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, 2007





or





[  ]  Transition
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934.





For the transition period
fromto





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.)24th
      Floor, 6750 Building, Ayala AvenueMakati
      City, 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, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
definition of “large accelerated filer” ”accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):





Large
      accelerated filer  ̈
            Accelerated
      filer  ̈
            Non-accelerated
      filer T
            Smaller
      reporting company o





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 25, 2008, the
number of outstanding shares of $0.038 par value common stock was
767,162.








TABLE OF
CONTENTS











PART
      IItem
      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
            7PART
      IIItem
      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
            15Item
      8.
            Financial Statements and Supplementary
    Data
            16Item
      9.
            Changes in and Disagreements with Accountants on Accounting
      and Financial Disclosure
            32Item
      9A(T).
            Controls and Procedures
            32Item
      9B.
            Other Information
            32PART
      IIIItem
      10.
            Directors, Executive Officers and Corporate
      Governance
            33Item
      11.
            Executive Compensation
            34Item
      12.
            Security Ownership of Certain Beneficial Owners and
      Management and Related Stockholder Matters
            35Item
      13.
            Certain Relationships and Related Transactions, and
      Director Independence
            35Item
      14.
            Principal Accountant Fees and Services
            36PART
      IVItem
      15.
            Exhibits and Financial Statement
    Schedules
            37Signatures
            
            38Exhibit Index
            
            39














2


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,” “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 and other
discussions contained in this Form 10-K. The 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 electricity to be
generated by a 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, construction and operation of a hydroelectric
power plant and related facilities under a build-own-operate-transfer agreement,
as amended by the Supplemental Agreement dated September 29, 2003 (the
“Project 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. Under the terms of its registration with the
Philippine Board of Investments, CE Casecnan was entitled to certain
incentives, including an income tax holiday for six years from the start of
commercial operations, which expired on December 11, 2007. The
Company’s taxable income from December 11, 2007 forward is subject to
income tax at the current Philippine statutory rate.





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.





CE
Casecnan financed a portion of the costs of the Casecnan Project through the
issuance of $75.0 million of its Senior Secured Floating Rate Notes due 2002
(“FRNs”), $125.0 million of its 11.45% Senior Secured Series A Notes due 2005
(the “Series A Notes”) and $171.5 million of its 11.95% Senior Secured Series B
Bonds due 2010 (the “Series B Bonds”), 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. As of February 25, 2008, 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 Investor Service.





4


Concentration
of Risk





The ROP
signed a Performance Undertaking, which, among others, affirms and guarantees
the obligations of NIA under the Project Agreement. The Performance Undertaking
provides 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 shareholders or
affiliates of the Company, including MidAmerican, and no directors, officers or
employees of the Company have guaranteed or will be liable in any way 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. To date, the implementation of the EPIRA has not had an
impact on the Company’s operations. It is not known what impact, if any, the
implementation of the EPIRA may have on the Company’s future
operations.
  CE Casecnan
received franchise tax assessments for the years 2001 to 2006 totaling
$2.2 million from the Province of Nueva Vizcaya. CE Casecnan believes
that franchise tax is imposed on companies which have a secondary or special
franchise from the government. CE Casecnan is an independent power producer
and does not have a government franchise. The EPIRA provides that independent
power generation is not a public utility operation and does not require a
franchise. Therefore, the Company has not recognized a liability relating to
these assessments. CE Casecnan filed appeals of the assessments with the
Regional Trial Court of Nueva Vizcaya. The appeals were referred to the Supreme
Court Office of the Court Administrator and are currently pending.





Employees





At
December 31, 2007, the Company had 43 full-time employees.





5


Item
1A.                    Risk
Factors.





The
Company is subject to certain risks in its business operations which are
described below. Careful consideration of these risks should be made before
making an investment decision. The risks and uncertainties described below are
not the only ones facing the Company. Additional risks and uncertainties not
presently known or that are currently deemed immaterial may also impair the
Company’s business operations.





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 results.





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
uncertainties. For example, 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
could increase the cost of operating the Casecnan Project or require substantial
capital expenditures, thereby adversely affecting the Company’s financial
results.





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 and water flows will approach historical
levels.





Company
assets are subject to potentially catastrophic geologic, natural or
weather-related risks.





Earthquakes,
floods, volcanic eruptions, fires 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.





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.





6


Item
1B.                  Unresolved
Staff Comments.





Not
applicable.





Item
2.                     Properties.





CE
Casecnan’s principal property is a 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 the Company’s selected historical financial data,
which should be read in conjunction with Item 7 of this Form 10-K and with
the Company’s historical Financial Statements and notes thereto included in Item
8 of this Form 10-K. The selected historical financial data has been derived
from the Company’s audited historical Financial Statements and notes thereto
(amounts in thousands).




Years
      ended December 31,2007
              
              
              2006 (1)
              
              
              2005
              
              
              2004(2)
              
              
              2003(2)Statement
      of Operations Data:Revenue
              
              $
              124,733
              
              
              $
              148,529
              
              
              $
              107,000
              
              
              $
              106,847
              
              
              $
              129,921Operating
      income
              
              
              93,319
              
              
              
              117,433
              
              
              
              75,674
              
              
              
              73,431
              
              
              
              91,539Net
      income
              
              
              78,539
              
              
              
              100,804
              
              
              
              52,009
              
              
              
              45,302
              
              
              
              59,765Electricity
      produced (GWh)
              
              
              433.6
              
              
              
              538.5
              
              
              
              406.5
              
              
              
              404.5
              
              
              
              382.2Water
      delivered (million cubic meters)
              
              
              750.0
              
              
              
              996.0
              
              
              
              723.0
              
              
              
              719.2
              
              
              
              620.6As
      of December 31,2007
              
              
              2006
              
              
              2005
              
              
              2004
              
              
              2003Balance
      Sheet Data:Total
      assets
              
              $
              410,717
              
              
              $
              444,970
              
              
              $
              470,017
              
              
              $
              477,996
              
              
              $
              565,313Notes
      payable
              
              
              39,200
              
              
              
              51,263
              
              
              
              51,263
              
              
              
              51,263
              
              
              
              51,263Long-term
      debt, including current portion
              
              
              68,600
              
              
              
              106,330
              
              
              
              142,345
              
              
              
              197,098
              
              
              
              246,458Shareholders’
      equity
              
              
              271,840
              
              
              
              193,301
              
              
              
              191,997
              
              
              
              150,988
              
              
              
              211,686





(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 herein. Explanations include management’s
best estimate of the impact of weather and other factors. This discussion should
be read in conjunction with Item 6 of this Form 10-K and with the Company's
historical Financial Statements and notes thereto included in Item 8 of this
Form 10-K. The Company’s actual results in the future could differ significantly
from the historical results.





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 Project Agreement, the water delivery fee is a fixed monthly payment based
upon an assumed annual water delivery of 801.9 million cubic meters,
pro-rated to approximately 66.8 million cubic meters per month, multiplied
by the water delivery fee rate of $0.07381 per cubic meter. 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 on a
straight-line basis from December 25, 2008 through December 25, 2013,
as a reduction from billings to NIA. 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. For contract years starting
from December 25, 2008 through the end of the Cooperation Period,
guaranteed water delivery fees will be $51.7 million (the 700.0 
million cubic meter minimum threshold multiplied by the water delivery fee rate
of $0.07381.)
  For
contract years starting from December 25, 2008 through the end of the
Cooperation Period, variable water delivery fees will be earned for all water
deliveries, if any, exceeding the 700.0 million cubic meter annual minimum
threshold until a cumulative 1.324 billion cubic meters of water subject to
variable water delivery fees have been 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, currently payable at a rate of $0.1509 per
kWh. On December 25, 2008, 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 in 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, 2007 and 2006





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





2007
            
            
            2006Electricity
      produced (GWh)
            
            
            433.6
            
            
            
            538.5Water
      delivered (million cubic meters)
            
            
            750.0
            
            
            
            996.0





For
accounting purposes, the Project Agreement with NIA contains both a service
contract and an operating lease, which the Company accounted for pursuant to
provisions of Statement of Financial Accounting Standards No. 13,
"Accounting for Leases." Minimum lease payments under the operating lease are
recognized as revenue on a straight-line basis over the lease term. The Company
reduces such minimum lease revenues by an amount which is not reasonably assured
to be collected due to the uncertain political and economic events in the
Philippines and past actions by NIA with regard to claims against the Company.
The reduction in the minimum lease revenues is recovered when its collectibility
becomes reasonably assured. During 2007 and 2006, revenues were reduced
(increased) by the excess (shortfall) of such straight-line revenues over the
amounts that were currently billable at the end of each period on such
basis.  The Company's water and energy fees for the years ended
December 31 are as follows (in millions):




2007
              
              
              2006Water
      delivery fees
              
              $
              59.2
              
              
              $
              57.3Guaranteed
      energy fees
              
              
              36.4
              
              
              
              36.4Variable
      energy fees
              
              
              30.9
              
              
              
              41.0Deferred
      water delivery fees
              
              
              (1.8
              )
              
              
              13.8Total
      lease rentals and service contracts revenue
              
              $
              124.7
              
              
              $
              148.5


Revenuefor 2007 decreased by $23.8 million to $124.7 million compared
with 2006, due primarily to rainfall in 2006 that was exceptionally high,
resulting in higher than normal water deliveries and electricity production
during 2006 by the Casecnan Project. Rainfall in the Casecnan watershed area in
2007 was near the historical norm.


9


The
increase in water delivery fees was primarily due to a contractual escalation
factor. The decrease in variable energy fees in 2007 was due to lower rainfall
in 2007 which resulted in lower water deliveries and related energy production
when compared to higher than normal water flows in 2006. The deferred water
delivery fees represent the difference between the actual water delivery fees
earned and water delivery fees invoiced pursuant to the Project Agreement. Water
deliveries during 2007 that were 51.9 million cubic meters below the
contracted amount were partially offset by cumulative excess water delivered of
27.1 million cubic meters in 2006, resulting in a $1.8 million water
delivery fee credit at December 31, 2007. 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 by 194.1 million
cubic meters.


Interest
expense for 2007 decreased $4.6 million to $16.8 million compared with
2006, due primarily to lower outstanding debt balances resulting from the
scheduled repayment of debt.
  The
provision for income tax for 2007 increased $2.3 million to
$4.6 million. The income tax holiday expired on December 11, 2007. The
Company’s taxable income from December 11, 2007 forward is subject to
income tax at the current Philippine statutory rate.


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





For
accounting purposes, the Project Agreement with NIA contains both a service
contract and an operating lease, which the Company accounted for pursuant to
provisions of Statement of Financial Accounting Standards No. 13, "Accounting
for Leases." Minimum lease payments under the operating lease are recognized as
revenue on a straight-line basis over the lease term.  The Company
reduces such minimum lease revenues by an amount which is not reasonably assured
to be collected due to the uncertain political and economic events in the
Philippines and past actions by NIA with regard to claims against the
Company.  The reduction in the minimum lease revenues is recovered
when its collectibility becomes reasonably assured.  During 2007 and
2006, revenues were reduced (increased) by the excess (shortfall) of such
straight-line revenues over the amounts that were currently billable at the end
of each period on such basis.   The Company's water and energy
fees for the years ended December 31 are as follows (in
millions):





2006
            
            
            2005Water
      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 by 194.1 million cubic meters.
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.
 
 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.


10





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.





Liquidity
and Capital Resources





CE
Casecnan developed, financed, constructed 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.


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 shareholders 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 $31.1 million and
$31.9 million at December 31, 2007 and 2006,
respectively.


The
Company generated cash flows from operations of $91.0 million and $124.8 million
for the years ended December 31, 2007 and 2006, respectively. The lower
cash generated in 2007 was due primarily to lower variable energy delivery fees
of $10.1 million in 2007, higher interest paid of $4.9 million in
2007, higher accounts receivable, net, of $6.3 million in 2007 and
reimbursements to the Company of $9.7 million in 2006 for real property
taxes paid in 2005.
 
 The
Company received $18.2 million and used $19.6 million for investing
activities for the years ended December 31, 2007 and 2006, respectively.
Restricted cash for debt service obligations and dividends payable decreased by
$30.1 million in 2007, primarily as a result of the payment of
$25.5 million of dividends and accrued interest previously held in escrow.
In 2006, restricted cash for debt service obligations and dividends payable
increased by $7.6 million, due primarily to the deposit of 15% of 2006
dividends and interest in an escrow account related to the shareholder
litigation. Net purchases of available-for-sale securities were
$11.3 million and $10.1 million in 2007 and 2006, respectively.
Capital expenditures were $0.7 million and $1.9 million in 2007 and
2006, respectively.
 
 The
Company used $110.0 million and $115.6 million for financing
activities for the years ended December 31, 2007 and 2006, respectively.
The Company repaid $38.5 million of advances received from its affiliates
and released $21.7 million of dividends held in the escrow account. The
Company declared dividends totaling $99.5 million in 2006, of which
$14.9 million was 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 $37.7 million and $36.0 million on
the balance of its outstanding project financing debt during the years ended
December 31, 2007 and 2006, respectively. On May 15, 2007,
CE Casecnan Ltd. demanded payment in full of the outstanding principal
amount of the notes of $51.3 million and related accrued interest (the
“Notes”). In 2007, CE Casecnan paid $12.1 million of the principal
amount demanded. In the next twelve months, the Company expects to generate
sufficient cash from operations, after considering income taxes, to pay the
Notes and other short-term obligations. For a discussion of the contractual
provisions of the Notes relating to the payment demand from
CE Casecnan Ltd., refer to Note 9 of Notes to Financial
Statements included in Item 8 of this Form 10-K.


11


The
Company generated cash flows from operations of $124.8 million and $78.7 million
for the years ended December 31, 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 for the years ended December 31, 2006 and 2005, respectively.
Restricted cash for debt service obligations and dividends payable increased by
$7.6 million in 2006, due primarily to the deposit of 15% of 2006 dividends
and related interest into an escrow account. Net purchases of available-for-sale
securities were $10.1 million in 2006. In 2005, restricted cash for debt
service obligations and dividends payable increased by $28.4 million due to
proceeds from net sales of available-for-sale securities of $39.0 million
which were acquired in 2004. This increase was partially offset by lower
scheduled principal payments due in 2006. Capital expenditures were
$1.9 million and $0.5 million in 2006 and 2005,
respectively.
  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.





Auction
Rate Securities





With the
liquidity issues experienced in global credit and capital markets, the
$21.4 million of auction rate securities held by the Company at
December 31, 2007 have experienced multiple failed auctions as the amount
of securities submitted for sale has exceeded the amount of purchase orders.
However, at December 31, 2007, none of the principal invested in the
auction rate securities held by the Company were downgraded or placed on credit
watch and all these securities retain Moody’s and S&P highest credit
ratings. Subsequent to December 31, 2007, the auction rate securities have
been placed on credit watch for possible downgrade.




Although
there is no current liquid market for the auction rate securities, the Company
believes the underlying creditworthiness of the repayment sources for these
securities’ principal and interest has not materially deteriorated. Therefore,
the fair value of these investments approximates the carrying amount at December
31, 2007. If the underlying assets or guarantors experience credit deterioration
on the auction rate securities, the Company may not ultimately realize the book
value of the investment atDecember 31,
2007.




Historically,
given the liquidity created by the auctions, auction rate securities were
presented in current assets either as restricted cash and investments or as
short-term investments on the Company's Balance Sheet. Given the failed
auctions, it is uncertain if the Company's auction rate securities will be sold
within the next twelve months. Accordingly, the entire amount of such remaining
balance has been classified as non-current assets on the Company's
December 31, 2007 Balance Sheet.





Casecnan
Shareholder Litigation





Pursuant to the share
ownership adjustment mechanism in the CE Casecnan shareholder 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 shareholder 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 3, 2006, the court entered a judgment
in favor of LPG against CE Casecnan Ltd. Pursuant to the judgment, 15% of
the distributions of the Company was deposited into escrow plus interest at 9%
per annum. On February 21, 2007, the appellate court issued a decision, and
as a result of the decision, CE Casecnan Ltd. determined that LPG would
retain ownership of 10% of the shares of the Company, with the remaining 5%
ownership being transferred to CE Casecnan Ltd. subject to certain buy-up
rights under the shareholder agreement. Pursuant to the appellate court
decision, on May 7, 2007, the Company released $21.7 million of
dividends and $3.8 million of accrued interest from the dividend set aside
account representing the 10% share to LPG while the remaining 5% share is still
held in escrow. The parties have agreed to stipulate that the final calculation
of the internal rate of return is 24.06%. At a hearing on
October 10, 2007, the court determined that LPG was ready, willing and
able to exercise its buy-up rights in 2007. Additional hearings were held on
October 23 and 24, 2007, regarding the issue of the buy-up price calculation and
a written decision was issued on February 4, 2008 specifying the method for
determining LPG’s buy-up price. A final
judgment has not been issued on the buy-up right and price and when issued will
be subject to appeal. Exercise of the buy-up rights under the shareholder
agreement is a transaction between shareholders of the Company and is not
expected to have any impact on the Company’s financial position or results of
operations. LPG waived its request for a jury trial for the breach of fiduciary
duty claim and the parties have entered into a stipulation which provides for a
trial of such claim by the court based on the existing record of the case. The
trial date has been set for March 12, 2008. MidAmerican intends to
vigorously defend and pursue the remaining claims.






12





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. Currently, the action is in the discovery phase and a
one-week trial has been set to begin on November 3, 2008. 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.





Franchise
Tax





CE Casecnan
received franchise tax assessments for the years 2001 to 2006 totaling
$2.2 million from the Province of Nueva Vizcaya. CE Casecnan believes
that franchise tax is imposed on companies which have a secondary or special
franchise from the government. CE Casecnan is an independent power producer
and does not have a government franchise. The EPIRA provides that independent
power generation is not a public utility operation and does not require a
franchise. Therefore, the Company has not recognized a liability relating to
these assessments. CE Casecnan filed appeals of the assessments with the
Regional Trial Court of Nueva Vizcaya. The appeals were referred to the Supreme
Court Office of the Court Administrator and are currently pending.





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, 2007 are as follows (in thousands):





Payments
      Due by PeriodTotal
            
            
            2008
            
            
            2009-2010
            
            
            2011-2012
            
            
            2013
      and AfterContractual
      cash obligations:Long-term
      debt
            
            $
            68,600
            
            
            $
            37,730
            
            
            $
            30,870
            
            
            $
            -
            
            
            $
            -Note
      payable (1)
            
            
            39,200
            
            
            
            39,200
            
            
            
            -
            
            
            
            -
            
            
            
            -Interest
            
            
            20,887
            
            
            
            16,071
            
            
            
            4,816
            
            
            
            -
            
            
            
            -Total
      contractual cash obligations
            
            $
            128,687
            
            
            $
            93,001
            
            
            $
            35,686
            
            
            $
            -
            
            
            $
            -





(1)
            On
      May 15, 2007, CE Casecnan Ltd. demanded payment in full of the outstanding
      principal amount of the notes and accrued
  interest.





13




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 the NIA. This assessment requires judgment
regarding the outcome of disputes, arbitrations and the ability of the customer
to pay the amounts owed to the Company.





Revenue





The
Project Agreement is treated for accounting purposes as an arrangement that
contains both a service contract to operate the plant and an operating
lease.





Minimum
lease payments under the operating lease and service contract are recognized as
revenue on a straight-line basis over the lease term. The Company reduces such
minimum lease revenues by an amount which is not reasonably assured to be
collected due to the uncertain political and economic events in the Philippines
and past actions by NIA with regard to claims against the Company, including
past assertions that the contract with the Company was without legal basis. The
reduction in the minimum lease revenues is recovered when its collectibility
becomes reasonably assured. During 2007, 2006, and 2005, revenues were reduced
(increased) by the excess (shortfall) of such straight-line revenues over the
amounts that were currently billable at the end of each period on such
basis.


14


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





The
Company’s Balance Sheets include assets and liabilities whose fair values are
subject to market risks. The Company’s significant market risks are primarily
associated with interest rates and credit. The following sections address the
significant market risks associated with the Company’s business
activities.





Interest Rate
Risk





At
December 31, 2007, the Company had fixed-rate long-term debt totaling
$68.6 million with a fair value of $73.8 million. Because of their
fixed interest rates, these instruments 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 $0.4 million if
interest rates were to increase by 10% from their levels at December 31,
2007. 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. Comparatively, at December 31, 2006,
the Company had fixed-rate long-term debt totaling $106.3 million with a
fair value of $113.8 million. The fair value of these instruments would
have decreased by approximately $1.3 million if interest rates had
increased by 10% from their levels at December 31, 2006.





Credit
Risk





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 shareholders 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.





With the
liquidity issues experienced in global credit and capital markets, the $21.4
million of auction rate securities held by the Company at December 31,
2007, have experienced multiple failed auctions as the amount of securities
submitted for sale has exceeded the amount of purchase orders. However, at
December 31, 2007, none of the principal invested in the auction rate
securities held by the Company were downgraded or placed on credit watch and all
these securities retain Moody’s and S&P highest credit ratings. Subsequent
to December 31, 2007, the auction rate securities have been placed on
credit watch for possible downgrade. If the underlying assets or guarantors
experience credit deterioration on the auction rate securities, the Company may
not ultimately realize the book value of the investment at December 31,
2007.


15


Item
8.                      Financial
Statements and Supplementary Data.





Report of Independent Registered Public Accounting
      Firm
            17Balance Sheets as of December 31, 2007 and
      2006
            18Statements of Operations for the Years Ended
      December 31, 2007, 2006 and 2005
            19Statements of Changes in
      Shareholders’ Equity for the Years Ended December 31, 2007, 2006 and
      2005
            20Statements of Cash Flows for the Years Ended
      December 31, 2007, 2006 and 2005
            21Notes to Financial
      Statements
            22




















16


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM





To the
Board of Directors and Shareholders 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, 2007 and 2006, and the related statements of
operations, of changes in shareholders’ equity and of cash flows for each of the
three years in the period ended December 31, 2007. 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, 2007 and 2006, and the results
of its operations and its cash flows for each of the three years in the period
ended December 31, 2007, 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
27, 2008








17





CE
CASECNAN WATER AND ENERGY COMPANY, INC.


BALANCE SHEETS


(Amounts
in thousands, except share data)





As
      of December 31,2007
            
            
            2006ASSETSCurrent
      assets:Cash
      and cash equivalents
            
            $
            31,083
            
            
            $
            31,946Restricted
      cash and investments
            
            
            22,414
            
            
            
            62,659Trade
      receivable, net
            
            
            20,365
            
            
            
            14,002Prepaid
      insurance and other current assets
            
            
            6,653
            
            
            
            6,008Total
      current assets
            
            
            80,515
            
            
            
            114,615Property,
      plant and equipment, net
            
            
            303,056
            
            
            
            324,203Other
      investments
            
            
            7,503
            
            
            
            -Long-term
      restricted cash and investments
            
            
            13,906
            
            
            
            -Deferred
      income tax
            
            
            5,198
            
            
            
            5,095Bond
      issue costs, net
            
            
            539
            
            
            
            1,057Total
      assets
            
            $
            410,717
            
            
            $
            444,970LIABILITIES
      AND SHAREHOLDERS’ EQUITYCurrent
      liabilities:Accounts
      payable and other accrued liabilities
            
            $
            8,203
            
            
            $
            5,264Dividends
      payable
            
            
            10,825
            
            
            
            32,475Accrued
      interest
            
            
            7,801
            
            
            
            15,326Payable
      to affiliates
            
            
            2,480
            
            
            
            41,011Notes
      payable
            
            
            39,200
            
            
            
            -Current
      portion of long-term debt
            
            
            37,730
            
            
            
            37,730Total current liabilities
            
            
            106,239
            
            
            
            131,806Notes
      payable
            
            
            -
            
            
            
            51,263Deferred
      revenue
            
            
            1,768
            
            
            
            -Long-term
      debt, net of current portion
            
            
            30,870
            
            
            
            68,600Total
      liabilities
            
            
            138,877
            
            
            
            251,669Commitments
      and contingencies (Note 10)Shareholders’
      equity:Common
      shares - 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
            
            
            148,004
            
            
            
            69,465Total
      shareholders’ equity
            
            
            271,840
            
            
            
            193,301Total
      liabilities and shareholders’ equity
            
            $
            410,717
            
            
            $
            444,970





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


18





CE
CASECNAN WATER AND ENERGY COMPANY, INC.


STATEMENTS OF OPERATIONS


(Amounts
in thousands)





Years
      Ended December 31,2007
            
            
            2006
            
            
            2005Revenue:Lease
      rentals and service contracts
            
            $
            124,733
            
            
            $
            148,529
            
            
            $
            107,000Operating
      expenses:Depreciation
            
            
            21,825
            
            
            
            21,728
            
            
            
            21,543Plant
      operations and other operating expenses
            
            
            9,589
            
            
            
            9,368
            
            
            
            9,783Total operating
      expenses
            
            
            31,414
            
            
            
            31,096
            
            
            
            31,326Operating
      income
            
            
            93,319
            
            
            
            117,433
            
            
            
            75,674Other
      income (expense):Interest
      expense
            
            
            (16,784
            )
            
            
            (21,355
            )
            
            
            (24,812
            )Interest
      income
            
            
            2,810
            
            
            
            3,010
            
            
            
            1,938Other,
      net
            
            
            3,761
            
            
            
            3,978
            
            
            
            303Total other income (expense)
            
            
            (10,213
            )
            
            
            (14,367
            )
            
            
            (22,571
            )Income
      before provision for income tax
            
            
            83,106
            
            
            
            103,066
            
            
            
            53,103Provision
      for income tax
            
            
            4,567
            
            
            
            2,262
            
            
            
            1,094Net
      income
            
            $
            78,539
            
            
            $
            100,804
            
            
            $
            52,009





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





19





CE
CASECNAN WATER AND ENERGY COMPANY, INC.


STATEMENTS OF CHANGES IN SHAREHOLDERS’
EQUITY


(Amounts
in thousands, except shares)





Outstanding
            
            
            
            
            
            AdditionalCommon
            
            
            Common
            
            
            Paid-in
            
            
            RetainedShares
            
            
            Stock
            
            
            Capital
            
            
            Earnings
            
            
            TotalBalance,
      January 1, 2005
            
            
            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
            
            
            
            193,301Net
      income
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            78,539
            
            
            
            78,539Balance,
      December 31, 2007
            
            
            767,162
            
            
            $
            29
            
            
            $
            123,807
            
            
            $
            148,004
            
            
            $
            271,840





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





20


CE
CASECNAN WATER AND ENERGY COMPANY, INC.


STATEMENTS OF CASH FLOWS


(Amounts
in thousands)





Years
      Ended December 31,2007
            
            
            2006
            
            
            2005Cash
      flows from operating activities:Net
      income
            
            $
            78,539
            
            
            $
            100,804
            
            
            $
            52,009Adjustments
      to reconcile net income to net cash flows from operating
      activities:Depreciation
            
            
            21,825
            
            
            
            21,728
            
            
            
            21,543Amortization
      of bond issue costs
            
            
            518
            
            
            
            688
            
            
            
            933Provision
      for deferred income tax
            
            
            (103
            )
            
            
            -
            
            
            
            276Changes
      in other items:Trade receivable,
      net
            
            
            (6,363
            )
            
            
            12,636
            
            
            
            (1,396
            )Prepaid insurance
      and other current assets
            
            
            (645
            )
            
            
            (792
            )
            
            
            2,119Accounts payable
      and other accrued liabilities
            
            
            2,939
            
            
            
            (1,204
            )
            
            
            (6,529
            )Accrued
      interest
            
            
            (7,525
            )
            
            
            4,733
            
            
            
            2,110Deferred
      revenue
            
            
            1,768
            
            
            
            (13,756
            )
            
            
            7,636Net cash flows from
      operating activities
            
            
            90,953
            
            
            
            124,837
            
            
            
            78,701Cash
      flows from investing activities:Decrease (increase) in
      restricted cash for debt service obligations and dividends payable (Note
      2)
            
            
            30,145
            
            
            
            (7,603
            )
            
            
            (28,449
            )Proceeds from sale of available-for-sale securities (Note
    2)
            
            
            60,500
            
            
            
            159,805
            
            
            
            39,000Purchases of available-for-sale securities (Note 2)
            
            
            (71,809
            )
            
            
            (169,905
            )
            
            
            -Additions
      to property, plant and equipment
            
            
            (678
            )
            
            
            (1,880
            )
            
            
            (462
            )Net cash flows from investing activities
            
            
            18,158
            
            
            
            (19,583
            )
            
            
            10,089Cash
      flows from financing activities:(Decrease)
      increase in payable to affiliates
            
            
            (38,531
            )
            
            
            4,965
            
            
            
            898Repayment
      of long-term debt
            
            
            (37,730
            )
            
            
            (36,015
            )
            
            
            (54,753
            )Repayment
      of notes payable
            
            
            (12,063
            )
            
            
            -
            
            
            
            -Cash
      dividends paid
            
            
            (21,650
            )
            
            
            (84,575
            )
            
            
            (9,350
            )Net cash flows from financing activities
            
            
            (109,974
            )
            
            
            (115,625
            )
            
            
            (63,205
            )Net
      change in cash and cash equivalents
            
            
            (863
            )
            
            
            (10,371
            )
            
            
            25,585Cash
      and cash equivalents at beginning of period
            
            
            31,946
            
            
            
            42,317
            
            
            
            16,732Cash
      and cash equivalents at end of period
            
            $
            31,083
            
            
            $
            31,946
            
            
            $
            42,317Supplemental
      disclosure:Interest
      paid
            
            $
            22,602
            
            
            $
            17,704
            
            
            $
            24,150Income
      taxes paid
            
            $
            2,264
            
            
            $
            2,440
            
            
            $
            89








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


21


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, as amended by the
Supplemental Agreement dated September 29, 2003 (the “Project Agreement”),
covering a 20-year cooperation period (“Cooperation Period”) commencing
December 11, 2001, 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.





Under the
terms of its registration with the Philippine Board of Investments, the Company
was entitled to certain incentives which include an income tax holiday for six
years from the start of commercial operations. 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 expired on
December 11, 2007.  The Company’s taxable income from
December 11, 2007, forward is subject to income tax at the current
Philippine statutory rate.





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 can produce significant
variability in revenue between reporting periods.





The
Company is 70% owned by CE Casecnan II, Inc.,  20% owned by CE
Casecnan Ltd., a Bermuda-registered corporation, which are both indirectly
wholly owned subsidiaries of MidAmerican, and 10% owned by a third
party.





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, principally the Philippine 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.





22





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 period. Actual results may differ
from the estimates used in preparing the Financial Statements.





Cash
Equivalents





Cash
equivalents consist of short-term, highly liquid investments that are readily
convertible to known amounts of cash with a maturity of three months or less
when purchased. Cash and cash equivalents exclude amounts where availability for
distribution is restricted by legal requirements, loan agreements or other
contractual provisions.





Restricted Cash and
Investments and Other 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. The undistributed dividends are
invested in money- market instruments and the debt service funds are invested in
money-market instruments and auction rate securities. Other investments consist
of auction rate securities. The auction rate securities are classified as
available-for-sale securities and unrealized gains and losses are reported as a
component of accumulated other comprehensive income (loss) in shareholders’
equity. Realized gains and losses and other-than-temporary losses are included
in other income (expense). As of December 31, 2007 and 2006, the carrying
value of these securities approximates fair market value and there were no
unrealized gains or losses associated with these investments.





The
investments in auction rate securities, which totaled $21.4 million and
$10.1 million at December 31, 2007 and 2006, respectively, have a weighted
average remaining maturity of 23 years.
These securities have certain economic characteristics of short-term investments
because of their rate setting mechanism and the return on these securities is
designed to track short-term interest rates through a “Dutch” auction process
(or if the auction fails, a contractual rate return that changes based on the
credit rating), which resets the coupon rate of interest every 28
days.





Gross
purchases and sales of available-for-sale securities were presented in the
Statement of Cash Flows under investing activities in 2006 to conform to the
2007 presentation. Such revisions in presentation did not impact previously
reported net cash flows from investing activities, net income or retained
earnings.





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 is recorded 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. The cost of major
additions and betterments are capitalized, while costs for replacements,
maintenance and repairs that do not improve or extend the lives of the
respective assets are charged to operations. 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 are established for certain deferred
income tax assets where management has judged that realization is not
likely.


23





Allowance for Doubtful
Accounts





The
allowance for doubtful accounts is based on the Company’s assessment of the
collectibility of payments from the NIA. This assessment requires judgment
regarding the outcome of pending disputes, arbitrations and the ability of the
customer to pay the amounts owed to the Company.





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 Statements 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 a service contract to operate the
plant and an operating lease.





Minimum
lease payments under the operating lease and service contract are recognized as
revenue on a straight-line basis over the lease term. The Company reduces such
minimum lease revenues by an amount which is not reasonably assured to be
collected due to the uncertain political and economic events in the Philippines
and past actions by NIA with regard to claims against the Company, including
past assertions that the contract with the Company was without legal basis. The
reduction in the minimum lease revenues is recovered when its collectibility
becomes reasonably assured. During 2007, 2006, and 2005, revenues were reduced
(increased) by the excess (shortfall) of such straight-line revenues over the
amounts that were currently billable at the end of each period on such
basis.





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 Project Agreement. The
cumulative deferred water delivery revenue was $1.8 million and $- million at
December 31, 2007 and 2006, respectively. 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 on a straight line basis
from December 25, 2008 through December 25, 2013, as a reduction from
billings to NIA. 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 is not recognized until all
cumulative electrical energy shortfalls in previous months have been made up. At
December 31, 2007, 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”). The Company adopted the
provisions of FIN 48 effective January 1, 2007. Under FIN 48, tax
benefits are recognized only for tax positions that are more likely than not to
be sustained upon examination by tax authorities. The amount recognized is
measured as the largest amount of benefit that is greater than 50% likely to be
realized upon ultimate settlement. Unrecognized tax benefits are tax benefits
claimed in the Company’s tax returns that do not meet these recognition and
measurement standards. The adoption of FIN 48 did not have a material
effect on the Financial Statements.


24





In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities - including an amendment of FASB
Statement No. 115” (“SFAS No. 159”). SFAS No. 159 permits entities to elect to
measure many financial instruments and certain other items at fair value. Upon
adoption of SFAS No. 159, an entity may elect the fair value option for eligible
items that exist at the adoption date. Subsequent to the initial adoption, the
election of the fair value option should only be made at initial recognition of
the asset or liability or upon a remeasurement event that gives rise to
new-basis accounting. The decision about whether to elect the fair value option
is applied on an instrument-by-instrument basis, is irrevocable and is applied
only to an entire instrument and not only to specified risks, cash flows or
portions of that instrument. SFAS No. 159 does not affect any existing
accounting literature that requires certain assets and liabilities to be carried
at fair value nor does it eliminate disclosure requirements included in other
accounting standards. SFAS No. 159 is effective for fiscal years beginning
after November 15, 2007. The Company did not elect the fair value option
for any existing eligible items at January 1, 2008. The Company will continue to
evaluate items on a case-by-case basis for consideration of the fair value
option.





In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”
(“SFAS No. 157”). SFAS No. 157 defines fair value, establishes a framework
for measuring fair value and expands disclosures about fair value measurements.
SFAS No. 157 does not impose fair value measurements on items not already
accounted for at fair value; rather it applies, with certain exceptions, to
other accounting pronouncements that either require or permit fair value
measurements. SFAS No. 157 is effective for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal years. The
Company is currently evaluating the impact of adopting SFAS No. 157 on its
financial position and results of operations.





4.      Restricted
Cash and Investments and Other Investments





Restricted
cash and investments consist of the following as of December 31 (in
thousands):





2007
            
            
            2006Current:Debt
      service reserve fund
            
            $
            9,360
            
            
            $
            25,407Dividend
      set aside account
            
            
            13,054
            
            
            
            37,252$
            22,414
            
            
            $
            62,659Noncurrent
      - Debt service reserve fund
            
            $
            13,906
            
            
            $
            -





Restricted
cash and investments represent various U.S. dollar money market investments
bearing interest at rates of 3.2% and 4.5% and auction rate securities bearing
interest at rates of 6.1% and 5.4% at December 31, 2007 and 2006, respectively.
The debt service reserve fund is invested in money-market instruments and
auction rate securities. The dividend set aside account is composed entirely of
U.S. dollar money-market instruments. Auction rate securities included in
restricted cash and investments at December 31, 2007 and 2006, had a
carrying value of $13.9 million and $10.1 million, respectively, and
had a remaining maturity of 26 years and 29 years, respectively.





Other
investments consist of auction rate securities with a carrying value of
$7.5 million and $- million at December 31, 2007 and 2006,
respectively. The investments at December 31, 2007 earned interest at 6.1%
and had a remaining maturity of 17 years.




With the
liquidity issues experienced in global credit and capital markets, the $21.4
million of auction rate securities held by the Company at December 31, 2007
have experienced multiple failed auctions as the amount of securities submitted
for sale has exceeded the amount of purchase orders. However, at
December 31, 2007, none of the principal invested in the auction rate
securities held by the Company were downgraded or placed on credit watch and all
these securities retain Moody’s and S&P highest credit ratings. Subsequent
to December 31, 2007, the auction rate securities have been placed on
credit watch for possible downgrade.





Although
there is no current liquid market for the auction rate securities, the Company
believes the underlying creditworthiness of the repayment sources for these
securities’ principal and interest has not materially deteriorated. Therefore,
the fair value of these investments approximates the carrying amount at
December 31, 2007. If the underlying assets or guarantors experience credit
deterioration on the auction rate securities, the Company may not ultimately
realize the book value of the investment at December 31, 2007.





25




Historically,
given the liquidity created by the auctions, auction rate securities were
presented in current assets either as restricted cash and investments or as
short-term investments on the Company's Balance Sheet. Given the failed
auctions, it is uncertain if the Company's
auction rate securities will be sold within the next twelve months. Accordingly,
the entire amount of such remaining balance has been classified as non-current
assets on the Company's December 31, 2007 Balance Sheet.





5.      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 and consisted of the following as of December 31 (in
thousands):





2007
            
            
            2006Water
      delivery fee
            
            $
            10,080
            
            
            $
            9,420Guaranteed
      energy delivery fee
            
            
            3,676
            
            
            
            3,676Variable
      energy delivery fee
            
            
            6,609
            
            
            
            1,543Total
      trade receivable
            
            
            20,365
            
            
            
            14,639Allowance
      for doubtful accounts
            
            
            -
            
            
            
            (637
            )Trade
      receivable, net
            
            $
            20,365
            
            
            $
            14,002





The water
delivery fee includes claims for tax reimbursement from NIA pursuant to the
Project Agreement amounting to $3.8 million
and $3.1 million as of December 31, 2007 and 2006,
respectively.





Under the
Project Agreement, the water delivery fee is a fixed monthly payment based upon
an assumed annual water delivery of 801.9 million cubic meters, pro-rated to
approximately 66.8 million cubic meters per month, multiplied by the water
delivery fee rate of $0.07381 per cubic meter. 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 on a straight-line basis from
December 25, 2008 through December 25, 2013, as a reduction from
billings to NIA. 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. For contract years starting from December 25, 2008
through the end of the Cooperation Period, guaranteed water delivery fees will
be $51.7 million (the 700.0 million cubic meter minimum threshold
multiplied by the water delivery fee rate of $0.07381.)





For
contract years starting from December 25, 2008 through the end of the
Cooperation Period, variable water delivery fees will be earned for all water
deliveries, if any, exceeding the 700.0 million cubic meter annual minimum
threshold until a cumulative 1.324 billion cubic meters of water subject to
variable water delivery fees have been 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, currently payable at a rate of $0.1509 per kWh. On
December 25, 2008, 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 in 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.





26


The
allowance for doubtful accounts as of December 31, 2007 and 2006 represents
the Company’s estimate of the uncollectible portion of the receivable balance.
Based on the Company’s assessment, no provision is required as of December 31,
2007. The activity for the Company’s allowance for doubtful accounts for the
years ended December 31 was as follows (in thousands):





2007
            
            
            2006
            
            
            2005Balance,
      January 1
            
            $
            (637
            )
            
            $
            (654
            )
            
            $
            (819
            )Recoveries
            
            
            637
            
            
            
            17
            
            
            
            165Balance,
      December 31
            
            $
            -
            
            
            $
            (637
            )
            
            $
            (654
            )





6.      Property,
Plant and Equipment, Net





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





2007
            
            
            2006Hydroelectric
      power facility
            
            $
            431,382
            
            
            $
            431,323Office
      and building structures
            
            
            1,199
            
            
            
            1,149Transportation
      and other equipment
            
            
            2,350
            
            
            
            1,781Total
      operating assets
            
            
            434,931
            
            
            
            434,253Accumulated
      depreciation
            
            
            (131,875
            )
            
            
            (110,050
            )Property,
      plant and equipment, net
            
            $
            303,056
            
            
            $
            324,203





7.      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 London Interbank Offering Rate (“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, 2007, the Series B Bonds had an effective
interest rate of 14.08%, inclusive of bond issue cost amortization.





The
repayment schedule of the Series B Bonds as of December 31, 2007 is as follows
(in thousands):





2008
            
            $
            37,7302009
            
            
            13,7202010
            
            
            17,150$
            68,600





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.





27




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 11 for a discussion of the fair value of the outstanding
Securities.





8.      Income
Taxes





During
the years ended December 31, 2007, 2006 and 2005, CE Casecnan incurred
$4.6 million, $2.3 million and $1.1 million, respectively, of
income taxes. Prior to the December 11, 2007, expiration of the income tax
holiday granted to the Company by the Philippine Board of Investments, income
taxes were incurred only on interest income earned outside the Philippines and
on other income not covered by the income tax holiday. The Company’s taxable
income from December 11, 2007 to December 31, 2008, is subject to
income tax at the Philippine statutory rate of 35% and 30% in 2009 and
thereafter. The Company’s deferred income tax asset of $5.2 million and $5.1
million as of December 31, 2007 and 2006, respectively, consists mainly of
the difference between the financial reporting basis and the tax reporting basis
for development and construction costs.





9.      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
$2.5 million and $41.0 million at December 31, 2007 and 2006,
respectively. Costs incurred by the Company in transactions with related parties
amounted to $1.4 million, $3.3 million and $1.4 million for the
years ended December 31, 2007, 2006 and 2005, respectively, and consist
primarily of cost allocations. On April 20, 2007, the Company repaid
$36.0 million of advances received from affiliates and henceforth, current
period advances are repaid in the following month.





As of
December 31, 2007 and 2006, the Company had outstanding $39.2 million
and $51.3 million, respectively, of unsecured subordinated notes payable to
CE Casecnan Ltd., a shareholder. 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, $5.3 million and $2.9 million for the
years ended December 31, 2007, 2006 and 2005, respectively. Any overdue
payment of principal or interest payable on the notes shall increase the annual
interest rate by two percentage points. At December 31, 2007, the effective
interest rate on the notes was 9.99%. The notes may be prepaid at any time
without premium or penalty but with accrued interest, if any. The 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.





On
May 15, 2007, CE Casecnan Ltd. demanded payment in full of the
outstanding principal amount of the notes and accrued interest. To the extent
that the Company does not have available cash from distributions from the
Distribution Fund under the Depositary Agreement (each, as defined in the
Subordination Agreement) to pay such amount in full, the Company shall be deemed
to have satisfied this demand by paying, to the extent of such available cash,
first accrued but unpaid interest on the outstanding principal amount of the
notes, and then the outstanding principal amount of the notes. To the extent
that such available cash is insufficient to pay any accrued interest and/or
outstanding principal, the Company shall not be deemed in default and such
amounts shall remain outstanding and payable pursuant to the terms of the notes
and the Subordination Agreement. In 2007, CE Casecnan repaid
$12.1 million of principal and the related accrued interest.
CE Casecnan intends to repay the notes and accrued interest within the next
twelve months. The Company expects to generate sufficient cash from operations,
after considering income taxes, to pay the notes and other short-term
obligations.




28




10.           Commitments
and Contingencies
 
 Shareholder
Litigation
 
 Pursuant
to the share ownership adjustment mechanism in the CE Casecnan shareholder
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 shareholder 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 3, 2006, the court entered a judgment
in favor of LPG against CE Casecnan Ltd. Pursuant to the judgment, 15% of
the distributions of the Company was deposited into escrow plus interest at 9%
per annum. On February 21, 2007, the appellate court issued a decision, and
as a result of the decision, CE Casecnan Ltd. determined that LPG would
retain ownership of 10% of the shares of the Company, with the remaining 5%
ownership being transferred to CE Casecnan Ltd. subject to certain buy-up
rights under the shareholder agreement. Pursuant to the appellate court
decision, on May 7, 2007, the Company released $21.7 million of
dividends and $3.8 million of accrued interest from the dividend set aside
account representing the 10% share to LPG while the remaining 5% share is still
held in escrow. The parties have agreed to stipulate that the final calculation
of the internal rate of return is 24.06%. At a hearing on
October 10, 2007, the court determined that LPG was ready, willing and
able to exercise its buy-up rights in 2007. Additional hearings were held on
October 23 and 24, 2007, regarding the issue of the buy-up price calculation and
a written decision was issued on February 4, 2008 specifying the method for
determining LPG’s buy-up price. A final judgment has not been issued on the
buy-up right and price and when issued will be subject to appeal. Exercise of
the buy-up rights under the shareholder agreement is a transaction between
shareholders of the Company and is not expected to have any impact on the
Company’s financial position or results of operations. LPG waived its request
for a jury trial for the breach of fiduciary duty claim and the parties have
entered into a stipulation which provides for a trial of such claim by the court
based on the existing record of the case. The trial date has been set for
March 12, 2008. MidAmerican intends to vigorously defend and pursue the
remaining claims.





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. Currently, the action is in the discovery phase and a
one-week trial has been set to begin on November 3, 2008. 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.





29




Concentration of
Risk





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 shareholders 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. To date, the
implementation of the EPIRA has not had an impact on the Company’s operations.
It is not known what impact, if any, the implementation of the EPIRA may have on
the Company’s future operations.


CE Casecnan
received franchise tax assessments for the years 2001 to 2006 totaling
$2.2 million from the Province of Nueva Vizcaya. CE Casecnan believes
that franchise tax is imposed on companies which have a secondary or special
franchise from the government. CE Casecnan is an independent power producer
and does not have a government franchise. The EPIRA provides that independent
power generation is not a public utility operation and does not require a
franchise. Therefore, the Company has not recognized a liability relating to
these assessments. CE Casecnan filed appeals of the assessments with the
Regional Trial Court of Nueva Vizcaya. The appeals were referred to the Supreme
Court Office of the Court Administrator and are currently pending.





11.           Fair
Value of Financial Instruments





The
carrying amounts of cash and cash equivalents, trade receivables and accounts
payable and other accrued liabilities approximate fair value because of the
short-term maturity of these instruments. Substantially all investments are
carried at their fair values, which are based on quoted market
prices.





The fair
value of the Company’s long-term debt has been estimated based upon quoted
market prices of similar types of arrangements as supplied by third-party broker
dealers. The following table presents the carrying amount and estimated fair
value of the Company’s long-term debt, including the current portion, as of
December 31 (in thousands):





2007
            
            
            2006Carrying
      Amount
            
            
            Fair
      Value
            
            
            Carrying
      Amount
            
            
            Fair
      ValueLong-term
      debt
            
            $
            68,600
            
            
            $
            73,814
            
            
            $
            106,330
            
            
            $
            113,773




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 $0.4 million if
interest rates were to increase by 10% from their levels at December 31,
2007. 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.





The
Company has outstanding $39.2 million of unsecured subordinated notes
payable to CE Casecnan Ltd., a shareholder, (see Note 9) 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.






30




12.           Operating
Lease Rentals and Service Income





The
following is the minimum lease rentals and service income to be received in the
next five years and thereafter on the noncancelable operating lease as of
December 31, 2007 (in thousands):





Years
      Ended
                December 31,
            
            Amount2008
            
            $
            88,0492009
            
            
            88,0492010
            
            
            88,0492011
            
            
            88,0492012
            
            
            88,0492013
      - 2021
            
            
            792,441





Variable
lease rentals and service income amounted to $36.7 million in 2007, $62.1
million in 2006 and $24.1 million in 2005.





31
 
  Item
9.                Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure.





None.


Item 9A(T).Controls
and Procedures.





Disclosure
Controls and Procedures





At the
end of the period covered by this Annual Report on Form 10-K, the Company
carried out an evaluation, under the supervision and with the participation of
the Company’s management, including the President (principal executive officer)
and the Chief Financial Officer (principal financial officer), of 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). Based upon that evaluation, the Company’s
management, including the President (principal executive officer) and the Chief
Financial Officer (principal financial officer), concluded that the Company’s
disclosure controls and procedures are effective in timely alerting them to
material information relating to the Company required to be included in the
Company’s periodic SEC filings. There has been no change in the Company’s
internal control over financial reporting during the quarter ended
December 31, 2007, that has materially affected, or is reasonably likely to
materially affect, the Company’s internal control over financial
reporting.





Management’s
Report on Internal Control over Financial Reporting





Management
of the Company is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in the Securities
Exchange Act of 1934 Rule 13a-15(f). Under the supervision and with the
participation of the Company’s management, including the President (principal
executive officer) and the Chief Financial Officer (principal financial
officer), the Company’s management conducted an evaluation of the effectiveness
of the Company’s internal control over financial reporting as of
December 31, 2007, as required by the Securities Exchange Act of 1934
Rule 13a-15(c). In making this assessment, the Company’s management used
the criteria set forth in the framework in “Internal Control - Integrated
Framework” issued by the Committee of Sponsoring Organizations of the Treadway
Commission.  .Based on the evaluation conducted under the framework in
“Internal Control - Integrated Framework,” the Company’s management concluded
that the Company’s internal control over financial reporting was effective as of
December 31, 2007.





This
report does not include an attestation report of the Company’s registered public
accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by the Company’s registered
public accounting firm pursuant to temporary rules of the SEC that permit the
Company to provide only management's report in this Annual Report on Form
10-K.





CE
Casecnan Water and Energy Company, Inc.


February
27, 2008




Item 9B.Other
Information.




None.








32





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 as of December 31, 2007:





Douglas
      L. Anderson
            
            49
            
            Director,
      ChairmanJoseph
      L. Sullivan
            
            53
            
            Director,
      President and General ManagerPatrick
      J. Goodman
            
            41
            
            Director,
      Senior Vice President and Chief Financial OfficerP.
      Eric Connor
            
            59
            
            DirectorBrian
      K. Hankel
            
            45
            
            Vice
      President and TreasurerScott
      LaPrairie
            
            50
            
            DirectorMitchell
      L. Pirnie
            
            49
            
            Vice
      President and General CounselEulogio
      Wilfredo G. Sarmago
            
            46
            
            DirectorTrinity
      S. Gatuz
            
            41
            
            DirectorBelinda
      E. Dugan
            
            39
            
            DirectorSuzy
      Lyn A. Bayona
            
            32
            
            DirectorPearl
      T. Liu
            
            52
            
            Corporate
      Secretary





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 Shareholders Agreement, CE Casecnan Ltd.
is entitled to elect seven of the directors, and each minority investor is
entitled to elect one director.





Douglas L. Anderson. In
addition to serving as Director and Chairman for the Company, Mr. Anderson has
been Senior Vice President, General Counsel and Corporate Secretary of
MidAmerican since 2001. Mr. Anderson joined MidAmerican in 1993. Mr. Anderson is
also 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.





Patrick J. Goodman. In
addition to serving as Director, Senior Vice President and Chief Financial
Officer for the Company, Mr.
Goodman has been Senior Vice President and Chief Financial Officer of
MidAmerican since 1999. Mr. Goodman joined MidAmerican in 1995. Mr. Goodman is
also a director of PacifiCorp.





P. Eric Connor. In addition to
serving as director of the Company, Mr. Connor has been Senior Vice President
and Chief Procurement Officer of MidAmerican since 2003.  From 1999 to
2003, Mr. Connor served as President and Chief Operating Officer of Northern
Electric, an affiliate of the Company. Mr. Connor joined MidAmerican in
1992.





Brian K. Hankel. In addition
to serving as Vice President and Treasurer for the Company, Mr. Hankel has been
Vice President and Treasurer for MidAmerican since 1997. Mr. Hankel joined
MidAmerican in 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 1997.





Eulogio Wilfredo G. Sarmago.
In addition to serving as a Director of the Company, Mr. Sarmago has been Plant
Manager of the Company since September 2005. Prior to his assignment at CE
Casecnan, Mr. Sarmago was plant manager of an affiliated company, Visayas
Geothermal Power Company.





Trinity S. Gatuz. In addition
to serving as a Director of the Company, Ms. Gatuz has been Vice President for
the Company and its affiliates since 2004.


33








Belinda E. Dugan. In addition
to serving as a Director of the Company, Ms. Dugan has been Corporate Counsel
for the Company since January 1, 2008. Ms. Dugan served as Legal Counsel for the
Company and certain of its affiliates from 2003 to 2007.





Suzy Lyn A. Bayona. In
addition to serving as a Director of the Company, Ms. Bayona has been Senior
Accountant for the Company and certain of its affiliates since
2002.





Pearl T. Liu. In addition to
serving as Corporate Secretary for the Company since May 13, 2005, Ms. Liu heads
the Corporate and Commercial Practice Group of Quisumbing Torres.





Audit
Committee Matters





During
the fiscal year ended December 31, 2007 and as of the date of this Annual
Report on Form 10-K, 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 and accounting 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.





34


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





Description
of Capital Stock





As of
December 31, 2007, 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, 2007
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 shareholders for
a vote.





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





Principal
Shareholders





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
      ofName
      and Address of Owner
            
            Shares
      Owned*
            
            %
      of Common1.         CE
      Casecnan II, Inc.
            
            537,005
            
            70%
      (1)2.         CE
      Casecnan Ltd.
            
            153,432
            
            20%
      (2)
      (3)3.         LaPrairie
      Group Contractors
            
            76,716
            
            10%
      (2)





*
            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 indirect, wholly- owned
      subsidiaries of  MidAmerican.(2)
            Refer
      to Note 10 of Notes to Financial Statements included in Item 8 of
      this Form 10-K for additional information regarding shareholder
      litigation.(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
      Shareholders Agreement. San Lorenzo retained an option to repurchase the
      115,000 shares, if any, remaining after such ownership adjustment. Refer
      to Note 10 of Item 8 of this Form 10-K for additional
      information regarding shareholder
litigation.





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





Not
applicable.





35


Item
14.           Principal
Accountant Fees and Services.





The
following table shows the Company’s fees paid or accrued for audit and
audit-related services and fees paid for tax and all other services rendered by
Isla Lipana & Co., (a PricewaterhouseCoopers Member Firm) for each of the
last two years. The audit committee of MidAmerican reviewed and approved the
services rendered by Isla Lipana & Co. in and for fiscal 2007 as set forth
in the table below and concluded that the non-audit services were compatible
with maintaining the principal accountant’s independence.








2007
            
            
            2006(in
      thousands)Audit
      Fees (1)
            
            $
            252
            
            
            $
            63Audit-Related
      Fees (2)
            
            
            -
            
            
            
            5Tax
      Fees (3)
            
            
            19
            
            
            
            36All
      Other Fees
            
            
            -
            
            
            
            -Total
      aggregate fees billed
            
            $
            271
            
            
            $
            104





(1)
            Audit
      fees include fees for the audit of the Company’s financial statements and
      interim reviews of the Company’s quarterly financial statements and for
      services provided in connection with statutory and regulatory filings or
      engagements.(2)
            Audit-related
      fees primarily include fees for assurance and related services for audits
      of employee benefit plans, due diligence for possible acquisitions and
      consultation on various accounting and regulatory
rules.(3)
            Tax
      fees include fees for services relating to tax compliance, tax planning
      and tax advice. These services include assistance regarding tax
      compliance, tax return preparation and tax audits.





36


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.





37


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 27, 2008.








CE
      CASECNAN WATER AND ENERGY COMPANY, INC.By:
            /s/ * Joseph L.
      SullivanJoseph
      L. SullivanPresident(principal
      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
      27, 2008Joseph
      L. Sullivan
            
            (principal
      executive officer)/s/  Patrick
      J. Goodman*
            
            Director,
      Senior Vice President and Chief Financial Officer
            
            February
      27, 2008Patrick
      J. Goodman
            
            (principal
      financial and accounting officer)/s/  Douglas
      L. Anderson
            
            Director,
      Senior Vice President, General Counsel
            
            February
      27, 2008Douglas
      L. Anderson
            
            and
      Assistant Secretary/s/  Eulogio
      Wilfredo G. Sarmago*
            
            Director
            
            February
      27, 2008Eulogio
      Wilfredo G. Sarmago/s/  Trinity
      S. Gatuz*
            
            Director
            
            February
      27, 2008Trinity
      S. Gatuz/s/  Belinda E.
      Dugan*
            
            Director
            
            February
      27, 2008Belinda
      E. Dugan/s/  Suzy
      Lyn A. Bayona*
            
            Director
            
            February
      27, 2008Suzy
      Lyn A. Bayona/s/  P.
      Eric Connor*
            
            Director
            
            February
      27, 2008P.
      Eric ConnorScott
      LaPrairie
            
            Director
            
            February
      27, 2008*By:           /s/  Douglas L.
      AndersonDouglas
      L. AndersonAttorney-in-Fact








38


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





39





Exhibit
      No.31.1
            Principal
      Executive Officer Certification Pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.31.2
            Principal
      Financial Officer Certification Pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.32.1
            Principal
      Executive Officer Certification Pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002.32.2
            Principal
      Financial Officer Certification Pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002.




40