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, 1999
                                            -----------------

Commission     Registrant's Name, State of Incorporation,      IRS Employer
File Number              Address and Telephone Number       Identification No.
-----------              ----------------------------       ------------------

333-90553                 MIDAMERICAN FUNDING, LLC              47-0819200
                              (AN IOWA CORPORATION)
                            666 GRAND AVE. PO BOX 657
                             DES MOINES, IOWA 50303
                                  515-242-4300

Securities registered pursuant to Section 12(b) of the Act:  None



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

                  5.85% Senior Secured Exchange Notes due 2001
                  6.339% Senior Secured Exchange Notes due 2009
                  6.927% Senior Secured Exchange Bonds due 2029

                               Title of each Class
________________________________________________________________________________

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  registrants  were
required  to file  such  reports),  and (2) have  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
          ---

All of the member's  equity of MidAmerican  Funding,  LLC is held by MidAmerican
Energy Holdings Company as of March 20, 2000.

MidAmerican  Funding,  LLC meets the conditions set forth in General Instruction
I(1)(a)  and (b) of Form 10-K and is  therefore  filing  this Form 10-K with the
reduced disclosure format specified in General Instruction I(2) of Form 10-K.


<PAGE>


                            MIDAMERICAN FUNDING, LLC
                         1999 ANNUAL REPORT ON FORM 10-K
                                TABLE OF CONTENTS

                                     Part I                               Page
                                     ------                               ----

Item 1   Business

             General Overview.............................................   3
             Financial Information About Industry Segments................   4
             Description of Business......................................   4
               Business of MidAmerican Funding and MHC....................   4
               Business of MidAmerican Energy.............................   5
               Regulated Electric Operations .............................   7
               Regulated Natural Gas Operations...........................  10
               Nonregulated Operations....................................  11
               Regulation.................................................  12
               Business of MidAmerican Capital............................  16
               Business of Midwest Capital................................  18
Item 2   Properties.......................................................  18
Item 3   Legal Proceedings................................................  20
Item 4   Submission of Matters to a Vote of Security Holders..............  21

                                   Part II

Item 5   Market for the Registrant's Common Equity and
             Related Stockholder Matters..................................  22
Item 6   Selected Financial Data..........................................  22
Item 7   Management's Discussion and Analysis of Financial
             Condition and Results of Operations..........................  22
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.......  22
Item 8   Financial Statements and Supplementary Data......................  22
Item 9   Changes in and Disagreements with Accountants
             on Accounting and Financial Disclosure.......................  22

                                  Part III

Item 10  Directors and Executive Officers of the Registrant...............  23
Item 11  Executive Compensation...........................................  25
Item 12  Security Ownership of Certain Beneficial Owners
             and Management...............................................  25
Item 13  Certain Relationships and Related Transactions...................  25

                                     Part IV

Item 14  Exhibits, Financial Statement Schedules and Reports on Form 8-K..  26
Signatures ...............................................................  91
Exhibits Index............................................................  92



                                      -2-
<PAGE>

                                     PART I

ITEM 1. BUSINESS
----------------

(A)  GENERAL OVERVIEW

     MidAmerican  Funding,  LLC is an Iowa  limited  liability  company that was
formed in March 1999. MidAmerican Funding is a direct wholly owned subsidiary of
MidAmerican  Energy  Holdings  Company.  MidAmerican  Funding  owns  all  of the
outstanding  common  stock of MHC Inc.,  formerly  known as  MidAmerican  Energy
Holdings  Company,  which owns all of the  common  stock of  MidAmerican  Energy
Company,   MidAmerican   Capital  Company,   Midwest  Capital  Group,  Inc.  and
MidAmerican Services Company.

     On March 12,  1999,  MidAmerican  Funding  acquired  MHC. As a part of this
transaction, the former CalEnergy, a Delaware corporation, was reincorporated as
an Iowa corporation and changed its name to MidAmerican Energy Holdings Company.
As a result,  MHC and all direct and indirect  subsidiaries of MHC each became a
subsidiary of MidAmerican Funding.

     On March 14, 2000, an investor  group  including  Berkshire  Hathaway Inc.,
Walter Scott,  Jr., David L. Sokol and Gregory E. Abel completed its acquisition
of  MidAmerican  Energy  Holdings  in  accordance  with a  previously  disclosed
agreement and plan of merger,  dated October 24, 1999, among MidAmerican  Energy
Holdings,  Teton Formation  L.L.C. and Teton  Acquisition  Corp. Mr. Scott is an
Omaha,  Nebraska businessman and a director of MidAmerican Energy Holdings,  Mr.
Sokol is Chairman and Chief Executive Officer of MidAmerican Energy Holdings and
Mr.  Abel  is  Chief  Operating  Officer  of  MidAmerican  Energy  Holdings.  In
accordance with the merger agreement, Teton Acquisition was merged with and into
MidAmerican  Energy Holdings,  maintaining the name MidAmerican  Energy Holdings
Company. With the completion of the transaction,  MidAmerican Energy Holdings is
now a privately owned company with publicly traded fixed-income securities.

     MidAmerican  Energy  Holdings' real estate  brokerage and related  services
were conducted through MHC's subsidiary, MidAmerican Realty Services. In October
1999,  MidAmerican  Realty,  was dividended from MHC and MidAmerican  Funding to
MidAmerican Energy Holdings.

     MidAmerican Energy is a public utility company headquartered in Des Moines,
Iowa, and  incorporated in the state of Iowa.  MidAmerican  Energy was formed on
July 1,  1995,  as a result of the  merger  of  Iowa-Illinois  Gas and  Electric
Company,  Midwest  Resources  Inc. and Midwest Power Systems Inc. On December 1,
1996,  MidAmerican Energy became, through a corporate  reorganization,  a wholly
owned subsidiary of MHC Inc. MidAmerican Capital and Midwest Capital then became
direct subsidiaries of MHC.

CHANGES IN THE UTILITY INDUSTRY AND MIDAMERICAN ENERGY

     The  electric  utility  industry  continues to undergo  regulatory  change.
Traditionally,  prices charged by electric utility companies have been regulated
by federal  and state  commissions  and have been based on cost of  service.  In
recent  years,  changes  have  been  occurring  that move the  electric  utility
industry toward a more  competitive,  market-based  pricing  environment.  These
changes  will have a  significant  impact  on the way  MidAmerican  Energy  does
business.  Refer to the discussions under "Industry  Evolution" and "Legislative
and  Regulatory  Evolution"  in the  "Operating  Activities  and Other  Matters"
section of MD&A in Part IV, Item 14 of this Form 10-K.


                                      -3-
<PAGE>

     A substantial majority of MidAmerican Energy's business still operates in a
rate-regulated  environment and,  accordingly,  many decisions for obtaining and
using  resources  are  evaluated  from an electric  and gas  regulated  business
perspective.  MidAmerican  Energy also manages its  operations  as four distinct
business units: generation,  transmission, energy distribution and retail. It is
under this framework that  MidAmerican  Energy believes it can best prepare for,
and succeed in, the energy  business  of the  future.  With these four  business
units,  MidAmerican  Energy is better  able to focus on the  specific  needs and
anticipated   risks  and   opportunities  of  its  major   businesses.   Certain
administrative  functions  are  handled  by a  corporate  services  group  which
supports all of the business units.

     Although  specific  functions may be moved between business units as future
circumstances   warrant,   the  main  focus  of  each  business  unit  has  been
established.  Presently,  significant  functions of the generation business unit
include the production of  electricity,  the purchase of electricity and natural
gas, and the sale of  wholesale  electricity  and natural gas. The  transmission
business  unit  coordinates  all  activities  related  to  MidAmerican  Energy's
electric  transmission  facilities,  including monitoring access to and assuring
the reliability of the transmission  system.  The energy  distribution  business
unit  distributes  electricity and natural gas to end-users and conducts related
activities.  Retail includes  marketing,  customer service and related functions
for core and complementary products and services.

     MidAmerican Energy expects that, as the industry moves toward  competition,
generation and retail functions will not be rate-regulated.  Energy distribution
and  transmission  functions,  though not  unaffected by industry  changes,  are
expected to remain rate-regulated by state and federal commissions.

(B)  FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS

     Financial information on MidAmerican Funding's electric and gas segments of
business is included  under the Note titled  "Segment  Information"  in Notes to
Consolidated  Financial  Statements  included  in Part IV,  Item 14 of this Form
10-K.

(C)  DESCRIPTION OF BUSINESS

                     BUSINESS OF MIDAMERICAN FUNDING AND MHC
                     ---------------------------------------

     MidAmerican  Funding conducts no business other than activities  related to
the issuance of its debt securities and the ownership of MHC.

     MHC  conducts no business  other than the  ownership  of its  subsidiaries.
MHC's  interests  include  100%  of the  common  stock  of  MidAmerican  Energy,
MidAmerican  Capital, Midwest  Capital and  MidAmerican  Services.  MidAmerican
Energy  is  primarily  engaged  in the  business  of  generating,  transmitting,
distributing  and  selling  electric  energy and in  distributing,  selling  and
transporting  natural gas. It accounts for the predominant  part of MHC's assets
and earnings.  MidAmerican  Capital  manages  marketable  securities and passive
investment activities, security services and other energy-related,  nonregulated
activities. Midwest Capital functions as a regional business development company
in  MidAmerican  Energy's  service  territory.   MidAmerican  Services  provides
comprehensive  energy services to utilities and other companies.  Prior to 1999,
MidAmerican Services was a subsidiary of MidAmerican Capital.

     For the year  ended  December  31,  1999,  96.3% of  MidAmerican  Funding's
operating  revenues were from  MidAmerican  Energy,  3.5% were from  MidAmerican
Capital and 0.2% were from Midwest Capital.

                                      -4-
<PAGE>

     MidAmerican  Funding and its subsidiaries had 3,889 full-time  employees as
of December 31, 1999.

                         BUSINESS OF MIDAMERICAN ENERGY
                         ------------------------------

     MidAmerican  Energy is the largest  energy company  headquartered  in Iowa,
with  assets  and  1999  revenues   totaling  $3.6  billion  and  $1.8  billion,
respectively.  MidAmerican  Energy is  principally  engaged in the  business  of
generating,  transmitting,  distributing  and  selling  electric  energy  and in
distributing,   selling  and  transporting   natural  gas.   MidAmerican  Energy
distributes  electricity at retail in Council  Bluffs,  Des Moines,  Fort Dodge,
Iowa  City,  Sioux City and  Waterloo,  Iowa,  the Quad  Cities  (Davenport  and
Bettendorf, Iowa and Rock Island, Moline and East Moline, Illinois) and a number
of adjacent  communities and areas. It also distributes natural gas at retail in
Cedar Rapids, Des Moines, Fort Dodge, Iowa City, Sioux City and Waterloo,  Iowa;
the Quad Cities; Sioux Falls, South Dakota; and a number of adjacent communities
and areas.  As of December  31,  1999,  MidAmerican  Energy had  663,500  retail
electric customers and 638,000 retail natural gas customers.

     In addition to retail sales, MidAmerican Energy delivers electric energy to
other  utilities,  marketers  and  municipalities  who  distribute it to end-use
customers.  These sales are referred to as sales for resale or off-system sales.
It also transports  natural gas through its distribution  system for a number of
end-use customers who have independently secured their supply of natural gas.

         MidAmerican   Energy's   regulated  electric  and  gas  operations  are
conducted under  franchises,  certificates,  permits and licenses  obtained from
state and local authorities.  The franchises, with various expiration dates, are
typically for 25-year terms.

         MidAmerican  Energy has a  residential,  agricultural,  commercial  and
diversified  industrial  customer group, in which no single industry or customer
accounted for more than 5% of its total 1999 electric  operating  revenues or 3%
of its total 1999 gas operating margin.  Among the primary  industries served by
MidAmerican  Energy  are  those  which  are  concerned  with the  manufacturing,
processing and fabrication of primary metals, real estate,  food products,  farm
and other non-electrical machinery, and cement and gypsum products.

         MidAmerican  Energy  also  conducts a number of  nonregulated  business
activities,   including  natural  gas  marketing.  Refer  to  the  "Nonregulated
Operations" section later in Part I for further discussion.

         For the year  ended  December  31,  1999,  MidAmerican  Energy  derived
approximately  66% of its gross operating  revenues from its regulated  electric
business,  25% from its  regulated  gas  business  and 9% from its  nonregulated
business activities.  For 1998 and 1997, the corresponding  percentages were 69%
electric,  25%  gas  and 6%  nonregulated;  and  65%  electric,  31%  gas and 4%
nonregulated, respectively.


                                      -5-
<PAGE>


     Historical  electric sales by customer class as a percent of total electric
sales and  retail  electric  sales  data by state as a percent  of total  retail
electric sales are shown below:

                                           Total Electric Sales
                                             By Customer Class

                                      1999         1998          1997
                                      ----         ----          ----
Residential                           21.0%        22.2%        20.9%
Small General Service                 16.7         17.5         16.5
Large General Service                 26.9         28.1         27.4
Other                                  4.5          4.4          4.4
Sales for Resale                      30.9         27.8         30.8
                                     -----        -----       ------

Total                                100.0%       100.0%       100.0%
                                     =====        =====        =====

                                           Retail Electric Sales
                                                 By State

                                      1999         1998          1997
                                      ----         ----          ----
Iowa                                  88.9%        88.4%        88.6%
Illinois                              10.4         10.9         10.7
South Dakota                           0.7          0.7          0.7
                                     -----        -----      -------

Total                                100.0%       100.0%       100.0%
                                     =====        =====        =====

     In Illinois beginning October 1, 1999, larger non-residential customers and
33% of the  remaining  non-residential  customers  were  allowed to select their
provider of electric supply services.  All other non-residential  customers will
have  supplier  choice  starting  December 31, 2000.  Residential  customers all
receive the opportunity to select their electric supplier on May 1, 2002.

     Historical regulated gas sales,  excluding  transportation  throughput,  by
customer  class as a percent  of total  gas  sales and by state as a percent  of
total retail gas sales are shown below:

                                         Total Regulated Gas Sales
                                             By Customer Class

                                      1999         1998          1997
                                      ----         ----          ----
Residential                           62.0%        59.9%        60.8%
Small General Service                 31.4         32.1         33.1
Large General Service                  3.9          3.7          4.2
Other                                  2.7          4.3          1.9
                                     -----        -----        -----

Total                                100.0%       100.0%       100.0%
                                     =====        =====        =====


                                      -6-
<PAGE>


                                             Retail Gas Sales
                                                 By State

                                      1999         1998          1997
                                      ----         ----          ----
Iowa                                  78.8%        79.0%        79.1%
Illinois                              10.3         10.2         10.4
South Dakota                          10.1         10.1          9.8
Nebraska                               0.8          0.7          0.7
                                     -----        -----        -----

Total                                100.0%       100.0%       100.0%
                                     =====        =====        =====

     There are seasonal  variations  in  MidAmerican  Energy's  electric and gas
businesses  which  are  principally  related  to  the  use  of  energy  for  air
conditioning and heating. In 1999, 39% of MidAmerican Energy's electric revenues
were  reported in the months of June,  July,  August and  September,  and 55% of
MidAmerican  Energy's  gas  revenues  were  reported  in the months of  January,
February, March and December.

     At December 31, 1999,  MidAmerican Energy had 3,690 full-time  employees of
which  1,710  were  covered  by union  contracts.  MidAmerican  Energy has eight
separate  contracts with locals of the  International  Brotherhood of Electrical
Workers  (IBEW),  the United  Association  of Plumbers and  Pipefitters  and the
United Paper Workers  International  Union.  The  contracts  covering most union
employees are as follows:

                                  Employee         Contract
     Union         Local           Members         Expiration Date
     -----         -----          --------         ---------------
     IBEW            109             480              3/01/2000
     IBEW            499           1,140              3/01/2000

     The Local 499  members  numbered  above are covered  under  three  separate
contracts  based on the  location  of the Local 499 of which  they are a member.
Negotiations  for new contracts are in progress,  and union members  continue to
work under the terms of the expired contracts for a 90-day period.

REGULATED ELECTRIC OPERATIONS

     The annual  hourly  peak demand on  MidAmerican  Energy's  electric  system
occurs  principally  as a result of air  conditioning  use  during  the  cooling
season. In July 1999, MidAmerican Energy recorded an hourly peak demand of 3,833
MW, which was 190 MW more than MidAmerican  Energy's previous record hourly peak
of 3,643 MW set in 1998.

     MidAmerican Energy's accredited net generating  capability in the summer of
1999 was 4,466 MW. Accredited net generating capability represents the amount of
generation  available to meet the  requirements on MidAmerican  Energy's system,
net of the effect of capacity  purchases and sales,  and consists of MidAmerican
Energy-owned   generation  and  generation  under  a  long-term  power  purchase
contract.  The net  generating  capability at any time may be less than it would
otherwise be due to regulatory  restrictions,  fuel  restrictions and generating
units being temporarily out of service for inspection, maintenance, refueling or
modifications.  Refer to Item 2,  Properties,  for detail of the  accredited net
generating capability for the summer of 1999.

     MidAmerican  Energy is interconnected  with Iowa utilities and utilities in
neighboring  states and is involved in an electric power pooling agreement known
as Mid-Continent Area Power Pool. The


                                      -7-
<PAGE>


Power Pool is a voluntary  association of electric  utilities  doing business in
Iowa,  Minnesota,  Nebraska and North Dakota and portions of Illinois,  Montana,
South Dakota and  Wisconsin  and the  Canadian  provinces  of  Saskatchewan  and
Manitoba. Its membership also includes power marketers,  regulatory agencies and
independent  power  producers.  The  Power  Pool  facilitates  operation  of the
transmission  system,  serves as a power and energy market clearing house and is
responsible for the safety and reliability of the bulk electric system.

     Each Power Pool participant is required to maintain for emergency  purposes
a net  generating  capability  reserve  of at least 15% above  its  system  peak
demand.  If a  participant's  capability  reserve  falls below the 15%  minimum,
significant  penalties  could  be  contractually  imposed  by  the  Power  Pool.
MidAmerican Energy's reserve margin for 1999 was approximately 16.5%.

     MidAmerican Energy's transmission system connects its generating facilities
with  distribution  substations  and  interconnects  with 14 other  transmission
providers in Iowa and five adjacent states.  Under normal operating  conditions,
MidAmerican  Energy's  transmission  system is  unconstrained  and has  adequate
capacity to deliver energy to MidAmerican  Energy's  distribution  system and to
export and import energy with other  interconnected  systems.  As energy markets
open to  competition,  MidAmerican  Energy  believes  its  interconnections  and
central  location will provide  valuable  opportunities  to serve other markets.
Refer to Item 2, Properties, for detail of transmission lines.

Fuel Supply for Electric Operations
-----------------------------------

     MidAmerican  Energy's  sources  of fuel  for  electric  generation  were as
follows for the periods shown:

                                   Year Ended December 31,
                                 1999         1998         1997
                                 -----        -----        -----

     Coal                         70.9%        79.2%        76.3%
     Nuclear*                     28.2         19.5         23.0
     Gas                           0.7          1.1          0.6
     Oil/Hydro                     0.2          0.2          0.1
                                 -----        -----        -----
       Total                     100.0%       100.0%       100.0%
                                 =====        =====        =====

     *Nuclear includes  generation  purchased through a long-term power purchase
agreement with Nebraska Public Power District. Refer to Item 2, Properties,  for
detail of generating facilities.

     Prior to July 1997,  MidAmerican  Energy was  allowed to recover its energy
costs from most of its electric  utility  customers  through  energy  adjustment
clauses.  Beginning  in  July  1997,  the  Iowa  energy  adjustment  clause  was
eliminated  as part of the Iowa  pricing  plan  approved  by the Iowa  Utilities
Board.  Accordingly,  fluctuations  in energy  costs now may affect  MidAmerican
Energy's earnings.

     All of the coal-fired  generating  stations operated by MidAmerican  Energy
are fueled by  low-sulfur,  western  coal from the Powder  River Basin and Hanna
Basin mines. The use of low-sulfur  western coal enables  MidAmerican  Energy to
comply with the acid rain  provisions  of the Clean Air Act  Amendments  of 1990
without having to install  additional  costly emissions control equipment at its
generating  stations.   MidAmerican  Energy's  coal  supply  portfolio  includes
multiple  suppliers  and mines under  agreements  of varying  term and  quantity
flexibility.  MidAmerican  Energy  regularly  monitors  the western coal market,
looking for  opportunities  to improve its coal  supply  portfolio.  MidAmerican
Energy  believes  its  sources  of coal  supply  are  and  will  continue  to be
satisfactory.  Additional information


                                      -8-
<PAGE>


regarding  MidAmerican Energy's coal supply contracts is included in Note (4)(g)
of Notes to Consolidated  Financial Statements in Part IV, Item 14, of this Form
10-K.

     MidAmerican Energy uses both Union Pacific Railroad and Burlington Northern
and  Santa Fe  Railway  as  originating  carriers  of its coal  supply.  Coal is
delivered  directly to Neal Energy Center by Union Pacific and to Council Bluffs
Energy Center by Union Pacific and  Burlington  Northern.  Coal for  MidAmerican
Energy's  Louisa and  Riverside  Energy  Centers is delivered to an  interchange
point by Burlington  Northern for  transportation  to its destination by the I&M
Rail Link.  Competitive  rail access is available to the Council  Bluffs  Energy
Center and to interchange  points for deliveries to Louisa and Riverside  Energy
Centers.  MidAmerican Energy believes its coal  transportation  arrangements are
adequate to meet its coal delivery needs.

     MidAmerican  Energy  uses  natural  gas  and oil as fuel  for  peak  demand
electric generation,  transmission  support and standby purposes.  These sources
are  presently in adequate  supply and  available to meet  MidAmerican  Energy's
needs.

     MidAmerican  Energy  is a 25%  joint  owner of Quad  Cities  Nuclear  Power
Station.  Approximately  one-third  of the fuel in the  core at the Quad  Cities
Station units is replaced  every 24 months.  One unit had a refueling  outage in
January 2000, and a refueling  outage is scheduled for October 2000 at the other
unit.

     MidAmerican Energy has been advised by Commonwealth Edison, the joint owner
and  operator  of  Quad  Cities  Station,  that  the  majority  of  its  uranium
concentrate and uranium conversion  requirements for Quad Cities Station through
2001 can be met under  existing  supplies  or  commitments.  ComEd  foresees  no
problem  in  obtaining  the  remaining  requirements  now  or  obtaining  future
requirements.  ComEd further advises that all enrichment  requirements have been
contracted through 2003.  Commitments for fuel fabrication have been obtained at
least through 2005.  ComEd does not anticipate  that it will have  difficulty in
contracting for uranium  concentrates for conversion,  enrichment or fabrication
of nuclear fuel needed to operate Quad Cities Station.

     MidAmerican  Energy  purchases  one-half  of the power and energy of Cooper
Nuclear Station through a long-term power purchase contract with Nebraska Public
Power  District.  Approximately  30% of the fuel in the core at  Cooper  must be
replaced  every 18 months.  A refueling  outage  began in March  2000.  Nebraska
Public  Power  District  has  informed  MidAmerican  Energy  that it either  has
sufficient   materials  and  services   available  to  meet  foreseeable  Cooper
requirements  or that such  materials  and services are readily  available  from
suppliers.

     Under the Nuclear Waste Policy Act of 1982,  the U.S.  Department of Energy
is responsible for the selection and  development of  repositories  for, and the
permanent  disposal of, spent nuclear fuel and  high-level  radioactive  wastes.
ComEd and Nebraska Public Power District,  as required by the Nuclear Waste Act,
each signed a contract with the Department of Energy to provide for the disposal
of spent nuclear fuel and high-level  radioactive waste beginning not later than
January 1998.  The  Department of Energy did not begin  receiving  spent nuclear
fuel on the  scheduled  date,  and it is  expected  that  the  schedule  will be
significantly  delayed.  The costs  incurred  by the  Department  of Energy  for
disposal  activities are being financed by fees charged to owners and generators
of the waste. The Nebraska Public Power District has informed MidAmerican Energy
that there is on-site  storage  capability  at Cooper  sufficient to permit such
interim storage at least through 2004, the remaining term of the long-term power
purchase contract.  ComEd has informed  MidAmerican Energy that existing on-site
storage  capability  at Quad  Cities  Station is  sufficient  to permit  interim
storage into 2006.  Meeting  spent  nuclear fuel  storage  requirements  at Quad
Cities  Station beyond such time could require  modifications  to the spent fuel
storage pools or new and separate storage  facilities.  For Quad Cities Station,
ComEd has informed


                                      -9-
<PAGE>


MidAmerican  Energy  that  they  plan to  develop  interim  spent  fuel  storage
installation  at Quad Cities Station to store  additional  spent nuclear fuel in
dry casks.

     REGULATED NATURAL GAS OPERATIONS

     MidAmerican Energy is engaged in the procurement,  transportation,  storage
and  distribution  of natural  gas for  utility  and  end-use  customers  in the
Midwest.  MidAmerican  Energy  purchases  natural  gas from  various  suppliers,
transports it from the production area to MidAmerican Energy's service territory
under  contracts  with  interstate  pipelines,  stores  it  in  various  storage
facilities to manage  fluctuations  in system demand and seasonal  pricing,  and
distributes it to customers through MidAmerican Energy's distribution system.

     MidAmerican Energy also transports through its distribution  system natural
gas  purchased  independently  by a number of end-use  customers.  During  1999,
approximately  43% of total gas  delivered on  MidAmerican  Energy's  system was
under gas transportation service.

Fuel Supply and Capacity
------------------------

     MidAmerican  Energy  purchases gas supplies from  producers and third party
marketers.  To  ensure  system  reliability,  a  geographically  diverse  supply
portfolio  with varying  terms and contract  conditions  is utilized for the gas
supplies.

     MidAmerican Energy has rights to firm pipeline capacity to transport gas to
its service  territory  through direct  interconnects to the pipeline systems of
Northern Natural Gas,  Natural Gas Pipeline Company of America,  Northern Border
Pipeline  Company  and  ANR  Pipeline  Company.   Firm  capacity  in  excess  of
MidAmerican  Energy's  system  needs,  resulting  from  differences  between the
capacity  portfolio and seasonal system demand, can be resold to other companies
to achieve  optimum use of the available  capacity.  Past Iowa  Utilities  Board
rulings have allowed  MidAmerican Energy to retain 30% of Iowa margins earned on
the resold capacity,  with the remaining 70% being returned to customers through
the purchased gas adjustment clause.

     MidAmerican  Energy's  cost  of gas is  recovered  from  customers  through
purchased gas adjustment  clauses.  In 1995,  the Iowa Utilities  Board approved
MidAmerican  Energy's Incentive Gas Supply Procurement  Program for a three-year
test period which expired in November  1998. On May 28, 1999, the Iowa Utilities
Board approved a settlement that continues the program through October 31, 2000.
Under the  program as amended,  MidAmerican  Energy is required to file with the
Iowa Utilities Board every six months a comparison of its gas procurement  costs
to an index-based  reference price. If MidAmerican  Energy's cost of gas for the
period  is less or  greater  than  an  established  tolerance  band  around  the
reference price, then MidAmerican Energy shares a portion of the savings or cost
with customers. Since the implementation of the program,  MidAmerican Energy has
successfully achieved and shared in savings for its natural gas customers.

     MidAmerican   Energy   utilizes   leased  gas  storage  to  meet  peak  day
requirements  and to  manage  the daily  changes  in demand  due to  changes  in
weather.  The storage gas is typically  replaced  during the summer  months.  In
addition,  MidAmerican  Energy also utilizes three liquefied  natural gas plants
and two propane-air plants to meet peak day demands.

     On February 2, 1996,  MidAmerican  Energy had its highest peak-day delivery
of 1,143,026  MMBtus.  This peak-day  delivery  consisted of  approximately  88%
traditional sales service and 12%


                                      -10-
<PAGE>

transportation  service of customer-owned  gas.  MidAmerican  Energy's 1999/2000
winter  heating  season  peak-day  delivery  of 931,518  MMBtus  was  reached on
December 20, 1999. This peak-day delivery included approximately 74% traditional
sales service and 26% transportation service.

     The supply  sources  utilized by  MidAmerican  Energy to meet its 1999/2000
peak-day deliveries to its sales service customers were:

                                                 Thousands       Percent
                                                    of             of
                                                   MMBtus         Total
                                                   ------        -------

     Leased Storage and Peak Shaving Plants         303.1          43.1%
     Firm Supply                                    400.3          56.9
                                                    -----         -----
     Total                                          703.4         100.0%
                                                    =====         =====

     MidAmerican    Energy   has    strategically    built   multiple   pipeline
interconnections  into  several of its larger  communities.  MidAmerican  Energy
operates interconnects with Northern Natural Gas, Natural Gas Pipeline, Northern
Border,  and ANR Pipeline  Company into the Quad Cities;  with Northern  Natural
Gas, Natural Gas Pipeline,  and Northern Border into Cedar Rapids/Iowa City; and
with  Northern  Natural Gas and Natural Gas Pipeline  into Des Moines.  Multiple
pipeline   interconnects   create   competition  among  pipeline  suppliers  for
transportation capacity in those communities,  thus reducing costs. In addition,
multiple pipeline  interconnects give MidAmerican Energy the ability to optimize
delivery of the lowest cost supply from the various  pipeline supply basins into
these  communities and increase  delivery  reliability.  Benefits to MidAmerican
Energy's  system  customers  are  shared  with  all   jurisdictions   through  a
consolidated purchased gas adjustment clause.

     MidAmerican  Energy does not anticipate  difficulties in meeting its future
demands  through the use of its supply  portfolio and pipeline  interconnections
for the foreseeable future.

NONREGULATED OPERATIONS

     MidAmerican   Energy's   nonregulated   operations  include  a  variety  of
activities  outside of the traditional  regulated  electric and gas services.  A
majority  of  MidAmerican  Energy's  nonregulated  revenue is  generated  by its
nonregulated  natural gas marketing  services.  MidAmerican Energy purchases gas
from  producers  and  third  party  marketers  and sells it to  wholesalers  and
end-users.   Beginning  in  May  1998,   contracts   previously  serviced  by  a
nonregulated  subsidiary of MHC were renewed as  MidAmerican  Energy  contracts,
creating a significant  increase in these operations at MidAmerican  Energy.  In
addition,  MidAmerican  Energy  manages  gas  supplies  for a  number  of  small
commercial  end-users  and  sells  these  customers  gas to  meet  their  supply
requirements.  Sales  volumes  for these  nonregulated  gas  marketing  services
totaled 58 million  MMBtus,  39 million  MMBtus and 21 million  MMBtus for 1999,
1998 and 1997, respectively.

     MidAmerican Energy's  nonregulated  revenues for 1999 reflect revenues from
its market access service project, which began in the third quarter of 1999. The
pilot  project  allows  Iowa  customers  with at  least 4 MW of  load  that  are
participating   in  the  project  to  choose  their  electric  power   supplier.
MidAmerican  Energy's revenues from project  participants  related to non-supply
services,  such as distribution  and  transmission,  continue to be reflected in
regulated electric revenues.

     Nonregulated  revenues of MidAmerican  Energy also include awards  received
for  successful  performance  under its  Incentive Gas Supply  Procurement  Plan
discussed in the "Regulated Natural Gas Operations" section.

                                      -11-
<PAGE>

REGULATION

General Utility Regulation
--------------------------

     MidAmerican  Energy is a public  utility  within the meaning of the Federal
Power Act and a natural gas  company  within the meaning of the Natural Gas Act.
Therefore,  it is  subject  to  regulation  by  the  Federal  Energy  Regulatory
Commission  in  regard  to  numerous  activities,   including  the  issuance  of
securities,  accounting  policies and  practices,  sales for resale  rates,  the
establishment  and  regulation  of electric  interconnections  and  transmission
services and replacement of certain gas utility property.

     MidAmerican  Energy is regulated by the Illinois Commerce  Commission as to
bundled retail rates,  unbundled delivery services,  services that have not been
declared  to  be  competitive,   accounts,  issuance  of  securities,  affiliate
transactions,   construction,   acquisition   and  sale  of  utility   property,
acquisition and sale of securities and in other respects as provided by the laws
of Illinois.  MidAmerican  Energy is regulated by the Iowa Utilities Board as to
retail rates, services, accounts,  construction of utility property and in other
respects as provided by the laws of Iowa.  MidAmerican Energy is also subject to
regulation by the South Dakota Public Utility  Commission as to electric and gas
retail rates and service as provided by the laws of South Dakota.

Rate Regulation
---------------

     Under Iowa law, temporary  collection of higher rates can begin, subject to
refund,  90 days after filing with the Iowa Utilities  Board for that portion of
such higher rates approved by the Iowa Utilities Board based on prior ratemaking
principles  and a rate of return on common equity  previously  approved.  If the
Iowa  Utilities  Board has not issued a final order  within ten months after the
filing date,  the temporary  rates cease to be subject to refund and any balance
of the  requested  rate  increase  may  then be  collected  subject  to  refund.
Exceptions to the ten-month limitation provide for extensions due to a utility's
lack of due diligence in the rate  proceeding,  judicial  appeals and situations
involving new  generating  units being placed in service.  MidAmerican  Energy's
cost of gas is  reflected  in its  Iowa  gas  rates  through  the  Iowa  Uniform
Purchased Gas Adjustment Clause.

     South Dakota law authorizes  its Public  Utility  Commission to suspend new
rates for up to six months during the pendency of rate proceedings; however, the
rates are permitted to be implemented after six months subject to refund pending
a final order in the proceeding.

     Under  Illinois  law,  new rates may become  effective 45 days after filing
with the Illinois Commerce  Commission,  or on such earlier date as the Illinois
Commerce  Commission  may  approve,  subject to its  authority  to  suspend  the
proposed new rates, subject to hearing, for a period not to exceed approximately
eleven  months  after  filing.  Under  Illinois  electric  tariffs,  MidAmerican
Energy's Fuel Cost Adjustment  Clause reflects  changes in the cost of all fuels
used for  electric  generation,  including  certain fuel  transportation  costs,
nuclear fuel  disposition  costs and the effects of energy  transactions  (other
than  capacity  and  margins  on  interchange   sales)  with  other   utilities.
MidAmerican  Energy's cost of gas is reflected in its Illinois gas rates through
the Illinois Uniform Purchased Gas Adjustment Clause.

     In  December  1997,  Illinois  enacted a new law to  restructure  Illinois'
electric utility  industry.  The law changes how and what electric  services are
regulated by the Illinois  Commerce  Commission and transitions  portions of the
traditional electric services to a competitive environment.  In general, the new
law  limits the  Illinois  Commerce  Commission's  regulatory  authority  over a
utility's  generation  and also  relaxes  its  regulatory  authority  over  many
corporate transactions, such as the transfer of generation assets to affiliates.
Special  authority and limitations of authority apply during the transition to a
competitive

                                      -12-
<PAGE>

marketplace.  Also, the law permits utilities to eliminate their fuel adjustment
clauses  and  incorporates  provisions  by which  earnings  in excess of allowed
amounts are either  partially  refunded to customers or are used to accelerate a
company's regulatory asset cost recovery.  Electric rates are frozen, subject to
certain exceptions, until 2005.

     Refer to the  information  under the caption  "Legislative  and  Regulatory
Evolution" in the "Operating  Activities  and Other Matters"  section of MD&A in
Part  IV,  Item 14 of this  Form  10-K  for  additional  discussion  of  matters
affecting utility regulation.

     Iowa law requires  electric  and gas  utilities to spend a portion of their
annual Iowa jurisdictional revenues on energy efficiency programs. Utilities are
allowed to recover the cost of energy efficiency  programs from their customers,
subject to Iowa  Utilities  Board review.  MidAmerican  Energy is recovering its
historical energy efficiency  program costs,  which were deferred until recovery
in accordance with prior energy efficiency  regulations.  MidAmerican  Energy is
also  recovering  the current costs of its ongoing energy  efficiency  programs.
Refer to the discussion under "Energy  Efficiency" in the "Operating  Activities
and Other Matters" section of MD&A in Part IV, Item 14 of this Form 10-K.

Nuclear Regulation
------------------

     MidAmerican Energy is subject to the jurisdiction of the Nuclear Regulatory
Commission with respect to its license and 25% ownership interest in Quad Cities
Station Units 1 and 2. ComEd is the operator of Quad Cities Station and is under
contract  with  MidAmerican  Energy to secure and keep in effect  all  necessary
Nuclear Regulatory Commission licenses and authorizations.

     Under the terms of a long-term power purchase contract with Nebraska Public
Power District,  or NPPD,  MidAmerican Energy has contracted to purchase through
September  21,  2004,  one-half  of the power and energy from  Cooper,  which is
located near Brownville,  Nebraska.  MidAmerican Energy pays for one-half of the
fixed and operating costs of Cooper  (excluding  depreciation but including debt
service) and MidAmerican  Energy's share of fuel costs (including the Department
of Energy disposal fee) based upon energy delivered.  MidAmerican  Energy is not
subject to the jurisdiction of the Nuclear Regulatory Commission with respect to
Cooper and the long-term  power  purchase  contract  with Nebraska  Public Power
District.  Nebraska  Public  Power  District,  as the sole owner,  licensee  and
operator of Cooper,  is thereby the only entity subject to the  jurisdiction  of
the Nuclear Regulatory Commission with respect to Cooper. Under the terms of the
long-term power purchase contract, Nebraska Public Power District is required to
assure  that  Cooper  is in  compliance  with  all  of  the  Nuclear  Regulatory
Commission regulations.

     The Nuclear  Regulatory  Commission's  regulations  control the granting of
permits and licenses for the  construction  and operation of nuclear  generating
stations and subject such  stations to  continuing  review and  regulation.  The
Nuclear Regulatory  Commission review and regulatory process covers, among other
things, operations,  maintenance,  and environmental and radiological aspects of
such stations.  The Nuclear Regulatory Commission may modify,  suspend or revoke
licenses and impose civil penalties for failure to comply with the Atomic Energy
Act, the regulations under such Act or the terms of such licenses.

     Federal  regulations  provide  that any nuclear  operating  facility may be
required to cease  operation  if the Nuclear  Regulatory  Commission  determines
there are deficiencies in state,  local or utility emergency  preparedness plans
relating to such facility,  and the  deficiencies  are not corrected.  ComEd and
Nebraska  Public Power District have advised  MidAmerican  Energy that emergency
preparedness plans for Quad Cities Station and Cooper,  respectively,  have been
approved by the Nuclear Regulatory  Commission.  ComEd and Nebraska Public Power
District have also advised MidAmerican Energy that

                                      -13-
<PAGE>

state and local plans relating to Quad Cities Station and Cooper,  respectively,
have been approved by the Federal Emergency Management Agency.

     On May 3, 1999, the Nuclear Regulatory Commission advised ComEd that it had
classified  Quad Cities  Station in its Routine  Oversight  category for nuclear
power plants, which is the best of the Nuclear Regulatory Commission's three new
categories,  removing the station from the Trending  (adversely)  Letter  status
initiated in January 1998.  During 1999, the station's  capacity factor based on
maximum  dependable  capacity was in excess of 96.0% compared to 51.7% for 1998.
The lower capacity  factor in 1998 reflects the extended  outages at both of the
Quad Cities Station units during the first five months of 1998.

     The Nuclear  Regulatory  Commission also regulates the  decommissioning  of
nuclear  power  plants  including  the  planning  and funding  for the  eventual
decommissioning  of the plants.  In response to these  regulations,  MidAmerican
Energy  submitted a report to the  Nuclear  Regulatory  Commission  in July 1990
indicating  that it will  provide  "reasonable  assurance"  that  funds  will be
available to pay the costs of decommissioning  its share of Quad Cities Station.
Nebraska  Public  Power  District has advised  MidAmerican  Energy that a report
addressing decommissioning funding for Cooper has been submitted and approved by
the Nuclear Regulatory Commission.

     MidAmerican  Energy has  established  external trusts for the investment of
funds collected for nuclear decommissioning associated with Quad Cities Station.
Nebraska  Public Power  District  maintains an internal  account and an external
trust for decommissioning funds associated with Cooper. MidAmerican Energy makes
contributions to Nebraska Public Power District related to  decommissioning  and
reflects  those  contributions  in MidAmerican  Energy's  power purchase  costs.
Electric  tariffs   currently  in  effect  include   provisions  for  annualized
collection of estimated decommissioning costs at Quad Cities Station and Cooper.
In Illinois,  nuclear  decommissioning  costs are included in customer  billings
through a mechanism that permits  annual  adjustments.  In Iowa,  such costs are
reflected in base rates.  MidAmerican  Energy's cost related to  decommissioning
funding in 1999 was $21.7  million.  Refer to "Cooper  Litigation"  under "Legal
Proceedings"  in Part I, Item 3 of this form 10-K for discussion of a proceeding
related to the Cooper power purchase agreement.

Environmental Regulations
-------------------------

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

     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 MidAmerican Energy's existing
facilities,  (iv)  increasing the risk of delay on  construction  projects,  (v)
increasing  MidAmerican  Energy's  cost of waste  disposal and (vi) reducing the
reliability of service  provided by MidAmerican  Energy and the amount of energy
available from MidAmerican Energy's  facilities.  Any of such items could have a
substantial  impact on amounts required to be expended by MidAmerican  Energy in
the future.

     Air Quality -

     The Clean Air Act Amendments of 1990 were signed into law in November 1990.
Essentially all utility  generating units are subject to the provisions of those
amendments which address continuous  emissions  monitoring,  permit requirements
and fees and  emissions  of  certain  substances.  MidAmerican  Energy  has five
jointly owned and six wholly owned coal-fired  generating units, which represent


                                      -14-
<PAGE>


approximately  65%  of  MidAmerican  Energy's  electric  generating  capability.
MidAmerican  Energy's  generating units meet all requirements  under Title IV of
the Clear Air Act Amendments of 1990 through 2007. Title IV, which is also known
as the Acid Rain  Program,  sets forth  requirements  for the emission of sulfur
dioxide and nitrogen oxides at electric utility generating stations.

     Refer to the discussion  under the caption  "Environmental  Matters" in the
"Operating Activities and Other Matters" section of MD&A in Part IV, Item 14, of
this Form 10-K for additional information regarding air quality regulation.

     Water Quality -

     Under the Federal  Water  Pollution  Control  Act  Amendments  of 1972,  as
amended,  MidAmerican Energy is required to obtain National Pollutant  Discharge
Elimination System permits to discharge effluents (including thermal discharges)
from its properties into various  waterways.  The permits are subject to renewal
after  specified time periods not to exceed five years.  MidAmerican  Energy has
obtained all necessary National Pollutant  Discharge  Elimination System permits
for its  generating  stations,  and when those  permits are  expected to expire,
MidAmerican Energy will file applications for renewal.

     Hazardous Materials and Waste Management -

     The U.S.  Environmental  Protection Agency, or EPA, and state environmental
agencies  have  determined  that   contaminated   wastes  remaining  at  certain
decommissioned manufactured gas plant facilities may pose a threat to the public
health or the environment if such contaminants are in sufficient  quantities and
at such concentrations as to warrant remedial action.

     MidAmerican Energy estimates the range of possible costs for investigation,
remediation  and  monitoring  for these sites to be $22 million to $68  million.
MidAmerican  Energy has evaluated or is evaluating 27 properties  which were, at
one time, sites of gas manufacturing plants in which MidAmerican Energy may be a
potentially  responsible  party.  MidAmerican  Energy's estimate of the probable
cost for these sites as of December  31,  1999,  was $28  million.  The Illinois
Commerce  Commission  has  approved  the use of a  tariff  rider  which  permits
recovery  of the  actual  costs of  litigation,  investigation  and  remediation
relating to former  manufactured gas plant sites.  MidAmerican  Energy's present
rates in Iowa  provide for a fixed  annual  recovery of  manufactured  gas plant
costs.

     Additional  information relating to MidAmerican  Energy's  manufactured gas
plant  facilities  is  included  under  Note  (4)(b)  in Notes  to  Consolidated
Financial Statements in Part IV, Item 14 of this Form 10-K.

     Pursuant to the Toxic Substances Control Act, a federal law administered by
the EPA,  MidAmerican  Energy  developed  a  comprehensive  program for the use,
handling,  control and disposal of all  polychlorinated  biphenyls,  referred to
herein as PCBs, contained in electrical  equipment.  The future use of equipment
containing  PCBs  will  be  minimized.   Capacitors,   transformers   and  other
miscellaneous  equipment are being  purchased with a non-PCB  dielectric  fluid.
MidAmerican  Energy's  exposure to PCB  liability  has been reduced  through the
orderly  replacement of a number of such electrical devices with similar non-PCB
electrical devices.

     Other -

     A number of studies have examined the possibility of adverse health effects
from  electric and magnetic  fields  without  conclusive  results.  Electric and
magnetic  fields are  produced  by all devices


                                      -15-
<PAGE>

carrying or using electricity, including transmission and distribution lines and
home  appliances.  MidAmerican  Energy cannot predict the effect on construction
costs of electric utility facilities or operating costs if electric and magnetic
field regulations related to were to be adopted.  Although MidAmerican Energy is
not the subject of any suit involving  electric and magnetic fields,  litigation
has been  filed in a number of  jurisdictions  against a variety  of  defendants
alleging that electric and magnetic  fields had an adverse effect on health.  If
such litigation  were  successful,  the impact on MidAmerican  Energy and on the
electric  utility  industry in general could be material.  However,  MidAmerican
Energy does not believe there is any merit to these potential claims.

     In  December  1997,  negotiators  from more than 150  nations met in Kyoto,
Japan to negotiate an international agreement designed to address global climate
change impacts by attempting to reduce so-called greenhouse gas emissions.  Some
scientists contend that these gases build up in the Earth's atmosphere and cause
global  temperatures  to rise. The primary  target of these  emissions is carbon
dioxide,  or CO2,  which is formed by, among other  things,  the  combustion  of
fossil fuels. The agreement  currently calls for the United States to reduce its
emissions of CO2 and other  greenhouse  gases to 7 percent  below 1990 levels in
the 2008-2012 time frame.  The United States became a signatory to the agreement
on November 12,  1998.  In order for the  agreement  to become  binding upon the
United  States,  ratification  by the  U.S.  Senate  is  necessary.  The cost to
MidAmerican  Energy of reducing its CO2 emissions levels by 7 percent below 1990
levels would depend on available technology at the time, but could be material.

     In  accordance  with the  requirements  of Section 112 of the Clear Air Act
Amendments  of 1990,  the EPA has  performed  a study of the  hazards  to public
health reasonably anticipated to occur as a result of emissions of hazardous air
pollutants by electric  utility steam  generating  units.  In February 1998, EPA
issued its Final Report to Congress,  indicating  that mercury is the  hazardous
air pollutant of greatest potential concern from coal-fired generating units and
that  additional  research and  monitoring  are  necessary.  As such the EPA has
issued a request  under  Section  114 of the Clean  Air Act  Amendments  of 1990
requiring all electric utilities to provide  information that will allow the EPA
to calculate the annual mercury  emissions from each coal-fired  generating unit
for the calendar year 1999. This  information  will be used to assist the EPA in
determining  whether  it  is  appropriate  and  necessary  to  regulate  mercury
emissions from coal-fired  generating  units. The cost to MidAmerican  Energy of
reducing its mercury emissions would depend on available technology at the time,
but could be material.

                         BUSINESS OF MIDAMERICAN CAPITAL
                         -------------------------------

     MidAmerican  Capital is a wholly owned nonregulated  subsidiary of MHC. The
nonregulated  activities  emphasize  energy  and  complementary  service-related
businesses,  credit quality and  liquidity.  MidAmerican  Capital  manages these
activities through its nonregulated  investment and operating companies.  Assets
of MidAmerican Capital totaled $262 million as of December 31, 1999.

INVESTMENTS

     MidAmerican  Capital's investments totaled $234 million and $520 million at
December 31, 1999 and 1998,  respectively.  A majority of the investment dollars
relate to investment grade marketable  securities and equipment leases,  most of
which are held by InterCoast  Capital  Company and MHC  Investment  Company.  As
discussed below,  MidAmerican Capital and its subsidiaries also have investments
in energy projects, technology development interests and venture capital funds.

     MidAmerican Capital's marketable securities portfolio, totaling $85 million
and  $394  million  at  December  31,  1999  and  1998,  respectively,  consists
substantially  of a managed  preferred  stock  portfolio and, as of December 31,
1998, an investment in the common stock of McLeodUSA.  Substantially  all of


                                      -16-
<PAGE>

the  investment in McLeodUSA  stock was sold in May 1999.  The preferred  stocks
have been issued by  companies  having  investment  grade senior debt ratings by
Moody's or Standard & Poor's.  As of December 31, 1999 and 1998,  the investment
in  McLeodUSA  stock  was  recorded  at a market  value of $4  million  and $239
million,  respectively.  In January 2000, MidAmerican Capital sold its remaining
investment in McLeodUSA stock. In addition,  MidAmerican Capital has investments
in independently managed mutual funds.

     MidAmerican  Capital  holds  equity   participations  in  equipment  leases
primarily  for  passenger  and freight  transport  aircraft.  These  investments
totaled $49 million and $72 million at December 31, 1999 and 1998, respectively.

     In  addition,  MidAmerican  Capital  and several of its  subsidiaries  have
indirect   investments   in  a  variety  of   nonregulated   energy   production
technologies.

OPERATING COMPANIES

     MidAmerican Capital owns a majority,  controlling  interest in AAA Security
Systems,  Inc., one of the largest  residential and commercial  security systems
companies   in  the   Midwest.   MidAmerican   Capital,   through  its  security
subsidiaries,  also owns the stock or assets of 6 additional midwestern security
companies.  MidAmerican  Capital's  security  operations  have more than  20,000
security customers in the Midwest.


                                      -17-
<PAGE>


                           BUSINESS OF MIDWEST CAPITAL
                           ---------------------------

     Midwest Capital is a wholly owned nonregulated subsidiary of MHC with total
assets of $10  million  as of  December  31,  1999.  Midwest  Capital's  primary
activity  is the  management  of utility  service  area  investments  to support
economic  development.  Midwest  Capital's  principal  interest is a  2,000-acre
master planned  residential and business community in southeastern South Dakota.
The major  construction  phase of the planned  community  is  complete,  and the
marketing  phase  to  sell  developed  residential  and  commercial  lots  is in
progress.

ITEM 2.  PROPERTIES
-------------------

     MidAmerican   Energy's  utility   properties  consist  of  physical  assets
necessary  and  appropriate  to render  electric  and gas service in its service
territories.  Electric property consists  primarily of generation,  transmission
and distribution  facilities.  Gas property  consists  primarily of distribution
plant,  including feeder lines to communities  served from natural gas pipelines
owned by others. It is the opinion of management that the principal  depreciable
properties owned by MidAmerican Energy are in good operating  condition and well
maintained.


                                      -18-
<PAGE>

     The net accredited  generating capacity of MidAmerican  Energy,  along with
the  participation  purchases and sales, net, and firm purchases and sales, net,
are shown for summer 1999 accreditation.

                                                                 Company's Share
                                                                  of Accredited
                                               Percent               Generating
                        Plant                 Ownership   Fuel   Capability (MW)
     ---------------------------------        ---------   ----   --------------
     Steam Electric Generating Plants:
       Council Bluffs Energy Center
         Unit No. 1                              100.0   Coal             43
         Unit No. 2                              100.0   Coal             88
         Unit No. 3                               79.1   Coal            534
       George Neal Station
         Unit No. 1                              100.0   Coal            135
         Unit No. 2                              100.0   Coal            300
         Unit No. 3                               72.0   Coal            371
         Unit No. 4                               40.6   Coal            253
       Louisa Unit                                 88.0   Coal           616
       Ottumwa Unit                                52.0   Coal           372
       Riverside Station
         Unit No. 3                              100.0   Coal              5
         Unit No. 5                              100.0   Coal            130
                                                                       -----
                                                                       2,847
                                                                       -----

     Combustion Turbines:
       Coralville - 4 units                       100.0   Gas/Oil         64
       Electrifarm - 3 units                      100.0   Gas/Oil        200
       Moline - 4 units                           100.0   Gas/Oil         64
       Parr - 2 units                             100.0   Gas/Oil         32
       Pleasant Hill Energy Center - 3 units      100.0   Oil            160
       River Hills Energy Center - 8 units        100.0   Gas/Oil        120
       Sycamore Energy Center - 2 units           100.0   Gas/Oil        149
                                                                       -----
                                                                         789
                                                                       -----

     Nuclear:
       Cooper (1)                                  (1)    Nuclear        387
       Quad-Cities Station
         Unit No. 1                               25.0   Nuclear         192
         Unit No. 2                               25.0   Nuclear         190
                                                                       -----
                                                                         769
                                                                       -----

     Hydro:
       Moline - 4 units                           100.0   Water            3
                                                                       -----

     Net Accredited Generating Capacity                                4,408

     Participation Purchases and Sales, Net                               58
                                                                       -----
     Total Net Accredited Generating Capability                        4,466
                                                                       =====

     (1)  Cooper is owned by the  Nebraska  Public  Power  District  and the
          amount shown is MidAmerican Energy's entitlement (50%) of Cooper's
          accredited  capacity under a power purchase agreement extending to
          the year 2004.


                                      -19-
<PAGE>

     The  electric  transmission  system of  MidAmerican  Energy at December 31,
1999,  included 897 miles of 345-kV lines,  1,299 miles of 161-kV  lines,  1,806
miles of 69-kV lines and 219 miles of 34.5-kV lines.

     The gas distribution facilities of MidAmerican Energy at December 31, 1999,
included 19,907 miles of gas mains and services.

     Substantially all the former Iowa-Illinois Gas and Electric Company utility
property and  franchises,  and  substantially  all of the former  Midwest  Power
Stations  electric utility  property  located in Iowa, or  approximately  80% of
gross utility plant, is pledged to secure mortgage bonds.

ITEM 3.  LEGAL PROCEEDINGS
--------------------------

     MidAmerican  Energy and its subsidiaries have no material legal proceedings
except for the following:

Environmental Matters
---------------------

     Information on MidAmerican  Energy's  environmental  matters is included in
Item 1 - Business and under "Environmental Matters" within "Operating Activities
and Other Matters" in  Management's  Discussion and Analysis in Part IV, Item 14
of this Form 10-K.

Cooper Litigation
-----------------

     On July 23, 1997, the Nebraska Public Power District filed a complaint,  in
the  United  States  District  Court  for  the  District  of  Nebraska,   naming
MidAmerican Energy as the defendant and seeking declaratory judgment as to three
issues under the parties' long-term power purchase agreement for Cooper capacity
and energy.  More  specifically,  the Nebraska  Public Power  District  sought a
declaratory judgment in the following respects:

(1)  that  MidAmerican  Energy is obligated to pay 50% of all costs and expenses
     associated with decommissioning  Cooper, and that in the event the Nebraska
     Public Power District  continues to operate Cooper after  expiration of the
     power  purchase  agreement  (September  2004),  MidAmerican  Energy  is not
     entitled to reimbursement of any decommissioning  funds it has paid to date
     or will pay in the future;

(2)  that the current  method of  allocating  transition  costs as a part of the
     decommissioning cost is proper under the power purchase agreement; and

(3)  that the current method of investing  decommissioning funds is proper under
     the power purchase agreement.


                                      -20-
<PAGE>


     MidAmerican  Energy  filed its answer  and  contingent  counterclaims.  The
contingent counterclaims filed by MidAmerican Energy are generally as follows:

(1)  that MidAmerican  Energy has no duty under the power purchase  agreement to
     reimburse  or pay 50% of the  decommissioning  costs unless  conditions  to
     reimbursement occur;

(2)  that the Nebraska  Public Power  District has the duty to repay all amounts
     that MidAmerican Energy has prefunded for  decommissioning in the event the
     Nebraska  Public  Power  District  operates the plant after the term of the
     power purchase agreement;

(3)  that  the  Nebraska  Public  Power  District  is  equitably  estopped  from
     continuing  to  operate  the plant  after  the term of the  power  purchase
     agreement;

(4)  that the Nebraska Public Power District has granted  MidAmerican  Energy an
     option to continue taking 50% of the power from the plant;

(5)  that the term  "monthly  power  costs" as  defined  in the  power  purchase
     agreement   does  not   include   costs  and   expenses   associated   with
     decommissioning the plant;

(6)  that MidAmerican Energy has no duty to pay for nuclear fuel, operations and
     maintenance  projects or capital  improvements that have useful lives after
     the term of the power purchase agreement;

(7)  that  transition  costs are not included in any  decommissioning  costs and
     expenses;

(8)  that  the  Nebraska   Public  Power  District  has  breached  its  duty  to
     MidAmerican Energy in making investments of decommissioning funds;

(9)  that  reserves in named  accounts are  excessive  and should be refunded to
     MidAmerican Energy; and

(10) that the Nebraska Public Power District must credit  MidAmerican Energy for
     payments by MidAmerican Energy for low-level radioactive waste disposal.

     On October 6, 1999,  the court rendered  summary  judgment for the Nebraska
Public Power  District on the  above-mentioned  issue  concerning  liability for
decommissioning  (issue  one in the  first  paragraph  above)  and  the  related
contingent counterclaims filed by MidAmerican Energy (issues one, two, three and
five in the second paragraph above).  The court referred all remaining issues in
the case to mediation,  and cancelled the November 1999 trial date.  MidAmerican
Energy has appealed the court's summary  judgment ruling and is participating in
ongoing mediation efforts.

ITEM 4.  SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
----------------------------------------------------------
None.


                                      -21-
<PAGE>

                                     PART II

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

     MidAmerican  Funding is an Iowa limited  liability company whose membership
interest is held solely by MidAmerican Energy Holdings.  MidAmerican Funding has
not paid any cash dividends to MidAmerican Energy Holdings.

ITEM 6.  SELECTED FINANCIAL DATA
--------------------------------

         Reference is made to Part IV of this report.

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
--------------------------------------------------------------------
     AND RESULTS OF OPERATIONS
     -------------------------
         Reference is made to Part IV of this report.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
------------------------------------------------------------------

     Reference is made to the  "Quantitative  and Qualitative  Disclosure  About
Market Risk" Section of MD&A in Part IV, Item 14, of this report.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
----------------------------------------------------

         Reference is made to Part IV of this report.

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

     As a result of the merger  transaction  with  CalEnergy  on March 12, 1999,
Deloitte & Touche LLP is MidAmerican Funding's and MHC's independent  accountant
for accounting periods subsequent to the fiscal year ended December 31, 1998.


                                      -22-
<PAGE>


                                    PART III

ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT
-------------------------------------------------

     Information  concerning  the current  managers  and  executive  officers of
MidAmerican Funding is as follows:

(A)  IDENTIFICATION

                                                             Served in  Served
                                                              Present      as
                                 Present                     Position   Director
     Name                  Age   Position                      Since     Since
     ----                  ---   --------                    ---------  --------
     David L. Sokol         43   Chairman, Chief Executive
                                   Officer and Manager           1999    1999

     Gregory E. Abel        37   President and Chief Operating
                                   Officer                       1999    1999

     Patrick J. Goodman     33   Vice President and Treasurer    1999    1999

     Delbert D. Weber       67   Independent Manager             1999    1999


     Steven A. McArthur     42   Vice President, Secretary
                                   and Manager                   1999    1999

     John A. Rasmussen, Jr. 54   Vice President and
                                   General Counsel               1999    1999

     Officers are elected annually by the Board of Managers. There are no family
relationships  among  these  officers,  nor any  arrangements  or  understanding
between  any  officer  and any other  person  pursuant  to which the officer was
selected.

(B)  BUSINESS EXPERIENCE

     DAVID L. SOKOL, has been MidAmerican Funding's Chairman and Chief Executive
Officer  and  Chairman  of the Board of  Managers  since  MidAmerican  Funding's
formation  in  March  1999.  Mr.  Sokol  has been  Chief  Executive  Officer  of
MidAmerican  Energy  Holdings  since April 19, 1993 and served as  President  of
MidAmerican  Energy  Holdings from April 19, 1993 until January 21, 1995. He has
been Chairman of the Board of Directors of MidAmerican Energy Holdings since May
1994 and a director since March 1991.  Formerly,  among other  positions held in
the  independent  power  industry,  Mr.  Sokol  served  as  President  and Chief
Executive Officer of Kiewit Energy Company and Ogden Projects, Inc.

     GREGORY  E.  ABEL,  has been  MidAmerican  Funding's  President  and  Chief
Operating Officer since its formation in March 1999. Mr. Abel joined MidAmerican
Energy  Holdings in 1992.  Mr. Abel is a Chartered  Accountant  and from 1984 to
1992 he was  employed  by  PriceWaterhouse.  As a Manager  in the San  Francisco
office  of  PriceWaterhouse,  he was  responsible  for  clients  in  the  energy
industry.

                                      -23-
<PAGE>

     PATRICK J.  GOODMAN,  has been  MidAmerican  Funding's  Vice  President and
Treasurer since April 1999.  Mr. Goodman joined  MidAmerican  Energy Holdings in
June 1995, and served as Manager of  Consolidation  Accounting  until  September
1996 when he was promoted to  Controller.  Prior to joining  MidAmerican  Energy
Holdings, Mr. Goodman was a financial manager for National Indemnity Company and
a senior associate at Coopers & Lybrand.

     STEVEN A.  MCARTHUR,  has been  MidAmerican  Funding's  Vice  President and
Secretary  and a member of its Board of  Managers  since  MidAmerican  Funding's
formation in March 1999. Mr.  McArthur  joined  MidAmerican  Energy  Holdings in
February  1991.  From 1988 to 1991 he was an attorney in the  Corporate  Finance
Group at  Shearman  &  Sterling  in San  Francisco.  From 1984 to 1988 he was an
attorney in the Corporate Finance Group at Winthrop,  Stimson,  Putnam & Roberts
in New York.

     JOHN A. RASMUSSEN,  JR., has been MidAmerican  Funding's Vice President and
General Counsel since March 1999. Mr.  Rasmussen has been Senior Vice President,
General  Counsel and Director of MidAmerican  Energy since November 1, 1996, and
Group Vice  President  and General  Counsel of  MidAmerican  Energy from July 1,
1995,  to  November  1, 1996.  Vice  President  and  General  Counsel of Midwest
Resources from 1993 to 1995.

     DELBERT D. WEBER, has been MidAmerican  Funding's Independent Manager since
March 1999. Dr. Weber serves as President of the Omaha Community  Foundation,  a
position he assumed on September 1, 1998.  He retired in July 1997 as Chancellor
Emeritus, after serving as Chancellor of the University of Nebraska at Omaha for
20 years.  Dr.  Weber has also  served on the  boards of  directors  of  several
prominent Omaha-based charities and community organizations.


                                      -24-
<PAGE>

ITEM 11.  EXECUTIVE COMPENSATION
--------------------------------

     Information  required by Item 11 is omitted pursuant to General Instruction
I(2)(c) to Form 10-K.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
------------------------------------------------------------------------

     Information  required by Item 12 is omitted pursuant to General Instruction
I(2)(c) to Form 10-K.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
--------------------------------------------------------

     Information  required by Item 13 is omitted pursuant to General Instruction
I(2)(c) to Form 10-K.


                                      -25-
<PAGE>

                                     PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
-----------------------------------------------------------------
     FORM 8-K
     --------

(A)1.   FINANCIAL STATEMENTS (INCLUDED HEREIN)
                                                                       Page No.
                                                                       --------

        Selected Consolidated Financial Data..........................    27
        Management's Discussion and Analysis of Financial Condition
          And Results of Operations...................................    29
        Consolidated Statements of Income
          For the Year Ended December 31, 1999, 1998 and 1997.........    50
        Consolidated Statements of Comprehensive Income
          For the Year Ended December 31, 1999, 1998 and 1997.........    51
        Consolidated Balance Sheets
          As of December 31, 1999 and 1998 ...........................    52
        Consolidated Statements of Cash Flows
          For the Year Ended December 31, 1999, 1998 and 1997.........    53
        Consolidated Statements of Capitalization
          As of December 31, 1999 and 1998 ...........................    55
        Consolidated Statements of Retained Earnings
          For the Year Ended December 31, 1999, 1998 and 1997.........    56
        Notes to Consolidated Financial Statements....................    57
        Report of Independent Accountants.............................    89

(A)2.   FINANCIAL STATEMENT SCHEDULES (INCLUDED HEREIN)

     The  following   schedules   should  be  read  in   conjunction   with  the
aforementioned financial statements.

                                                                       Page No.
                                                                       --------

       Consolidated Valuation and Qualifying Accounts (Schedule II) ..      90

     Other  schedules  are omitted  because of the absence of  conditions  under
which they are  required or because  the  required  information  is given in the
financial statements or notes thereto.

(A)3. EXHIBITS

     See Exhibit Index on page 92.

(B)  REPORTS ON FORM 8-K

     None.

                                      -26-
<PAGE>

SELECTED CONSOLIDATED FINANCIAL DATA
------------------------------------
  (IN THOUSANDS)

<TABLE>
<CAPTION>

                                     MIDAMERICAN
                                       FUNDING                                         MHC (PREDECESSOR)
                                     -------------  ------------   -------------------------------------------------
                                     MAR. 12, 1999  JAN. 1, 1999
                                       THROUGH        THROUGH
                                      DECEMBER 31,    MARCH 11,                YEARS ENDED DECEMBER 31,
                                                                   -------------------------------------------------
                                         1999          1999          1998         1997          1996         1995
                                         ----          ----          ----         ----          ----         ----

<S>                                   <C>            <C>           <C>          <C>          <C>          <C>
INCOME STATEMENT DATA:
Revenues.........................     $1,433,046     $383,066      $1,775,924   $1,969,537   $1,911,204   $1,655,474
Operating income (a).............        227,133       58,898         271,412      276,726      349,399      292,464
Income from continuing
  operations (b).................        124,077       16,789         127,154      139,332      143,761      119,705
Net income ......................        135,335       17,210         131,318      135,104      131,046      122,764

                                                                              AS OF DECEMBER 31,
                                         AS OF                     -------------------------------------------------
                                   DECEMBER 31, 1999                 1998         1997          1996         1995
                                   -----------------                 ----         ----          ----         ----
BALANCE SHEET DATA:
Total assets.....................     $5,195,353                   $4,244,336   $4,278,091   $4,521,848   $4,470,097
Long-term debt (c)...............      1,642,476                    1,045,548    1,178,769    1,474,701    1,468,617
Power purchase obligation (c)....         68,049                       83,127       97,504      111,222      125,729
Short-term borrowings............        204,000                      339,826      138,054      161,990      184,800
Preferred securities not subject
  to mandatory redemption........         31,759                       31,759       31,763       31,769       89,945
Preferred securities subject
  to mandatory redemption (d)....        151,598                      150,000      150,000      150,000       50,000
Member's equity (e)..............      1,800,416                    1,200,950    1,301,286    1,239,946    1,225,715
</TABLE>

(a)  MHC's 1995  operating  income  reflects $33.4 million of costs related to a
     restructuring  and work force  reduction plan  implemented and completed in
     1995.

(b)  In May 1999,  MidAmerican Funding sold most of its investment in the common
     stock of McLeodUSA and recorded an after-tax gain of $47.1 million. For the
     period ended March 11, 1999,  MHC expensed  $18.6  million for  transaction
     costs related to its acquisition by MidAmerican  Energy Holdings.  In 1998,
     MHC recorded  after-tax  gains  totaling $15.7 million for sales of several
     properties  and  investments,  including a portion of its investment in the
     common stock of McLeodUSA,  Inc.  Also, in 1998,  MHC expensed $4.2 million
     for  transaction  costs related to the  acquisition by  MidAmerican  Energy
     Holdings of MHC. 1997 reflects  after-tax  gains totaling $11.2 million for
     sales of assets of railcar  businesses  and a portion of its  investment in
     McLeodUSA common stock. MHC recorded  after-tax losses of $10.2 million and
     $9.4 million for the  write-down  of  nonregulated  assets  during 1995 and
     1996,  respectively.  In  1996,  MHC  incurred  $8.7  million  of  costs in
     connection with its merger  proposal to IES  Industries,  Inc.

                                     -27-
<PAGE>


(c)  Includes   amounts  due  within  one  year.

(d)  Post-1995 years include MidAmerican Energy-obligated mandatorily redeemable
     preferred  securities of subsidiary trust holding solely MidAmerican Energy
     junior subordinated debentures.

(e)  For MHC the amounts represent common  shareholders'  equity.  Common equity
     increased in 1997  primarily  due to the adoption of SFAS 115 and recording
     the market value of an investment in McLeodUSA common stock.


                                      -28-
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

                                  INTRODUCTION
                                  ------------

COMPANY STRUCTURE

     MidAmerican  Funding,  LLC is an Iowa  limited  liability  company that was
formed in March 1999. MidAmerican Funding is a direct wholly owned subsidiary of
MidAmerican  Energy  Holdings  Company.  MidAmerican  Funding  owns  all  of the
outstanding  common  stock of MHC Inc.,  formerly  known as  MidAmerican  Energy
Holdings  Company,  which owns all of the  common  stock of  MidAmerican  Energy
Company,   MidAmerican   Capital  Company,   Midwest  Capital  Group,  Inc.  and
MidAmerican Services Company.

     On March 12,  1999,  MidAmerican  Funding  acquired  MHC. As a part of this
transaction, the former CalEnergy, a Delaware corporation, was reincorporated as
an Iowa corporation and changed its name to MidAmerican Energy Holdings Company.
As a result,  MHC and all direct and indirect  subsidiaries of MHC each became a
subsidiary of MidAmerican Funding.

     MidAmerican  Energy  Holdings' real estate  brokerage and related  services
were conducted through MHC's subsidiary, MidAmerican Realty Services. In October
1999,  MidAmerican  Realty,  was dividended from MHC and MidAmerican  Funding to
MidAmerican Energy Holdings.

DESCRIPTION OF FINANCIAL STATEMENTS AND MANAGEMENT'S DISCUSSION AND
ANALYSIS

     Management's   Discussion  and  Analysis  (MD&A)  addresses  the  financial
statements  of  MidAmerican  Funding  and  MHC.  The  financial   statements  of
MidAmerican  Funding  include the results of MHC  beginning  March 12, 1999.  As
discussed  above,  MHC's  investment in  MidAmerican  Realty was  distributed to
MidAmerican Energy Holdings in October 1999. Accordingly,  the operating results
of MidAmerican Realty, which was acquired in 1998, are reflected as discontinued
operations in the 1998 and 1999 periods.


                                      -29-
<PAGE>

FORWARD-LOOKING STATEMENTS

     From  time  to  time,  MidAmerican  Funding  or  one  of  its  subsidiaries
individually  may make  forward-looking  statements  within  the  meaning of the
federal   securities  laws  that  involve   judgments,   assumptions  and  other
uncertainties   beyond  the  control  of  MidAmerican  Funding  or  any  of  its
subsidiaries  individually.  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 MidAmerican Funding'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  and
performance of MidAmerican Funding to differ materially from any expected future
results or performance, expressed or implied, by the forward-looking statements.
In  connection  with  the  safe  harbor  provisions  of the  Private  Securities
Litigation  Reform Act of 1995,  MidAmerican  Funding has  identified  important
factors  that  could  cause  actual  results  to differ  materially  from  those
expectations, including weather effects on sales and revenues, fuel prices, fuel
transportation  and  other  operating  uncertainties,  acquisition  uncertainty,
uncertainties  relating to economic and political  conditions and  uncertainties
regarding  the impact of  regulations,  changes in  government  policy,  utility
industry   deregulation   and  competition.   MidAmerican   Funding  assumes  no
responsibility to update forward-looking information contained herein.

RESULTS OF OPERATIONS - 1999 PERIODS

     The following is a discussion  of the  historical  results for  MidAmerican
Funding for the period  March 12,  1999,  through  December  31,  1999,  and its
predecessor  MHC for the year to date period ending March 11, 1999.  Results for
MidAmerican  Funding  include the results of MHC  beginning  March 12, 1999,  in
conjunction  with the  acquisition of MHC by MidAmerican  Energy  Holdings.  The
impact of the  acquisition  is reflected  in  MidAmerican  Funding's  results of
operations,  predominately  interest costs on debt issued by MidAmerican Funding
to complete the  acquisition and the effects of purchase  accounting,  including
goodwill amortization and fair value adjustments to the carrying value of assets
and liabilities.  Since the 1999 periods discussed are not compared to a similar
prior  period,  the emphasis is on  fluctuations  from "normal" or unusual items
that may  cause  the  reported  results  of  operations  to not  necessarily  be
indicative of future operating results.

RESULTS OF OPERATIONS OF MIDAMERICAN FUNDING FOR THE PERIOD MARCH 12, 1999
--------------------------------------------------------------------------
THROUGH  DECEMBER 31, 1999
--------------------------

UTILITY GROSS MARGIN

     Regulated Electric Gross Margin -

     MidAmerican  Energy's  electric  gross margin for the period March 12, 1999
through December 31, 1999,  totaled $790 million.  Approximately  $30 million of
MidAmerican  Energy's electric revenues for the period were from the recovery of
energy efficiency  program costs.  Revenues from energy efficiency cost recovery
are  substantially  offset by corresponding  costs in other operating  expenses.
Refer to the discussion under "Energy  Efficiency" in the "Operating  Activities
and Other Matters" section of MD&A for further discussion.

                                      -30-
<PAGE>

     Temperatures  during the period were milder than normal,  reducing electric
margin by approximately $10 million compared to normal  temperature  conditions.
Additionally,  MidAmerican  Energy  recorded  an accrual  for a revenue  sharing
arrangement under its 1997 pricing plan settlement. The accrual reduced revenues
and electric margin by $14 million during the period.

     Regulated Gas Gross Margin -

     MidAmerican  Energy's  regulated gas gross margin  totaled $136 million for
the period March 12, 1999 through  December 31, 1999.  Revenues from recovery of
gas energy  efficiency  program costs totaled  approximately $11 million for the
period.  Again,  revenues from energy efficiency cost recovery are substantially
offset  by  corresponding  costs  in  other  operating  expenses.  Refer  to the
discussion  under "Energy  Efficiency"  in the  "Operating  Activities and Other
Matters" section of MD&A for further discussion.

     On January 22,  1999,  the Iowa  Utilities  Board  approved a $6.7  million
annual  interim  increase  in gas  rates  for Iowa  retail  customers  effective
immediately. An additional increase was implemented on May 27, 1999, as a result
of the Iowa Utilities Board's approval of a final rate increase of $13.9 million
annually.  Rates for MidAmerican  Energy's South Dakota gas customers  increased
$2.4  million  annually  effective  May 1, 1999.  Accordingly,  the period ended
December  31,  1999,  includes  only a  partial-year  effect of these final rate
increases.

     Temperatures  during the heating months were warmer than normal,  resulting
in a decrease in gas gross margin of approximately $10 million.

REGULATED OPERATING EXPENSES

     Other operating expenses totaled $348 million for the period March 12, 1999
through December 31, 1999. As mentioned in the gross margin  discussions,  other
operating  expenses  includes energy  efficiency  program costs. For MidAmerican
Funding's period ended December 31, 1999, such costs totaled  approximately  $36
million. MidAmerican Energy incurred approximately $3 million in operating costs
related to its year 2000 readiness efforts during the period.

     Property and other taxes were reduced by an  adjustment of $0.8 million for
property taxes related to periods prior to the March 12, 1999 merger.

NONREGULATED OPERATING REVENUES AND OPERATING EXPENSES

     Revenues   from   nonregulated   operations   include   $113  million  from
nonregulated  natural gas activities.  Nonregulated  cost of sales reflects $109
million of related cost of gas.

     Approximately  $11 million of nonregulated  revenues related to MidAmerican
Energy's  market  access  service  project,  which began in the third quarter of
1999.  Related  cost of sales for the period  totaled  $10  million.  This pilot
project allows Iowa customers with at least 4 MW of load that are  participating
in the project to choose their electric power  supplier.  Since the project is a
pilot,  or test  project,  the level of future  revenues  and  possibility  of a
similar program continuing beyond the project is not determinable. Revenues from
project participants  related to non-supply  services,  such as distribution and
transmission,  continue  to  be  reflected  in  MidAmerican  Energy's  regulated
electric revenues.

                                      -31-
<PAGE>

     Nonregulated  other  operating  costs for the period March 12, 1999 through
December 31,  1999,  include  approximately  $30 million  from  amortization  of
goodwill at MidAmerican  Funding  associated with the acquisition by MidAmerican
Energy Holdings of MHC. Additionally, nonregulated other operating costs include
$11 million from nonregulated marketing initiatives at MidAmerican Energy.

NON-OPERATING INCOME AND INTEREST EXPENSE

     Interest and Dividend Income -

     Interest  income  reflects  interest on temporary  cash  investments  which
include proceeds from the sale of McLeodUSA common stock described below.

     Realized Gains and Losses on Securities, Net -

     In May 1999 most of the shares of  McLeodUSA  common stock held by MHC were
sold in a  secondary  offering by  McLeodUSA.  A pre-tax  gain of $78.2  million
resulting  from this  transaction  is reflected in realized  gains and losses on
securities, net.

     Other, Net -

     Other,  net  reflects  $4.7  million of  pre-tax  gains on sales of railcar
assets.

     Fixed Charges -

     Interest on long-term  debt includes  $35.7 million of interest  expense on
the $700  million in debt  issued by  MidAmerican  Funding in  conjunction  with
MidAmerican Energy Holdings acquisition of MHC.

RESULTS OF OPERATIONS OF MHC FOR THE PERIOD JANUARY 1, 1999 THROUGH
-------------------------------------------------------------------
MARCH 11, 1999
--------------

UTILITY GROSS MARGIN

     Regulated Electric Gross Margin -

     MidAmerican  Energy's electric gross margin for the period January 1, 1999,
through  March 12, 1999,  totaled $169 million.  Temperatures  during the period
were warmer than normal,  reducing  electric margin by approximately $4 million.
Approximately  $7 million of  MidAmerican  Energy's  electric  revenues  for the
period were from the recovery of energy efficiency program costs.  Revenues from
energy efficiency cost recovery are substantially  offset by corresponding costs
in other  operating  expenses.  Refer to the  "Regulated  Electric Gross Margin"
section of "Results of Operation - 1998 vs. 1997" for more  discussion of energy
efficiency revenues and costs. MidAmerican Energy also recorded an accrual for a
revenue sharing arrangement under its 1997 pricing plan settlement.  The accrual
reduced revenues and electric margin by $3 million during the period.

     Regulated Gas Gross Margin -

     MidAmerican Energy's regulated gas gross margin totaled $60 million for the
period  January 1, 1999,  through March 11, 1999.  Revenues from recovery of gas
energy efficiency program costs totaled


                                      -32-
<PAGE>

approximately $3 million for the period.  Again, revenues from energy efficiency
cost recovery are substantially offset by corresponding costs in other operating
expenses.

     On January 22,  1999,  the Iowa  Utilities  Board  approved a $6.7  million
annual  interim  increase  in gas  rates  for Iowa  retail  customers  effective
immediately.  Temperatures during the period were warmer than normal,  resulting
in a decrease in gas gross margin of approximately $4 million.

REGULATED OPERATING EXPENSES

     Other operating expenses totaled $94 million for the period January 1, 1999
through  March 11, 1999.  As mentioned  in the gross margin  discussions,  other
operating expenses includes energy efficiency program costs. These costs totaled
$8 million for the period.  MidAmerican  Energy also incurred  approximately  $2
million in operating costs related to its year 2000 readiness efforts.

NONREGULATED OPERATING REVENUES AND OPERATING EXPENSES

     For the year to date period ended March 11, 1999,  nonregulated natural gas
marketing  activities  accounted for $29 million and $28 million of nonregulated
revenues and nonregulated cost of sales, respectively.

     Nonregulated  other  operating  costs include $3 million from  nonregulated
marketing initiatives at MidAmerican Energy.

NON-OPERATING INCOME AND INTEREST EXPENSE

     Realized Gains and Losses on Securities, Net -

     Realized  gains and losses on securities for the year to date period ending
March 11, 1999, net reflects a $16 million pre-tax gain on the sale of shares of
McLeodUSA common stock held by MHC.

     Other, Net -

     Other,  net  non-operating  income  for the  period  ended  March 11,  1999
includes approximately $19 million of costs related to the acquisition of MHC by
MidAmerican  Energy  Holdings.  In  addition,  it includes $2 million of expense
related to accounts receivables sold.

                      RESULTS OF OPERATIONS - 1998 vs. 1997
                      -------------------------------------

     The following  tables  provide a summary of the earnings  contributions  of
MHC's operations for each of the periods presented:

                                          1998         1997
                                         ------       ------
                                            (in millions)
     Net Income
       Continuing operations
         MidAmerican Energy              $110.6       $119.5
         Nonregulated operations           16.5         19.8
       Discontinued operations              4.2         (4.2)
                                         ------       -------
         Consolidated earnings           $131.3       $135.1
                                         ======       ======

                                      -33-
<PAGE>

EARNINGS DISCUSSION

     The following  discussion  addresses  significant impacts on the results of
operations for MHC, the predecessor to MidAmerican  Funding, for the years ended
December 31, 1998 and 1997.

     Although  utility  earnings  for 1998 were lower than in the prior year,  a
reduction was anticipated because of the electric pricing  settlements  achieved
in 1996 and 1997 in Iowa and Illinois.  Warmer-than-normal  temperatures  during
the heating season also had a negative  impact on 1998  earnings.  Growth in the
number  of  customers  and in other  sales  factors  contributed  positively  to
earnings in 1998.  Additionally,  MidAmerican Energy's successful performance in
the non-retail  (off-system)  energy market helped offset decreases from weather
and reductions in electric retail prices.  Utility operating  expenses increased
as MidAmerican Energy continued strengthening its customer service and marketing
capabilities and adding to its information technology resources.

     Beginning  in  the  second  half  of  1997  and  continuing  through  1998,
MidAmerican Energy charged to expense additional amortization of deferred energy
efficiency  costs,  ongoing energy  efficiency  costs and certain Cooper Nuclear
Station costs consistent with ratemaking  treatment.  These items  significantly
increased other operating  expenses.  In conjunction with expensing these items,
MidAmerican  Energy  began  recovery  of these costs from its  customers,  which
resulted in additional revenues.

     Realized  after-tax  gains  on  the  sale  of  McLeodUSA  stock  and  other
nonregulated investments are also included in 1998 earnings.

     Discontinued Operations -

     During 1996, MHC  discontinued  some of its  nonregulated  operations.  The
income or loss from those operations and the losses on disposal are reflected as
discontinued  operations  in each of the periods  presented in the  Consolidated
Statements of Income of MHC.

     In the fourth  quarter of 1996,  MHC and KCS Energy,  Inc. (KCS) of Edison,
New  Jersey,   signed  a  definitive  agreement  to  sell  a  portion  of  MHC's
nonregulated operations to KCS for $210 million in cash and warrants to purchase
KCS common stock.  The sale,  which included MHC's oil and gas  exploration  and
development operations, was completed in January 1997. MHC recorded an after-tax
loss of $7.1 million for the  transaction in 1996 and an additional $0.9 million
in 1997.

     In October 1997, MHC also divested a subsidiary that developed and operated
a computerized  information system which facilitated real-time exchange of power
in the electric industry. MHC recorded a $4.0 million anticipated after-tax loss
on disposal of those operations in September 1996 and an additional $3.2 million
after-tax loss on disposal in September 1997.

     In October 1999, MHC  distributed  its investment in MidAmerican  Realty to
MidAmerican  Energy  Holdings in conjunction  with an initial public offering of
common stock of HomeServices.Com, a successor company to MidAmerican Realty.


                                      -34-
<PAGE>

UTILITY GROSS MARGIN

     Regulated Electric Gross Margin -

                                            1998       1997
                                           ------     ------
                                                 (In millions)
     Operating revenues                    $1,170     $1,126
     Cost of fuel, energy and capacity        226        236
                                           ------     ------
       Electric gross margin               $  944     $  890
                                           ======     ======

     Electric  gross margin  improved $54 million in 1998  compared to 1997.  An
increase  in  revenues  from  energy  efficiency  cost  recovery  and the Cooper
Tracker, which is discussed below, accounted for $26.1 million and $2.5 million,
respectively,  of the  increase  in margin.  Increases  in  revenues  from these
factors are substantially offset by increases in other operating expenses.

     Regarding  the increase in energy  efficiency  revenues,  on September  29,
1997,  MidAmerican Energy began recovering from customers its remaining deferred
energy efficiency costs and current,  ongoing energy efficiency costs.  Deferred
energy  efficiency  costs are costs  previously  incurred by MidAmerican  Energy
which,  in  accordance  with rate  treatment,  were not charged to expense until
recovery from customers  began.  Recovery of deferred  energy  efficiency  costs
occurs over a four-year  period from the date collection  begins.  Approximately
$44.4  million of  MidAmerican  Energy's  1998  electric  revenues were from the
recovery of energy  efficiency  program costs compared to $18.3 million in 1997.
Collection of deferred energy efficiency costs will decrease starting in 1999 as
various  recovery  periods are completed.  Refer to the discussion under "Energy
Efficiency" in the "Operating  Activities And Other Matters" section of MD&A for
further discussion.

     The Cooper Tracker allows  MidAmerican Energy to collect on a current basis
the Iowa  portion of expenses for Cooper  Nuclear  Station  capital  improvement
advances.  Prior  to the  Cooper  Tracker,  which  began in July  1997,  capital
improvement  advances were  capitalized  when incurred and amortized over future
periods in accordance with rate treatment.

     Electric margin also improved due to an increase in sales volume. In total,
electric  retail sales for 1998  increased  2.7% compared to 1997.  Moderate but
steady growth in the number of customers increased electric gross margin by $8.6
million compared to 1997. An increase in sales that are not dependent on weather
contributed  $15.5  million to the  increase.  Compared  to 1997,  the effect of
temperatures  in 1998 improved  gross margin by $2 million in 1998.  Compared to
normal, the impact of temperatures resulted in an estimated $2 million reduction
of electric gross margin for 1998.  Temperatures in 1998 were warmer than normal
during the heating seasons and hotter than normal during the cooling season.

     As  anticipated,  the effect of rate  proceedings  in 1996 and 1997 reduced
electric  gross  margin for 1998  compared  to 1997.  In  addition  to the price
reductions  discussed under the "1999 vs. 1998" section above,  revenues in 1998
reflect  the  full-year  effect  of a June 1997  price  reduction  for  Illinois
customers.  The  combined  effect of price  reductions  decreased  revenues  and
electric margin by $17.0 million for 1998 compared to 1997.

     Prior to July 11,  1997,  MidAmerican  Energy was  allowed  to recover  its
energy  costs  from  most  of its  electric  utility  customers  through  energy
adjustment  clauses  included in revenues.  Effective  July 11, 1997, the energy
adjustment  clause was  eliminated  for Iowa  customers  as part of  MidAmerican
Energy's  Iowa  pricing  plan.  Previously,  variations  in energy costs did not
affect  gross  margin or net income  due to  corresponding  changes in  revenues
collected through the energy adjustment clause. With


                                      -35-
<PAGE>


the  elimination of the Iowa energy  adjustment  clause,  fluctuations in energy
costs  now may have an  impact  on gross  margin  and net  income.  This  change
resulted in a positive impact on 1998 gross margin.

     Electric margin in 1998 reflects MidAmerican Energy's strong performance in
that  off-system   market  relative  to  1997.   Margins  on  off-system  sales,
contributed  $14.2  million  more to gross  margin in 1998 than in 1997.  Though
related sales volumes  decreased  11.5% compared to the 1997 level,  MidAmerican
Energy obtained  improved  margins per unit for the 1998 sales.  This was due in
part to price  volatility in the wholesale  energy market during some periods of
high demand for energy in the  Midwest.  Refer to comments on the energy  market
under  "Industry  Evolution" in the  "Operating  Activities  And Other  Matters"
section of MD&A.

     Regulated Gas Gross Margin -

                                   1998       1997
                                  -----      -----
                                    (In millions)
     Operating revenues           $ 430      $ 536
     Cost of gas sold               243        346
                                  -----      -----
          Gas gross margin        $ 187      $ 190
                                  =====      =====

     MidAmerican Energy's regulated gas revenues include purchase gas adjustment
clauses through which MidAmerican  Funding is allowed to recover the cost of gas
sold from most of its gas utility customers.  Consequently,  fluctuations in the
cost of gas sold do not  affect  gross  margin or net  income  because  revenues
reflect  comparable  fluctuations  in  revenues  from  purchase  gas  adjustment
clauses.  A decrease in the 1998  per-unit  cost of gas compared to 1997 reduced
revenues and cost of gas sold by approximately $59 million.

     Recovery of gas energy efficiency costs resulted in a $9.2 million increase
in revenues  and gross  margin for 1998  compared to 1997.  As  discussed in the
"Regulated  Electric Gross Margin" section,  on September 29, 1997,  MidAmerican
Energy  began  recovery of its  deferred  energy  efficiency  costs that had not
previously   been  approved  for  recovery.   Approximately   $17.5  million  of
MidAmerican  Energy's  1998 gas  revenues  were  from  the  recovery  of  energy
efficiency  program costs compared to $8.3 million in 1997. Again,  increases in
revenues  from energy  efficiency  cost  recovery  are  substantially  offset by
corresponding increases in other operating expenses.

     Unusually mild  temperatures  during the 1998 heating seasons resulted in a
decrease  in gas margin for 1998.  Temperatures  in 1998 were 15.6%  warmer than
normal,  reducing gas gross margin in 1998 by an estimated $18 million  compared
to normal. Compared to 1997, gas margin decreased $16 million in 1998 due to the
variation in temperatures.  Customer growth,  which  contributed $1.6 million to
gas margin in 1998, and other sales factors helped  mitigate the negative effect
of weather on the 1998  margin.  In total,  retail  sales of natural gas in 1998
decreased 12.7% compared to 1997.

REGULATED OPERATING EXPENSES

     Other Operating Expenses -

     Regulated  other  operating  expenses  increased  $32.3  million  for  1998
compared to 1997.  An increase in energy  efficiency  costs  accounted for $31.6
million of the increase in other operating  expenses  compared to 1997. Refer to
the  "Regulated  Electric Gross Margin"  section for further  comments on energy
efficiency costs.

                                      -36-
<PAGE>

     Operating  expenses  related  to  Cooper  increased  due  in  part  to  the
ratemaking  treatment  for Cooper  capital  improvements,  as  discussed  in the
"Regulated Electric Gross Margin" section.  Cooper capital improvement  advances
are now  expensed  when  incurred.  MidAmerican  Energy is  recovering  the Iowa
portion of these costs through the Cooper Tracker, while recovery in Illinois is
included in base rates.  This change  accounted  for a $1.7 million  increase in
nuclear  operations  costs  compared to 1997.  Excluding  those  costs,  nuclear
operations  expenses  decreased $8.2 million for 1998 compared to 1997 due to an
extended outage at Quad Cities Station.

     MidAmerican  Energy continued its focus on customer service and reliability
during   1998.   Further   emphasis   on   customer   service   operations   and
marketing-related  efforts,  resulted in increases in customer service costs, IT
consulting costs,  advertising  costs and other related  expenses.  Increases in
such expenses accounted for a majority of the remaining increase.  The impact of
these items was partially offset by a decrease in employee benefits expenses.

     Maintenance -

     Maintenance  expenses  increased  $9.8 million in 1998 compared to 1997. An
increase in maintenance  costs at Quad Cities Station accounted for $8.0 million
of the total. Additionally,  MidAmerican Energy incurred repair costs for storms
in June 1998, totaling $3.8 million,  compared to $2.0 million in 1997 for costs
related to a snowstorm in October of that year.

     Depreciation and Amortization -

     The  increase  in  1998  expense  compared  to  1997  is due to  additional
decommissioning  funding for Quad Cities  Station,  an increase in utility plant
and the accelerated  amortization of regulatory assets for MidAmerican  Energy's
Illinois operations.

     Property and Other Taxes -

     Deregulation of the Illinois  electric utility industry resulted in changes
in the way public utility taxes are assessed in Illinois.  The changes  resulted
in a decrease in MidAmerican Energy's tax expense for 1998 compared to 1997. One
of the taxes is now assessed  directly on the energy consumer instead of through
the utility.  Accordingly,  MidAmerican  Energy's  electric  revenues reflect an
equal reduction in 1998.

NONREGULATED OPERATING REVENUES AND OPERATING EXPENSES

     Revenues and Cost of Sales -

     Revenues  from  nonregulated  natural gas  marketing  operations  decreased
$131.1 million in 1998 compared to 1997 due primarily to lower  volumetric sales
associated  with the  expiration  of  wholesale  gas  contracts  which  were not
replaced.  The  decrease in sales  volumes  accounted  for $99.8  million of the
decrease in  revenues.  In addition,  a decrease in the average  price per unit,
reflective of a lower cost of gas per unit,  accounted  for the remaining  $31.3
million  of the  decrease.  Beginning  in May  1998,  MidAmerican  Energy  began
providing  gas  for  gas  marketing  contracts   previously  serviced  by  MHC's
nonregulated  gas marketing  subsidiaries.  Cost of sales related to natural gas
marketing  for 1998  reflects  the decrease in sales and the average cost of gas
per unit.  Total gross  margin  (total  price less cost of gas) on  nonregulated
natural gas sales was unchanged compared to 1997.

     Other activities  contributing to the increase in nonregulated revenues for
1998 relate to work for other utilities and work beyond the meter for customers.
In addition,  the 1998 amount includes revenues


                                      -37-
<PAGE>

of CBEC Railway,  a subsidiary of MidAmerican Energy that operates rail services
on a section of railroad track it owns.  MidAmerican  Energy's  revenues in 1998
and 1997 also  include  pre-tax  income from awards for  successful  performance
under its incentive gas procurement  program.  Under the program, if MidAmerican
Energy's cost of gas varies from an established  reference price range, then the
savings or cost is shared between customers and shareholders. The awards totaled
$4.3 million and $4.9 million in 1998 and 1997, respectively.

     Other Nonregulated Operating Expenses -

     Other  operating  expenses  increased in 1998 compared to 1997 due to costs
related  to work  for  other  utilities,  costs of work  beyond  the  meter  for
MidAmerican Energy customers,  MidAmerican  Energy's costs of appliance services
and costs of initiatives for  MidAmerican  Energy's new products and services in
preparation for deregulation.

     Other operating  expenses for 1998 reflect a decrease of approximately $5.7
million  due to  corporate  administrative  costs in 1997  which  are no  longer
incurred  because of the absence of the oil and gas  exploration and development
operations MHC sold in early 1997.

NON-OPERATING INCOME AND INTEREST EXPENSE

     Interest Income-

     In December 1997, MidAmerican Energy sold its billed accounts receivable. A
portion  of the  consideration  for the sale was a  subordinated  note  from the
purchaser.  Interest income on that note caused the increase in 1998 compared to
1997. Refer to FINANCING  ACTIVITIES,  PLANS AND AVAILABILITY  later in MD&A for
discussion of the sale.

     Dividend Income -

     Dividend  income  decreased for 1998 due to MidAmerican  Capital's  reduced
holdings of preferred stock.

     Realized Gains and Losses on Securities, Net -

     Net realized gains on securities for 1998 includes a $14.0 million  pre-tax
gain on the  sale of  shares  of  McLeodUSA  common  stock.  Realized  gains  on
securities  in 1997 also  includes an $8.0  million  pre-tax gain on the sale of
shares of McLeodUSA common stock.

     Other, Net -

     Other,  Net  reflects   MidAmerican  Energy's  discount  on  sold  accounts
receivable,  net of a  subservicer  fee charged to  MidAmerican  Energy  Funding
Corporation  for servicing  the accounts.  The discount is designed to cover the
expenses of MidAmerican Energy Funding Corporation,  including bad debt expense,
subservicer fees,  monthly  administrative  costs and interest.  The discount is
recorded in Other,  Net because it is not  reflected in utility cost of services
for regulatory  purposes.  The discount,  net of the  subservicer  fee,  reduced
Other, Net by $7.0 million and $0.3 million in 1998 and 1997, respectively.

     In September 1997,  MidAmerican  Energy received a $15 million cash payment
from Nebraska  Public Power District (NPPD) as settlement for a lawsuit filed by
MidAmerican  Energy  against  NPPD.  Approximately  $12 million was  refunded to
MidAmerican Energy's customers. The remaining amount


                                      -38-
<PAGE>

was  retained by  MidAmerican  Energy for  recovery of  litigation  costs in the
lawsuit.  Other,  Net for 1997  reflects  $2.2  million  of  pre-tax  income for
recovery of litigation costs incurred in prior years.

     Other,  Net  includes  the  recognition  of  deferred  income  from  energy
efficiency  programs  totaling  $0.2 million and $5.0 million for 1998 and 1997,
respectively.  As  discussed in the gross margin  sections,  MidAmerican  Energy
started recovery of its remaining  deferred energy efficiency costs in September
1997.  Accordingly,  carrying costs for, or return on, deferred balances are now
being collected from customers and are reflected in revenues.

     Other,  Net for 1997 reflects  MidAmerican  Energy's net loss on reacquired
long-term  debt of $0.9  million and a $0.8  million gain related to its sale of
storage gas supplies.

     Other,   net  for  1998  includes  $4.7  million  from  the  divestment  of
nonregulated  assets in the first quarter,  including the sale of MHC's interest
in a financial  management company, the sale of a commercial office building and
liquidation of a partnership interest concurrent with the sale of its commercial
property.  MHC also recorded $2.1 million of income from an equity investment in
a venture capital fund.

     Additionally,  Other, net for 1998 includes a $2.7 million gain on the sale
of railcars and a $2.9 million gain on the sale of real estate. During 1997, MHC
sold all of the assets of its railcar repair services subsidiary and most of the
assets of its railcar  leasing  subsidiary  and recorded  pre-tax gains totaling
$10.0 million.

     Fixed Charges and Preferred Dividends -

     During  1998,   MidAmerican  Energy  reduced  its  long-term  debt  through
maturities and  refinancing,  which resulted in a reduction in related  interest
expense. Preferred dividends include net gains or losses on the reacquisition of
MidAmerican Energy preferred shares.  Net losses on reacquisitions  totaled $1.4
million for 1997.


                                      -39-
<PAGE>

                         LIQUIDITY AND CAPITAL RESOURCES
                         -------------------------------

     MidAmerican  Funding has  available a variety of sources of  liquidity  and
capital  resources,  both internal and external.  These resources  provide funds
required for current  operations,  construction  expenditures,  dividends,  debt
retirement and other capital requirements.

     As  reflected on the  Consolidated  Statements  of Cash Flows,  MidAmerican
Funding's  net cash  provided  from  continuing  operating  activities  was $121
million for March 12,  1999,  through  December  31,  1999.  MHC's net cash from
continuing  operations  totaled  $104  million  for the period  January 1, 1999,
through March 11, 1999, and $332 million and $388 million for the years 1998 and
1997, respectively.

     INVESTING ACTIVITIES AND PLANS

     Acquisition of MHC -

     In  conjunction  with the  merger  transaction  discussed  in the  "Company
Structure"  section of MD&A,  MidAmerican  Funding  paid $27.15 in cash for each
outstanding share of MHC common stock for a total of approximately $2.42 billion
in a merger  pursuant to which MHC became a direct  wholly owned  subsidiary  of
MidAmerican Funding.

     Utility Construction Expenditures -

     MidAmerican  Energy's  primary  need for  capital is  utility  construction
expenditures.  For the period March 12, 1999, through December 31, 1999, utility
construction  expenditures  totaled $187 million,  including allowance for funds
used  during  construction,  or  capitalized  financing  costs,  and Quad Cities
Station  nuclear  fuel  purchases.  All such  expenditures  were  met with  cash
generated from utility operations, net of dividends.

     Forecasted utility construction expenditures, including allowance for funds
used during  construction  for 2000 are $211  million and $732  million for 2001
through 2004. Capital expenditure needs are reviewed regularly by management and
may  change  significantly  as a  result  of such  reviews.  MidAmerican  Energy
presently expects that all utility  construction  expenditures for the next five
years will be met with cash generated from utility operations, net of dividends.
The actual level of cash generated from utility operations is affected by, among
other things, economic conditions in the utility service territory,  weather and
federal and state regulatory actions.

     Nuclear Decommissioning -

     Each  licensee  of a nuclear  facility  is  required  to provide  financial
assurance for the cost of  decommissioning  its licensed  nuclear  facility.  In
general,  decommissioning  of a  nuclear  facility  means to safely  remove  the
facility  from  service  and  restore  the  property  to  a  condition  allowing
unrestricted  use by the operator.  Based on  information  presently  available,
MidAmerican  Energy expects to contribute  approximately  $42 million during the
period 2000 through 2004 to an external trust  established for the investment of
funds for decommissioning Quad Cities Station.  Approximately 65% of the trust's
funds are now invested in domestic  corporate debt and common equity securities.
The remainder is invested in investment grade municipal and U.S. Treasury bonds.

     In addition, MidAmerican Energy makes payments to the Nebraska Public Power
District  related to  decommissioning  Cooper.  These  payments are reflected in
other  operating  expenses  in  the  Consolidated  Statements  of  Income.  NPPD
estimates call for MidAmerican  Energy to pay  approximately


                                      -40-
<PAGE>


$57 million to NPPD for Cooper  decommissioning  during the period 2000  through
2004. The Nebraska Public Power District invests the funds predominately in U.S.
Treasury  Bonds and other  U.S.  Government  securities.  Approximately  20% was
invested in domestic corporate debt.  MidAmerican Energy's obligation for Cooper
decommissioning may be affected by the actual plant shutdown date and the status
of the power purchase  contract at that time. In July 1997, the Nebraska  Public
Power District filed a lawsuit in United States  District Court for the District
of Nebraska naming MidAmerican Energy as the defendant and seeking a declaration
of MidAmerican Energy's rights and obligations in connection with Cooper nuclear
decommissioning funding. Refer to Part I, Item 3. Legal Proceedings, for further
discussion of the litigation.

     Cooper  and Quad  Cities  Station  decommissioning  costs  charged  to Iowa
customers are included in base rates, and recovery of increases in those amounts
must be sought through the normal  ratemaking  process.  Cooper  decommissioning
costs  charged  to  Illinois  customers  are  recovered  through a rate rider on
customer billings.

     Nonregulated Capital Expenditures -

     Nonregulated  capital  expenditures in both the MidAmerican Funding and MHC
1999 periods  consist  primarily  of  expenditures  for a  subsidiary  which was
transferred to MidAmerican  Energy Holdings  through a dividend in mid-1999.  In
total, the related capital expenditures were $21 million.

     Investments -

     MidAmerican Capital invests in a variety of marketable  securities which it
holds for  indefinite  periods of time. In the  Consolidated  Statements of Cash
Flows,  the lines under  "Purchase of  Securities"  and  "Proceeds  from Sale of
Securities"  consist  primarily  of  the  gross  amounts  of  these  activities,
including realized gains and losses on investments in marketable securities.

FINANCING ACTIVITIES, PLANS AND AVAILABILITY

     Issuance of MidAmerican Funding Debt -

     On March 11, 1999,  MidAmerican Funding issued $200 million of 5.85% Senior
Secured Notes due 2001,  $175 million of 6.339%  Senior  Secured Notes due 2009,
and $325 million of 6.927% Senior Secured Bonds due 2029. Prior to the offering,
MidAmerican  Funding entered into three separate rate swap  arrangements of $125
million  each,  which  at  closing  created  a $13.6  million  cash  payment  to
MidAmerican  Funding due to an increase in interest rates. The net amount of the
rate  swap  arrangements  and $7.0  million  of debt  offering  costs  are being
amortized using the effective interest method over the life of each of the three
traunches.  The proceeds from the offering were used to complete the acquisition
of MHC. On March 7, 2000 MidAmerican  Funding exchanged its senior secured notes
for like senior secured exchange notes.


                                      -41-
<PAGE>

     MidAmerican Energy Debt Authorizations and Credit Facilities -

     MidAmerican   Energy  currently  has  authority  from  the  Federal  Energy
Regulatory  Commission to issue  short-term debt in the form of commercial paper
and bank notes  aggregating $400 million.  As of December 31, 1999,  MidAmerican
Energy had in place a $250 million  commercial  paper program which is supported
by a $250 million revolving credit facility. In addition, MidAmerican Energy has
a $5 million bank line of credit. MidAmerican Energy also has a revolving credit
facility  which is dedicated to providing  liquidity for its  obligations  under
outstanding pollution control revenue bonds that are periodically remarketed. In
March 2000, MidAmerican Energy's revolving credit facility was increased to $325
million.

     MidAmerican  Energy has  authorization  from the Federal Energy  Regulatory
Commission  to  issue up to an  additional  $500  million  in  various  forms of
long-term  debt.  MidAmerican  Energy  will  also  need  authorization  from the
Illinois Commerce Commission prior to issuing any securities.  If 90% or more of
the proceeds  from a  securities  issuance  are used for  refinancing  purposes,
MidAmerican  Energy need only  provide  the  commission  with an  "informational
statement"  prior to the issuance  which sets forth the type,  amount and use of
the proceeds of the  securities  to be issued.  If less than 90% of the proceeds
are used for  refinancing,  MidAmerican  must file a  comprehensive  application
seeking  authorization  prior to issuance.  The Illinois Commerce  Commission is
required to hold a hearing before issuing its authorization.

     Accounts Receivable Sold -

     In 1997,  MidAmerican  Energy  entered  into a revolving  agreement,  which
expires in 2002, to sell all of its right, title and interest in the majority of
its billed  accounts  receivable to MidAmerican  Energy Funding  Corporation,  a
special  purpose  entity  established  to  purchase  accounts   receivable  from
MidAmerican Energy.  Funding Corp. in turn sells receivable interests to outside
investors.  In  consideration  for the sale,  MidAmerican  Energy  received  $70
million in cash and the remaining  balance in the form of a  subordinated  note,
bearing  interest  at 8%,  from  Funding  Corp.  As of December  31,  1999,  the
revolving  cash balance was $57 million due to a decline in accounts  receivable
available for sale. The amount  outstanding  under the subordinated note was $47
million at December 31, 1999. As part of the agreement, the creditors of Funding
Corp. will be entitled to be satisfied out of the assets of Funding Corp.  prior
to any value being returned to MidAmerican  Energy or its creditors.  Therefore,
the  accounts  receivable  sold  are  not  reflected  on  MidAmerican  Funding's
Consolidated Balance Sheets. As of December 31, 1999, $107.5 million of accounts
receivable, net of reserves, were sold under the agreement.

     Other Financing Information -

     As of December  31, 1999,  MHC had lines of credit  totaling $24 million to
provide for short-term financing needs, under which no debt was outstanding.  In
February 2000, MHC increased its line of credit by $20 million.

     As of December 31, 1999, MidAmerican Capital had unsecured revolving credit
facilities  in the amount of $6 million,  under  which no debt was  outstanding.
MidAmerican  Capital has $70 million of long-term  debt  outstanding at December
31, 1999, all of which will have matured by the end of 2002.

     Midwest Capital currently has a $25 million line of credit with MidAmerican
Energy, of which $5 million was outstanding at December 31, 1999.


                                      -42-
<PAGE>

OPERATING ACTIVITIES AND OTHER MATTERS

Industry Evolution -

     The utility industry  continues to evolve into an increasingly  competitive
environment.  In  virtually  every  region  of  the  country,   legislative  and
regulatory actions are being taken which result in customers having more choices
in their energy decisions.

     In  the  electric  industry,   the  traditional   vertical  integration  of
generation,  delivery and marketing is being unbundled,  with the generation and
marketing functions becoming deregulated. For local gas distribution businesses,
the supply, local delivery and marketing functions are similarly being separated
and opened to competitors  for all classes of customers.  While retail  electric
competition  is presently not permitted in Iowa,  MidAmerican  Energy's  primary
market,  legislation to do so was introduced in the Iowa legislature in the last
session.  While this legislation has not passed, it is being considered again by
the Iowa legislature in 2000. Deregulation of the gas supply function related to
small volume  customers is also being  considered by the Iowa  Utilities  Board.
MidAmerican  Energy is actively  participating in the legislative and regulatory
processes.

     The  generation  and  retail  portions  of  MidAmerican  Energy's  electric
business will be most affected by competition.  The  introduction of competition
in the wholesale market has resulted in a proliferation of power marketers and a
substantial increase in market activity.  As retail choice evolves,  competition
from other traditional utilities,  power marketers and customer-owned generation
could put pressure on utility margins.

     During the  transition  to full  competition,  increased  volatility in the
marketplace  can be  expected.  With the  elimination  of the energy  adjustment
clause in Iowa, MidAmerican Energy is financially exposed to movements in energy
prices.  Although  MidAmerican  Energy has sufficient low cost generation  under
typical  operating  conditions for its retail electric needs, a loss of adequate
generation by  MidAmerican  Energy at a time of high market prices could subject
MidAmerican Energy to losses on its energy sales.

     Legislative and Regulatory Evolution -

     In  December  1997,  the  Governor  of  Illinois  signed into law a bill to
restructure   Illinois'  electric  utility  industry  and  transition  it  to  a
competitive   market.   Under  the  law,   beginning  October  1,  1999,  larger
non-residential  customers in Illinois and 33% of the remaining  non-residential
Illinois  customers  are allowed to select  their  provider  of electric  supply
services. All other non-residential customers will have supplier choice starting
December 31, 2000.  Residential  customers all receive the opportunity to select
their electric supplier on May 1, 2002.

     In addition to rate  reductions  implemented  in 1998, the law provides for
Illinois  earnings above a certain level of return on common equity to be shared
equally  between  customers  and  MidAmerican  Energy  beginning  in April 2000.
MidAmerican  Energy's  return on common  equity level will be based on a rolling
two-year average, with the first determination being based on an average of 1998
and 1999.  The level of return at which  MidAmerican  Energy will be required to
share  earnings is a multi-step  calculation  of average  30-year  Treasury Bond
rates plus 5.50% for 1998 and 1999.  Legislation  passed in July 1999  increases
the  benchmark  for 2000  through 2004 to 8.5% above the 30-year  Treasury  bond
rate.  The level  above  which  sharing  must occur for 1998 and 1999 is 11.21%.
Using the same 30-year Treasury bond average, the computed level of return would
be 14.21% for 2000 through 2004. The law allows  MidAmerican  Energy to mitigate
the sharing of earnings  above the  threshold  return on common  equity  through
accelerated cost recognition.

                                      -43-
<PAGE>

     MidAmerican  Energy  continues its involvement in proceedings  which detail
the new  competitive  environment  and to evaluate  the impact of the law on its
operations  and  the  opportunities  the  law  presents,  including  proceedings
involving the unbundling of customer billing and meter reading.

     In Iowa, a replacement of the prior utility property tax system,  which was
supported  by  MidAmerican  Energy,  went into  effect on January 1, 1999.  With
resolution of the utility property tax issue, MidAmerican Energy is pursuing the
adoption of electric  utility  industry  restructuring  legislation  in the 2000
legislative session.

     In December 1999, the Federal Energy Regulatory Commission issued Order No.
2000 establishing among other things minimum  characteristics  and functions for
regional transmission organizations.  Public utilities that were not a member of
an independent system operator at the time of the order are required to submit a
plan by which its  transmission  facilities  would be  transferred to a regional
transmission   organization   on  a  schedule  that  would  allow  the  regional
transmission   organization   to  commence   operating  by  December  15,  2001.
MidAmerican Energy, which was not a member of an independent system operator, is
presently analyzing the impact that the order may have on its operations.

     Accounting Effects of Industry Restructuring -

     A possible  consequence of competition in the utility industry is that SFAS
71 may no longer apply. SFAS 71 sets forth accounting  principles for operations
that are  regulated  and meet certain  criteria.  For  operations  that meet the
criteria,  SFAS 71 allows,  among other things, the deferral of costs that would
otherwise be expensed when incurred. A majority of MidAmerican Energy's electric
and gas utility operations  currently meet the criteria required by SFAS 71, but
its applicability is periodically reexamined.  On December 16, 1997, MidAmerican
Energy's  generation  operations  serving Illinois were no longer subject to the
provisions of SFAS 71 due to passage of industry  restructuring  legislation  in
Illinois.  Thus,  in 1997  MidAmerican  Energy  was  required  to write  off the
regulatory assets and liabilities from its balance sheet related to its Illinois
generation  operations.  The net amount of such write-offs was not material.  If
other portions of its utility operations no longer meet the criteria of SFAS 71,
MidAmerican  Energy could be required to write off the related regulatory assets
and  liabilities  from its balance  sheet,  and thus, a material  adjustment  to
earnings in that period could result if  regulatory  assets are not recovered in
transition  provisions  of any resulting  legislation.  As of December 31, 1999,
MidAmerican  Energy had $279 million of  regulatory  assets on its  Consolidated
Balance Sheet.

     Energy Efficiency -

     MidAmerican  Energy's  regulatory assets as of December 31, 1999,  included
$46.5 million of deferred energy efficiency costs. Based on the current level of
recovery,  MidAmerican Energy expects to recover these costs by the end of 2001.
MidAmerican  Energy is also  allowed to recover  its ongoing  energy  efficiency
costs on a  current  basis.  Recovery  of these  costs is being  collected  from
customers  based  on  projected  annual  costs of $17.4  million,  which  may be
adjusted  annually.  Amortization  of the deferred energy  efficiency  costs and
current  expenditures  for energy  efficiency  costs will be  reflected in other
operating expenses over the related periods of recovery. The total of such costs
for the years 2000 and 2001 is  estimated  to be $40  million  and $35  million,
respectively.

     Rate Matters: Electric -

     Through several steps from mid-1997 to the end of 1998, electric prices for
Iowa  industrial  customers  were  reduced  by an amount  which had a $6 million
annual impact on revenues,  and electric  prices for Iowa  commercial  customers
were reduced by an amount which had a $4 million annual impact


                                      -44-
<PAGE>


on revenues. The reductions were achieved through a retail access pilot project,
negotiated  individual  electric  contracts  and a $1.5  million  tariffed  rate
reduction for certain non-contract commercial customers.

     The negotiated  electric  contracts have differing  terms and conditions as
well as prices.  The contracts range in length from five to ten years,  and some
have price renegotiation and early termination  provisions exercisable by either
party.  The vast majority of the contracts are for terms of seven years or less,
although, some large customers have agreed to ten-year contracts. Prices are set
as fixed prices;  however,  many contracts allow for potential price adjustments
with respect to environmental costs, government imposed public purpose programs,
tax changes,  and transition costs.  While the contract prices are fixed (except
for the potential adjustment  elements),  the costs MidAmerican Energy incurs to
fulfill these  contracts  will vary.  MidAmerican  Energy  presently  intends to
manage this risk through hedging and other similar arrangements. On an aggregate
basis the annual revenues under contract are approximately $180 million.

     Under a 1997  pricing  plan  settlement  agreement  resulting  from an Iowa
Utilities Board rate  proceeding,  if MidAmerican  Energy's annual Iowa electric
jurisdictional  return on common equity exceeds 12%, then earnings above the 12%
level will be shared equally between  customers and MidAmerican  Energy.  If the
return  exceeds 14%, then  two-thirds  of  MidAmerican  Energy's  share of those
earnings  above the 14% level will be used for  accelerated  recovery of certain
regulatory assets. The pricing plan settlement  agreement precludes  MidAmerican
Energy from  filing for  increased  rates prior to 2001 unless the return  falls
below 9%. Other parties  signing the agreement  are  prohibited  from filing for
reduced  rates  prior to 2001  unless the return,  after  reflecting  credits to
customers,  exceeds 14%. On April 14, 1999, the Iowa Utilities  Board  approved,
subject to  additional  refund,  MidAmerican  Energy's  calculation  of the 1998
return on common equity.  During the second quarter of 1999,  MidAmerican Energy
credited $2.2 million to its Iowa  non-contract  customers related to the return
calculation for 1998. The agreement also eliminated  MidAmerican Energy's energy
adjustment clause,  and, as a result, the cost of fuel is not directly passed on
to customers.  In 1999,  MidAmerican  Energy  accrued $15.0 million for customer
credits relating to 1999 operations.

     Rate Matters: Gas -

     On September 1, 1999,  MidAmerican  Energy filed with the Illinois Commerce
Commission  requesting a rate increase  totaling  $3.2 million  annually for its
Illinois retail gas customers. A decision by the Illinois Commerce Commission is
anticipated prior to August 2000.

     Environmental Matters -

     The U.S.  Environmental  Protection Agency, or EPA, and state environmental
agencies have determined that  contaminated  wastes remaining at  decommissioned
manufactured  gas plant facilities may pose a threat to the public health or the
environment if these contaminants are in sufficient quantities and at sufficient
concentrations as to warrant remedial action.

     MidAmerican Energy has evaluated or is evaluating 27 properties which were,
at one time, sites of gas manufacturing  plants in which it may be a potentially
responsible  party.  The purpose of these  evaluations  is to determine  whether
waste materials are present,  whether the materials  constitute an environmental
or health  risk,  and  whether  MidAmerican  Energy has any  responsibility  for
remedial action.  MidAmerican  Energy's estimate of the probable costs for these
sites as of December 31, 1999, was $28 million.  This estimate has been recorded
as a liability and a regulatory asset for future recovery through the regulatory
process.  Refer to Note (4)(b) of Notes to Consolidated Financial Statements for
further discussion of MidAmerican Energy's  environmental  activities related to
manufactured gas plant sites and cost recovery.

                                      -45-
<PAGE>

     Although  the timing of potential  incurred  costs and recovery of costs in
rates may affect the results of  operations in  individual  periods,  management
believes  that the  outcome of these  issues  will not have a  material  adverse
effect on MidAmerican Energy's financial position or results of operations.

     On July 18, 1997,  the EPA adopted  revisions  to the National  Ambient Air
Quality  Standards  for ozone and a new  standard for fine  particulate  matter.
Based on data to be obtained from monitors  located  throughout the states,  the
EPA will make a  determination  of whether the states have any areas that do not
meet  the  air  quality   standards   (i.e.,   areas  that  are   classified  as
nonattainment).  If a state has area(s) classified as nonattainment area(s), the
state is required to submit a State  Implementation  Plan specifying how it will
reach attainment of the standards through emission reductions or other means.

     In May 1999, the U.S. Court of Appeals for the District of Columbia Circuit
remanded the standards  adopted in July 1997 back to the EPA  indicating the EPA
had not expressed  sufficient  justification  for the basis of establishing  the
standards  and ruling that the EPA has exceeded  its  constitutionally-delegated
authority in setting the  standards.  The EPA's appeal of the court's  ruling to
the full  panel of the  U.S.  District  Court of  Appeals  for the  District  of
Columbia Circuit was denied. As a result of the court's initial decision and the
current status of the standards,  the impact of any new standards on MidAmerican
Energy  is  currently  unknown.  If the EPA  successfully  appeals  the  court's
decision,  however,  and the new standards  are  implemented,  then  MidAmerican
Energy's fossil fuel generating  stations may be subject to emission  reductions
if the stations are located in nonattainment  areas. As part of an overall state
plan to  achieve  attainment  of the  standards,  MidAmerican  Energy  could  be
required to install control equipment on its fossil fuel generating  stations or
decrease the number of hours during which these stations operate.  The degree to
which  MidAmerican  Energy may be  required  to  install  control  equipment  or
decrease  operating hours under a nonattainment  scenario would be determined by
the state's assessment of MidAmerican Energy's relative contribution, along with
other emission sources, to the nonattainment status. The installation of control
equipment would result in increased costs to MidAmerican  Energy.  A decrease in
the number of hours during which the affected  stations  operate would  decrease
the revenues of MidAmerican Energy.

     In  December  1997,  negotiators  from more than 150  nations met in Kyoto,
Japan to negotiate an international agreement designed to address global climate
change impacts by attempting to reduce so-called greenhouse gas emissions.  Some
scientists contend that these gases build up in the earth's atmosphere and cause
global  temperatures  to rise. The primary  target of these  emissions is carbon
dioxide which is formed by, among other things,  the combustion of fossil fuels.
The agreement  currently  calls for the United States to reduce its emissions of
carbon  dioxide  and  other  greenhouse  gases to 7% below  1990  levels  in the
2008-2012  time frame.  The United States became a signatory to the agreement on
November 12, 1998. In order for the agreement to become  binding upon the United
States,  ratification by the U.S.  Senate is necessary.  The cost to the utility
industry in general,  and to MidAmerican  Energy, of reducing its carbon dioxide
emissions levels by 7% below 1990 levels would depend on available technology at
the time, but could be material.

     Quad Cities Nuclear Power Station -

     Quad Cities Station is operated by, and 75% owned by,  Commonwealth  Edison
Company . On May 3, 1999, the Nuclear  Regulatory  Commission advised ComEd that
it had  classified  Quad Cities  Station in its Routine  Oversight  category for
nuclear  power  plants,  which  is  the  best  of  the  commission's  three  new
categories,  removing the station from the Trending  (adversely)  Letter  status
initiated in January 1998.  During 1999, Quad Cities  Station's  capacity factor
based on maximum  dependable  capacity was in excess of 96.0%  compared to 51.7%
for 1998.  The lower  capacity  factor in 1998 reflects the extended  outages at
both of the Quad Cities Station units during the first five months of 1998.

                                      -46-
<PAGE>

     Generating Capability -

     In July 1999,  retail  customer usage of electricity  caused an hourly peak
demand of 3,833 MW on MidAmerican Energy's energy system.  MidAmerican Energy is
interconnected  with  Iowa  and  neighboring  utilities  and is  involved  in an
electric power pooling  agreement known as  Mid-Continent  Area Power Pool. Each
Power Pool  participant  is required to maintain  for  emergency  purposes a net
generating  capability  reserve  of at least 15% above its system  peak  demand.
MidAmerican Energy was able to maintain its capacity reserve  requirement during
the hot weather in July 1999 and was not  adversely  affected  by the  resultant
high prices in the off-system market.

     MidAmerican  Energy believes it has adequate  electric capacity reserve and
continues to manage its  generating  resources to ensure an adequate  reserve in
the future. However,  significantly  higher-than-normal  temperatures during the
cooling season could cause  MidAmerican  Energy's  reserve to fall below the 15%
minimum.  If  MidAmerican  Energy  fails to maintain  the  appropriate  reserve,
significant penalties could be contractually imposed by Power Pool.

ACCOUNTING ISSUES

     In June 1998, the Financial  Accounting  Standards Board (FASB) issued SFAS
133, "Accounting for Derivative  Instruments and Hedging Activities",  which was
delayed by SFAS 137 and is effective for fiscal years  beginning  after June 15,
2000.  SFAS 133 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.  MidAmerican  Funding is in the process of evaluating
the impact of this accounting standard.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

     MidAmerican  Funding is exposed to market  risk,  including  changes in the
market  price of certain  commodities  and interest  rates.  To manage the price
volatility relating to these exposures,  MidAmerican Funding enters into various
financial  derivative  instruments.   Senior  management  provides  the  overall
direction,   structure,  conduct  and  control  of  MidAmerican  Funding's  risk
management  activities,  including the use of financial derivative  instruments,
authorization  and  communication  of risk  management  policies and procedures,
strategic hedging program guidelines, appropriate market and credit risk limits,
and appropriate  systems for recording,  monitoring and reporting the results of
transactional and risk management activities.

         MidAmerican  Funding uses hedge  accounting for derivative  instruments
pertaining  to  its  natural  gas  purchasing  and  preferred   stock  investing
operations.

     Commodity Price Risk -

     Under the current  regulatory  framework,  MidAmerican Energy is allowed to
recover in revenues the cost of gas sold from all of its regulated gas customers
through a purchased gas adjustment  clause.  Because the majority of MidAmerican
Energy's firm natural gas supply contracts contain pricing provisions based on a
daily or monthly  market index,  MidAmerican  Energy's  regulated gas customers,
although ensured of the availability of gas supplies, retain the risk associated
with market price volatility.

     MidAmerican  Energy enters into natural gas futures and swap  agreements to
mitigate a portion of the market risk  retained by its  regulated  gas customers
through  the  purchased  gas  adjustment  clause.   These  financial  derivative
activities  are  recorded  as hedge  accounting  transactions,  with net amounts


                                      -47-
<PAGE>

exchanged  or accrued  under swap  agreements  and  realized  gains or losses on
futures  contracts  included in the cost of gas sold and  recovered  in revenues
from regulated gas customers.

     MidAmerican Energy also derives revenues from nonregulated sales of natural
gas. Pricing provisions are individually negotiated with these customers and may
include  fixed  prices  or  prices  based on a daily or  monthly  market  index.
MidAmerican Energy enters into natural gas futures and swap agreements to offset
the financial  impact of variations in natural gas commodity prices for physical
delivery to nonregulated  customers.  These financial derivative  activities are
also  recorded  as hedge  accounting  transactions.  MidAmerican  Energy had the
following financial derivative  instruments for its natural gas operations as of
December 31:

                                                  1999              1998
                                                  ----              ----

Futures Contracts:
     Net Contract Volumes- Long               2,700,000 MMBtu   6,970,000 MMBtu
     Net Contract Volumes - Short             3,250,000 MMBtu   7,320,000 MMBtu
     Unrealized Loss, in thousands               $ (410)          $(1,815)

Swap Contracts:
     Pay Fixed, Receive Variable Volumes      4,343,065 MMBtu  16,322,181 MMBtu
     Receive Fixed, Pay Variable Volumes      2,754,094 MMBtu           -
     Pay Variable, Receive Variable Volumes  78,423,283 MMBtu           -
     Unrealized Loss, in thousands              $(1,576)          $(2,896)

     A $0.05 increase in underlying natural gas prices would increase unrealized
losses on the  futures  contracts  held at December  31,  1999 by  approximately
$28,000  and would  reduce  unrealized  losses on the above  swap  contracts  by
approximately $79,000.

     Interest Rate Risk -

     MidAmerican  Capital  is  exposed  to market  value  risk from  changes  in
interest rates on its preferred stock investments.  MidAmerican  Capital reviews
the interest rate  sensitivity of these securities and purchases put options and
enters into "short" positions in futures  contracts on U.S. Treasury  securities
for other than trading  purposes in order to reduce related  interest rate risk.
MidAmerican  Capital's  intent is to manage the risk arising from changes in the
general  level of  interest  rates with a change in market  value of the hedging
instruments.  MidAmerican  Capital does not purchase or sell hedging instruments
for speculative purposes.

     The  following  table  demonstrates  the  impact of varying  interest  rate
changes to the market value at December 31, 1999 (amounts in thousands)

                                                        Total        Change in
                         Preferred     Futures and     Portfolio   Market Value
                        Stock Market  Options Market    Market       of Total
                           Value          Value         Value        Portfolio

Interest Rate Change:
  200 basis pt decrease   $84,192      $     1         $84,193       $8,581
  100 basis pt decrease    78,692          152          78,844        3,231
Current interest rates     72,983        2,629          75,612            -
  100 basis pt increase    67,461        7,866          75,327         (286)
  200 basis pt increase    62,387       12,367          74,754         (859)

                                      -48-
<PAGE>

     The number of hedging instrument  contracts entered into, or their notional
amount,  is dependent  on, among other  things,  the duration of the  portfolio,
specific call  provisions of each fixed rate preferred  stock,  the slope of the
Treasury yield curve, the expected volatility of Treasury yields and the cost of
using futures  and/or  options.  The notional  amount of  MidAmerican  Capital's
hedging instruments at December 31, 1999 and 1998,  respectively,  are set forth
in the following table (dollars in thousands):

                              1999                          1998
                     Contracts    Notional Amt.    Contracts    Notional Amt.
                     ---------    -------------    ---------    -------------

Put Options             500          $45,469          697          $89,063
Futures Contracts         -                -           33            4,217
                        ---          -------          ---          -------
Total                   500          $45,469          730          $93,280
                        ===          =======          ===          =======

     The notional  amounts of these  hedging  instruments  do not  represent the
amounts exchanged by the parties and are not a measure of MidAmerican  Capital's
financial  exposure  through its use of these hedging  instruments.  MidAmerican
Capital is exposed only to the initial  purchase price of the put options and to
changes in the market value of the futures contracts.

     At December 31, 1999, MidAmerican Funding had fixed-rate long-term debt and
mandatorily   redeemable   preferred  securities  and  preferred  securities  of
subsidiary  trust totaling  $1,670 million with a fair value of $1,581  million.
These instruments are fixed-rate and therefore do not expose MidAmerican Funding
to the risk of earnings loss due to changes in market interest  rates.  However,
the fair value of these  instruments would decrease by approximately $64 million
if  interest  rates were to increase  by 10% from their  levels at December  31,
1999. In general,  such a decrease in fair value would impact  earnings and cash
flows only if  MidAmerican  Funding were to reacquire  all or a portion of these
instruments prior to their maturity.

     At December 31,  1999,  MidAmerican  Funding had  long-term  floating  rate
obligations  totaling  $120 million and  short-term  floating  rate  obligations
totaling  $204 million  which  expose the company to risk of increased  interest
expense in the event of increases in short-term interest rates. This market risk
in not hedged. The carrying value of the long-term and short-term  floating rate
obligations  at December  31, 1999  approximated  fair  value.  If the  floating
interest  rates  were  to  increase  by  10%  from  December  31,  1999  levels,
MidAmerican  Funding's  interest expense for the floating rate obligations would
increase by  approximately  $1.8  million  annually  based on December  31, 1999
principal balances.


                                      -49-
<PAGE>

                            MIDAMERICAN FUNDING, LLC
                        CONSOLIDATED STATEMENTS OF INCOME
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>

                                             MIDAMERICAN
                                               FUNDING                   MHC (PREDECESSOR)
                                            --------------  --------------------------------------------
                                            MARCH 12, 1999  JAN. 1, 1999       YEAR            YEAR
                                               THROUGH        THROUGH          ENDED           ENDED
                                             DECEMBER 31,     MARCH 11,     DECEMBER 31,    DECEMBER 31,
                                                 1999           1999            1998           1997
                                            --------------  ------------    ------------    ------------
<S>                                          <C>             <C>             <C>             <C>
OPERATING REVENUES
Regulated electric ........................  $   969,739     $   208,963     $ 1,169,810     $ 1,126,300
Regulated gas .............................      315,238         139,564         429,870         536,306
Nonregulated ..............................      148,069          34,539         176,244         306,931
                                             -----------     -----------     -----------     -----------
                                               1,433,046         383,066       1,775,924       1,969,537
                                             -----------     -----------     -----------     -----------
OPERATING EXPENSES
Regulated:
  Cost of fuel, energy and capacity .......      179,915          40,232         225,736         235,760
  Cost of gas sold ........................      179,048          79,910         243,451         346,016
  Other operating expenses ................      348,440          93,940         470,328         438,007
  Maintenance .............................       97,787          18,302         110,387         100,543
  Depreciation and amortization ...........      151,130          39,417         182,211         170,540
  Property and other taxes ................       61,259          15,758          87,276          90,651
                                             -----------     -----------     -----------     -----------
                                               1,017,579         287,559       1,319,389       1,381,517
                                             -----------     -----------     -----------     -----------
Nonregulated:
  Cost of sales ...........................      131,093          30,188         144,417         276,711
  Other ...................................       57,241           6,421          40,706          34,583
                                             -----------     -----------     -----------     -----------
                                                 188,334          36,609         185,123         311,294
                                             -----------     -----------     -----------     -----------
  Total operating expenses ................    1,205,913         324,168       1,504,512       1,692,811
                                             -----------     -----------     -----------     -----------

OPERATING INCOME ..........................      227,133          58,898         271,412         276,726
                                             -----------     -----------     -----------     -----------
NON-OPERATING INCOME
Interest income ...........................       18,034           1,411           9,262           5,318
Dividend income ...........................        4,255           1,331          10,251          13,792
Realized gains and losses
  on securities, net ......................       77,983          15,214          11,204           7,798
Other, net ................................        2,325         (18,133)          5,096          15,891
                                             -----------     -----------     -----------     -----------
                                                 102,597            (177)         35,813          42,799
                                             -----------     -----------     -----------     -----------
FIXED CHARGES
Interest on long-term debt ................       93,533          14,814          80,908          89,898
Other interest expense ....................        7,536           3,145          12,682          10,034
Preferred dividends of subsidiaries .......        9,561           2,831          12,932          14,468
Allowance for borrowed funds ..............       (1,022)           (235)         (3,377)         (2,597)
                                             -----------     -----------     -----------     -----------
                                                 109,608          20,555         103,145         111,803
                                             -----------     -----------     -----------     -----------
INCOME FROM CONTINUING OPERATIONS
   BEFORE INCOME TAXES ....................      220,122          38,166         204,080         207,722
INCOME TAXES ..............................       96,045          21,377          76,926          68,390
                                             -----------     -----------     -----------     -----------
INCOME FROM CONTINUING OPERATIONS .........      124,077          16,789         127,154         139,332
                                             -----------     -----------     -----------     -----------
DISCONTINUED OPERATIONS
Income (Loss) from operations
  (net of income taxes) ...................       11,258             421           4,164            (118)
Loss on disposal (net of income taxes) ....           --              --              --          (4,110)
                                             -----------     -----------     -----------     -----------
                                                  11,258             421           4,164          (4,228)
                                             -----------     -----------     -----------     -----------
NET INCOME ................................  $   135,335     $    17,210     $   131,318     $   135,104
                                             ===========     ===========     ===========     ===========
</TABLE>

        The accompanying notes are an integral part of these statements.

                                      -50-
<PAGE>


                            MIDAMERICAN FUNDING, LLC
                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>

                                                         MIDAMERICAN
                                                           FUNDING                   MHC (PREDECESSOR)
                                                        --------------   ------------------------------------------
                                                        MARCH 12, 1999   JAN. 1, 1999      YEAR           YEAR
                                                           THROUGH          THROUGH        ENDED          ENDED
                                                         DECEMBER 31,      MARCH 11,    DECEMBER 31,   DECEMBER 31,
                                                              1999          1999           1998           1997
                                                        --------------   ------------   -----------    -----------

<S>                                                       <C>              <C>           <C>            <C>
NET INCOME ..........................................     $ 135,335        $ 17,210      $ 131,318      $135,104
                                                          ---------        --------      ---------      --------
OTHER COMPREHENSIVE INCOME, NET
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) during period .....        77,942          79,236        (14,743)      223,927
  Less reclassification adjustment for realized gains
    (losses) reflected in net income during period ..        77,983          15,214         11,204         7,787
                                                          ---------        --------      ---------      --------
                                                                (41)         64,022        (25,947)      216,140
Income tax expense (benefit) ........................           (14)         22,408         (9,002)       75,567
                                                          ---------        --------      ---------      --------
Other comprehensive income (loss), net ..............           (27)         41,614        (16,945)      140,573
                                                          ---------        --------      ---------      --------

COMPREHENSIVE INCOME ................................     $ 135,308        $ 58,824      $ 114,373      $275,677
                                                          =========        ========      =========      ========

</TABLE>

        The accompanying notes are an integral part of these statements.

                                      -51-
<PAGE>


                            MIDAMERICAN FUNDING, LLC
                           CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>

                                                                 AS OF DECEMBER 31
                                                            ----------------------------
                                                            MIDAMERICAN         MHC
                                                              FUNDING      (PREDECESSOR)
                                                                1999           1998
                                                            -----------    -------------
<S>                                                          <C>            <C>
ASSETS
UTILITY PLANT
Electric ..................................................  $4,209,281     $4,255,058
Gas .......................................................     809,112        786,169
                                                             ----------     ----------
                                                              5,018,393      5,041,227
Less accumulated depreciation and amortization ............   2,546,516      2,426,564
                                                             ----------     ----------
                                                              2,471,877      2,614,663
Construction work in progress .............................      33,739         26,369
                                                             ----------     ----------
                                                              2,505,616      2,641,032
                                                             ----------     ----------
POWER PURCHASE CONTRACT ...................................          --        150,401
                                                             ----------     ----------
CURRENT ASSETS
Cash and cash equivalents .................................       6,235          6,107
Receivables, less reserves of $469 and $503, respectively .     215,361        181,817
Inventories ...............................................      82,823         94,771
Prepaid taxes .............................................      22,889         22,889
Other .....................................................      12,301         17,541
                                                             ----------     ----------
                                                                339,609        323,125
                                                             ----------     ----------
INVESTMENTS AND NONREGULATED PROPERTY, NET ................     519,201        749,508
INVESTMENT IN DISCONTINUED OPERATIONS .....................          --         43,907
EXCESS OF COST OVER FAIR VALUE OF ASSETS ACQUIRED, NET ....   1,482,992         12,552
OTHER ASSETS ..............................................     347,935        323,811
                                                             ----------     ----------
TOTAL ASSETS ..............................................  $5,195,353     $4,244,336
                                                             ==========     ==========

CAPITALIZATION AND LIABILITIES
CAPITALIZATION

Member's equity ...........................................  $1,800,416     $1,200,950
MidAmerican Energy preferred securities,
  not subject to mandatory redemption .....................      31,759         31,759
Preferred securities, subject to mandatory redemption:
  MidAmerican Energy preferred securities .................      50,000         50,000
  MidAmerican Energy-obligated preferred securities
    of subsidiary trust holding solely MidAmerican
  Energy junior subordinated debentures ...................     101,598        100,000
Long-term debt (excluding current portion) ................   1,508,394        939,553
                                                             ----------     ----------
                                                              3,492,167      2,322,262
                                                             ----------     ----------
CURRENT LIABILITIES
Notes payable .............................................     204,000        339,826
Current portion of long-term debt .........................     134,082        105,995
Current portion of power purchase contract ................      15,767         15,034
Accounts payable ..........................................     165,915        167,348
Taxes accrued .............................................     110,592        107,332
Interest accrued ..........................................      29,555         15,533
Other .....................................................      42,392         51,316
                                                             ----------     ----------
                                                                702,303        802,384
                                                             ----------     ----------
OTHER LIABILITIES
Power purchase contract ...................................      52,282         68,093
Deferred income taxes .....................................     520,088        733,448
Investment tax credit .....................................      71,757         77,421
Other .....................................................     356,756        240,728
                                                             ----------     ----------
                                                              1,000,883      1,119,690
                                                             ----------     ----------
TOTAL CAPITALIZATION AND LIABILITIES ......................  $5,195,353     $4,244,336
                                                             ==========     ==========
</TABLE>

        The accompanying notes are an integral part of these statements.

                                      -52-
<PAGE>


                            MIDAMERICAN FUNDING, LLC
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>

                                                                MIDAMERICAN
                                                                  FUNDING                  MHC (PREDECESSOR)
                                                              --------------  --------------------------------------------
                                                              MARCH 12, 1999  JAN. 1, 1999      YEAR            YEAR
                                                                  THROUGH        THROUGH        ENDED           ENDED
                                                               DECEMBER 31,     MARCH 11,     DECEMBER 31,    DECEMBER 31,
                                                                   1999            1999           1998           1997
                                                              --------------  ------------    ------------    ------------

<S>                                                           <C>             <C>             <C>             <C>
NET CASH FLOWS FROM OPERATING ACTIVITIES
Net income ...............................................    $   135,335     $    17,210     $   131,318     $   135,104
Adjustments to reconcile net income to net cash provided:
  (Income)/loss from discontinued operations .............        (11,258)           (421)         (4,164)          4,228
  Depreciation and amortization ..........................        181,763          39,865         200,920         197,454
  Net decrease in deferred income taxes and investment
     tax credit, net .....................................       (114,775)         (2,327)        (24,800)        (71,191)
  Amortization of other assets and liabilities ...........         29,272          12,035          40,264          33,761
  Gain on sale of securities, assets and other investments        (78,906)        (15,478)        (24,629)         (9,996)
  Other-than-temporary decline in value of investments ...             --              --             273           3,795
  Cash inflows (outflows) of accounts receivable
    securitization .......................................        (12,877)         10,000         (10,000)         70,000
  Impact of changes in working capital, net of effects
     from discontinued operations ........................        (25,637)         38,190          42,046          32,973
  Other ..................................................         18,078           4,878         (18,845)        (15,904)
                                                              -----------     -----------     -----------     -----------
    Net cash provided by continuing operations ...........        120,995         103,952         332,383         380,224
    Net cash provided by discontinued operations .........         28,967            (429)          6,754           8,189
                                                              -----------     -----------     -----------     -----------
    Net cash provided by operating activities ............        149,962         103,523         339,137         388,413
                                                              -----------     -----------     -----------     -----------

NET CASH FLOWS FROM INVESTING ACTIVITIES
Utility construction expenditures ........................       (186,651)        (16,924)       (193,354)       (166,932)
Quad Cities Nuclear Power Station decommissioning
  trust fund .............................................         (8,181)         (2,189)        (11,409)         (9,819)
Deferred energy efficiency expenditures ..................             --              --              --         (12,258)
Nonregulated capital expenditures ........................        (16,295)         (6,058)        (45,466)        (14,066)
Purchase of securities
  Available for sale .....................................       (110,785)        (12,307)       (142,963)       (159,190)
  Held to maturity .......................................             --              --            (361)           (580)
Proceeds from sale of securities
  Available for sale .....................................        517,127          72,468         213,563         180,570
  Held to maturity .......................................             --           2,984           3,896             320
Proceeds from sale of assets and other investments .......          1,964           1,097          38,162          57,433
Notes receivable from affiliate ..........................       (122,565)             --              --              --
Purchase of MHC, net of cash received ....................     (2,429,532)             --              --              --
Proceeds from sales of discontinued operations,
  net of liabilities settled .............................             --              --              --         193,342
Investments in discontinued operations ...................         (7,751)             --         (37,990)             --
Other investing activities, net ..........................          5,553          (7,894)         (3,618)         (1,360)
                                                              -----------     -----------     -----------     -----------
  Net cash provided by (used in) continuing operations ...     (2,357,116)         31,177        (179,540)         67,460
  Net cash provided by (used in) discontinued operations .        (35,079)         (1,056)        (29,757)         (1,517)
                                                              -----------     -----------     -----------     -----------
  Net cash provided by (used in) investing activities ....     (2,392,195)         30,121        (209,297)         65,943
                                                              -----------     -----------     -----------     -----------
</TABLE>

        The accompanying notes are an integral part of these statements.

                                      -53-
<PAGE>


                            MIDAMERICAN FUNDING, LLC
                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>

                                                               MIDAMERICAN
                                                                 FUNDING                     MHC (PREDECESSOR)
                                                              --------------     ------------------------------------------
                                                              MARCH 12, 1999     JAN. 1, 1999     YEAR           YEAR
                                                                THROUGH             THROUGH        ENDED          ENDED
                                                              DECEMBER 31,         MARCH 11,    DECEMBER 31,   DECEMBER 31,
                                                                  1999               1999          1998             1997
                                                              ------------       ------------   ------------   ------------

<S>                                                           <C>                 <C>           <C>            <C>
NET CASH FLOWS FROM FINANCING ACTIVITIES
Common dividends paid ....................................    $        --         $ (30,359)    $(113,144)     $(117,605)
Issuance of long-term debt, net of
  issuance costs and rate swap ...........................        706,525                --       158,414             --
Retirement of long-term debt, including reacquisition cost       (105,868)             (127)     (302,477)      (122,300)
Reacquisition of preferred shares ........................             --                --            (4)            (6)
Reacquisition of common shares ...........................             --           (50,629)     (101,765)       (96,618)
Equity contribution from parent ..........................      1,727,651                --            --             --
Increase in MidAmerican Capital Company
   unsecured revolving credit facility ...................             --                --        51,000          7,900
Repayment of MidAmerican Capital Company unsecured
   revolving credit facility .............................             --           (34,600)      (16,400)      (182,400)
Net increase (decrease) in notes payable .................        (85,952)          (15,274)      167,172        (23,936)
                                                              -----------         ---------     ---------     ----------
   Net cash used in continuing operations ................      2,242,356          (130,989)     (157,204)      (534,965)
   Net cash provided by (used in) discontinued operations          12,661             1,719        17,014         (6,602)
                                                              -----------         ---------     ---------     ----------
   Net cash provided by (used in) financing activities ...      2,255,017          (129,270)     (140,190)      (541,567)
                                                              -----------         ---------     ---------     ----------

NET (INCREASE) DECREASE IN CASH AND CASH EQUIVALENTS
   OF DISCONTINUED OPERATIONS ............................         (6,549)             (234)        5,989            (70)
                                                              -----------         ---------     ---------     ----------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .....          6,235             4,140        (4,361)       (87,281)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD .........             --             6,107        10,468         97,749
                                                              -----------         ---------     ---------     ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ...............    $     6,235         $  10,247     $   6,107     $   10,468
                                                              ===========         =========     =========     ==========

ADDITIONAL CASH FLOW INFORMATION:
Interest paid, net of amounts capitalized ................    $    84,753         $  15,458     $  90,801     $   96,805
                                                              ===========         =========     =========     ==========
Income taxes paid ........................................    $   203,192         $   8,401     $ 100,917     $  130,521
                                                              ===========         =========     =========     ==========

</TABLE>
        The accompanying notes are an integral part of these statements.

                                      -54-
<PAGE>


                            MIDAMERICAN FUNDING, LLC
                    CONSOLIDATED STATEMENTS OF CAPITALIZATION
                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>

                                                                      AS OF DECEMBER 31
                                                          -------------------------------------------
                                                              MIDAMERICAN                   MHC
                                                                FUNDING                (PREDECESSOR)
                                                                 1999                     1998
                                                          --------------------    -------------------
<S>                                                       <C>            <C>     <C>           <C>
MEMBER'S EQUITY
Paid in Capital.......................................    $1,670,866             $  724,778
Retained earnings.....................................       129,577                355,000
Accumulated other comprehensive income (loss), net....           (27)               121,172
                                                          ----------             ----------
                                                           1,800,416     51.6%    1,200,950    51.7%
                                                          ----------     -----   ----------    -----
MIDAMERICAN ENERGY PREFERRED SECURITIES
   (100,000,000 SHARES AUTHORIZED)
  Cumulative shares outstanding not
    subject to mandatory redemption:
    $3.30 Series, 49,451 shares.......................         4,945                  4,945
    $3.75 Series, 38,305 shares.......................         3,831                  3,831
    $3.90 Series, 32,630 shares.......................         3,263                  3,263
    $4.20 Series, 47,362 shares.......................         4,736                  4,736
    $4.35 Series, 49,945 shares.......................         4,994                  4,994
    $4.40 Series, 50,000 shares.......................         5,000                  5,000
    $4.80 Series, 49,898 shares.......................         4,990                  4,990
                                                           ---------             ----------
                                                              31,759      0.9%       31,759     1.4%
                                                           ---------     -----   ----------    -----
  Cumulative shares outstanding;
    subject to mandatory redemption:
      $5.25 Series, 100,000 shares....................        10,000                 10,000
      $7.80 Series, 400,000 shares....................        40,000                 40,000
                                                          ----------              ---------
                                                              50,000      1.4%       50,000      2.1%
                                                          ----------     -----    ---------     -----
MIDAMERICAN ENERGY-OBLIGATED PREFERRED SECURITIES
MidAmerican Energy-obligated mandatorily redeemable
   cumulative preferred securities of subsidiary
   trust holding solely MidAmerican Energy
   junior subordinated debentures:
     7.98% Series, 4,000,000 shares...................       101,598      2.9%      100,000      4.3%
                                                           ---------     -----   ----------     -----
LONG-TERM DEBT
MidAmerican Energy mortgage bonds:
  6% Series, due 2000.................................             -                 35,000
  6.75% Series, due 2000..............................             -                 75,000
  7.125% Series, due 2003.............................       100,000                100,000
  7.70% Series, due 2004..............................        55,630                 55,630
  7% Series, due 2005.................................        90,500                 90,500
  7.375% Series, due 2008.............................        75,000                 75,000
  7.45% Series, due 2023..............................         6,940                  6,940
  6.95% Series, due 2025..............................        12,500                 12,500
MidAmerican Energy pollution
  control revenue obligations:
    5.75% Series, due periodically through 2003.......         7,200                  7,704
    6.7% Series, due 2003..............................        1,000                  1,000
    6.1% Series, due 2007..............................        1,000                  1,000
    5.95% Series, due 2023
      (secured by general mortgage bonds).............        29,030                 29,030

</TABLE>

        The accompanying notes are an integral part of these statements.

                                      -55-
<PAGE>


                            MIDAMERICAN FUNDING, LLC
              CONSOLIDATED STATEMENTS OF CAPITALIZATION (CONTINUED)
                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>

                                                                      AS OF DECEMBER 31
                                                          -------------------------------------------
                                                              MIDAMERICAN              MHC
                                                                FUNDING            (PREDECESSOR)
                                                                 1999                  1998
                                                          --------------------  ---------------------

<S>                                                       <C>           <C>    <C>             <C>
LONG-TERM DEBT (CONTINUED)
  Variable rate series -
    Due 2016 and 2017, 3.95% and 3.7%, respectively...    $   37,600            $    37,600
    Due 2023 (secured by general mortgage bonds,
      3.95% and 3.7%, respectively)...................        28,295                 28,295
    Due 2023, 3.95% and 3.7%, respectively............         6,850                  6,850
    Due 2024, 3.95% and 3.7%, respectively............        34,900                 34,900
    Due 2025, 3.95% and 3.7%, respectively............        12,750                 12,750
MidAmerican Energy notes:
    8.75% Series, due 2002............................           240                    240
    6.5% Series, due 2001.............................       100,000                100,000
    6.375% Series, due 2006...........................       160,000                160,000
Obligation under capital lease........................         1,698                  1,539
Unamortized debt premium and discount, net............        (1,495)                (1,925)
                                                           ---------              ---------
      Total utility...................................       759,638     21.8%      869,553     37.5%
                                                           ---------    ------    ---------    ------

Nonregulated subsidiaries notes:
    8.52% Series, due 2000 through 2002...............        46,667      1.3%       70,000      3.0%
                                                           ---------    ------    ---------    ------

MidAmerican Funding Parent Debt
    5.85% Senior Secured Notes due 2001...............       200,000                      -
    6.339% Senior Secured Notes Due 2009..............       175,000                      -
    6.927% Senior Secured Notes Due 2029..............       325,000
    Other.............................................         2,089                      -
                                                           ---------
      Total MidAmerican Funding Parent................       702,089     20.1%            -        -
                                                           ---------    ------     --------    ------
                                                           1,508,394     43.2%      939,553     40.5%
                                                          ----------    ------     --------    ------

TOTAL CAPITALIZATION..................................    $3,492,167    100.0%   $2,322,262    100.0%
                                                          ==========    ======   ==========    ======
</TABLE>

                            MIDAMERICAN FUNDING, LLC
                  CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>

                                          MIDAMERICAN
                                            FUNDING                   MHC (PREDECESSOR)
                                         --------------   ------------------------------------------
                                         MARCH 12, 1999   JAN. 1, 1999     YEAR           YEAR
                                            THROUGH         THROUGH        ENDED          ENDED
                                          DECEMBER 31,      MARCH 11,    DECEMBER 31,   DECEMBER 31,
                                             1999            1999           1998           1997
                                         --------------   ------------   ------------   ------------
<S>                                          <C>            <C>            <C>            <C>
BEGINNING OF YEAR......................      $      -       $355,000       $409,296       $440,971
                                             --------       --------       --------       --------
NET INCOME.............................       135,335         17,210        131,318        135,104
                                             --------       --------       --------       --------
DEDUCT (ADD):
Repurchase of common shares............             -         33,134         72,470         49,174
Dividends declared on common shares....             -         30,359        113,144        117,605
Distribution of subsidiary to parent...         5,758              -              -              -
                                             --------       --------       --------       --------
                                                5,758         63,493        185,614        166,779
                                             --------       --------       --------       --------
END OF YEAR............................      $129,577       $308,717       $355,000       $409,296
                                             ========       ========       ========       ========
</TABLE>

The accompanying notes are an integral part of these statements.

                                      -56-

<PAGE>

                            MIDAMERICAN FUNDING, LLC
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

     (A) COMPANY STRUCTURE:

     MidAmerican  Funding, LLC is an Iowa limited liability company and a direct
wholly-owned  subsidiary of MidAmerican  Energy  Holdings  Company.  MidAmerican
Funding's direct  wholly-owned  subsidiary is MHC Inc., a public utility holding
company.  MHC's principal  subsidiary is MidAmerican  Energy  Company,  a public
utility with electric and natural gas operations. Other significant wholly-owned
subsidiaries of MHC include MidAmerican Capital Company,  Midwest Capital Group,
Inc. and MidAmerican Services Company.

     The  current  corporate  structure  is the  result of a merger  transaction
completed on March 12, 1999, involving MHC (formerly MidAmerican Energy Holdings
Company)  and  CalEnergy  Company,  Inc.  CalEnergy,  through a  reincorporation
transaction,  was  renamed  MidAmerican  Energy  Holdings  Company.  MidAmerican
Holdings  is an exempt  public  utility  holding  company  headquartered  in Des
Moines, Iowa.

     In conjunction  with the  transaction,  MidAmerican  Funding paid $27.15 in
cash for each outstanding share of MHC common stock for a total of approximately
$2.42  billion in a merger  pursuant  to which MHC became a direct  wholly-owned
subsidiary  of  MidAmerican  Funding.  The  merger has been  accounted  for as a
purchase business  combination.  The purchase price has been allocated to assets
acquired and  liabilities  assumed based on  preliminary  valuations.  The final
purchase price allocation has not been completed;  however,  MidAmerican Funding
does  not  anticipate  any  material   changes  based  on  currently   available
information. MidAmerican Funding recorded the estimated excess of cost over fair
value of net  assets  acquired  of  approximately  $1.5  billion  which is being
amortized using the straight-line method over a 40 year period.

     Unaudited  pro forma  consolidated  revenue  and net income of  MidAmerican
Funding and MHC for the twelve  months ended  December 31, 1999 and 1998,  as if
the acquisition had occurred at the beginning of the year after giving effect to
pro forma adjustments  related to the acquisition,  including the senior secured
notes and bonds, were $1.82 billion and $157.7 million respectively, compared to
$1.78 billion and $78.8 million respectively, for 1998.

     (B) CONSOLIDATION POLICY AND PREPARATION OF FINANCIAL STATEMENTS:

     The accompanying  Consolidated  Financial  Statements  include  MidAmerican
Funding  and  its  wholly  owned  subsidiaries.  The  preparation  of  financial
statements in conformity with generally accepted accounting  principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities  and disclosure of contingent  liabilities at the date of
the  financial  statements  and the  reported  amounts of revenues  and expenses
during the reporting  period.  Actual  results may differ from those  estimates.
Certain  classification  of amounts  for 1999 are  different  than that of prior
years. Accordingly historical amounts have been reclassified. Amounts related to
MidAmerican  Realty are reflected as discontinued  operations (refer to Note 9).
All significant intercompany transactions have been eliminated.


                                      -57-
<PAGE>

     (C) REGULATION:

     MidAmerican  Energy's  utility  operations are subject to the regulation of
the Iowa Utilities Board,  the Illinois  Commerce  Commission,  the South Dakota
Public  Utilities  Commission,  and the Federal  Energy  Regulatory  Commission.
MidAmerican  Energy's  accounting  policies  and the  accompanying  Consolidated
Financial  Statements  conform  to  generally  accepted  accounting   principles
applicable  to  rate-regulated  enterprises  and  reflect  the  effects  of  the
ratemaking process.

     Statement  of  Financial  Accounting  Standards  (SFAS)  No. 71 sets  forth
accounting  principles for  operations  that are regulated and meet criteria set
forth in SFAS 71. For operations that meet the criteria,  SFAS 71 allows,  among
other  things,  the  deferral of costs that would  otherwise  be  expensed  when
incurred.  A possible  consequence of the changes in the utility industry is the
discontinued  applicability  of SFAS 71. The  majority of  MidAmerican  Energy's
electric and gas utility operations  currently meet the criteria of SFAS 71, but
its applicability is periodically reexamined.  On December 16, 1997, MidAmerican
Energy's  generation  operations  serving Illinois were no longer subject to the
provisions of SFAS 71 due to passage of industry  restructuring  legislation  in
Illinois.  Thus,  in 1997,  MidAmerican  Energy  was  required  to write off the
regulatory assets and liabilities from its balance sheet related to its Illinois
generation  operations.  The net amount of these write-offs was not material. If
other portions of its utility operations no longer meet the criteria of SFAS 71,
MidAmerican  Energy could be required to write off the related regulatory assets
and  liabilities  from its  balance  sheet and thus,  a material  adjustment  to
earnings in that period could result if  regulatory  assets are not recovered in
transition  provisions of any resulting  legislation.  The following  regulatory
assets,  primarily included in Other Assets in the Consolidated  Balance Sheets,
represent  probable future revenue to MidAmerican Energy because these costs are
expected to be recovered in charges to utility customers (in thousands):
<TABLE>
<CAPTION>

                                           Weighted Average    MidAmerican       MHC
                                            Future Recovery      Funding     (Predecessor)
                                                Period             1999         1998
                                           ----------------    -----------   -------------

     <S>                                       <C>              <C>            <C>
     Deferred income taxes.................    13 years         $140,658       $148,036
     Energy efficiency costs...............     3 years           46,514         74,509
     Debt refinancing costs................     6 years           34,650         40,233
     Nuclear generation assets.............     6 years           19,581              -
     Environmental costs...................    10 years           27,837         23,427
     Enrichment facilities decommissioning.     6 years            6,953          8,659
     Unamortized costs of retired plant....     1 year             1,303          3,537
     Other.................................      Various           1,261          7,088
                                                                --------       --------
            Total..........................                     $278,757       $305,489
                                                                ========       ========
</TABLE>

     A return is generally not earned on the regulatory  assets in setting rates
due to the fact that a cash outlay was not required for amounts listed as income
taxes,  environmental  costs  and  enrichment  facilities  decommissioning.  The
amortization of the assets is recoverable over periods shown above.

     (D) REVENUE RECOGNITION:

     Revenues are recorded as services  are rendered to  customers.  MidAmerican
Energy records  unbilled  revenues  representing  the estimated amount customers
will be billed  for  services  rendered  between  the  meter-reading  dates in a
particular month and the end of that month. Accrued unbilled revenues were $93.4
million and $79.8 million at December 31, 1999 and 1998,  respectively,  and are
included in Receivables on the Consolidated Balance Sheets.

                                      -58-
<PAGE>

     MidAmerican  Energy's  Illinois and South Dakota  jurisdictional  sales, or
approximately  11% of total  retail  electric  sales,  and all of its retail gas
sales are subject to adjustment clauses.  These clauses allow MidAmerican Energy
to adjust the amounts  charged for electric and gas service as the costs of gas,
fuel for generation or purchased  power change.  The costs recovered in revenues
through use of the adjustment clauses are charged to expense in the same period.

     (E) DEPRECIATION AND AMORTIZATION:

     MidAmerican  Energy's  provisions for depreciation and amortization for its
utility  operations  are based on  straight-line  composite  rates.  The average
depreciation  and  amortization  rates for the years  ended  December 31 were as
follows:


                  MidAmerican      MHC (Predecessor)
                    Funding        -----------------
                     1999          1998         1997
                  -----------      ----         ----

      Electric...     4.0%          3.9%         3.8%
      Gas    ....     3.5%          3.4%         3.4%

     Utility plant is stated at original  cost which  includes  overhead  costs,
administrative costs and an allowance for funds used during construction.

     The cost of  repairs  and minor  replacements  is  charged  to  maintenance
expense. Property additions and major property replacements are charged to plant
accounts.  The cost of depreciable units of utility plant retired or disposed of
in the normal course of business is eliminated  from the utility plant  accounts
and such cost, plus net removal cost, is charged to accumulated depreciation.

     An allowance for the  estimated  annual  decommissioning  costs of the Quad
Cities  Nuclear  Power  Station  equal to the level of  funding is  included  in
depreciation  expense.  See  Note  4(e)  for  additional  information  regarding
decommissioning costs.

     (F) INVESTMENTS AND NONREGULATED PROPERTY, NET:

     Investments,  managed primarily through MidAmerican Funding's  nonregulated
subsidiaries, include the following amounts as of December 31 (in thousands):

                                             MidAmerican       MHC
                                               Funding     (Predecessor)
                                                1999           1998
                                             -----------    -----------

     Marketable securities.................    $ 84,652       $393,554
     Nuclear decommissioning trust fund....     141,646        116,973
     Notes with parent.....................     122,565              -
     Corporate owned life insurance........      64,836         43,945
     Equipment leases......................      48,834         72,068
     Energy projects.......................       1,997         14,154
     Special-purpose funds.................       4,262          9,069
     Real estate...........................       7,438         42,413
     Coal transportation property..........      11,792         12,538
     Communications........................       7,431         19,750
     Security..............................         722            849
     Other.................................      23,026         24,195
                                               --------       --------
          Total............................    $519,201       $749,508
                                               ========       ========

                                      -59-
<PAGE>

     Marketable  securities generally consist of preferred stocks, common stocks
and  mutual  funds  held  by  MidAmerican  Capital.  Investments  in  marketable
securities classified as available-for-sale are reported at fair value (see Note
(12)) with net  unrealized  gains and losses  reported as a net of tax amount in
Member's  Equity until realized.  Investments in marketable  securities that are
classified   as   held-to-maturity   are   reported  at   amortized   cost.   An
other-than-temporary decline in the value of a marketable security is recognized
through a write-down of the investment to earnings.

     Equipment leases,  which are held by MidAmerican  Capital, are comprised of
equity financing provided for five commercial passenger aircraft leased to major
United  States  airlines and a seven percent  undivided  interest in an electric
generating  station,  which is leased to a utility located in Arizona.  The base
lease terms vary from 20 years to 30 years. MidAmerican Capital's initial equity
investment  in the aircraft  represented  20% - 34% of the purchase  price;  the
remaining amount was furnished by third-party non-recourse lenders.  MidAmerican
Capital has also invested in two safe harbor lease transactions involving subway
cars with a metropolitan  transit  authority located on the east coast and ferry
boats to entities engaged in providing  recreational  boat tours. The base lease
terms  vary from 13.5  years to 27 years.  The  investments  are  exposed to the
credit risk of the lessees.

     Notes with parent at December 31,  1999,  are  comprised  of the  unsecured
outstanding  balances of a note with a subsidiary  of MHC  carrying  interest of
5.7% annually and a $100 million revolving credit  arrangement with MHC carrying
interest at the 30-day LIBOR rate plus 25 basis points. Both balances are due on
demand.

     Investments  held by the  nuclear  decommissioning  trust fund for the Quad
Cities  Station units are classified as  available-for-sale  and are reported at
fair value with net unrealized  gains and losses  reported as adjustments to the
accumulated provision for nuclear decommissioning.

     Energy  projects  consist  of  investments  in  solar  electric  generating
facilities,  a hydroelectric  development company, energy marketing assets and a
gas-fired  cogeneration  plant. The investments are supported by long-term sales
contracts to electric utilities primarily based on market price.

     Investment  in real estate is  comprised  primarily of a 1,920 acre planned
residential and commercial development community located in the southeast corner
of South Dakota. As of December 31, 1999, 28.5% of the development available for
sale had been sold.

     The investment in corporate owned life insurance  represents the cash value
of life insurance policies on certain key executives.

     (G) CONSOLIDATED STATEMENTS OF CASH FLOWS:

     MidAmerican  Funding  considers all cash and highly liquid debt instruments
purchased with a remaining  maturity of three months or less to be cash and cash
equivalents for purposes of the Consolidated Statements of Cash Flows.


                                      -60-
<PAGE>

     Net cash provided  (used) from changes in working  capital,  net of effects
from discontinued operations was as follows (in thousands):
<TABLE>
<CAPTION>

                                MidAmerican
                                  Funding                    MHC (Predecessor)
                               --------------   ------------------------------------------
                               March 12, 1999   Jan. 1, 1999      Year          Year
                                  through          through        Ended         Ended
                                December 31,      March 11,    December 31,   December 31,
                                    1999           1999           1998          1997
                               --------------   ------------   ------------   ------------

    <S>                           <C>              <C>            <C>           <C>
    Receivables...............    $(35,976)        $ 5,310        $35,654       $34,544
    Inventories...............     (11,753)         23,701         (8,680)        4,773
    Prepaid taxes.............           -               -        (22,889)            -
    Other current assets......        (158)          5,398            911        (7,421)
    Accounts payable..........      24,560         (25,994)        21,493       (23,950)
    Taxes accrued.............       7,956          10,410         14,703        10,375
    Interest accrued..........      13,098             923         (6,821)       (6,158)
    Other current liabilities.     (23,364)         18,442          7,675        20,810
                                  --------        --------        -------       -------
          Total...............    $(25,637)        $38,190        $42,046       $32,973
                                  ========         =======        =======       =======
</TABLE>

     (H) ACCOUNTING FOR LONG-TERM POWER PURCHASE CONTRACT:

     Under a long-term  power  purchase  contract  with  Nebraska  Public  Power
District,  expiring in 2004, MidAmerican Energy purchases one-half of the output
of the  778-megawatt  Cooper Nuclear Station.  The  Consolidated  Balance Sheets
include a liability for MidAmerican  Energy's fixed obligation to pay 50% of the
Nebraska Public Power District's  Nuclear Facility Revenue Bonds and other fixed
liabilities.

     Cooper capital  improvement costs prior to 1997,  including carrying costs,
were deferred in accordance  with then  applicable rate regulation and are being
amortized and  recovered in rates over either a five-year  period or the term of
the power  purchase  contract.  Beginning  July 11,  1997,  the Iowa  portion of
capital  improvement costs is recovered currently from customers and is expensed
as incurred.  MidAmerican  Energy began  charging the remaining  Cooper  capital
improvement  costs to expense for  jurisdictions  other than Iowa as incurred in
January 1997.

     The fuel cost portion of the power purchase contract is included in Cost of
Fuel,  Energy and Capacity on the Consolidated  Statements of Income.  All other
costs  MidAmerican  Energy  incurs in relation to its long-term  power  purchase
contract with  Nebraska  Public Power  District are included in Other  Operating
Expenses on the Consolidated Statements of Income.

     See Notes 4(d),  4(e) and 4(f) for  additional  information  regarding  the
power purchase contract.

     (I) ACCOUNTING FOR DERIVATIVES:

         1) Preferred Stock Hedge Instruments:

     MidAmerican  Funding  is  exposed  to market  value  risk from  changes  in
interest  rates for fixed rate sinking fund  preferred and  perpetual  preferred
stocks (fixed rate preferred  stocks)  included in Investments and  Nonregulated
Property,  Net on the Consolidated  Balance Sheets.  MidAmerican Funding reviews
the interest rate  sensitivity of these  securities and purchases put options on
U.S. Treasury securities (put options) to reduce interest rate risk on preferred
stocks.   MidAmerican  Funding  does  not  purchase  or  sell  put  options  for
speculative  purposes.  MidAmerican  Funding's intent is to substantially offset
any change in market value of the fixed rate


                                      -61-
<PAGE>

preferred stocks due to a change in interest rates with a change in market value
of the put options.  Because the put options are purchased options,  MidAmerican
Funding is at risk for the  premiums  paid for the options.  Aggregate  premiums
paid for options outstanding at December 31, 1999 and 1998 were $1.8 million and
$3.6 million respectively.

     The preferred stocks are publicly traded  securities and, as such,  changes
in their fair value are reported,  net of income taxes, as a part of accumulated
other comprehensive income, net in Member's Equity.  Unrealized gains and losses
on the  associated  put options are  included in the  determination  of the fair
value of the  preferred  stocks.  The fair value of the put  options,  including
unrealized gains and losses,  included in the determination of the fair value of
the preferred  securities as of December 31, 1999 and 1998, was $2.6 million and
$2.9  million,  respectively.  Realized  gains and losses on the put options are
included in Realized  Gains and Losses on  Securities,  Net in the  Consolidated
Statements of Income in the period the  underlying  hedged fixed rate  preferred
stocks are sold.  At December 31, 1999 and 1998,  put options  were  outstanding
with a notional value of $45.5 million and $89.1 million, respectively.

          2) Gas Futures Contracts and Swaps:

     MidAmerican  Energy uses gas futures contracts and swap contracts to reduce
the  volatility  in the price of natural gas  purchased to meet the needs of its
customers.  Investments  in natural  gas  futures  contracts,  which  total $0.6
million and $0.3  million as of December  31, 1999 and 1998,  respectively,  are
included in Receivables on the Consolidated  Balance Sheets. Gains and losses on
gas  futures  contracts  that  qualify for hedge  accounting  are  deferred  and
reflected as adjustments to the carrying value of the hedged item or included in
Other Assets on the  Consolidated  Balance Sheets until the underlying  physical
transaction is recorded if the instrument is used to hedge an anticipated future
transaction.  The net gain or loss on gas futures  contracts  is included in the
determination  of income  in the same  period as the  expense  for the  physical
delivery of the natural gas.  Realized gains and losses on gas futures contracts
and the net amounts  exchanged or accrued  under the natural gas swap  contracts
are included in Cost of Gas Sold or Nonregulated  Costs of Sales consistent with
the  expense  for  the  physical  commodity.  Deferred  net  losses  related  to
MidAmerican Energy's gas futures contracts are $(0.4) million and $(1.9) million
as of December 31, 1999 and 1998, respectively.

     MidAmerican Energy periodically  evaluates the effectiveness of its natural
gas hedging  programs.  If a high degree of  correlation  between prices for the
hedging  instruments and prices for the physical  delivery is not achieved,  the
contracts are recorded at fair value and the gains or losses are included in the
determination of income.  The following hedging  instruments were outstanding at
December 31:
<TABLE>
<CAPTION>

                                        MidAmerican Funding   MHC (Predecessor)
                                               1999                1998
                                    -----------------------   ----------------------
                                     Notional     Market       Notional     Market
                                      Volume      Value         Volumes      Value
                                      (MMBtu)   (Per MMBtu)     (MMBtu)   (Per MMBtu)
                                    ----------  -----------   ----------  ----------


     <S>                            <C>            <C>        <C>          <C>
     Natural Gas Futures (Long)...   2,700,000     $  2.340     6,970,000  $ 1.857
     Natural Gas Futures (Short)..   3,250,000     $  2.342     7,320,000  $ 1.854
     Natural Gas Swaps............  85,520,442     $(0.018)   16,322,181   $(0.177)

</TABLE>

                                      -62-
<PAGE>

     3) New Accounting Pronouncement:

     In June 1998, the Financial  Accounting  Standards Board (FASB) issued SFAS
133,  "Accounting  for Derivative  Instruments  and Hedging  Activities,"  which
established  accounting and reporting  standards for derivative  instruments and
for hedging activities. SFAS 133 is effective for MidAmerican Funding on January
1, 2001.  SFAS 133 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.  If the  conditions  specified in SFAS 133 are
met,  those  instruments  may be designated  as hedges.  Changes in the value of
hedge  instruments  would not impact  earnings,  except to the  extent  that the
instrument is not perfectly effective as a hedge.  MidAmerican Funding is in the
process of evaluating the impact of this accounting pronouncement.

     (J) GOODWILL:

     The  Consolidated  Balance  Sheets  include  goodwill  related  to  various
acquisitions. The following schedule summarizes the goodwill, net of accumulated
amortization, remaining on the Consolidated Balance Sheets as of December 31 (in
thousands):

                                                 MidAmerican       MHC
                                  Amortization     Funding      (Predecessor)
                                     Period         1999           1998
                                  ------------   -----------    ------------

     Utility operations.........    40 years      $1,474,552        $     -
     Nonregulated natural gas
       marketing companies......     -                     -          3,736
     Security companies.........    25 years           8,440          8,816
                                                  ----------        -------
                                                  $1,482,992        $12,552
                                                  ==========        =======

     Goodwill is amortized using the straight-line method.  Amortization expense
is included in Other  Nonregulated  Expense in the  Consolidated  Statements  of
Income and totaled $34.1 million,  $0.7 million and $0.6 million for 1999,  1998
and 1997, respectively.

     (K) DETAIL OF OTHER COMPREHENSIVE INCOME:

     Comprehensive   income  refers,  in  general,  to  changes  in  MidAmerican
Funding's  equity,  except those resulting from  transactions  with  MidAmerican
Energy  Holdings  Company.  "Unrealized  holding gains  (losses)  during period"
reflects  the overall  increase  (decrease)  in the market  value of  marketable
securities   held   by   MidAmerican   Funding   as   available-for-sale.    The
"reclassification adjustment" removes any gains (losses) that have been realized
from sales of those  securities  and  reflected  in  MidAmerican  Funding's  Net
Income.  The following  table shows the income tax expense or benefit related to
each component (in thousands):


                                      -63-
<PAGE>

<TABLE>
<CAPTION>

                                                    MidAmerican
                                                      Funding                        MHC (Predecessor)
                                                    --------------  ----------------------------------------
                                                    March 12, 1999  Jan. 1, 1999     Year          Year
                                                        through        through       Ended         Ended
                                                     December 31,     March 11,   December 31,  December 31,
                                                         1999           1999         1998          1997
                                                    --------------  ------------  ------------  ------------

<S>                                                     <C>           <C>           <C>           <C>
Unrealized holding gains (losses) during period:
  Before income taxes...........................        $77,942       $79,236       $(14,743)     $223,927
  Income tax (expense)/benefit..................        (27,280)      (27,733)         5,081       (78,289)
                                                        -------       -------       --------      --------
                                                         50,662        51,503         (9,662)      145,638
                                                        -------       -------       --------      --------

Less reclassification adjustment
  for realized gains (losses) reflected
  in net income during period:
    Before income taxes.........................         77,983        15,214         11,204         7,787
    Income tax (expense)/benefit................        (27,294)       (5,325)        (3,921)       (2,722)
                                                        -------       -------       --------      --------
                                                         50,689         9,889          7,283         5,065
                                                        -------       -------       --------      --------
Other comprehensive income (loss), net..........        $   (27)      $41,614       $(16,945)     $140,573
                                                        =======       =======       ========      ========
</TABLE>

(2)  LONG-TERM DEBT:

     MidAmerican Funding's sinking fund requirements and maturities of long-term
debt for 2000 through 2004 are $134  million,  $327 million,  $26 million,  $106
million and $56 million, respectively.

     MidAmerican  Energy's Variable Rate Pollution  Control Revenue  Obligations
bear interest at rates that are periodically  established through remarketing of
the  bonds in the  short-term  tax-exempt  market.  MidAmerican  Energy,  at its
option, may change the mode of interest calculation for these bonds by selecting
from among several  alternative  floating or fixed rate modes. The interest rate
shown in the Consolidated  Statements of  Capitalization is the weighted average
interest  rate as of December 31, 1999 and 1998.  MidAmerican  Energy  maintains
dedicated  revolving credit facility  agreements or renewable lines of credit to
provide liquidity for holders of these issues.

     Substantially all of the former  Iowa-Illinois Gas and Electric Company,  a
predecessor company,  utility property and franchises,  and substantially all of
the former Midwest Power Systems Inc., a predecessor  company,  electric utility
property in Iowa, or  approximately  80% of gross utility  plant,  is pledged to
secure mortgage bonds.

(3)  JOINTLY OWNED UTILITY PLANT:

     Under joint plant ownership  agreements with other  utilities,  MidAmerican
Energy had undivided interests at December 31, 1999, in jointly owned generating
plants as shown in the table below.


                                      -64-
<PAGE>

     The dollar  amounts  below  represent  MidAmerican  Energy's  share in each
jointly owned unit.  Each  participant  has provided  financing for its share of
each unit.  Operating Expenses on the Consolidated  Statements of Income include
MidAmerican Energy's share of the expenses of these units (dollars in millions).

<TABLE>
<CAPTION>

                                 Nuclear                         Coal Fired
                               -----------   ------------------------------------------
                                                     Council
                               Quad Cities   Neal    Bluffs    Neal   Ottumwa   Louisa
                                  Units      Units    Unit     Unit     Unit     Unit
                               No.1 & 2      No. 3    No. 3    No. 4    No. 1    No. 1
                               -----------   -----   -------   -----  -------   ------

<S>                                 <C>      <C>      <C>       <C>     <C>      <C>
      In service date..........     1972     1975     1978      1979    1981     1983
      Utility plant in service.     $223     $134     $298      $167    $212     $536
      Accumulated depreciation.     $ 99     $ 84     $183      $ 98    $115     $268
      Unit capacity-MW.........    1,523      515      675       630     708      700
      Percent ownership........     25.0%    72.0%    79.1%     40.6%    52.0%    88.0%
</TABLE>

(4)  COMMITMENTS AND CONTINGENCIES:

     (A) CAPITAL EXPENDITURES:

     Utility  construction  expenditures  for  2000  are  estimated  to be  $211
million,   including  $19  million  for  Quad  Cities   Station   nuclear  fuel.
Nonregulated  capital  expenditures  depend upon the  availability of investment
opportunities and other factors.  During 2000, these  expenditures are estimated
to be approximately $2 million.

     (B) MANUFACTURED GAS PLANT FACILITIES:

     The  United   States   Environmental   Protection   Agency  and  the  state
environmental  agencies have determined that  contaminated  wastes  remaining at
decommissioned manufactured gas plant facilities may pose a threat to the public
health or the environment if such contaminants are in sufficient  quantities and
at such concentrations as to warrant remedial action.

     MidAmerican Energy has evaluated or is evaluating 27 properties which were,
at one time, sites of gas manufacturing  plants in which it may be a potentially
responsible  party.  The purpose of these  evaluations  is to determine  whether
waste materials are present,  whether the materials  constitute an environmental
or health  risk,  and  whether  MidAmerican  Energy has any  responsibility  for
remedial action. MidAmerican Energy is currently conducting field investigations
at  eighteen  sites and has  conducted  interim  removal  actions  at six of the
eighteen sites. In addition, MidAmerican Energy has completed investigations and
removals at four sites.  MidAmerican Energy is continuing to evaluate several of
the sites to  determine  the  future  liability,  if any,  for  conducting  site
investigations or other site activity.

     MidAmerican Energy estimates the range of possible costs for investigation,
remediation  and monitoring for the sites  discussed  above to be $22 million to
$68 million.  MidAmerican Energy's estimate of the probable cost for these sites
as of December 31, 1999 was $28 million. The estimate consists of $3 million for
investigation  costs, $10 million for remediation  costs, $13 million for ground
water   treatment  and   monitoring   costs  and  $2  million  for  closure  and
administrative  costs.  This  estimate  has been  recorded as a liability  and a
regulatory  asset for future recovery.  MidAmerican  Funding projects that these
amounts will be paid or incurred over the next 10 years.

     The  estimate  of  probable  remediation  costs  is  established  on a site
specific  basis.  The costs are  accumulated in a three-step  process.  First, a
determination  is made as to  whether  MidAmerican  Energy has  potential  legal
liability  for  the  site  and  whether  information  exists  to  indicate  that
contaminated  wastes  remain  at


                                      -65-
<PAGE>

the site.  If so, the costs of performing a  preliminary  investigation  and the
costs of removing known  contaminated soil are accrued.  As the investigation is
performed and if it is determined remedial action is required, the best estimate
of remedial  costs is accrued.  If  necessary,  the  estimate is revised  when a
consent order is issued. The estimated recorded liabilities for these properties
include  incremental  direct costs of the remediation  effort,  costs for future
monitoring at sites and costs of  compensation to employees for time expected to
be spent directly on the remediation effort. The estimated recorded  liabilities
for these properties are based upon preliminary  data. Thus,  actual costs could
vary  significantly  from the estimates.  The estimate  could change  materially
based on facts and circumstances  derived from site  investigations,  changes in
required  remedial  action  and  changes  in  technology  relating  to  remedial
alternatives. In addition, insurance recoveries for some or all of the costs may
be possible,  but the liabilities recorded have not been reduced by any estimate
of such recoveries.

     The  Illinois  Commerce  Commission  has approved the use of a tariff rider
which  permits  recovery of the actual costs of  litigation,  investigation  and
remediation  relating  to  former  manufactured  gas  plant  sites.  MidAmerican
Energy's  present  rates  in  Iowa  provide  for  a  fixed  annual  recovery  of
manufactured gas plant costs.  MidAmerican  Energy intends to pursue recovery of
the  remediation  costs  from  other  potentially  responsible  parties  and its
insurance carriers.

     Although the timing of potential  incurred costs and recovery of such costs
in rates may affect the results of operations in individual periods,  management
believes  that the  outcome of these  issues  will not have a  material  adverse
effect on MidAmerican Funding's financial position or results of operations.

     (C) CLEAN AIR ACT:

     On July 18, 1997, the Environmental  Protection Agency adopted revisions to
the National Ambient Air Quality Standards for ozone and a new standard for fine
particulate  matter.  Based  on  data  to  be  obtained  from  monitors  located
throughout each state, the Environmental  Protection Agency will determine which
states have areas that do not meet the air quality  standards (i.e.,  areas that
are  classified  as  nonattainment).  If  a  state  has  area(s)  classified  as
nonattainment  area(s),  the state is required to submit a State  Implementation
Plan specifying how it will reach  attainment of the standards  through emission
reductions or other means.  In August 1998,  the Iowa  Environmental  Protection
Commission  adopted by reference the National Ambient Air Quality  Standards for
ozone and fine particulate matter.

     In May 1999,  the  United  States  Court of  Appeals  for the  District  of
Columbia  Circuit  remanded  the  standards  adopted  in July  1997  back to the
Environmental  Protection Agency indicating the Environmental  Protection Agency
had not expressed  sufficient  justification  for the basis of establishing  the
standards and ruling that the  Environmental  Protection Agency has exceeded its
constitutionally-delegated authority in setting the standards. The Environmental
Protection Agency's appeal of the court's ruling to the full panel of the United
States  District  Court of Appeals for the District of Columbia was denied.  The
Environmental Protection Agency filed a petition for a writ of certiorari to the
United  States  Supreme Court on January 27, 2000,  seeking  review of the lower
court's decision.

     As a result of the court's  initial  decision and the current status of the
standards,  the impact of any new standards on  MidAmerican  Energy is currently
unknown. If the Environmental Protection Agency successfully appeals the court's
decision,  however,  and the new standards  are  implemented,  then  MidAmerican
Energy's fossil fuel generating  stations may be subject to emission  reductions
if the stations are located in nonattainment  areas. As part of an overall state
plan to  achieve  attainment  of the  standards,  MidAmerican  Energy  could  be
required to install control equipment on its fossil fuel generating  stations or
decrease the number of hours during which these stations operate.  The degree to
which  MidAmerican  Energy may be  required  to  install  control  equipment  or
decrease  operating hours under a  nonattainment  scenario will be determined by
the state's assessment of MidAmerican Energy's relative contribution, along with
other emission sources, to the nonattainment status. The installation of control
equipment would result in increased costs to MidAmerican  Energy.  A decrease in
the


                                      -66-
<PAGE>

number of hours during which the affected  stations  operate would  decrease the
revenues of  MidAmerican  Energy.  An increase in costs  incurred by MidAmerican
Energy or a decrease in the revenues earned by MidAmerican Energy would decrease
the amount of funds  MidAmerican  Energy has available to make  distributions to
MidAmerican Funding.

     (D) LONG-TERM POWER PURCHASE CONTRACT:

     Payments to the Nebraska  Public Power District cover one-half of the fixed
and  operating  costs of  Cooper  (excluding  depreciation  but  including  debt
service) and MidAmerican  Energy's share of nuclear fuel cost (including nuclear
fuel  disposal)  based  on  energy  delivered.   The  debt  service  portion  is
approximately  $1.5  million per month for 1999 and is not  contingent  upon the
plant being in service.  In addition,  MidAmerican  Energy pays  one-half of the
Nebraska Public Power District's decommissioning funding related to Cooper.

     The  debt   amortization   and  Department  of  Energy   enrichment   plant
decontamination and decommissioning  component of MidAmerican  Energy's payments
to the Nebraska  Public Power  District  were $15.1  million,  $14.4 million and
$13.8  million  and the net  interest  component,  which  is  included  in Other
Operating  Expenses in the Consolidated  Statements of Income, was $2.5 million,
$2.9  million  and  $3.8  million  each  for the  years  1999,  1998  and  1997,
respectively.

     MidAmerican  Energy's  payments for the debt principal portion of the power
purchase  contract  obligation  and the  Department of Energy  enrichment  plant
decontamination and decommissioning  payments are $15.8 million,  $16.6 million,
$17.4 million and $18.3 million for 2000 through 2003, respectively.

     (E) DECOMMISSIONING COSTS:

     Based   on    site-specific    decommissioning    studies    that   include
decontamination,  dismantling,  site  restoration  and dry  fuel  storage  cost,
MidAmerican Energy's share of expected decommissioning costs for Cooper and Quad
Cities Station, in 1999 dollars, is $267 million and $255 million, respectively.
In Illinois,  nuclear  decommissioning  costs are included in customer  billings
through a mechanism that permits annual  adjustments.  These costs are reflected
as base rates in Iowa tariffs.

     For purposes of developing a decommissioning  funding plan for Cooper,  the
Nebraska Public Power District assumes that decommissioning  costs will escalate
at an annual rate of 4.0%.  Although Cooper's operating license expires in 2014,
the funding plan assumes  decommissioning  will start in 2004,  the  anticipated
plant shutdown date.

     As of December 31, 1999,  MidAmerican  Energy's share of funds set aside by
the  Nebraska  Public  Power  District in internal  and  external  accounts  for
decommissioning was $109.8 million.  In addition,  the funding plan also assumes
various funds and reserves  currently held to satisfy the Nebraska  Public Power
District   bond   resolution   requirements   will  be   available   for   plant
decommissioning  costs after the bonds are  retired in early  2004.  The funding
schedule  assumes a  long-term  return on funds in the trust of 6.75%  annually.
Certain  funds  will be  required  to be  invested  on a  short-term  basis when
decommissioning  begins  and are  assumed  to  earn at a rate of 4.0%  annually.
MidAmerican  Energy makes payments to the Nebraska Public Power District related
to decommissioning  Cooper. The Cooper decommissioning  component of MidAmerican
Energy's payments to the Nebraska Public Power District was $11.3 million,  $7.9
million and $11.3 million for the years 1999, 1998, and 1997, respectively,  and
is  included  in Other  Operating  Expenses in the  Consolidated  Statements  of
Income.  Earnings from the internal  account and external trust fund,  which are
recognized by the Nebraska Public Power District as the owner of the plant,  are
tax exempt and serve to reduce future funding requirements.


                                      -67-
<PAGE>

     External  trusts  have been  established  for the  investment  of funds for
decommissioning  the Quad  Cities  Station.  The  total  accrued  balance  as of
December 31, 1999, was $141.6 million and is included in Other Liabilities and a
like amount is reflected in  Investments  and  represents  the fair value of the
assets held in the trusts.

     MidAmerican  Energy's  provision for  depreciation  included costs for Quad
Cities Station nuclear  decommissioning of $10.4 million, $11.4 million and $9.8
million for 1999, 1998 and 1997, respectively.  The provision charged to expense
is equal to the funding that is being  collected in rates.  The  decommissioning
funding  component of  MidAmerican  Energy's  Illinois and Iowa tariffs  assumes
decommissioning  costs, related to the Quad Cities Station,  will escalate at an
annual rate of 5.0% and the assumed annual return on funds in the trust is 6.9%.
Earnings,  net of  investment  fees,  on the  assets in the trust fund were $1.9
million,  $1.7 million and $4.5 million for 1999,  1998 and 1997,  respectively.
See Note (12) for information regarding unrealized gains and losses.

     (F) NUCLEAR INSURANCE:

     MidAmerican Energy maintains financial protection against catastrophic loss
associated  with its  interest  in Quad  Cities  Station  and  Cooper  through a
combination  of insurance  purchased by the Nebraska  Public Power District (the
owner and  operator of Cooper)  and ComEd (the joint owner and  operator of Quad
Cities Station),  insurance  purchased  directly by MidAmerican  Energy, and the
mandatory industry-wide loss funding mechanism afforded under the Price-Anderson
Amendments  Act of 1988. The general types of coverage are:  nuclear  liability,
property coverage and nuclear worker liability.

     The  Nebraska  Public  Power  District  and  ComEd  each  purchase  nuclear
liability  insurance for Cooper and Quad Cities  Station,  respectively,  in the
maximum available amount of $200 million.  In accordance with the Price-Anderson
Amendments  Act of 1988,  excess  liability  protection  above  that  amount  is
provided by a mandatory  industry-wide  program  under  which the  licensees  of
nuclear generating  facilities could be assessed for liability incurred due to a
serious nuclear incident at any commercial nuclear reactor in the United States.
Currently,   MidAmerican  Energy's  aggregate  maximum  potential  share  of  an
assessment  for Cooper and Quad Cities  Station  combined  is $88.1  million per
incident, payable in installments not to exceed $10 million annually.

     The  property  coverage  provides for property  damage,  stabilization  and
decontamination  of the facility,  disposal of the  decontaminated  material and
premature decommissioning.  For Quad Cities Station, ComEd purchases primary and
excess property insurance  protection for the combined interests in Quad Cities,
with coverage limits totaling $2.1 billion.  For Cooper,  MidAmerican Energy and
the  Nebraska  Public  Power  District  separately  purchase  primary and excess
property insurance  protection for their respective  obligations,  with coverage
limits of $1.375  billion each.  This structure  provides that both  MidAmerican
Energy and the Nebraska  Public Power District are covered for their  respective
50% obligation in the event of a loss totaling up to $2.75 billion.  MidAmerican
Energy also directly purchases extra expense/business  interruption coverage for
its share of  replacement  power and/or  other extra  expenses in the event of a
covered  accidental  outage at  Cooper or Quad  Cities  Station.  The  coverages
purchased directly by MidAmerican  Energy, and the property coverages  purchased
by ComEd,  which includes the interests of MidAmerican  Energy, are underwritten
by an industry mutual insurance company and contain provisions for retrospective
premium  assessments  should two or more full  policy-limit  losses occur in one
policy year. Currently, the maximum retrospective amounts that could be assessed
against  MidAmerican  Energy from industry  mutual  policies for its obligations
associated with Cooper and Quad Cities Station combined, total $11.6 million.

     The master nuclear  worker  liability  coverage,  which is purchased by the
Nebraska  Public Power  District  and ComEd for Cooper and Quad Cities  Station,
respectively, is an industry-wide guaranteed-cost policy with an aggregate limit
of $200 million for the nuclear industry as a whole, which is in effect to cover
tort claims of workers in nuclear-related industries.

                                      -68-
<PAGE>

     (G) COAL AND NATURAL GAS CONTRACT COMMITMENTS:

     MidAmerican  Energy has  entered  into  supply and  related  transportation
contracts  for its  fossil  fueled  generating  stations.  The  contracts,  with
expiration  dates ranging from 2000 to 2007,  require minimum  payments of $89.4
million,  $74.5 million,  $56.3 million, $50.1 million and $48.3 million for the
years 2000 through  2004,  respectively  and $70.0  million for the total of the
years thereafter.  MidAmerican Energy expects to supplement these coal contracts
with spot market purchases to fulfill its future fossil fuel needs.

     MidAmerican  Energy  has  entered  into  various  natural  gas  supply  and
transportation  contracts for its utility  operations.  The minimum  commitments
under these contracts are $145.8 million,  $82.0 million,  $58.6 million,  $46.4
million and $26.9  million for the years 2000 through  2004,  respectively,  and
$77.3 million for the total of the years thereafter.

     (H) OPERATING LEASE COMMITMENTS:

     MidAmerican  Funding has entered into various  operating  lease  agreements
covering facilities,  computer and transportation equipment.  Rental payments on
operating  leases were $15.8 million for 1999,  $23.7 million for 1998 and $20.8
million for 1997. The approximate  future minimum annual  commitments  under all
operating leases are $11.3 million, $7.0 million, $5.5 million, $3.4 million and
$1.9 million for the years 2000 through 2004, respectively, and $2.0 million for
the total of the years thereafter.

     (I) OTHER COMMITMENTS AND CONTINGENCIES:

     MidAmerican  Funding is involved in a number of other legal proceedings and
claims.  While  management  is unable to predict the  ultimate  outcome of these
matters,  it is not expected that their  resolution will have a material adverse
effect on the results of operations and financial condition.

(5)  RETIREMENT PLANS:

     MidAmerican  Funding has  primarily  noncontributory  cash balance  defined
benefit pension plans covering substantially all employees of MidAmerican Energy
Holdings and its domestic subsidiaries.  Benefit obligations under the plans are
based on  participants'  compensation,  years of service and age at  retirement.
Funding  is based  upon the  actuarially  determined  costs of the plans and the
requirements  of the Internal  Revenue Code and the Employee  Retirement  Income
Security  Act.  MidAmerican  Energy has been  allowed to recover  pension  costs
related to its employees in rates.

     MidAmerican  Funding  currently  provides  certain  health  care  and  life
insurance  (postretirement) benefits for retired employees of MidAmerican Energy
Holdings and its domestic  subsidiaries.  Under the plans,  substantially all of
MidAmerican  Funding's  employees may become eligible for these benefits if they
reach retirement age while working for MidAmerican Funding. However, MidAmerican
Funding  retains the right to change these benefits  anytime at its  discretion.
MidAmerican  Funding expenses  postretirement  benefit costs on an accrual basis
and includes provisions for these costs in rates.

     In 1999, the  noncontributory  cash balance  defined benefit pension plans,
the noncontributory,  nonqualified  supplemental  executive retirement plan, and
the postretirement  plans were amended to include  participants from MidAmerican
Energy  Holdings and its domestic  subsidiaries.  Prior to the amendment,  these
plans  included  only  employees  and   participants   of  MidAmerican   Energy,
MidAmerican  Capital and Midwest Capital.  This inclusion  increased the benefit
obligation  by $14.8  million  for the  pension  and  nonqualified  supplemental
retirement plans and $2.8 million for the postretirement  plans and is reflected
in the Benefit Obligation of MidAmerican Funding as of December 31, 1999.

                                      -69-
<PAGE>

     The  postretirement  plan was  amended on January 1, 1999,  increasing  the
retiree  co-payment for prescription  drugs. This decrease in benefit obligation
is reflected for December 31, 1998.

     MidAmerican   Funding   also   maintains   noncontributory,    nonqualified
supplemental executive retirement plans for active and retired participants.

     Net periodic pension,  supplemental  retirement and postretirement  benefit
costs  included  the  following  components  for  MidAmerican  Funding  and  the
aforementioned  affiliates  for the  years  ended  December  31 (in  thousands).
MidAmerican  Funding was allocated 100% of the total pension and  postretirement
net periodic cost in 1999, 1998, and 1997.


<TABLE>
<CAPTION>
                                                                             Pension Cost
                                                --------------------------------------------------------------
                                                  MidAmerican
                                                    Funding                           MHC (Predecessor)
                                                ----------------    ------------------------------------
                                                  March 12, 1999    Jan. 1, 1999       Year          Year
                                                     through          through         Ended         Ended
                                                   December 31,       March 11,    December 31,   December 31,
                                                       1999             1999           1998          1997
                                                ----------------    ------------   ------------   ------------

     <S>                                            <C>               <C>            <C>            <C>
     Service cost..............................     $  9,854          $ 2,338        $ 11,284       $ 10,092
     Interest cost.............................       25,505            6,052          29,941         29,623
     Expected return on plan assets............      (37,392)          (8,873)        (42,578)       (37,617)
     Amortization of net transition obligation.            -             (497)         (2,591)        (2,591)
     Amortization of prior service cost........            -              274           1,871          1,871
     Amortization of prior year gain...........            -             (518)         (2,802)        (1,797)
     Curtailment loss..........................        4,270            1,013               -              -
     Regulatory deferral of incurred cost......            -                -               -          5,423
                                                    --------          -------        --------       --------

     Net periodic (benefit) cost...............     $  2,237          $  (211)       $ (4,875)      $  5,004
                                                    ========          =======        ========       ========
</TABLE>

<TABLE>
<CAPTION>

                                                                         Postretirement Cost
                                                --------------------------------------------------------------
                                                  MidAmerican
                                                    Funding                           MHC (Predecessor)
                                                ----------------    ------------------------------------
                                                  March 12, 1999    Jan. 1, 1999       Year          Year
                                                     through          through         Ended         Ended
                                                   December 31,       March 11,    December 31,   December 31,
                                                       1999             1999           1998          1997
                                                ----------------    ------------   ------------   ------------

     <S>                                             <C>               <C>            <C>            <C>
     Service cost................................    $ 2,478           $  588         $ 3,558        $ 2,680
     Interest cost...............................      6,423            1,524           9,344          8,822
     Expected return on plan assets..............     (3,540)            (840)         (3,651)        (2,573)
     Amortization of net transition obligation...          -              788           5,291          5,291
     Amortization of prior service cost..........          -               42             650            650
     Amortization of prior year gain.............          -             (35)              -           (298)
     Regulatory deferral of incurred cost........          -                -               -          4,888
                                                     -------           ------         -------        -------

     Net periodic cost...........................    $ 5,361           $2,067         $15,192        $19,460
                                                     =======           ======         =======        =======
</TABLE>

                                      -70-
<PAGE>

     The  pension  plan  assets  are in  external  trusts and are  comprised  of
corporate equity securities, United States government debt, corporate bonds, and
insurance  contracts.  The  postretirement  benefit plans assets are in external
trusts and are comprised  primarily of corporate  equity  securities,  corporate
bonds, money market investment accounts and municipal bonds.

     Although the  supplemental  executive  retirement plans had no assets as of
December   31,   1999,   MidAmerican   Funding  has  Rabbi   trusts  which  hold
corporate-owned   life  insurance  to  provide   funding  for  the  future  cash
requirements.  Because  these  plans are  nonqualified,  the fair value of these
assets  is not  included  in the  following  table.  The fair  value of the life
insurance  policies was $64.8 million and $43.9 million at December 31, 1999 and
1998, respectively.

     During 1999 certain  participants in the supplemental  executive retirement
plan left MidAmerican  Energy reducing the future service of active employees by
28%. As a result,  a  curtailment  loss of $5.3 million was  recognized in 1999.
Additionally,  termination benefits provided to the participants,  totaling $3.5
million, were expensed in 1999.

     The projected benefit obligation and accumulated benefit obligation for the
supplemental  executive  retirement  plans were $68.8 million and $65.5 million,
respectively,  as of December 31,  1999,  and $58.1  million and $49.9  million,
respectively, as of December 31, 1998.


                                      -71-
<PAGE>

         The  following  table  presents a  reconciliation  of the beginning and
ending  balances  of the benefit  obligation,  fair value of plan assets and the
funded status of the  aforementioned  plans to the net amounts recognized in the
Consolidated Balance Sheets as of December 31 (dollars in thousands):

<TABLE>
<CAPTION>

                                                               Pension Benefits           Postretirement Benefits
                                                          ---------------------------   --------------------------
                                                          MidAmerican       MHC         MidAmerican        MHC
                                                            Funding     (Predecessor)     Funding     (Predecessor)
                                                             1999           1998           1999         1998
                                                         ------------   -------------   -----------   -------------

     <S>                                                   <C>            <C>             <C>           <C>
     Reconciliation of benefit obligation:
     Benefit obligation at beginning of year............   $456,475       $430,043        $120,188      $127,347
     Service cost.......................................     12,192         11,285           3,066         3,558
     Interest cost......................................     31,556         29,941           7,947         9,344
     Participant contributions..........................        107            127           1,838         1,404
     Plan amendments....................................     14,823              -           2,775       (21,607)
     Actuarial (gain) loss..............................    (41,567)        15,793         (18,248)        9,463
     Curtailment........................................       (705)             -               -             -
     Termination benefits...............................      3,471              -               -             -
     Benefits paid......................................    (29,182)       (30,714)         (9,822)       (9,321)
                                                           --------       --------        --------      --------
     Benefit obligation at end of year..................    447,170        456,475         107,744       120,188
                                                           --------       --------        --------      --------

     Reconciliation of the fair value of plan assets:
     Fair value of plan assets at beginning of year ....    524,508        483,668          63,093        52,174
     Employer contributions.............................      4,201          3,445          12,405        10,095
     Participant contributions..........................        107            127           1,838         1,404
     Actual return on plan assets.......................    105,425         67,982           5,108         8,741
     Benefits paid......................................    (29,182)       (30,714)         (9,822)       (9,321)
                                                           --------      ---------        --------      --------
     Fair value of plan assets at end of year...........    605,059        524,508          72,622        63,093
                                                           --------      ---------        --------      --------

     Funded status......................................    157,889         68,033         (35,122)      (57,095)
     Unrecognized net gain..............................   (101,434)      (101,860)        (18,943)       (6,873)
     Unrecognized prior service cost....................      9,540         19,868           2,776         2,555
     Unrecognized net transition obligation (asset) ....          -       (13,748)               -        57,543
                                                           --------      ---------        --------      --------
     Net amount recognized in the
         Consolidated Balance Sheets....................   $ 65,995     $(27,707)         $(51,289)     $ (3,870)
                                                           ========      ========         ========      ========

     Amounts recognized in the Consolidated
       Balance Sheets consist of:
     Prepaid benefit cost...............................   $108,907      $  4,350         $  1,042   $         -
     Accrued benefit liability..........................    (65,533)      (49,874)         (52,331)       (3,870)
     Intangible assets..................................     22,621        17,817                -             -
                                                           --------      --------         --------   -----------
     Net amount recognized..............................   $ 65,995     $(27,707)         $(51,289)      $(3,870)
                                                           ========      ========         ========       =======
</TABLE>


                                      -72-
<PAGE>


<TABLE>
<CAPTION>

                                                      Pension And Postretirement
                                                            Assumptions
                                             -------------------------------------------
                                             MidAmerican       MHC             MHC
                                               Funding     (Predecessor)   (Predecessor)
                                                1999           1998            1997
                                             -----------   -------------   -------------

     <S>                                        <C>            <C>            <C>
     Assumptions used were:
     Discount rate...........................   7.75%          6.75%          7.00%
     Rate of increase in compensation levels.   5.00%          5.00%          5.00%
     Weighted average expected long-term
         rate of return on assets............   9.00%          9.00%          9.00%
</TABLE>

     For purposes of calculating the postretirement  benefit  obligation,  it is
assumed health care costs for covered  individuals prior to age 65 will increase
by 7.5% in 2000 and that the rate of increase  thereafter  will  decline by .75%
annually to an ultimate rate of 5.25% by the year 2003. For covered  individuals
age 65 and  older,  it is  assumed  health  care  costs  will  increase  by 5.5%
annually.

     If the assumed health care trend rates used to measure the expected cost of
benefits  covered by the plans were  increased  by 1.0%,  the total  service and
interest cost for 1999 would  increase by $2.0 million,  and the  postretirement
benefit obligation at December 31, 1999, would increase by $15.2 million. If the
assumed  health care trend rates were to decrease by 1.0%, the total service and
interest  cost for 1999 would  decrease by $1.6  million and the  postretirement
benefit obligation at December 31, 1999, would decrease by $12.1 million.

     MidAmerican  Funding  sponsors defined  contribution  pension plans (401(k)
plans) covering substantially all employees. MidAmerican Funding's contributions
vary depending on the plan, but are based primarily on each participant's  level
of contribution and cannot exceed the maximum allowable for tax purposes.  Total
contributions  were $6.2 million,  $5.6 million and $4.6 million for 1999,  1998
and 1997, respectively.


                                      -73-
<PAGE>

(6)  SHORT-TERM BORROWING:

     Interim financing of working capital needs and the construction program may
be obtained  from the sale of  commercial  paper or  short-term  borrowing  from
banks. Information regarding short-term debt follows (dollars in thousands):
<TABLE>
<CAPTION>

                                                         MidAmerican     MHC (Predecessor)
                                                           Funding     --------------------
                                                            1999         1998        1997
                                                         -----------   ----------  --------

    <S>                                                    <C>         <C>        <C>
    Balance at year-end................................    $204,000    $339,826   $138,054
     Weighted average interest rate on year-end balance.        6.3%        6.0%       5.9%
     Average daily amount outstanding during the year...   $133,792    $187,466   $117,482
     Weighted average interest rate on average daily
       amount outstanding during the year...............        5.2%        5.6%       5.7%
</TABLE>

     MidAmerican  Energy  has  authority  from  the  Federal  Energy  Regulatory
Commission to issue  short-term  debt in the form of  commercial  paper and bank
notes aggregating $400 million. As of December 31, 1999,  MidAmerican Energy had
in place a $250 million  commercial  paper  program which is supported by a $250
million  revolving credit  facility.  In addition,  MidAmerican  Energy has a $5
million line of credit. As of December 31, 1999, commercial paper and bank notes
totaled $204.0 million for MidAmerican  Energy. MHC had lines of credit totaling
$24 million.

     All subsidiary long-term  borrowings  outstanding at December 31, 1999, are
without recourse to MidAmerican Funding.

(7) RATE MATTERS:

     As a result of a  negotiated  settlement  in Illinois,  MidAmerican  Energy
reduced its Illinois  electric  service rates by annual amounts of $13.1 million
and $2.4 million,  effective  November 3, 1996, and June 1, 1997,  respectively.
MidAmerican  Energy implemented an additional $0.9 million annual rate reduction
for its Illinois residential customers,  effective August 1, 1998, in connection
with Illinois' electric utility restructuring law.

     On June 27,  1997,  the IUB  approved  a March  1997  settlement  agreement
between MidAmerican Energy, the Iowa Office of Consumer Advocate (OCA) and other
parties.  Four  major  components  of the  settlement  and their  status  are as
follows:

     1) On an annualized  basis,  prices for residential  customers were reduced
$8.5 million,  $10.0 million and $5.0 million  effective  November 1, 1996, July
11, 1997, and June 1, 1998,  respectively,  for a total annual decrease of $23.5
million.

     2) Prices for industrial  customers were reduced by $6 million annually and
prices for commercial customers were reduced by $4 million annually. MidAmerican
Energy was given  permission  to  implement  these  reductions  through a retail
access  pilot  project,   negotiated  individual  contracts  and  tariffed  rate
reductions.  On January  1,  1999,  MidAmerican  Energy  reduced  base rates for
selected  non-contract   commercial  customers  by  approximately  $1.5  million
annually,  subject  to Iowa  Utilities  Board  approval.  The  remainder  of the
commercial and industrial  price  reductions  were achieved  through  negotiated
contracts and a retail access pilot project.

     The negotiated  contracts  have  differing  terms and conditions as well as
prices.  The  contracts  range in length  from five to ten years,  and some have
price  renegotiation  and early  termination  provisions  exercisable  by either
party.  The vast majority of the contracts are for terms of seven years or less,
although, some large


                                      -74-
<PAGE>

customers  have  agreed to 10-year  contracts.  Prices are set as fixed  prices;
however,  many contracts allow for potential price  adjustments  with respect to
environmental  costs,  government imposed public purpose programs,  tax changes,
and  transition  costs.  While the  contract  prices are fixed  (except  for the
potential adjustment  elements),  the costs MidAmerican Energy incurs to fulfill
these  contracts  will vary.  On an aggregate  basis the annual  revenues  under
contract are approximately $180 million.

     3) The Iowa  energy  adjustment  clause was  eliminated.  Prior to July 11,
1997,  MidAmerican  collected  fuel costs from Iowa customers on a current basis
through the energy adjustment  clause, and thus, fuel costs had little impact on
net  income.  Since  then,  base rates for Iowa  customers  include a factor for
recovery of a  representative  level of fuel costs.  If the actual per-unit fuel
cost varies from that  factor,  pre-tax  earnings  are  affected.  The fuel cost
factor was to be reviewed in February  1999 and  adjusted  prospectively  if the
actual 1998 fuel cost per unit varied by more than 15% above or below the factor
included in base rates.  Based on 1998  actual  fuel costs,  MidAmerican  Energy
reduced  the fuel cost  recovery  factor in 1999 base rates  effective  March 1,
1999. The estimated annual reduction in revenues associated with this adjustment
is $1.1 million.

     4) If MidAmerican  Energy's annual Iowa electric  jurisdictional  return on
common equity exceeds 12%, an equal sharing between  customers and  shareholders
of  earnings  above the 12% level  begins;  if it  exceeds  14%,  two-thirds  of
MidAmerican  Energy's  share of  those  earnings  will be used  for  accelerated
recovery of regulatory assets. The agreement  precludes  MidAmerican Energy from
filing for  increased  rates  prior to 2001  unless the return on common  equity
falls below 9%. Other parties  signing the agreement are prohibited  from filing
for  reduced  rates  prior to 2001  unless  the return on common  equity,  after
reflecting credits to customers, exceeds 14%.

     Under a restructuring  law enacted in 1997, a similar sharing  mechanism is
in place for Illinois  operations.  Two-year  average  returns on common  equity
greater  than a two-year  average  benchmark  will  trigger an equal  sharing of
earnings  on the excess.  The  benchmark  is a  calculation  of average  30-year
Treasury  Bond rates plus 5.5% for 1998 and 1999 and 8.5% for 2000 through 2004.
The  initial  calculation,  due March 31,  2000,  will be based on 1998 and 1999
results.

(8)  DISCONTINUED OPERATIONS:

     In October  1997,  MHC sold its  subsidiary  that  developed and operated a
computerized  information system facilitating the real-time exchange of power in
the electric industry.  MHC recorded a $4.0 million estimated  after-tax loss on
disposal  in the  third  quarter  of 1996  and an  additional  $3.2  million  in
September 1997.

     On October 6, 1999,  MHC  distributed  its holding in the capital  stock of
MidAmerican Realty to MidAmerican Energy Holdings. The operations are the result
of several acquisitions beginning in May 1998. Refer to Note (21), "Acquisitions
and Dispositions."


                                      -75-
<PAGE>



         Revenues  from  discontinued  activities,  as  well as the  results  of
operations and the estimated loss on the disposal of discontinued operations for
the years ended December 31 are as follows (in thousands):
<TABLE>
<CAPTION>

                                             MidAmerican
                                               Funding                        MHC (Predecessor)
                                            --------------   ------------------------------------------
                                            March 12, 1999   Jan. 1, 1999      Year          Year
                                               through          through        Ended         Ended
                                             December 31,      March 11,    December 31,   December 31,
                                                 1999            1999           1998         1997
                                            --------------   ------------   ------------   ------------

     <S>                                       <C>             <C>            <C>           <C>
     Operating Revenues...................     $ 254,901       $58,047        $164,226      $      -
                                               =========       =======        ========      ========
     Income from Operations:
       Income (loss) before income taxes..     $  19,025       $   648        $  7,251      $   (200)
       Income tax benefit (expense).......        (7,767)         (227)         (3,087)           82
                                               ---------       -------        --------      --------
       Income (loss) from operations......     $  11,258       $   421        $  4,164      $   (118)
                                               =========       =======        ========      ========
     Loss on Disposal:
       Loss before income taxes...........     $       -       $     -        $      -      $(10,106)
       Income tax benefit ................             -             -               -         5,996
                                               ---------       -------        --------      --------
       Loss on disposal...................     $       -       $     -        $      -      $ (4,110)
                                               =========       =======        ========      ========
</TABLE>

(9) CONCENTRATION OF CREDIT RISK:

     MidAmerican Energy's electric utility operations serve 577,000 customers in
Iowa,  83,000  customers in western Illinois and 4,000 customers in southeastern
South  Dakota.   MidAmerican  Energy's  gas  utility  operations  serve  502,000
customers in Iowa,  65,000  customers in western  Illinois,  67,000 customers in
southeastern  South Dakota and 5,000  customers in  northeastern  Nebraska.  The
largest  communities  served by  MidAmerican  Energy  are the Iowa and  Illinois
Quad-Cities;  Des Moines,  Sioux City,  Cedar  Rapids,  Waterloo,  Iowa City and
Council  Bluffs,  Iowa;  and Sioux Falls,  South  Dakota.  MidAmerican  Energy's
utility  operations  grant unsecured credit to customers,  substantially  all of
whom are local  businesses  and  residents.  As of  December  31,  1999,  billed
receivables from MidAmerican  Energy's utility  customers totaled $20.6 million.
As described in Note 18,  billed  receivables  related to utility  services have
been sold to a wholly owned unconsolidated subsidiary.

     MidAmerican Capital has investments in preferred stocks of companies in the
utility  industry.  As of December 31, 1999, the total cost of these investments
was  $29.2  million.  MidAmerican  Capital  has  entered  into  leveraged  lease
agreements with companies in the airline industry.  As of December 31, 1999, the
receivables under these agreements totaled $28.2 million.

(10) PREFERRED SHARES:

     The $5.25 Series  Preferred  Shares are subject to mandatory  redemption on
November  1, 2003 at $100 per share.  The $7.80  Series  Preferred  Shares  have
sinking fund requirements under which 66,600 shares will be redeemed at $100 per
share each May 1, beginning in 2001 through May 1, 2006.

     The 7.98% Series  shares were issued by a wholly owned  statutory  business
trust of MidAmerican  Energy whose sole assets are $103.1 million of MidAmerican
Energy 7.98% Series A Debentures due 2045. The preferred  shares are mandatorily
redeemable. Refer to Note (15) for additional information.

                                      -76-
<PAGE>

     The total outstanding cumulative preferred securities of MidAmerican Energy
not subject to mandatory  redemption  requirements may be redeemed at the option
of MidAmerican  Energy at prices which,  in the aggregate,  total $32.6 million.
The  aggregate  total the holders of all  preferred  securities  outstanding  at
December 31, 1999, are entitled to upon involuntary bankruptcy is $181.8 million
plus  accrued  dividends.   Annual  dividend   requirements  for  all  preferred
securities outstanding at December 31, 1999, total $12.9 million.

(11) SEGMENT INFORMATION:

     MidAmerican  Funding has two reportable  operating  segments:  electric and
gas.  The  electric  segment  derives  most of its revenue  from retail sales of
regulated electricity to residential,  commercial and industrial customers,  and
sales to other  utilities.  The gas segment  derives  most of its  revenue  from
retail sales of regulated natural gas to residential,  commercial and industrial
customers  and also earns  significant  revenues  by  transporting  gas owned by
others through its distribution systems.  Pricing for electric and gas sales are
established separately by regulated agencies; therefore, management also reviews
each segment separately to make decisions regarding  allocation of resources and
in evaluating  performance.  Common operating costs,  interest income,  interest
expense,  income  tax  expense,  and  equity  in the net loss of  investees  are
allocated to each segment.


                                      -77-
<PAGE>

     The following tables provide  information on an operating  segment basis as
of and for the years ended December 31 (in thousands):
<TABLE>
<CAPTION>

                                             MidAmerican
                                               Funding                        MHC (Predecessor)
                                          --------------   ----------------------------------------------
                                          March 12, 1999    Jan. 1, 1999        Year            Year
                                             through          through           Ended           Ended
                                          December 31,       March 11,       December 31,    December 31,
                                              1999             1999             1998             1997
                                          --------------   -------------     ------------    ------------
SEGMENT PROFIT INFORMATION
--------------------------
<S>                                        <C>              <C>              <C>              <C>
Revenues:
  Electric ...........................     $   969,739      $   208,963      $ 1,169,810      $ 1,126,300
  Gas ................................         315,238          139,564          429,870          536,306
  Nonregulated and Other .............         148,069           34,539          176,244          306,931
                                           -----------      -----------      -----------      -----------
    Total ............................       1,433,046          383,066        1,775,924        1,969,537
                                           -----------      -----------      -----------      -----------

Depreciation and amortization expense:
  Electric ...........................         128,993           34,277          156,546          145,931
  Gas ................................          22,137            5,140           25,665           24,609
  Nonregulated and Other (a) .........          31,016              454            3,086            3,436
                                           -----------      -----------      -----------      -----------
    Total ............................         182,146           39,871          185,297          173,976
                                           -----------      -----------      -----------      -----------

Interest income:
  Electric ...........................           2,069              847            4,945            1,820
  Gas ................................             466              138            1,169              501
  Nonregulated and Other .............          15,879              526            3,148            2,997
  Intersegment Eliminations ..........            (380)            (100)              --               --
                                           -----------      -----------      -----------      -----------
    Total ............................          18,034            1,411            9,262            5,318
                                           -----------      -----------      -----------      -----------

Interest expense:
  Electric ...........................          48,476           13,918           66,784           71,138
  Gas ................................          10,247            3,000           14,011           14,412
  Nonregulated and Other .............          41,704              906            9,418           11,785
  Intersegment Eliminations ..........            (380)            (100)              --               --
                                           -----------      -----------      -----------      -----------
    Total ............................         100,047           17,724           90,213           97,335
                                           -----------      -----------      -----------      -----------

Income tax expense (benefit):
  Electric ...........................          76,933            9,382           75,831           64,017
  Gas ................................          (3,230)           8,435             (800)           9,698
  Nonregulated and Other .............          22,342            3,560            1,895           (5,325)
                                           -----------      -----------      -----------      -----------
    Total ............................          96,045           21,377           76,926           68,390
                                           -----------      -----------      -----------      -----------

Net income (loss):
  Electric ...........................         108,206           11,878          109,539          101,534
  Gas ................................          (6,488)          13,010             (435)          14,177
  Nonregulated and Other .............          33,617           (7,678)          22,760           19,784
  Intersegment Eliminations ..........              --               --             (546)            (391)
                                           -----------      -----------      -----------      -----------
    Total ............................         135,335           17,210          131,318          135,104
                                           -----------      -----------      -----------      -----------
</TABLE>

                                      -78-
<PAGE>

                                 MidAmerican
                                   Funding               MHC (Predecessor)
                                 -----------       ----------------------------
                                    1999               1998             1997
                                 ----------        -----------       ----------

SEGMENT ASSET INFORMATION
Total Assets:

  Electric ..............        $2,632,660        $2,891,646        $2,833,256
  Gas ...................           680,564           670,862           681,649
  Nonregulated and Other          1,882,129           681,828           763,186
                                 ----------        ----------        ----------
    Total ...............         5,195,353         4,244,336         4,278,091
                                 ----------        ----------        ----------

Capital expenditures:
  Electric ..............           169,261           158,596           128,544
  Gas ...................            34,314            34,758            38,388
  Nonregulated and Other             22,353            45,466            14,066
                                 ----------        ----------        ----------
    Total ...............           225,928           238,820           180,998
                                 ----------        ----------        ----------

     (a) Depreciation and amortization expense related to Nonregulated and Other
     is included in Nonregulated,  Other operating  expenses on the Consolidated
     Statements of Income.

     Nonregulated  and Other consists of MidAmerican  Capital,  Midwest Capital,
     CBEC  Railway  and  other  nonregulated  operations  and MHC and  corporate
     assets.

     Dividend income related to MHC common stock held by MidAmerican  Capital of
$0.5  and  $0.4  million  for  1998  and  1997,  respectively,  is  included  in
Nonregulated and Other Net Income above but has been eliminated in Net Income in
the  Consolidated  Statements  of Income.  In addition,  a realized gain of $4.2
million from  MidAmerican  Capital's sale of the common stock to MHC in 1998 has
also been eliminated in Net Income in the Consolidated Statements of Income.

(12) FAIR VALUE OF FINANCIAL INSTRUMENTS:

     The following  methods and assumptions were used to estimate the fair value
of each class of financial instruments. Tariffs for MidAmerican Energy's utility
services are established  based on historical cost  ratemaking.  Therefore,  the
impact  of any  realized  gains  or  losses  related  to  financial  instruments
applicable  to  MidAmerican  Energy's  utility  operations  is  dependent on the
treatment authorized under future ratemaking proceedings.

     Cash and cash equivalents--The  carrying amount approximates fair value due
to the short maturity of these instruments.

     Quad Cities Station nuclear decommissioning trust fund--Fair value is based
on quoted market prices of the investments held by the fund.

     Marketable securities--Fair value is based on quoted market prices.

     Debt securities--Fair  value is based on the discounted value of the future
cash flows expected to be received from these investments.

     Equity  securities  carried at cost--Fair  value is based on an estimate of
MidAmerican  Energy's share of partnership  equity,  offers from unrelated third
parties or the discounted value of the future cash flows expected to be received
from these investments.

                                      -79-
<PAGE>

     Notes payable--Fair value is estimated to be the carrying amount due to the
short maturity of these issues.

     Preferred  shares--Fair value of preferred shares with mandatory redemption
provisions is estimated based on the quoted market prices for similar issues.

     Long-term  debt--Fair  value of long-term  debt is  estimated  based on the
quoted  market  prices for the same or similar  issues or on the  current  rates
offered to MidAmerican Funding for debt of the same remaining maturities.

     Preferred Stock Hedge  Instruments--Fair  value is determined  using quoted
market prices. See Note 1(i) for additional discussion of fair value.

     Gas Futures  Contracts and Swaps--Fair  value of the futures  contracts are
based on quoted market prices and generally have maturities of one year or less.
The fair value of the swaps is estimated  based on quotes from the market makers
of these  instruments and represents the estimated  amounts that would expect to
be received or paid to terminate the  agreements.  See Note 1(i) for  additional
discussion of fair value.

     The following  table presents the carrying  amount and estimated fair value
of the named financial instruments as of December 31 (in thousands):

<TABLE>
<CAPTION>

                                                                                        MHC (Predecessor)
                                                            MidAmerican Funding     ------------------------
                                                                   1999                       1998
                                                          -----------------------   ------------------------
                                                           Carrying      Fair        Carrying      Fair
                                                            Amount       Value        Amount       Value
                                                          ----------   ----------   ----------   ----------

     <S>                                                  <C>          <C>          <C>          <C>
     Financial Instruments Owned:
     Equity securities carried at cost...............     $   13,207   $   14,234   $   27,464   $   27,372

     Financial Instruments Issued:
     MidAmerican Energy preferred securities;
         subject to mandatory redemption.............         50,000       52,025       50,000       53,317
     MidAmerican Energy-obligated preferred
         securities; subject to mandatory redemption.        101,598       87,240      100,000      102,500

     Long-term debt, including current portion.......      1,642,476    1,564,554    1,045,548    1,088,650
</TABLE>

                                      -80-
<PAGE>


     The amortized  cost,  gross  unrealized  gain and losses and estimated fair
value of investments in debt and equity securities at December 31 are as follows
(in thousands):

                                                       1999
                                   ---------------------------------------------
                                   Amortized  Unrealized   Unrealized    Fair
                                     Cost        Gains       Losses      Value
                                   ---------  ----------   ----------   --------
Available-for-sale:
  Equity securities ...........     $122,327   $ 37,941    $ (13,530)   $146,738
  Municipal bonds .............       30,913        868         (355)     31,426
  U. S. Government securities .       14,159         78         (123)     14,114
  Corporate securities ........       26,935          5       (1,511)     25,429
  Cash equivalents ............        8,591         --           --       8,591
                                    --------   --------    ---------    --------
                                    $202,925   $ 38,892    $ (15,519)   $226,298
                                    ========   ========    =========    ========
Held-to-maturity:
  Debt securities .............     $  2,080   $     --    $      --    $  2,080
                                    ========   ========    =========    ========

                                                       1998
                                  ----------------------------------------------
                                  Amortized   Unrealized   Unrealized     Fair
                                    Cost         Gains       Losses      Value
                                  ---------   ----------   ----------   -------

Available for sale:
  Equity securities ..........     $225,836   $ 214,927    $ (15,789)   $424,974
  Municipal bonds ............       28,645       2,037           (8)     30,674
  U.S. Government securities .       15,411       1,410           --      16,821
  Corporate securities .......       28,051         698           (4)     28,745
  Cash equivalents ...........        6,470          --           --       6,470
                                   --------   ---------    ---------    --------
                                   $304,413   $ 219,072    $ (15,801)   $507,684
                                   ========   =========    =========    ========
Held-to-maturity:
  Mandatorily redeemable
    preferred securities .....     $  2,843   $      --    $      --    $  2,843
  Debt securities ............       11,837          --           --      11,837
                                   --------   ---------    ---------    --------
                                   $ 14,680   $      --    $      --    $ 14,680
                                   ========   =========    =========    ========

     At December 31, 1999, the debt securities  held by MidAmerican  Funding had
the following maturities (in thousands):

                           Available For Sale       Held To Maturity
                          --------------------     ------------------
                          Amortized    Fair        Amortized    Fair
                            Cost       Value          Cost     Value
                          ---------   --------     ---------   ------

    Within 1 year.......   $  4,499   $  4,507     $    4      $    4
    1 through 5 years...     31,222     31,580          7           7
    5 through 10 years..      6,754      6,907      2,069       2,069
    Over 10 years.......     29,532     27,975          -           -



                                      -81-
<PAGE>



         The proceeds and the gross realized gains and losses on the disposition
of  investments,  determined  by specific  identification,  held by  MidAmerican
Funding for the years ended December 31 are as follows (in thousands):

<TABLE>
<CAPTION>

                             MidAmerican
                               Funding                    MHC (Predecessor)
                            --------------   -------------------------------------------
                            March 12, 1999   Jan. 1, 1999      Year           Year
                              through          through        Ended          Ended
                            December 31,      March 11,     December 31,    December 31,
                                1999            1999           1998            1997
                            --------------   ------------   ------------    ------------

     <S>                       <C>             <C>             <C>            <C>
     Proceeds from sales...    $471,158        $64,973         $246,838       211,691
     Gross realized gains..      80,635         16,910           27,973        14,320
     Gross realized losses.      (4,251)        (2,186)         (14,199)       (6,480)
</TABLE>

(13) INCOME TAX EXPENSE:

     Income tax expense from  continuing  operations  includes the following for
the following periods (in thousands):

<TABLE>
<CAPTION>

                                    MidAmerican
                                      Funding                   MHC (Predecessor)
                                  --------------   --------------------------------------------
                                  March 12, 1999   Jan. 1, 1999         Year          Year
                                     through         through           Ended          Ended
                                   December 31,     March 11,      December 31,    December 31,
                                      1999             1999             1998          1997
                                  -------------    ------------    ------------    ------------

     <S>                               <C>            <C>             <C>             <C>
     Current
       Federal...................      $193,570       $20,630         $80,837         $91,627
       State.....................        23,877         3,016          20,736          21,619
                                       --------       -------         -------         -------
                                        217,447        23,646         101,573         113,246
                                       --------       -------         -------         -------
     Deferred
       Federal...................      (116,190)       (1,918)        (11,861)        (29,257)
       State.....................            (2)          103          (5,633)         (8,242)
                                       --------       -------         -------         -------
                                       (116,192)       (1,815)        (17,494)        (37,499)
                                       --------       -------         -------         -------
     Investment tax credit, net..        (5,210)         (454)         (7,153)         (7,357)
                                       --------       -------         -------         -------
       Total income tax expense..      $ 96,045       $21,377         $76,926         $68,390
                                       ========       =======         =======         =======
</TABLE>


                                      -82-
<PAGE>


     Included in Deferred Income Taxes in the Consolidated  Balance Sheets as of
December 31 are deferred tax assets and deferred tax  liabilities as follows (in
thousands):

                                               MidAmerican   MHC (Predecessor)
                                                Funding      -----------------
                                                 1999              1998
                                               -----------   -----------------

     Deferred tax assets related to:
       Investment tax credits.................   $ 48,427        $52,139
       Cooper contract........................     51,838              -
       Unrealized losses......................      4,684          7,391
       Pensions...............................     14,576         15,677
       Nuclear reserves and decommissioning...     20,280         17,715
       Other..................................      4,711          5,360
                                                 --------       --------
           Total..............................   $144,516        $98,282
                                                 ========        =======

     Deferred tax liabilities related to:
       Depreciable property...................   $431,874       $496,295
       Income taxes recoverable through
         future rates.........................    187,379        198,364
       Unrealized gains.......................          -         75,070
       Energy efficiency......................     14,806         27,186
       Reacquired debt........................     12,476         16,385
       Other..................................     18,069         18,430
                                                 --------       --------
           Total..............................   $664,604       $831,730
                                                 ========       ========

     The following table is a  reconciliation  between the effective  income tax
rate, before preferred stock dividends of a subsidiary  trust,  indicated by the
Consolidated  Statements of Income and the statutory federal income tax rate for
the following periods:

<TABLE>
<CAPTION>

                                                    MidAmerican
                                                        Funding                 MHC (Predecessor)
                                                   --------------   ------------------------------------------
                                                   March 12, 1999   Jan. 1, 1999     Year          Year
                                                      through         through        Ended         Ended
                                                   December 31,      March 11,     December 31,   December 31,
                                                        1999          1999           1998           1997
                                                   --------------   ------------   ------------   -----------

<S>                                                      <C>            <C>            <C>           <C>
Effective federal and state income tax rate........      42%            52%            36%           31%
Amortization of investment tax credit..............       2              1              3             3
State income tax, net of federal income tax benefit      (7)            (5)            (5)           (4)
Dividends received deduction.......................       1              1              2             2
Merger costs.......................................       -            (13)             -             -
Goodwill amortization..............................      (5)             -              -             -
Other..............................................       2             (1)            (1)            3
                                                         --            ---             --            --
Statutory federal income tax rate..................      35%            35%            35%           35%
                                                         ==             ==             ==            ==
</TABLE>

                                      -83-
<PAGE>


(14) INVENTORIES:

     Inventories include the following amounts as of December 31 (in thousands):

                                                  MidAmerican  MHC (Predecessor)
                                                    Funding    -----------------
                                                    1999             1998
                                                  -----------  -----------------

     Materials and supplies, at average cost.       $30,195         $30,914
     Coal stocks, at average cost............        26,712          22,266
     Gas in storage, at LIFO cost............        21,449          37,306
     Fuel oil, at average cost...............         1,156           1,294
     Other...................................         3,311           2,991
                                                    -------         -------
       Total.................................       $82,823         $94,771
                                                    =======         =======

     At December 31, 1999  prices,  the current cost of gas in storage was $33.8
million.

(15) MIDAMERICAN ENERGY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF
     MIDAMERICAN ENERGY FINANCING I:

     In December  1996,  MidAmerican  Energy  Financing I (the Trust),  a wholly
owned statutory business trust of MidAmerican Energy, issued 4,000,000 shares of
7.98%  Series  MidAmerican  Energy-obligated  mandatorily  redeemable  preferred
securities (the Preferred  securities).  The sole assets of the Trust are $103.1
million  of  MidAmerican   Energy  7.98%  Series  A  Debentures  due  2045  (the
Debentures).  There is a full and unconditional  guarantee by MidAmerican Energy
of the Trust's  obligations under the Preferred  securities.  MidAmerican Energy
has the right to defer  payments of interest on the  Debentures by extending the
interest payment period for up to 20 consecutive  quarters. If interest payments
on the Debentures are deferred,  distributions on the Preferred  securities will
also be deferred.  During any  deferral,  distributions  will continue to accrue
with  interest  thereon,  and  MidAmerican  Energy  may not  declare  or pay any
dividend or other  distribution  on, or redeem or  purchase,  any of its capital
stock.

     The Debentures  may be redeemed by MidAmerican  Energy on or after December
18, 2001, or at an earlier time if there is more than an insubstantial risk that
interest paid on the  Debentures  will not be deductible  for federal income tax
purposes. If the Debentures,  or a portion of the Debentures,  are redeemed, the
Trust must redeem a like amount of the Preferred securities. If a termination of
the Trust  occurs,  the Trust will  distribute  to the holders of the  Preferred
securities a like amount of the Debentures unless the distribution is determined
not to be practicable.  If a determination is made, the holders of the Preferred
securities  will be entitled  to  receive,  out of the assets of the trust after
satisfaction of its liabilities,  a liquidation amount of $25 for each Preferred
Security held plus accrued and unpaid distributions.

(16) MIDAMERICAN FUNDING DEBT:

     On March 11, 1999,  MidAmerican Funding issued $200 million of 5.85% Senior
Secured Notes due 2001,  $175 million of 6.339%  Senior  Secured Notes due 2009,
and $325 million of 6.927% Senior  Secured Bonds due 2029. The proceeds from the
offering  were used to complete  the  acquisition  of MHC.  MidAmerican  Funding
incurred $7.0 million of underwriter discounts and other offering costs.


                                      -84-
<PAGE>


     Prior to the  offering,  MidAmerican  Funding  entered into three  separate
interest rate swap arrangements of $125 million each as follows:

                                                            Reference Settlement
Transaction Date          Reference Security                 Price       Price
----------------   ---------------------------------------   -------   ---------
January 25, 1999   US Treasury 5.5% due August 15, 2028      103.75%    96.84%
January 25, 1999   US Treasury 4.75% due November 15, 2008   100.01%    96.61%
February 24, 1999  US Treasury 4.75% due November 15, 2008    97.15%    96.61%

     From the  transaction  dates until the date of closing,  interest  rates on
these securities rose so that the reference prices decreased, therefore creating
a net gain of $13.6 million on the unwinding of these arrangements.

     The  offering  costs  and  the  net  gain  from  the  interest  rate  swaps
essentially  lowered the weighted  average stated interest rate of approximately
6.47% to a weighted average effective rate of approximately 6.22%.

     The net amount of the rate swap  arrangements  and the  offering  costs are
being amortized using the effective interest method over the life of each of the
three traunches.

     The Notes due 2001  mature on March 1, 2001,  the Notes due 2009  mature on
March 1, 2009 and the Bonds due 2029  mature on March 1, 2029.  All of the Notes
and Bonds are  secured  by a pledge of the  common  stock of MHC.  The Notes and
Bonds:

     o    are the direct senior secured obligations of MidAmerican Funding;

     o    rank  on an  equal  basis  with  all of  MidAmerican  Funding's  other
          existing and future senior obligations;

     o    rank  senior  to all of  MidAmerican  Funding's  existing  and  future
          subordinated indebtedness; and

     o    effectively  rank junior to all  indebtedness  and other  liabilities,
          including preferred stock, of the direct and indirect  subsidiaries of
          MidAmerican   Funding,   to  the   extent  of  the   assets  of  these
          subsidiaries.

     MidAmerican  Funding  may redeem any series of the Notes and Bonds in whole
or in part at any time at a redemption price equal to the sum of:

     o    the greater of the following:

          (1)  100% of the principal  amount of the series of the Notes or Bonds
               being redeemed, and

          (2)  the sum of the present values of the remaining scheduled payments
               of  principal  of and  interest  on the  series of Notes or Bonds
               being  redeemed,  discounted  to  the  date  of  redemption  on a
               semiannual  basis at the treasury  yield plus (x) 15 basis points
               in the case of the Notes due 2009,  or (y) 25 basis points in the
               case of the Bonds due 2029, plus

          o    accrued and unpaid  interest on the Notes or Bonds being redeemed
               to the date of redemption.

     MidAmerican   Funding  uses   distributions   that  it  receives  from  its
subsidiaries to make payments on the Notes and Bonds.  These  subsidiaries  must
make  payments  on  their  own  indebtedness  before  making   distributions  to
MidAmerican  Funding.  The distributions are also subject to utility  regulatory
restrictions  agreed to by MidAmerican Energy in March 1999 whereby it committed
to the Iowa Utilities Board to use commercially  reasonable  efforts to maintain
an  investment  grade  rating on its  long-term  debt and to maintain its common
equity level above 42% of total  capitalization  unless circumstances beyond its
control  result in the  common  equity  level  decreasing  to below 39% of total
capitalization. MidAmerican Funding must seek the approval of the Iowa Utilities
Board of a reasonable  utility capital structure if MidAmerican  Energy's common
equity level decreases below 42% of total capitalization, unless the decrease is
beyond the control of MidAmerican Funding.  MidAmerican Funding is also required
to seek the approval of the Iowa Utilities Board if MidAmerican  Energy's


                                      -85-
<PAGE>

equity  level   decreases  to  below  39%,  even  if  the  decrease  is  due  to
circumstances beyond the control of MidAmerican Funding.

    Each of MidAmerican  Funding's direct or indirect subsidiaries is organized
as a legal  entity  separate  and apart from  MidAmerican  Funding and its other
subsidiaries.  It should  not be  assumed  that any asset of any  subsidiary  of
MidAmerican  Funding will be available to satisfy the obligations of MidAmerican
Funding 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  of such  parties,  be
advanced,  loaned, paid as dividends or otherwise  distributed or contributed to
MidAmerican   Funding,   one  of  its   subsidiaries   or  affiliates   thereof.
Approximately  80%  of  MidAmerican   Energy's  gross  utility  plant  has  been
encumbered to secure mortgage bonds.

(17) SALE OF ACCOUNTS RECEIVABLE:

     In 1997  MidAmerican  Energy  entered  into a  revolving  agreement,  which
expires in 2002, to sell all of its right, title and interest in the majority of
its billed  accounts  receivable to MidAmerican  Energy Funding Corp., a special
purpose entity  established to purchase  accounts  receivable  from  MidAmerican
Energy.  MidAmerican Energy Funding Corp. in turn sells receivable  interests to
outside investors. In consideration of the sale, MidAmerican Energy received $70
million in cash and the  remaining  balance in the form of a  subordinated  note
from MidAmerican Energy Funding Corp. In 1999, the revolving balance was reduced
to $57 million due to a decline in accounts  receivable  available for sale. The
agreement is structured as a true sale under which the creditors of  MidAmerican
Energy  Funding  Corp.  will be  entitled to be  satisfied  out of the assets of
MidAmerican   Energy  Funding  Corp.  prior  to  any  value  being  returned  to
MidAmerican  Energy or its creditors and, as such, the accounts  receivable sold
are not  reflected on the  Consolidated  Balance  Sheets.  At December 31, 1999,
$107.5  million of  accounts  receivable,  net of  reserves,  was sold under the
agreement.

(18) UNAUDITED QUARTERLY OPERATING RESULTS:

<TABLE>
<CAPTION>

1999                                      MHC
                                      (Predecessor)                 MidAmerican Funding
                                      -------------  -------------------------------------------------
                                       Jan. 1, 1999    March 12, 1999
                                          through         through
                                         March 11,        March 31,        2nd        3rd        4th
                                           1999            1999          Quarter    Quarter    Quarter
                                      -------------  ----------------   --------   --------   --------
                                                                (In Thousands)

<S>                                     <C>                 <C>         <C>        <C>        <C>
Operating revenues.................     $383,066            $93,586     $386,103   $463,885   $489,472
Operating income...................       58,898              8,369       47,732    110,762     60,270
Income from continuing operations..       16,789                905       60,987     46,737     15,448
Income from discontinued operations          421              1,199        5,054      5,005          -
Net income.........................       17,210              2,104       66,040     51,743     15,448

</TABLE>

<TABLE>
<CAPTION>
1998                                                            MHC (Predecessor)
                                           1st Quarter   2nd Quarter   3rd Quarter   4th Quarter
                                           -----------   -----------   -----------   -----------
                                                                (In Thousands)

<S>                                          <C>           <C>           <C>          <C>
Operating revenues........................   $488,148      $389,352      $455,964     $442,460
Operating income..........................     77,285        52,210       105,877       36,040
Income from continuing operations.........     38,733        19,326        49,046       20,049
Income (loss) from discontinued operations          -         1,674         4,576       (2,086)
Net income................................     38,733        21,000        53,622       17,963
</TABLE>

     The  quarterly  data  reflect  seasonal  variations  common in the  utility
industry.

                                      -86-
<PAGE>


(19) OTHER INFORMATION:

     Non-Operating-Other, Net, as shown on the Consolidated Statements of Income
includes the following (in thousands):


<TABLE>
<CAPTION>
                                              MidAmerican
                                                Funding                      MHC (Predecessor)
                                             --------------  ---------------------------------
                                             March 12, 1999  Jan. 1, 1999    Year          Year
                                                 through       through       Ended         Ended
                                             December 31,     March 11,    December 31,  December 31,
                                                 1999           1999         1998          1997
                                             --------------  ------------  ------------  ------------

     <S>                                          <C>         <C>             <C>          <C>
     Gain on sale of assets, net............      $4,687      $      -        $7,409       $10,213
     Discount on sold receivables...........      (6,828)       (2,629)       (8,716)         (439)
     Subservicer fee from Funding Corp......       1,167           348         1,714           153
     Merger costs...........................        (535)      (18,585)       (4,243)            -
     Income from equity method investments..       1,882         1,505         3,765         1,273
     Special purpose fund income............         437           128         2,088         1,989
     Other-than-temporary declines in value
         of investments and other assets....         (41)            -             -        (3,443)
     Energy efficiency carrying charges.....           -             -           197         4,993
     Litigation recoveries..................           -         1,500             -         2,248
     Other..................................       1,556          (400)        2,882        (1,096)
                                                  ------      --------        ------       -------
              Total.........................      $2,325      $(18,133)       $5,096       $15,891
                                                  ======      ========        ======       =======
</TABLE>

(20) AFFILIATE TRANSACTIONS:

     The companies  identified as affiliates are MidAmerican Energy Holdings and
its  subsidiaries.  The basis for  these  charges  is  provided  for in  service
agreements between MidAmerican  Funding and its affiliates.  MidAmerican Energy
purchased a corporate jet from MidAmerican  Energy Holdings for $14.5 million in
1999.  MidAmerican Funding reimbursed  MidAmerican Energy Holdings in the amount
of $5.0 million for its allocated share of insurance premiums.

     MidAmerican  Funding was also reimbursed for charges  incurred on behalf of
its  affiliates.  The majority of these  reimbursed  expenses was for  allocated
employee wages and benefits, insurance, computer costs, administrative services,
travel expenses and general and  administrative  expenses:  including  treasury,
legal,  shareholder  relations  and  accounting  functions.  The  amount of such
expenses was $7.3 million for 1999.

     As of December 31, 1999,  MidAmerican  Funding had notes receivable from an
affiliate of $122.6 million included in Investments and  Nonregulated  Property,
Net on the Consolidated Balance Sheet and accounts receivable from affiliates of
$19.5  million  included  in  Receivable  on  the  Consolidated  Balance  Sheet.
MidAmerican  Funding also had accounts  payable to affiliates of $7.4 million as
of December 31, 1999,  which is included in Accounts Payable on the Consolidated
Balance Sheet.

(22) ACQUISITIONS AND DISPOSITIONS:

     In 1998, MHC  established  MidAmerican  Realty as a holding company for its
real estate brokerage operations. MHC, through MidAmerican Realty, then acquired
several real estate brokerage operations and related businesses.

                                      -87-
<PAGE>

     MHC  purchased  all of  the  outstanding  capital  stock  of the  following
companies:  Iowa Realty Co. Inc.,  Edina  Financial  Services,  Inc.,  Home Real
Estate Company of Omaha and CBS Real Estate Company. Additionally, MHC purchased
all assets of J.C.  Nichols  Residential,  Inc.  Nebraska  Land Title & Abstract
Company, Paul Semonin Realtors,  Long Realty, and Champion Realty. The aggregate
cost of these acquisitions was $108 million.

     Each acquisition was accounted for as a purchase business combination.  All
identifiable  assets acquired and liabilities assumed were assigned a portion of
the  acquisition  price  equal to their fair  value at the date of  acquisition.
MHC's  Consolidated  Income Statements  reflect the results of operations of the
acquired  businesses from the date of their respective  acquisition dates, which
range  from  May  27,  1998,  through  September  1,  1998,  except  for a minor
acquisition in December 1998.

     In May 1999, a subsidiary of MHC sold  approximately 6.74 million shares of
McLeodUSA common stock, through a secondary offering by McLeodUSA. Proceeds from
the sale  exceeded $375 million,  with a resulting  pre-tax gain to  MidAmerican
Funding of approximately  $78.2 million,  and an after-tax gain of approximately
$47.1 million.

     As discussed in Note (8),  MidAmerican  Funding  distributed its holding in
the  capital  stock of  MidAmerican  Realty to  MidAmerican  Energy  Holdings in
October 1999 and has reflected these operations as discontinued operations.

     In November  1998, a subsidiary of MHC sold 425,000  shares of its holdings
in McLeodUSA  common  stock.  Proceeds from the sale totaled $14.0 million and a
$9.1 million gain was realized  which is reflected in Realized  gains and losses
on securities,  net on the Consolidated Statements of Income. Other gains on the
sale of  nonregulated  investments  during  1998  totaled  $6.6  million and are
included in Other,  net on the  Consolidated  Statements of Income.  These gains
include  the  sale of  MHC's  interest  in a small  trust  company,  the sale of
railcars, and gains from the sale of a venture capital fund.

     In 1997  MHC  sold  its  interest  in its  railcar  management  and  repair
businesses.  Proceeds from these sales totaled $7.5 million, resulting in a $1.6
million gain which is reflected in Other, net on the Consolidated  Statements of
Income.


                                      -88-
<PAGE>



INDEPENDENT AUDITORS' REPORT

Board of Managers and Member
MidAmerican Funding, LLC
Des Moines, Iowa

We have audited the  accompanying  consolidated  balance sheet and  consolidated
statement of capitalization of MidAmerican Funding, LLC (successor to MHC, Inc.)
and subsidiaries (Company) as of December 31, 1999, and the related consolidated
statements  of  income,  comprehensive  income,  and cash  flows for the  period
January 1, 1999 to March 11,  1999 for MHC,  Inc.  and for the period  March 12,
1999 to December 31, 1999 for the Company. Our audit also included the financial
statement schedule listed in the Index at Item 14. These consolidated  financial
statements  and  financial  statement  schedule  are the  responsibility  of the
Company's  management.  Our  responsibility  is to  express  an  opinion  on the
consolidated  financial statements and financial statement schedule based on our
audit. The financial statements and financial statement schedule of MHC, Inc. as
of  December  31,  1998 and for the two years then  ended were  audited by other
auditors whose report,  dated January 22, 1999, except with respect to the third
paragraph in Note (10) and related information,  as to which the date is October
6, 1999,  expressed an  unqualified  opinion on those  financial  statements and
financial statement schedule.

We conducted our audit in accordance with generally accepted auditing standards.
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 audit provides a reasonable basis for our opinion.

In our opinion,  such consolidated  financial  statements present fairly, in all
material  respects,  the  financial  position of  MidAmerican  Funding,  LLC and
subsidiaries  as of December 31, 1999,  and the results of their  operations and
their  cash flows for the  above-stated  periods in  conformity  with  generally
accepted  accounting  principles.  Also,  in our  opinion,  such 1999  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.

Des Moines, Iowa                                     DELOITTE & TOUCHE LLP
January 25, 2000



                                      -89-
<PAGE>



                                                                    SCHEDULE II

                            MIDAMERICAN FUNDING, LLC
                 CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
                   FOR THE THREE YEARS ENDED DECEMBER 31, 1999
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>

   Column A                                         Column B         Column C          Column D     Column E
   --------                                         --------   --------------------   ----------   ----------
                                                                     Additions
                                                   Balance at        ---------                      Balance at
                                                   Beginning    Charged     Other                    End
Description                                         of Year    to Income   Accounts   Deductions   of Year
-----------                                        ---------   ---------   --------   ----------   ----------

<S>                                                  <C>        <C>        <C>        <C>            <C>
Reserves Deducted From Assets
  To Which They Apply:

  Reserve for uncollectible accounts receivable:

    Year ended 1999 (1).........................     $  503     $  204     $     -    $  (238)       $  469
                                                     ======     ======     =======    =======        ======

    MHC (Predecessor) -

      Year ended 1998...........................     $  347     $7,075     $     -    $(6,919)       $  503
                                                     ======     ======     =======    =======        ======

      Year ended 1997...........................     $2,093     $7,683     $     -    $(9,429)       $  347
                                                     ======     ======     =======    =======        ======




Reserves Not Deducted From Assets (2):

  Year ended 1999 (1)...........................     $5,660     $2,758     $2,148     $(1,584)       $8,982
                                                     ======     ======     ======     =======        ======

  MHC (Predecessor) -

    Year ended 1998.............................     $6,257     $1,148     $    -     $(1,745)       $5,660
                                                     ======     ======     ======     =======        ======

    Year ended 1997.............................     $4,267     $3,971     $    -     $(1,981)       $6,257
                                                     ======     ======     ======     =======        ======

</TABLE>


         (1) The Balance at Beginning of Year is MHC's balance at December 31,
             1998.

         (2) Reserves not deducted from assets include estimated liabilities for
         losses retained by MHC for workers  compensation,  public liability and
         property damage claims.


                                      -90-
<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.

                                   MIDAMERICAN FUNDING, LLC
                                   ------------------------

                                   Registrant

Date: March 24, 2000               By                       *
                                   --------------------------
                                           David L. Sokol
                                           Chairman and Chief Executive Officer

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 date indicated:

     Signature                             Title                   Date

                          *
---------------------------        Chairman and Chief Executive
    (David L. Sokol)                 Officer                     March 24, 2000



/s/  Patrick J. Goodman
---------------------------        Senior Vice President and
    (Patrick J. Goodman)             Chief Financial Officer     March 24, 2000

/s/  Gregory E. Abel                 Director                    March 24, 2000
---------------------------
    (Gregory E. Abel)



/s/  Steven A. McArthur              Director                    March 24, 2000
----------------------------
    (Steven A. McArthur)



/s/  John A. Rasmussen               Director                    March 24, 2000
----------------------------
    (John A. Rasmussen)



*By:  /s/  Steven A. McArthur        Attorney-in-Fact            March 24, 2000
   --------------------------
          (Steven A. McArthur)


                                      -91-
<PAGE>



                                  EXHIBIT INDEX

EXHIBITS FILED HEREWITH
-----------------------

12       Computation of Ratio of Earnings to Fixed Charges

27       Financial Data Schedule

EXHIBITS INCORPORATED BY REFERENCE
----------------------------------

3.1      Articles of Organization of MidAmerican Funding, LLC

3.2      Operating Agreement of MidAmerican Funding, LLC

4.1      Indenture, dated as of March 11, 1999, by and between MidAmerican
         Funding, LLC and IBJ Whitehall Bank & Trust Company, as Trustee

4.2      First  Supplemental  Indenture, dated as of  March  11,  1999,  by and
         between  MidAmerican  Funding, LLC  and  IBJ  Whitehall  Bank &  Trust
         Company, as Trustee

4.3      Registration Rights Agreement, dated March 9, 1999, by and among
         MidAmerican Funding, LLC, Credit Suisse First Boston Corporation,
         Lehman Brothers, Inc., Goldman Sachs & Co. and Merrill Lynch & Co.

10.1     Power Sales Contract between Iowa Power Inc. and Nebraska Public Power
         District, dated September 22, 1967 (Filed as Exhibit 4-C-2 to Iowa
         Power Inc.'s Registration Statement, Registration No. 2-27681)

10.2     Amendments No. 1 and 2 to Power Sales Contract between Iowa Power Inc.
         and Nebraska Public Power District (Filed as Exhibit 4-C-2a to Iowa
         Power Inc.'s Registration Statement, Registration No. 2-35624)

10.3     Amendment No. 3 dated August 31, 1970, to the Power Sales Contract
         between Iowa Power Inc. and Nebraska Public Power District, dated
         September 22, 1967 (Filed as Exhibit 5-C-2-b to Iowa Power Inc.'s
         Registration Statement, Registration No. 2-42191)

10.4     Amendment No. 4 dated March 28, 1974 to the Power Sales Contract
         between Iowa Power Inc. and Nebraska Public Power District, dated
         September 22, 1967 (Filed as Exhibit 5-C-2-c to Iowa Power Inc.'s
         Registration Statement, Registration No. 2-51540)

10.5     Amendment No. 5 dated September 2, 1997 to the Power Sales Contract
         between Iowa Power Inc. and Nebraska Public Power District, dated
         September 22, 1967 (Filed as Exhibit 10.2 to MidAmerican Holdings' and
         MidAmerican Energy's respective Quarterly Reports on combined Form 10-Q
         for the quarter ended September 30, 1997, Commission File Nos. 1-12459
         and 1-11505, respectively)



                                      -92-
<PAGE>



10.6     Iowa Utilities Board Settlement Agreement among MidAmerican Energy
         Company, Office of Consumer Advocate, Iowa Energy Consumers, Aluminum
         Company of America, Deere & Company, Cargill Inc., U.S. Gypsum Company,
         Interstate Power Company and IES Utilities, Inc.



                                      -93-