Cover Table of Contents 2007 Highlights To Our Shareholders To Our Shareholders (2) To Our Shareholders (3) To Our Shareholders (4) New Energy Solutions at Work New Energy Solutions at Work (2) Putting Our Economy to Work Putting Our Economy to Work (2) Environmental Commitments that Work Environmental Commitments that Work (2) Community Connections at Work Community Connections at Work (2) Income Statements Cash Flow Statements Balance Sheets Capitalization Statements Five—Year Total Return Directors Officers Shareholder Information Corporate Profile Back Cover

Modernizing generation assets. MGE’s Energy 2015 plan is a comprehensive 10-year electric generation strategy. We are retiring old, less efficient coal generation while investing in a cleaner coal power plant with state-of-the-art emission controls. Our renewable wind resources have increased nearly eight times. In 2005, MGE commissioned a natural gas-fired cogeneration facility, one of the cleanest and most efficient power plants in the Midwest. MGE works to provide the best balance of cost and efficiency to deliver reliable energy with the least environmental impacts.

MGE Energy is a partner in We Energies’ Oak Creek power plant expansion. This cleaner coal facility is under construction and set to come online beginning in 2009.

Improving reliability. We look for win-win situations that can benefit local businesses while improving electric reliability for all customers. In 1998, MGE launched a new program—the Backup Generation Service. Since then, the program’s success has been firmly established. Customers in the program pay a charge for the assurance of backup generation. If power to the customer’s facility is interrupted, the generator automatically starts. The program’s 55 generators also provide an additional 45 megawatts of generating capacity for MGE to use during peak electric use periods.

Bob Connor (right), an MGE account manager, and Kevin Snitchler, a Dean Health System administrator, check the large generator behind them. The Dean West Clinic and Urgent Care uses backup generation service.

Demonstrating technologies. For years, MGE has invested in pilot technology projects to better understand highly efficient and renewable energy systems. The geothermal heat pump, an evolving technology, is an example. MGE recently installed geothermal heat pumps to handle the heating and air-conditioning needs at Madison’s new Lussier Community Center. The unit extracts the earth’s heat and uses it to help warm the building in the winter and cool it in the summer. We expect an overall energy savings of 30%. MGE gains expertise from technology projects that we then share with customers.

A geothermal heat pump uses a series of looped pipes to capture the earth’s temperature. Fluid circulates through the pipes and transfers the energy to pumps that amplify the heating or cooling.

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