Gary J. Wolter, MGE Energy Chairman, President and Chief Executive Officer

This year, MGE Energy celebrates 100 consecutive years of delivering dividends to you—our loyal shareholders.

This remarkable century of dividend payments is built on our consistently strong financial performance. Over the years, shareholders have benefited from MGE's dedication to our core business, our strategic investments and our prudent financial management. We are proud to provide you with such an outstanding history of shareholder value.

Our customers and the communities we serve have also benefited. Our performance has allowed us to remain a local company focused on customer service and reliability. We have invested strategically in energy infrastructure, environmentally responsible technologies and smart economic growth.

Our firm financial position allowed us to reward investors with consistent dividend payment and growth over time and enabled MGE Energy to remain strong during the economic crisis in 2008.

Dedicated to dividends since 1909

MGE Energy has raised dividends each year since 1976. Dividends increased from $0.55 to $1.43 per share during that time. MGE Energy is one of only six electric utilities to raise dividends annually for 30 or more consecutive years.

This record of dividend increases puts MGE Energy on Mergent's list of Dividend Achievers. Only 10% of dividend-paying common stocks are classified Dividend Achievers because they demonstrate the consistent ability to increase dividend payments over a substantial period of time.

MGE Energy also is a national leader in solid financial management. Madison Gas and Electric Co. (MGE), our main subsidiary, maintained the highest bond rating (AA-) of all investor-owned, combination utilities in the nation from Standard & Poor's in 2008.

Likewise, Moody's Investors Service gave MGE the highest mark among utilities (Aa2) for its sound business strategy and supportive regulatory environment. MGE Energy's financial performance earned one of Value Line's top ratings for financial strength and its highest ranking for a safe investment.

MGE Energy stock weathered Wall Street's extreme market volatility far better than the major stock indexes. Your company finished 2008 as the best performing utility stock in Wisconsin and one of the top performing stocks in the state.

Solid earnings, growing assets
MGE Energy produced earnings of $2.38 per share in 2008. Earnings benefited from colder winter weather and gains on local economic development investments.

MGE Energy's assets reached nearly $1.3 billion in 2008. This is a 1,000 fold increase over the last 100 years.

One of our recent investments is in We Energies' Oak Creek Power Plant expansion. MGE Energy's 8.33% ownership interest is approximately $172 million (excluding capitalized interest). The first of two 615-megawatt (MW) advanced technology, cleaner coal units will be ready to serve customers in early 2010. The second unit is planned for later that year. We also expanded our assets in renewable energy by bringing a new $59 million wind farm online in 2008.

An industry leader for customers
In 2008, MGE had the highest residential green pricing participation rate of any investor-owned utility in the country. About 10% of our residential customers now purchase clean wind and solar energy through our innovative program.

We also provide highly dependable energy for customers. MGE was rated No. 1 in the country for electric service reliability in a 2007 national utility survey. Our electric service reliability ranked among the top 10 utilities in the country for the five years ended in 2007. MGE pays diligent attention to maintaining excellent gas and electric distribution systems.

Cleaner environment
In response to our customers, we chose to increase our wind resource capacity by 12 times in 2008. Our wind energy capacity grew from 11 to 137 MW. In 2009, renewable energy is expected to account for more than 12% of MGE's total energy supply, up dramatically from 1.6% in 2007.

This increased wind capacity comes from our new 30-MW wind farm in northern Iowa and wind power purchases from two other new Iowa wind projects and one new wind farm in Wisconsin.

We also know that many customers and shareholders are concerned about global climate change and carbon dioxide (CO2) emissions. In 2008, we partnered with others to launch a new Web site, CO2gether.org, which gives customers the knowledge they need to reduce their energy use and CO2 emissions. This one-stop Web site allows people to calculate the CO2 impacts of their energy and transportation use, track their actions and share their results with others.

Under our strategic energy supply plan, Energy 2015, MGE's CO2 impacts are projected to decline system-wide even though total energy use is expected to increase. We project a 10% decrease for CO2 rates and an 8% decrease for total CO2 emissions from 2005 to 2015.

Resilient local economy
We are fortunate to serve an area that has good jobs, a diversified economy and strong educational institutions. It all adds up to an outstanding quality of life. In 2008, the Madison area was ranked 8th in the country in Best Life's annual "100 Best Places to Raise a Family" survey.

Over the years, MGE has provided support to help keep our economy healthy and growing. Our innovative approaches have helped fuel significant economic growth in our community.

Our area's economic strength is reflected in a national survey that ranked Madison's economy 15th among 363 metro areas. Madison has been rated in the top 20 for the last five years in the Policom report.

Another important indicator is Madison's gross domestic product growth rate, which has increased faster than the U.S. and Wisconsin rates.

Officer and board changes
Your Board of Directors elected Jeffrey C. Newman as Vice President, Chief Financial Officer, Secretary and Treasurer, effective Jan. 1, 2009. Mr. Newman previously served as Vice President and Treasurer and has been with the company for 24 years. He replaced Terry A. Hanson, Vice President, Chief Financial Officer and Secretary of MGE Energy and MGE. Mr. Hanson retired as of Dec. 31, 2008.

Thomas R. Stolper was elected to the Board of Directors of Madison Gas and Electric and MGE Energy effective Dec. 19, 2008. Mr. Stolper is the Chief Financial Officer and an owner of TRAC Microbiology, Inc., a food and consumer products testing, research, auditing and consulting corporation. He also is an owner of Pro Chemicals LLC, a cleaning and sanitizing products manufacturer.

A century of dividends
As we mark our significant history of dividend payments, I want to recognize our loyal investors. Thank you for your confidence and commitment to our company.

We are proud to celebrate with you 100 years of delivering dividends.

Gary J. Wolter
Chairman, President and Chief Executive Officer