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~~June 3130, ~~2013~~2015

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

For the transition period from _______________ to _______________

Commission File No.	Name of Registrant, State of Incorporation, Address of Principal Executive Offices, and Telephone No.	IRS Employer Identification No.
000-49965	MGE Energy, Inc. (a Wisconsin Corporation) 133 South Blair Street Madison, Wisconsin ~~53703~~53788 (608) 252-7000 ~~www.~~mgeenergy.com	39-2040501
000-1125	Madison Gas and Electric Company (a Wisconsin Corporation) 133 South Blair Street Madison, Wisconsin ~~53703~~53788 (608) 252-7000 ~~www.~~mge.com	39-0444025

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

Indicate by check mark whether the registrants have submitted electronically and posted on 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.


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

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

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

Number of Shares Outstanding of Each Class of Common Stock as of April 30, 2013
Number of Shares Outstanding of Each Class of Common Stock as of July 31, 2015
MGE Energy, Inc.	Common stock, $1.00 par value, 2334,~~113~~668,~~638~~370 shares outstanding.
Madison Gas and Electric Company	Common stock, $1.00 par value, 17,347,894 shares outstanding (all of which are owned beneficially and of record by MGE Energy, Inc.).

Table of Contents

PART I. FINANCIAL INFORMATION.

Filing Format

Forward-Looking Statements

Where to Find More Information

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

Item 1. Financial Statements.

MGE Energy, Inc.

Consolidated Statements of Income (unaudited)

Consolidated Statements of Comprehensive Income (unaudited)

Consolidated Statements of Cash Flows (unaudited)

Consolidated Balance Sheets (unaudited)

Consolidated Statements of Common Equity (unaudited)

Madison Gas and Electric Company

Consolidated Statements of Income (unaudited)

Consolidated Statements of Comprehensive Income (unaudited)

Consolidated Statements of Cash Flows (unaudited)

Consolidated Balance Sheets (unaudited)

Consolidated Statements of Common Equity (unaudited)

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

Notes to Consolidated Financial Statements (unaudited)

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

3231

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

4147

Item 4. Controls and Procedures.

4349

PART II. OTHER INFORMATION.

4450

Item 1. Legal Proceedings.

4450

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

4450

Item 4. Mine Safety Disclosures.

4450

Item 6. Exhibits.

4450

Signatures - MGE Energy, Inc.

4652

Signatures - Madison Gas and Electric Company

4753

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' ~~2012~~2014 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 ~~publicly~~ release publicly any revision to these forward-looking statements to reflect events or circumstances after the date of this report, except as required by law.

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 ~~http://www.~~sec.gov, MGE Energy's website at ~~http://www.~~mgeenergy.com, and MGE's website at ~~http://www.~~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.

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 Services	MGE Services, LLC
MGE State Energy Services	MGE State Energy Services, 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
ARO	Asset Retirement Obligation
ATC	American Transmission Company LLC
BART	Best Available Retrofit Technology
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
CWA	Clean Water Act
DNR	Department of Natural Resources
DOE	United States Department of Energy
Dth	Dekatherms, a quantity measure used in respect of natural gas
EGUs	Electric Generating Units
ELG	Effluent Limitations Guidelines
Elm Road Units	Elm Road Generating Station
EPA	United States Environmental Protection Agency
ERISA	Employee Retirement Income Security Act
FASB	Financial Accounting Standards Board
FERC	Federal Energy Regulatory Commission
FTR	Financial Transmission Rights
GHG	Greenhouse Gas
HAPs	Hazardous Air Pollutants
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
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
MAP-21	Moving Ahead for Progress in the 21st Century Act
MISO	Midcontinent Independent System Operator (a regional transmission organization)
MATs	Mercury and Air Toxics Standards
MISO	Midwest 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
NGCC	Natural Gas Combined Cycle
NO2	Nitrogen Dioxide
NODA	Notices of Data Availability
NOV	Notice of Violation
NOx	Nitrogen Oxides
NSPS	New Source Performance Standards
PGA	Purchased Gas Adjustment clause, a regulatory mechanism used to reconcile natural gas costs recovered in rates to actual costs
OPRB	Other Postretirement Benefits
PJM	PJM Interconnection, LLC (a regional transmission organization)
PM	Particulate Matter

PGA	Purchased Gas Adjustment clause, a regulatory mechanism used to reconcile natural gas costs recovered in rates to actual costs
PPA	Purchased Power Agreement
PJM	PJM Interconnection, LLC (a regional transmission organization)
ppb	Parts Per Billion
PM	Particulate Matter
PPA	Purchased power agreement
PSCW	Public Service Commission of Wisconsin
PSD	Prevention of Significant Deterioration
ROE	Return on Equity
RICE	Reciprocating Internal Combustion Engine
SCR	Selective Catalytic Reduction
SEC	Securities and Exchange Commission
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
WDNR	Wisconsin Department of Natural Resources
Working capital	Current assets less current liabilities
WPDES	Wisconsin Pollutant Discharge Elimination System
WPL	Wisconsin Power and Light Company
WPSC	Wisconsin Public Service Corporation
XBRL	eXtensible Business Reporting Language

Item 1. Financial Statements.

MGE Energy, Inc.

Consolidated Statements of Income (unaudited)

(In thousands, except per-share amounts)

		Three Months Ended				Six Months Ended
		March 31,
		June 30,				June 30,
		2013		2012
		2015		2014		2015		2014
Operating Revenues:
Regulated electric revenues	$	9399,~~494~~481	$	8996,~~936~~697	$	197,721	$	195,549
Regulated gas revenues		7220,~~467~~669		5731,~~019~~218		90,597		141,931
Nonregulated revenues		1,~~276~~976		~~2,304~~850		3,942		1,530
Total Operating Revenues		~~167~~122,~~237~~126		~~149~~128,~~259~~765		292,260		339,010
Operating Expenses:
Fuel for electric generation		1012,~~760~~677		811,~~851~~866		24,569		25,998
Purchased power		1821,~~205~~265		1918,~~546~~921		44,130		37,476
Cost of gas sold		446,~~692~~650		3418,~~845~~132		53,569		96,640
Other operations and maintenance		41,~~649~~500		4240,~~949~~208		82,174		80,680
Depreciation and amortization		910,~~624~~995		910,~~624~~069		21,844		19,815
Other general taxes		4,~~679~~990		5,~~000~~128		10,074		9,989
Total Operating Expenses		~~129~~98,~~609~~077		~~120~~104,~~815~~324		236,360		270,598
Operating Income		3724,~~628~~049		2824,~~444~~441		55,900		68,412
Other income, net		32,~~309~~446		23,~~570~~548		4,551		8,100
Interest expense, net		(45,~~675~~008)		(54,~~104~~868)		(10,099)		(9,409)
Income before income taxes		3621,~~262~~487		2523,~~910~~121		50,352		67,103
Income tax provision		(138,~~678~~008)		(9,~~862~~034)		(18,595)		(25,299)
Net Income	$	2213,~~584~~479	$	1614,~~048~~087	$	31,757	$	41,804
Earnings Per Share of Common Stock
(basic and diluted)	$	0.9839	$	0.6941	$	0.92	$	1.21
Dividends per share of common stock	$	0.~~395~~283	$	0.~~383~~272	$	0.565	$	0.543
Average Shares Outstanding
Weighted Average Shares Outstanding
(basic and diluted)		2334,~~114~~668		2334,~~114~~668		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				Six Months Ended
		March 31,
		June 30,				June 30,
		2013		2012
		2015		2014		2015		2014
Net Income	$	2213,~~584~~479	$	1614,~~048~~087	$	31,757	$	41,804
Other comprehensive income, net of tax:
Unrealized gain on available-for-sale securities, net of
Unrealized loss on available-for-sale
tax ($43 and $5)		65		7
securities, net of tax ($7 and $31, and $64 and
Comprehensive Income	$	22,649	$	16,055
$26, respectively)		(11)		(46)		(95)		(39)
Comprehensive Income	$	13,468	$	14,041	$	31,662	$	41,765
The accompanying notes are an integral part of the above unaudited consolidated financial statements.

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

MGE Energy, Inc.

Consolidated Statements of Cash Flows (unaudited)

(In thousands)

		Three Months Ended
			Six Months Ended
		March 31,
			June 30,
		2013		2012
			2015		2014
~~Operating Activities:~~	Operating Activities:
~~Net income~~	$Net income	~~22,584~~$	$31,757	~~16,048~~$	41,804
~~Items not affecting cash:~~	Items not affecting cash:
~~Depreciation and amortization~~	Depreciation and amortization	~~9,624~~	21,844	~~9,624~~	19,815
~~Deferred income taxes~~	Deferred income taxes	~~11,294~~	6,201	~~8,846~~	15,110
~~Provision for doubtful receivables~~	Provision for doubtful receivables	~~743~~	85	~~1,167~~	984
~~Employee benefit plan expenses~~	Employee benefit plan expenses	~~3,336~~	1,660	~~4,682~~	(555)
~~Equity earnings in ATC~~	Equity earnings in ATC	~~(2,396)~~	(4,170)	~~(2,242)~~	(4,883)
~~Other items~~	Other items	~~750~~	(772)	~~660~~	(1,077)
~~Changes in working capital items:~~	Changes in working capital items:
~~Decrease in current assets~~	Decrease in current assets	~~17,341~~	29,599	~~12,377~~	17,349
~~Decrease in current liabilities~~	Decrease in current liabilities	~~(4,590)~~	(14,789)	~~(6,631)~~	(5,840)
~~Dividend income from ATC~~	Dividend income from ATC	~~1,807~~	2,891	~~1,740~~	3,835
~~Cash contributions to pension and other postretirement plans~~	Cash contributions to pension and other postretirement plans	~~(30,764)~~	(11,626)	~~(20,789)~~	(1,633)
~~Other noncurrent items, net~~	Other noncurrent items, net	~~(1,077)~~	10,313	~~(746)~~	(229)
~~Cash Provided by Operating Activities~~	Cash Provided by Operating Activities	~~28,652~~	72,993	~~24,736~~	84,680
~~Investing Activities:~~	Investing Activities:
~~Capital expenditures~~	Capital expenditures	~~(29,164)~~	(33,211)	~~(15,467)~~	(42,272)
~~Capital contributions to investments~~	Capital contributions to investments	~~(373)~~	(538)	~~(355)~~	(1,225)
~~Other~~	Other	~~(279)~~	(52)	~~106~~	(1,123)
~~Cash Used for Investing Activities~~	Cash Used for Investing Activities	~~(29,816)~~	(33,801)	~~(15,716)~~	(44,620)
~~Financing Activities:~~	Financing Activities:
~~Cash dividends paid on common stock~~	Cash dividends paid on common stock	~~(9,132)~~	(19,589)	~~(8,843)~~	(18,840)
~~Repayment of long-term debt~~	Repayment of long-term debt	~~(667)~~	(2,080)	~~(667)~~	(2,042)
Increase in short-term debt		10,500		-
	Repayment of short-term debt		(7,000)		-
~~Other~~	Other	-	(487)	~~(19)~~	(80)
Cash Provided by (Used for) Financing Activities		701		(9,529)
	Cash Used for Financing Activities		(29,156)		(20,962)
~~Change in cash and cash equivalents~~	Change in cash and cash equivalents	~~(463)~~	10,036	~~(509)~~	19,098
~~Cash and cash equivalents at beginning of period~~	Cash and cash equivalents at beginning of period	~~46,357~~	65,755	~~41,169~~	68,813
~~Cash and Cash Equivalents at End of Period~~	$Cash and Cash Equivalents at End of Period	~~45,894~~$	$75,791	~~40,660~~$	87,911
Supplemental disclosures of cash flow information:
	The accompanying notes are an integral part of the unaudited consolidated financial statements.
Significant noncash investing activities:
Accrued capital expenditures	$	12,699	$	4,674

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

MGE Energy, Inc.

Consolidated Balance Sheets (unaudited)

(In thousands)

		March 31,	December 31,
		June 30,	December 31,
ASSETS		~~2013~~2015		~~2012~~2014
Current Assets:
Cash and cash equivalents	$	4575,~~894~~791	$	4665,~~357~~755
Receivable - margin account		766		1,818
Accounts receivable, less reserves of $3,806 and $4,329, respectively		34,599		41,614
Accounts receivable, less reserves of $3,914 and $3,885, respectively		46,864		41,386
Other accounts receivable, less reserves of $557 and $420, respectively		6,030		7,610
Other accounts receivable, less reserves of $931 and $931, respectively		5,125		6,746
Unbilled revenues		23,159		31,262
Unbilled revenues		26,761		28,262
Materials and supplies, at average cost		19,696		17,121
Materials and supplies, at average cost		16,933		16,997
Fossil fuel		15,446		8,098
Fossil fuel		7,375		6,367
Stored natural gas, at average cost		12,712		21,036
Stored natural gas, at average cost		2,195		14,980
Prepaid taxes		24,656		38,910
Prepaid taxes		13,868		19,520
Regulatory assets - current		7,850		8,360
Regulatory assets - current		8,471		10,327
Deferred income taxes - current		-		3,482
Deferred income taxes - current		14,260		23,483
Other current assets		10,895		10,711
Other current assets		7,431		6,694
Total Current Assets		230,834		253,959
Total Current Assets		195,943		222,937
Regulatory assets		156,139		156,823
Regulatory assets		214,496		218,853
Other deferred assets and other		9,723		7,018
Other deferred assets and other		7,222		7,075
Property, Plant, and Equipment:
Property, plant, and equipment, net		~~981~~1,~~325~~193,965		~~975~~1,~~053~~189,077
Construction work in progress		~~115~~29,~~803~~204		9819,~~411~~029
Total Property, Plant, and Equipment		1,~~097~~223,~~128~~169		1,~~073~~208,~~464~~106
Investments		6573,~~651~~363		6471,~~595~~760
Total Assets	$	1,~~580~~693,~~440~~228	$	1,~~586~~697,~~924~~666
LIABILITIES AND CAPITALIZATION
Current Liabilities:
Long-term debt due within one year	$	34,~~365~~224	$	34,~~013~~182
Short-term debt		~~10,500~~-		-7,000
Accounts payable		3934,~~586~~555		4341,~~518~~655
Accrued interest and taxes		4,~~099~~905		45,~~296~~086
Accrued payroll related items		78,~~711~~733		1011,~~063~~241
Derivative liabilities		8,880		9,270
Deferred income taxes		907		-
Other current liabilities		10,605		5,637
Regulatory liabilities - current		6,282		-
Total Current Liabilities		84,746		75,797
Derivative liabilities		7,863		6,901
Other current liabilities		8,682		13,931
Total Current Liabilities		76,151		89,996
Other Credits:
Deferred income taxes		~~272~~343,~~511~~942		~~270~~342,~~410~~045
Investment tax credit - deferred		1,~~466~~136		1,~~520~~223
Regulatory liabilities		2221,~~598~~542		2422,~~538~~715
Accrued pension and other postretirement benefits		~~133~~79,~~380~~324		~~162~~90,~~835~~201
Derivative liabilities		6148,~~810~~090		6346,~~320~~560
Other deferred liabilities and other		5358,~~505~~565		50,~~584~~269
Total Other Credits		~~545~~552,~~270~~599		~~573~~553,~~207~~013
Capitalization:
Common shareholders' equity		~~592~~671,~~946~~332		~~579~~659,~~429~~401
Long-term debt		~~357~~393,~~478~~146		~~358~~395,~~491~~256
Total Capitalization		~~950~~1,~~424~~064,478		~~937~~1,~~920~~054,657
Commitments and contingencies (see Footnote 8)		-		-
Total Liabilities and Capitalization	$	1,~~580~~693,~~440~~228	$	1,~~586~~697,~~924~~666
The accompanying notes are an integral part of the above unaudited consolidated financial statements.

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

MGE Energy, Inc.

Consolidated Statements of Common Equity (unaudited)

(In thousands, except per-share amounts)

									~~Accumulated~~	Accumulated
					~~Additional~~	Additional			~~Other~~	Other
	~~Common Stock~~	Common Stock			~~Paid-in~~	Paid-in	~~Retained~~	Retained	~~Comprehensive~~	Comprehensive
	~~Shares~~	Shares	~~Value~~	Value	~~Capital~~	Capital	~~Earnings~~	Earnings	~~(Loss)/Income~~	Income	~~Total~~	Total
2012
	2014
Beginning balance - December 31, 2011	23,114	$	23,114	$	316,268	$	211,458	$	112	$	550,952
	Beginning balance - December 31, 2013	34,668	$	34,668	$	316,268	$	266,197	$	377	$	617,510
~~Net income~~	Net income						~~16,048~~	41,804			~~16,048~~	41,804
Other comprehensive income									7		7
	Other comprehensive loss									(39)		(39)
~~Common stock dividends declared~~	Common stock dividends declared
($0.383 per share)							(8,843)				(8,843)
	($0.543 per share)							(18,840)				(18,840)
Ending balance - March 31, 2012	23,114	$	23,114	$	316,268	$	218,663	$	119	$	558,164
	Cash in lieu of fractional shares related
2013
	to stock split							(80)				(80)
Beginning balance - December 31, 2012	23,114	$	23,114	$	316,268	$	239,953	$	94	$	579,429
	Ending balance - June 30, 2014	34,668	$	34,668	$	316,268	$	289,081	$	338	$	640,355
Net income							22,584				22,584
	2015
Other comprehensive income									65		65
	Beginning balance - December 31, 2014	34,668	$	34,668	$	316,268	$	308,007	$	458	$	659,401
Common stock dividends declared
	Cumulative effect of new accounting
($0.395 per share)							(9,132)				(9,132)
	principle (see Footnote 4)							(142)				(142)
Ending balance - March 31, 2013	23,114	$	23,114	$	316,268	$	253,405	$	159	$	592,946
	Beginning balance - Adjusted							307,865				659,259
	Net income							31,757				31,757
	Other comprehensive loss									(95)		(95)
	Common stock dividends declared
	($0.565 per share)							(19,589)				(19,589)
	Ending balance - June 30, 2015	34,668	$	34,668	$	316,268	$	320,033	$	363	$	671,332
	The accompanying notes are an integral part of the above unaudited consolidated financial statements.

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

Madison Gas and Electric Company

Consolidated Statements of Income (unaudited)

(In thousands)

		Three Months Ended				Six Months Ended
		March 31,
		June 30,				June 30,
		2013		2012
		2015		2014		2015		2014
Operating Revenues:
Regulated electric revenues	$	9399,~~494~~486	$	8996,~~936~~702	$	197,731	$	195,560
Regulated gas revenues		7220,~~467~~671		5731,~~019~~223		90,604		141,941
Nonregulated revenues		1,~~276~~976		~~2,304~~850		3,942		1,530
Total Operating Revenues		~~167~~122,~~237~~133		~~149~~128,~~259~~775		292,277		339,031
Operating Expenses:
Fuel for electric generation		1012,~~760~~679		811,~~851~~868		24,573		26,002
Purchased power		1821,~~205~~268		1918,~~546~~925		44,136		37,483
Cost of gas sold		446,~~692~~654		3418,~~845~~137		53,577		96,650
Other operations and maintenance		41,~~504~~236		4239,~~528~~967		81,708		80,284
Depreciation and amortization		910,~~624~~984		910,~~624~~058		21,821		19,792
Other general taxes		4,~~679~~990		5,~~000~~128		10,074		9,989
Income tax provision		127,~~870~~041		87,~~969~~918		16,817		22,842
Total Operating Expenses		~~142~~104,~~334~~852		~~129~~112,~~363~~001		252,706		293,042
Operating Income		2417,~~903~~281		1916,~~896~~774		39,571		45,989
Other Income and Deductions:
AFUDC - equity funds		~~596~~167		~~154~~1,101		295		3,051
Equity in earnings in ATC		2,~~396~~289		2,~~242~~402		4,170		4,883
Income tax provision		(~~781~~978)		(~~993~~1,142)		(1,786)		(2,406)
Other income, net		~~141~~(176)		56(82)		(215)		(240)
Total Other Income and Deductions		21,~~352~~302		12,~~459~~279		2,464		5,288
Income before interest expense		2718,~~255~~583		2119,~~355~~053		42,035		51,277
Interest Expense:
Interest on long-term debt		45,~~928~~136		5,~~197~~240		10,287		10,489
Other interest, net		(3717)		733		15		8
AFUDC - borrowed funds		(~~196~~54)		(63363)		(96)		(1,006)
Net Interest Expense		45,~~695~~065		54,~~141~~910		10,206		9,491
Net Income	$	2213,~~560~~518	$	1614,~~214~~143	$	31,829	$	41,786
Less Net Income Attributable to Noncontrolling Interest, net of tax		(6,826)		(6,072)
Less: Net Income Attributable to Noncontrolling
Net Income Attributable to MGE	$	15,734	$	10,142
Interest, net of tax		(6,626)		(6,621)		(13,179)		(13,131)
Net Income Attributable to MGE	$	6,892	$	7,522	$	18,650	$	28,655
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				Six Months Ended
		March 31,
		June 30,				June 30,
		2013		2012
		2015		2014		2015		2014
Net Income	$	2213,~~560~~518	$	1614,~~214~~143	$	31,829	$	41,786
Other comprehensive income (loss), net of tax:
Other comprehensive income, net of tax:
Unrealized gain (loss) on available-for-sale securities, net of
Unrealized loss on available-for-sale
tax ($18 and $11)		27		(16)
securities, net of tax ($18 and $77, and $73 and
Comprehensive Income	$	22,587	$	16,198
$66, respectively)		(27)		(116)		(109)		(98)
Less: Comprehensive income attributable to Noncontrolling
Comprehensive Income	$	13,491	$	14,027	$	31,720	$	41,688
Interest, net of tax		(6,826)		(6,072)
Less: Comprehensive Income Attributable to
Comprehensive Income attributable to MGE	$	15,761	$	10,126
Noncontrolling Interest, net of tax		(6,626)		(6,621)		(13,179)		(13,131)
Comprehensive Income Attributable to MGE	$	6,865	$	7,406	$	18,541	$	28,557
The accompanying notes are an integral part of the above unaudited consolidated financial statements.

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

Madison Gas and Electric Company

Consolidated Statements of Cash Flows (unaudited)

(In thousands)

		Three Months Ended
			Six Months Ended
		March 31,
			June 30,
		2013		2012
			2015		2014
~~Operating Activities:~~	Operating Activities:
~~Net income~~	$Net income	~~22,560~~$	$31,829	~~16,214~~$	41,786
~~Items not affecting cash:~~	Items not affecting cash:
~~Depreciation and amortization~~	Depreciation and amortization	~~9,624~~	21,821	~~9,624~~	19,792
~~Deferred income taxes~~	Deferred income taxes	~~11,016~~	3,909	~~8,768~~	14,566
~~Provision for doubtful receivables~~	Provision for doubtful receivables	~~743~~	85	~~1,005~~	984
~~Employee benefit plan expenses~~	Employee benefit plan expenses	~~3,336~~	1,660	~~4,682~~	(555)
~~Equity earnings in ATC~~	Equity earnings in ATC	~~(2,396)~~	(4,170)	~~(2,242)~~	(4,883)
~~Other items~~	Other items	~~882~~	(524)	~~792~~	(812)
~~Changes in working capital items:~~	Changes in working capital items:
~~Decrease in current assets~~	Decrease in current assets	~~17,135~~	35,282	~~11,542~~	17,169
~~Decrease in current liabilities~~	Decrease in current liabilities	~~(4,326)~~	(12,369)	~~(6,991)~~	(3,536)
~~Dividend income from ATC~~	Dividend income from ATC	~~1,807~~	2,891	~~1,740~~	3,835
~~Cash contributions to pension and other postretirement plans~~	Cash contributions to pension and other postretirement plans	~~(30,764)~~	(11,626)	~~(20,789)~~	(1,633)
~~Other noncurrent items, net~~	Other noncurrent items, net	~~(1,096)~~	10,204	~~(762)~~	(321)
~~Cash Provided by Operating Activities~~	Cash Provided by Operating Activities	~~28,521~~	78,992	~~23,583~~	86,392
~~Investing Activities:~~	Investing Activities:
~~Capital expenditures~~	Capital expenditures	~~(29,164)~~	(33,211)	~~(15,467)~~	(42,272)
~~Capital contributions to investments~~	Capital contributions to investments	~~(178)~~	(355)	~~(355)~~	(1,065)
~~Other~~	Other	~~(184)~~	(62)	49	(1,014)
~~Cash Used for Investing Activities~~	Cash Used for Investing Activities	~~(29,526)~~	(33,628)	~~(15,773)~~	(44,351)
~~Financing Activities:~~	Financing Activities:
~~Cash dividends paid to parent by MGE~~	Cash dividends paid to parent by MGE	-	(10,000)	~~(6,728)~~	(16,750)
~~Distributions to parent from noncontrolling interest~~	Distributions to parent from noncontrolling interest	~~(5,500)~~	(10,084)	-	(12,838)
~~Equity contribution received by noncontrolling interest~~	Equity contribution received by noncontrolling interest	~~178~~	2,875	~~355~~	1,065
~~Repayment of long-term debt~~	Repayment of long-term debt	~~(667)~~	(2,080)	~~(667)~~	(2,042)
Increase in short-term debt		10,500		-
	Repayment of short-term debt		(7,000)		-
~~Other~~	Other	-	(314)	~~(9)~~	-
Cash Provided by (Used for) Financing Activities		4,511		(7,049)
	Cash Used for Financing Activities		(26,603)		(30,565)
~~Change in cash and cash equivalents~~	Change in cash and cash equivalents	~~3,506~~	18,761	~~761~~	11,476
~~Cash and cash equivalents at beginning of period~~	Cash and cash equivalents at beginning of period	~~6,350~~	4,562	~~13,898~~	14,808
~~Cash and Cash Equivalents at End of Period~~	$Cash and Cash Equivalents at End of Period	~~9,856~~$	$23,323	~~14,659~~$	26,284
Supplemental disclosures of cash flow information:
	The accompanying notes are an integral part of the unaudited consolidated financial statements.
Significant noncash investing activities:
Accrued capital expenditures	$	12,699	$	4,674

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

Madison Gas and Electric Company

Consolidated Balance Sheets (unaudited)

(In thousands)

		March 31,	December 31,
		June 30,	December 31,
ASSETS		~~2013~~2015		~~2012~~2014
Current Assets:
Cash and cash equivalents	$	923,~~856~~323	$	64,~~350~~562
Receivable - margin account		766		1,818
Accounts receivable, less reserves of $3,806 and $4,329, respectively		34,599		41,614
Accounts receivable, less reserves of $3,914 and $3,885, respectively		46,864		41,386
Affiliate receivables		583		7,112
Affiliate receivables		619		634
Other accounts receivable, less reserves of $557 and $420, respectively		5,980		7,524
Other accounts receivable, less reserves of $931 and $931, respectively		5,124		6,732
Unbilled revenues		23,159		31,262
Unbilled revenues		26,761		28,262
Materials and supplies, at average cost		19,696		17,121
Materials and supplies, at average cost		16,933		16,997
Fossil fuel		15,446		8,098
Fossil fuel		7,375		6,367
Stored natural gas, at average cost		12,712		21,035
Stored natural gas, at average cost		2,195		14,980
Prepaid taxes		25,638		39,103
Prepaid taxes		18,108		23,561
Regulatory assets - current		7,850		8,360
Regulatory assets - current		8,471		10,327
Deferred income taxes - current		-		1,271
Deferred income taxes - current		13,808		23,305
Other current assets		10,887		10,683
Other current assets		7,416		6,670
Total Current Assets		179,873		197,745
Total Current Assets		164,296		187,389
Affiliate receivable long-term		5,031		5,295
Affiliate receivable long-term		6,222		6,354
Regulatory assets		156,139		156,823
Regulatory assets		214,496		218,853
Other deferred assets and other		7,599		4,977
Other deferred assets and other		6,602		6,540
Property, Plant, and Equipment:
Property, plant, and equipment, net		~~980~~1,~~820~~193,262		~~974~~1,~~549~~188,351
Construction work in progress		~~115~~29,~~803~~204		9819,~~411~~029
Total Property, Plant, and Equipment		1,~~096~~222,~~623~~466		1,~~072~~207,~~960~~380
Investments		6269,~~366~~846		6168,~~555~~402
Total Assets	$	1,~~550~~640,~~605~~954	$	1,~~553~~640,~~651~~622
LIABILITIES AND CAPITALIZATION
Current Liabilities:
Long-term debt due within one year	$	34,~~365~~224	$	34,~~013~~182
Short-term debt		~~10,500~~-		-7,000
Accounts payable		3934,~~586~~542		4341,~~517~~654
Affiliate payables		405		767
Accrued interest and taxes		4,860		5,039
Accrued interest and taxes		3,699		4,248
Accrued payroll related items		8,733		11,241
Accrued payroll related items		7,711		10,063
Deferred income taxes		1,151		-
Derivative liabilities		8,880		9,270
Regulatory liabilities - current		6,282		-
Other current liabilities		10,163		4,491
Derivative liabilities		7,863		6,901
Total Current Liabilities		84,309		75,369
Other current liabilities		8,531		11,350
Total Current Liabilities		76,186		87,367
Other Credits:
Deferred income taxes		~~268~~336,~~028~~336		~~266~~334,~~231~~773
Investment tax credit - deferred		1,~~466~~136		1,~~520~~223
Regulatory liabilities		2221,~~598~~542		2422,~~538~~715
Accrued pension and other postretirement benefits		~~133~~79,~~380~~324		~~162~~90,~~835~~201
Derivative liabilities		6148,~~810~~090		6346,~~320~~560
Other deferred liabilities and other		5358,~~505~~565		50,~~581~~267
Total Other Credits		~~540~~544,~~787~~993		~~569~~545,~~025~~739
Capitalization:
Common shareholder's equity		~~449~~494,~~057~~970		~~433~~486,~~296~~571
Noncontrolling interest		~~118~~131,~~974~~659		~~117~~125,~~470~~689
Total Equity		~~568~~626,~~031~~629		~~550~~612,~~766~~260
Long-term debt		~~357~~393,~~478~~146		~~358~~395,~~491~~256
Total Capitalization		~~925~~1,~~509~~019,775		~~909~~1,~~257~~007,516
Commitments and contingencies (see Footnote 8)		-		-
Total Liabilities and Capitalization	$	1,~~550~~640,~~605~~954	$	1,~~553~~640,~~651~~622
The accompanying notes are an integral part of the above unaudited consolidated financial statements.

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

Madison Gas and Electric Company

Consolidated Statements of Common Equity (unaudited)

(In thousands)

								Accumulated
					Additional				Other		Non-
	Common Stock				Paid-in		Retained	Comprehensive			Controlling
	Shares		Value		Capital		Earnings	~~(Loss)/~~Income			Interest		Total
2012
2014
Beginning balance - Dec. 31, 2011	17,348	$	17,348	$	192,417	$	203,114	$	47	$	114,351	$	527,277
Beginning balance - Dec. 31, 2013	17,348	$	17,348	$	192,417	$	247,534	$	192	$	118,963	$	576,454
Net income							1028,~~142~~655				613,~~072~~131		1641,~~214~~786
Other comprehensive loss									(1698)				(1698)
Cash dividends paid to parent
by MGE							(616,~~728~~750)						(616,~~728~~750)
Equity contribution received by
noncontrolling interest											~~355~~1,065		~~355~~1,065
Ending balance - March 31, 2012	17,348	$	17,348	$	192,417	$	206,528	$	31	$	120,778	$	537,102
Distributions to parent from
2013
noncontrolling interest											(12,838)		(12,838)
Beginning balance - Dec. 31, 2012	17,348	$	17,348	$	192,417	$	223,527	$	4	$	117,470	$	550,766
Ending balance - June 30, 2014	17,348	$	17,348	$	192,417	$	259,439	$	94	$	120,321	$	589,619
Net income							15,734				6,826		22,560
2015
Other comprehensive loss									27				27
Beginning balance - Dec. 31, 2014	17,348	$	17,348	$	192,417	$	276,662	$	144	$	125,689	$	612,260
Cumulative effect of new accounting
principle (see Footnote 4)							(142)						(142)
Beginning balance - Adjusted							276,520						612,118
Net income							18,650				13,179		31,829
Other comprehensive loss									(109)				(109)
Cash dividends paid to parent
by MGE							(10,000)						(10,000)
Equity contribution received by
noncontrolling interest											~~178~~2,875		~~178~~2,875
Distributions to parent from
noncontrolling interest											(510,~~500~~084)		(510,~~500~~084)
Ending balance - March 31, 2013	17,348	$	17,348	$	192,417	$	239,261	$	31	$	118,974	$	568,031
Ending balance - June 30, 2015	17,348	$	17,348	$	192,417	$	285,170	$	35	$	131,659	$	626,629
The accompanying notes are an integral part of the above unaudited consolidated financial statements.

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

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

Notes to Consolidated Financial Statements (unaudited)

~~March~~June 3130, ~~2013~~2015

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 ~~2012~~2014 Annual Report on Form 10-K.

The accompanying consolidated financial statements as of ~~March~~June 3130, ~~2013~~2015, and for the three and six 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 ~~2012~~2014 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 5152 through ~~104~~101 of the ~~2012~~2014 Annual Report on Form 10-K.

Equity and Financing Arrangements ~~- MGE Energy~~.

Common Stock - MGE Energy.

MGE Energy ~~purchases~~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 ~~issuance~~resale ~~pursuant~~ to ~~its~~participants in the Stock Plan. All ~~MGE Energy~~sales ~~common stock issued~~ under the ~~Stock~~stock ~~Plan~~plan isare ~~sold~~covered ~~pursuant~~by to a shelf registration statement that ~~has~~MGE Energy ~~been~~ filed with the SEC. For both the six months ended June 30, 2015 and is2014, ~~currently~~MGE Energy ~~effective~~did not issue any new shares of common stock under the Stock Plan.

MGE Energy can issue new shares of its common stock through the Stock Plan. For both the three months ended March 31, 2013 and 2012, MGE Energy did not issue any new shares of common stock under the Stock Plan.

Dilutive Shares Calculation - MGE Energy.

MGE Energy does not hold any dilutive securities.

Credit Facilities - MGE Energy and MGE.

On June 1, 2015, MGE Energy and MGE entered into new revolving credit agreements, and terminated its existing revolving credit agreements.

MGE Energy entered into a Credit Agreement with an aggregate commitment of $50 million (MGE Energy Credit Agreement) with various financial institutions, as lenders, and JPMorgan Chase Bank, N.A., as administrative agent. Also, MGE entered into two revolving credit agreements: a Credit Agreement with an aggregate commitment of $60 million (MGE JPM Credit Agreement) with various financial institutions, as lenders, and JPMorgan Chase Bank, N.A., as administrative agent, and a Credit Agreement with an aggregate commitment of $40 million (MGE USB Credit Agreement) with various financial institutions, as lenders, and U.S. Bank National Association, as administrative agent. The MGE Energy Credit Agreement, the MGE JPM Credit Agreement, and the MGE USB Credit Agreement are collectively referred to as the Credit Agreements. As of June 30, 2015, neither MGE Energy nor MGE had any borrowings outstanding under the Credit Agreements, and MGE had no commercial paper outstanding.

The Credit Agreements have a term expiring on June 1, 2020, subject, in the case of MGE, to obtaining necessary regulatory approvals. Borrowings under the Credit Agreements may bear interest at a rate based upon either a "floating rate" or a "Eurodollar Rate" adjusted for statutory reserve requirements, plus an adder based upon the credit ratings assigned to MGE's senior unsecured long-term debt securities. The "floating rate" is calculated on a daily basis as the highest of a prime rate, a Federal Funds effective rate plus 0.5% per annum, or a Eurodollar Rate for a one-month interest period plus 1%. The "floating rate" adder ranges from zero to 0.125%. The "Eurodollar Rate" is calculated as provided in the Credit Agreements. The "Eurodollar Rate" adder ranges from 0.625% to 1.125%.

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.

MGE Transco has accounted for its investment in ATC under the equity method of accounting. For the ~~three~~six months ended ~~March~~June 3130, ~~2013~~2015 and ~~2012~~2014, MGE Transco recorded ~~equity earnings from~~ the investment in ATC of $2.4 million and $2.2 million, respectively. Dividend income received from ATC was $1.8 million and $1.7 million for the three months ended March 31, 2013 and 2012, respectively. In addition, during the three months ended March 31, 2013 and 2012, MGE Transco made $0.2 million and $0.4 million in capital contributions to ATC, respectively. On April 30, 2013, MGE Transco made a $0.5 million capital contribution to ATC.following:

MGE Energy and MGE's investment in ATC as of March 31, 2013, and December 31, 2012, was $61.8 million and $61.0 million, respectively.


		Six Months Ended
		June 30,
(In thousands)		2015		2014
Equity in earnings from investment in ATC	$	4,170	$	4,883
Dividends received from ATC		2,891		3,835
Capital contributions to ATC		355		1,065

14MGE Transco's investment in ATC as of June 30, 2015, and December 31, 2014, was $69.3 million and $67.7 million, respectively. On July 31, 2015, MGE Transco made a $0.2 million capital contribution to ATC.

At ~~March~~June 3130, ~~2013~~2015, MGE is the majority owner, and MGE Energy, the holding company, is the minority owner of MGE Transco. MGE Energy's proportionate share of the equity and net income of MGE Transco is classified within the MGE financial statements as noncontrolling interest.

ATC's summarized financial data for the three and six months ended ~~March~~June 3130, ~~2013~~2015 and ~~2012~~2014, is as follows:

		Three Months Ended March 31,
			Three Months Ended				Six Months Ended
(In thousands)		2013		2012
			June 30,				June 30,
Operating revenues	$	151,737	$	147,662
	(In thousands)		2015		2014		2015		2014
Operating expenses		(69,770)		(69,566)
	Operating revenues	$	165,172	$	159,990	$	317,529	$	323,327
Other expense, net		(448)		(500)
	Operating expenses		(80,326)		(74,405)		(160,277)		(153,028)
Interest expense, net		(21,044)		(19,501)
	Other (expense) income, net		(81)		322		(19)		710
Earnings before members' income taxes	$	60,475	$	58,095
	Interest expense, net		(24,172)		(22,242)		(48,655)		(44,238)
	Earnings before members' income taxes	$	60,593	$	63,665	$	108,578	$	126,771

~~Columbia~~Chattel ~~Environmental~~Paper ~~Project~~Agreements ~~Construction~~ - MGE Energy and MGE.

MGE ~~and~~makes ~~two~~available ~~other~~to ~~utilities~~qualifying ~~jointly~~customers ~~own Columbia,~~ a ~~coal-fired~~financing ~~generating~~program ~~facility.~~for ~~WPL is~~ the ~~plant~~purchase ~~operator~~ and ~~permit~~installation ~~holder, and owns 46.2%~~ of ~~Columbia.~~energy-related ~~WPSC~~equipment ~~owns~~that awill ~~31.8%~~provide ~~interest,~~more ~~and~~efficient ~~MGE~~use ~~owns~~of autility ~~22%~~service ~~interest,~~at ~~in Columbia. In early 2011,~~ the ~~PSCW~~customer's ~~issued~~property. aThe ~~Certificate~~energy-related ~~and~~equipment ~~Order~~installed ~~authorizing~~at the ~~construction~~customer ofsites ~~scrubbers~~is ~~and~~used ~~bag houses and associated equipment on Columbia Units 1 and 2~~ to ~~reduce~~secure ~~SO2~~the ~~and~~customer ~~mercury emissions~~loans. ~~The~~MGE ~~scrubbers~~is ~~and~~a ~~bag~~party ~~houses are expected~~ to ~~support~~a ~~compliance~~chattel ~~obligations~~paper ~~for~~purchase ~~current~~agreement ~~and~~with ~~anticipated~~a ~~air~~financial ~~quality~~institution ~~regulations,~~under ~~including~~which ~~CAIR,~~it ~~CAIR's~~can ~~eventual~~sell ~~replacement,~~or ~~the~~finance ~~Mercury~~an ~~and~~undivided ~~Air~~interest ~~Toxics~~with ~~Standards (MATS)~~recourse, ~~and~~in ~~the~~up ~~Wisconsin~~to ~~Mercury Rule~~$10.0 million ~~The operator's current estimate shows that MGE's share~~ of the ~~capital~~financing ~~expenditures~~program ~~required~~receivables, ~~for~~until ~~this project is approximately $140~~July ~~million. As of March~~ 31, ~~2013, MGE had accumulated $78~~2016.~~8 million~~ ~~(excluding~~The ~~carrying~~length ~~costs) related to its share~~ of the ~~project,~~MGE ~~which~~guarantee isto ~~reflected in~~ the ~~Construction~~financial ~~Work~~institution invaries ~~Progress~~from ~~balance~~one onto ~~MGE Energy's~~ten ~~and~~years ~~MGE's~~depending ~~consolidated~~on ~~balance~~the ~~sheets.~~term ~~MGE's share~~ of the ~~capital~~underlying ~~expenditures~~customer ~~associated~~loan. ~~with~~The ~~the~~loan ~~Columbia~~balances ~~environmental~~outstanding ~~project~~at ~~will be approximately $49~~June ~~million~~30, ~~for~~2015, approximate the ~~remainder~~fair ofvalue ~~2013 and $12 million in 2014. These amounts may change as a result~~ of ~~modifications to~~ the ~~project~~energy-related ~~estimate~~equipment oracting ~~timing~~as ~~differences~~collateral. ~~For the three months ended March 31, 2013 and 2012,~~ MGE ~~has~~accounts ~~recognized~~for ~~after~~these ~~tax~~agreements ~~$0.5 million~~as ~~and~~secured $0borrowings.~~1 million,~~ ~~respectively, in AFUDC equity related to this project.~~

~~MGE~~Prior ~~expects~~to the Transfers and Servicing Asset authoritative guidance that ~~the~~became ~~costs~~effective ~~pertaining~~in to2015, ~~this~~these ~~project~~agreements ~~will~~were betreated ~~fully~~as ~~recoverable~~off-balance ~~through~~sheet ~~rates~~arrangements. InBeginning ~~2012~~January 1, ~~the~~2015, ~~PSCW~~these ~~authorized~~agreements ~~MGE~~are ~~100%~~included ~~AFUDC~~as onassets ~~this~~and ~~project~~liabilities ~~during~~in ~~construction~~the consolidated balance sheet. ~~Beginning~~As inof ~~2013~~June 30, ~~similar~~2015, toassets ~~MGE's~~(other accounts receivable and other ~~utility~~deferred ~~construction~~assets) ~~projects,~~and ~~the~~liabilities ~~PSCW~~(accounts ~~authorized~~payable ~~MGE~~and aother ~~50%~~deferred ~~current~~liabilities) ~~return~~increased ~~(included~~approximately in$3.7 million ~~customer~~as ~~rates)~~a ~~and~~cumulative result of the ~~remaining~~guidance. ~~50%~~In asaddition, ~~AFUDC~~the cumulative effect of this guidance resulted in a $0.1 million reduction in retained earnings.

As of June 30, 2015, the remaining contractual maturities of the chattel paper agreements were as follows:


(In thousands)		2015		2016		2017		2018		Thereafter		Total
Repurchase-to-Maturity Transactions:
Loans	$	220	$	838	$	433	$	464	$	1,759	$	3,714

Taxes - MGE Energy and MGE.

MGE Energy's effective income tax rates for the three and six months ended June 30, 2015, were 37.3% and 36.9%, respectively, compared to 39.1% and 37.7% for the same periods in 2014. MGE's effective income tax rates for the three and six months ended June 30, 2015, were 37.2% and 36.9%, respectively, compared to 39.1% and 37.7% for the same periods in 2014. The decrease in the effective tax rates is due in part to a higher domestic manufacturing deduction offset by lower AFUDC equity earnings in 2015.

Accounting for Uncertainty in Income Taxes.

MGE Energy and MGE account for the difference between the tax benefit amount taken on prior year tax returns, or expected to be taken on a current year tax return, and the tax benefit amount recognized in the financial statements as an unrecognized tax benefit.

MGE Energy has adopted a tax method of accounting to accelerate tax deductions for repairs. MGE Energy and MGE have an unrecognized tax benefit at March 31, 2013, and December 31, 2012, in the amount of $3.4 million and $3.2 million, respectively, for the tax uncertainty related to the change in tax method of accounting for repairs.

On April 18, 2013, MGE Energy received notification from the Internal Revenue Service that the examination of tax periods 2007-2009 has been completed. Unrecognized tax benefits of $1.5 million related to those years will be reversed (in the second quarter) due to those positions not being adversely adjusted in the examination.

Effective Tax Rate.

MGE Energy's and MGE's effective income tax rate for the three months ended March 31, 2013, was 37.7%, compared to 38.1% for the same period in 2012.

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 and six months ended ~~March~~June 3130, ~~2013~~2015 and ~~2012~~2014. A portion of the net periodic benefit cost is capitalized within the consolidated balance sheets.

		Three Months Ended March 31,
			Three Months Ended				Six Months Ended
(In thousands)		2013		2012
			June 30,				June 30,
Pension Benefits
	(In thousands)		2015		2014		2015		2014
Components of net periodic benefit cost:
	Pension Benefits
Service cost	$	1,929	$	1,823
	Components of net periodic (benefit) cost:
Interest cost		3,186		3,154
	Service cost	$	2,039	$	1,589	$	3,837	$	3,073
Expected return on assets		(4,776)		(3,818)
	Interest cost		3,902		3,483		7,342		6,735
Amortization of:
	Expected return on assets		(6,438)		(5,656)		(12,115)		(10,935)
Prior service cost		79		108
	Amortization of:
Actuarial loss		2,015		2,006
	Prior service cost		6		53		12		102
Net periodic benefit cost	$	2,433	$	3,273
	Actuarial loss		1,513		186		2,847		358
Postretirement Benefits
	Net periodic (benefit) cost	$	1,022	$	(345)	$	1,923	$	(667)
Components of net periodic benefit cost:
	Postretirement Benefits
Service cost	$	596	$	647
	Components of net periodic (benefit) cost:
Interest cost		970		1,125
	Service cost	$	3	$	152	$	386	$	482
Expected return on assets		(544)		(435)
	Interest cost		6		356		784		1,127
Amortization of:
	Expected return on assets		(5)		(301)		(708)		(955)
Transition obligation		1		106
	Amortization of:
Prior service cost		28		28
	Transition obligation		-		-		1		1
Actuarial loss		311		621
	Prior service benefit		(5)		(307)		(672)		(974)
Net periodic benefit cost	$	1,362	$	2,092
	Actuarial loss		2		17		264		57
	Net periodic (benefit) cost	$	1	$	(83)	$	55	$	(262)

The PSCW allowed MGE to defer the 2009 incremental pension and OPRB costs above the amounts recovered in rates. During both the three months ended March 31, 2013 and 2012, $0.3 million has been recovered in rates. These costs are not reflected in the table above.

Share-Based Compensation - MGE Energy and MGE.

Under MGE Energy's Performance Unit Plan, eligible ~~participants~~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.

InOn ~~addition to units granted in 2009 through 2012, on~~ February 1520, ~~2013~~2015, 1518,~~256~~948 units were granted based on the MGE Energy closing stock price as of that date. ~~These units~~Units are subject to a five-year graded vesting schedule. 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~~June 3130, ~~2013~~2015, 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 the event of a bona fide retirement, not followed by work for a competitor, the executive will receive full vesting credit for each outstanding award.

~~During~~For ~~the~~nonretirement ~~three~~eligible ~~months ended March 31~~employees, ~~2013~~stock ~~and~~based ~~2012,~~compensation ~~MGE~~costs ~~recorded~~are ~~$0.9 million~~accrued and ~~$0.4 million,~~recognized ~~respectively,~~using ~~in compensation expense as a result of~~ the ~~Performance~~graded ~~Unit Plan~~vesting method. InCompensation ~~January 2013,~~cost ~~cash~~for ~~payments~~retirement ofeligible ~~$1.0 million~~employees ~~were~~or ~~distributed~~employees ~~relating to awards~~ that ~~were~~will ~~granted~~become inretirement ~~2008~~eligible ~~and became payable under the Performance Unit Plan. No forfeitures occurred~~ during the ~~three~~vesting ~~months~~schedule ~~ended~~are ~~March 31,~~recognized ~~2013~~on oran ~~2012.~~abridged ~~At March 31, 2013, $3~~horizon.~~7 million of outstanding awards are vested.~~

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 payments, at the end of the set performance period. The units are subject to a three-year graded vesting schedule. In January 2015, 3,794 units were granted. For accounting purposes, the awards will be measured similarly to the employee unit awards.

During the six months ended June 30, 2015 and 2014, MGE recorded less than $0.1 million and $1.1 million, respectively, in compensation expense as a result of awards under the plans. In January 2015, cash payments of $1.3 million were distributed relating to awards that were granted in 2010. During the six months ended June 30, 2015, MGE recorded a $0.2 million gain on 4,676 units forfeited. No forfeitures occurred during the six months ended June 30, 2014. At June 30, 2015, $5.3 million of outstanding awards are vested, and of this amount no cash settlements have occurred.

Commitments and Contingencies - MGE Energy and MGE.

Environmental ~~- MGE Energy and MGE~~.

~~Water~~MGE Energy ~~Quality~~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:

~~Water quality regulations promulgated by the~~ EPA's ~~and~~Proposed ~~WDNR~~Effluent inLimitations ~~accordance~~Guidelines ~~with the Federal Water Pollution Control Act, or more commonly known as the Clean Water Act~~ (~~CWA~~ELG), impose restrictions on discharges of various pollutants into surface waters. The CWA also regulates surface water quality issues that affect aquatic life, such as water temperatures, intake structures, and ~~wetlands~~Standards ~~filling.~~for ~~The~~Steam ~~CWA~~Electric ~~also~~Power ~~includes~~Generating ~~discharge~~Point ~~standards,~~Source which require the use of effluent-treatment processes equivalent to categorical "best practicable" or "best available" technologies. The CWA regulates discharges from "point sources" such as power plants through establishing discharge limits in water discharge permits. MGE's power plants operate under Wisconsin Pollution Discharge Elimination System (WPDES) permits to ensure compliance with these discharge limits.Category

The EPA published a proposed rule in June 2013 that would amend the current ELG rule and lower the existing permissible water discharge of metals and other pollutants in wastewater from new and existing steam electric generation plants. The proposed rule mostly covers certain air pollution control systems and ash handling systems at coal-burning power plants with units greater than 50 megawatt (MW) generation capacity. The EPA is under a consent decree to finalize the rule by September 2015. Once finalized, the rule will apply to Wisconsin-based power plants as they renew their WPDES permits beginning in July 2017.

Based on our current evaluation of the proposed rule and its alternatives, our Elm Road Units and Columbia plant may need to add treatment systems or additional equipment, and those capital additions may be significant. However, MGE cannot estimate those costs with any certainty until we are able to evaluate the final version of this rule. Management believes compliance costs will be recovered in future rates based on previous treatment of environmental compliance projects.

EPA Cooling Water Intake Rules (Section 316(b))

Section 316(b) of the Clean Water Act (CWA) requires that the cooling water intake structures at electric power plants meet best available technology standards so that mortality from entrainment (drawing aquatic life into a plant's cooling system) and impingement (trapping aquatic life on screens) are reduced. ~~Section~~The EPA finalized its 316(b) ~~has~~rule ~~been~~for ~~introduced~~existing facilities in ~~two phases~~2014. ~~Phase~~Section I,316(b) ~~which~~requirements ~~has~~are ~~been~~implemented ~~finalized,~~in ~~covered~~Wisconsin ~~new~~through ~~facilities~~modifications atto ~~the~~plants' ~~time~~WPDES ~~that the rule was introduced. Phase II~~permits, which ~~has~~govern ~~not~~plant ~~been~~water ~~finalized,~~discharges. isWDNR ~~designed to cover what~~ is ~~defined~~currently asdeveloping ~~existing~~rules ~~facilities. The EPA issued a proposed Phase II rule and alternative compliance strategies for existing facilities in April 2011 and has until June 27, 2013,~~ to ~~issue~~implement athe ~~final~~EPA ~~rule,~~316(b) ~~pursuant to a settlement agreement~~rule.

~~The~~Our ~~currently~~WCCF ~~proposed~~facility ~~Phase~~already IIemploys ~~rule~~a ~~and~~system ~~potential~~that ~~alternatives~~meets ~~allow~~the ~~for~~316(b) arule. ~~state~~Our ~~permitting~~Blount ~~agency's~~plant ~~discretion~~has inconducted ~~determining~~studies ~~best~~showing ~~technology available at plants~~ that ~~are~~it ~~under~~will ~~their~~likely ~~permitting~~be ~~authority~~in ~~and~~compliance iswith ~~not~~this ~~requiring cooling towers in all instances~~rule. The ~~WDNR~~operator ~~holds~~of ~~permitting~~our ~~authority~~Columbia ~~for~~plant ~~Wisconsin~~plans ~~and~~to ~~implementation~~conduct ofan ~~the~~intake ~~rule~~study ~~will~~to bedemonstrate ~~through~~compliance ~~modification~~with ofthis ~~the~~rule ~~plants' WPDES permits. Blount~~ and/or ~~Columbia~~identify ~~generating~~design ~~plants~~criteria ~~are~~needed ~~subject~~ to ~~both~~meet the ~~impingement~~new ~~and entrainment aspects of the current proposed~~ rule. ~~WCCF~~requirements isprior ~~subject~~ to ~~the~~Columbia's ~~impingement~~2017 ~~aspect~~permit ~~only~~renewal. The ~~Elm~~exact ~~Road~~requirements ~~Units are~~at ~~covered~~Blount ~~under Phase I of the rule~~ and ~~meets~~Columbia, ~~those~~however, ~~requirements.~~will Wenot ~~anticipate~~be ~~that~~known ~~under~~until the ~~current~~WDNR ~~proposed~~finalizes its rule, ~~equipment~~approves ~~would~~the ~~need~~plant tooperators' beapproach, ~~installed~~and atthose ~~Blount,~~sites' ~~WCCF,~~permits ~~and~~are ~~Columbia~~modified to ~~meet~~account ~~these~~for ~~new~~this ~~standards~~rule. ~~However~~Nonetheless, itMGE isexpects ~~not~~that ~~presently possible to estimate~~ the ~~potential~~316(b) ~~costs~~rule ~~associated~~will ~~with~~not ~~this~~have ~~rule~~material ~~because~~effects ~~the~~on ~~rule~~its ~~has~~existing ~~not been finalized~~plants.

Air Quality

Federal and state air quality regulations impose restrictions on emission of particulate matter (PM), sulfur dioxide (SO2), nitrogen oxides (NOx), and other pollutants and require permits for operation of emission sources. These permits have been obtained by MGE and must be renewed periodically. Various initiatives, including interstate pollution transport rules, maximum achievable control technology (MACT) standards, new source performance standards (NSPS), the Clean Air Visibility Rule (also known as the Regional Haze Rule), and mercury emissions limits are expected to result in additional operating and capital expenditure costs for electric generating units.

Vacation of EPA's Cross State Air Pollution Rule (CSAPR) and Reinstatement of the Clean Air Interstate Rule (CAIR)

In 2005, EPA promulgated the Clean Air Interstate Rule (CAIR) to reduce ozone and fine particulate matter emissions by reducing NOx and SO2 emissions. NOx and SO2 interact in the atmosphere to form ambient ozone from NOx and fine particulate matter pollution from NOx and SO2. The CAIR generally requires NOx and SO2 emission reductions from fossil fuel-fired EGUs (25 MW or greater) in the eastern half of the United States in two phases and includes a regional cap-and-trade system. The first phase (currently in place)

~~requires~~EPA's ~~annual~~Greenhouse ~~regional~~Gas ~~emission reductions from 2003 levels of 55% for NOx and 40% for SO2. The second phase~~ (~~beginning in 2015~~GHG) ~~reduces~~Reduction ~~regional~~Guidelines ~~NOx~~under ~~and SO2 emissions further from 2003 levels to 65% and 70%, respectively. MGE owns or has partial ownership in several generation units currently subject to~~ the ~~CAIR:~~Clean ~~Blount,~~Air ~~Columbia,~~Act ~~Elm~~111d ~~Road Units, and its combustion turbines located in West Marinette and Fitchburg.~~Rule

InOn ~~December 2008~~August 3, 2015, the ~~U.S.~~EPA ~~Court~~finalized ofits ~~Appeals~~Clean Power Plan rule setting guidelines for ~~the~~states Dto use in developing plans to control GHG emissions from existing fossil fuel-fired electric generating units (EGUs) and systems.C. ~~Circuit~~When ~~remanded~~fully implemented in 2030, the ~~CAIR~~Clean Power Plan is projected to ~~the~~reduce ~~EPA~~GHG ~~with~~emissions ~~directions~~from this sector by 32 percent below 2005 levels. States are given up to ~~revise~~three oryears ~~replace~~to submit a plan to meet the ~~rule.~~reduction ~~The~~goals ~~Court's~~and ~~remand~~are ~~order~~expected ~~directed~~to ~~that~~meet interim goals starting in 2022 and the ~~CAIR~~final ~~remain~~goal in ~~effect~~2030. ~~until~~Implementation of the ~~EPA~~rule ~~promulgated~~is expected to have a ~~replacement~~direct ~~rule.~~impact ~~The~~on ~~Court's~~coal-based ~~order~~generating ~~did~~units, ~~not~~including ~~include~~possible achanges ~~deadline~~in ~~for~~dispatch ~~the~~and ~~EPA~~additional tooperating ~~act~~costs.

InMGE ~~August 2011,~~is ~~the~~currently ~~EPA~~evaluating ~~responded to~~ the ~~remand~~rule ~~of the CAIR by promulgating the Cross State Air Pollution Rule (CSAPR). However, in August 2012, the U.S. Court of Appeals for the D.C. Circuit vacated CSAPR~~ and ~~instructed~~its ~~the~~requirements; ~~EPA to continue administering the CAIR pending finalizing a valid alternative program to control interstate pollution. In January 2013~~however, ~~the~~compliance ~~U.S.~~with ~~Court of Appeals for~~ the ~~D.C. Circuit denied the EPA~~rule's ~~petition~~requirements, ~~for~~including ~~reconsideration en banc. The EPA and several environmental groups have appealed~~ the ~~D.C. Circuit Court's August 2012 decision~~ yet-to-be-developed ~~the~~state ~~Supreme~~implementation ~~Court~~plan, inwill ~~separate~~have ~~filings.~~a Atmaterial ~~this~~impact ~~time,~~on ~~the CAIR remains effective~~MGE.

~~MGE~~National isAmbient ~~currently~~Air inQuality ~~compliance~~Standards with the CAIR Phase I requirements. MGE will be able to meet Phase II NOx emissions reductions through using our NOx allowances provided through the rule, and we will meet Phase II SO2 emissions reductions through installation of pollution controls. New SO2 controls at Columbia are already underway and are planned to be completed by mid 2014 (~~see the discussion regarding the Columbia environmental project below~~NAAQS). MGE expects that any costs incurred to meet Phase II of the CAIR will be fully recoverable through rates. MGE will monitor the Supreme Court's response to the CSAPR appeals and any subsequent actions by the EPA to continue to evaluate potential impacts to our operations.

~~Clean~~The ~~Air~~EPA's ~~Visibility~~NAAQS ~~Rule~~regulations have been developed to set ambient levels of six pollutants to protect sensitive populations (~~CAVR~~primary NAAQS) and the environment (secondary NAAQS) from the negative effects of exposure to these pollutants at higher levels. MGE is following developments for several NAAQS, including for particulate matter, nitrogen dioxide, sulfur dioxide, and ozone. Further discussion on sulfur dioxide and ozone NAAQS follows. For additional information on the NAAQS process, see Footnote 18.d. of Notes to Consolidated Financial Statements under Item 8, Financial Statements and Supplementary Data, of MGE Energy's and MGE's 2014 Annual Report on Form 10-K.

~~Air~~Sulfur ~~modeling~~Dioxide ~~indicates that SO2 and NOx emissions~~ (~~and to a lesser extent particulate matter~~SO2) from Columbia may impair visibility at certain Class I Scenic Areas and may therefore be subject to the best available retrofit technology (BART) regulations, a subsection of the EPA's Clean Air Visibility Rule (CAVR), which may require pollution retrofits. The EPA had proposed that a power plant's compliance with emissions limitations in the CAIR and later under CSAPR could also serve as compliance with the BART regulations for SO2 and NOx emissions. However, this proposal is now uncertain because of the D.C. Circuit decisions to remand the CAIR and vacate CSAPR and the EPA's decision to pursue Supreme Court review of the CSAPR vacature. See CAIR and CSAPR discussion above for additional information on these proceedings. Capital expenditures at Columbia under BART still remain a possibility however at this time, the BART regulatory obligations, compliance strategies and costs remain uncertain until the Supreme Court makes a decision regarding CSAPR. NAAQS

~~Wisconsin~~The ~~State~~EPA's ~~Mercury~~new ~~Rule~~1-hour SO2 NAAQS has been in place since 2010 and initial attainment/nonattainment designations by states were due in 2013. However, the EPA was sued by environmental groups for not making these designations in a timely and proper manner. In March 2015, the EPA entered into a court-approved consent decree requiring 1-hour SO2 attainment/nonattainment area designations to be completed in three phases extending out until 2020. States must submit their first designation proposals in September 2015 encompassing those areas that contain large stationary sources of SO2 (sources that emit over a threshold mass of SO2, and/or over a threshold emissions rate). The EPA must make final designation determinations for these areas by July 2016.

~~Beginning~~In ~~January~~March 1, 2015, ~~phase~~MGE's ~~two~~Columbia ofplant was identified in the ~~Wisconsin~~Federal ~~mercury~~Register ~~rule~~as ~~will~~meeting ~~require~~the criteria of a large ~~coal-fired~~stationary ~~EGUs~~source of SO2 (~~larger~~based ~~than~~on ~~150 MW~~2012 data). toAs ~~reduce~~such, ~~mercury~~the ~~emissions~~State byof ~~90%,~~Wisconsin ormust ~~choose~~submit aan ~~multi-pollutant~~attainment/nonattainment ~~reduction~~area ~~approach,~~designation for Columbia County (the county in which ~~allows~~the aColumbia ~~stepped~~plant ~~approach~~is tolocated). ~~mercury~~Since ~~reduction~~the ~~while~~2012 ~~reducing~~data ~~NOx~~was ~~and~~collected, Columbia has installed pollution control equipment that has lowered its total SO2 emissions atand ~~prescribed~~its ~~rates~~SO2 emissions rate. ~~The~~However, ~~Elm~~we ~~Road~~will ~~Units currently~~not ~~meet~~know ~~this~~with ~~requirement.~~any ~~The~~certainty if Columbia ~~co-owners~~County ~~expect~~will be determined to ~~meet~~be ~~the~~in ~~90%~~attainment ~~reduction~~until ~~option~~the byState ~~installing~~of ~~baghouses~~Wisconsin ~~and~~completes ~~scrubbers~~its byattainment/nonattainment ~~mid~~demonstration. ~~2014~~The ~~(see~~outcome ~~the~~of ~~discussion~~this ~~regarding~~designation ~~the~~may ~~Columbia~~have ~~environmental~~an ~~project~~adverse ~~below).~~effect ~~With~~on the ~~finalization~~operation of the ~~EPA's~~Columbia ~~Mercury~~plant. ~~and~~MGE ~~Air~~will ~~Toxics~~monitor ~~Standard,~~and orparticipate ~~MATs,~~in ~~the~~developments ~~WDNR~~with isthe ~~currently~~Columbia ~~evaluating~~County ~~how~~designation ~~the~~process. ~~state~~Management ~~mercury~~believes ~~rule~~compliance ~~should~~costs will be ~~supplanted~~recovered byin ~~the~~future ~~EPA's~~rates ~~rule~~based ~~(see~~on ~~discussion~~previous ontreatment ~~MATs~~of ~~below)~~environmental compliance projects.

~~Mercury~~Ozone ~~and Air Toxics Standards (MATs) for Utility Boilers (Also Referred to as the Maximum Achievable Control Technology, or MACT)~~NAAQS

MGE is monitoring developments in the EPA's revision of the Ozone NAAQS rule. In ~~December~~November ~~2011~~2014, the EPA ~~finalized~~published ~~its~~proposed ~~Mercury~~regulations ~~and~~to ~~Air~~lower ~~Toxics~~the ~~Standards~~Ozone ~~for~~NAAQS ~~coal~~to ~~and~~between ~~oil-burning~~65 ~~EGU~~to ~~boilers.~~70 ~~MATs~~parts ~~will~~per ~~require~~billion ~~emissions~~(ppb). ~~standards~~In ~~for~~this ~~mercury~~proposed rule, ~~non-mercury~~the ~~HAPs~~EPA ~~metals~~has stated they are also considering leaving the standard at its current level of 75 ppb, ~~and~~or ~~acid~~lowering ~~gases~~it further to 60 ppb. ~~Compliance~~The ~~with~~EPA ~~MATs~~sought iscomments ~~generally~~on ~~required~~all ~~three~~of ~~years~~these ~~from~~options. In addition, the ~~rule~~EPA ~~issuance,~~is ~~but~~proposing ~~permitting~~a ~~authorities~~secondary ~~can~~ozone ~~grant~~standard anthat ~~additional~~would ~~year~~use ~~for~~a ~~compliance~~new index to ~~facilities~~measure ecosystem and vegetation effects. ~~MGE's~~It ~~Columbia~~is ~~and~~not ~~Elm~~clear ~~Road~~how ~~Units are~~this ~~subject~~secondary tostandard ~~MATs~~would affect sources. ~~The~~Milwaukee County (where our Elm Road ~~Unit's~~Units are ~~current~~located) ~~pollution~~and ~~controls,~~Dane and Columbia's ~~planned~~Counties ~~mercury~~(where ~~pollution~~several ~~controls~~of ~~(baghouse~~our ~~and~~facilities ~~scrubbers~~are located) tomay benot ~~installed~~meet bythe ~~mid~~Ozone ~~2014,~~NAAQS ~~are~~if ~~expected~~it is lowered to ~~allow~~70 ~~both~~ppb ~~facilities~~or below. The EPA plans to ~~comply~~have ~~with~~a ~~the~~final ~~MATs~~Ozone NAAQS rule ~~without~~completed ~~extensions~~by ~~(see~~ the ~~discussion~~end ~~regarding~~of ~~Columbia~~2015. ~~environmental~~MGE ~~project~~will ~~below)~~continue to monitor rule developments and subsequent state actions and implementation plans.

EPA's Cross-State Air Pollution Rule

In July 2011, the EPA finalized its Cross-State Air Pollution Rule (CSAPR) as a court-ordered replacement for its Clean Air Interstate Rule (CAIR) that had been remanded in 2008. CSAPR is an interstate air pollution transport rule designed to reduce ozone and fine particulate matter (PM2.5) air levels in areas that the EPA has determined are being affected by pollution from neighboring and upwind states.

~~National~~CSAPR ~~Ambient~~has ~~Air~~been ~~Quality~~the ~~Standards~~subject of extensive litigation. Although many aspects of CSAPR have been upheld on appeal, the litigation has delayed implementation and created uncertainty. In late 2014, the EPA tolled CSAPR's original compliance deadlines by three years and MGE's affected facilities must now meet their Phase I reduction obligations in 2015 and Phase II in 2017. However, the ongoing litigation leaves unresolved several residual issues that may affect whether, when, and how MGE's facilities will need to comply with CSAPR. Regardless, MGE expects to be able to meet CSAPR requirements at all of our applicable facilities by applying reductions achieved from recent pollution control installations and early reduction efforts. We will continue to monitor developments.

~~The~~Clean ~~EPA has developed National Ambient~~ Air ~~Quality~~Visibility ~~Standards~~Rule (~~NAAQS~~CAVR) for six compounds currently identified as criteria pollutants: nitrogen dioxide, particulate matter, ozone, sulfur dioxide, lead, and carbon monoxide. The NAAQS for criteria pollutants establish acceptable ambient air levels of each pollutant based on a review of their effects to human health and the environment, and changes to those NAAQS can affect compliance requirements and associated capital and operating costs. The EPA is required to review NAAQS every five years.

~~Certain~~Columbia ~~stationary~~may ~~sources,~~be ~~such~~subject asto ~~MGE's~~the ~~generation~~best ~~facilities,~~available ~~must~~retrofit ~~meet~~technology ~~NAAQS~~(BART) ~~standards~~regulations, ~~for~~a ~~emissions~~subsection ~~that~~of ~~travel~~the ~~offsite.~~EPA's ~~Stationary~~Clean ~~source~~Air ~~air~~Visibility ~~quality~~Rule ~~modeling~~(CAVR), iswhich ~~used~~may torequire ~~determine~~pollution ~~whether~~control ~~emissions from permitted sources meet these NAAQS~~retrofits. ~~Failure~~Columbia's topollution ~~meet~~control ~~NAAQS~~upgrades ~~may~~and ~~require~~the aEPA's ~~permit~~stance ~~applicant~~that tocompliance ~~incur~~with ~~capital~~the orCSAPR ~~operational~~equals ~~costs to bring a source into~~ compliance. Wewith ~~cannot~~BART ~~predict~~should ifmean ~~MGE's~~that ~~permitted~~Columbia ~~stationary~~will ~~sources~~not ~~will~~need ~~have~~to ~~difficulty~~do ~~meeting~~additional ~~new~~work ~~standards~~to ~~not~~meet ~~previously~~BART ~~modeled~~requirements. ~~Modeling~~At ~~performed~~this bytime, however, the ~~WDNR~~BART ~~for~~regulatory ~~MGE's~~obligations, ~~permitted facilities has demonstrated~~ compliance ~~with~~strategies, ~~current~~and ~~NAAQS.~~costs ~~Additional~~remain ~~modeling~~uncertain ~~may~~due beto ~~required~~the inlegal ~~future~~uncertainty ~~permitting~~surrounding ~~actions~~CSAPR.

MGE tracks NAAQS developments to determine if new standards may affect us. MGE is currently tracking two NAAQS developments: (1) determination and placement of monitoring networks in Wisconsin for the 2010 nitrogen dioxide (NO2) NAAQS (Wisconsin is currently considered in attainment with NO2 NAAQS, however stationary source modeling may be required for NO2 in the future) and (2) implementation requirements under the 2010 sulfur dioxide (SO2) NAAQS. The EPA's ~~has~~Coal ~~issued~~Combustion ~~draft~~Residuals guidance that indicates larger sources, such as Columbia, may be required to install ambient air monitors and/or perform dispersion modeling to demonstrate attainment. A concern has been raised regarding the current EPA-preferred dispersion model. The model may not be accurate for estimating SO2 stationary source impacts and may overestimate off-site concentrations of SO2 from stationary sources. The EPA is working to resolve issues with the model.Rule

~~Reciprocating~~In ~~Internal~~December 2014, the EPA finalized its Disposal of Coal Combustion ~~Engine~~Residuals from Electric Utilities rule. The rule becomes effective on October 19, 2015. The rule provides that coal ash will be regulated as a solid waste and defines what ash use activities would be considered beneficial use of coal ash. The rule also regulates landfills, ash ponds, and other surface impoundments for coal combustion residuals (~~RICE~~CCRS or coal ash) ~~MACT~~by ~~Standard~~regulating their design, location, monitoring, and operation. Landfills and impoundments that cannot meet design criteria will need to formally close within defined timeframes.

InThe ~~January 2013,~~Columbia ~~the~~and ~~EPA~~Elm ~~finalized~~Road ~~amendments~~Units co-owners toand ~~its~~plant ~~RICE~~operators ~~MACT~~are ~~standard.~~evaluating ~~RICE~~the ~~MACT~~final ~~applies~~rule to ~~industrial~~determine orwhat ~~electrical~~changes ~~engines~~may ~~that~~be ~~are~~necessary ~~classified~~at asthose ~~reciprocating~~facilities ~~internal~~and ~~combustion~~the ~~engines~~associated timeframes. ~~Engines~~We ~~owned~~anticipate ~~by MGE~~ that ~~would~~some ~~fall~~design ~~under~~and ~~the~~operational ~~RICE~~changes ~~MACT~~may ~~rule~~need ~~include~~to ~~backup~~be ~~generators~~made ~~and~~at ~~small~~these ~~engines~~facilities. atPreliminary ~~various~~review ~~locations,~~for ~~including~~ our ~~fleet~~Elm ofRoad ~~distributed~~facility ~~generators~~has indicated that ~~serve~~the ascosts ~~electric~~may ~~system~~not ~~backup~~be ~~and emergency dispatch~~significant. ~~The~~We ~~distributed~~are ~~generators~~still inevaluating ~~particular~~the ~~will~~rule's ~~either~~full ~~require~~effects ~~additional~~at ~~pollution~~Columbia, ~~controls~~however, orColumbia's aoperator ~~change~~has inbegun ~~how~~to ~~they~~develop ~~are~~preliminary ~~dispatched.~~schedules ~~MGE~~and isassign ~~continuing~~cost toestimates ~~evaluate~~with ~~the~~its ~~impacts~~ash tooperations ~~our~~under ~~engines based on~~ this ~~new~~rule. ~~standard,~~Management ~~including~~believes ~~evaluating~~compliance ~~the~~ costs ~~associated~~will ~~with~~be ~~adding~~recovered ~~pollution~~in ~~controls~~future onrates ~~some~~based oron ~~all~~previous ~~our~~treatment ~~aforementioned~~of ~~distributed~~environmental ~~generators.~~compliance projects.

Greenhouse Gas Regulation

On March 27, 2012, the EPA proposed GHG New Source Performance Standards (NSPS) for coal fired and natural gas combined cycle (NGCC) EGUs. The proposal applies to new EGUs only.

However, the EPA plans to propose NSPS for existing units some time in 2013 as part of a 2010 settlement agreement. There is a great deal of uncertainty as to what the EPA will include in their NSPS for existing units and thus we are unable to comment on potential impacts to MGE at this time.

Columbia

MGE and two other utilities jointly own Columbia, a coal-fired generating facility, which accounts for 225 MW (29%) of MGE's net summer generating capability. WPL is the plant operator and permit holder, and owns 46.2% of Columbia. Wisconsin Public Service Corporation (WPSC) owns a 31.8% interest, and MGE owns a 22% interest in 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

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. The scrubbers and bag houses are expected to support compliance obligations for current and anticipated air quality regulations, including CAIR, CAIR's eventual replacement, the Mercury and Air Toxics Standards

(MATs), and the Wisconsin Mercury Rule. WPL, the plant operator, currently estimates that MGE's share of the capital expenditures required for this project is approximately $140 million. The project is underway and estimated to be completed by mid 2014.

MGE's share of various contractual commitments entered for the project as of March 31, 2013, is $56.7 million. These costs are expected to be capitalized and included in the consolidated balance sheets of MGE Energy and MGE. See Footnote 4 for further information regarding the Columbia environmental construction project.

Title V Operating Permit Petition

In September 2008, the WDNR issued a Title V renewal operating permit to WPL for Columbia. However, a citizen group petitioned the EPA to object to the permit renewal. In October 2009, the EPA issued an order granting in part and denying in part the petition and sent the operating permit back to the WDNR for further review based on the EPA order. In February 2011, the citizen group involved filed an action against the EPA in the U.S. District Court for the Western District of Wisconsin seeking to have the EPA take over the permit process. In June 2012, the EPA notified the plant operator of its intent to assume responsibility for issuing the renewed operating permit for Columbia, but agreed to provide the plant operator with more time to potentially resolve the issues raised in the EPA's order. On February 4, 2013, the parties involved dismissed the litigation without prejudice. The matter is still pending at the EPA but has been postponed pending possible resolution of the Clean Air Act litigation discussed below. MGE believes the permits currently in effect for Columbia remain in place at this time. MGE continues to follow these developments and is unable to predict the outcome of this matter and its impact on its operations or financial condition.

Columbia Clean Air Act Litigation

Columbia is a coal-fired generating station operated by WPL in which WPL, WPSC, and MGE have ownership interests. In December 2009, the EPA sent a ~~notice~~Notice of ~~violation~~Violation (NOV) to MGE as one of the co-owners of Columbia. The NOV ~~alleges~~alleged that WPL, ~~as operator,~~ and the Columbia co-owners ~~(WPL, WPS, and MGE)~~ failed to comply with appropriate pre-construction review and permitting requirements and, as a result, violated the ~~PSD~~Prevention of Significant Deterioration program requirements, ~~the~~ Title V ~~operating~~Operating ~~permit~~Permit requirements of the CAA, and the Wisconsin ~~State~~SIP. ~~Implementation~~In ~~Plan~~April 2013, ~~(SIP)~~the EPA filed a lawsuit against the co-owners of Columbia asserting similar allegations. In September 2010 and April 2013, the Sierra Club filed acivil ~~lawsuit~~lawsuits against WPL alleging violations of the CAA at Columbia and other Wisconsin facilities operated by WPL. In June 2013, the court approved and entered a consent decree entered by the EPA, Sierra Club, and the co-~~operated~~owners ~~Wisconsin~~of ~~facilities~~Columbia to resolve these claims, while admitting no liability. ~~WPL~~One ~~responded~~of ~~that~~the requirements of the ~~projects~~consent decree requires installation of a SCR system at Columbia ~~were~~Unit 2 ~~routine~~by December 31, or2018. ~~not~~Installation of the SCR has been approved by the PSCW. MGE's share of the projected tocost ~~increase~~for ~~emissions~~the SCR system is approximately $30-$40 million. In addition, the consent decree establishes emission rate limits for SO2, NOx, and ~~therefore~~particulate ~~did~~matter ~~not~~and ~~violate~~annual plant-wide emission caps for SO2 and NOx. MGE intends to seek recovery in future rates of the ~~permitting~~costs ~~requirements~~associated with its compliance with the terms of the ~~CAA~~final consent decree and currently expects to recover any material compliance costs.

In April 2013, WPL, as operator, along with the other owners of Columbia (MGE and WPS), entered into a consent decree with the EPA and the Sierra Club to resolve these claims, while admitting no liability. The consent decree has been lodged with, and is subject to approval by, the Court, which could occur in the second quarter of 2013. 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, nitrogen oxide (NOx) and particulate matter for Columbia Units 1 and 2. The consent decree also includes annual plant-wide emission caps for SO2 and NOx for Columbia. MGE will also pay approximately $0.2 million as its share of a civil penalty and complete approximately $0.6 million in environmental mitigation projects. MGE currently expects to recover any material costs that could be incurred by MGE related to the terms of the final consent decree from MGE's electric customers, except for costs related to the civil penalty. In accordance with applicable accounting standards, MGE has accrued an amount for this matter representing its best estimate of its probable liability, based upon its assessment of the settlement. That accrued amount is not material to the financial statements. MGE believes the likelihood of a materially greater liability than the accrued amount is remote based upon the current status.19

~~Chattel~~Legal ~~Paper Agreement and Other Guarantees - MGE Energy and MGE~~Matters.

MGE ~~makes~~is ~~available~~involved toin ~~qualifying~~various ~~customers~~legal amatters ~~financing~~that ~~program~~are ~~for~~being ~~the~~defended ~~purchase~~ and ~~installation~~handled ofin ~~energy-related~~the ~~equipment~~normal ~~that~~course ~~will provide more efficient use~~ of ~~utility service at the customer's property~~business. MGE ismaintains ~~party~~accruals tofor asuch ~~chattel~~costs ~~paper~~that ~~purchase~~are ~~agreement~~probable ~~with~~of abeing ~~financial~~incurred ~~institution~~and ~~under~~subject ~~which it can sell or finance an undivided interest with recourse, in up~~ to ~~$10.0 million~~reasonable ~~of the financing program receivables, until July 31, 2013~~estimation. AtThe ~~March 31,~~accrued ~~2013,~~amount ~~MGE has outstanding a $4.3 million interest in these receivables. MGE retains the servicing responsibility~~ for these ~~receivables.~~matters Asis ofnot ~~March 31,~~material ~~2013,~~to the ~~servicing~~financial ~~asset recognized by MGE is $0~~statements.~~2 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, 2013, approximate the fair value of the energy-related equipment acting as collateral. The length of the MGE guarantee to the financial institution varies from one to ten years depending on the term of the underlying customer loan. Principal payments for the remainder of 2013 and the next four years on the loans are:

(In thousands)		2013		2014		2015		2016		2017
Chattel Paper	$	531	$	554	$	867	$	791	$	382

~~Legal~~Purchase ~~Matters - MGE Energy and MGE~~Contracts.

MGE Energy isand ~~involved~~MGE inhave ~~various~~entered ~~legal~~into ~~matters~~various ~~that~~commodity ~~are~~supply, ~~being~~transportation, ~~defended~~ and ~~handled~~storage incontracts ~~the~~to ~~normal~~meet ~~course~~their ofobligations ~~business,~~to ~~including~~deliver ~~the~~electricity ~~Columbia~~and ~~matters~~natural ~~discussed~~gas ~~above~~to customers. ~~MGE~~As ~~maintains~~of ~~accruals~~June 30, ~~for~~2015, ~~such~~the ~~costs~~future ~~that~~commitments ~~are~~related ~~probable of being incurred and subject~~ to ~~reasonable estimation. The accrued amount for~~ these ~~matters~~purchase iscontracts ~~not~~were ~~material~~as ~~to the financial statements.~~follows:


(In thousands)		2015		2016		2017		2018		2019
Natural gas supply^(a)	$	10,303	$	12,307	$	-	$	-	$	-

Purchase Contracts - MGE Energy and MGE.

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, 2013, the future commitments related to these purchase contracts were as follows:

(In thousands)		2013		2014		2015		2016		2017
Coal(a)	$	16,922	$	9,933	$	9,252	$	1,623	$	1,040
Purchase power(b)		49,182		48,425		47,293		48,121		49,242
Other		1,939		-		-		-		-
	$	68,043	$	58,358	$	56,545	$	49,744	$	50,282

(a)

~~Total~~These ~~coal~~ commitments ~~for~~include ~~the~~market-based ~~Columbia and Elm Road Units, including transportation~~pricing. ~~Fuel~~ ~~procurement~~Management ~~for~~expects ~~MGE's~~to ~~jointly~~recover ~~owned Columbia and Elm Road Units are handled by WPL and WEPCO, respectively, who are the operators of those facilities. If any minimum purchase obligations must be paid under~~ these ~~contracts, management believes these obligations would be considered~~ costs ofin ~~service~~future ~~and~~customer ~~recoverable in~~ rates.

~~(b)~~d.

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

eMGE Energy and MGE are required to record a liability for the fair value of an ARO to be recognized in the period in which it is incurred if it can be reasonably estimated. The offsetting associated asset retirement costs are capitalized as a long-lived asset and depreciated over the asset's useful life. As of June 30, 2015, MGE recorded an obligation of $2.2 million for the fair value of its legal liability for asset retirement obligations (AROs) associated with the effect of the final Coal Combustion Residual Rule at Columbia. MGE has regulatory treatment and recognizes regulatory assets or liabilities for the timing differences between when we recover legal AROs in rates and when we would recognize these costs.

Smart Grid Investment Grant - MGE Energy and MGE.

MGE was approved in 2010 by the U.S. Department of Energy (DOE) under the federal stimulus program for a $5.5 million grant for smart grid projects. The DOE grant requires MGE to match the grant funding, bringing the total cost of the projects to more than $11 million. The projects involve the installation of technologies to boost efficiency, enhance service, and improve reliability for customers. The stimulus grant is being used to fund the following projects: advanced metering infrastructure, plug-in hybrid electric vehicles support, and distribution management. As of March 31, 2013, MGE has spent $9.6 million related to these projects and has outstanding agreements to purchase $0.9 million in smart grid related products for the remainder of 2013.

Derivative and Hedging Instruments - MGE Energy and MGE.

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 commodity 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.

Notional Amounts.

The gross notional volume of open derivatives is as follows:

	March 31, 2013		December 31, 2012
		June 30, 2015		December 31, 2014
~~Commodity derivative contracts~~	~~331,315~~Commodity ~~MWh~~derivative contracts	374,820 MWh	~~444,650 MWh~~	448,000 MWh
~~Commodity derivative contracts~~	~~1,360,000~~Commodity ~~Dth~~derivative contracts	4,049,260 Dth	~~1,980,000 Dth~~	4,405,000 Dth
~~FTRs~~	~~1,085 MW~~FTRs	5,409 MW	~~2,670 MW~~	1,854 MW

Financial Statement Presentation.

MGE ~~Energy~~ 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 ~~offset~~gas ~~fair~~and ~~value~~electric ~~amounts~~segments. ~~recognized~~Additionally, ~~for~~as a result of the ~~right~~firm totransmission ~~reclaim~~agreements ~~collateral~~that (MGE holds on electricity transmission paths in the MISO market, MGE holds FTRs. An FTR is a ~~receivable)~~financial orinstrument that entitles the ~~obligation~~holder to ~~return~~a ~~collateral~~stream (aof ~~payable)~~revenues ~~against~~or ~~fair~~charges ~~value~~based ~~amounts~~on ~~recognized~~the ~~for~~differences ~~derivative~~in hourly day-ahead energy prices between two points on the transmission grid. The fair values of these instruments ~~executed~~are offset with ~~the~~a ~~same~~corresponding ~~counterparty~~regulatory ~~under~~asset/liability depending on whether they are in a ~~master~~net ~~netting~~loss/gain ~~agreement~~position. Depending on the nature of the instrument, the gain or loss associated with these transactions will be reflected as cost of gas sold, fuel for electric generation, or purchased power expense in the delivery month applicable to the instrument. At June 30, 2015, and December 31, 2014, the cost basis of exchange traded derivatives and FTRs exceeded their fair value by $0.1 million and $1.6 million, respectively.

MGE ~~purchases~~is ~~and~~a ~~sells~~party ~~exchange-traded~~to ~~and~~a ~~over-the-counter~~purchased ~~options,~~power ~~swaps,~~agreement ~~and~~that ~~future~~provides ~~contracts.~~MGE ~~These~~with ~~arrangements~~firm ~~are~~capacity ~~primarily~~and ~~entered~~energy ~~into~~during toa ~~help~~base ~~stabilize~~term ~~the~~from ~~price~~June 1, ~~risk~~2012, ~~associated~~through ~~with~~May 31, ~~gas or power purchases~~2022. ~~These~~The ~~transactions~~agreement ~~are~~also ~~employed~~allows ~~by both~~ MGE's ~~gas~~an ~~and~~option ~~electric~~to ~~segments.~~extend ~~Additionally, as a result of~~ the ~~firm~~contract ~~transmission~~after ~~agreements that MGE holds on transmission paths in~~ the ~~MISO~~base ~~market, MGE holds FTRs~~term. AnThe ~~FTR~~agreement is aaccounted ~~financial~~for ~~instrument~~as ~~that~~a ~~entitles~~derivative ~~the~~contract ~~holder~~and tois arecognized ~~stream~~at ofits ~~revenues~~fair orvalue ~~charges based~~ on the ~~differences~~consolidated inbalance ~~hourly~~sheets. ~~day-ahead~~However, ~~energy prices between two points on~~ the ~~transmission~~derivative ~~grid.~~qualifies ~~The~~for ~~fair~~regulatory ~~values~~deferral ofand ~~these~~is ~~instruments~~recognized ~~are~~with ~~reflected as~~ a corresponding regulatory asset/ or liability depending on whether ~~they~~the ~~are~~fair value is in a ~~net~~ loss/ or gain position. ~~Depending~~The onfair ~~the~~value ~~nature~~ of the ~~instrument,~~contract ~~the~~at ~~gain~~June 30, or2015, ~~loss~~and ~~associated~~December 31, ~~with~~2014, ~~these~~reflects ~~transactions~~a ~~will~~loss beposition ~~reflected~~of as$56.0 million ~~cost~~and of$53.4 million, ~~gas~~respectively. ~~sold,~~The ~~fuel~~actual ~~for~~cost ~~electric~~will ~~generation,~~be orrecognized in purchased power expense in the ~~delivery~~ month ~~applicable to the instrument. At March 31, 2013, and December 31, 2012, the fair value~~ of ~~exchange~~purchase ~~traded derivatives~~ and ~~FTRs~~collected ~~exceeded~~in ~~their cost basis by $1~~rates.~~5 million and $0.3 million, respectively.~~

~~MGE~~The isfollowing atable ~~party~~summarizes tothe afair ~~ten-year~~value ~~purchased~~of ~~power~~the ~~agreement~~derivative ~~that~~instruments ~~provides~~on ~~MGE~~the ~~with~~consolidated ~~firm~~balance ~~capacity~~sheets. ~~and~~All ~~energy~~derivative ~~during~~instruments ain ~~base~~this ~~term~~table ~~from~~are ~~June 1,~~presented ~~2012,~~on ~~through~~a ~~May 31,~~gross ~~2022.~~basis ~~The~~and ~~agreement~~are ~~also~~calculated ~~allows~~prior ~~MGE an option~~ to ~~extend~~ the ~~contract~~netting ~~after~~of ~~the~~instruments ~~base~~with ~~term.~~the ~~The~~same ~~agreement~~counterparty isunder ~~accounted for as~~ a ~~derivative~~master ~~contract~~netting ~~and~~agreement isas ~~recognized~~well atas ~~its fair value on~~ the ~~consolidated~~netting ~~balance~~of ~~sheet~~collateral. ~~However,~~For ~~the~~financial ~~derivative~~statement ~~qualifies~~purposes, ~~for~~MGE Energy ~~regulatory~~and ~~deferral~~MGE ~~and~~have isnetted ~~recognized~~instruments with ~~a corresponding regulatory asset or liability depending on whether~~ the ~~fair~~same ~~value~~counterparty isunder in a ~~loss~~master ornetting ~~gain~~agreement ~~position.~~as ~~The~~well ~~fair~~as ~~value of~~ the ~~contract~~netting atof ~~March 31,~~collateral. ~~2013,~~At ~~and December~~June 3130, ~~2012~~2015, ~~reflects a loss position of $70.7~~MGE ~~million~~Energy and ~~$72.6 million,~~MGE ~~respectively.~~had ~~The~~the ~~actual~~right ~~fuel~~to ~~cost~~reclaim ~~will~~collateral be(a ~~recognized~~receivable) ~~in purchased power expense in the month~~ of ~~purchase~~$0.9 million.


	Asset Derivatives			Liability Derivatives
(In thousands)	Balance Sheet Location		Fair Value	Balance Sheet Location		Fair Value
June 30, 2015
Commodity derivative contracts	Other current assets	$	522	Derivative liability (current)	$	1,325
Commodity derivative contracts	Other deferred charges		3	Derivative liability (long-term)		111
FTRs	Other current assets		813	Derivative liability (current)		-
PPA	N/A		N/A	Derivative liability (current)		7,860
PPA	N/A		N/A	Derivative liability (long-term)		48,090

December 31, 2014
Commodity derivative contracts	Other current assets	$	130	Derivative liability (current)	$	2,262
Commodity derivative contracts	Other deferred charges		93	Derivative liability (long-term)		171
FTRs	Other current assets		642	Derivative liability (current)		-
PPA	N/A		N/A	Derivative liability (current)		6,870
PPA	N/A		N/A	Derivative liability (long-term)		46,560

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 consolidated balance sheets.


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
June 30, 2015
Commodity derivative contracts	$	525	$	(525)	$	-	$	-
FTRs		813		-		-		813

December 31, 2014
Commodity derivative contracts	$	223	$	(223)	$	-	$	-
FTRs		642		-		-		642


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
June 30, 2015
Commodity derivative contracts	$	1,436	$	(525)	$	(908)	$	3
PPA		55,950		-		-		55,950

December 31, 2014
Commodity derivative contracts	$	2,433	$	(223)	$	(2,179)	$	31
PPA		53,430		-		-		53,430

The following tables summarize the unrealized and realized gains (losses) related to the derivative instruments on the consolidated balance sheets at June 30, 2015 and 2014, and the consolidated income statements for the three and six months ended June 30, 2015 and 2014.


		2015				2014
(In thousands)		Current and long-term regulatory asset		Other current assets		Current and long-term regulatory asset		Other current assets
Three Months Ended June 30:
Balance at April 1,	$	53,966	$	268	$	58,213	$	351
Unrealized loss (gain)		3,160		-		(9,817)		-
Realized (loss) gain reclassified to a deferred
account		(231)		231		(101)		101
Realized (loss) gain reclassified to income
statement		(847)		(44)		559		224
Balance at June 30,	$	56,048	$	455	$	48,854	$	676

Six Months Ended June 30:
Balance at January 1,	$	54,998	$	1,001	$	63,893	$	411
Unrealized loss (gain)		4,478		-		(23,418)		-
Realized (loss) gain reclassified to a deferred
account		(1,292)		1,292		1,434		(1,434)
Realized (loss) gain reclassified to income
statement		(2,136)		(1,838)		6,945		1,699
Balance at June 30,	$	56,048	$	455	$	48,854	$	676

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.


		Realized losses (gains)
		2015				2014
(In thousands)		Fuel for electric generation/ purchased power		Cost of gas sold		Fuel for electric generation/ purchased power		Cost of gas sold
Three Months Ended June 30:
Commodity derivative contracts	$	578	$	(2)	$	(1,061)	$	(128)
FTRs		(255)		-		(196)		-
PPA		570		-		602		-

Six Months Ended June 30:
Commodity derivative contracts	$	998	$	1,759	$	(5,856)	$	(1,349)
FTRs		(374)		-		(832)		-
PPA		1,591		-		(607)		-

	Asset Derivatives			Liability Derivatives
(In thousands)	Balance Sheet Location		Fair Value	Balance Sheet Location		Fair Value
March 31, 2013
Commodity derivative contracts	Other current assets	$	1,343	Derivative liability (current)	$	30
Commodity derivative contracts	Other deferred charges		158	Derivative liability (long-term)		-
FTRs	Other current assets		22	Derivative liability (current)		-
Ten-year PPA	N/A		N/A	Derivative liability (current)		8,880
Ten-year PPA	N/A		N/A	Derivative liability (long-term)		61,810
December 31, 2012
Commodity derivative contracts	Other current assets	$	365	Derivative liability (current)	$	394
Commodity derivative contracts	Other deferred charges		95	Derivative liability (long-term)		11
FTRs	Other current assets		206	Derivative liability (current)		-
Ten-year PPA	N/A		N/A	Derivative liability (current)		9,270
Ten-year PPA	N/A		N/A	Derivative liability (long-term)		63,320

MGE's commodity derivative contracts, FTRs, and 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 sheets and are recognized in earnings in the delivery month applicable to the instrument. As a result of the above described treatment, there are no unrealized gains or losses that flow through earnings.

The ~~following~~PPA ~~tables~~has ~~show~~a ~~the~~provision ~~effect~~that ofmay ~~netting~~require ~~arrangements~~MGE ~~for~~to ~~recognized~~post ~~derivative~~collateral ~~assets~~if ~~and~~MGE's ~~liabilities~~debt rating falls below investment grade (i.e., below BBB-). The amount of collateral that ~~are~~it ~~subject~~may be required to apost ~~master~~varies ~~netting~~from ~~arrangement~~$20.0 million orto ~~similar~~$40.0 million, ~~arrangement~~depending on MGE's nominated capacity amount. As of June 30, 2015, no collateral is required to be, or has been, posted. Certain counterparties extend MGE a credit limit. If MGE exceeds these limits, the ~~balance~~counterparties ~~sheet~~may require collateral to be posted. As of June 30, 2015, and December 31, 2014, certain counterparties were in a net liability of less than $0.1 million.

Offsetting of Derivative Assets
		Gross amounts		Gross amounts offset in balance sheet		Collateral posted against derivative positions		Net amount presented in balance sheet
(In thousands)
March 31, 2013
Commodity derivative contracts	$	1,502	$	(30)	$	(465)	$	1,007
FTRs		22		-		-		22
December 31, 2012
Commodity derivative contracts	$	460	$	(405)	$	-	$	55
FTRs		206		-		-		206

Nonperformance of counterparties to the non-exchange traded derivatives could expose MGE to credit loss. However, MGE enters into transactions only with companies that meet or exceed strict credit guidelines, and it monitors these counterparties on an ongoing basis to mitigate nonperformance risk in its portfolio. As of June 30, 2015, no counterparties have defaulted.

Offsetting of Derivative Liabilities
		Gross amounts		Gross amounts offset in balance sheet		Collateral posted against derivative positions		Net amount presented in balance sheet
(In thousands)
March 31, 2013
Commodity derivative contracts	$	30	$	(30)	$	-	$	-
Ten-year PPA		70,690		-		-		70,690
December 31, 2012
Commodity derivative contracts	$	405	$	(405)	$	-	$	-
Ten-year PPA		72,590		-		-		72,590

The following tables summarize the unrealized and realized gains (losses) related to the derivative instruments on the consolidated balance sheet at March 31, 2013 and 2012, and the consolidated income statement for the three months ended March 31, 2013 and 2012.

		2013				2012
(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,	$	72,329	$	574	$	42,356	$	1,604
Change in unrealized (gain) loss		(1,697)		-		33,310		-
Realized loss reclassified to a deferred account		(290)		290		(2,658)		2,658
Realized loss reclassified to income
statement		(1,145)		(605)		(1,494)		(3,590)
Balance at March 31,	$	69,197	$	259	$	71,514	$	672

		Realized losses (gains)
		Regulated gas revenues		Fuel for electric generation/ purchased power		Cost of gas sold
(In thousands)
Three Months Ended March 31, 2013:
Commodity derivative contracts	$	-	$	22	$	608
FTRs		-		(158)		-
Ten-year PPA		-		1,278		-
Three Months Ended March 31, 2012:
Commodity derivative contracts	$	-	$	1,928	$	3,090
FTRs		-		66		-
Ten-year PPA		-		-		-

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 month applicable to the instrument. As a result of the above described treatment, there are no unrealized gains or losses that flow through earnings.

The ten-year PPA has a provision that may require MGE to post collateral if MGE's debt rating falls below investment grade (i.e., below BBB-). The amount of collateral that it may be required to post varies from $20.0 million to $40.0 million, depending on MGE's nominated capacity amount. As of March 31, 2013, no collateral has been posted. Certain counterparties extend MGE a credit limit. If MGE exceeds these limits, the counterparties may require collateral to be posted. As of March 31, 2013, and December 31, 2012, no counterparties were in a net liability position.

10.

Rate Matters - MGE Energy and MGE.

Rate Proceedings.

OnIn ~~April~~July 152015, ~~2013, MGE applied with~~ the PSCW ~~for~~approved ~~authority~~MGE's ~~to freeze electric and natural gas rates at 2013 levels for 2014. The application includes a~~ request ~~for~~to ~~categorizing~~extend ~~100% of~~ the ~~cost~~current ofaccounting ~~the~~treatment ~~Columbia scrubber construction project as AFUDC. The plan includes a request~~ for ~~deferral~~transmission ofrelated ~~increases~~costs inthrough ~~ATC~~2016, ~~and~~conditioned ~~MISO~~upon ~~Schedule 26 fees. In addition,~~ MGE isnot ~~requesting~~filing ~~that approximately $6.2 million pertaining to~~ a ~~fuel~~base ~~rule~~rate ~~surplus~~case ~~credit~~for ~~be offset against MGE's increased costs~~2016. ~~The~~This ~~fuel~~treatment ~~credit~~would ~~will~~allow ~~accrue~~MGE ~~interest~~to atreflect ~~MGE's~~any ~~weighted~~differential ~~cost~~between ofcosts ~~capital~~reflected ~~during~~in ~~2013,~~rates and ~~the~~actual ~~requested~~costs ~~treatment~~incurred ofin ~~the~~its ~~credit~~next ~~will contribute to the overall~~ rate ~~freeze~~case ~~for 2014~~filing.

24Also in July 2015, MGE filed with the PSCW an application to implement a fuel credit associated with its fuel savings for 2015. The application proposes a mechanism for the return of the fuel savings to electric customers via a bill credit expected to be implemented from September 2015 to December 31, 2015. MGE has deferred $5.9 million of actual fuel savings through June 30, 2015. Approximately $2.7 million is expected to be returned to customers through December 31, 2015. The application further proposes the fuel credit to cover expected fuel savings for 2016 in the amount of approximately $5.0 million based on anticipated fuel costs. The actual fuel savings will depend upon the completion of the annual PSCW fuel cost audits for 2015 and 2016.

On December 1423, ~~2012~~2014, the PSCW authorized MGE to increase ~~2013~~2015 rates for retail electric customers by 3.8% or $1415.94 million and to ~~increase~~decrease gas rates by 12.0% or $13.68 million. The ~~change~~increase in retail electric rates ~~was~~cover ~~driven~~costs byassociated ~~costs~~with ~~for~~the ~~new~~construction ~~environmental~~of emission-reduction equipment at Columbia, ~~final~~improvements ~~construction~~and ~~costs~~reliability ~~for~~of the ~~Elm~~state's ~~Road~~electric ~~Units,~~ transmission ~~reliability enhancements~~system, fuel and purchased power related to coal delivery costs, partially offset by lower cost as a result of market conditions for pension and postretirement benefit costs. The authorized return on common stock equity ~~remains~~is ~~unchanged at~~ 10.32%.

On December 15, 2011, under a limited reopener of MGE's last rate order, the PSCW authorized MGE to increase 2012 rates for retail electric customers by 4.3% or $15.7 million and to increase gas rates by 0.3% or $0.6 million. The change in retail electric rates was driven by MGE's electric fuel and purchased power costs, increased transmission costs, an update to the Elm Road Units' costs, and an increase for energy efficiency programs. The PSCW also approved deferral of CSAPR costs.23

The PSCW approved changes to customer rates and rate design for gas service. Gas rate design consists of a fixed monthly customer charge and a variable charge tied to actual usage, in addition to the separate charge for natural gas commodity costs (PGA). The change shifted more of the rate recovery to the monthly charge, reflecting the related fixed costs of providing gas services, and reduced the variable usage-based charge. Thus, gas net income is expected to be more evenly distributed during the year and less sensitive to weather. A similar, but much smaller rate design shift was also approved for electric rates.

On July 26, 2013, the PSCW authorized MGE to freeze electric and natural gas rates at 2013 levels for 2014. The order authorized 100% AFUDC on the Columbia scrubber construction project and deferral of increased costs related to ATC and MISO network upgrade fees. As part of the rate freeze plan authorized by the PSCW, effective January 1, 2014, approximately $6.3 million associated with a 2012 fuel rule surplus credit was required to be refunded to customers and was amortized in 2014. The fuel credit accrued interest at MGE's weighted cost of capital. The authorized return on equity remained unchanged at 10.3%.

Fuel Rules.

Fuel rules require the PSCW and Wisconsin utilities to defer electric fuel-related costs that fall outside a symmetrical cost tolerance band around the amount approved for a utility in its most recent base rate proceedings. Any over/under recovery of the actual costs is determined on an annual basis and will be adjusted in future billings to electric retail customers. The fuel rules bandwidth is currently set at plus or minus 2%. Under fuel rules, MGE would defer costs, less any excess revenues, if its actual electric fuel costs exceeded 102% of the electric fuel costs allowed in its latest rate order. Excess revenues are defined as revenues in the year in question that provide MGE with a greater return on common equity than authorized by the PSCW in MGE's latest rate order. Conversely, MGE is required to defer the benefit of lower costs if actual electric fuel costs were less than 98% of the electric fuel costs allowed in that order. ~~As of March 31, 2013, MGE did not defer any electric fuel-related savings/costs that are outside the range authorized by the PSCW.~~

As of June 30, 2015, MGE has deferred $5.7 million (to be returned to customers in a future period) of 2015 electric fuel-related savings that are outside the range authorized by the PSCW. As part of the rate freeze plan authorized by the PSCW for 2014, $3.2 million of the approximately $6.3 million associated with the 2012 fuel rule credit was amortized against purchased power expense during the six months ended June 30, 2014.

Purchased Gas Adjustment Clause.

MGE's natural gas rates are subject to a fuel adjustment clause designed to recover or refund the difference between the actual cost of purchased gas and the amount included in rates. Differences between the amounts billed to customers and the actual costs recoverable are deferred and recovered or refunded in future periods by means of prospective monthly adjustments to rates. At ~~March~~June 30, 2015, and December 31, ~~2013~~2014, MGE had over collected $54.30 million, ~~recorded~~and ~~in other current liabilities on the consolidated balance sheet~~$1. ~~At December~~2 31million, ~~2012~~respectively, ~~MGE~~which ~~had~~was ~~under collected $0.1 million,~~ recorded in other current ~~assets~~liabilities on the consolidated balance ~~sheet~~sheets.

11.

Fair Value of Financial Instruments - MGE Energy and MGE.

Fair value is defined as the price that would be received to sell an asset or would be paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. The accounting standard clarifies that fair value should be based on the assumptions market participants would use when pricing the asset or liability including assumptions about risk. The standard also establishes a three level fair value hierarchy based upon the observability of the assumptions used and requires the use of observable market data when available. The levels are:

Level 1 - Pricing inputs are quoted prices within active markets for identical assets or liabilities.

Level 2 - Pricing inputs are quoted prices within active markets for similar assets or liabilities; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations that are correlated with or otherwise verifiable by observable market data.

Level 3 - Pricing inputs are unobservable and reflect management's best estimate of what market participants would use in pricing the asset or liability.

2524

Fair Value of Financial Assets and Liabilities Recorded at the Carrying Amount.

At ~~March~~June 3130, ~~2013~~2015, and December 31, ~~2012~~2014, the carrying amount of cash, ~~and~~ cash equivalents, and outstanding commercial paper approximates fair market value due to the short maturity of those investments and obligations. The estimated fair market value of MGE Energy's and MGE's long-term debt is based on quoted market prices for similar financial instruments at ~~March~~June 3130, ~~2013~~2015, and December 31, ~~2012~~2014. Since ~~the~~ long-term debt is not traded in an active market, it is classified as Level 2. The estimated fair market value of MGE Energy's and MGE's financial instruments are as follows:

		March 31, 2013					December 31, 2012
			June 30, 2015					December 31, 2014
		Carrying		Fair			Carrying		Fair
	(In thousands)		Carrying Amount		Fair Value			Carrying Amount		Fair Value
(In thousands)		Amount		Value			Amount		Value
	MGE Energy
MGE Energy
	Assets:
Assets:
	Cash and cash equivalents	$	75,791	$	75,791		$	65,755	$	65,755
Cash and cash equivalents	$	45,894	$	45,894		$	46,357	$	46,357
	Liabilities:
Liabilities:
	Short-term debt - commercial paper		-		-			7,000		7,000
Short-term debt - commercial paper		10,500		10,500			-		-
	Long-term debt*		397,610		443,180			399,690		457,420
Long-term debt*		361,138		432,430			361,805		427,456
	MGE
MGE
	Assets:
Assets:
	Cash and cash equivalents	$	23,323	$	23,323		$	4,562	$	4,562
Cash and cash equivalents		9,856		9,856			6,350		6,350
	Liabilities:
Liabilities:
	Short-term debt - commercial paper		-		-			7,000		7,000
Short-term debt - commercial paper		10,500		10,500			-		-
	Long-term debt*		397,610		443,180			399,690		457,420
Long-term debt*		361,138		432,430			361,805		427,456
	*Includes long-term debt due within one year.
*Includes long-term debt due within one year.

Recurring Fair Value Measurements.

The following table presents the balances of assets and liabilities measured at fair value on a recurring basis for MGE Energy and MGE.

	Fair Value as of March 31, 2013
			Fair Value as of June 30, 2015
~~(In thousands)~~	(In thousands)	~~Total~~	Total	~~Level 1~~	Level 1	~~Level 2~~	Level 2	~~Level 3~~	Level 3
~~MGE Energy~~	MGE Energy
~~Assets:~~	Assets:
Exchange-traded investments	$	428	$	428	$	-	$	-
	Derivatives, net(a)	$	959	$	146	$	-	$	813
Total Assets	$	428	$	428	$	-	$	-
	Exchange-traded investments		768		768		-		-
Liabilities:
	Total Assets	$	1,727	$	914	$	-	$	813
Derivatives, net(a)	$	69,197	$	(401)	$	-	$	69,598
	Liabilities:
Deferred compensation		2,085		-		2,085		-
	Derivatives, net(a)	$	57,007	$	-	$	-	$	57,007
Total Liabilities	$	71,282	$	(401)	$	2,085	$	69,598
	Deferred compensation		3,058		-		3,058		-
MGE
	Total Liabilities	$	60,065	$	-	$	3,058	$	57,007
Assets:
	MGE
Exchange-traded investments	$	161	$	161	$	-	$	-
	Assets:
Total Assets	$	161	$	161	$	-	$	-
	Derivatives, net(a)	$	959	$	146	$	-	$	813
Liabilities:
	Exchange-traded investments		169		169		-		-
Derivatives, net(a)	$	69,197	$	(401)	$	-	$	69,598
	Total Assets	$	1,128	$	315	$	-	$	813
Deferred compensation		2,085		-		2,085		-
	Liabilities:
Total Liabilities	$	71,282	$	(401)	$	2,085	$	69,598
	Derivatives, net(a)	$	57,007	$	-	$	-	$	57,007
(a) These amounts are shown gross and exclude $0.5 million of collateral that was posted against derivative positions with counterparties.
	Deferred compensation		3,058		-		3,058		-
	Total Liabilities	$	60,065	$	-	$	3,058	$	57,007

2625

	Fair Value as of December 31, 2012
			Fair Value as of December 31, 2014
~~(In thousands)~~	(In thousands)	~~Total~~	Total	~~Level 1~~	Level 1	~~Level 2~~	Level 2	~~Level 3~~	Level 3
~~MGE Energy~~	MGE Energy
~~Assets:~~	Assets:
Exchange-traded investments	$	320	$	320	$	-	$	-
	Derivatives, net	$	642	$	-	$	-	$	642
Total Assets	$	320	$	320	$	-	$	-
	Exchange-traded investments		927		927		-		-
Liabilities:
	Total Assets	$	1,569	$	927	$	-	$	642
Derivatives, net	$	72,329	$	(17)	$	-	$	72,346
	Liabilities:
Deferred compensation		2,010		-		2,010		-
	Derivatives, net(a)	$	55,640	$	1,012	$	-	$	54,628
Total Liabilities	$	74,339	$	(17)	$	2,010	$	72,346
	Deferred compensation		2,832		-		2,832		-
MGE
	Total Liabilities	$	58,472	$	1,012	$	2,832	$	54,628
Assets:
	MGE
Exchange-traded investments	$	117	$	117	$	-	$	-
	Assets:
Total Assets	$	117	$	117	$	-	$	-
	Derivatives, net	$	642	$	-	$	-	$	642
Liabilities:
	Exchange-traded investments		350		350		-		-
Derivatives, net	$	72,329	$	(17)	$	-	$	72,346
	Total Assets	$	992	$	350	$	-	$	642
Deferred compensation		2,010		-		2,010		-
	Liabilities:
Total Liabilities	$	74,339	$	(17)	$	2,010	$	72,346
	Derivatives, net(a)	$	55,640	$	1,012	$	-	$	54,628
	Deferred compensation		2,832		-		2,832		-
	Total Liabilities	$	58,472	$	1,012	$	2,832	$	54,628
	(a) These amounts are shown gross and exclude $0.9 million and $2.2 million of collateral that was
	posted against derivative positions with counterparties as of June 30, 2015, and
	December 31, 2014, respectively.

No transfers were made in or out of Level 1 or Level 2 for the ~~three~~six months ended ~~March~~June 3130, ~~2013~~2015.

Investments include exchange-traded investment securities valued using quoted prices on active exchanges and are therefore classified as Level 1.

Derivatives include exchange-traded derivative contracts, over-the-counter transactions, a ~~ten-year~~ purchased power agreement, and FTRs. Most exchange-traded derivative contracts are valued based on unadjusted quoted prices in active markets and are therefore classified as Level 1. A small number of exchange-traded derivative contracts are valued using quoted market pricing in markets with insufficient volumes and are therefore classified as Level 3. Transactions done with an over-the-counter party are on inactive markets and are therefore considered unobservable and classified as Level 3. These transactions are valued based on quoted prices from markets with similar exchange traded transactions. FTRs are priced based upon monthly auction results for identical or similar instruments in a closed market with limited data available and are therefore classified as Level 3.

The ~~ten-year~~ purchased power agreement (see Footnote 9) was valued using an internally-developed pricing model and therefore is classified as Level 3. The model projects future market energy prices and compares those prices to the projected power costs to be incurred under the contract. Inputs to the model require significant management judgment and estimation. Future energy prices are based on a forward power pricing curve using exchange-traded contracts in the electric futures market, where such exchange-traded contracts exist, and upon calculations based on forward gas prices, where such exchange-traded contracts do not exist. A basis adjustment is applied to the market energy price to reflect the price differential between the market price delivery point and the counterparty delivery point. The historical relationship between the delivery points is reviewed and a discount (below 100%) or premium (above 100%) is derived. This comparison is done for both peak times when demand is high and off peak times when demand is low. If the basis adjustment is lowered, the fair value measurement will decrease and if the basis adjustment is increased, the fair value measurement will increase.

The projected power costs anticipated to be incurred under the purchased power agreement are determined using many factors, including historical generating costs, future prices, and expected fuel mix of the counterparty. An increase in the projected fuel costs would result in a decrease in the fair value measurement of the purchased power agreement. A significant input that MGE estimates is the counterparty's fuel mix in determining the projected power cost. MGE also considers the assumptions that market participants would use in valuing the asset or liability. This consideration includes assumptions about market risk such as liquidity, volatility, and contract duration. The fair value model uses a discount rate that incorporates discounting, credit, and model risks.

27This model is prepared by members of MGE's Energy Accounting group. It is reviewed on a quarterly basis by management in Energy Supply and Finance to review the assumptions, inputs, and fair value measurements.

This model is prepared by members of MGE's Energy Supply group. It is reviewed on a quarterly basis by management in Energy Supply and Finance to review the assumptions, inputs, and fair value measurements.

The following table presents the significant unobservable inputs used in the pricing model.

Significant Unobservable Inputs		Model Input
			Model Input
Basis adjustment:
	Significant Unobservable Inputs		June 30, 2015	December 31, 2014
On peak		97.1 %
	Basis adjustment:
Off peak		96.0 %
	On peak		97.6%	98.1%
Counterparty fuel mix:
	Off peak		95.4%	95.0%
Internal generation		50 % - 70 %
	Counterparty fuel mix:
Purchased power		50 % - 30 %
	Internal generation		60% - 75%	50% - 70%
	Purchased power		40% - 25%	50% - 30%

The deferred compensation plan allows participants to defer certain cash compensation into a notional investment account. These amounts are included within other deferred liabilities in the consolidated balance sheets of MGE Energy and MGE. The notional investments earn interest based upon the semiannual rate of U.S. Treasury Bills having a 26 week maturity increased by 1% compounded monthly with a minimum annual rate of 7%, compounded monthly. The notional investments are based upon observable market data, however, since the deferred compensation obligations themselves are not exchanged in an active market, they are classified as Level 2.

The following table summarizes the changes in Level 3 assets and liabilities measured at fair value on a recurring basis for both MGE Energy and MGE.

		Three Months Ended				Six Months Ended
		March 31,
		June 30,				June 30,
(In thousands)		~~2013~~2015		~~2012~~2014		2015		2014
Beginning balance,	$	(72,346)	$	(40,661)
Beginning balance	$	(53,866)	$	(58,797)	$	(53,986)	$	(64,628)
Realized and unrealized gains (losses):
Included in regulatory liabilities (assets)		(2,~~748~~327)		~~(30~~9,~~527)~~448		(2,208)		15,279
Included in other comprehensive income		-		-		-		-
Included in earnings		(~~1,148~~883)		~~(1,502)~~651		(2,211)		7,218
Included in current assets		-		(50185)		-		(185)
Purchases		54,~~562~~953		506,828		11,115		13,634
Sales		~~(3)~~-		31-		34		(60)
Issuances		-		-		-		-
Settlements		(4,~~411~~071)		1(7,~~471~~294)		(8,938)		(20,607)
Transfers in and/or out of Level 3		-		-		-		-
Balance as of March 31,	$	(69,598)	$	(71,188)
Balance as of June 30,	$	(56,194)	$	(49,349)	$	(56,194)	$	(49,349)
Total gains (losses) included in earnings attributed to
the change in unrealized gains (losses) related to
assets and liabilities held at March 31,(b)	$	-	$	-
assets and liabilities held at June 30,(b)	$	-	$	-	$	-	$	-

The following table presents total realized and unrealized gains (losses) included in income for Level 3 assets and liabilities measured at fair value on a recurring basis for both MGE Energy and MGE (b).

		~~Three Months Ended~~	Three Months Ended				Six Months Ended
		March 31,
			June 30,				June 30,
~~(In thousands)~~	(In thousands)	~~2013~~	2015	~~2012~~	2014		2015		2014
~~Purchased Power Expense~~	$Purchased Power Expense	~~(1,148)~~$	$(885)	~~(1,502)~~$	651	$	(2,213)	$	7,218
~~Cost of Gas Sold Expense~~	Cost of Gas Sold Expense	-	2	-	-		2		-
Regulated Gas Revenues		-		-
	Total	$	(883)	$	651	$	(2,211)	$	7,218
Total	$	(1,148)	$	(1,502)

(b) MGE's exchange-traded derivative contracts, over-the-counter party transactions, ten-year purchased power agreement, and FTRs are subject to regulatory deferral. These derivatives are therefore marked to fair value and are offset with a corresponding regulatory asset or liability.

28MGE's exchange-traded derivative contracts, over-the-counter party transactions, purchased power agreement, and FTRs are subject to regulatory deferral. These derivatives are therefore marked to fair value and are offset in the financial statements with a corresponding regulatory asset or liability.

12.

New Accounting Pronouncements - MGE Energy and MGE.

~~Presentation~~Transfers ofand ~~Comprehensive~~Servicing ~~Income~~Assets.

In ~~February~~June ~~2013~~2014, the FASB issued authoritative guidance within the Codification's ~~Comprehensive~~Transfers ~~Income~~and Servicing topic that provides guidance on the ~~reporting~~accounting ofand ~~amounts~~disclosures ~~reclassified~~for ~~out~~repurchase-to-maturity oftransactions, ~~accumulated~~securities ~~other~~lending ~~comprehensive~~transactions, ~~income.~~and ~~Reclassification~~repurchase ~~adjustments~~financings. ~~will~~This beauthoritative ~~presented~~guidance ~~either~~became oneffective ~~the~~January 1, ~~financial~~2015. ~~statement~~The ~~where~~authoritative ~~income~~guidance ischanged ~~presented~~the oraccounting asfor athe ~~separate~~Chattel ~~disclosure~~Paper inprogram ~~the~~and ~~notes~~required toadditional ~~the financial statements~~disclosures. ~~This~~Prior ~~authoritative~~to ~~guidance~~adoption ~~became~~of ~~effective~~the ~~January 1~~standard, ~~2013.~~Chattel ~~The~~Paper ~~authoritative~~was ~~guidance~~treated ~~had~~as noan ~~effect~~off-balance onsheet ~~our~~arrangement. ~~financial~~See ~~statement~~Footnote 4 ~~presentation~~for oradditional ~~notes to the financial statements~~information.

~~Disclosures~~Revenue ~~about~~from ~~Offsetting~~Contracts ~~Assets~~with ~~and Liabilities~~Customers.

In ~~December~~May ~~2011~~2014, the FASB issued authoritative guidance within the Codification's ~~Balance~~Revenue ~~Sheet~~Recognition topic that provides guidance on disclosures about offsetting assets and liabilities. The new disclosure requirements mandate that entities disclose both gross and net information for instruments and transactions eligible for offset in the ~~balance~~recognition, ~~sheet~~measurement, ~~as well as instruments~~ and ~~transactions subject to a master netting arrangement. In addition, the standard requires~~ disclosure of ~~collateral~~revenue ~~received~~from ~~and~~contracts ~~posted in connections~~ with ~~a master netting arrangement~~customers. OnThis ~~January 31, 2013, the FASB issued additional~~ authoritative guidance ~~which~~was ~~clarified~~scheduled ~~the~~to ~~scope~~become ofeffective ~~disclosures~~January 1, ~~about offsetting assets and liabilities~~2017. ~~The~~In ~~revised guidance limits the scope of the new balance sheet offsetting disclosures to derivatives~~July 2015, ~~repurchase agreements, and securities lending transactions to~~ the ~~extent~~FASB ~~that~~deferred ~~they are (1) offset in~~ the ~~financial~~effective ~~statements~~date ~~or (2) subject~~ to ~~an enforceable master netting arrangement or similar agreement. This authoritative guidance became effective~~ January 1, ~~2013~~2018. ~~The~~MGE Energy ~~authoritative~~and ~~guidance~~MGE ~~did~~are ~~not~~currently ~~have~~assessing athe ~~financial~~ impact, ~~but~~this ~~required~~pronouncement ~~additional~~will ~~disclosures.~~have ~~See~~on ~~Footnote 9~~their ~~for~~financial ~~additional information~~statements.

~~Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date~~Consolidations.

In February ~~2013~~2015, the FASB issued authoritative guidance within the Codification's ~~Balance~~Consolidation ~~Sheet~~ topic that provides guidance on the ~~recognition,~~evaluation ~~measurement, and disclosure~~ of ~~obligations~~certain ~~resulting~~legal ~~from~~entities ~~joint and several liability arrangements~~ for ~~which~~consolidation ~~the total amount of the obligation is fixed at the reporting date~~purposes. This authoritative guidance will become effective January 1, ~~2014~~2016. The ~~authoritative~~impact ~~guidance~~of ~~will~~this ~~not~~guidance ~~have~~on aour financial orstatements ~~disclosure~~is ~~impact~~not expected to be material.

29d.

Debt Issuance Costs.

In April 2015, the FASB issued authoritative guidance within the Codification's Interest topic that provides guidance on the presentation of debt issuance costs in financial statements. This authoritative guidance will become effective January 1, 2016. The authoritative guidance changes the presentation of debt issuance costs on the balance sheet from an asset to a direct deduction from the related debt liability. The impact of this guidance on our financial statements is not expected to be material.

Cloud Computing Arrangements.

In April 2015, the FASB issued authoritative guidance within the Codification's Software topic that provides guidance on the accounting treatment of cloud computer arrangements. This authoritative guidance will become effective January 1, 2016. The authoritative guidance provides criteria for determining whether a cloud computing arrangement contains a software license that should be accounted for as internal-use software. The impact of this guidance on our financial statements is not expected to be material.

13.

Segment Information - MGE Energy and MGE.

MGE Energy operates in the following business segments: electric utility, gas utility, nonregulated energy, transmission investment, and all other. See MGE Energy's and MGE's ~~2012~~2014 Annual Report on Form 10-K for additional discussion of each of these segments. The following tables show segment information for MGE Energy's operations for the indicated periods:

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


(In thousands) MGE Energy		Electric		Gas		Non- Regulated Energy		Transmission Investment		All Others		Consolidation/ Elimination Entries		Consolidated Total
*Three Months Ended June 30, 2015*
Operating revenues	$	99,481	$	20,669	$	1,976	$	-	$	-	$	-	$	122,126
Interdepartmental revenues		122		2,291		9,853		-		-		(12,266)		-
Total operating revenues		99,603		22,960		11,829		-		-		(12,266)		122,126
Depreciation and amortization		(7,456)		(1,662)		(1,866)		-		(11)		-		(10,995)
Other operating expenses		(79,961)		(19,089)		(36)		-		(262)		12,266		(87,082)
Operating income (loss)		12,186		2,209		9,927		-		(273)		-		24,049
Other (deductions) income, net		16		(25)		-		2,290		165		-		2,446
Interest (expense) income, net		(2,768)		(790)		(1,507)		-		57		-		(5,008)
Income (loss) before taxes		9,434		1,394		8,420		2,290		(51)		-		21,487
Income tax (provision) benefit		(3,164)		(557)		(3,380)		(919)		12		-		(8,008)
Net income (loss)	$	6,270	$	837	$	5,040	$	1,371	$	(39)	$	-	$	13,479

*Three Months Ended June 30, 2014*
Operating revenues	$	96,697	$	31,218	$	850	$	-	$	-	$	-	$	128,765
Interdepartmental revenues		127		1,892		10,673		-		-		(12,692)		-
Total operating revenues		96,824		33,110		11,523		-		-		(12,692)		128,765
Depreciation and amortization		(6,641)		(1,562)		(1,855)		-		(11)		-		(10,069)
Other operating expenses		(76,812)		(29,865)		(30)		-		(240)		12,692		(94,255)
Operating income (loss)		13,371		1,683		9,638		-		(251)		-		24,441
Other (deductions) income, net		1,036		(17)		-		2,402		127		-		3,548
Interest (expense) income, net		(2,534)		(817)		(1,559)		-		42		-		(4,868)
Income (loss) before taxes		11,873		849		8,079		2,402		(82)		-		23,121
Income tax (provision) benefit		(4,491)		(364)		(3,242)		(963)		26		-		(9,034)
Net income (loss)	$	7,382	$	485	$	4,837	$	1,439	$	(56)	$	-	$	14,087

*Six Months Ended June 30, 2015*
Operating revenues	$	197,721	$	90,597	$	3,942	$	-	$	-	$	-	$	292,260
Interdepartmental revenues		237		5,016		19,700		-		-		(24,953)		-
Total operating revenues		197,958		95,613		23,642		-		-		(24,953)		292,260
Depreciation and amortization		(14,788)		(3,304)		(3,729)		-		(23)		-		(21,844)
Other operating expenses		(159,761)		(79,157)		(86)		-		(465)		24,953		(214,516)
Operating income (loss)		23,409		13,152		19,827		-		(488)		-		55,900
Other (deductions) income, net		106		(26)		-		4,171		300		-		4,551
Interest (expense) income, net		(5,587)		(1,594)		(3,025)		-		107		-		(10,099)
Income (loss) before taxes		17,928		11,532		16,802		4,171		(81)		-		50,352
Income tax (provision) benefit		(5,547)		(4,638)		(6,744)		(1,675)		9		-		(18,595)
Net income (loss)	$	12,381	$	6,894	$	10,058	$	2,496	$	(72)	$	-	$	31,757

*Six Months Ended June 30, 2014*
Operating revenues	$	195,549	$	141,931	$	1,530	$	-	$	-	$	-	$	339,010
Interdepartmental revenues		245		5,516		21,343		-		-		(27,104)		-
Total operating revenues		195,794		147,447		22,873		-		-		(27,104)		339,010
Depreciation and amortization		(12,978)		(3,125)		(3,689)		-		(23)		-		(19,815)
Other operating expenses		(154,713)		(122,708)		(70)		-		(396)		27,104		(250,783)
Operating income (loss)		28,103		21,614		19,114		-		(419)		-		68,412
Other (deductions) income, net		2,863		(52)		-		4,883		406		-		8,100
Interest (expense) income, net		(4,739)		(1,621)		(3,131)		-		82		-		(9,409)
Income before taxes		26,227		19,941		15,983		4,883		69		-		67,103
Income tax provision		(8,844)		(8,029)		(6,414)		(1,961)		(51)		-		(25,299)
Net income	$	17,383	$	11,912	$	9,569	$	2,922	$	18	$	-	$	41,804

(In thousands) MGE Energy		Electric		Gas		Non- Regulated Energy		Transmission Investment		All Others		Consolidation/ Elimination Entries		Consolidated Total
Three Months Ended March 31, 2013
Operating revenues	$	93,494	$	72,467	$	1,276	$	-	$	-	$	-	$	167,237
Interdepartmental revenues		109		4,876		10,573		-		-		(15,558)		-
Total operating revenues		93,603		77,343		11,849		-		-		(15,558)		167,237
Depreciation and amortization		(6,400)		(1,425)		(1,799)		-		-		-		(9,624)
Other operating expenses		(74,925)		(60,437)		(37)		-		(144)		15,558		(119,985)
Operating income (loss)		12,278		15,481		10,013		-		(144)		-		37,628
Other income, net		575		162		-		2,396		176		-		3,309
Interest (expense) income, net		(2,404)		(678)		(1,613)		-		20		-		(4,675)
Income before taxes		10,449		14,965		8,400		2,396		52		-		36,262
Income tax provision		(3,433)		(5,989)		(3,257)		(971)		(28)		-		(13,678)
Net income	$	7,016	$	8,976	$	5,143	$	1,425	$	24	$	-	$	22,584
Three Months Ended March 31, 2012
Operating revenues	$	89,936	$	57,019	$	2,304	$	-	$	-	$	-	$	149,259
Interdepartmental revenues		109		2,986		8,676		-		-		(11,771)		-
Total operating revenues		90,045		60,005		10,980		-		-		(11,771)		149,259
Depreciation and amortization		(6,478)		(1,370)		(1,776)		-		-		-		(9,624)
Other operating expenses		(72,788)		(49,741)		(12)		-		(421)		11,771		(111,191)
Operating income (loss)		10,779		8,894		9,192		-		(421)		-		28,444
Other income, net		164		46		-		2,242		118		-		2,570
Interest (expense) income, net		(2,727)		(769)		(1,645)		-		37		-		(5,104)
Income (loss) before taxes		8,216		8,171		7,547		2,242		(266)		-		25,910
Income tax (provision) benefit		(2,785)		(3,238)		(3,029)		(910)		100		-		(9,862)
Net income (loss)	$	5,431	$	4,933	$	4,518	$	1,332	$	(166)	$	-	$	16,048

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

(In thousands) MGE		Electric		Gas		Non- Regulated Energy		Transmission Investment		Consolidation/ Elimination Entries		Consolidated Total
Three Months Ended March 31, 2013
Three Months Ended June 30, 2015
Operating revenues	$	9399,~~494~~486	$	7220,~~467~~671	$	1,~~276~~976	$	-	$	-	$	~~167~~122,~~237~~133
Interdepartmental revenues		~~109~~117		42,~~876~~289		109,~~573~~853		-		(1512,~~558~~259)		-
Total operating revenues		9399,603		7722,~~343~~960		11,~~849~~829		-		(1512,~~558~~259)		~~167~~122,~~237~~133
Depreciation and amortization		(67,~~400~~456)		(1,~~425~~662)		(1,~~799~~866)		-		-		(910,~~624~~984)
Other operating expenses*		(7883,~~506~~079)		(6619,~~468~~632)		(3,~~294~~416)		-		1512,~~558~~259		(~~132~~93,~~710~~868)
Operating income*		8,697		9,450		6,756		-		-		24,903
Operating income (loss)*		9,068		1,666		6,547		-		-		17,281
Other income, net*		723		204		-		1,425		-		2,352
Other (deductions) income, net*		(30)		(39)		-		1,371		-		1,302
Interest expense, net		(2,~~404~~768)		(~~678~~790)		(1,~~613~~507)		-		-		(45,~~695~~065)
Net income		76,~~016~~270		~~8,976~~837		5,~~143~~040		1,~~425~~371		-		2213,~~560~~518
Less: Net income attributable to
noncontrolling interest, net of tax		-		-		-		-		(6,~~826~~626)		(6,~~826~~626)
Net income attributable to MGE	$	76,~~016~~270	$	~~8,976~~837	$	5,~~143~~040	$	1,~~425~~371	$	(6,~~826~~626)	$	156,~~734~~892
Three Months Ended March 31, 2012
Three Months Ended June 30, 2014
Operating revenues	$	8996,~~936~~702	$	5731,~~019~~223	$	~~2,304~~850	$	-	$	-	$	~~149~~128,~~259~~775
Interdepartmental revenues		~~109~~122		21,~~986~~887		810,~~676~~673		-		(1112,~~771~~682)		-
Total operating revenues		9096,~~045~~824		6033,~~005~~110		1011,~~980~~523		-		(1112,~~771~~682)		~~149~~128,~~259~~775
Depreciation and amortization		(6,~~478~~641)		(1,~~370~~562)		(1,~~776~~855)		-		-		(910,~~624~~058)
Other operating expenses*		(7581,~~508~~165)		(5230,~~961~~188)		(3,~~041~~272)		-		1112,~~771~~682		(~~119~~101,~~739~~943)
Operating income*		89,~~059~~018		51,~~674~~360		6,~~163~~396		-		-		1916,~~896~~774
Other income, net*		99		28		-		1,332		-		1,459
Other (deductions) income, net*		898		(58)		-		1,439		-		2,279
Interest expense, net		(2,~~727~~534)		(~~769~~817)		(1,~~645~~559)		-		-		(54,~~141~~910)
Net income		57,~~431~~382		~~4,933~~485		4,~~518~~837		1,~~332~~439		-		1614,~~214~~143
Less: net income attributable to
Less: Net income attributable to
noncontrolling interest, net of tax		-		-		-		-		(6,~~072~~621)		(6,~~072~~621)
Net income attributable to MGE	$	57,~~431~~382	$	~~4,933~~485	$	4,~~518~~837	$	1,~~332~~439	$	(6,~~072~~621)	$	107,~~142~~522
Six Months Ended June 30, 2015
Operating revenues	$	197,731	$	90,604	$	3,942	$	-	$	-	$	292,277
Interdepartmental revenues		227		5,009		19,700		-		(24,936)		-
Total operating revenues		197,958		95,613		23,642		-		(24,936)		292,277
Depreciation and amortization		(14,788)		(3,304)		(3,729)		-		-		(21,821)
Other operating expenses*		(165,221)		(83,770)		(6,830)		-		24,936		(230,885)
Operating income*		17,949		8,539		13,083		-		-		39,571
Other (deductions) income, net*		19		(51)		-		2,496		-		2,464
Interest expense, net		(5,587)		(1,594)		(3,025)		-		-		(10,206)
Net income		12,381		6,894		10,058		2,496		-		31,829
Less: Net income attributable to
noncontrolling interest, net of tax		-		-		-		-		(13,179)		(13,179)
Net income attributable to MGE	$	12,381	$	6,894	$	10,058	$	2,496	$	(13,179)	$	18,650
Six Months Ended June 30, 2014
Operating revenues	$	195,560	$	141,941	$	1,530	$	-	$	-	$	339,031
Interdepartmental revenues		234		5,506		21,343		-		(27,083)		-
Total operating revenues		195,794		147,447		22,873		-		(27,083)		339,031
Depreciation and amortization		(12,978)		(3,125)		(3,689)		-		-		(19,792)
Other operating expenses*		(163,211)		(130,638)		(6,484)		-		27,083		(273,250)
Operating income*		19,605		13,684		12,700		-		-		45,989
Other (deductions) income, net*		2,517		(151)		-		2,922		-		5,288
Interest expense, net		(4,739)		(1,621)		(3,131)		-		-		(9,491)
Net income		17,383		11,912		9,569		2,922		-		41,786
Less: Net income attributable to
noncontrolling interest, net of tax		-		-		-		-		(13,131)		(13,131)
Net income attributable to MGE	$	17,383	$	11,912	$	9,569	$	2,922	$	(13,131)	$	28,655
*Amounts are shown net of the related tax expense, consistent with the presentation on the consolidated MGE Income Statement.

~~The following table shows segment information for MGE Energy's and MGE's assets and capital expenditures:~~30

		Utility						Consolidated
(In thousands) MGE Energy		Electric		Gas		Assets not Allocated	Nonregulated Energy			Transmission Investment		All Others	Consolidation/ Elimination Entries			Total
Assets:
March 31, 2013	$	904,578	$	275,815	$	11,900	$	324,894	$	61,826	$	409,602	$	(408,175)	$	1,580,440
December 31, 2012		888,444		285,468		18,559		323,216		61,064		413,291		(403,118)		1,586,924
Capital Expenditures:
Three Months Ended March 31, 2013	$	27,007	$	1,689	$	-	$	468	$	-	$	-	$	-	$	29,164
Year ended Dec. 31, 2012		81,965		13,812		-		2,658		-		-		-		98,435

		Utility						Consolidated
(In thousands) MGE		Electric		Gas		Assets not Allocated	Nonregulated Energy			Transmission Investment		Elimination Entries		Total
Assets:
March 31, 2013	$	904,578	$	275,815	$	11,900	$	324,844	$	61,826	$	(28,358)	$	1,550,605
December 31, 2012		888,444		285,468		18,559		323,166		61,064		(23,050)		1,553,651
Capital Expenditures:
Three Months Ended March 31, 2013	$	27,007	$	1,689	$	-	$	468	$	-	$	-	$	29,164
Year ended Dec. 31, 2012		81,965		13,812		-		2,658		-		-		98,435

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

General

MGE Energy is an investor-owned public utility holding company operating through subsidiaries in five business segments:

Regulated electric utility operations, conducted through MGE,

Regulated gas utility operations, conducted through MGE,

Nonregulated energy operations, conducted through MGE Power and its subsidiaries,

Transmission investments, representing our equity investment in ATC, and

All other, which includes corporate operations and services.

Our principal subsidiary is MGE, which generates and distributes electric energy, distributes natural gas, and represents a majority portion of our assets, liabilities, revenues, and expenses. MGE generates and distributes electricity to approximately ~~140~~143,000 customers in Dane County, Wisconsin, including the city of Madison, and purchases and distributes natural gas to approximately ~~145~~149,000 customers in the Wisconsin counties of Columbia, Crawford, Dane, Iowa, Juneau, Monroe, and Vernon.

Our nonregulated energy operations own interests in electric generating capacity that is leased to MGE. The ownership/leasing structure was adopted under applicable state regulatory guidelines for MGE's participation in these generation facilities, consisting principally of a stable return on the equity investment in the new generation facilities over the term of the related leases. The nonregulated energy operations include an ownership interest in two coal-fired generating units in Oak Creek, Wisconsin and a partial ownership of a cogeneration project on the UW-Madison campus. A third party operates the units in Oak Creek, and MGE operates the cogeneration project. Due to the nature of MGE's participation in these facilities, the results of our nonregulated operations are also consolidated into MGE's consolidated financial position and results of operations under applicable accounting standards.

Executive Overview

Our primary focus today and for the foreseeable future is our core utility customers at MGE as well as creating long-term value for our shareholders. MGE continues to face the challenge of providing its customers with reliable power at competitive prices. MGE meets this challenge by investing in more efficient generation projects, including renewable energy sources. ~~In the future,~~ MGE will continue to focus on growing earnings while controlling operating and fuel costs. MGE ~~will~~maintains ~~continue to maintain~~ safe and efficient operations in addition to providing customer value. We believe it is critical to maintain a strong credit standing consistent with financial strength in MGE as well as the parent company in order to accomplish these goals.

We earn our revenue and generate cash from operations by providing electric and natural gas utility services, including electric power generation and electric power and gas distribution. The earnings and cash flows from the utility business are sensitive to various external factors, including:

Weather, and its impact on customer sales ~~of electricity and gas~~,

Economic conditions, including current business activity and employment and their impact on customer demand,

Regulation and regulatory issues, and their impact on the timing and recovery of costs,

Energy commodity prices, including natural gas prices,

Equity price risk pertaining to pension related assets,

Credit market conditions, including interest rates and our debt credit rating,

Environmental laws and regulations, including adopted and pending environmental rule changes,

and other factors listed in "Item 1A. Risk Factors" in our 2014 Annual Report on Form 10-K.

For the three months ended June 30, 2015, MGE Energy's earnings were $13.5 million or $0.39 per share compared to $14.1 million or $0.41 per share for the same period in the prior year. MGE's earnings for the three months ended June 30, 2015, were $6.9 million compared to $7.5 million for the same period in the prior year.

For the six months ended June 30, 2015, MGE Energy's earnings were $31.8 million or $0.92 per share compared to $41.8 million or $1.21 per share for the same period in the prior year. MGE's earnings for the six months ended June 30, 2015, were $18.7 million compared to $28.7 million for the same period in the prior year.

MGE Energy's net income was derived from our business segments as follows:


		Three Months Ended				Six Months Ended
(In thousands)		June 30,				June 30,
Business Segment:		2015		2014		2015		2014
Electric Utility	$	6,270	$	7,382	$	12,381	$	17,383
Gas Utility		837		485		6,894		11,912
Nonregulated Energy		5,040		4,837		10,058		9,569
Transmission Investments		1,371		1,439		2,496		2,922
All Other		(39)		(56)		(72)		18
Net Income	$	13,479	$	14,087	$	31,757	$	41,804

Our net income during the three months ended June 30, 2015, compared to the same period in the prior year primarily reflects the effects of the following factors:

~~Construction~~Electric ~~risk~~net income decreased due to a 2.0% decrease in ~~connection~~electric ~~with~~retail sales reflecting lower customer demand. Cooling degree days (a measure for determining the impact of weather during the cooling season) decreased by 30.9% compared to the prior year. Electric net income was also affected by lower AFUDC and higher depreciation expense primarily related to the Columbia ~~environmental~~environment project, being placed in service in April (Unit 2) and July 2014 (Unit 1). AFUDC decreased $1.3 million and electric depreciation increased $0.8 million compared to the same period in the prior year.

~~and~~Our ~~other~~net ~~factors~~income ~~listed~~during inthe ~~"Item~~six ~~1A.~~months ~~Risk~~ended ~~Factors"~~June 30, in2015, ~~our~~primarily ~~2012~~reflects ~~Annual~~the ~~Report~~effects onof ~~Form~~the ~~10-K.~~following factors:

For the three months ended March 31, 2013, MGE Energy's earnings were $22.6 million or $0.98 per share compared to $16.0 million or $0.69 per share for the same period in the prior year. MGE's earnings for the three months ended March 31, 2013, were $15.7 million compared to $10.1 million for the same period in the prior year.

MGE Energy's income was derived from our business segments as follows:

		Three Months Ended March 31,
(In thousands)
Business Segment:		2013		2012
Electric Utility	$	7,016	$	5,431
Gas Utility		8,976		4,933
Nonregulated Energy		5,143		4,518
Transmission Investments		1,425		1,332
All Other		24		(166)
Net Income	$	22,584	$	16,048

Our net income during the three months ended March 31, 2013, primarily reflects the effects of the following factors:

AGas 4net income decreased due to a 24.50% ~~increase~~decrease in gas retail ~~electric~~sales ~~revenues,~~reflecting ~~driven~~lower bycustomer demand compared to the demand resulting from the extremely cold weather experienced in 2014. The average temperature in January was 20.1 degrees compared to 11.5 degrees in the prior year. Heating degree days (a 6measure for determining the impact of weather during the heating season) decreased by 10.93% ~~increase~~compared to the prior year. In addition gas revenue increased $1.6 million related to rate design changes that became effective in ~~residential~~2015. The rate design changes are expected to make gas revenues less dependent upon usage as more of the costs are recovered in a fixed month customer ~~demand~~charge. As a consequence, revenues in the first and fourth quarters, when usage is higher, are expected to be lower than in past years; and revenues in the second and third quarters, when usage is lower, are expected to be higher than in past years.

AElectric 31net income was also affected by lower customer demand when compared to the much colder weather during the first quarter of 2014.8% ~~increase~~For inexample, ~~gas~~electric retail sales ~~reflecting~~decreased ~~higher~~1.6% compared to the prior year and excess generation sold into MISO market dropped over 60%. Lower customer demand ~~due~~in to2015 was also affected by a ~~colder~~30.9% ~~winter~~decrease in cooling degree days during the second quarter of 2015 compared to the same period in the prior year. ~~Heating~~Electric ~~degree~~net ~~days~~income (aalso ~~measure~~decreased ~~for~~due ~~determining~~to ~~the~~lower ~~impact~~AFUDC ofand ~~weather~~higher ~~during~~depreciation expense primarily related to the ~~heating~~Columbia ~~season~~environment project being placed in service in April (Unit 2) ~~increased~~and byJuly 2014 ~~38%~~(Unit 1). AFUDC decreased $3.8 million and electric depreciation increased $1.8 million compared to the ~~prior~~same period. in the prior year.

During the first ~~three~~six months of ~~2013~~2015, the following events occurred:

~~Columbia~~2015 ~~Environmental~~Rate ~~Project~~Filing: In ~~early 2011~~December 2014, the PSCW authorized ~~the~~MGE ~~construction~~to ofincrease ~~air~~2015 ~~emission~~rates ~~reduction~~for ~~systems~~retail ~~and~~electric ~~associated~~customers ~~equipment~~by on3.8% ~~Columbia Units 1~~ and ~~2. MGE's estimated share of the capital expenditures required~~ to ~~complete~~decrease ~~this~~rates ~~project~~for ~~will~~gas becustomers ~~approximately~~by ~~$140 million~~2.0%. AsThe ofincrease ~~March 31,~~in ~~2013,~~retail ~~MGE~~electric ~~has~~rates ~~accumulated~~covers ~~$78.8 million (excluding carrying~~ costs) ~~related~~associated towith ~~its~~the ~~share~~construction of ~~the~~emission-reduction ~~project~~equipment at Columbia, ~~which~~improvements isand ~~reflected~~reliability inof the ~~Construction Work in Progress balance on MGE Energy~~state's ~~and~~electric ~~MGE's~~transmission ~~consolidated balance sheets. Of this amount~~system, ~~MGE~~fuel ~~has~~and ~~accumulated~~purchased ~~$18.8 million~~power inrelated ~~2013.~~to ~~MGE~~coal ~~has~~delivery ~~recognized~~costs, ~~$0.5 million~~partially ~~(after~~offset ~~tax)~~by inlower ~~AFUDC~~cost ~~equity~~as ~~related~~a toresult ~~this~~of ~~project~~market conditions for ~~the~~pension ~~three~~and ~~months~~postretirement ~~ended~~benefit ~~March 31, 2013~~costs.

~~Smart~~The ~~Grid~~PSCW ~~Investment Grant: MGE was~~ approved inchanges ~~2010~~to bycustomer ~~the~~rates ~~U.S.~~and ~~Department~~rate ofdesign ~~Energy~~for ~~(DOE)~~gas ~~under~~service. ~~the~~Gas ~~federal~~rate ~~stimulus~~design ~~program~~consists ~~for~~of a ~~$5.5 million~~fixed ~~grant~~monthly ~~for~~customer ~~smart~~charge ~~grid~~and ~~projects.~~a ~~The~~variable ~~DOE~~charge ~~grant~~tied ~~requires MGE~~ to ~~match~~actual ~~the~~usage, ~~grant~~in ~~funding,~~addition ~~bringing~~to the ~~total~~separate ~~cost~~charge offor ~~the~~natural ~~projects~~gas tocommodity ~~more~~costs ~~than $11 million~~(PGA). The ~~projects~~change ~~involve~~shifted ~~the~~more ~~installation~~ of ~~technologies~~the torate ~~boost~~recovery ~~efficiency,~~to ~~enhance~~the ~~service~~monthly charge, ~~and~~reflecting ~~improve~~the ~~reliability~~related ~~for~~fixed ~~customers.~~costs ~~The~~of ~~stimulus~~providing ~~grant~~gas isservices, ~~being~~and ~~used~~reduced ~~to fund~~ the ~~following~~variable ~~projects: advanced metering infrastructure, plug~~usage-inbased ~~hybrid electric vehicles support, and distribution management~~charge. ~~As of March 31~~Thus, ~~2013,~~gas ~~MGE~~net ~~has~~income ~~spent~~is ~~$9.6 million~~expected ~~related~~ to ~~these~~be ~~projects.~~more Ofevenly ~~this~~distributed ~~amount, $1.2 million was incurred~~ during the ~~three~~year ~~months~~and ~~ended~~less ~~March 31,~~sensitive ~~2013~~to weather. ~~MGE~~A ~~also~~similar, ~~has~~but ~~outstanding~~much ~~agreements~~smaller torate ~~purchase~~design ~~$0.9 million~~shift inwas ~~smart~~also ~~grid~~approved ~~related products~~ for ~~the~~electric ~~remainder of 2013~~rates.

In the near term, several items may affect us, including:

2016 Rate Case Filing: OnIn ~~April~~July 152015, ~~2013,~~the PSCW approved MGE's ~~applied~~request ~~with~~to extend the ~~PSCW~~current accounting treatment for ~~authority~~transmission torelated ~~freeze~~costs ~~electric~~through ~~and~~2016, ~~natural~~conditioned ~~gas~~upon ~~rates~~MGE atnot ~~2013~~filing ~~levels~~a base rate case for ~~2014~~2016. ~~The~~This ~~application~~treatment ~~includes~~would aallow ~~request~~MGE ~~for~~to ~~categorizing~~reflect ~~100%~~any ofdifferential ~~the~~between ~~cost~~costs ofreflected in rates and actual costs incurred in its next rate case filing. Also in July 2015, MGE filed with the ~~Columbia~~PSCW ~~scrubber~~an ~~construction~~application ~~project~~to asimplement ~~AFUDC~~a fuel credit associated with its fuel savings for 2015. The ~~plan~~application ~~includes~~proposes a ~~request~~mechanism for ~~deferral~~the return of ~~increases~~the infuel ~~ATC~~savings ~~and~~to ~~MISO~~electric ~~Schedule~~customers 26via ~~fees.~~a Inbill ~~addition,~~credit ~~MGE~~expected isto ~~requesting~~be ~~that~~implemented ~~approximately~~from September 2015 to December 31, 2015. MGE has deferred $65.29 million ~~pertaining~~of toactual a fuel ~~rule~~savings ~~surplus~~through ~~credit~~June 30, 2015. Approximately $2.7 million is expected to be ~~offset~~returned ~~against~~to ~~MGE's~~customers ~~increased~~through ~~costs~~December 31, 2015. The application further proposes the fuel credit ~~will~~to ~~accrue~~cover ~~interest~~expected atfuel ~~MGE's~~savings ~~weighted~~for ~~cost~~2016 in the amount of ~~capital~~approximately ~~during~~$5.0 million ~~2013,~~based ~~and~~on ~~the~~anticipated ~~requested~~fuel ~~treatment~~costs. ofThe ~~the~~actual ~~credit~~fuel savings will ~~contribute~~depend toupon the ~~overall~~completion ~~rate~~of ~~freeze~~the annual PSCW fuel cost audits for ~~2014~~2015 and 2016.

Environmental Initiatives: There are proposed legislation, rules, and initiatives involving matters related to air emissions, water effluent, hazardous materials, and greenhouse gases, all of which affect generation plant capital expenditures and operating costs as well as future operational planning. Such legislation and rulemaking could significantly affect the costs of owning and operating fossil-fueled generating plants, such as Columbia and the Elm Road Units, from which we derive approximately 4344% of our electric generating capacity. We would expect to seek and receive recovery of any such costs in rates; however, it is difficult to estimate the amount of such costs due to the uncertainty as to the timing and form of the legislation and rules, and the scope and time of the recovery of costs in rates~~. In addition~~, ~~MGE~~which ismay ~~involved~~lag ~~in claims surrounding~~ the ~~alleged~~incurrence ~~failure,~~of ~~among~~those ~~other things, to obtain necessary air permits and implement necessary emission controls associated with past activities at Columbia~~costs. ~~MGE and the other co-owners are defending against these claims. See Columbia discussion in Footnote 8.a. in Notes to Consolidated Financial Statements.~~

EPA's Clean Power Plan: On August 3, 2015, the EPA finalized its Clean Power Plan rule setting guidelines for states to use in developing plans to control GHG emissions from existing fossil fuel-fired electric generating units (EGUs) and systems. Implementation of the rule is expected to have a direct impact on coal-based generating units, including possible changes in dispatch and additional operating costs. MGE is currently evaluating the rule and its requirements; however, compliance with the rule's requirements, including the yet-to-be-developed state implementation plan, will have a material impact on MGE.

Pension and Other Postretirement Benefit Costs: Costs for pension and other postretirement benefits are affected by actual investment returns on the assets held for those benefits and by the discount rate, which is sensitive to interest rates, used to calculate those benefits. Interest rates and investment returns have experienced volatility since the end of the year which could affect the value of the pension and postretirement benefit obligations. The changes in the discount rates and value of plan assets are not expected to have an impact on the income statement for 2015. However, these changes may affect benefit costs in future years. MGE expects any changes in the cost for employee benefit plans will be factored into future rate actions.

ATC Return on Equity: Several parties have filed a complaint with FERC seeking to reduce the base return on equity (ROE) of MISO and numerous other MISO transmission owners, including ATC, "due to changes in the capital markets." The complaint alleges that the MISO ROE should not exceed 9.15%, the equity components of hypothetical capital structures should be restricted to 50%, and the relevant incentive ROE adders should be discontinued. FERC denied the portion of the complaint seeking to restrict the use of capital structures that include more than 50% common equity and also denied the portion of the complaint requesting the termination of the incentive ROE adders used by certain transmission owners. MISO's base ROE is 12.38% and ATC's base ROE is 12.2%. FERC ordered formal hearing proceedings to begin, and an initial decision in the complaint is expected by November 30, 2015. ATC provided MGE its 2015 earnings reflecting an adjustment for this matter representing ATC's estimate of its potential refund liability. We derived approximately 7.7% of our net income for the six months ended June 30, 2015, from our investment in ATC.

General Economic Conditions: Economic conditions both inside and outside our service area are expected to continue to affect the level of demand for our utility services and may affect the collection of our accounts receivable and the creditworthiness of counterparties with whom we do business. We have in place lines of credit aggregating $150 million for MGE Energy (including MGE) and $100 million for MGE to address our liquidity needs. As of June 30, 2015, there were no borrowings outstanding under MGE Energy's or MGE's lines of credit.

The following discussion is based on the business segments as discussed in Footnote 13 of the Notes to Consolidated Financial Statements.

~~Columbia~~Three ~~Environmental~~Months ~~Project:~~Ended ~~MGE's share of the capital expenditures associated with the Columbia environmental project will be approximately $49~~June ~~million~~30, ~~for~~2015 ~~the remainder of 2013 million~~ and ~~$12 million in~~ 2014~~. We intend to fund any remaining capital commitments with funds generated from normal operations and the issuance of long-term and short-term debt.~~

General economic conditions: Economic conditions both inside and outside our service area are expected to continue to affect the level of demand for our utility services and may affect the collection of our accounts receivable and the creditworthiness of counterparties with whom we do business. We have in place lines of credit aggregating $104.5 million for MGE Energy (including MGE) and $64.5 million for MGE to address our liquidity needs.

The following discussion is based on the business segments as discussed in Footnote 13.

Three Months Ended March 31, 2013 and 2012

Electric Utility Operations - MGE Energy and MGE

Electric sales and revenues

The following table compares MGE's electric revenues and electric kWh sales by customer class for each of the periods indicated:

Revenues Three Months Ended March 31,

Sales (kWh) Three Months Ended March 31,

Revenues

Sales (kWh)

(in thousands)

(In thousands, except cooling degree days)

Three Months Ended June 30,

2013

2012

% Change

2013

2012

% Change

2015

2014

% Change

2015

2014

% Change

Residential

3329,~~574~~902

3029,~~139~~950

11(0.4 2)%

~~209~~166,~~782~~970

~~196~~177,~~163~~402

6(5.9 )%

Commercial

4855,~~147~~252

4753,~~196~~704

2.09 %

~~429~~451,~~359~~890

~~431~~457,~~755~~482

(01.62)%

Industrial

45,~~531~~181

45,~~526~~047

02.17 %

5962,~~187~~620

5962,~~848~~635

~~(1.1)~~-%

Other-retail/municipal

89,~~639~~638

89,~~974~~331

(3.7)3 %

97106,~~538~~730

~~107~~106,~~680~~592

(90.4)1 %

Total retail

9499,~~891~~973

9098,~~835~~032

42.50 %

~~795~~788,~~866~~210

~~795~~804,~~446~~111

0(2.1 0)%

Sales to the market

19604

~~280~~100

~~(93~~504.2)0 %

1016,~~146~~615

517,~~788~~863

75(7.3 0)%

Adjustments to revenues

(1,~~416~~096)

(1,~~179~~435)

~~(20~~23.1)6 %

- %

Total

9399,~~494~~481

8996,~~936~~697

42.09 %

~~806~~804,~~012~~825

~~801~~821,~~234~~974

0(2.6 1)%

Cooling degree days (normal 181)

161

233

(30.9)%

Electric operating revenues increased $32.68 million or 42.09% for the three months ended ~~March~~June 3130, ~~2013~~2015, compared to the same period in 2014, due to the following:

~~(In millions)~~	(In millions)
~~Rate changes~~	$Rate changes	~~4.0~~$	3.9
~~Sales to the market~~	Sales to the market	~~(0.2)~~	0.5
Adjustments to revenues		(0.2)
	Other revenues		0.3
Total	$	3.6
	Volume		(1.9)
	Total	$	2.8

Rate changes. Rates charged to retail customers for the three months ended ~~March~~June 3130, ~~2013~~2015, were 4.40% or $43.09 million higher than those charged during the same period in the prior year.

In December ~~2012~~2014, the PSCW authorized MGE to increase ~~2013~~2015 rates for retail electric customers by 3.8% or $1415.94 million. ~~The~~See ~~increase~~"2015 inRate ~~retail~~Filing" ~~electric~~under ~~rates~~"Executive isOverview" ~~driven by costs~~ for ~~new~~more ~~environmental equipment at Columbia, final construction costs for the Elm Road Units, transmission reliability enhancements, and purchased power costs~~information.

~~Sales to the market~~Volume. ~~Sales~~During to the ~~market~~three ~~represent~~months ~~wholesale~~ended sales made to third parties who are not ultimate users of the electricity. These sales may include spot market transactions on the markets operated by MISO and PJM. These sales may also include bilateral sales to other utilities or power marketers. Generating UnitsJune ~~are~~30, ~~dispatched~~2015, bythere ~~MISO~~was ~~based~~a ~~on cost considerations as well as reliability of the system~~2.0% ~~Sales~~decrease ~~to the market typically occur when MGE has more generation and purchases online than is needed for its own system demand. The excess electricity is then sold to others~~ in ~~the~~total ~~market.~~retail ~~For~~sales ~~the three months ended March 31, 2013, market~~ volumes ~~increased~~ compared to the same period in the prior year, ~~reflecting~~driven ~~increased~~by ~~opportunities~~lower ~~for~~customer ~~sales;~~demand ~~however~~due, ~~market~~at ~~settlement~~least ~~resulted~~ in ~~lower~~part, ~~revenue~~to ~~per~~less ~~kWh~~favorable ~~for~~weather ~~the~~conditions, ~~three~~as ~~months~~evidenced ~~ended~~by ~~March 31,~~the ~~2013,~~lower ~~reflecting~~number ~~lower~~of ~~market~~cooling ~~prices~~degree days.

Sales to the market. Sales to the market represent wholesale sales made to third parties who are not ultimate users of the electricity. These sales may include spot market transactions on the markets operated by MISO and PJM. These sales may also include bilateral sales to other utilities or power marketers. Generating units are dispatched by MISO based on cost considerations as well as reliability of the system. Sales to the market typically occur when MGE has more generation and purchases online than are needed for its own system demand. The excess electricity is then sold to others in the market. For the three months ended June 30, 2015, market volumes decreased compared to the same period in the prior year, reflecting decreased opportunities for sales; however, those sales were made at higher market prices.

Electric fuel and purchased power

Electric fuel and purchased power costs reflect a decrease in internal generation volumes offset by an increase in the volume of purchased power when compared to the prior period. Adjustments related to the regulatory recovery for fuel costs, known as fuel rules, increases purchased power expense. These items are explained below.

Fuel for electric generation

The expense for fuel for internal electric generation increased $0.8 million during the three months ended June 30, 2015, compared to the same period in the prior year, due to the following:


(In millions)
Increase in per-unit cost	$	1.8
Decrease in volume		(1.0)
Total	$	0.8

This increase in expense reflects a 16.9% increase in per-unit cost of internal electric generation, partially offset by an 8.6% decrease in internal generated volume delivered to the system primarily as a result of reduced generation at Columbia based on market prices.

Purchased power

Purchased power expense increased $2.3 million during the three months ended June 30, 2015, compared to the same period in the prior year, due to the following:


(In millions)
Increase in volume	$	1.7
Decrease in per-unit cost		(4.3)
Fuel Rules Adjustments
Increase in recorded fuel rule credit in 2015		3.3
Amortization of 2012 fuel rule credits in 2014		1.6
Total	$	2.3

The increase in expense reflects a 19.3% decrease in the per-unit cost of purchased power and an 8.6% increase in the volume of power purchased from third parties primarily as a result of the reduced generation at Columbia.

Under fuel rules, MGE is required to defer electric fuel-related costs that fall outside a 2% cost tolerance band around the amount used in the most recent rate proceeding. Any fuel rules adjustments are reflected in purchased power expense. Cost savings that may be returned to customers are recorded as an increase to purchased power expense, and higher costs that MGE is entitled to recover, after adjustment for excess revenues, are recorded as a reduction to purchased power expense. Any over/under recovery of the deferred costs is determined on an annual basis and adjusted in future billings to customers. During the three months ended June 30, 2015, MGE deferred $3.3 million in fuel related cost savings to be returned to customers. During the three months ended June 30, 2014, MGE amortized $1.6 million of the 2012 fuel rule credits, which reduced purchased power expense for that period.

Electric operating and maintenance expenses

Electric operating and maintenance expenses increased $0.8 million during the three months ended June 30, 2015, compared to the same period in 2014. The following changes contributed to the net change:


(In millions)
Increased administrative and general costs	$	1.1
Increased transmission costs		0.5
Increased customer services		0.3
Increased distribution expenses		0.3
Decreased production expenses		(1.2)
Decreased customer accounts costs		(0.2)
Total	$	0.8

For the three months ended June 30, 2015, increased administrative and general costs are primarily due to increased pension and other postretirement benefit costs predominantly driven by a reduction in the discount rate. Decreased production expenses are primarily due to decreased costs at Columbia as a result of lower maintenance costs incurred during the scheduled outage in 2015 compared to the prior year.

Electric depreciation expense

Electric depreciation expense increased $0.8 million for the three months ended June 30, 2015, compared to the same period in the prior year. This increase is related to the completion of the Columbia environmental project. The systems and equipment for Unit 2 and Unit 1 were placed into service in April 2014 and July 2014, respectively.

Other Electric Income

Other electric income decreased $1.0 million, primarily due to AFUDC equity related to the completion of the Columbia environmental project. Unit 2 and Unit 1 were placed into service in April and July 2014, respectively.

Gas Utility Operations - MGE Energy and MGE

Gas deliveries and revenues

The following table compares MGE's gas revenues and gas therms delivered by customer class during each of the periods indicated:


		Revenues				Therms Delivered
(In thousands, except HDD and average rate per therm of retail customer)		Three Months Ended June 30,				Three Months Ended June 30,
		2015		2014	% Change	2015	2014	% Change
Residential	$	13,214	$	15,578	(15.2)%	11,178	13,152	(15.0)%
Commercial/Industrial		6,338		14,861	(57.4)%	12,009	22,575	(46.8)%
Total retail		19,552		30,439	(35.8)%	23,187	35,727	(35.1)%
Gas transportation		1,003		662	51.5 %	16,013	8,031	99.4 %
Other revenues		114		117	(2.6)%	-	-	- %
Total	$	20,669	$	31,218	(33.8)%	39,200	43,758	(10.4)%
Heating degree days (normal 836)						721	797	(9.5)%
Average rate per therm of
retail customer	$	0.843	$	0.852	(1.1)%

Gas revenues decreased $10.5 million or 33.8% for the three months ended June 30, 2015, compared to the same period in 2014. These changes are related to the following factors:


(In millions)
Volume	$	(10.7)
Rate/PGA changes		(0.2)
Transportation and other effects		0.4
Total	$	(10.5)

~~Adjustments~~Volume. toFor ~~revenues.~~the ~~The~~three ~~adjustments~~months ended June 30, 2015, retail gas deliveries decreased 35.1% compared to ~~revenues~~the ~~amount~~same ~~includes~~period in the ~~elimination~~prior ofyear ~~carrying~~due, ~~costs~~at ~~for~~least in part, to warmer weather in the ~~Elm~~current ~~Road~~period ~~Units~~ compared to the prior period and ~~WCCF~~a ~~that~~large ~~were~~commercial ~~collected~~customer's indecision ~~electric~~to ~~rates,~~purchase ~~which~~gas ~~are~~from ~~recognized~~a asthird ~~nonregulated~~party ~~energy~~supplier ~~operating~~and ~~revenues~~to inuse ~~our~~MGE's ~~Nonregulated~~facilities ~~Energy~~for ~~Operations~~the ~~segment~~transport of that gas. The impact to gas income of this shift is not material.

Rate/PGA changes. In December 2014, the PSCW approved changes to customer rates and rate design for gas service. Rates were reduced by 2.0%, effective January 1, 2015. Gas rate design consists of a fixed monthly customer charge and a variable charge tied to actual usage, in addition to the separate charge for natural gas commodity costs (PGA). The change shifted more of the rate recovery to the monthly charge, reflecting the related fixed costs of providing gas services, and reduced the variable usage-based charge. Thus, gas net income is expected to be more evenly distributed during the year and less sensitive to weather.

MGE recovers the cost of natural gas in its gas segment through the purchased gas adjustment clause (PGA). Under the PGA, MGE is able to pass through to its gas customers the cost of gas. Changes in PGA recoveries affect revenues, but do not impact net income.

The average retail rate per therm for the three months ended June 30, 2015, decreased 1.1% compared to the same period in 2014, reflecting a $5.1 million decrease in natural gas commodity costs (PGA) and a $4.9 million increase (comprised of a decrease in variable rate costs offset by an increase in fixed rate charges) related to rate design changes. As noted previously, as a result of the rate design changes, revenues in the first and fourth quarters, when usage is higher, are expected to be lower than in past years; and revenues in the second and third quarters, when usage is lower, are expected to be higher than in past years.

Transportation and other effects. During the three months ended June 30, 2015, transportation and other effects increased $0.4 million primarily attributable to a large commercial customer's decision to purchase gas from a third party supplier and to use MGE's facilities for the transport of that gas. The impact to gas income of this shift is not material.

Cost of gas sold

For the three months ended June 30, 2015, cost of gas sold decreased by $11.5 million, compared to the same period in the prior year. The cost per therm of natural gas decreased 44.4%, which resulted in $5.3 million of decreased expense. The volume of gas purchased decreased 34.0%, which resulted in $6.2 million of decreased expense.

Gas operating and maintenance expenses

Gas operating and maintenance expenses increased by $0.5 million for the three months ended June 30, 2015, compared to the same period in 2014. The following changes contributed to the net change:


(In millions)
Increased administrative and general costs	$	0.6
Increased distribution expenses		0.2
Decreased customer service costs		(0.2)
Decreased customer accounts costs		(0.1)
Total	$	0.5

Nonregulated Energy Operations - MGE Energy and MGE

For the three months ended June 30, 2015 and 2014, net income at the nonregulated energy operations segment was $5.0 million and $4.8 million, respectively. The nonregulated energy operations are conducted through MGE Energy's subsidiaries: MGE Power Elm Road and MGE Power West Campus, which have been formed to own and lease electric generating capacity to assist MGE.

Transmission Investment Operations - MGE Energy and MGE

Transmission investment other income

For the three months ended June 30, 2015 and 2014, other income at the transmission investment segment was $2.3 million and $2.4 million, respectively. The transmission investment segment holds our interest in ATC, and its income reflects our equity in the earnings of ATC. See Footnote 3 of the Notes to Consolidated Financial Statements and "Other Matters" below for additional information concerning ATC and summarized financial information regarding ATC.

Consolidated Income Taxes - MGE Energy and MGE

MGE Energy's effective income tax rate for the three months ended June 30, 2015 and 2014, was 37.3% and 39.1%, respectively. MGE's effective income tax rate for the three months ended June 30, 2015 and 2014, was 37.2% and 39.1%, respectively. The decrease in the effective tax rate is due in part to a higher estimated domestic manufacturing deduction, offset by lower AFUDC equity earnings in 2015.

Noncontrolling Interest, Net of Tax - MGE

The noncontrolling interest, net of tax, reflects the accounting required for MGE Energy's interest in MGE Power Elm Road (the Elm Road Units) and MGE Power West Campus (WCCF). MGE Energy owns 100% of MGE Power Elm Road and MGE Power West Campus; however, due to the contractual agreements for these projects with MGE, the entities are considered VIEs with respect to MGE and their results are consolidated with those of MGE, the primary beneficiary of the VIEs. Also included in noncontrolling interest, net of tax, is MGE Energy's interest in MGE Transco, which holds our investment in ATC. The following table shows MGE Energy's noncontrolling interest, net of tax, reflected on MGE's consolidated statement of income:


		Three Months Ended
		June 30,
(In millions)		2015		2014
MGE Power Elm Road	$	4.2	$	4.0
MGE Power West Campus		1.8		1.9
MGE Transco		0.6		0.7

Six Months Ended June 30, 2015 and 2014

Electric Utility Operations - MGE Energy and MGE

Electric sales and revenues

The following table compares MGE's electric revenues and electric kWh sales by customer class for each of the periods indicated:


		Revenues				Sales (kWh)
(In thousands, except cooling degree days)		Six Months Ended June 30,				Six Months Ended June 30,
(In thousands, except cooling degree days)		2015		2014	% Change	2015	2014	% Change
Residential	$	64,149	$	65,243	(1.7)%	373,783	399,098	(6.3)%
Commercial		106,430		103,865	2.5 %	893,325	905,962	(1.4)%
Industrial		9,873		9,628	2.5 %	121,343	120,940	0.3 %
Other-retail/municipal		18,799		17,585	6.9 %	208,153	196,027	6.2 %
Total retail		199,251		196,321	1.5 %	1,596,604	1,622,027	(1.6)%
Sales to the market		900		2,060	(56.3)%	24,548	62,030	(60.4)%
Adjustments to revenues		(2,430)		(2,832)	14.2 %	-	-	- %
Total	$	197,721	$	195,549	1.1 %	1,621,152	1,684,057	(3.7)%

Cooling degree days (normal 181)						161	233	(30.9)%

Electric operating revenues increased $2.2 million or 1.1% for the six months ended June 30, 2015, compared to the same period in 2014, due to the following:


(In millions)
Rate changes	$	6.0
Other		0.5
Volume		(3.1)
Sales to the market		(1.2)
Total	$	2.2

Rate changes. Rates charged to retail customers for the six months ended June 30, 2015, were 3.1% or $6.0 million higher than those charged during the same period in the prior year.

In December 2014, the PSCW authorized MGE to increase 2015 rates for retail electric customers by 3.8% or $15.4 million. See "2015 Rate Filing" under "Executive Overview" for more information.

Volume. During the six months ended June 30, 2015, there was a 1.6% decrease in total retail sales volumes compared to the same period in the prior year driven by lower customer demand due, at least in part, to less favorable weather conditions, as evidenced by the lower number of cooling degree days.

Sales to the market. Sales to the market represent wholesale sales made to third parties who are not ultimate users of the electricity. These sales may include spot market transactions on the markets operated by MISO and PJM. These sales may also include bilateral sales to other utilities or power marketers. Generating units are dispatched by MISO based on cost considerations as well as reliability of the system. Sales to the market typically occur when MGE has more generation and purchases online than are needed for its own system demand. The excess electricity is then sold to others in the market. For the six months ended June 30, 2015, market volumes decreased compared to the same period in the prior year, reflecting decreased opportunities for sales. In addition, market settlement resulted in lower revenue per kWh for the six months ended June 30, 2015, reflecting lower market prices in the early portion of that period.

Electric fuel and purchased power

~~The~~Electric ~~expense for~~ fuel ~~for~~and ~~electric~~purchased ~~generation~~power ~~increased~~costs ~~$1.9 million~~reflect ora ~~21.6%~~decrease ~~during~~in ~~the~~internal ~~three~~generation ~~months~~volumes ~~ended~~offset ~~March 31,~~by ~~2013,~~an ~~compared~~increase ~~to the same period~~ in the ~~prior~~volume ~~year.~~of ~~Internal~~purchased ~~electric~~power ~~generated~~when ~~volume~~compared ~~delivered~~ to the ~~system~~prior ~~increased 35~~period.4% ~~which~~Adjustments ~~resulted~~related into ~~$2.8 million~~the ofregulatory ~~increased~~recovery ~~expense,~~for ~~reflecting~~fuel ~~higher generation at Columbia. This increase was offset by a decrease in internal electric generation~~ costs, ofknown ~~$0.9 million~~ as afuel ~~result~~rules, ofincreased apurchased 10power expense.2% ~~decrease~~These initems ~~the~~are ~~per-unit cost~~explained ~~(largely due to lower natural gas prices)~~below.

Purchased power expense decreased $1.3 million during the three months ended March 31, 2013, compared to the same period in the prior year. A 29.4% decrease in the volume of purchased power from third parties lowered expense by $5.7 million, which was offset by a $4.4 million or 31.9% increase in the per-unit cost of purchased power. 38

Fuel for electric generation

The expense for fuel for internal electric generation decreased $1.4 million during the six months ended June 30, 2015, compared to the same period in the prior year, due to the following:


(In millions)
Decrease in volume	$	(3.7)
Increase in per-unit cost		2.3
Total	$	(1.4)

This decrease in expense reflects a 13.0% decrease in internal generated volume delivered to the system primarily as a result of reduced generation at Columbia based on market prices, partially offset by an 8.7% increase in per-unit cost of internal electric generation.

Purchased power

Purchased power expense increased $6.7 million during the six months ended June 30, 2015, compared to the same period in the prior year, due to the following:


(In millions)
Increase in volume	$	4.9
Decrease in per-unit cost		(7.1)
Fuel Rules Adjustments
Increase in recorded fuel rule credit in 2015		5.7
Amortization of 2012 fuel rule credits in 2014		3.2
Total	$	6.7

The increase in expense reflects a 15.6% decrease in the per-unit cost of purchased power and a 12.2% increase in the volume of power purchased from third parties primarily as a result of the reduced generation at Columbia.

Under fuel rules, MGE is required to defer electric fuel-related costs that fall outside a 2% cost tolerance band around the amount used in the most recent rate proceeding. Any fuel rules adjustments are reflected in purchased power expense. Cost savings that may be returned to customers are recorded as an increase to purchased power expense, and higher costs that MGE is entitled to recover, after adjustment for excess revenues, are recorded as a reduction to purchased power expense. Any over/under recovery of the deferred costs is determined on an annual basis and adjusted in future billings to customers. During the six months ended June 30, 2015, MGE deferred $5.7 million in fuel related cost savings to be returned to customers. During the six months ended June 30, 2014, MGE amortized $3.2 million of the 2012 fuel rule credits, which reduced purchased power expense for that period.

Electric operating and maintenance expenses

Electric operating and maintenance expenses ~~decreased~~increased $01.42 million during the ~~three~~six months ended ~~March~~June 3130, ~~2013~~2015, compared to the same period in ~~2012~~2014. The following changes contributed to the net change:

~~(In millions)~~	(In millions)
Decreased administrative and general costs	$	(0.7)
	Increased administrative and general costs	$	1.7
Decreased customer service costs		(0.3)
	Increased transmission costs		0.9
Decreased other costs		(0.1)
	Increased customer service costs		0.4
Increased transmission costs		0.7
	Decreased production expenses		(1.2)
Total	$	(0.4)
	Decreased customer accounts costs		(0.6)
	Total	$	1.2

For the ~~three~~six months ended ~~March~~June 3130, ~~2013~~2015, ~~decreased~~increased administrative and general costs are primarily due to ~~decreased~~increased pension and other postretirement benefit costs predominantly driven by a reduction in the discount rate and increased transmission costs. Decreased production expenses are primarily due to andecreased ~~increase~~costs at Columbia as a result of lower maintenance costs incurred during the scheduled outage in ~~transmission~~2015 ~~reliability~~compared ~~enhancements.~~to the prior year.

Electric depreciation expense

Electric depreciation expense increased $1.8 million for the six months ended June 30, 2015, compared to the same period in the prior year. This increase is related to the completion of the Columbia environmental project. The systems and equipment for Unit 2 and Unit 1 were placed into service in April 2014 and July 2014, respectively.

Other Electric Income

Other electric income decreased $2.8 million, primarily due to AFUDC equity related to the completion of the Columbia environmental project. Unit 2 and Unit 1 were placed into service in April and July 2014, respectively.

Gas Utility Operations - MGE Energy and MGE

Gas deliveries and revenues

The following table compares MGE's gas revenues and gas therms delivered by customer class during each of the periods indicated:

		Revenues Three Months Ended March 31,				Therms Delivered Three Months Ended March 31,
		Revenues				Therms Delivered
(In thousands, except HDD and average rate per therm of retail customer)		Six Months Ended June 30,				Six Months Ended June 30,
		2013		2012	% Change	2013	2012	% Change
		2015		2014	% Change	2015	2014	% Change
Residential	$	4152,~~611~~902	$	3374,~~381~~768	24(29.7 2)%	4762,~~454~~038	3570,~~600~~521	33(12.3 0)%
Commercial/Industrial		2934,~~771~~933		2265,~~771~~272	30(46.7 5)%	4955,~~211~~836	3684,~~947~~599	33(34.2 0)%
Total retail		7187,~~382~~835		56140,~~152~~040	27(37.1 3)%	96117,~~665~~874	72155,~~547~~120	33(24.2 0)%
Gas transportation		~~943~~2,472		~~729~~1,615	2953.41 %	1241,~~327~~007	1020,~~117~~524	2199.8 %
Other revenues		~~142~~290		~~138~~276	25.91 %	-	-	- %
Total	$	7290,~~467~~597	$	57141,~~019~~931	27(36.1 2)%	~~108~~158,~~992~~881	82175,~~664~~644	31(9.8 5)%
Heating degree days (normal 3,488)						3,745	2,717	37.8 %
Heating degree days (normal 4,350)						4,555	5,075	(10.3)%
Average rate per therm of
Average Rate Per Therm of
retail customer	$	0.738	$	0.774	(4.7)%
Retail Customer	$	0.745	$	0.903	(17.5)%

35Gas revenues decreased $51.3 million or 36.2% for the six months ended June 30, 2015, compared to the same period in 2014. These changes are related to the following factors:

Gas revenues increased $15.4 million or 27.1% for the three months ended March 31, 2013. These changes are related to the following factors:


(In millions)
Volume	$	(33.4)
Rate/PGA changes		(18.8)
Transportation and other effects		0.9
Total	$	(51.3)

(In millions)
Gas deliveries	$	18.7
Transportation and other effects		0.1
Gas costs/rates		(3.4)
Total	$	15.4

~~Retail gas deliveries~~Volume. For the ~~three~~six months ended ~~March~~June 3130, ~~2013~~2015, retail gas deliveries ~~increased~~decreased 3324.20% compared to the same period in ~~2012~~the prior year, as a result of ~~colder~~extremely cold weather ~~during~~experienced ~~the~~in ~~winter~~2014 ~~months~~and ~~compared~~a large commercial customer's decision to ~~milder~~purchase ~~weather~~gas infrom a third party supplier and to use MGE's facilities for the ~~prior~~transport ~~year~~of that gas. The impact to gas income of this shift is not material.

~~Gas costs~~Rate/~~rates~~PGA changes. ~~The~~In ~~average~~December 2014, ~~retail~~the ~~rate~~PSCW ~~per~~approved ~~therm~~changes to customer rates and rate design for ~~the~~gas ~~three~~service. ~~months~~Rates ~~ended~~were ~~March~~reduced by 2.0%, effective January 311, ~~2013~~2015. Gas rate design consists of a fixed monthly customer charge and a variable charge tied to actual usage, ~~decreased~~in 4addition to the separate charge for natural gas commodity costs (PGA).7% ~~compared~~The tochange shifted more of the ~~same~~rate ~~period~~recovery into ~~2012~~the monthly charge, reflecting ~~lower~~the ~~natural~~related fixed costs of providing gas ~~commodity~~services, ~~costs~~and reduced the variable usage-based charge. Thus, gas net income is expected to be more evenly distributed during the year and less sensitive to weather.

The average retail rate per therm for the three months ended June 30, 2015, decreased 17.5% compared to the same period in 2014, reflecting a $20.4 million decrease in natural gas commodity costs (PGA) and a $1.6 million increase (comprised of a decrease in variable rate costs offset by an increase in fixed rate charges) related to rate design changes. As noted previously, as a result of the rate design changes, revenues in the first and fourth quarters, when usage is higher, are expected to be lower than in past years; and revenues in the second and third quarters, when usage is lower, are expected to be higher than in past years.

Transportation and other effects. During the six months ended June 30, 2015, transportation and other effects increased $0.9 million primarily attributable to a large commercial customer's decision to purchase gas from a third party supplier and to use MGE's facilities for the transport of that gas. The impact to gas income of this shift is not material.

Cost of gas sold

For the ~~three~~six months ended ~~March~~June 3130, ~~2013~~2015, cost of gas sold ~~increased~~decreased by $943.81 million, compared to the same period in the prior year. The ~~volume~~cost per therm of natural gas ~~purchased~~decreased ~~increased 33~~27.04%, which resulted in $1120.42 million of ~~increased~~decreased expense. ~~However~~In addition, the ~~cost~~volume ~~per therm~~ of ~~natural~~purchased gas decreased 323.57%, which resulted in $122.69 million of decreased expense.

Gas operating and maintenance expenses

Gas operating and maintenance expenses ~~decreased~~increased by $0.72 million for the ~~three~~six months ended ~~March~~June 3130, ~~2013~~2015, compared to the same period in ~~2012~~2014. The following changes contributed to the net change:

~~(In millions)~~	(In millions)
Decreased administrative and general costs	$	(0.3)
	Increased administrative and general costs	$	0.9
Decreased customer service costs		(0.3)
	Increased distribution expenses		0.1
Decreased customer accounts costs		(0.1)
	Decreased customer service costs		(0.4)
Total	$	(0.7)
	Decreased customer account costs		(0.4)
	Total	$	0.2

For the six months ended June 30, 2015, increased administrative and general costs are primarily due to increased pension and other postretirement benefit costs predominantly driven by a reduction in the discount rate.

Nonregulated Energy Operations - MGE Energy and MGE

For the ~~three~~six months ended ~~March~~June 3130, ~~2013~~2015 and ~~2012~~2014, net income at the nonregulated energy operations segment was $510.1 million and $49.56 million, respectively. The nonregulated energy operations are conducted through MGE Energy's subsidiaries: MGE Power Elm Road and MGE Power West Campus., ~~These~~which ~~subsidiaries~~ have been formed to construct, own and lease electric generating capacity to assist MGE.

Transmission Investment Operations - MGE Energy and MGE

Transmission investment other income

For the ~~three~~six months ended ~~March~~June 3130, ~~2013~~2015 and 2014, other income at the transmission investment segment was $2.4.2 million ~~compared~~and to $24.29 million, ~~for the same period in 2012~~respectively. The transmission investment segment holds our interest in ATC, and its income reflects our equity in the earnings of ATC. See Footnote 3 of Notes to Consolidated Financial Statements and "Other Matters" below for additional information concerning ATC and summarized financial information regarding ATC.

Consolidated Income Taxes - MGE Energy and MGE

Both MGE Energy's and MGE's effective income tax rate for the ~~three~~six months ended ~~March~~June 3130, ~~2013~~2015 and 2014, was 36.9% and 37.7%, ~~compared~~respectively. toThe ~~38.1%~~decrease ~~for~~in the ~~same~~effective ~~period~~tax rate is due in ~~2012~~part to a higher estimated domestic manufacturing deduction, offset by lower AFUDC equity earnings in 2015.

Noncontrolling Interest, Net of Tax - MGE

		Three Months Ended March 31,
			Six Months Ended
(in millions)		2013		2012
			June 30,
MGE Power Elm Road	$	4.3	$	3.7
	(In millions)		2015		2014
MGE Power West Campus	$	1.9	$	1.9
	MGE Power Elm Road	$	8.3	$	8.0
MGE Transco	$	0.6	$	0.5
	MGE Power West Campus		3.7		3.8
	MGE Transco		1.2		1.3

Contractual Obligations and Commercial Commitments - MGE Energy and MGE

There were no material changes, other than from the normal course of business, to MGE Energy's and MGE's contractual obligations (representing cash obligations that are considered to be firm commitments) and commercial commitments (representing commitments triggered by future events) during the ~~three~~six months ended ~~March~~June 3130, ~~2013~~2015, except as noted below. Further discussion of the contractual obligations and commercial commitments is included in Footnote 818 of ~~this~~Notes ~~Report~~to ~~and~~Consolidated ~~Footnote 18~~Financial Statements, and "Contractual Obligations and Commercial Commitments for MGE Energy and MGE" under "Management's Discussion and Analysis of Financial Condition and Results of Operations" in MGE Energy's and MGE's ~~2012~~2014 Annual Report on Form 10-K.

Purchase Contracts - MGE Energy and MGE

See Footnote 8.dc. of Notes to Consolidated Financial Statements for a description of commitments at ~~March~~June 3130, ~~2013~~2015, that MGE Energy and MGE have entered with respect to various commodity supply, ~~transportation and storage~~ contracts to meet their obligations to deliver ~~electricity and~~ natural gas to customers.

~~Smart~~Credit ~~Grid~~Facilities ~~Investment Grant~~ - MGE Energy and MGE

See Footnote 82.ec. ~~for a description~~ of ~~MGE's~~Notes ~~commitments~~to ~~and~~Consolidated ~~expenditures~~Financial ~~related~~Statements tofor a ~~grant~~description ~~received from the U.S. Department~~ of MGE Energy's ~~(DOE)~~and ~~under~~MGE's ~~the~~credit ~~federal~~facilities ~~stimulus~~at ~~program~~June 30, ~~for smart grid projects~~2015.

Liquidity and Capital Resources

MGE Energy and MGE have adequate liquidity to fund future operations and capital expenditures over the next twelve months. Available resources include cash and cash equivalents, operating cash flows, liquid assets, borrowing capacity under revolving credit facilities, and access to equity and debt capital markets.

Cash Flows

The following summarizes cash flows for MGE Energy and MGE during the ~~three~~six months ended ~~March~~June 3130, ~~2013~~2015 and ~~2012~~2014:

		~~MGE Energy~~	MGE Energy				~~MGE~~	MGE
~~(In thousands)~~	(In thousands)	~~2013~~	2015	~~2012~~	2014		~~2013~~	2015	~~2012~~	2014
~~Cash provided by/(used for):~~	Cash provided by/(used for):
~~Operating activities~~	$Operating activities	~~28,652~~$	$72,993	~~24,736~~$	84,680	$	~~28,521~~$	$78,992	~~23,583~~$	86,392
~~Investing activities~~	Investing activities	~~(29,816)~~	(33,801)	~~(15,716)~~	(44,620)		~~(29,526)~~	(33,628)	~~(15,773)~~	(44,351)
~~Financing activities~~	Financing activities	~~701~~	(29,156)	~~(9,529)~~	(20,962)		~~4,511~~	(26,603)	~~(7,049)~~	(30,565)

Cash Provided by Operating Activities

MGE Energy

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

37Cash provided by operating activities for the six months ended June 30, 2015, was $73.0 million, a decrease of $11.7 million when compared to the same period in the prior year. The decrease is primarily related to pension contributions made in 2015.

~~Cash~~MGE Energy's ~~provided~~net byincome ~~operating~~decreased ~~activities~~$10.0 million for the ~~three~~six months ended ~~March~~June 3130, ~~2013~~2015, ~~was $28.7 million, an increase of $3.9 million~~ when compared to the same period in the prior year ~~primarily related to working capital changes~~.

In 2015, MGE received a $10.0 million refund from the IRS for the 2014 tax year. Excluding the 2015 refund, MGE Energy's ~~net~~federal ~~income~~and ~~increased~~state taxes paid decreased $61.54 million ~~for~~during the ~~three~~six months ended ~~March~~June 3130, ~~2013~~2015, when compared to the same period in the prior year.

~~The~~Working capital accounts (excluding prepaid and accrued taxes) resulted in $0.7 million in cash ~~flows~~provided by operating activities for the ~~three~~six months ended ~~March~~June 3130, ~~2013~~2015, ~~reflect~~primarily adue ~~$2.4 million~~to ~~benefit~~decreased ofreceivables ~~lower~~and ~~taxes~~decreased ~~payable~~unbilled revenues, ~~compared~~partially tooffset ~~the~~by ~~same~~decreased ~~period~~accounts inpayable ~~the~~and ~~prior~~decreased ~~year,~~other ~~primarily~~current ~~due~~liabilities. toWorking ~~bonus~~capital ~~depreciation~~accounts (excluding prepaid and ~~repairs~~accrued ~~deduction~~taxes) resulted in $9.9 million in cash provided by operating activities for the

Working capital accounts resulted in $12.8 million in cash provided by operating activities for the three months ended March 31, 2013, primarily due to decreased gas inventories, decreased prepaid taxes, and decreased unbilled revenues, partially offset by increased accounts receivable and decreased accounts payable. Working capital accounts resulted in $5.7 million in cash provided by operating activities for the three months ended March 31, 2012, primarily due to decreased gas inventories and decreased unbilled receivables, partially offset by decreased accounts payable. 42

Ansix ~~increase in pension contribution resulted in an additional $10.0 million in cash used for operating activities for the three~~ months ended ~~March~~June 3130, ~~2013~~2014, ~~when~~primarily ~~compared~~due to ~~the~~decreased ~~same~~unbilled ~~period~~revenues inand ~~the~~decreased ~~prior~~accounts ~~year.~~receivable, ~~These~~partially ~~contributions~~offset ~~reflect~~by ~~amounts~~decreased ~~required~~other bycurrent ~~law~~liabilities and ~~discretionary~~decreased ~~amounts.~~accounts payable.

An increase in pension contribution resulted in an additional $10.0 million in cash used by operating activities for the six months ended June 30, 2015, when compared to the same period in the prior year. Pension contributions reflect amounts required by law and discretionary amounts. There were no required contributions and no discretionary contributions for 2014.

For the six months ended June 30, 2015, MGE deferred $5.7 million in fuel related cost savings to be returned to customers. There were no deferred fuel related cost savings in 2014.

MGE

Cash provided by operating activities for the ~~three~~six months ended ~~March~~June 3130, ~~2013~~2015, was $2879.50 million, ana ~~increase~~decrease of $47.94 million when compared to the same period in the prior year. The decrease is primarily related to ~~working~~pension ~~capital~~contributions ~~changes~~made in 2015.

Net income ~~increased~~decreased $610.30 million for the ~~three~~six months ended ~~March~~June 3130, ~~2013~~2015, when compared to the same period in the prior year.

~~The~~In ~~cash~~2015, ~~flows~~MGE received a $10.0 million refund from the IRS for the ~~three~~2014 ~~months~~tax ~~ended~~year. ~~March 31,~~Excluding ~~2013~~the 2015 refund, ~~reflect~~MGE's afederal and state taxes paid to MGE Energy decreased $25.27 million ~~benefit~~during ofthe ~~lower~~six ~~taxes~~months ~~payable~~ended June 30, 2015, when compared to the same period in the prior year~~, primarily due to bonus depreciation and repairs deduction~~.

Working capital accounts (excluding prepaid and accrued taxes) resulted in $129.86 million in cash provided by operating activities for the ~~three~~six months ended ~~March~~June 3130, ~~2013~~2015, primarily due to decreased ~~gas~~receivables ~~inventories, decreased prepaid taxes,~~ and decreased unbilled revenues, partially offset by ~~increased accounts receivable and~~ decreased accounts payable. Working capital accounts (excluding prepaid taxes and accrued taxes) resulted in $412.65 million in cash provided by operating activities for the ~~three~~six months ended ~~March~~June 3130, ~~2012~~2014, primarily due to decreased ~~gas~~unbilled ~~inventories~~revenues and decreased ~~unbilled~~accounts ~~receivables~~receivable, partially offset by decreased accounts payable.

An increase in pension contribution resulted in an additional $10.0 million in cash used ~~for~~by operating activities for the ~~three~~six months ended ~~March~~June 3130, ~~2013~~2015, when compared to the same period in the prior year. ~~These~~Pension contributions reflect amounts required by law and discretionary amounts. There were no required contributions and no discretionary contributions for 2014.

For the six months ended June 30, 2015, MGE deferred $5.7 million in fuel related cost savings to be returned to customers. There were no deferred fuel related cost savings in 2014.

Cash Used for Investing Activities

MGE Energy

MGE Energy's cash used for investing activities ~~increased~~decreased $1410.18 million for the ~~three~~six months ended ~~March~~June 3130, ~~2013~~2015, when compared to the same period in the prior year.

Capital expenditures for the ~~three~~six months ended ~~March~~June 3130, ~~2013~~2015, were $2933.2 million. This amount represents ana ~~increase~~decrease of $139.71 million from the expenditures made in the same period in the prior year. This ~~increase~~decrease isprimarily ~~due~~reflects to$8.0 million ~~increased~~of lower expenditures on the Columbia environmental project ofin ~~$10~~2015 versus 2014 and decreased expenditures on electric distribution assets.~~8 million.~~

MGE

MGE's cash used for investing activities ~~increased~~decreased $1310.87 million for the ~~three~~six months ended ~~March~~June 3130, ~~2013~~2015, when compared to the same period in the prior year.

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Cash ~~Provided by (~~Used for) Financing Activities

MGE Energy

Cash ~~provided~~used byfor MGE Energy's financing activities was $029.72 million for the ~~three~~six months ended ~~March~~June 3130, ~~2013~~2015, compared to $921.50 million of cash used for MGE Energy's financing activities in the ~~three~~six months ended ~~March~~June 3130, ~~2012~~2014.

For the ~~three~~six months ended ~~March~~June 3130, ~~2013~~2015, dividends paid were $919.16 million compared to $818.89 million in the prior year. This increase was a result of a higher dividend per share ($0.~~395~~565 vs. $0.~~383~~543).

~~During~~For the ~~three~~six months ended ~~March~~June 3130, ~~2013~~2015, net short- term debt ~~borrowings~~repayments were $107.50 million. There were no short term debt repayments for the same period in the prior year.

MGE

During the ~~three~~six months ended ~~March~~June 3130, ~~2013~~2015, cash ~~provided~~used byfor MGE's financing activities was $426.56 million compared to $730.06 million of cash used for MGE's financing activities in the prior year.

Dividends paid from MGE to MGE Energy were $610.70 million for the ~~three~~six months ended ~~March~~June 3130, ~~2012~~2015. For the six months ended June 30, 2014, cash dividends paid from MGE to MGE Energy were $16.8 million.

~~During~~Distributions ~~the~~to ~~three~~parent ~~months~~from ~~ended~~noncontrolling ~~March 31~~interest, ~~2013,~~which ~~net~~represent ~~short-term~~distributions ~~debt~~from ~~borrowings~~MGE Power Elm Road and MGE Power West Campus, were $10.51 million for the six months ended June 30, 2015, compared to $12.8 million in the prior year.

~~Distributions~~For tothe ~~parent~~six months ended June 30, 2015, equity contributions received from ~~noncontrolling~~MGE ~~interest~~Power West Campus and MGE Transco were $52.59 million ~~for~~compared ~~the~~to ~~three~~$1.1 million ~~months~~in ~~ended~~the ~~March 31,~~prior ~~2013~~year.

For the six months ended June 30, 2015, net short term debt repayments were $7.0 million. There were no short term debt repayments for the same period in the prior year.

Capitalization Ratios

MGE Energy's capitalization ratios were as follows:

	~~MGE Energy~~	MGE Energy
	March 31, 2013		December 31, 2012
		June 30, 2015		December 31, 2014
~~Common shareholders' equity~~	~~61.5~~Common %shareholders' equity	62.8 %	~~61.6 %~~	61.9 %
Long-term debt*	~~37.4~~Long-term %debt*	37.2 %	~~38.4 %~~	37.5 %
~~Short-term debt~~	~~1.1~~Short-term %debt	-%	~~- %~~	0.6 %
*Includes the current portion of long-term debt.	*Includes the current portion of long-term debt.

MGE Energy's and MGE's Capital Requirements

MGE Energy's and MGE's liquidity are primarily affected by their capital requirements. During the ~~three~~six months ended ~~March~~June 3130, ~~2013~~2015, capital expenditures for MGE Energy and MGE totaled $2933.2 million, which included $2830.71 million of capital expenditures for utility operations.

In early 2011, the PSCW authorized the construction of air emission reduction systems and associated equipment on Columbia Units 1 and 2. MGE's estimated share of the capital expenditures required to complete this project will be approximately $140 million. MGE's share of the capital expenditures associated with the Columbia environmental project will be approximately $49 million for the remainder of 2013 and $12 million in 2014. During the three months ended March 31, 2013, MGE had incurred $18.8 million (excluding carrying costs) in construction expenditures at Columbia related to the project. MGE has recognized $0.5 million (after tax) in AFUDC equity related to this project for the three months ended March 31, 2013.

Credit Ratings

MGE Energy's and MGE's access to the capital markets, including, in the case of MGE, the commercial paper market, and their respective financing costs in those markets, may depend on the credit ratings of the entity that is accessing the capital markets.

None of MGE Energy's or MGE's borrowing is subject to default or prepayment as a result of a downgrading of credit ratings, although a downgrading of MGE's credit ratings could increase fees and interest charges under both MGE Energy's and MGE's credit agreements.

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Environmental Matters

The following discussion is limited to updates or developments in environmental matters that occurred during the ~~three~~six months ended ~~March~~June 3130, ~~2013~~2015. Further discussion of environmental matters is included in MGE Energy's and MGE's ~~2012~~2014 Annual Report on Form 10-K and Footnote 8.a. of Notes to Consolidated Financial Statements in this Report.

~~Vacation of~~ EPA's ~~Cross~~Greenhouse ~~State~~Gas ~~Air Pollution Rule~~ (~~CSAPR~~GHG) ~~and~~Reduction ~~Reinstatement~~Guidelines ofunder the Clean Air ~~Interstate~~Act ~~Rule~~111d ~~(CAIR)~~Rule

InOn ~~2005~~August 3, ~~EPA~~2015, ~~promulgated~~ the ~~Clean~~EPA ~~Air~~finalized ~~Interstate~~its ~~Rule~~Clean ~~(CAIR)~~Power toPlan ~~reduce~~rule ~~ozone~~setting ~~and~~guidelines ~~fine~~for ~~particulate~~states ~~matter~~to ~~emissions~~use ~~by reducing nitrogen oxide (NOx) and sulfur dioxide (SO2) emissions. NOx and SO2 interact~~ in ~~the~~developing ~~atmosphere~~plans to ~~form~~control ~~ambient~~GHG ~~ozone~~emissions from ~~NOx~~existing ~~and fine particulate matter pollution from NOx and SO2. The CAIR generally requires NOx and SO2 emission reductions from~~ fossil fuel-fired ~~EGUs~~electric ~~(25 MW~~generating orunits ~~greater~~(EGUs) inand ~~the~~systems. ~~eastern~~When ~~half~~fully ofimplemented ~~the United States~~ in ~~two~~2030, ~~phases~~the ~~and~~Clean ~~includes~~Power aPlan ~~regional~~is ~~cap-and-trade~~projected ~~system.~~to ~~The~~reduce ~~first~~GHG ~~phase~~emissions ~~(currently~~from inthis ~~place)~~sector ~~requires~~by ~~annual~~32 ~~regional~~percent ~~emission~~below ~~reductions~~2005 ~~from 2003~~ levels. ofStates ~~55%~~are ~~for~~given ~~NOx~~up ~~and~~to ~~40%~~three ~~for~~years ~~SO2.~~to ~~The~~submit ~~second~~a ~~phase~~plan ~~(beginning~~to inmeet ~~2015)~~the ~~reduces~~reduction ~~regional~~goals ~~NOx~~ and ~~SO2~~are ~~emissions~~expected ~~further~~to ~~from~~meet ~~2003~~interim ~~levels~~goals tostarting ~~65%~~in 2022 and ~~70%,~~the ~~respectively.~~final ~~MGE~~goal ~~owns~~in or2030. ~~has~~Implementation ~~partial~~of ~~ownership~~the inrule ~~several~~is ~~generation~~expected ~~units currently subject~~ to ~~the~~have ~~CAIR:~~a ~~Blount,~~direct ~~Columbia,~~impact ~~Elm~~on ~~Road~~coal-based ~~Units~~generating units, ~~and~~including ~~its~~possible ~~combustion~~changes ~~turbines located~~ in ~~West~~dispatch ~~Marinette~~ and ~~Fitchburg~~additional operating costs.

InMGE ~~December 2008,~~is ~~the~~currently ~~U.S.~~evaluating ~~Court of Appeals for~~ the ~~D.C.~~rule ~~Circuit~~and ~~remanded~~its ~~the~~requirements; ~~CAIR~~however, tocompliance ~~the EPA~~ with ~~directions to revise or replace~~ the rule~~. The Court~~'s ~~remand~~requirements, ~~order~~including ~~directed that~~ the ~~CAIR~~yet-to-be-developed ~~remain~~state inimplementation ~~effect~~plan, ~~until~~will ~~the~~have ~~EPA promulgated~~ a ~~replacement~~material ~~rule.~~impact ~~The~~on ~~Court's order did not include a deadline for the EPA to act~~MGE.

InSulfur ~~August 2011,~~Dioxide ~~the EPA responded to the remand of the CAIR by promulgating the Cross State Air Pollution Rule~~ (~~CSAPR~~SO2). However, in August 2012, the U.S. Court of Appeals for the D.C. Circuit vacated CSAPR and instructed the EPA to continue administering the CAIR pending finalizing a valid alternative program to control interstate pollution. In January 2013, the U.S. Court of Appeals for the D.C. Circuit denied the EPA's petition for reconsideration en banc. The EPA and several environmental groups have appealed the D.C. Circuit Court's August 2012 decision to the Supreme Court in separate filings. At this time, the CAIR remains effective.NAAQS

~~MGE~~In isMarch 2015, ~~currently~~pursuant into ~~compliance with~~ the ~~CAIR~~court-approved ~~Phase~~consent Idecree ~~requirements.~~with ~~MGE~~environmental ~~will~~groups, bethe ~~able~~EPA toidentified ~~meet~~and ~~Phase~~published IIin ~~NOx~~the ~~emissions~~Federal ~~reductions~~Register ~~through~~a ~~using~~list ~~our~~of ~~NOx~~SO2 ~~allowances~~NAAQS ~~provided~~sources ~~through~~that ~~the rule, and we will~~ meet ~~Phase~~an IIannual ~~SO2~~mass emissions ~~reductions~~and/or ~~through~~emissions ~~installation~~rate ofthreshold ~~pollution~~criteria ~~controls.~~(based ~~New~~on ~~SO2~~2012 ~~controls~~data) ~~at Columbia are already underway~~ and ~~are~~thus ~~planned~~will to be ~~completed~~included byin ~~mid~~the ~~2014.~~next ~~MGE~~round ~~expects~~of ~~that~~attainment/nonattainment ~~any~~designations. ~~costs~~As ~~incurred~~per ~~to meet Phase II of~~ the ~~CAIR~~consent ~~will~~decree, beStates ~~fully~~need ~~recoverable~~to ~~through~~send ~~rates.~~their ~~MGE~~recommended ~~will~~designations ~~monitor the Supreme Court's response~~ to the ~~CSAPR~~EPA ~~appeals and any subsequent actions~~ by ~~the~~September 2015. The EPA towill ~~continue~~need to ~~evaluate~~make ~~potential~~a ~~impacts~~final todetermination ~~our~~by ~~operations~~July 2016.

MGE's Columbia plant was included in the EPA's Federal Register notice as a plant located within a county that will be required to undergo an attainment/nonattainment designation by September 2015. The State of Wisconsin will likely need to use air modeling to determine this designation as there are no current monitors or data to use. Since the 2012 data was collected, Columbia has installed pollution control equipment that has lowered its total SO2 emissions and its SO2 emissions rate. However, we will not know with any certainty if Columbia County will be determined to be in attainment until the State of Wisconsin completes its attainment/nonattainment demonstration. The outcome of this designation may have an adverse effect on the operation of the Columbia plant. MGE will monitor and participate in developments with the Columbia County designation process. Management believes compliance costs will be recovered in future rates based on previous treatment of environmental compliance projects.

~~Columbia~~Supreme isCourt aRemand ~~coal-fired~~of ~~generating station operated by WPL in which WPL, WPSC, and MGE have ownership interests. In December 2009,~~ the EPA's ~~sent~~Mercury ~~a Notice of Violation (NOV) to MGE as one of the co-owners of Columbia. The NOV alleges that WPL~~ and ~~the~~Air ~~Columbia~~Toxic ~~co-owners~~Standards failed to comply with appropriate pre-construction review and permitting requirements and, as a result, violated the Prevention of Significant Deterioration program requirements, Title V Operating Permit requirements of the CAA, and the Wisconsin SIP. In September 2010, the Sierra Club filed a civil lawsuit against WPL alleging violations of the CAA at Columbia and other Wisconsin facilities operated by WPL. In April 2013, WPL, as operator, along with the other owners of Columbia (~~MGE and WPS~~MATS), entered into a consent decree with the EPA and the Sierra Club to resolve these claims, while admitting no liability. One of the requirements of the consent decree requires installation of a SCR system at Columbia Unit 2 by December 31, 2018. Based on a preliminary estimate received by WPL, MGE’s share of the projected cost for construction of the SCR system at Columbia is approximately $50-$60 million. The consent decree has been lodged with, and is subject to approval by, the Court, which could occur in the second quarter of 2013. See Footnote 8.a. for additional information regarding these matters.Rule

In June 2015, the U.S. Supreme Court remanded EPA's MATS rule to the D.C. Circuit Court. The Supreme Court's decision held the EPA was required to consider the cost of compliance when deciding that it was appropriate and necessary to regulate mercury under Section 112 of the Clean Air Act. The rule must go back to the D.C. Circuit Court but remains in effect pending action by that Court. The rule currently remains in effect. If the D.C. Circuit Court rules to vacate MATS, the State of Wisconsin's mercury rule would remain in effect for utilities in Wisconsin. The Wisconsin rule has very similar requirements to MATS and thus the effects on MGE would not change in any significant manner. Further, MGE has previously determined that current pollution controls at its Columbia and Elm Road units would meet both MATS and the Wisconsin mercury rule. We do not expect any operational changes as a result of this rule remand.

Other Matters

ATC

Several parties have filed a complaint with FERC seeking to reduce the base return on equity (ROE) of MISO and numerous other MISO transmission owners, including ATC, "due to changes in the capital markets." The complaint alleges that the MISO ROE should not exceed 9.15%, the equity components of hypothetical capital structures should be restricted to 50%, and the relevant incentive ROE adders should be discontinued. FERC denied the portion of the complaint seeking to restrict the use of capital structures that include more than 50% common equity and also denied the portion of the complaint requesting the termination of the incentive ROE adders used by certain transmission owners. MISO's base ROE is 12.38% and ATC's base ROE is 12.2%. FERC ordered formal hearing proceedings to begin, and an initial decision in the complaint is expected by November 30, 2015. ATC provided MGE its 2015 earnings reflecting an adjustment for this matter representing ATC's estimate of its potential refund liability. We derived approximately 7.7% of our net income for the six months ended June 30, 2015, from our investment in ATC.

Rate Matters

In July 2015, the PSCW approved MGE's request to extend the current accounting treatment for transmission related costs through 2016, conditioned upon MGE not filing a base rate case for 2016. This treatment would allow MGE to reflect any differential between costs reflected in rates and actual costs incurred in its next rate case filing.

Also in July 2015, MGE filed with the PSCW an application to implement a fuel credit associated with its fuel savings for 2015. The application proposes a mechanism for the return of the fuel savings to electric customers via a bill credit expected to be implemented from September 2015 to December 31, 2015. MGE has deferred $5.9 million of actual fuel savings through June 30, 2015. Approximately $2.7 million is expected to be returned to customers through December 31, 2015. The application further proposes the fuel credit to cover expected fuel savings for 2016 in the amount of approximately $5.0 million based on anticipated fuel costs. The actual fuel savings will depend upon the completion of the annual PSCW fuel cost audits for 2015 and 2016.

New Accounting Principles

See Footnote 12 of Notes to Consolidated Financial Statements for discussion of new accounting pronouncements.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.

MGE Energy and MGE are potentially exposed to market risk associated with interest rates, commodity prices, and equity returns. MGE currently has no exposure to foreign currency risk. MGE manages some risk exposure through risk management policies and the use of derivative instruments. MGE's risk management policy prohibits speculative trading transactions.

Commodity Price Risk

MGE has commodity price risk exposure with respect to the price of natural gas, electricity, coal, emission credits, and oil. MGE's electric operations burn natural gas in several of its peaking power plants and, in many cases, the cost of purchased power is tied to the cost of natural gas. MGE employs established policies and procedures to reduce the market risks associated with changing commodity prices. MGE's commodity risks are somewhat mitigated by the current ratemaking process in place for recovering electric fuel cost, purchased energy costs, and the cost of natural gas. ~~MGE's electric fuel costs are subject to fuel rules established by the PSCW.~~

MGE's electric ~~operations~~fuel ~~burn~~costs ~~natural~~are ~~gas~~subject into ~~several~~fuel rules established by the PSCW. The fuel rules require the PSCW and Wisconsin utilities to defer electric fuel-related costs that fall outside a symmetrical cost tolerance band. Any over/under recovery of ~~its~~the ~~peaking~~actual ~~power~~costs ~~plants~~is determined on an annual basis and, is adjusted in ~~many~~future ~~cases~~billings to electric retail customers. Under the electric fuel rules, MGE is required to defer the ~~cost~~benefit of ~~purchased~~lower ~~power~~costs if the actual electric fuel costs fall outside the lower end of the range and is ~~tied~~required to defer costs, less any excess revenues, if the ~~cost~~actual electric fuel costs exceed the upper end of ~~natural~~the ~~gas~~range. Excess revenues are defined as revenues in the year in question that provide MGE ~~bears~~with ~~regulatory~~a ~~risk~~greater ~~for~~return on common equity than authorized by the ~~recovery~~PSCW in MGE's latest rate order. The range is defined by the PSCW and has been modified throughout the years based on market conditions and other relevant factors. Currently, MGE is subject to a plus or minus 2% range. MGE assumes the risks and benefits of ~~such~~variances that are within the cost tolerance band. For 2015, fuel and purchased power costs ~~when~~included ~~they~~in MGE's base fuel rates are ~~higher~~$123.0 million. ~~than~~See Footnote 10.b. of the ~~base~~Notes ~~rate~~to ~~established~~Consolidated inFinancial ~~its~~Statements ~~current~~for ~~rate~~additional ~~structure~~information.

The fuel rules require the PSCW and Wisconsin utilities to defer electric fuel-related costs that fall outside a symmetrical cost tolerance band. Any over/under recovery of the actual costs is determined on an annual basis and will be adjusted in future billings to electric retail customers. Under the electric fuel rules, MGE is required to defer the benefit of lower costs if the actual electric fuel rules costs fall outside the lower end of the range and would defer costs, less any excess revenues, if the actual electric fuel rules costs exceeded the upper end of the range. Excess revenues are defined as revenues in the year in question that provide MGE with a greater return on common equity than authorized by the PSCW in MGE's latest rate order. The range is defined by the PSCW and has been modified throughout the years based on market conditions and other relevant factors. Currently, MGE is subject to a plus or minus 2% range. MGE assumes the risks and benefits of variances that are within the cost tolerance band. For 2013, fuel and purchased power costs included in MGE's base fuel rates are $106.1 million. See Footnote 10.b. for additional information.

MGE recovers the cost of natural gas in its gas segment through the purchased gas adjustment clause (PGA). Under the PGA, MGE is able to pass through to its gas customers the cost of gas.

MGE also reduces price risk caused by market fluctuations via physical contracts and financial derivative contracts, including futures, swaps, options, forwards, and other contractual commitments. The maximum length of time over which cash flows related to energy commodities can be hedged under applicable PSCW approvals is four years.

MGE has financial gas and electric commodity contracts to hedge commodity price risk in the gas and electric segments. These contracts are primarily comprised of exchange-traded option and future contracts. MGE also holds FTRs, which are used to hedge the risk of increased transmission congestion charges. At ~~March~~June 3130, ~~2013~~2015, the ~~fair~~cost ~~value~~basis of these instruments exceeded their ~~cost~~fair ~~basis~~value by $10.51 million. Under the PGA clause and electric fuel rules, MGE may include in the costs of fuel (natural gas or power) the costs and benefits of the aforementioned fuel price risk management tools. Because these costs/benefits are recoverable, the related unrealized loss/gain has been deferred on the consolidated balance sheet as a regulatory asset/liability.

MGE has also entered into a ~~ten-year~~ purchased power agreement that provides MGE with firm capacity and energy that began on June 1, 2012, and ends on May 31, 2022 (the "base term"). The agreement also allows MGE ~~the~~an option to extend the contract after the base term. The agreement is considered 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~~June 3130, ~~2013~~2015, reflects a loss position of $7056.70 million.

Interest Rate Risk

Both MGE Energy and MGE may have short term borrowings at varying interest rates. MGE issues commercial paper for its short-term borrowings, while MGE Energy draws from its current credit facility to meet its short-term borrowing needs. Borrowing levels vary from period to period depending upon capital investments and other factors. Future short-term interest expense and payments will reflect both future short-term interest rates and borrowing levels. MGE Energy and MGE manage interest rate risk by limiting their variable rate exposure and continually monitoring the effects of market changes on interest rates. MGE is not exposed to changes in interest rates on a substantial portion of its long-term debt until that debt matures and is refinanced at market rates.

Equity Price Risk - Pension-Related Assets

MGE currently funds its liabilities related to employee benefits through trust funds. These funds, which include investments in debt and equity securities, are managed by various investment managers. Changes in market value of these investments can have an impact on the future expenses related to these liabilities.

Credit Risk - Counterparty

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

Due to the possibility of extreme volatility in the prices of energy commodities and derivatives, the market value of contractual positions with individual counterparties could exceed established credit limits or collateral provided by those counterparties. If such a counterparty were then to fail to perform its obligations under its contract (for example, fail to deliver the electricity MGE originally contracted for), MGE could sustain a loss that could have a material impact on its financial results.

Additionally, if a counterparty were to default and MGE were to liquidate all contracts with that entity, MGE's credit loss would include the loss in value of mark-to-market contracts; the amount owed for settled transactions; and additional payments, if any, to settle unrealized losses on accrual contracts. As of ~~March~~June 3130, ~~2013~~2015, no counterparties have defaulted.

MGE is obligated to provide service to all electric and gas customers within its respective franchised territories. MGE's franchised electric territory includes a 316 square-mile area in Dane County, Wisconsin, and MGE's franchised gas territory includes a service area covering 1,~~631~~649 square miles in Wisconsin. Based on results for the year ended December 31, ~~2012~~2014, no one customer constituted more than 10% of total operating revenues for MGE Energy and MGE. Credit risk for electric and gas is managed by MGE's credit and collection policies, which are consistent with state regulatory requirements.

Cash, cash equivalents, and customer accounts receivable are the financial instruments that potentially subject MGE Energy and MGE to concentrations of credit risk. MGE Energy and MGE place their cash and cash equivalents with high credit-quality financial institutions. MGE has limited concentrations of credit risk from customer accounts receivable because of the large number of customers and relatively strong economy in its service territory.

4248

Item 4. Controls and Procedures.

During the ~~first~~second quarter of ~~2013~~2015, each registrant's management, including the principal executive officer and principal financial officer, evaluated its disclosure controls and procedures related to the recording, processing, summarization, and reporting of information in its periodic reports that it files with the SEC. These disclosure controls and procedures have been designed to ensure that material information relating to that registrant, including its subsidiaries, is accumulated and made known to that registrant's management, including these officers, by other employees of that registrant and its subsidiaries as appropriate to allow timely decisions regarding required disclosure, and that this information is recorded, processed, summarized, evaluated, and reported, as applicable, within the time periods specified in the SEC's rules and forms. Due to the inherent limitations of control systems, not all misstatements may be detected. These inherent limitations include the realities that judgments in decision making can be faulty and breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. Also, the registrants do not control or manage certain of their unconsolidated entities and thus, their access and ability to apply their procedures to those entities is more limited than is the case for their consolidated subsidiaries.

As of ~~March~~June 3130, ~~2013~~2015, each registrant's principal executive officer and principal financial officer concluded that its disclosure controls and procedures were effective. Each registrant intends to strive continually to improve its disclosure controls and procedures to enhance the quality of its financial reporting.

During the quarter ended ~~March~~June 3130, ~~2013~~2015, there were no changes in either registrant's internal controls over financial reporting that materially affected, or are reasonably likely to affect materially, that registrant's internal control over financial reporting.

4349

PART II. OTHER INFORMATION.

Item 1. Legal Proceedings.

MGE Energy and MGE

MGE Energy and its subsidiaries, including MGE, from time to time are involved in various legal proceedings that are handled and defended in the ordinary course of business.

See Footnote 8.a. and 8.cb. of Notes to Consolidated Financial Statements for more information.

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

Issuer Purchases of Equity Securities

Period	Total Number of Shares Purchased		Average Price Paid per Share	Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs*	Maximum number (or Approximate Dollar Value) of Shares That May Yet Be Purchased Under the Plans or Programs*
January 1-31, 2013	22,070	$	52.03	-	-
April 1-30, 2015	25,790	$	43.88	-	-
February 1-28, 2013	22,995		53.14	-	-
May 1-31, 2015	38,100		40.01	-	-
March 1-31, 2013	55,875		55.02	-	-
June 1-30, 2015	98,300		37.96	-	-
Total	~~100~~162,~~940~~190	$	5339.9438	-	-

* Under the Stock Plan, common stock shares deliverable to plan participants may be either newly issued shares or shares purchased on the open market, as determined from time to time by MGE Energy. In June 2009, MGE Energy switched to using open market purchases to provide shares to meet obligations to participants in the Stock Plan. The shares are purchased on the open market through a securities broker-dealer and then are reissued under the Stock Plan as needed to meet share delivery requirements. The volume and timing of share repurchases in the open market depends upon the level of dividend reinvestment and optional share purchases being made from time to time by plan participants. As a result, there is no specified maximum number of shares to be repurchased and no specified termination date for the repurchases. All shares issued through the Stock Plan, whether newly issued or reissued following open market purchases, are issued and sold pursuant to a registration statement that was filed with the SEC and is currently effective.

Item 4. Mine Safety Disclosures.

Not applicable to MGE Energy and MGE.

Item 6. Exhibits.

Statement regarding computation of ratio of earnings to fixed charges for Madison Gas and Electric Company.

Certifications Pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities and Exchange Act of 1934 as to the Quarterly Report on Form 10-Q for the quarter ended ~~March~~June 3130, ~~2013~~2015, filed by the following officers for the following companies:

31.1

Filed by Gary J. Wolter for MGE Energy, Inc.

31.2

Filed by Jeffrey C. Newman for MGE Energy, Inc.

31.3

Filed by Gary J. Wolter for Madison Gas and Electric Company

31.4

Filed by Jeffrey C. Newman for Madison Gas and Electric Company

4450

Certifications Pursuant to Section 1350 of Chapter 63 of Title 18 United States Code (Sarbanes-Oxley Act of 2002) as to the Quarterly Report on Form 10-Q for the quarter ended ~~March~~June 3130, ~~2013~~2015, filed by the following officers for the following companies:

32.1

Filed by Gary J. Wolter for MGE Energy, Inc.

32.2

Filed by Jeffrey C. Newman for MGE Energy, Inc.

32.3

Filed by Gary J. Wolter for Madison Gas and Electric Company

32.4

Filed by Jeffrey C. Newman for Madison Gas and Electric Company

101

Interactive Data Files:

101.INS

XBRL Instance

101.SCH

XBRL Taxonomy Extension Schema

101.CAL

XBRL Taxonomy Extension Calculation

101.DEF

XBRL Taxonomy Extension Definition

101.LAB

XBRL Taxonomy Extension Labels

101.PRE

XBRL Taxonomy Extension Presentation

4551

Signatures - MGE Energy, Inc.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	MGE ENERGY, INC.
Date: May 3, 2013	/s/ Gary J. Wolter
Date: August 6, 2015	/s/ Gary J. Wolter
	Gary J. Wolter Chairman, President and Chief Executive Officer (Duly Authorized Officer)
Date: May 3, 2013	/s/ Jeffrey C. Newman
Date: August 6, 2015	/s/ Jeffrey C. Newman
	Jeffrey C. Newman Vice President, Chief Financial Officer, Secretary and Treasurer (Chief Financial and Accounting Officer)
	Jeffrey C. Newman Senior Vice President, Chief Financial Officer, Secretary and Treasurer (Chief Financial and Accounting Officer)

4652

Signatures - Madison Gas and Electric Company

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	MADISON GAS AND ELECTRIC COMPANY
Date: May 3, 2013	/s/ Gary J. Wolter
Date: August 6, 2015	/s/ Gary J. Wolter
	Gary J. Wolter Chairman, President and Chief Executive Officer (Duly Authorized Officer)
Date: May 3, 2013	/s/ Jeffrey C. Newman
Date: August 6, 2015	/s/ Jeffrey C. Newman
	Jeffrey C. Newman Vice President, Chief Financial Officer, Secretary and Treasurer (Chief Financial and Accounting Officer)
	Jeffrey C. Newman Senior Vice President, Chief Financial Officer, Secretary and Treasurer (Chief Financial and Accounting Officer)

4753

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