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, 2001

                          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, NE                          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 Registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]

     The members'  equity  accounts are held 50% by MidAmerican  Energy Holdings
Company and 50% by El Paso Merchant North America Company as of March 28, 2002.



<PAGE>



                                TABLE OF CONTENTS

PART I .....................................................................   1
Item 1.  Business ..........................................................   1
  General ..................................................................   1
  The Projects .............................................................   2
    Geothermal Facilities ..................................................   2
    Gas Facilities .........................................................   4
  Description of the Securities ............................................   5
    General ................................................................   5
    Collateral for the Securities ..........................................   5
    Payment of Interest and Principal ......................................   5
    Interest ...............................................................   5
    Principal ..............................................................   5
    Priority of Payments ...................................................   7
    Debt Service Reserve Account ...........................................   7
    Optional Redemption ....................................................   7
    Mandatory Redemption--At Par ...........................................   7
    Mandatory Redemption--With Yield Maintenance Premium ...................   7
    Distributions ..........................................................   7
    Nature of Recourse on the Securities ...................................   8
  Covenants ................................................................   8
  Employees ................................................................   8
Item 2.  Properties ........................................................   8
Item 3.  Legal Proceedings .................................................   8
Item 4.  Submission of Matters to a Vote of Security Holders ...............  11
PART II ....................................................................  12
Item 5.  Market for Registrant's Common Equity and Related
         Stockholder's Matters .............................................  12
Item 6.  Selected Financial Data ...........................................  13
Item 7.  Management's Discussion and Analysis of Financial Condition
         and Results of Operations .........................................  14
  Forward Looking Statements ...............................................  14
  Critical Accounting Policies .............................................  14
  Factors Affecting Results of Operations ..................................  15
  Results of Operations for the Years Ended December 2001, 2000 and 1999 ...  15
  Liquidity and Capital Resources ..........................................  17
  Environmental Liabilities ................................................  19
  Inflation ................................................................  20
  Contractual Obligations and Commercial Commitments .......................  20
  Recent Accounting Pronouncements .........................................  20
Item 7A.  Qualitative and Quantitative Disclosures About Market Risk
          Interest Rate Risk ...............................................  21
Item 8.  Financial Statements and Supplementary Data .......................  22
  Independent Auditors' Report .............................................  22
  Consolidated Balance Sheets ..............................................  23
  Consolidated Statements of Operations and Other Comprehensive Income .....  25
  Consolidated Statement of Members' Equity ................................  26
  Consolidated Statements of Cash Flows ....................................  27
  Notes To Consolidated Financial Statements ...............................  28
Item 9.  Changes in and Disagreements with Accountants on Accounting
         and Financial Disclosure ..........................................  45
PART III ...................................................................  46
Item 10.  Directors and Executive Officers .................................  46
Item 11.  Executive Compensation ...........................................  48
Item 12.  Security Ownership of Certain Beneficial Owners and Management ...  48
Item 13.  Certain Relationships and Related Transactions ...................  48
PART IV ....................................................................  49
Item 14.  Exhibits, Financial Statements, Schedule and Reports on Form 8-K .  49
SIGNATURES .................................................................  51
Exhibit Index ..............................................................  52


<PAGE>

                                     PART I

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 on  December  31,  2000  ("EPME"),  an  indirect
subsidiary of El Paso Corporation ("El Paso"). 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.

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 El Paso Power,  which does 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.

The  Company's  limited  liability  company  operating  agreement  provides that
MidAmerican  and EPME 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.  CE Generation has
an aggregate net ownership interest of 756 MW of electrical  generating capacity
in power plants in operation in the United  States,  which have an aggregate net
capacity of 816 MW.

                                      -1-

<PAGE>

THE PROJECTS

The following table sets out information concerning CE Generation projects:

                                   COMMERCIAL
PROJECT                FUEL        OPERATION         CAPACITY         LOCATION
-------                ----        ---------         --------         --------
Vulcan               Geothermal       1986             34 MW          California
Del Ranch            Geothermal       1989             38 MW          California
Elmore               Geothermal       1989             38 MW          California
Leathers             Geothermal       1990             38 MW          California
CE Turbo             Geothermal       2000             10 MW          California
Salton Sea I         Geothermal       1987             10 MW          California
Salton Sea II        Geothermal       1990             20 MW          California
Salton Sea III       Geothermal       1989             49.8 MW        California
Salton Sea IV        Geothermal       1996             39.6 MW        California
Salton Sea V         Geothermal       2000             49 MW          California
Power Resources      Gas              1988             200 MW         Texas
Yuma                 Gas              1994             50 MW          Arizona
Saranac              Gas              1994             240 MW         New York

GEOTHERMAL FACILITIES

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

Each of the  Imperial  Valley  Projects,  excluding  the Turbo and  Salton Sea V
Projects,  sells electricity to Southern  California  Edison Company  ("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 is 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 is 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, 2001,  2000 and 1999,  respectively,  Edison's
Average  Avoided Cost of Energy was 7.4 cents per  kilowatt-hour,  5.8 cents per
kilowatt-hour  and 3.1  cents  per  kilowatt-hour,  respectively.  Estimates  of
Edison's future Avoided Cost of Energy vary substantially from year to year.

                                      -2-

<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 Hoch (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 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 fixed price period for
energy payments expired on December 31, 1999. Thereafter, the energy payment was
based on Edison's Avoided Cost of Energy.

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 5.9 cents per kWh during  2001.  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/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 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 2001 were  approximately $5.7
million.  The energy  payment (for  deliveries  up to a rate of 39.6 MW) is at a
fixed  price 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.

                                      -3-
<PAGE>

The Turbo Project,  which commenced commercial operation in the third quarter of
2000, sells its output through market  transactions.  The Turbo Project may sell
its output pursuant to a power purchase agreement with a zinc facility, which is
owned by a  subsidiary  of  MidAmerican  and is expected to commence  commercial
operations in 2002.

The Salton Sea V Project,  which  commenced  operations  in the third quarter of
2000,  will  sell  approximately  23 MW of its net  output  pursuant  to a power
purchase  agreement  with a zinc  facility,  which is owned by a  subsidiary  of
MidAmerican  and is expected  to commence  commercial  operations  in 2002.  The
Salton  Sea  V  Project  sells  its  remaining   output   through  other  market
transactions.

On January 17, 2001,  Salton Sea Power and CE Turbo  entered into a  transaction
agreement to sell  available  power from the Salton Sea V and Turbo  Projects 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 and Turbo
Projects based on day ahead price quotes received from EPME.

On March 27, 2001 and May 1, 2001,  Salton Sea Power and CE Turbo  entered  into
new  transaction  agreements to sell  available  power from the Salton Sea V and
Turbo Projects to EPME based on percentages of the Dow Jones SP-15 Index.

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 $1.68 per month
per  kilowatt  of  service  provided  for 2001 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
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.

GAS FACILITIES

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 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  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.  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 2001  Saranac  PPA rates  escalate at a higher
percentage than the Saranac Gas Supply Agreement

                                      -4-
<PAGE>

rates.  The  Saranac  Partnership  is  indirectly  owned by  subsidiaries  of CE
Generation,   Tomen   Corporation   ("Tomen")  and  General   Electric   Capital
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. 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.

                          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.

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:

                                      -5-
<PAGE>

                        PERCENTAGE OF
                           INITIAL
                       PRINCIPAL AMOUNT
PAYMENT DATE               PAYABLE
-----------------      ----------------

June 15, 2002              2.575%
December 15, 2002          2.575%
June 15, 2003              2.250%
December 15, 2003          2.250%
June 15, 2004              1.825%
December 15, 2004          1.825%
June 15, 2005              1.850%
December 15, 2005          1.850%
June 15, 2006              2.400%
December 15, 2006          2.400%
June 15, 2007              2.250%
December 15, 2007          2.250%
June 15, 2008              3.525%
December 15, 2008          3.525%
June 15, 2009              3.075%
December 15, 2009          3.075%
June 15, 2010              1.775%
December 15, 2010          1.775%
June 15, 2011              1.900%
December 15, 2011          1.900%
June 15, 2012              2.560%
December 15, 2012          2.560%
June 15, 2013              2.550%
December 15, 2013          2.550%
June 15, 2014              3.225%
December 15, 2014          3.225%
June 15, 2015              3.380%
December 15, 2015          3.380%
June 15, 2016              3.660%
December 15, 2016          3.660%
June 15, 2017              3.780%
December 15, 2017          3.780%
June 15, 2018              4.545%
December 15, 2018          4.545%

                                      -6-
<PAGE>

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.

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;

                                      -7-
<PAGE>

     (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 El  Paso,  nor  any  affiliate,  shareholder,  member,
officer,  director  or employee of CE  Generation,  MidAmerican  or El Paso 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).

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, 2001, CEOC and FPOC employed 211 and
59 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 Company
also maintains an inventory of approximately 73,000 acres of geothermal property
leases.   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.  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.

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.

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.
                                      -8-
<PAGE>

NYSEG
-----

On February  14, 1995,  NYSEG filed with the FERC a Petition  for a  Declaratory
Order,  Complaint,  and  Request  for  Modification  of Rates in Power  Purchase
Agreements  Imposed  Pursuant  to the Public  Utility  Regulatory  Policies  Act
("PURPA") of 1978 ("Petition")  seeking FERC (i) to declare that the rates NYSEG
pays under the Saranac PPA,  which was  approved by the New York Public  Service
Commission  (the "PSC"),  were in excess of the level  permitted under PURPA and
(ii) to  authorize  the PSC to reform the Saranac  PPA. On March 14,  1995,  the
Saranac Partnership  intervened in opposition to the Petition  asserting,  inter
alia,  that the Saranac PPA fully  complied with PURPA,  that NYSEG's action was
untimely and that the FERC lacked  authority to modify the Saranac PPA. On April
12, 1995,  the FERC by a unanimous  (5-0)  decision  issued an order denying the
various forms of relief  requested by NYSEG and finding that the rates  required
under the Saranac PPA were consistent with PURPA and the FERC's regulations.  On
May 11, 1995,  NYSEG requested  rehearing of the order and, by order issued July
19, 1995, the FERC unanimously  (5-0) denied NYSEG's request.  On June 14, 1995,
NYSEG petitioned the United States Court of Appeals for the District of Columbia
Circuit (the "Court of Appeals") for review of FERC's April 12, 1995 order. FERC
moved to dismiss NYSEG's petition for review on July 28, 1995. On July 11, 1997,
the Court of Appeals dismissed NYSEG's appeal from FERC's denial of the petition
on jurisdictional grounds.

On August 7, 1997,  NYSEG filed a complaint in the U.S.  District  Court for the
Northern  District  of New York  against  the FERC,  the PSC (and the  Chairman,
Deputy  Chairman  and the  Commissioners  of the  PSC as  individuals  in  their
official capacity), the Saranac Partnership and Lockport Energy Associates, L.P.
("Lockport")  concerning the power purchase  agreements  that NYSEG entered into
with Saranac  Partners and  Lockport.  NYSEG's suit asserts that the PSC and the
FERC improperly  implemented  PURPA in authorizing the pricing terms that NYSEG,
the Saranac  Partnership and Lockport agreed to in those  contracts.  The action
raised  similar legal  arguments to those  rejected by the FERC in its April and
July 1995 orders.  NYSEG in addition  asked for  retroactive  reformation of the
contracts  as of the date of  commercial  operation  and sought a refund of $281
million from the Saranac Partnership.  The Saranac Partnership and other parties
have filed motions to dismiss and oral  arguments on those motions were heard on
March 2, 1998 and again on March 3, 1999.  On  September  30, 2000 the  District
Court granted the motions to dismiss.  NYSEG filed a Notice of Appeal on October
25, 2000  appealing  the decision to the United  States Court of Appeals for the
Second Circuit.  On October 5, 2001, the Court of Appeals upheld the decision of
the District Court in all material  respects.  NYSEG did not appeal the decision
of the Court of Appeals.

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

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.  CE
Generation  is aware that there have been  public  announcements  that  Edison's
financial  condition  deteriorated as a result of reduced  liquidity.  Following
Edison's recent  financing,  Edison's  senior  unsecured debt  obligations  were
upgraded to Ba3 by Moody's and BB by S&P.

Edison  failed to pay  approximately  $119 million due under the power  purchase
agreements  with CE Generation for power delivered in November and December 2000
and January,  February and March 2001,  although the Power  Purchase  Agreements
provide for billing and payment on a schedule where payments would have normally
been received in early January, February, March, April and May 2001.

On February 21, 2001, the Imperial Valley  Projects  (excluding the Salton Sea V
and Turbo  Projects)  filed a lawsuit  against Edison in  California's  Imperial
County  Superior  Court  seeking  a court  order  requiring  Edison  to make the
required  payments  under  the  power  purchase  agreements.  The  lawsuit  also
requested,  among other things,  that the court order permit the Imperial Valley
Projects  (excluding the Salton Sea V and Turbo Projects) to suspend  deliveries
of power to Edison and to permit the Imperial Valley Projects to sell such power
to other purchasers in California.

On March 22, 2001,  the Superior  Court  granted the Imperial  Valley  Projects'
(excluding the Salton Sea V and Turbo Projects) Motion for Summary  Adjudication
and  a  Declaratory   Judgment  ordering  that:  1)  under  the  Power  Purchase
Agreements,  the Imperial Valley Projects  (excluding the Salton Sea V and Turbo
Projects)  have the right to  temporarily  suspend  deliveries  of capacity  and
energy to Edison,  2) such Imperial Valley Projects  (excluding the Salton Sea V
and Turbo  Projects)  are  entitled  to resell the energy and  capacity to other
purchasers  and 3) the interim  suspension  of deliveries to Edison shall not in
any respect  result in the  modifications  or

                                      -9-
<PAGE>

termination of the power purchase  agreements and the power purchase  agreements
shall in all respects continue in full force and effect other than the temporary
suspension of deliveries to Edison.

As a result of the March 22, 2001  Declaratory  Judgment,  the  Imperial  Valley
Projects (excluding the Salton Sea V and Turbo Projects) suspended deliveries of
energy to Edison and entered into a transaction  agreement with El Paso Merchant
Energy,  L.P.  ("EPME") in which the Imperial  Valley  Projects'  (excluding the
Salton  Sea V and Turbo  Projects)  available  power  was sold to EPME  based on
percentages  of the Dow Jones SP-15 Index.  On June 18, 2001 the Superior  Court
prospectively  vacated  its order  authorizing  the  Imperial  Valley  Projects'
(excluding the Salton Sea V and Turbo  Projects)  right to resell power pursuant
to the Declaratory Judgment.

On June 20, 2001, the Imperial Valley  Projects  (excluding the Salton Sea V and
Turbo Projects) entered into Agreements  Addressing Renewable Energy Pricing and
Payment Issues with Edison ("Settlement  Agreements") and, as a result,  resumed
power sales to Edison on June 22, 2001. The Settlement  Agreements required that
Edison make an initial  payment to repay the past due  balances  under the Power
Purchase  Agreements  (the  "stipulated   amounts").   The  initial  payment  of
approximately  $11.6 million,  which represented 10% of the stipulated  amounts,
was received June 22, 2001. On October 2, 2001, the California  Public Utilities
Commission  ("CPUC")  announced an agreement  with Edison that allowed Edison to
recover in retail electric rates its past due obligations. On November 30, 2001,
the Settlement  Agreements were amended to reflect when Edison would be required
to make the final payment on past due amounts. On March 1, 2002, Edison obtained
$1.8 billion in secured financing that, when combined with cash in hand, enabled
Edison to pay off its past due debts. The final payment of approximately  $104.6
million,  representing the remaining  stipulated amounts,  was received March 1,
2002.  In  addition  to these  payments,  Edison was  required  to make  monthly
interest  payments  calculated  at a rate  of 7% per  annum  on the  outstanding
stipulated amounts.  The amended Settlement  Agreements provide a revised energy
pricing  structure,  whereby Edison elects to pay the Imperial Valley Projects a
fixed  energy  price in lieu of the  Commission-approved  Avoided Cost of Energy
Methodology under the Power Purchase Agreements.  The fixed energy price is 3.25
cents/kWh  from  December  1, 2001  through  April 30,  2002 and 5.37  cents/kWh
commencing May 1, 2002 for a five-year  period.  Following the five-year period,
the energy  payments  revert  back to the  Commission-approved  Avoided  Cost of
Energy  Methodology under the Power Purchase  Agreements.  Estimates of Edison's
future Avoided Cost of Energy vary substantially from year to year.

As a result  of  Edison's  failure  to make the  payments  due  under  the Power
Purchase  Agreements  and the  downgrades of Edison's  credit  ratings,  Moody's
downgraded  the  ratings for the Salton Sea Funding  Corporation  (the  "Funding
Corporation")  Securities  to Caa2  (negative  outlook) and S&P  downgraded  the
ratings for the Funding Corporation Securities to BBB- and placed the Securities
on "credit watch negative". Moody's downgraded the ratings for the CE Generation
Securities  to B1 from Baa3  (review  for  possible  downgrade).  Following  the
execution of the  Settlement  Agreements,  Moody's placed the Salton Sea Funding
and CE Generation securities on "credit watch positive". The Funding Corporation
Securities  are  currently  rated Ba3 by Moody's and BBB- by S&P. CE  Generation
Securities are currently rated Ba2 by Moody's and BBB- by S&P.

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 extended, 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 or replaced.

In January 2001, the California Power Exchange ("PX") declared bankruptcy.  As a
result,  the Salton Sea V and 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 are  contractually  entitled to receive  payments
under the Power Purchase Agreements and Settlements Agreements.  However, due to
the uncertainties  associated with Edison's  financial  condition and failure to
pay contractual  obligations at December 31, 2001,  along with the bankruptcy of
the PX,  CE  Generation  established  an  allowance  for  doubtful  accounts  of
approximately  $24.8  million at  December  2001.  The  allowance  for  doubtful
accounts  has been  recorded as a  reduction  of net sales in the  statement  of
operations.

                                      -10-
<PAGE>

Southern California Edison - Capacity Bonus Payments
----------------------------------------------------

Edison has failed to pay  approximately  $1.3 million of capacity bonus payments
for the months of October,  November and December 2001. On December 10, 2001 the
Imperial Valley Projects (excluding the Salton Sea V and 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.  The Imperial  Valley  Projects will  vigorously
pursue collection of the capacity bonus payments.

Stone and Webster
-----------------

The Salton Sea V and Turbo Projects were constructed by Stone and 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 Turbo Projects EPC Contracts").  On March 7, 2002,  Salton Sea
Power L.L.C.,  Vulcan/BN Geothermal Power Company, Del Ranch, L.P., and CE Turbo
L.L.C.,  the owners of the Salton Sea V and 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  Turbo
Projects  pursuant to the Salton Sea V and Turbo  Projects  EPC  Contracts.  The
Demand for Arbitration did not include a stated claim amount. The arbitration is
scheduled for June 2002.

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

Not Applicable.

                                      -11-

<PAGE>


PART II

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

Not applicable.

                                      -12-

<PAGE>


ITEM 6.  SELECTED FINANCIAL DATA

                      SELECTED CONSOLIDATED FINANCIAL DATA
                                 (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,

                                               2001      2000 (1)      1999(2)       1998         1997
                                           ----------   ----------   ----------   ----------   ----------
<S>                                        <C>          <C>          <C>          <C>          <C>
Statement of Operations Data:
Sales of electricity and steam ........... $  552,335   $  499,926   $  295,787   $  395,560   $  381,458
Total revenue ............................    565,838      510,796      340,683      436,175      407,138
Income before minority interest,
  extraordinary item and cumulative
  effect of change in accounting principle     89,812       89,148       61,970       93,778       69,996
Minority interest ........................    (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 ...............................     58,808       73,535       44,492       93,778       69,996
</TABLE>

<TABLE>
<CAPTION>

                                                                AS OF DECEMBER 31,

                                               2001      2000 (1)       1999         1998         1997
                                           ----------   ----------   ----------   ----------   ----------
<S>                                        <C>          <C>          <C>          <C>          <C>
Balance Sheet Data:
Total assets ............................  $1,932,119   $1,984,445   $1,725,411   $1,782,385   $1,560,874
Project loans, including current portion.     199,006      230,221       76,261       90,529      103,334
Salton Sea notes and bonds, including
  current portion .......................     520,250      543,908      568,980      626,816      448,754
Senior Secured Bonds, including current
  portion ...............................     377,000      389,600      400,000           --           --
Total liabilities .......................   1,404,910    1,477,066    1,333,131    1,245,438    1,096,734
Members' equity (5) .....................     467,377      438,915      392,280      536,947      464,140
</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 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.

(5)  Reflects MEHC's net investments and advances at December 31, 1998 and 1997.

                                      -13-
<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.

FORWARD-LOOKING STATEMENTS

From time to time, the Company may make  forward-looking  statements  within the
meaning of the federal securities laws that involve  judgments,  assumptions and
other uncertainties  beyond its control.  These  forward-looking  statements may
include,  among  others,  statements  concerning  revenue and cost trends,  cost
recovery,   cost  reduction   strategies  and  anticipated   outcomes,   pricing
strategies,  changes in the  utility  industry,  planned  capital  expenditures,
financing  needs and  availability,  statements of the  Company's  expectations,
beliefs,  future plans and strategies,  anticipated events or trends and similar
comments  concerning  matters  that  are not  historical  facts.  These  type of
forward-looking  statements  are based on  current  expectations  and  involve a
number of known and unknown risks and uncertainties  that could cause the actual
results or  performance  of the Company to differ  materially  from any expected
results of performance, expressed or implied, by the forward-looking statements.
In connection with the safe harbor provisions of the Reform Act, the Company has
identified   important  factors  that  could  cause  actual  results  to  differ
materially  from  such  expectations,  including  development  and  construction
uncertainty,  operating  uncertainty,  acquisition  uncertainty,   uncertainties
relating  to  geothermal  resources,  uncertainties  relating  to  economic  and
political  conditions  and  uncertainties  regarding the impact of  regulations,
changes in government policy,  industry deregulation and competition.  Reference
is made to all of the Company's SEC filings,  incorporated  herein by reference,
for a description  of such factors.  The Company  assumes no  responsibility  to
update forward-looking information contained herein.

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 in the
preparation of the Consolidated Financial Statements.

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

The  allowance  for  doubtful  accounts  is  based  on  our  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 our 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,  goodwill  and  intangible  assets  that were  acquired  in  business
acquisitions.  We believe the useful  lives we assigned to these  assets,  which
range from 3 to 40 years, are reasonable.  The Company  evaluates the long-lived
assets for  impairment  when  events or changes in  circumstances  indicate,  in
management's  judgment,  that  the  carrying  value  of such  assets  may not be
recoverable.  These computations  utilized judgments and assumptions inherent in
management's   estimate  of   undiscounted   future  cash  flows  to   determine
recoverability  of an asset. If our  assumptions  about these assets change as a
result of events or  circumstances,  and we believe the assets may have declined
in value, then we may record impairment charges, resulting in lower profits.

                                      -14-
<PAGE>

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

The Company is subject to the possibility of various loss contingencies  arising
in the ordinary course of business.  The Company considers the likelihood of the
loss or impairment  of an asset or the  incurrence of a liability as well as our
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 or an asset has been  impaired and the amount of
loss can be  reasonably  estimated.  The  Company  regularly  evaluates  current
information  available  to us to  determine  whether  such  accruals  should  be
adjusted.

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 Vulcan  Project,  Hoch (Del
Ranch) Project,  Elmore Project,  Leathers Project, and Turbo Project plants are
based on capacity amounts of 34, 38, 38, 38 and 10 net megawatts,  respectively.
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, 49.8, 39.6, and 49 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.

Effective  January 1, 2000, CE  Generation's  economic  ownership in the Saranac
Project  increased to  approximately  64%.  This  increase  resulted  from Tomen
achieving an after tax return of 8.35%. This achievement  resulted in lower cash
flows to Tomen and higher  cash  flows to CE  Generation.  Due to the  increased
ownership, the project is now fully consolidated into CE Generation's results of
operations. The project was previously accounted for as an equity investment.

RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 2001, 2000 AND 1999

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 Turbo  Projects  and  increased  energy rates at the other  Imperial  Valley
Projects  and the Yuma  Project.  Sales of  electricity  and steam  increased to
$499.9  million in the year ended  December 31, 2000 from $295.8  million in the
year ended December 31, 1999, a 69% increase. Approximately $170 million of this
increase reflects the full  consolidation of the Saranac Project.  Approximately
$21 million of the increase  related to higher  energy rates at the Yuma Project
and the  Imperial  Valley  Projects.  The  remaining  increase  is due to higher
production at the Yuma and Power Resources Projects.

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

                                              2001         2000         1999
                                           ---------    ---------    ---------

Overall capacity factor...................      89.7%        87.7%        98.2%
Megawatt-hours produced................... 2,565,600    2,296,800    2,300,700
Capacity (net megawatts)(weighted average)     326.4        298.3        267.4

The increase in capacity in 2001 relates to the addition of the Salton Sea V and
Turbo  Projects in the third  quarter of 2000.  The changes in overall  capacity
factor  in  2001,  2000 and 1999  were  primarily  due to  overhaul  and  outage
scheduling and the  construction and tie in of the upgraded brine facilities and
the start-up of the Salton Sea V and Turbo Projects in 2000.

                                      -15-
<PAGE>

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

                                              2001         2000         1999
                                           ---------    ---------    ---------

Overall capacity factor...................      88.6%        86.5%        87.3%
Megawatt-hours produced................... 3,804,800    3,722,401    4,258,606
Capacity (net megawatts)(weighted average)       490          490          557

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%, 92.9%, and 92.5% for 2001, 2000, and 1999, respectively.
The decrease in megawatt hours produced and capacity from 1999 to 2000 is due to
the transfer of a formerly  owned  project to a third party.  The changes in the
overall  capacity  factor in 2001,  2000,  and 1999 were due  primarily to major
maintenance scheduling.

The decrease in equity  earnings of  subsidiaries  in 2000 from $22.9 million in
1999 reflects the full consolidation of the Saranac Project in 2000.

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. Interest
and other income  decreased to $10.9 million in the year ended December 31, 2000
from $22.0  million in the year ended  December  31,  1999.  This  decrease  was
primarily due to reduced  royalty income  resulting from reduced  revenue at the
Imperial Valley  Projects,  and decreased  interest income as cash balances were
used to fund construction projects.

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.  Fuel  expenses  increased to $115.0  million in
2000 from $37.1  million in 1999.  The  increase was  primarily  due to the full
consolidation of the Saranac Project in 2000.

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 Turbo  Projects  resulting in increased  waste  removal,  chemical costs and
repair costs at the Imperial Valley Projects. Plant operating expenses increased
to $114.9  million in the year ended December 31, 2000 from $75.7 million in the
year ended  December 31, 1999.  Approximately  $18.5  million of this  increase,
related to the full  consolidation of the Saranac Project in 2000. The remaining
increase  related  to  the  addition  of the  Salton  Sea V and  Turbo  Projects
resulting  in  increased  chemical  waste  removal and  demolition  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. General
and administrative expenses increased to $5.5 million in the year ended December
31, 2000 from $4.6 million in 1999. 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  Turbo  Projects  and  upgrades  to steam  gathering
systems,  which were operational in the third quarter of 2000.  Depreciation and
amortization increased to $80.7 million in 2000 from $57.9 million in 1999. This
increase  primarily  reflects the full  consolidation  of the Saranac Project in
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.  Interest
expense, less amounts capitalized, increased in 2000 to $84.2 million from $72.5
million in 1999. This increase  reflects the full  consolidation  of the Saranac
Project and a full year of interest on the CE Generation Securities.

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  has  determined  that the  turbine,  which had been held in storage for
possible use in new development projects, no longer has any significant value.

                                      -16-
<PAGE>

The  provision  for income taxes  increased to $28.5  million in 2001 from $21.4
million in 2000.  The provision  for income taxes  decreased to $21.4 million in
2000 from $30.9  million in 1999.  After  adjusting for minority  interest,  the
effective  tax  rate was  27.8%,  22.5%,  and  33.3%  in  2001,  2000 and  1999,
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  extraordinary  item  of  $17.5  million  in  1999  reflects  the  remaining
unamortized  premium  paid  and  deferred  finance  costs  associated  with  the
repayment of Magma's 9 7/8% Limited  Recourse Senior Secured Notes net of tax of
$11.1 million.

The  cumulative  effect  of the  change in  accounting  principle  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.

RELATED PARTY TRANSACTIONS
--------------------------

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  are  estimated  based on the  individual
services and expense items provided.  Allocated  expenses totaled  approximately
$3.4 million,  $2.5 million,  $2.3 million for each of 2001,  2000 and 1999, and
are included in General and Administrative expenses.

Pursuant to power sales  agreements  with EPME,  sales from the Company  totaled
$102.8 million, $19.5 million and $0 in 2001, 2000 and 1999 respectively.  As of
December 31, 2001 and 2000, accounts receivable from EPME were $11.8 million and
$7.1 million, respectively.

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 are being 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
LLC) 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  $139.9 million,
which is  included  in note  receivable  to  related  party  in the  accompanied
consolidated balance sheet and associated interest.

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.

                                      -17-
<PAGE>

Cash and cash equivalents were $34.9 million at December 31, 2001 as compared to
$36.2  million at December 31,  2000.  In  addition,  restricted  cash was $31.0
million  and  $24.4  million  at  December  31,  2001  and  December  31,  2000,
respectively.

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.  CE
Generation  is aware that there have been  public  announcements  that  Edison's
financial condition deteriorated in 2001 as a result of reduced liquidity.  As a
result of Edison's recent financing,  Edison's senior unsecured debt obligations
were recently upgraded to Ba3 by Moody's and BB by S&P.

Edison  failed to pay  approximately  $119 million due under the Power  Purchase
Agreements  for power  delivered  in November  and  December  2000 and  January,
February and March 2001,  although  the Power  Purchase  Agreements  provide for
billing  and  payment on a schedule  where  payments  would have  normally  been
received in early January, February, March, April and May 2001.

On February 21, 2001, the Imperial Valley  Projects  (excluding the Salton Sea V
and Turbo  Projects)  filed a lawsuit  against Edison in  California's  Imperial
County  Superior  Court  seeking  a court  order  requiring  Edison  to make the
required  payments  under  the  Power  Purchase  Agreements.  The  lawsuit  also
requested,  among other things,  that the court order permit the Imperial Valley
Projects  (excluding the Salton Sea V and Turbo Projects) to suspend  deliveries
of power to Edison and to permit the Imperial Valley Projects to sell such power
to other purchasers in California.

March 22,  2001,  the  Superior  Court  granted the  Imperial  Valley  Projects'
(excluding the Salton Sea V and Turbo Projects) Motion for Summary  Adjudication
and  a  Declaratory   Judgment  ordering  that:  1)  under  the  Power  Purchase
Agreements,  the Imperial Valley Projects  (excluding the Salton Sea V and Turbo
Projects)  have the right to  temporarily  suspend  deliveries  of capacity  and
energy to Edison,  2) the Imperial Valley  Projects  (excluding the Salton Sea V
and Turbo  Projects)  are  entitled  to resell the energy and  capacity to other
purchasers  and 3) the interim  suspension  of deliveries to Edison shall not in
any respect  result in the  modifications  or  termination of the Power Purchase
Agreements and the Power Purchase  Agreements shall in all respects  continue in
full force and effect  other than the  temporary  suspension  of  deliveries  to
Edison.

As a result of the March 22, 2001  Declaratory  Judgment,  the  Imperial  Valley
Projects (excluding the Salton Sea V and Turbo Projects) suspended deliveries of
energy to Edison and entered into a transaction  agreement with El Paso Merchant
Energy,  L.P.  ("EPME") in which the Imperial  Valley  Projects'  (excluding the
Salton  Sea V and Turbo  Projects)  available  power  was sold to EPME  based on
percentages  of the Dow Jones SP-15 Index.  On June 18, 2001 the Superior  Court
prospectively  vacated  its order  authorizing  the  Imperial  Valley  Projects'
(excluding the Salton Sea V and Turbo  Projects)  right to resell power pursuant
to the Declaratory Judgment.

On June 20, 2001, the Imperial Valley  Projects  (excluding the Salton Sea V and
Turbo Projects) entered into Agreements  Addressing Renewable Energy Pricing and
Payment Issues with Edison ("Settlement  Agreements") and, as a result,  resumed
power sales to Edison on June 22, 2001. The Settlement  Agreements required that
Edison make an initial  payment to repay the past due  balances  under the Power
Purchase  Agreements  (the  "stipulated   amounts").   The  initial  payment  of
approximately  $11.6 million,  which represented 10% of the stipulated  amounts,
was received June 22, 2001. On October 2, 2001, the California  Public Utilities
Commission  ("CPUC")  announced an agreement  with Edison that allowed Edison to
recover in retail electric rates its past due obligations. On November 30, 2001,
the Settlement  Agreements were amended to reflect when Edison would be required
to make the final payment on past due amounts. On March 1, 2002, Edison obtained
$1.8 billion in secured financing that, when combined with cash in hand, enabled
Edison to pay off its past due debts. The final payment of approximately  $104.6
million,  representing the remaining  stipulated amounts,  was received March 1,
2002.  In  addition  to these  payments,  Edison was  required  to make  monthly
interest  payments  calculated  at a rate  of 7% per  annum  on the  outstanding
stipulated amounts.  The amended Settlement  Agreements provide a revised energy
pricing  structure,  whereby Edison elects to pay the Imperial Valley Projects a
fixed  energy  price in lieu of the  Commission-approved  SRAC  Avoided  Cost of
Energy Methodology under the Power Purchase  Agreements.  The fixed energy price
is 3.25  cents/kWh  from  December  1,  2001  through  April  30,  2002 and 5.37
cents/kWh commencing May 1, 2002 for a five-year period. Following the five-year
period, the energy payments revert back to the Commission-approved  Avoided Cost
of Energy Methodology under the Power Purchase Agreements. Estimates of Edison's
future Avoided Cost of Energy vary substantially from year to year.

                                      -18-
<PAGE>

As a result  of  Edison's  failure  to make the  payments  due  under  the Power
Purchase  Agreements  and the  downgrades of Edison's  credit  ratings,  Moody's
downgraded  the  ratings for the Salton Sea Funding  Corporation  (the  "Funding
Corporation")  Securities  to Caa2  "negative  outlook" and S&P  downgraded  the
ratings for the Funding Corporation Securities to BBB- and placed the Securities
on "credit watch negative". Moody's downgraded the ratings for the CE Generation
Securities to B1 from Baa3 (review for possible  downgrade).  S&P downgraded the
ratings for the CE Generation  Securities to BBB- "credit watch  negative"  from
BBB-. Following the execution of the Settlement  Agreements,  Moody's placed the
Salton Sea Funding and CE Generation  securities on "credit watch  positive" and
subsequently upgraded the ratings to Ba3 and Ba2, respectively.

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 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 2004 expiration date
or replaced.

In January 2001, the California Power Exchange ("PX") declared bankruptcy.  As a
result,  the Salton Sea V and 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  (except the Salton Sea V and Turbo Projects) are
contractually  entitled to receive payments under the Power Purchase  Agreements
and Settlements  Agreements.  However, due to the uncertainties  associated with
Edison's  financial  condition  and failure to pay  contractual  obligations  at
December  31,  2001,  along  with  the  bankruptcy  of  the  PX,  CE  Generation
established an allowance for doubtful accounts of approximately $24.8 million at
December  2001.  The  allowance  for doubtful  accounts  has been  recorded as a
reduction of net sales in the statement of operations.

Edison has failed to pay  approximately  $1.3 million of capacity bonus payments
for the months of October,  November and December 2001. On December 10, 2001 the
Guarantors  (excluding  the  Salton  Sea V and 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.

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,  2001  and  2000,  the
environmental  liabilities  recorded on the balance  sheet were $4.2 million and
$6.2 million, respectively.

                                      -19-
<PAGE>

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.  Based  on  management's  assessment  of  the
underlying provisions and circumstances of the material contractual  obligations
and commercial commitments of the Company,  including material off-balance sheet
and  structured  finance   arrangements,   there  is  no  known  trend,  demand,
commitment,  event or uncertainty that is reasonably likely to occur which would
have a  material  effect on the  Company's  financial  condition  or  results of
operations.  The following tables identify material  obligations and commitments
as of December 31, 2001:

<TABLE>
<CAPTION>
                                                      Payments Due by Period
                                      ----------------------------------------------------------
                                                   Less Than       2-3         4-5       After 5
Contractual Cash Obligations            Total       1 Year        Years       Years       Years
----------------------------          ----------   ---------    --------    --------    --------
(in thousands)

<S>                                   <C>           <C>         <C>         <C>         <C>
Long-Term Debt ...................    $1,096,256    $ 85,036    $153,942    $149,416    $707,862
Other Long-Term Obligations ......       583,625      85,220     154,315     139,830     204,260
                                      ----------    --------    --------    --------    --------

Total Contractual Cash Obligations    $1,679,881    $170,256    $308,257    $289,246    $912,122
                                      ==========    ========    ========    ========    ========
</TABLE>

<TABLE>
<CAPTION>
                                                 Commitment Expiration per Period
                                      ----------------------------------------------------------
                                                   Less Than       2-3         4-5      After 5
Other Commercial Commitments           Total        1 Year        Years       Years      Years
----------------------------          ----------   ---------    --------    --------    --------
(in thousands)

<S>                                   <C>           <C>         <C>         <C>         <C>
Lines of Credit (a) ..............    $   15,000    $ 15,000    $     --    $     --    $     --
Standby Letters of Credit (b) ....       105,800      38,200      67,600                      --
                                      ----------    --------    --------    --------    --------


Total Commercial Commitments .....    $  120,800    $ 53,200    $ 67,600    $     --    $     --
                                      ==========    ========    ========    ========    ========
</TABLE>

(a)  The lines of credit  represent the unused borrowing  capacity  available to
     the Company, as of December 31, 2001.

(b)  The  standby  letters  of credit  represent  the  letters  of credit for CE
     Generation, Salton Sea Funding Corporation and the Saranac Partnership. The
     Salton Sea Funding Corporation letter of credit matures in July 2004.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial  Accounting  Standards Board (FASB) issued Statement
of  Financial   Accounting  Standard  (SFAS)  133,  "Accounting  for  Derivative
Instruments and Hedging Activities",  which was delayed by SFAS 137, "Accounting
for Derivative  Instruments and Hedging  Activities - Deferral of Effective Date
of FASB  Statement  No.  133" and amended by SFAS 138,  "Accounting  for Certain
Derivative Instruments and Certain Hedging Activities". SFAS 133/138 requires an
entity to recognize all of its  derivatives  as either assets or  liabilities in
its

                                      -20-
<PAGE>

statement of financial  position and measure those instruments at fair value. CE
Generation utilizes derivative  financial  instruments solely to manage the risk
that  changes in interest  rates will  affect the amount of its future  interest
payments and 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. 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 of operations or cash flows.

In July 2001, FASB issued SFAS No. 141,  "Business  Combinations",  and SFAS No.
142,  "Goodwill and Other  Intangible  Assets",  which establish  accounting and
reporting  for  business  combinations.  SFAS  No.  141  requires  all  business
combinations  entered into subsequent to June 30, 2001 to be accounted for using
the purchase method of accounting. SFAS No. 142 provides that goodwill and other
intangible  assets  with  indefinite  lives will not be  amortized,  but will be
tested for impairment on an annual basis.  SFAS 142 is effective for the Company
beginning  January 1, 2002.  Under the current method of assessing  goodwill for
impairment,   which  uses  an  undiscounted  cash  flow  approach,  no  material
impairment  existed at December  31, 2001.  For 2002,  the Company will begin to
test goodwill for impairment  under the new rules,  applying a fair  value-based
approach. The Company is in the process of quantifying the anticipated impact on
its financial  condition and results of operations of adopting the provisions of
SFAS  No.  142,  which  could  be  significant.  The  historical  impact  of not
amortizing  goodwill  would have been to increase net income for the years ended
December 31, 2001, 2000 and 1999 by approximately $9.6 million, $9.6 million and
$9.7 million,  respectively.  However,  impairment  reviews may result in future
periodic write-downs.

In August  2001,  FASB  issued SFAS No. 143,  "Accounting  for Asset  Retirement
Obligations".  This standard  addresses  financial  accounting and reporting for
obligations  related to the  retirement  of tangible  long-lived  assets and the
related asset retirement  costs.  SFAS 143 is effective for the Company's fiscal
year  beginning  January 1, 2003.  Management has not quantified the impact this
standard will have on the Company's consolidated financial statements.

In October  2001,  FASB issued  SFAS No.  144,  "Accounting  for  Impairment  of
Disposal of Long-Lived Assets".  The standard addresses financial accounting and
reporting for the  impairment or disposal of long-lived  assets and is effective
for the Company's  fiscal year  beginning  January 1, 2002.  Management  has not
quantified  the impact this  standard  will have on the  Company's  consolidated
financial statements.

ITEM 7A.  QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

INTEREST RATE RISK

At  December  31,  2001 and  2000,  respectively,  the  Company  had  fixed-rate
long-term  debt of $897.3 million and $933.5 million with a fair value of $800.1
million and $807.7  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 $52.7 million and $30.2 million if interest rates were to increase
by 10% from  their  levels  at  December  31,  2001 and 2000,  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,  2001 and 2000,  respectively,  the  Company had  floating-rate
obligations of $199.0 million and $230.2  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, 2001 and 2000,  respectively,
these interest rate swaps had an aggregate notional amount of $199.0 million and
$230.2  million,  which the Company could  terminate at a cost of  approximately
$16.3 million and $12.3 million.  A decrease of 10% in the December 31, 2001 and
2000 level of interest rates would increase the cost of terminating the swaps by
approximately  $4.6 million and $4.2 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.

                                      -21-

<PAGE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                          INDEX TO FINANCIAL STATEMENTS

                                                                            PAGE

Consolidated Financial Statements of CE Generation, LLC:

Independent Auditors' Report .............................................    23

Consolidated Balance Sheets as of December 31, 2001 and 2000 .............    24

Consolidated Statements of Operations and Other Comprehensive Income
for the Three Years Ended December 31, 2001 ..............................    25

Consolidated Statements of Members' Equity for the Three Years
Ended December 31, 2001 ..................................................    26

Consolidated Statements of Cash Flows for the Three Years
Ended December 31, 2001 ..................................................    27

Notes to Consolidated Financial Statements ...............................    28

                                      -22-

<PAGE>

                          INDEPENDENT AUDITORS' REPORT


Board of Directors
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, 2001 and 2000,  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, 2001. Our audits also included the
financial  statement schedule listed in item 14. 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,  2001  and  2000  and the  results  of  their
operations  and their cash flows for each of the three years in the period ended
December 31, 2001 in conformity with accounting principles generally accepted in
the United  States of America.  Also in our opinion,  such  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 2001
the Company changed its accounting  policy for major  maintenance,  overhaul and
well workover costs.


DELOITTE & TOUCHE LLP
Omaha, Nebraska
January 17, 2002 (March 1, 2002 as to Note 9A)

                                      -23-

<PAGE>
                       CE GENERATION, LLC AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 2001 AND 2000
                             (AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                 2001          2000
                                                              ----------    ----------
<S>                                                          <C>            <C>
ASSETS
Cash and cash equivalents ................................   $    34,870    $   36,152
Restricted cash ..........................................        17,025        14,794
Accounts receivable, net of allowance for
  doubtful accounts of $24,754 and $0 (Note 9A) ..........       128,725        89,883
Prepaid expenses and other assets ........................         7,178        19,981
Inventory ................................................        23,705        27,424
Due from affiliates ......................................           132            --
                                                             -----------    ----------
Total current assets .....................................       211,635       188,234

Restricted cash ..........................................        14,009         9,618
Properties, plants, contracts and equipment, net (Note 4)      1,287,668     1,355,345
Excess of cost over fair value of net assets acquired, net       266,701       276,294
Note receivable from related party (Note 6) ..............       139,896       140,528
Deferred financing charges and other assets ..............        12,210        14,426
                                                             -----------    ----------
Total assets .............................................   $ 1,932,119    $1,984,445
                                                             ===========    ==========

LIABILITIES AND EQUITY
Liabilities:
Accounts payable and other accrued liabilities ...........   $    70,772    $   68,700
Due to affiliates ........................................            --         2,578
Current portion of long term debt ........................        85,036        67,473
                                                             -----------    ----------
Total current liabilities ................................       155,808       138,751

Project loans (Note 5) ...................................       163,142       199,006
Salton Sea notes and bonds (Note 6) ......................       491,678       520,250
Senior secured bonds (Note 7) ............................       356,400       377,000
Deferred income taxes ....................................       237,882       242,059
                                                             -----------    ----------
Total liabilities ........................................     1,404,910     1,477,066

Minority interest ........................................        59,832        68,464

Commitments and contingencies (Notes 4 and 9)
Members' equity ..........................................       475,073       438,915
Accumulated other comprehensive income ...................        (7,696)           --
                                                             -----------    ----------
Total equity .............................................       467,377       438,915
                                                             -----------    ----------

Total liabilities and equity .............................   $ 1,932,119    $1,984,445
                                                             ===========    ==========
</TABLE>
   The accompanying notes are an integral part of these financial statements.

                                      -24-
<PAGE>
                       CE GENERATION, LLC AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                         AND OTHER COMPREHENSIVE INCOME
                   FOR THE THREE YEARS ENDED DECEMBER 31, 2001
                             (AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
                                                       2001        2000         1999
                                                    ---------    ---------    ---------
<S>                                                 <C>          <C>          <C>
Revenue:
Sales of electricity and steam, net of allowance    $ 552,335    $ 499,926    $ 295,787
Equity earnings in subsidiaries .................          --           --       22,861
Interest and other income .......................      13,503       10,870       22,035
                                                    ---------    ---------    ---------
Total revenues ..................................     565,838      510,796      340,683

Cost and Expenses:
Fuel ............................................     121,022      115,008       37,111
Plant operations ................................     134,357      114,867       75,690
General and administrative ......................      10,205        5,461        4,594
Depreciation and amortization ...................      85,035       80,710       57,869
Interest expense ................................      81,869       88,491       77,515
Less interest capitalized .......................          --       (4,291)      (4,978)
Asset impairment (Note 4) .......................      15,000           --           --
                                                    ---------    ---------    ---------
Total expenses ..................................     447,488      400,246      247,801
                                                    ---------    ---------    ---------
Income before provision for income taxes ........     118,350      110,550       92,882
Provision for income taxes ......................      28,538       21,402       30,912
                                                    ---------    ---------    ---------

Income before minority interest, extraordinary
  item and cumulative effect of change in
  accounting principle ..........................      89,812       89,148       61,970
Minority interest ...............................      15,618       15,613           --
                                                    ---------    ---------    ---------

Income before extraordinary item and cumulative
  effect of change in accounting principle ......      74,194       73,535       61,970
Extraordinary item, net of tax (Note 8) .........          --           --      (17,478)
                                                    ---------    ---------    ---------

Income before cumulative effect of change in
  accounting principle ..........................      74,194       73,535       44,492
Cumulative effect of change in accounting
  principle, net of tax (Note 2) ................     (15,386)          --           --
                                                    ---------    ---------    ---------
Net income ......................................   $  58,808    $  73,535    $  44,492
                                                    =========    =========    =========

Other comprehensive income (loss):
Cumulative effect of change in accounting
  principle, net of tax (Note 2) ................      (5,954)          --           --
 Unrealized loss on cash flow hedges,
   net of tax of $1,161...... ...................      (1,742)          --           --
                                                    ---------    ---------    ---------
Comprehensive income ............................   $  51,112    $  73,535    $  44,492
                                                    =========    =========    =========
</TABLE>

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

                                      -25-
<PAGE>

                       CE GENERATION, LLC AND SUBSIDIARIES
                    CONSOLIDATED STATEMENT OF MEMBERS' EQUITY
                   FOR THE THREE YEARS ENDED DECEMBER 31, 2001
                             (AMOUNTS IN THOUSANDS)



     BALANCE, January 1, 1999 ...............................    $ 536,947

     Distributions, net of advances .........................     (122,080)

     Distribution of non-cash assets to MEHC ................      (67,079)

     Net income .............................................       44,492
                                                                 ---------

     BALANCE, December 31, 1999 .............................      392,280

     Distributions ..........................................      (26,900)

     Net income .............................................       73,535
                                                                 ---------

     BALANCE, December 31, 2000 .............................      438,915

     Distributions ..........................................      (22,650)

     Net income .............................................       58,808
                                                                 ---------

     BALANCE, December 31, 2001 .............................    $ 475,073
                                                                 =========

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

                                      -26-

<PAGE>
                       CE GENERATION, LLC AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                   FOR THE THREE YEARS ENDED DECEMBER 31, 2001
                             (AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
                                                          2001         2000         1999
                                                       ---------    ---------    ---------
<S>                                                    <C>          <C>          <C>
Cash flows from operating activities:
Net income .........................................   $  58,808    $  73,535    $  44,492
Adjustments to reconcile to cash flows from
  operating activities:
Extraordinary item, net of tax .....................          --           --       17,478
Cumulative effect of change in
  accounting principle, net of tax .................      15,386           --           --
Asset Impairment ...................................      15,000           --           --
Depreciation and amortization ......................      85,035       80,710       57,869
Provision for deferred income taxes ................       3,377        3,348         (832)
Distribution from equity investments in excess of
  equity earnings ..................................          --           --        6,399
Distributions to minority interest in excess of
  related income ...................................      (5,163)      (8,043)          --
Changes in other items:
  Accounts receivable ..............................     (39,149)     (34,096)      26,941
  Inventory ........................................          --       (2,371)      (4,292)
  Due from affiliates ..............................      (2,260)       4,138       (3,794)
  Accounts payable and other accrued liabilities ...      (4,722)      19,568        1,504
  Other assets .....................................       1,174       (6,174)       8,632
                                                       ---------    ---------    ---------

Net cash flows from operating activities ...........     127,486      130,615      154,397

Cash flows from investing activities:
Capital expenditures ...............................     (33,219)     (59,280)    (183,508)
Consolidation of former equity investment's cash ...          --        2,559           --
Decrease (increase) in restricted cash .............      (4,391)      23,696       75,840
                                                       ---------    ---------    ---------

Net cash flows from investing activities ...........     (37,610)     (33,025)    (107,668)

Cash flows from financing activities:
Repayment of Salton Sea notes and bonds ............     (23,658)     (25,072)     (57,836)
Repayment of Senior Secured bonds ..................     (12,600)     (10,400)          --
Proceeds from Senior Secured bonds .................          --           --      400,000
Repayment of note payable to related party .........          --      (13,000)    (269,300)
Proceeds from related party note ...................         632       13,000           --
Repayment of project loans .........................     (31,201)     (27,137)     (14,268)
Distributions, net of advances .....................     (22,100)     (26,900)    (122,080)
Decrease (increase) in restricted cash .............      (2,231)      (1,049)      20,101
                                                       ---------    ---------    ---------

Net cash flows from financing activities ...........     (91,158)     (90,558)     (43,383)
                                                       ---------    ---------    ---------
Net increase (decrease) in cash and cash equivalents      (1,282)       7,032        3,346
Cash and cash equivalents at beginning of year .....      36,152       29,120       25,774
                                                       ---------    ---------    ---------
Cash and cash equivalents at end of year ...........   $  34,870    $  36,152    $  29,120
                                                       =========    =========    =========
Supplemental disclosure:
Interest paid, net of interest capitalized .........   $  79,211    $  83,106    $  78,944
                                                       =========    =========    =========
Income taxes paid ..................................   $  21,928    $  16,411    $  31,744
                                                       =========    =========    =========
</TABLE>

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

                                      -27-
<PAGE>

                       CE GENERATION, LLC AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE THREE YEARS ENDED DECEMBER 31, 2001

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,  Falcon Seaboard Resources,  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,
LLC reflect the  consolidated  financial  statements  of Magma Power Company and
subsidiaries and FSRI and subsidiaries and Yuma Cogeneration Associates,  each a
wholly-owned  subsidiary.  The  consolidated  financial  statements  present the
financial position,  results of operations and cash flows of CE Generation as if
CE  Generation  was a  separate  legal  entity  for all  periods  presented.  CE
Generation has accounted for MEHC's contribution of assets and liabilities to CE
Generation  whereby;  MEHC's  basis in these  assets  and  liabilities  has been
carried over and reflected in CE Generation's financial statements. All material
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.

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

                                      COMMERCIAL
PROJECT                   FUEL        OPERATION    CAPACITY          LOCATION
-------                   ----        ---------    --------          --------
Vulcan                 Geothermal        1986        34 MW          California
Del Ranch              Geothermal        1989        38 MW          California
Elmore                 Geothermal        1989        38 MW          California
Leathers               Geothermal        1990        38 MW          California
CE Turbo               Geothermal        2000        10 MW          California
Salton Sea I           Geothermal        1987        10 MW          California
Salton Sea II          Geothermal        1990        20 MW          California
Salton Sea III         Geothermal        1989        49.8 MW        California
Salton Sea IV          Geothermal        1996        39.6 MW        California
Salton Sea V           Geothermal        2000        49 MW          California
Power Resources        Gas               1988        200 MW         Texas
Yuma                   Gas               1994        50 MW          Arizona
Saranac                Gas               1994        240 MW         New York

                                      -28-
<PAGE>

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

RECLASSIFICATIONS--Certain  reclassifications  were  made to the  2000  and 1999
financial statements to conform to the 2001 presentation.

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.

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 workover costs.
These costs,  which have  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 has 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.

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.

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 10 years.

The  acquisitions of Magma Power Company,  Falcon Seaboard  Resources,  Inc. and
Edison  Mission  Energy's  partnership  interests  have  been  accounted  for as
purchase business combinations. All identifiable assets acquired and liabilities
assumed  were  assigned  a  portion  of the  cost of  acquiring  the  respective
companies equal to their fair values at the date of the acquisition and includes
power sales agreements which are amortized  separately on a straight-line  basis
over (1) for the  Edison  Partnership  interests  and  Magma  acquisitions,  the
remaining  portion of the scheduled price periods of the power sales  agreements
which ranged from 1 to 5 years,  (2) for the Edison  Partnership  interests  and
Magma  acquisitions,  the 20  year  avoided  cost  periods  of the  power  sales
agreements and (3) over the remaining contract periods which ranged from 7 to 30
years.

EXCESS OF COST OVER FAIR  VALUE--Total  acquisition  costs in excess of the fair
values  assigned to the net assets  acquired are amortized over a 40 year period
for  the  Magma  acquisition  and a 25  year  period  for  the  Falcon  Seaboard
acquisition,  both using the straight-line method.  Accumulated amortization was
$61.8 million and $52.2 million at December 31, 2001 and 2000, respectively.

                                      -29-
<PAGE>

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.

ALLOWANCE FOR DOUBTFUL ACCOUNTS--The allowance for doubtful accounts is based on
our 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 our historical  experience,
our  estimates  of the  recoverability  of  amounts  due us could  be  adversely
affected.

INCOME TAXES--CE  Generation and its subsidiaries had historically been included
in the  consolidated  federal  income  tax  returns  of  MEHC.  CE  Generation's
provision for income taxes was computed on a separate  return  basis.  Beginning
March 3, 1999, CE Generation became a separate consolidated federal taxpayer. CE
Generation   recognizes  deferred  tax  assets  and  liabilities  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.

FINANCIAL  INSTRUMENTS-- In June 1998, the Financial  Accounting Standards Board
(FASB) issued SFAS 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.

IMPAIRMENT OF LONG-LIVED  ASSETS--CE  Generation  reviews  long-lived assets and
certain  identifiable  intangibles for impairment  whenever events or changes in
circumstances  indicate  that  the  carrying  amount  of an  asset  may  not  be
recoverable.  An impairment  loss would be recognized,  based on discounted cash
flows or other fair value  models,  whenever  evidence  exists that the carrying
value is not recoverable.

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.

                                      -30-
<PAGE>

ACCOUNTING  PRONOUNCEMENTS--In  July 2001,  FASB issued SFAS No. 141,  "Business
Combinations",  and SFAS No. 142, "Goodwill and Other Intangible Assets",  which
establish  accounting  and  reporting  for business  combinations.  SFAS No. 141
requires all business  combinations  entered into subsequent to June 30, 2001 to
be accounted for using the purchase method of accounting.  SFAS No. 142 provides
that  goodwill and other  intangible  assets with  indefinite  lives will not be
amortized,  but will be tested for  impairment on an annual  basis.  SFAS 142 is
effective for the Company beginning January 1, 2002. Under the current method of
assessing  goodwill  for  impairment,  which  uses  an  undiscounted  cash  flow
approach,  no material  impairment  existed at December 31, 2001.  For 2002, the
Company will begin to test goodwill for impairment under the new rules, applying
a fair  value-based  approach.  The Company is in the process of quantifying the
anticipated  impact on its  financial  condition  and results of  operations  of
adopting  the  provisions  of SFAS No.  142,  which  could be  significant.  The
historical  impact of not  amortizing  goodwill  would have been to increase net
income for the years ended  December  31, 2001,  2000 and 1999 by  approximately
$9.6 million, $9.6 million and $9.7 million,  respectively.  However, impairment
reviews may result in future periodic write-downs.

In August  2001,  FASB  issued SFAS No. 143,  "Accounting  for Asset  Retirement
Obligations".  This standard  addresses  financial  accounting and reporting for
obligations  related to the  retirement  of tangible  long-lived  assets and the
related asset retirement  costs.  SFAS 143 is effective for the Company's fiscal
year  beginning  January 1, 2003.  Management has not quantified the impact this
standard will have on the Company's consolidated financial statements.

In October  2001,  FASB issued  SFAS No.  144,  "Accounting  for  Impairment  of
Disposal of Long-Lived Assets".  The standard addresses financial accounting and
reporting for the  impairment or disposal of long-lived  assets and is effective
for the Company's  fiscal year  beginning  January 1, 2002.  Management  has not
quantified  the impact this  standard  will have on the  Company's  consolidated
financial statements.

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.,
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 financial results.

4.  PROPERTIES, PLANTS, CONTRACTS AND EQUIPMENT

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

                                                         2001           2000
                                                     -----------    -----------
Operating facilities:

Power plants .....................................   $ 1,218,691    $ 1,224,192
Wells and resource development ...................       173,363        162,481
Power sales agreements ...........................       386,152        386,152
Licenses and equipment ...........................        52,458         49,374
                                                     -----------    -----------

Total operating facilities .......................     1,830,664      1,822,199
Less accumulated depreciation and amortization ...      (542,996)      (466,854)
                                                     -----------    -----------
Net operating facilities .........................   $ 1,287,668    $ 1,355,345
                                                     ===========    ===========

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 has determined that the turbine,  which had been held in storage for use
in new development projects, no longer has any significant value.

                                      -31-
<PAGE>

SIGNIFICANT  CUSTOMERS AND CONTRACTS--CE  Generation's sales of electricity from
the  Imperial  Valley  Projects,  comprised  approximately  43%,  41%,  and  66%
respectively,  of 2001, 2000, and 1999 electricity and steam revenues.  Of these
sales,  approximately  59%, 86%, and 100% were to Edison in 2001, 2000 and 1999,
respectively.   Sales  of  electricity   from  the  Saranac  Project   comprised
approximately  31% and 33%,  respectively,  of the 2001 and 2000 electricity and
steam revenues.  Of these sales approximately 98% and 98% were to New York State
Electric  and Gas  ("NYSEG").  Sales of  electricity  from the  Power  Resources
Project comprised approximately 16%, 17% and 26% respectively, of the 2001, 2000
and  1999,  respectively,   electricity  and  steam  revenues.  Of  these  sales
approximately 97% were to TXU Generation Company LP("TXU"). Accounts receivable,
approximately  $91 million of which are from Edison,  approximately  $15 million
from NYSEG and approximately $7 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 $128.7  million  and $89.9  million at  December  31,  2001,  and 2000,
respectively.

IMPERIAL VALLEY  PROJECTS--Each  of the Imperial Valley Projects,  excluding the
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  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 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 is at 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, 2001, 2000 and 1999,  Edison's  average Avoided
Cost of Energy  was 7.4  cents,  5.8 cents and 3.1 cents per kWh,  respectively.
Estimates of Edison's future Avoided Cost of Energy vary substantially from year
to year.

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 Hoch (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 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 fixed price period for
energy payments expired on December 31, 1999. Thereafter, the energy payment was
based on Edison's Avoided Cost of Energy.

                                      -32-
<PAGE>

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 5.9 cents per kWh during  2001.  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 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/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 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 2001 were  approximately $5.7
million.  The energy  payment (for  deliveries  up to a rate of 39.6 MW) is at a
fixed  price 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 Turbo Project,  which commenced commercial operation in the third quarter of
2000, sells its output through market  transactions.  The Turbo Project may sell
its output pursuant to a power purchase agreement with a zinc facility, which is
owned by a  subsidiary  of  MidAmerican  and is expected to commence  commercial
operations in 2002.  See Note 12.

The Salton Sea V Project,  which  commenced  operations  in the third quarter of
2000,  will  sell  approximately  23MW of its  net  output  pursuant  to a power
purchase  agreement  with a zinc  facility,  which is owned by a  subsidiary  of
MidAmerican  and is expected  to commence  commercial  operations  in 2002.  The
Salton  Sea  V  Project  sells  its  remaining   output   through  other  market
transactions. See Note 12.

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 $1.68 per month
per  kilowatt  of  service  provided  for 2001 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
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.
                                     -33-
<PAGE>

ROYALTIES--Royalty expense for the years ended December 31, 2001, 2000 and 1999,
which  is  included  in  plant  operations  in the  consolidated  statements  of
operations, comprise the following (in thousands):

                                           2001            2000            1999
                                         -------         -------         -------
Vulcan .........................         $   918         $   709         $   423
Leathers .......................           1,645           1,367           3,361
Elmore .........................           1,277           1,026             520
Del Ranch ......................           1,445           1,323             856
Turbo ..........................             123             187              --
Salton Sea I & II ..............             668             836             827
Salton Sea III .................           1,391           1,523           1,673
Salton Sea IV ..................           2,309           2,618           2,569
Salton Sea V ...................             796           1,014              --
                                         -------         -------         -------
Total ..........................         $10,572         $10,603         $10,229
                                         =======         =======         =======

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.

The Salton Sea Project's weighted average royalty expense in 2001, 2000 and 1999
was approximately 6.0%, 6.1%, and 6.2%, 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 2001 total 2.57 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 7.53 cents per kWh in
2001,  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 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 $3.12 per MMBtu at December
2001 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 2001 are $3.5 million per month and 3.4 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  $2.96 per MMBtu in 2001 and
escalates  at 2%  per  year.  Louis  Dreyfus  Natural  Gas  Corporation  ("Louis
Dreyfus") 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 2001 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

                                      -34-
<PAGE>

Texas spot price plus $.05 per MMBtu.  Additional gas may be purchased under the
agreement  at prices  that are  negotiated  with Louis  Dreyfus.  Louis  Dreyfus
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.

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 is sufficient to permit the
Yuma Project to maintain its qualifying facility status under the PURPA.

The Yuma Project purchases natural gas from Southwest Gas Corporation.  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 Yuma Project pays a price
based on the  applicable  index for the relevant  basin.  The  agreement  may be
terminated by either party commencing in 2002, 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.

Scheduled  maturities of project  financing debt for the year ending December 31
are as follows (in thousands):


     2002      $20,312
     2003       21,742
               -------

     Total     $42,054
               =======


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, 2001.

                                      -35-
<PAGE>

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 $42.1 million and $60.2 million at December 31,
2001 and 2000,  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, 2001
is $3.1 million 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 $1.1  million,  $1.2  million,  and $.6  million  for the years ended
December 31, 2001, 2000, and 1999,  respectively,  related to amounts owed under
the Compensation Agreement.

In October 1994,  Saranac Power Partners 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  selected.  The  selected
interest  rate plus  interest  margin at December 31, 2001,  2000,  and 1999 was
3.71625%, 7.5238%, and 6.5088%, respectively.

Maturities  of the  note  payable  at  December  31,  2001  are as  follows  (in
thousands):

     2002           $ 15,552
     2003             18,826
     2004             22,100
     2005             26,193
     2006             31,104
     Thereafter       43,177
                    --------
     Total          $156,952
                    ========

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 with 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, 2001.

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, 2001 is $13.2  million 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  $14.2  million.   The  Saranac   Partnership  has
approximately  $6.3 million available in additional  unissued letters of credit.

                                     -36-
<PAGE>

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         FINAL
                   SECURED       MATURITY                       DECEMBER 31,
ISSUED DATE        SERIES         DATE            RATE       2001        2000
-----------        -------       --------         ----     --------    --------
July 21, 1995      B Bonds    May 30, 2005        7.37%    $ 79,360    $100,736

July 21, 1995      C Bonds    May 30, 2010        7.84      109,250     109,250

June 20, 1996      E Bonds    May 30, 2011        8.30       47,922      48,922

October 13, 1998   F Bonds    November 30, 2018   7.48      283,718     285,000
                                                           --------    --------

                                                           $520,250    $543,908
                                                           ========    ========

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 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 are being 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
LLC) 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  $139.9 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.
                                     -37-

<PAGE>

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

     2002           $ 28,572
     2003             28,086
     2004             30,588
     2005             30,375
     2006             27,744
     Thereafter      374,885
                    --------
                    $520,250
                    ========

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


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

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

     *    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

     *    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 year ended December 31, 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:

     *    all available cash flow (as defined);

     *    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;

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

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

     *    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.
                                     -38-
<PAGE>

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

     2002           $ 20,600
     2003             18,000
     2004             14,600
     2005             14,800
     2006             19,200
     Thereafter      289,800
                    --------
                    $377,000
                    ========

8.     EXTRAORDINARY ITEM

On July 21,  1995,  MEHC  issued $200  million 9 7/8%  Limited  Recourse  Senior
Secured Notes Due 2003 (the "Notes"). The Notes are secured by an assignment and
pledge of 100% of the  outstanding  capital stock of Magma and are recourse only
to such Magma capital stock. The proceeds of the Notes offering were provided by
MEHC to Magma and Magma  issued an  intercompany  note to MEHC in the  amount of
$200 million.

On January 29, 1999,  MEHC commenced a cash offer for all its outstanding 9 7/8%
Limited  Recourse  Senior  Secured Notes Due 2003.  MEHC  received  tenders from
holders of an aggregate of  approximately  $195.8 million  principal  which were
paid on March 3, 1999 at a redemption  price of 110.025% plus accrued  interest,
resulting in an extraordinary loss of approximately $17.5 million, net of tax of
$11.1  million.  Proceeds from the issuance of CE  Generation's  Senior  Secured
Bonds were used to repay the outstanding principal and interest on the note.

9.     COMMITMENTS AND CONTINGENCIES

A.  SOUTHERN CALIFORNIA EDISON AND THE CALIFORNIA POWER EXCHANGE

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.  CE
Generation  is aware that there have been  public  announcements  that  Edison's
financial  condition  deteriorated as a result of reduced  liquidity.  Following
Edison's recent  financing,  Edison's  senior  unsecured debt  obligations  were
upgraded to Ba3 by Moody's and BB by S&P.

Edison  failed to pay  approximately  $119 million due under the Power  Purchase
Agreements  for power  delivered  in November  and  December  2000 and  January,
February and March 2001,  although  the Power  Purchase  Agreements  provide for
billing  and  payment on a schedule  where  payments  would have  normally  been
received in early January, February, March, April and May 2001.

On February 21, 2001, the Imperial Valley  Projects  (excluding the Salton Sea V
and Turbo  Projects)  filed a lawsuit  against Edison in  California's  Imperial
County  Superior  Court  seeking  a court  order  requiring  Edison  to make the
required  payments  under  the  Power  Purchase  Agreements.  The  lawsuit  also
requested,  among other things,  that the court order permit the Imperial Valley
Projects  (excluding the Salton Sea V and Turbo Projects) to suspend  deliveries
of power to Edison and to permit the Imperial Valley Projects to sell such power
to other purchasers in California.

On March 22, 2001,  the Superior  Court  granted the Imperial  Valley  Projects'
(excluding the Salton Sea V and Turbo Projects) Motion for Summary  Adjudication
and  a  Declaratory   Judgment  ordering  that:  1)  under  the  Power  Purchase
Agreements,  the Imperial Valley Projects  (excluding the Salton Sea V and Turbo
Projects)  have the right to  temporarily  suspend  deliveries  of capacity  and
energy to Edison,  2) the Imperial Valley  Projects  (excluding the Salton Sea V
and Turbo  Projects)  are  entitled  to resell the energy and  capacity to other
purchasers  and 3) the interim  suspension  of deliveries to Edison shall not in
any respect  result in the  modifications  or  termination of the Power Purchase
Agreements and the Power Purchase  Agreements shall in all respects  continue in
full force and effect  other than the  temporary  suspension  of  deliveries  to
Edison.

As a result of the March 22, 2001  Declaratory  Judgment,  the  Imperial  Valley
Projects (excluding the Salton Sea V and Turbo Projects) suspended deliveries of
energy to Edison and entered into a transaction  agreement with El Paso Merchant
Energy,  L.P.  ("EPME") in which the Imperial  Valley  Projects'  (excluding the
Salton  Sea V and Turbo

                                      -39-
<PAGE>


Projects) available power was sold to EPME based on percentages of the Dow Jones
SP-15 Index. On June 18, 2001 the Superior Court prospectively vacated its order
authorizing the Imperial Valley Projects'  (excluding the Salton Sea V and Turbo
Projects) right to resell power pursuant to the Declaratory Judgment.

On June 20, 2001, the Imperial Valley  Projects  (excluding the Salton Sea V and
Turbo Projects) entered into Agreements  Addressing Renewable Energy Pricing and
Payment Issues with Edison ("Settlement  Agreements") and, as a result,  resumed
power sales to Edison on June 22, 2001. The Settlement  Agreements required that
Edison make an initial  payment to repay the past due  balances  under the Power
Purchase  Agreements  (the  "stipulated   amounts").   The  initial  payment  of
approximately  $11.6 million,  which represented 10% of the stipulated  amounts,
was received June 22, 2001. On October 2, 2001, the California  Public Utilities
Commission  ("CPUC")  announced an agreement  with Edison that allowed Edison to
recover in retail electric rates its past-due obligations. On November 30, 2001,
the Settlement  Agreements were amended to reflect when Edison would be required
to make the final payment on past due amounts. On March 1, 2002, Edison obtained
$1.8 billion in secured financing that, when combined with cash in hand, enabled
Edison to pay off its past-due debts. The final payment, of approximately $104.6
representing the remaining  stipulated  amounts,  was received March 1, 2002. In
addition  to these  payments,  Edison  was  required  to make  monthly  interest
payments  calculated  at a rate of 7% per  annum on the  outstanding  stipulated
amounts.  The amended  Settlement  Agreements  provide a revised  energy pricing
structure,  whereby Edison elects to pay the Imperial Valley Projects (excluding
the  Salton  Sea V and  Turbo  Projects)  a fixed  energy  price  in lieu of the
Commission-approved  Avoided Cost of Energy Methodology under the Power Purchase
Agreements.  The fixed  energy  price is 3.25  cents/kWh  from  December 1, 2001
through April 30, 2002 and 5.37 cents/kWh commencing May 1, 2002 for a five-year
period.  Following the five-year period,  the energy payments revert back to the
Commission-approved  Avoided Cost of Energy Methodology under the Power Purchase
Agreements.   Estimates  of  Edison's   future   Avoided  Cost  of  Energy  vary
substantially from year to year.

As a result  of  Edison's  failure  to make the  payments  due  under  the Power
Purchase  Agreements  and the  downgrades of Edison's  credit  ratings,  Moody's
downgraded  the  ratings for the Salton Sea Funding  Corporation  (the  "Funding
Corporation")  Securities  to Caa2  (negative  outlook) and S&P  downgraded  the
ratings for the Funding Corporation Securities to BBB- and placed the Securities
on "credit watch negative". Moody's downgraded the ratings for the CE Generation
Securities  to B1 from Baa3  (review  for  possible  downgrade).  Following  the
execution of the  Settlement  Agreements,  Moody's placed the Salton Sea Funding
and CE Generation securities on "credit watch positive". The Funding Corporation
Securities  are  currently  rated Ba3 by Moody's and BBB- by S&P. CE  Generation
Securities are currently rated Ba2 by Moody's and BBB- by S&P.

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 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.

In January 2001, the California Power Exchange ("PX") declared bankruptcy.  As a
result,  the Salton Sea V and 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 (excluding the Salton Sea V and Turbo Projects) are
contractually  entitled to receive payments under the Power Purchase  Agreements
and Settlements  Agreements.  However, due to the uncertainties  associated with
Edison's  financial  condition  and failure to pay  contractual  obligations  at
December  31,  2001,  along  with  the  bankruptcy  of  the  PX,  CE  Generation
established an allowance for doubtful accounts of approximately $24.8 million at
December  2001.  The  allowance  for doubtful  accounts  has been  recorded as a
reduction of net sales in the statement of operations.

B.  SOUTHERN CALIFORNIA EDISON - CAPACITY BONUS PAYMENT

Edison has failed to pay  approximately  $1.3 million of capacity bonus payments
for the months of October,  November and December 2001. On December 10, 2001 the
Imperial Valley 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.  The
Project  entities  will  vigorously  pursue  collection  of the  capacity  bonus
payments.
                                     -40-
<PAGE>

C.  NYSEG

On February  14, 1995,  NYSEG filed with the FERC a Petition  for a  Declaratory
Order,  Complaint,  and  Request  for  Modification  of Rates in Power  Purchase
Agreements  Imposed  Pursuant to the Public Utility  Regulatory  Policies Act of
1978  ("Petition")  seeking  FERC (i) to declare that the rates NYSEG pays under
the Saranac PPA,  which was approved by the New York Public  Service  Commission
(the  "PSC"),  were in  excess of the level  permitted  under  PURPA and (ii) to
authorize  the PSC to reform the  Saranac  PPA. On March 14,  1995,  the Saranac
Partnership intervened in opposition to the Petition asserting, inter alia, that
the Saranac PPA fully complied with PURPA,  that NYSEG's action was untimely and
that the FERC lacked authority to modify the Saranac PPA. On April 12, 1995, the
FERC by a unanimous  (5-0) decision issued an order denying the various forms of
relief  requested by NYSEG and finding that the rates required under the Saranac
PPA were  consistent  with PURPA and the FERC's  regulations.  On May 11,  1995,
NYSEG  requested  rehearing of the order and, by order issued July 19, 1995, the
FERC  unanimously  (5-0)  denied  NYSEG's  request.  On  June  14,  1995,  NYSEG
petitioned  the United  States  Court of Appeals  for the  District  of Columbia
Circuit (the "Court of Appeals") for review of FERC's April 12, 1995 order. FERC
moved to dismiss  NYSEG's  petition for review on July 28, 1995.  On October 30,
1996,  all  parties  filed  final  briefs  and the Court of  Appeals  heard oral
arguments on December 2, 1996. On July 11, 1997, the Court of Appeals  dismissed
NYSEG's appeal from FERC's denial of the petition on jurisdictional grounds.

On August 7, 1997,  NYSEG filed a complaint in the U.S.  District  Court for the
Northern  District  of New York  against  the FERC,  the PSC (and the  Chairman,
Deputy  Chairman  and the  Commissioners  of the  PSC as  individuals  in  their
official capacity), the Saranac Partnership and Lockport Energy Associates, L.P.
("Lockport")  concerning the power purchase  agreements  that NYSEG entered into
with Saranac  Partners and  Lockport.  NYSEG's suit asserts that the PSC and the
FERC improperly  implemented  PURPA in authorizing the pricing terms that NYSEG,
the Saranac  Partnership and Lockport agreed to in those  contracts.  The action
raises  similar legal  arguments to those  rejected by the FERC in its April and
July 1995 orders.  NYSEG in addition  asks for  retroactive  reformation  of the
contracts  as of the date of  commercial  operation  and  seeks a refund of $281
million from the Saranac Partnership.  The Saranac Partnership and other parties
have filed motions to dismiss and oral  arguments on those motions were heard on
March 2, 1998 and again on March 3, 1999.  On  September  30, 2000 the  District
Court granted the motions to dismiss.  NYSEG filed a Notice of Appeal on October
25, 2000  appealing  the decision to the United  States Court of Appeals for the
Second Circuit.  On October 5, 2001, the Court of Appeals upheld the decision of
the District Court in all material  respects.  NYSEG did not appeal the decision
of the Court of Appeals.

D.  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, 2001, the seller had not elected to terminate this agreement; therefore, the
minimum  volumes  under the 15-year and 8-year  agreements  for the years ending
December 31, are included in the future minimum  payments under these  contracts
as follows (in thousands):


     2002      $24,285
     2003       24,854
               -------
     Total     $49,139
               =======

CE Generation's geothermal and cogeneration facilities are qualifying facilities
under the Public  Utility  Regulatory  Policies Act of 1978  ("PURPA") 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.

                                     -41-
<PAGE>

Saranac  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
MMBTU's  per day.  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):

     2002           $ 60,935
     2003             63,373
     2004             66,088
     2005             68,544
     2006             71,286
     Thereafter      204,260
                    --------
     Total          $534,486
                    ========

The Salton Sea V Project is obligated to supply the  electricity  demands of the
Zinc Recovery  Project at the price  available to Salton Sea V less the wheeling
costs. Salton Sea V Project,  which commenced operations in the third quarter of
2000, will sell  approximately  one-third of its net output to the Zinc Recovery
Project,  which is owned by a  subsidiary  of  MidAmerican  and is  expected  to
commence operations in 2002. The remainder of the Salton Sea V Project output is
sold through other market transactions.

E.  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,  2001  and  2000,  the
environmental  liabilities  recorded on the balance  sheet were $4.2 million and
$6.2 million.

                                      -42-
<PAGE>

10.     INCOME TAXES

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


                                  2001      2000        1999
                               --------   --------   --------
Current:
State .......................  $  4,749   $  2,758   $  6,841
Federal .....................    20,412     15,296     24,903
                               --------   --------   --------

                                 25,161     18,054     31,744
                               --------   --------   --------

Deferred:
State .......................      (385)     3,284     (3,915)
Federal .....................     3,762         64      3,083
                               --------   --------   --------

                                  3,377      3,348       (832)
                               --------   --------   --------
Total .......................  $ 28,538   $ 21,402   $ 30,912
                               ========   ========   ========

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

                                                      2001      2000      1999
                                                      ----      ----      ----

Federal statutory rate ...........................    35.0%     35.0%     35.0%
Percentage depletion .............................    (5.9)     (4.8)     (6.0)
Investment and energy tax credits ................    (1.7)     (13.0)    (1.4)
Goodwill amortization ............................     2.8       3.0       3.7
State taxes, net of federal benefit ..............     2.4       3.6       2.0
Minority interest ................................    (4.6)     (4.9)       --
Other items, net .................................    (3.9)      0.5        --
                                                      ----      ----      ----
Effective tax rate ...............................    24.1%     19.4%     33.3%
                                                      ====      ====      ====

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.


Deferred tax liabilities  (assets) are comprised of the following at December 31
(in thousands):

                                                           2001          2000
                                                        ---------     ----------
Liabilities:
Properties, plant, contracts and equipment .........    $ 260,444     $ 261,327
Other ..............................................        3,048         2,329
                                                        ---------     ---------
                                                          263,492       263,656
Assets:
Accruals not currently deductible for tax purposes .      (16,931)       (4,512)
General business tax credits .......................       (8,679)      (15,501)
Other ..............................................           --        (1,584)
                                                        ---------     ---------
                                                          (25,610)      (21,597)
                                                        ---------     ---------
Net deferred tax liability .........................    $ 237,882     $ 242,059
                                                        =========     =========

11.     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.

                                     -43-
<PAGE>

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):

                                            2001                  2000
                                               ESTIMATED             ESTIMATED
                                     CARRYING    FAIR      CARRYING    FAIR
                                      VALUE      VALUE       VALUE     VALUE
                                     --------   --------   --------   --------
Financial Assets:
Note receivable from related party   $139,896   $121,294   $140,528   $116,947

Financial Liabilities:
Project loans ....................    199,020    199,020    230,221    230,221
Salton Sea notes and bonds .......    520,250    478,809    543,908    468,752
Interest rate swaps ..............     16,300     16,300         --     12,309
Senior secured bonds .............    377,000    321,325    389,600    338,952


12.     RELATED PARTY TRANSACTIONS

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  are  estimated  based on the  individual
services and expense items provided.  Allocated  expenses totaled  approximately
$3.4  million,  $2.5  million,  $2.3  million  for each of 2001,  2000 and 1999,
respectively, and are included in General and Administrative expenses.

The Company participates in multi-employer  pension plans sponsored by MEHC. The
Company's  contributions to the various plans was approximately $1.6 million and
$1.2 million in 2001and 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 June 9, 2000,  Salton Sea Power L.L.C.  ("Salton Sea Power")  entered into an
agreement  to sell all  available  power  from the Salton Sea V Project to EPME.
Under  the  terms of the  agreement  commencing  on July 1,  2000 and  ending on
September 30, 2000,  EPME  purchased up to 25 MW of available  power for $53 per
MWh,  together with any premiums  related to such power.  EPME also marketed any
available power, which exceeded 25 MW on behalf of Salton Sea Power.

On September  29, 2000,  Salton Sea Power and CE Turbo LLC ("CE Turbo")  entered
into an agreement to sell all available  power from the Salton Sea V Project and
Turbo Project to EPME. Under the terms of the agreement, EPME purchased and sold
available power on behalf of Salton Sea Power,  into the California ISO markets.
The purchase  price for the  available  power shall be  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 CE Project  entered  into a
Transaction  Agreement to sell available power from the Salton Sea V Project and
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 Turbo Project based on day ahead price quotes received from EPME.

On March 27,  2001 and May 1, 2001,  Imperial  Valley  Projects  entered  into a
Transaction  Agreement to sell  available  power to EPME based on percentages of
the Dow Jones SP-15  Index.  On June 28,  2001,  the  Imperial  Valley

                                     -44-
<PAGE>

Projects  (excluding the Salton Sea V Project and Turbo Project)  ceased selling
available power to EPME and resumed power sales to Edison.

Pursuant  to these  agreements,  sales to EPME from the Company  totaled  $102.8
million,  $19.5  and $0  million  in 2001,  2000 and 1999,  respectively.  As of
December 31, 2001 and 2000, accounts receivable from EPME were $11.8 million and
$7.1 million, respectively.

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

         Not applicable


                                      -45-

<PAGE>

PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS


EXECUTIVE OFFICER                         POSITION
-----------------                         --------

Douglas L. Anderson           Director, Vice President and General Counsel
Brian K. Hankel               Vice President and Treasurer
Richard P. Johnston           Vice President and Commercial Officer
Joseph M. Lillo               Vice President and Controller
Stefan Bird                   Director
Patrick J. Goodman            Director
Larry Kellerman               Director
John L. Harrison              Director
John O'Rourke                 Director

DOUGLAS  L.  ANDERSON,   44,  Senior  Vice  President  and  General  Counsel  of
MidAmerican,  a Director and Vice President and General Counsel of CE Generation
and each assigning subsidiary. 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.

BRIAN K. HANKEL, 39, Vice President and Treasurer of MidAmerican,  CE Generation
and each assigning subsidiary. Mr. Hankel joined MidAmerican in February 1992 as
Treasury  Analyst and served in that position to December  1995.  Mr. Hankel was
appointed  Assistant  Treasurer in January 1996 and was  appointed  Treasurer in
January 1997.  Prior to joining  MidAmerican,  Mr.  Hankel was a Money  Position
Analyst at FirsTier Bank of Lincoln from 1988 to 1992 and Senior Credit  Analyst
at FirsTier from 1987 to 1988.

RICHARD P. JOHNSTON,  45, Vice President and Commercial Officer of CE Generation
and Director of Operations for El Paso  International.  Mr.  Johnston  joined El
Paso in 1997  and  was  assigned  to the CE  Generation  management  team at its
founding in March of 1999.  In his 21 years of  experience  in power  generation
engineering  and  management,  Mr.  Johnston has held positions  directing Plant
Operations and Maintenance, Asset Management and Project Development in both the
Domestic  and  International  Markets  for ESI Energy,  a Florida  Power & Light
subsidiary,  from  1993 to 1997,  and  previously  for The AES  Corp.,  based in
Arlington,  VA,  and  Westinghouse,  based in  Orlando,  FL.  Mr.  Johnston  has
extensive experience in hands-on management of the operations and maintenance of
oil and gas-fired  combustion  turbines,  coal,  biomass,  geothermal  and solar
independent   power,   including   all  aspects  of   construction   management,
mobilization and start-up.

JOSEPH M. LILLO,  32, Vice  President and  Controller of CE Generation  and each
assigning subsidiary.  Mr. Lillo joined MidAmerican in November 1996, and served
as manager of Financial  Reporting and was promoted to  Controller/IPP  in March
1998.  Mr. Lillo was promoted to Vice  President  and  Controller  in July 1999.
Prior to joining  MidAmerican,  Mr. Lillo was a senior  associate with Coopers &
Lybrand LLP.

STEFAN BIRD,  35, Vice  President,  Project  Development  of  MidAmerican  and a
director  of CE  Generation  and each  assigning  subsidiary.  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;

                                      -46-
<PAGE>

Project Manager,  Corporate Development for Koch Industries in Wichita,  Kansas;
and Project  Engineer and Maintenance  Planner for Koch Refining  Company in St.
Paul, Minnesota.

PATRICK J. GOODMAN,  35, Senior Vice  President and Chief  Financial  Officer of
MidAmerican and a director of CE Generation and each assigning  subsidiary.  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.

LARRY KELLERMAN,  46, President of El Paso Power Services Company and a director
of CE  Generation.  Mr.  Kellerman  joined El Paso in  February  1998.  Prior to
joining  El Paso,  he was  President  of  Citizens  Power,  where  he  initiated
Citizens' activities in the power marketing field in 1988, when Citizens was the
initial power marketer granted FERC  authorization.  From 1982 through 1988, Mr.
Kellerman was General  Manager of Power  Marketing and Power Supply for Portland
General  Electric.  From 1979 through 1982, Mr. Kellerman was Financial  Analyst
and  Power  Contract  Negotiator  with  Southern  California  Edison,  where  he
negotiated some of the first PURPA contracts in the nation.

JOHN L. HARRISON, 43, Senior Managing Director and Chief Financial Officer of El
Paso Merchant  Energy and a director of CE Generation.  Mr.  Harrison  joined El
Paso in June 1996.  Prior to joining El Paso,  Mr.  Harrison  was a partner with
Coopers & Lybrand LLP for five years.

JOHN  O'ROURKE,  47,  Director.  John J.  O'Rourke has served as a member of the
Management  Committee  since March  2001.  Mr.  O'Rourke  has served as Managing
Director,  Commercial  Management  for El Paso  Merchant  Energy since May 2000.
Prior to becoming  Managing  Director for El Paso Merchant Energy,  Mr. O'Rourke
has held several other senior  management  positions in the energy business over
the past 20 years with FPL Energy and Ebasco Services, Inc.

                                      -47-

<PAGE>

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

Fifty  percent of CE  Generation's  interests are owned by  MidAmerican  and the
other  50%  are  owned  by  EPME.  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.  EPME is  owned  indirectly  by El Paso  Corporation.  El Paso
Corporation's common stock is publicly traded on the New York Stock Exchange.

ITEM 13.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

RELATIONSHIP WITH MIDAMERICAN AND EL PASO CORPORATION

CE Generation is 50% owned by MidAmerican and 50% owned by EPME. CE Generation's
activities  are  restricted by the terms of the indenture for the  securities to
(1) ownership of our 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, El Paso 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,  El Paso 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 our and the assigning  subsidiaries'
financing  arrangements,  be  advanced,  loaned,  paid as dividends or otherwise
distributed or  contributed to  MidAmerican,  El Paso or their  affiliates.  The
securities are non-recourse to MidAmerican and El Paso.

MidAmerican entered into an administrative services agreement with CE Generation
and EPME entered into a power marketing services agreement and a fuel management
services  agreement with CE Generation.  MidAmerican and EPME 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 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 the Company 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.

                                      -48-
<PAGE>



                                     PART IV


ITEM 14.     EXHIBITS, FINANCIAL STATEMENTS SCHEDULE 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 51.

     (b)  Reports on Form 8-K

          Current   Report  dated  December  14,  2001  reporting  that  Moody's
          Investors  Services Inc.  upgraded the rating on the Company's  senior
          secured debt to Ba3 from Caa2.

     (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

                                      -49-

<PAGE>

SCHEDULE II

                               CE GENERATION, LLC
                 CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
                   FOR THE THREE YEARS ENDED DECEMBER 31, 2001
                                 (in thousands)
<TABLE>
<CAPTION>

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

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

     Year ended 2000                    $   --       $    --        $    --        $    --
                                        ======       =======        =======        =======

     Year ended 1999                    $   --       $    --        $    --        $    --
                                        ======       =======        =======        =======


Reserves Not Deducted from Assets (1):

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

     Year ended 2000                    $3,540       $ 8,150        $(2,588)       $ 9,102
                                        ======       =======        =======        ===-====

     Year ended 1999                    $  952       $ 2,588        $    --        $ 3,540
                                        ======       =======        =======        =======
</TABLE>

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

                                      -50-
<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, 2002.

                                  CE Generation LLC

                                  /s/ Douglas L. Anderson
                                  --------------------------------------------
                                  By:     Douglas L. Anderson
                                  Director, Vice President and General Counsel



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/ Douglas L. Anderson                                           March 28, 2002
-----------------------
Douglas L. Anderson
Director, Vice President and General Counsel
(Principal Executive Officer)

/s/ Joseph M. Lillo*                                              March 28, 2002
-------------------
Joseph M. Lillo
Vice President and Controller
(Principal Accounting Officer)

/s/ Stefan Bird*                                                  March 28, 2002
----------------
Stefan Bird
Director

/s/ Patrick J. Goodman*                                           March 28, 2002
----------------------
Patrick J. Goodman
Director

/s/ Larry Kellerman                                               March 28, 2002
-------------------
Larry Kellerman
Director

/s/ John L. Harrison                                              March 28, 2002
--------------------
John L. Harrison
Director

/s/ John O'Rourke                                                 March 28, 2002
-----------------
John O'Rourke
Director



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

                                      -51-
<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  Limited Liability Company  Operating  Agreement of CE Generation,  LLC
          (incorporated   by   reference   to  Exhibit  3.2  to  the   Company's
          Registration Statement on Form S-4).

     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).

                                      -52-
<PAGE>

     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).

     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

                                      -53-