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

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

Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) have been subject to such filing requirements for the past 90 days: Yes [X] No [ ]

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

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

PART I. FINANCIAL INFORMATION. 2

Filing Format 3

Forward-Looking Statements 3

Where to Find More Information 4

Definitions 4

Item 1. Financial Statements. 6

MGE Energy, Inc.

Condensed Consolidated Statements of Income and Comprehensive Income (unaudited) 6

Condensed Consolidated Statements of Cash Flows (unaudited) 7

Condensed Consolidated Balance Sheets (unaudited) 8

Madison Gas and Electric Company

Condensed Consolidated Statements of Income and Comprehensive Income (unaudited) 9

Condensed Consolidated Statements of Cash Flows (unaudited) 10

Condensed Consolidated Balance Sheets (unaudited) 11

MGE Energy, Inc. and Madison Gas and Electric Company

Notes to Condensed Consolidated Financial Statements (unaudited) 12

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. 27

Item 3. Quantitative and Qualitative Disclosures About Market Risk. 37

Item 4. Controls and Procedures. 39

PART II. OTHER INFORMATION. 40

Item 1. Legal Proceedings. 40

Item 6. Exhibits and Reports on Form 8-K. 40

Signatures - MGE Energy, Inc. 42

Signatures - Madison Gas and Electric Company 43

PART I. FINANCIAL INFORMATION.

Filing Format

This combined Form 10-Q is being filed separately by MGE Energy, Inc. (MGE Energy) and Madison Gas and Electric Company (MGE). MGE is a wholly owned subsidiary of MGE Energy and represents a substantial portion 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.

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. 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. Some of those risks and uncertainties include:

- Weather, which enters into the calculation of MGE's rates for service and which affects the demand for electricity and gas and the projected and actual need for electric generation capacity to serve customers.

- Economic and market conditions in MGE's service territory, which affect demand for electricity and gas and, consequently, our revenues and expenses as well as capital investment requirements to extend, improve, or reinforce the existing electricity and gas distribution systems.

- Magnitude and timing of capital expenditures, which affect capital needs, financing costs, and operating expenses.

- Regulatory environment in which we operate, which can affect the way in which we do business as well as the accounting treatment of expenses that we incur and our ability to continue carrying specified assets and liabilities on our books.

- Environmental regulation, which can affect the way in which we operate, our operating expenses, and our capital expenditures.

- Availability and cost of power supplies, which affect operating expenses and capital expenditure decisions with respect to sources of new generation.

- Completion of the West Campus Cogeneration Facility at the University of Wisconsin-Madison, which provides MGE Energy with an opportunity if construction is completed on or ahead of schedule but exposes it to liquidated damages if construction is delayed or the facility fails to operate according to specifications.

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 450 Fifth Street, NW, 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.

Definitions

Abbreviations, acronyms, and definitions that may be used in the text and notes of this report are defined below.

Item 1. Financial Statements.

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

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

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

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

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

Madison Gas and Electric Company

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

Notes to Condensed Consolidated Financial Statements (unaudited)
June 30, 2004

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.

MGE Energy is a holding company. MGE, a wholly owned subsidiary of MGE Energy, is a regulated
electric and gas utility headquartered in Madison, Wisconsin. MGE generates and distributes electricity
to nearly 132,000 customers in a 250-square-mile area of Dane County. MGE also purchases and
distributes natural gas to more than 129,000 customers in a 1,375-square-mile service territory in seven
south-central Wisconsin Counties. Other wholly owned subsidiaries of MGE Energy include CWDC,
MAGAEL, MGE Construct, and MGE Power. MGE Power owns 100% of MGE Power West Campus
and MGE Power Elm Road, which have been formed to construct and own new electric generation
projects.

The accompanying condensed consolidated financial statements as of June 30, 2004, 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 presentation 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 annual reports on Form 10-K for the year ended December 31, 2003, but does not include all
disclosures required by generally accepted accounting principles. These notes should be read in
conjunction with the financial statements and the notes on pages 55 through 84 of the 2003 Form 10-K.
Certain amounts in prior periods' financial statements and related notes have been reclassified to
conform to the 2004 presentation.

2. Basis of Consolidation - MGE.

MGE Power West Campus is not a subsidiary of MGE; however, it has been included in the
consolidated financial statements of MGE as of December 31, 2003, due to the adoption of FIN
No. 46R (see Footnote 9.c.). MGE Power West Campus was created for the purpose of owning new
generating assets including WCCF. These new generating assets are for the primary benefit of MGE's
customers. The long-term lease arrangement between MGE and MGE Power West Campus creates a
VIE relationship under FIN No. 46R. MGE is considered the primary beneficiary of this VIE because it
will absorb a majority of the entity's expected losses, residual returns, or both.

The consolidation of MGE Power West Campus resulted in a significant increase to certain balances
such as construction work in progress of $77.9 million, an increase in long-term debt of $30.0 million,
minority interest of $26.8 million, and affiliate payables of $19.2 million for the six months ended
June 30, 2004. As MGE Power West Campus had no significant operations, the consolidation of this
entity by MGE did not have a material impact on MGE's consolidated statements of income for the
three or six months ended June 30, 2004.

MGE Power West Campus is owned indirectly by MGE Energy. MGE Energy's proportionate share of
the equity (through its wholly owned subsidiary MGE Power) of MGE Power West Campus is
classified within the financial statements of MGE as minority interest. As of June 30, 2004, MGE
Energy (through its wholly owned subsidiary MGE Power) had invested $26.8 million in MGE Power
West Campus. This investment has no impact on the MGE consolidated statements of income. MGE
has reflected $29.3 million of capital expenditures and $26.8 million in equity contributions received by
MGE Power West Campus in the MGE consolidated statement of cash flows.

3. Per-Share Amounts - MGE Energy.

Earnings per share of MGE Energy common stock are computed on the basis of the weighted average of
the daily number of shares outstanding in accordance with SFAS No. 128, Earnings Per Share. For the
three months ended June 30, 2004 and 2003, respectively, there were 18,656,887 and 17,787,360
weighted average shares outstanding. Dividends declared and paid per share of common stock for the
same three-month periods were $0.338 and $0.336, respectively.

For the six months ended June 30, 2004 and 2003, there were 18,541,476 and 17,710,835 weighted
average shares outstanding. Dividends declared and paid per share of common stock for the same six-month
periods were $0.676 and $0.672, respectively.

MGE Energy does not hold any dilutive securities.

4. Rate Matters - MGE.

On May 5, 2004, MGE filed with the PSCW a request to increase electric rates by 8.5% and decrease
gas rates by 1.0%. The electric rate request includes costs of commercial operation of WCCF and
increased transmission expenses. The PSCW is conducting its audit, which will be completed in
August 2004. An order is expected in the beginning of 2005.

Under the fuel rules, if electric fuel costs are outside a 3.0% range higher or lower than the level set by
the PSCW, MGE can apply for a fuel surcharge or may be required to return a fuel credit to its
customers. During 2003, MGE submitted an application for a fuel cost credit. On August 14, 2003, the
PSCW approved an interim fuel cost credit of $.00099 per kWh. The PSCW also required a full review
of the actual and forecasted costs for 2003 with MGE's fuel rates subject to refund. The fuel credit
began on August 14, 2003, and ended on January 13, 2004. The fuel credit from January 1 through
January 13, 2004, totaled $0.4 million. The fuel credit totaled $4.4 million, of which $1.3 million
represents the interim fuel credit and $3.1 million is the estimate for the additional fuel credit, as a result
of PSCW review, to be refunded to customers. The additional fuel credit of $3.1 million was credited to
customers in the first quarter of 2004.

On January 14, 2004, the PSCW authorized MGE to increase annual revenues by $12.8 million. The
increase covers rising fuel costs for electric generation and addresses increased system demands for both
gas and electric.

Effective March 1, 2003, the PSCW authorized MGE to increase annual revenues by $27.1 million. The
increase covered rising fuel costs and addressed increased system demands and costs to complete a new
AMR project.

5. Capitalization Matters - MGE Energy.

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

Under the Agreement, MGE Energy has sold 44,000 shares of its common stock during the three
months ended June 30, 2004, for net proceeds of $1.3 million. For the six months ended June 30, 2004,
MGE Energy has sold 124,000 shares, for net proceeds of $3.8 million.

MGE Energy also issues new shares of its common stock through its Dividend Reinvestment and Direct
Stock Purchase Plan. For the three months ended June 30, 2004, MGE Energy has issued 181,000 new
shares of common stock, through this plan, for net proceeds of $5.5 million. For the six months ended
June 30, 2004, MGE Energy has issued 326,000 shares for net proceeds of $10.0 million.

6. Supplemental Cash Flow Information - MGE Energy and MGE.

7. Property, Plant, and Equipment - MGE Energy.

MGE Energy, through its subsidiary MGE Power West Campus, calculates capitalized interest in
accordance with SFAS No. 34, Capitalization of Interest Cost, on construction projects for periods
where financing is provided by MGE Energy through interim debt. The interest rate capitalized is based
upon the monthly short-term borrowing rate MGE Energy incurs for such funds and the interest rate
related to MGE Power West Campus' long-term debt. For the six months ended June 30, 2004, MGE
Energy recorded $1.1 million in capitalized interest related to the cogeneration facility being
constructed on the west campus of the UW.

8. Pension and Postretirement Plans - MGE.

MGE has elected to recognize the cost of its transition obligation (the accumulated postretirement
benefit obligation as of January 1, 1993) by amortizing it on a straight-line basis over 20 years.

On December 8, 2003, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003
was signed into law authorizing Medicare to provide prescription drug benefits to retirees. FASB Staff
Position No. (FSP) 106-2, Accounting and Disclosure Requirements Related to the Medicare
Prescription Drug, Improvement and Modernization Act of 2003, was issued on May 19, 2004. The FSP
provides guidance on accounting for the effects of the new Medicare prescription drug legislation by
employers whose prescription drug benefits are actuarially equivalent to the drug benefit under
Medicare Part D. FSP No. 106-2 is effective as of the first interim or annual period beginning after
June 15, 2004.

According to the FSP, if a company concludes that its single-employer defined benefit postretirement
health care plan provides a drug benefit that is actuarially equivalent to the Medicare Part D benefit, the
employer should recognize the subsidy in the measurement of the APBO under SFAS 106, Employers'
Accounting for Postretirement Benefits Other Than Pensions. The resulting reduction of the APBO
should be accounted for as an actuarial gain. The subsidy's reduction of the employer's share of future
costs under the plan should be reflected in current-period service cost.
According to the FSP, if a company concludes that its drug benefits are not actuarially equivalent, no
accounting for the subsidy is required.

MGE's APBO or net periodic benefit cost at June 30, 2004, do not reflect any amount associated with
this subsidy as MGE is currently unable to conclude whether the benefits provided by the plan are
actuarially equivalent to the Medicare Part D benefit under the act. MGE will adopt the standards of this
FSP for the period ending September 30, 2004.

9. Adoption of Accounting Principles and Recently Issued Accounting Pronouncements - MGE
Energy and MGE.

a. SFAS No. 143.

In 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations. SFAS
No. 143 provides accounting requirements for retirement obligations associated with tangible
long-lived assets. MGE Energy and MGE were required to adopt SFAS No. 143 as of January 1,
2003. Retirement obligations associated with long-lived assets included within the scope of SFAS
No. 143 are those for which there is a legal obligation under existing or enacted law, statute,
written or oral contract, or by legal construction under the doctrine of promissory estoppel.
Effective January 1, 2003, MGE recorded an obligation for the fair value of its legal liability for
asset retirement obligations associated with removing an electric substation, a combustion turbine
generating unit, wind generating facilities, and photovoltaic generating facilities, all of which are
located on property not owned by MGE. At June 30, 2004, this liability is estimated at $1.4 million
and included in other deferred liabilities.

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

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

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

The following table shows costs as of December 31, 2003, and changes to the asset retirement
obligation and accumulated depreciation during the six months ended June 30, 2004.

As of June 30, 2004, MGE's regulatory asset, included in deferred charges, is the total accumulated
accretion ($0.7 million) and accumulated depreciation ($0.2 million) or $0.9 million.

Accumulated costs of removal that are non-SFAS 143 obligations are classified within the
financial statements as regulatory liabilities. At June 30, 2004, and December 31, 2003, there were
$17.7 million and $18.2 million of these costs recorded as regulatory liabilities within the
financials statements, respectively.

b. FIN No. 45.

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

In connection with its "Shared Savings" program, MGE is party to a chattel paper purchase
agreement with a financial institution under which it can sell or finance an undivided interest with
recourse, in up to $7.5 million of the financing program receivables, until February 28, 2005 (see
Footnote 14.e.). The liability for the fair value of the obligation associated with these loans is not
material.

MGE would be required to perform under the guarantee if the customer defaulted on its loan. The
energy-related equipment installed at the customer sites is used to secure the customer loans. The
length of the MGE guarantee to the financial institution varies from one to ten years depending on
the term of the customer loan. Principal payments for the next five years on the loans are
$0.4 million in 2004, $0.9 million in 2005, 2006, and 2007, and $1.0 million in 2008.

c. FIN No. 46R.

In January 2003, the FASB issued FIN No. 46, Consolidation of Variable Interest Entities - An
Interpretation of ARB No. 51. In December 2003, the FASB issued the updated and final
interpretation, FIN No. 46R. FIN No. 46R requires that an equity investor in a VIE have
significant equity at risk (generally a minimum of 10%, which is an increase from 3% required
under the previous guidance) and hold a controlling interest, evidenced by voting rights, and
absorb a majority of the entity's expected losses, receive a majority of the entity's expected returns,
or both. If the equity investor is unable to evidence these characteristics, the entity that retains
these ownership characteristics will be required to consolidate the VIE as the primary beneficiary.
FIN No. 46 was applicable immediately to VIEs created or obtained after January 31, 2003. FIN
No. 46R was effective on December 31, 2003, for interests in entities that were previously
considered special purpose entities under then existing authoritative guidance.

MGE Power West Campus, a subsidiary of MGE Energy, is a VIE of MGE pursuant to FIN
No. 46R, as the equity investment by MGE Energy (through its wholly owned subsidiary MGE
Power) in MGE Power West Campus at December 31, 2003, was not sufficient to permit the entity
to finance its activities without additional support. MGE concluded a VIE relationship exists due to
the long-term lease arrangement between MGE and MGE Power West Campus. MGE Power West
Campus will lease a major portion of its assets, a power plant, to MGE, pursuant to this leasing
arrangement, and MGE will absorb a majority of the expected losses, residual returns, or both. The
VIE was consolidated into MGE as of December 31, 2003.

FIN No. 46R also requires MGE to assess whether the participants within its Shared Savings
program constitute VIEs in which MGE might be considered to be the consolidating entity. MGE
has reviewed 65% of the total Shared Savings program balance and has determined that the
provisions of FIN No. 46R are not applicable via the "business scope exception." For the
remaining 35% of the total Shared Savings program balance, MGE has not performed this
assessment. These entities are not legally obligated to provide the financial information to MGE
that is necessary to determine whether MGE must consolidate these entities. MGE will continue to
attempt to obtain information from these customers in order to determine whether they should be
consolidated by MGE under the provisions of FIN No. 46R.

10. WCCF - MGE Energy and MGE.

MGE Energy, through MGE Power, MGE Power West Campus, and MGE Construct, is building a
natural gas-fired cogeneration facility on the UW campus. As planned, the facility will have capacity to
produce 20,000 tons of chilled water, 500,000 pounds per hour of steam, and approximately 150 MW of
electricity. The UW and MGE Power West Campus will jointly own the facility. The UW will own a
controlling interest in the chilled-water and steam plants, which will be used to meet the growing needs
for air-conditioning and steam-heat capacity for the UW campus. MGE Power West Campus will own a
controlling interest in the electric generation plant, which will be used to provide electricity to MGE's
customers. MGE entered into a lease with MGE Power West Campus to lease the assets owned by MGE
Power West Campus, and MGE will operate the entire facility. MGE Construct is responsible for the
construction of the facility. A PSCW order approving the issuance of a CPCN for the WCCF was
received on October 9, 2003. Construction on the project commenced in October 2003, and the project
is expected to be completed by spring 2005. In the second quarter of 2004, MGE Construct received a
service fee of $0.7 million (pretax) from the State in relation to its role as EPC contractor for WCCF.
This amount is classified as revenue from nonregulated operations within MGE Energy's financial
statements. The total fee of $5.0 million will be recognized as services are rendered and will be
collected over a 22-month period. MGE Construct has received $1.4 million (pretax) in service fees for
the six months ended June 30, 2004.

In accordance with the WCCF lease between MGE Power West Campus and MGE, MGE Power West
Campus began billing MGE for carrying costs on WCCF. The carrying costs billed to MGE started on
January 29, 2004, the date MGE received approval from the PSCW to defer these costs, and will
continue through construction of the project. Carrying costs totaled $3.1 million for the six months
ended June 30, 2004. These amounts are classified as regulatory assets within the financial statements.

MGE Energy, MGE Power West Campus, and MGE Construct have assumed certain risks in regard to
some of the executed agreements related to the WCCF. In the EPC Agreement, MGE Power West
Campus is responsible for cost overruns and MGE Construct is responsible for the entire construction
process for the facility, including paying liquidated damages relating to failure to achieve the
Mechanical Completion Date Guarantee and/or the Acceptance Test Capacity Guarantee. MGE Energy
has guaranteed MGE Construct's obligations under the EPC Agreement.

The expected cost to construct WCCF is approximately $185 million in total, of which $105 million is
MGE Power West Campus' estimated portion. As of June 30, 2004, MGE Power West Campus had
incurred $77.9 million of costs on the project, which is reflected in construction work in progress on
MGE Energy's and MGE's consolidated balance sheets. These costs represent amounts paid for
equipment as well as other costs associated with construction of the facility.

11. ATC - MGE.

As of June 30, 2004, MGE holds a 5% interest in ATC and accounts for its investment in that interest
under the equity method of accounting due to its ability to exercise significant control over management
activities. MGE has a seat on the board of directors and owns 20% of the voting stock of ATC
Management, Inc., which manages and operates ATC. MGE records as equity in earnings of the
investee its share of ATC's earnings, amortization of the SFAS No. 109 regulatory liability, and deferred
investment tax credits related to the transmission assets transferred to ATC. During the three and six
months ended June 30, 2004, MGE recorded pretax equity earnings from its investment in ATC of
$0.9 million and $2.0 million, respectively. MGE recorded transmission expense from ATC of
$3.4 million and $6.7 million for the three and six months ended June 30, 2004, respectively.

On November 21, 2002, MGE and ATC entered into an interconnection agreement related to
transmission system upgrades for WCCF. MGE issued to ATC a "Notice to Proceed for the
Procurement of the Equipment" for the system upgrades. MGE has advanced funds for construction to
ATC for transmission equipment related to WCCF in the amount of $2.0 million for the six months
ended June 30, 2004. The total advanced to ATC for this project is $12.5 million as of June 30, 2004.
MGE will be reimbursed by ATC upon completion of the project.

MGE has agreed to provide to ATC an additional capital commitment of $3.6 million in 2004. In the
second quarter of 2004, MGE made its second of four capital installments. MGE has made $1.8 million
in capital contributions for the six-month period ended June 30, 2004. MGE has a remaining capital
commitment of $1.8 million for 2004.

12. Power the Future Generation.

On February 23, 2001, MGE secured an option to own a portion of the advanced technology, coal-fired,
base-load generation facilities proposed in WE Energies' "Power the Future" plan. The plan includes
three new 600-MW coal-fired plants to be located in Wisconsin. Pursuant to an amended agreement
reached on January 31, 2003, MGE has the option to acquire an undivided 8.33% (16.66% under certain
conditions) ownership interest in each of the proposed coal plants or up to approximately 50 MW per
unit.

The PSCW issued an order in November 2003 approving WE Energies' request for a CPCN for Units 1
and 2. Four appeals have been filed challenging the order. In addition, two lawsuits have been filed in
Dane County Circuit Court against the DNR, contending that the DNR did not comply with state laws
when it participated with the PSCW in preparing the environmental impact statement for Units 1 and 2.
Also, several parties have sought to contest the issuance of various environmental permits needed for
the construction of the units. The resolution of these proceedings as well as the risks generally
associated with construction of the units may adversely affect the costs and completion times for the
units. At present, Unit 1 is scheduled to begin operating in 2009 and Unit 2 is scheduled to begin
operating in 2010.

The PSCW issued an order on June 25, 2004, approving MGE's participation in Units 1 and 2 (should
MGE choose to exercise its options) and approving a facility lease agreement between MGE Power Elm
Road (a nonutility subsidiary of MGE Energy) and MGE. The financial terms of the facility lease
include a capital structure of 55% equity and 45% long-term debt, a return on equity of 12.7%, a lease
term of 30 years, and a 5% rent reduction in the first five years. MGE anticipates making a decision on
whether to exercise the option by the middle of 2005. If the options on Units 1 and 2 are exercised,
MGE Energy's share of capital costs for an 8.33% ownership interest in both units would be an
estimated $183 million. A substantial portion of those capital costs would be incurred from 2005
through 2009, with more than half expected to be incurred during 2006 and 2007. (See Footnote 15 for
subsequent event.)

13. Segment Information - MGE Energy and MGE.

MGE Energy and MGE operate in three business segments: electric utility operations, gas utility
operations, and nonregulated energy operations. The electric utility business generates and distributes
electricity and contracts for transmission service. The gas utility business purchases and distributes
natural gas and contracts for the transportation of natural gas.

The nonregulated energy operations are conducted through subsidiaries of MGE Energy other than
MGE. These subsidiaries have been formed to own and construct new electric generating capacity. At
present, they are undertaking the construction of WCCF, which started in the fall of 2003. The
following table shows key information about all three of these segments, including the distribution of
net assets, for the six months ended June 30, 2003 and 2004.

MGE's general corporate expenses include the cost of executive management, corporate accounting and
finance, information technology, risk management, human resources and legal functions, and employee
benefits that are allocated to electric and gas based on formulas prescribed by the PSCW. Identifiable
assets are those used in MGE's operations in each segment. Corporate assets consist primarily of cash
and cash equivalents and deferred taxes.

The following table shows segment information for MGE Energy's operations:

The electric and gas utility operations segments represent substantially all of the revenue-generating
segments for MGE and substantially all of the revenue for MGE Energy. The following table shows segment information for MGE's operations: