MGE Energy Reports Earnings Results.

Business Editors

MADISON, Wis.--(BUSINESS WIRE)--Feb. 9, 2004

MGE Energy, Inc. (Nasdaq: MGEE) earned $5.3 million, or $0.29 per share, for the quarter ended December 31, 2003, compared to $3.3 million, or $0.19 per share, the previous year. In 2003, MGE Energy earned $30.6 million, or $1.71 per share, compared to $29.2 million, or $1.69 per share, in 2002.

Three Months Ended December 31, 2003

MGE Energy's operations primarily reflect its utility subsidiary, Madison Gas and Electric Company (MGE). Electric revenues were up $2.5 million in the fourth quarter. Higher electric base rates, which contributed to the revenue gain, were partially offset by a fuel credit MGE issued to customers and which was in effect throughout the fourth quarter.

MGE's retail natural gas deliveries were down 8.9% due to warmer weather. The average temperature was 38.4 degrees Fahrenheit, about 7% warmer than the previous year. Gas revenues were up $4.6 million mostly due to significantly higher gas commodity costs. The average price for purchased gas was $0.57 per therm compared to $0.49 per therm in the fourth quarter of 2002.

Operations and maintenance expenses in total were up $4.5 million. Key factors contributing to the higher operations costs included: rising health care, pension, and other employee benefits ($0.9 million); increased transmission wheeling costs ($0.5 million); distribution expense ($0.3 million); uncollectible accounts ($0.3 million); and other ($0.5 million). Electric and gas maintenance expenses rose more than $2.0 million.

Depreciation expense decreased $1.8 million. Starting in 2003, MGE was no longer required to contribute $0.7 million per month to the qualified decommissioning fund for the Kewaunee Nuclear Power Plant (Kewaunee). That fund was transferred to Wisconsin Public Service Corporation, which bought MGE's interest in Kewaunee in September 2001.

Interest expense was down $0.3 million due to lower rates on some of MGE's variable-rate debt.

Twelve Months Ended December 31, 2003

In 2003, MGE's revenues were up $54.5 million over 2002. Electric revenues increased $16.8 million, while gas revenues rose $37.7 million. The revenue gains were partially due to increases in MGE's electric and gas base rates. Electric revenues were offset somewhat by a slight drop in electric retail sales and a customer fuel credit (effective August 14 through December 31). Gas revenues were up primarily due to a 6.4% increase in retail natural gas deliveries and significantly higher gas commodity costs, which flow through to customers.

Fuel used for electric generation increased $3.3 million, and purchased power costs were up $4.9 million. Although electric generation was down in 2003, a rise in the cost of natural gas used for electric generation drove up fuel and purchased power costs.

Natural gas purchased increased $30.7 million. The average price for purchased gas in 2003 was $0.578 per therm--33.2% higher than the $0.433 per therm in the previous year.

Operations and maintenance expenses increased in total $19.1 million. Key factors contributing to the $15.5 million increase in operating expenses included: rising health care, pension, and other employee benefits ($4.8 million); increased transmission wheeling costs ($6.3 million); distribution expense ($1.0 million); uncollectible accounts ($0.5 million); and other ($2.9 million). Electric and gas maintenance expenses were up $3.6 million.

Depreciation expense was down $6.0 million. As stated earlier, this is due to MGE no longer contributing to the decommissioning fund for the Kewaunee Nuclear Power Plant.

Lower variable interest rates in 2003 reduced MGE's interest expense by $0.8 million. MGE refinanced a portion of its long-term debt with substantially lower interest rates, which will also reduce future interest expense.

MGE Energy is a public utility holding company. Its principal subsidiary, MGE, generates and distributes electricity to nearly 132,000 customers in Dane County, Wisconsin, and purchases and distributes natural gas to more than 129,000 customers in seven south-central and western Wisconsin counties. MGE has served the Madison area since 1896.

                           MGE Energy, Inc.
               (In thousands, except per-share amounts)

                                                     2003        2002
                                                 ---------  ----------
Three Months Ended December 31
Operating revenue                                $102,474     $95,390
Operating income                                  $11,053      $9,203
Net income                                         $5,324      $3,262
Earnings per share (basic and diluted)              $0.29       $0.19
Average shares outstanding (basic and diluted)     18,194      17,501

Twelve Months Ended December 31
Operating revenue                                $401,547    $347,096
Operating income                                  $59,830     $58,130
Net income                                        $30,640     $29,193
Earnings per share (basic and diluted)              $1.71       $1.69
Average shares outstanding (basic and diluted)     17,894      17,311