**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


Washington,
      D.C. 20549





**FORM
      10-K**





**[X]
      Annual Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act
      of
      1934**





For
      the
      fiscal year ended December 31, 2006





or





**[
      ] 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. 001-12995





**CE
      CASECNAN WATER AND ENERGY COMPANY, INC.**


(Exact
      name of registrant as specified in its charter)





Philippines
            
            Not
                Applicable(State
                or other jurisdiction of
            
            (I.R.S.
                Employerincorporation
                or organization)
            
            Identification
                No.)24thFloor, 6750 Building, Ayala AvenueMakati,
                Metro Manila, Philippines
            
            Not
                Applicable(Address
                of principal executive offices)
            
            (Zip
                Code)011
                63 2 892-0276(Registrant’s
                telephone number, including area
                code)





Securities
      registered pursuant to Section 12(b) of the Act: N/A


Securities
      registered pursuant to Section 12(g) of the Act: N/A





Indicate
      by check mark if the registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities Act. Yes
⁪
No T





Indicate
      by check mark if the registrant is not required to file reports pursuant to
      Section 13 of 15(d) of the Act. Yes T No
⁪





Indicate
      by check mark whether the registrant: (1) has 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) has been subject to such filing requirements
      for
      the past 90 days. Yes ⁪ No T





Indicate
      by check mark if disclosure of delinquent filers pursuant to Item 405 of
      Regulation S-K is not contained herein, and will not be contained, to the best
      of registrant’s knowledge, in definitive proxy or information statements
      incorporated by reference in Part III of this Form 10-K or any amendment to
      this
      Form 10-K. T





Indicate
      by check mark whether the registrant is a large accelerated filer, or a
      non-accelerated filer. See definition of “accelerated filer and large
      accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):





Large
                accelerated filer ⁪
            Accelerated
                filer ⁪
            Non-accelerated
                filerT





Indicate
      by check mark if the registrant is a shell company (as defined in Rule 12b-2
      of
      the Act). Yes ⁪ No T





All
      of
      the shares of common equity of CE Casecnan Water and Energy Company, Inc. are
      privately held by a limited group of investors. As of February 8, 2007, the
      number of outstanding shares of $0.038 par value common stock was
      767,162.










**TABLE
      OF CONTENTS**











**PART
                I**Item
                1.
            Business
            4Item
                1A.
            Risk
                Factors
            6Item
                1B.
            Unresolved
                Staff Comments
            7Item
                2.
            Properties
            7Item
                3.
            Legal
                Proceedings
            7Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            7**PART
                II**Item
                5.
            Market
                for Registrant’s Common Equity, Related Stockholder Matters and Issuer
                Purchases of Equity Securities
            8Item
                6.
            Selected
                Financial Data
            8Item
                7.
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            8Item
                7A.
            Quantitative
                and Qualitative Disclosures About Market Risk
            14Item
                8.
            Financial
                Statements and Supplementary Data
            15Item
                9.
            Changes
                in and Disagreements with Accountants on Accountingand
                Financial Disclosure
            31Item
                9A.
            Controls
                and Procedures
            31Item
                9B.
            Other
                Information
            31**PART
                III**Item
                10.
            Directors,
                Executive Officers and Corporate Governance
            32Item
                11.
            Executive
                Compensation
            33Item
                12.
            Security
                Ownership of Certain Beneficial Owners and Management and Related
                Stockholder Matters
            34Item
                13.
            Certain
                Relationships and Related Transactions, and Director
                Independence
            35Item
                14.
            Principal
                Accountant Fees and Services
            35**PART
                IV**Item
                15.
            Exhibits
                and Financial Statement Schedules
            36Signatures
            
            37Exhibit
                Index
            
            38





2


**Disclosure
      Regarding Forward-Looking Statements**





This
      report contains statements that do not directly or exclusively relate to
      historical facts. These statements are “forward-looking statements” within the
      meaning of the Private Securities Litigation Reform Act of 1995. You can
      typically identify forward-looking statements by the use of forward-looking
      words, such as “may,” “will,” “could,” “project,” “believe,” “anticipate,”
“expect,” “estimate,” “continue,” “intend”, “potential,” “plan,” “forecast” and
      similar terms. These statements are based on the Company’s current intentions,
      assumptions, expectations and beliefs and are subject to risks, uncertainties
      and other important factors. Many of these factors are outside the Company’s
      control and could cause actual results to differ materially from those expressed
      or implied by the Company’s forward-looking statements. These factors include,
      among others:




- changes
          in weather conditions that could affect
          operating revenue;
- general
          economic, political and business conditions
          in the Philippines;
- changes
          in governmental, legislative or regulatory
          requirements affecting the Company or the power generation industry;
- availability
            of qualified personnel;
- changes
          in financial or regulatory accounting
          principles or policies imposed by the Public Company Accounting Oversight
          Board (United States), the Financial Accounting Standards Board, the United
          States Securities and Exchange Commission (“SEC”) and similar entities with
          regulatory oversight; and
- other
          business or investment considerations that
          may be disclosed from time to time in filings with the SEC or in other
          publicly disseminated written documents.

Further
      details of the potential risks and uncertainties affecting the Company are
      described in the Company’s filings with the SEC, including Item 1A. Risk Factors
      and other discussions contained in the Form 10-K.





T he
      Company undertakes no obligation to publicly update or revise any
      forward-looking statements, whether as a result of new information, future
      events or otherwise. The foregoing review of factors should not be construed
      as
      exclusive.


3


**PART
      I**





**Item
      1.****Business** **.**





**General**





CE
      Casecnan Water and Energy Company, Inc. (the “Company” or “CE Casecnan”) is a
      privately held Philippine corporation formed indirectly by MidAmerican Energy
      Holdings Company (“MidAmerican”) in September 1994 solely to develop, construct,
      own and operate a multi-purpose irrigation and hydroelectric power facility
      with
      a rated capacity of approximately 150 megawatts (the “Casecnan Project”) located
      on the island of Luzon in the Republic of the Philippines (the “ROP”).





CE
      Casecnan’s outstanding debt securities are recourse only to the Company.
      MidAmerican has not guaranteed directly or indirectly the payment or performance
      of any Company obligations.





The
      Company’s principal executive office is located at 24th Floor, 6750 Building,
      Ayala Avenue, Makati City, Metro Manila, Philippines, and its telephone number
      is 63 2 892-0276. The Company’s principal operations office is located at
      Pantabangan in the Province of Nueva Ecija, Philippines.





In
      this
      Annual Report, references to “U.S. dollars,” “dollars,” or “$” are to the
      currency of the United States and references to “pesos” are to the currency of
      the Philippines. References to kW means kilowatts, MW means megawatts, GW means
      gigawatts, kWh means kilowatt hours, MWh means megawatt hours, and GWh means
      gigawatt hours.





**The
      Casecnan Project**





The
      Casecnan Project is located in the central part of the island of Luzon. It
      consists generally of diversion structures in the Casecnan and Taan rivers
      that
      capture and divert excess water in the Casecnan watershed by means of concrete,
      in-stream diversion weirs, and transfer that water through a transbasin tunnel
      of approximately 23 kilometers in length. During the water transfer, the
      elevation differences between the two watersheds allows electrical energy to
      be
      generated by an approximately 150 MW rated capacity power plant, which is
      located in an underground powerhouse cavern at the end of the water tunnel.
      A
      tailrace discharge tunnel then delivers water to the existing water storage
      reservoir at Pantabangan, providing additional water for irrigation and
      increasing the potential electrical generation at two downstream hydroelectric
      facilities owned by the Philippine National Power Corporation (“NPC”), the
      government-owned and controlled corporation that is the primary supplier of
      electricity in the Philippines. Once in the reservoir at Pantabangan, the water
      is under the control of the Philippine National Irrigation Administration
      (“NIA”).





The
      Company has a contract with the ROP, through NIA (a ROP-owned and controlled
      corporation), for the development and construction of a hydroelectric power
      plant and related facilities under a build-own-operate-transfer agreement
      (“Project Agreement”), as amended by the Supplemental Agreement dated
      September 29, 2003 (the “Supplemental Agreement”), covering a 20-year
      cooperation period (“Cooperation Period”) with “take-or-pay” obligations for
      water and electricity. At the end of the Cooperation Period, the Casecnan
      Project will be transferred to the ROP at no cost on an “as is” basis. The ROP
      also signed a Performance Undertaking, which, among others, affirms and
      guarantees the obligations of NIA under the Project Agreement.





The
      Performance Undertaking also provides for the resolution of disputes by binding
      arbitration in Singapore under international arbitration rules. Construction
      of
      the Casecnan Project commenced in 1995. CE Casecnan is registered with the
      Philippine Board of Investments as a new operator of hydroelectric power plant
      with pioneer status under the Omnibus Investments Code of 1987. Under the terms
      of its registration, CE Casecnan is entitled to certain incentives which
      include an income tax holiday for six years from the start of commercial
      operations. The Casecnan Project Cooperation Period began upon commencement
      of
      commercial operations on December 11, 2001. The income tax holiday will
      expire on December 11, 2007.





Upon
      the
      occurrence and during the continuance of certain force majeure events, including
      those associated with Philippine political action, NIA may be obligated to
      buy
      the Casecnan Project from CE Casecnan at a buyout price expected to be in excess
      of the aggregate principal amount of the outstanding CE Casecnan debt
      securities, together with accrued but unpaid interest.


4


CE
      Casecnan financed a portion of the costs of the Casecnan Project through the
      issuance of $125.0 million of its 11.45% Senior Secured Series A Notes due
      2005 (the “Series A Notes”), $171.5 million of its 11.95% Senior Secured
      Series B Bonds due 2010 (the “Series B Bonds”) and $75.0 million of its
      Senior Secured Floating Rate Notes due 2002 (“FRNs”), pursuant to an indenture
      dated November 27, 1995 (as amended to date, the “Trust Indenture”). During
      2002 and 2005, the Company repaid all amounts due under the FRNs and Series
      A
      Notes, respectively. At December 31, 2006, the CE Casecnan Series B
      Bonds were rated BB- with stable outlook by Standard and Poor’s and B2 with
      stable outlook by Moody’s.





**Concentration
      of Risk**





NIA’s
      payments of obligations under the Project Agreement are substantially
      denominated in U.S. Dollars and are the Company’s sole source of operating
      revenue. Because of the Company’s dependence on NIA, any material failure of NIA
      to fulfill its obligations under the Project Agreement and any material failure
      of the ROP to fulfill its obligations under the Performance Undertaking would
      significantly impair the ability of the Company to meet its existing and future
      obligations. No stockholders, partners or affiliates of the Company, including
      MidAmerican, and no directors, officers or employees of the Company have
      guaranteed or will be in any way liable for payment of the Company’s
      obligations. As a result, payment of the Company’s obligations depends upon the
      availability of sufficient revenue from the Company’s business after the payment
      of operating expenses.





**Insurance**





The
      Company maintains insurance with respect to the Casecnan Project of a type
      and
      in such amounts as are generally carried by companies engaged in similar
      businesses and owning similar projects that are financed in a similar manner.
      This coverage includes casualty insurance, including flood and earthquake
      coverage, business interruption insurance, primary and excess liability
      insurance, automobile insurance and workers compensation insurance. The proceeds
      of such insurance may not be adequate to cover reduced revenue, increased
      expenses or other liabilities arising from the occurrence of catastrophic
      events. There can be no assurance that such insurance coverage will be available
      in the future at commercially reasonable rates or that the amounts for which
      the
      Company is insured will cover all losses. Nevertheless, the Company will not
      reduce or cancel the coverage if the insurance consultant determines it is
      not
      reasonable to do so and insurance is available on commercially reasonable
      terms.





**Regulatory
      and Legislative Matters**





The
      Philippine Congress has passed the Electric
      Power Industry Reform Act of 2001 (“ EPIRA”),
      which is aimed at restructuring the Philippine power industry, privatizing
      the
      NPC and introducing a competitive electricity market, among other initiatives.
      The implementation of EPIRA may have an impact on the Company’s future
      operations in the Philippines and the Philippine power industry as a whole,
      the
      effect of which is not yet determinable or estimable as the changes resulting
      from EPIRA are ongoing.





On
      May 24, 2005, President Arroyo signed an amended tax law to raise the
      corporate income tax rate from 32% to 35% through 2008 (reducing to 30%
      thereafter) and impose value-added tax of 10% (12% effective February 1,
      2006) on certain goods and services. The law and the Project Agreement permit
      CE
      Casecnan to invoice NIA for value-added tax on water delivery fees and, if
      electricity generated from hydro-electric power were to become subject to
      value-added tax, on energy delivery fees as well. Implementation of the tax
      law
      was deferred until legal challenges were resolved. On October 18, 2005, the
      Philippine Supreme Court upheld the constitutionality of the tax law and
      implementation became effective November 1, 2005. The tax law did not have
      a material adverse impact on the Casecnan Project.





On
      January 27, 2006, CE Casecnan received from the Province of Nueva Vizcaya a
      franchise tax assessment for the years 2001 to 2004 totaling $1.6 million.
      On April 25, 2006, CE Casecnan filed an appeal with the Regional Trial
      Court of Nueva Vizcaya. CE Casecnan believes that franchise tax is a tax
      imposed on companies which have a secondary or special franchise from the
      government. CE Casecnan does not have a government franchise. The EPIRA
      provides that power generation is not a public utility operation and does not
      require a franchise. On March 30, 2006, CE Casecnan received from the
      Province of Nueva Vizcaya a franchise tax assessment for the year 2005 totaling
      $0.3 million. CE Casecnan filed a protest with the treasurer of the
      Province of Nueva Vizcaya on April 5, 2006. On June 30, 2006,
      CE Casecnan filed an appeal to the Regional Trial Court of Nueva Vizcaya
      after the province failed to act on the protest within the period required
      by
      law. CE Casecnan moved to consolidate the two cases, which was granted by the
      court. The consolidated cases are set for pre-trial on March 16 and
      April 27, 2007. On January 19, 2007, CE Casecnan received from
      the Province of Nueva Vizcaya a franchise tax assessment for the year 2006
      totaling $0.3 million. CE Casecnan will file a protest with the
      provincial treasurer of the Province of Nueva Vizcaya not later than
      March 20, 2007.


5


**Employees**





At
      December 31, 2006, the Company had 43 full-time employees.





**Item
      1A.** **Risk
      Factors.**





The
      Company is subject to numerous business, operating, environmental, political
      and
      other risks. The Company’s operations may be significantly affected by these or
      other factors that are beyond the Company’s control, any of which could
      materially affect the Company’s financial position, results of operations or
      cash flows.





***The
      Company is dependent upon a single customer for substantially all of its
      operating revenue.***





NIA’s
      payment obligations under the Project Agreement are the Company’s sole source of
      operating revenue. Any material failure of NIA to fulfill its obligations under
      the Project Agreement and any material failure of the ROP to fulfill its
      obligations under the Performance Undertaking would materially adversely affect
      the Company’s financial condition, results of operations and cash flows.





***Company
      assets are subject to significant operating
      uncertainties.***





The
      Casecnan Project is a complex infrastructure project and power plant. Operation
      of the Casecnan Project may be adversely affected by a variety of operating
      factors and is subject to uncertainties, including the breakdown or failure
      of
      equipment or processes or the performance of equipment at levels below those
      originally demonstrated, whether due to ordinary wear and tear, unexpected
      degradation or other events. Any of the foregoing could increase the cost of
      operating the Casecnan Project or require substantial capital expenditures,
      thereby adversely affecting the Company’s financial condition, results of
      operations and cash flows.





***Variability
      in rainfall and water flows have a significant impact on Company operating
      revenue.***





A
      significant portion of the Casecnan Project’s revenue is required to be paid by
      NIA without regard to actual water flows. However, since commencing commercial
      operations, approximately 21% of the Casecnan Project’s revenue has been
      variable energy fees that are dependent upon water flow volumes. No assurance
      can be given that future rainfall levels and water flows will approximate
      historical results.





***Company
      assets are subject to potentially catastrophic geologic or environmental
      risks.***





Fires,
      earthquakes, floods, volcanic eruptions or other similar catastrophic events
      could cause personal injury, loss of life, damage or destruction to the Casecnan
      Project, or suspension of operations. Although the Company maintains insurance
      coverage (including business interruption insurance) to protect against certain
      of these risks, the proceeds of such insurance may not be adequate to cover
      reduced revenue, increased expenses or other liabilities arising from the
      occurrence of any of the events described above. Moreover, there can be no
      assurance that such insurance coverage will be available in the future at
      commercially reasonable rates or that the amounts for which the Company is
      insured will cover all losses.





***The
      Company is subject to risk of loss from civil strife, acts of war, terrorist
      activities, adverse changes in monetary exchange rates, changes in law, policies
      or regulation, including tax law, or failure to timely obtain necessary
      approvals or permits and other risks arising from foreign sovereignty over
      areas
      in which the Company conducts operations.***





The
      Casecnan Project is located in the Philippines and is therefore subject to
      political, economic and other uncertainties, including the risks of war, civil
      strife, guerilla activity, terrorism, expropriation, nationalization,
      renegotiation or nullification of existing contracts, changes in taxation
      policies, currency availability and exchange restrictions, changing political
      conditions and international monetary fluctuations. The government of the
      Philippines has exercised and continues to exercise a significant influence
      over
      the Philippine economy. There can be no assurance that future developments
      in
      the Philippines will not impair the Casecnan Project’s operations or the
      Company’s revenue.





6




The
      Company is subject to statutory and regulatory standards, including those
      related to energy and environmental laws. Business licenses and permits must
      be
      renewed annually to continue operating the Casecnan Project. Delay in receipt
      or
      failure to obtain these permits or to comply with applicable standards could
      restrict operation of the Casecnan Project or result in additional costs or
      taxes. The adoption of new laws, policies and regulations, or changes in the
      interpretation or application of existing laws, policies and regulations that
      modify the present regulatory environment could have a material adverse affect
      on the Company’s ability to operate the Casecnan Project.


**Item
      1B.**  **Unresolved
      Staff Comments.**





Not
      applicable.





**Item
      2.**  **Properties.**





CE
      Casecnan’s principal property is the approximately 150 MW hydroelectric power
      facility, located in the central part of the island of Luzon in the ROP.





**Item
      3.**  **Legal
      Proceedings.**





None.





**Item
      4.**  **Submission
      of Matters to a Vote of Security Holders.**





Not
      applicable.


7


**PART
      II**





**Item
      5.**  **Market
      for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
      of Equity Securities.**





Not
      applicable.





**Item
      6.**  **Selected
      Financial Data.**





The
      following table sets forth selected financial data, which should be read in
      conjunction with Item 7. Management’s Discussion and Analysis of Financial
      Condition and Results of Operations and with the Company’s financial statements
      and the related notes to those statements included in Item 8. Financial
      Statements and Supplementary Data of this Form 10-K. The selected financial
      data
      (amounts in thousands) has been derived from the Company’s historical financial
      statements.





**Selected
      Financial Data**


**(In
      thousands)**





**Year
                ended December 31,****2006**(1)
            
            **2005**
            
            **2004****(2)**
            
            **2003****(2)**
            
            **2002**Revenue
            
            $
            148,529
            
            $
            107,000
            
            $
            106,847
            
            $
            129,921
            
            $
            138,264Operating
                income
            
            
            117,433
            
            
            75,674
            
            
            73,431
            
            
            91,539
            
            
            93,415Net
                income
            
            
            100,804
            
            
            52,009
            
            
            45,302
            
            
            59,765
            
            
            44,956Electricity
                produced (GWh)
            
            
            538.5
            
            
            406.5
            
            
            404.5
            
            
            382.2
            
            
            360.1Water
                delivered (million cubic meters)
            
            
            996.0
            
            
            723.0
            
            
            719.2
            
            
            620.6
            
            
            563.2**As
                of December 31,****2006**
            
            
            **2005**
            
            
            **2004**
            
            
            **2003**
            
            
            **2002**Total
                assets
            
            $
            444,970
            
            $
            470,017
            
            $
            477,996
            
            $
            565,313
            
            $
            541,507Notes
                payable
            
            
            51,263
            
            
            51,263
            
            
            51,263
            
            
            51,263
            
            
            51,263Long-term
                debt, including current portion
            
            
            106,330
            
            
            142,345
            
            
            197,098
            
            
            246,458
            
            
            287,925Stockholders’
                equity
            
            
            193,301
            
            
            191,997
            
            
            150,988
            
            
            211,686
            
            
            151,921








(1)
            Revenue
                increased in 2006 due to substantially higher water flows and accompanying
                electricity generation.(2)
            Revenue
                decreased starting in October 2003 due to the NIA Arbitration
                Settlement.





**Item
      7.**  **Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations.**





The
      following is management’ s
      discussion and analysis of certain significant factors which have affected
      the
      financial condition and results of operations of the Company during the periods
      included in the accompanying financial statements. This discussion should be
      read in conjunction with Item 6. Selected Financial Data and the Company’s
      financial statements and the related notes to those statements included in
      Item
      8. Financial Statements and Supplementary Data of this Form 10-K.





**Factors
      Affecting the Results of Operations**





**Seasonality**





The
      Casecnan Project is dependent upon sufficient rainfall to generate electricity
      and deliver water. The seasonality of rainfall patterns and the variability
      of
      rainfall from year to year, all of which are outside the control of the Company,
      have a material impact on the amounts of electricity generated and water
      delivered by the Casecnan Project. Rainfall has historically been highest from
      June through December and lowest from January through May. The contractual
      terms
      for water delivery fees and variable energy fees (described below) can produce
      significant variability in revenue between reporting periods.


8


Under
      the
      Supplemental Agreement, the water delivery fee is payable in a fixed monthly
      payment based upon an average annual water delivery of 801.9 million cubic
      meters, pro-rated to approximately 66.8 million cubic meters per month,
      multiplied by the applicable per cubic meter rate through December 25,
      2008. For each contract year starting from December 25, 2003 and ending on
      December 25, 2008, a water delivery fee credit (deferred revenue) is
      computed equal to 801.9 million cubic meters minus the greater of actual
      water deliveries or 700.0 million cubic meters - the minimum threshold. The
      water delivery fee credit at the end of each contract year is available to
      be
      earned in the succeeding contract year through December 25, 2008. The
      cumulative water delivery fee credit at December 25, 2008, if any, shall be
      amortized from December 25, 2008 through December 25, 2013.
      Accordingly, in recognizing revenue, the water delivery fees are recorded each
      month pro-rated to approximately 58.3 million cubic meters per month until
      the minimum threshold has been reached for the current contract year. Subsequent
      water delivery fees within the contract year are based on actual water
      delivered.





The
      Company earns guaranteed energy fees based upon an assumed delivery of 19.0
      GWh
      per month, at a rate of $0.1596 per kWh. The Company earns variable energy
      fees
      based upon actual energy delivered in each month in excess of 19.0 GWh, payable
      at a rate of $0.1509 per kWh. Starting in 2009, the kWh rate for energy
      deliveries in excess of 19.0 GWh per month is reduced to $0.1132, escalating
      at
      1% per annum thereafter. Any deliveries of energy in excess of 490.0 GWh, but
      less than 550.0 GWh per year are paid at a rate of 1.3 pesos per kWh, reduced
      to
      0.98 pesos starting 2009 and escalated at 1% per annum thereafter. Deliveries
      in
      excess of 550.0 GWh per year are at no cost to NIA. Within each contract year,
      no variable energy fees are payable until energy in excess of the cumulative
      19.0 GWh per month for the contract year to date has been
      delivered.





**Results
      of Operations for the Years Ended December 31, 2006 and
      2005**





The
      following table provides certain operating data of the Casecnan Project for
      the
      years ended December 31:





**2006**
            
            
            **2005**Electricity
                produced (GWh)
            
            
            538.5
            
            
            406.5Water
                delivered (million cubic meters)
            
            
            996.0
            
            
            723.0





For
      accounting purposes, the Project Agreement with NIA contains both an operating
      lease and a service contract, which the Company accounted for pursuant to
      provisions of Statement of Financial Accounting Standards No. 13, “Accounting
      for Leases.” Pursuant to the provisions of the Project Agreement, the Company
      earned water and energy fees as follows (in millions):





**2006**
            
            
            **2005**Water
                delivery fees
            
            $
            57.3
            
            $
            53.3Guaranteed
                energy fees
            
            
            36.4
            
            
            36.4Variable
                energy fees
            
            
            41.0
            
            
            24.9Deferred
                water delivery fees
            
            
            13.8
            
            
            (7.6
            )Total
                lease rentals and service contracts revenue
            
            $
            148.5
            
            $
            107.0





Revenue
      for 2006 increased by $41.5 million to $148.5 million compared with
      2005. The increase in water delivery fees was primarily due to the contractual
      7.5% annual escalation factor. The higher variable energy fees in 2006 were
      due
      to higher generation for the year of 538.5 GWh compared to 406.5 GWh in 2005.
      Accumulated deferred water delivery fees in prior years were fully earned in
      2006 due to high water deliveries which exceeded the 801.9 million cubic
      meters threshold. The higher generation and water deliveries were the result
      of
      above average rainfall in most months of 2006.





Interest
      expense for 2006 decreased $3.4 million to $21.4 million compared with
      2005, due primarily to lower outstanding debt balances resulting from the
      scheduled repayment of debt.





Interest
      income for 2006 increased $1.1 million to $3.0 million compared with
      2005, due to higher average cash balances and higher average interest rates
      on
      investments.





9




Other,
      net for 2006 increased $3.7 million to $4.0 million compared with
      2005, due primarily to value added tax recoveries exceeding obligations as
      a
      result of a change in the value added tax law which became effective on
      November 1, 2005.


The
      provision for income tax for 2006 increased $1.2 million to
      $2.3 million as income not subject to the income tax holiday was higher
      than in 2005. The income tax holiday is scheduled to expire in December 2007
      after which all CE Casecnan income will become subject to income tax at the
      statutory rate of 35%.





**Results
      of Operations for the Years Ended December 31, 2005 and
      2004**





The
      following table provides certain operating data of the Casecnan Project for
      the
      years ended December 31:





**2005**
            
            
            **2004**Electricity
                produced (GWh)
            
            
            406.5
            
            
            404.5Water
                delivered (million cubic meters)
            
            
            723.0
            
            
            719.2





For
      accounting purposes, the Project Agreement with NIA contains both an operating
      lease and a service contract, which the Company accounted for pursuant to
      provisions of Statement of Financial Accounting Standards No. 13, “Accounting
      for Leases.” Pursuant to the provisions of the Project Agreement, the Company
      earned water and energy fees as follows (in millions):





**2005**
            
            
            **2004**Water
                delivery fees
            
            $
            53.3
            
            $
            49.6Guaranteed
                energy fees
            
            
            36.4
            
            
            36.4Variable
                energy fees
            
            
            24.9
            
            
            26.9Deferred
                water delivery fees
            
            
            (7.6
            )
            
            (6.1
            )Total
                lease rentals and service contracts revenue
            
            $
            107.0
            
            $
            106.8





Revenue
      for 2005 increased by $0.2 illion to $107.0 illion compared with 2004.
      The increase in water delivery fees and deferred water delivery fees was
      primarily due to the contractual 7.5% annual escalation factor. Differences
      between calendar year operations and contract year invoicing resulted in lower
      variable energy fees in 2005 compared to 2004 despite marginally higher total
      energy production during the calendar year. The monthly billing cycle runs
      from
      the 25 th day of a
      given calendar month to the 25 th day of
      the following month. Within each billing cycle, the Casecnan Project must
      produce 19.0 GWh of electricity before it can earn variable energy fees. The
      electricity generated by heavy water flows in the last six days of the December
      2005 (the start of the new billing cycle) did not generate any variable energy
      fees in calendar year 2005.





Operating
      expenses for 2005 decreased by $2.1 illion to $31.3 illion compared
      with 2004. Road maintenance was $0.7 million lower in 2005 due to damage
      caused by typhoons in 2004. Engineering and consulting expenses were
      $0.7 million lower in 2005 due to plant optimization activities in 2004 and
      the construction contract arbitration settlement in April 2004. Depreciation
      expense decreased by $0.5 million in 2005 due to the lower depreciable base
      resulting from the construction contract arbitration settlement in April 2004.





Interest
      expense for 2005 decreased $4.7 million to $24.8 million compared with
      2004, due primarily to lower outstanding debt balances resulting from the
      scheduled repayment of debt.





The
      provision for income tax for 2005 increased by $1.0 million to
      $1.1 million compared with 2004. In 2005, the Company recorded income tax
      expense of $0.7 million on interest income earned outside the
      Philippines.





**Liquidity
      and Capital Resources**





CE
      Casecnan constructed and operates the Casecnan Project, which was developed
      as
      an unsolicited proposal under the Philippine build-own-operate-transfer law,
      pursuant to the terms of the Project Agreement. CE Casecnan is
      registered with the Philippine Board of Investments as a new operator of
      hydroelectric power plant with pioneer status under the Omnibus Investments
      Code
      of 1987 (Executive Order No. 226). Under the terms of its registration,
      CE Casecnan is entitled to certain incentives which include an income tax
      holiday for six years from the start of commercial operations, tax and duty-free
      importation of capital equipment, tax credits on domestic capital equipment,
      and
      exemption from customs duties and national internal revenue taxes for the
      importation and unrestricted use of the consigned equipment for the development,
      construction, start-up, testing and operation of the power plant. CE Casecnan
      developed, financed and constructed the Casecnan Project over the construction
      period, and owns and operates the Casecnan Project for the term of the
      Cooperation Period, which commenced on December 11, 2001. During the
      Cooperation Period, NIA is obligated to accept all deliveries of water and
      energy, and so long as the Casecnan Project is physically capable of operating
      and delivering in accordance with agreed levels set forth in the Project
      Agreement, NIA is obligated to pay CE Casecnan a fixed fee for the delivery
      of a
      threshold volume of water and a fixed fee for the delivery of a threshold amount
      of electricity. In addition, NIA is obligated to pay a fee for all electricity
      delivered in excess of the threshold amount up to a specified amount and will
      be
      obligated to pay a fee for all water delivered in excess of the threshold amount
      up to a specified amount beginning after December 25,
      2008.


10


The
      ROP
      has provided a Performance Undertaking under which NIA’s obligations under the
      Project Agreement are guaranteed by the full faith and credit of the ROP. The
      Project Agreement and the Performance Undertaking provide for the resolution
      of
      disputes by binding arbitration in Singapore under international arbitration
      rules.





NIA’s
      obligations under the Project Agreement are substantially denominated in U.S.
      Dollars and are the Company’s sole source of operating revenue. Because of the
      Company’s dependence on NIA, any material failure of NIA to fulfill its
      obligations under the Project Agreement and any material failure of the ROP
      to
      fulfill its obligations under the Performance Undertaking would significantly
      impair the ability of the Company to meet its existing and future obligations,
      including obligations pertaining to its outstanding debt. No stockholders,
      partners or affiliates of the Company, including MidAmerican, and no directors,
      officers or employees of the Company have guaranteed or will be in any way
      liable for payment of the Company’s obligations. As a result, payment of the
      Company’s obligations depends upon the availability of sufficient revenue from
      the Company’s business after the payment of operating expenses.





The
      Company’s cash and cash equivalents were $31.9 million and
      $42.3 million at December 31, 2006 and 2005, respectively.





The
      Company generated cash flows from operations of $124.8 million and
      $78.7 million in 2006 and 2005, respectively. The increase in 2006 was
      primarily due to cash receipts from higher variable energy fees of
      $19.4 million, higher water delivery fees of $4.0 million due to the
      7.5% contractual escalation factor, lower interest paid in 2006 of
      $6.4 million, reimbursements to the Company of $9.7 million for real
      property taxes paid in 2005 and value added tax recoveries of
      $3.4 million.





The
      Company used $19.6 million and received $10.1 million for investing
      activities in 2006 and 2005, respectively. Capital expenditures were
      $1.9 million and $0.5 million in 2006 and 2005, respectively.
      Restricted cash and investments for debt service obligations and dividends
      payable increased by $17.7 million in 2006, due primarily to the 15% of
      2006 dividends and related interest which is deposited in an escrow account
      and
      shown as part of restricted cash and investments in the Balance Sheets. In
      2005,
      restricted cash and investments for debt service obligations and dividends
      payable decreased by $10.6 million due to lower scheduled principal
      payments due in 2006.





The
      Company used $115.6 million and $63.2 million for financing activities
      for the years ended December 31, 2006 and 2005, respectively. The Company
      declared dividends totaling $99.5 million in 2006 and $11.0 million in
      2005 (of which $14.9 million and $1.7 million respectively, were
      placed in an escrow account in the name of the Company and shown as restricted
      cash and investments and dividends payable in the Balance Sheets). The Company
      repaid $36.0 million and $54.8 million on the balance of the Series A
      Notes and Series B Bonds in 2006 and 2005, respectively.





The
      Company’s cash and cash equivalents were $42.3 million and
      $16.7 million at December 31, 2005 and 2004, respectively.




The
      Company generated cash flows from operations of $78.7 million and
      $76.8 million in 2005 and 2004, respectively. The increase in 2005 was
      primarily due to higher
      water delivery fees of $3.7 million due to the 7.5% contractual escalation
      factor ,
      lower
      interest paid in 2005 of $ 6.5 million and the payment of property taxes of
      $9.2 million in 2005.





The
      Company received $10.1 million and used $74.5 million for investing
      activities for the years ended December 31, 2005 and 2004, respectively. On
      January 14, 2004, the Company collected the $97.0 million ROP Note
      receivable obtained in connection with the NIA Arbitration Settlement. On
      April 14, 2004, the Company received $18.9 million pursuant to an
      arbitration settlement with the construction contractor. Capital expenditures
      were $0.5 million and $4.1 million for the years ended
      December 31, 2005 and 2004, respectively. Restricted cash and investments
      for debt service obligations decreased by $10.6 million in 2005 due to
      lower principal payments due in 2006. In 2004, restricted cash and investments
      for debt service obligations increased by $37.4 million to fully fund the
      Debt Service Reserve Fund.




11




The
      Company used $63.2 million and $139.1 million for financing activities
      for the years ended December 31, 2005 and 2004, respectively. The Company
      declared dividends totaling $11.0 million in 2005 and $106.0 million
      in 2004 (of which $1.7 million and $15.9 million, respectively were
      set aside in a separate bank account in the name of the Company and shown as
      restricted cash and investments and dividends payable in the Balance Sheets).
      The Company repaid $54.8 million and $49.4 million on the balance of
      the Series A Notes and Series B Bonds in 2005 and 2004,
      respectively.




**NIA
      Arbitration Settlement**





In
      connection with the NIA Arbitration Settlement on October 15, 2003, NIA
      delivered to CE Casecnan a $97.0 million ROP Note, which contained a put
      provision granting CE Casecnan the right to put the ROP Note to the ROP for
      a price of par plus accrued interest for a 30-day period commencing on
      January 14, 2004. On January 14, 2004, CE Casecnan exercised its
      right to put the ROP Note to the ROP and, in accordance with the terms of the
      put, CE Casecnan received $99.2 million (representing
      $97.0 million par value plus accrued interest) from the ROP on
      January 21, 2004.





**Casecnan
      Stockholder Litigation**





Pursuant
      to the share ownership adjustment mechanism in the CE Casecnan stockholder
      agreement, which is based upon proforma financial projections of the Casecnan
      Project prepared following commencement of commercial operations, in
      February 2002, MidAmerican’s indirect wholly owned subsidiary,
      CE Casecnan Ltd., advised the minority stockholder of the Company,
      LaPrairie Group Contractors (International) Ltd. (“LPG”), that MidAmerican’s
      indirect ownership interest in CE Casecnan had increased to 100% effective
      from commencement of commercial operations. On July 8, 2002, LPG filed
      a complaint in the Superior Court of the State of California, City and County
      of
      San Francisco against CE Casecnan Ltd. and MidAmerican. LPG’s complaint, as
      amended, seeks compensatory and punitive damages arising out of CE Casecnan
      Ltd.’s and MidAmerican’s alleged improper calculation of the proforma financial
      projections and alleged improper settlement of the NIA arbitration. The Company
      is not a defendant in the action. On January 21, 2004, CE Casecnan Ltd.,
      LPG and the Company entered into a status quo agreement pursuant to which the
      parties agreed to set aside certain distributions related to the shares subject
      to the LPG dispute and CE Casecnan agreed not to take any further actions with
      respect to such distributions without at least 15 days prior notice to LPG.
      Accordingly, 15% of the dividend declarations in 2006, 2005 and 2004, totaling
      $32.5 million, was set aside in a separate bank account in the name of the
      Company and is shown as restricted cash and investments and dividends payable
      in
      the accompanying Balance Sheets. On August 4, 2005, the court issued a
      decision, ruling in favor of LPG on five of the eight disputed issues in the
      first phase of the litigation. On September 12, 2005, LPG filed a motion
      seeking the release of the funds which have been set aside pursuant to the
      status quo agreement referred to above. MidAmerican and CE Casecnan Ltd.
      filed an opposition to the motion on October 3, 2005, and at the hearing on
      October 26, 2005, the court denied LPG’s motion. On January 3, 2006,
      the court entered a judgment in favor of LPG against CE Casecnan Ltd. According
      to the judgment, LPG would retain its ownership of 15% of the shares of the
      Company and distributions of the amounts deposited into escrow plus interest
      at
      9% per annum. On
      February 28, 2006, CE Casecnan Ltd. filed an appeal of this judgment and
      the August 4, 2005 decision. The appeal is fully briefed, was argued on
      January 4, 2007 and is expected to be resolved sometime in 2007. The
      parties are proceeding in the trial court on LPG’s remaining claim against
      MidAmerican for damages for alleged breach of fiduciary duty. This claim is
      expected to be resolved sometime in 2007.





In
      February 2003, San Lorenzo Ruiz Builders and Developers Group, Inc. (“San
      Lorenzo”), an original shareholder substantially all of whose shares in the
      Company were purchased by MidAmerican in 1998, threatened to initiate legal
      action against the Company in the Philippines in connection with certain aspects
      of its option to repurchase such shares. The Company believes that San Lorenzo
      has no valid basis for any claim and, if named as a defendant in any action
      that
      may be commenced by San Lorenzo, the Company will vigorously defend such action.
      On July 1, 2005, MidAmerican and CE Casecnan Ltd. commenced an action
      against San Lorenzo in the District Court of Douglas County, Nebraska, seeking
      a
      declaratory judgment as to MidAmerican’s and CE Casecnan Ltd.’s rights vis-à-vis
      San Lorenzo in respect of such shares. San Lorenzo filed a motion to dismiss
      on
      September 19, 2005. Subsequently, San Lorenzo purported to exercise its
      option to repurchase such shares. On January 30, 2006, San Lorenzo filed a
      counterclaim against MidAmerican and CE Casecnan Ltd. seeking declaratory
      relief that it has effectively exercised its option to purchase 15% of the
      shares of the Company, that it is the rightful owner of such shares and that
      it
      is due all dividends paid on such shares. On March 9, 2006, the court
      granted San Lorenzo’s motion to dismiss, but has since permitted MidAmerican and
      CE Casecnan Ltd. to file an amended complaint incorporating the purported
      exercise of the option. The complaint has been amended and the action is
      proceeding. The matter is currently in the early stages of discovery. The
      impact, if any, of San Lorenzo’s purported exercise of its option and the
      Nebraska litigation on the Company cannot be determined at this
      time.





12


**Obligations
      and Commitments**





The
      Company has contractual obligations and commercial commitments that may affect
      its financial condition. Contractual obligations to make future payments arise
      from long-term debt and notes payable. Material obligations as of
      December 31, 2006 are as follows (in thousands):





**Payments
                Due by Period****1**
            
            **2-3**
            
            **4-5**
            
            **>5****Total**
            
            **Year**
            
            **Years**
            
            **Years**
            
            **Years**Contractual
                cash obligations:Long-term
                debt
            
            $
            106,330
            
            $
            37,730
            
            $
            51,450
            
            $
            17,150
            
            $
            -Note
                payable(1)
            
            
            51,263
            
            
            -
            
            
            -
            
            
            -
            
            
            51,263Interest
            
            
            86,079
            
            
            30,909
            
            
            21,402
            
            
            12,589
            
            
            21,179Total
                contractual cash obligations
            
            $
            243,672
            
            $
            68,639
            
            $
            72,852
            
            $
            29,739
            
            $
            72,442





(1)
            The
                maturity date of the note is November1,
                2015. However, CE Casecnan Ltd. can demand payment of the outstanding
                principal amount at any time prior to the maturity
                date.





**Critical
      Accounting Policies**





Certain
      accounting policies require management to make estimates and judgments
      concerning transactions that will be settled in the future. Amounts recognized
      in the financial statements from such estimates are necessarily based on
      numerous assumptions involving varying and potentially significant degrees
      of
      judgment and uncertainty. Accordingly, the amounts currently reflected in the
      financial statements will likely increase or decrease in the future as
      additional information becomes available.





Allowance
      for Doubtful Accounts





The
      allowance for doubtful accounts is based on the Company’s assessment of the
      collectibility of payments from NIA. This assessment requires judgment regarding
      the outcome of disputes and the ability of the customer to pay the amounts
      owed
      to the Company. Any change in the Company’s assessment of the collectibility of
      accounts receivable that was not previously provided for could significantly
      impact the calculation of such allowance and the results of
      operations.





Concentration
      of Risk





NIA’s
      payments of obligations under the Project Agreement are substantially
      denominated in U.S. Dollars and are the Company’s sole source of operating
      revenues. Because of the Company’s dependence on NIA, any material failure of
      NIA to fulfill its obligations under the Project Agreement and any material
      failure of the ROP to fulfill its obligations under the Performance Undertaking
      would significantly impair the ability of the Company to meet its existing
      and
      future obligations. No stockholders, partners or affiliates of the Company,
      including MidAmerican, and no directors, officers or employees of the Company
      will guarantee or be in any way liable for payment of the Company’s obligations.
      As a result, payment of the Company’s obligations depends upon the availability
      of sufficient revenues from the Company’s business after the payment of
      operating expenses.




13


**Item
      7A.**  **Quantitative
      and Qualitative Disclosures About Market Risk.**





The
      following discussion of the Company’s exposure to various market risks contains
“forward-looking statements” that involve risks and uncertainties. These
      projected results have been prepared utilizing certain assumptions considered
      reasonable in the circumstances and in light of information currently available
      to the Company. Actual results could differ materially from those projected
      in
      the forward-looking information.





Interest
      Rate Risk





At
      December 31, 2006, the Company had fixed-rate long-term debt of
      $106.3 million in principal amount and having a fair value of
      $113.8 million. At December 31, 2005, the Company had fixed-rate
      long-term debt of $142.3 million in principal amount and having a fair
      value of $153.4 million. These instruments are fixed-rate and therefore do
      not expose the Company to the risk of earnings loss due to changes in market
      interest rates. However, the fair value of these instruments would decrease
      by
      approximately $1.3 million if interest rates were to increase by 10% from
      their levels at December 31, 2006. In general, such a decrease in fair
      value would impact earnings and cash flows only if the Company were to reacquire
      all or a portion of these instruments prior to their maturity.





Credit
      Risk





NIA’s
      payments of obligations under the Project Agreement are substantially
      denominated in U.S. Dollars and are the Company’s sole source of operating
      revenue. NIA must obtain U.S. Dollars to fund its payment obligations. Because
      of the Company’s dependence on NIA, any material failure of NIA to obtain U.S.
      Dollars and fulfill its obligations under the Project Agreement and any material
      failure of the ROP to fulfill its obligations under the Performance Undertaking
      would significantly impair the ability of the Company to meet its existing
      and
      future obligations. No stockholders, partners or affiliates of the Company,
      including MidAmerican, and no directors, officers or employees of the Company
      have guaranteed or will be in any way liable for payment of the Company’s
      obligations. As a result, payment of the Company’s obligations depends upon the
      availability of sufficient revenue from the Company’s business after the payment
      of operating expenses.





14


**Item
      8.**  **Financial
      Statements and Supplementary Data.**





Report
                of Independent Registered Public Accounting Firm
            16Balance
                Sheets as of December 31, 2006 and 2005
            17Statements
                of Operations for the Years Ended December 31, 2006, 2005 and
                2004
            18Statements
                of Changes in Stockholders’ Equity for the Years Ended December 31,
                2006, 2005 and 2004
            19Statements
                of Cash Flows for the Years Ended December 31, 2006, 2005 and
                2004
            20Notes
                to Financial Statements
            21








15


**REPORT
      OF INDEPENDENT** **REGISTERED
      PUBLIC ACCOUNTING FIRM**





To
      the
      Board of Directors and Stockholders of


CE
      Casecnan Water and Energy Company, Inc.








We
      have
      audited the accompanying balance sheets of CE Casecnan Water and Energy Company,
      Inc. as of December 31, 2006 and 2005, and the related statements of
      operations, of changes in stockholders’ equity and of cash flows for each of the
      three years in the period ended December 31, 2006. These financial
      statements are the responsibility of the Company’s management. Our
      responsibility is to express an opinion on these financial statements
      based on our
      audits.





We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether the financial
      statements are free of material misstatement. An audit includes examining,
      on a
      test basis, evidence supporting the amounts and disclosures in the financial
      statements. An audit also includes assessing the accounting principles used
      and
      significant estimates made by management, as well as evaluating the overall
      financial statement presentation. We believe that our audits provide a
      reasonable basis for our opinion.





In
      our
      opinion, the financial statements referred to above present fairly, in all
      material respects, the financial position of CE Casecnan Water and Energy
      Company, Inc. as of December 31, 2006 and 2005, and the results of its
      operations and its cash flows for each of the three years in the period ended
      December 31, 2006, in conformity with accounting principles generally
      accepted in the United States of America.





/s/
      Isla
      Lipana & Co.





ISLA
      LIPANA & CO.


A
      PricewaterhouseCoopers member firm


Makati
      City, Philippines


February 8,
      2007








16





**CE
      CASECNAN WATER AND ENERGY COMPANY, INC.**


**BALANCE
      SHEETS**


(Amounts
      in thousands, except share data)





**As
                of December 31,****2006**
            
            **2005****ASSETS**Current
                assets:Cash
                and cash equivalents
            
            $
            31,946
            
            $
            42,317Restricted
                cash and investments
            
            
            62,659
            
            
            44,956Trade
                receivable, net
            
            
            14,002
            
            
            26,638Prepaid
                insurance and other current assets
            
            
            6,008
            
            
            5,215Total
                current assets
            
            
            114,615
            
            
            119,126Bond
                issue costs, net
            
            
            1,057
            
            
            1,745Property,
                plant and equipment, net
            
            
            324,203
            
            
            344,051Deferred
                income tax
            
            
            5,095
            
            
            5,095**Total
                assets**
            
            $
            444,970
            
            $
            470,017**LIABILITIES
                AND STOCKHOLDERS’ EQUITY**Current
                liabilities:Accounts
                payable and other accrued liabilities
            
            $
            5,264
            
            $
            6,468Dividends
                payable
            
            
            32,475
            
            
            17,550Accrued
                interest
            
            
            15,326
            
            
            10,592Payable
                to affiliates
            
            
            41,011
            
            
            36,046Current
                portion of long-term debt
            
            
            37,730
            
            
            36,015Total
                current liabilities
            
            
            131,806
            
            
            106,671Notes
                payable
            
            
            51,263
            
            
            51,263Deferred
                revenue
            
            
            -
            
            
            13,756Long-term
                debt, net of current portion
            
            
            68,600
            
            
            106,330Total
                liabilities
            
            
            251,669
            
            
            278,020Commitments
                and contingencies (Note 11)Stockholders’
                equity:Capital
                stock - 2,148,000 shares authorized, one Philippine peso ($0.038)
                par
                value; 767,162 shares issued and outstanding
            
            
            29
            
            
            29Additional
                paid-in capital
            
            
            123,807
            
            
            123,807Retained
                earnings
            
            
            69,465
            
            
            68,161Total
                stockholders’ equity
            
            
            193,301
            
            
            191,997**Total
                liabilities and stockholders’ equity**
            
            $
            444,970
            
            $
            470,017





The
      accompanying notes are an integral part of these financial
      statements.


17





**CE
      CASECNAN WATER AND ENERGY COMPANY, INC.**


**STATEMENTS
      OF OPERATIONS**


(Amounts
      in thousands)





**Year
                Ended December 31,****2006**
            
            
            **2005**
            
            
            **2004****Revenue:**Lease
                rentals and service contracts
            
            $
            148,529
            
            $
            107,000
            
            $
            106,847**Operating
                expenses:**Depreciation
            
            
            21,728
            
            
            21,543
            
            
            21,972Plant
                operations and other operating expenses
            
            
            9,368
            
            
            9,783
            
            
            11,444Total
                operating expenses
            
            
            31,096
            
            
            31,326
            
            
            33,416**Operating
                income**
            
            
            117,433
            
            
            75,674
            
            
            73,431**Other
                income (expense):**Interest
                expense
            
            
            (21,355
            )
            
            (24,812
            )
            
            (29,468
            )Interest
                income
            
            
            3,010
            
            
            1,938
            
            
            1,539Other,
                net
            
            
            3,978
            
            
            303
            
            
            (98
            )Total
                other expense, net
            
            
            (14,367
            )
            
            (22,571
            )
            
            (28,027
            )**Income
                before provision for income tax**
            
            
            103,066
            
            
            53,103
            
            
            45,404**Provision
                for income tax**
            
            
            2,262
            
            
            1,094
            
            
            102**Net
                income**
            
            $
            100,804
            
            $
            52,009
            
            $
            45,302





The
      accompanying notes are an integral part of these financial
      statements.





18





**CE
      CASECNAN WATER AND ENERGY COMPANY, INC.**


**STATEMENTS
      OF CHANGES IN STOCKHOLDERS’ EQUITY**


(Amounts
      in thousands, except shares)





**Outstanding**
            
            
            
            **Additional****Common**
            
            **Common**
            
            **Paid-in**
            
            **Retained****Shares**
            
            **Stock**
            
            **Capital**
            
            **Earnings**
            
            **Total****Balance,
                January 1, 2004**
            
            
            767,162
            
            $
            29
            
            $
            123,807
            
            $
            87,850
            
            $
            211,686Net
                income
            
            
            -
            
            
            -
            
            
            -
            
            
            45,302
            
            
            45,302Dividends
                declared
            
            
            -
            
            
            -
            
            
            -
            
            
            (106,000
            )
            
            (106,000
            )**Balance,
                December 31, 2004**
            
            
            767,162
            
            
            29
            
            
            123,807
            
            
            27,152
            
            
            150,988Net
                income
            
            
            -
            
            
            -
            
            
            -
            
            
            52,009
            
            
            52,009Dividends
                declared
            
            
            -
            
            
            -
            
            
            -
            
            
            (11,000
            )
            
            (11,000
            )**Balance,
                December 31, 2005**
            
            
            767,162
            
            
            29
            
            
            123,807
            
            
            68,161
            
            
            191,997Net
                income
            
            
            -
            
            
            -
            
            
            -
            
            
            100,804
            
            
            100,804Dividends
                declared
            
            
            -
            
            
            -
            
            
            -
            
            
            (99,500
            )
            
            (99,500
            )**Balance,
                December 31, 2006**
            
            
            767,162
            
            $
            29
            
            $
            123,807
            
            $
            69,465
            
            $
            193,301





The
      accompanying notes are an integral part of these financial
      statements.





19


**CE
      CASECNAN WATER AND ENERGY COMPANY, INC.**


**STATEMENTS
      OF CASH FLOWS**


(Amounts
      in thousands)





**Year
                Ended December 31,****2006**
            
            
            **2005**
            
            
            **2004**Cash
                flows from operating activities:Net
                income
            
            $
            100,804
            
            $
            52,009
            
            $
            45,302Adjustments
                to reconcile net income to net cash flows from operating
                activities:Depreciation
            
            
            21,728
            
            
            21,543
            
            
            21,972Amortization
                of bond issue costs
            
            
            688
            
            
            933
            
            
            1,183Provision
                for deferred income tax
            
            
            -
            
            
            276
            
            
            -Changes
                in other items:Trade
                receivable, net
            
            
            12,636
            
            
            (1,396
            )
            
            (8,791
            )Prepaid
                insurance and other current assets
            
            
            (792
            )
            
            2,119
            
            
            5,686Accounts
                payable and other accrued liabilities
            
            
            (1,204
            )
            
            (6,529
            )
            
            8,921Accrued
                interest
            
            
            4,733
            
            
            2,110
            
            
            1,114Accrued
                liquidated damages
            
            
            -
            
            
            -
            
            
            (3,800
            )Deferred
                revenue
            
            
            (13,756
            )
            
            7,636
            
            
            5,218Net
                cash flows from operating activities
            
            
            124,837
            
            
            78,701
            
            
            76,805Cash
                flows from investing activities:Additions
                to property, plant and equipment
            
            
            (1,880
            )
            
            (462
            )
            
            (4,049
            )Liquidated
                damages received, net of amounts accrued
            
            
            -
            
            
            -
            
            
            18,900Collection
                of ROP Note
            
            
            -
            
            
            -
            
            
            97,000(Increase)
                decreased in restricted cash and investments for debt service obligations
                and dividends payable
            
            
            (17,703
            )
            
            10,551
            
            
            (37,386
            )Net
                cash flows from (used in) investing activities
            
            
            (19,583
            )
            
            10,089
            
            
            74,465Cash
                flows from financing activities:Increase
                in payable to affiliates
            
            
            4,965
            
            
            898
            
            
            409Payment
                of long-term debt
            
            
            (36,015
            )
            
            (54,753
            )
            
            (49,360
            )Cash
                dividends paid
            
            
            (84,575
            )
            
            (9,350
            )
            
            (90,100
            )Net
                cash flows used in financing activities
            
            
            (115,625
            )
            
            (63,205
            )
            
            (139,051
            )**Net
                change in cash and cash equivalents**
            
            
            (10,371
            )
            
            25,585
            
            
            12,219**Cash
                and cash equivalents at beginning of period**
            
            
            42,317
            
            
            16,732
            
            
            4,513**Cash
                and cash equivalents at end of period**
            
            $
            31,946
            
            $
            42,317
            
            $
            16,732**Supplemental
                Disclosure:**Interest
                paid
            
            $
            17,704
            
            $
            24,150
            
            $
            30,638Income
                taxes paid
            
            $
            2,440
            
            $
            89
            
            $
            102





In
      2004,
      the investment in property, plant and equipment was reduced by
      $23.9 million involving receipt of cash of $18.9 million and reversal
      of liabilities of $5.0 million pursuant to settlement of the construction
      contract arbitration (Note 7).








The
      accompanying notes are an integral part of these financial
      statements.


20


**CE
      CASECNAN WATER AND ENERGY COMPANY, INC.**


**NOTES
      TO FINANCIAL STATEMENTS**


(In
      U.S.
      Dollars, unless indicated otherwise)





**1.**  **Organization
      and Operations**





CE
      Casecnan Water and Energy Company, Inc. (the “Company” or “CE Casecnan”) is a
      privately held Philippine corporation formed indirectly by MidAmerican Energy
      Holdings Company (“MidAmerican”) and was registered with the Philippine
      Securities and Exchange Commission on September 21, 1994. The purpose of
      the Company is to develop, construct, operate and own a hydroelectric power
      plant and the related facilities for conversion into electricity of water
      provided by and under contract with the Republic of the Philippines (“ROP”) or
      any ROP-owned or controlled corporation.





The
      Company has a contract with the ROP, through the Philippine National Irrigation
      Administration (“NIA”) (a ROP-owned and controlled corporation), for the
      development and construction of a hydroelectric power plant and related
      facilities under a build-own-operate-transfer agreement (“Project Agreement”),
      as amended by the Supplemental Agreement dated September 29,
      2003 (the “Supplemental Agreement”), covering a 20-year cooperation period
      (“Cooperation Period”) with “take-or-pay” obligations for water and electricity.
      At the end of the Cooperation Period, the combined irrigation and 150 MW
      hydroelectric power generation project (the “Casecnan Project”) will be
      transferred to the ROP at no cost on an “as is” basis. The ROP also signed a
      Performance Undertaking, which, among others, affirms and guarantees the
      obligations of NIA under the Project Agreement. Construction of the Casecnan
      Project commenced in 1995. The Casecnan Project Cooperation Period began upon
      commencement of commercial operations on December 11, 2001.





The
      Casecnan Project is dependent upon sufficient rainfall to generate electricity
      and deliver water. The seasonality of rainfall patterns and the variability
      of
      rainfall from year to year, all of which are outside the control of the Company,
      have a material impact on the amounts of electricity generated and water
      delivered by the Casecnan Project.





The
      Company is registered with the Philippine Board of Investments as a new operator
      of hydroelectric power plant with pioneer status under the Omnibus Investments
      Code of 1987 (Executive Order No. 226). Under the terms of its registration,
      the
      Company is entitled to certain incentives which include an income tax holiday
      for six years from the start of commercial operations, tax and duty-free
      importation of capital equipment, tax credits on domestic capital equipment,
      and
      exemption from customs duties and national internal revenue taxes for the
      importation and unrestricted use of the consigned equipment for the development,
      construction, start-up, testing and operation of the power plant .
      The
      registration also requires, among others, the maintenance of a debt-to-equity
      ratio not exceeding 75:25 during commercial operations. The
      income tax holiday will expire on December 11, 2007.





In
      April
      2003, CE Casecnan Ltd. assigned a 70% stockholding in the Company to
      CE Casecnan II, Inc., a Philippine company, in exchange for the latter’s
      shares of stock. The Company became 70% owned by CE Casecnan II, Inc., and
      30% owned by CE Casecnan Ltd. which are both indirectly wholly owned
      subsidiaries of Midamerican.





References
      to “U.S. dollars,” “dollars,” or “$” are to the currency of the United States
      and references to “pesos” are to the currency of the Philippines. References to
      kW means kilowatts, MW means megawatts, GW means gigawatts, kWh means kilowatt
      hours, MWh means megawatt hours, and GWh means gigawatt hours.





**2.**  **Summary
      of Significant Accounting Policies**





The
      financial statements are prepared in accordance with accounting principles
      generally accepted in the United States of America (“GAAP”). The more
      significant accounting policies and practices of the Company are set forth
      below:





Basis
      of Presentation





The
      functional and reporting currency of the Company is the U.S. dollar.
      Transactions in foreign currencies (Philippines pesos) are recorded based on
      the
      prevailing rates of exchange at transaction dates. Foreign currency denominated
      monetary assets and liabilities are translated at the exchange rate prevailing
      at the balance sheet date. The resulting exchange differences from settlements
      of foreign currency transactions and translations of monetary assets and
      liabilities are credited or charged to operations.





The
      Company’s operations are in one reportable segment, the water and electricity
      generation industry.


21


Reclassifications





Certain
      amounts in the 2005 financial statements and supporting note disclosures have
      been reclassified to conform to the current period presentation, including
      the
      reclassification of $0.7 million from accounts payable and other accrued
      liabilities to payable to affiliates in the Balance Sheets and from operating
      activities to financing activities in the Statements of Cash Flows. Such
      reclassification did not impact previously reported net income or retained
      earnings.





Use
      of
      Estimates





The
      preparation of the financial statements in conformity with GAAP requires
      management to make estimates and assumptions that affect the reported amounts
      of
      assets and liabilities at the date of the financial statements and the reported
      amounts of revenue and expenses during the reporting period. Actual results
      could differ from these estimates used in preparing the financial statements.





Cash
      Equivalents





Cash
      equivalents are short-term, highly liquid investments that are readily
      convertible to known amounts of cash with maturities of three months or less
      from the date of acquisition and that are subject to an insignificant risk
      of
      change in value.





Restricted
      Cash and Investments





Restricted
      cash and investments are composed
      of debt service funds and undistributed dividends that are contractually
      restricted as to their use and require the maintenance of specific minimum
      balances. Since
      the Company has the positive intent and ability to hold all of its investments
      to maturity, these are classified as held to maturity and recorded at amortized
      cost. The carrying amount of investments as of December 31, 2006,
      approximates their fair value, which is based on quoted market prices as
      provided by the financial institution holding the investments.





Bond
      Issue Costs





Bond
      issue costs consist of costs incurred in the issuance of senior secured notes
      and bonds and are deferred and amortized over the term of the notes and bonds
      using the effective interest rate method. Amortization of bond issue costs
      was
      capitalized during the construction period and charged to operations, as an
      interest expense, upon commercial operations of the Casecnan
      Project.





Property,
      Plant and Equipment, Net





Property,
      plant and equipment are stated at historical cost (including capitalized
      interest costs) less accumulated depreciation. Depreciation is computed on
      the
      straight-line method based on the 20-year Cooperation Period for the
      hydroelectric power plant and office and building structure, and on the
      estimated useful life of five years for other equipment. Minor expenditures
      for
      repairs and maintenance are charged to operations as incurred, while significant
      improvements are capitalized. Liquidated damages received relative to the
      Casecnan Project construction are recorded as reduction to the cost of the
      Project. When an asset is sold or otherwise disposed of, its cost and related
      accumulated depreciation are removed from the accounts and the resulting gain
      or
      loss is credited or charged to operations.





Deferred
      Income Taxes





Deferred
      income tax assets and liabilities are based on differences between the financial
      statements and tax bases of assets and liabilities using the estimated tax
      rates
      in effect for the year in which the differences are expected to reverse. Changes
      in deferred income tax assets and liabilities are included as a component of
      income tax expense. Valuation allowances have been established for certain
      deferred income tax assets where management has judged that realization is
      not
      likely.





22


Allowance
      for Doubtful Accounts





Allowance
      for doubtful accounts is based on the Company’s assessment of the collectibility
      of payments from NIA. This assessment requires judgment regarding the outcome
      of
      pending disputes and the ability of the customer to pay the amounts owed to
      the
      Company. Any change in the Company’s assessment of the collectibility of
      accounts receivable that was not previously provided for could significantly
      impact the calculation of such allowance and the results of
      operations.





Impairment
      of Long-Lived Assets





The
      Company evaluates long-lived assets, including property, plant and equipment,
      when events or changes in circumstances indicate that the carrying value of
      these assets may not be recoverable or the assets meet the criteria of held
      for
      sale. Upon the occurrence of a triggering event, the asset is reviewed to assess
      whether the estimated undiscounted cash flows expected from the use of the
      asset
      plus the residual value from the ultimate disposal exceeds the carrying value
      of
      the asset. If the carrying value exceeds the estimated recoverable amounts,
      the
      asset is written down to the estimated discounted present value of the expected
      future cash flows from using the asset. Any resulting impairment loss is
      reflected in the Statement of Operations.





Revenue





Pursuant
      to the Project Agreement, the Company bills on a monthly basis for the delivery
      of water and electricity. The Project Agreement is treated for accounting
      purposes as an arrangement that contains both an operating lease and a service
      contract to operate the plant. The Project Agreement was classified as an
      operating lease due to the significant uncertainties that existed at the
      inception of the lease regarding both the collection of future amounts and
      the
      amount of unreimbursable costs yet to be incurred, mainly due to the existence
      of political, economic and other uncertainties associated with the
      Philippines.





The
      annual water delivery revenue is recorded on the basis of the contractual
      minimum guaranteed water delivery threshold for the respective contract year.
      If
      and when actual cumulative deliveries within a contract year exceed the minimum
      threshold, additional revenue is recognized and calculated as the product of
      the
      water deliveries in excess of the minimum threshold and the applicable unit
      price up to the maximum contractually allowed water delivery volume. The Company
      defers revenue on the difference between the actual water delivery fees earned
      and water delivery fees invoiced pursuant to the Supplemental Agreement. The
      cumulative deferred water delivery revenue, amounting to $13.8 million as
      of December 31, 2005, was fully earned in 2006. At December 31, 2006,
      there was no cumulative deferred water delivery revenue. Water delivery revenues
      do not include value added taxes.





Revenue
      from electricity consists of guaranteed energy fees with fixed monthly amounts
      and is recognized based on the contractually guaranteed energy deliveries.
      Actual deliveries of energy less than the fixed, monthly contractual amounts
      will not result in any reduction of the guaranteed energy fee. The variable
      energy fee is recognized when deliveries of energy exceed the guaranteed energy
      in any contract year. The variable energy fee will not be recognized until
      all
      cumulative electrical energy shortfalls in previous months have been made up. At
      December 31, 2006, there was no cumulative electrical energy shortfall.





**3.**  **New
      Accounting Pronouncements**





In
      July
      2006, the Financial Accounting Standards Board (“FASB”) issued FASB
      Interpretation No. 48, “Accounting for Uncertainty in Income Taxes - an
      interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 clarifies the
      accounting for uncertainty in income taxes recognized in accordance with
      Statement of Financial Accounting Standards No. 109, “Accounting for Income
      Taxes,” and prescribes a recognition threshold and measurement attribute for the
      financial statement recognition and measurement of a tax position taken or
      expected to be taken in a return. Guidance is also provided on de-recognition,
      classification, interest and penalties, accounting in interim periods,
      disclosure and transition. FIN 48 is effective for fiscal years beginning after
      December 15, 2006. The Company does not expect that the adoption of the
      provisions of FIN 48 effective January 1, 2007 will have a material effect
      on the financial statements.





In
      September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS
      157”) which will become effective for fiscal years beginning after
      November 15, 2007, and interim periods within those fiscal years. SFAS 157
      defines fair value, establishes a framework for measuring fair value and expands
      disclosures about fair value measurements. The Company has not yet determined
      the impact of SFAS No. 157 on its statements of operations, financial position
      or cash flows.


23


**4.**  **Restricted
      Cash and Investments**





Restricted
      cash and investments consist of the following (in thousands):





**December 31,****2006**
            
            **2005**Debt
                service reserve fund
            
            $
            25,407
            
            $
            26,718Dividend
                set aside account
            
            
            37,252
            
            
            18,238$
            62,659
            
            $
            44,956





Restricted
      cash and investments represent various held-to-maturity U.S. dollar investments
      bearing interest rates of 4.16% to
      5.43% (2005 - 2.03% to 4.20%). These restricted cash and investments have an
      average maturity of 25 days.





**5.**  **NIA
      Settlement Agreement**





In
      connection with the NIA Arbitration Settlement on October 15, 2003, NIA
      delivered to CE Casecnan a $97.0 million ROP Note, which contained a put
      provision granting CE Casecnan the right to put the ROP Note to the ROP for
      a price of par plus accrued interest for a 30-day period commencing on
      January 14, 2004. On January 14, 2004, CE Casecnan exercised its
      right to put the ROP Note to the ROP and, in accordance with the terms of the
      put, CE Casecnan received $99.2 million (representing
      $97.0 million par value plus accrued interest) from the ROP on
      January 21, 2004. In addition to providing for the dismissal with prejudice
      of all claims by CE Casecnan and counterclaims by NIA in the arbitral
      proceeding, the Supplemental Agreement supplements and amends the Project
      Agreement in certain respects as summarized below:





Modifications
      to Water Delivery Fee





Under
      the
      Project Agreement, the Water Delivery Rate increased by $0.00043 per cubic
      meter
      for each $1.0 million of certain taxes paid by CE Casecnan. The
      Supplemental Agreement amends the per cubic meter Water Delivery Fee calculation
      by eliminating the increase for taxes paid. Instead, the Water Delivery Rate
      remains at $0.029 per cubic meter, escalated at 7.5% annually from
      January 1, 1994 through the first five years of the Cooperation Period,
      extending through December 11, 2006. The Company will be reimbursed for
      certain taxes it pays during the remainder of the Cooperation
      Period.





Under
      the
      Project Agreement, the Water Delivery Fee payable monthly was a fixed monthly
      payment based on an average water delivery of 801.9 million cubic meters
      per year, pro-rated to approximately 66.8 million cubic meters per month,
      multiplied by the per cubic meter rate as described above. Under the
      Supplemental Agreement the Water Delivery Fee is equal to the Guaranteed Water
      Delivery Fee plus the Variable Delivered Water Delivery Fee minus the Water
      Delivery Fee Credit.





*Guaranteed
      Water Delivery Fee.* For the
      sixty-month period from December 25, 2003 through December 25, 2008,
      the Guaranteed Water Delivery Fee shall equal the Water Delivery Rate, as
      described above, multiplied by approximately 66.8 million cubic meters
      (corresponding to the 801.9 million cubic meters per year). For each month
      beginning after December 25, 2008 through the remainder of the Cooperation
      Period, the Guaranteed Water Delivery Fee shall equal the Water Delivery Rate
      multiplied by approximately 58.3 million cubic meters (corresponding to
      700.0 million cubic meters per year).





*Variable
      Delivered Water Delivery Fee.* Variable
      Delivered Water Delivery Fees will be earned for months beginning after
      December 25, 2008. For each month beginning after December 25, 2008
      through the end of the Cooperation Period, the Variable Delivered Water Delivery
      Fee shall be payable only from the date when the cumulative Total Available
      Water (total delivered water plus the water volume not delivered to NIA as
      a
      result of NIA’s failure to accept energy deliveries at a capacity up to 150 MW)
      for each contract year exceeds 700.0 million cubic meters. Variable
      Delivered Water Delivery Fees will be earned up to an aggregate maximum of
      1,324.7 million cubic meters for the period from December 25, 2008
      through the end of the Cooperation Period. No additional variable water delivery
      fees will be earned over the 1,324.7 million cubic meter
      threshold.


24


*Water
      Delivery Fee Credit.* The
      Water Delivery Fee Credit shall be applicable only for each of the sixty-months
      from December 25, 2008 through December 25, 2013 and shall equal the
      Water Delivery Rate as of December 25, 2008 multiplied by the sum of each
      Annual Water Credit divided by sixty. The Annual Water Credit for each contract
      year starting from December 25, 2003 and ending on December 25, 2008
      shall equal 801.9 million cubic meters minus the Total Available Water for
      each contract year. The Total Available Water in any such year will equal actual
      deliveries with a minimum threshold of 700.0 million cubic
      meters.





Modifications
      to Variable Energy Delivery Fee





Under
      the
      Project Agreement, the Variable Energy Delivery Fee was a variable amount based
      on actual electrical energy delivered in each month in excess of 19.0 GWh,
      payable at a rate of $0.1509 per kWh. Under the Supplemental Agreement, the
      kWh
      rate for energy deliveries in excess of 19 GWh per month has been reduced,
      commencing in 2009, to $0.1132 (escalating at 1% per annum thereafter). Any
      deliveries of energy in excess of 490.0 GWh but less than 550.0 GWh per year
      are
      paid for at a rate of 1.3 pesos per kWh. Deliveries in excess of 550.0 GWh
      per
      year are at no cost to NIA.





For
      periods after September 28, 2003, the Supplemental Agreement provides that
      if the Casecnan Project is not dispatched up to 150 MW whenever water is
      available, NIA will pay for excess energy that could have been generated but
      was
      not as a result of such dispatch constraint.





Other
      Provisions of the Supplemental Agreement





The
      Company received an opinion from the Philippine Office of Government Corporate
      Counsel that the Supplemental Agreement has due authorization and is
      enforceable. The Guaranteed Energy Delivery Fee, Force Majeure, Buyout and
      Dispute Resolution provisions of the Project Agreement, as well as the
      Performance Undertaking provided by the ROP, remain in full force and effect
      under the Supplemental Agreement.





**6.**  **Trade
      Receivable, Net**





Trade
      receivable pertains to the receivable due for lease rentals, service income
      and
      recoverable taxes billed pursuant to the provisions of the Project Agreement
      with NIA, as follows (in thousands):








**December 31,****2006**
            
            **2005**Water
                delivery fee
            
            $
            9,420
            
            $
            17,299Guaranteed
                energy delivery fee
            
            
            3,676
            
            
            3,676Variable
                energy delivery fee
            
            
            1,543
            
            
            6,317Total
                trade receivable
            
            
            14,639
            
            
            27,292Allowance
                for doubtful accounts
            
            
            (637
            )
            
            (654
            )Trade
                receivable, net
            
            $
            14,002
            
            $
            26,638





The
      water
      delivery fee includes claims for tax reimbursement from NIA pursuant to the
      Supplemental Agreement amounting to $3.1 million and $11.5 million as
      of December 31, 2006 and 2005, respectively. The allowance for doubtful
      accounts as of December 31, 2006 and 2005 represents the Company’s estimate
      of the uncollectible portion of the receivable balance. The activity for the
      Company’s allowance for doubtful accounts was as follows (in
      thousands):





**Year
                Ended December 31,****2006**
            
            **2005**
            
            **2004**Balance,
                January 1
            
            $
            (654
            )
            $
            (819
            )
            $
            (2,044
            )Recoveries
            
            
            17
            
            
            165
            
            
            1,225Balance,
                December 31
            
            $
            (637
            )
            $
            (654
            )
            $
            (819
            )





25


**7** **.**  **Property,
      Plant and Equipment, Net**





Property,
      plant and equipment, net at December 31 consists of the following (in
      thousands):





**December 31,****2006**
            
            
            **2005**Hydroelectric
                power facility
            
            $
            431,323
            
            $
            429,869Office
                and building structures
            
            
            1,149
            
            
            1,149Transportation
                and other equipment
            
            
            1,781
            
            
            1,388Total
                operating assets
            
            
            434,253
            
            
            432,406Accumulated
                depreciation
            
            
            (110,050
            )
            
            (88,355
            )Property,
                plant and equipment, net
            
            $
            324,203
            
            $
            344,051





Construction
      of the Casecnan Project was completed under a fixed-price, date certain, turnkey
      engineering, procurement and
      construction contract (the “Replacement Contract”) dated May 7, 1997 and
      amended on November 20, 1999. The work under the Replacement Contract was
      conducted by a consortium consisting of Cooperativa Muratori Cementisti CMC
      di
      Ravenna and Impresa Pizzarotti & C. Spa. (collectively, the “Contractor”),
      working together with Siemens A.G., Sulzer Hydro Ltd., Black & Veatch and
      Colenco Power Engineering Ltd. On February 12, 2001, the Contractor filed a
      Request for Arbitration with the International Chamber of Commerce (“ICC”)
      seeking schedule relief from various alleged force majeure events. On
      April 7, 2004, the Company entered into an agreement with the Contractor
      settling the ICC arbitration. Pursuant to the settlement agreement, as amended,
      the Contractor paid $18.9 million to CE Casecnan on April 14,
      2004, and the Contractor and CE Casecnan executed mutual releases and
      agreed to dismiss the arbitration. A total of $23.9 million (the
      $18.9 million receipt along with $3.8 million originally recorded for
      liquidated damages and $1.2 million accrual for the unpaid portion of the
      Replacement Contract) was recorded as a reduction to property, plant and
      equipment in 2004.





**8** **.**  **Long-Term
      Debt**





On
      November 27, 1995, the Company issued $371.5 million
      of notes and bonds (the “Securities”) to finance the construction of the
      Casecnan Project. These debts consisted of $75.0 million Senior Secured
      Floating Rate Notes (“FRNs”) bearing interest at LIBOR plus 3.00%, which were
      paid in installments through November 15, 2002; $125.0 million Senior
      Secured Series A Notes (“Series A Notes”) with interest at 11.45% payable, which
      were paid in semiannual installments through November 15, 2005; and
      $171.5 million Senior Secured Series B Bonds (“Series B Bonds”) with
      interest at 11.95% payable in semiannual installments up to 2010. For the year
      ended December 31, 2006, the Series B Bonds had an effective interest rate
      of 13.97%, inclusive of bond issue cost amortization.





The
      repayment schedule of the Series B Bonds as of December 31, 2006 is as
      follows (in thousands):





2007
            
            
            37,7302008
            
            
            37,7302009
            
            
            13,7202010
            
            
            17,150$
            106,330





The
      Securities are senior debt of the Company and are secured by an assignment
      of
      all revenue that will be received from the Casecnan Project, a collateral
      assignment of all material contracts, a lien on any accounts and funds on
      deposit under a Deposit and Disbursement Agreement, a pledge of 100% of the
      capital stock of the Company and a lien on all other material assets and
      property interests of the Company. The Securities rank pari passu with and
      will
      share the collateral on a pro rata basis with other senior secured debt, if
      any.





The
      Series B Bonds are subject to optional redemption by the Company, at any time,
      in whole or in part, pro rata, at par plus accrued interest to the redemption
      date plus a premium, calculated to “make whole” to comparable U.S. Treasury
      Securities plus 150 basis points. The Company also had the option to redeem
      the
      securities, in whole or in part, at par plus accrued interest at any time if,
      as
      a result of any change in Philippine tax law or in the application or
      interpretation of Philippine tax law occurring after the date of issuance of
      the
      Securities, the Company is required to pay certain additional amounts described
      in the Trust Indenture. The Securities are subject to mandatory redemption,
      pro
      rata, at par plus accrued interest to the redemption date; (a) upon the receipt
      by the Company of loss proceeds that exceed $15.0 million
      in respect of certain events of property or casualty loss or similar events,
      unless the funds are to be utilized by the Company for an Approved Restoration
      Plan; or (b) upon the receipt by the Company of proceeds realized in connection
      with a Project Agreement Buyout.


26


When
      a
      Change in Control occurs, each holder of the Securities (“Holder”) will have the
      right to require the Company to repurchase all or any part of such Holder’s
      Securities at a cash purchase price equal to 101% of the principal amount
      thereof, plus accrued interest to the date of repurchase in accordance with
      the
      procedures set forth in the Trust Indenture. There is no assurance that upon
      a
      Change in Control the Company will have sufficient funds to repurchase the
      Securities.





The
      debt
      covenants contain certain restrictions as to incurrence of additional
      indebtedness; merger, consolidation, dissolution, or any significant change
      in
      corporate structure; non-arm’s length transactions or agreements with
      affiliates; sale, lease, or transfer of properties material to the Casecnan
      Project, among others. In
      connection with the foregoing secured indebtedness, the Company, on
      November 27, 1995, entered into a Deposit and Disbursement Agreement
      whereby The Bank of New York Trust Company, NA (formerly known as JPMorgan
      Chase
      Bank, N.A. /Chemical Trust Company of California) acts as a depositary and
      a
      collateral agent. As a depositary agent, it will hold monies, instruments and
      Securities pledged by the Company to the collateral agent.





Refer
      to
      Note 12 for a discussion of the fair value of the outstanding
      Securities.





**9.**  **Income
      Taxes**





Since
      commencing commercial operations in December 2001, the Company has not
      incurred income tax expense on its operating income due to a six year income
      tax
      holiday received from the Philippine Board of Investments. During the years
      ended December 31, 2006, 2005 and 2004, CE Casecnan incurred
      $2.3 million, $1.1 million and $0.1 million, respectively of
      income taxes on interest income earned outside the Philippines and on other
      income resulting from the change in the value-added tax law, both of which
      are
      activities not covered by the income tax holiday. The Company’s deferred income
      tax asset of $5.1 million as of December 31, 2006 and 2005 consists
      mainly of the difference between the financial reporting basis and the tax
      reporting basis for development and construction costs.





On
      May 24, 2005, President Arroyo signed an amended tax law to raise the
      corporate income tax rate from 32% to 35% through 2008 (reducing to 30%
      thereafter) and impose value-added tax of 10% (12% effective February 1,
      2006) on certain goods and services. The law and the Project Agreement permit
      CE Casecnan to invoice NIA for value-added tax on water delivery fees and,
      if electricity generated from hydro-electric power were to become subject to
      value-added tax, on energy delivery fees as well. Implementation of the tax
      law
      was deferred until legal challenges were resolved. On October 18, 2005, the
      Philippine Supreme Court upheld the constitutionality of the tax law and
      implementation became effective November 1, 2005. The tax law did not have
      a material adverse impact on the Casecnan Project.





**10.**  **Related
      Party Transactions**





In
      the
      normal course of business, the Company transacts with its affiliates in the
      form
      of advances for operating expenses. The payable to affiliates was
      $41.0 million and $36.0 million at December 31, 2006 and 2005,
      respectively. Costs
      incurred by the Company in transactions with related parties amounted to
      $3.3 million, $1.4 million and $1.5 million for the years ended
      December 31, 2006, 2005 and 2004, respectively, and consist primarily of
      cost allocations .





As
      of
      December 31, 2006 and 2005, the Company had outstanding $51.3 million
      of unsecured subordinated notes payable to CE Casecnan Ltd., a stockholder.
      On November 1, 2005, the Company extended the due date of the notes from
      November 15, 2005 to November 1, 2006 and amended the interest rate to
      10% per annum, effective November 1, 2005. On December 6, 2005, the
      notes’ original maturity date was changed to November 1, 2015 and the
      interest rate from LIBOR plus 2% to LIBOR plus 5.25%; provided, however, that
      CE Casecnan Ltd. can demand payment of the outstanding principal amount at
      any time prior to the maturity date. The interest is payable each May 15
      and November 15. Interest expense on the notes was $5.3 million,
      $2.9 million and $1.8 million for the years ended December 31,
      2006, 2005 and 2004, respectively. Any overdue payment of principal or interest
      payable on the notes shall increase the annual interest by two percentage
      points. At December 31, 2006, the effective interest rate on the notes was
      10.63%. The notes may be prepaid at any time without premium or penalty but
      with
      accrued interest, if any. The unsecured subordinated notes and any and all
      payments, whether of principal, interest or otherwise are subject in all
      respects to the terms of the Subordination Agreement dated November 15,
      2001 and as amended on November 1, 2005 between CE Casecnan Ltd. and
      the Company in favor of the Trustee, the Collateral Agent, the co-collateral
      agent, the Depositary, any party that becomes a Permitted Counterparty under
      an
      Interest Rate/Currency Protection Agreement, and any party that becomes a
      working capital facility agent and any other Person that becomes a secured
      party
      under the Intercreditor Agreement. The Company intends to repay the notes or
      convert them to some form of capital prior to maturity.


27


**11.**  **Commitments
      and Contingencies**





Stockholder
      Litigation





Pursuant
      to the share ownership adjustment mechanism in the CE Casecnan stockholder
      agreement, which is based upon proforma financial projections of the Casecnan
      Project prepared following commencement of commercial operations, in
      February 2002, MidAmerican’s indirect wholly owned subsidiary,
      CE Casecnan Ltd., advised the minority stockholder of the Company,
      LaPrairie Group Contractors (International) Ltd. (“LPG”), that MidAmerican’s
      indirect ownership interest in CE Casecnan had increased to 100% effective
      from commencement of commercial operations. On July 8, 2002, LPG filed
      a complaint in the Superior Court of the State of California, City and County
      of
      San Francisco against CE Casecnan Ltd. and MidAmerican. LPG’s complaint, as
      amended, seeks compensatory and punitive damages arising out of CE Casecnan
      Ltd.’s and MidAmerican’s alleged improper calculation of the proforma financial
      projections and alleged improper settlement of the NIA arbitration. The Company
      is not a defendant in the action. On January 21, 2004, CE Casecnan
      Ltd., LPG and the Company entered into a status quo agreement pursuant to which
      the parties agreed to set aside certain distributions related to the shares
      subject to the LPG dispute and CE Casecnan agreed not to take any further
      actions with respect to such distributions without at least 15 days prior notice
      to LPG. Accordingly, 15% of the dividend declarations in 2006, 2005 and 2004,
      totaling $32.5 million, was set aside in a separate bank account in the
      name of the Company and is shown as restricted cash and investments and
      dividends payable in the accompanying Balance Sheets. On August 4, 2005,
      the court issued a decision, ruling in favor of LPG on five of the eight
      disputed issues in the first phase of the litigation. On September 12,
      2005, LPG filed a motion seeking the release of the funds which have been set
      aside pursuant to the status quo agreement referred to above. MidAmerican and
      CE Casecnan Ltd. filed an opposition to the motion on
      October 3, 2005, and at the hearing on October 26, 2005, the
      court denied LPG’s motion. On January 3, 2006, the court entered a judgment
      in favor of LPG against CE Casecnan Ltd. According to the judgment, LPG
      would retain its ownership of 15% of the shares of the Company and distributions
      of the amounts deposited into escrow plus interest at 9% per annum. On
      February 28, 2006, CE Casecnan Ltd. filed an appeal of this judgment and
      the August 4, 2005 decision. The appeal is fully briefed and is expected to
      be resolved sometime in 2007. The parties are proceeding in the trial court
      on
      LPG’s remaining claim against MidAmerican for damages for alleged breach of
      fiduciary duty. This claim is expected to be resolved sometime in
      2007.





In
      February 2003, San Lorenzo Ruiz Builders and Developers Group, Inc. (“San
      Lorenzo”), an original shareholder substantially all of whose shares in the
      Company were purchased by MidAmerican in 1998, threatened to initiate legal
      action against the Company in the Philippines in connection with certain aspects
      of its option to repurchase such shares. The Company believes that San Lorenzo
      has no valid basis for any claim and, if named as a defendant in any action
      that
      may be commenced by San Lorenzo, the Company will vigorously defend such action.
      On July 1, 2005, MidAmerican and CE Casecnan Ltd. commenced an action
      against San Lorenzo in the District Court of Douglas County, Nebraska, seeking
      a
      declaratory judgment as to MidAmerican’s and CE Casecnan Ltd.’s rights vis-à-vis
      San Lorenzo in respect of such shares. San Lorenzo filed a motion to dismiss
      on
      September 19, 2005. Subsequently, San Lorenzo purported to exercise its
      option to repurchase such shares. On January 30, 2006, San Lorenzo filed a
      counterclaim against MidAmerican and CE Casecnan Ltd. seeking declaratory
      relief that it has effectively exercised its option to purchase 15% of the
      shares of the Company, that it is the rightful owner of such shares and that
      it
      is due all dividends paid on such shares. On March 9, 2006, the court
      granted San Lorenzo’s motion to dismiss, but has since permitted MidAmerican and
      CE Casecnan Ltd. to file an amended complaint incorporating the purported
      exercise of the option. The complaint has been amended and the action is
      proceeding. The matter is currently in the early stages of discovery. The
      impact, if any, of San Lorenzo’s purported exercise of its option and the
      Nebraska litigation on the Company cannot be determined at this
      time.





Real
      Property Tax





On
      July 25, 2005, CE Casecnan paid real property taxes, plus interest and
      penalties, to the Province of Nueva Vizcaya of $4.5 million and submitted
      an invoice for reimbursement of such amount to NIA in accordance with the
      Supplemental Agreement. On January 24, 2006, NIA, the Philippine Department
      of Finance (the “DOF”) and CE Casecnan agreed that NIA will reimburse
      CE Casecnan the full amount of the Province of Nueva Vizcaya tax assessment
      in five installments during 2006. As agreed, NIA has reimbursed CE Casecnan
      the total amount owed in 2006.





28




On
      December 28, 2005, CE Casecnan paid real property taxes of
      $4.7 million to the Province of Nueva Ecija. CE Casecnan has received
      letters from NIA and the DOF, respectively, authorizing the payment. As agreed,
      NIA has reimbursed CE Casecnan the total amount owed in 2006.


Concentration
      of Risk





NIA’s
      payments of obligations under the Project Agreement are substantially
      denominated in U.S. Dollars and are the Company’s sole source of operating
      revenue. Because of the Company’s dependence on NIA, any material failure of NIA
      to fulfill its obligations under the Project Agreement and any material failure
      of the ROP to fulfill its obligations under the Performance Undertaking would
      significantly impair the ability of the Company to meet its existing and future
      obligations. No stockholders, partners or affiliates of the Company, including
      MidAmerican, and no directors, officers or employees of the Company have
      guaranteed or will be in any way liable for payment of the Company’s
      obligations. As a result, payment of the Company’s obligations depends upon the
      availability of sufficient revenue from the Company’s business after the payment
      of operating expenses.





Regulatory
      environment





The
      Philippine Congress has passed the Electric
      Power Industry Reform Act of 2001 (“ EPIRA”),
      which is aimed at restructuring the Philippine power industry, privatizing
      the
      Philippine National Power Corporation and introducing a competitive electricity
      market, among other initiatives. The implementation of EPIRA may have an impact
      on the Company’s future operations in the Philippines and the Philippine power
      industry as a whole, the effect of which is not yet determinable or estimable
      as
      the changes resulting from EPIRA are ongoing.





On
      January 27, 2006, CE Casecnan received from the Province of Nueva Vizcaya a
      franchise tax assessment for the years 2001 to 2004 totaling $1.6 million.
      On April 25, 2006, CE Casecnan filed an appeal with the Regional Trial
      Court of Nueva Vizcaya. CE Casecnan believes that franchise tax is a tax imposed
      on companies which have a secondary or special franchise from the government.
      CE
      Casecnan does not have a government franchise. The EPIRA provides that power
      generation is not a public utility operation and does not require a franchise.
      On March 30, 2006, CE Casecnan received from the Province of Nueva Vizcaya
      a franchise tax assessment for the year 2005 totaling $0.3 million.
      CE Casecnan filed a protest with the treasurer of the Province of Nueva
      Vizcaya on April 5, 2006. On June 30, 2006, CE Casecnan filed an
      appeal to the Regional Trial Court of Nueva Vizcaya after the province failed
      to
      act on the protest within the period required by law. CE Casecnan moved to
      consolidate the two cases, which was granted by the court. The consolidated
      cases are set for pre-trial on March 16 and April 27, 2007. On
      January 19, 2007, CE Casecnan received from the Province of Nueva
      Vizcaya a franchise tax assessment for the year 2006 totaling $0.3 million.
      CE Casecnan will file a protest with the provincial treasurer of the Province
      of
      Nueva Vizcaya not later than March 20, 2007.





**12.**  **Fair
      Value of Financial Instruments**





Statement
      of Financial Accounting Standards No. 107, “Disclosures About Fair Value of
      Financial Instruments,” defines the fair value of financial instruments as the
      amount at which the instruments could be exchanged in a current transaction
      between willing parties. Although management uses its best judgment in
      estimating the fair value of these financial instruments, there are inherent
      limitations in any estimation technique. Therefore, the fair value estimates
      presented herein are not necessarily indicative of the amounts that the Company
      could realize in a current transaction. The methods and assumptions used to
      estimate fair value are as follows:





Cash,
      trade receivable, accounts payable and accrued expenses





The
      carrying amounts reported in the Balance Sheets approximate fair value due
      to
      the liquidity, the short maturity and nature of such items.





Notes
      payable





The
      Company has outstanding $51.3 million
      of unsecured subordinated notes payable to CE Casecnan Ltd., a stockholder,
      due November 1, 2015 (see Note 10) with interest calculated at LIBOR plus
      5.25%. It is not practicable to estimate the fair value of the notes payable
      for
      a variety of reasons, including the absence of quoted market prices for the
      notes and their subordination provisions to the existing senior debt of the
      Company.





29


Long-term
      debt





The
      fair
      value of the Company’s long-term debt is estimated based on quoted market prices
      of similar types of arrangements. At December 31, 2006, the Company had
      fixed-rate long-term debt of $106.3 million
      in principal amount and having a fair value of $113.8 million. At
      December 31, 2005, the Company had fixed-rate long-term debt of
      $142.3 million in principal amount and having a fair value of
      $153.4 million. These instruments are fixed-rate and, therefore, do not
      expose the Company to the risk of earnings loss due to changes in market
      interest rates. However, the fair value of these instruments would decrease
      by
      approximately $1.3 million if interest rates were to increase by 10% from
      their levels at December 31, 2006. In general, such a decrease in fair
      value would impact earnings and cash flows only if the Company were to reacquire
      all or a portion of these instruments prior to their maturity.





**13.**  **Operating
      Lease Rentals and Service Income**





The
      following is the minimum lease rentals and service income in the next five
      years
      on the noncancelable operating lease as of December 31, 2006 (in
      thousands):





**Year
                Ended****December 31,**
            
            **Amount**2007
            
            $
            88,0532008
            
            
            88,0532009
            
            
            88,0532010
            
            
            88,0532011
            
            
            66,0372012
                - 2021
            
            
            880,490





The
      reduction in minimum lease rentals and service income in 2011 reflects the
      period of time the Casecnan Project is not expected to deliver water and
      generate electricity due to a scheduled major plant overhaul and tunnel
      inspection. Variable lease rentals and service income amounted to
      $41.0 million in 2006, $24.9 million in 2005 and $26.9 million in
      2004.


30


**Item
      9.**  **Changes
      in and Disagreements with Accountants on Accounting** **and
      Financial Disclosure.**





None.





**Item
      9A.**  **Controls
      and Procedures.**





An
      evaluation was performed under the supervision and with the participation of
      the
      Company’s management, including the respective persons acting as chief executive
      officer and chief financial officer, regarding the effectiveness of the design
      and operation of the Company’s disclosure controls and procedures (as defined in
      Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as
      amended) as of December 31, 2006. Based on that evaluation, the Company’s
      management, including the respective persons acting as chief executive officer
      and chief financial officer, concluded that the Company’s disclosure controls
      and procedures were effective. There have been no changes during the fourth
      quarter of 2006 in the Company’s internal control over financial reporting that
      have materially affected, or are likely to materially affect, the Company’s
      internal control over financial reporting.





**Item
      9B.**  **Other
      Information.**





None.


31





**PART
      III**





**Item
      10.**  **Directors,
      Executive Officers and Corporate Governance.**





The
      following table sets forth the names, ages, and positions of the directors
      and
      executive officers of the Company:





David
                L. Sokol
            
            50
            
            Director
                and ChairmanGregory
                E. Abel
            
            44
            
            Vice
                ChairmanJoseph
                L. Sullivan
            
            52
            
            Director,
                President and General ManagerPatrick
                J. Goodman
            
            40
            
            Director,
                Senior Vice President and Chief Financial OfficerDouglas
                L. Anderson
            
            48
            
            Director,
                Senior Vice President, General Counsel and Assistant
                SecretaryBrian
                K. Hankel
            
            44
            
            Vice
                President and TreasurerScott
                LaPrairie
            
            49
            
            DirectorMitchell
                L. Pirnie
            
            48
            
            Vice
                PresidentLinda
                B. Castillo
            
            47
            
            DirectorTrinity
                S. Gatuz
            
            40
            
            DirectorBelinda
                E. Dugan
            
            38
            
            DirectorSuzy
                Lyn A. Bayona
            
            31
            
            DirectorPearl
                T. Liu
            
            51
            
            Director





Directors
      of the Company are elected annually and hold office until a successor is
      elected. Executive officers are chosen from time to time by vote of the Board
      of
      Directors. Pursuant to the terms of the Stockholders Agreement, CE Casecnan
      Ltd. is entitled to elect seven of the directors, and each minority investor
      is
      entitled to elect one director.





**David
      L. Sokol.** In
      addition to serving as Director and Chairman of the Company, Mr. Sokol has
      been
      Chief Executive Officer of MidAmerican since April 19, 1993 and served as
      President of MidAmerican from April 19, 1993 until January 21, 1995.
      Mr. Sokol has been Chairman of the Board of Directors since May 1994 and a
      director of MidAmerican since March 1991. Formerly, among other positions held
      in the independent power industry, Mr. Sokol served as the President and Chief
      Executive Officer of Kiewit Energy Company, which at that time was a wholly
      owned subsidiary of Peter Kiewit Sons’, Inc. and Ogden Projects,
      Inc.




**Gregory
        E. Abel.** In
        addition to serving as Vice Chairman of the Company, Mr. Abel is President
        and
        Chief Operating Officer of MidAmerican. Mr. Abel joined MidAmerican in 1992
        and
        initially served as Vice President and Controller. Mr. Abel is a Chartered
        Accountant and from 1984 to 1992 was employed by Price Waterhouse. As a Manager
        in the San Francisco office of Price Waterhouse, he was responsible for clients
        in the energy industry. Mr. Abel is a director of PacifiCorp.
 
 **Joseph
        L. Sullivan.** In
        addition to serving as Director, President and General Manager for the Company,
        Mr. Sullivan is President and General Manager, Philippines for affiliates
        of the
        Company. From 2002 to 2004, Mr. Sullivan served as Executive Vice President
        for
        Operations of Mirant Philippines. From 2001 to 2002, Mr. Sullivan served
        as
        Station Manager of Mirant Sual Power Corporation. Prior to 2001, he held
        a
        series of management and engineering positions at Cajun Electric Power
        Cooperative, Inc. and Alabama Power Company.
 
 **Patrick
        J. Goodman.** In
        addition to serving as Director, Senior Vice President and Chief Financial
        Officer for the Company, Mr. Goodman is Senior Vice President and Chief
        Financial Officer of MidAmerican. Mr. Goodman joined MidAmerican in June
        1995
        and served in various financial positions including Chief Accounting Officer.
        Prior to joining MidAmerican, Mr. Goodman was a financial manager for National
        Indemnity Company and a senior associate at PricewaterhouseCoopers. Mr. Goodman
        is a director of PacifiCorp.
 
 **Douglas
        L. Anderson.** In
        addition to serving as Director, Senior Vice President, General Counsel and
        Assistant Secretary for the Company, Mr. Anderson is Senior Vice President,
        General Counsel and Corporate Secretary of MidAmerican. Mr. Anderson joined
        MidAmerican in February 1993 and has served in various legal positions including
        General Counsel of the Company’s independent power affiliates. Prior to that,
        Mr. Anderson was a corporate attorney in private practice. Mr. Anderson is
        a director of PacifiCorp.




32


**Brian
      K. Hankel.** In
      addition to serving as Vice President and Treasurer for the Company, Mr. Hankel
      is Vice President and Treasurer for MidAmerican. Mr. Hankel joined MidAmerican
      in February 1992 as a Treasury Analyst and served in that position until
      December 1995. Mr. Hankel was appointed Assistant Treasurer in January 1996
      and
      was appointed Treasurer in January 1997. Prior to joining the Company, Mr.
      Hankel was a Money Position Analyst at FirsTier Bank of Lincoln from 1988 to
      1992.





**Scott
      LaPrairie.** In
      addition to serving as a Director of the Company, Mr. LaPrairie is President
      and
      Chief Executive Officer of the LaPrairie Group of Companies.





**Mitchell
      L. Pirnie** .
      In
      addition to serving as Vice President for the Company, Mr. Pirnie also serves
      as
      Vice President, General Counsel and Director of CE Generation, LLC, an affiliate
      of the Company. Mr. Pirnie joined MidAmerican in November 1997. Prior to joining
      MidAmerican, Mr. Pirnie was an attorney in private practice.





**Linda
      B. Castillo.** In
      addition to serving as a Director of the Company, Ms. Castillo is Vice President
      and Corporate Counsel for the Company and certain of its affiliates. Ms.
      Castillo joined CalEnergy International in October 2000 as Director for
      Corporate Affairs until August 2001 when she was appointed Vice President and
      Corporate Counsel. Prior to joining the company, Ms. Castillo was Vice President
      and General Counsel of PhilSteel Holdings Company and its affiliates from 1999
      to 2000 and prior to that was a Director and Corporate Counsel of CAR, Inc.
      from
      1996 to 1998.





**Trinity
      S. Gatuz.** In
      addition to serving as a Director of the Company, Ms. Gatuz is Vice President
      for Finance and Accounting for the Company and its affiliates. Ms. Gatuz joined
      CalEnergy International in August 1994 and served in various positions including
      Accounting Manager. Prior to joining CalEnergy International, Ms. Gatuz was
      Head
      of General Accounting of EasyCall Communications Philippines, Inc.





**Belinda
      E. Dugan** .
      In
      addition to serving as a Director of the Company, Ms. Dugan is Legal Counsel
      for
      the Company and certain of its affiliates. Ms. Dugan joined CalEnergy
      International in January 2003. Prior to joining the company, Ms. Dugan was
      a Senior Tax Manager for Punongbayan & Araullo from 1994 to 2000 and a Legal
      and Tax Manager for Asea Brown Boveri, Inc. from 2000 to 2002.





**Suzy
      Lyn A. Bayona.** In
      addition to serving as a Director of the Company, Ms. Bayona is Senior
      Accountant for the Company and certain of its affiliates. Ms. Bayona joined
      CalEnergy International in January 2000 as Accountant. Prior to joining the
      company, Ms. Bayona was a senior auditor at Sycip Gorres Velayo &
Company.





**Pearl
      T. Liu.** In
      addition to serving as a Director of the Company, Ms.Liu is Corporate Secretary
      for the Company.





**Audit
      Committee Matters**





During
      the fiscal year ended December 31, 2006 and as of the date of this Report,
      the Board of Directors had no committees, including any audit committee. The
      Company is not an issuer as defined in the Sarbanes-Oxley Act of 2002, it does
      not have a class of securities listed on any securities exchange, and it is
      not
      required to have an audit committee.





**Code
      of Ethics**





The
      Company has adopted a code of ethics that applies to its principal executive
      officer, its principal financial officer and to certain other covered officers.
      The code of ethics is filed as an exhibit to this Annual Report on Form 10-K.





**Item
      11.**  **Executive
      Compensation.**





None
      of
      the executive officers or directors of the Company receives compensation from
      the Company for services as officers or directors of the Company. All directors
      are reimbursed for their expenses in attending board and committee
      meetings.





33


**Item
      12.**  **Security
      Ownership of Certain Beneficial Owners and Management and Related Stockholder
      Matters.**





**Description
      of Capital Stock**





As
      of
      December 31, 2006, the authorized capital stock of the Company consisted of
      2,148,000 shares of common stock, par value 1.00 Philippine peso ($0.038) per
      share (the “Common Stock”), of which 767,162 shares were outstanding. There is
      no public trading market for the Common Stock. As of December 31, 2006
      there were 11 holders of record of the Common Stock. Holders of Common Stock
      are
      entitled to one vote per share on any matter coming before the stockholders
      for
      a vote.





The
      Trust
      Indenture contains certain restrictions on the payment of dividends with respect
      to the Common Stock.





**Principal
      Stockholders**





The
      following table sets forth information with respect to all persons who own
      beneficially more than 5% of the common stock and by all directors and officers
      of the Company as a group.





**Number
                of****Name
                and Address of Owner**
            
            **Shares
                Owned***
            
            **%
                of Common**1.
            CE
                Casecnan II, Inc.
            
            537,005
            
            70%(1)2.
            CE
                Casecnan Ltd.
            
            230,148
            
            30%(2)
                (3)





*  In
      addition, each director of the Company owns one share in the Company as required
      by Philippine law.





(1)
            In
                April 2003, CE Casecnan Ltd., a Bermuda registered corporation
                assigned shares in CE Casecnan to CE Casecnan II, Inc., a
                Philippine corporation. CE Casecnan Ltd. and CE Casecnan II, Inc. are
                indirectly owned by MidAmerican.(2)
            Pursuant
                to the share ownership adjustment mechanism in the CE Casecnan
                stockholder agreement, which is based upon proforma financial projections
                of the Casecnan Project prepared following commencement of commercial
                operations, in February 2002, MidAmerican’s indirect wholly owned
                subsidiary, CE Casecnan Ltd., advised the minority stockholder
                of the Company, LaPrairie Group Contractors (International) Ltd.
                (“LPG”),
                that MidAmerican’s indirect ownership interest in CE Casecnan had
                increased to 100% effective from commencement of commercial operations.
                On
                July 8, 2002, LPG filed a complaint in the Superior Court of the
                State of California, City and County of San Francisco against
                CE Casecnan Ltd. and MidAmerican. LPG’s complaint, as amended, seeks
                compensatory and punitive damages arising out of CE Casecnan Ltd.’s
                and MidAmerican’s alleged improper calculation of the proforma financial
                projections and alleged improper settlement of the NIA arbitration.
                The
                Company is not a defendant in the action. On January 21, 2004,
                CE Casecnan Ltd., LPG and the Company entered into a status quo
                agreement pursuant to which the parties agreed to set aside certain
                distributions related to the shares subject to the LPG dispute and
                CE Casecnan agreed not to take any further actions with respect to
                such distributions without at least 15 days prior notice to LPG.
                Accordingly, 15% of the dividend declarations in 2006, 2005 and 2004,
                totaling $32.5 million, was set aside in a separate bank account in
                the name of the Company and is shown as restricted cash and investments
                and dividends payable in the accompanying Balance Sheets. On
                August 4, 2005, the court issued a decision, ruling in favor of LPG
                on five of the eight disputed issues in the first phase of the litigation.
                On September 12, 2005, LPG filed a motion seeking the release of
                the funds which have been set aside pursuant to the status quo agreement
                referred to above. MidAmerican and CE Casecnan Ltd. filed an
                opposition to the motion on October 3, 2005, and at the hearing on
                October 26, 2005, the court denied LPG’s motion. On January 3,
                2006, the court entered a judgment in favor of LPG against CE Casecnan
                Ltd. According to the judgment, LPG would retain its ownership of
                15% of
                the shares of the Company and distributions of the amounts deposited
                into
                escrow plus interest at 9% per annum. On February 28, 2006, CE
                Casecnan Ltd. filed an appeal of this judgment and the August 4, 2005
                decision. The appeal is fully briefed, was argued on January 4, 2007
                and is expected to be resolved sometime in 2007. The parties are
                proceeding in the trial court on LPG’s remaining claim against MidAmerican
                for damages for alleged breach of fiduciary duty. This claim is expected
                to be resolved sometime in 2007.








(3)
            Includes
                rights to 115,000 shares, which rights were purchased from San Lorenzo
                Ruiz Builders and Developers Group, Inc.(“San
                Lorenzo”)in
                1998. The 115,000 shares are subject to the ownership adjustment
                mechanism
                in the Stockholders Agreement discussed in Note 11. San Lorenzo retained
                an option to repurchase the 115,000 shares, if any, remaining after
                such
                ownership adjustment.






34




In
                February 2003, San Lorenzo Ruiz Builders and Developers Group, Inc.
                (“San Lorenzo”), an original shareholder substantially all of whose shares
                in the Company were purchased by MidAmerican in 1998, threatened
                to
                initiate legal action against the Company in the Philippines in connection
                with certain aspects of its option to repurchase such shares. The
                Company
                believes that San Lorenzo has no valid basis for any claim and, if
                named
                as a defendant in any action that may be commenced by San Lorenzo,
                the
                Company will vigorously defend such action. On July 1, 2005,
                MidAmerican and CE Casecnan Ltd. commenced an action against San
                Lorenzo in the District Court of Douglas County, Nebraska, seeking
                a
                declaratory judgment as to MidAmerican’s and CE Casecnan Ltd.’s
                rights vis-à-vis San Lorenzo in respect of such shares. San Lorenzo filed
                a motion to dismiss on September 19, 2005. Subsequently, San Lorenzo
                purported to exercise its option to repurchase such shares. On
                January 30, 2006, San Lorenzo filed a counterclaim against
                MidAmerican and CE Casecnan Ltd. seeking declaratory relief that it
                has effectively exercised its option to purchase 15% of the shares
                of the
                Company, that it is the rightful owner of such shares and that it
                is due
                all dividends paid on such shares. On March 9, 2006, the court
                granted San Lorenzo’s motion to dismiss, but has since permitted
                MidAmerican and CE Casecnan Ltd. to file an amended complaint
                incorporating the purported exercise of the option. The complaint
                has been
                amended and the action is proceeding. The matter is currently in
                the early
                stages of discovery. The impact, if any, of San Lorenzo’s purported
                exercise of its option and the Nebraska litigation on the Company
                cannot
                be determined at this time.





**Item
      13.**  **Certain
      Relationships and Related Transactions, and Director
      Independence.**





Not
      applicable.





**Item
      14.**  **Principal
      Accountant Fees and Services.**





Aggregate
      fees billed to CE Casecnan during the fiscal years ended December 31,
      2006 and 2005 by its principal accountant, Isla Lipana & Co. formerly
      Joaquin Cunanan & Co. (A PricewaterhouseCoopers Member Firm) are set forth
      below (in thousands). The audit committee of MidAmerican has considered whether
      the provision of the non-audit services described below is compatible with
      maintaining the principal accountant's independence and concluded that these
      are
      not independence impairing services.





**Year
                Ended December 31,****2006**
            
            **2005**Audit
                Fees(1)
            
            $
            63
            
            $
            122Audit-Related
                Fees(2)
            
            
            5
            
            
            -Tax
                Fees(3)
            
            
            36
            
            
            20All
                Other Fees
            
            
            -
            
            
            -Total
                aggregate fees billed
            
            $
            104
            
            $
            142





(1)
            Includes
                the aggregate fees billed for each of the last two fiscal years for
                professional services rendered for the audit of the Company’s financial
                statements included in the Company’s Form 10-K, review of the Company’s
                financial statements included in the Company’s Form 10-Qs and for services
                that are normally provided in connection with statutory and regulatory
                filings or engagements for those fiscal years.(2)
            Includes
                the aggregate fees billed in each of the last two fiscal years for
                assurance and related services that are reasonably related to the
                performance of the audit or review of the Company’s financial statements.
                Services included in this category include audits of benefit plans,
                due
                diligence for possible acquisitions and consultation pertaining to
                new and
                proposed accounting and regulatory rules.(3)
            Includes
                the aggregate fees billed in each of the last two fiscal years for
                professional services rendered for tax compliance, tax advice, and
                tax
                planning.


35


**PART
      IV**





**Item
      15.**  **Exhibits
      and Financial Statement Schedules.**





(a)
            Financial
                Statements and Schedules(i)
            Financial
                StatementsFinancial
                Statements are included in Item 8 of this Form 10-K.(ii)
            Financial
                Statement SchedulesSchedules
                not listed above have been omitted because they are either not applicable,
                not required or the information required to be set forth therein
                is
                included in the financial statements or notes thereto.(b)
            ExhibitsThe
                exhibits listed on the accompanying Exhibit Index are filed as part
                of
                this Annual Report.(c)
            Financial
                statements required by Regulation S-X, which are excluded from the
                Annual
                Report by Rule 14a-3(b).Not
                applicable.





36


**SIGNATURES**





Pursuant
      to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
      1934, the Registrant has duly caused this report to be signed on its behalf
      by
      the undersigned, thereunto duly authorized, in the City of Omaha, State of
      Nebraska, on February 8, 2007.








**CE
                CASECNAN WATER AND ENERGY COMPANY, INC.**By:
            /s/
                * Joseph L. SullivanJoseph
                L. SullivanPresident(chief
                executive officer)








Pursuant
      to the requirements of the Securities Exchange Act of 1934, this report has
      been
      signed by the following persons on behalf of the Registrant and in the
      capacities and on the dates indicated:





Signature
            
            Title
            
            Date/s/
                Joseph L. Sullivan*
            
            Director,President and General Manager
            
            February 8,
                2007Joseph
                L. Sullivan
            
            (Principal
                Executive Officer)/s/
                Patrick J. Goodman*
            
            Director,
                Senior Vice President and Chief Financial Officer
            
            February 8,
                2007Patrick
                J. Goodman
            
            (PrincipalFinancial Officer)/s/
                David L. Sokol*
            
            Director
                and Chairman
            
            February 8,
                2007David
                L. Sokol/s/
                Douglas L. Anderson
            
            Director,
                Senior Vice President, General Counsel
            
            February 8,
                2007Douglas
                L. Anderson
            
            andAssistant Secretary/s/
                Linda B. Castillo*
            
            Director
            
            February 8,
                2007Linda
                B. Castillo/s/
                Trinity S. Gatuz*
            
            Director
            
            February 8,
                2007Trinity
                S. Gatuz/s/
                Belinda E. Dugan*
            
            Director
            
            February 8,
                2007Belinda
                E. Dugan/s/
                Suzy Lyn A. Bayona*
            
            Director
            
            February 8,
                2007Suzy
                Lyn A. Bayona/s/
                Pearl T. Liu*
            
            Director
            
            February 8,
                2007Pearl
                T. LiuScott
                LaPrairie
            
            Director
            
            February 8,
                2007*By:/s/
                Douglas L. AndersonDouglas
                L. AndersonAttorney-in-Fact








37





**EXHIBIT
      INDEX**





Exhibit
                No.3.1
            Articles
                of Incorporation of the Company (incorporated by reference to Exhibit
                3.1
                the Company’s Registration Statement on Form S-4, as amended, dated
                January 25, 1996 (“Form S-4”)).3.2
            By-laws
                of the Company (incorporated by reference to Exhibit 3.2 the Company’s
                Form S-4).4.1(a)
            Trust
                Indenture, dated as of November 27, 1995, between Chemical Trust
                Company of California and the Company (incorporated by reference
                to
                Exhibit 4.1(a) the Company’s Form S-4).4.1(b)
            First
                Supplemental Indenture, dated as of April 10, 1996, between Chemical
                Trust Company of California and the Company (incorporated by reference
                to
                Exhibit 4.1(b) to the Company’s Form S-4).4.2
            Exchange
                and Registration Rights Agreement, dated as of November 27, 1995, by
                and among CS First Boston Corporation, Bear Stearns & Co. Inc., Lehman
                Brothers Inc. and the Company (incorporated by reference to Exhibit
                4.2
                the Company’s Form S-4).4.3
            Collateral
                Agency and Intercreditor Agreement, dated as of November 27, 1995, by
                and among Chemical Trust Company of California, Far East Bank & Trust
                Company and the Company (incorporated by reference to Exhibit 4.3
                the
                Company’s Form S-4).4.4
            Mortgage
                and Security Agreement, dated as of November 10, 1995, by and among
                CE Casecnan Ltd., Kiewit Energy International (Bermuda) Ltd., La
                Prairie
                Group Contractors (International) Ltd., San Lorenzo Ruiz Builders
                and
                Developers Group, Inc., Chemical Trust Company of California, Far
                East
                Bank & Trust Company and the Company (incorporated by reference to
                Exhibit 4.4 the Company’s Form S-4).4.6
            Deposit
                and Disbursement Agreement, dated as of November 27, 1995, by and
                among the Company, Chemical Trust Company of California, Kiewit Energy
                Company and the Company (incorporated by reference to the Company’s Form
                S-4).4.7
            Consent
                of NIA, dated as of November 10, 1995, to the assignment of the
                Amended and Restated Casecnan Project Agreement (incorporated by
                reference
                to Exhibit 4.7 to the Company’s Form S-4).4.8
            Consent
                of the Republic of the Philippines, dated November 10, 1995, to the
                assignment of the Performance Undertaking and the Amended and Restated
                Casecnan Project Agreement (incorporated by reference to Exhibit
                4.8 to
                the Company’s Form S-4).10.1
            Amended
                and Restated Casecnan Project Agreement, dated as of June 26, 1995,
                between the National Irrigation Administration and the Company
                (incorporated by reference to Exhibit 10.1 the Company’s Form
                S-4).10.2
            Performance
                Undertaking, dated as of July 20, 1995, executed by the Secretary of
                Finance on behalf of the Republic of the Philippines (incorporated
                by
                reference to Exhibit 10.2 to the Company’s Form S-4).10.8
            Supplemental
                Agreement between CE Casecnan Water and Energy Company, Inc. and
                the
                Philippines National Irrigation Administration dated as of
                September 29, 2003 (incorporated by reference to Exhibit 99.1 to the
                Company’s Form 8-K dated October 15, 2003).14.1
            CE
                Casecnan Water and Energy Company, Inc. Code of Ethics for Chief
                Executive
                Officer, Chief Financial Officer and Chief Accounting Officer
                (incorporated by reference to Exhibit 14.1 to the Company’s Form 10-K
                dated December 31, 2003).24
            Power
                of Attorney





38





31.1
            Chief
                Executive Officer’s Certificate Pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002.31.2
            Chief
                Financial Officer’s Certificate Pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002.32.1
            Chief
                Executive Officer’s Certificate Pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002.32.2
            Chief
                Financial Officer’s Certificate Pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002.





39