UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 10-K

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

                   For the fiscal year ended December 31, 2002

                          Commission File No. 333-89521

                               CE GENERATION, LLC
             (Exact name of registrant as specified in its charter)

         Delaware                                      47-0818523
         --------                                  -------------------
  (State or other jurisdiction of                   (I.R.S. Employer
  Incorporation or organization)                   Identification No.)

  302 South 36th Street, Suite 400 Omaha,                 68131
  ----------------------------------------                -----
  (Address of principal executive offices)              (Zip Code)

     Registrant's telephone number, including area code: (402) 341-4500
                                                         --------------

         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  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 [X] No [ ]

     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 each of the  registrants'  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. [ ]

     Indicate by check mark whether the registrant is an  accelerated  filer (as
     defined by Rule 12b-2 of the Act). Yes [ ] No [X]

     The members'  equity  accounts are held 50% by MidAmerican  Energy Holdings
     Company and 50% by TransAlta USA Inc. as of March 28, 2003.


<PAGE>

                                TABLE OF CONTENTS

                                     PART I

Item 1.       Business ..................................................    3
Item 2.       Properties ................................................   12
Item 3.       Legal Proceedings..........................................   13
Item 4.       Submission of Matters to a Vote of Security Holders........   14

                                     PART II

Item 5.       Market for Registrant's Common Equity and Related
                Stockholder's Matters ...................................   15
Item 6.       Selected Financial Data ...................................   16
Item 7.       Management's Discussion and Analysis of Financial
                Condition and Results of Operations .....................   17
Item 7A.      Quantitative and Qualitative Disclosures About Market Risk.   25
Item 8.       Financial Statements and Supplementary Data ...............   26
Item 9.       Changes in and Disagreements with Accountants on Accounting
                and Financial Disclosure Data............................   51

                                    PART III

Item 10.      Directors and Executive Officers of the Registrant.........   52
Item 11.      Executive Compensation ....................................   53
Item 12.      Security Ownership of Certain Beneficial Owners and
                Management and Related Stockholder Matters...............   53
Item 13.      Certain Relationships and Related Transactions ............   53
Item 14.      Controls and Procedures....................................   54

                                     PART IV

Item 15.      Exhibits, Financial Statement Schedules, and Reports on
                Form 8-K ................................................   55

SIGNATURES...............................................................   57
CERTIFICATIONS...........................................................   58
Exhibit Index ...........................................................   60

                                      -2-
<PAGE>

                                     PART I

                 DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

This report contains  statements  that do not directly or exclusively  relate to
historical facts. These statements are  "forward-looking  statements" within the
meaning  of the  Private  Securities  Litigation  Reform  Act of  1995.  You can
typically  identify  forward-looking  statements  by the use of  forward-looking
words,  such as "may",  "will",  "could",  "project",  "believe",  "anticipate",
"expect", "estimate",  "continue",  "potential",  "plan", "forecast" and similar
terms.  These  statements  represent CE  Generation,  LLC's  intentions,  plans,
expectations  and  beliefs  and are  subject to risks,  uncertainties  and other
factors.  Many of these  factors are outside CE  Generation,  LLC's  control and
could  cause  actual  results  to differ  materially  from such  forward-looking
statements. These factors include, among others:

     o    general economic and business conditions in the jurisdictions in which
          CE Generation, LLC's facilities are located;

     o    governmental,  statutory,  regulatory  or  administrative  initiatives
          affecting CE Generation, LLC or the power generation industries;

     o    weather effects on sales and revenues;

     o    general industry trends;

     o    increased competition in the power generation industry;

     o    availability of qualified personnel;

     o    financial or regulatory  accounting  principles or policies imposed by
          the  Public  Company   Accounting   Oversight   Board,  the  Financial
          Accounting  Standards  Board  ("FASB"),  the  Securities  and Exchange
          Commission ("SEC") and similar entities with regulatory oversight; and

     o    other business  considerations that may be disclosed from time to time
          in CE Generation,  LLC's SEC filings or in other publicly disseminated
          written documents.

CE  Generation,  LLC  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.

ITEM 1.  BUSINESS.

GENERAL

CE Generation,  LLC ("CE  Generation" or the "Company"),  is a Delaware  limited
liability  company  created by MidAmerican  Energy  Holdings  Company ("MEHC" or
"MidAmerican")  on February 8, 1999, for the sole purpose of issuing  securities
and holding the equity  investments in certain  subsidiaries.  On March 3, 1999,
MEHC  sold  50% of  its  ownership  interest  in CE  Generation  to El  Paso  CE
Generation Holding Company,  which was subsequently merged into El Paso Merchant
Energy  North  America  Company  ("EPME")  on  December  31,  2000,  an indirect
subsidiary of El Paso  Corporation  ("El Paso").  On January 29, 2003, EPME sold
all its  interest in CE  Generation  to  TransAlta  USA Inc.  ("TransAlta"),  an
affiliate of TransAlta Corporation (TransAlta and EPME are sometimes referred to
individually as the "Class A Holder").

Due to the then  pending  merger  of MEHC  with an  electric  utility,  MEHC was
required to divest a portion of its ownership  interests in the Company's  power
projects  in  order to  permit  those  projects  to  maintain  their  status  as
qualifying  facilities ("QFs") under the Public Utility Regulatory  Policies Act
of 1978  ("PURPA").  This law requires that a non-electric  utility own at least
50% of a QF.  The sale to  EPME,  which  did not own an  electric  utility,  was
intended  to permit the  Company's  power  projects  to satisfy  this  ownership
requirement. By maintaining QF status, the Company's power projects are entitled
to an exemption  from federal and state utility  regulation  under PURPA and are
able to maintain  compliance with the provisions of their current power purchase
agreements which require that they be QFs during the term of those agreements.

                                      -3-
<PAGE>

The  Company's  limited  liability  company  operating  agreement  provides that
MidAmerican and the Class A Holder,  currently  TransAlta,  each are entitled to
appoint 50% of the directors and are entitled to 50% of the  distributions  made
by the Company.

CE  Generation  owns all of the common stock  interests  in Magma Power  Company
("Magma"),  FSRI  Holdings,  Inc.  ("FSRI") and  California  Energy  Development
Corporation  ("CEDC")  and their  subsidiaries.  Through  its  subsidiaries,  CE
Generation is primarily  engaged in the development,  ownership and operation of
environmentally  responsible  independent  power  production  facilities  in the
United States utilizing geothermal and natural gas resources.

The  principal  executive  office of CE  Generation is located at 302 South 36th
Street, Omaha, Nebraska 68131 and its telephone number is (402) 341-4500.

In this Annual  Report  references  to MW means  megawatts,  MWh means  megawatt
hours,  kW means  kilowatts,  kWh means  kilowatt hours and MMBtus means million
British thermal units.

                                      -4-

<PAGE>

THE PROJECTS

CE Generation  has an aggregate  net ownership  interest of 757 MW of electrical
generating  capacity in power plants in operation  in the United  States,  which
have an aggregate net capacity of 817 MW. Set forth below is a table  describing
certain characteristics of CE Generation's projects as of December 31, 2002:

 <TABLE>
<CAPTION>

                                                                       POWER
                                FACILITY NET                          PURCHASE
                                  CAPACITY     NET MW                AGREEMENT
     OPERATING PROJECT            (MW)(1)     OWNED(1)  LOCATION     EXPIRATION     POWER PURCHASER(2)
------------------------------- ------------  --------  --------     ----------     ------------------

<S>                                <C>          <C>     <C>          <C>            <C>
GEOTHERMAL FACILITIES:
 Salton Sea Projects
  Salton Sea I.................     10           10     California      2017             Edison
  Salton Sea II................     20           20     California      2020             Edison
  Salton Sea III...............     50           50     California      2019             Edison
  Salton Sea IV................     40           40     California      2026             Edison
  Salton Sea V.................     49           49     California   Year-to-year   El Paso/Minerals(3)
                                   ---          ---
   Total Salton Sea Projects...    169          169
                                   ---          ---
Partnership Projects
 Vulcan........................     34           34     California      2016             Edison
 Elmore........................     38           38     California      2018             Edison
 Leathers......................     38           38     California      2019             Edison
 Del Ranch.....................     38           38     California      2019             Edison
 CE Turbo......................     10           10     California   Year-to-year   El Paso/Minerals(3)
                                   ---          ---
  Total Partnership Projects...    158          158
                                   ---          ---
 Total geothermal facilities...    327          327
                                   ---          ---
GAS FACILITIES:
 Saranac.......................    240          180      New York       2009             NYSEG
 Power Resources...............    200          200        Texas        2003              TXU
 Yuma..........................     50           50       Arizona       2024             SDG&E
                                   ---          ---
Total gas facilities...........    490          430
                                   ---          ---
TOTAL OPERATING PROJECTS.......    817          757
                                   ===          ===
</TABLE>

(1)  Actual MW may vary  depending on operating  and  reservoir  conditions  and
     plant  design.  Facility  Net Capacity (in MW)  represents  facility  gross
     capacity (in MW) less parasitic load.  Parasitic load is electrical  output
     used by the facility and not made  available for sale to utilities or other
     outside purchasers. Net MW owned indicates current legal ownership, but, in
     some  cases,  does  not  reflect  the  current  allocation  of  partnership
     distributions.

(2)  Southern  California  Edison Company  ("Edison");  El Paso Corporation ("El
     Paso");  CalEnergy  Minerals LLC  ("Minerals"),  a Zinc Facility owned by a
     subsidiary  of  MidAmerican;  New York  State  Electric  & Gas  Corporation
     ("NYSEG");  TXU Generation Company LP ("TXU"); and San Diego Gas & Electric
     Company ("SDG&E").

(3)  Each contract  governing  power  purchases by Minerals will expire 33 years
     from the date of the initial power delivery  under such contract.  Pursuant
     to a Transaction  Agreement  dated  January 29, 2003,  Salton Sea Power LLC
     ("Salton Sea Power") and CE Turbo LLC ("CE Turbo") began selling  available
     power to  TransAlta on February  12, 2003 based on  percentages  of the Dow
     Jones SP-15 Index. Such agreement will expire on October 31, 2003.

                                      -5-

<PAGE>

GEOTHERMAL FACILITIES

CE Generation  affiliates currently operate ten geothermal plants (the "Imperial
Valley  Projects")  in the  Imperial  Valley  in  California.  The  "Salton  Sea
Projects" consist of the Salton Sea I, Salton Sea II, Salton Sea III, Salton Sea
IV and Salton Sea V Projects  (the  "Salton Sea I  Project",  the "Salton Sea II
Project",  the "Salton Sea III  Project,"  the "Salton Sea IV Project,"  and the
"Salton Sea V Project" respectively).  The "Partnership Projects" consist of the
Vulcan, Elmore, Leathers, Del Ranch and CE Turbo projects (the "Vulcan Project,"
the "Elmore Project",  the "Leathers Project",  the "Del Ranch Project," and the
"CE Turbo  Project"  respectively).  The CE Turbo  Project  and the Salton Sea V
Project commenced commercial operations in 2000.

Each of the Imperial  Valley  Projects,  excluding the Salton Sea V and CE Turbo
Projects,  sells electricity to Edison pursuant to a separate Standard Offer No.
4 Agreement ("SO4  Agreement") or a negotiated  power purchase  agreement.  Each
power  purchase  agreement is  independent  of the others,  and the  performance
requirements  specified  within one such  agreement  apply only to the  project,
which is subject to the  agreement.  The power purchase  agreements  provide for
energy  payments,  capacity  payments and capacity bonus payments.  Edison makes
fixed annual  capacity  payments and capacity  bonus  payments to the applicable
projects to the extent that capacity  factors  exceed  certain  benchmarks.  The
price  for  capacity  was  fixed  for  the  life of the  SO4  Agreements  and is
significantly higher in the months of June through September.

Energy  payments for the SO4 Agreements  were at increasing  fixed rates for the
first ten years after firm  operation and thereafter at a rate based on the cost
that Edison  avoids by purchasing  energy from the project  instead of obtaining
the energy from other sources  ("Avoided Cost of Energy").  In June and November
2001,  the Imperial  Valley  Projects,  which receive  Edison's  Avoided Cost of
Energy,  entered into  agreements that provide for amended energy payments under
the SO4 Agreements.  The amendments provide for fixed energy payments per kWh in
lieu of Edison's Avoided Cost of Energy. The fixed energy payment was 3.25 cents
per kWh from  December 1, 2001 through  April 30, 2002 and is 5.37 cents per kWh
commencing May 1, 2002 for a five-year  period.  Following the five-year period,
the energy payments revert back to Edison's Avoided Cost of Energy.

For the years ended  December 31, 2002,  2001 and 2000,  respectively,  Edison's
Average  Avoided Cost of Energy was 3.5 cents per kWh, 7.4 cents per kWh and 5.8
cents per kWh, respectively. Estimates of Edison's future Avoided Cost of Energy
vary substantially from year to year.

The Salton Sea I Project  contracts to sell  electricity to Edison pursuant to a
30-year  negotiated  power purchase  agreement,  which commenced on July 1, 1987
(the "Salton Sea I PPA"). The contract capacity and contract  nameplate are each
10 MW. The capacity  payment is based on the firm capacity price,  which adjusts
quarterly  based on a basket of energy  indices for the term of the Salton Sea I
PPA and is currently $154.45 per kW-year.  The capacity payment is approximately
$1.1  million per annum.  The energy  payment is  calculated  using a Base Price
(defined as the initial  value of the energy  payment (4.7 cents per kWh for the
second quarter of 1992)),  which is subject to quarterly  adjustments based on a
basket of indices.  The time period  weighted  average energy payment for Salton
Sea I was 5.8 cents per kWh during  2002.  As the Salton Sea I PPA is not an SO4
Agreement, the energy payments do not revert to Edison's Avoided Cost of Energy.

The Salton Sea II Project  contracts to sell electricity to Edison pursuant to a
30-year  modified SO4 Agreement  that  commenced on April 5, 1990.  The contract
capacity and contract  nameplate are 15 MW (16.5 MW during on-peak  periods) and
20 MW, respectively. The price for contract capacity and contract capacity bonus
payments  is fixed  for the  life of the  modified  SO4  Agreement.  The  annual
capacity and bonus payments are approximately $3.3 million.  The energy payments
for the first  ten-year  period,  which  period  expired on April 4, 2000,  were
levelized at a time period weighted  average of 10.6 cents per kWh.  Thereafter,
the monthly energy payment was based on Edison's Avoided Cost of Energy.  Edison
is entitled to receive,  at no cost, 5% of all energy delivered in excess of 80%
of contract capacity through September 30, 2004.

The Salton Sea III Project contracts to sell electricity to Edison pursuant to a
30-year modified SO4 Agreement that commenced on February 13, 1989. The contract
capacity and contract nameplate are 47.5 MW and 49.8 MW, respectively. The price
for contract  capacity payments and capacity bonus payments is fixed at $175 per
kW per year.  The annual  capacity  and bonus  payments are  approximately  $9.7
million. The energy payments for the first ten-year period, which period expired
on February 12, 1999,  were levelized at a time period  weighted  average of 9.8
cents per kWh. Thereafter, the energy payment has been based on Edison's Avoided
Cost of Energy.

                                      -6-
<PAGE>

The Salton Sea IV Project  contracts to sell electricity to Edison pursuant to a
modified SO4 Agreement which provides for contract capacity payments on 34 MW of
capacity at two  different  rates based on the  respective  contract  capacities
deemed  attributable  to the original Salton Sea I PPA option (20 MW) and to the
original  Salton Sea IV SO4  Agreement  ("Fish Lake PPA") (14 MW).  The capacity
payment  price for the 20 MW portion  adjusts  quarterly  based  upon  specified
indices  and  the  capacity  payment  price  for  the 14 MW  portion  is a fixed
levelized  rate.  The  capacity and bonus  payments in 2002,  2001 and 2000 were
approximately  $5.5 million,  $5.7 million and $5.4 million,  respectively.  The
energy  payment  (for  deliveries  up to a rate of 39.6 MW) is at a base  price,
adjusted  quarterly  based on specified  indices,  for 55.6% of the total energy
delivered by Salton Sea IV and is based on an energy payment  schedule for 44.4%
of the total energy  delivered by Salton Sea IV. The contract has a 30-year term
but  Edison  is not  required  to  purchase  the 20 MW of  capacity  and  energy
originally attributable to the Salton Sea I PPA option after September 30, 2017,
the original termination date of the Salton Sea I PPA.

The Salton Sea V Project,  which  commenced  operations  in the third quarter of
2000,  expects to sell up to 22 MW of its net output to Minerals,  pursuant to a
33 year power sales agreement.  The agreement provides for energy payments based
on the market rates available to the Salton Sea V Project, adjusted for wheeling
costs.  The Salton Sea V Project sells its remaining output through other market
transactions.

The Vulcan Project  contracts to sell  electricity to Edison under a 30-year SO4
Agreement that commenced on February 10, 1986. The Vulcan Project has a contract
capacity and contract nameplate of 29.5 MW and 34 MW,  respectively.  The annual
capacity and bonus payments are approximately $5.5 million.

The Elmore Project  contracts to sell  electricity to Edison under a 30-year SO4
Agreement that commenced on January 1, 1989. The contract  capacity and contract
nameplate  are 34 MW and 38 MW,  respectively.  The  annual  capacity  and bonus
payments are approximately $7.9 million.

The Leathers  Project  contracts  to sell  electricity  to Edison  pursuant to a
30-year SO4 Agreement that  commenced on January 1, 1990. The contract  capacity
and contract  nameplate are 34 MW and 38 MW,  respectively.  The annual capacity
and bonus payments are approximately  $7.5 million.  The energy payment is based
on Edison's Avoided Cost of Energy.

The Del Ranch Project  contracts to sell  electricity  to Edison under a 30-year
SO4  Agreement  that  commenced on January 2, 1989.  The  contract  capacity and
contract  nameplate are 34 MW and 38 MW,  respectively.  The annual capacity and
bonus payments are approximately $7.9 million.

The CE Turbo Project,  which commenced commercial operation in the third quarter
of 2000, sells its output through market transactions.  The CE Turbo Project may
sell its output to Minerals, pursuant to a 33 year power purchase agreement. The
agreement  provides for energy  payments based on the market rates  available to
the CE Turbo Project, adjusted for wheeling costs.

Commencing January 17, 2001, Salton Sea Power and CE Turbo entered into a series
of transaction  agreements to sell available  power from the Salton Sea V and CE
Turbo Projects to EPME based on day ahead price quotes  received from EPME under
the original  agreement  and based on  percentages  of the Dow Jones SP-15 Index
thereafter.  Pursuant to a Transaction  Agreement dated January 29, 2003, Salton
Sea Power and CE Turbo began  selling  available  power to TransAlta on February
12, 2003 based on percentages of the Dow Jones SP-15 Index.  Such agreement will
expire on October 31, 2003.

The  Imperial  Valley  Projects,  other than the  Salton Sea I Project,  receive
transmission   service  from  the  Imperial   Irrigation   District  to  deliver
electricity to Edison near Mirage,  California.  These projects pay a rate based
on the Imperial Irrigation District's cost of service, which was $1.70 per month
per  kilowatt  of  service  provided  for 2002 and  recalculated  annually.  The
transmission  service  and  interconnection  agreements  expire  in 2015 for the
Partnership  Projects,  2019 for the Salton Sea III Project, 2020 for the Salton
Sea II Project and 2026 for the Salton Sea IV  Project.  The Salton Sea V and CE
Turbo Projects have entered into 30-year  agreements with similar terms with the
Imperial Irrigation District. The Salton Sea I Project delivers energy to Edison
at the project site and has no transmission  service agreement with the Imperial
Irrigation District.

                                      -7-
<PAGE>

GAS FACILITIES

The  Saranac  Project is a 240 net MW natural  gas-fired  cogeneration  facility
located in Plattsburgh, New York, which began commercial operation in June 1994.
The Saranac  Project has entered into a 15-year power  purchase  agreement  (the
"Saranac PPA") with New York State Electric & Gas ("NYSEG"). The Saranac Project
has entered into 15-year steam purchase  agreements (the "Saranac Steam Purchase
Agreements") with  Georgia-Pacific  Corporation and Tenneco Packaging,  Inc. The
Saranac  Project has a 15-year  natural gas supply  contract  (the  "Saranac Gas
Supply  Agreement") with Shell Canada Limited ("Shell Canada") to supply 100% of
the  Saranac  Project's  fuel  requirements.  Shell  Canada is  responsible  for
production and delivery of natural gas to the U.S.-Canadian  border;  the gas is
then  transported  by the North  Country Gas Pipeline  Corporation  ("NCGP") the
remaining 22 miles to the plant.  NCGP is a  wholly-owned  subsidiary of Saranac
Power Partners,  L.P. (the "Saranac  Partnership")  and the Saranac  Partnership
also  owns  the  Saranac  Project.  NCGP  also  transports  gas  for  NYSEG  and
Georgia-Pacific Corporation. Each of the Saranac PPA, the Saranac Steam Purchase
Agreements  and the Saranac Gas Supply  Agreement  contains rates that are fixed
for the  respective  contract  terms.  The 2002 Saranac PPA rates  escalate at a
higher  percentage  than the Saranac  Gas Supply  Agreement  rates.  The Saranac
Partnership  is indirectly  owned by  subsidiaries  of CE  Generation,  ArcLight
Capital Holdings ("ArcLight") and General Electric Capital Corporation.

The Yuma Project is a 50 net MW natural gas-fired  cogeneration project in Yuma,
Arizona  providing  50 MW of  electricity  to San Diego Gas &  Electric  Company
("SDG&E")  under an  existing  30-year  power  purchase  contract  ("Yuma  PPA")
commencing in May 1994. The energy is sold at SDG&E's Avoided Cost of Energy and
the capacity is sold to SDG&E at a fixed price for the life of the Yuma PPA. The
annual capacity payments are approximately $8.4 million. The power is wheeled to
SDG&E over  transmission  lines  constructed and owned by Arizona Public Service
Company ("APS").  The project entity, Yuma Cogeneration  Associates ("YCA"), has
executed  steam sales  contracts  with Queen Carpet,  Inc. to act as its thermal
host. Since the industrial entity has the right under its agreement to terminate
the agreement  upon one year's notice if a change in its  technology  eliminates
its need for steam,  and in any case to terminate the agreement at any time upon
three  years  notice,  there  can be no  assurance  that the Yuma  Project  will
maintain its status as a Qualified Facility,  ("QF"). However, if the industrial
entity terminates the agreement,  YCA anticipates that it will be able to locate
an  alternative  thermal host in order to maintain its status as a QF. A natural
gas supply and  transportation  agreement has been  executed with  Southwest Gas
Corporation,  terminable  under certain  circumstances  by YCA and Southwest Gas
Corporation.

The Power  Resources  Project  is a 200 net MW  natural  gas-fired  cogeneration
project  located  near Big Spring,  Texas,  which has a 15-year  power  purchase
agreement (the "Power  Resources  PPA") with Texas  Utilities  Electric  Company
which expires in September  2003. The Power Resources  Project began  commercial
operation  in June 1988.  The Power  Resources  Project is a QF and the  project
entity, Power Resources Ltd. ("Power  Resources"),  entered into a 15-year steam
purchase  agreement (the "Power  Resources Steam Purchase  Agreement") with Fina
Oil and Chemical  Company  ("Fina"),  a subsidiary of Petrofina S.A. of Belgium.
Power Resources entered into an agreement (the "CE Texas Gas Supply  Agreement")
with CE Texas Gas L.P. ("CE Texas Gas") an indirect  wholly owned  subsidiary of
CE Generation,  for Power Resources' fuel requirements through December 2003. In
June 1995, CE Texas Gas and Louis Dreyfus  Natural Gas  Corporation  ("Dreyfus")
executed an eight-year  natural gas supply agreement (the "CE Texas  Gas-Dreyfus
Gas  Supply  Agreement"),  with  which CE  Texas  Gas will  fulfill  its  supply
commitment  to the Power  Resources  Project from October 1995 to the end of the
term of the Power  Resources  PPA.  Each of the Power  Resources  PPA, the Power
Resources  Steam  Purchase  Agreement  and the CE  Texas  Gas  Supply  Agreement
contains  rates  that are fixed for the  respective  contract  terms.  The Power
Resources  PPA rates  escalate  at a higher  rate  than the CE Texas Gas  Supply
Agreement rates.  Depending upon several market  variables,  the Power Resources
Project could continue  operation  after the  expiration of the Power  Resources
PPA.  On  December  30,  2002,  Power  Resources  obtained  an exempt  wholesale
generator order from the Federal Energy Regulatory Commission.  The status as an
exempt wholesale  generator would facilitate the Power Resources  Project energy
sales in market transactions.

                                      -8-

<PAGE>

                          DESCRIPTION OF THE SECURITIES

The following is a description of important  provisions of the  Securities.  The
following  information  does not  purport  to be a complete  description  of the
Securities and is subject to, and qualified in its entirety by, reference to the
Securities  and  the  indenture.   Unless  otherwise  specified,  the  following
description applies to all of the Securities.

GENERAL

On March 2, 1999, CE  Generation  issued  securities in the aggregate  principal
amount of $400 million,  bearing  interest from their date of issuance at 7.416%
per annum and  finally  maturing on December  15, 2018 (the  "Securities").  The
Securities  are direct senior  obligations  of CE  Generation,  issued under the
indenture for the Securities and secured by the collateral.

The indenture  provides for the issuance of the  Securities  and other series of
senior  notes  or  securities  as from  time to time  may be  authorized  by the
Company, subject to the limitations set forth in the indenture.

COLLATERAL FOR THE SECURITIES

The Securities are secured by the following  collateral:  (a) all available cash
flow of the assigning  subsidiaries  deposited with the  depository  bank; (b) a
pledge of 99% of the equity interests in Salton Sea Power Company and all of the
equity interests in CE Texas Gas LLC, the assigning subsidiaries, and California
Energy  Yuma  Corporation;  (c) a  pledge  of all of the  capital  stock of SECI
Holdings Inc.; (d) a grant of a lien on and security  interest in the depository
accounts;  and  (e) a  grant  of a lien on and  security  interest  in all of CE
Generation's  other  tangible  and  intangible  property,  to the  extent  it is
possible to grant a lien on the property.

PAYMENT OF INTEREST AND PRINCIPAL

INTEREST

Interest on the  Securities is payable  semiannually  in arrears on each June 15
and  December  15 to the  registered  holders  at the close of  business  on the
preceding June 1 or December 1. Interest is calculated on the basis of a 360-day
year, consisting of twelve 30-day months.

                                      -9-

<PAGE>

PRINCIPAL

The  remaining  balance  of the $400  million  initial  principal  amount of the
Securities  due  December  15, 2018 is payable in  semiannual  installments,  as
follows:
                                                    PERCENTAGE OF
                                                  INITIAL PRINCIPAL
                            PAYMENT DATE           AMOUNT PAYABLE
                       -------------------------  -----------------

                       June 15, 2003 ...........      2.25%
                       December 15, 2003 .......      2.25%
                       June 15, 2004 ...........      1.83%
                       December 15, 2004 .......      1.83%
                       June 15, 2005 ...........      1.85%
                       December 15, 2005 .......      1.85%
                       June 15, 2006 ...........      2.40%
                       December 15, 2006 .......      2.40%
                       June 15, 2007 ...........      2.25%
                       December 15, 2007 .......      2.25%
                       June 15, 2008 ...........      3.53%
                       December 15, 2008 .......      3.53%
                       June 15, 2009 ...........      3.08%
                       December 15, 2009 .......      3.08%
                       June 15, 2010 ...........      1.78%
                       December 15, 2010 .......      1.78%
                       June 15, 2011 ...........      1.90%
                       December 15, 2011 .......      1.90%
                       June 15, 2012 ...........      2.56%
                       December 15, 2012 .......      2.56%
                       June 15, 2013 ...........      2.55%
                       December 15, 2013 .......      2.55%
                       June 15, 2014 ...........      3.23%
                       December 15, 2014 .......      3.23%
                       June 15, 2015 ...........      3.38%
                       December 15, 2015 .......      3.38%
                       June 15, 2016 ...........      3.66%
                       December 15, 2016 .......      3.66%
                       June 15, 2017 ...........      3.78%
                       December 15, 2017 .......      3.78%
                       June 15, 2018 ...........      4.55%
                       December 15, 2018 .......      4.55%

PRIORITY OF PAYMENTS

All  available  cash  flows  received  by CE  Generation  shall be paid into the
Revenue  Account  maintained  by a  Depository.  Amounts  paid into the  Revenue
Account shall be  distributed in the following  order:  (a) to pay operating and
administrative  costs of CE Generation and it's  subsidiaries,  excluding  those
costs payable to affiliated  parties unless such costs are incurred on behalf of
the  Company;  (b) to pay  certain  administrative  costs of the  agents for the
secured parties under the Financing Documents;  (c) to pay principal of, premium
(if any) and interest on the Securities and the Debt Service  Reserve Bonds,  if
any, and  interest  and certain  fees  payable to the Debt  Service  Reserve LOC
provider;  (d) to pay  principal of Debt  Service  Reserve LOC Loans and certain
related fees and charges;  (e) to  replenish  any  shortfall in the Debt Payment
Account; (f) to replenish any shortfall in the Debt Service Reserve Account; (g)
to pay any remaining amounts to the Distribution Suspense Account.

                                      -10-
<PAGE>

DEBT SERVICE RESERVE ACCOUNT

A Debt Service  Reserve Fund for the benefit of the Security  Holders  issued by
Credit  Suisse First  Boston and Lehman  Commercial  Paper Inc.,  which has been
funded by a Debt Service Reserve Letter of Credit Provider has been  established
under the Depository  Agreement.  If the amounts available to be drawn under the
Debt  Service  Reserve  Letter of Credit and all other  amounts held in the Debt
Service  Reserve  Account  from time to time do not equal the then  current debt
service reserve required balance,  the Debt Service Reserve Fund shall be funded
from the Revenue Account subject to the funding of requests described above. The
debt service reserve required balance on any date equals the maximum  semiannual
principal and interest payment due on the Securities for the remaining term. Any
Debt Service Reserve Letter of Credit must be issued by a financial  institution
rated at least "A" by S&P and "A2" by Moody's.

OPTIONAL REDEMPTION

The Securities are subject to optional  redemption,  in whole or in part, at any
time on any  business  day,  at a price  equal to the  redemption  price  plus a
premium  calculated to "make whole" to comparable U.S. Treasury  Securities plus
50 basis points.

MANDATORY REDEMPTION--AT PAR

The Securities are subject to mandatory redemption, at par plus accrued interest
to the  Redemption  Date,  (a) upon the  occurrence  of certain  events of loss,
expropriation or title defects related to CE Generation or its subsidiaries;  or
(b) if a permitted  power contract  buy-out  occurs,  unless the Rating Agencies
confirm the then current rating of the Securities.

MANDATORY REDEMPTION--WITH YIELD MAINTENANCE PREMIUM

The Securities are subject to mandatory redemption, at par plus accrued interest
and a yield  maintenance  premium to the  Redemption  Date upon certain  project
refinancing  or  project  debt  refinancing  or upon  certain  asset  or  equity
interests sales.

DISTRIBUTIONS

Distributions  may be made only from and to the  extent of monies on  deposit in
the Distribution  Suspense  Account,  on any funding date on which the following
conditions are satisfied:

(a)  the debt payment account and the debt service reserve account are funded to
     the then current  required levels and the payments  described in the first,
     second,  sixth and  seventh  priorities  of  payments  described  above are
     satisfied in full;
(b)  no default or event of default under the indenture  shall have occurred and
     be continuing;
(c)  the debt service  coverage  ratio for the  preceding  four fiscal  quarters
     ending on or prior to the funding date,  measured as one period, is greater
     or equal to 1.5 to 1.0;
(d)  the projected debt service  coverage  ratio for the succeeding  four fiscal
     quarters,  including the quarter in which the  distribution  is to be made,
     measured as one period, is greater than or equal to 1.5 to 1.0; and
(e)  no material  default or event of default  has  occurred  and is  continuing
     under any project  financing  document for the Saranac  Project,  the Power
     Resources Project, the Yuma Project or the Imperial Valley Projects.

NATURE OF RECOURSE ON THE SECURITIES

The  obligation  to pay  principal  of,  premium  (if any) and  interest  on the
Securities are obligations  solely of CE Generation,  secured by the collateral.
Neither  MidAmerican  nor the Class A Holder,  nor any  affiliate,  shareholder,
member, officer, director or employee of CE Generation, MidAmerican or the Class
A Holder will guarantee the payment of the Securities or has any obligation with
respect  to  the  Securities   (other  than  the  assignment  by  the  assigning
subsidiaries  of their  available  cash flows to secure the  obligation  to make
payments on the Securities).

                                      -11-

<PAGE>

COVENANTS

Principal  covenants  under the  indenture  require CE  Generation,  among other
things,  (a) to maintain  its  existence,  (b) comply with  applicable  laws and
governmental  approach,  (c) perform  required  obligations  under the financing
documents,  (d) maintain the liens on the  collateral in favor of the collateral
agent,  (e) not to incur any debt except permitted debt and lien upon any of its
properties  except  permitted  liens,  and (f) not form any  subsidiaries,  make
investments,  loans or  advances  or  acquisitions,  in each case  other than as
permitted under the indenture.

EMPLOYEES

Employees necessary for the operation of the CE Generation projects are provided
by CalEnergy Operating  Corporation  ("CEOC") and Falcon Power Operating Company
("FPOC"),   indirect   subsidiaries  of  CE  Generation,   under  operation  and
maintenance agreements.  As of December 31, 2002, CEOC and FPOC employed 230 and
63 people full-time, respectively.

ITEM 2. PROPERTIES.

The Company's most significant  physical  properties are its current interest in
operating  power  facilities  and its related real property  interests.  The gas
fired  generating  facilities  are  located  on  land  leased  or  owned  by the
respective   project   companies.   The  Company   maintains   an  inventory  of
approximately  26,000 acres of geothermal property leases in the Salton Sea area
to support the Imperial Valley Projects.  The Company,  as lessee,  pays certain
royalties  and other  fees to the  property  owners and other  royalty  interest
holders from the revenue generated by the Imperial Valley Projects.  The Company
also has interests in other  geothermal  property  leases which are unrelated to
its current operating power  facilities.  Certain of the producing acreage owned
by Magma is  leased to  Mammoth-Pacific  as owner and  operator  of the  Mammoth
Plants,  and Magma,  as lessor,  receives  royalties from the revenues earned by
such power plants.

Lessors  and  royalty  holders  are  generally  paid a monthly or annual  rental
payment  during the term of the lease or mineral  interest  unless and until the
acreage goes into  production,  in which case the rental typically stops and the
(generally  higher)  royalty  payments  begin.  Leases of federal  property  are
transacted with the Department of Interior, Bureau of Land Management,  pursuant
to standard geothermal leases under the Geothermal Steam Act and the regulations
promulgated  thereunder  (the  "Regulations"),  and are for a primary term of 10
years,  extendible for an additional five years if drilling is commenced  within
the primary term and is diligently pursued for two successive  five-year periods
upon certain conditions set forth in the Regulations.  A secondary term of up to
40 years is  available  so long as  geothermal  resources  from the property are
being produced or used in commercial quantities.  Leases of state lands may vary
in form.  Leases of  private  lands vary  considerably,  since  their  terms and
provisions are the product of negotiations with the landowners.

                                      -12-

<PAGE>

ITEM 3. LEGAL PROCEEDINGS.

In  addition  to the  proceedings  described  below,  some of the  projects  are
currently  parties to various  minor items of litigation in the normal course of
business, none of which, if determined adversely,  would have a material adverse
effect on those  projects  financial  position,  results of  operations  or cash
flows.

Edison/California Power Exchange - Past Due Amounts
---------------------------------------------------

Due to reduced  liquidity,  Edison had failed to pay approximately  $119 million
owed under the power  purchase  agreements  with the  Imperial  Valley  Projects
(excluding  the Salton Sea V and CE Turbo  Projects) for power  delivered in the
fourth quarter 2000 and the first quarter 2001.  Due to Edison's  failure to pay
contractual obligations,  the Imperial Valley Projects (excluding the Salton Sea
V and CE Turbo Projects) had  established an allowance for doubtful  accounts of
approximately $21 million as of December 31, 2001.

As a result of  uncertainties  related  to  Edison,  the  letter of credit  that
supports the debt service reserve fund at Salton Sea Funding Corporation has not
been extended  beyond its current July 2004  expiration  date, and as such, cash
distributions  are not available to CE  Generation  until the Salton Sea Funding
Corporation  debt service reserve fund of  approximately  $67.6 million has been
funded or the letter of credit has been extended beyond its July 2004 expiration
date or replaced.  The fund has a cash  balance of $46.3  million as of December
31, 2002

Pursuant  to a  settlement  agreement  the final  payment by Edison for past due
balances was received March 1, 2002.  Following the receipt of Edison's  payment
of past due  balances,  the Imperial  Valley  Projects  released  the  remaining
allowance for doubtful accounts.

Edison has disputed a portion of the settlement  agreement and has failed to pay
approximately  $3.9  million of  capacity  bonus  payments  for the months  from
October 2001 through May 2002. On December 10, 2001 the Imperial Valley Projects
(excluding the Salton Sea I, Salton Sea V and CE Turbo Projects) filed a lawsuit
against Edison in  California's  Imperial  County Superior Court seeking a court
order  requiring  Edison to make the required  capacity bonus payments under the
Power  Purchase  Agreements.  Due to Edison's  failure to pay these  contractual
obligations,  the Imperial  Valley  Projects have  established  an allowance for
doubtful  accounts of  approximately  $2.7  million.  The Project  entities  are
vigorously pursuing collection of the capacity bonus payments.

On March 25,  2002,  Salton Sea II's 10 MW turbine went out of service due to an
uncontrollable  force event. Such  uncontrollable  force event ended, and Salton
Sea II returned to service, on December 17, 2002. Edison has failed to recognize
the  uncontrollable  force event and as such has not paid amounts  otherwise due
and owing and has improperly  derated Salton Sea II from 15 MW to 12.5 MW, under
the Salton Sea II Power  Purchase  Agreement.  On January 29,  2003,  Salton Sea
Power Generation,  L.P. served a complaint on Edison for such unpaid amounts and
to rescind such deration.

In January 2001, the California Power Exchange ("PX") declared bankruptcy.  As a
result,  the Salton Sea V and CE Turbo  Projects  have not received  payment for
power sold under the  Transaction  Agreements  during  December 2000 and January
2001  of  approximately   $3.8  million.   The  Imperial  Valley  Projects  have
established  an  allowance  for  doubtful  accounts  for the full amount of this
receivable. The Project entities are vigorously pursuing collection.

Stone & Webster
---------------

The Salton Sea V and CE Turbo Projects were constructed by Stone & Webster, Inc.
(formerly Stone & Webster Engineering Corporation), a wholly-owned subsidiary of
the Shaw Group  ("Stone &  Webster"),  pursuant  to date  certain,  fixed-price,
turnkey engineering,  procure, construct and manage contracts (collectively, the
"Salton Sea V and CE Turbo Projects EPC  Contracts").  On March 7, 2002,  Salton
Sea Power,  Vulcan/BN  Geothermal Power Company,  Del Ranch, L.P., and CE Turbo,
the  owners  of the  Salton  Sea V and CE Turbo  Projects,  filed a  Demand  for
Arbitration  against  Stone & Webster  for  breach  of  contract  and  breach of
warranty  arising from  deficiencies in Stone & Webster's  design,  engineering,
construction  and  procurement  of  equipment  for the Salton Sea V and CE Turbo
Projects  pursuant to the Salton Sea V and CE Turbo Projects EPC  Contracts.  On
November 25, 2002 Vulcan/BN  Geothermal Power Company,  Del Ranch,  L.P., and CE
Turbo,  LLC  entered  into a  Settlement  Agreement  with Stone &  Webster.  The
Settlement Agreement resulted in a $3.5 million payment from Stone & Webster.

The breach of contract  and breach of warranty  claims made by the owners of the
Salton Sea V Project are still  pending and the hearing is scheduled to commence
in April 2003.

                                      -13-
<PAGE>

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

Not Applicable.

                                      -14-
<PAGE>

                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER'S MATTERS.

Not applicable.

                                      -15-
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA.

                      SELECTED CONSOLIDATED FINANCIAL DATA
                             (Amounts in thousands)

The  selected  data  presented  below are derived from CE  Generation's  audited
consolidated financial statements. The consolidated financial statements reflect
the  consolidated  financial  statements  of Magma and  subsidiaries  (excluding
wholly-owned  subsidiaries  retained by  MidAmerican),  FSRI Holdings,  Inc. and
subsidiaries and Yuma Cogeneration Associates, each a wholly-owned subsidiary of
CE Generation.  The consolidated  financial  statements  present CE Generation's
financial  position,  results of  operations  and cash flows as if CE Generation
were a separate legal entity for all periods presented.

<TABLE>
<CAPTION>
                                                              YEAR ENDED DECEMBER 31,
                                                  -----------------------------------------------------------------------
                                                     2002           2001          2000 (1)       1999 (2)        1998
                                                  -----------    -----------    -----------    ------------   -----------

     <S>                                          <C>            <C>            <C>            <C>            <C>
     Statement of Operations Data:
     Operating revenue ........................   $   500,729    $   552,335    $   499,926    $   295,787    $   395,560
     Total revenue ............................       510,082        565,838        510,796        340,683        436,175
     Income before minority interest,
       extraordinary item and cumulative
       effect of change in accounting principle        79,071         89,812         89,148         61,970         93,778
     Minority interest ........................       (20,757)       (15,618)       (15,613)          --             --
     Extraordinary item, net of tax (3) .......          --             --             --          (17,478)          --
     Cumulative effect of change in
       accounting principle, net of tax (4) ...          --          (15,386)          --             --             --
     Net income ...............................        58,314         58,808         73,535         44,492         93,778

     BALANCE SHEET DATA:
     Total assets .............................   $ 1,865,036    $ 1,932,119    $ 1,984,445    $ 1,725,411    $ 1,782,385
     Project loans, including current portion .       163,142        199,006        230,221         76,261         90,529
     Salton Sea notes and bonds, including
       current portion ........................       491,678        520,250        543,908        568,980        626,816
     Senior Secured Bonds, including current
       portion ................................       356,400        377,000        389,600        400,000           --
     Total liabilities ........................     1,322,762      1,404,910      1,477,066      1,333,131      1,245,438
     Members' equity ..........................       489,895        467,377        438,915        392,280        536,947
     </TABLE>


     (1)  Reflects  full  consolidation  of  the  Saranac  Project,   which  was
          previously  accounted  for as an equity  investment.  The 2000 results
          also  reflect  the  addition  of the  Salton  Sea  Unit V and CE Turbo
          Projects, which commenced operations in 2000.

     (2)  The  decrease in revenue and net income in 1999 was  primarily  due to
          the  expiration of the fixed price  periods for the Elmore,  Del Ranch
          and Salton Sea III Projects.

     (3)  The extraordinary  item recognized in the year ended December 31, 1999
          reflects the early redemption of substantially  all of the outstanding
          9 7/8% Limited Recourse Senior Secured Notes Due 2003.

     (4)  The  cumulative  effect of change in accounting  principle  reflects a
          January 1, 2001 write off of prepaid and accrued  balances  associated
          with the  change  in policy  for  accounting  for  major  maintenance,
          overhauls and well workovers.

                                      -16-

<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS.

The following is  management's  discussion and analysis of significant  factors,
which  have  affected  CE  Generation's   financial  condition  and  results  of
operations  during  the  periods  included  in the  accompanying  statements  of
operations.   The   Company's   actual   results  in  the  future  could  differ
significantly from the historical results.

CRITICAL ACCOUNTING POLICIES

The  preparation of financial  statements and related  disclosures in conformity
with  accounting  principles  generally  accepted in the United States  requires
management to make judgments,  assumptions and estimates that affect the amounts
reported in the Consolidated Financial Statements and accompanying notes. Note 2
to the  Consolidated  Financial  Statements  in this Annual  Report on Form 10-K
describes  the  significant   accounting   policies  and  methods  used  in  the
preparation of the Consolidated  Financial  Statements.  Estimates are used for,
but not limited to, the  accounting  for the  allowance  for doubtful  accounts,
impairment of long-lived assets and contingent liabilities. Actual results could
differ from these  estimates.  The following  critical  accounting  policies are
impacted   significantly  by  judgments,   assumptions  and  estimates  used  by
management in the preparation of the Consolidated Financial Statements.

Allowance for Doubtful Accounts
-------------------------------

The allowance for doubtful accounts is based on the Company's  assessment of the
collectibility  of  specific  customer  accounts  and the aging of the  accounts
receivable.  If there is a deterioration of a major customer's credit worthiness
or  actual  defaults  are  higher  than  the  Company's  historical  experience,
estimates of the recoverability of amounts due could be adversely affected.

Impairment of Long-Lived Assets
-------------------------------

The  Company's  long-lived  assets  consist  primarily  of  property,  plant and
equipment and intangible assets with useful lives that range from 3 to 40 years,
and acquired  goodwill.  The Company believes the useful lives of its long-lived
assets  are  reasonable.  The  Company  also  evaluates  long-lived  assets  for
impairment  whenever  events or changes in  circumstances  indicate the carrying
amount  of an  asset  may  not  be  recoverable.  Triggering  events  include  a
significant  change in the extent or manner in which long-lived assets are being
used or in its physical condition,  in legal factors, or in the business climate
that  could  affect the value of the  long-lived  assets,  including  changes in
regulation.  The interpretation of such events requires judgment from management
as to whether such an event has  occurred  and is  required.  If an event occurs
that  could  effect  the  carrying  value of the asset and  management  does not
identify  it as a  triggering  event,  future  results  of  operations  could be
significantly affected.

Upon the occurrence of a triggering  event,  the carrying amount of a long-lived
asset is reviewed to assess  whether the  recoverable  amount has declined below
its carrying  amount.  The  recoverable  amount is the estimated net future cash
flows that the  Company  expects  to  recover  from the future use of the asset,
undiscounted and without interest,  plus the asset's residual value on disposal.
Where the recoverable  amount of the long-lived  asset is less than the carrying
value,  an  impairment  loss would be  recognized to write down the asset to its
fair value,  which is based on discounted  estimated  cash flows from the future
use of the asset.

The  estimated  cash flows arising from future use of the asset that are used in
the  impairment  analysis  requires  judgment  regarding  what the Company would
expect to recover from future use of the asset.  Any changes in the estimates of
cash flows  arising  from future use of the asset or the  residual  value of the
asset on disposal based on changes in the market conditions,  changes in the use
of the assets,  management's  plans, the determination of the useful life of the
assets and  technology  change in the industry  could  significantly  change the
calculation  of the fair  value  or  recoverable  amount  of the  asset  and the
resulting  impairment  loss,  which  could  significantly  affect the results of
operations.

On January 1, 2002,  CE  Generation  adopted  Statement of Financial  Accounting
Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"),
which  establishes  the  accounting for acquired  goodwill and other  intangible
assets, and provides that goodwill and  indefinite-lived  intangible assets will
not be  amortized,  but will be tested for  impairment  on an annual  basis.  CE
Generation's  related  amortization  consists  solely of goodwill  amortization,
which has no income tax  effect.  In  accordance  with SFAS 142,  CE  Generation
completed its initial  goodwill  impairment test, as of January 1, 2002, and its
annual  goodwill  impairment  test,  as of October 31,  2002,  during the fourth
quarter  of  2002,  primarily  using a  discounted  cash  flow  methodology.  No
impairment was indicated as a result of the impairment tests.

                                      -17-
<PAGE>

Contingent Liabilities
----------------------

The  Company is  subject  to the  possibility  of  various  loss  contingencies,
including  tax,  legal and  environmental,  arising  in the  ordinary  course of
business.  The Company considers the likelihood of the loss or the incurrence of
a liability as well as its ability to reasonably  estimate the amount of loss in
determining loss contingencies. An estimated loss contingency is accrued when it
is probable  that a liability  has been  incurred  and the amount of loss can be
reasonably  estimated.  The  Company  regularly  evaluates  current  information
available to it to determine whether such accruals should be adjusted.

Income Taxes
------------

CE  Generation  and its  subsidiaries  file a  consolidated  federal tax return.
Deferred  tax assets and  liabilities  are  recognized  based on the  difference
between the financial  statement and tax bases of assets and  liabilities  using
estimated tax rates in effect for the year in which the differences are expected
to reverse.

FACTORS AFFECTING RESULTS OF OPERATIONS

The capacity  factor for a particular  project is determined  by dividing  total
quantity of  electricity  sold by the product of the project's  capacity and the
total hours in the year. The capacity  factors for Salton Sea I Project,  Salton
Sea II Project,  Salton Sea III Project, Salton Sea IV Project, and Salton Sea V
Project  plants  are based on  capacity  amounts  of 10,  20, 50, 40, and 49 net
megawatts,  respectively.  The capacity  factors for Vulcan  Project,  Del Ranch
Project, Elmore Project, Leathers Project, and CE Turbo Project plants are based
on capacity  amounts of 34, 38, 38, 38 and 10 net megawatts,  respectively.  The
capacity  factors  for the Saranac  Project,  Power  Resources  Project and Yuma
Project  plants are based on capacity  amounts of 240, 200 and 50 net megawatts,
respectively.  Each  plant  possesses  an  operating  margin,  which  allows for
production in excess of the amount listed above.  Utilization  of this operating
margin is based upon a variety of factors and can be expected to vary throughout
the year under normal operating  conditions.  The amount of revenues received by
these  projects  is affected by the extent to which they are able to operate and
generate  electricity.  Accordingly,  the capacity and capacity  factor  figures
provide  information  on  operating  performance  that has affected the revenues
received by these projects.

RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 2002 AND 2001

Operating revenue decreased $51.6 million or 9.3% to $500.7 million for the year
ended  December  31, 2002 from $552.3  million for the same period in 2001.  The
decrease  reflects high SRAC prices at the Imperial  Valley and Yuma Projects in
the first quarter of 2001.

The following  operating data represents the aggregate  capacity and electricity
production of the Imperial Valley Projects:

                                                      2002             2001
                                                    ---------       ----------

          Overall capacity factor ............          89.60%          89.70%
          MWh produced .......................      2,561,800       2,565,600
          Capacity (net MW)(weighted average).          326.4           326.4

The following  operating data represents the aggregate capacity and electricity
production of the Gas Projects:

                                                       2002            2001
                                                    ---------       ----------

          Overall capacity factor ............          92.35%          88.60%
          MWh produced .......................      3,963,818       3,804,800
          Capacity (net MW)(weighted average).            490             490

The  overall  capacity  factor  of the  Gas  Projects  reflects  the  effect  of
contractual  curtailments.  The capacity factors adjusted for these  contractual
curtailments are 99.4% and 98.0% for 2002 and 2001, respectively. The changes in
the  overall  capacity  factor  in 2002 and 2001  were  due  primarily  to major
maintenance scheduling.

                                      -18-
<PAGE>

Interest  and other income  decreased  $4.2 million or 30.7% to $9.4 million for
the year ended  December 31, 2002 from $13.5 million for the same period in 2001
due to the interest earned in 2001 on past due Edison amounts.

Fuel  expenses  increased  $0.7  million or 0.6% to $121.7  million for the year
ended  December  31, 2002 from $121.0  million for the same period in 2001.  The
increase was primarily due to increased production.

Plant operating  expenses,  which include operating,  maintenance,  resource and
other plant operating expenses, decreased $0.3 million or 0.2% to $134.1 million
for the year ended  December 31, 2002 from $134.4 million for the same period in
2001. The decrease was primarily due to timing of major maintenance activities.

General and  administrative  expenses  decreased  $3.3  million or 32.4% to $6.9
million for the year ended  December  31,  2002 from $10.2  million for the same
period in 2001.  These  costs  include  administrative  services  provided to CE
Generation,  including  executive,  financial,  legal,  tax and other  corporate
functions.  The decrease in 2002 was  primarily  due to high legal costs in 2001
related to the California energy crisis.

Depreciation  and  amortization  decreased $3.0 million or 3.5% to $82.1 million
for the year ended  December 31, 2002 from $85.0  million for the same period in
2001.  This decrease was due to the  discontinuation  of goodwill  amortization,
resulting  from the  adoption of Statement  of  Financial  Accounting  Standards
("SFAS") No. 142,  "Goodwill and Intangible  Assets," which totaled $9.6 million
in 2001.  This  decrease was  partially  offset by increased  depreciation  from
capital additions.

Interest  expense,  decreased $5.2 million or 6.3% to $76.7 million for the year
ended  December  31, 2002 from $81.9  million  for the same period in 2001.  The
decrease reflects lower debt balances.

The asset impairment in 2001 reflects the write off of the book value of a steam
turbine.  In 2001, the Company made the decision to dispose of the turbine.  The
Company determined that the turbine, which had been held in storage for possible
use in new development projects, no longer had any significant value.

The provision for income taxes  decreased $19.0 million or 66.5% to $9.6 million
for the year ended  December 31, 2002 from $28.5  million for the same period in
2001. The effective tax rate was 10.8% and 24.1% in 2002 and 2001, respectively.

During  2002,  the Company  made  considerable  progress on several  significant
income tax  examination  matters for prior tax years,  including  percentage  of
depletion,  which  resulted in a decrease in income tax expense of $15.1 million
in 2002.

The cumulative effect of the change in accounting principle in 2001 reflects the
Company's change in its accounting  policy for major  maintenance,  overhaul and
well workover  costs.  These costs,  which had  historically  been accounted for
using the  deferral  and accrual  methods,  are now  expensed as  incurred.  The
cumulative  effect of the change in  accounting  policy  represents a January 1,
2001  write off of prepaid  and  accrued  major  maintenance  and well  workover
balances of  approximately  $15.4  million,  net of tax of $9.9  million.  If CE
Generation  had  adopted  the  policy  as of  January  1,  2000,  income  before
cumulative  effect of change  in  accounting  principle  would  have been  $10.9
million lower in 2000 on a proforma basis.

RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 2001 AND 2000

Sales of  electricity  and steam  increased to $552.3  million in the year ended
December 31, 2001 from $499.9 million in the year ended December 31, 2000, a 10%
increase.  The increase reflects a full year of production from the Salton Sea V
and CE Turbo Projects and increased  energy rates at the other  Imperial  Valley
Projects and the Yuma Project

The following  operating data represents the aggregate  capacity and electricity
production of the Imperial Valley Projects:

                                                  2001            2000
                                               ---------       ---------

     Overall capacity factor ............          89.70%          87.70%
     MWh produced .......................      2,565,600       2,296,800
     Capacity (net MW)(weighted average).          326.4           298.3

The increase in capacity in 2001 relates to the addition of the Salton Sea V and
CE Turbo Projects in the third quarter of 2000. The changes in overall  capacity
factor in 2001 and 2000 were primarily due to overhaul and outage scheduling and

                                      -19-
<PAGE>

the construction and tie in of the upgraded brine facilities and the start-up of
the Salton Sea V and CE Turbo Projects in 2000.

The following  operating data represents the aggregate  capacity and electricity
production of the Gas Projects:

                                                  2001            2000
                                               ---------       ---------

     Overall capacity factor ............          88.60%          86.50%
     MWh produced .......................      3,804,800       3,722,401
     Capacity (net MW)(weighted average).            490             490

The  overall  capacity  factor  of the  Gas  Projects  reflects  the  effect  of
contractual  curtailments.  The capacity factors adjusted for these  contractual
curtailments are 98.0% and 92.9% for 2001 and 2000, respectively. The changes in
the  overall  capacity  factor  in 2001 and 2000  were  due  primarily  to major
maintenance scheduling.

Interest and other income  increased to $13.5 million in 2001 from $10.9 million
in 2000 due to interest income earned on past due balances from Edison.

Fuel expenses  increased to $121.0  million in 2001 from $115.0 million in 2000.
The  increase  represents  the  annual  rate  increases  in  the  long-term  gas
contracts,  increased  gas  prices at the Yuma  Project  and  overall  increased
production at the Gas Projects

Plant operating  expenses,  which include operating,  maintenance,  resource and
other plant  operating  expenses,  increased to $134.4 million in the year ended
December 31, 2001 from $114.9  million in the year ended  December 31, 2000. The
increase was  primarily  due to the full year of  operations of the Salton Sea V
and CE Turbo Projects  resulting in increased waste removal,  chemical costs and
repair costs at the Imperial Valley Projects.

General and administrative expenses increased to $10.2 million in the year ended
December 31, 2001 from $5.5 million in the year ended  December 31, 2000.  These
costs  include  administrative  services  provided to CE  Generation,  including
executive,  financial, legal, tax and other corporate functions. The increase in
2001 is primarily due to increased  legal  expenses  associated  with the Edison
litigation.

Depreciation  and  amortization  increased  to $85.0  million in 2001 from $80.7
million in 2000. This increase  reflects a full year of depreciation  associated
with the Salton Sea V and CE Turbo  Projects  and  upgrades  to steam  gathering
systems, which were operational in the third quarter of 2000.

Interest expense,  less amounts capitalized,  decreased to $81.9 million in 2001
from $84.2 million in 2000. The decrease reflects lower debt balances.

The asset impairment in 2001 reflects the write off of the book value of a steam
turbine.  In 2001, the Company made the decision to dispose of the turbine.  The
Company determined that the turbine, which had been held in storage for possible
use in new development projects, no longer had any significant value.

The  provision  for income taxes  increased to $28.5  million in 2001 from $21.4
million in 2000.  The  effective  tax rate was 24.1% and 19.4% in 2001 and 2000,
respectively.  The  changes  from  year to year in the  effective  rate  are due
primarily to the generation and  utilization of energy tax credits and depletion
deductions.

The cumulative effect of the change in accounting principle in 2001 reflects the
Company's change in its accounting  policy for major  maintenance,  overhaul and
well workover costs.  These costs,  which have  historically  been accounted for
using the  deferral  and accrual  methods,  are now  expensed as  incurred.  The
cumulative  effect of the change in  accounting  policy  represents a January 1,
2001  write off of prepaid  and  accrued  major  maintenance  and well  workover
balances of  approximately  $15.4  million,  net of tax of $9.9  million.  If CE
Generation  had  adopted  the  policy  as of  January  1,  2000,  income  before
cumulative  effect of change  in  accounting  principle  would  have been  $10.9
million lower in 2000 on a proforma basis.

                                      -20-
<PAGE>

RELATED PARTY TRANSACTIONS

Pursuant  to  the  Administrative  Services  Agreement,  MEHC  provides  certain
administrative and management  services to CE Generation,  and MEHC's executive,
financial,  legal,  tax and other  corporate staff  departments  perform certain
services  for CE  Generation.  Expenses  incurred  by MEHC and  allocated  to CE
Generation  were estimated  based on the  individual  services and expense items
provided.  There were no allocated  expenses in 2002 however allocated  expenses
totaled  $3.4  million in 2001 and $2.5  million in 2000,  and are  included  in
general  and  administrative  expense.  On August 1,  2002,  the  Administrative
Services  Agreement  between MEHC and CE Generation was amended to provide for a
fixed monthly fee in lieu of certain expenses,  which were being allocated.  The
fixed fee,  which was  retroactive to January 1, 2002 and ends December 2004, is
$258,333 per month and is included in general and administrative expense.

The Company participates in multi-employer  pension plans sponsored by MEHC. The
Company's  contributions  to the various plans was  approximately  $1.8 million,
$1.6 million and $1.2 million in 2002, 2001 and 2000, respectively.

On May 26, 2000, CE Generation issued a $6.5 million 10% note due June 15, 2005,
in favor of  MidAmerican  and a $6.5 million 10% note due June 15, 2005 in favor
of EPME Company. The notes were repaid on October 16, 2000.

On September  29, 2000,  Salton Sea Power and CE Turbo entered into an agreement
to sell all  available  power from the Salton Sea V Project and CE Turbo Project
to EPME.  Under the terms of the  agreement,  EPME  purchased and sold available
power on behalf of Salton  Sea  Power  and CE  Turbo,  into the  California  ISO
markets.  The purchase price for the available power was equivalent to the value
actually  received  by EPME  for the  sale of such  power,  including  renewable
premiums.

On January 17, 2001,  Salton Sea Power and CE Turbo  entered into a  Transaction
Agreement  to sell  available  power from the Salton Sea V Project  and CE Turbo
Project to EPME.  Under the terms of the agreement,  at the option of Salton Sea
Power and CE Turbo,  EPME  purchased all  available  power from the Salton Sea V
Project and CE Turbo Project based on day ahead price quotes received from EPME.

On March 27, 2001 and May 1, 2001,  the Imperial  Valley  Projects  entered into
Transaction  Agreements to sell available  power to EPME based on percentages of
the Dow Jones SP-15  Index.  On June 22,  2001,  the  Imperial  Valley  Projects
(excluding  the  Salton  Sea V  Project  and CE Turbo  Project)  ceased  selling
available  power to EPME and  resumed  power  sales to  Edison  under  the Power
Purchase Agreements ("PPAs").  Effective September 16, 2002 Salton Sea Power and
CE Turbo entered into Transaction  Agreements to sell available power to EPME at
increased percentages of the Dow Jones SP-15 Index.

Pursuant  to these  agreements,  sales to EPME  from the  Company  totaled  $8.9
million, $102.8 million and $19.5 million in 2002, 2001 and 2000,  respectively.
As of  December  31,  2002 and  2001,  accounts  receivable  from EPME were $1.4
million and $11.8 million, respectively.

Pursuant to a Transaction Agreement dated January 29, 2003, Salton Sea Power and
CE Turbo and began  selling  available  power to  TransAlta on February 12, 2003
based on percentages of the Dow Jones SP-15 Index. Such agreement will expire on
October 15, 2003.

Pursuant to the November 1, 1998 Amended and  Restated  Power Sales  Agreements,
Salton Sea Power and CE Turbo are to provide  Minerals with its full  electrical
energy requirements at the market rates available to them, less wheeling costs.

Effective August 1, 2002, Salton Sea Power and CE Turbo amended their respective
power sale  agreements  with Minerals to provide for a fixed price of $31.00 per
megawatt  hour for all  hours of  August  1, 2002  through  December  31,  2002.
Pursuant to these  agreements,  sales to Minerals  from Salton Sea Power totaled
$0.4  million and $0.9  million for the years ended  December 31, 2002 and 2001,
respectively,  and there were no sales to  Minerals  from CE Turbo for the years
ended December 31, 2002 and 2001, respectively.  There were no material accounts
receivable balances at December 31, 2002 and 2001.

                                      -21-
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

Each of CE Generation's direct or indirect  subsidiaries is organized as a legal
entity  separate and apart from CE  Generation  and its other  subsidiaries  and
MEHC.  Pursuant to separate  project  financing  agreements,  the assets of each
subsidiary  (excluding  Yuma) are pledged or  encumbered to support or otherwise
provide the security for their own project or subsidiary  debt. It should not be
assumed that any asset of any subsidiary of CE Generation,  will be available to
satisfy  the  obligations  of CE  Generation  or any of its other  subsidiaries;
provided,  however,  that  unrestricted cash or other assets which are available
for  distribution  may,  subject to  applicable  law and the terms of  financing
arrangements  for such  parties,  be  advanced,  loaned,  paid as  dividends  or
otherwise  distributed or  contributed  to CE Generation or affiliates  thereof.
"Subsidiary"  means all of CE Generation's  direct or indirect  subsidiaries (1)
owning direct or indirect  interests in the Imperial Valley Projects  (including
the Salton Sea  Projects  and the  Partnership  Projects  other than Magma Power
Company and Salton Sea Power  Company),  or (2) owning  direct  interests in the
subsidiaries that own interests in the foregoing  projects,  the Saranac Project
and the Power Resources Project.

CE Generation  generated  cash flows from  operations of $197.5  million for the
year ended December 31, 2002 compared with $127.5 million for the same period in
2001.  The increase was  primarily  due to the receipt of past due balances from
Edison partially offset by changes in working capital.

Cash flow used in  investing  activities  was $28.9  million  for the year ended
December 31, 2002  compared  with cash used of $37.6 million for the same period
in  2001.   Capital   expenditures  are  the  primary  components  of  investing
activities.

Cash flow used in  financing  activities  was $159.8  million for the year ended
December 31, 2002 compared  with $91.2 million for the same period in 2001.  The
changes in cash flows from  financing  activities  reflect  the  scheduled  debt
repayments,  a $33.6 million  distribution  in 2002 and a $43.2 million  deposit
into the debt service reserve account in 2002.

Edison, a wholly-owned  subsidiary of Edison International,  is a public utility
primarily  engaged  in the  business  of  supplying  electric  energy  to retail
customers  in Central and Southern  California,  excluding  Los Angeles.  Due to
reduced  liquidity,  Edison failed to pay approximately  $119 million owed under
the power purchase agreements with the Imperial Valley Projects,  (excluding the
Salton Sea V and CE Turbo  Projects) for power  delivered in the fourth  quarter
2000 and the first  quarter  2001.  Due to Edison's  failure to pay  contractual
obligations,  the Imperial  Valley  Projects  (excluding the Salton Sea V and CE
Turbo  Projects)  had   established  an  allowance  for  doubtful   accounts  of
approximately $21 million as of December 31, 2001.

The final payment of the past due amounts by Edison was received  March 1, 2002.
Following  the  receipt of  Edison's  final  payment of past due  balances,  the
Imperial Valley Projects released the remaining allowance for doubtful accounts.

As a result of  uncertainties  related  to  Edison,  the  letter of credit  that
supports the debt service reserve fund at Salton Sea Funding Corporation has not
been extended  beyond its current July 2004  expiration  date, and as such, cash
distributions  are not available to CE  Generation  until the Salton Sea Funding
Corporation  debt service reserve fund of  approximately  $67.6 million has been
funded or the letter of credit has been extended beyond its July 2004 expiration
date or replaced.  The fund has a cash  balance of $46.3  million as of December
31, 2002

In January 2001, the PX declared  bankruptcy.  As a result, the Salton Sea V and
CE Turbo Projects have not received payment for power sold under the Transaction
Agreements during December 2000 and January 2001 of approximately  $3.8 million.
The Imperial Valley Projects have established an allowance for doubtful accounts
for the full amount of this receivable.

Edison has failed to pay  approximately  $3.9 million of capacity bonus payments
for the months from  October  2001  through May 2002.  On December  10, 2001 the
Imperial Valley Projects (excluding the Salton Sea I, Salton Sea V, and CE Turbo
Projects)  filed a  lawsuit  against  Edison  in  California's  Imperial  County
Superior  Court  seeking a court  order  requiring  Edison to make the  required
capacity bonus payments  under the Power  Purchase  Agreements.  Due to Edison's
failure to pay these contractual obligations,  the Imperial Valley Projects have
established an allowance for doubtful  accounts of  approximately  $2.7 million.
The Project  entities are vigorously  pursuing  collection of the capacity bonus
payments.

On March 25,  2002,  Salton Sea II's 10 MW turbine went out of service due to an
uncontrollable  force event. Such  uncontrollable  force event ended, and Salton
Sea II returned to service, on December 17, 2002. Edison has failed to recognize
the  uncontrollable  force event and as such has not paid amounts  otherwise due
and owing and has

                                      -22-
<PAGE>

improperly  derated Salton Sea II from 15 MW to 12.5 MW, under the Salton Sea II
Power Purchase Agreement. On January 29, 2003, Salton Sea Power Generation, L.P.
served a  complaint  on Edison  for such  unpaid  amounts  and to  rescind  such
deration.

ENVIRONMENTAL LIABILITIES

The  Company is subject to numerous  legislative  and  regulatory  environmental
protection  requirements  involving air and water pollution,  waste  management,
hazardous chemical use, noise abatement, and land use aesthetics.

State and federal  environmental laws and regulations currently have, and future
modifications  may  have,  the  effect of (i)  increasing  the lead time for the
construction of new facilities,  (ii) significantly increasing the total cost of
new  facilities,   (iii)  requiring   modification  of  the  Company's  existing
facilities,  (iv)  increasing the risk of delay on  construction  projects,  (v)
increasing   the  Company's  cost  of  waste  disposal  and  (vi)  reducing  the
reliability  of  service  provided  by the  Company  and the  amount  of  energy
available  from  the  Company's  facilities.  Any of  such  items  could  have a
substantial  impact on amounts  required  to be  expended  by the Company in the
future.  Expenditures for ongoing compliance with environmental regulations that
relate to  current  operations  are  expensed  or  capitalized  as  appropriate.
Expenditures that relate to an existing condition caused by past operations, and
which do not contribute to current or future revenue  generation,  are expensed.
Liabilities   are  recorded  when   environmental   assessments   indicate  that
remediation  efforts are  probable  and the costs can be  reasonably  estimated.
Estimates of the liability are based upon currently  available  facts,  existing
technology and presently enacted laws and regulations  taking into consideration
the likely  effects of  inflation  and other social and  economic  factors,  and
include  estimates of associated legal costs.  These amounts also consider prior
experience in remediating sites, other companies'  clean-up  experience and data
released by the Environmental  Protection Agency or other  organizations.  These
estimated  liabilities are subject to revision in future periods based on actual
costs or new circumstances,  and are included in the accompanying balance sheets
at  their  undiscounted   amounts.  As  of  December  31,  2002  and  2001,  the
environmental  liabilities  recorded on the balance  sheet were $5.3 million and
$4.2 million, respectively.

INFLATION

Inflation has not had a significant impact on CE Generation's cost structure.

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

The Company has  contractual  obligations  and commercial  commitments  that may
affect its financial condition.  Contractual obligations to make future payments
primarily arise from long-term debt and fuel purchase  agreements.  In addition,
possible  future  payments  arise from lines of credit  and  standby  letters of
credit.

                                      -23-

<PAGE>

The  following  tables  identify  material  obligations  and  commitments  as of
December 31, 2002 (in thousands):

<TABLE>
<CAPTION>
                                                                  PAYMENTS DUE BY PERIOD
                                              --------------------------------------------------------------
                                                           Less Than       2-3          4-5       After 5
                                                 Total       1 Year       Years        Years       Years
                                              ----------   ----------   ----------   ----------   ----------
     <S>                                      <C>          <C>          <C>          <C>          <C>
     Contractual cash obligations:
       Long-term debt .....................   $1,011,220   $   86,656   $  138,656   $  156,572   $  629,336
       Other long-term obligations (1) ....      498,402       88,227      134,632      145,420      130,123
                                              ----------   ----------   ----------   ----------   ----------
         Total contractual cash obligations   $1,509,622   $  174,883   $  273,288   $  301,992   $  759,459
                                              ==========   ==========   ==========   ==========   ==========
</TABLE>
<TABLE>
<CAPTION>

                                                            COMMITMENT EXPIRATION PER PERIOD
                                              --------------------------------------------------------------
                                                           Less Than      2-3          4-5         After 5
                                                 Total       1 Year       Years        Years        Years
                                              ----------   ----------   ----------   ----------   ----------
          <S>                                 <C>          <C>          <C>          <C>          <C>
          Other Commercial Commitments:
            Lines of credit (2) ...........   $   15,000   $   15,000   $     --     $     --     $     --
            Standby letters of credit (3) .      105,800       38,200       67,600         --           --
                                              ----------   ----------   ----------   ----------   ----------
              Total commercial commitments    $  120,800   $   53,200   $   67,600   $     --     $     --
                                              ==========   ==========   ==========   ==========   ==========
     </TABLE>

     (1)  Other long-term  obligation  primarily  represent natural gas purchase
          agreements for the Gas Facilities as of December 31, 2002.
     (2)  The lines of credit represent the unused borrowing  capacity available
          to the Company, as of December 31, 2002.
     (3)  The standby letters of credit represent the letters of credit expiring
          in February 2004 for CE Generation,  the letters of credit expiring in
          July 2004 for Salton Sea Funding Corporation and the letters of credit
          expiring in December 2003 for the Saranac Partnership.

NEW ACCOUNTING PRONOUNCEMENTS

In August 2001, the FASB, issued SFAS No. 143,  "Accounting for Asset Retirement
Obligations"  ("SFAS 143").  This statement  provides  accounting and disclosure
requirements for retirement obligations associated with long-lived assets and is
effective  January 1, 2003.  This  statement  requires that the present value of
retirement  costs for which the  Company has a legal  obligation  be recorded as
liabilities  with an equivalent  amount added to the asset cost and  depreciated
over an appropriate period. The liability is then accreted over time by applying
an interest  method of allocation  to the  liability.  Cumulative  accretion and
accumulated  depreciation  will be recognized  for the time period from the date
the liability  would have been  recognized  had the provisions of this statement
been in effect, to the date of adoption of this statement. The cumulative effect
of initially  applying this statement will be recognized as a cumulative  effect
of a change in accounting  principle that is expected to be $2.5 million, net of
tax of $1.6 million, in January 2003.

The Company's review  identified  legal retirement  obligations for landfill and
plant abandonment  costs. The Company will record  liabilities  pursuant to SFAS
143 in January 2003.  The Company used an expected cash flow approach to measure
the obligations.  The following proforma  liabilities reflect amounts as if this
statement had been applied during all periods (in thousands):

                                              2002     2001
                                             ------   ------

                    Plant abandonment ....   $3,798   $3,673
                    Landfill abandonment .    3,663    3,542


The  plant  abandonment  had no  previously  recorded  liability.  The  landfill
abandonment had a previously recorded liability of $1.5 million.

In  November  2002,  the FASB issued FASB  Interpretation  No. 45,  "Guarantor's
Accounting  and  Disclosure  Requirements  for  Guarantees,  Including  Indirect
Guarantees  of  Indebtedness  of Others"  ("FIN 45").  FIN 45 requires that upon
issuance of a guarantee,  a guarantor  must  recognize a liability  for the fair
value  of an  obligation  assumed  under  a  guarantee.  FIN  45  also  requires
additional  disclosures  by a  guarantor  in its  interim  and annual  financial
statements  about  the  obligations   associated  with  guarantees  issued.  The
recognition  provisions  of FIN 45 are effective  for any  guarantees  issued or
modified after December 31, 2002. The disclosure  requirements are effective for
financial

                                      -24-
<PAGE>

statements  of interim or annual  periods  ending after  December 15, 2002.  The
Company does not expect the adoption of FIN 45 to have a material  effect on its
financial position, results of operations, or cash flows.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

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

INTEREST RATE RISK

At  December  31,  2002 and  2001,  respectively,  the  Company  had  fixed-rate
long-term  debt of $848.1 million and $897.3 million with a fair value of $778.2
million and $800.1  million.  These  instruments are fixed-rate and therefore do
not expose the  Company  to the risk of  earnings  loss due to changes in market
interest rates.  However,  the fair value of these instruments would decrease by
approximately $49.2 million and $52.7 million if interest rates were to increase
by 10% from  their  levels  at  December  31,  2002 and 2001,  respectively.  In
general,  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.

At December  31,  2002 and 2001,  respectively,  the  Company had  floating-rate
obligations of $163.1 million and $199.0  million,  which exposes the Company to
the risk of increased  interest  expense in the event of increases in short-term
interest  rates.  The Company has entered into interest rate swap agreements for
the purpose of  completely  offsetting  these  interest rate  fluctuations.  The
interest rate  differential  is reflected as an  adjustment to interest  expense
over the life of the instruments.  At December 31, 2002 and 2001,  respectively,
these interest rate swaps had an aggregate notional amount of $163.1 million and
$199.0  million,  which the Company could  terminate at a cost of  approximately
$21.0 million and $16.3 million.  A decrease of 10% in the December 31, 2002 and
2001 level of interest rates would increase the cost of terminating the swaps by
approximately  $4.3 million and $4.6 million,  respectively.  These  termination
costs  would  impact  the  Company's  earnings  and cash  flows only if all or a
portion of the swap instruments were terminated prior to their expiration.

                                      -25-

<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

   Independent Auditors' Report.........................................   27

   Consolidated Balance Sheets as of December 31, 2002 and 2001.........   28

   Consolidated Statements of Operations and Other Comprehensive Income
        for the Three Years Ended December 31, 2002.....................   29

   Consolidated Statements of Members' Equity for the Three Years Ended
        December 31, 2002...............................................   30

   Consolidated Statements of Cash Flows for the Three Years Ended
        December 31, 2002...............................................   31

   Notes to Consolidated Financial Statements...........................   32

                                      -26-

<PAGE>

                          INDEPENDENT AUDITORS' REPORT


Board of Directors and Members'
CE Generation, LLC
Omaha, Nebraska

We have audited the accompanying  consolidated  balance sheets of CE Generation,
LLC and subsidiaries  (collectively,  the "Company") as of December 31, 2002 and
2001,  and  the  related   consolidated   statements  of  operations  and  other
comprehensive  income,  members'  equity,  and cash  flows for each of the three
years in the period  ended  December  31,  2002.  Our audits also  included  the
consolidated  financial  statement  schedule  listed in Item 15. These financial
statements  and  financial  statement  schedule  are the  responsibility  of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the  United  States of  America.  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,  such consolidated  financial  statements present fairly, in all
material respects, the financial position of CE Generation, LLC and subsidiaries
as of December 31, 2002 and 2001 and the results of their  operations  and their
cash flows for each of the three years in the period ended  December 31, 2002 in
conformity with accounting principles generally accepted in the United States of
America.  Also in our opinion,  such consolidated  financial statement schedule,
when considered in relation to the basic consolidated financial statements taken
as a whole,  presents fairly in all material  respects the information set forth
therein.

As discussed in Note 2 to the  consolidated  financial  statements,  in 2002 the
Company changed its accounting  policy for goodwill and other intangible  assets
and in 2001 the Company  changed its  accounting  policy for major  maintenance,
overhaul and well workover costs.



/s/ Deloitte & Touche LLP

DELOITTE & TOUCHE LLP
Omaha, Nebraska
January 24, 2003 (January 29, 2003 as to Note 12)

                                      -27-

<PAGE>
                       CE GENERATION, LLC AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                        AS OF DECEMBER 31, 2002 AND 2001
                             (Amounts in thousands)
<TABLE>
<CAPTION>

                                                           2002           2001
                                                        -----------    -----------
                                     ASSETS
<S>                                                        <C>            <C>
Current assets:
  Cash and cash equivalents ............................   $    43,706    $    34,870
  Restricted cash ......................................        60,238         17,025
  Accounts receivable, net of allowance for
    doubtful accounts of $6,496 and $24,754 ............        63,554        128,725
  Prepaid expenses and other assets ....................         9,943          7,178
  Inventories ..........................................        25,049         23,705
    Due from affiliates ................................          --              132
                                                           -----------    -----------
    Total current assets ...............................       202,490        211,635
                                                           -----------    -----------
Restricted cash ........................................        14,299         14,009
Properties, plants, contracts and equipment, net .......     1,234,408      1,287,668
Excess of cost over fair value of net assets acquired ..       265,897        265,897
Note receivable from related party .....................       137,789        139,896
Deferred financing charges and other assets ............        10,153         13,014
                                                           -----------    -----------
TOTAL ASSETS ...........................................   $ 1,865,036    $ 1,932,119
                                                           ===========    ===========

                         LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
  Accounts payable and other accrued liabilities .......   $    63,103    $    70,772
  Due to affiliates ....................................           406           --
  Current portion of long-term debt ....................        86,656         85,036
                                                           -----------    -----------
    Total current liabilities ..........................       150,165        155,808
                                                           -----------    -----------
Project loans ..........................................       122,573        163,142
Salton Sea notes and bonds .............................       463,591        491,678
Senior secured bonds ...................................       338,400        356,400
Deferred income taxes ..................................       248,033        237,882
                                                           -----------    -----------
  Total liabilities ....................................     1,322,762      1,404,910
                                                           -----------    -----------

Minority interest ......................................        52,379         59,832
Commitments and contingencies (Notes 4 and 10)

Members' equity ........................................       499,748        475,073
Accumulated other comprehensive loss, net ..............        (9,853)        (7,696)
                                                           -----------    -----------
  Total members' equity ................................       489,895        467,377
                                                           -----------    -----------
TOTAL LIABILITIES AND MEMBERS' EQUITY ..................   $ 1,865,036    $ 1,932,119
                                                           ===========    ===========
</TABLE>

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

                                      -28-

<PAGE>
                       CE GENERATION, LLC AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                         AND OTHER COMPREHENSIVE INCOME
                   FOR THE THREE YEARS ENDED DECEMBER 31, 2002
                             (Amounts in thousands)
<TABLE>
<CAPTION>

                                                      2002         2001         2000
                                                    ---------    ---------    ---------

<S>                                                 <C>          <C>          <C>
Revenue:
  Operating revenue .............................   $ 500,729    $ 552,335    $ 499,926
  Interest and other income .....................       9,353       13,503       10,870
                                                    ---------    ---------    ---------
    Total revenue ...............................     510,082      565,838      510,796
                                                    ---------    ---------    ---------
COSTS AND EXPENSES:
  Fuel ..........................................     121,736      121,022      115,008
  Plant operations ..............................     134,065      134,357      114,867
  General and administrative ....................       6,899       10,205        5,461
  Depreciation and amortization .................      82,055       85,035       80,710
  Interest expense ..............................      76,697       81,869       88,491
  Less interest capitalized .....................        --           --         (4,291)
  Asset impairment (Note 4) .....................        --         15,000         --
                                                    ---------    ---------    ---------
    Total costs and expenses ....................     421,452      447,488      400,246
                                                    ---------    ---------    ---------
INCOME BEFORE PROVISION FOR INCOME TAXES ........      88,630      118,350      110,550
  Provision for income taxes ....................       9,559       28,538       21,402
                                                    ---------    ---------    ---------
INCOME BEFORE MINORITY INTEREST .................      79,071       89,812       89,148
  Minority interest .............................      20,757       15,618       15,613
                                                    ---------    ---------    ---------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE
  IN ACCOUNTING PRINCIPLE .......................      58,314       74,194       73,535
  Cumulative effect of change in accounting
    principle, net of tax (Note 2) ..............        --        (15,386)        --
                                                    ---------    ---------    ---------
NET INCOME ......................................   $  58,314    $  58,808    $  73,535
                                                    =========    =========    =========

OTHER COMPREHENSIVE INCOME:
  Cumulative effect of change in accounting
    principle, net of tax (Note 2) ..............        --         (5,954)        --
  Unrealized loss on cash flow hedges, net of tax
    of $1,438 and $1,161 ........................      (2,157)      (1,742)        --
                                                    ---------    ---------    ---------
COMPREHENSIVE INCOME ............................   $  56,157    $  51,112    $  73,535
                                                    =========    =========    =========
</TABLE>

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

                                      -29-
<PAGE>

                       CE GENERATION, LLC AND SUBSIDIARIES
                   CONSOLIDATED STATEMENTS OF MEMBERS' EQUITY
                   FOR THE THREE YEARS ENDED DECEMBER 31, 2002
                             (Amounts in thousands)
<TABLE>
<CAPTION>

                                                               ACCUMULATED
                                                                  OTHER
                                                     MEMBERS'  COMPREHENSIVE
                                                     EQUITY       INCOME        TOTAL
                                                    ---------  -------------  ---------

<S>                                                 <C>          <C>          <C>
BALANCE, JANUARY 1, 2000 ........................   $ 392,280    $    --      $ 392,280

  Distributions .................................     (26,900)        --        (26,900)
  Net income ....................................      73,535         --         73,535
                                                    ---------    ---------    ---------

BALANCE, DECEMBER 31, 2000 ......................     438,915         --        438,915

  Distributions .................................     (22,650)        --        (22,650)
  Net income ....................................      58,808         --         58,808
  Other comprehensive income:
    Initial implementation of SFAS 133 designated
      cash flow hedges ..........................        --         (5,954)      (5,954)
    Change in fair value of cash flow hedges ....        --         (1,742)      (1,742)
                                                    ---------    ---------    ---------

BALANCE, DECEMBER 31, 2001 ......................     475,073       (7,696)     467,377

  Distributions .................................     (33,639)        --        (33,639)
  Net income ....................................      58,314         --         58,314
  Other comprehensive income:
  Change in fair value of cash flow hedges ......        --         (2,157)      (2,157)
                                                    ---------    ---------    ---------

BALANCE, DECEMBER 31, 2002 ......................   $ 499,748    $  (9,853)   $ 489,895
                                                    =========    =========    =========
</TABLE>

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

                                      -30-
<PAGE>
                   CE GENERATION, LLC AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                FOR THE THREE YEARS ENDED DECEMBER 31, 2002
                          (Amounts in thousands)
<TABLE>
<CAPTION>

                                                          2002         2001         2000
                                                       ---------    ---------    ---------

<S>                                                    <C>          <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income .......................................   $  58,314    $  58,808    $  73,535
  Adjustments to reconcile net income to cash flows
    from operating activities:
    Depreciation and amortization ..................      82,055       85,035       80,710
    Asset impairment ...............................        --         15,000         --
    Provision for deferred income taxes ............      10,490        3,377        3,348
    Distributions to minority interest in excess of
      related income ...............................      (5,222)      (5,163)      (8,043)
    Cumulative effect of change in
      accounting principle, net of tax .............        --         15,386         --
  Changes in other items:
    Accounts receivable, net .......................      65,171      (39,149)     (34,096)
    Inventories ....................................      (1,344)       3,719       (2,371)
    Due from affiliates ............................         538       (2,260)       4,138
    Accounts payable and other accrued liabilities .     (12,397)      (4,722)      19,568
    Other assets ...................................         (58)      (2,545)      (6,174)
                                                       ---------    ---------    ---------
      Net cash flows from operating activities .....     197,547      127,486      130,615
                                                       ---------    ---------    ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Capital expenditures .............................     (28,640)     (33,219)     (59,280)
  Consolidation of former equity investment's cash .        --           --          2,559
  Decrease (increase) in restricted cash ...........        (290)      (4,391)      23,696
                                                       ---------    ---------    ---------
    Net cash flows from investing activities .......     (28,930)     (37,610)     (33,025)
                                                       ---------    ---------    ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Repayment of Salton Sea notes and bonds ..........     (28,572)     (23,658)     (25,072)
  Repayment of Senior Secured bonds ................     (20,600)     (12,600)     (10,400)
  Repayment of note payable to related party .......        --           --        (13,000)
  Proceeds from related party note .................       2,107          632       13,000
  Repayment of project loans .......................     (35,864)     (31,201)     (27,137)
  Distributions ....................................     (33,639)     (22,100)     (26,900)
  Increase in restricted cash ......................     (43,213)      (2,231)      (1,049)
                                                       ---------    ---------    ---------
    Net cash flows from financing activities .......    (159,781)     (91,158)     (90,558)
                                                       ---------    ---------    ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS       8,836       (1,282)       7,032
Cash and cash equivalents at beginning of year .....      34,870       36,152       29,120
                                                       ---------    ---------    ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR ...........   $  43,706    $  34,870    $  36,152
                                                       =========    =========    =========
SUPPLEMENTAL DISCLOSURE:
  Interest paid, net of interest capitalized .......   $  74,067    $  79,211    $  83,106
                                                       =========    =========    =========
  Income taxes paid ................................   $   1,199    $  21,928    $  16,411
                                                       =========    =========    =========
</TABLE>

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

                                      -31-
<PAGE>


                       CE GENERATION, LLC AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND OPERATIONS

MidAmerican  Energy  Holdings  Company  ("MidAmerican"  or "MEHC")  completed  a
strategic  restructuring  in  conjunction  with  its  acquisition  of  MHC  Inc.
(formerly  MidAmerican  Energy  Holdings  Company) in which MEHC's  common stock
interests in Magma Power Company,  FSRI Holdings,  Inc.  ("FSRI") and California
Energy Development Corporation, and their subsidiaries (which own the geothermal
and natural gas-fired combined cycle cogeneration  facilities  described below),
were  contributed  by  MEHC  to  the  newly  created  CE  Generation,  LLC  ("CE
Generation"  or the  "Company").  This  restructuring  was completed in February
1999.

On March 3, 1999,  MEHC closed the sale of 50% of its ownership  interests in CE
Generation to El Paso CE Generation  Holding  Company,  which was merged into El
Paso Merchant Energy North America  Company on December 31, 2000 ("EPME").  EPME
is an indirect subsidiary of El Paso Corporation.

BASIS OF PRESENTATION
---------------------

These   consolidated   financial   statements  of  CE  Generation   reflect  the
consolidated  financial  statements of Magma Power Company and  subsidiaries and
FSRI and  subsidiaries  and Yuma  Cogeneration  Associates,  each a wholly-owned
subsidiary.  All intercompany  transactions and balances have been eliminated in
consolidation.

Based on the nature of the Company's products,  the production process, types of
customers and the method used to distribute products; the regulatory environment
and the economic  characteristics of its operations,  the Company has determined
that it operates in one reportable segment.

                                      -32-

<PAGE>


GENERAL
-------

CE Generation is engaged in the independent power business.  The following table
sets out information concerning CE Generation's projects:

<TABLE>
<CAPTION>
                                                                       POWER
                               FACILITY NET                          PURCHASE
                                 CAPACITY     NET MW                AGREEMENT
     OPERATING PROJECT             (MW)       OWNED    LOCATION     EXPIRATION
------------------------------ ------------  --------  --------     ----------

<S>                               <C>          <C>     <C>          <C>
GEOTHERMAL FACILITIES:
 Salton Sea Projects
  Salton Sea I................     10           10     California      2017
  Salton Sea II...............     20           20     California      2020
  Salton Sea III..............     50           50     California      2019
  Salton Sea IV...............     40           40     California      2026
  Salton Sea V................     49           49     California   Year-to-year
                                  ---          ---
   Total Salton Sea Projects..    169          169
                                  ---          ---
Partnership Projects
 Vulcan.......................     34           34     California      2016
 Elmore.......................     38           38     California      2018
 Leathers.....................     38           38     California      2019
 Del Ranch....................     38           38     California      2019
 CE Turbo.....................     10           10     California   Year-to-year
                                  ---          ---
  Total Partnership Projects..    158          158
                                  ---          ---
 Total geothermal facilities..    327          327
                                  ---          ---
GAS FACILITIES:
 Saranac......................    240          180      New York       2009
 Power Resources..............    200          200        Texas        2003
 Yuma.........................     50           50       Arizona       2024
                                  ---          ---
Total gas facilities..........    490          430
                                  ---          ---
TOTAL OPERATING PROJECTS......    817          757
                                  ===          ===
</TABLE>

Salton Sea I, II, III, IV and V are referred as the Salton Sea Projects. Vulcan,
Del Ranch,  Elmore,  Leathers  and CE Turbo are  referred to as the  Partnership
Projects.  The Salton Sea Projects and the Partnership Projects are collectively
referred to as the Imperial Valley Projects.  Saranac,  Power Resources and Yuma
are referred to as the Gas Projects.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Cash Equivalents
----------------

CE Generation  considers all investment  instruments  purchased with an original
maturity of three months or less to be cash equivalents.  Restricted cash is not
considered a cash equivalent.

Restricted Cash
---------------

The current  restricted  cash balance is composed of debt service funds that are
legally  restricted  as to their use and  require  the  maintenance  of specific
minimum  balances  equal to the  next  debt  service  payment.  The  non-current
restricted  cash  balance  is  composed  of  restricted   accounts  for  capital
expenditures and major maintenance expenditures.

                                      -33-
<PAGE>

Allowance for Doubtful Accounts
-------------------------------

The allowance for doubtful accounts is based on the Company's  assessment of the
collectibility  of  specific  customer  accounts  and the aging of the  accounts
receivable. If there is deterioration of a major customer's credit worthiness or
actual defaults are higher than the Company's historical  experience,  estimates
of the recoverability of amounts due it could be adversely affected.

Inventories
-----------

Inventories  consist of spare parts and  supplies and are valued at the lower of
cost or  market.  Cost for  large  replacement  parts is  determined  using  the
specific  identification method. For the remaining supplies,  cost is determined
using the weighted average cost method.

Well Costs
----------

The cost of drilling and equipping  production wells and other direct costs, are
capitalized and amortized on a straight-line  basis over their estimated  useful
lives when production commences.  The estimated useful lives of production wells
are twenty years.

Major Maintenance, Overhaul and Well Rework Costs
-------------------------------------------------

CE Generation has changed its accounting policy for major maintenance,  overhaul
and well rework costs.  These costs,  which had historically  been accounted for
using deferral and accrual methods, are now expensed as incurred. The new policy
went into effect January 1, 2001 and the Company recorded a cumulative effect of
this change of approximately  $15.4 million,  net of tax of  approximately  $9.9
million.  If CE Generation had adopted the policy as of January 1, 2000,  income
before cumulative effect of change in accounting principle would have been $10.9
million lower in 2000 on a proforma basis.

Properties, Plants, Contracts, Equipment and Depreciation
---------------------------------------------------------

The cost of major additions and betterments are capitalized, while replacements,
maintenance,  and  repairs  that do not  improve  or  extend  the  lives  of the
respective assets are expensed.

Depreciation  of the  operating  power  plant  costs,  net of  salvage  value if
applicable,  is computed on the  straight-line  method over the estimated useful
life of 30 years. Depreciation of furniture,  fixtures and equipment is computed
on the  straight-line  method  over the  estimated  useful  lives of the related
assets, which range from 3 to 30 years.

Acquired  power sales  agreements  are amortized  separately on a  straight-line
basis over the remaining  contract  periods which have ranged from 7 to 30 years
at the date of acquisition.

Impairment of Long-Lived Assets
-------------------------------

The  Company's  long-lived  assets  consist  primarily  of  property,  plant and
equipment and intangible assets with useful lives that range from 3 to 40 years.
The Company  believes the useful lives of its long-lived  assets are reasonable.
The Company also evaluates  long-lived assets for impairment  whenever events or
changes in  circumstances  indicate the  carrying  amount of an asset may not be
recoverable.  Triggering  events  include a significant  change in the extent or
manner in which long-lived  assets are being used or in its physical  condition,
in legal factors,  or in the business climate that could affect the value of the
long-lived assets,  including changes in regulation.  The interpretation of such
events  requires  judgment  from  management  as to  whether  such an event  has
occurred  and is  required.  If an event  occurs that could  effect the carrying
value of the asset and  management  does not identify it as a triggering  event,
future results of operations could be significantly affected.

Upon the occurrence of a triggering  event,  the carrying amount of a long-lived
asset is reviewed to assess  whether the  recoverable  amount has declined below
its carrying  amount.  The  recoverable  amount is the estimated net future cash
flows that the  Company  expects  to  recover  from the future use of the asset,
undiscounted and without interest,  plus the asset's residual value on disposal.
Where the recoverable  amount of the long-lived  asset is less than the carrying
value,  an  impairment  loss would be  recognized to write down the asset to its
fair value,  which is based on discounted  estimated  cash flows from the future
use of the asset.

                                      -34-
<PAGE>

The  estimated  cash flows arising from future use of the asset that are used in
the  impairment  analysis  requires  judgment  regarding  what the Company would
expect to recover from future use of the asset.  Any changes in the estimates of
cash flows  arising  from future use of the asset or the  residual  value of the
asset on disposal based on changes in the market conditions,  changes in the use
of the assets,  management's  plans, the determination of the useful life of the
assets and  technology  change in the industry  could  significantly  change the
calculation  of the fair  value  or  recoverable  amount  of the  asset  and the
resulting  impairment  loss,  which  could  significantly  affect the results of
operations.

Excess of Cost over Fair Value of Net Assets Acquired
-----------------------------------------------------

On January 1, 2002,  CE  Generation  adopted  Statement of Financial  Accounting
Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"),
which  establishes  the  accounting for acquired  goodwill and other  intangible
assets, and provides that goodwill and  indefinite-lived  intangible assets will
not be  amortized,  but will be tested for  impairment  on an annual  basis.  CE
Generation's  related  amortization  consists  solely of goodwill  amortization,
which has no income tax  effect.  In  accordance  with SFAS 142,  CE  Generation
completed its initial  goodwill  impairment test, as of January 1, 2002, and its
annual  goodwill  impairment  test,  as of October 31,  2002,  during the fourth
quarter  of  2002,  primarily  using a  discounted  cash  flow  methodology.  No
impairment was indicated as a result of the impairment tests.

Following is a reconciliation of net income as originally reported for the years
ended December 31, 2002, 2001 and 2000, to adjusted net income (in thousands):

                                            2002      2001      2000
                                           -------   -------   -------

          Reported net income ..........   $58,314   $58,808   $73,535
            Goodwill amortization ......      --       9,589     9,593
                                           -------   -------   -------
          Adjusted net income ..........   $58,314   $68,397   $83,128
                                           =======   =======   =======

                                      -35-
<PAGE>


Intangible Assets
-----------------

The following table summarizes the acquired  intangible assets as of December 31
(in thousands):

                                                      2002
                                         -------------------------------
                                         Gross Carrying    Accumulated
                                             Amount        Amortization
                                         --------------   --------------

        Amortized Intangible Assets:
        Power Purchase Contracts .....   $      338,716   $      203,685
        Patented Technology ..........           46,290           15,385
                                         --------------   --------------
             Total ...................   $      385,006   $      219,070
                                         ==============   ==============


                                                      2001
                                         -------------------------------
                                         Gross Carrying    Accumulated
                                             Amount        Amortization
                                         --------------   --------------

        Amortized Intangible Assets:
        Power Purchase Contracts .....   $      338,716   $      185,466
        Patented Technology ..........           46,290           13,456
                                         --------------   --------------
             Total ...................   $      385,006   $      198,922
                                         ==============   ==============


Amortization  expense on acquired  intangible  assets was $18.3  million for the
year ended  December 31, 2002. CE  Generation  expects  amortization  expense on
acquired  intangible  assets to be $18.1  million for 2003 and $14.9 million for
each of the four succeeding fiscal years.

Capitalization of Interest and Deferred Financing Costs
-------------------------------------------------------

Prior to the commencement of operations, interest is capitalized on the costs of
the  plants  and  geothermal  resource   development  to  the  extent  incurred.
Capitalized interest and other deferred charges are amortized on a straight-line
basis over the lives of the related assets.

Deferred  financing  costs are amortized over the term of the related  financing
using the effective interest method.

Revenue Recognition
-------------------

Revenues are recorded based upon  electricity  and steam delivered to the end of
the month. See Note 4 for contractual terms of power sales agreements. Royalties
earned from  providing  geothermal  resources to power plants  operated by other
geothermal power producers are recorded when delivered.

Income Taxes
------------

CE  Generation  and its  subsidiaries  file a  consolidated  federal tax return.
Deferred  tax assets and  liabilities  are  recognized  based on the  difference
between the financial  statement and tax bases of assets and  liabilities  using
estimated tax rates in effect for the year in which the differences are expected
to reverse.

                                      -36-
<PAGE>

Financial Instruments
---------------------

In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of  Financial   Accounting   Standards   133/138,   "Accounting  for  Derivative
Instruments and Hedging  Activities",  which was delayed by SFAS 137 and amended
by SFAS 138. SFAS 133/138 requires an entity to recognize all of its derivatives
as either  assets or  liabilities  in its  statement of  financial  position and
measure those  instruments  at fair value.  CE  Generation  adopted SFAS 133/138
effective  January 1, 2001.  As a result of the  adoption  of SFAS  133/138,  CE
Generation  recorded  the fair value of the  interest  rate swap  agreements  at
January  1,  2001,  which  was  approximately  $6.0  million,   net  of  tax  of
approximately  $4.0 million.  These interest rate swap agreements are considered
cash flow  hedges and  therefore  the offset is recorded  in  accumulated  other
comprehensive  income.  The  adoption  did not  have an  impact  on  results  or
operations or cash flows.

CE  Generation  utilizes  swap  agreements to manage market risks and reduce its
exposure  resulting from  fluctuation in interest rates.  For interest rate swap
agreements,  the net cash amounts paid or received on the agreements are accrued
and recognized as an adjustment to interest expense. CE Generation's practice is
not  to  hold  or  issue  financial  instruments  for  trading  purposes.  These
instruments  are either exchange  traded or with  counterparties  of high credit
quality;  therefore,  the  risk  of  nonperformance  by  the  counterparties  is
considered to be negligible.

Fair values of financial instruments are estimated based on quoted market prices
for debt  issues  actively  traded or on market  prices of  similar  instruments
and/or valuation techniques using market assumptions.

Reclassifications
-----------------

Certain reclassifications were made to the 2001 and 2000 financial statements to
conform to the 2002 presentation.

Use of Estimates
----------------

The preparation of financial statements in conformity with accounting principles
generally  accepted in the United States of America requires  management to make
estimates  and  assumptions  that  affect  the  reported  amounts  of assets and
liabilities  and disclosure of contingent  assets and liabilities at the date of
the  financial  statements  and the  reported  amounts of revenues  and expenses
during the reporting period. Actual results could differ from those estimates.

NEW ACCOUNTING PRONOUNCEMENTS

In August 2001, the FASB, issued SFAS No. 143,  "Accounting for Asset Retirement
Obligations"  ("SFAS 143").  This statement  provides  accounting and disclosure
requirements for retirement obligations associated with long-lived assets and is
effective  January 1, 2003.  This  statement  requires that the present value of
retirement  costs for which the  Company has a legal  obligation  be recorded as
liabilities  with an equivalent  amount added to the asset cost and  depreciated
over an appropriate period. The liability is then accreted over time by applying
an interest  method of allocation  to the  liability.  Cumulative  accretion and
accumulated  depreciation  will be recognized  for the time period from the date
the liability  would have been  recognized  had the provisions of this statement
been in effect, to the date of adoption of this statement. The cumulative effect
of initially  applying this statement will be recognized as a cumulative  effect
of a change in accounting  principle that is expected to be $2.5 million, net of
tax of $1.6 million, in January 2003.

The Company's review  identified  legal retirement  obligations for landfill and
plant abandonment  costs. The Company will record  liabilities  pursuant to SFAS
No. 143 in January  2003.  The Company  used an expected  cash flow  approach to
measure the obligations.  The following proforma  liabilities reflect amounts as
if this statement had been applied during all periods (in thousands):

                                              2002     2001
                                             ------   ------

                    Plant abandonment ....   $3,798   $3,673
                    Landfill abandonment .    3,663    3,542


The  plant  abandonment  had no  previously  recorded  liability.  The  landfill
abandonment had a previously recorded liability of $1.5 million.

In  November  2002,  the FASB issued FASB  Interpretation  No. 45,  "Guarantor's
Accounting  and  Disclosure  Requirements  for  Guarantees,  Including  Indirect
Guarantees  of  Indebtedness  of Others"  ("FIN 45").  FIN 45 requires that upon
issuance of a guarantee,  a guarantor  must  recognize a liability  for the fair
value  of an  obligation  assumed

                                      -37-
<PAGE>

under a guarantee. FIN 45 also requires additional disclosures by a guarantor in
its interim and annual  financial  statements  about the obligations  associated
with guarantees issued.  The recognition  provisions of FIN 45 are effective for
any  guarantees  issued or modified  after  December  31, 2002.  The  disclosure
requirements are effective for financial statements of interim or annual periods
ending after  December 15, 2002. The Company does not expect the adoption of FIN
45 to have a material effect on its financial  position,  results of operations,
or cash flows.

3. EQUITY INVESTMENTS

CE Generation  indirectly held  noncontrolling  general and limited  partnership
interests in Saranac Power Partners,  L.P. (the "Saranac Partnership") which was
formed to build,  own and operate natural gas fired combined cycle  cogeneration
facilities.  Under the Saranac Partnership agreement,  the economic interests of
the partners flip after certain limited  partners achieve fixed rates of return.
In January 2000, TPC Saranac  Partner One Inc. and TPC Saranac  Partner Two Inc.
("Tomen"),  limited  partners,  achieved  an after tax  return  of  8.35%.  This
achievement  resulted  in lower cash flows to Tomen and higher  cash flows to CE
Generation. Following this achievement, CE Generation's economic interest in the
partnership   increased  to  approximately  64%.  Effective  January  2000,  the
investment  in the  Saranac  Partnership  is no  longer  reported  as an  equity
investment but is fully consolidated into CE Generation's financial results.

4. PROPERTIES, PLANTS, CONTRACTS AND EQUIPMENT, NET

Properties,  plants,  contracts and equipment comprise the following at December
31 (in thousands):

                                                     2002           2001
                                                  -----------    -----------
  Cost:
    Power plants ..............................   $ 1,288,281    $ 1,269,211
    Wells and resource development ............       180,151        173,363
    Power sales agreements ....................       338,716        338,716
    Licenses and equipment ....................        50,501         49,374
                                                  -----------    -----------
                                                    1,857,649      1,830,664
  Accumulated depreciation and amortization ...      (623,241)      (542,996)
                                                  -----------    -----------
                                                  $ 1,234,408    $ 1,287,668
                                                  ===========    ===========


The asset impairment in 2001 reflects the write off of the book value of a steam
turbine which had been held in storage for use in new  development  projects and
no longer had any significant value.

Significant Customers and Contracts
-----------------------------------

CE  Generation's  sales  of  electricity  from  the  Imperial  Valley  Projects,
comprised approximately 37%, 43%, and 41%, respectively, of 2002, 2001, and 2000
electricity and steam revenues.  Of these sales,  approximately 95%, 59% and 86%
were  to  Southern   California  Edison  ("Edison")  in  2002,  2001  and  2000,
respectively.   Sales  of  electricity   from  the  Saranac  Project   comprised
approximately  37%,  31% and  33%,  respectively,  of the  2002  2001  and  2000
electricity and steam  revenues.  Of these sales  approximately  98% were to New
York State  Electric  and Gas  ("NYSEG").  Sales of  electricity  from the Power
Resources Project comprised approximately 19%, 16% and 17%, respectively, of the
2002, 2001 and 2000 electricity and steam revenues. Of these sales approximately
97%  were  to  TXU   Generation   Company  LP  ("TXU").   Accounts   receivable,
approximately $25.1 million of which are from Edison,  approximately $16 million
from NYSEG and approximately $8 million from TXU are primarily  uncollateralized
receivables  from long-term  power purchase  contracts  described  below. If the
customers were unable to perform,  CE Generation  could incur an accounting loss
equal to $63.6  million  and $128.7  million at  December  31,  2002,  and 2001,
respectively.

Imperial Valley Projects
------------------------

Each of the Imperial  Valley  Projects,  excluding the CE Turbo and Salton Sea V
Projects,  sells electricity to Edison pursuant to a separate Standard Offer No.
4 Agreement ("SO4  Agreement") or a negotiated  power purchase  agreement.  Each
power  purchase  agreement is  independent  of the others,  and the  performance
requirements  specified  within one such  agreement  apply only to the  Project,
which is subject to the  agreement.  The power purchase  agreements  provide for
energy  payments,  capacity  payments and capacity bonus payments.  Edison makes
fixed annual  capacity  payments and capacity  bonus payments to the projects to
the extent  that  capacity  factors  exceed

                                      -38-
<PAGE>

certain  benchmarks.  The  price for  capacity  is fixed for the life of the SO4
Agreements and are significantly higher in the months of June through September.

Energy  payments for the SO4 Agreement  were at  increasing  fixed rates for the
first ten years after firm  operation and thereafter at a rate based on the cost
that Edison  avoids by purchasing  energy from the project  instead of obtaining
the energy from other sources  ("Avoided Cost of Energy").  In June and November
2001,  the Imperial  Valley  Projects,  excluding  the CE Turbo and Salton Sea V
Projects,  entered  into  Agreements  Addressing  Renewable  Energy  Pricing and
Payment Issues with Edison ("Settlement Agreements").  The Settlement Agreements
provide for amended  energy  payments under the SO4  Agreements.  The amendments
provide for fixed energy  payments  per kWh in lieu of Edison's  Avoided Cost of
Energy.  The fixed energy  payment was 3.25 cents per kWh from  December 1, 2001
through  April  30,  2002 and 5.37  cents per kWh  commencing  May 1, 2002 for a
five-year  period.  Following the five-year  period,  the energy payments revert
back to Edison's Avoided Cost of Energy.

For the years ended December 31, 2002, 2001 and 2000,  Edison's  average Avoided
Cost of Energy  was 3.5  cents,  7.4 cents and 5.8 cents per kWh,  respectively.
Estimates of Edison's future Avoided Cost of Energy vary substantially from year
to year.

The Salton Sea I Project  contracts to sell  electricity to Edison pursuant to a
30-year  negotiated power purchase  agreement that commenced on July 1, 1987, as
amended (the "Salton Sea I PPA"). The contract  capacity and contract  nameplate
are each 10 MW. The capacity payment is based on the firm capacity price,  which
adjusts quarterly based on a basket of energy indices for the term of the Salton
Sea  I  PPA  is  currently   $154.45  per  kW-year.   The  capacity  payment  is
approximately  $1.1 million per annum.  The energy payment is calculated using a
Base Price  (defined as the initial  value of the energy  payment (4.7 cents per
kWh for the second quarter of 1992)), which is subject to quarterly  adjustments
based on a basket of indices.  The time period  weighted  average energy payment
for Salton Sea I was 5.8, 5.9 and 5.7 cents per kWh during 2002,  2001 and 2000,
respectively.  As the  Salton  Sea I PPA is not  an SO4  Agreement,  the  energy
payments do not revert to Edison's Avoided Cost of Energy.

The Salton Sea II Project  contracts to sell electricity to Edison pursuant to a
30-year  modified SO4 Agreement  that  commenced on April 5, 1990.  The contract
capacity and contract  nameplate are 15 MW (16.5 MW during on-peak  periods) and
20 MW, respectively. The price for contract capacity and contract capacity bonus
payments  are fixed  for the life of the  modified  SO4  Agreement.  The  annual
capacity and bonus payments are approximately $3.3 million.  The energy payments
for the first  ten-year  period,  which  period  expired on April 4, 2000,  were
levelized at a time period weighted  average of 10.6 cents per kWh.  Thereafter,
the monthly energy payment was based on Edison's Avoided Cost of Energy.  Edison
is entitled to receive,  at no cost, 5% of all energy delivered in excess of 80%
of contract capacity through September 30, 2004.

The Salton Sea III Project contracts to sell electricity to Edison pursuant to a
30-year modified SO4 Agreement that commenced on February 13, 1989. The contract
capacity and the contract nameplate are 47.5 MW and 49.8 MW,  respectively.  The
price for contract  capacity  payments and capacity  bonus  payments is fixed at
$175 per kW-year.  The annual capacity and bonus payments are approximately $9.7
million. The energy payments for the first ten-year period, which period expired
on February 12, 1999,  were levelized at a time period  weighted  average of 9.8
cents per kWh. Thereafter, the energy payment was based on Edison's Avoided Cost
of Energy.

The Salton Sea IV Project  contracts to sell electricity to Edison pursuant to a
modified SO4 Agreement which provides for contract capacity payments on 34 MW of
capacity at two  different  rates based on the  respective  contract  capacities
deemed  attributable  to the original Salton Sea I PPA option (20 MW) and to the
original  Salton Sea IV SO4  Agreement  ("Fish Lake PPA") (14 MW).  The capacity
payment  price for the 20 MW portion  adjusts  quarterly  based  upon  specified
indices  and  the  capacity  payment  price  for  the 14 MW  portion  is a fixed
levelized  rate.  The  capacity and bonus  payments in 2002,  2001 and 2000 were
approximately  $5.5 million,  $5.7 million and $5.4 million,  respectively.  The
energy  payment  (for  deliveries  up to a rate of 39.6 MW) is at a base  price,
adjusted  quarterly  based on specified  indices,  for 55.6% of the total energy
delivered by Salton Sea IV and is based on an energy payment  schedule for 44.4%
of the total energy  delivered by Salton Sea IV. The contract has a 30-year term
but  Edison  is not  required  to  purchase  the 20 MW of  capacity  and  energy
originally attributable to the Salton Sea I PPA option after September 30, 2017,
the original termination date of the Salton Sea I PPA.

The Salton Sea V Project,  which  commenced  operations  in the third quarter of
2000, will sell  approximately 22 MW of its output to Minerals  pursuant to a 33
year power sales agreement.  The agreement provides for energy payments based on
the market rates  available  to the Salton Sea V Project,  adjusted for wheeling
costs.  The Salton Sea V Project sells its remaining output through other market
transactions.

                                      -39-
<PAGE>

The Vulcan Project  contracts to sell  electricity to Edison under a 30-year SO4
Agreement that commenced on February 10, 1986. The Vulcan Project has a contract
capacity and contract nameplate of 29.5 MW and 34 MW,  respectively.  The annual
capacity and bonus payments are approximately $5.5 million.

The Elmore Project  contracts to sell  electricity to Edison under a 30-year SO4
Agreement that commenced on January 1, 1989. The contract  capacity and contract
nameplate  are 34 MW and 38 MW,  respectively.  The  annual  capacity  and bonus
payments are approximately $7.9 million.

The Leathers  Project  contracts  to sell  electricity  to Edison  pursuant to a
30-year SO4 Agreement that  commenced on January 1, 1990. The contract  capacity
and contract  nameplate are 34 MW and 38 MW,  respectively.  The annual capacity
and bonus payments are approximately  $7.5 million.  The energy payment is based
on Edison's Avoided Cost of Energy.

The Del Ranch Project  contracts to sell  electricity  to Edison under a 30-year
SO4  Agreement  that  commenced on January 2, 1989.  The  contract  capacity and
contract  nameplate are 34 MW and 38 MW,  respectively.  The annual capacity and
bonus payments are approximately $7.9 million.

The CE Turbo Project,  which commenced commercial operation in the third quarter
of 2000, sells its output through market transactions.  The CE Turbo Project may
sell its output to CalEnergy Minerals LLC ("Minerals"), a zinc facility owned by
a subsidiary of MidAmerican, pursuant to a 33 year power purchase agreement. The
agreement  provides for energy  payments based on the market rates  available to
the CE Turbo Project, adjusted for wheeling costs.

The  Imperial  Valley  Projects  other  than the  Salton  Sea I Project  receive
transmission   service  from  the  Imperial   Irrigation   District  to  deliver
electricity to Edison near Mirage,  California.  These projects pay a rate based
on the Imperial Irrigation District's cost of service, which was $1.70 per month
per  kilowatt  of  service  provided  for 2002 and  recalculated  annually.  The
transmission  service  and  interconnection  agreements  expire  in 2015 for the
Partnership  Projects,  2019 for the Salton Sea III Project, 2020 for the Salton
Sea II Project and 2026 for the Salton Sea IV Project.  The Salton Sea V and the
CE Turbo Projects have entered into 30-year  agreements  with similar terms with
the Imperial  Irrigation  District.  The Salton Sea I Project delivers energy to
Edison at the project site and has no  transmission  service  agreement with the
Imperial Irrigation District.

Royalties
---------

Royalty expense for the years ended December 31, 2002,  2001 and 2000,  which is
included in plant  operations  in the  consolidated  statements  of  operations,
comprise the following (in thousands):

                                        2002      2001      2000
                                       -------   -------   -------

              Salton Sea I & II ....   $   772   $   668   $   836
              Salton Sea III .......     1,891     1,391     1,523
              Salton Sea IV ........     3,965     2,309     2,618
              Salton Sea V .........       212       796     1,014
              Vulcan ...............       689       918       709
              Elmore ...............       906     1,277     1,026
              Leathers .............     1,178     1,645     1,367
              Del Ranch ............     1,169     1,445     1,323
              CE Turbo .............        41       123       187
                                       -------   -------   -------
              Total ................   $10,823   $10,572   $10,603
                                       =======   =======   =======

The Imperial Valley Projects obtain their geothermal  resource rights from Magma
Power  Company  and Magma  Land  Company  I,  wholly-owned  subsidiaries  of the
Company.

The  Partnership  Projects pay royalties based on both energy revenues and total
electricity  revenues.  Del Ranch and Leathers pay royalties of approximately 5%
of energy revenues and 1% of total electricity revenue. Elmore pays royalties of
approximately  5% of energy  revenues.  Vulcan pays  royalties of  approximately
4.167% of energy revenues.

                                      -40-
<PAGE>

The Salton Sea Project's weighted average royalty expense in 2002, 2001 and 2000
was approximately 9.8%, 6.0%, and 6.1%, respectively.  The royalties are paid to
numerous  recipients  based  on  varying  percentages  of  electrical  or  steam
production multiplied by published indices.

Gas Projects
------------

The Saranac Project sells  electricity to NYSEG pursuant to a 15 year negotiated
power purchase  agreement (the "Saranac  PPA"),  which provides for capacity and
energy payments.  Capacity payments,  which in 2002 total 2.68 cents per kWh are
received for electricity  produced during "peak hours" as defined in the Saranac
PPA and escalate at  approximately  4.1% annually for the remaining  term of the
contract.  Energy payments,  which averaged 7.86 cents per kWh in 2002, escalate
at  approximately  4.4% annually for the remaining  term of the Saranac PPA. The
Saranac  PPA  expires  in June of  2009.  The  Saranac  Project  sells  steam to
Georgia-Pacific and Tenneco Packaging under long-term steam sales agreements. CE
Generation  believes that these  agreements  will enable the Saranac  Project to
sell the minimum annual  quantity of steam  necessary for the Saranac Project to
maintain its  qualifying  facility  status under the Public  Utility  Regulatory
Policies Act of 1978, ("PURPA") for the term of the Saranac PPA.

The Saranac Project  purchases natural gas from Coral Energy under a 15-year gas
supply agreement that expires in 2009. The price was $3.24 per million MMBtu, at
December  2002 and escalates at the rate of 4% per year.  Coral Energy  delivers
the gas to the pipeline owned by the Saranac Project's subsidiary, North Country
Gas Pipeline, which transports the gas to the Saranac Project.

The Power  Resources  Project  sells  electricity  to TXU  pursuant to a 15 year
negotiated power purchase  agreement ("the Power Resources PPA"), which provides
for capacity and energy payments.  Capacity payments and energy payments,  which
in 2002 are $3.6 million per month and 3.5 cents per kWh, respectively, escalate
at 3.5% annually for the remaining  term of the Power  Resources  PPA. The Power
Resources PPA expires in September 2003. The Power Resources Project sells steam
to Fina Oil and Chemical under a 15-year  agreement.  Power Resources has agreed
to supply Fina with up to 150,000 pounds per hour of steam. As long as the Power
Resources Project meets its supply obligations,  Fina is required to purchase at
least the minimum amount of steam per year required to allow the Power Resources
Project to maintain its qualifying facility status under PURPA.

Fina Oil and  Chemical  supplies  3,600 MMBtu of refinery  fuel gas to the Power
Resources project under an agreement that expires in 2003. The delivery point is
at the  Power  Resources  Project.  The  price  was  $3.02 per MMBtu in 2002 and
escalates at 2% per year.  Dominion  Oklahoma Texas  Exploration and Production,
Inc.,  ("Dominion"),  formerly  Louis  Dreyfus  Natural  Gas  Corporation,  also
supplies  natural  gas for  the  Power  Resources  Project  under  a gas  supply
agreement  that  expires in 2003.  The price for the first  31,200 MMBtu per day
under the agreement was $2.48 per MMBtu in 2002 and escalates  incrementally  to
$2.57 per MMBtu in 2003.  The price for the second 3,000 MMBtu per day under the
agreement  is set at the West Texas  spot price plus $.05 per MMBtu.  Additional
gas may be  purchased  under the  agreement at prices that are  negotiated  with
Dominion.  Dominion  delivers  the  gas to  Westar  Transmission  System,  which
transports the gas for Power  Resources to the project at a rate of $.06 to $.12
per MMBtu depending upon the point of entry into the Westar Transmission system.

Depending  upon several  market  variables,  the Power  Resources  Project could
continue  operation after the expiration of the Power Resources PPA. On December
30, 2002, Power Resources obtained an exempt wholesale  generator order from the
Federal Energy Regulatory Commission.

The Saranac and Power Resources  Projects each delivers energy to its respective
power  purchaser  at or near  the  site of its  project  and  does  not  utilize
transmission service provided by any other party. The facilities to interconnect
each of these  projects to the system of the power  purchaser  were  constructed
under the terms of its power purchase agreement.

The Yuma Project sells electricity to San Diego Gas & Electric Company ("SDG&E")
under an existing  30-year power purchase  contract  commencing in May 1994. The
energy is sold at SDG&E's  Avoided  Cost of Energy and the  capacity  is sold to
SDG&E at a fixed price for the life of the power purchase  contract.  The annual
capacity payments are approximately $8.4 million.  The power is wheeled to SDG&E
over transmission  lines constructed and owned by Arizona Public Service Company
("APS").  The Yuma  Project  sells steam to Queen  Carpet,  Inc.  pursuant to an
agreement  that  expires  on May 1, 2024.  Queen  Carpet is  required  to take a
minimum of 126,900  MMBtus of steam per year,  which the Yuma  Project  needs to
maintain its qualifying facility status under PURPA.

The  Yuma  Project   purchases   natural  gas  from  Southwest  Gas  Corporation
("Southwest  Gas").  The Yuma  Project is  entitled to direct  Southwest  Gas to
purchase  gas from any of several  gas supply  basins  and  transport  it to the
project.  The

                                      -41-
<PAGE>

Yuma Project pays a price based on the applicable  index for the relevant basin.
The agreement may be  terminated  by either party,  in which case  Southwest Gas
would be required to provide gas transportation service under its transportation
tariff to the Yuma Project.

5. PROJECT LOANS

Each of CE Generation's direct or indirect  subsidiaries is organized as a legal
entity  separate and apart from CE  Generation  and its other  subsidiaries  and
MEHC.  Pursuant to separate  project  financing  agreements,  the assets of each
subsidiary  (excluding  Yuma) are pledged or  encumbered to support or otherwise
provide the security for their own project or subsidiary  debt. It should not be
assumed that any asset of any subsidiary of CE Generation,  will be available to
satisfy  the  obligations  of CE  Generation  or any of its other  subsidiaries;
provided,  however,  that  unrestricted cash or other assets which are available
for  distribution  may,  subject to  applicable  law and the terms of  financing
arrangements  for such  parties,  be  advanced,  loaned,  paid as  dividends  or
otherwise  distributed or  contributed  to CE Generation or affiliates  thereof.
"Subsidiary"  means all of CE Generation's  direct or indirect  subsidiaries (1)
owning direct or indirect  interests in the Imperial Valley Projects  (including
the Salton Sea  Projects  and the  Partnership  Projects  other than Magma Power
Company and Salton Sea Power  Company),  or (2) owning  direct  interests in the
subsidiaries that own interests in the foregoing  projects,  the Saranac Project
and the Power Resources Project.

The Power  Resources  Project has project  financing  debt with a consortium  of
banks with interest and principal due quarterly over a 15-year period, beginning
March 31, 1989. The original principal carried a variable interest rate based on
the London  Interbank  Offer Rate ("LIBOR") with a .85% interest  margin through
the  5th  anniversary  of the  loan,  a  1.00%  interest  margin  from  the  5th
anniversary through the 12th anniversary of the loan and a 1.25% interest margin
from  the  12th   anniversary   through  the  end  of  the  loan.  The  loan  is
collateralized  by an assignment of all revenues received by the Power Resources
Project,  a lien on  substantially  all of its real and personal  property and a
pledge of its capital stock.

The  outstanding  $21.7  million of project  financing  debt, as of December 31,
2002, is scheduled to be repaid during 2003.

Under the Power Resources  Project's term loan agreement,  certain covenants and
conditions  must  be met  before  cash  distributions  can  be  made,  the  most
significant of which is the  maintenance of a historical  quarterly debt service
coverage ratio of at least 1.20:1.00 in order to permit all available cash to be
distributed.   The  Power  Resource   Project  was  in  compliance   with  these
requirements at December 31, 2002.

Effective June 5, 1989, the Power Resource Project entered into an interest rate
swap  agreement  with the lender as a means of hedging  floating  interest  rate
exposure  related to its 15-year term loan.  The swap  agreement was for initial
notional   amounts  of  $55.0   million  and  $110.0   million,   declining   in
correspondence with the principal  balances,  and effectively fixed the interest
rates at 9.385% and 9.625%,  respectively,  excluding the interest  margin.  The
swap agreements are settled in cash based on the difference  between a fixed and
floating  (index based) price for the underlying  debt.  The notional  values of
these financial instruments were $21.7 million and $42.1 million at December 31,
2002 and 2001,  respectively.  The Power  Resource  Project  would be exposed to
credit loss in the event of nonperformance by the lender under the interest rate
swap  agreement.  However,  the  Power  Resource  Project  does  not  anticipate
nonperformance by the lender. The fair value of the swap as of December 31, 2002
and 2001 is $1.1  million  and $3.1  million,  respectively,  and is included in
accrued liabilities in the balance sheet.

The interest rate can be increased by payments  under a  Compensation  Agreement
included in the Power Resources' Project term loan. The Compensation  Agreement,
which entitles two of the term lenders to receive quarterly payments  equivalent
to a percentage of the Power Resources Project's discretionary cash flow ("DCF")
as separately  defined in the agreement,  became  effective for a 13-year period
ending December 31, 2003. Under certain conditions relating to the amount of the
Power Resources  Project cash flow and the  restrictions on cash  distributions,
the Power Resource Project has the option to replace the payment obligation in a
quarter with a payment to be calculated in a future quarter and added to the end
of the initial term of the agreement.  The Compensation  Agreement  entitles the
lenders to payments totaling 10% of DCF for the first ten years, 7.5% of DCF for
the next three years and 10% of DCF for each  quarter  added to the initial term
of the  agreement.  The Power  Resource  Project  recorded  additional  interest
expense of $1.3  million,  $1.1  million  and $1.2  million  for the years ended
December 31, 2002,  2001 and 2000,  respectively,  related to amounts owed under
the Compensation Agreement.

In October 1994, the Saranac Partnership signed a 14-year note payable agreement
with a lender for an initial principal amount of $204.6 million. Under the terms
of the note payable agreement,  interest rate alternatives  include an option to
use a  Eurodollar  rate or the  lender's  base rate.  Each  option  includes  an
interest  margin in addition  to the  applicable  rate

                                      -42-
<PAGE>

selected.  The selected interest rate plus interest margin at December 31, 2002,
2001, and 2000 was 2.92313%, 3.71625% and 7.5238%, respectively.

Maturities  of the  note  payable  at  December  31,  2002  are as  follows  (in
thousands):

                                              AMOUNT
                                             --------

                           2003 ..........   $ 18,827
                           2004 ..........     22,100
                           2005 ..........     26,193
                           2006 ..........     31,104
                           2007 ..........     34,378
                           Thereafter ....      8,798
                                             --------
                           Total .........   $141,400
                                             ========

The note  agreements  are  collateralized  by all of the  Saranac  Partnership's
assets.  The Saranac  Partnership is restricted by the terms of the note payable
agreement from making  distributions or withdrawing any capital accounts without
the  consent  of the  lender.  Under  the terms of the note  payable  agreement,
distributions  may be made to the partners in  accordance  with the terms of the
Saranac  Partnership  Agreement.  The note payable  agreement  also requires the
Saranac  Partnership to maintain certain covenants.  The Saranac Partnership was
in compliance with these requirements at December 31, 2002.

Effective October 7, 1994, the Saranac Partnership entered into an interest rate
swap  agreement  with the lender as a means of hedging  floating  interest  rate
exposure related to its 14-year note payable.  The swap agreement was an initial
notional  amount of $204.6  million and  effectively  fixes the interest rate at
8.185%,  which  increased to 8.31% in October 2001 and will increase to 8.56% in
October 2005. The Saranac  Partnership is exposed to credit loss in the event of
nonperformance  by the lender under the interest rate swap  agreement.  However,
the Saranac  Partnership does not anticipate  nonperformance by the lender.  The
fair value of the swap as of December  31,  2002 and 2001 was $19.9  million and
$13.2  million,  respectively,  and is  included in accrued  liabilities  in the
balance sheet.

The Saranac  Partnership  has issued an irrevocable  letter of credit to its gas
supplier  in  the  amount  of  $14.8  million.   The  Saranac   Partnership  has
approximately  $5.7 million available in additional  unissued letters of credit.
Annual fees related to these  letters of credit are  calculated  as 1.75% of the
issued balance and 0.5% of the unissued balance.

6. SALTON SEA NOTES AND BONDS

The Salton Sea Funding Corporation (the "Funding  Corporation"),  a wholly-owned
indirect subsidiary of CE Generation,  has issued debt securities as follows (in
thousands):

                   SENIOR                                      DECEMBER 31,
                   SECURED                                  -------------------
  ISSUED DATE      SERIES    FINAL MATURITY DATE    RATE      2002       2001
----------------   -------   -------------------    -----   --------  ---------

July 21, 1995      B Bonds   May 30, 2005           7.37%   $ 56,661   $ 79,360
July 21, 1995      C Bonds   May 30, 2010           7.84%    109,250    109,250
June 20, 1996      E Bonds   May 30, 2011           8.30%     46,322     47,922
October 13, 1998   F Bonds   November 30, 2018      7.48%    279,445    283,718
                                                    -----    --------   --------
                                                             $491,678   $520,250
                                                             ========   ========

Principal and interest payments are made in semi-annual installments. The Salton
Sea Notes and Bonds are non-recourse to CE Generation.

The net  revenues,  equity  distributions  and  royalties  from the  Partnership
Projects are used to pay principal and interest  payments on outstanding  senior
secured  bonds  issued by  Funding  Corporation,  the  final  series of which is
scheduled to mature in November 2018. Funding  Corporation debt is guaranteed by
certain subsidiaries of Magma and secured by the

                                      -43-
<PAGE>

capital stock of CE Generation.  The proceeds of Funding  Corporation  debt were
loaned by  Funding  Corporation  pursuant  to loan  agreements  and  notes  (the
"Imperial  Valley Project Loans") to certain  subsidiaries of Magma and used for
construction  of  certain  Imperial  Valley  Projects,  refinancing  of  certain
indebtedness  and other  purposes.  Debt service on the Imperial  Valley Project
Loans is used to repay debt service on Funding  Corporation  debt.  The Imperial
Valley Project Loans and the guarantees of Funding  Corporation debt are secured
by  substantially  all of the assets of the  guarantors,  including the Imperial
Valley Projects, and by the equity interests in the guarantors.

On October 13,  1998,  Funding  Corporation  completed  a sale to  institutional
investors of $285 million  aggregate  amount of 7.475% Senior  Secured  Series F
Bonds due November 30, 2018. A portion of the proceeds was used to fund the cost
of  construction  of, and was advanced to, the Zinc Recovery  Project,  which is
indirectly  100% owned by Salton Sea Minerals  Corp., a MEHC affiliate not owned
by CE Generation. The direct and indirect owners of the Zinc Facility (the "Zinc
Guarantors", which include Salton Sea Minerals Corp. and Minerals) are among the
guarantors of the Funding  Corporation debt. In connection with the divestiture,
MEHC guaranteed the payment by the Zinc Guarantors of a specified portion of the
scheduled  debt service on the Imperial  Valley  Project  Loans,  including  the
current principal amount of approximately  $137.8 million,  which is included in
note receivable to related party in the accompanied  consolidated  balance sheet
and associated interest.

Pursuant to a  depository  agreement,  Funding  Corporation  established  a debt
service  reserve  fund in the form of a letter of credit in the  amount of $67.6
million from which  scheduled  interest and principal  payments  could have been
made. As a result of the uncertainties  related to Edison,  the letter of credit
that  supports the debt service  reserve fund at Salton Sea Funding  Corporation
has not been not renewed, and as such cash distributions are not available to CE
Generation until the Salton Sea Funding Corporation debt service reserve fund of
approximately  $67.6  million,  has been funded or the letter of credit has been
renewed or replaced.

                                      -44-

<PAGE>

Annual  repayments  of the  Salton  Sea Notes  and  Bonds  for the years  ending
December 31 are as follows (in thousands):

                                             AMOUNT
                                             --------

                           2003...........   $ 28,087
                           2004...........     30,588
                           2005...........     30,375
                           2006...........     27,744
                           2007...........     26,146
                           Thereafter ....    348,738
                                             --------
                           Total .........   $491,678
                                             ========

CE  Generation's  ability to obtain  distributions  from its  investment  in the
Salton Sea  Projects  and  Partnership  Projects  is  subject  to the  following
conditions:

     o    the  depositary  accounts  for the  Salton Sea Notes and Bonds must be
          fully funded;

     o    there cannot have occurred and be  continuing  any default or event of
          default under the Salton Sea Notes and Bonds;

     o    the historical debt service coverage ratio of Funding  Corporation for
          the prior four  fiscal  quarters  must be at least 1.4 to 1.0,  if the
          distribution  occurs prior to 2000, or 1.5 to 1.0, if the distribution
          occurs during or after 2000; and

     o    there must be  sufficient  geothermal  resources to operate the Salton
          Sea Projects at their required levels.

On  July  21,  1995,  Funding  Corporation  obtained  a $15  million  seven-year
revolving  credit  agreement  between  Credit Suisse as bank and agent and other
lenders.  Interest  rate is at the Adjusted Base Rate plus .375% or at the LIBOR
rate plus 100 basis points. On May 26, 2000 the Funding Corporation borrowed $15
million  under  its  revolving  credit  agreement.  The loan was  repaid  in two
installments,  $5 million on July 26, 2000 and $10  million on August 28,  2000.
There were no borrowings during the years ended December 31, 2002 and 2001.

7. SENIOR SECURED BONDS

On March 2, 1999,  CE Generation  issued $400 million of 7.416%  Senior  Secured
Bonds due 2018.  These  securities are senior secured debt which rank equally in
right of payment with CE Generation's  other senior secured debt permitted under
the  indenture  for the  Securities,  share  equally in the  collateral  with CE
Generation's  other senior  secured debt  permitted  under the indenture for the
Securities,  and  rank  senior  to  any  of CE  Generation's  subordinated  debt
permitted  under  the  indenture  for  the  Securities.   These  securities  are
effectively  subordinated to the existing  project  financing debt and all other
debt of CE Generation's consolidated subsidiaries.

The Senior Secured Bonds are primarily secured by the following collateral:

     o    all available cash flow (as defined);

     o    a pledge of 99% of the equity interests in Salton Sea Power and all of
          CE   Generation's   equity   interests   in  its  other   consolidated
          subsidiaries;

     o    a pledge of all of the capital stock of SECI Holding Inc.;

     o    a grant of a lien on and security interest in the depository accounts;
          and

     o    to the extent possible,  a grant of a lien on and security interest in
          all of CE Generation's other tangible and intangible property,  to the
          extent assignable.

CE Generation  has issued a debt service  reserve letter of credit in the amount
of $24.3 million.

Annual  repayments of the Senior Secured Bonds for the years ending  December 31
are as follows (in thousands):

                                      -45-
<PAGE>

                                              AMOUNT
                                             --------

                           2003...........   $ 18,000
                           2004...........     14,600
                           2005...........     14,800
                           2006...........     19,200
                           2007...........     18,000
                           Thereafter ....    271,800
                                             --------
                           Total .........   $356,400
                                             ========


8. INCOME TAXES

Provision  for income tax is  comprised  of the  following  at  December  31 (in
thousands):

                                     2002        2001        2000
                                   --------    --------    --------
             Current:
               Federal .........   $   (873)   $ 20,412    $ 15,296
               State ...........        (58)      4,749       2,758
                                   --------    --------    --------
                                       (931)     25,161      18,054
                                   --------    --------    --------

             Deferred:
               Federal .........      8,991       3,762          64
               State ...........      1,499        (385)      3,284
                                   --------    --------    --------
                                     10,490       3,377       3,348
                                   --------    --------    --------
             Total provision ...   $  9,559    $ 28,538    $ 21,402
                                   ========    ========    ========

A  reconciliation  of the federal  statutory  tax rate to the effective tax rate
applicable to income before provision for income taxes follows:

                                                        2002     2001     2000
                                                       -----    -----    -----
     Federal statutory rate ........................   35.0%    35.0%    35.0%
     Increases (reductions) in taxes resulting from:
       Percentage depletion ........................   (18.1)   (5.9)    (4.8)
       Investment and energy tax credits ...........   (2.3)    (1.7)    (13.0)
       Goodwill amortization .......................   --        2.8      3.0
       State taxes, net of federal benefit .........    3.3      2.4      3.6
       Minority interest ...........................   (8.2)    (4.6)    (4.9)
       Other items, net ............................    1.1     (3.9)     0.5
                                                       ----     ----     ----
     Effective tax rate ............................   10.8%    24.1%    19.4%
                                                       ====     ====     ====

During  2002,  the Company  made  considerable  progress on several  significant
income tax  examination  matters for prior tax years,  including  percentage  of
depletion,  which  resulted in a decrease in income tax expense of $15.1 million
in 2002.

Income tax expense is only  provided  for the taxable  earnings of the  Company,
including its partnership  interests.  No provision for income taxes is provided
in the accompanying consolidated financial statements for the minority interests
share of the partnership earnings.

                                      -46-

<PAGE>

Deferred tax  liabilities  (assets)  comprise  the  following at December 31 (in
thousands):

                                                           2002         2001
                                                         ---------    ---------
Deferred tax liabilities:
  Properties, plant, contracts and equipment .........   $ 262,921    $ 260,444
  Other ..............................................       1,498        3,048
                                                         ---------    ---------
    Total deferred tax liabilities ...................     264,419      263,492
                                                         ---------    ---------
Deferred tax assets:
  Accruals not currently deductible for tax purposes .      (4,919)     (16,931)
  General business tax credits .......................     (11,467)      (8,679)
                                                         ---------    ---------
    Total deferred tax assets ........................     (16,386)     (25,610)
                                                         ---------    ---------
Net deferred tax liabilities .........................   $ 248,033    $ 237,882
                                                         =========    =========

9. FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair value of a financial  instrument is the amount at which the  instrument
could be exchanged in a current transaction between willing parties,  other than
in a forced sale or liquidation.  Although  management uses its best judgment in
estimating  the fair value of these  financial  instruments,  there are inherent
limitations in any estimation  technique.  Therefore,  the fair value  estimates
presented  herein  are not  necessarily  indicative  of the  amounts,  which  CE
Generation could realize in a current transaction.

The fair value of the note  receivable  from related party is estimated based on
the quoted market price of the corresponding debt issue.

The fair  value of all debt  issues  listed  on  exchanges,  including  the note
receivable  from  related  party  which is based on a debt  issue  listed  on an
exchange,  has been  estimated  based on the quoted market  prices.  The project
loans are estimated to have a fair value equal to the carrying values.

The carrying amounts in the table below are included in the consolidated balance
sheets under the indicated captions (in thousands):

<TABLE>
<CAPTION>
                                                    2002                    2001
                                            ---------------------   ---------------------
                                            Carrying   Estimated    Carrying   Estimated
                                             Value     Fair Value    Value     Fair Value
                                            --------   ----------   --------   ----------

<S>                                         <C>         <C>         <C>         <C>
Financial Assets:
  Note receivable from related parties .    $137,789    $126,765    $139,896    $121,294

Financial Liabilities:
  Project loans ........................     163,142     163,142     199,020     199,020
  Salton Sea notes and bonds ...........     491,678     464,552     520,250     478,809
  Interest rate swaps ..................      21,023      21,023      16,300      16,300
  Senior secured bonds .................     356,400     313,632     377,000     321,325
</TABLE>

                                      -47-
<PAGE>

10.  COMMITMENTS AND CONTINGENCIES

Edison and the California Power Exchange
----------------------------------------

Due to reduced  liquidity,  Edison had failed to pay approximately  $119 million
owed under the power  purchase  agreements  with the  Imperial  Valley  Projects
(excluding  the Salton Sea V and CE Turbo  Projects) for power  delivered in the
fourth quarter 2000 and the first quarter 2001.  Due to Edison's  failure to pay
contractual obligations,  the Imperial Valley Projects (excluding the Salton Sea
V and CE Turbo Projects) had  established an allowance for doubtful  accounts of
approximately $21 million as of December 31, 2001.

As a result of  uncertainties  related  to  Edison,  the  letter of credit  that
supports the debt service reserve fund at Salton Sea Funding Corporation has not
been extended  beyond its current July 2004  expiration  date, and as such, cash
distributions  are not available to CE  Generation  until the Salton Sea Funding
Corporation  debt service reserve fund of  approximately  $67.6 million has been
funded or the letter of credit has been extended beyond its July 2004 expiration
date or replaced.  The fund has a cash  balance of $46.3  million as of December
31, 2002

Pursuant  to a  settlement  agreement  the final  payment by Edison for past due
balances was received March 1, 2002.  Following the receipt of Edison's  payment
of past due  balances,  the Imperial  Valley  Projects  released  the  remaining
allowance for doubtful accounts.

Edison has disputed a portion of the settlement  agreement and has failed to pay
approximately  $3.9  million of  capacity  bonus  payments  for the months  from
October 2001 through May 2002. On December 10, 2001 the Imperial Valley Projects
(excluding the Salton Sea I, Salton Sea V and CE Turbo Projects) filed a lawsuit
against Edison in  California's  Imperial  County Superior Court seeking a court
order  requiring  Edison to make the required  capacity bonus payments under the
Power  Purchase  Agreements.  Due to Edison's  failure to pay these  contractual
obligations,  the Imperial  Valley  Projects have  established  an allowance for
doubtful  accounts of  approximately  $2.7  million.  The Project  entities  are
vigorously pursuing collection of the capacity bonus payments.

On March 25,  2002,  Salton Sea II's 10 MW turbine went out of service due to an
uncontrollable  force event. Such  uncontrollable  force event ended, and Salton
Sea II returned to service, on December 17, 2002. Edison has failed to recognize
the  uncontrollable  force event and as such has not paid amounts  otherwise due
and owing and has improperly  derated Salton Sea II from 15 MW to 12.5 MW, under
the Salton Sea II Power Purchase Agreement.

In January 2001, the California Power Exchange ("PX") declared bankruptcy.  As a
result,  the Salton Sea V and CE Turbo  Projects  have not received  payment for
power sold under the  Transaction  Agreements  during  December 2000 and January
2001  of  approximately   $3.8  million.   The  Imperial  Valley  Projects  have
established  an  allowance  for  doubtful  accounts  for the full amount of this
receivable. The Project entities are vigorously pursuing collection.

Other Commitments
-----------------

Power  Resources  has  contracted to purchase  natural gas for its  cogeneration
facility  under two separate  agreements,  an 8-year  agreement for up to 40,000
MMBTU per day, which expires in December 2003 and a 15-year  agreement for 3,600
MMBTU per day which expires in June 2003. These agreements  include annual price
adjustments,  and the 15-year agreement  includes a provision,  which allows the
seller to terminate the agreement with a two-year written notice. As of December
31, 2002, the seller had not elected to terminate this agreement; therefore, the
minimum  volumes  under the  15-year and 8-year  agreements  for the year ending
December  31,  2003 are  included  in the future  minimum  payments  under these
contracts of approximately $24.9 million.

CE Generation's geothermal and cogeneration facilities are qualifying facilities
under and their contracts for the sale of electricity are subject to regulations
under PURPA. In order to promote open  competition in the industry,  legislation
has been  proposed in the U.S.  Congress that calls for either a repeal of PURPA
on a  prospective  basis or the  significant  restructuring  of the  regulations
governing the electric industry,  including  sections of PURPA.  Current federal
legislative  proposals would not abrogate,  amend, or modify existing  contracts
with electric  utilities.  The ultimate  outcome of any proposed  legislation is
unknown at this time.

The Saranac  Partnership  has a contract  to  purchase  natural gas from a third
party, for its  cogeneration  facility for a period of 15 years for an amount up
to 51,000 MMBtus per day which expires in 2009. The price for such deliveries is
a stated rate, escalated annually at a rate of 4%. The minimum volumes under the
agreement  for the years ending  December 31 are included in the future  minimum
payments under the contract as follows (in thousands):

                                      -48-
<PAGE>

                                              AMOUNT
                                             --------

                           2003...........   $ 63,373
                           2004...........     66,088
                           2005...........     68,544
                           2006...........     71,286
                           2007...........     74,134
                           Thereafter ....    130,123
                                             --------
                           Total .........   $473,548
                                             ========

The Salton Sea V Project is obligated to supply the  electricity  demands of the
Zinc Recovery  Project,  which  commenced  operations  in December  2002, at the
market  rates  available to the Salton Sea V Project,  less the wheeling  costs.
Salton Sea V Project,  which commenced  operations in the third quarter of 2000,
expects  to sell up to 22 MW of its output to  Minerals.  The  remainder  of the
Salton Sea V Project output is sold through other market transactions.

Environmental
-------------

The  Company is subject to numerous  legislative  and  regulatory  environmental
protection  requirements  involving air and water pollution,  waste  management,
hazardous chemical use, noise abatement, and land use aesthetics.

State and federal  environmental laws and regulations currently have, and future
modifications  may  have,  the  effect of (i)  increasing  the lead time for the
construction of new facilities,  (ii) significantly increasing the total cost of
new  facilities,   (iii)  requiring   modification  of  the  Company's  existing
facilities,  (iv)  increasing the risk of delay on  construction  projects,  (v)
increasing   the  Company's  cost  of  waste  disposal  and  (vi)  reducing  the
reliability  of  service  provided  by the  Company  and the  amount  of  energy
available  from  the  Company's  facilities.  Any of  such  items  could  have a
substantial  impact on amounts  required  to be  expended  by the Company in the
future.  Expenditures for ongoing compliance with environmental regulations that
relate to  current  operations  are  expensed  or  capitalized  as  appropriate.
Expenditures that relate to an existing condition caused by past operations, and
which do not contribute to current or future revenue  generation,  are expensed.
Liabilities   are  recorded  when   environmental   assessments   indicate  that
remediation  efforts are  probable  and the costs can be  reasonably  estimated.
Estimates of the liability are based upon currently  available  facts,  existing
technology and presently enacted laws and regulations  taking into consideration
the likely  effects of  inflation  and other social and  economic  factors,  and
include  estimates of associated legal costs.  These amounts also consider prior
experience in remediating sites, other companies'  clean-up  experience and data
released by the Environmental  Protection Agency or other  organizations.  These
estimated  liabilities are subject to revision in future periods based on actual
costs or new circumstances,  and are included in the accompanying balance sheets
at  their  undiscounted   amounts.  As  of  December  31,  2002  and  2001,  the
environmental  liabilities  recorded on the balance  sheet were $5.3 million and
$4.2 million, respectively.

11. RELATED PARTY TRANSACTIONS

Pursuant  to  the  Administrative  Services  Agreement,  MEHC  provides  certain
administrative and management  services to CE Generation,  and MEHC's executive,
financial,  legal,  tax and other  corporate staff  departments  perform certain
services  for CE  Generation.  Expenses  incurred  by MEHC and  allocated  to CE
Generation  were estimated  based on the  individual  services and expense items
provided.  There were no allocated  expenses in 2002 however allocated  expenses
totaled  $3.4  million in 2001 and $2.5  million in 2000,  and are  included  in
general  and  administrative  expense.  On August 1,  2002,  the  Administrative
Services  Agreement  between MEHC and CE Generation was amended to provide for a
fixed monthly fee in lieu of certain expenses,  which were being allocated.  The
fixed fee,  which was  retroactive to January 1, 2002 and ends December 2004, is
$258,333 per month and is included in general and administrative expense.

The Company participates in multi-employer  pension plans sponsored by MEHC. The
Company's  contributions  to the various plans was  approximately  $1.8 million,
$1.6 million and $1.2 million in 2002, 2001 and 2000, respectively.

On May 26, 2000, CE Generation issued a $6.5 million 10% note due June 15, 2005,
in favor of  MidAmerican  and a $6.5 million 10% note due June 15, 2005 in favor
of EPME Company. The notes were repaid on October 16, 2000.

                                      -49-
<PAGE>

On September  29, 2000,  Salton Sea Power and CE Turbo entered into an agreement
to sell all  available  power from the Salton Sea V Project and CE Turbo Project
to EPME.  Under the terms of the  agreement,  EPME  purchased and sold available
power on behalf of Salton  Sea  Power  and CE  Turbo,  into the  California  ISO
markets.  The purchase price for the available power was equivalent to the value
actually  received  by EPME  for the  sale of such  power,  including  renewable
premiums.

On January 17, 2001,  Salton Sea Power and CE Turbo  entered into a  Transaction
Agreement  to sell  available  power from the Salton Sea V Project  and CE Turbo
Project to EPME.  Under the terms of the agreement,  at the option of Salton Sea
Power and CE Turbo,  EPME  purchased all  available  power from the Salton Sea V
Project and CE Turbo Project based on day ahead price quotes received from EPME.

On March 27, 2001 and May 1, 2001,  the Imperial  Valley  Projects  entered into
Transaction  Agreements to sell available  power to EPME based on percentages of
the Dow Jones SP-15  Index.  On June 22,  2001,  the  Imperial  Valley  Projects
(excluding  the  Salton  Sea V  Project  and CE Turbo  Project)  ceased  selling
available  power to EPME and  resumed  power  sales to  Edison  under  the Power
Purchase Agreements ("PPAs").  Effective September 16, 2002 Salton Sea Power and
CE Turbo entered into Transaction  Agreements to sell available power to EPME at
increased percentages of the Dow Jones SP-15 Index.

Pursuant  to these  agreements,  sales to EPME  from the  Company  totaled  $8.9
million, $102.8 million and $19.5 million in 2002, 2001 and 2000,  respectively.
As of  December  31,  2002 and  2001,  accounts  receivable  from EPME were $1.4
million and $11.8 million, respectively.

Pursuant to the November 1, 1998 Amended and  Restated  Power Sales  Agreements,
Salton Sea Power and CE Turbo are to provide  Minerals with its full  electrical
energy requirements at the market rates available to them, less wheeling costs.

Effective August 1, 2002, Salton Sea Power and CE Turbo amended their respective
power sale  agreements  with Minerals to provide for a fixed price of $31.00 per
megawatt  hour for all  hours of  August  1, 2002  through  December  31,  2002.
Pursuant to these  agreements,  sales to Minerals  from Salton Sea Power totaled
$0.4  million and $0.9  million for the years ended  December 31, 2002 and 2001,
respectively,  and there were no sales to  Minerals  from CE Turbo for the years
ended December 31, 2002 and 2001, respectively.  There were no material accounts
receivable balances at December 31, 2002 and 2001.

12. SUBSEQUENT EVENTS

On January 29, 2003, TransAlta USA Inc. ("TransAlta"), a wholly owned subsidiary
of  TransAlta  Corporation,  purchased  EPME's 50%  interest  in CE  Generation.
Pursuant to a Transaction Agreement dated January 29, 2003, Salton Sea Power and
CE Turbo and began  selling  available  power to  TransAlta on February 12, 2003
based on percentages of the Dow Jones SP-15 Index. Such agreement will expire on
October 15, 2003.


                                      -50-

<PAGE>

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE.

Not applicable

                                      -51-

<PAGE>

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.


EXECUTIVE OFFICER                POSITION

Edward J. Heinrich               President
Douglas L. Anderson              Senior Vice President
Wayne F. Irmiter                 Vice President and Controller
Stefan A. Bird                   Director
Ian A. Bourne                    Director
J. Thomas Coyle                  Director
Patrick J. Goodman               Director

EDWARD J.  HEINRICH,  49,  President of CE Generation,  LLC, is responsible  for
independent  power  plant  operations  and  construction  in the United  States.
Heinrich  joined the company in November  1993.  From  December  1987 to October
1993,  he was site  manager  for Sithe  Energies  U.S.A.,  Inc.,  a  non-utility
developer of power facilities. Prior to that, Heinrich worked in engineering for
the U.S. Navy, with a focus on turbine-powered  ships.  Heinrich has also served
as a project  manager for Sundt  Corporation,  a construction  and  construction
management company.

DOUGLAS  L.  ANDERSON,   45,  Senior  Vice  President  and  General  Counsel  of
MidAmerican  and a Senior Vice President of CE Generation.  Mr.  Anderson joined
MidAmerican  in February 1993.  From 1990 to 1993,  Mr.  Anderson was a business
attorney with Fraser,  Stryker,  in Omaha.  From 1987 through 1989, Mr. Anderson
was a  principal  in the firm  Anderson  &  Anderson.  Prior to that,  he was an
attorney with Foster, Swift, Collins & Smith, P.C. in Lansing, Michigan.

WAYNE F. IRMITER,  37, Vice  President  and  Controller  of CE  Generation.  Mr.
Irmiter joined  MidAmerican as Vice  President and Chief  Accounting  Officer in
November  2002. Mr.  Irmiter is a Certified  Public  Accountant and from 1988 to
1993 he  worked  in public  accounting.  Most  recently,  Mr.  Irmiter  was with
Gateway,  Inc.  in various  management  positions  including  Director-Strategic
Initiatives and Director-Finance.

STEFAN A. BIRD, 36, Vice  President,  Project  Development of MidAmerican  and a
director of CE  Generation.  Mr. Bird joined  MidAmerican  in January of 1998 as
Project  Development  Manager  and  was  promoted  to  Vice  President,  Project
Development in August 1999. Prior to joining MidAmerican,  Mr. Bird held various
positions at Koch  Industries  from 1989 to 1997 including  Director of Finance,
Latin  America for Koch  Industries  International  in Mexico City;  Director of
Marketing  and Risk Manager for Koch Power  Services in Houston,  Texas;  Senior
Financial  Analyst  for  Koch  International  Financial  Services  in  Fribourg,
Switzerland;  Project  Manager,  Corporate  Development  for Koch  Industries in
Wichita,  Kansas; and Project Engineer and Maintenance Planner for Koch Refining
Company in St. Paul, Minnesota.

                                      -52-
<PAGE>

IAN A. BOURNE,  55,  Executive  Vice  President and Chief  Financial  Officer of
TransAlta  and a director of CE  Generation.  Mr.  Bourne  joined  TransAlta  in
January  1998 as senior  vice  president  and chief  financial  officer  and was
appointed to his current  position  June 1, 1998.  Immediately  prior to joining
TransAlta,  Mr.  Bourne  had  been  senior  vice-president  and chief  financial
officer of Canada Post  Corporation  from 1992.  Prior to 1992 Mr. Bourne gained
extensive  financial  experience with General Electric,  including  positions as
European treasurer,  based in London; chief financial officer for GE Canada, and
chief financial officer for GE Medical Systems Europe, based in Paris.

J. THOMAS COYLE,  55,  President of TransAlta  Energy  Marketing U.S. Inc. and a
director of CE Generation.  Mr. Coyle joined TransAlta in 1998 as Director, Risk
Portfolio Management,  Energy Marketing.  Prior to joining TransAlta,  Mr. Coyle
held various  positions at  Petro-Canada  from 1986 to 1997 including  Portfolio
Manager - Natural  Gas  Marketing,  Manager  Market  Development  - Natural  Gas
Marketing and Risk Manager.

PATRICK J. GOODMAN,  36, Senior Vice  President and Chief  Financial  Officer of
MidAmerican and a director of CE Generation.  Mr. Goodman joined  MidAmerican in
June 1995 and served as Manager of Consolidation Accounting until September 1996
when he was promoted to Controller.  Mr. Goodman was promoted to Chief Financial
Officer in April 1999. Prior to joining MidAmerican, Mr. Goodman was a financial
manager for  National  Indemnity  Co.  from 1993 to 1995 and a certified  public
accountant at Coopers & Lybrand from 1989 to 1993.

ITEM 11. EXECUTIVE COMPENSATION.

CE Generation's  directors and executive  officers  receive no remuneration  for
serving in such capacities.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
         RELATED STOCKHOLDER MATTERS

Fifty  percent of CE  Generation's  interests are owned by  MidAmerican  and the
other 50% are owned by the Class A Holder. There is no public trading market for
CE  Generation's  membership  interests.  None  of the  directors  or  executive
officers  beneficially  own any of the equity  interests.  MidAmerican's  common
stock is not publicly traded. TransAlta is owned by TransAlta Corporation.  Both
El Paso  Corporation's  and  TransAlta  Corporation's  common  stock is publicly
traded on the New York Stock Exchange.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

CE Generation is 50% owned by  MidAmerican  and 50% owned by the Class A Holder.
CE Generation's  activities are restricted by the terms of the indenture for the
Securities  to  (1)  ownership  of  the  Company's   subsidiaries   and  related
activities,  (2)  acting as  issuer of  securities  and  other  indebtedness  as
permitted  under the indenture and related  activities and (3) other  activities
which could not reasonably be expected to result in a material adverse effect so
long as the rating agencies  confirm that these  activities will not result in a
downgrade of their  ratings of the  Securities.  CE  Generation  and each of the
assigning  subsidiaries  have been  organized and are operated as legal entities
separate and apart from MidAmerican,  TransAlta and their other affiliates, and,
accordingly,  the Company's assets and the assets of the assigning  subsidiaries
will not be  generally  available  to satisfy the  obligations  of  MidAmerican,
TransAlta  or any of their other  affiliates.  However,  the  Company's  and the
assigning  subsidiaries'  unrestricted cash and other assets which are available
for distribution may, subject to applicable law and the terms of CE Generation's
and the assigning  subsidiaries' financing  arrangements,  be advanced,  loaned,
paid as  dividends or  otherwise  distributed  or  contributed  to  MidAmerican,
TransAlta or their  affiliates.  The securities are  non-recourse to MidAmerican
and TransAlta.

MidAmerican entered into an administrative services agreement with CE Generation
and  TransAlta  entered into a power  marketing  services  agreement  and a fuel
management services agreement with CE Generation.  MidAmerican and TransAlta are
reimbursed  for the actual costs and expenses of  performing  their  obligations
under these  agreements.  These agreements each have an initial term of one year
and then continue from year to year until terminated by either party.

CE  Generation  also  entered  into an agreement  with  MidAmerican  and EPME to
provide EPME with a right of first refusal for the Company to participate in the
development of any future geothermal power projects or combined

                                      -53-
<PAGE>

geothermal  power and mineral recovery  projects  proposed by MidAmerican in the
area of the geothermal reservoir that currently supplies geothermal resources to
the  Imperial  Valley  projects  in  return  for the  payment  of a  royalty  to
MidAmerican. If EPME elects not to participate,  the agreement gives MidAmerican
the right to develop the new project  upon a showing  that there are  sufficient
geothermal  resources  for  both  the new  project  and the  Company's  existing
projects.  EPME assigned all its interests in the agreement to TransAlta.

ITEM 14. CONTROLS AND PROCEDURES.

     a)   Evaluation  of  disclosure  controls  and  procedures:  Based  on  the
          Company's evaluation as of a date within 90 days of the filing date of
          this Annual Report on Form 10-K, the principal  executive  officer and
          principal   financial  officer  have  concluded  that  the  disclosure
          controls and procedures  (as defined in Rules  13a-14(c) and 15d-14(c)
          under the  Securities  Exchange  Act of 1934 (the  Exchange  Act)) are
          effective to ensure that  information  required to be disclosed by the
          Company in reports that it files or submits under the Exchange Act are
          recorded,  processed,  summarized and reported within the time periods
          specified in Securities and Exchange  Commission  rules and forms.  It
          should be noted that the design of any system of  controls is based in
          part upon certain  assumptions  about the likelihood of future events,
          and  there  can be no  assurance  that  any  design  will  succeed  in
          achieving  its stated  goals under all  potential  future  conditions,
          regardless of how remote.

     b)   Changes in internal controls. There were no significant changes in the
          Company's   internal   controls  or  in  other   factors   that  could
          significantly  affect these  controls  subsequent to the date of their
          evaluation.   There  were  no  significant  deficiencies  or  material
          weaknesses, and therefore there were no corrective actions taken.

                                      -54-

<PAGE>

                                     PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

     (a)  Financial Statements and Schedules

          (i)  Financial Statements

               Financial Statements are included in Part II of this Form 10-K

          (ii) Financial Statement Schedules

               See  Schedule II on page 56 .

     (b)  Reports on Form 8-K

          The  Company filed a Current Report on Form 8-K on November 14, 2002.

     (c)  Exhibits

          The exhibits  listed on the  accompanying  Exhibit Index are filed as
          part of this Annual Report.

     (d)  Financial  statements  required by Regulations S-X, which are excluded
          from the Annual Report by Rule 14a-3(b).

          Not  Applicable

                                      -55-

<PAGE>

SCHEDULE II


                               CE GENERATION, LLC
                 CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
                   FOR THE THREE YEARS ENDED DECEMBER 31, 2002
                             (Amounts in thousands)

<TABLE>
<CAPTION>

COLUMN A                                 COLUMN B     COLUMN C     COLUMN D      COLUMN E
--------                                 --------     --------     --------      --------
                                         Balance at   Additions                  Balance
                                         Beginning     Charged                   at End
Description                               of Year     to Income    Deductions    of Year
-----------                              ----------   ----------   ----------   ----------
<S>                                      <C>          <C>          <C>          <C>
Allowance for doubtful accounts

Year ended 2002 ......................   $   24,754   $     --     $ (18,258)   $    6,496
                                         ==========   ==========   =========    ==========

Year ended 2001 ......................   $     --     $   24,754   $    --      $   24,754
                                         ==========   ==========   =========    ==========

Year ended 2000 ......................   $     --     $     --     $    --      $     --
                                         ==========   ==========   =========    ==========
Reserves Not Deducted from Assets (1):

Year ended 2002 ......................   $    6,132   $    3,509   $  (3,341)   $    6,300
                                         ==========   ==========   =========    ==========

Year ended 2001 ......................   $    9,102   $    2,000   $  (4,970)   $    6,132
                                         ==========   ==========   =========    ==========

Year ended 2000 ......................   $    3,540   $    8,150   $  (2,588)   $    9,102
                                         ==========   ==========   =========    ==========
</TABLE>


(1)  Reserves  not  deducted  from  assets  include  estimated  liabilities  for
     litigation and environmental compliance at the Imperial Valley Projects.

                                      -56-
<PAGE>

                                   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 this 28th day of March, 2003.

                            CE Generation LLC

                            /s/ Edward J. Heinrich
                            -----------------------
                            By: Edward J. Heinrich
                            President

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

         Signature                                               Date
----------------------------                                --------------

/s/ Edward J. Heinrich                                     March 28, 2003
-----------------------
Edward J. Heinrich
President
(Principal Executive Officer)

/s/ Wayne F. Irmiter                                       March 28, 2003
--------------------
Wayne F. Irmiter
Vice President and Controller
(Principal Accounting Officer)

/s/ Stefan A. Bird                                         March 28, 2003
-------------------
Stefan A. Bird
Director

/s/ Ian A Bourne*                                           March 28, 2003
-----------------
Ian A. Bourne
Director

/s/ J. Thomas Coyle*                                        March 28, 2003
---------------------------
J. Thomas Coyle
Director

/s/ Patrick J. Goodman*                                     March 28, 2003
----------------------
Patrick J. Goodman
Director


* By:  /s/ Douglas L. Anderson
------------------------------
         Douglas L. Anderson
         Attorney-in-Fact

                                      -57-
<PAGE>


                     SECTION 302 CERTIFICATION FOR FORM 10-K

CERTIFICATIONS
--------------


I, Edward J. Heinrich, certify that:


1. I have reviewed this annual report on Form 10-K of CE Generation, LLC;


2.  Based on my  knowledge,  this  annual  report  does not  contain  any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made,  not  misleading  with  respect to the period  covered by this annual
report;


3.  Based  on my  knowledge,  the  financial  statements,  and  other  financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this annual report;


4.  The  registrant's  other  certifying  officers  and  I are  responsible  for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:


a) designed  such  disclosure  controls and  procedures  to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others  within those  entities,  particularly  during the
period in which this annual report is being prepared;


b) evaluated  the  effectiveness  of the  registrant's  disclosure  controls and
procedures  as of a date  within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and


c) presented in this annual report our conclusions  about the  effectiveness  of
the  disclosure  controls  and  procedures  based  on our  evaluation  as of the
Evaluation Date;


5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation,  to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):


a) all significant  deficiencies in the design or operation of internal controls
which  could  adversely  affect the  registrant's  ability  to record,  process,
summarize and report  financial data and have  identified  for the  registrant's
auditors any material weaknesses in internal controls; and


b) any  fraud,  whether  or not  material,  that  involves  management  or other
employees who have a significant role in the registrant's internal controls; and


6. The  registrant's  other  certifying  officers  and I have  indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.


Date:  March 28, 2003

                             /s/ Edward J. Heinrich
                             ----------------------
                               Edward J. Heinrich
                                    President
                          (principal executive officer)

                                      -58-
<PAGE>


                     SECTION 302 CERTIFICATION FOR FORM 10-K

CERTIFICATIONS
--------------


I, Wayne F. Irmiter, certify that:


1. I have reviewed this annual report on Form 10-K of CE Generation, LLC;


2.  Based on my  knowledge,  this  annual  report  does not  contain  any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made,  not  misleading  with  respect to the period  covered by this annual
report;


3.  Based  on my  knowledge,  the  financial  statements,  and  other  financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this annual report;


4.  The  registrant's  other  certifying  officers  and  I are  responsible  for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:


a) designed  such  disclosure  controls and  procedures  to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others  within those  entities,  particularly  during the
period in which this annual report is being prepared;


b) evaluated  the  effectiveness  of the  registrant's  disclosure  controls and
procedures  as of a date  within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and


c) presented in this annual report our conclusions  about the  effectiveness  of
the  disclosure  controls  and  procedures  based  on our  evaluation  as of the
Evaluation Date;


5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation,  to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):


a) all significant  deficiencies in the design or operation of internal controls
which  could  adversely  affect the  registrant's  ability  to record,  process,
summarize and report  financial data and have  identified  for the  registrant's
auditors any material weaknesses in internal controls; and


b) any  fraud,  whether  or not  material,  that  involves  management  or other
employees who have a significant role in the registrant's internal controls; and


6. The  registrant's  other  certifying  officers  and I have  indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.


Date:  March 28, 2003

                              /s/ Wayne F. Irmiter
                              --------------------
                                Wayne F. Irmiter
                          Vice President and Controller
                          (principal financial officer)


                                      -59-
<PAGE>


                                  EXHIBIT INDEX

3.1  Certificate of Formation of CE Generation,  LLC  (incorporated by reference
     to Exhibit 3.1 to the Company's Registration Statement on Form S-4).

3.2  Amended and Restated Limited Liability  Company  Operating  Agreement of CE
     Generation, LLC.

3.3  First Amendment to Amended and Restated Limited Liability Company Operating
     Agreement of CE Generation, LLC, dated as of October 28, 2002.

4.1  Indenture, dated as of March 2, 1999, by and between CE Generation, LLC and
     Chase Manhattan Bank and Trust Company,  National Association (incorporated
     by reference to Exhibit 4.1 to the Company's Registration Statement on Form
     S-4).

4.2  Form of First  Supplemental  Indenture to be entered into by and between CE
     Generation,  LLC and  Chase  Manhattan  Bank and  Trust  Company,  National
     Association,  Trustee  (incorporated  by  reference  to Exhibit  4.2 to the
     Company's Registration Statement on Form S-4).

4.3  Purchase  Agreement,  dated  February 24, 1999, by and among CE Generation,
     LLC,  Credit  Suisse First Boston  Corporation  and Lehman  Brothers,  Inc.
     (incorporated  by  reference to Exhibit 4.3 to the  Company's  Registration
     Statement on Form S-4).

4.4  Exchange and Registration  Rights Agreement,  dated as of March 2, 1999, by
     and among CE Generation,  LLC,  Credit Suisse First Boston  Corporation and
     Lehman  Brothers,  Inc.  (incorporated  by  reference to Exhibit 4.4 to the
     Company's Registration Statement on Form S-4).

4.5  Debt Service Reserve Letter of Credit and Reimbursement Agreement, dated as
     of March 2, 1999, by and among CE Generation,  LLC, the banks named therein
     and Credit  Suisse First  Boston,  as Agent  (incorporated  by reference to
     Exhibit 4.5 to the Company's Registration Statement on Form S-4).

4.6  Deposit and Disbursement Agreement, dated as of March 2, 1999, by and among
     CE Generation,  LLC, Magma Power Company,  Salton Sea Power Company, Falcon
     Seaboard  Resources,  Inc.,  Falcon  Seaboard  Power  Corporation,   Falcon
     Seaboard Oil Company,  California Energy Development Corporation,  CE Texas
     Energy  LLC  and  Chase   Manhattan  Bank  and  Trust   Company,   National
     Association,  as Collateral  Agent and  Depositary  Bank  (incorporated  by
     reference to Exhibit 4.6 to the  Company's  Registration  Statement on Form
     S-4).

4.7  Intercreditor  Agreement,  dated  as of  March  2,  1999,  by and  among CE
     Generation,  LLC,  Magma Power Company,  Salton Sea Power  Company,  Falcon
     Seaboard  Resources,  Inc.,  Falcon  Seaboard  Power  Corporation,   Falcon
     Seaboard Oil Company,  California Energy Development Corporation,  CE Texas
     Energy LLC,  Credit Suisse First Boston and Chase  Manhattan Bank and Trust
     Company, National Association,  as Trustee, Collateral Agent and Depositary
     Bank   (incorporated   by  reference  to  Exhibit  4.7  to  the   Company's
     Registration Statement on Form S-4).

4.8  Assignment and Security Agreement,  dated as of March 2, 1999, by and among
     Magma Power Company,  Salton Sea Power Company,  Falcon Seaboard Resources,
     Inc.,  Falcon  Seaboard  Power  Corporation,  Falcon  Seaboard Oil Company,
     California  Energy  Development  Corporation,  CE Texas Energy LLC,  Credit
     Suisse First Boston and Chase  Manhattan Bank and Trust  Company,  National
     Association,  as Collateral Agent (incorporated by reference to Exhibit 4.8
     to the Company's Registration Statement on Form S-4).

4.9  Assignment  and  Security  Agreement,  dated as of March  2,  1999,  by and
     between CE  Generation,  LLC and Chase  Manhattan  Bank and Trust  Company,
     National  Association,  as Collateral  Agent  (incorporated by reference to
     Exhibit 4.9 to the Company's Registration Statement on Form S-4).

4.10 Pledge  Agreement  (SSPC Stock),  dated as of March 2, 1999, by Magma Power
     Company  in favor of Chase  Manhattan  Bank  and  Trust  Company,  National
     Association, as Collateral Agent (incorporated by reference to Exhibit 4.10
     to the Company's Registration Statement on Form S-4).

                                      -60-
<PAGE>

4.11 Pledge Agreement (FSRI Stock and CEDC Stock),  dated as of March 2, 1999 by
     CE  Generation,  LLC in favor of Chase  Manhattan  Bank and Trust  Company,
     National  Association,  as Collateral  Agent  (incorporated by reference to
     Exhibit 4.11 to the Company's Registration Statement on Form S-4).

4.12 Securities  Account  Control  Agreement,  dated as of March 2, 1999, by and
     among CE Generation,  LLC,  Magma Power Company,  Salton Sea Power Company,
     Falcon Seaboard Resources, Inc., Falcon Seaboard Power Corporation,  Falcon
     Seaboard Oil Company,  California Energy Development Corporation,  CE Texas
     Energy LLC,  Credit Suisse First Boston and Chase  Manhattan Bank and Trust
     Company,  National  Association,  as Collateral  Agent and Depositary  Bank
     (incorporated  by reference to Exhibit 4.12 to the  Company's  Registration
     Statement on Form S-4).

24.0 Power of Attorney

99.1 Chief Executive Officer's Certificate Pursuant to Section 906 of the
     Sarbanes-Oxley Act of 2002

99.2 Chief Financial Officer's Certificate Pursuant to Section 906 of the
     Sarbanes-Oxley Act of 2002.

                                      -61-