities                                                   | 12,196               |  | 10,936             
|*Total Current Liabilities*                                                 | 49,435               |  | 56,744             
|**Other Credits:**                                                          |                      |  |                    
|Deferred income taxes                                                       | 63,973               |  | 62,450             
|Investment tax credit - deferred                                            | 5,020                |  | 5,407              
|Regulatory liabilities - FAS 109                                            | 10,244               |  | 10,931             
|Other deferred liabilities                                                  | 54,221               |  | 50,041             
|*Total Other Credits*                                                       | 133,458              |  | 128,829            
|Commitments and contingencies                                               | -                    |  | -                  
|**Total Capitalization and Liabilities**                                    | $616,091             |  | $608,256           

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







**Basis of Presentation (MGE Energy and MGE)**

This report is a combined report of MGE Energy, Inc. (MGE Energy)
  and Madison Gas and Electric Company (MGE). References in this report to "MGE
  Energy" are to MGE Energy, Inc. and its subsidiaries. References in this report
  to "MGE" are to Madison Gas and Electric Company.

The accompanying condensed consolidated financial statements
  as of September 30, 2003, and for the three and nine months then ended
  are unaudited but include all adjustments that MGE Energy and MGE management
  consider necessary for a fair presentation of their respective financial statements.
  All adjustments are of a normal, recurring nature except as otherwise disclosed.
  The year-end condensed consolidated balance sheet information was derived from
  the audited balance sheet appearing in MGE Energy's and MGE's annual reports
  on Form 10-K for the year ended December 31, 2002, but does not include
  all disclosures required by generally accepted accounting principles. These
  notes should be read in conjunction with the financial statements and the notes
  on pages 43 through 70 of the 2002 Form 10-K.

**1. Reorganization (MGE Energy).**

On August 12, 2002, MGE Energy became the holding company
  for MGE as the result of the completion of an exchange of shares of MGE Energy
  common stock for shares of MGE common stock. The MGE Energy financial statements
  reflect this transaction for all periods presented. MGE Energy has no significant
  operations beyond those of MGE. Consequently, MGE constitutes a substantial
  portion of the assets, liabilities, and results of operations of MGE Energy
  and is expected to continue to do so for the foreseeable future.

**2. Per-Share Amounts (MGE Energy).**

Earnings per share of MGE Energy common stock are computed
  on the basis of the weighted average of the daily number of shares outstanding.
  For the three months ended September 30, 2003 and 2002, respectively, there
  were 17,956,512 and 17,373,302 shares outstanding. Dividends declared and paid
  per share of common stock for the same three-month periods were $0.338 and $0.336,
  respectively.

For the nine months ended September 30, 2003 and 2002,
  there were 17,793,627 and 17,246,928 shares outstanding. Dividends declared
  and paid per share of common stock for the same nine-month periods were $1.010
  and $1.003, respectively.

**3. Rate Matters (MGE Energy and MGE).**

Under the fuel rules, if electric fuel costs are outside a
  3% annual threshold set by the Public Service Commission of Wisconsin (PSCW),
  MGE can apply for a fuel surcharge or may be required to return a fuel credit
  to its customers. MGE is allowed to retain fuel savings within 3% under, and
  must bear fuel costs within 3% over, the level set in its most recent order.
  On July 28, 2003, MGE submitted an application to the PSCW for a decrease in
  electric rates as required under the fuel rules monitoring mechanism. The PSCW
  on August 14, 2003, reopened MGE's rate case docket to examine fuel costs and
  how to appropriately credit ratepayers. The PSCW approved an interim fuel cost
  credit of $.00099 per kWh. The PSCW also required a full review of the actual
  and forecasted costs for 2003 with MGE's fuel rates subject to refund. The fuel
  credit through September 30, 2003, totaled $1.2 million, of which $0.4 million
  represents the interim fuel credit, and $0.8 million is the estimate for the
  additional fuel credit to be refunded to customers. A final order is expected
  in the fourth quarter of 2003 and will remain in place until MGE's next rate
  order is issued.

On May 30, 2003, MGE filed with the PSCW a request to
  increase electric rates by 7.7% and increase natural gas rates by 1.9%. The
  increase in electric rates would cover rising fuel costs and address increased
  system demands. Both the electric and natural gas rate requests include costs
  of system upgrades and increased operating expenses. The PSCW has conducted
  its audit, and hearings are expected to be held in November. An order is expected
  in the beginning of 2004.

Effective March 1, 2003, the PSCW authorized MGE to increase
  revenues by $27.1 million (a 9.1% increase in electric rates and a 5.4%
  increase in gas rates). The increase in electric rates covers rising fuel costs
  and addresses increased system demands. Both the electric and natural gas rate
  increases include costs to complete a new automated meter reading (AMR) project,
  costs of system upgrades, and increased operating expenses. The PSCW authorized
  a 12.3% return on MGE's common stockholder equity.

Effective October 24, 2002, the PSCW authorized a 12-month
  electric rate surcharge of $4.5 million or 2% to recover costs that had
  been deferred, associated with the formation of American Transmission Company
  LLC (ATC), and ongoing incremental transmission costs during 2001 and 2002 associated
  with ATC. The surcharge ended October 23, 2003.

In July 2002, MGE notified the PSCW that MGE's electric
  fuel savings were outside the 3% range established in its most recent order,
  thus triggering a fuel credit to its customers. The fuel credit was $1.7 million
  through February 28, 2003.

Effective January 1, 2002, the PSCW authorized MGE to
  increase revenues by $12 million (a 5.7% increase in electric rates and
  a 0.6% increase in natural gas rates). The increase was associated with a limited
  reopener to address specific issues affecting 2002. These issues included the
  full-year impact of selling its ownership interest in Kewaunee Nuclear Power
  Plant (Kewaunee), rising fuel costs, and installing an AMR system.

**4. Capitalization Matters (MGE Energy and MGE).**

**a. MGE Energy - Common Stock.**

On August 15, 2003, MGE Energy entered into a Distribution
  Agreement (Agreement) with Banc One Capital Markets, Inc. (BOCM). Under the
  terms of this Agreement, MGE Energy may offer and sell up to 1,600,000 shares
  of its common stock from time to time through BOCM as its sales agent or to
  BOCM as principal. The sales will be made pursuant to a shelf registration statement
  MGE Energy filed with the SEC and has been declared effective.

Under the Agreement, MGE Energy has sold 73,000 shares of its
  common stock as of September 30, 2003, for net proceeds of $2.3 million.

MGE Energy also issues new shares of its common stock through
  its Dividend Reinvestment and Direct Stock Purchase Plan (the Plan). Through
  September 30, 2003, MGE Energy has issued 451,000 new shares of common
  stock under the Plan for net proceeds of $13.2 million.

**b. MGE Energy - Long-Term Debt.**

On September 30, 2003, MGE Energy, through its subsidiary,
  MGE Power West Campus, LLC (MGE Power West Campus), issued $30 million of 5.68%
  Senior Secured Notes maturing September 25, 2033, in a private placement offering.
  Interest only will be paid monthly for the first ten years and then principal
  and interest payments paid monthly for the remaining life of the debt. The proceeds
  from these notes were used to pay off a portion of MGE Energy's bank loans,
  which were used to temporarily finance capital expenditures for the cogeneration
  facility being constructed on the West Campus of the University of Wisconsin-Madison
  (UW).

The debt will be secured by a collateral assignment of lease
  payments that MGE will be making to MGE Power West Campus for use of the cogeneration
  facility. Until the facility is operational, MGE Energy will guarantee the debt.

c. **MGE - Long-Term Debt.**

On September 9, 2003, MGE issued $20 million in unsecured 6.12%
  Medium Term Notes maturing on September 1, 2028. Interest on these notes will
  be paid semiannually on March 1 and September 1 of each year. The proceeds
  from this issue were used to redeem $20 million, 7.70%, 2028 Series, First
  Mortgage Bonds, on September 30, 2003. The call premium for the redeemed bonds
  was $0.9 million and is recoverable through rates.

**5. Supplemental Cash Flow Information (MGE Energy and
  MGE).**

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

|**MGE Energy**
        *(In thousands)*   | **Three Months Ended
        September 30,** |  | **Nine Months Ended
        September 30,**
|----------------------------------------- | -------------------------------------------- |  | -------------------------------------------
|                                          | **2003**                                     |  | 2002                                       
|Interest paid, net of amounts capitalized | **$2,596**                                   |  | $2,862                                     
|Income taxes paid                         | **5,625**                                    |  | -                                          
|Income taxes refunded                     | **-**                                        |  | -                                          



**6. Property, Plant, and Equipment (MGE Energy).**

MGE Energy, through its subsidiary MGE Power LLC (MGE
  Power), calculates capitalized interest in accordance with Statement of Financial
  Accounting Standards (SFAS) No. 34, *Capitalizing Interest Costs*,
  on construction projects for periods where financing is provided by MGE Energy
  through interim debt. The interest rate capitalized is based upon the monthly
  short-term borrowing rate MGE Energy incurs for such funds. For the nine months
  ended September 30, 2003, MGE Energy recorded $0.6 million in capitalized
  interest related to the cogeneration facility being constructed on the West
  Campus of the UW.

**7. Adoption of New Accounting Principles and Recently
  Issued Accounting Pronouncements (MGE Energy and MGE).**

**a. SFAS No. 143.**

In 2001, the Financial Accounting Standards Board (FASB) issued
  SFAS No. 143, *Accounting for Asset Retirement Obligations*. SFAS
  No. 143 provides accounting requirements for retirement obligations associated
  with tangible long-lived assets. MGE Energy and MGE were required to adopt SFAS
  No. 143 as of January 1, 2003. Retirement obligations associated with
  long-lived assets included within the scope of SFAS No. 143 are those for
  which there is a legal obligation under existing or enacted law, statute, written
  or oral contract, or by legal construction under the doctrine of promissory
  estoppel.

Effective January 1, 2003, MGE recorded an obligation
  for the fair value of its legal liability for asset retirement, obligations
  associated with removing an electric substation, a combustion turbine generating
  unit, wind generating facilities, and the photovoltaic generating facilities,
  all of which are located on property not owned by MGE. At September 30,
  2003, this liability is estimated at $1.3 million and included in other
  deferred liabilities.

At the point the liability for asset retirement is incurred,
  SFAS No. 143 requires capitalization of the costs to the related asset,
  property, plant, and equipment, net. For asset retirement obligations existing
  at the time of adoption, the statement requires capitalization of costs at the
  level that existed at the point of incurring the liability. These capitalized
  costs are depreciated over the same period as the related property. At the date
  of adoption, the depreciation expense for past periods was recorded as a regulatory
  asset in accordance with SFAS No. 71 because MGE believes the PSCW will
  allow it to recover these costs in future rates. Current depreciation of the
  asset retirement cost is also being deferred as a regulatory asset under SFAS
  No. 71.

The initial liability is accreted to its present value each
  period. MGE defers this accretion as a regulatory asset based on its determination
  that these costs can be collected from customers.

MGE also may have asset retirement obligations relating to
  various assets, such as combustion turbine generating units, small distributed
  generating units, aboveground and underground storage tanks, facilities located
  at Columbia Energy Center (Columbia) (co-owned with Alliant and Wisconsin Public
  Service Corporation), and certain electric and gas distribution facilities.
  These facilities are generally located on property owned by third parties, on
  which MGE is permitted to operate by lease, permit, easement, license, or service
  agreement, but also include some facilities located on property owned by MGE.
  The asset retirement obligations associated with these facilities cannot be
  reasonably determined due to the indeterminate life of the related assets.

The pro-forma asset retirement obligation MGE would have recognized
  as of January 1, 2002, had MGE implemented SFAS No. 143 as of that
  date, was approximately $1.2 million based on the information, assumptions,
  and interest rates as of January 1, 2003, used to determine the $1.3 million
  liability recognized upon initial adoption of SFAS No. 143. Because MGE's
  regulators are allowing these costs to be recovered in future rates, adoption
  of SFAS No. 143 in the first quarter 2002 would have had no impact on net
  income and earnings per share of common stock. Accordingly, pro forma impacts
  are not presented.

The following table shows costs as of January 1, 2003,
  and changes to the asset retirement obligation and accumulated depreciation
  during the nine months ended September 30, 2003.

|(In thousands)                              | (a)
      Original AssetRetirementObligation |  | (b)
      
      AccumulatedAccretion |  | (c)
      
      (a + b)
      AssetRetirementObligation |  | (d)
      
      AccumulatedDepreciation-Related Asset
|------------------------------------------- | -------------------------------------------- |  | ------------------------------------- |  | -------------------------------------------------------- |  | ------------------------------------------------------
|Balance, January 1, 2003 (date of adoption) | $685                                         |  | $596                                  |  | $1,281                                                   |  | $148                                                  
|Changes through September 30, 2003          | 1                                            |  | 59                                    |  | 60                                                       |  | 20                                                    
|Balance, September 30, 2003                 | $686                                         |  | $655                                  |  | $1,341                                                   |  | $168                                                  

As of September 30, 2003, MGE's regulatory asset, included
  in deferred charges, is the total accumulated accretion ($655,000) and accumulated
  depreciation ($168,000) or $823,000.

**b. FIN No. 45.**

In November 2002, the FASB issued Financial Interpretation
  No. (FIN) 45, *Guarantor's Accounting and Disclosure Requirements for
  Guarantees, Including Indirect Guarantees of Indebtedness of Others*. This
  interpretation provides the disclosures to be made by a guarantor in interim
  and annual financial statements about obligations under certain guarantees.
  The interpretation also clarifies that a guarantor is required to recognize,
  at the inception of a guarantee, a liability for the fair value of the obligation.

MGE makes available to qualifying customers a financing program
  for the purchase and installation of energy-related equipment that will provide
  more efficient use of utility service at the customer's property. MGE is party
  to a chattel paper purchase agreement with a financial institution under which
  it can sell or finance an undivided interest with recourse, in up to $7.5 million
  of the financing program receivables, until February 28, 2004. Loans totaling
  $1.1 million have been sold to the financial institution during 2003. The
  liability for the fair value of the obligation associated with these loans is
  not material.

MGE would be required to perform under the guarantee if the
  customer defaulted on its loan. The energy-related equipment installed at the
  customer sites is used to secure the customer loans. The length of the MGE guarantee
  to the financial institution varies from one to ten years depending on the term
  of the customer loan. Principal payments for the next five years on the loans
  are $0.3 million in 2003, $0.9 million in 2004 and 2005, and $0.8 million
  in 2006 and 2007.

**c. FIN No. 46.**

In January 2003, the FASB issued FIN No. 46, *Consolidation
  of Variable Interest Entities*, that addresses conditions when an entity
  should be consolidated based upon variable interests rather than voting interests.
  Variable interests are ownership interests or contractual relationships that
  enable the holder to share in the financial risks and rewards resulting from
  the activities of a variable interest entity (VIE). A VIE is a corporation,
  partnership, trust, or any other legal structure used for business purposes
  that either does not have equity investors with voting rights or has equity
  investors that do not provide sufficient financial resources for the entity
  to support its activities.

In order to apply FIN No. 46, MGE Energy and MGE must
  evaluate every entity with which they are involved through variable interests
  to determine whether the entity is a VIE and, if it is, whether or not MGE Energy
  and MGE are the primary beneficiaries of the entity. The primary beneficiary
  of a VIE is the entity that receives the majority of the entity's expected losses,
  residual returns, or both. As a result, FIN No. 46 could result in consolidation
  of an entity that MGE Energy and MGE are associated with other than by (and
  even in the absence of) a voting ownership interest. FIN No. 46 is effective
  for all new variable interest entities created or acquired after January 31,
  2003. For variable interest entities created or acquired prior to February 1,
  2003, the provisions of Interpretation No. 46 must be applied for the first
  interim or annual period beginning after December 15, 2003. MGE Energy
  and MGE continue to evaluate the impact of FIN No. 46 on VIEs created prior
  to February 1, 2003.

**d. SFAS No. 146.**

In June 2002, the FASB issued SFAS No. 146, *Accounting
  for Costs Associated with Exit or Disposal Activities*. This statement addresses
  financial accounting and reporting for costs associated with exit or disposal
  activities and nullifies Emerging Issues Task Force Issue No. 94-3, *Liability
  Recognition for Certain Employee Termination Benefits and Other Costs to Exit
  an Activity (including Certain Costs Incurred in a Restructuring)*. SFAS
  No. 146 is effective for transactions initiated after December 31,
  2002. Adoption of this statement did not have a material impact on the consolidated
  financial statements.

**e. SFAS No. 148.**

In December 2002, the FASB issued SFAS No. 148, *Accounting
  for Stock-Based Compensation-Transition and Disclosure*. This statement
  amends FASB Statement No. 123, *Accounting for Stock-Based Compensation*,
  to provide alternative methods of transition for a voluntary change to the fair
  value-based method of accounting for stock-based employee compensation. In addition,
  the statement amends the disclosure requirements of Statement 123 to require
  prominent disclosures in both annual and interim financial statements about
  the method of accounting for stock-based employee compensation and the effect
  of the method used on reported results. MGE Energy has no stock options as of
  September 30, 2003, and therefore SFAS No. 148 did not have a material
  impact on the consolidated financial statements.

**f. SFAS No. 149.**

On April 30, 2003, the FASB issued SFAS No. 149,
  *Amendment of SFAS No. 133 on Derivative Instruments and Hedging Activities*.
  This statement amends and clarifies accounting for derivative instruments including
  certain derivative instruments embedded in other contracts for hedging activities.
  SFAS No. 149 amends certain other existing pronouncements. The amendments
  will result in a more consistent reporting of contracts that are derivatives
  in their entirety or that contain embedded derivatives that warrant separate
  accounting. SFAS No. 149 is effective for contracts entered into or modified
  after June 30, 2003. Adoption of this statement did not have a material
  impact on the consolidated financial statements.

**g. SFAS No. 150.**

In May 2003, the FASB issued SFAS No. 150, *Accounting
  for Certain Financial Instruments with Characteristics of both Liabilities and
  Equity*. This statement establishes standards for how an issuer classifies
  and measures certain financial instruments with characteristics of both liabilities
  and equity. It requires that an issuer classify a financial instrument that
  is within the scope of SFAS No. 150 as a liability (or an asset in some
  circumstances). Many of those instruments were previously classified as equity.
  SFAS No. 150 is effective for interim periods beginning after June 15,
  2003, for financial instruments entered into or modified after May 31.
  2003, except for mandatorily redeemable financial instruments of nonpublic entities
  which will be effective for interim periods beginning after December 15,
  2003. Adoption of this statement did not have a material impact on the consolidated
  financial statements.

**8. Kewaunee Nuclear Power Station (MGE).**

On September 23, 2001, MGE sold to Wisconsin Public Service
  Corporation (WPSC) its 17.8% ownership interest in the Kewaunee Nuclear Power
  Station (Kewaunee) for $15.4 million. On the closing date, MGE also transferred
  its Qualified Decommissioning Fund ($65.0 million, fair market value) and
  Nonqualified Decommissioning Fund ($28.1 million, fair market value), which
  resulted in a decrease of accumulated depreciation by an equal amount.

Under the Kewaunee sale agreement, MGE made monthly contributions
  to the MGE Nonqualified Decommissioning Fund from September 23, 2001, through
  December 31, 2002, in the amount of approximately $0.7 million, the
  level authorized by the PSCW. These costs were recovered from customers through
  rates. MGE's decommissioning liability is limited to the fund balances at the
  closing date plus all decommissioning collections through 2002. MGE's Nonqualified
  Decommissioning Fund totaled $8.8 million (pretax, fair market value) at
  December 31, 2002. The securities and uninvested cash balances in the fund,
  net of trust investment expenses and taxes on investment income, were transferred
  to the WPSC Nonqualified Decommissioning Fund on January 2, 2003.

In accordance with the Kewaunee sale agreement, MGE exercised
  an option in June 2001 to purchase 90 megawatts of electric capacity
  and energy at a fixed price from WPSC from September 24, 2001, through
  September 23, 2003, to help meet customers' electric needs.

**9. West Campus Cogeneration Facility (MGE Energy and
  MGE).**

MGE Power West Campus was created by MGE Power to co-own with
  the UW the West Campus Cogeneration Facility (WCCF) on the Madison campus. A
  PSCW order approving the issuance of a Certificate of Public Convenience and
  Necessity (CPCN) for the WCCF was received on October 9, 2003. Construction
  on the project commenced in October of 2003, and it is estimated that the project
  will be completed in the spring of 2005 (see footnote 11.f.).

The WCCF is expected to cost approximately $180 million in
  total, of which $103 million will be MGE Power West Campus' portion. On November
  29, 2002, the State of Wisconsin (State) paid $11.9 million to MGE for
  its share of those costs under a September 2002 Pre-Certification Cost Sharing
  Agreement between MGE and the State. On December 30, 2002, MGE Power, a subsidiary
  of MGE Energy, reimbursed MGE for the remainder of those costs as a part of
  MGE Power's assumption of the project. MGE Power assigned its interest in the
  project to its wholly owned subsidiary, MGE Power West Campus. As of September 30,
  2003, MGE Power West Campus had incurred $59.6 million of costs on the project,
  which is reflected in construction work in progress on MGE Energy's consolidated
  balance sheets. This includes the State's portion of project costs through September
  30, 2003, in the amount of $18.0 million. These costs largely represent
  amounts paid under long lead-time equipment contracts in order to meet project
  schedules.

**10. Segment Information (MGE Energy and MGE).**

MGE Energy operates in three business segments: regulated electric
  utility operations and regulated gas utility operations through its principal
  subsidiary MGE and nonutility energy operations through its subsidiaries MGE Power,
  MGE Power West Campus, and MGE Construct.

The following tables show segment information for MGE Energy
  and MGE's operations:

|**MGE Energy and MGE**
      *(In thousands)* | Three Months Ended September 30, |  | Nine Months Ended September 30,
|--------------------------------------------- | -------------------------------- |  | -------------------------------
|                                              | 2003                             |  | 2002                           
|Gross electric revenues                       | $72,983                          |  | $68,111                        
|Gross gas revenues                            | 17,723                           |  | 12,901                         
|Interdepartmental revenues                    | (2,775)                          |  | (1,582)                        
|Consolidated revenues                         | $87,931                          |  | $79,430                        

MGE's regulated electric utility and regulated gas utility
  are the only revenue-generating segments for MGE Energy. MGE Energy's nonutility
  segment does not currently generate any revenues.

|**MGE Energy**
      *(In thousands)* | Three Months EndedSeptember 30, |  | Nine Months EndedSeptember 30,
|------------------------------------- | ------------------------------- |  | ------------------------------
|                                      | 2003                            |  | 2002                          
|Electric operating income             | $13,387                         |  | $13,265                       
|Gas operating income                  | (324)                           |  | (135)                         
|Nonregulated operating income         | (132)                           |  | (298)                         
|Consolidated                          | 12,931                          |  | 12,832                        
|Other income                          | 115                             |  | 1,366                         
|Interest expense                      | (2,912)                         |  | (3,135)                       
|Other general taxes                   | (26)                            |  | (573)                         
|Net income                            | $10,108                         |  | $10,490                       



|**MGE**
      *(In thousands)* | Three Months Ended September 30, |  | Nine Months Ended September 30,
|------------------------------ | -------------------------------- |  | -------------------------------
|                               | 2003                             |  | 2002                           
|Electric operating income      | $13,387                          |  | $13,265                        
|Gas operating income           | (324)                            |  | (135)                          
|Net operating income           | 13,063                           |  | 13,130                         
|Other income and deductions    | 51                               |  | 870                            
|Interest expense net           | (2,842)                          |  | (3,088)                        
|Net income                     | $10,272                          |  | $10,912                        



|**MGE Energy and MGE**               | Regulated |  |          |  | Consolidated       
|------------------------------------ | --------- |  | -------- |  | -------------------
|*(In thousands)*                     | Electric  |  | Gas      |  | Assets notAllocated
|Assets:                              |           |  |          |  |                    
|September 30, 2003                   | $424,002  |  | $150,138 |  | $41,951            
|December 31, 2002                    | 415,849   |  | 139,608  |  | 52,799             
|Capital Expenditures:                |           |  |          |  |                    
|Nine-months ended September 30, 2003 | 33,571    |  | 9,935    |  | -                  
|Year ended December 31, 2002         | 44,305    |  | 15,125   |  | -                  

**11. Commitments and Contingencies (MGE Energy and MGE).**

**a. Coal Contracts.**

MGE has no coal contracts that contain demand obligations for
  its Blount Station (Blount). Fuel procurement for MGE's jointly owned Columbia
  is handled by Alliant Energy Corporation (Alliant), the operating company. If
  any demand obligations must be paid under these contracts, management believes
  such obligations would be considered costs of service and recoverable in rates.

**b. Purchased Power Contracts.**

MGE has several purchased power and transmission contracts
  to help meet future electric supply requirements. As of September 30, 2003,
  MGE's total commitments for purchased power contracts for capacity and transmission
  are estimated to be $20.5 million in 2003, $13.3 million in 2004,
  $15.2 million in 2005, $15.3 million in 2006, and $12.0 million
  in 2007. Management expects to recover these costs in future customer rates.

**c. Purchased Gas Contracts.**

MGE has natural gas supply, transportation, and storage contracts
  that provide for the availability of firm supply, pipeline transportation, and
  storage capacity under which it must make fixed monthly payments. As of September 30,
  2003, MGE's total commitments for firm supply, pipeline transportation, and
  storage capacity contracts are estimated to be $15.0 million in 2003, $15.0 million
  in 2004, and $14.2 million per year in 2005, 2006, and 2007. Management
  expects to recover these costs in future customer rates.

**d. Environmental.**

***Proposed eight-hour ozone standard****.*
  In 1997, the U.S. Environmental Protection Agency (EPA) decided to create a
  new eight-hour ozone standard. The Wisconsin Department of Natural Resources
  (DNR) expects the counties in nonattainment for the one-hour ozone standard
  to also be in nonattainment for the eight-hour ozone standard. However, the
  final nonattainment designations for the eight-hour standard will not be made
  by the EPA until 2004 and will be based on data for 2001 through 2003. That
  data shows Dane County air quality to be in attainment with the eight-hour ozone
  standard.

By letter dated July 14, 2003, the Governor recommended that
  the EPA classify Dane County as attainment with the eight-hour standard. However,
  the EPA makes the final designation, and it is possible the EPA may still decide
  to classify Dane County and other areas in Wisconsin as nonattainment because
  they contribute to downwind nonattainment areas. If Dane County were classified
  as nonattainment, MGE facilities in Dane County may need to meet new limitations
  for ozone precursor emissions.

MGE is evaluating nitrogen oxide (NOx) emission
  reduction strategies in the event Dane County is classified as nonattainment
  or if MGE otherwise decides to undertake voluntary emission reductions. The
  strategies under consideration include, for example, fuel switching, emission
  trading, purchased power agreements, new emission control devices, or installing
  new fuel-burning and clean-coal technologies. Implementing these new measures
  would likely increase capital expenditures and operating and maintenance expenses.
  MGE may need to comply with new NOx emission limits as a result of
  the eight-hour ozone standard as early as December 2007.

***Proposed utility MACT standards****.*
  Section 112 of the 1990 Clean Air Act Amendments requires the EPA to develop
  standards to control major sources of hazardous air pollutants to levels consistent
  with the lowest-emitting facilities in similar source categories. The standards
  are referred to as the maximum available control technology (MACT) standards.
  MGE operates several sources that may require MACT standards including electric
  steam generating units, combustion turbines, reciprocating internal combustion
  engines, and industrial, commercial, and institutional boilers. All sources,
  except Blount and Columbia coal-fired units, are expected to be exempt from
  implementing additional emission control strategies. The EPA is expected to
  finalize standards for electric steam generating units in 2004. It is expected
  that MGE will be required to comply with new mercury, particulate, and hydrogen
  chloride limits by the current proposal of December 2007. Complying with
  the MACT standards would likely increase capital expenditures and operating
  and maintenance expenses.

***Proposed Wisconsin mercury emission reduction rule.***
  The DNR has proposed an administrative rule (NR 446) that would require
  reduction of mercury emissions of 40% by 2010 and 80% by 2015 for the major
  utilities, i.e., those utilities emitting 100 pounds or more of mercury annually.
  The rule allows each utility to average their mercury emission reduction requirement
  across their entire system of coal-fired boilers. At this time, MGE is not subject
  to the limitations under this proposed rule because all facilities owned and
  operated by MGE emit less than 100 pounds of mercury per year. However, as joint
  owner of Columbia, MGE may have increased capital expenditures and operating
  and maintenance expenses if Alliant chooses to control mercury emissions at
  Columbia.

***WCCF Memorandums of Understanding.***MGE
  signed Memorandums of Understanding with the UW, Wisconsin Department of Administration
  (DOA), City of Madison, and certain citizen and environmental groups relating
  to the WCCF. In the memorandums, approximately $0.2 million in commitments
  have been included in the cost estimate for WCCF. Other costs will be subject
  to PSCW review in future rate cases. These commitments include various air-emission
  reduction measures, special air-monitoring installation, noise mitigation, watershed
  studies, recycling practices, and a renewable energy project.

***NOx SIP Call.*** On October 27,
  1998, the EPA issued the "NOx SIP Call" rule, which imposed a NOx
  emission budget for emission sources in Wisconsin. See 63 Fed. Reg. 57355 (October
  27, 1998). The NOx SIP Call was premised upon two theories: the downwind
  contribution of Wisconsin air emissions to existing one-hour ozone nonattainment
  areas and the downwind contribution of Wisconsin air emissions to potential
  future eight-hour nonattainment areas.

On March 2, 2000, the Court of Appeals for the District
  of Columbia held that the EPA "acted unlawfully by including Wisconsin in the
  [NOx] SIP Call" for purposes of the State's alleged impacts to downwind
  one-hour ozone nonattainment areas. See*State of Michigan, et al. V. Environmental
  Protection Agency*, 213 F.3d 663, 681, 695 (D.C. Cir. March 3, 2000). However,
  the Court and EPA stayed that portion of the challenge concerning Wisconsin's
  alleged impacts on downward eight-hour ozone nonattainment areas. See 65 Fed.
  Reg. 56245 (September 8, 2002). If that stay is lifted and that portion of the
  NOx SIP Call concerning eight-hour ozone nonattainment areas is upheld,
  the resulting NOx emission budget for Wisconsin has the potential
  to affect the level of permissible NOx emissions from Blount, WCCF,
  and Columbia. Those new NOx limits could increase capital expenditures
  and operating and maintenance expenses at those facilities.

***Columbia plant.*** In December 2000,
  February 2001, June 2002, and January 2003, Alliant received
  Requests for Information from the EPA seeking information concerning the facility's
  compliance with the Clean Air Act. The requests appear to be part of an EPA
  initiative to assess the regulatory consequences of past investments in utility
  generation, energy efficiency, maintenance, and environmental protection within
  the utility sector. Alliant, the plant operator, has responded to all requests,
  but MGE has not been informed of any response from the EPA. The plant operator
  has not informed MGE of any likely increase in capital expenditures or operating
  and maintenance expenses arising from the EPA's inquiry.

In February 2003, Alliant received a Notice of Violation
  from the DNR for allegedly exceeding limits in its Wisconsin Pollutant Discharge
  Elimination System permit at the Columbia plant. Alliant, as the plant operator,
  has been working with the DNR to resolve the issues set forth in the notice.
  Resolution of those issues may require additional capital expenditures to install
  and implement new treatment techniques. While it is possible the DNR may also
  seek to impose a civil penalty, the operator has stated that it can resolve
  these issues to the DNR's satisfaction in a manner that will not have a materially
  adverse effect on the joint owners' financial conditions or plant operations.

On or about October 23, 2003, the three co-owners of the Columbia
  Plant (including MGE) received a Notice of Intent to file a citizen suit under
  the Clean Water Act from an organization calling itself the Wisconsin Environmental
  Law Advocates U.A. (WELA). The Notice alleges various violations of the Wisconsin
  Pollution Discharge Elimination System permit that had been issued to the Columbia
  plant. The Notice asserts that if the matter is not resolved within 60 days,
  WELA will file a lawsuit seeking civil penalties (of up to $27,500 per day per
  violation), unspecified injunctive relief, and unspecified declaratory relief.

The plant operator has informed MGE that Columbia will experience
  an increase in capital or operation and maintenance expenses estimated up to
  $5.5 million in 2006 and $0.7 million in 2007 if required to comply with any
  of the following regulatory programs which are discussed above: the proposed
  eight-hour ozone standard, the proposed utility MACT standards, the proposed
  Wisconsin mercury emission reduction rule, the NOx SIP Call, or the
  Clean Water Act citizen-suit matter discussed above.

**e. Chattel Paper Agreement (MGE).**

MGE makes available to qualifying customers a financing program
  for purchasing and installing energy-related equipment that will provide more
  efficient use of utility service at the customer's property. MGE is party to
  a chattel paper purchase agreement with a financial institution under which
  it can sell or finance an undivided interest with recourse, in up to $7.5 million
  of the financing program receivables, until February 28, 2004. At September 30,
  2003, MGE had sold a $6.6 million interest in these receivables, which
  MGE accounted for as a sale under SFAS No. 140, *Accounting for Transfers
  and Servicing of Financial Assets and Extinguishment of Liabilities - a Replacement
  of FASB Statement No. 125*. MGE retains the servicing responsibility
  for these receivables.

MGE maintains responsibility for collecting and remitting loan
  payments from customers to the financial institution and does not retain any
  interest in the assets sold to the financial institution. As of September 30,
  2003, MGE has recorded a servicing asset of $0.3 million. The servicing
  asset recognized and the amount amortized in 2003 totaled $0.1 million and $0.1
  million respectively.

The loan assets are sold to the financial institution at cost,
  which approximates fair value in view of their market rates of interest. During
  2003 and 2002, MGE received approximately $1.1 million and $3.3 million,
  respectively, of cash from the financial institution for the sale of loan assets.
  During those same years, payments of $1.3 million and $2.4 million,
  respectively, were made by MGE to the financial institution.

**f. West Campus Cogeneration Facility.**

***Petition for Judicial Review***

On November 6, 2003, Friends of Responsible Energy (FORE),
  un unincorporated citizen association, filed a petition with the Dane County,
  Wisconsin, Circuit Court seeking judicial review of various decisions made by
  the PSCW, the DNR, the UW, and the DOA in connection with the WCCF. Those decisions
  include the grant of a CPCN by the PSCW and various environmental determinations
  made by the governmental parties. FORE alleges that those decisions were arbitrary,
  capricious, and contrary to law and seeks to have them set aside or remanded
  for further review. MGE Energy is not a party to the proceeding, although it
  expects to intervene along with MGE and MGE Power West Campus. MGE Energy believes
  the suit is not likely to cause any material adverse change in the WCCF or its
  construction schedule. Construction is proceeding on the WCCF.

***Purchase Commitments***

MGE has entered into contracts for the purchase of gas and
  steam turbines and miscellaneous equipment for the WCCF. MGE Construct LLC (MGE
  Construct) has entered into a contract for the purchase of chiller equipment.
  All of these contracts are summarized in the following table.

|(In thousands)          | Contract Total |  | Payments through September
      30, 2003 |  | Remaining Contract Amount
|----------------------- | -------------- |  | ----------------------------------------- |  | -------------------------
|Gas Turbines            | $29,853        |  | $29,781                                   |  | $ 72                     
|Steam Turbine           | 7,805          |  | 7,805                                     |  | -                        
|Chiller Equipment       | 6,689          |  | 1,876                                     |  | 4,813                    
|Miscellaneous Equipment | 15,182         |  | 4,596                                     |  | 10,586                   
|                        | $59,529        |  | $44,058                                   |  | $15,471                  

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

**General**

MGE Energy, Inc. (MGE Energy) operates in three business segments:

- Electric utility operations which, through Madison Gas and
  Electric Company (MGE), generate and distribute electricity to nearly 130,000
  customers in Dane County, Wisconsin, which includes the city of Madison.

- Gas utility operations which, through MGE, purchase and distribute
  natural gas to more than 126,000 customers in seven Wisconsin counties (Columbia,
  Crawford, Dane, Iowa, Juneau, Monroe, and Vernon).

- Nonutility energy operations which are conducted through subsidiaries,
  MGE Construct LLC (MGE Construct), MGE Power LLC (MGE Power), and
  MGE Power West Campus, LLC (MGE Power West Campus). All were formed to
  construct and own new generating capacity.

MGE Energy became the holding company for MGE on August 12,
  2002, when MGE shareholders exchanged shares of MGE common stock for shares
  of MGE Energy common stock. The share exchange had no accounting effect on MGE's
  recorded assets, liabilities, revenues, or expenses.

MGE's utility operations represent a substantial portion of
  the assets, liabilities, revenues, and expenses of MGE Energy. MGE Energy's
  nonutility operations principally relate to the development of a cogeneration
  project on the Madison campus of the University of Wisconsin (UW).

The following discussion provides information that management
  believes is relevant to an assessment and understanding of MGE Energy's and
  MGE's consolidated results of operations and financial condition. This discussion
  should be read in conjunction with the condensed consolidated financial statements
  and notes.

**Results of Operations**

Substantially all of MGE Energy's results of operations are
  attributable to the operations of its utility subsidiary MGE. MGE Energy's other
  significant business activity relates to the development of a cogeneration project,
  which is under construction and has no operating revenues. Consequently, the
  following discussion focuses on MGE's results of operations for the three and
  nine months ended September 30, 2003.

**Sales and Revenues**

**Electric**

|Electric sales
      *(In megawatt-hours)* | Three Months Ended September 30, |      | Nine Months Ended September 30,
|------------------------------------------ | -------------------------------- | ---- | -------------------------------
|2003                                       |                                  | 2002 |                                
|Residential                                | 235,321                          |      | 260,468                        
|Large commercial                           | 321,961                          |      | 316,845                        
|Small commercial                           | 221,369                          |      | 216,255                        
|Other                                      | 97,224                           |      | 94,507                         
|Total Retail                               | 875,875                          |      | 888,075                        
|Sales for Resale                           | 23,474                           |      | 26,278                         
|Total Sales                                | 899,349                          |      | 914,353                        
|Cooling degree days                        | 463                              |      | 534                            

Retail sales decreased 1.4% for the three months ended September 30,
  2003, compared to the same period last year. Cooler temperatures in July and
  September resulted in decreased electric sales during the third quarter.

Retail sales decreased 0.6% for the nine months ended September 30,
  2003, compared to the same period last year. Decreased sales, resulting from
  cooler-than-normal temperatures in the second and third quarters, were partially
  offset by increased customer growth.

Sales for resale decreased 10.7% during the three months ended
  September 30, 2003, due to the cooler-than-normal weather. For the nine months
  ended September 30, 2003, sales for resale increased 104.6%. MGE contracted
  to sell 25 megawatts (MW) of electric capacity from January through
  August 2003.

During the third quarter 2003, electric operating revenue increased
  $4.9 million or 7.1%, compared to the same period last year. The increase
  in electric revenues was due to an increase in electric rates ($7.1 million,
  Footnote 3) partially offset by decreases in customer use ($0.9 million),
  sales for resale revenue ($0.4 million), and other revenues ($0.9 million).

For the nine months ended September 30, 2003, electric
  operating revenue increased $14.3 million or 8.2%, compared to the same
  period last year. The increase in electric operating revenues was primarily
  due to an increase in electric rates effective March 1, 2003 ($13.7 million,
  Footnote 3), and an increase in sales for resale revenue ($2.7 million),
  partially offset by a decrease in customer use ($1.0 million), and a decrease
  in other revenues ($1.1 million).

Cooling degree days measure the extent to which the average
  daily temperature rises above 65 degrees Fahrenheit, increasing demand for cooling.

**Gas**

|Gas deliveries
      *(In thousands of therms*)* | Three Months Ended September 30, |      | Nine months Ended September 30,
|------------------------------------------------ | -------------------------------- | ---- | -------------------------------
|2003                                             |                                  | 2002 |                                
|Residential                                      | 6,291                            |      | 5,780                          
|Commercial and Industrial                        | 7,766                            |      | 7,115                          
|Total Retail                                     | 14,057                           |      | 12,895                         
|Transport                                        | 10,069                           |      | 11,451                         
|Total Gas Deliveries                             | 24,126                           |      | 24,346                         
|Heating degree days                              | 185                              |      | 110                            
|**Unit of measure.*                             

For the three months ended September 30, 2003, retail gas
  deliveries increased 9%, compared to the same period last year mainly due to
  the cooler September weather. Heating degree days increased 68.2%, compared
  to the same period last year.

For the nine months ended September 30, 2003, retail gas
  deliveries increased 13.5%. Colder temperatures during January and February 2003
  resulted in increased retail gas deliveries. The average temperature for the
  first quarter 2003 was 23 degrees Fahrenheit, which was 7% colder than last
  year's first quarter and 3% colder than normal. The typical heating season runs
  from November through March.

Transport deliveries decreased 12.1% and 7.3% during the three
  and nine months ended September 30, 2003, respectively, as alternative
  fuel customers used less natural gas because of the higher cost during 2003
  compared to a year ago.

Gas operating revenues were up $3.6 million or 31.7% for
  the three months ended September 30, 2003, due to a significant increase
  in the cost of natural gas and to an increase in gas rates (Footnote 3).
  MGE is allowed by the Public Service Commission of Wisconsin (PSCW), through
  a purchased gas adjustment clause (PGA), to pass on to customers any increases
  or decreases in the cost of gas, subject to certain limited incentive participation.

Gas operating revenues were up $33.1 million or 42.2% for
  the nine months ended September 30, 2003, primarily due to increasing gas
  rates and the significant increase in the cost of natural gas. The average cost
  per therm of natural gas increased 43.2% during the nine months ended September 30,
  2003, compared to the same period last year. In addition, gas revenues increased
  due to the increased volume of gas sold during the first and third quarters
  of 2003 compared to the same periods a year ago.

Heating degree days measure the extent to which the average
  daily temperature is below 65 degrees Fahrenheit, increasing demand for heating.

**Electric Fuel and Purchased Power**

Fuel for electric generation costs increased $0.5 million or
  4.1% during the three months ended September 30, 2003. The increase was
  primarily the result of an increase in the cost of natural gas.

Fuel for electric generation costs increased $2.5 million
  or 8.4% for the nine months ended September 30, 2003. The increase in fuel
  costs is attributed to the substantial rise in the cost of natural gas during
  2003 and the fact that during the first quarter, MGE had to rely more on its
  higher-cost generation units since Columbia Energy Center (Columbia) (co-owned
  with Alliant and Wisconsin Public Service Corporation) was out of service for
  scheduled maintenance more in the first quarter 2003 as compared to last year's
  first quarter.

Purchased power costs increased $0.6 million or 4.2% and $6.2
  million or 18.4% during the three and nine months ended September 30, 2003.
  Because of mild weather and the availability of regional generation, MGE was
  able to purchase energy during the nine months ended September 30, 2003, at
  a lower per-unit cost while reducing generation from its higher-priced gas units.

**Natural Gas Purchased**

For the three months ended September 30, 2003, natural
  gas purchased increased $3.1 million or 67.3% due to the significant increase
  in the cost of natural gas and higher retail deliveries. For the nine months
  ended September 30, 2003, natural gas purchased increased $27.8 million
  or 62.2%. The average cost per therm of natural gas increased 43.2% in 2003
  compared to 2002, while retail gas deliveries increased 13.5%.

**Other Operations and Maintenance**

Operating and maintenance expenses for MGE Energy increased
  $5.4 million or 26.2% and $14.6 million or 22.7% for the three and
  nine months ended September 30, 2003, respectively. The increases in operations
  and maintenance expenses are the net result of the following factors:

- Transmission wheeling expense increased $2.1 million
  and $6.1 million during the three and nine months ended September 30,
  2003, respectively. The increase is primarily attributed to the amortization
  of deferred incremental transmission wheeling costs associated with the formation
  of the American Transmission Company (ATC) (Footnote 3) from the first and second
  quarters of 2002. The PSCW authorized recovery of these costs through an electric
  rate surcharge that went into effect October 24, 2002.

- Employee health and pension expenses increased $1.6 million
  and $4.4 million during the three and nine months ended September 30,
  2003, respectively, due to dramatically increasing health care costs and lower
  investment returns on plan assets.

- Maintenance expenses increased $0.5 million and $1.6 million
  for the three and nine months ended September 30, 2003, respectively.

- Distribution expenses remained flat for the three months ended
  September 30, 2003, but have experienced a $0.5 million increase for the
  nine months ended September 30, 2003.

- Increase in the other miscellaneous, administrative, and general
  expenses of $1.2 million and $2.0 million for the three and nine months
  ended September 30, 2003.

**Electric and Gas Depreciation**

For the three months ended September 30, 2003, depreciation
  expense decreased $1.4 million or 19.7%. The decrease in depreciation expense,
  related to MGE's electric generating assets, is due to reduced decommissioning
  depreciation expense ($2.0 million) as a result of the sale of MGE's interest
  in the Kewaunee Nuclear Power Plant (Kewaunee) to Wisconsin Public Service Corporation
  (WPSC) (Footnote 8) and is partially offset by increased depreciation expense
  for additions to MGE's electric plant assets ($0.5 million). During the
  same period, gas depreciation expense increased due to additions to MGE's plant
  assets ($0.1 million).

For the nine months ended September 30, 2003, depreciation
  expense decreased $4.2 million or 19.3%. The decrease in depreciation expense
  is due to reduced decommissioning expense ($6.1 million) and is partially
  offset by increased depreciation expense for additions to MGE's electric plant
  assets ($1.4 million). During the same period, gas depreciation expense
  increased due to additions to MGE's plant assets ($0.5 million).

**Other General Taxes**

The 8.8% increase in Other General Taxes for MGE Energy for
  the three months ended September 30, 2003, compared to the three months
  ended September 30, 2002, is due to an increase in MGE's license fee tax.
  This license fee tax is also the reason for the 6.9% increase in Other General
  Taxes for the nine months ended September 30, 2003, compared to the nine
  months ended September 30, 2002. Wisconsin's license fee tax is in lieu
  of property tax on utility property. The tax is estimated and prepaid one year
  ahead of expense recognition, then determined as a percentage of adjusted operating
  revenues from the prior calendar year and amortized to expense in the subsequent
  year.

**Income Taxes**

MGE Energy's effective income tax rates, 40.2% for the three
  months ended September 30, 2003, and 39.7% for the nine months ended September
  30, 2003, reflect increases over the effective income tax rate for 2002 (39.1%)
  due to lower amortized investment tax credit and lower amortization of excess
  deferred income taxes.

**Other Income**

For the three and nine months ended September 30, 2003,
  other income decreased $1.3 million and $0.9 million, respectively.
  The large decrease in the third quarter is related to a $1.0 million donation
  to the MGE Foundation. For the nine months ended September 30, 2003, this decrease
  is being offset by the increased equity earnings from ATC, increased interest
  and dividend income, and other miscellaneous nonoperating income.

**Interest Expense**

During the three and nine months ended September 30, 2003,
  interest expense decreased $0.2 million and $0.5 million, respectively,
  due to lower interest rates and reduced levels of short-term debt in 2003.

**Contractual Obligations and Commercial Commitments**

There were no material changes, other than from the normal course
  of business, to MGE Energy's and MGE's contractual obligations (representing
  cash obligations that are considered to be firm commitments) and commercial
  commitments (representing commitments triggered by future events) during the
  nine months ended September 30, 2003. Further discussion of the contractual
  obligations and commercial commitments is included in MGE Energy's and MGE's
  annual reports on Form 10-K for the year ended December 31, 2002.

**Liquidity and Capital Resources**

**Cash Flows**

The following summarizes cash flows during the nine months ended
  September 30, 2003 and 2002, respectively:

|                             | MGE Energy |  | MGE     
|---------------------------- | ---------- |  | --------
|*Thousands of dollars*       | 2003       |  | 2002    
|Cash provided by/(Used for): |            |  |         
|Operating activities         | $69,629    |  | $48,378 
|Investing activities         | (84,396)   |  | (46,302)
|Financing activities         | 16,489     |  | (2,989) 

**Cash Provided by Operating Activities**

MGE Energy's consolidated net cash provided by operating activities
  is derived mainly from the operations of its principal subsidiary, MGE.

Cash provided by MGE's operating activities increased $20.5 million
  or 42.8% for the first nine months of 2003 compared to the same period last
  year. Current liabilities increased $1.2 million, due to increases in accrued
  taxes and interest of $4.6 million and other liabilities of $1.3 million
  and partially offset by a decrease in accounts payable ($4.7 million).

Current assets decreased $9.3 million during the first nine
  months of 2003, primarily due to decreases in accounts receivable ($7.8 million),
  unbilled revenue ($5.0 million), prepayments ($3.4 million), and fossil
  fuel ($1.7 million). These sources of cash were partially offset by an
  increase in stored natural gas of $9.1 million.

**Cash Used for Investing Activities**

Cash used for MGE Energy's investing activities increased $38.1 million.
  The majority of this increase is attributed to the capital expenditures related
  to the West Campus Cogeneration Facility (WCCF), which totaled $40.7 million.
  MGE utility plant additions increased $3.5 million during the first nine
  months of 2003 while decommissioning payments decreased $6.1 million.

Cash used for MGE's investing activities decreased $2.6 million
  or 5.7%. During 2002, MGE continued making contributions to the Nonqualified
  Decommission Fund in the amount of $6.1 million. The fund balance was transferred
  to WPSC on January 2, 2003 (see Footnote 8). Partially offsetting
  the decreased decommissioning payments were increased utility plant expenditures
  of $3.5 million during the first nine months of 2003 due to the energy
  management system (EMS) upgrade and improving reliability at MGE substations.

**Cash Provided by Financing and Capital Resources**

Cash provided by MGE Energy's financing activities was $16.5 million
  for the nine months ended September 30, 2003, while cash used for financing
  activities for the same nine-month period ended in 2002 was $3.0 million.
  On September 30, 2003, MGE Energy's subsidiary, MGE Power West Campus, issued
  $30 million in private placement debt, increasing long-term debt and used the
  proceeds from this issue to payoff short-term debt. MGE Energy has been temporarily
  financing the capital expenditures for the WCCF with short-term debt.

MGE Energy has an established line of credit in the amount of
  $60 million for the temporary financing of the capital commitments for
  the WCCF. At September 30, 2003, MGE Energy had $24.2 million drawn
  on this line of credit and recorded as bank loans outstanding.

Proceeds from the issuance of common stock increased $5.2 million
  when compared to the same period last year. In addition to the Dividend Reinvestment
  and Direct Stock Purchase Plan (DRIP), MGE Energy has also been selling additional
  shares of stock through Banc One Capital Markets, Inc., under a Distribution
  Agreement. That agreement was filed as an exhibit to the Post-Effective Amendment
  to the Form S-3 Registration Statement 333-103659 on June 12, 2003.

Cash used for MGE's financing activities increased $21.5 million
  for the nine months ended September 30, 2003, compared to the same period
  last year. This increase is primarily due to MGE's repayment of $13.5 million
  of short-term debt during 2003 as compared to an increase in short-term debt
  of $24.0 million during 2002. MGE temporarily used short-term debt for
  the repayment of $20 million of maturing long-term debt. Also, due to the
  timing of dividend payments, MGE has paid four dividends to its parent company
  (MGE Energy) in 2003 as compared to only three dividend payments during the
  first nine months of 2002. MGE paid a dividend to its parent in January 2003
  instead of December 2002.

Bank lines of credit available to MGE as of September 30,
  2003, were $40 million. MGE also has a letter of credit with a commercial
  bank established as collateral for equipment purchases that ATC will make to
  provide necessary system upgrades for the WCCF.

**Capitalization Ratios**

MGE Energy and MGE's capitalization ratios were as follows:

|                                                                                | MGE Energy    |  | MGE         
|------------------------------------------------------------------------------- | ------------- |  | ------------
|                                                                                | Sept. 30,2003 |  | Dec. 31,2002
|Common shareholders' equity                                                     | 50.4%         |  | 50.1%       
|Long-term debt*                                                                 | 44.7%         |  | 42.3%       
|Short-term debt                                                                 | 4.9%          |  | 7.6%        
|**Includes current maturities of $5.0 million
        as of September 30, 2003*

**MGE Energy's and MGE's Capital Requirements**

MGE Energy's and MGE's liquidity is primarily affected by their
  capital requirements. During the nine months ended September 30, 2003,
  capital expenditures for MGE Energy totaled $84.2 million, which included
  $40.7 million of capital commitments for the WCCF.

MGE Energy's 2003 capital commitments related to the WCCF are
  estimated to be $74.1 million, which does not include any reimbursements
  from the State of Wisconsin (the State) for their portion of the plant. MGE
  Energy plans to finance these capital expenditures through the issuance of both
  debt and equity securities. MGE Energy has an effective registration statement
  on file with the SEC under which it may sell up to $200 million of equity
  and debt securities. MGE Energy expects to use the proceeds from the registration
  statement to finance future capital expenditures, redeem or refund debt incurred
  in connection with the WCCF, or for other general corporate purposes.

MGE anticipates 2003 capital expenditures will be $51.6 million.
  Some of the major projects include substation improvements ($5.1 million),
  Automated Meter Reading (AMR) project costs ($3.4 million), and upgrading
  its Energy Management System ($1.8 million). 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 during this
  year's second quarter. For larger capital investments, MGE will issue additional
  long-term debt or common stock.

Below is a table of MGE's current credit ratings. MGE Energy
  is not yet rated because it has not issued any debt securities.

|                                                                                  | Standard & Poor's                   |  | Moody's                            
|--------------------------------------------------------------------------------- | ----------------------------------- |  | -----------------------------------
|First Mortgage Bonds
        Unsecured Medium Term Notes
        Commercial Paper | AA
        
        AA-
        A1+ |  | Aa2
        
        Aa3
        P1

MGE's access to the capital markets, including the commercial paper market and
  its financing costs in those markets, is dependent on its securities' ratings.
  None of MGE's borrowings are subject to default or prepayment due to downgrading
  of securities' ratings although MGE's future interest expense may be affected
  by a change in those ratings.

**West Campus Cogeneration Facility**

MGE Energy, through its subsidiaries MGE Power, MGE Power West
  Campus, and MGE Construct, has assumed responsibility for the construction of
  a natural gas-fired cogeneration facility to be built on the UW campus. As planned,
  the facility can produce 20,000 tons of chilled water, 500,000 pounds per hour
  of steam, and approximately 150 MW of electricity. The facility will be jointly
  owned by the UW and MGE Power West Campus. The UW will own a controlling interest
  in the chilled water and steam plants, which will be used to meet the growing
  needs for air-conditioning and steam-heat capacity for the UW campus. MGE Power
  West Campus will own a controlling interest in the electric generation plant,
  which will be used to provide electricity to MGE's customers. MGE will lease
  the assets owned by MGE Power West Campus and will operate the entire facility.
  MGE Construct will be responsible for the construction of the facility. A PSCW
  order approving the issuance of a Certificate of Public Convenience and Necessity
  (CPCN) for the WCCF was received on October 9, 2003. The ownership, construction,
  and operation of the facility has received various other state approvals as
  well and the completion of definitive agreements including a construction agreement.
  Construction on the project commenced in October of 2003, and it is estimated
  that the project will be completed in the spring of 2005.

On November 6, 2003, Friends of Responsible Energy (FORE), un
  unincorporated citizen association, filed a petition with the Dane County, Wisconsin,
  Circuit Court seeking judicial review of various decisions made by the PSCW,
  the Wisconsin Department of Natural Resources, the UW, and the Wisconsin Department
  of Administration in connection with the WCCF. Those decisions include the grant
  of a CPCN by the PSCW and various environmental determinations made by the governmental
  parties. FORE alleges that those decisions were arbitrary, capricious, and contrary
  to law and seeks to have them set aside or remanded for further review. MGE
  Energy is not a party to the proceeding, although it expects to intervene along
  with MGE and MGE Power West Campus. MGE Energy believes the suit is not likely
  to cause any material adverse change in the WCCF or its construction schedule.
  Construction is proceeding on the WCCF.

MGE Energy, MGE Power West Campus, and MGE Construct have assumed
  certain risks related to some of the executed agreements. In the Engineering,
  Procurement, and Construction Agreement (EPC), MGE Power West Campus is responsible
  for cost overruns, MGE Construct is responsible for paying liquidated damages
  relating to failure to achieve Mechanical Completion and the Acceptance Test
  Capacity Guarantee, and MGE Energy is the guarantor of both of MGE Power West
  Campus' and MGE Construct's obligations under the EPC Agreement.

The facility is expected to cost approximately $180 million.
  On November 29, 2002, the State paid $11.9 million to MGE for its share
  of those costs under a September 2002 Pre-Certification Cost Sharing Agreement
  between MGE and the State. On December 31, 2002, MGE Power reimbursed MGE for
  the remainder of those costs as a part of MGE Power's assumption of the project.
  MGE Power has assigned its interest in the project to its wholly owned subsidiary,
  MGE Power West Campus. As of September 30, 2003, MGE Power, through its subsidiary
  MGE Power West Campus, had incurred $59.6 million of costs on the project, which
  is reflected as construction work in progress on MGE Energy's consolidated balance
  sheets. This includes the State's portion of project costs through September
  30, 2003, in the amount of $18.0 million. These costs largely represent amounts
  paid under long lead-time equipment contracts in order to meet project schedules.

**Adoption of New Accounting Principle**

In July 2001, the Financial Accounting Standards Board
  issued Statement of Financial Accounting Standards (SFAS) No. 143, *Accounting
  for Asset Retirement Obligations*, which requires the recognition of a liability
  for the fair value of an asset retirement obligation in the period in which
  the event that triggers the liability occurs. When the liability is initially
  recorded, the cost of the related asset is increased and subsequently depreciated
  over the useful life of the asset. The liability is adjusted to its present
  value each period. MGE Energy and MGE adopted this statement effective January 1,
  2003. MGE recognizes an offset to the accretion and depreciation expenses associated
  with its asset retirement obligation in the form of a regulatory asset pursuant
  to SFAS No. 71. MGE believes these costs will be collected through the
  regulatory process. See Footnote 7 for additional information.

The asset retirement obligations that were recorded relate to
  the cost of retiring an electric substation, a combustion turbine generating
  unit, wind generating facilities, and the photovoltaic generating facilities,
  all of which are located on land or facilities not owned by MGE. These costs
  were recorded as a liability with an offsetting increase to plant cost.

**Regulatory Issues - Transmission**

The Midwest Independent Transmission System Operator (Midwest
  ISO), the first Regional Transmission Organization approved by the Federal Energy
  Regulatory Commission (FERC), began operations in the first quarter 2002. The
  Midwest ISO is preparing to assume responsibility as transmission tariff settlement
  agent and for administration of a wholesale energy market in the Midwest which
  would include managing transmission congestion and prioritizing the use of the
  transmission system (Day 2 - Planned Implementation).

On July 25, 2003, the Midwest ISO filed a proposed Open Access
  Transmission and Energy Markets Tariff (TEMT) pursuant to Section 205 of the
  Federal Power Act. The TEMT contained the terms and conditions necessary to
  implement Midwest ISO's Day 2 - Planned Implementation by March 31, 2004. On
  October 17, 2003, the Midwest ISO filed a motion to withdraw the TEMT filing.
  The Midwest ISO acknowledged concerns raised by its members and FERC that the
  proposed TEMT did not contain key elements, including: (1) procedures for
  nomination and distribution of financial transmission rights; (2) an independent
  market monitoring and market mitigation module; or (3) a resource adequacy requirement
  proposal. The FERC granted the Midwest ISO's request on October 29, 2003. It
  is unclear at this time when Day 2 - Planned Implementation will occur. The
  Midwest ISO has released a revised time line.

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

**Market Risks**

MGE Energy, Inc. (MGE Energy), through MGE, and MGE are potentially
  exposed to market risk associated with interest rates, commodity prices, weather,
  regulatory recovery, and equity returns. Neither MGE Energy nor MGE have any
  current exposure to foreign currency risk. MGE manages some risk exposure through
  risk management policies and uses derivative instruments.

**Interest Rate Risk**

MGE Energy and MGE manage interest rate risk by limiting their
  variable rate exposure and by continually monitoring the effects of market changes
  on interest rates. MGE is not exposed to changes in interest rates on a substantial
  portion of its long-term debt until that debt matures and is refinanced at market
  rates. MGE has $15.0 million in variable rate long-term debt outstanding
  as of September 30, 2003. Borrowing levels under commercial paper arrangements
  vary from period to period depending upon capital investments and other factors.

**Commodity Price Risk**

MGE Energy, through MGE, has commodity price risk exposure with
  respect to the price of natural gas, electricity, coal, and oil. MGE employs
  established policies and procedures to reduce the market risks associated with
  changing commodity prices, including the use of commodity and financial instruments.
  MGE's commodity risks are somewhat mitigated by the current ratemaking process
  in place for recovering electric fuel, purchased energy, and the cost of natural
  gas purchased for resale. MGE's current electric service rate includes a mechanism
  whereby fuel costs above a specified amount can be recovered from and savings
  above a specified amount must be refunded to its customers without initiating
  a new rate case, thus reducing time lags and associated risk. Under the Purchased
  Gas Adjustment clause authorized by the PSCW, MGE passes through to customers
  the cost of gas, subject to certain limited incentives.

MGE has purchased New York Mercantile Exchange (NYMEX) natural
  gas call options and sold NYMEX natural gas put-and-call options to reduce natural
  gas price volatility for its customers for the upcoming winter. MGE has also
  entered into over-the-counter financial floating-to-fixed price swaps and calls
  for the Winter Set-Price Firm Gas Sales Service pilot program. The mark-to-market
  derivative amounts recorded as a result of these option and swap contracts are
  offset with a corresponding regulatory asset or liability because these transactions
  are part of the Purchased Gas Adjustment clause and not subject to incentive
  participation.

**Weather Risk**

MGE's electric revenues are sensitive to the summer cooling
  season and, to some extent, to the winter heating season. A significant portion
  of MGE's gas system demand is driven by heating. MGE's gas margin (revenues
  less gas purchased) are collected under a combination of fixed and volumetric
  rates set by the PSCW based on "normal weather." As a result of weather-sensitive
  demand and volumetric rates, a portion of MGE's gas margin is at risk for warmer-than-normal
  weather. MGE may use weather derivatives, pursuant to its risk management program,
  to reduce the impact of weather volatility on its gas margins.

In August 2003, MGE purchased a nonexchange-traded Heating Degree
  Day (HDD) Put Option with a strike of 5,500 HDD and sold a nonexchange-traded
  HDD Call Option with a strike of 5,800 HDD. The options have a net premium cost
  of $140,000; notional amounts of $2,500 per HDD; a maximum HDD-related receipt
  or payment of $1,000,000; terms covering November 1, 2003, through March 31,
  2004; and financial settlements against Madison weather. If the total actual
  HDD as calculated under the contract is greater than 5,800, MGE will pay. If
  the total actual HDD is less than 5,500, MGE receives payment. For the contract
  period, MGE's average gas margin per HDD at risk is estimated to exceed $2,500.
  MGE is accounting for the HDD options using the intrinsic value method pursuant
  to EITF 99-2, *Accounting for Weather Derivatives*.

**Regulatory Recovery Risk**

MGE burns natural gas in several of its peak electric generation
  facilities as a supplemental fuel, and in many cases, the cost of purchased
  power is tied to the cost of natural gas. MGE bears regulatory risk for the
  recovery from customers of such fuel and purchased power costs when they are
  higher than the base rate established in its current rate structure.

**Equity Price Risks**

MGE currently funds its liabilities related to employee benefits
  through contributions to, and investment earnings on, trust funds. Changes in
  the market value of the employee benefits trust funds affect MGE's expense and
  annuity payment. MGE seeks to mitigate some of its risk in this matter through
  future rate actions by the PSCW.

**Credit Risks**

Credit risk is the loss that may result from counterparty nonperformance.
  MGE Energy, through MGE, is exposed to credit risk primarily through its merchant
  energy business. MGE uses credit policies to manage its credit risk, which includes
  utilizing an established credit approval process, monitoring counterparty limits,
  employing credit mitigation measures such as collateral or prepayment arrangements,
  and using netting agreements.

**Item 4. Controls and Procedures.**

**MGE Energy**

During the third quarter 2003, MGE Energy, Inc.'s (MGE Energy)
  management, including the principal executive officer and principal financial
  officer, evaluated its disclosure controls and procedures related to the recording,
  processing, summarization, and reporting of information in its periodic reports
  that it files with the Securities and Exchange Commission (SEC). These disclosure
  controls and procedures have been designed to ensure that material information
  relating to MGE Energy, including its subsidiaries, is made known to MGE Energy's
  management, including these officers, by other employees of MGE Energy and its
  subsidiaries, and that this information is recorded, processed, summarized,
  evaluated, and reported, as applicable, within the time periods specified in
  the SEC's rules and forms. Due to the inherent limitations of control systems,
  not all misstatements may be detected. These inherent limitations include the
  realities that judgments in decision making can be faulty, and breakdowns can
  occur because of simple error or mistake. Additionally, controls can be circumvented
  by the individual acts of some persons, by collusion of two or more people,
  or by management override of the control. MGE Energy's controls and procedures
  can only provide reasonable, not absolute, assurance that the above objectives
  have been met. Also, MGE Energy does not control or manage certain of its unconsolidated
  entities and thus, its access and ability to apply its procedures to those entities
  is more limited than is the case for its consolidated subsidiaries.

As of September 30, 2003, these officers concluded that
  MGE Energy's disclosure controls and procedures were effective to accomplish
  their objectives. MGE Energy intends to continually strive to improve its disclosure
  controls and procedures to enhance the quality of its financial reporting.

There have been no significant changes in MGE Energy's internal
  controls or in other factors that could significantly affect these controls
  subsequent to the date of their evaluation.

**MGE**

During the third quarter 2003, MGE's management, including the
  principal executive officer and principal financial officer, evaluated its disclosure
  controls and procedures related to the recording, processing, summarization,
  and reporting of information in its periodic reports that it files with the
  SEC. These disclosure controls and procedures have been designed to ensure that
  material information relating to MGE, including its subsidiaries, is made known
  to MGE's management, including these officers, by other employees of MGE, and
  that this information is recorded, processed, summarized, evaluated, and reported,
  as applicable, within the time periods specified in the SEC's rules and forms.
  Due to the inherent limitations of control systems, not all misstatements may
  be detected. These inherent limitations include the realities that judgments
  in decision making can be faulty, and breakdowns can occur because of simple
  error or mistake. Additionally, controls can be circumvented by the individual
  acts of some persons, by collusion of two or more people, or by management override
  of the control. MGE's controls and procedures can only provide reasonable, not
  absolute, assurance that the above objectives have been met. Also, MGE does
  not control or manage certain of its unconsolidated entities and thus, its access
  and ability to apply its procedures to those entities is more limited than is
  the case for its consolidated subsidiaries.

As of September 30, 2003, these officers concluded that
  MGE's disclosure controls and procedures were effective to accomplish their
  objectives. MGE intends to continually strive to improve its disclosure controls
  and procedures to enhance the quality of its financial reporting.

There have been no significant changes in MGE's internal controls
  or in other factors that could significantly affect these controls subsequent
  to the date of their evaluation.

**PART II: OTHER INFORMATION**

**Item 6. Exhibits and Reports on Form 8-K.**

**Item 6(a) - Exhibits**

Exhibit 12.1 - Ratio of Earnings to Fixed Charges for MGE Energy,
  Inc.

Exhibit 12.2 - Ratio of Earnings to Fixed Charges for Madison
  Gas and Electric Company

Exhibit 31.1 - Certification of Gary J. Wolter for MGE Energy,
  Inc. pursuant to Section 302 of the Sarbanes-Oxley Act.

Exhibit 31.2 - Certification of Terry A. Hanson for MGE
  Energy, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act.

Exhibit 31.3 - Certification of Gary J. Wolter for Madison Gas
  and Electric Company pursuant to Section 302 of the Sarbanes-Oxley Act.

Exhibit 31.4 - Certification of Terry A. Hanson for Madison
  Gas and Electric Company pursuant to Section 302 of the Sarbanes-Oxley
  Act.

Exhibit 32.1 - Certification of Gary J. Wolter for MGE Energy,
  Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
  of the Sarbanes-Oxley Act.

Exhibit 32.2 - Certification of Terry A. Hanson for MGE
  Energy, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant
  to Section 906 of the Sarbanes-Oxley Act.

Exhibit 32.3 - Certification of Gary J. Wolter for Madison Gas
  and Electric Company pursuant to 18 U.S.C. Section 1350, as adopted
  pursuant to Section 906 of the Sarbanes-Oxley Act.

Exhibit 32.4 - Certification of Terry A. Hanson for Madison
  Gas and Electric Company pursuant to 18 U.S.C. Section 1350, as adopted
  pursuant to Section 906 of the Sarbanes-Oxley Act.

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

On August 1, 2003, MGE Energy, Inc. and Madison Gas and Electric
  Company furnished a Current Report on Form 8-K reporting the issuance of a press
  release announcing MGE Energy, Inc.'s earnings for the second quarter of 2003.

On August 15, 2003, MGE Energy, Inc. filed a current report
  on Form 8-K reporting that it had entered into a Distribution Agreement with
  Banc One Capital Markets, Inc. (BOCM). Under the Distribution Agreement, MGE
  Energy, Inc. may offer and sell up to 1,600,000 shares of its common stock through
  Banc One Capital Markets, Inc., as its sales agent or as principal.



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 hereunto duly authorized.

|                        | **MGE Energy, Inc.**                                                                         
|----------------------- | ---------------------------------------------------------------------------------------------
|Date: November 13, 2003 | /s/ Gary J. Wolter                                                                           
|                        | Chairman, President and Chief Executive Officer(Duly Authorized Officer)                     
|Date: November 13, 2003 | /s/ Terry A. Hanson                                                                          
|                        | Vice President, Chief Financial Officer and Secretary(Chief Financial and Accounting Officer)



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 hereunto duly authorized.

|                        | **Madison Gas and Electric Company**                                                         
|----------------------- | ---------------------------------------------------------------------------------------------
|Date: November 13, 2003 | /s/ Gary J. Wolter                                                                           
|                        | Chairman, President and Chief Executive Officer(Duly Authorized Officer)                     
|Date: November 13, 2003 | /s/ Terry A. Hanson                                                                          
|                        | Vice President, Chief Financial Officer and Secretary(Chief Financial and Accounting Officer)