United States SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549  FORM
10-Q  [X]
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934  For the quarterly period ended: June
30, 2009  [
  ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934  For the transition period from _______________ to
_______________   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
www.mgeenergy.com

39-2040501000-1125

Madison Gas and Electric Company
(a Wisconsin Corporation)
133 South Blair Street
Madison, Wisconsin 53703
(608) 252-7000
www.mge.com

39-0444025   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 (or for such
shorter period that the registrant was required to file such reports) and (2)
have been subject to such filing requirements for the past 90 days: Yes [X]
No [  ]  Indicate by check mark whether the registrants have
submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405
of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or
for such shorter period that the registrant was required to submit and post such
files): Yes [ ] No [  ]  Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See definitions of "large accelerated filer," "accelerated
filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act.


|                                 |                         |                   |                       |                          
|-------------------------------- | ----------------------- | ----------------- | --------------------- | -------------------------
|                                 | Large Accelerated Filer | Accelerated Filer | Non-accelerated Filer | Smaller Reporting Company
|MGE Energy,
Inc.                 | X                       |                   |                       |                          
|Madison
Gas and Electric Company |                         |                   | X                     |                          

Indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Act): MGE Energy, Inc. and Madison Gas and
Electric Company: Yes [ ] No [X]


|                                                                               |                                                                                                                                       | 
|------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------- | 
|Number of Shares Outstanding of Each Class of Common Stock
as of July 31, 2009
|MGE Energy,
Inc.                                                               | Common
stock, $1.00 par value, 23,113,638 shares outstanding.                                                                        
|Madison
Gas and Electric Company                                               | Common
stock, $1.00 par value, 17,347,889 shares outstanding (all of which are
owned beneficially and of record by MGE Energy,
Inc.).

Table
of Contents  PART I. FINANCIAL INFORMATION. Filing Format Forward-Looking Statements Where to Find More Information Definitions, Abbreviations, and Acronyms Used in the
Text and Notes of this Report Item 1. Financial Statements. MGE Energy, Inc. Consolidated Statements of Income
(unaudited) Consolidated Statements of Cash Flows
(unaudited) Consolidated Balance Sheets
(unaudited) Consolidated Statements of Equity
(unaudited) Madison Gas and Electric
Company Consolidated Statements of Income
(unaudited) Consolidated Statements of Cash Flows
(unaudited) Consolidated Balance Sheets
(unaudited) Consolidated Statements of Equity
(unaudited) MGE Energy, Inc., and Madison Gas
and Electric Company Notes to Consolidated Financial
Statements (unaudited) Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. Item 3. Quantitative and Qualitative Disclosures About
Market Risk. Item 4. Controls and Procedures. Item 4T. Controls and Procedures. PART II. OTHER INFORMATION. Item 1. Legal Proceedings. Item 2. Unregistered Sales of Equity Securities and Use
of Proceeds. Item 4. Submission of Matters to a Vote of Security
Holders. Item 6. Exhibits. Signatures - MGE Energy, Inc. Signatures - Madison Gas and Electric Company    PART
I. FINANCIAL INFORMATION.   Filing Format  This combined quarterly report on Form 10-Q is being
filed separately by MGE Energy, Inc. (MGE Energy) and Madison Gas and
Electric Company (MGE). MGE is a wholly owned subsidiary of MGE Energy and
represents a majority of its assets, liabilities, revenues, expenses, and
operations. Thus, all information contained in this report relates to, and is
filed by, MGE Energy. Information that is specifically identified in this
report as relating solely to MGE Energy, such as its financial statements
and information relating to its nonregulated business, does not relate to, and
is not filed by, MGE. MGE makes no representation as to that information. The
terms "we" and "our," as used in this report, refer to MGE Energy and its
consolidated subsidiaries, unless otherwise indicated.   Forward-Looking Statements  This report, and other documents filed by MGE Energy
and MGE with the Securities and Exchange Commission (SEC) from time to time,
contain forward-looking statements that reflect management's current assumptions
and estimates regarding future performance and economic conditionsespecially as
they relate to future load growth, revenues, expenses, capital expenditures,
financial resources, regulatory matters, and the scope and expense associated
with future environmental regulation. These forward-looking statements are made
pursuant to the provisions of the Private Securities Litigation Reform Act of
1995. Words such as "believe," "expect," "anticipate," "estimate," "could,"
"should," "intend," and other similar words generally identify forward-looking
statements. Both MGE Energy and MGE caution investors that these
forward-looking statements are subject to known and unknown risks and
uncertainties that may cause actual results to differ materially from those
projected, expressed, or implied.  The factors that could cause actual results to differ
materially from the forward-looking statements made by a registrant include (a)
those factors discussed in the following sections of the Registrants' 2008
Annual Report on Form 10-K: ITEM 1A. Risk Factors; ITEM 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations, as
updated by Part I, Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations in this report; and ITEM 8 Financial
Statements and Supplementary Data-Note 18, as updated by Part I, Item 1.
Financial Statements-Note 9 in this report; and (b) other factors discussed
herein and in other filings with the SEC by the Registrants.  Readers are cautioned not to place undue reliance on
these forward-looking statements, which apply only as of the date of this
report. 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  The public may read and copy any reports or other
information that MGE Energy and MGE file with the SEC at the SEC's public
reference room at 100 F Street, NE, Washington, D.C. 20549. The public may
obtain information on the operation of the Public Reference Room by calling the
SEC at 1-800-SEC-0330. These documents are also available to the public from
commercial document retrieval services, the Web site maintained by the SEC at
http://www.sec.gov, MGE Energy's Web site at
http://www.mgeenergy.com, and MGE's Web site at
http://www.mge.com. Copies may be obtained from our Web sites free of
charge. Information contained on MGE Energy's and MGE's Web sites shall not
be deemed incorporated into, or to be a part of, this report.    Definitions, Abbreviations,
and Acronyms Used in the Text and Notes of this Report


|                          |                                                                                                                                                                                         
|------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ACESA                     | American Clean Energy and Security Act of
2009                                                                                                                                          
|AFUDC                     | Allowance for funds used during
construction                                                                                                                                            
|APB                       | Accounting Principles Board                                                                                                                                                             
|ARB                       | Accounting Research Bulletin                                                                                                                                                            
|ASM                       | Ancillary Services Market                                                                                                                                                               
|ATC                       | American Transmission Company LLC                                                                                                                                                       
|BART                      | Best available retrofit technology                                                                                                                                                      
|Bechtel                   | Bechtel Power Corporation                                                                                                                                                               
|Blount                    | Blount Station                                                                                                                                                                          
|CAA                       | Clean Air Act                                                                                                                                                                           
|CAIR                      | Clean Air Interstate Rule                                                                                                                                                               
|CAMR                      | Clean Air Mercury Rule                                                                                                                                                                  
|CAVR                      | Clean Air Visibility Rule                                                                                                                                                               
|CH4                       | Methane                                                                                                                                                                                 
|CO2                       | Carbon dioxide                                                                                                                                                                          
|Columbia                  | Columbia Energy Center                                                                                                                                                                  
|cooling degree days       | Measure of the extent to which the average daily
temperature is above 65 degrees Fahrenheit, which is considered an
indicator of possible increased demand for energy to provide
cooling
|Distribution Agreement    | Distribution Agreement between MGE Energy and
J.P. Morgan Securities Inc.                                                                                                               
|Dth                       | Dekatherms                                                                                                                                                                              
|EITF                      | Emerging Issues Task Force                                                                                                                                                              
|Elm Road                  | Elm Road Generating Station                                                                                                                                                             
|EPA                       | U.S. Environmental Protection Agency                                                                                                                                                    
|ERISA                     | Employee Retirement Income Security Act                                                                                                                                                 
|ERS                       | Elm Road Services, LLC                                                                                                                                                                  
|FAS                       | Financial Accounting Standard                                                                                                                                                           
|FASB                      | Financial Accounting Standards Board                                                                                                                                                    
|FERC                      | Federal Energy Regulatory Commission                                                                                                                                                    
|FIN                       | FASB Interpretation No.                                                                                                                                                                 
|FNTP                      | Full notice to proceed                                                                                                                                                                  
|FSP                       | FASB Staff Position                                                                                                                                                                     
|FTR                       | Financial Transmission Rights                                                                                                                                                           
|GCIM                      | Gas cost incentive mechanism                                                                                                                                                            
|GHG                       | Greenhouse gas                                                                                                                                                                          
|heating degree days (HDD) | Measure of the extent to which the average daily
temperature is below 65 degrees Fahrenheit, which is considered an
indicator of possible increased demand for energy to provide
heating
|HFC                       | Hydrofluorocarbons                                                                                                                                                                      
|IRS                       | Internal Revenue Service                                                                                                                                                                
|J.P. Morgan               | J.P. Morgan Securities Inc.                                                                                                                                                             
|kWh                       | Kilowatt-hour                                                                                                                                                                           
|LIBOR                     | London Inter Bank Offer Rate                                                                                                                                                            
|MACT                      | Maximum available control technology                                                                                                                                                    
|MGE                       | Madison Gas and Electric Company                                                                                                                                                        
|MGE Energy                | MGE Energy, Inc.                                                                                                                                                                        
|MGE Power                 | MGE Power LLC                                                                                                                                                                           
|MGE Power Elm Road        | MGE Power Elm Road, LLC                                                                                                                                                                 
|MGE Power West Campus     | MGE Power West Campus, LLC                                                                                                                                                              
|MGE Transco               | MGE Transco Investment LLC                                                                                                                                                              
|MISO                      | Midwest Independent System Operator (a regional
transmission organization)                                                                                                              
|Moody's                   | Moody's Investors Service, Inc.                                                                                                                                                         
|MW                        | Megawatt                                                                                                                                                                                
|MWh                       | Megawatt-hour                                                                                                                                                                           
|N2O                       | Nitrous oxide                                                                                                                                                                           
|NAAQS                     | National ambient air quality standard                                                                                                                                                   
|NOx                       | Nitrogen oxide                                                                                                                                                                          
|NR                        | Natural Resources                                                                                                                                                                       
|NSPS                      | New source performance
standards                                                                                                                                                        




|      |                                                                
|----- | ---------------------------------------------------------------
|NYMEX | New York Mercantile Exchange                                   
|PFC   | Perfluorocarbons                                               
|PGA   | Purchased Gas Adjustment clause                                
|PJM   | PJM Interconnection, LLC (a regional transmission
organization)




|                 |                                                                     
|---------------- | --------------------------------------------------------------------
|PPA              | Purchased power agreement                                           
|PSCW             | Public Service Commission of Wisconsin                              
|RTO              | Regional Transmission Organization                                  
|Standard &Poor's | Standard & Poor's Ratings Group, a division of
McGraw-Hill Companies
|SEC              | Securities and Exchange Commission                                  
|SF6              | Sulfur hexafluoride                                                 
|SFAS             | Statement of Financial Accounting Standards (issued
by the FASB )   
|SO2              | Sulfur dioxide                                                      
|Stock Plan       | Direct Stock Purchase and Dividend Reinvestment
Plan of MGE Energy  
|UW               | University of Wisconsin-Madison                                     
|VIE              | Variable interest entity                                            
|WCCF             | West Campus Cogeneration Facility                                   
|WDNR             | Wisconsin Department of Natural Resources                           
|working capital  | Current assets less current liabilities                             
|WPL              | Wisconsin Power and Light
Company                                   

Item
1. Financial Statements.   MGE Energy, Inc.  Consolidated Statements of Income (unaudited) (In thousands, except per-share amounts)   Three Months Ended
June 30,

Six Months Ended
June 30,2009

2008

2009

2008Operating Revenues:Regulated revenues
$105,231

$122,951

$284,178

$310,874Nonregulated revenues
2,325

1,786

4,522

3,859Total Operating
Revenues
107,556

124,737

288,700

314,733Operating Expenses:Fuel for electric
generation
7,431

12,756

17,303

28,950Purchased power
20,738

14,623

45,776

36,302Cost of gas sold
12,252

26,463

82,580

104,406Other operations and
maintenance
35,876

38,567

72,730

74,663Depreciation and
amortization
10,145

9,893

20,199

19,290Other general taxes
4,440

4,193

9,102

8,572Total Operating
Expenses
90,882

106,495

247,690

272,183Operating Income
16,674

18,242

41,010

42,550Other income, net
2,034

1,690

4,013

2,266Interest expense, net
(3,366)

(3,435)

(6,755)

(6,868)Income before income taxes
15,342

16,497

38,268

37,948Income tax provision
(5,449)

(5,940)

(13,423)

(13,554)Net Income
$9,893

$10,557

$24,845

$24,394Earnings per Share of Common Stock
(basic and diluted)
$0.43

$0.48

$1.08

$1.11Dividends paid per share of common stock
$0.362

$0.355

$0.723

$0.710Average Shares Outstanding(basic and
diluted)
23,095

22,105

23,026

22,047  The accompanying notes are an integral
part of the above unaudited consolidated financial statements.  MGE Energy, Inc.  Consolidated Statements of Cash Flows (unaudited) (In thousands)   Six Months Ended
June 30,2009

2008Operating Activities:Net income
$24,845

$24,394Items not affecting cash:Depreciation and
amortization
20,199

19,290Deferred income taxes
3,964

1,167Provision for doubtful accounts
receivable
2,382

1,931AFUDC - equity funds
(227)

(644)Employee benefit plan
expenses
3,593

3,947Equity earnings in ATC
(4,002)

(3,310)Other items
987

783Changes in working
capital:Decrease in current
assets
51,783

23,497Decrease in current
liabilities
(17,913)

(8,260)Dividend income from ATC
3,061

2,485Cash contributions to pension
and other postretirement plans
(8,748)

(6,520)Other noncurrent items,
net
2,720

3,759Cash Provided by Operating
Activities
82,644

62,519Investing Activities:Capital expenditures
(34,770)

(61,136)Capital contributions to
investments
(1,698)

(1,415)Other
(1,045)

762Cash Used for Investing
Activities
(37,513)

(61,789)Financing Activities:Issuance of common stock
6,275

7,599Cash dividends paid on common
stock
(16,663)

(15,652)(Decrease) increase in
short-term debt, net
(30,500)

9,000Cash (Used for) Provided by
Financing Activities
(40,888)

947Change in Cash and Cash Equivalents
4,243

1,677Cash and cash equivalents at
beginning of period
4,106

3,789Cash and cash equivalents at end
of period
$8,349

$5,466  The accompanying notes are an integral
part of the above unaudited consolidated financial statements.  MGE Energy, Inc.  Consolidated Balance Sheets (unaudited) (In thousands)   June 30,
2009

December 31,
2008ASSETSCurrent Assets:Cash and cash equivalents
$8,349

$4,106Restricted cash
3,765

4,805Accounts receivable, less
reserves of $4,997 and $4,076, respectively
26,314

45,266Other accounts receivable, less
reserves of $275 and $200, respectively
7,671

7,659Unbilled revenues
20,411

34,701Materials and supplies, at
average cost
15,802

15,592Fossil fuel
4,447

3,228Stored natural gas, at average
cost
26,418

42,146Prepaid taxes
15,412

15,671Regulatory assets -
current
8,062

9,876Other current assets
8,052

10,828Total Current
Assets
144,703

193,878Other long-term receivables
2,951

3,005Special billing projects
280

464Regulatory assets
121,217

116,165Other deferred assets and other
6,055

5,620Property, Plant, and Equipment, Net
716,411

702,549Construction work in progress
201,303

198,694Total Property, Plant, and
Equipment
917,714

901,243Other Property and Investments
50,411

47,900Total Assets
$1,243,331

$1,268,275LIABILITIES AND CAPITALIZATIONCurrent Liabilities:Short-term debt
$94,000

$124,500Accounts payable
25,691

47,229Accrued interest and
taxes
5,456

4,070Deferred income taxes
2,497

3,306Regulatory liabilities -
current
1,388

5,974Pension liability -
current
813

813Other current liabilities
25,924

19,349Total Current
Liabilities
155,769

205,241Other Credits:Deferred income taxes
122,896

117,505Investment tax credit -
deferred
2,565

2,736Regulatory liabilities
19,076

18,814Accrued pension and other
postretirement benefits
134,693

137,286Other deferred liabilities and
other
43,274

36,083Total Other
Credits
322,504

312,424Capitalization:Common shareholders'
equity
492,619

478,202Long-term debt
272,439

272,408Total
Capitalization
765,058

750,610Commitments and contingencies
(see Footnote 9)
-

-Total Liabilities and
Capitalization
$1,243,331

$1,268,275  The accompanying notes are an integral
part of the above unaudited consolidated financial statements.   MGE Energy, Inc.  Consolidated Statements of Equity (unaudited) (In thousands, except per-share
amounts)  Accumulated
Other Comprehensive
(Loss)/IncomeAdditional
Paid-in
CapitalCommon Stock
Retained
EarningsShares
Value
TotalBeginning
balance - Dec. 31, 2007
21,950
$21,950
$280,217
$123,916
$1,643
$427,726Net
income



24,394

24,394Other
comprehensive income/(loss):Net
unrealized loss on investments,
net
of $54 tax




(80)
(80)Net
unrealized loss on cash flow hedges, net of $470 tax




(702)
(702)Common
stock dividends declared
($0.710 per
share)



(15,652)

(15,652)Common stock
issued, net
227
227
7,372


7,599Ending Balance 
June 30, 2008
22,177
$22,177
$287,589
$132,658
$861
$443,285Beginning
balance - Dec. 31, 2008
22,905
$22,905
$310,202
$144,904
$191
$478,202Net
income



24,845

24,845Other
comprehensive income/(loss):Net
unrealized loss on investments,
net
of $27 tax




(40)
(40)Common
stock dividends declared
($0.723
per share)



(16,663)

(16,663)Common stock
issued, net
209
209
6,066


6,275Ending Balance 
June 30, 2009
23,114
$23,114
$316,268
$153,086
$151
$492,619  The accompanying notes are an integral
part of the above unaudited consolidated financial statements.   Madison Gas and Electric Company  Consolidated Statements of Income (unaudited) (In thousands)  Three Months Ended
June 30,

Six Months Ended
June 30,2009

2008

2009

2008Operating Revenues:Regulated electric
revenues
$81,198

$84,031

$161,325

$166,470Regulated gas revenues
24,033

38,920

122,853

144,404Nonregulated revenues
2,325

1,786

4,522

3,859Total Operating
Revenues
107,556

124,737

288,700

314,733Operating Expenses:Fuel for electric
generation
7,431

12,756

17,303

28,950Purchased power
20,738

14,623

45,776

36,302Cost of gas sold
12,252

26,463

82,580

104,406Other operations and
maintenance
35,628

38,391

72,255

74,423Depreciation and
amortization
10,145

9,893

20,199

19,290Other general taxes
4,440

4,193

9,102

8,572Income tax provision
4,371

5,033

11,340

12,242Total Operating
Expenses
95,005

111,352

258,555

284,185Operating Income
12,551

13,385

30,145

30,548Other Income and Deductions:AFUDC - equity funds
121

112

227

644Equity earnings in ATC
2,021

1,704

4,002

3,310Income tax provision
(901)

(693)

(1,712)

(838)Other deductions, net
(102)

(119)

(208)

(1,680)Total Other Income and
Deductions
1,139

1,004

2,309

1,436Income before interest
expense
13,690

14,389

32,454

31,984Interest Expense:Interest on long-term
debt
4,105

4,000

8,209

7,995Other interest, net
9

184

32

553AFUDC - borrowed funds
(50)

(46)

(94)

(267)Net Interest
Expense
4,064

4,138

8,147

8,281Net Income
$9,626

$10,251

$24,307

$23,703Less: Net Income Attributable to Noncontrolling
Interest, net of tax
(3,484)

(3,005)

(6,860)

(6,151)Net Income Attributable to MGE
$6,142

$7,246

$17,447

$17,552  The accompanying notes are an integral
part of the above unaudited consolidated financial statements.   Madison Gas and Electric Company  Consolidated Statements of Cash Flows (unaudited) (In thousands)   Six Months Ended
June 30,2009

2008Operating Activities:Net income
$24,307

$23,703Items not affecting cash:Depreciation and
amortization
20,199

19,290Deferred income taxes
3,964

1,167Provision for doubtful accounts
receivable
2,382

1,931AFUDC - equity funds
(227)

(644)Employee benefit plan
expenses
3,593

3,947Equity earnings in ATC
(4,002)

(3,310)Other items
1,449

1,488Changes in working
capital:Decrease in current
assets
50,950

22,686Decrease in current
liabilities
(17,153)

(7,251)Dividend income from ATC
3,061

2,485Cash contributions to pension
and other postretirement plans
(8,748)

(6,520)Other noncurrent items,
net
2,692

3,724Cash Provided by Operating
Activities
82,467

62,696Investing Activities:Capital expenditures
(34,770)

(61,136)Capital contributions to
investments
(1,598)

(1,315)Other
(116)

653Cash Used for Investing
Activities
(36,484)

(61,798)Financing Activities:Cash
dividends paid to parent by MGE
(6,361)

-Distributions
to parent from noncontrolling interest
(2,807)

(6,308)Equity contributions received by
noncontrolling interest
1,598

24,785Affiliate financing of Elm
Road
699

-Decrease in short-term debt,
net
(34,500)

(18,000)Cash (Used for) Provided by
Financing Activities
(41,371)

477Change in Cash and Cash Equivalents
4,612

1,375Cash and cash equivalents at
beginning of period
1,318

1,859Cash and cash equivalents at end
of period
$5,930

$3,234  The accompanying notes are an integral
part of the above unaudited consolidated financial statements.  Madison Gas and Electric Company  Consolidated Balance Sheets (unaudited) (In thousands)   ASSETS
June 30,
2009

December 31, 2008Utility Plant(At Original Cost, in Service):Electric
$796,523

$773,605Gas
286,097

279,483Nonregulated
110,400

110,317Gross
plant in service
1,193,020

1,163,405Less
accumulated provision for depreciation
(476,977)

(461,037)Net
plant in service
716,043

702,368Construction
work in progress
201,303

198,694Total
Utility Plant
917,346

901,062Other property
and investments
824

965Investment in
ATC
48,755

46,217Total
Other Property and Investments
49,579

47,182Current
Assets:Cash
and cash equivalents
5,930

1,318Restricted
cash
3,765

4,805Accounts
receivable, less reserves of $4,997 and $4,076, respectively
26,314

45,266Affiliate
receivables
2,608

2,547Other
receivables, less reserves of $275 and $200, respectively
7,659

7,575Unbilled
revenues
20,411

34,701Materials
and supplies, at average cost
15,802

15,592Fossil
fuel
4,447

3,228Stored
natural gas, at average cost
26,418

42,146Prepaid
taxes
14,437

14,013Regulatory
assets - current
8,062

9,876Other
current assets
8,045

10,804Total
Current Assets
143,898

191,871Other long-term
receivables
2,381

2,390Special billing
projects
280

464Affiliate
receivable long-term
5,972

6,433Regulatory
assets
121,217

116,165Other deferred
assets and other
5,217

5,555Total
Assets
$1,245,890

$1,271,122CAPITALIZATION
AND LIABILITIESEquity:Common
stockholder's equity
$385,283

$374,253Noncontrolling
interest
179,808

174,157Total
Equity
565,091

548,410Long-term
debt
272,439

272,408Total
Capitalization
837,530

820,818Current
Liabilities:Short-term
debt - commercial paper
16,500

51,000Accounts
payable
25,690

47,186Affiliate
payables
762

63Accrued
interest and taxes
12,679

10,307Accrued
payroll related items
6,233

7,380Deferred
income taxes
2,497

3,305Regulatory
liabilities - current
1,388

5,974Pension
liability - current
813

813Other
current liabilities
19,441

11,987Total
Current Liabilities
86,003

138,015Other
Credits:Deferred
income taxes
122,749

117,369Investment
tax credit - deferred
2,565

2,736Regulatory
liabilities
19,076

18,814Accrued
pension and other postretirement benefits
134,693

137,286Other
deferred liabilities and other
43,274

36,084Total
Other Credits
322,357

312,289Commitments
and contingencies (see Footnote 9)
-

-Total
Capitalization and Liabilities
$1,245,890

$1,271,122 The accompanying notes are an integral
part of the above unaudited consolidated financial statements.  Madison Gas
and Electric Company  Consolidated Statements of Equity (unaudited) (In thousands)


|                                                         |                            |                           |                                               |          |       |          |         
|-------------------------------------------------------- | -------------------------- | ------------------------- | --------------------------------------------- | -------- | ----- | -------- | --------
|                                                         | MGE                        |                           | Total                                        
|                                                         | Additional
Paid-in
Capital |                           | Accumulated
Other
Comprehensive
Income/(Loss) |         
|Common Stock                                             | Retained
Earnings          | Non-
controlling
Interest
|Shares                                                   | Value                     
|                                                         |                            |                           |                                               |          |       |          |         
|Beginning
balance - Dec. 31, 2007                        | 17,348                     | $17,348                   | $184,917                                      | $126,781 | $898  | $137,028 | $466,972
|Net
income                                               |                            |                           |                                               | 17,552   |       | 6,151    | 23,703  
|Other
comprehensive income/(loss):                       |                            |                           |                                               |          |       |          |         
|Net
unrealized loss on investments,
net
of $156 tax      |                            |                           |                                               |          | (233) |          | (233)   
|Net
unrealized loss on cash flow hedges, net of $470 tax |                            |                           |                                               |          | (702) |          | (702)   
|Equity
contribution received by noncontrolling interest  |                            |                           |                                               |          |       | 24,785   | 24,785  
|Distributions to
parent from
noncontrolling
interest     |                            |                           |                                               |          |       | (6,308)  | (6,308) 
|Ending balance 
June 30, 2008                           | 17,348                     | $17,348                   | $184,917                                      | $144,333 | $(37) | $161,656 | $508,217
|                                                         |                            |                           |                                               |          |       |          |         
|Beginning
balance  Dec. 31, 2008                        | 17,348                     | $17,348                   | $192,417                                      | $164,354 | $134  | $174,157 | $548,410
|Net
income                                               |                            |                           |                                               | 17,447   |       | 6,860    | 24,307  
|Other
comprehensive income/(loss):                       |                            |                           |                                               |          |       |          |         
|Net
unrealized loss on investments,
net
of $38 tax       |                            |                           |                                               |          | (56)  |          | (56)    
|Cash dividends
paid to parent by MGE                     |                            |                           |                                               | (6,361)  |       |          | (6,361) 
|Equity
contribution received by noncontrolling interest  |                            |                           |                                               |          |       | 1,598    | 1,598   
|Distributions to
parent from
noncontrolling
interest     |                            |                           |                                               |          |       | (2,807)  | (2,807) 
|Ending balance 
June 30, 2009                           | 17,348                     | $17,348                   | $192,417                                      | $175,440 | $78   | $179,808 | $565,091

The accompanying notes are an integral
part of the above unaudited consolidated financial statements.   MGE Energy, Inc., and Madison Gas and Electric
Company  Notes
to Consolidated Financial Statements (unaudited) June
30, 2009  1. Basis of
Presentation - MGE Energy and MGE.  This report is a
combined report of MGE Energy and 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.  In accordance
with FIN 46(R), Consolidation of Variable Interest Entities - An
Interpretation of ARB No. 51, MGE is required to consolidate MGE Power
West Campus and MGE Power Elm Road. Both entities own electric generating assets
and lease those assets to MGE. MGE is considered the primary beneficiary of
these entities as a result of these leasing arrangements.  The accompanying
consolidated financial statements as of June 30, 2009, and for the three
and six months then ended are unaudited, but include all adjustments that
MGE Energy and MGE management consider necessary for a fair statement of
their respective financial statements. All adjustments are of a normal,
recurring nature except as otherwise disclosed. The year-end consolidated
balance sheet information was derived from the audited balance sheet appearing
in MGE Energy's and MGE's 2008 Annual Report on Form 10-K, but does not
include all disclosures required by accounting principles in the United States
of America. These notes should be read in conjunction with the financial
statements and the notes on pages 57 through 112 of the 2008 Annual Report on
Form 10-K.  2. Equity and
Financing Arrangements.  a. Common Stock -
MGE Energy.  As of
June 1, 2009, MGE Energy is purchasing stock for its Stock Plan from the
open market rather than issuing new shares.  All MGE Energy
common stock shares under the Stock Plan are sold pursuant to a registration
statement that has been filed with the SEC and is currently effective.  For the six
months ended June 30, 2009, MGE Energy issued 209,065 new shares of
common stock under the Stock Plan for net proceeds of $6.3 million. For the
six months ended June 30, 2008, MGE Energy issued 226,634 new shares
of common stock under the Stock Plan for net proceeds of $7.6 million.  b. Dilutive
Shares Calculation - MGE Energy.  MGE Energy
does not have any dilutive securities.  c. Credit
Facilities - MGE Energy and MGE.  On March 31,
2009, MGE amended its existing credit agreement dated August 29, 2008, with
JPMorgan Chase Bank, N.A., as lender, which provides MGE with a $20 million
committed credit facility. The principal purpose of the amendment was to extend
the expiration date of the original agreement from March 31, 2009, to
March 30, 2010. The credit facility continues to be used as a backup
facility to MGE's commercial paper program. As of June 30, 2009, no
borrowings were outstanding under the credit facility.  The amendment
also changed the interest rate provisions of the original agreement. As amended,
borrowings under the credit facility may bear interest at either (i) a
LIBOR-based rate (as defined in the original agreement) for an applicable
interest period, plus 1.50% or (ii) an Alternate Base Rate, plus 1%. The
Alternate Base Rate is defined as the greater of (1) JPMorgan Chase Bank, N.A.'s
prime rate, (2) the Federal Funds Effective Rate (as defined in the original
agreement) plus 0.50% and (3) the one-month LIBOR-based rate plus 1%. The
amendment also changed the non-use fee to 0.150% per annum on the unused
commitment under the credit facility. 3. Comprehensive
Income - MGE Energy and MGE.  Total
comprehensive income represents the change in equity during a period from
transactions and other events and circumstances from nonowner sources.
MGE Energy's and MGE's total comprehensive income is:  (In thousands)
Three Months Ended
June 30,

Six
Months Ended
June 30,2009
2008

2009
2008MGE EnergyNet
income
$9,893
$10,557

$24,845
$24,394Unrealized loss
on cash flow hedges, net of tax
($-
and $294, and $- and $470)
-
(438)

-
(702)Unrealized
(loss) gain on available-for-sale securities,
net
of tax ($1 and $155, and $27 and $54)
(2)
231

(40)
(80)Total
comprehensive income
$9,891
$10,350

$24,805
$23,612MGENet
income
$9,626
$10,251

$24,307
$23,703Unrealized loss
on cash flow hedges, net of tax
($-
and $294, and $- and $470)
-
(438)

-
(702)Unrealized
(loss) gain on available-for-sale securities,
net
of tax ($15 and $30, and $38 and $156)
(23)
45

(56)
(233)Total
comprehensive income
$9,603
$9,858

$24,251
$22,768Less:
Comprehensive income attributable to noncontrolling interest
(3,484)
(3,005)

(6,860)
(6,151)Comprehensive
income attributable to MGE
$6,119
$6,853

$17,391
$16,617  4. Investment in ATC -
MGE Energy and MGE.  ATC owns and operates electric
transmission facilities primarily in Wisconsin. MGE received an interest in ATC
when it, like other Wisconsin electric utilities, contributed its electric
transmission facilities to ATC. That interest is presently held by MGE Transco,
which is jointly owned by MGE Energy and MGE.  MGE Transco, through MGE, has a seat
on the Board of Directors of ATC and has a 20% voting ownership interest in ATC
Management, Inc. Due to MGE Transco's ability to exercise significant control
over management activities, MGE Transco has accounted for its investment in ATC
under the equity method of accounting. For the six months ended June 30,
2009 and 2008, MGE Transco recorded equity earnings from the investment in ATC
of $4.0 million (pretax) and $3.3 million (pretax), respectively.
Dividend income received from ATC was $3.1 million and $2.5 million
for the six months ended June 30, 2009 and 2008, respectively. During the
six months ended June 30, 2009 and 2008, MGE Transco made capital
contributions of $1.6 million and $1.3 million, respectively.  At June 30, 2009, MGE is the
majority owner and MGE Energy, the holding company, is the minority owner
of MGE Transco. MGE Energy's proportionate share of the equity and net
income of MGE Transco is classified within the MGE financial statements as
noncontrolling interest.  ATC's summarized financial data for
the three and six months ended June 30, 2009 and 2008, is as follows:  (In thousands)Income statement data for the three months ended
June 30,
2009

2008Operating revenues
$129,016

$116,084Operating expenses
(56,617)

(53,244)Other (expense) income, net
(66)

2Interest expense, net
(19,653)

(17,122)Earnings before members' income taxes
$52,680

$45,720MGE Energy's and MGE's equity earnings in
ATC
$2,021

$1,704      (In thousands)Income statement data for the six months ended
June 30,
2009

2008Operating revenues
$255,248

$225,176Operating expenses
(113,572)

(104,160)Other expense, net
(129)

(146)Interest expense, net
(37,918)

(32,757)Earnings before members' income taxes
$103,629

$88,113MGE Energy's and MGE's equity earnings in
ATC
$4,002

$3,310  5. Taxes - MGE Energy and
MGE.  a. FIN 48.  MGE Energy and MGE apply the
provisions of FIN 48, Accounting for Uncertainty in Income Taxes, an
interpretation of SFAS No. 109, Accounting for Income Taxes.
Under FIN 48, the difference between the tax benefit amount taken on prior year
tax returns, or expected to be taken on a current year tax return, and the tax
benefit amount recognized in the financial statements is an unrecognized tax
benefit.  For both MGE Energy and MGE,
there have been no changes to unrecognized tax benefits existing at
December 31, 2008, nor any additions for new tax positions, during the six
months ended June 30, 2009.  b. Effective Tax Rate.  MGE Energy's effective income
tax rates for the three and six months ended June 30, 2009, are 35.5% and
35.1%, respectively, compared to 36.0% and 35.7% for the same periods in 2008.
These decreases are primarily attributable to increases in the federal tax
credit for producing electricity from wind energy. Federal law allows a tax
credit of 2.1 cents per kilowatt hour of electricity produced and sold from wind
energy. The tax credit for 2009 is expected to exceed the credit for 2008 mainly
due to the full year generation expected from Top of Iowa III wind farm in 2009.
In 2008, wind generation occurred for approximately ten months.  MGE's effective income tax rates for
the three and six months ended June 30, 2009, are 35.4% and 34.9%,
respectively, compared to 35.8% and 35.6% for the same periods in 2008. These
decreases are similarly due to an increased wind energy tax credit expected for
2009.  Under 2009 Wisconsin Act 2, effective
for years beginning on or after January 1, 2009, Wisconsin requires
corporations to use combined reporting to compute their Wisconsin income for
income tax purposes. Formerly, Wisconsin law required each corporation in a
combined group to file separate returns. The effect of the combined reporting
statute in Wisconsin is not expected to make any significant changes to the
effective income tax rate or the tax accrual.  6. Elm Road - MGE Energy and
MGE.  a. Construction.  On November 4, 2005, MGE Power
Elm Road acquired an 8.33% ownership interest in each of two 615 MW
generating units being constructed in Oak Creek, Wisconsin. MGE Power Elm Road's
sole principal asset is the 8.33% undivided ownership interest in the
aforementioned coal-fired generating plants. Each owner provides its own
financing and reflects its respective portion of the facility and costs in its
financial statements. The estimated share of capital costs for that ownership
interest in both units was approximately $172 million (excluding capitalized
interest).  In July 2008, the Elm Road
construction contractor, Bechtel, gave notice forecasting that the in-service
date of Unit 1 would be delayed by three months from the guaranteed in-service
date of September 29, 2009, and that the in-service date of Unit 2 would be
one month earlier than the guaranteed in-service date of September 29,
2010. The notice stated that the delays in Unit 1 were caused by severe weather,
changes in local labor conditions from those anticipated by the contractor and
other factors. On December 23, 2008, we received notice from Elm Road
Services, LLC (ERS) that it had received a letter from Bechtel containing
Bechtel's formal claim for schedule and cost relief on the construction of the
Elm Road units. Bechtel is constructing the Elm Road units under a turnkey
engineering, procurement and construction contract (the "Contract") with ERS,
which is the project manager for the Elm Road units.  MGE Power
Elm Road has leased the Elm Road units to MGE pursuant to separate facility
lease agreements for each unit. These leases were authorized by order of the
PSCW in accordance with applicable provisions of Wisconsin law that authorized
financing of new generation through facility leases. The PSCW order establishes
a cap on the construction costs that may be passed through the lease agreements
to MGE and its customers, through rates. Additional costs attributable to force
majeure events, as defined in the leases, do not count against this cap, but are
subject to PSCW review and determination that the costs were prudently incurred.   Bechtel
asserted two claims for cost and schedule relief in its December 2008 letter to
ERS:  · The first claim is based on the
alleged impact of severe weather and specified labor-related matters. It seeks
compensation for additional costs of approximately $413 million, of which
MGE Energy's share would be approximately $34.4 million, if the claim
is successful in full. Bechtel has reserved the right to request future
additional costs and schedule relief. Bechtel seeks cost and schedule relief for
weather-related events, which it contends are force majeure events and changed
local conditions under the Contract, consisting of extreme winds from September
2006 through April 2007, snowstorms from December 2007 through
April 2008, and rain storms in June 2008. It also seeks cost and
schedule relief based upon alleged changes in labor conditions, which it
contends consisted of a significant shortage in the availability of craft labor,
significant increases in competing projects, overtime and per diems allegedly
necessary to attract labor, and alleged restrictions that the project labor
agreement placed on Bechtel's ability to attract and retain craft labor.  · The second claim is based upon the
alleged effects of ERS-directed changes and ERS-caused delays prior to the
issuance of the full notice to proceed ("FNTP") in July 2005. It seeks
compensation for additional costs of approximately $72 million, of which
MGE Energy's share would be approximately $6 million, if the claim is
successful in full. These changes and delays are alleged to consist of a delay
in issuing certain limited notices to proceed, a delay in issuing the FNTP until
the final resolution of litigation brought by opposition groups that challenged
the Certificate of Public Convenience and Necessity for the Elm Road units, the
imposition of additional limits to third party cancellation charges that
allegedly restricted Bechtel's ability to issue purchase orders, a reduction of
the pre-FNTP monthly payments below the amounts required by the Contract, and a
request by ERS to perform design studies and issue design changes during the
pre-FNTP period.  Although ERS is in the process of
analyzing the claims and its responses to them, it has stated its belief that
both claims are without merit. It has also stated its view that the only
circumstances and events for which the Elm Road units' owners currently retain
price adjustment risk under the contract are force majeure, wage escalation in
excess of 4% annually as measured by published wage bulletins, delays caused by
ERS, changes in scope or performance requested by ERS, and unforeseen
sub-surface ground conditions. ERS has stated that it currently believes Bechtel
was fully compensated for any and all impacts of the delayed start as indicated
in certain change orders entered into between ERS and Bechtel prior to the start
of construction of the Elm Road units. Furthermore, ERS has stated that it does
not believe that the contract provides for relief based upon the cumulative
impact of change orders.  ERS invoked the dispute resolution
process provided for in the contract in order to address the claims made by
Bechtel under the contract. ERS and Bechtel agreed to combine these issues and
Bechtel's claims into one mediation. Mediation was unsuccessful and therefore,
both parties submitted the matter to binding arbitration pursuant to the
contract. The arbitration is expected to be concluded in 2010. We are unable to
predict the results of these claims or their effect on the costs recoverable
under the existing facility leases, in the event that the outcome of the claims
should cause total construction costs of the Elm Road units to exceed the
amounts authorized in the PSCW order.  Bechtel continues to target an
in-service date for Elm Road Unit 1 three months beyond the guaranteed date
of September 29, 2009, and an in-service date for Elm Road Unit 2 one
month earlier than the guaranteed date of September 29, 2010. However,
Bechtel does request schedule relief that would result in six months of relief
from liquidated damages beyond the guaranteed in-service date for Unit 1
and three months of relief from liquidated damages beyond the guaranteed
in-service date for Unit 2. Bechtel fell behind this revised target
schedule in moving from construction to start-up, but developed a recovery plan
and added resources in an effort to recover lost time. Bechtel has made, and
continues to make, significant construction and start-up progress; however, at
this time it has not fully kept pace with its revised schedule.   At
June 30, 2009, $154.4 million (excluding capitalized interest) related
to this project is reflected in the construction work in progress balance on
MGE Energy's and MGE's consolidated balance sheets. MGE Power Elm Road
calculates capitalized interest in accordance with SFAS 34, Capitalization
of Interest Cost, on the Elm Road project. At June 30, 2009, MGE Power Elm
Road recorded a total of $12.6 million in capitalized interest related to
the Elm Road project which is reflected in the construction work in progress
balance on MGE Energy's and MGE's consolidated balance sheets.   b. Consolidation.  In connection with this project,
MGE Energy and its subsidiaries entered into various agreements, including
facility lease agreements between MGE Power Elm Road (a nonregulated subsidiary
of MGE Energy) and MGE with respect to each of the generating units. The
financial terms of the facility leases include a capital structure of 55% equity
and 45% long-term debt, return on equity of 12.7%, a lease term of 30 years, and
a 5% lease payment reduction in the first five years.  Based on the nature and terms of the
leasing agreements and the relationship they establish, MGE absorbs a majority
of the expected losses, residual value, or both, associated with the ownership
of MGE Power Elm Road. MGE also is the party most closely associated with MGE
Power Elm Road. As a result, MGE is the primary beneficiary and MGE Power Elm
Road is a VIE under FIN 46(R). Accordingly, MGE Power Elm Road has been
consolidated in the financial statements of MGE.  MGE Energy's share of the equity
and net income (through its wholly owned subsidiary MGE Power) of MGE Power Elm
Road is classified within the MGE financial statements as noncontrolling
interest.  c. Nonregulated Revenues.  MGE has approval from the PSCW to
defer the recovery of the payments made to MGE Power Elm Road for carrying costs
during construction of the facility, management fees, and community impact
mitigation costs. MGE estimates that the total carrying costs on the Elm Road
project will be $59.0 million. This estimate is subject to change based on
changes in interest rates, timing of capital expenditures, and the total project
cost. During 2009, MGE will recover $11.1 million in electric rates for its
investment in MGE Power Elm Road. Of this amount, $9.5 million relates to
carrying costs and $1.6 million relates to management fees, community
impact mitigation costs, and other related costs.  MGE began collecting the carrying
costs in rates in 2006. These amounts are being collected over multiple years.
Of these costs, MGE estimates that $19.2 million relates to the capitalized
interest and the debt portion of the facility. These costs will be recognized
over the period in which the facility will be depreciated. The remaining
$39.8 million is estimated to represent the equity portion and is being
recognized over the period allowed for recovery in rates. For the six months
ended June 30, 2009, $4.8 million related to the carrying costs were
recovered in rates. Of this amount, $0.8 million relates to the debt
portion of the facility and was deferred on the consolidated financial
statements of MGE Energy and MGE. The remaining $4.0 million
represents the equity portion and was recognized as nonregulated revenues in the
consolidated financial statements of MGE Energy and MGE.  7. Pension and Postretirement Plans -
MGE Energy and MGE.  MGE maintains qualified and
nonqualified pension plans, health care, and life insurance benefits.
Additionally, MGE has deferred contribution 401(k) benefit plans.  The following table presents the
components of MGE Energy's and MGE's net periodic benefit costs recognized
for the three and six months ended June 30, 2009 and 2008. A portion of the
net periodic benefit cost is capitalized within the consolidated balance sheets.
For the three and six months ended June 30, 2009, $1.6 million and
$3.8 million, respectively, of the net periodic benefit cost has been deferred
on the consolidated balance sheet as a result of PSCW approval.     (In thousands)
Three Months Ended
June 30,

Six
Months Ended
June 30,2009
2008

2009
2008Pension
BenefitsComponents of
net periodic benefit cost:Service
cost
$1,293
$1,301

$2,647
$2,605Interest
cost
2,847
2,823

5,830
5,653Expected
return on assets
(2,198)
(3,337)

(4,500)
(6,682)Amortization
of:Transition
obligation
34
36

70
72Prior
service cost
106
111

217
222Actuarial
loss
1,157
98

2,368
197Net periodic
benefit cost
$3,239
$1,032

$6,632
$2,067Postretirement
BenefitsComponents of
net periodic benefit cost:Service
cost
$393
$466

$871
$933Interest
cost
799
948

1,773
1,897Expected
return on assets
(188)
(323)

(416)
(647)Amortization
of:Transition
obligation
88
107

194
214Prior
service cost
59
72

130
143Actuarial
loss
138
76

306
153Net periodic
benefit cost
$1,289
$1,346

$2,858
$2,693  8. Share-Based Compensation -
MGE Energy and MGE.  The MGE Energy Board approved a
Performance Unit Plan on December 15, 2006. Under that plan, eligible
participants may receive performance units that entitle the holder to receive a
cash payment equal to the value of a designated number of shares of
MGE Energy's common stock, plus dividend equivalent payments thereon, at
the end of the set performance period.  In addition to units granted in 2008
and 2007, on January 16, 2009, 18,604 units were granted based on the
MGE Energy closing stock price as of that date. These newly-granted units
are subject to a five year graded vesting schedule. Based on the provisions of
SFAS 123R, Share-Based Payment, on the grant date, MGE Energy
and MGE measured the cost of the employee services received in exchange for the
award based on current market value of MGE Energy common stock. The fair
value of the awards, including the outstanding awards granted in 2008 and 2007,
has been subsequently re-measured at June 30, 2009, as required by
applicable accounting principles. Changes in fair value as well as the original
grant have been recognized as compensation cost. Since this amount will be
re-measured throughout the vesting period, the compensation cost is subject to
variability.  For nonretirement eligible employees,
stock based compensation costs are accrued and recognized using the graded
vesting method. Pursuant to the provisions of SFAS 123R and the terms of
the plan, compensation cost for retirement eligible employees or employees that
will become retirement eligible during the vesting schedule, are recognized on
an abridged horizon also using the graded vesting method.  During the six months ended
June 30, 2009 and 2008, MGE recorded $0.4 and $0.2 million,
respectively, in compensation expense as a result of this plan. No forfeitures
or cash settlements occurred during the aforementioned periods. At June 30,
2009, $0.1 million of these awards were vested.  9. Commitments and Contingencies.  a. Environmental - MGE Energy
and MGE.  Solid Waste MGE is listed as a potentially
responsible party for the Lenz Oil site in Lemont, Illinois, which is a site on
the national priorities Superfund list. This site was used for storing and
processing waste oil for several years. This site requires clean up under the
Comprehensive Environmental Response, Compensation and Liability Act. A group of
companies, including MGE, is currently working on cleaning up the site.
Management believes that its share of the final cleanup costs will not result in
any materially adverse effects on MGE's operations, cash flows, or financial
position. Insurance may cover a portion of the cleanup costs. Management  believes
that the cleanup costs not covered by insurance will be recovered in current and
future rates. At June 30, 2009, MGE accrued a $0.1 million gross
liability for this matter. The expected range of loss for this item is estimated
to be between $0.1 million and $0.2 million.    Water Quality MGE is subject to various water
quality regulations issued by the WDNR. These regulations limit chemical and
thermal discharges from MGE's plants and activities into Wisconsin waters. These
regulations also limit water intake from new and existing power plants. EPA's
proposed regulations regarding water intake from existing power plants continue
to evolve and MGE is monitoring these regulations to determine the effect on our
facilities.  The WDNR is promulgating revised
rules to regulate thermal effluent discharges from point sources in Wisconsin.
The current draft rules apply strict standards for thermal discharges into
inland lakes, streams, rivers, and the Great Lakes. While dischargers can apply
for variances, MGE may incur additional capital expenditures, such as equipment
upgrades at Blount and Columbia, if the variances are not granted. Costs at
Blount have not been fully determined, however, capital expenditures may include
cooling towers, which in past analyses have been shown to be cost prohibitive.
Potential costs at Columbia have not been determined at this time. Based on
initial reviews of the current revised rules, we do not expect Elm Road to be
impacted by these rules.  Energy Efficiency and
Renewables Effective March 31, 2006,
Wisconsin adopted the Energy Efficiency and Renewables Act that focuses on three
areas: increasing the use of renewable energy in Wisconsin, promoting the
development of renewable energy technologies, and strengthening the state's
energy efficiency programs. This legislation requires that by 2015, 10% of the
state's electricity be generated from renewable resources. As part of this
initiative, MGE plans to add additional renewable energy resources, such as wind
farms. MGE expects the cost to comply with the Act and its accompanying
regulations will be recoverable through current and future rates.  Air Quality Air quality regulations promulgated
by the EPA and WDNR in accordance with the Federal Clean Air Act and the Clean
Air Act Amendments of 1990 impose restrictions on emission of particulates,
sulfur dioxide (SO2), nitrogen oxides (NOx), and other
pollutants and require permits for operation of emission sources. These permits
have been obtained by MGE and must be renewed periodically.  Various initiatives including, but
not limited to, the Clean Air Interstate Rule (CAIR), new source performance
standards (NSPS), Clean Air Visibility Rule (CAVR), and the protection of
visibility by application of best available retrofit technologies (BART), are
expected to result in significant additional operating and capital expenditures
at Columbia, Elm Road, and Blount. Further, the state of Wisconsin's mercury
rules under NR 446 have been finalized through state legislative review process,
and these rules are expected to further increase mercury control compliance
costs at these facilities.  On March 12, 2008, the U.S. EPA
announced a new national ambient air quality standard ("NAAQS") for ozone which
is more stringent than the current standard (standard lowered from 0.08 to
0.0750 parts per million). States (including Wisconsin) must monitor and
collect data on ozone levels in order to determine attainment or nonattainment
status on a county and/or area basis. Currently available monitoring data for
the years 2006  2008 for Dane, Columbia, and Milwaukee counties demonstrates
attainment with this new standard. However, final attainment designations will
not be made until 2010 using the monitoring data collected during the period
2007 through 2009. There is a possibility that future monitoring data for one or
more of these counties will demonstrate nonattainment for this new ozone
standard, which could result in additional operating and capital expenditures at
Columbia (located in Columbia County), Blount and WCCF (located in Dane County)
and Elm Road (located in Milwaukee County). Similarly, new standards for fine
particulate emissions under 2.5 microns and monitoring data has resulted in EPA
announcing its intent to designate Dane, Columbia, and Milwaukee counties as
nonattainment for fine particulate, which could also result in increased
expenditures at our generation facilities. On February 18, 2009, the State
of Wisconsin requested that the EPA re-evaluate its announcement based on
several counties' being in attainment using the most recent monitoring data
(years 2006-2008). Wisconsin's request included the continued designation of
Dane, Milwaukee and Columbia counties as attainment. The EPA has not formally
responded to this re-evaluation request. (See the Federal National Ambient Air
Quality Standards subsection within the Environmental Matters section in Part I,
Item 1 of our 2008 Annual Report on Form 10-K for additional details).  On
February 9, 2009, the Justice Department, on behalf of the EPA, asked the
Supreme Court to dismiss EPA's request (petition for certiorari) that the Court
review the D.C. Circuit Court's vacatur of the Clean Air Mercury Rule (CAMR).
This withdrawal paves the way for the EPA to develop Maximum Achievable Control
Technology (MACT) standards for electric utilities. It is unclear at this time
how quickly MACT standards will be created for electric utilities and how they
will affect MGE's operations, however, earlier versions of the MACT rule for
electric utilities focused on mercury emissions from electric utilities that
burned oil and coal for distribution in commerce. The implementation of the MACT
standards will likely affect our facilities that burn coal and oil, however, we
are uncertain of the exact cost at this time.  In 1998, the EPA issued a rule that
imposed a NOx emission budget for emission sources in Wisconsin. In
2000, the Court of Appeals for the District of Columbia invalidated a portion of
the rule as applied to Wisconsin; however, the Court stayed that portion of the
challenge concerning Wisconsin's alleged impacts on downwind, eight-hour ozone
nonattainment areas. EPA has also stayed that portion of the rule concerning
Wisconsin's alleged impacts on downwind eight-hour ozone nonattainment areas. If
that portion of the rule concerning eight-hour ozone nonattainment areas is
upheld, the resulting NOx emission budget for Wisconsin could
potentially affect the level of permissible NOx emissions from
Blount, Columbia, and WCCF.  Columbia In April 2009, the Columbia
owners filed a Certificate of Authority with the PSCW requesting authorization
of an emissions reduction project as a result of an environmental initiative.
The operator's current estimates show that MGE's share of the capital
expenditures required to comply with this project will be approximately
$140 million. According to the current estimate, this project is expected
to result in an increase to Columbia's ongoing operating expenses. MGE expects
that the costs pertaining to this project will be fully recoverable through
rates. The PSCW is permitting MGE to defer pre-certification and
pre-construction costs related to compliance with environmental regulations at
Columbia. Additionally, MGE is entitled to a carrying cost on the related
pre-construction costs at a 100% AFUDC rate. As of June 30, 2009, MGE had
incurred $0.7 million (excluding carrying costs) in expenditures at
Columbia related to this environmental initiative.  As of June 30, 2009, Columbia
entered into various contractual commitments with vendors for a small portion of
the aforementioned expenditures as well as other Columbia environmental
projects. MGE is indirectly a party to these agreements as a result of its joint
ownership of Columbia and is also contractually obligated, under the applicable
ownership and operating agreements, with respect to any commitments made. MGE
has a 22% ownership interest in Columbia. MGE's share of these commitments is
estimated to be $0.3 million for the remainder of 2009. These costs are expected
to be capitalized and included in the consolidated balance sheets of
MGE Energy and MGE.  WPL, the operator of Columbia, is
aware of public comments or petitions from citizen groups submitted to the WDNR
and U.S. EPA objecting to the renewal of the Title V air operating permit at
Columbia. In September 2008, WPL received a Title V air permit renewal for
Columbia from WDNR, which contained permit changes and responded to the citizen
comments. In December 2008, a citizen group submitted a notice of intent to sue
the EPA for failure to respond to its petition encouraging EPA to challenge the
Columbia permit. In March 2009, this citizen group commenced an action
against the U.S. EPA in federal court in Wisconsin, challenging the EPA's
failure to act on their petition. In a court filing on May 7, 2009, the
citizen group and EPA announced an agreement in principle to settle the
case.  b. Chattel Paper Agreement and Other
Guarantees - MGE Energy and 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 $10.0 million of the financing program receivables,
until August 28, 2009. At June 30, 2009, MGE has outstanding
$3.9 million interest in these receivables. MGE retains the servicing
responsibility for these receivables.  MGE accounts for servicing rights
under the amortization method. Initial determination of the servicing asset fair
value is based on the present value of the estimated future cash flows. The
discount rate is based on the PSCW authorized weighted cost of capital.   MGE would
be required to perform under its guarantee if a customer defaulted on its loan.
The energy-related equipment installed at the customer sites is used to secure
the customer loans. The loan balances outstanding at June 30, 2009,
approximate the fair value of the energy-related equipment acting as collateral.
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 for the remainder of 2009,
$0.9 million in 2010, $0.6 million in 2011, $0.4 million in 2012,
and $0.4 million in 2013.    c. Other Legal Matters -
MGE Energy and MGE.  MGE is involved in various other
legal matters that are being defended and handled in the normal course of
business. MGE maintains accruals for such costs that are probable of being
incurred and subject to reasonable estimation. As of June 30, 2009, MGE has
a total of $1.5 million accrued in the financial statements for such
matters. The ultimate outcome of such matters is uncertain and may have an
adverse effect on MGE Energy's and MGE's results of operations, financial
position, and cash flows.  d. Natural Gas Supply Contracts -
MGE Energy and MGE.  MGE has natural gas supply
commitments which include market-based pricing. Total natural gas supply
commitments are estimated to be $16.9 million for the remainder of 2009, $23.8
million for 2010, and $0.6 million for 2011. Management expects to recover these
costs in future customer rates.  e. Wind Development Rights -
MGE Energy.  In June 2009, MGE Energy, through its
subsidiary MAGAEL, LLC, entered into agreements to purchase land development
rights, including but not limited to land option agreements, electrical
interconnection rights, wind data, engineering plans, licenses, permits, and
governmental approvals for two wind development sites. An $0.8 million payment
related to these agreements was made in 2009. Future payments related to these
agreements are estimated to be $1.2 million in 2010, $0.8 million in 2011, $3.2
million in 2012, $0.4 million in 2013, $0.1 million in 2014, $1.7 million in
2015, and $0.4 million in 2016. These wind development rights may potentially be
used to develop wind farms in three counties in Iowa up to approximately 175
MWs. These agreements do not obligate MGE Energy to construct at these locations
in Iowa.  f. ATC Capital Commitment -
MGE Energy and MGE.  On June 18, 2009, MGE Transco
elected to participate in a voluntary capital call for ATC. As a result, MGE
Transco contributed $0.9 million to ATC in July 2009.  10. Restructuring Activities -
MGE Energy and MGE.  On January 19, 2006, MGE
announced a plan, subject to certain conditions, that includes discontinuing
coal use by the end of 2011 at Blount. The plant will continue to run on natural
gas but will be reduced from its current approximate 190 MW capacity to
100 MW when coal burning is discontinued. MGE determined that certain
employee positions will be eliminated as a result of this exit plan.  In March 2009, MGE received
notification from MISO that in order to meet national electric system
reliability standards, MGE will need to keep Blount available at full capacity
until MISO declares that the 90 MW are no longer needed for system
reliability. To comply with the MISO directive, MGE will delay plans for
retiring 90 MW of generation equipment at Blount. The transition from
burning coal to burning only natural gas will still occur by the end of 2011.
After 2011, the entire plant will be operated exclusively on natural gas. MGE
will be working with MISO to develop a detailed agreement for this continued
operation, which among other things will include a mechanism for cost recovery.
MGE management will also begin working on an implementation plan.  MGE has entered into agreements
providing severance benefits to employees affected by the exit plan. These
benefits were recognized initially at the respective communication dates based
on the fair value of the liability as of the termination date and are being
recognized ratably over the future service period of the employees. In May 2009,
renegotiated union agreements were ratified and resulted in changes to the
involuntary and voluntary severance benefits. These changes have been reflected
in the restructuring accrual. Estimated benefits expected to be paid are as
follows: $0.1 million in 2010, $0.8 million in 2011, and $0.4 million
in 2013. Total benefits paid as of June 30, 2009, were
$0.2 million.  MGE will recover in rates the costs
associated with the discontinuance of coal at Blount. As such, the severance
charges for the nonunion and union employees have been deferred and recognized
on the consolidated balance sheet of MGE Energy and MGE as a regulatory
asset.  The
following table presents the activity in the restructuring accrual from
December 31, 2008, through June 30, 2009:   (In thousands)Balance at December 31, 2008
$671Additional expense, net (deferred)
52Cash payments during the period
-Balance at June 30, 2009
$723  The aforementioned exit plan has also
resulted in accelerated depreciation for certain Blount assets expected to be
retired by 2011. These assets are being recovered in rates over a four year
period that began in 2008. For both the six months ended June 30, 2009 and
2008, $1.7 million of accelerated depreciation expense had been recognized and
recovered in rates.   11. Derivative and Hedging Instruments
- MGE Energy and MGE.  As part of its regular operations,
MGE enters into contracts, including options, swaps, futures, forwards, and
other contractual commitments, to manage its exposure to commodity prices and
gas revenues. MGE evaluates its derivative contracts in accordance with
SFAS 133, Accounting for Derivative Instruments and Hedging
Activities, as amended and interpreted. To the extent that these contracts
are derivatives, MGE assesses whether or not the normal purchases or normal
sales exclusion applies. For contracts to which this exclusion cannot be
applied, SFAS 133 requires MGE Energy and MGE to recognize such
derivatives in the consolidated balance sheets at fair value, with changes in
the fair value of derivative instruments to be recorded in current earnings or
deferred in accumulated other comprehensive income (loss), depending on whether
a derivative is designated as, and is effective as, a hedge. The majority of
MGE's derivative activities are conducted in accordance with its electric and
gas risk management program, which is approved by the PSCW and limits the volume
MGE can hedge against specific risk management strategies. The maximum length of
time over which cash flows related to energy commodities can be hedged is two
years. If the derivative qualifies for regulatory deferral subject to the
provisions of SFAS 71, Accounting for the Effects of Certain Types of
Regulation, the derivatives are marked to fair value pursuant to
SFAS 133 and are offset with a corresponding regulatory asset or liability.
The deferred gain or loss is recognized in earnings in the delivery month
applicable to the instrument. Gains and losses related to hedges qualifying for
regulatory treatment are recoverable in gas rates through the PGA or in electric
rates as a component of the fuel rules mechanism.  As of June 30, 2009, the gross
notional volume of open derivatives is as follows:  Commodity derivative contracts
809,360 MWhCommodity derivative contracts
10,260,000 DthFTRs
6,941 MW  In April 2007, the
FASB issued FSP 39-1, Amendment of FASB Interpretation No. 39
(FSP FIN 39-1). This pronouncement amends FIN 39, Offsetting of Amounts
Related to Certain Contracts, and allows companies to offset fair value
amounts recognized for the right to reclaim cash collateral (a receivable) or
the obligation to return cash collateral (a payable) against fair value amounts
recognized for derivative instruments executed with the same counterparty under
a master netting agreement. MGE Energy and MGE elected the net
presentation as prescribed by this pronouncement. FSP FIN 39-1 became effective
for MGE Energy and MGE as of January 1, 2008. The effects of applying
this pronouncement were recognized as a change in accounting principle through
retroactive application for all financial statements presented. The adoption of
this pronouncement did not have any impact on MGE Energy's or MGE's net
income. At June 30, 2009, MGE Energy and MGE had $7.0 million in
cash collateral that was netted against the net derivative positions with
counterparties.  During 2009, MGE purchased and sold
exchange-traded and over the counter options, swaps, and future contracts. These
arrangements are primarily entered into to help stabilize the price risk
associated with gas or power purchases. These transactions are employed by both
MGE's gas and electric segments. Additionally, as a result of the firm
transmission agreements that MGE holds on transmission paths in the MISO and PJM
markets,MGE holdsFTRs. An FTR is a financial instrument that
entitles the holder to a stream of revenues or charges based on the differences
in hourly day ahead energy prices between two points on the transmission grid.
The fair values of these instruments are reflected as a regulatory
asset/liability depending on whether they are in a net loss/gain position.
Depending on the nature of the instrument, the gain or loss associated with
these transactions will be reflected as cost of gas sold, fuel for electric
generation, or purchased power expense in the delivery month applicable to the
instrument. At June 30, 2009, the cost basis of these financial instruments
exceeded their fair value by $7.8 million.  During
2009, MGE has also entered into futures and basis swaps to take advantage of
physical and financial arbitrage opportunities between supply basins and pricing
spreads between future months' gas supply. Under the incentive mechanism within
the PGA clause, MGE shareholders have the ability to receive a set percentage of
the benefits or loss from these deals if certain thresholds are achieved. The
portion related to the shareholders is reflected in other comprehensive income
and the portion related to customers is reflected as a regulatory
asset/liability depending on whether they are in a net loss/gain position. At
June 30, 2009, the fair value of these financial instruments exceeded their
cost basis by less than $0.1 million.  MGE has also entered into a ten-year
purchased power agreement which provides MGE with firm capacity and energy
beginning June 1, 2012, and ending on May 31, 2022 (the "base term").
The agreement also allows MGE the option to purchase power during a period of
time preceding the base term as well as an option to extend the contract after
the base term. The agreement is a derivative contract and is recognized at its
fair value on the balance sheet. However, the derivative qualifies for
regulatory deferral and is recognized with a corresponding regulatory asset or
liability depending on whether the fair value is in a loss or gain position. The
fair value of the contract at June 30, 2009, reflects a loss position of
$9.6 million. The actual fuel cost will be recognized in purchased power
expense in the month of purchase.    The following table summarizes the
fair value of the derivative instruments on the balance sheet at June 30,
2009. All derivative instruments in this table are presented on a gross basis
and are calculated prior to the application of FSP FIN 39-1 which allows for
netting of instruments with the same counterparty under a master netting
agreement as well as the netting of cash collateral. For financial statement
purposes, MGE Energy and MGE have applied FSP FIN 39-1 by netting
instruments with the same counterparty under a master netting agreement as well
as the netting of cash collateral.  Asset Derivatives
Liability Derivatives(In thousands)
Balance Sheet Location
Fair Value
Balance Sheet Location
Fair ValueCommodity derivative contracts
Other current assets
$1,976
Other current liabilities
$9,039Commodity derivative contracts
Other deferred charges
155
Other deferred liabilities
108FTRs
Other current assets
670
Other current liabilities
1,411Ten-year PPA
N/A
N/A
Other deferred liabilities
9,613  The following table summarizes the
unrealized and realized losses related to the derivative instruments on the
balance sheet at June 30, 2009, and the income statement for the three and
six months ended June 30, 2009 (a).  (In thousands)
Current and long-term Regulatory
Asset
Other current assetsThree Months Ended June 30, 2009:Balance at March 31, 2009
$19,425
$2,210Change in unrealized loss
3,678
-Realized loss reclassified to a deferred
account
(2,737)
2,737Realized loss reclassified to income
statement
(2,996)
(2,405)Balance at June 30, 2009
$17,370
$2,542Six Months Ended June 30, 2009:Balance at December 31, 2008
$14,007
$4,466Change in unrealized loss
22,446
-Realized loss reclassified to a deferred
account
(11,153)
11,153Realized loss reclassified to income
statement
(7,930)
(13,077)Balance at June 30, 2009
$17,370
$2,542   (In thousands)
Regulated
gas revenues
Fuel for electric
generation/
purchased power
Cost of
gas soldRealized losses:Three Months Ended June 30, 2009:Commodity derivative contracts
$-
$5,004
$370FTRs
-
27
-Ten-year PPA
-
-
-Six Months Ended June 30, 2009:Commodity derivative contracts
$84
$12,415
$7,889FTRs
-
619
-Ten-year PPA
-
-
-  (a) MGE's commodity derivative
contracts, FTRs and ten-year PPA are subject to regulatory deferral under the
provisions of SFAS 71. These derivatives are marked to fair value pursuant
to SFAS 133 and are offset with a corresponding regulatory asset or
liability. Realized gains and losses are deferred on the balance sheet and are
recognized in earnings in the delivery month applicable to the instrument. As a
result of the above described treatment, there are no unrealized gains or losses
that flow through earnings.  The ten-year PPA has a provision that
may require MGE to post collateral if MGE's debt rating falls below investment
grade (i.e., below BBB-) once MGE begins purchasing energy under the contract.
The amount of collateral that it may be required to post varies from
$20.0 million to $40.0 million depending on MGE's nominated capacity
amount. A counterparty related to FTRs extends MGE a credit limit. If MGE
exceeds this limit, the counterparty may require collateral to be posted. At
June 30, 2009, the FTRs related to this counterparty are in a net liability
of $1.4 million.  On September 26, 2007, MGE
entered into a non-exchange traded HDD collar. This agreement extended from
January 2008 until March 2008 and had a premium of $0.2 million.
Actual heating degree days during the aforementioned period were 3,971 which
exceeded the ceiling; therefore, MGE recorded a $1.5 million expense
(includes the $0.2 million premium) on the collar in the first quarter of
2008.  Nonperformance of counterparties to
the non-exchange traded derivatives could expose MGE to credit loss. However,
MGE enters into transactions only with companies that meet or exceed strict
credit guidelines, and it monitors these counterparties on an ongoing basis to
mitigate nonperformance risk in its portfolio. As of June 30, 2009, no
counterparties have defaulted.   12. Regional Transmission
Organizations - MGE Energy and MGE.  On April 1, 2005, the MISO
implemented its bid-based energy market. MISO is a FERC approved RTO that is
required to provide real-time energy services and a market based mechanism for
congestion management. MGE is a participant in this market. On April 1,
2005, MGE began offering substantially all of its generation on the MISO market
and purchasing much of its load requirement from the MISO market in accordance
with the MISO Tariff. In January 2009, MISO implemented and MGE began
participating in the ancillary services market (ASM). The ASM is an extension of
the existing energy market in which MISO assumes the responsibility of
maintaining sufficient generation reserves. Previously, MGE was responsible for
providing its own reserves, however in the ASM, MISO will provide the reserves
for MGE's load, and MGE may offer to sell reserves from its generating units. In
addition to this market change, MISO took on various balance authority
functions. In June 2009, MISO implemented and MGE began participating in the
voluntary capacity auction. The voluntary capacity auction provides an optional
monthly forum for buyers and sellers of aggregate planning resource credits to
interact. Load serving entities may participate in the voluntary capacity
auction to potentially obtain the necessary aggregate planning resource credits
to meet their planning reserve margin requirement. Generator owners may
participate to sell any excess aggregate planning resource credits that are not
needed.  Additionally, on May 1, 2004,
MGE became a member of PJM. PJM is also an RTO. PJM is a neutral and independent
party that coordinates and directs the operation of the region's transmission
grid, administers a competitive wholesale electricity market, and plans regional
transmission expansion improvements to maintain grid reliability and relieve
congestion. MGE has one purchase power agreement, for 50 MW, that is
affected by this market.  MGE
reports on a net basis transactions on the MISO and PJM markets in which it buys
and sells power within the same hour to meet electric energy delivery
requirements. This treatment resulted in $14.9 million and
$40.3 million reduction to sales for resale and purchased power expense for
the three months ended June 30, 2009 and 2008, respectively and a $35.3
million and $82.5 million reduction to sales for resale and purchased power
expense for the six months ended June 30, 2009 and 2008, respectively.  13. Rate Matters - MGE Energy and
MGE.  a. Rate proceedings.  In April 2009, MGE filed an
application with the PSCW requesting a 4.5% increase to electric rates and a
2.3% increase to gas rates for 2010. The proposed increases cover costs for
MGE's share of the new Elm Road generating station, transmission reliability
enhancements, as well as infrastructure additions to its gas delivery system.  On December 18, 2008, under a
limited reopener, the PSCW authorized MGE to decrease 2009 rates for retail
electric customers by 0.74% or $2.7 million, while gas rates remain
unchanged from 2008. The decrease in retail electric rates is driven by a
decrease in fuel and purchased power costs, decrease in Elm Road costs and a
decrease in ATC transmission costs. The PSCW also approved deferred accounting
for incremental pension and other postretirement benefit costs above the levels
currently included in rates. Pursuant to the provisions of this rate order, the
fuel rules bandwidth effective January 1, 2009, will be plus or minus 2%.
See below for further description of fuel rules.  On December 14, 2007, the PSCW
authorized MGE to increase 2008 electric rates by 4.8% or $16.2 million and
increase gas distribution rates by 2.8% or $7.8 million. The electric
increase covered costs for MGE's new wind energy projects, statewide energy
efficiency and renewable energy programs, transmission improvements by ATC, and
accelerated costs to discontinue coal use at the Blount Station. In addition to
funding the statewide energy programs, the natural gas rate increase covered
costs for area gas construction projects needed to accommodate customer growth.
Authorized return on common stock equity was set at 10.8% based on 57.4% utility
common equity.  b. Fuel rules.  Actual electric fuel costs are
subject to reconciliation to the amount approved by the PSCW in MGE's rate order
covering the applicable period. Known as "fuel rules," the process can produce a
fuel surcharge for MGE or require MGE to make a refund in the form of a credit,
to the extent that the actual fuel costs are outside a range higher or lower
than the level authorized by the PSCW in that rate order.  Under fuel rules,
MGE can apply for a fuel surcharge if its actual electric fuel costs exceed 102%
of the electric fuel costs allowed in its latest rate order. Conversely, MGE can
be required to provide a fuel credit to its customers if actual electric fuel
costs are less than 98% of the electric fuel costs allowed in that order.  In April 2009, MGE filed an
application with the PSCW requesting a proposed credit of $0.00204 per kWh, due
to a decrease in actual electric fuel costs, when compared to those fuel costs
projected in MGE's most recent rate order. MGE estimates this credit would
reduce electric revenues by $4.6 million for 2009. This credit is based
upon newly computed annual average fuel costs for 2009, using actual fuel costs
for January, February and March and revised forecasts for
April through December 2009. In May 2009, the PSCW approved the interim
order authorizing MGE to implement the proposed credit, subject to refund with
interest at 10.8% effective May 9, 2009 until the final PSCW order. For the
three and six months ended June 30, 2009, this interim credit resulted in a
$1.0 million and $2.1 million reduction to electric revenues, respectively.
During the six months ended June 30, 2009, $0.9 million had been credited
to electric customers. At June 30, 2009, a short-term regulatory liability
of $1.2 million related to this interim order is included in the consolidated
balance sheets of MGE Energy and MGE.  As a result of
lower than expected fuel and purchased power costs in 2008, a fuel refund was
approved by the PSCW. To account for this refund, MGE recorded a
$5.5 million reduction to other electric revenues in the twelve months
ended December 31, 2008. In March 2009, the PSCW completed their audit
of the 2008 electric fuel costs and issued a final order, which applied this
refund to customers' accounts in March 2009.     14. Fair Value of Financial
Instruments - MGE Energy and MGE.  At June 30, 2009 and
December 31, 2008, the carrying amount of cash, cash equivalents, and
outstanding commercial paper approximates fair market value due to the short
maturity of those investments and obligations. The estimated fair market value
of MGE's long-term debt is based on quoted market prices at June 30, 2009
and December 31, 2008. The estimated fair market value of MGE Energy's
and MGE's financial instruments are as follows:  June 30, 2009

December 31, 2008(In thousands)
Carrying
Amount

Fair
Value

Carrying
Amount

Fair
ValueMGE EnergyAssets:Cash and cash equivalents
$8,349

$8,349

$4,106

$4,106Restricted cash*
3,765

3,765

4,805

4,805Liabilities:Short-term debt - bank loans
77,500

77,500

73,500

73,500Short-term debt - commercial
paper
16,500

16,500

51,000

51,000Long-term debt
273,500

254,250

273,500

261,315MGEAssets:Cash and cash equivalents
5,930

5,930

1,318

1,318Restricted cash*
3,765

3,765

4,805

4,805Liabilities:Short-term debt - commercial
paper
16,500

16,500

51,000

51,000Long-term debt
273,500

254,250

273,500

261,315  *The restricted cash amounts for
June 30, 2009 and December 31, 2008 are shown net of $8.2 million and
$10.5 million, respectively, of cash collateral that was netted against net
derivatives positions as well as other liabilities with counterparties.  MGE Energy and MGE adopted
SFAS 157, Fair Value Measurements as of January 1, 2008, and
SFAS 157-2, Effective Date of FASB Statement No. 157 as of
January 1, 2009. The adoption of this standard requires enhanced
disclosures about MGE Energy's and MGE's assets and liabilities carried at
fair value.  SFAS 157 defines fair value as
the price that would be received to sell an asset or paid to transfer a
liability (an exit price) in the principal or most advantageous market for the
asset or liability in an orderly transaction between market participants at the
measurement date. The standard clarifies that fair value should be based on the
assumptions market participants would use when pricing the asset or liability
including assumptions about risk. The standard also establishes a three level
fair value hierarchy based upon the observability of the assumptions used and
requires the use of observable market data when available. The levels are:  Level 1 - Pricing inputs are quoted
prices within active markets for identical assets or liabilities.  Level 2 - Pricing inputs are quoted
prices within active markets for similar assets or liabilities; quoted prices
for identical or similar instruments in markets that are not active; and
model-derived valuations that are correlated with or otherwise verifiable by
observable market data.  Level 3 - Pricing inputs are
unobservable and reflect management's best estimate of what market participants
would use in pricing the asset or liability.   The
following tables present the balances of assets and liabilities measured at fair
value on a recurring basis for MGE Energy and MGE.   (In thousands)
Fair Value as of June 30,
2009Total
Level 1
Level 2
Level 3MGE EnergyAssets:Cash and cash equivalents
$8,349
$8,349
$-
$-Restricted cash(a)
11,978
11,978
-
-Exchange-traded
investments
445
445
-
-Total Assets
$20,772
$20,772
$-
$-Liabilities:Derivatives, net
(b)
$17,370
$532
$-
$16,838Deferred compensation
1,257
1,257
-
-Total Liabilities
$18,627
$1,789
$-
$16,838MGEAssets:Cash and cash equivalents
$5,930
$5,930
$-
$-Restricted cash(a)
11,978
11,978
-
-Exchange-traded
investments
270
270
-
-Total Assets
$18,178
$18,178
$-
$-Liabilities:Derivatives, net
(b)
$17,370
$532
$-
$16,838Deferred compensation
1,257
1,257
-
-Total Liabilities
$18,627
$1,789
$-
$16,838  (a) These amounts are shown gross and
exclude $8.2 million of cash collateral that was netted against net
derivative positions as well as other liabilities with counterparties. (b) These amounts are shown gross and
exclude $0.5 million and $6.5 million of cash collateral that was
netted against net derivative positions with counterparties for Level 1 and
Level 3, respectively.   (In thousands)
Fair Value as of December 31,
2008Total
Level 1
Level 2
Level 3MGE EnergyAssets:Cash and cash equivalents
$4,106
$4,106
$-
$-Restricted cash
(c)
15,297
15,297
-
-Exchange-traded
investments
511
511
-
-Total Assets
$19,914
$19,914
$-
$-Liabilities:Derivatives, net
(d)
$14,007
$4,788
$-
$9,219Deferred compensation
1,171
1,171
-
-Total Liabilities
$ 15,178
$5,959
$-
$9,219MGEAssets:Cash and cash equivalents
$1,318
$1,318
$-
$-Restricted cash
(c)
15,297
15,297
-
-Exchange-traded
investments
364
364
-
-Total Assets
$16,979
$16,979
$-
$-Liabilities:Derivatives, net
(d)
$14,007
$4,788
$-
$9,219Deferred compensation
1,171
1,171
-
-Total Liabilities
$15,178
$5,959
$-
$9,219  (c) These amounts are shown gross and
exclude $10.5 million of cash collateral that was netted against net
derivative positions as well as other liabilities with counterparties. (d) These amounts are shown gross and
exclude $4.8 million and $5.1 million of cash collateral that was
netted against net derivative positions with counterparties for Level 1 and
Level 3, respectively.  (e) Cash and cash
equivalents include investments with maturities of less than three months which
are traded in active markets and deposit accounts, and are therefore classified
as Level 1.  Restricted cash primarily includes
cash collateral related to derivative and hedging instruments and is therefore
classified as Level 1.  Investments include exchange-traded
investment securities valued using quoted prices on active exchanges and are
therefore classified as Level 1.  Derivatives
include exchange-traded derivative contracts, a ten-year purchased power
agreement, and FTRs. Most exchange-traded derivative contracts are valued based
on unadjusted quoted prices in active markets and are therefore classified as
Level 1. A small number of exchange-traded contracts are valued using quoted
market pricing in markets with insufficient volumes and are therefore classified
as Level 3. Transactions done with an over-the-counter party are on inactive
markets and are therefore classified as Level 3. These transactions are valued
based on quoted prices with markets with similar exchange traded transactions.
The ten-year purchased power agreement (see Footnote 11) was valued using
an internally-developed pricing model and therefore classified as Level 3. The
model includes both observable and unobservable inputs. Inputs to the model
require significant management judgment and estimation. The model uses a forward
power pricing curve based on exchange-traded contracts in the electric futures
market. As described above, the market prices from this source have insufficient
volumes and are classified as Level 3 in the fair value hierarchy. To project
future prices beyond the period in which these quoted market prices are
available, MGE calculates the price based on forward gas prices and an implied
heat rate. MGE considers the assumptions that market participants would use in
valuing the asset or liability. This consideration includes assumptions about
market risk such as liquidity, volatility and contract duration. The fair value
model incorporates discounting, credit, and model risks.FTRs are priced based upon monthly auction
results for identical or similar instruments in a closed market with limited
data available and are therefore classified as Level 3.   The
deferred compensation plan allows participants to defer certain cash
compensation into a notional investment account. These amounts are included
within other deferred liabilities in the balance sheets of MGE Energy and
MGE. The notional investments earn interest based upon the semiannual rate of
U.S. Treasury Bills having a 26-week maturity increased by 1% compounded
monthly, with a minimum annual rate of 7%, compounded monthly, and are therefore
based upon observable market data and classified as Level 1.  The following table summarizes the
changes in Level 3 assets and liabilities measured at fair value on a recurring
basis for both MGE Energy and MGE.   (In thousands)Three Months Ended June 30,
2009
2008Balance as of April 1,
$(16,730)
$1,872Realized and unrealized gains (losses):Included in regulatory
liabilities (assets)
(108)
3,890Included in other comprehensive
income
-
40Included in earnings
(3,020)
347Included in current
assets
-
-Purchases, sales, issuances, and settlements,
net
3,020
(347)Transfers in and/or out of Level 3
-
-Balance as of June 30,
$(16,838)
$5,802Total gains (losses) included in earnings
attributed to the change in unrealized gains (losses) related to assets
and liabilities held at June 30, (e)
$-
$-   (In thousands)Six Months Ended June 30,
2009
2008Balance as of January 1,
$(9,219)
$(444)Realized and unrealized gains (losses):Included in regulatory
liabilities (assets)
(7,619)
6,193Included in other comprehensive
income
-
53Included in earnings
(7,952)
1,214Included in current
assets
-
(7)Purchases, sales, issuances, and settlements,
net
7,952
(1,207)Transfers in and/or out of Level 3
-
-Balance as of June 30,
$(16,838)
$5,802Total gains (losses) included in earnings
attributed to the change in unrealized gains (losses) related to assets
and liabilities held at June 30, (e)
$-
$-  The following table presents total
realized and unrealized gains (losses) included in income for Level 3 assets and
liabilities measured at fair value on a recurring basis during the three and six
months ended June 30, 2009 and 2008, for both MGE Energy and MGE.
(e).   (In thousands)
Purchased Power Expense
Cost of Gas Sold Expense
Regulated Gas RevenuesTotal gains (losses) included in earnings for
the
three months ended June 30,
2009
$(3,020)
$-
$-Total gains (losses) included in earnings for
the
three months ended June 30,
2008
$347
$-
$-Total gains (losses) included in earnings for
the
six months ended June 30,
2009
$(8,117)
$94
$71Total gains (losses) included in earnings for
the
six months ended June 30,
2008
$1,308
$(47)
$(47)  (e) MGE's exchange-traded
derivative contracts, ten-year purchased power agreement, and FTRs are subject
to regulatory deferral under the provisions of SFAS 71. These derivatives
are therefore marked to fair value pursuant to SFAS 133 and are offset with
a corresponding regulatory asset or liability. A portion of MGE's derivative
contracts fall under the incentive mechanism within the PGA clause and
shareholders have the ability to receive a set percentage of the benefit or loss
from these deals if certain thresholds are achieved. Under these derivatives,
only the gains or losses associated with customers are subject to regulatory
deferral under SFAS 71. The remaining shareholder portion is reflected in
other comprehensive income. As a result of the above described treatment, there
are no unrealized gains or losses that flow through earnings.  15. New Accounting Pronouncements -
MGE Energy and MGE.  a. FAS 160 and
FAS 141(R).  In December 2007, the
FASB issued FAS 160, Non-Controlling Interests in Consolidated
Financial Statements, an amendment of ARB No. 51 and FAS 141(R),
Business Combinations. These pronouncements changed the accounting and
reporting for business acquisitions and noncontrolling interest in a subsidiary.
In addition, FAS 160 changed the accounting and reporting for the
deconsolidation of a subsidiary. FAS 160 and FAS 141(R) became
effective for MGE Energy and MGE as of January 1, 2009, and affected
the presentation of the minority interest on MGE's financial statements.   b. FAS 161.  In March 2008, the
FASB issued FAS 161, Disclosures about Derivative Instruments and
Hedging Activities. The new standard is intended to improve financial
reporting about derivative instruments and hedging activities by requiring
enhanced disclosures to enable investors to better understand their effects on
an entity's financial position, financial performance, and cash flows. It is
effective for financial statements issued for fiscal years and interim periods
beginning after November 15, 2008. MGE Energy and MGE adopted FAS 161
as of January 1, 2009. See Footnote 11 for additional information.   c. FSP FAS 132(R)-1.  In December 2008, the
FASB issued FSP FAS 132(R)-1, which amends FASB Statement
No. 132 Employers' Disclosures about Pensions and Other Postretirement
Benefits. This amendment provides guidance on employer's disclosures about
plan assets of a defined benefit pension or other postretirement plan. The
adoption of FSP FAS 132 (R)-1 is effective for fiscal years ending after
December 15, 2009. MGE Energy and MGE are currently assessing the
impact this pronouncement will have on their financial statements.  d. FSP FAS 107-1 and APB
28-1.  In April 2009, the
FASB issued FSP FAS 107-1, Interim Disclosures about Fair Value of
Financial Instruments, which requires disclosures about fair value of
financial instruments for interim reporting periods of publicly traded companies
as well as in annual financial statements. This FSP also amends APB Opinion
No. 28, Interim Financial Reporting, to require those disclosures in
summarized financial information at interim reporting periods. This FSP became
effective for interim reporting periods ending after June 15, 2009, with
early adoption permitted for periods ending after March 15, 2009.
MGE Energy and MGE did not elect to early adopt this pronouncement. The
adoption of this pronouncement did not have any financial impact, but required
additional disclosures. See Footnote 14 for additional information.  e. FAS 165.  In May 2009, the
FASB issued FAS 165, Subsequent Events, which establishes
general standards of accounting for and disclosure of events that occur after
the balance sheet date but before the issuance of financial statements.
Furthermore, FAS 165 requires entities to disclose the date through which
subsequent events were evaluated. FAS 165 became effective for interim or annual
reporting periods ending after June 15, 2009. The adoption of this
pronouncement did not have any financial impact, but required additional
disclosures. See Footnote 17 for additional information.  f. FAS 166.  In June 2009, the FASB issued
FAS 166, Accounting for Transfers of Financial Assets, an amendment of
FASB Statement No. 140, Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities. This statement removes the
concept of a qualifying special-purpose entity from Statement 140 and removes
the exception from applying FASB Interpretation No. 46, Consolidation of
Variable Interest Entities, to qualifying special-purpose entities. The
adoption of FAS 166 is effective for fiscal years ending after November 15,
2009. MGE Energy and MGE are currently assessing the impact this
pronouncement will have on their financial statements.  g. FAS 167.  In June 2009, the FASB issued
FAS 167, Amendments to FASB Interpretation No. 46(R), amending the
consolidation guidance for variable-interest entities under FIN 46(R). These
amendments include the elimination of the exemption for qualifying special
purpose entities, a new approach for determining consolidation of a
variable-interest entity and changes to when it is necessary to reassess
consolidation of a variable interest entity. The adoption of FAS 167 is
effective January 1, 2010. MGE Energy and MGE are currently assessing
the impact this pronouncement will have on their financial statements.   16. Segment Information -
MGE Energy and MGE.  MGE Energy operates in the
following business segments: electric utility, gas utility, nonregulated energy,
transmission investment, and all other. See MGE Energy's and MGE's 2008
Annual Report on Form 10-K for additional discussion of each of these
segments.  The following tables show segment
information for MGE Energy's operations for the indicated periods:


|                                 |           |           |                     |                         |            |                                    |                   
|-------------------------------- | --------- | --------- | ------------------- | ----------------------- | ---------- | ---------------------------------- | ------------------
|MGE Energy
(In
thousands)        | Electric  | Gas       | Nonregulated Energy | Transmission Investment | All
Others | Consolidation/ Elimination Entries | Consolidated Total
|Three months
ended June 30, 2009 |           |           |                     |                         |            |                                    |                   
|Operating
revenues               | $81,198   | $24,033   | $2,325              | $-                      | $-         | $-                                 | $107,556          
|Interdepartmental
revenues       | 119       | 1,500     | 3,725               | -                       | -          | (5,344)                            | -                 
|Total operating
revenues (loss)  | 81,317    | 25,533    | 6,050               | -                       | -          | (5,344)                            | 107,556           
|Depreciation and
amortization    | (7,093)   | (2,366)   | (686)               | -                       | -          | -                                  | (10,145)          
|Other operating
expenses         | (62,162)  | (23,637)  | (34)                | (1)                     | (247)      | 5,344                              | (80,737)          
|Operating income
(loss)          | 12,062    | (470)     | 5,330               | (1)                     | (247)      | -                                  | 16,674            
|Other income
(deductions), net   | 14        | 4         | -                   | 2,021                   | (5)        | -                                  | 2,034             
|Interest
(expense) income, net   | (2,646)   | (747)     | (671)               | -                       | 698        | -                                  | (3,366)           
|Income (loss)
before taxes       | 9,430     | (1,213)   | 4,659               | 2,020                   | 446        | -                                  | 15,342            
|Income tax
(provision) benefit   | (3,172)   | 582       | (1,869)             | (811)                   | (179)      | -                                  | (5,449)           
|Net income
(loss)                | $6,258    | $(631)    | $2,790              | $1,209                  | $267       | $-                                 | $9,893            
|                                 |           |           |                     |                         |            |                                    |                   
|Three months
ended June 30, 2008 |           |           |                     |                         |            |                                    |                   
|Operating
revenues               | $84,031   | $38,920   | $1,786              | $-                      | $-         | $-                                 | $124,737          
|Interdepartmental
revenues       | 129       | 3,397     | 3,719               | -                       | -          | (7,245)                            | -                 
|Total operating
revenues (loss)  | 84,160    | 42,317    | 5,505               | -                       | -          | (7,245)                            | 124,737           
|Depreciation and
amortization    | (6,919)   | (2,288)   | (686)               | -                       | -          | -                                  | (9,893)           
|Other operating
expenses         | (63,424)  | (40,219)  | (27)                | (1)                     | (176)      | 7,245                              | (96,602)          
|Operating income
(loss)          | 13,817    | (190)     | 4,792               | (1)                     | (176)      | -                                  | 18,242            
|Other
(deductions) income, net   | (6)       | (1)       | -                   | 1,704                   | (7)        | -                                  | 1,690             
|Interest
(expense) income, net   | (2,725)   | (769)     | (644)               | -                       | 703        | -                                  | (3,435)           
|Income (loss)
before taxes       | 11,086    | (960)     | 4,148               | 1,703                   | 520        | -                                  | 16,497            
|Income tax
(provision) benefit   | (3,838)   | 461       | (1,665)             | (684)                   | (214)      | -                                  | (5,940)           
|Net income
(loss)                | $7,248    | $(499)    | $2,483              | $1,019                  | $306       | $-                                 | $10,557           
|                                 |           |           |                     |                         |            |                                    |                   
|Six months
ended June 30, 2009   |           |           |                     |                         |            |                                    |                   
|Operating
revenues               | $161,325  | $122,853  | $4,522              | $-                      | $-         | $-                                 | $288,700          
|Interdepartmental
revenues       | 230       | 3,935     | 7,447               | -                       | -          | (11,612)                           | -                 
|Total operating
revenues (loss)  | 161,555   | 126,788   | 11,969              | -                       | -          | (11,612)                           | 288,700           
|Depreciation and
amortization    | (14,151)  | (4,676)   | (1,372)             | -                       | -          | -                                  | (20,199)          
|Other operating
expenses         | (131,547) | (107,011) | (68)                | (1)                     | (476)      | 11,612                             | (227,491)         
|Operating income
(loss)          | 15,857    | 15,101    | 10,529              | (1)                     | (476)      | -                                  | 41,010            
|Other income
(deductions), net   | 14        | 4         | -                   | 4,002                   | (7)        | -                                  | 4,013             
|Interest
(expense) income, net   | (5,313)   | (1,499)   | (1,335)             | -                       | 1,392      | -                                  | (6,755)           
|Income before
taxes              | 10,558    | 13,606    | 9,194               | 4,001                   | 909        | -                                  | 38,268            
|Income tax
provision             | (2,514)   | (5,242)   | (3,690)             | (1,606)                 | (371)      | -                                  | (13,423)          
|Net
income                       | $8,044    | $8,364    | $5,504              | $2,395                  | $538       | $-                                 | $24,845           
|                                 |           |           |                     |                         |            |                                    |                   
|Six months
ended June 30, 2008   |           |           |                     |                         |            |                                    |                   
|Operating
revenues               | $166,470  | $144,404  | $3,859              | $-                      | $-         | $-                                 | $314,733          
|Interdepartmental
revenues       | 250       | 11,985    | 7,437               | -                       | -          | (19,672)                           | -                 
|Total operating
revenues (loss)  | 166,720   | 156,389   | 11,296              | -                       | -          | (19,672)                           | 314,733           
|Depreciation and
amortization    | (13,401)  | (4,517)   | (1,372)             | -                       | -          | -                                  | (19,290)          
|Other operating
expenses         | (135,426) | (136,846) | (52)                | (1)                     | (240)      | 19,672                             | (252,893)         
|Operating income
(loss)          | 17,893    | 15,026    | 9,872               | (1)                     | (240)      | -                                  | 42,550            
|Other income
(deductions), net   | 478       | (1,514)   | -                   | 3,310                   | (8)        | -                                  | 2,266             
|Interest
(expense) income, net   | (5,424)   | (1,576)   | (1,281)             | -                       | 1,413      | -                                  | (6,868)           
|Income before
taxes              | 12,947    | 11,936    | 8,591               | 3,309                   | 1,165      | -                                  | 37,948            
|Income tax
provision             | (3,649)   | (4,654)   | (3,448)             | (1,329)                 | (474)      | -                                  | (13,554)          
|Net
income                       | $9,298    | $7,282    | $5,143              | $1,980                  | $691       | $-                                 | $24,394           

The following tables show
segment information for MGE's operations for the indicated periods:


|                                                                     |           |           |                     |                         |                                    |                   
|-------------------------------------------------------------------- | --------- | --------- | ------------------- | ----------------------- | ---------------------------------- | ------------------
|MGE
(In
thousands)                                                   | Electric  | Gas       | Nonregulated Energy | Transmission Investment | Consolidation/ Elimination Entries | Consolidated Total
|Three months
ended June 30, 2009                                     |           |           |                     |                         |                                    |                   
|Operating
revenues                                                   | $81,198   | $24,033   | $2,325              | $-                      | $-                                 | $107,556          
|Interdepartmental
revenues                                           | 119       | 1,500     | 3,725               | -                       | (5,344)                            | -                 
|Total operating
revenues (loss)                                      | 81,317    | 25,533    | 6,050               | -                       | (5,344)                            | 107,556           
|Depreciation and
amortization                                        | (7,093)   | (2,366)   | (686)               | -                       | -                                  | (10,145)          
|Other operating
expenses*                                            | (65,264)  | (23,036)  | (1,903)             | (1)                     | 5,344                              | (84,860)          
|Operating income
(loss)*                                             | 8,960     | 131       | 3,461               | (1)                     | -                                  | 12,551            
|Other
(deductions) income, net*                                      | (56)      | (15)      | -                   | 1,210                   | -                                  | 1,139             
|Interest
expense, net                                                | (2,646)   | (747)     | (671)               | -                       | -                                  | (4,064)           
|Net income
(loss)                                                    | 6,258     | (631)     | 2,790               | 1,209                   | -                                  | 9,626             
|Less: Net income
attributable to noncontrolling interest, net of tax | -         | -         | -                   | -                       | (3,484)                            | (3,484)           
|Net income
(loss) attributable to MGE                                | $6,258    | $(631)    | $2,790              | $1,209                  | $(3,484)                           | $6,142            
|                                                                     |           |           |                     |                         |                                    |                   
|Three months
ended June 30, 2008                                     |           |           |                     |                         |                                    |                   
|Operating
revenues                                                   | $84,031   | $38,920   | $1,786              | $-                      | $-                                 | $124,737          
|Interdepartmental
revenues                                           | 129       | 3,397     | 3,719               | -                       | (7,245)                            | -                 
|Total operating
revenues (loss)                                      | 84,160    | 42,317    | 5,505               | -                       | (7,245)                            | 124,737           
|Depreciation and
amortization                                        | (6,919)   | (2,288)   | (686)               | -                       | -                                  | (9,893)           
|Other operating
expenses*                                            | (67,256)  | (39,755)  | (1,692)             | (1)                     | 7,245                              | (101,459)         
|Operating income
(loss)*                                             | 9,985     | 274       | 3,127               | (1)                     | -                                  | 13,385            
|Other
(deductions) income, net*                                      | (12)      | (4)       | -                   | 1,020                   | -                                  | 1,004             
|Interest
expense, net                                                | (2,725)   | (769)     | (644)               | -                       | -                                  | (4,138)           
|Net income
(loss)                                                    | 7,248     | (499)     | 2,483               | 1,019                   | -                                  | 10,251            
|Less: Net income
attributable to noncontrolling interest, net of tax | -         | -         | -                   | -                       | (3,005)                            | (3,005)           
|Net income
(loss) attributable to MGE                                | $7,248    | $(499)    | $2,483              | $1,019                  | $(3,005)                           | $7,246            
|                                                                     |           |           |                     |                         |                                    |                   
|Six months
ended June 30, 2009                                       |           |           |                     |                         |                                    |                   
|Operating
revenues                                                   | $161,325  | $122,853  | $4,522              | $-                      | $-                                 | $288,700          
|Interdepartmental
revenues                                           | 230       | 3,935     | 7,447               | -                       | (11,612)                           | -                 
|Total operating
revenues (loss)                                      | 161,555   | 126,788   | 11,969              | -                       | (11,612)                           | 288,700           
|Depreciation and
amortization                                        | (14,151)  | (4,676)   | (1,372)             | -                       | -                                  | (20,199)          
|Other operating
expenses*                                            | (133,979) | (112,230) | (3,758)             | (1)                     | 11,612                             | (238,356)         
|Operating income
(loss)*                                             | 13,425    | 9,882     | 6,839               | (1)                     | -                                  | 30,145            
|Other
(deductions) income, net*                                      | (68)      | (19)      | -                   | 2,396                   | -                                  | 2,309             
|Interest
expense, net                                                | (5,313)   | (1,499)   | (1,335)             | -                       | -                                  | (8,147)           
|Net
income                                                           | 8,044     | 8,364     | 5,504               | 2,395                   | -                                  | 24,307            
|Less: Net income
attributable to noncontrolling interest, net of tax | -         | -         | -                   | -                       | (6,860)                            | (6,860)           
|Net income
(loss) attributable to MGE                                | $8,044    | $8,364    | $5,504              | $2,395                  | $(6,860)                           | $17,447           
|                                                                     |           |           |                     |                         |                                    |                   
|Six months
ended June 30, 2008                                       |           |           |                     |                         |                                    |                   
|Operating
revenues                                                   | $166,470  | $144,404  | $3,859              | $-                      | $-                                 | $314,733          
|Interdepartmental
revenues                                           | 250       | 11,985    | 7,437               | -                       | (19,672)                           | -                 
|Total operating
revenues (loss)                                      | 166,720   | 156,389   | 11,296              | -                       | (19,672)                           | 314,733           
|Depreciation and
amortization                                        | (13,401)  | (4,517)   | (1,372)             | -                       | -                                  | (19,290)          
|Other operating
expenses*                                            | (138,977) | (142,089) | (3,500)             | (1)                     | 19,672                             | (264,895)         
|Operating income
(loss)*                                             | 14,342    | 9,783     | 6,424               | (1)                     | -                                  | 30,548            
|Other income
(deductions), net*                                      | 380       | (925)     | -                   | 1,981                   | -                                  | 1,436             
|Interest
expense, net                                                | (5,424)   | (1,576)   | (1,281)             | -                       | -                                  | (8,281)           
|Net
income                                                           | 9,298     | 7,282     | 5,143               | 1,980                   | -                                  | 23,703            
|Less: Net income
attributable to noncontrolling interest, net of tax | -         | -         | -                   | -                       | (6,151)                            | (6,151)           
|Net income
(loss) attributable to MGE                                | $9,298    | $7,282    | $5,143              | $1,980                  | $(6,151)                           | $17,552           

*Amounts are shown net of the related tax expense,
consistent with the presentation on the consolidated MGE Income Statement.   The following table shows
segment information for MGE Energy's and MGE's assets and capital
expenditures:


|                               |          |          |                      |                     |                         |            |                                    |           
|------------------------------ | -------- | -------- | -------------------- | ------------------- | ----------------------- | ---------- | ---------------------------------- | ----------
|MGE Energy
(In
thousands)      | Electric | Gas      | Assets not
Allocated | Nonregulated
Energy | Transmission
Investment | All
Others | Consolidation/
Elimination
Entries | Total     
|Assets:                        |          |          |                      |                     |                         |            |                                    |           
|June 30,
2009                  | $697,428 | $229,200 | $12,710              | $284,702            | $48,829                 | $382,014   | $(411,552)                         | $1,243,331
|December 31,
2008              | 677,540  | 284,211  | 14,642               | 271,568             | 46,292                  | 381,433    | (407,411)                          | 1,268,275 
|Capital
Expenditures:          |          |          |                      |                     |                         |            |                                    |           
|Six months ended
June 30, 2009 | 20,177   | 4,998    | -                    | 9,595               | -                       | -          | -                                  | 34,770    
|Year ended
December 31, 2008   | 47,033   | 8,441    | -                    | 50,303              | -                       | -          | -                                  | 105,777   




|                               |          |          |                      |                     |                         |                                    |           
|------------------------------ | -------- | -------- | -------------------- | ------------------- | ----------------------- | ---------------------------------- | ----------
|MGE
(In
thousands)             | Electric | Gas      | Assets not
Allocated | Nonregulated
Energy | Transmission
Investment | Consolidation/
Elimination
Entries | Total     
|Assets:                        |          |          |                      |                     |                         |                                    |           
|June 30,
2009                  | $697,428 | $229,200 | $12,710              | $284,452            | $48,829                 | $(26,729)                          | $1,245,890
|December 31,
2008              | 677,540  | 284,211  | 14,642               | 271,318             | 46,292                  | (22,881)                           | 1,271,122 
|Capital
Expenditures:          |          |          |                      |                     |                         |                                    |           
|Six months ended
June 30, 2009 | 20,177   | 4,998    | -                    | 9,595               | -                       | -                                  | 34,770    
|Year ended
December 31, 2008   | 47,033   | 8,441    | -                    | 50,303              | -                       | -                                  | 105,777   

17. Subsequent Events -
MGE Energy and MGE.  The Company has evaluated subsequent
events, including all events on or before August 6, 2009, which corresponds
to the financial statement issuance date.  a. ATC Capital Contribution.  In July 2009, MGE Transco made a
voluntary $0.9 million capital contribution to ATC.   Item
2. Management's Discussion and Analysis of Financial Condition and Results of
Operations.  General  MGE Energy is an investor-owned public utility
holding company operating through subsidiaries in five business segments:  · Electric utility operations,
conducted through MGE, · Gas utility operations, conducted
through MGE, · Nonregulated energy operations,
conducted through MGE Power and its subsidiaries, · Transmission investments,
representing our equity investment in ATC, and · All other, which includes corporate
operations and services as well as certain construction services.  Our principal subsidiary is MGE, which generates and
distributes electric energy, distributes natural gas, and represents a majority
portion of our assets, liabilities, revenues, and expenses. MGE generates and
distributes electricity to approximately 137,000 customers in Dane County,
Wisconsin, including the city of Madison, and purchases and distributes natural
gas to approximately 141,000 customers in the Wisconsin counties of Columbia,
Crawford, Dane, Iowa, Juneau, Monroe, and Vernon.  Our nonregulated energy operations lease and own new
electric generating capacity to assist MGE. The nonregulated energy operations
include partial ownership of a cogeneration project on the UW-Madison campus and
an undivided 8.33% ownership interest in each of two 615 MW generating
units being constructed in Oak Creek, Wisconsin. These ownership interests are
leased to MGE pursuant to long-term leases. MGE operates the cogeneration
project, and a third party will operate the Elm Road units. The
ownership/leasing structure was adopted to capture some advantages under then
applicable state regulatory guidelines for MGE's participation in these
generation facilities. Due to the nature of MGE's participation in these
facilities, the results of our nonregulated operations are also consolidated
into MGE's consolidated financial position and results of operations under
applicable accounting standards.  Our primary focus today and for the foreseeable future is
our core utility customers at MGE as well as creating long-term value for
shareholders. MGE continues to face the challenge of providing its customers
with reliable power at competitive prices. MGE plans to meet this challenge by
investing in more efficient generation projects, including renewable energy
sources. In the future, MGE will continue to focus on growing earnings while
controlling operating and fuel costs. MGE will continue to maintain safe and
efficient operations in addition to providing customer value. We believe it is
critical to maintain a strong credit standing consistent with financial strength
in MGE as well as the parent company in order to accomplish these goals.  Overview  We earn our revenue and generate cash from operations by
providing electric and natural gas utility services, including electric power
generation and electric power and gas distribution. The earnings and cash flows
from the utility business are sensitive to various external factors, including,
but not limited to:  · Weather, and its impact on customer
sales of electricity and gas, · Economic conditions, including
current business and financing conditions, · Regulation and regulatory issues, · Energy commodity prices, · Equity price risk pertaining to
pension related assets, · Interest rates and our debt credit
rating, · Environmental laws and regulations,
including pending environmental rule changes, · Construction risk in connection with
the Elm Road generating units,  and other factors listed in "Item 1A. Risk Factors" of
our 2008 Annual Report on Form 10-K.  For the three months ended June 30, 2009,
MGE Energy's earnings were $9.9 million or $0.43 per share compared to
$10.6 million or $0.48 per share for the same period in the prior year.
MGE's earnings for the three months ended June 30, 2009, were
$6.1 million compared to $7.2 million for the same period in the prior
year.  For the six months ended June 30, 2009,
MGE Energy's earnings were $24.8 million or $1.08 per share compared to
$24.4 million or $1.11 per share for the same period in the prior year.
MGE's earnings for the six months ended June 30, 2009, were
$17.4 million compared to $17.6 million for the same period in the
prior year.   MGE Energy's income was
derived from our business segments as follows:  (In thousands)
Three Months Ended June
30,

Six Months Ended June
30,Business Segment:
2009

2008

2009

2008Electric Utility
$6,258

$7,248

$8,044

$9,298Gas Utility
(631)

(499)

8,364

7,282Nonregulated Energy
2,790

2,483

5,504

5,143Transmission Investment
1,209

1,019

2,395

1,980All Other
267

306

538

691Net Income
$9,893

$10,557

$24,845

$24,394  Our net income during the three months ended
June 30, 2009, primarily reflects the effects of the following factors:  · A 3.4% decrease in electric revenue
reflecting lower demand and lower sales for resale due to decreased sales
opportunities.  · Higher nonregulated energy revenues
primarily attributable to higher carrying costs being recognized for the Elm
Road project. Carrying costs during construction of the nonregulated energy
projects, related to the equity portion, are recognized over the period of time
the costs are recovered in rates.  · A $0.2 million increase in net
income from our interest in ATC.  Our net income during the six months ended June 30,
2009, primarily reflects the effects of the following factors:  · A 3.1% decrease in electric revenue
reflecting lower demand and lower sales for resale due to decreased sales
opportunities.  · As a result of the GCIM, the gas
utility received an additional benefit of $0.8 million from capacity
release revenues and commodity savings for the six months ended June 30,
2009 when compared to the same period in the prior year.  · In 2008, the gas utility had expensed
a $1.5 million settlement (includes premium) associated with a weather
hedge (heating degree collar) as a result of colder-than-normal weather. The gas
utility had no weather hedges during 2009.  · Higher nonregulated energy revenues
primarily attributable to higher carrying costs being recognized for the Elm
Road project. Carrying costs during construction of the nonregulated energy
projects, related to the equity portion, are recognized over the period of time
the costs are recovered in rates.  · A $0.4 million increase in net
income from our interest in ATC.  During 2009, the following events occurred:  ATC: MGE Transco contributed $1.6 million for
voluntary capital contributions to ATC for the six months ended June 30,
2009. An additional voluntary capital contribution of $0.9 million was made
in July 2009.  WCCF: The State of Wisconsin did not exercise its option
under the WCCF Joint Ownership Agreement to acquire either a 45 MW interest in
WCCF or enter into a purchase power agreement for 45 MW of capacity. This option
expired in the second quarter of 2009.  Wind Development Rights: In June 2009, MGE Energy,
through its subsidiary MAGAEL, LLC, entered into agreements to purchase land
development rights, including but not limited to land option agreements,
electrical interconnection rights, wind data, engineering plans, licenses,
permits, and governmental approvals for two wind development sites. These wind
development rights may potentially be used to develop wind farms in three
counties in Iowa with a capacity up to approximately 175 MWs. These agreements
do not obligate MGE Energy to construct at these locations in Iowa.  2009 Fuel Credit: In April 2009, MGE filed an
application with the PSCW requesting a proposed credit of $0.00204 per kWh, due
to a decrease in actual electric fuel costs, when compared to those fuel costs
projected in MGE's most recent rate order. MGE estimates this credit would
reduce electric revenues by $4.6 million for 2009. In May 2009, the PSCW
approved the interim order authorizing MGE to implement the proposed credit,
subject to refund with interest at 10.8% effective May 9, 2009 until the
final PSCW order. In the three and six months ended June 30, 2009, this
interim credit resulted in a $1.0 million and a $2.1 million reduction to
electric revenues, respectively.  2008 Fuel Refund: As a result
of lower than expected fuel and purchased power costs in 2008, a fuel refund was
approved by the PSCW. The PSCW completed their audit and issued a final order in
March 2009, which applied a $5.7 million refund to customers'
accounts.  2010 Rate Filing: In April 2009, MGE filed an
application with the PSCW requesting a 4.5% increase to electric rates and a
2.3% increase to gas rates for 2010. The proposed increases cover costs for
MGE's share of the new Elm Road generating station, transmission reliability
enhancements, as well as infrastructure additions to its gas delivery system.  In the near term, several items may affect us,
including:  · General economic conditions: Economic
conditions both inside and outside our service area are expected to continue to
affect the level of demand for our utility services and may affect the
collection of our accounts receivable and the creditworthiness of counterparties
with whom we do business. We have in place lines of credit aggregating
$195 million for MGE Energy (including MGE) and $75 million for
MGE to address our liquidity needs.  · Elm Road Construction Claim: As
described in Footnote 6, the project contractor for the Elm Road units has made
claims against the units' owners for additional costs and for relief from the
construction schedule. It is expected that these claims will be addressed
through formal arbitration under the construction contract between the
contractor and the project operator, ERS.  · Environmental Initiatives: Various
environmental rules or initiatives are in a state of flux as a result of court
decisions and the change in the Presidential Administration. In addition, the
U.S. House of Representatives has passed legislation intended to control
greenhouse gas emissions. Such proposed legislation, rules and initiatives
involve matters related to air emissions, water effluent and greenhouse gases,
all of which affect generation plant capital expenditures and operating costs as
well as future operational planning.  The following discussion is based on the business
segments as discussed in Footnote 16.  Three Months
Ended June 30, 2009 and 2008  Electric Utility Operations - MGE Energy and
MGE  Electric sales and revenues  The following table compares MGE's electric revenues and
electric kWh sales by customer class for each of the periods indicated:


|                                           |                             |          |                             |      |         |          |        
|------------------------------------------ | --------------------------- | -------- | --------------------------- | ---- | ------- | -------- | -------
|                                           | Revenues                    |          | Sales                      
|(In
thousands, except cooling degree days) | Three Months Ended June 30, |          | Three Months Ended June 30,
|2009                                       | 2008                        | % Change |                             | 2009 | 2008    | %
Change
|Residential                                | $24,947                     | $25,432  | (1.9)%                      |      | 170,225 | 172,281  | (1.2)% 
|Commercial                                 | 44,032                      | 44,720   | (1.5)%                      |      | 429,881 | 439,140  | (2.1)% 
|Industrial                                 | 5,996                       | 6,278    | (4.5)%                      |      | 80,280  | 82,191   | (2.3)% 
|Other -
retail/municipal                   | 8,112                       | 8,289    | (2.1)%                      |      | 102,244 | 107,087  | (4.5)% 
|Total
retail                               | 83,087                      | 84,719   | (1.9)%                      |      | 782,630 | 800,699  | (2.3)% 
|Sales for
resale                           | 504                         | 1,532    | (67.1)%                     |      | 339     | 14,298   | (97.6)%
|Other
revenues                             | (2,393)                     | (2,220)  | (7.8)%                      |      | -       | -        | -      
|Total                                      | $81,198                     | $84,031  | (3.4)%                      |      | 782,969 | 814,997  | (3.9)% 
|                                           |                             |          |                             |      |         |          |        
|Cooling degree
days (normal 173)           |                             |          |                             |      | 146     | 113      | 29.2%  

Electric operating revenues
decreased $2.8 million or 3.4% for the three months ended June 30,
2009, due to the following:   (In millions)Three months ended June 30, 2009Volume
$(1.9)Sales for resale
(1.0)Rate changes
0.3Other revenues
(0.2)Total
$(2.8)  · Volume. During the three
months ended June 30, 2009, there was a 2.3% decrease in total retail sales
volumes compared to the same period in the prior year, reflecting reduced demand
for service due to economic activity.  · Sales for resale. Sales for
resale represent wholesale sales made to third parties who are not ultimate
users of the electricity. These sales may include spot market transactions on
the markets operated by MISO or PJM. These sales may also include bilateral
sales to other utilities or power marketers. Generating units are dispatched by
MISO based on cost considerations as well as reliability of the system. Sales
for resale typically occur when MGE has more generation and purchases online
than is needed for its own system demand. The excess electricity is then sold to
others in the market. For the three months ended June 30, 2009, sales for
resale decreased $1.0 million when compared to the same period in the prior
year, reflecting decreased opportunities for sales.  · Rates changes. Rates charged
to retail customers for the three months ended June 30, 2009, were 0.3% or
$0.3 million higher than those charged during the same period in the prior
year.  On December 18, 2008, under a
limited reopener, the PSCW authorized MGE to decrease 2009 rates for retail
electric customers by 0.74% or $2.7 million from 2008. The decrease in
retail electric rates is driven by a decrease in fuel and purchased power costs,
decrease in Elm Road costs and a decrease in ATC transmission costs. The PCSW
also approved deferred accounting for incremental pension and other
postretirement benefit costs above the levels currently included in rates.  In May 2009, the
PSCW approved an interim order authorizing MGE to implement a credit of $0.00204
per kWh, due to a decrease in actual electric fuel costs, when compared to those
fuel costs projected in MGE's most recent rate order. During the three months
ended June 30, 2009, $0.9 million had been credited to electric customers.  In May 2008,
the PSCW approved a $0.00239 per kWh interim fuel surcharge on MGE's electric
rates to cover increased fuel and purchased power expenses. For the three months
ended June 30, 2008, this interim surcharge resulted in a $1.2 million
increase to electric rates.   · Other
revenues. Other electric revenues decreased $0.2 million for the three
months ended June 30, 2009, compared to the same period in the prior
year.  Other electric
revenues reflect the elimination of WCCF and Elm Road carrying costs that were
collected in electric rates, which are recognized as nonregulated energy
operating revenues in our Nonregulated Energy Operations segment. The amount
eliminated was $2.7 million for both the three months ended June 30, 2009
and 2008.  Electric fuel and purchased power  As a result of more favorable prices for purchased power
as compared to internal generation, power purchases were increased, and internal
generation reduced, causing fuel for electric generation to decrease and
purchased power expense to increase.  The expense for fuel for electric generation decreased
$5.3 million or 41.7% during the three months ended June 30, 2009,
compared to the same period in the prior year, reflecting the lower electric
generation.  Purchased power expense increased by $6.1 million or
41.8% during the three months ended June 30, 2009, compared to the same
period in the prior year. This increase in expense reflects an $8.3 million
or 66.3% increase in the volume of power purchased offset by a $2.2 million
or 14.7% decrease in the per-unit cost of purchased power.   Electric operating and
maintenance expenses  Electric operating and maintenance expenses decreased
$2.3 million during the three months ended June 30, 2009, compared to
the same period in 2008. The following changes contributed to the net
change:   (In millions)Three months ended June 30, 2009Decreased maintenance expenses
$(1.9)Decreased production costs
(0.5)Increased transmission costs
0.4Decreased other expenses
(0.3)Total
$(2.3)  For the three months ended June 30, 2009, electric
maintenance expenses decreased compared to the same period in the prior year.
Decreased production costs were due to lower internal generation. In addition,
transmission costs increased primarily due to network service fees pertaining to
ATC.   Gas Utility Operations -
MGE Energy and MGE  Gas deliveries and revenues  The following table compares MGE's gas revenues and gas
therms delivered by customer class during each of the periods indicated:   Revenues

Therms Delivered(In
thousands, except HDD and average rate per therm of retail
customer)
Three Months Ended June 30,

Three Months Ended June 30,2009
2008
%
Change

2009
2008
%
ChangeResidential
$13,482
$19,817
(32.0)%

13,144
12,314
6.7%Commercial/industrial
9,781
17,233
(43.2)%

16,453
14,606
12.6%Total
retail
23,263
37,050
(37.2)%

29,597
26,920
9.9%Gas
transportation
609
610
(0.2)%

7,684
7,715
(0.4)%Other
revenues
161
1,260
(87.2)%

-
-
-Total
$24,033
$38,920
(38.3)%

37,281
34,635
7.6%Heating degree
days (normal 858)




842
847
(0.6)%Average rate per
therm of retail customer




$0.786
$1.376
(42.9)%  Gas revenues decreased $14.9 million or 38.3% for
the three months ended June 30, 2009. These changes are related to the
following factors:   (In millions)Three months ended June 30, 2009Gas costs/rates
$(15.9)Gas deliveries
2.1Transportation and other effects
(1.1)Total
$(14.9)  · Gas costs/rates. The average
retail rate per therm for the three months ended June 30, 2009, decreased
42.9% compared to the same period in 2008 as a result of lower natural gas
costs.  · Retail gas deliveries. For the
three months ended June 30, 2009, retail gas deliveries increased 9.9%
compared to the prior period.  · Transportation and other
revenues. Transportation and other revenues decreased a total of $1.1
million primarily due to the impact of the MGE GCIM in 2008.  Under MGE's GCIM, if actual gas
commodity savings and capacity release revenues are above or below a benchmark
set by the PSCW, then MGE's gas sales service customers and shareholders share
in any increased costs or savings per percentages set by the PSCW. For the three
months ended June 30, 2009, shareholders did not receive a benefit from
capacity release revenues and commodity savings under the GCIM compared to a
$1.1 million benefit received for the three months ended June 30,
2008.   Cost of gas sold  For the three months ended June 30, 2009, cost of
gas sold decreased by $14.2 million, compared to the same period in the
prior year. The cost per therm of natural gas decreased 54.4% which resulted in
$14.6 million of reduced expense. This decrease is offset by a 1.6%
increase in the volume of gas purchased which resulted in $0.4 million
additional expense.  Gas operating and maintenance expenses  Gas operating and maintenance expenses decreased
$0.5 million for the three months ended June 30, 2009, compared to the
same period a year ago. The decrease is primarily due to less administrative and
general expenses.   Nonregulated Energy
Operations - MGE Energy and MGE  Nonregulated energy operating revenues  Operating revenues from nonregulated energy operations
increased $0.5 million for the three months ended June 30, 2009, when
compared to the same period in the prior year. Operating revenues from
nonregulated energy operations for both the three months ended June 30,
2009 and 2008, include $3.7 million in interdepartmental revenues related
to a leasing arrangement between MGE and MGE Power West Campus. Upon
consolidation, these interdepartmental revenues are eliminated.  MGE also received approval from the PSCW to collect
carrying costs expected to be incurred by MGE Power Elm Road during construction
of the Elm Road project. MGE estimates that the total carrying costs on the Elm
Road project will be $59.0 million. A portion of this amount is being
recognized over the period recovered in rates and a portion is being deferred
and will be recognized over the period in which the facility is depreciated. For
the three months ended June 30, 2009 and 2008, MGE Power Elm Road
recognized $2.0 million and $1.5 million, respectively, related to
carrying costs on the Elm Road project.  Nonregulated energy interest expense,
net  For the three months ended June 30, 2009 and 2008,
interest expense, net at the nonregulated energy operations segment was
$0.7 million and $0.6 million, respectively. Interest expense at the
nonregulated energy segment for both the three months ended June 30, 2009
and 2008, includes $0.7 million in interest expense incurred on
$50 million of long-term, fixed-rate borrowings at MGE Power West
Campus.  Also included in the nonregulated interest expense is
interdepartmental interest expense and capitalized interest at MGE Power Elm
Road. During the three months ended June 30, 2009 and 2008, MGE Power Elm
Road was charged $0.8 million and $1.2 million, respectively, in
interest expense by Corporate on funds borrowed for the Elm Road Project. This
expense is eliminated upon consolidation for MGE Energy only. The interest
expense at MGE Power Elm Road is offset by $0.8 million and $1.2 million,
respectively, in capitalized interest.  During the three months ended June 30, 2009 and
2008, MGE Power Elm Road recorded less than $0.1 million and $0.1 million,
respectively, in interest income on cash advanced to Elm Road Services, LLC for
construction of transmission equipment and work done by ATC related to the Elm
Road project.  Transmission Investment Operations - MGE Energy
and MGE  Transmission investment other income  For the three months ended June 30, 2009 and 2008,
other income at the transmission investment segment was $2.0 million and
$1.7 million, respectively. The transmission investment segment holds our
interest in ATC, and its income reflects our equity in the earnings of ATC.  All Other Nonregulated Operations -
MGE Energy  All other interest income, net for both the three months
ended June 30, 2009 and 2008, was $0.7 million. Interest income for
the three months ended June 30, 2009, represents $0.8 million in
interdepartmental interest income from MGE Power Elm Road, partially offset by
$0.1 million in interest expense on short-term debt. Interest income for
the three months ended June 30, 2008, represents $1.2 million in
interdepartmental interest income from MGE Power Elm Road, partially offset by
$0.5 million in interest expense on short-term debt. The interdepartmental
interest income is eliminated upon consolidation.  Consolidated Other General
Taxes  MGE Energy's and MGE's other general taxes increased
$0.2 million or 5.9% for the three months ended June 30, 2009, when
compared to the same period in 2008, due to increased license fee tax. The
annual license fee tax expense is based on the prior year's adjusted operating
revenues. Tax rates have not increased.  Consolidated Income Taxes  MGE Energy's effective income tax rate for the three
months ended June 30, 2009, is 35.5% compared to 36.0% for the same period
in 2008. MGE's effective income tax rate for the three months ended
June 30, 2009, is 35.4% compared to 35.8% for the same period in the prior
year. The lower tax rates for the three months ended June 30, 2009, are due
primarily to an increase in federal tax credits from the production of
electricity from wind energy. The tax credit for 2009 is expected to exceed the
credit for 2008 mainly due to a full year of generation from the Top of Iowa III
wind farm in 2009. In 2008, wind generation occurred for approximately ten
months.  Under 2009 Wisconsin Act 2, effective for years beginning
on or after January 1, 2009, Wisconsin requires corporations to use
combined reporting to compute their Wisconsin income for income tax purposes.
Formerly, Wisconsin law required each corporation in a combined group to file
separate returns. The effect of the combined reporting statute in Wisconsin is
not expected to make any significant changes to the effective income tax rate or
the tax accrual.  Noncontrolling Interest, Net of Tax  The noncontrolling interest, net of tax reflects the
accounting required for MGE Energy's interest in the WCCF and Elm Road
generating projects. MGE Energy owns 100% of MGE Power West Campus and MGE
Power Elm Road; however, due to the leasing arrangements for these projects with
MGE, the entities are considered VIEs under FIN 46(R) and their results are
consolidated with those of MGE, the primary beneficiary of the VIEs. Also
included in noncontrolling interest, net of tax is MGE Energy's interest in
MGE Transco.  For the three months ended June 30, 2009,
MGE Energy (through its wholly owned subsidiary MGE Power) earned
$1.9 million and $1.2 million, net of tax, for its interest in MGE
Power West Campus and MGE Power Elm Road, respectively. Additionally,
MGE Energy earned $0.4 million, net of tax for its interest in MGE
Transco. These amounts are recorded as noncontrolling interest expense, net of
tax, on MGE's consolidated statement of income.  For the three months ended June 30, 2008,
MGE Energy (through its wholly owned subsidiary MGE Power) had earned
$1.9 million and $0.9 million, net of tax, for its interest in MGE
Power West Campus and MGE Power Elm Road, respectively. Additionally,
MGE Energy had earned $0.2 million, net of tax, for its interest in
MGE Transco. These amounts are recorded as noncontrolling interest expense, net
of tax, on MGE's consolidated statement of income.  Six Months
Ended June 30, 2009 and 2008  Electric Utility Operations - MGE Energy and
MGE  Electric sales and revenues  The following table compares MGE's electric revenues and
electric kWh sales by customer class for each of the periods indicated:


|                                           |                           |          |                           |      |           |           |        
|------------------------------------------ | ------------------------- | -------- | ------------------------- | ---- | --------- | --------- | -------
|                                           | Revenues                  |          | Sales                    
|(In
thousands, except cooling degree days) | Six
Months Ended June 30, |          | Six
Months Ended June 30,
|2009                                       | 2008                      | % Change |                           | 2009 | 2008      | %
Change 
|Residential                                | $52,882                   | $55,104  | (4.0)%                    |      | 379,295   | 387,001   | (2.0)% 
|Commercial                                 | 83,951                    | 87,828   | (4.4)%                    |      | 866,649   | 889,019   | (2.5)% 
|Industrial                                 | 9,433                     | 10,303   | (8.4)%                    |      | 137,932   | 141,365   | (2.4)% 
|Other -
retail/municipal                   | 14,367                    | 15,008   | (4.3)%                    |      | 189,084   | 195,385   | (3.2)% 
|Total
retail                               | 160,633                   | 168,243  | (4.5)%                    |      | 1,572,960 | 1,612,770 | (2.5)% 
|Sales for
resale                           | 964                       | 2,792    | (65.5)%                   |      | 3,384     | 25,242    | (86.6)%
|Other
revenues                             | (272)                     | (4,565)  | 94.0%                     |      | -         | -         | -      
|Total                                      | $161,325                  | $166,470 | (3.1)%                    |      | 1,576,344 | 1,638,012 | (3.8)% 
|                                           |                           |          |                           |      |           |           |        
|Cooling degree
days (normal 173)           |                           |          |                           |      | 146       | 113       | 29.2%  

Electric operating revenues
decreased $5.1 million or 3.1% for the six months ended June 30, 2009,
due to the following:  (In millions)Six months ended June 30, 2009Volume
$(4.1)Rate changes
(3.5)Sales for resale
(1.8)Other revenues
4.3Total
$(5.1)  · Volume. During the six months
ended June 30, 2009, there was a 2.5% decrease in total retail sales
volumes when compared to the same period in the prior year, reflecting reduced
demand for service due to economic activity.  · Rates changes. Rates charged
to retail customers for the six months ended June 30, 2009, were 2.1% or
$3.5 million lower than those charged during the same period in the prior
year.  On December 18, 2008, under a
limited reopener, the PSCW authorized MGE to decrease 2009 rates for retail
electric customers by 0.74% or $2.7 million from 2008. The decrease in
retail electric rates is driven by a decrease in fuel and purchased power costs,
decrease in Elm Road costs and a decrease in ATC transmission costs. The PCSW
also approved deferred accounting for incremental pension and other
postretirement benefit costs above the levels currently included in rates.  As a result of
lower than expected fuel and purchased power costs in 2008, a fuel refund was
approved by the PSCW. In March 2009, the PSCW completed their audit of 2008
electric fuel costs and issued a final order approving the amount to be refunded
to customers. A refund of $5.7 million (includes interest) was applied to
customers' accounts in March 2009. See "Other revenues" discussion below
for more information on this refund.  In May 2009, the
PSCW approved an interim order authorizing MGE to implement a credit of $0.00204
per kWh, due to a decrease in actual electric fuel costs, when compared to those
fuel costs projected in MGE's most recent rate order. During the six months
ended June 30, 2009, $0.9 million had been credited to electric customers.
See "Other revenues" discussion below for more information on this interim
order.  · Sales for
resale. Sales for resale represent wholesale sales made to third parties who
are not ultimate users of the electricity. These sales may include spot market
transactions on the markets operated by MISO or PJM. These sales may also
include bilateral sales to other utilities or power marketers. Generating units
are dispatched by MISO based on cost considerations as well as reliability of
the system. Sales for resale typically occur when MGE has more generation and
purchases online than is needed for its own system demand. The excess
electricity is then sold to others in the market. For the six months ended
June 30, 2009, sales for resale decreased $1.8 million when compared
to the same period in the prior year, reflecting decreased opportunities for
sales.  · Other
revenues. Other electric revenues increased $4.3 million for the six
months ended June 30, 2009, compared to the same period in the prior
year.  During the six
months ended June 30, 2009, MGE recorded $5.5 million in other
electric revenues to offset the impact of the 2008 fuel refund credited to
customers in March 2009. This refund reduced revenues during the twelve
months ended December 31, 2008, and was returned to customers via a
reduction in rates in March 2009.  Also included in
other revenues for the six months ended June 30, 2009, is a $1.2 million
projected refund which was accrued related to the May 2009 interim order.  Other electric
revenues reflect the elimination of WCCF and Elm Road carrying costs that were
collected in electric rates, which are recognized as nonregulated energy
operating revenues in our Nonregulated Energy Operations segment. The amount
eliminated was $5.4 million for both the six months ended June 30, 2009 and
2008.  Electric fuel and purchased power  As a result of more favorable prices for purchased power
as compared to internal generation, power purchases were increased, and internal
generation reduced, causing fuel for electric generation to decrease and
purchased power expense to increase.   The expense for fuel for
electric generation decreased $11.6 million or 40.2% during the six months
ended June 30, 2009, compared to the same period in the prior year. This
decrease in expense reflects a $9.0 million decrease related to the lower
electric generation and a $2.6 million decrease related to fuel cost.  Purchased power expense increased by $9.5 million or
26.1% during the six months ended June 30, 2009, compared to the same
period in the prior year. This increase in expense reflects a $13.8 million
or 43.1% increase in the volume of power purchased offset by a $4.3 million
or 11.9% decrease in the per-unit cost of purchased power.  Electric operating and maintenance
expenses  Electric operating and maintenance expenses decreased
$1.9 million during the six months ended June 30, 2009, compared to
the same period in 2008. The following changes contributed to the net
change:  (In millions)Six months ended June 30, 2009Decreased maintenance expenses
$(1.5)Decreased production costs
(1.1)Increased transmission costs
0.7Total
$(1.9)  For the six months ended June 30, 2009, electric
maintenance expenses decreased compared to the same period in the prior year. In
addition production costs decreased due to lower internal generation. In
addition, transmission costs increased primarily due to network service fees
pertaining to ATC.  Electric depreciation expense  Depreciation expense at the electric segment increased by
$0.8 million for the six months ended June 30, 2009, when compared to
the same period in the prior year.  Gas Utility Operations - MGE Energy and
MGE  Gas deliveries and revenues  The following table compares MGE's gas revenues and gas
therms delivered by customer class during each of the periods indicated:  Revenues

Therms Delivered(In
thousands, except HDD and average rate per therm of retail
customer)
Six
Months Ended June 30,

Six
Months Ended June 30,2009
2008
%
Change

2009
2008
%
ChangeResidential
$68,182
$78,945
(13.6)%

59,684
60,912
(2.0)%Commercial/industrial
50,856
62,410
(18.5)%

62,227
60,769
2.4%Total
retail
119,038
141,355
(15.8)%

121,911
121,681
0.2%Gas
transportation
1,578
1,569
0.6%

20,676
20,243
2.1%Other
revenues
2,237
1,480
51.1%

-
-
-Total
$122,853
$144,404
(14.9)%

142,587
141,924
0.5%Heating degree
days (normal 4,338)




4,595
4,796
(4.2)%Average rate per
therm of retail customer




$0.976
$1.162
(16.0)%  Gas revenues decreased $21.6 million or 14.9% for
the six months ended June 30, 2009. These changes are related to the
following factors:  (In millions)Six months ended June 30, 2009Gas costs/rates
$(22.6)Transportation and other effects
0.8Gas deliveries
0.2Total
$(21.6)  · Gas costs/rates. The average
retail rate per therm for the six months ended June 30, 2009, decreased
16.0% compared to the same period in 2008. The primary contributor to this
decrease is lower natural gas costs.   · Transportation and other
revenues. Transportation and other revenues increased a total of $0.8
million primarily due to an increase in income realized under the GCIM.  Under MGE's GCIM, if actual gas
commodity savings and capacity release revenues are above or below a benchmark
set by the PSCW, then MGE's gas sales service customers and shareholders share
in any increased costs or savings per percentages set by the PSCW. For the six
months ended June 30, 2009 and 2008, shareholders received the benefit of
$1.9 million and $1.1 million, respectively, from capacity release revenues
and commodity savings under the GCIM.  · Retail gas deliveries. There
was a 0.2% increase in retail gas deliveries for the six months ended
June 30, 2009.  Cost of gas sold  For the six months ended June 30, 2009, cost of gas
sold decreased by $21.8 million, compared to the same period in the prior
year. The cost per therm of natural gas decreased 19.3% which resulted in
$19.8 million of reduced expense. In addition, a 2.0% decrease in the
volume of gas purchased resulted in $2.0 million less expense.  Gas operating and maintenance expenses  Gas operating and maintenance expenses decreased
$0.3 million for the six months ended June 30, 2009, compared to the
same period a year ago. The decrease is primarily due to less administrative and
general expenses.  Other Income (Deductions), Net  Other income (deductions), net for the gas and electric
segments increased $1.1 million for the six months ended June 30, 2009
compared to the same period in the prior year. In 2008, the gas utility had
expensed a $1.5 million settlement (includes premium) associated with a
weather hedge (heating degree collar) as a result of colder-than-normal weather.
The gas utility had no weather hedges during 2009. Offsetting this change is a
$0.4 million reduction in AFUDC-equity for the six months ended June 30,
2009 compared to the prior year.  Nonregulated Energy Operations - MGE Energy and
MGE  Nonregulated energy operating revenues  Operating revenues from nonregulated energy operations
increased $0.7 million for the six months ended June 30, 2009, when
compared to the same period in the prior year. Operating revenues from
nonregulated energy operations for both the six months ended June 30, 2009
and 2008, include $7.4 million in interdepartmental revenues related to a
leasing arrangement between MGE and MGE Power West Campus. Upon consolidation,
these interdepartmental revenues are eliminated.  MGE also received approval from the PSCW to collect
carrying costs expected to be incurred by MGE Power Elm Road during construction
of the Elm Road project. MGE estimates that the total carrying costs on the Elm
Road project will be $59.0 million. A portion of this amount is being
recognized over the period recovered in rates and a portion is being deferred
and will be recognized over the period in which the facility is depreciated. For
the six months ended June 30, 2009 and 2008, MGE Power Elm Road recognized
$4.0 million and $3.3 million, respectively, related to carrying costs
on the Elm Road project.  Nonregulated energy interest expense,
net  For both the six months ended June 30, 2009 and
2008, interest expense, net at the nonregulated energy operations segment was
$1.3 million. Interest expense at the nonregulated energy segment for both
the six months ended June 30, 2009 and 2008, includes $1.4 million in
interest expense incurred on $50 million of long-term, fixed-rate
borrowings at MGE Power West Campus.  Also included in the nonregulated interest expense is
interdepartmental interest expense and capitalized interest at MGE Power Elm
Road. During the six months ended June 30, 2009 and 2008, MGE Power Elm
Road was charged $1.7 million and $2.3 million, respectively, in
interest expense by Corporate on funds borrowed for the Elm Road Project. This
expense is eliminated upon consolidation for MGE Energy only. The interest
expense at MGE Power Elm Road is offset by $1.7 million and $2.3 million,
respectively, in capitalized interest.   During both the six months
ended June 30, 2009 and 2008, MGE Power Elm Road recorded $0.1 million
in interest income on cash advanced to Elm Road Services, LLC for construction
of transmission equipment and work done by ATC related to the Elm Road
project.  Transmission Investment Operations - MGE Energy
and MGE  Transmission investment other income  For the six months ended June 30, 2009 and 2008,
other income at the transmission investment segment was $4.0 million and
$3.3 million, respectively. The transmission investment segment holds our
interest in ATC, and its income reflects our equity in the earnings of ATC.  All Other Nonregulated Operations -
MGE Energy  All other interest income, net for both the six months
ended June 30, 2009 and 2008, was $1.4 million. Interest income for
the six months ended June 30, 2009, represents $1.7 million in
interdepartmental interest income from MGE Power Elm Road, partially offset by
$0.3 million in interest expense on short-term debt. Interest income for
the six months ended June 30, 2008, represents $2.3 million in
interdepartmental interest income from MGE Power Elm Road, partially offset by
$0.9 million in interest expense on short-term debt. The interdepartmental
interest income is eliminated upon consolidation.  Consolidated Other General Taxes  MGE Energy's and MGE's other general taxes increased
$0.5 million or 6.2% for the six months ended June 30, 2009, when
compared to the same period in 2008, due to increased license fee tax. The
annual license fee tax expense is based on the prior year's adjusted operating
revenues. Tax rates have not increased.    Consolidated Income Taxes  MGE Energy's effective income tax rate for the six
months ended June 30, 2009, is 35.1% compared to 35.7% for the same period
in 2008. MGE's effective income tax rate for the six months ended June 30,
2009, is 34.9% compared to 35.6% for the same period in the prior year. The
lower tax rates for the six months ended June 30, 2009, are due primarily
to an increase in federal tax credits from the production of electricity from
wind energy. The tax credit for 2009 is expected to exceed the credit for 2008
mainly due to a full year of generation from the Top of Iowa III wind farm in
2009. In 2008, wind generation occurred for approximately ten months.  Under 2009 Wisconsin Act 2, effective for years beginning
on or after January 1, 2009, Wisconsin requires corporations to use
combined reporting to compute their Wisconsin income for income tax purposes.
Formerly, Wisconsin law required each corporation in a combined group to file
separate returns. The effect of the combined reporting statute in Wisconsin is
not expected to make any significant changes to the effective income tax rate or
the tax accrual.  Noncontrolling Interest, Net of Tax  The noncontrolling interest, net of tax reflects the
accounting required for MGE Energy's interest in the WCCF and Elm Road
generating projects. MGE Energy owns 100% of MGE Power West Campus and MGE
Power Elm Road; however, due to the leasing arrangements for these projects with
MGE, the entities are considered VIEs under FIN 46(R) and their results are
consolidated with those of MGE, the primary beneficiary of the VIEs. Also
included in noncontrolling interest, net of tax is MGE Energy's interest in
MGE Transco.  For the six months ended June 30, 2009,
MGE Energy (through its wholly owned subsidiary MGE Power) earned
$3.8 million and $2.4 million, net of tax, for its interest in MGE
Power West Campus and MGE Power Elm Road, respectively. Additionally,
MGE Energy earned $0.7 million, net of tax for its interest in MGE
Transco. These amounts are recorded as noncontrolling interest expense, net of
tax, on MGE's consolidated statement of income.  For the six months ended June 30, 2008,
MGE Energy (through its wholly owned subsidiary MGE Power) had earned
$3.8 million and $2.1 million, net of tax, for its interest in MGE
Power West Campus and MGE Power Elm Road, respectively. Additionally,
MGE Energy had earned $0.3 million, net of tax, for its interest in
MGE Transco. These amounts are recorded as noncontrolling interest expense, net
of tax, on MGE's consolidated statement of income.   Contractual Obligations and
Commercial Commitments - MGE Energy and MGE  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 six months ended June 30, 2009, except as noted
below. Further discussion of the contractual obligations and commercial
commitments is included in Footnote 9 of this filing and Footnote 18
and "Contractual Obligations and Commercial Commitments for MGE Energy and
MGE" under "Management's Discussion and Analysis of Financial Condition and
Results of Operations" in MGE Energy's and MGE's 2008 Annual Report on Form
10-K.  Columbia Environmental Matters - MGE Energy
and MGE  As of June 30, 2009, MGE's share of various
contractual commitments with vendors for environmental expenditures at Columbia
is estimated to be $0.3 million for the remainder of 2009. These costs are
expected to be capitalized and included in the consolidated balance sheet of
MGE. See "Environmental Matters - Columbia" below for additional information
regarding expected environmental expenditures at Columbia.  Elm Road Construction - MGE Energy and
MGE  In December 2008, we received notice from ERS that
it had received a letter from Bechtel containing Bechtel's formal claim for
schedule and cost relief on the construction of the Elm Road units. Bechtel has
asserted two claims for cost and schedule relief in its letter to ERS. Although
ERS is in the process of analyzing the claims and its responses to them, it has
stated its belief that both claims are without merit. It has also stated its
view that the only circumstances and events for which the Elm Road units' owners
currently retain price adjustment risk under the contract are force majeure,
wage escalation in excess of 4% annually as measured by published wage
bulletins, delays caused by ERS, changes in scope or performance requested by
ERS, and unforeseen sub-surface ground conditions. ERS has stated that it
currently believes Bechtel was fully compensated for any and all impacts of the  delayed start as indicated in
certain change orders entered into between ERS and Bechtel prior to the start of
construction of the Elm Road units. Furthermore, ERS has stated that it does not
believe that the contract provides for relief based upon the cumulative impact
of change orders. ERS invoked the dispute resolution process provided for in the
contract in order to address the claims made by Bechtel under the contract. ERS
and Bechtel agreed to combine these issues and Bechtel's claims into one
mediation. Mediation was unsuccessful and therefore, both parties submitted the
matter to binding arbitration pursuant to the contract. The arbitration is
expected to be concluded in 2010. We are unable to predict the results of these
claims or their effect on the costs recoverable under the existing facility
leases, in the event that the outcome of the claims should cause total
construction costs of the Elm Road units to exceed the amounts authorized in the
PSCW order. Bechtel fell behind the revised target schedule in moving from
construction to start-up, but developed a recovery plan and added resources in
an effort to recover lost time. Bechtel has made, and continues to make,
significant construction and start-up progress; however, at this time it has not
fully kept pace with its revised schedule. See Footnote 6 for additional
information regarding the claims made by Bechtel and the ERS response to those
claims.  Natural Gas Supply Contracts - MGE Energy and
MGE.  MGE has natural gas supply commitments which include
market-based pricing. Total natural gas supply commitments are estimated to be
$16.9 million for the remainder of 2009, $23.8 million for 2010, and $0.6
million for 2011. Management expects to recover these costs in future customer
rates.  Wind Development Rights  MGE Energy.  In June 2009, MGE Energy, through its subsidiary MAGAEL,
LLC, entered into agreements to purchase land development rights, including but
not limited to land option agreements, electrical interconnection rights, wind
data, engineering plans, licenses, permits, and governmental approvals for two
wind development rights. An $0.8 million payment related to these agreements was
made in 2009. Future payments related to these agreements are estimated to be
$1.2 million in 2010, $0.8 million in 2011, $3.2 million in 2012, $0.4 million
in 2013, $0.1 million in 2014, $1.7 million in 2015, and $0.4 million in 2016.
These wind development rights may potentially be used to develop wind farms in
three counties in Iowa with a capacity up to approximately 175 MWs. These
agreements do not obligate MGE Energy to construct at these locations in Iowa.  ATC Capital Commitment - MGE Energy and
MGE.  On June 18, 2009, MGE Transco elected to participate
in a voluntary capital call for ATC. As a result, MGE Transco contributed
$0.9 million to ATC in July 2009. The amount and timing of future
voluntary capital calls is uncertain and primarily dependent on the operations
and expansion of ATC.  Credit Facilities -
MGE Energy and MGE  On March 31, 2009, MGE amended
its existing credit agreement dated August 29, 2008, with JPMorgan Chase
Bank, N.A., as lender, which provides MGE with a $20 million committed
credit facility. The principal purpose of the amendment was to extend the
expiration date of the original agreement from March 31, 2009, to
March 30, 2010. The credit facility continues to be used as a backup
facility to MGE's commercial paper program. As of June 30, 2009, no
borrowings were outstanding under the credit facility. The amendment also
changed the interest rate provisions of the original agreement. As amended,
borrowings under the credit facility may bear interest at either (i) a
LIBOR-based rate for an applicable interest period, plus 1.50% or (ii) an
Alternate Base Rate, plus 1%. The Alternate Base Rate is defined as the greater
of (1) JPMorgan Chase Bank, N.A.'s prime rate, (2) the Federal Funds Effective
Rate (as defined in the original agreement) plus 0.50% and (3) the one-month
LIBOR-based rate plus 1%. The amendment also changed the non-use fee to 0.150%
per annum on the unused commitment under the credit facility.  Liquidity and
Capital Resources  Cash Flows  The following summarizes cash flows during the six months
ended June 30, 2009 and 2008, respectively:   MGE Energy

MGE(In thousands)
2009
2008

2009
2008Cash provided by/(used for):Operating activities
$82,644
$62,519

$82,467
$62,696Investing activities
(37,513)
(61,789)

(36,484)
(61,798)Financing activities
(40,888)
947

(41,371)
477  Cash Provided by Operating Activities  MGE Energy  MGE Energy's consolidated net cash provided by
operating activities is derived mainly from the electric and gas operations of
its principal subsidiary, MGE.  Cash provided by operating activities for the six months
ended June 30, 2009, was $82.6 million, an increase of
$20.1 million when compared to the same period in the prior year primarily
due to working capital changes.  MGE Energy's net income increased $0.5 million
for the six months ended June 30, 2009, when compared to the same period in
the prior year.  Deferred taxes increased $2.8 million for the six
months ended June 30, 2009, compared to the six months ended June 30,
2008, primarily due to bonus tax depreciation allowed for Federal income tax
purposes on certain property placed in service during 2009, as a result of the
American Recovery and Reinvestment Act of 2009.    Working capital accounts resulted in $33.9 million
in cash provided by operating activities for the six months ended June 30,
2009, compared to $15.2 million in cash provided by operating activities
during the same period in the prior year. The increase in cash provided by
working capital accounts is primarily attributable to lower accounts receivable
and unbilled revenues balances.  Pension contribution resulted in an additional $2.2
million in cash used by operating activities for the six months ended
June 30, 2009 when compared to the same period in the prior year. These
contributions were made to comply with the Employee Retirement Income Security
Act (ERISA) and the Pension Protection Act of 2006, and additional contributions
were at management's discretion.  MGE  Cash provided by operating activities for the six months
ended June 30, 2009, was $82.5 million, an increase of
$19.8 million when compared to the same period in the prior year primarily
due to working capital changes.  Net income increased $0.6 million for the six months
ended June 30, 2009, when compared to the same period in the prior
year.   Deferred taxes increased
$2.8 million for the six months ended June 30, 2009, compared to the
six months ended June 30, 2008, primarily due to bonus tax depreciation
allowed for Federal income tax purposes on certain property placed in service
during 2009, as a result of the American Recovery and Reinvestment Act of 2009.  Working capital accounts resulted in $33.8 million
in cash provided by operating activities for the six months ended June 30,
2009, compared to $15.4 million in cash provided by operating activities
during the same period in the prior year. The increase in cash provided by
working capital accounts is primarily attributable to lower accounts receivable
and unbilled revenues balances.  Pension contribution resulted in an additional $2.2
million in cash used by operating activities for the six months ended
June 30, 2009 when compared to the same period in the prior year. These
contributions were made to comply with the Employee Retirement Income Security
Act (ERISA) and the Pension Protection Act of 2006, and additional contributions
were at management's discretion.  Cash Used for Investing Activities  MGE Energy  MGE Energy's cash used for investing activities
decreased $24.3 million for the six months ended June 30, 2009, when
compared to the same period in the prior year.  Capital expenditures for the six months ended
June 30, 2009, were $34.8 million. This amount represents a
$26.4 million decrease from the expenditures made in the same period in the
prior year. This decrease is related to lower construction activity of
$21.1 million related to Elm Road and a $7.0 million decrease of
capital expenditures due to the completion in February 2008 of the Top of
Iowa III wind generation project. These decreases were partially offset by
an increase of $1.7 million in other utility capital expenditures.  During the six months ended June 30, 2009,
MGE Transco made cash capital contributions, funded by MGE Energy, of
$1.6 million to ATC compared to $1.3 million during the six months ended
June 30, 2008.  MGE  MGE's cash used for investing activities decreased
$25.3 million for the six months ended June 30, 2009, when compared to
the same period in the prior year.  Capital expenditures for the six months ended
June 30, 2009, were $34.8 million. This amount represents a
$26.4 million decrease from the expenditures made in the same period in the
prior year. This decrease is related to lower construction activity of
$21.1 million related to Elm Road and a $7.0 million decrease of
capital expenditures due to the completion in February 2008 of the Top of
Iowa III wind generation project. These decreases were partially offset by
an increase of $1.7 million in other utility capital expenditures.  During the six months ended June 30, 2009, MGE
Transco made cash capital contributions of $1.6 million to ATC compared to
$1.3 million during the six months ended June 30, 2008.  Cash (Used for) Provided by Financing
Activities  MGE Energy  Cash used for MGE Energy's financing activities was
$40.9 million for the six months ended June 30, 2009, compared to
$0.9 million of cash provided by MGE Energy's financing activities for
the six months ended June 30, 2008.  MGE Energy received $6.3 million and
$7.6 million in cash proceeds as the result of stock issued pursuant to the
Stock Plan during the six months ended June 30, 2009 and 2008,
respectively.    As of June 1, 2009, MGE Energy
is purchasing stock for its Stock Plan from the open market rather than issuing
new shares. All MGE Energy common stock shares under the Stock Plan are sold
pursuant to a registration statement that has been filed with the SEC and is
currently effective.  For the six months ended June 30, 2009, dividends
paid were $16.7 million compared to $15.7 million for same period in the
prior year. This increase was a result of higher dividend per share ($0.723 vs.
$0.710) and an increase in the number of shares outstanding.   For the six months ended
June 30, 2009, net short-term debt repayments were $30.5 million
compared to net short-term borrowings of $9.0 million for the same period
in the prior year.  MGE  During the six months ended June 30, 2009, cash used
for MGE's financing activities was $41.4 million compared to $0.5 million
of cash provided by MGE's financing activities in the same period in the prior
year.  For the six months ended June 30, 2009, net
short-term debt repayments were $34.5 million compared to
$18.0 million for the same period in the prior year.  Dividends paid from MGE to MGE Energy were
$6.4 million for the six months ended June 30, 2009. No cash dividends
were paid from MGE to MGE Energy for the six months ended June 30,
2008.  Equity contributions received by noncontrolling interest
decreased $23.2 million as a result of MGE Power Elm Road requiring less
funding for construction of property, plant and equipment.  Capitalization Ratios  MGE Energy's capitalization ratios were as
follows:  MGE EnergyJune 30, 2009
Dec. 31, 2008Common shareholders' equity
57.4%
54.7%Long-term debt
31.7%
31.1%Short-term debt
10.9%
14.2%  MGE Energy's and MGE's Capital
Requirements  As of June 30, 2009, MGE Energy had a working
capital deficit (current liabilities exceeded current assets). This deficit is
in part due to MGE Energy funding a portion of its capital commitments for
the Elm Road project with short-term debt. MGE Energy intends to fund
future capital commitments for the Elm Road project with funds generated from
normal operations, the issuance of long-term debt, and short-term debt.  MGE Energy's and MGE's liquidity are primarily
affected by their capital requirements. During the six months ended
June 30, 2009, capital expenditures for MGE Energy and MGE totaled
$34.8 million, which included $9.4 million of capital expenditures for
Elm Road and $25.2 million of capital expenditures for utility operations.  The following table shows MGE's current credit ratings.
The ratings presented reflect the current views of these rating agencies and are
subject to change. MGE Energy is not yet rated because it has not issued
any debt securities.  Standard & Poor's
Moody'sFirst Mortgage Bonds
AA-
Aa2Unsecured Medium Term Notes
AA-
Aa3Commercial Paper
A1+
P1  A security rating is not a recommendation to buy, sell,
or hold securities and may be subject to revision or withdrawal at any time by
the assigning rating agency. 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 is subject to default or
prepayment due to downgrading of securities' ratings, although such a down
grading could increase fees and interest charges under MGE Energy's and
MGE's credit facilities.  Environmental Matters  The following discussion is limited to updates or
developments in environmental matters that occurred during the six months ended
June 30, 2009. Further discussion of environmental matters is included in
MGE Energy's and MGE's 2008 Annual Report on Form 10-K.     Columbia  MGE and two other utilities jointly own Columbia, a
coal-fired generating facility, which accounts for 225 MW (29%) of MGE's
net generating capability. Various environmental initiatives are expected to
result in significant additional operating and capital expenditures at Columbia.
In April 2009, the owners filed a Certificate of Authority with the PSCW
requesting authorization of an emissions reduction project. The operator's
current estimates show that MGE's share of the capital expenditures required to
comply with this environmental initiative will be approximately
$140 million. According to the current estimate, compliance with this
project is also expected to result in an increase to Columbia's ongoing
operating expenses. MGE expects that the costs pertaining to this project will
be fully recoverable through rates.  Vacatur of CAMR and the Development of Maximum
Achievable Control Standards for Electric Utilities  On February 9, 2009, the Justice Department, on
behalf of the EPA, asked the U.S. Supreme Court to dismiss EPA's request
(petition for certiorari) that the Court review the D.C. Circuit Court's vacatur
of the Clean Air Mercury Rule (CAMR). This withdrawal paves the way for the EPA
to develop Maximum Achievable Control Technology (MACT) standards for electric
utilities. It is unclear at this time how quickly MACT standards will be created
for electric utilities and how they will affect MGE's operations, however,
earlier versions of the MACT rule for electric utilities focused on mercury
emissions from electric utilities that burned oil and coal for distribution in
commerce. The implementation of the MACT standards will likely affect our
facilities that burn coal and oil, however, we are uncertain of the exact cost
at this time.  Global Climate Change Developments  EPA's Determination of Endangerment from Greenhouse
Gases  On April 17, 2009, the EPA published a proposed
finding that greenhouse gases ("GHGs") in the atmosphere endanger the public
health and welfare of current and future generations. EPA further proposed
finding that emission of these substances from new motor vehicles are
contributing to this endangerment. Although EPA states that finalizing these
findings will not in and of itself impose requirements on electric generating
utilities, this endangerment finding would be the first step toward regulating
GHGs from electric generating facilities under the Clean Air Act. At this time
we cannot predict the likelihood nor the effect of such regulation on our
generating facilities. MGE is already addressing its GHGs through voluntary
actions, and MGE will continue to monitor proposed GHG legislation and
regulatory developments.  EPA Rule on Greenhouse Gas Reporting  On March 10, 2009, the EPA signed the proposed
mandatory GHG reporting rule (published in the Federal Register on
April 10, 2009). The proposed rule requires reporting in 2011for emissions
in 2010 from (1) specific source categories regardless of emissions levels
(including MGE business activities such as electric production, fuel combustion,
and propane and natural gas storage), and (2) facilities not specifically listed
as source categories that emit 25,000 metric tons of GHG emissions (in carbon
dioxide equivalents) per year. The proposed rule will require reporting of six
GHG emission categories: carbon dioxide (CO2), methane (CH4), nitrous
oxide (N2O), hydrofluorocarbons (HFC), perfluorocarbons (PFC), sulfur
hexafluoride (SF6), and other fluorinated gases. The proposed rule
has not been finalized so it is difficult to assess at this time the exact
impact on MGE. However, Wisconsin has already required larger electric
generation facilities to report CO2 emissions for several years.  Proposed Climate Change Legislation  On June 26, 2009, the U.S. House of Representatives
passed the American Clean Energy and Security Act of 2009 ("ACESA"). The
proposed legislation has several titles that would collectively impact virtually
all aspects of the economy, including electric and natural gas utilities.  The proposed legislation includes: (1) a "clean energy"
title that, among other things, creates a nationwide combined efficiency and
renewable electricity standard that requires 6 percent efficiency/renewables by
2012 increasing to 20 percent by 2020 and calls for increased research and
development; (2) an "energy efficiency" title that increases energy efficiency
across all sectors of the economy, including buildings, appliances,
transportation, and industry; (3) a "global warming" title that calls for a
cap-and-trade program that would reduce U.S. emissions of greenhouse gases
economy-wide by 3 percent below 2005 levels in 2012, 20 percent below 2005
levels by 2020 and 83% below 2005 levels by 2050 and provides a methodology for
distributing allowances to covered entities; and (4) a "transitioning" title
that seeks to promote green jobs during the transition to a clean energy
economy.  The U.S. Senate is considering proposed legislation. Any
legislation passed by the Senate would need to be reconciled with the House
legislation and signed by the President before it would become law.  MGE is a producer of GHG
emissions, primarily from the fossil fuel generating facilities it utilizes to
meet customers' energy needs, as well as from its natural gas pipeline system
and fleet vehicles. Climate change and the regulatory response to it could
significantly affect our operations in a number of ways, including but not
limited to, increased operating costs and capital expenditures, restrictions on
energy supply options, permitting difficulties and emission limits. However, the
financial consequences of this compliance cannot be determined until final
legislation is passed. MGE management would expect to seek and receive rate
recovery of such compliance costs, yet the probability and specific impact of
such regulation cannot be reasonably estimated at this time. MGE will continue
to monitor proposed climate change legislation and regulation.  Restructuring Activities  On January 19, 2006, MGE announced a plan, subject
to certain conditions, that includes discontinuing coal use by the end of 2011
at Blount. The plant will continue to run on natural gas but will be reduced
from its current approximate 190 MW capacity to 100 MW when coal
burning is discontinued. MGE determined that certain employee positions will be
eliminated as a result of this exit plan.  In March 2009, MGE received notification from MISO
that in order to meet national electric system reliability standards, MGE will
need to keep Blount available at full capacity until MISO declares that the
90 MW are no longer needed for system reliability. To comply with the MISO
directive, MGE will delay plans for retiring 90 MW of generation equipment
at Blount. The transition from burning coal to burning only natural gas will
still occur by the end of 2011. After 2011, the entire plant will be operated
exclusively on natural gas. MGE will be working with MISO to develop a detailed
agreement for this continued operation, which among other things will include a
mechanism for cost recovery. MGE management will also begin working on an
implementation plan.  MGE has entered into agreements providing severance
benefits to employees affected by the exit plan. In May 2009, renegotiated union
agreements were ratified and resulted in changes to the involuntary and
voluntary severance benefits. Estimated benefits expected to be paid are as
follows: $0.1 million in 2010, $0.8 million in 2011, and $0.4 million
in 2013.  MGE will recover in rates the costs associated with the
discontinuance of coal at Blount. As such, the severance charges for these
employees have been deferred and recognized on the consolidated balance sheet of
MGE Energy and MGE as a regulatory asset.  Other Regulatory Matters  Fuel Credit  In April 2009, MGE filed an application with the
PSCW requesting a proposed credit of $0.00204 per kWh, due to a decrease in
actual electric fuel costs, when compared to those fuel costs projected in MGE's
most recent rate order. MGE estimates this credit would reduce electric revenues
by $4.6 million for 2009. This credit is based upon newly computed annual
average fuel costs for 2009, using actual fuel costs for January,
February and March and revised forecasts for April through
December 2009. In May 2009, the PSCW approved the interim order authorizing MGE
to implement the proposed credit, subject to refund with interest at 10.8%
effective May 9, 2009 until the final PSCW order.  Rate filing  In April 2009, MGE filed an application with the
PSCW requesting a 4.5% increase to electric rates and a 2.3% increase to gas
rates for 2010. The proposed increases cover costs for MGE's share of the new
Elm Road generating station, transmission reliability enhancements, as well as
infrastructure additions to its gas delivery system.  New Accounting
Principles  See Footnote 15 for discussion of new accounting
pronouncements.   Item 3. Quantitative and
Qualitative Disclosures About Market Risk.  MGE Energy and MGE are potentially exposed to market
risk associated with interest rates, commodity prices, weather, and equity
returns. MGE currently has no exposure to foreign currency risk. MGE manages
some risk exposure through risk management policies and the use of derivative
instruments. MGE's risk management policy prohibits speculative trading
transactions. The recent uncertainty in the capital and credit markets has
adversely affected the United States and global economies. Additional detail can
be found in the Management Discussion and Analysis section of MGE Energy's
and MGE's 2008 Annual Report on Form 10-K under " Recent Developments in the
Capital and Credit Markets."  Weather Risk  MGE's sales forecasts, used to establish rates, are set
by the PSCW based upon estimated temperatures, which approximate 20-year
historical averages. 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 revenues 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 revenue 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
revenues.  MGE may also be impacted by extreme weather conditions.
Such conditions may restrict the operation of, or may damage, operating assets
or may negatively impact the price of commodity and other costs.  A summary of actual weather information in the utility
segment's service territory during the three and six months ended June 30,
2009, as measured by degree days, may be found in results of operations in this
Report.  Commodity Price Risk  MGE has commodity price risk exposure with respect to the
price of natural gas, electricity, coal, emission credits, and oil. MGE employs
established policies and procedures to reduce the market risks associated with
changing commodity prices. MGE's commodity risks are somewhat mitigated by the
current ratemaking process in place for recovering electric fuel cost, purchased
energy costs, and the cost of natural gas. MGE's electric fuel costs are subject
to fuel rules established by the PSCW.  MGE's electric operations burn natural gas in several of
its peaking power plants or as a supplemental fuel at several coal-fired plants
and, in many cases, the cost of purchased power is tied to the cost of natural
gas. MGE bears significant regulatory risk for the recovery of such fuel and
purchased power costs when they are higher than the base rate established in its
current rate structure.  Under the electric fuel rules, MGE would be required to
make a refund to customers if the fuel rules costs fall outside the lower end of
the range and would be allowed to request a surcharge if the fuel rules costs
exceeded the upper end of the range. The range is defined by the PSCW and has
been modified throughout the years based on market conditions and other relevant
factors. Currently, MGE is subject to a plus or minus 2% range. MGE assumes the
risks and benefits of variances that are within the 2% bandwidth. For 2009, fuel
and purchased power costs included in MGE's base fuel rates are
$123.2 million. See Footnote 13.b. for additional information. MGE's
gas segment is governed by the purchased gas adjustment clause (PGA). Under the
PGA, MGE is able to pass through to customers the cost of gas, subject to
certain limited incentives. Under both the electric fuel rules and PGA clause,
MGE may include in the cost of fuel (natural gas or power) the costs and
benefits of fuel price risk management tools implemented under the risk
management plan approved by the PSCW.  MGE also reduces price risk caused by market fluctuations
via physical contracts and financial derivative contracts, including futures,
swaps, options, forwards, and other contractual commitments. The maximum length
of time over which cash flows related to energy commodities can be hedged is two
years.  At June 30, 2009, MGE has financial gas and electric
commodity contracts to hedge commodity price risk in the gas and electric
segments. These contracts are primarily comprised of exchange-traded option and
future contracts to manage the cost of gas. MGE also holds FTRs which are used
to hedge the risk of increased congestion charges. At June 30, 2009, the
cost basis of these instruments exceeded their fair value by $7.8 million.
Under the PGA clause and electric fuel rules, MGE may include in the costs of
fuel (natural gas or power) the costs and benefits of the aforementioned fuel
price risk management tools. Because these costs/benefits are recoverable, the
related unrealized loss/gain has been deferred on the balance sheet as a
regulatory asset/liability.  During 2009, MGE has also
entered into futures and basis swaps to take advantage of physical and financial
arbitrage opportunities between supply basins and pricing spreads between future
months' gas supply. Until thresholds have been achieved, ratepayers receive 100%
of the benefits or loss from these deals. If certain thresholds are achieved,
MGE shareholders have the ability to receive 40% of the benefits or loss from
these deals whereas ratepayers have the ability to receive 60% of the benefits
or loss from these deals. At June 30, 2009, the fair value of these
instruments exceeded their cost basis by less than $0.1 million.  MGE has also entered into a ten-year purchased power
agreement which provides MGE with firm capacity and energy beginning
June 1, 2012, and ending on May 31, 2022 (the "base term"). The
agreement also allows MGE the option to purchase power during a period of time
preceding the base term as well as an option to extend the contract after the
base term. The agreement is a derivative contract and is recognized at its fair
value on the balance sheet. The fair value of the contract at June 30,
2009, reflects a loss position of $9.6 million.  Interest Rate Risk  Both MGE Energy and MGE have short-term borrowings
at varying interest rates. MGE issues commercial paper for its short-term
borrowings, while MGE Energy draws from its current credit facility to meet
its short-term borrowing needs. Borrowing levels vary from period to period
depending upon capital investments and other factors. Future short-term interest
expense and payments will reflect both future short-term interest rates and
borrowing levels. MGE Energy and MGE manage interest rate risk by limiting
their variable rate exposure and 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.  Equity Price Risk - Pension-Related Assets  MGE currently funds its liabilities related to employee
benefits through trust funds. These funds, which include investments in debt and
equity securities, are managed by various investment managers. Changes in market
value of these investments can have an impact on the future expenses related to
these liabilities. The value of employee benefit plans trusts' assets have
increased in value by approximately 5% during the six months ended June 30,
2009.  Credit Risk - Counterparty  Credit risk is the loss that may result from counterparty
nonperformance. 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.  Due to the possibility of extreme volatility in the
prices of energy commodities and derivatives, the market value of contractual
positions with individual counterparties could exceed established credit limits
or collateral provided by those counterparties. If such a counterparty were then
to fail to perform its obligations under its contract (for example, fail to
deliver the electricity MGE originally contracted for), MGE could sustain a loss
that could have a material impact on its financial results.  Additionally, if a counterparty were to default and MGE
were to liquidate all contracts with that entity, MGE's credit loss would
include the loss in value of mark-to-market contracts; the amount owed for
settled transactions; and additional payments, if any, to settle unrealized
losses on accrual contracts. As of June 30, 2009, no counterparties have
defaulted.  MGE is obligated to provide service to all electric and
gas customers within its respective franchised territories. MGE's franchised
electric territory includes a 316 square-mile area in Dane County, Wisconsin,
and MGE's franchised gas territory includes a service area covering 1,631 square
miles in Wisconsin. Based on results for the year ended December 31, 2008,
no one customer constituted more than 9% of total operating revenues for
MGE Energy and MGE. Credit risk for electric and gas is managed by MGE's
credit and collection policies, which are consistent with state regulatory
requirements.  Cash, cash equivalents, and customer accounts receivable
are the financial instruments that potentially subject MGE Energy and MGE
to concentrations of credit risk. MGE Energy and MGE place their cash and
cash equivalents with high credit-quality financial institutions. MGE has
limited concentrations of credit risk from customer accounts receivable because
of the large number of customers and relatively strong economy in its service
territory.    Item
4. Controls and Procedures.  During the second quarter of 2009, MGE Energy'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 Energy, including its subsidiaries, is accumulated and made known to
MGE Energy's management, including these officers, by other employees of
MGE Energy and its subsidiaries as appropriate to allow timely decisions
regarding required disclosure, 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. 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 June 30, 2009, MGE Energy's principal
executive officer and the principal financial officer concluded that its
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.  During the quarter ended June 30, 2009, there were
no changes in MGE Energy's internal controls over financial reporting that
materially affected, or are reasonably likely to materially affect,
MGE Energy's internal control over financial reporting.   Item 4T. Controls
and Procedures.  During the second quarter of 2009, 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 accumulated and made known to MGE's management, including these
officers, by other employees of MGE and its subsidiaries as appropriate to allow
timely decisions regarding required disclosure, 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. 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 June 30, 2009, MGE's principal executive
officer and the principal financial officer concluded that its 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.  During the quarter ended June 30, 2009, there were
no changes in MGE's internal control over financial reporting that materially
affected, or are reasonable likely to materially affect, MGE's internal control
over financial reporting.    PART
II. OTHER INFORMATION.   Item 1. Legal
Proceedings.  MGE Energy and MGE  MGE Energy and MGE from time to time are involved in
various legal proceedings that are handled and defended in the ordinary course
of business. While MGE Energy and MGE are unable to predict the outcome of
these matters, management does not believe, based upon currently available
facts, that the ultimate resolution of any of such proceedings would have a
material adverse effect on their overall financial condition or results of
operations except as disclosed in MGE Energy's and MGE's 2008 Annual Report
on Form 10-K.  Also see Footnote 6a, 9a and 9c for a description of
several proceedings involving MGE.   Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.  Issuer Purchases of Equity
Securities Period
Total Number
of
Shares Purchased
Average Price Paid
per
Share
Total Number of Shares
Purchased as Part of
Publicly Announced
Plans or Programs*
Maximum Number (or
Approximate Dollar
Value) of Shares That
May
Yet Be Purchased
Under the Plans or
Programs*April 1-30, 2009
-
-
-
-May 1-31, 2009
-
-
-
-June 1-30, 2009
84,000
$32.60
-
-Total
84,000
$32.60
-
-  * Under the Stock Plan, common stock
shares deliverable to plan participants may be either newly issued shares or
shares purchased on the open market, as determined from time to time by MGE
Energy. In June 2009, MGE Energy switched to using open market purchases to
provide shares to meet obligations to participants in the Stock Plan. The shares
are purchased on the open market through a securities broker-dealer and then are
re-issued under the Stock Plan as needed to meet share delivery requirements.
The volume and timing of share repurchases in the open market depends upon the
level of dividend reinvestment and optional share purchases being made from time
to time by plan participants. As a result, there is no specified maximum number
of shares to be repurchased and no specified termination date for the
repurchases. All shares issued through the Stock Plan, whether newly issued or
reissued following open market purchases, are issued and sold pursuant to a
registration statement that was filed with the SEC and is currently effective.   Item 4. Submission
of Matters to a Vote of Security Holders.  MGE Energy's Annual Meeting of Shareholders was held
on May 19, 2009, in Middleton, Wisconsin. Listed below are the nominees for
Class II Directors and the results of the voting.  Class II Directors - Term Expiring in 2012John R. Nevin
H.
Lee Swanson
Gary J. WolterFor Votes
18,047,947
17,995,591
18,004,375Withhold
Authority
485,075
537,431
528,647Shares Not
Voted
4,438,695
4,438,695
4,438,695  No votes were cast for any other nominee. The directors
continuing in office are:  Class I
Directors

Class III
DirectorsTerm Expires in
2011

Term Expires in
2010Londa J.
Dewey

Frederic E.
MohsRegina M.
Millner

F. Curtis
HastingsThomas R.
Stolper  Director Richard E. Blaney announced his retirement from
the board at the May 19 meeting.   Shareholders ratified the
selection of PricewaterhouseCoopers LLP as our independent registered public
accounting firm for 2009. With respect to the ratification of the selection of
PricewaterhouseCoopers LLP to act as our independent registered public
accounting firm, shareholders voted:  Voted
SharesFor
18,155,202Against
181,931Abstained
195,889Shares Not
Voted
4,438,695Total
22,971,717   Item 6.
Exhibits.  12 Statement regarding computation of
ratio of earnings to fixed charges for Madison Gas and Electric Company.  Certifications Pursuant to Rule 13a-14(a) and 15d-14(a)
of the Securities and Exchange Act of 1934 as to the Quarterly Report on Form
10-Q for the quarter ended June 30, 2009, filed by the following officers
for the following companies:  31.1 Filed by Gary J. Wolter for
MGE Energy, Inc. 31.2 Filed by Jeffrey C. Newman for
MGE Energy, Inc. 31.3 Filed by Gary J. Wolter for Madison
Gas and Electric Company 31.4 Filed by Jeffrey C. Newman for Madison
Gas and Electric Company  Certifications Pursuant to Section 1350 of Chapter 63 of
Title 18 United States Code (Sarbanes-Oxley Act of 2002) as to the Quarterly
Report on Form 10-Q for the quarter ended June 30, 2009, filed by the
following officers for the following companies:  32.1 Filed by Gary J. Wolter for
MGE Energy, Inc. 32.2 Filed by Jeffrey C. Newman for
MGE Energy, Inc. 32.3 Filed by Gary J. Wolter for Madison
Gas and Electric Company 32.4 Filed by Jeffrey C. Newman for Madison
Gas and Electric Company   Signatures - MGE Energy, Inc.  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: August 6, 2009
/s/ Gary J. WolterGary J. Wolter
Chairman, President and Chief Executive Officer
(Duly Authorized Officer)Date: August 6, 2009
/s/ Jeffrey C. NewmanJeffrey C. Newman
Vice President, Chief Financial Officer, Secretary
and Treasurer
(Chief Financial and Accounting
Officer)     Signatures - Madison Gas and Electric Company  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 COMPANYDate: August 6, 2009
/s/ Gary J. WolterGary J. Wolter
Chairman, President and Chief Executive Officer
(Duly Authorized Officer)Date: August 6, 2009
/s/ Jeffrey C. NewmanJeffrey C. Newman
Vice President, Chief Financial Officer, Secretary
and Treasurer
(Chief Financial and Accounting
Officer)