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:

March 31, 2014

[ ] 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 53788 (608) 252-7000 mgeenergy.com		39-2040501
000-1125		Madison Gas and Electric Company (a Wisconsin Corporation) 133 South Blair Street Madison, Wisconsin 53788 (608) 252-7000 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 their corporate Web sites, 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 registrants were required to submit and post such files):

Yes [X] 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.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):

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

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Table of Contents

PART I. FINANCIAL INFORMATION.

3

Filing Format

3

Forward-Looking Statements

3

Stock Split

3

Where to Find More Information

3

Definitions, Abbreviations, and Acronyms Used in the Text and Notes of this Report

4

Item 1. Financial Statements.

6

MGE Energy, Inc.

6

Consolidated Statements of Income (unaudited)

6

Consolidated Statements of Comprehensive Income (unaudited)

6

Consolidated Statements of Cash Flows (unaudited)

7

Consolidated Balance Sheets (unaudited)

8

Consolidated Statements of Common Equity (unaudited)

9

Madison Gas and Electric Company

10

Consolidated Statements of Income (unaudited)

10

Consolidated Statements of Comprehensive Income (unaudited)

10

Consolidated Statements of Cash Flows (unaudited)

11

Consolidated Balance Sheets (unaudited)

12

Consolidated Statements of Common Equity (unaudited)

13

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

14

Notes to Consolidated Financial Statements (unaudited)

14

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

29

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

38

Item 4. Controls and Procedures.

40

PART II. OTHER INFORMATION.

41

Item 1. Legal Proceedings.

41

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

41

Item 4. Mine Safety Disclosures.

41

Item 6. Exhibits.

41

Signatures - MGE Energy, Inc.

43

Signatures - Madison Gas and Electric Company

44

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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 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 economic conditions, 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," "will," 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 Registrants' 2013 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 8 in this report, and (b) other factors discussed herein and in other filings made by that registrant with the SEC.

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 release publicly any revision to these forward-looking statements to reflect events or circumstances after the date of this report.

Stock Split

On December 20, 2013, MGE Energy's Board of Directors declared a three-for-two stock split of MGE Energy's outstanding shares of common stock, effective in the form of a stock dividend. Shareholders of record at the close of business on January 24, 2014, received one additional share of MGE Energy common stock for every two shares of common stock owned on that date. The additional shares were distributed on February 7, 2014. All share and per share data provided in this report give effect to this stock split.

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 also are available to the public from commercial document retrieval services, the website maintained by the SEC at sec.gov, MGE Energy's website at mgeenergy.com, and MGE's website at mge.com. Copies may be obtained from our websites free of charge. Information contained on MGE Energy's and MGE's websites shall not be deemed incorporated into, or to be a part of, this report.

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Definitions, Abbreviations, and Acronyms Used in the Text and Notes of this Report

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

MGE Energy and Subsidiaries:
CWDC	Central Wisconsin Development Corporation
MAGAEL	MAGAEL, LLC
MGE	Madison Gas and Electric Company
MGE Construct	MGE Construct, LLC
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
NGV Fueling Services	NGV Fueling Services, LLC
North Mendota	North Mendota Energy & Technology Park, LLC
Other Defined Terms:
AFUDC	Allowance for Funds Used During Construction
ATC	American Transmission Company LLC
Blount	Blount Station
CAA	Clean Air Act
CAIR	Clean Air Interstate Rule
CAVR	Clean Air Visibility Rule
Codification	Financial Accounting Standards Board Accounting Standards Codification
Columbia	Columbia Energy Center
CSAPR	Cross-State Air Pollution Rule
Dth	Dekatherms, a quantity measure used in respect of natural gas
Elm Road Units	Elm Road Generating Station
EPA	United States Environmental Protection Agency
FASB	Financial Accounting Standards Board
FTR	Financial Transmission Rights
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
IRS	Internal Revenue Service
kWh	Kilowatt-hour, a measure of electric energy produced
MACT	Maximum Achievable Control Technology
MATS	Mercury and Air Toxics Standards
MISO	Midcontinent Independent System Operator (a regional transmission organization)
MW	Megawatt, a measure of electric energy generating capacity
MWh	Megawatt-hour, a measure of electric energy produced
NAAQS	National Ambient Air Quality Standards
NOV	Notice of Violation
NOx	Nitrogen Oxides
NSPS	New Source Performance Standards
OPRB	Other Postretirement Benefits
PGA	Purchased Gas Adjustment clause, a regulatory mechanism used to reconcile natural gas costs recovered in rates to actual costs
PJM	PJM Interconnection, LLC (a regional transmission organization)
PPA	Purchased power agreement
PSCW	Public Service Commission of Wisconsin
PSD	Prevention of Significant Deterioration
RICE	Reciprocating Internal Combustion Engine
SCR	Selective Catalytic Reduction
SEC	Securities and Exchange Commission

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SIP	State Implementation Plan
SO2	Sulfur Dioxide
the State	State of Wisconsin
Stock Plan	Direct Stock Purchase and Dividend Reinvestment Plan of MGE Energy
UW	University of Wisconsin at Madison
VIE	Variable Interest Entity
WCCF	West Campus Cogeneration Facility
WEPCO	Wisconsin Electric Power Company
Working capital	Current assets less current liabilities
WPL	Wisconsin Power and Light Company
WPSC	Wisconsin Public Service Corporation
XBRL	eXtensible Business Reporting Language

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Item 1. Financial Statements.

MGE Energy, Inc.

Consolidated Statements of Income (unaudited)

(In thousands, except per-share amounts)

			Three Months Ended March 31,
			2014		2013
	Operating Revenues:
	Regulated electric revenues	$	98,852	$	93,494
	Regulated gas revenues		110,713		72,467
	Nonregulated revenues		680		1,276
	Total Operating Revenues		210,245		167,237
	Operating Expenses:
	Fuel for electric generation		14,132		10,760
	Purchased power		18,555		18,205
	Cost of gas sold		78,508		44,692
	Other operations and maintenance		40,472		41,649
	Depreciation and amortization		9,746		9,624
	Other general taxes		4,861		4,679
	Total Operating Expenses		166,274		129,609
	Operating Income		43,971		37,628
	Other income, net		4,552		3,309
	Interest expense, net		(4,541)		(4,675)
	Income before income taxes		43,982		36,262
	Income tax provision		(16,265)		(13,678)
	Net Income	$	27,717	$	22,584
	Earnings Per Share of Common Stock
	(basic and diluted)	$	0.80	$	0.65
	Dividends per share of common stock	$	0.272	$	0.263
	Average Shares Outstanding
	(basic and diluted)		34,668		34,668
The accompanying notes are an integral part of the above unaudited consolidated financial statements.

MGE Energy, Inc.

Consolidated Statements of Comprehensive Income (unaudited)

(In thousands)

			Three Months Ended March 31,
			2014		2013
	Net Income	$	27,717	$	22,584
	Other comprehensive income, net of tax:
	Unrealized gain on available-for-sale securities, net of
	tax ($5 and $43)		7		65
	Comprehensive Income	$	27,724	$	22,649
The accompanying notes are an integral part of the above unaudited consolidated financial statements.

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MGE Energy, Inc.

Consolidated Statements of Cash Flows (unaudited)

(In thousands)

			Three Months Ended March 31,
			2014		2013
	Operating Activities:
	Net income	$	27,717	$	22,584
	Items not affecting cash:
	Depreciation and amortization		9,746		9,624
	Deferred income taxes		(877)		11,294
	Provision for doubtful receivables		743		743
	Employee benefit plan expenses		(332)		3,336
	Equity earnings in ATC		(2,481)		(2,396)
	Other items		(679)		750
	Changes in working capital items:
	Decrease in current assets		3,283		17,341
	Increase (decrease) in current liabilities		19,604		(4,590)
	Dividend income from ATC		1,917		1,807
	Cash contributions to pension and other postretirement plans		(818)		(30,764)
	Other noncurrent items, net		547		(1,077)
	Cash Provided by Operating Activities		58,370		28,652
	Investing Activities:
	Capital expenditures		(21,800)		(29,164)
	Capital contributions to investments		(693)		(373)
	Other		(682)		(279)
	Cash Used for Investing Activities		(23,175)		(29,816)
	Financing Activities:
	Cash dividends paid on common stock		(9,420)		(9,132)
	Repayment of long-term debt		(1,019)		(667)
	Increase in short-term debt		-		10,500
	Other		(80)		-
	Cash (Used for) Provided by Financing Activities		(10,519)		701
	Change in cash and cash equivalents		24,676		(463)
	Cash and cash equivalents at beginning of period		68,813		46,357
	Cash and Cash Equivalents at End of Period	$	93,489	$	45,894
	Supplemental disclosures of cash flow information:
	Significant noncash investing activities:
	Accrued capital expenditures	$	8,967	$	12,699
	The accompanying notes are an integral part of the unaudited consolidated financial statements.

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MGE Energy, Inc.

Consolidated Balance Sheets (unaudited)

(In thousands)

ASSETS		March 31, 2014		December 31, 2013
Current Assets:
Cash and cash equivalents	$	93,489	$	68,813
Accounts receivable, less reserves of $4,501 and $4,219, respectively		62,760		44,890
Other accounts receivable, less reserves of $608 and $750, respectively		5,019		5,352
Unbilled revenues		29,568		31,982
Materials and supplies, at average cost		17,023		16,662
Fossil fuel		4,675		5,206
Stored natural gas, at average cost		642		13,988
Prepaid taxes		11,773		19,106
Regulatory assets - current		4,690		6,377
Other current assets		9,301		8,225
Total Current Assets		238,940		220,601
Regulatory assets		105,253		107,166
Pension benefits		16,013		15,071
Other deferred assets and other		6,758		8,046
Property, Plant, and Equipment:
Property, plant, and equipment, net		1,026,807		1,018,809
Construction work in progress		147,449		141,415
Total Property, Plant, and Equipment		1,174,256		1,160,224
Investments		69,203		67,952
Total Assets	$	1,610,423	$	1,579,060
LIABILITIES AND CAPITALIZATION
Current Liabilities:
Long-term debt due within one year	$	4,121	$	4,102
Accounts payable		56,171		43,684
Accrued taxes		11,275		822
Accrued interest		3,250		4,839
Accrued payroll related items		8,103		10,731
Deferred income taxes		-		1,711
Regulatory liabilities - current		11,537		13,538
Derivative liabilities		6,540		7,750
Other current liabilities		8,518		9,489
Total Current Liabilities		109,515		96,666
Other Credits:
Deferred income taxes		287,224		284,791
Investment tax credit - deferred		1,362		1,413
Regulatory liabilities		20,788		19,792
Accrued pension and other postretirement benefits		49,512		49,184
Derivative liabilities		53,750		57,930
Other deferred liabilities and other		54,155		52,360
Total Other Credits		466,791		465,470
Capitalization:
Common shareholders' equity		635,734		617,510
Long-term debt		398,383		399,414
Total Capitalization		1,034,117		1,016,924
Commitments and contingencies (see Footnote 8)		-		-
Total Liabilities and Capitalization	$	1,610,423	$	1,579,060
The accompanying notes are an integral part of the above unaudited consolidated financial statements.

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MGE Energy, Inc.

Consolidated Statements of Common Equity (unaudited)

(In thousands, except per-share amounts)

		Common Stock				Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income		Total
		Shares		Value
	2013
	Beginning balance - December 31, 2012	34,668	$	34,668	$	316,268	$	228,399	$	94	$	579,429
	Net income							22,584				22,584
	Other comprehensive income									65		65
	Common stock dividends declared
	($0.263 per share)							(9,132)				(9,132)
	Ending balance - March 31, 2013	34,668	$	34,668	$	316,268	$	241,851	$	159	$	592,946
	2014
	Beginning balance - December 31, 2013	34,668	$	34,668	$	316,268	$	266,197	$	377	$	617,510
	Net income							27,717				27,717
	Other comprehensive income									7		7
	Common stock dividends declared
	($0.272 per share)							(9,420)				(9,420)
	Cash in lieu of fractional shares related
	to stock split							(80)				(80)
	Ending balance - March 31, 2014	34,668	$	34,668	$	316,268	$	284,414	$	384	$	635,734
	The accompanying notes are an integral part of the above unaudited consolidated financial statements.

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Madison Gas and Electric Company

Consolidated Statements of Income (unaudited)

(In thousands)

			Three Months Ended March 31,
			2014		2013
	Operating Revenues:
	Regulated electric revenues	$	98,858	$	93,494
	Regulated gas revenues		110,718		72,467
	Nonregulated revenues		680		1,276
	Total Operating Revenues		210,256		167,237
	Operating Expenses:
	Fuel for electric generation		14,134		10,760
	Purchased power		18,558		18,205
	Cost of gas sold		78,513		44,692
	Other operations and maintenance		40,317		41,504
	Depreciation and amortization		9,734		9,624
	Other general taxes		4,861		4,679
	Income tax provision		14,924		12,870
	Total Operating Expenses		181,041		142,334
	Operating Income		29,215		24,903
	Other Income and Deductions:
	AFUDC - equity funds		1,950		596
	Equity in earnings in ATC		2,481		2,396
	Income tax provision		(1,264)		(781)
	Other (expense) income, net		(158)		141
	Total Other Income and Deductions		3,009		2,352
	Income before interest expense		32,224		27,255
	Interest Expense:
	Interest on long-term debt		5,249		4,928
	Other interest, net		(25)		(37)
	AFUDC - borrowed funds		(643)		(196)
	Net Interest Expense		4,581		4,695
	Net Income	$	27,643	$	22,560
	Less Net Income Attributable to Noncontrolling Interest, net of tax		(6,510)		(6,826)
	Net Income Attributable to MGE	$	21,133	$	15,734
The accompanying notes are an integral part of the above unaudited consolidated financial statements.

Madison Gas and Electric Company

Consolidated Statements of Comprehensive Income (unaudited)

(In thousands)

			Three Months Ended March 31,
			2014		2013
	Net Income	$	27,643	$	22,560
	Other comprehensive income, net of tax:
	Unrealized gain on available-for-sale securities, net of
	tax ($12 and $18)		18		27
	Comprehensive Income	$	27,661	$	22,587
	Less: Comprehensive income attributable to Noncontrolling
	Interest, net of tax		(6,510)		(6,826)
	Comprehensive Income attributable to MGE	$	21,151	$	15,761
The accompanying notes are an integral part of the above unaudited consolidated financial statements.

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Madison Gas and Electric Company

Consolidated Statements of Cash Flows (unaudited)

(In thousands)

			Three Months Ended March 31,
			2014		2013
	Operating Activities:
	Net income	$	27,643	$	22,560
	Items not affecting cash:
	Depreciation and amortization		9,734		9,624
	Deferred income taxes		(1,141)		11,016
	Provision for doubtful receivables		743		743
	Employee benefit plan expenses		(332)		3,336
	Equity earnings in ATC		(2,481)		(2,396)
	Other items		(546)		882
	Changes in working capital items:
	Decrease in current assets		7,817		17,135
	Increase (decrease) in current liabilities		17,488		(4,326)
	Dividend income from ATC		1,917		1,807
	Cash contributions to pension and other postretirement plans		(818)		(30,764)
	Other noncurrent items, net		521		(1,096)
	Cash Provided by Operating Activities		60,545		28,521
	Investing Activities:
	Capital expenditures		(21,800)		(29,164)
	Capital contributions to investments		(533)		(178)
	Other		(637)		(184)
	Cash Used for Investing Activities		(22,970)		(29,526)
	Financing Activities:
	Cash dividends paid to parent by MGE		(7,000)		-
	Distributions to parent from noncontrolling interest		(6,909)		(5,500)
	Equity contribution received by noncontrolling interest		533		178
	Repayment of long-term debt		(1,019)		(667)
	Increase in short-term debt		-		10,500
	Cash (Used for) Provided by Financing Activities		(14,395)		4,511
	Change in cash and cash equivalents		23,180		3,506
	Cash and cash equivalents at beginning of period		14,808		6,350
	Cash and Cash Equivalents at End of Period	$	37,988	$	9,856
	Supplemental disclosures of cash flow information:
	Significant noncash investing activities:
	Accrued capital expenditures	$	8,967	$	12,699
	The accompanying notes are an integral part of the unaudited consolidated financial statements.

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Madison Gas and Electric Company

Consolidated Balance Sheets (unaudited)

(In thousands)

ASSETS		March 31, 2014		December 31, 2013
Current Assets:
Cash and cash equivalents	$	37,988	$	14,808
Accounts receivable, less reserves of $4,501 and $4,219, respectively		62,760		44,890
Affiliate receivables		550		534
Other accounts receivable, less reserves of $608 and $750, respectively		4,937		5,274
Unbilled revenues		29,568		31,982
Materials and supplies, at average cost		17,023		16,662
Fossil fuel		4,675		5,206
Stored natural gas, at average cost		642		13,988
Prepaid taxes		12,044		23,934
Regulatory assets - current		4,690		6,377
Other current assets		8,979		8,197
Total Current Assets		183,856		171,852
Affiliate receivable long-term		5,692		5,825
Regulatory assets		105,253		107,166
Pension benefits		16,013		15,071
Other deferred assets and other		4,818		6,138
Property, Plant, and Equipment:
Property, plant, and equipment, net		1,025,886		1,017,877
Construction work in progress		147,449		141,415
Total Property, Plant, and Equipment		1,173,335		1,159,292
Investments		66,426		65,299
Total Assets	$	1,555,393	$	1,530,643
LIABILITIES AND CAPITALIZATION
Current Liabilities:
Long-term debt due within one year	$	4,121	$	4,102
Accounts payable		56,171		43,684
Accrued interest and taxes		10,019		6,040
Accrued payroll related items		8,103		10,731
Deferred income taxes		707		2,723
Regulatory liabilities - current		11,537		13,538
Derivative liabilities		6,540		7,750
Other current liabilities		8,244		6,446
Total Current Liabilities		105,442		95,014
Other Credits:
Deferred income taxes		281,261		279,085
Investment tax credit - deferred		1,362		1,413
Regulatory liabilities		20,788		19,792
Accrued pension and other postretirement benefits		49,512		49,184
Derivative liabilities		53,750		57,930
Other deferred liabilities and other		54,156		52,357
Total Other Credits		460,829		459,761
Capitalization:
Common shareholder's equity		471,642		457,491
Noncontrolling interest		119,097		118,963
Total Equity		590,739		576,454
Long-term debt		398,383		399,414
Total Capitalization		989,122		975,868
Commitments and contingencies (see Footnote 8)		-		-
Total Liabilities and Capitalization	$	1,555,393	$	1,530,643
The accompanying notes are an integral part of the above unaudited consolidated financial statements.

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Madison Gas and Electric Company

Consolidated Statements of Common Equity (unaudited)

(In thousands)

	Common Stock				Additional Paid-in Capital		Retained Earnings	Accumulated Other Comprehensive Income			Non- Controlling Interest		Total
	Shares		Value
2013
Beginning balance - Dec. 31, 2012	17,348	$	17,348	$	192,417	$	223,527	$	4	$	117,470	$	550,766
Net income							15,734				6,826		22,560
Other comprehensive loss									27				27
Equity contribution received by
noncontrolling interest											178		178
Distributions to parent from
noncontrolling interest											(5,500)		(5,500)
Ending balance - March 31, 2013	17,348	$	17,348	$	192,417	$	239,261	$	31	$	118,974	$	568,031
2014
Beginning balance - Dec. 31, 2013	17,348	$	17,348	$	192,417	$	247,534	$	192	$	118,963	$	576,454
Net income							21,133				6,510		27,643
Other comprehensive income									18				18
Cash dividends paid to parent
by MGE							(7,000)						(7,000)
Equity contribution received by
noncontrolling interest											533		533
Distributions to parent from
noncontrolling interest											(6,909)		(6,909)
Ending balance - March 31, 2014	17,348	$	17,348	$	192,417	$	261,667	$	210	$	119,097	$	590,739
The accompanying notes are an integral part of the above unaudited consolidated financial statements.

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

Notes to Consolidated Financial Statements (unaudited)

March 31, 2014

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 Power Elm Road and MGE Power West Campus own electric generating assets and lease those assets to MGE. Both entities are variable interest entities under applicable authoritative guidance. MGE is considered the primary beneficiary of these entities as a result of contractual agreements. As a result, MGE has consolidated MGE Power Elm Road and MGE Power West Campus. See Footnote 2 of Notes to Consolidated Financial Statements under Item 8, Financial Statements and Supplementary Data, of MGE Energy's and MGE's 2013 Annual Report on Form 10-K.

The accompanying consolidated financial statements as of March 31, 2014, and for the three months 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 2013 Annual Report on Form 10-K, but does not include all disclosures required by accounting principles generally accepted in the United States of America. These notes should be read in conjunction with the financial statements and the notes on pages 57 through 100 of the 2013 Annual Report on Form 10-K.

On December 20, 2013, MGE Energy's Board of Directors declared a three-for-two stock split of MGE Energy's common stock in the form of a stock dividend. The additional shares were distributed February 7, 2014, to all shareholders of record as of January 24, 2014. All shares and per share data provided in this report give effect to this stock split.

2.

Equity and Financing Arrangements.

a.

Common Stock - MGE Energy.

MGE Energy sells shares of its common stock through its Stock Plan. Those shares may be newly issued shares or shares that MGE Energy has purchased in the open market for resale to participants in the Stock Plan. All sales under the stock plan are covered by a shelf registration statement that MGE Energy filed with the SEC. For both the three months ended March 31, 2014 and 2013, MGE Energy did not issue any new shares of common stock under the Stock Plan.

b.

Dilutive Shares Calculation - MGE Energy.

MGE Energy does not hold any dilutive securities.

3.

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 as required by Wisconsin law. That interest is presently held by MGE Transco, which is jointly owned by MGE Energy and MGE.

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MGE Transco has accounted for its investment in ATC under the equity method of accounting. For the three months ended March 31, 2014 and 2013, MGE Transco recorded the following:

			Three Months Ended March 31,
	(In thousands)		2014		2013
	Equity in earnings from investment in ATC	$	2,481	$	2,396
	Dividends received from ATC		1,917		1,807
	Capital contributions to ATC		533		178

On April 30, 2014, MGE Transco made an additional $0.5 million capital contribution to ATC.

MGE Transco's investment in ATC as of March 31, 2014, and December 31, 2013, was $65.6 million and $64.5 million, respectively.

At March 31, 2014, 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 months ended March 31, 2014 and 2013, is as follows:

			Three Months Ended March 31,
	(In thousands)		2014		2013
	Operating revenues	$	163,337	$	151,737
	Operating expenses		(78,623)		(69,770)
	Other income (expense), net		388		(448)
	Interest expense, net		(21,996)		(21,044)
	Earnings before members' income taxes	$	63,106	$	60,475

4.

Columbia Environmental Project Construction - MGE Energy and MGE.

MGE and two other utilities jointly own Columbia, a coal-fired generating facility. WPL is the plant operator and permit holder, and owns 46.2% of Columbia. WPSC owns a 31.8% interest, and MGE owns a 22% interest, in Columbia. In early 2011, the PSCW issued a Certificate and Order authorizing the construction of scrubbers and bag houses and associated equipment on Columbia Units 1 and 2 to reduce SO₂ and mercury emissions. Unit 2 was placed into service in April 2014 and Unit 1 is expected to be placed into service in the third quarter of 2014. The scrubbers and bag houses are expected to support compliance obligations for current and anticipated air quality regulations, including CAIR, CSAPR, the Mercury and Air Toxics Standards (MATS), and the Wisconsin Mercury Rule. The operator's current estimate shows that MGE's share of the capital expenditures required for this project is approximately $135 million. As of March 31, 2014, MGE had accumulated $124.3 million (excluding carrying costs) related to its share of the project, which is reflected in the Construction Work in Progress balance on MGE Energy's and MGE's consolidated balance sheets. MGE expects to incur capital expenditures of approximately $10.7 million for the remainder of 2014. These amounts may change as a result of modifications to the project estimate or timing differences. MGE's share of various contractual commitments entered for the project as of March 31, 2014, is $10.7 million. For the three months ended March 31, 2014 and 2013, MGE has recognized after tax $1.9 million and $0.5 million, respectively, in AFUDC equity related to this project.

MGE expects that the costs pertaining to this project will be fully recoverable through rates. For 2014, the PSCW authorized MGE 100% AFUDC on this project during construction. For 2013, the PSCW authorized MGE a 50% current return (included in customer rates) and the remaining 50% as AFUDC.

5.

Taxes - MGE Energy and MGE.

Effective Tax Rate.

MGE Energy's effective income tax rate for the three months ended March 31, 2014 and 2013, was 37.0% and 37.7%, respectively. MGE's effective income tax rate for the three months ended March 31, 2014 and 2013, was

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36.9% and 37.7%, respectively. The decrease in the effective tax rate is primarily attributable to higher AFUDC equity earnings in 2014.

6.

Pension and Other Postretirement Plans - MGE Energy and MGE.

MGE maintains qualified and nonqualified pension plans, health care, and life insurance benefits. Additionally, MGE has defined 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 months ended March 31, 2014 and 2013. A portion of the net periodic benefit cost is capitalized within the consolidated balance sheets.

			Three Months Ended March 31,
	(In thousands)		2014		2013
	Pension Benefits
	Components of net periodic (benefit) cost:
	Service cost	$	1,484	$	1,929
	Interest cost		3,251		3,186
	Expected return on assets		(5,279)		(4,776)
	Amortization of:
	Prior service (benefit) cost		49		79
	Actuarial loss		173		2,015
	Net periodic (benefit) cost	$	(322)	$	2,433
	Postretirement Benefits
	Components of net periodic (benefit) cost:
	Service cost	$	330	$	596
	Interest cost		772		970
	Expected return on assets		(654)		(544)
	Amortization of:
	Transition obligation		1		1
	Prior service (benefit) cost		(668)		28
	Actuarial loss		39		311
	Net periodic (benefit) cost	$	(180)	$	1,362

7.

Share-Based Compensation - MGE Energy and MGE.

Under MGE Energy's Performance Unit Plan, eligible employees 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 2009 through 2013, on February 21, 2014, 21,991 units were granted based on the MGE Energy closing stock price as of that date. These units are subject to a five-year graded vesting schedule and have been adjusted to reflect the three-for-two stock split declared December 20, 2013. On the grant date, MGE Energy and MGE measure the cost of the employee services received in exchange for a performance unit award based on the current market value of MGE Energy common stock. The fair value of the awards has been subsequently re-measured at March 31, 2014, as required by applicable accounting standards. Changes in fair value have been recognized as compensation cost. Since this amount is re-measured quarterly 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. Compensation cost for retirement eligible employees or employees that will become retirement eligible during the vesting schedule are recognized on an abridged horizon.

In December 2013, a Director Incentive Plan was approved for the non-employee members of the Board of Directors. This plan is similar to MGE Energy's Performance Unit Plan for eligible employees described above. Under the plan, a non-employee director can 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

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payments, at the end of the set performance period. The units are subject to a three-year graded vesting schedule. In January 2014, unit awards of 4,683 (post-split) were granted to the non-employee Directors. For accounting purposes, the awards will be measured similarly to the employee unit awards.

During the three months ended March 31, 2014 and 2013, MGE recorded $0.8 million and $0.9 million, respectively, in compensation expense as a result of the plans. In January 2014, cash payments of $1.2 million were distributed relating to awards that were granted in 2009. No forfeitures occurred during the three months ended March 31, 2014 or 2013. At March 31, 2014, $3.9 million of outstanding awards are vested.

8.

Commitments and Contingencies - MGE Energy and MGE.

a.

Environmental.

MGE Energy and MGE are subject to frequently changing local, state, and federal regulations concerning air quality, water quality, land use, threatened and endangered species, hazardous materials handling, and solid waste disposal. These regulations affect the manner in which they conduct their operations, the costs of those operations, as well as capital and operating expenditures. Regulatory initiatives, proposed rules, and court challenges to adopted rules, have the potential to have a material effect on our capital expenditures and operating costs. These initiatives, proposed rules, and court challenges include:

·

The President's announced plan and directive to the EPA to regulate carbon pollution, or GHG emissions, from new and existing electric power generation, and EPA's related proposed GHG New Source Performance Standards (NSPS).

·

Rules to regulate NO_x and SO₂ emissions, including the EPA's Cross State Air Pollution Rule (CSAPR), which recently has been reinstated by the U.S. Supreme Court (see below for recent developments with CSAPR). The Sierra Club has sought federal appellate court review of Wisconsin's implementation plan for CAVR. Both the pending reinstatement of CSAPR and the appellate court review of Wisconsin's implementation plan for Clean Air Visibility Rule (CAVR) make the nature of compliance requirements uncertain.

·

Rules to regulate mercury and similar emissions, including Wisconsin's adopted Mercury Rule and the EPA's adopted Mercury and Air Toxics Standards.

·

The EPA's proposed cooling water intake rules. The EPA issued a proposed Phase II rule and alternative compliance strategies for existing facilities in April 2011 and has announced that it intends to release the final rule in May 2014 pursuant to a consent agreement.

·

The EPA's proposed water effluent limitations guidelines and standards for steam electric power plants, which focus on the reduction of metals and other pollutants in wastewater from new and existing power plants from coal-burning plants such as our Columbia and Elm Road Units.

·

The EPA's ongoing review of several National Ambient Air Quality Standards (NAAQS), including the potential lowering of ozone NAAQS, and upcoming guidance for determining attainment for sulfur dioxide NAAQS.

·

The EPA is reconsidering the current emergency dispatch restrictions in the Reciprocating Internal Combustion Engines Maximum Achievable Control Technology (RICE MACT) regulation. The reconsideration could result in increased or decreased restrictions for these engines.

The matters in the bullet points above are discussed further in Footnote 18.d. in MGE Energy's and MGE's 2013 Annual Report on Form 10-K. In addition to the developments noted above, the following discussion is an update to the current status of environmental matters set forth in that Footnote.

EPA's Cross-State Air Pollution Rule (CSAPR) Upheld by the Supreme Court

On April 29, 2014, the U.S. Supreme Court issued a decision upholding CSAPR, thereby reversing the D.C. Circuit Court's decision on CSAPR, and remanding the matter back to the D.C. Circuit for further proceedings. The EPA may amend CSAPR to modify compliance deadlines that have passed since the rule was vacated by the D.C. Circuit. It is unclear if the rule will be reinstated for 2014 emissions or later. The

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Clean Air Interstate Rule (CAIR) will remain in effect until CSAPR is reinstated. See MGE Energy's and MGE's 2013 Annual Report on Form 10K for additional information on the legal proceedings associated with these environmental matters.

Past evaluations of CSAPR's effect on MGE have pointed to SO₂ emissions at our Columbia plant as being our primary concern in meeting emissions allocations under CSAPR. Planned new SO₂ controls at Columbia are underway; Unit 2 was completed in April 2014 and Unit 1 is expected to be completed by third quarter of 2014 (see Footnote 4 for information regarding the Columbia environmental construction project). MGE expects that the costs pertaining to meeting CSAPR requirements will be fully recoverable through rates. We will continue to monitor and evaluate recoverability through the D.C. Circuit Court process and the EPA implementation phase.

Columbia

Based upon current available information, compliance with various environmental requirements and initiatives is expected to result in significant additional operating and capital expenditures at Columbia as noted below.

Columbia Environmental Project

See Footnote 4 for information regarding the Columbia environmental construction project.

Columbia Clean Air Act Litigation

In December 2009, the EPA sent a notice of violation (NOV) to MGE as one of the co-owners of Columbia. The NOV alleges that WPL, as owner-operator, and the other co-owners failed to comply with appropriate pre-construction review and permitting requirements and, as a result, violated the PSD program requirements, the Title V operating permit requirements of the CAA and the Wisconsin State Implementation Plan (SIP). In April 2013, the EPA filed a lawsuit against the co-owners of Columbia asserting similar allegations. In September 2010 and April 2013, Sierra Club filed lawsuits against WPL alleging violations of the CAA at Columbia and other WPL-operated Wisconsin facilities.

In April 2013, WPL, as owner-operator, along with the other owners of Columbia, entered into a consent decree with the EPA and the Sierra Club to resolve these claims, while admitting no liability. In June 2013, the consent decree was approved and entered by the Court. The consent decree requires installation of the following emission controls at Columbia: scrubbers and baghouses at Columbia Units 1 and 2 by December 31, 2014, and an SCR system at Columbia Unit 2 by December 31, 2018. In addition, the consent decree establishes emission rate limits for SO₂, NO_x, and particulate matter for Columbia Units 1 and 2. The consent decree also includes annual plant-wide emission caps for SO₂ and NO_x for Columbia. MGE also paid approximately $0.2 million as its share of a civil penalty and will complete approximately $0.6 million in environmental mitigation projects. MGE intends to seek recovery in rates of the costs associated with its compliance with the terms of the final consent decree and currently expects to recover any material compliance costs.

b.

Chattel Paper Agreement and Other Guarantees.

MGE makes available to qualifying customers a financing program for the purchase and installation of energy-related equipment that will provide more efficient use of utility service at the customer's property. MGE is party to a chattel paper purchase agreement with a financial institution under which it can sell or finance an undivided interest with recourse, in up to $10.0 million of the financing program receivables, until July 31, 2014. At March 31, 2014, MGE had sold a $5.1 million interest in these receivables. MGE retains the servicing responsibility for these receivables. As of March 31, 2014, the servicing asset recognized by MGE is $0.3 million.

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 March 31, 2014, approximate the fair value of the energy-related equipment acting as

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collateral. The length of the MGE guarantee to the financial institution varies from one to ten years depending on the term of the underlying customer loan. Principal payments for the remainder of 2014 and the next four years on the loans are:

(In thousands)		2014		2015		2016		2017		2018
Chattel Paper	$	477	$	1,007	$	910	$	506	$	449

c.

Legal Matters.

MGE is involved in various 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. The accrued amount for these matters is not material to the financial statements.

d.

Purchase Contracts.

MGE Energy and MGE have entered into various commodity supply, transportation, and storage contracts to meet their obligations to deliver electricity and natural gas to customers. As of March 31, 2014, the future commitments related to these purchase contracts were as follows:

(In thousands)		2014		2015		2016		2017		2018
Purchase power(a)	$	50,542	$	49,072	$	49,743	$	50,243	$	51,265

(a)

MGE has several purchase power agreements to help meet future electric supply requirements. Management expects to recover these costs in future customer rates.

9.

Derivative and Hedging Instruments - MGE Energy and MGE.

a.

Purpose.

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. 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, MGE Energy and MGE recognize such derivatives in the consolidated balance sheets at fair value. 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 with specific risk management strategies. The maximum length of time over which cash flows related to energy commodities can be hedged is four years. If the derivative qualifies for regulatory deferral, the derivatives are marked to fair value 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.

b.

Notional Amounts.

The gross notional volume of open derivatives is as follows:

		March 31, 2014		December 31, 2013
	Commodity derivative contracts	409,800 MWh		458,660 MWh
	Commodity derivative contracts	2,200,000 Dth		3,750,000 Dth
	FTRs	790 MW		1,984 MW

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c.

Financial Statement Presentation.

MGE purchases and sells 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 market, MGE holds FTRs. 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 offset with a corresponding 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 March 31, 2014, and December 31, 2013, the fair value of exchange traded derivatives and FTRs exceeded their cost basis by $2.1 million and $1.8 million, respectively.

MGE is a party to a ten-year purchased power agreement that provides MGE with firm capacity and energy during a base term from June 1, 2012, through May 31, 2022. The agreement also allows MGE an option to extend the contract after the base term. The agreement is accounted for as a derivative contract and is recognized at its fair value on the consolidated 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 March 31, 2014, and December 31, 2013, reflects a loss position of $60.3 million and $65.7 million, respectively. 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 consolidated balance sheet. All derivative instruments in this table are presented on a gross basis and are calculated prior to the netting of instruments with the same counterparty under a master netting agreement as well as the netting of collateral. For financial statement purposes, MGE Energy and MGE have netted instruments with the same counterparty under a master netting agreement as well as the netting of collateral.

		Asset Derivatives				Liability Derivatives
(In thousands)		Balance Sheet Location		Fair Value		Balance Sheet Location		Fair Value
March 31, 2014
Commodity derivative contracts		Other current assets	$	2,086		Derivative liability (current)	$	111
Commodity derivative contracts		Other deferred charges		37		Derivative liability (long-term)		41
FTRs		Other current assets		106		Derivative liability (current)		-
Ten-year PPA		N/A		N/A		Derivative liability (current)		6,540
Ten-year PPA		N/A		N/A		Derivative liability (long-term)		53,750
December 31, 2013
Commodity derivative contracts		Other current assets	$	1,356		Derivative liability (current)	$	51
Commodity derivative contracts		Other deferred charges		167		Derivative liability (long-term)		48
FTRs		Other current assets		363		Derivative liability (current)		-
Ten-year PPA		N/A		N/A		Derivative liability (current)		7,750
Ten-year PPA		N/A		N/A		Derivative liability (long-term)		57,930

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The following tables show the effect of netting arrangements for recognized derivative assets and liabilities that are subject to a master netting arrangement or similar arrangement on the balance sheet.

	Offsetting of Derivative Assets
	(In thousands)		Gross amounts		Gross amounts offset in balance sheet		Collateral posted against derivative positions		Net amount presented in balance sheet
	March 31, 2014
	Commodity derivative contracts	$	2,123	$	(152)	$	-	$	1,971
	FTRs		106		-		-		106
	December 31, 2013
	Commodity derivative contracts	$	1,523	$	(99)	$	(175)	$	1,249
	FTRs		363		-		-		363

	Offsetting of Derivative Liabilities
	(In thousands)		Gross amounts		Gross amounts offset in balance sheet		Collateral posted against derivative positions		Net amount presented in balance sheet
	March 31, 2014
	Commodity derivative contracts	$	152	$	(152)	$	-	$	-
	Ten-year PPA		60,290		-		-		60,290
	December 31, 2013
	Commodity derivative contracts	$	99	$	(99)	$	-	$	-
	Ten-year PPA		65,680		-		-		65,680

The following tables summarize the unrealized and realized gains (losses) related to the derivative instruments on the consolidated balance sheet at March 31, 2014 and 2013, and the consolidated income statement for the three months ended March 31, 2014 and 2013.

		2014					2013
(In thousands)		Current and long- term regulatory asset		Other current assets			Current and long- term regulatory asset		Other current assets
Three Months Ended March 31:
Balance at January 1,	$	63,893	$	411		$	72,329	$	574
Change in unrealized gain		(13,601)		-			(1,697)		-
Realized loss reclassified to a deferred account		1,535		(1,535)			(290)		290
Realized gain (loss) reclassified to income
statement		6,386		1,475			(1,145)		(605)
Balance at March 31,	$	58,213	$	351		$	69,197	$	259

			Realized losses (gains)
	(In thousands)		Fuel for electric generation/ purchased power		Cost of gas sold
	Three Months Ended March 31, 2014:
	Commodity derivative contracts	$	(4,795)	$	(1,220)
	FTRs		(636)		-
	Ten-year PPA		(1,210)		-
	Three Months Ended March 31, 2013:
	Commodity derivative contracts	$	22	$	608
	FTRs		(158)		-
	Ten-year PPA		1,278		-

MGE's commodity derivative contracts, FTRs, and ten-year PPA are subject to regulatory deferral. These derivatives are marked to fair value and are offset with a corresponding regulatory asset or liability. Realized gains and losses are deferred on the consolidated balance sheet and are recognized in earnings in the delivery