As Executed                                                         Exhibit 10.1


                       EARLY RETIREMENT AGREEMENT BETWEEN
            INTERSTATE ENERGY CORPORATION ET AL. AND MICHAEL R. CHASE


         This Agreement is entered into between  Interstate Energy  Corporation,
on behalf of itself, its subsidiary  Interstate Power Company,  and any of their
affiliates  (collectively  referred to herein as the  "Company")  and Michael R.
Chase ("Employee"), this 7th day of October, 1998 (the "Agreement Date").

         In  consideration  of this mutual  Agreement,  Employee and the Company
hereby agree as follows:
                  
         1. Retirement.  Employee hereby retires and resigns, as an employee and
officer,  from the  service  of the  Company  effective  January  1,  1999  (the
"Retirement Date").  Employee  acknowledges and agrees that he will, between the
Agreement Date and his Retirement Date, actively assist in the transition of his
duties to his  successor,  assist the  Company to the  fullest  extent  with the
governmental  investigation of the Dubuque plant, perform any appropriate public
functions with the Iowa  Utilities  Association,  and perform,  as time permits,
additional  transitional  assistance  and special  projects as  requested by the
Chief  Executive  Officer of the  Company.  Employee  agrees to provide  written
resignations from any ancillary positions as the Company deems necessary.

         2. Financial and Benefit Matters.

              a. Employee  shall  continue to be paid his base pay in the amount
of Twenty Thousand  Dollars  ($20,000) per month for the remainder of 1998, will
continue  to be provided  senior  executive  welfare  benefits  and  continue to
participate in all retirement  plans and  supplemental  retirement  plans on the
same basis as other senior executives  during this period,  and will be paid his
target  Management  Incentive  Compensation  Program bonus for his final year of
service  to  the  Company.  These  payments  and  benefits  are  the  continuing
employment obligations of the Company. This Agreement does not affect in any way
the  entitlement of Employee to pension and welfare  benefits while an employee,
post-retirement   welfare  benefits,   Supplemental  Executive  Retirement  Plan
("SERP")  benefits,  or qualified  retirement plan benefits that are provided to
Employee  on account of his prior  service  with the  Company  and which are not
financial  accommodations   pertaining  to  his  retirement.  As  of  Employee's
Retirement Date, Employee shall be eligible to receive benefits under all of the
Company's  retiree welfare benefit plans available to retired senior  executives
of the Company as in effect on September 4, 1998. Any changes in welfare benefit
plans  available for retired  senior  executives  of the Company  retiring on or
before  January 1, 1999,  that are  adopted  after  September  4, 1998,  and are
generally applicable to senior executives retiring on or before January 1, 1999,
shall apply to the Employee. It is understood that the Employee has selected the
Interstate Power Company's Supplemental Executive Retirement Program as his SERP
program and that,  effective  commencing on the  Retirement  Date,  the Employee
shall be  entitled  to the full  benefits  available  to him  under  this  SERP,
including  the right to select the date he begins to receive any  benefits.  The
term  "Compensation"  for purposes of  calculating  the benefits under this SERP
shall mean Two Hundred Forty Thousand Dollars ($240,000). All calculations under
this SERP shall be made in accordance  with its terms as it was  interpreted  in
1998 prior to September 4, 1998.

              b. In  consideration  for the release  provided in Section 6 below
and for the agreements in Section 4 below, the Company shall make the payment to
Employee  described in this subparagraph as a replacement for and to approximate
the  biweekly  payments  that  the  Company  would  make  under  the  Employment
Agreement. Provided the Employee is living on January 1, 1999, the Company shall
make a lump sum payment of Two Hundred Fifty-five  Thousand Dollars  ($255,000),
less  applicable  federal  and state  income tax  withholding  and  payroll  tax
amounts, to Employee within fifteen

<PAGE>


(15)  business  days after  January 1, 1999.  Provided the Employee is living on
January 1, 2000,  the  Company  shall make a lump sum payment of Two Hundred Ten
Thousand Seven Hundred Fifty Dollars  ($210,750),  less  applicable  federal and
state income tax withholding and payroll tax amounts, to Employee within fifteen
(15) business days after January 1, 2000.

              c. It is mutually agreed that the common stock options to purchase
shares of  Interstate  Energy  Corporation  issued to  Employee on July 1, 1998,
under the Company's Long Term Equity Incentive Plan should be canceled effective
on the  Retirement  Date and that no  additional  common stock  options shall be
issued by the  Company  to the  Employee  after  the  Agreement  Date.  Employee
acknowledges  that  the   considerations   contained  in  this  Agreement  fully
incorporate all  considerations  and accruals of such Long Term Equity Incentive
Plan.

              d. Employee  recognizes  that  consideration  provided  under this
Agreement may result in taxable income to the Employee and that the Company will
report such taxable income to the appropriate taxing authorities.

         3.  Tax  Adjustment.  If it is  ultimately  determined  by a  court  or
pursuant to a final  determination  by the  Internal  Revenue  service  that any
portion of the  payments  hereunder  is subject  to the tax (the  "Excise  Tax")
imposed by Section 4999 of the Code (or any  successor  provision),  the Company
shall pay to the Employee an additional  amount (the  "Gross-up  Payment")  such
that the net amount  retained by the Employee after  deduction of any Excise Tax
and any  interest  charges or  penalties  in respect of the  imposition  of such
Excise Tax (but not any  federal,  state or local  income  tax) on the  payments
hereunder,  and any federal, state, and local income tax and Excise Tax upon the
payment  provided  for by  this  Section  3,  shall  be  equal  to the  payments
hereunder.  For purposes of determining the amount of the Gross-up Payment,  the
Employee  shall be deemed to pay federal  income  taxes at the highest  marginal
rate of federal  income  taxation  in the  calendar  year in which the  Gross-up
Payment is to be made and state and local income  taxes at the highest  marginal
rates of taxation  in the state and  locality of the  Executive's  domicile  for
income tax purposes on the date the Gross-up Payment is made, net of the maximum
reduction in federal income taxes which could be obtained from deduction of such
state and local taxes.

         4.  Certain  Agreements.  It is  mutually  agreed  that the  Employment
Agreement entered into between the Employee and Interstate Power Company,  dated
April 21,  1998,  is canceled  and  replaced by this  Agreement;  the  Severance
Agreement  referenced in Section 12(f) of such  Employment  Agreement  (i.e., an
agreement dated November 8, 1995, between Employee and Interstate Power Company)
is null and void and of no further effect;  and the letter agreement dated March
3, 1998, between Employee and Interstate Energy Corporation is null and void and
of  no  further  effect.  The  following  agreements,  however,  apply  to  this
Agreement:

              a.  Non-exclusivity  of Rights.  Nothing in this  Agreement  shall
prevent or limit the Employee's  continuing or future participation in any plan,
program,  policy or practice  provided by the Company for which the Employee may
qualify,  nor shall  anything in this Agreement  limit or otherwise  affect such
rights as the Employee may have under any contract or agreement with the Company
or any of its  affiliates  relating  to such  subject  matter  other  than  that
specifically  addressed  herein.  Vested  benefits  and other  amounts  that the
Employee is otherwise entitled to receive under any plan, policy,  practice,  or
program  of, or any  contract  or  agreement  with,  the  Company  or any of its
affiliates on or after the Retirement  Date shall be payable in accordance  with
the terms of each such plan, policy, practice,  program,  contract or agreement,
as the case may be, except as specifically modified by this Agreement.

              b. Full Settlement.  The Company's obligation to make the payments
provided for in, and otherwise to perform its obligations  under, this Agreement
shall not be affected by any set-off, counterclaim, recoupment, defense or other
claim, right or action that the Company may have against the Employee or others.
In no event shall the Employee be obligated to seek other employment or take any
other action by way of mitigation of the amounts  payable to the Employee  under
any of the  provisions  of 

<PAGE>


this  Agreement.  The amounts  payable by the Company under this Agreement shall
not be offset or reduced by any amounts otherwise  receivable or received by the
Employee form any source.

              c. Confidential Information and Noncompetition. The Noncompetition
and Nondisclosure  Agreement between employee and the Company dated November 26,
1997, is  incorporated  herein by this  reference  and remains  fully  effective
according  to its terms.  Furthermore,  the  Employee  shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential  information,
knowledge or data relating to the Company or any of its affiliated companies and
their  respective  businesses  that the Employee  obtains  during the Employee's
employment  by the Company or any of its  affiliated  companies  and that is not
public  knowledge  (other than as a result of the  Employee's  violation of this
subsection  ("Confidential  Information").  The Employee shall not  communicate,
divulge or  disseminate  Confidential  Information at any time during or for not
less than  five (5) years  after the  Employee's  employment  with the  Company,
except with the prior written consent of the Company or as otherwise required by
law or legal process. In no event shall any asserted violation of the provisions
of this  subsection  constitute a basis for deferring or withholding any amounts
otherwise  payable to the Employee  under this  Agreement.  Any provision of any
other  agreement  between the  Employee and  Interstate  Energy  Corporation  or
Interstate  Power  Company  relating  to  noncompetition  and  nondisclosure  of
information is null and void and of no further effect.

         5.  Attorney's  Fees.  The Company  agrees to pay, as incurred,  to the
fullest  extent  permitted by law, all legal fees and expenses that the Employee
may reasonably  incur as a result of any contest  (regardless of the outcome) by
the Company,  the Employee,  or others of the validity or  enforceability  of or
liability under, or otherwise involving, any provision of this Agreement arising
after the Agreement  Date,  together with interest on any delayed payment at the
applicable federal rate provided for in Code Section  7972(f)(2)(A) of the Code.
In addition, the Company shall reimburse Employee up to Fifteen Thousand Dollars
($15,000) for the Employee's cost of legal services incurred by Employee for the
negotiation  and  review of this  Agreement  prior to the  Agreement  Date.  The
Employee  shall  submit a request  for such  reimbursement  in  accordance  with
established Company procedures for the reimbursement of business expenses.

         6. Release and Covenants.

              a. Employee, on behalf of himself, his spouse,  heirs,  executors,
administrators,  agents,  successors,  assigns and  representatives  of any kind
(hereinafter collectively referred to as the "Releasors") confirm that Releasors
have released the Interstate Energy Corporation and each of its subsidiaries and
affiliates, the employees,  successors, assigns, executors, trustees, directors,
advisors,  agents and  representatives of Interstate Energy Corporation and each
subsidiary or affiliate,  and all their  respective  predecessors and successors
(hereinafter  collectively  referred  to as the  "Releasees"),  from any and all
actions,  causes of action,  charges,  debts,  liabilities,  accounts,  demands,
damages and claims of any kind whatsoever  including,  but not limited to, those
arising  out  of  the  changes  in  the  terms  and   conditions  of  Employee's
relationship  with the Company  described in this  Agreement  and those  arising
under any labor, employment discrimination  (including,  without limitation, the
Age Discrimination in Employment Act of 1967, as amended, Title VII of the Civil
Rights  of  Act  of  1964,  as  amended,   applicable   State  fair   employment
legislation),  contract or tort laws,  equity or public  policy,  or  negligence
standard, whether known or unknown, certain or speculative, which against any of
the Releasees,  any of the Releasors ever had, now has, or hereafter  shall have
or can have.  Employee  further  covenants that he will not initiate any action,
claim or proceeding against any of the Releasees for any of the foregoing,  will
not participate,  assist, or cooperate in any such action,  claim, or proceeding
unless  required  to do so by law,  and will not apply for  employment  with the
Company at any time. Employee acknowledges that the considerations  contained in
this Agreement fully compensate him for the release provided in this Section.

              b.  Notwithstanding  the foregoing,  this Agreement does not waive
rights,  if any,  Employee  or his  successors  and  assigns  may have  under or
pursuant to, or release any member of Releasees from obligations, if any, it may
have to Employee or to Employee's  successors  and assigns on

<PAGE>


claims  arising  out of,  related to or  asserted  under or  pursuant  to,  this
Agreement or any indemnity  agreement or  obligation  contained in or adopted or
acquired  pursuant  to any  provision  of the  charter or by-laws of  Interstate
Energy  Corporation,  a Wisconsin  corporation,  or Interstate Power Company,  a
Delaware  corporation,  or in any  applicable  insurance  policy  carried by the
Company  or its  affiliates  for any  matter  which has  arisen,  including  the
environmental  investigation that the Company launched in April 1998 and related
proceedings, or which arises or which may arise in the future in connection with
Employee's employment with the Company.

              c. In accordance  with the  requirements  of Title II of the Older
Workers  Benefit  Protection  Act (P. L.  101-433,  10/16/90),  Employee  hereby
acknowledges  that he has at least twenty-one (21) days to review this Agreement
from the date he first  received it and he has been advised to review it with an
attorney of his choice.  Employee  further  understands that the twenty-one (21)
day review period ends when  Employee  signs this  Agreement.  Employee also has
seven (7) days  after  signing  this  Agreement  to revoke by so  notifying  the
Company in writing. Any revocation by Employee under this Section 6(c), however,
does not  revoke  the  resignations  provided  under  Section  1 and  Employee's
resignation from employment with the Company shall remain in effect as set forth
therein.   Employee  further  acknowledges  that  he  has  carefully  read  this
Agreement,  knows and  understands  the contents  thereof and its binding  legal
effect.  Employee  signs  the same of his own free  will and act,  and it is his
intention that he be legally bound thereby.

              d. Employee agrees to keep this Agreement  confidential and not to
reveal its contents to anyone  other than his  attorney,  financial  consultant,
immediate family members,  and  representatives  of any governmental tax agency.
The  provisions  of this Section 6(d) shall not apply to any truthful  statement
required  to be made by  Employee  in any  legal  proceeding  or  government  or
regulatory investigation; provided, however, that prior to making such statement
(other  than to tax  authorities),  Employee  will give the  Company  reasonable
notice  and, to the extent he is legally  entitled to do so,  afford the Company
the ability to seek a confidentiality order.

         7.  Severability.  In the  event  any one or more of the  terms of this
Agreement shall for any reason be held to be invalid,  illegal or unenforceable,
the remaining  terms of this  Agreement  shall be  unimpaired,  and the invalid,
illegal or unenforceable  term shall be replaced by a term, which,  being valid,
legal and enforceable,  comes closest to the intention of the parties underlying
the invalid, illegal or unenforceable terms. However, in the event that any such
term of this  Agreement is adjudged by a court of competent  jurisdiction  to be
invalid,  illegal or unenforceable,  but that the other terms are adjudged to be
valid, legal and enforceable if such invalid, illegal or unenforceable term were
deleted or modified, then this Agreement shall apply with only such deletions or
modifications,  or both,  as the case may be, as are  necessary  to  permit  the
remaining separate terms to be valid, legal and enforceable.

         8. Company Property. Employee shall, not later than the Agreement Date,
deliver to the Company the  original and all copies of all  documents,  records,
electronic  files, and property of any nature whatsoever which are in Employee's
possession  or control and which are the property of the Company or which relate
to the  business  activities,  facilities,  or  customers  of the  Company,  its
subsidiaries,  or its affiliates,  including any records,  documents or property
created by Employee and, where such records may be maintained on hard disk files
on  computers  owned by  Employee,  such files  shall be purged and  eliminated;
provided, however, Employee shall be provided access to information and material
appropriate to  fulfillment  of his duties as described in Section 1, above.  To
the extent  Company  property is in possession or control of the Employee on his
Retirement  Date it shall then be  similarly  returned or purged,  as  described
above. Notwithstanding the foregoing, the Employee may temporarily retain copies
of documents  pertaining  to any  Company-initiated  investigations  of business
matters pertaining to the Employee while such investigations  continue or remain
subject to review;  provided,  however,  the Employee must,  upon request by the
Company,  disclose  the  contents  of all such  documents  and must,  upon final
conclusion  of the  investigations  or  reviews,  return all such  copies to the
Company.


<PAGE>

         9. Other  Agreements.  This Agreement does not limit or restrict in any
way Employee's rights under the Company's  employee benefit plans. All the terms
of agreement  relating to Employee's  early  retirement from employment with the
Company are embodied in this Agreement.  This Agreement fully supersedes any and
all  prior  agreements  or  understandings  between  Employee  and  the  Company
regarding the Employee's termination of employment with the Company.

         10.  Governing  Law and  Dispute  Resolution.  Except  with  regard  to
subsection (b) of Section 6, this Agreement shall be governed by the substantive
laws of the State of Iowa without regard to its conflict of laws provisions. The
parties agree that any proceeding to resolve any dispute arising  hereunder will
be  brought  only in the  courts  of the  State of Iowa or in the  courts of the
United  States  of  America  for the  District  of  Iowa,  and that  each  party
irrevocably  submits  to  such  jurisdiction,  and  hereby  waives  any  and all
objections as to venue,  inconvenient forum and the like. It is the intention of
the parties hereto,  however,  that to the extent practicable,  the parties will
endeavor to settle any dispute  arising  hereunder  first through the process of
non-binding  mediation  to be conducted in Madison,  Wisconsin.  This  Agreement
shall be binding  upon and inure to the benefit of the parties  hereto and their
respective heirs, legal  representatives,  successors and assigns.  Section 6(b)
shall be governed by the laws of the State of Delaware,  as to Interstate  Power
Company, and the State of Wisconsin, as to Interstate Energy Corporation.

         11.  Successors.  This  Agreement is personal to the Employee and shall
not be assignable by the Employee.  This Agreement shall inure to the benefit of
and be enforceable by the Employee's legal representatives. This Agreement shall
inure to the benefit of and be binding upon the Company and its  successors  and
assigns. The Company shall require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business  and/or assets of the Company  expressly to assume and agree to perform
this  Agreement in the same manner and to the same extent that the Company would
have been required to perform it if no such  succession had taken place. As used
in this  Agreement,  "Company"  shall mean both the Company as defined above and
any such  successor  that  assumes  and agrees to  perform  this  Agreement,  by
operation of law or otherwise.


                  Dated this 7th day of October, 1998.

                          INTERSTATE ENERGY CORPORATION


                          /s/ Erroll B. Davis, Jr. 
                          ---------------------------------------
                          Erroll B. Davis, Jr., President and CEO


                          /s/ Michael R. Chase
                          ---------------------------------------
                          Michael R. Chase, Employee